Netskope Inc. 10-Q Summary: Quarter Ended April 30, 2026
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for Netskope Inc., a global cybersecurity company providing security, networking, and analytics solutions via a Software-as-a-Service (SaaS) model. The report covers the three-month period ended April 30, 2026 (Fiscal Q1 2027). The company is classified as an Emerging Growth Company (EGC) and a non-accelerated filer. Following its IPO in September 2025, the company continues to invest heavily in sales, marketing, and R&D to drive growth in the cloud and AI security market.
Key Financial Metrics
| Metric | Q1 2026 (Three Months Ended April 30) | Q1 2025 (Three Months Ended April 30) |
|---|---|---|
| Revenue | $201.6 million | $157.7 million |
| Gross Profit | $148.3 million | $109.5 million |
| Gross Margin | 74% | 69% |
| Operating Loss | $(108.7) million | $(45.4) million |
| Net Loss | $(116.5) million | $(79.2) million |
| Diluted Net Loss Per Share | $(0.29) | $(0.76) |
| Operating Cash Flow | $(53.9) million | $25.6 million |
| Free Cash Flow | $(57.2) million | $17.5 million |
| Cash, Cash Equivalents, and Marketable Securities | $1.1 billion | $1.1 billion (approx.) |
| Convertible Notes (Fair Value) | $713.3 million | $638.8 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 28% year-over-year, driven by a mix of new customer acquisition (48% of growth) and expansion within existing customers (52% of growth).
- Expense Expansion: Operating expenses increased significantly, totaling $257.0 million compared to $154.9 million in the prior year.
- Sales & Marketing: Increased 52% to $105.7 million, largely due to stock-based compensation (SBC) recognized upon the satisfaction of liquidity-based vesting conditions post-IPO.
- R&D: Increased 56% to $105.7 million, also driven by SBC and continued investment in platform innovation.
- G&A: Increased 159% to $45.6 million, primarily due to SBC and costs associated with operating as a public company.
- Stock-Based Compensation: Total SBC expense surged to $76.0 million from $10.1 million in the prior year, a direct result of the IPO satisfying performance-based vesting conditions for RSUs.
- Cash Flow: Operating cash flow turned negative ($53.9 million used) compared to positive ($25.6 million provided) in the prior year. This was driven by lower customer collections due to a transition from upfront multi-year billing to annual billing arrangements, and increased compensation payments.
- Convertible Notes: The loss on changes in fair value of convertible notes decreased to $12.2 million from $33.4 million, partially offset by a decline in stock price and increased risk-free rates.
Guidance, Outlook, and Risks
- Outlook: Management expects operating expenses to increase in the near term as the company invests in sales force expansion, marketing, and R&D. They anticipate gross margin and operating margin to improve over the long term through scale and operational efficiencies.
- Liquidity: As of April 30, 2026, the company held approximately $1.1 billion in cash, cash equivalents, and marketable securities. Management believes this is sufficient to fund operations for at least the next 12 months.
- Key Risks:
- Profitability: The company has a history of losses and an accumulated deficit of $2.7 billion. There is no guarantee it will achieve or sustain profitability.
- Convertible Notes: The company has significant indebtedness ($476 million principal) with PIK (Payment-in-Kind) interest features. Servicing this debt requires significant cash or equity conversion, which could dilute shareholders.
- Competition: Intense competition from established players (e.g., Palo Alto Networks, Zscaler, Cisco) and new entrants leveraging AI.
- Regulatory & AI: Evolving regulations regarding AI (e.g., EU AI Act), data privacy (GDPR), and cybersecurity could increase compliance costs and limit product deployment.
- Concentration: Reliance on channel partners, with the top five partners representing 38% of revenue in Q1 2026.
Investor Verification Checklist
- Stock-Based Compensation Impact: Verify the sustainability of operating margins once the one-time IPO-related SBC spike normalizes in future quarters.
- Cash Flow Transition: Monitor the impact of the shift from multi-year upfront billing to annual billing on future operating cash flows and deferred revenue balances.
- Convertible Note Obligations: Review the terms of the 2028 and 2029 Convertible Notes, specifically the PIK interest accrual and potential dilution upon conversion or repurchase.
- Net Retention Rate (NRR): Track the Dollar-Based NRR (113% in Q1 2026) to ensure continued expansion within the existing customer base.
- Channel Partner Concentration: Assess the risk associated with the top five channel partners accounting for 38% of total revenue.