Netskope Inc-cl A Stock

Thank you for standing by, and welcome to Netskope's Second Quarter Fiscal 2027 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Michelle Spolver, Chief Communications and Investor Relations Officer. Please go ahead.

Good afternoon, and thank you for joining us today. With me on the call are Netskope's CEO and Co-Founder, Sanjay Beri; and CFO, Drew Del Matto. The press release announcing our financial results for the second quarter of fiscal 2027 was issued earlier today and is posted to our Investor Relations website at investors.netskope.com, along with the supplemental presentation.

Before we begin, let me remind everyone that certain statements we make on today's call are forward looking, including statements related to our guidance for the third quarter and full 2027 fiscal year, market opportunity growth prospects, sales ramping, competitive position, impact of AI and demand for AI security. These forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements.

Additionally, these statements apply only as of today, and we undertake no obligation to update them in the future. For a detailed description of risks and uncertainties, please refer to our SEC filings as well as our earnings press release. Finally, unless otherwise noted, all financial metrics we discussed on this call other than revenue will be on an adjusted non-GAAP basis. We have provided reconciliations of these non-GAAP financial measures against the most directly comparable GAAP financial measures in our earnings press release.

Now let me turn the call over to Sanjay to discuss our business momentum and highlights from our Q2 financial performance. Sanjay?

Thanks, Michelle. We had a strong second quarter with our results reflecting durable demand for Netskope's highly differentiated platform. In the age of AI, security and network modernization have become inseparable and businesses can no longer afford to trade security for performance. As enterprises embrace AI and cloud, they need a modern architecture that understands the context and intent of today's Internet, cloud and AI environments. This architecture must protect massive amounts of transactions and data spanning thousands of cloud and private applications and data stores, billions of websites and other destinations and a vast set of commercial and open weight AI apps and models.

It must inspect and control traffic in real time, at high speed and with data sovereign team. The need for this architecture is becoming even more acute as the volume and velocity of transactions and data and the number of humans and AI agents originating these transactions and operating on data grows exponentially. Netskope uniquely delivers this modern, scalable, resilient and sovereign real-time architecture through the combination of our Netskope One platform and new edge private cloud network. This is why customers are choosing us as the trusted partner to help them say yes to AI. They want to capture the enormous potential of one of the most defining technologies of our lifetime, without compromising security performance or control. This positions us exceptionally well to address a massive $170 billion greenfield opportunity in AI security within our $336 billion total addressable market. I'll come back to that in a moment.

First, a few highlights from the quarter. We ended Q2 with ARR of $899 million, up 27% year-over-year and delivered net new ARR of $54 million. Revenue grew 29% year-over-year to $221 million ahead of our guidance and our net retention rate, or NRR, increased to 114%. Our outperformance flowed through to the bottom line with our operating margin improving 11 percentage points year-over-year to negative 9%, significantly ahead of our guided range.

Demand for our Netskope One platform of 25-plus security networking, analytics and AI products remain strong as enterprises continue to modernize their infrastructure for the AI era. We were particularly encouraged by the traction from our recently announced AI security suite. While it's still early, we're seeing strong customer engagement and rapid pipeline generation for these products, with some deals closed and many more currently in the proof-of-concept or POC stage.

Enterprises globally remain strategically focused on modernizing their security and infrastructure reducing technology sprawl, protecting sensitive transactions and data, ensuring data sovereignty and of course safely using AI. A hot topic in my daily dialogues with CXOs is the fact AI creates exponentially more transactions in data and a much more complex attack surface and how modernization and AI adoption go hand in hand.

The missile moment this past spring underscore just how quickly the landscape is changing. The pace of innovation across frontier models and increasingly capable open weight models is accelerating the ability to discover vulnerabilities and strengthen defenses at AI speed. But that same acceleration works both ways. These models are also lowering the barrier for attackers, compressing the time from discovery to exploitation and expanding the attack surface, not only through human adversaries, but increasingly through autonomous AI agents operating at machine speed.

We are already seeing this play out with AI agents escaping isolated environments, exploiting vulnerabilities, escalating privileges, moving laterally and stealing credentials, even when they were not exclusively instructed to attack. They were simply asked to complete a cybersecurity benchmark and when the intended route prove difficult found another path to the answer. This is perhaps the clearest example yet of cyber risk extending beyond human attackers leveraging AI Malicious intent is no longer the security threshold. An agent does not need to be prompted to be a bad actor. Instead, a stated task, enough autonomy and an environment that can be circumvented can be enough to do damage.

All this reinforces that Rogue agent risk is not an isolated incident or a mishap. It is a real and emerging control risk that CISOs face today and considerably broadens the security problem. And this is why AI security is becoming such a critical priority for enterprises. The challenge is no longer simply how to secure ad models or prevent employees from using AI. It's how to give enterprises the visibility, control, protection and performance they need as AI becomes deeply embedded across their people, applications, data and increasingly autonomous agents. I've had more than 100 conversations with customers this quarter, and in almost every one of them, a CISO or CIO comes back to the same question, how do we move faster with AI without losing control? security, IT and infrastructure leaders don't want to say no to using AI. They want to say, yes to it, but do so safely.

Let me share a few challenges they are facing and how Netskope is helping [indiscernible]. First, let's start with visibility. The majority of customers I talk to about AI security do not know what or how AI models and applications are being used. What corporate data is being fed into them, where agents are in their organization. what they have access to and what they are doing. Netskope's platform solves this problem by allowing companies to answer the question of what AI am I using, including providing full visibility into genic and MCP traffic via our Agentic broker. It bridges the gap between human or agent and LLM interactions or machine-to-machine workflows.

A genetic broker has been a natural starting point for customers securing AI and a game changer as they tackle unsanctioned and unmonitored AI usage in their organizations. In addition, our recently released AI command center provides customers with a unified real-time, continuous and correlated view of where their AI risk is and makes policy and remediation recommendations that help them act on it. The second issue customers are grappling with is how to put the right defense layer around AI to prevent AI-specific threats like prompt injection and jail braking and to ensure models adhere to company policy, preventing misuse or unwanted responses. Imagine a scenario where an adversary attempts to override system rules through a multiturn attack in order to exfiltrate data. Our AI guardrail solution is designed precisely to help customers address this.

In addition, our AI Gateway secures API traffic between private applications, autonomous agents and LOMs and can be deployed on premises or in the cloud. Third, customers need a highly performing network that can handle the exceptional volume of AI transactions and data and the growing amount of highly interactive latency-sensitive agenda communications, while ensuring they're adhering to strict regulations including data sovereignty. Our new edge private cloud spans more than 120 data centers around the globe and we operate all our products in our unified platform at each location, creating distinct performance and sovereignty advantages. New Edge also allows customers to define geo-based policies to control exactly where their AI, security and networking processing occurs, giving them sovereignty over their transactions and data wherever it lives or flows.

Customers are seeing that today's AI environment has become a watershed moment for security. AI security-related pipeline is growing at a rapid pace and deals are moving into proof-of-concept phases. In fact, we estimate that approximately 1/3 of our AI security pipeline is already in or entering the important POC phase. In general, enterprises are following their structured budgeting, validation, executive approval and procurement life cycle which typically takes 6 to 12 months.

Let me share a few early AI security wins closed during the second quarter and the use cases we solve for customers. First, a global electronics manufacturer in EMEA needed visibility into a genetic or MCP traffic, a way to understand the associated risk, enable governance and apply a control point to enforce policy. In Q2, they expanded their existing Netskope deployment with a broad AI security upsell, including AI guardrails, our DLP AI SecOps agent, Agentic broker and AI [indiscernible] They're putting the controls in place to safely embrace agentic-AI rather than having to slow it down or shut it off. In another example, a large auto insurer had a mandate from leadership to drive AI adoption company-wide. But they recognize that they couldn't move at that pace without the right security and governance foundation.

In Q2, they expanded their Netskope One platform with AI guardrails, AI Gateway, agentic broker with DLP and red teaming, giving them the visibility controls and guardrails to move forward with AI confidently. These wins showcase how we are enabling customers to say yes to AI today, letting them safely use not block AI and move faster with it. but with the confidence that their transactions and data are protected, their AI usage is governed and their agents are operating within appropriate boundaries. Netskope delivers that AR runtime security with the guardrails and high-performance network customers need to adopt AI broadly without compromising security or user experience. As security leaders navigate an increasingly complex AI landscape from open weight models to closed frontier models from copilots to autonomous agents and from traditional AI applications to MCP-based interactions. They need a platform that can see, understand and govern all of it. That is what Netskope One was built to do.

From inception, our AI native platform was built to give customers granular visibility and real-time context and control of all their transactions, users, agents, tool calls, data and more. This includes dynamically and intelligently understanding the nature, intent and risk of those transactions, combined with a high-performance private cloud network, that delivers both security and performance and enables real-time policy and security enforcement. That foundation is now becoming even more important in the AI era. We're excited to see this important validation of our product market fit and strategy resonating with our existing customers as well as a strong AI pipeline of opportunity with new customers.

In addition to our early success in AI security, our platform selling motion continues to drive momentum across our SSE and SASE business with customers increasingly adopting more products across our Netskope One portfolio. The number of customers spending more than $100,000 in ARR during Q2 grew 23% year-over-year and 59% of our customers are now using 4 or more Netskope One products, up from 51% a year ago.

During the second quarter, we had great new logo and expansion wins across geographies and key verticals like financial services, manufacturing, health care, telecom and government. Let me share a few that illustrate the key problems we solve for customers across key use cases. First, customers continue to select our Netskope One platform to modernize for the cloud and AI.

As I mentioned previously, modernization is an important precursor to AI safe adoption. As such, customers are adopting our SSE and SASE offerings as the infrastructure and foundation to then build on and adopt our AI security offerings. We saw this in a great new logo win with a U.S. financial services company in which cloud modernization and AI enablement are key initiatives driving their future growth and scale.

Our platform differentiation across network and security helped us win a competitive deal in which they purchased 8 products across our SASE suite. In addition, they also landed with our AI guardrails anagentic broker AI security products. Similarly, we landed another cloud modernization in AI deal with a leading technology company who needed to improve SaaS and cloud visibility and data protection, protecting govern AI usage, including shadow AI and monitor and control MCP traffic. Again, our single unified platform and highly performing new edge network were the differentiating factors against competitors in this deal.

We also continue to see customers replace legacy infrastructure with our modern SASE architecture built for scale. For example, a Fortune 500 health care provider selected Netskope to modernize security, replace fragmented legacy systems and consolidate vendors sprawl with a unified platform for a global distributed workforce. Doing so required protecting highly sensitive IP and other data for regulatory compliance and safely enabling and governing increased Gen AI usage.

Our highly granular contextual controls, unified data protection and new edge high performance were key drivers in winning the 7-figure multiproduct deal from an incumbent competitor. And finally, data sovereignty is increasingly important for customers in highly regulated industries and governments. For example, we expanded with a European government agency that chose us for our data sovereignty capabilities and bought our digital experience management to pair with our in-country new edge network for optimized user experience. Another example is a new win with a financial services company where data sovereignty is key to regulatory compliance.

In addition to achieving this with our new edge data planes, which run all of our products at the sovereign edge, they also consolidated and modernized their legacy network security tools with Netskope's unified SSE platform. As these wins demonstrate, customers are gravitating to Netskope to modernize their network become a core security platform for the cloud and AI era and eliminate the trade-off between security and network performance.

Shifting gears a bit. We've long believed in openness, industry collaboration and integration across our ecosystem. Earlier this year, we joined Anthropics Project Glasswing and OpenAI's day bake programs. and released integrations with these and other cloud and AI partners. These partnerships demonstrate the important role Netskope plays within the broader AI and security landscape.

In Q2, we continued to expand and deepen these collaborations. In addition to announcing important new partnerships. We were pleased to join NVIDIA's open secure AI Alliance, a coalition of industry leaders committed to building open frontier AI tools that defenders can inspect, adapt and trust. The world needs both open and closed frontier models, orchestrated proactively and with care across the entire AI ecosystem to truly bring positive, impactful outcomes to the world. NVIDIA's has been a terrific partner to build alongside and this initiative accelerates our commitment to building open AI tools, ensuring our enterprise customers entrust, adapt and securely deploy advanced AI across their environments. We were also pleased to join CrowdStrike's Project QuotWorks, integrating real-time data from Netskope into Falcon's next-gen SIM, giving critical insight across users, applications and data and helping defenders correlate risk automatically and prioritize action faster. We also continued to broaden our collaboration with Anthoropic, integrating our industry-recognized DLP and threat scanning with Cloud Enterprise.

In addition, we announced an integration with Amazon Bedrock Agent Corp, bringing Netskope AI guardrails into genetic workflows for AWS customers. This lets organizations move AI agents into production with the confidence that when an AI agent is allowed to do and what it actually does are, in fact, the same thing. And finally, on the go-to-market partnership front, we launched the Netskope Catalyst managed service provider program to streamline the delivery of managed services based on Netskope Solutions. As we've mentioned in the past, we value our partnerships with MSPs around the globe and view them as an important vehicle and lever for growth within the mid-market.

Last quarter, I talked about how net scope is transforming how we operate and how AI is accelerating our product philosophy. In Q2, we kept up our relentless pace of innovation. Let me share some of these innovations. Last month, we introduced Netskope One dataset Command Center, a unified control plane that discovers, understands and protect sensitive data everywhere it lives in the cloud, on the network, on premises, on endpoints in e-mail and inside AI applications. It goes right at a problem I hear from CISOs everywhere. They still lack a central overview of their sensitive data. That fragmentation represents a large underserved market opportunity for a platform that can unify. Data set Command Center is built to do that by correlating signals from DLP, DSPM, CASB, SWG and more. So teams can go from finding a risk to fixing it in a few clicks, instead of a multi-day investigation across disconnected tools.

Data set command center sits alongside the DLP AI SecOps agent we introduced in agent scope last quarter. As customers scale their use of AI, they are increasingly focused on optimizing the cost and performance of each workload. This is creating a growing need for network optimization purpose-built for AI. In July, we announced the real-world results of our AI Fast Path technology. AI Fast Path optimizes the network path between user sites and agents to AI destinations for faster inference results and minimizes time to first token to accelerate Agentic AI workflows in real-world testing on our NewEdge network, AI FastPath reduced latency by as much as 90%. And NewEdge analyzes tens of millions of routes per day, valuing late [indiscernible] and packet loss, amongst other factors, and ultimately makes tens of thousands of route changes to identify the fastest, most reliable path for AI traffic.

Beyond AI, we're continuing to innovate across our Netskope One platform, including delivering enhancements to our enterprise browser and Zero Trust access solutions during Q2 and finally, we enhanced our platform to address advances in quantum computing that are shrinking the time line for QDA when some of the existing cryptography algorithms that are central to secure communications in the Internet will be compromised.

Sophisticated threat actors are pursuing the harvest now [ reap ] later technique to store away encrypted packets now to decrypt when powerful quantum computers are available. These trends have resulted in government mandates throughout the world on a hard timeline for implementing post-quantum lipography algorithms. In order to address this. Netskope engineered and natively integrated NIST approved post-quantum cryptography algorithms in its SASE platform across our more than 120 data centers globally in Q2, bringing Quantum resilient encryption to the globe. This helps our customers transition to a quantum safe environment and meet regulatory mandates for their sensitive communications to SaaS and AI services worldwide.

We strongly believe that we have and are continuing to build upon the right platform for the right moment. In Q2, we are proud to receive important third-party validation of our leadership in key markets. Netskope was again named a leader in the prestigious [ Gartner ] Magic Quadrant for both SSE and SASE for the fifth year and third year in a row, respectively. Correspondingly, in Gartner's companion critical capabilities report for SSE, Netskope ranked amongst the 2 highest scoring vendors for all 4 category use cases, including essential SSE, advanced SSE, private application access and secure SaaS and AI enablement. And in the corresponding critical capabilities report for SASE, Netskope was the only vendor ranked as the highest scoring for 3 key use cases, including foundational SASE platform, Zero Trust SASE platform and sovereign SASE.

Additionally, in IDC's Worldwide SASE MarketScape report published last month, Netskope was recognized for SASE leadership, pointing to our single policy engine, common data model and new edges distributed enforcement and significant differentiators. This also points to something crucial to understand. While AI is dominating a conversation, modern cloud and network security is the foundation for corporate AI adoption that is safe without compromising on performance.

In fact, with growing identic infrastructure, Customers are increasingly recognizing that speed is a distinct competitive advantage, and Netskope offers the optimal path for inference.

I shared in the past Netskope's AI native fluff, not only in how we build our market-leading platform, but how we operate our business. Today, AI is accelerating how we work across the company, helping us innovate and expand our Netskope One platform faster than ever before. while also accelerating sales rep and SE training, streamlining customer support, recruiting and developing talent and automating other processes.

Our teams have leaned into this new era enabling us to move faster, operate more efficiently and scale with greater leverage. In closing, Netskope sits at the intersection of cloud, AI, networking and security, positioning us to address a massive market opportunity that we are still in the early stages of capture. We are scaling our go-to-market engine well to capitalize on that opportunity. while continuing to innovate rapidly and deepen our strategic position with customers and partners.

Our goal is to be the essential adaptive fabric for the modern AI enterprise. And we believe our differentiated architecture technology leadership and growing customer footprint, create a durable structural moat that will compound over time. I am pleased with our second quarter outperformance across every key metric I'm proud of our team of Netskopers for continuously embodying the guts, resolve integrity and tenacity that define our culture and what we stand for.

As well, I am grateful to the thousands of customers who trust Netskope, to help steer them through two of the greatest technological revolutions in our lifetime, cloud and AI.

With that, let me now turn the call over to Drew.

Thank you, Sanjay. And as you just heard, demand for our business is strong. Our platform selling motion continues to gain momentum, and we are innovating rapidly. Before I share more about our Q2 results, let me remind you that all financial comparisons are on both the year-over-year and non-GAAP basis, unless stated otherwise.

Moving to our Q2 results. ARR grew 27% to $899 million. Net new ARR of $54 million grew 9%. Revenue grew 29% to $220.5 million ahead of our guided range. Demand continues to be durable across all of our regions. Revenue in EMEA grew 37%, APJ grew 31% and the Americas grew 25%. We're also seeing the strength of our results reflected in our customer expansion and retention rates.

NRR rose to 114% and our gross retention rate or GRR, hit another all-time high, ticking up again in Q2. Remaining performance obligations, or RPO, grew 36% year-over-year to $1.35 billion.

Moving on to our customer metrics. As Sanjay noted, the number of customers generating more than $100,000 in ARR grew 23% year-over-year in Q2 to $16.86. These customers compose 87% of our total ARR and adoption of our Netskope One platform continues to increase. At the end Q2 59% of our customers were using 4 or more products versus 51% a year ago and 41% were using 5 or more products, up from 35% a year ago. Our platform expansion continues to gain steam as we add more products to our Netskope One platform of over 25 products, this continuing innovation expands our market opportunity to $336 billion and extends our runway for growth.

Turning to the rest of the income statement. Our investments remained disciplined. We are demonstrating the operating leverage that comes from our platform and infrastructure being built to scale. Gross margin was 77% increasing approximately 2 percentage points year-over-year. This increase is driven by the scale benefits of our NewEdge architecture as we continue to progress towards our long-term target of 80% gross margin. Q2 operating margin was negative 9% an impressive 11 percentage point improvement compared to Q2 of last year and significantly ahead of our guidance. This improvement was driven by operating leverage across the P&L as revenue grows. The biggest contributor was R&D, which improved approximately 8 points as a percent of revenue compared to last year.

Netskope One's common platform architecture delivers the rapid product velocity Sanjay mentioned earlier, while we scale efficiently, our AI investments are accelerating that velocity. Sales and marketing expenses were roughly flat year-over-year as a percent of revenue as we continue to ramp our existing sales force and invest in quota-carrying sales reps to address the massive market opportunity ahead of us. G&A expenses also improved approximately 1 point as a percent of revenue compared to Q2 of last year, reflecting leverage across our infrastructure. Net loss per share was $0.03 using 405 million weighted average shares exceeding our guidance.

Fully diluted share count using the treasury stock method was approximately 511 million shares as of July 31, 2026. Negative free cash flow of $29.8 million was slightly ahead of our expectations. This benefit was driven by the -- by our outperformance on both the top and bottom line. Note that contracted future billings grew 75%, reflecting our transition to annual billings.

As Sanjay noted, we are already seeing the impressive results that AI is delivering. This transformation includes shifting some of our investments to areas where we see the greatest opportunity and demand. As such, we reallocated spend towards our AI infrastructure and tokens in R&D and G&A. We made the hard decision to reduce around 5% of our workforce as we continue to drive AI nativeness company-wide.

Finally, we maintain a strong balance sheet and ended the second quarter with $1.1 billion in cash, cash equivalents and marketable securities. Here are a few modeling points and assumptions underlying our Q3 and fiscal year 2027 outlook. First, on ARR. We continue to expect net new ARR to grow year-over-year in the second half of our fiscal year. This follows our typical second half quarterly cadence with a seasonally stronger fourth quarter.

On billings, a reminder that we are transitioning customers to annual billings, which is proceeding faster than expected. We expect to be through the transition by the middle of next fiscal year. This shift temporarily defers cash collections, but gives us strong forward visibility into cash flows and customer commitments.

On cash flow, we expect between $10 million and $20 million of free cash flow in Q3 for the full year, we now expect capital expenditures of approximately 4% to 5% of revenue related to the continued infrastructure investments in our NewEdge network. We've noted these modeling points in the appendix of our investor presentation.

I'll now share our guidance, which reflects the strong underlying demand, early traction with our AI security products and continued progress in sales reps ramping. As a reminder, these numbers are all non-GAAP, unless stated otherwise. For Q3 fiscal 2027, we expect revenue in the range of $227 million to $229 million, representing growth of approximately 24%. Operating margin of approximately negative 8% and net loss per share of $0.03 to $0.04, using approximately 415 million weighted average common shares outstanding.

For the full fiscal year, we are raising our guidance. We now expect revenue in the range of $888 million to $892 million, representing growth of approximately 26%. We are pleased to raise our full year revenue guidance by more than our Q2 revenue beat. This reflects our momentum and confidence in the durability of demand. Gross margin of approximately 77%, operating margin of approximately negative 9% net loss per share of $0.15 using approximately 415 million weighted average common shares outstanding and positive free cash flow margin of approximately 2%.

In summary, Demand for Netskope Solutions is strong. Our platform momentum continues to grow and our rapid pace of innovation places a center stage for the age of AI.

With that, operator, let's open the line for questions.

[Operator Instructions] Our first question comes from the line of Matt Hedberg with RBC Capital Markets.

This is Simran on for Matt Hedberg, congrats on the quarter. First for me, as we think about ARR and the decel from last quarter. Could you talk a little bit more about the important building blocks that could point to ARR acceleration from here?

And so we're obviously very happy with our Q2 performance and the growth in our pipeline across AI Security and beyond. One of the key things for us, as we mentioned, is we see that AI security pipeline and some of that closed in Q2. But we really see a lot of that in the back half, especially towards Q4. And with our reps ramping, obviously, that's a key for us for growth, 50% roughly of our reps are ramping. And 1 of the key areas for us is not only the product innovation, but continuing to grow that ramping count. And that will happen in the back half of the year.

First, in EMEA and APJ, where we really started growing our fully ramped reps first and then later in North America.

Great. That's helpful. And then double-clicking on the AI piece. Is there a way to quantify a bit more and help us size this contribution and then just more generally, why you were well positioned for the AI era.

Sure. I can't get in a conversation with our customers or prospects. I was in a running an AI fast lane event. It's events we run across cities across the world there was in New York had a large global media CIO on stage with me and beyond and we're having those events everywhere. And why we're well positioned is really, one, when you look at our platform, and it really is a broad platform for over 3rd now the Fortune 100, we are their in-line processing point. They send their traffic to us. We have a public site ai-index.netskope.com, where you can actually see what AI traffic is going through enterprises today? We're processing trillions of AI connections. And so why we're in a great footprint is a lot of this traffic, we already see. It already goes through NewEdge, which is the fastest path for inference for AI transactions. And so now these new products that we released, right, a genetic broker earlier in the year at guardrails at our AI Command Center last quarter, they really shine a light on that traffic to say, wait, -- what is that traffic? Is it from agents? Is it from users? Is it prompts responses, what kind of data? So we give them the visibility that they want with, frankly, not a lot of deployment -- it's very easy to get the visibility and then we allow them to enforce real-time policy.

And so really, for us, it's a combination of the things that we always highlight the fact that we run one of the world's largest private cloud networks -- we've released AI fast path. You combine that with our ability to be very granular in understanding the language of the Internet for cloud and AI and our data protection and you have a perfect almost traffic points to govern AI.

So that's one. The second question related to that, which you asked was around AI growth pipeline and so on. So we started releasing a lot of our security products in Q1. We released some more in Q2, and we actually already announced 1 related to it, our data set command center in Q3 this quarter. And so really, for us, those are getting into POC. I think we announced that close to 1/3 of them are in proof of concept now. Enterprises follow their normal cycle, POC, right? Okay, after the POC, they go get budget then they go through procurement and so on. And so we really see that normal 6- to 12-month cycle, and that's why we pointed to really the back half of the year, where we see some of those deals closing in addition to the ones that we'll close this quarter.

But good question.

Our next question comes from the line of Jonathan Ho with William Blair.

Look like Jonathan Line has disconnected. We'll move on to the next one. Please stand by for our next question. Our next question comes from the line of Brad Zelnick with Deutche Bank.

This is Bob and on for Brett today. Sanjay, I want to stick to the same theme on kind of your AI security suite. It's great to see the strong interest in the product. Can you maybe provide more detail on which products are resonating the best with customers within the suite as they embark on these POCs. And more broadly, are you seeing these new capabilities help you get in kind of more prospects that you might have been more difficult to get in front of otherwise?

Yes, it's a good question. So are the products that are resonating. I come back to always use cases. And if you're a CISO or CIO and you look today, you know that a large portion of your AI usage in your company is business unit led or shadow 90% of AI usage on many companies is of that ilk. And so the first question that you have in your mind is, well, wait a minute, Tell me, what am I using? What AI exists in my company, what agents, what role agents, what sanctioned agents, what MCP servers, what give me that visibility and then obviously enforce my policy. And so it's probably not surprising that the things that are resonating are one, or agentic broker. What does that do? -- shines a light on what agentic traffic and agents are in your company? -- right? -- tells you what are those agents accessing? Are they going to my corporate Office 365, right? Are they accessing private data? What are they doing? And so one, a genetic broker. That is your way to understand agentic use and then enforce policy because we're not a visibility platform.

We're a real-time policy enforcement tool and platform as well. The second is guardrails. Guardrails take a look at every prompt in every response, and they say, well, wait, how do I make sure that in addition to what Netskope can give me on a granular context like tell me it's a corporate version of quad code, a personal version and let me make governance decisions on what type of AI can be used. How do I also, when it's used, make sure that isn't spewing out data or content that is not part of my acceptable use policy, I don't want it spewing out weapons content or content that is not applicable to what I want my company to hear. And so Guardrail is the second piece to that. And those were actually the first 2 really that we started releasing and then really, we released last quarter our AI Command Center. That is a central governance point where you can see all agentic use in your company and so we first see over time that, that will be another big driver for us.

I guess just one follow-up for Drew. Just in terms of the net new ARR ticking up sequentially from last quarter. Can you maybe talk about the drivers of that uptick and if there's anything that stands out there?

No, I think it's just overall strong demand in the business. There were a few -- there were some AI deals. But I think overall, it was demand in the business. AI funnel remains strong. It's something we expect really, I think, driving over the long term and just strong durability of demand over the longer term.

Our next question comes from the line of Jonathan Ho with William Blair.

I wanted to dig a little bit more into sort of your commentary around quantum proof photography. Can you talk a little bit about that capability? And is this opening up either new opportunities for you or increasing your ability to see win rates? I just want to get a little bit more color there.

Yes. Great question. So when you think about what we have implemented now across the world, it really allows our customers, so either they're a user or they're coming from a manufacturing floor or they're coming from any system. It allows them to talk to Netskope using quantum resilient encryption. And we're using lattice brace encryption, which is pretty much the standard that NIST recommends. And as a result, that critical part, right, communicating out to the Internet. Right? Is protected. And so what does that open up for us?

Well, really, it allows us to be well ahead of the time line for when it is recommended people to implement quantum resilient encryption. And so for us and our customers, that means well wait a minute, if I'm a financial services company, health care organization, I know that without doing anything really, like if you are a Netskope customer, you don't actually really have to do anything now to enable quantum resilient encryption, right? You have Netskope, you have the platform, and we've built that in there for you. And so really, it allows us to do that. And then as websites and AI applications adopt more and they support Quantum. Netskope is ready, right? That site when it supports it or that app Netskope is going to be able to communicate with it using quantum resilient encryption.

So it's future proofing. It's now allowing people to meet the regulatory environment, and it's allowing people to use it now. And so that's really, for us, [indiscernible] we always want to skate to where the puck is going, and that's a good example of that. And so that will help us, obviously, in proof of concepts, continue our high win rates, which are above 80% when we get to a POC. That's probably a good way to look at it.

Excellent. And can you give us a little bit of an update in terms of the federal government space and some of the opportunities that you have with either FedRAMP High or some of your sponsoring agencies as well as some new opportunities that are coming up, especially with zero trust programs with the government side.

Yes. Great. So we feel we're very well positioned for the federal market. For us, as you know, we became FedRAMP certified FedRAMP high certified. We started building our federal team. We brought on our federal leader this year in the U.S. federal market. And then we've really just been ramping our sales team and building them. And so for us, federal is a small part -- a small piece of our business, but a very important growing one where we have a great platform for it. And so we feel really good about that and being able to serve both the commercial and beyond side of the federal for years to come.

[Operator Instructions] Our next question comes from the line of Richard Poland with Wells Fargo.

Sanjay, I'm just curious, I think the AI commentary in general about how it's progressing was really encouraging. I think you mentioned 3 of the AI security pipeline is already entering kind of the POC phase and the general sales cycles, 6 to 12 months. I guess from the POC phase, is there typically a rough ballpark of how far into the 6 to 12 months we are? And just kind of any any visibility you might have into what the uplifts have looked like so far for the ones that have closed or just kind of contextualizing how the monetization side, while probably not too important yet? Just any early indications you have on that side?

A great question. And we are seeing AI security wins. We talked a little about them in a my opening. And so either across financial services, either across tech companies and beyond. So we're seeing good traction in people really adopting [indiscernible] security. But a lot of -- if you look just look back, we really released our AI security products, we started releasing them in Q1 of this year. We released some more in Q2 like AI Command Center. And then we released even a related product, our data set commands entered this quarter just 3 or 4 weeks ago. And when you think about a typical cycle for an enterprise, what they do is they evaluate.

They look, okay, what's my problem. It's okay, uncovering AI, understanding it. Let me evaluate something, they go to POC and then what they do is they -- in many cases, for AI, they go ask for budget. It could be out of stream, where they have a committee meeting every quarter and they ask you have to go get budget for this, gets approved and then you move forward. That's just the normal enterprise sales cycle, and that really falls in that 6- to 12-month sales cycle process.

And so for us, we converted and have converted some of our earlier beta customers because they got to look at it earlier, right? But really, we see some of that pipeline that is under POC really in the back part of the year, right, more towards the end of the year, where -- some of that's converting. We expect to convert some of our more beta customers and beyond in Q3. But we see that pipeline building. We see the POCs building. And then as a result, we see the ARR building. And that's how we look at it. The last comment I'd make is AI security for us, it's not a product. It is a part of our platform, and it's composed actually of multiple products.

And so customers also, over time will bite off pieces of it. And so for us, we're really building a big pillar of Net scope where you have many products over time. And as you grow in sophistication of AI security, you'll grow with Netskope. And our goal is obviously to release that functionality and new product well in advance when you need it. So that's a good way for you to think about it.

Next question comes from the line of Meta Marshall with Morgan Stanley.

This is Ryan on for Meta. Any additional details you could provide around the sale of the AI product portfolio and how that's impacting sales cycles? Are you seeing them compress as customers look to evolve their security stack much quicker or elongate given the potentially more complex cycle? Just any additional details there would be helpful.

Sure, absolutely. So -- if you look at AI security, for us, there is -- there are existing customers, and then there's obviously net new, and we go after both. And so if you're an existing customer, to adopt our guardrails and agentic broker. One of the beauties, we're an organically built platform, like we built ground up we release things when they're truly integrated, right? We don't just price list integrate them. We actually integrate them in the common [indiscernible] common policies, on data protection engine, 1 threat protection engine that organic approach of being purely building properly a platform that enables customers to adopt these products and implement them from a technical point of view in a very easy way. And so like the genetic broker and the guardrails, you can enable that.

You actually -- if you're deployed, for example, with our NextGen swap product, you just enable it, and you can try it out. And so that's the beauty of having it. It's a common [indiscernible] and DLP. And so that's one. There's the other set of products like the AI Gateway, where that's meant for east-west coverage of your AI traffic, maybe within your public cloud or your data center obviously, you're going to install that, right? And so that's -- you're going to deploy it. And so our goal is just to make it as easy as possible, make sure we cover north, south, east, west and all One [indiscernible] common policies. So I think that makes it easier for customers to technically deploy. They still have their sales cycle, though, right, outside of that. And -- but our goal is make the POC part as easy as you can.

Our next question comes from the line of Brian Essex with JPMorgan.

This is John on behalf of Brian. I just wanted to just touch on the CapEx part. You mentioned the full year CapEx is now expected to be around 45% of revenue tied to NewEdge. So I'm just curious, is this step-up primarily demand-driven capacity? Or is it a prebuild ahead of the anticipated agented traffic and just curious, as those traffic grows, should we assume the CapEx to scale with it? Or would there be over time with architecture absorb the volume at a lower incremental cost.

Great question, John. Look, it's continued infrastructure investment. We've seen -- again, we see strong demand going forward. We've always kind of said it'd be low single digits. I think we said somewhere between 3% and 5%. We're saying 4% and 5%, between 4% and 5%. So I think we're pretty consistent with what we've said all along, quite honestly, we've seen some growth, some were overperforming a little bit. And so just maybe it scales up a little bit of that, the ARR comes in before the revenue.

So just think of that in that sense. So I think we're well within the typical expectations what we had the other considerations really aren't a factor as of yet. And we'll obviously update more on that front as we go forward.

Our next question comes from the line of Shrenik Kothari with Baird.

This is Zack on for Shreink. So great to see NRR take back up to 114% and 59% of customers now using 4 or more 29% using 6 or more products. And so you guys offer still more than 25 products. So I guess the question is how should we think about the natural ceiling for NRR, especially as AI security, data security, SD-WAN, other modules mature and does the breadth of the portfolio create a path back toward sustainably higher expansion? Or does the increase in enterprise scale naturally constrained NRR despite stronger dollar expansion?

Yes. I think from an MRR perspective, we mentioned before, it can fluctuate quarter-by-quarter. The range we're kind of in, right? We have 113, 114, 150 in that range, which we've seen in the past quarters is -- that's what we've seen historically. And while we don't guide on NRR, I think qualitatively, we know that with average customers having 4 or 5 products, we have a lot of ability to upsell for many, many, many years.

Customers and enterprises, as you know, with a platform like ours, which is quite broad. They often will start with one or 2 core use cases. And then still grow the year after and the year after. And so we feel like what we have built with the platform and the number of products, it's just a durable right platform, which will grow with them. And AI security, absolutely will be a part of that NR in different time lines for different customers and verticals. But for us, it is a big pillar, and we feel really good about our position there, and that will help us drive expansion.

Next question comes from the line of Adam Perry with Piper Sandler.

[indiscernible] things may still be early, but can you talk about how customers are responding to the transaction-based pricing on new AI products, the deployments are starting to scale and or usage levels supporting margin commitments than initially expected.

Yes. So on the transaction-based pricing part, when you think about how we price, I take an example, the Agentic broker an agent, right, it's not a user. And so we try to price in the way that makes sense for what we're actually doing. And so if you think about the [indiscernible] broken, it's covering agent transactions. And so we price by transaction. And I think a lot of what we'll see on the Internet will be nonhuman -- and as a result, perhaps user pricing, right, even just subjectively wouldn't make sense. And so for us, I think people get it. They get the transaction-based pricing, make sense. That's how agents think they are used to for inference pricing tokens. -- transactions are sort of a prompt in a response. And what we have been trying to do is make sure they have visibility into it.

So they can see how many transactions are happening. -- right? And as a result, they have a sense of, okay, what's that going to look like, right, when I buy? So I think the key is with your customers, just to make sure that you're transparent. You're giving away them to see it. And then price in what makes sense from a usage perspective. And so yes, I think the transaction model has been received well. You've seen some of our other products like agent scope, which is our AI agents, separate than AI security right? We started releasing some of our AI agents like our DLP SecOps agent. That's more outcome-based pricing. It's based on, for example, how many cases across the thousands or millions of DLP incidents do we create and find that needle in a [indiscernible] for you. And that's the outcome you want. And so for us, we're committed to the models of transaction-based and for agent scope outcome-based pricing.

Our next question comes from the line of Ishan Sheri with KeyBanc Capital Markets.

This is Ishan on for Eric it. All of you can advance to the background noise. Sanjay, how do you view the current competitive landscape in SASE in today? And particularly, do you think demand right now is healthy enough to support multiple scale vendors over the long term? And then just maybe a quick follow-up to that in the competitive bake-offs, what are some of the primary reasons customers are choosing Netskope over competitors? And conversely, where are you seeing competitors win against that goal?

Congrats on the quarter.

Yes. Thank you. If you look at SASE, we have 25 press products. They span everything from out of govern cloud and on-prem databases and to out firewalls to digital experience management to enterprise browsers. I mean if you think about the word as, it keeps expanding. More and more is being put into SASE. In fact, there used to be like 20, 30 of vendors that you're consolidating now, right, into SASE. And so really, the way I think more about it is one of the biggest markets in security and networking was data and network security. Right? And you used to buy boxes and appliances and different data protection systems and different VPNs and different edge firewall and all of that sort of is being converged and consolidated for simplicity, modernized from a security perspective, right, into SASE. And so yes, absolutely. SASE is a durable, I think, long-term market supports multiple vendors.

Given especially what you're doing is you're converging so many things. In addition to that, you look at what we are talking about for some of this call, AI security. Well, Okay. Well, is that really part of just sassy. Is that a totally new market. And we think about it as a pillar, right, that's even outside of SASE. And so for us, we know we have a very durable, long good CAGR market in SASE. We're a leader. You saw that in all the analyst reports. SASE itself keeps growing in terms of what it encompasses. And so you get more and more TAM as SASE naturally subsumes more and more markets. And then we've entered AI security, which is a completely new TAM and a massive TAM. And then you have agent scope, which is our AI agent. So look, we don't lack for TAM for a long, long time and as always, to be blunt in security and networking.

Most CIOs you talk to, they don't want one platform for all security networking, right? They don't, they want a few that are open. And that's what we're committed to being an open platform that converges many different systems, but integrates with the others, like your EDR, like we announced CrowdStrike, for example, some new integrations and beyond. And so we feel really good about that for the future and now.

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Our next question comes from the line of Ajay Kidron with Oppenheimer & Company.

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This is Nolan Janine on for Tiara. I just kind of wanted to double click on some of the commentary around the sales force ramping. I think you had said earlier that roughly about 50% were ramped at this point and expecting that to improve through the year -- can you maybe just confirm, is that an increase sequentially when we think about the percentage of ramped reps? And any more color there would be great.

The Second half of the year, if you just take us -- take back to like last year and towards the end of the year, we started investing obviously in new rents and ramping them. We started there in EMEA and APJ and you've seen the growth, obviously, in those regions. And then later on in NAM, right? Because obviously, we were getting some of the leadership pieces in NAM for the next level of scale done last year. And that will result in an increased number of fully ramped reps. That's probably a better way to think about it and over time, just continue to grow our capacity.

Now in addition to that, we also announced, for example, on our earnings call, just earlier the catalyst program for managed services. That's just another sign of where we're continuing growing our partnerships as well. Yes, we're growing more feet on the street and more reps and more SEs and we're ramping them and that capacity is coming live later in the year and next year. But we're also expanding our partnerships, and that's very important to us. The AI partnerships anthropic, right, for example, -- you -- we talked about the Amazon partnership. We talked about the NVIDIA, Open Security Alliance. We talked as well about our partnerships with MSPs, SPs, SIs. All of those are also big pieces of our strategy and plan as we ramp and grow our go-to-market team, right?

With such a great win rate, it's natural that we do that.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Michelle for closing remarks.

Thank you, and thank you, everyone, for joining us today. We're pleased with our Q2 results and the momentum we're seeing across the business. We remain focused on helping enterprises with their cloud and AI transformation journeys, driving continued innovation across our robust platform and executing against a significant opportunity ahead of us. We appreciate your continued support and look forward to speaking with many of you over the coming weeks and months. With that, we'll close the call. Thanks again.

That concludes today's conference call. Thank you for your participation. You may now disconnect.

Hello, and welcome to Netskope First Quarter 2027 Financial Results Conference Call. [Operator Instructions]

I would now like to hand the conference over to Michelle Spolver. You may begin.

Good afternoon, and thank you for joining us today. With me on the call are Netskope's CEO and Co-Founder, Sanjay Beri; and CFO, Drew Del Matto. The press release announcing our financial results for the first quarter of fiscal 2027 was issued earlier today and is posted to our Investor Relations website at investors.netskope.com, along with the supplemental presentation.

Before we begin, let me remind everyone that certain statements we make on today's call are forward looking, including statements related to our ancestor the second quarter and full 2027 fiscal year market opportunity, growth prospects, sales ramping, competitive position, impact of AI and demand for AI security. These forward-looking statements are subject to known and unknown risks and uncertainties and which could cause actual results to differ materially from those anticipated by these statements. Additionally, these statements apply only as of today, and we undertake no obligation to update them in the future. For a detailed description of risks and uncertainties, please refer to our SEC filings as well as our earnings press release.

Finally, unless otherwise noted, all financial metrics we discuss on this call other than revenue will be on an adjusted non-GAAP basis. We will have provided reconciliations of these non-GAAP financial measures against the most directly comparable GAAP financial measures in our earnings press release.

Now let me turn the call over to Sanjay to discuss our business momentum and highlights for our Q1 financial performance.

Thanks, Michelle. Welcome, everybody, and thank you for joining us to discuss Netskope's First Quarter of Fiscal 2027 results. Our results demonstrate that as customers are continuing their digital and AI transformations, moving to leverage AI in the cloud, and readying themselves for the reality of a large amount of autonomous AI agents in their environments. Netskope is a mission-critical innovative partner for now and the future.

As customers look to solve these challenges, they understand that not all solutions are created equal and that legacy network and security products cannot fulfill today's modern requirements. With an exploding amount of data and a vastly widening attack surface, businesses are faced with the trade-off between security and network performance that has seemed inevitable in the past.

With Netskope as their trusted partner. They no longer have to make that trade-off. Our ability to deliver best-in-class networking security analytics and AI with the unified common code base of our Netskope One platform built for the cloud and AI era. Our high-performance new edge private cloud is what differentiates us. It is why customers are choosing Netskope across SSE Sassy AI security and more and sets us up well for our massive $336 billion market opportunity.

I'll delve more into that in a bit, but let me first share a few highlights from our first quarter. We ended Q1 with ARR of $845 million, up 29% year-over-year. our net new ARR of $34 million. Revenue grew 28% year-over-year to $202 million, ahead of our guidance. Our operating margin improved 4 percentage points year-over-year to negative 14%. And also ahead of our guidance and a reflection of our continued commitment to drive leverage in our model.

Beyond the headline financial results, several operating metrics to do. First, we had an exceptionally strong quarter with ARR from new logos, which in Q1 grew approximately 60% versus new logo ARR in Q1 last year, reflecting our continued success in landing larger deals and selling the breadth of our Netskope One platform.

In addition to our success with new customers, we are also keeping existing ones very happy and partnering to chart their course to safe AI enablement and transformation. We have consistently operated with gross retention rates above the mid-90s, and our GRR continues to improve, with Q1 representing the highest in our company history. And finally, we continue to see broadening platform adoption by customers. The number of customers spending more than $100,000 in ARR grew 23% year-over-year and 57% of our customers are now using 4 or more Netskope One products, up from 49% a year ago.

On the execution front, we're continuing to hire sales reps and scale our go-to-market engine to capitalize on the significant opportunity ahead of us. Today, approximately half of our reps are usually hired or still ramping, and I'm genuinely excited about the talent and energy this team brings.

It's also worth noting that we're lapping a particularly strong Q1 upsell quarter last year, which included several outside 7-figure upsell deals that set a very high upsell bar for comparison. We expect the increase in our number of reps to be a meaningful driver of growth in the back half of the year as they continue to mature and hit their stride.

I'm pleased with what our team accomplished in the first quarter, and I believe we're very well positioned to build on this momentum through fiscal 2027 and beyond. The underlying demand for our business and platform's unique ability to address customers' modern security, cloud and AI needs is strong and growing. And recent investments in our sales force expansion are positioning us well to capitalize on our large opportunity.

I now want to spend some time addressing the favorable industry tailwinds of a wide security gap and growing attack surface that are driving durable demand for Netskope, how we are uniquely solving problems for our customers and how our innovation engine is revving at historic rates to extend our technology advantages and leadership.

During the past few months, I've had countless discussions with CIOs and CISOs, including nearly 100 at RSA alone. A constant in every conversation is safely and compliantly adopting AI and enterprise scale. They're excited about AI's potential to dramatically improve productivity and efficiency. At the same time, they recognize that attackers now have access to the same technologies and can exploit vulnerabilities at unprecedented speed and scale.

We are already starting to see adversaries leverage AI to exploit vulnerabilities, showing that the barrier to entry for attackers has largely disappeared. This makes defense and depth more critical before. Every agent must be treated with lease privilege principles under the concept of Zero Trust, and company should apply data, threat and moderation guardrails for employees for safe AI usage and data protection.

The average Global 2000 company tracked in Netskope's AI Index uses over 140 AI applications. Our AI Index also shows that approximately 90% of AI usage is led by business units, not IT. And as a result, most of this activity occurs through shadow outside traditional governance controls. At the same time, AI is becoming a massive data generation engine. Netskope Research indicates that for every gigabyte of data shared with AI cools, organizations may consume more than 4 gigabytes of AI-generated content in return with context and data as the most valuable commodity in today's digital world, generative AI and agentic AI becomes not just a technology challenge, but a complex security imperative that spans data, identity, real-time traffic and governance.

Organizations are facing a fast widening gap between the speed of AI adoption and the security architecture needed to adopt it securely. This is precisely what Netskope was built for. From inception, we architected Netskope and as an AI-native platform designed to understand the modern language and context of the Internet, including API and JSON traffic, which is also the language of AI. As a result, while legacy vendors rely heavily on out-of-band inspection and post-event analysis, we understand the semantic context and intent behind them, enabling customers to apply granular dynamic policy controls without compromising user or agentic experience or performance.

Our platform intelligence has been forged over more than 10 years of processing real-world traffic across AI, web, cloud, private applications and more, understanding it, not just at the network layer, but at the deepest level of content and context, including APIs, data payloads and behavioral patterns. The aggregate anonymized insights and data derived from that experience are embedded throughout our platform. and represent a significant and compounding proprietary advantage that we believe is very difficult for existing or any new entrants to replicate.

Our Netskope One platform unifies more than 25 security networking analytics and AI products through 1 engine, 1 console, 1 network and 1 code base. Underpinning all of this is our new edge private cloud, which runs Netskope's full stack of products at high speed and resilience, with dynamic illustration and our more than 120 data centers. With new Edge, we also deliver globally distributed and highly regulated customers, the data sovereignty and regulatory clients that they require.

Importantly, the same acute that differentiates us SSE and SASE also distinctly positions us in AI security. We've talked about being the secure and fast on-ramp for everything enterprises access today. while that nature of that traffic is changing and the volume is growing exponentially. The highway it uses is the same, and no one understands that flow of traffic at a deeper level than Netskope does.

In today's enterprises, AI-powered assistance connect enterprise systems through a range of pathways from APIs and CLI to model context vertical or MCP, which has quickly become the dominant standard for agentic integrations. As enterprises move deeper into agentic AI adoption, the need for independent real-time granular security enforcement becomes even more critical. And the opportunity for Netskope becomes even more compelling.

The Frontier model releases, including anthropic myths and OpenAI's GPT 5.5 or genuine inflection points for the industry and will deliver real and important progress in upstream software, operating systems, browsers and critical open source libraries. However, they do not touch the vector that is already active inside environments now. The data flowing through agents, cloud applications. and enterprise workflows that authenticate Azure users operate at the privilege level of your people and move sensitive information to destinations or security team has never reviewed.

The security industry has spent years evolving security and network architectures to assume breach for human users, but that same rigor has not been applied to the AI agents now operating inside organizations. Our Netskope One platform is optimally positioned to solve this problem because of both where we sit and what we can see, most security and networking systems see that a connection is happening, our wedge infrastructure sees what deep inside it and bring his deep context to it. All of this is backed by Netskope AI Labs, which develops more than 190 domain-specific models deployed throughout our products, applied where they can make the greatest difference across data protection, threat defense, AI security and more.

The pace of agentic AI adoption makes our role more essential every quarter, every transaction, regardless of whether it originates from a person, a device or an agent needs to be inspected, covered and controlled in real time at the point where it happens. This is what we do across trillions of transactions for enterprises around the world.

At Netskope, we've always believed defense is never about one layer. And the most important layer is the one closest to the data. Our Netskope Threat Labs data shows that the median enterprise is now running 60 distinct AI apps and power users are interacting with more than 500. Sensitive data is flowing in and out at a pace and scale most security teams simply cannot see. Attackers have always wanted data, and that data and real-time transaction problem, one where context matters is growing more urgent by the day as AI adoption accelerates.

The depth of our AI ecosystem involvement reflects how central net scope has become to how the industry is responding to this moment. We have joined Anthropic's Project Glasswing and we will use our access to cloud Mythos preview to identify vulnerabilities and harden our own defenses for our customers. In addition, we'll share our findings with the Glasswing coalition and the security community. Our technology collection with Anthropic also includes integration with a cloud compliance API, connecting our unit data governance and compliance controls directly to cloud usage, giving shared customers real-time visibility, policy enforcement and data security across their cloud deployments.

Additionally, we're also a member of OpenAI's Data Program using GPT 5.5 with trusted access for cyber, recognizing us alongside a select group of security vendors as a trusted defender of critical enterprise infrastructure for the AI era. In addition, we partnered with Google and introduced AI guardrails powered by Google Cloud TPUs and Vertex AI, enabling enterprises to deploy high-performance generative AI and workflows with in-line safety checks and local data processing at scale. Our AI guardrail solution is also natively optimized to run on NVIDIA GPUs. And with Netskope products available on the AWS Azure and the Google Cloud marketplaces, wherever enterprises are building and running their AI workloads. Netskope is the security layer they can reach for.

Now let's dive deeper into our own rapidly developing AI security product suite. The combination of network reach, deep context and content intelligence and the ability to take dynamic action at the moment of risk is what allows us to detect sensitive data, moving towards models or unauthorized agents and stop it without slowing down valid users or agents performing valid actions or disrupting their workflows. This allows our customers to move beyond blunt blocker allow decisions and instead give their organizations the confidence to embrace AI fully, what we call the AI fast lane.

Last quarter, we announced the first 4 products of our AI security suite, all built on and extending the Netskope One platform. Our Agentic Broker provides visibility and control over all MCP transactions. AI guardrails defends against AI-specific threats like prompt injection and jailbreak. In AI Gateway, inspect enforces policies across AI applications and the LLMs. These products are priced per transaction, meaning each front and its response, making them straightforward to deploy and scale.

The market response has been immediate. These new AI security products generated significant excitement and early pipeline right out of the gate, translating into some initial early deals closed with beta customers. Among these early wins in tech customer that expanded to purchase our full suite of AI security products; AI Gateway, AI guardrails, Agentic Broker and Red Teaming to solve the issue of legacy proxies lacking visibility context and control into AI traffic flows. We also expanded with a large U.S. bank who is an early beta customer of the AI security products. and deployed Netskope AI Guardrails for real-time visibility and control, GLP enforcement, user behavior analytics and in line with Threat Protect to prevent exposure to sensitive financial information, enabling them to safely adopt AI and meet strict regulatory and compliance requirements.

While still early from a financial standpoint, since these solutions were just released this past quarter, -- we're extremely encouraged by customer engagement and response and the growth in our AI security product pipeline, which is the fastest we have seen for any new product category in our history. We've continued and will continue to innovate and broaden our AI solutions. Earlier this week, we announced the release of our AI Command Center, which brings end-to-end operational intelligence that broadens and unifies how customers discover AI manage its risk and autonomously remediate issues across the entire enterprise AI ecosystem.

Our AI command center does 3 things. First, it provides complete vicinity across an organization's entire AI front. AI lives and communicates on endpoints, networks, clouds, the Internet and private infrastructure is embedded in servers, consumed through third-party services and woven throughout supply chains, making visibility of a complex challenge. Our enhanced discovery capabilities extend visibility across our customers' entire AI landscape, capturing managed tools and shadow AI alike to identify operating inside and outside your security program.

Second, it helps customers gain a real-time connected view of risk. Discovery alone does not tell you where risk lifts. Netskope's AI Command Center unifies AI assets, data flows and model connections across an enterprise into a single real-time view, giving security leader in as to understand not just what AI exists in their environments, but how it behaves, what data touches and where exposure is greatest.

And third, it guides customers to act on risks. Identified risks are automatically prioritized by recommending contextual policy optimizations and providing remediation workflows to mitigate or remediate the identified risks. For security teams, struggling to keep up with the speed at which AI can introduce risk to tools and data. This represents a fundamental shift from rent tactical firefighting to preemptive policy-driven autonomous operations.

We also recently unveiled agent scope, an architectural foundation built into our Netskope One platform that allows organizations to deploy AI agents capable of running end-to-end security and networking workflows autonomously to assist SecOps and NetOps teams, bogged down by capacity constraints, complexity and manual triage. In a recent release announcing Agent Skope Anthropic's Head of Cybersecurity Products was quoted saying that Netskope AgentSkope brings the platform data and SecOps expertise to apply it across security workflows. AgentSkope is a strong example of how the 2 can help teams keep pace with today's threats.

The first of 6 AgentSkope agents we released is a DLP AI SecOps agents, which evaluates millions of alerts and potential violations to find the needles in the haystack and bring forward a small set of meaningful contextualized risks in the system to the customer. It can then agentically triage, investigate and drive remediation actions to dramatically reduce mean time to resolution for risks. During our beta trials, a global consulting firm that was generating over 14 million alerts and 2 million incidents per day. was able to contextualize all that data into approximately 100 actionable cases for human review, using the net scope DLP AI SecOps agent, dramatically improving operational efficiency.

We also introduced five more Netskope agents, including agents for digital user experience troubleshooting and insights, which distills millions of telemetry data points, including from the new edge network into a clear view of digital health to proactively surface critical incidents, performance bottlenecks and macro trends before they can impact workforce productivity. In addition, an agent for accelerating Zero Trust migration and auditing and a supply chain risk assessment agent for SaaS and AI.

And finally, as data sovereignty becomes recently critical in the AI era, Netskope continues to enhance our new edge private cloud. We enable organizations to enforce local data processing for any type of traffic and entity generating it. Customers can define geo-based policies to control exactly where their security networking processing occurs, giving them increased sovereignty over their data wherever it flows. Through our new edge network spanning more than 120 data centers across every major region in the world, no other platform can match this combination of global reach and granular control.

I talked a bit about the growing number of customers adopting Netskope's differentiated Netskope One Unified platform. Let me share a few Q1 wins across some common use cases. During the quarter, we landed a 7-figure network and security modernization deal with a Fortune 500 natural services company that showcase the breadth of our Netskope One security, networking analytics and AI platform. The customer purchased 15 Netskope products. The signing factor for this competitive win was our ability to provide a modern platform with robust DLP controls that could be applied to multiple channels. endpoint e-mail Internet cloud data rest in motion as well as visibility into and control of AI usage.

We also landed a leading utility company in Latin America that will use Netskope to modernize their infrastructure, enable secure and flexible remote access, improved data visibility and control and enables 0 trusted scale. In a competitive displacement deal, they chose Netskope over several other competitors for our unmatched breadth of data protection across their expansive environment, which is key for meeting local data privacy laws.

And a leading telecom and managed service provider in APJ chose Netskope for a large SASE branch modernization project. This customer purchased Netskope's SD-WAN appliances and SSE products for deployment in over 5,000 managed sites for hundreds of customers who migrate away from legacy SD-WAN and firewall solutions on to Netskope advanced SASE offering. We won this deal over several competitors for our ability to deliver both advanced SD-WAN and SSC.

And finally, a large manufacturer chose Netskope to modernize its infrastructure, protect against advanced threats prevent data loss, improve visibility into and control of AI usage and address security needs globally. In the competitive bake-off, Netskope outperformed 2 direct competitors for this deal, which included our full SSE suite, endpoint DLP, Enterprise browser, digital experience management and remote browser isolation products.

These and many other wins demonstrate our customers are gravitating towards Netskope for our ability to modernize their security and networking infrastructure, eliminate the burden of just jointed, legacy and first-generation cloud security solutions, consolidate vendors onto a unified platform and migrate to our high-performance private cloud and adopt more AI and cloud. This also applies to our growing ecosystem of telcos and MSD partners who are using Netskope products as the foundation for a variety of managed security service offerings for thousands of businesses around the world.

In Q1, for example, we expanded our alliance with Deloitte to include a managed Sassy service for enterprise customers. seeking to transform their infrastructure, modernize security networking and drive secure AI adoption. As AI transforms and industry and operating model, we also are transforming how Netskope itself operates. When we founded the company, we architected our platform to be AI native.

Today, we're applying that same philosophy internally, particularly in R&D, AI is accelerating how we work across the entire development life cycle from how we identify customer needs and prioritize road map to how we architect develop, test and iterate soon. projects that historically required large teams and extended time lines can now move significantly faster allowing us to respond to customer needs more rapidly and bring platform expanding products to market at a pace that would not have been possible before.

To put this into context, historically, Netskope launched 2 to 3 major products annually less than halfway through this year, we've already delivered more than double that pace. This is what it means to be a truly AI-native company, not just building for the AI era, running in it.

In closing, I want to leave you with a few takeaways. First, the durable tailwinds of digitization the move to cloud and the transformational impact of AI. I mean customers no longer have the option of compromising on security of performance. every entity generating traffic, users, devices and AI agents, needs to be governed and protected in real time, wherever they are. They are turning to Netskope to relieve them of that burden, and we are uniquely built to do it.

Second, the AI ecosystem we have built, including Anthropic, AWS, Google Cloud, Microsoft, OpenAI and more reflects how central Netskope has become to enterprises safely adopting AI. That trust is not easily replicated. Third, our new edge network and data sovereignty capabilities give us a structural and global advantage that is increasingly a requirement in the AI era, not a nice to have.

And lastly, we're well on our way to scaling our go-to-market organization to capitalize on the massive opportunity the AI super cycle has created. Our hiring is tracking according to plan, and we expect productivity to ramp and deliver further benefit from these investments in the second half of the year.

We are very encouraged by our strong pace of innovation and the excitement building around our platform expansion and new AI security products. The plumbing of the AI era is being laid right now. Our strategy is built for the long haul. And as the market catches up to the reality of the AI supercycle, Netskope is prime to be the foundation they stand on. We are only just getting started on our journey, not just as a public company, but in building what we believe can be a legendary company.

Before I turn the call over to Drew, I'd like to share an update regarding our long-term succession planning. As we announced today, Drew, working closely with me and the rest of our Board has announced his intention to retire following more than 7 years with Netskope. I want to thank Drew for his partnership, leadership and many contributions. During his tenure, he has played a critical role in a scale to where we are today, including leading the company through its recent IPO, strengthening our financial and strategic foundation and building a world-class finance organization. We will be initiating a formal search for an exceptional financial leader to help guide our next phase of growth.

Importantly, Drew remains fully committed to Netskope and will continue serving as Chief Financial Officer through the search process and hiring of his eventual successor and will transition to an advisory role for Netskope thereafter. This planned transition does not change our strategy, our priorities or our confidence in the opportunities ahead. I look forward to continuing to partner closely with him over the months ahead.

With that, let me now turn the call over to Drew.

Thank you, Sanjay, and hello, everyone. As Sanjay shared, Netskope had a strong first quarter to start our new fiscal year. Underlying demand for our business remains healthy. Our platform continues to gain momentum, and our sales reps are ramping as we innovate at a rapid pace. Before I share more about our Q1 results, let me remind you that all financial comparisons are on both a year-over-year and non-GAAP basis unless stated otherwise.

Moving on to the Q1 results. ARR grew 29% to $845 million at the end of Q1. Importantly, we saw strong ARR growth from new logos, which increased 59% year-over-year. Net new ARR was $34 million compared to $39 million in Q1 of last year. As Sanjay mentioned, we faced a top year-over-year comparison with Q1 26 benefiting from multiple 7-figure expansion deals that drove outsized net new ARR growth of 79% year-over-year.

Q1 revenue grew 28% to $201.6 million ahead of our guidance. We experienced strength across geographies. In Q1, revenue in the Americas grew 27%, EMEA grew 31% and APJ grew 25%. Our Q1 net retention rate, or NRR, was 113%. Remaining performance obligations, or RPO, grew 33% year-over-year to over $1.2 billion. with contracted future billings growing 71%.

Moving on to our customer metrics. The number of customers generating more than $100,000 in ARR in Q1 grew 23% year-over-year to 1,600. Enterprise and large enterprise customers are our focus and more than 85% of our ARR comes to $100,000-plus ARR customers. This is indicative of our success in both securing significant new enterprise deployments and expanding in our existing installed base.

Adoption of our Netskope One platform continues to increase. At the end of Q1, 57% of our customers were using 4 or more products versus 49% a year ago and 28% were using 6 or more products, up from 23% a year ago. We're pleased with this progress and believe our broad platform of more than 25 products gives us a clear opportunity to lend both larger deals and continually expand with our growing customer base.

Moving on to the rest of the income statement, where we continue to see the benefits of Netskope being built to scale. Gross margin was 77%, an increase of approximately 3 percentage points from Q1 of last year. as our new edge architecture continues to deliver scale economies. Q1 operating expenses totaled $184 million, improving 4 percentage points year-over-year to negative 14%. The R&D expenses improved about 300 basis points year-over-year to 37% of revenue as we continue to unlock the structural leverage and velocity of our unified common code fabric.

Sales and marketing expenses increased as a percent of revenue as we continued to invest in quota-carrying sales reps. Our consistent improvement in gross margin and operating margin reflect the leverage we've unlocked as our strategic investments in infrastructure and talent begin to come down.

Net loss per share was $0.06 using 400 million weighted average shares outstanding. Fully diluted share count using the treasury stock method was approximately 508 million shares as of April 30, 2026. Free cash flow was negative $57 million in line with our guidance as we continue to transition customers with multiyear contracts to annual billing. More on that in a moment. And finally, we ended the first quarter with $1.1 billion in cash, cash equivalents and marketable securities.

Before I share the details of our guidance for the second quarter and fiscal year 2027, and -- here are a few modeling points and assumptions underlying our outlook. As Sanjay noted, we continue to ramp many sales reps into the second half of this fiscal year, impacting our year-over-year Q2 comparison. We expect to return to more historical ARR growth trends in fiscal 2027 with a larger portion of our net new ARR to come in the second half of the year.

Additionally, the transition to annual billings I referenced earlier, continues to progress faster than we initially expected, which shifts cash collections into later periods and creates predictable future cash flows. We expect Q1 free cash flow was the low watermark of that transition with an improvement in Q2 relative to Q1 and a return to positive quarterly free cash flow in the back half of the year.

For the full year, we still expect to have positive free cash flow margin of 2% to 4%. The benefit of the transition is illustrated in the future collections visibility of our 71% growth in contracted future billings. We've highlighted these modeling points in the appendix of our investor presentation.

As our results show, we continue to be focused on driving efficiencies across Netskope We remain committed to delivering leverage in our model, while at the same time, investing for future growth. Our disciplined, high impact and high ROI investments position us as a significant beneficiary of the AI super cycle. At the same time, we are early in the year and as discussed, still have a large portion of our sales reps ramping.

Let me now provide our guidance for Q2 and updated outlook for the full fiscal 2027. As a reminder, these numbers are all non-GAAP, unless stated otherwise. For Q2, fiscal 2027, we expect revenue in the range of $213 million to $215 million representing growth of approximately 25% at the midpoint. Operating margin of approximately negative 14% in to 15% and net loss per share of $0.06 to $0.07, using approximately 410 million weighted average common shares outstanding.

Moving on to our updated guidance for the full year fiscal 2027. We now expect revenue in the range of $879 million to $883 million, representing growth of approximately 24% at the midpoint. We are pleased to be able to raise our full year revenue guidance by more than our revenue beat in Q1. This reflects the confidence in our business and durability of demand. Gross margin of approximately 77%, operating margin of approximately negative 9.5% to 10% and net loss per share of $0.18 using approximately 415 million weighted average common shares outstanding and positive free cash flow margin in the range of 2% to 4%.

In closing, I'd like to briefly comment on today's announcement. It has been one of the great privileges of my 40-year career to be part of Netskope's journey over the past 7 years, helping scale the company from approximately $70 million of ARR to where we are today. I want to thank Sanjay for his confidence partnership and friendship as well as our employees, Board, customers, partners, investors and analysts for their support throughout this journey. I remain fully committed to Netskope and will continue to serving as CFO throughout this transition to help ensure a seamless handoff to my successor.

Finally, Demand for the Netskope One platform remains strong, momentum across the business continues to build, and our pace of innovation remains high. I have never been more confident in Nestkope's future or its ability to help define the future of cybersecurity.

With that, operator, let's open the line for questions.

[Operator Instructions] Our first question comes from the line of Brad Zelnick with Deutsche Bank.

Great. And Drew, congrats on your retirement. It's been a wild run. I feel like we know each other, it's nearly 20 years. But I know you're committed until you hit the golf course more regularly. So again, wonderful run, wonderful run.

Thank you very much, Brad.

You got it. Listen, Sanjay, Netskope's technology is super well regarded by every practitioner we speak to and as you say, you're uniquely positioned for the AI super cycle. But how can you be confident that your product market of your product market fit in the AI era and that SSE isn't commoditizing as we're seeing AI companies literally add tens of billions of dollars in run rate revenue in Q1 alone. And your net new ARR, I appreciate that you're up against a tough comp, but even on just a whole dollar basis, it's the lowest dollar around in nearly 2 years despite your sales and marketing spend up nearly 50% or so over that time.

Yes. Great, great question. A couple of things. If you look at our AI security products, we actually just released those last quarter. And we just released today or just earlier this week, our AI Command Center. And so we've used the AI super cycle and securing it in its infancy. Often, security catches up from the perspective of AI adoption. And that's why we're so excited about it. For us, we have an over 80% win rate when we get to POB. That hasn't changed.

So for us, when customers try our technology, they love it. We have the highest GRR we've ever had in our history. We grew new logos by close to 60% year-on-year. And so for us, new logos are great. Our customers are happy. They want more from us from a product perspective. And that's what we've given them. And so that's why we mentioned with over half of our reps ramping, and we'll see that in the second half where those products hit stride and our reps hit stride. And so really, what we're seeing is that net acceleration, net new ARR acceleration will happen in the second half.

That's really helpful. Maybe just a quick follow-up for Drew. Drew, how are you feeling about the full year ARR plan relative to 90 or so days ago? And any hints that you can share around seasonality would be great.

Yes. The way the rep ramping aligned and with the product announcement, again, we announced 5 new products since the beginning of the year, all AI, and we're seeing nice demand build for those. So I think Sanjay just said we expect to see net new ARR acceleration in the second half. Look, we guided up on revenue by the revenue beat in Q1, plus about the same amount for the year. And we still expect ARR to be within a point of revenue growth, ARR growth to be within employer revenue growth.

Our next question comes from the line of Meta Marshall with Morgan Stanley.

Great. Maybe kind of building on that question, just I would imagine with the 5 new modules that have kind of come out earlier in the year that you're seeing kind of good adoption there. But can you just speak to kind of adoption trends of kind of the other portions of the portfolio and any trends that you're seeing there? And then just kind of as a second question, just are those kind of modules easier for reps to sell or just kind of the packages that the reps are having the most success with in selling?

Yes. Great question. So first of all, from the AI security perspective, we released those products just this last quarter. We've never seen a product pipeline grow like it has for the AI security products. And so every conversation I'm in within 6 minutes, they want to talk about that. And so obviously, that's why we're very energized and enthused about the pivotal role we'll play in the AI super cycle. The proof is sort of in that growth that we see both in the pipeline. And then also even the early adoption from our beta customers, right, one of the large financials adopting those products.

Now when you look at the other product areas for us, you see that the average customer now has over 4 products, and that continually kind of marches upwards every year. And that comes from those other products since we just released the iSecurity ones. Our next-gen Secure Web Gateway product with our unified data protection, our ZTNA product for example, our digital experience management product, we gave an example on the earnings call of our win on the enterprise browser side. All of these really for us are one platform.

And that's what's unique about us. All of our growth is organic. If you look at our products, they run on the same console, same network, it's the same, right? We don't ask people to have 3 consoles and 3 networks. And what does that mean? It's the answer to your question. it is very easy for us and our customers to adopt new products for us because when they buy 1 or 2, they don't have to move to a different framework for policies or our graphical user interface of our network. And we want to make it operationally easier. And so these new AI security products, they run on the same platform. They were organically built and as a result, they will be easy for people to operate.

Our next question comes from the line of Matt Hedberg with RBC Capital Markets.

This is [ Simeon ] on for Matt Hedberg. I guess to start, could you double-click a bit on the competitive landscape and how you're thinking about these new products from a pricing perspective?

Yes, it's a great question. So first of all, all the AI security products are priced by transaction. So a transaction is like a prompt response. And if you look at the product we announced this week, the I Command Center in a similar framework, right? It's really based on the number of agents you have and beyond. And so for us, pricing in the way that people consume things. That's been our philosophy.

If you look at AgentSkope and our AI agents, right, which is a whole separate product line that we just announced as well, which is our first AI agents, it's outcome pricing, which is, if you look at our DLP AI SecOps agents, how is it priced? It's priced by the outcome, the value right? How many incidents and cases do we solve? And so that's kind of the pricing model. I think that is the pricing model for the future for new products, and that's what we have adopted.

In addition to that, I mentioned -- you mentioned that from a competitive perspective. Our win rates from POB, POC are over 80%. So our whole focus -- and that includes across all our products. And so really, for us, it's just continuing that march of getting those 50% of our sales reps, which are ramping, getting them ramped, expanding the partnerships like we announced by expanding the Deloitte partnership from a SaaS perspective and our managed service partnerships. We know that when a customer tests and tries and they see our AI security and our command center products, we'll maintain those win rates. And so for us, the focus is get in there and get the bat.

Okay. Got it. That's super helpful. And then just from a guidance perspective, it seems like you raised revenue guide a bit higher than to be in the quarter. Can you just talk a little bit about what's driving the increased confidence around the guide? And any additional commentary on the visibility that you have?

Look, sure. We see -- again, we have -- the bulk of our hiring, really the peak of our hiring last year on the sales reps was in the second half of the year. And so we believe we'll start to see the return of that as they become fully productive. And so it's the ramping of the reps, as we've mentioned many times before. Then the other thing is, as Sanjay just mentioned, we're seeing strong demand in the AI, the uptake of the 5 new AI products released. And so our expectation is that will provide a benefit. And as I just noted, we expect net new ARR to reaccelerate in the second half of the year.

Okay. Great. Congrats, Drew.

Our next question comes from the line of Shaul Eyal with TD Cowen.

Drew, it was still is pleasure working with you over the past decade and congrats on what comes next. Sanjay, maybe more of a philosophical maybe strategic question here. With the renewed momentum we're seeing on the hardware side of things, how do you see that capitalizing Netskope's business given, it is a company that was originally born in the cloud?

So I think a couple of things. One is when you think about organizations, they are more distributed than ever. and agents are more distributed than ever, right? They're on to laptop servers and beyond what they're using is distributed. And so for us, we're firm believers in this notion that people will want to consume their security and networking everywhere. They don't want to do truck rolls into offices and branches and so on. They're modernizing their edges to put as much as possible outside. And so that's sort of what we see.

The infrastructure that we run, new edge, it is the world's most performant infrastructure from a private cloud network perspective. And so for us, you can think about the new edge infrastructure, it is their new network hardware. -- right? It is their new network cloud. And it gives you better performance, better connectivity. And I remember sitting with a CISO and the CIO a few weeks ago in the East Coast, and he told me Sanjay, like I am so distributed, right? I got contractors, partners, I've got new places in building up. I may have private data centers. I'm going to use cloud. I don't want to have a network. I want to use your network. And you provide it to me globally. You take care of that. I can focus on my core competency.

And so for us, one of our big advantages is that we modernize and consolidate your infrastructure, which includes your edge and your network. And so that's what we're seeing over time, and that's what we continue to see. And I think with the AI super cycle, it becomes more important. AI, when you look at the genetic traffic, it is back and forth, back and forth, right, highly distributed. You got agents making tool calls to cloud apps, private apps everywhere. And so the AI Fast Path that we introduced, which is the fastest way for inference, that's another big benefit for us from a network perspective.

Our next question comes from the line of Brian Essex with JPMorgan.

And Drew, congratulations from me as well, well deserved. Maybe Sanjay, for you, just one question. I'd love to get your insight of -- with access to the foundation models that you've had how have you utilized that in the platform? Any kind of initial observations? And then what kind of value has that access provided to the Netskope platform?

Yes. So if you look at the foundation model is both part of Daybreak program, Glasswing and to be blunt, even leveraging the open weight models. What we do is we built a harness, and we basically leverage them all, and we use that in terms of our internal development cycles, right, to test, to validate as part of our pipeline. And that's kind of what you should do. And you already did that. with other systems. And now you have these capabilities in the frontier models to mine vulnerabilities early and integrate that into your CICD process.

And so that's what we do. And like I mentioned, we have a harness that does that, so we can leverage many, many models over time because as you've seen, right, there's a new printer model every 4 to 6 weeks and you want to be able to have diversity and you want to be able to leverage them to frankly drive quality and security. And so we leverage that.

And then as far as externally, we have our AI Labs team. We've had it for 8-plus years. We have 190-plus of our own deep learning and other models. One of the proprietary advantages we have is over the decade, we have processed at a most granular fashion for enterprises across the world. Their access to cloud, now AI to their private apps, probably the most granular level you'd see if any company in the world. and what we've gained and the gleaned insights from that and the behaviors, that's proprietary data. And that lets us develop some amazing deep learning models that we leverage across data threat our network acceleration and beyond.

And so really for us, I mentioned this in the earnings just previous to this. that we've transformed and are transformed early into this, not only AI first from how we build our products and how we test them, but also just from our mindset, right, of how we develop, how we market -- and I think that's a journey that we're highly committed to and we feel very energized by it.

Our next question comes from the line of Keith Bachman with BMO.

And Drew, I also echo my congratulations. I hope your golf game improves in the process. Two things for me. One, related. Sanjay, for you is I did spend 2 days down at Gartner Group's security conference this year. And what seemed to surface more so in past years is obviously some tech trends, but also the notion of consolidation of spend. And even the Gartner groups were advocating this more so in past years.

And so I'm wondering, as you think about your competitive landscape when folks like using their platform to crowd out other areas, how do you think about pricing? Has pricing been any different, say, in the last 90 days? And how do you think about that pricing playing a role as we're going through this dynamic time of technology transition? And then my follow-up to Drew is sort of related is Drew, the net retention rate was a little lower than at least I was thinking. How does that -- it's a backward-looking number, but how do you think that trend plays out for the year? That's it for me.

Great question. So I think a couple of things. One, when I step back and you look at the networking and security and ad market, I've never been a believer there is one platform and nor do I believe that CIOs and CISOs want one. They don't want 100, but they don't one. They want a few core platforms that are open. And I think I've seen that when I talk to CIOs and CISOs. For us to those core platforms. We consolidate over 20-plus different point areas and we become the new highway and the new on-ramp to the Internet for agents and for users and for apps and beyond. That's really what we do.

And when you step back a second for us, we measure ourselves very closely on our POC win rates. And I mentioned those are consistently above 80%. And so when you think about pricing as within that we aren't the company that is going to win because of we're going to win because of the value and technology we bring and then the operational savings because we are not a price list integrated platform where we put a bunch of things on price list. But no, everything we ship, we have a rule same console, same network, same client, same policies. So it's operationally easier.

And so for us, where we went on the cost side is, well, it's easier to operate these guys, right? And what I have seen, yes, you're right, in the pricing. Sometimes you'll see some competitors try to low ball on pricing once they know they've lost. But I think we've learned and I think customers have learned that, that doesn't work. There's a reason you pick in this case, that would rate of over 80%. And so that's what we've seen.

And then as far as net retention, I'll let Drew take that question as well. But I think one thing to just think about in net retention before I give it to Drew, is we're seeing right now in this Q1, historically high GRR. We've always been in the above the mid-90s, but our customers, they really like us. And I think for us, NRR fluctuates right, quarter-to-quarter. We'd always said we'll be in this range. We were obviously following a tough comp, right, where Q1 of last year and our net new ARR grew 80% or so. And so it's definitely a tough comp.

And from an upsell perspective, what we're very bullish about and what we're focused on is that AI pipeline is strong. right? Customers really want on the platform we have, the ability to secure and accelerate their AI usage. And we feel very great about delivering some amazing products to them in that realm.

Yes, Keith. As Sanjay said, look, GRR is a record high. So that's -- we certainly have strength on the customer retention side. Look, the mix of deals can vary quarter-to-quarter. Q1 last year, we had upsell grew 116% on the heels of multiple 7-figure deals, right? So a very strong upsell quarter and it can vary quarter-to-quarter. The next quarter, it was sort of half and half, half upsell. The growth came half upsell, half new business. In this quarter, we saw strength in new logos. And so the new logo growth was 59%, for instance. So it's going to vary quarter-to-quarter, as we've said before.

When you think about it just in terms of the -- we really think mid-teens is the right way to think about where NRR be. I think we're probably at the lower end of that right now. But obviously, with the strong AI pipeline and the reps ramping, we think we have an opportunity to certainly go up from there.

Our next question comes from the line of Rob Owens with Piper Sandler.

Would love to get a sense of how customer conversations have changed over the past couple of months. Obviously, tremendous amount of activity. And I guess from a couple of perspectives. Number one, the strategic positioning of SASE and what are the different types of problems that customers are looking to a Netskope to help them solve at this point?

Yes. It's a good question. So when I look at use cases, and the reality is SASE become broader and broader and broader, right? More and more things put into it and consolidate it. And so I like the way you think about it, which is, hey, what are those use cases? And so for us, from a use case perspective, one, customers want to be able to secure and accelerate their broad Internet access for web, first class, for AI. And that could originate from a human, could originate from an agent could originate from a robot, whatever it is, they know that wait a minute, at some point, a user, an agent, a robot, it needs to go hit something and access something to get information.

And well, wait a minute, what's the best way and the best path to get that information? What's the best network? -- that's for us, new edge, right? Two is, okay, when I'm doing that, how do I know what data is transacting? How do I know this is valid? How do I know this AI agent is supposed to be making a tool call and supposed to be getting that information from Stack or One Drive or my private app. And so really it comes down to, hey, what is the best path as information flows and what is the best way to govern?What data those things that are requesting that transaction should have access to.

That is one of our top use cases. And that really speaks to this notion of distributed security and networking for this cloud and AI era. The second -- obviously, within that, there's many use cases. The other one is, obviously, partners, third-party risk and contractors, right? This is a big notion in the hyper-connected world. And so how do I enable people and agents who are not part of my organization to still have access to what they need. And that comes to modernization of what used to be their remote access and VPN infrastructure and move to the Zero Trust concept.

And then the third is unification, modernization and unification of data protection. As you know, for us, we use neural networks and learning models. And we cover your data no matter where it is. We look at every prompt -- we look at every response. We look at every MCP transaction, and we say, is this data supposed to be transacting in this way? And if it isn't, we stop it. right? And so for us, data protection across the AI ecosystem across your endpoint, across your e-mail or cluster on-prem apps, private apps and your data stores and data lakes right? We bring unification to that with a modern way of classifying it and protecting it. So that's another big use case.

And then the fourth is what -- for many of our customers, they are consolidating and converging their infrastructure, and they're taking a lot of cost out of what they used to spend on dedicated network infrastructure and leveraging new enter that. So those are some of the top use cases.

Our next question comes from the line of Richard Poland with Wells Fargo.

I guess for AI products specifically, AI Command Center, AgentSkope, Agentic Broker, are there any early signals on maybe how those sales cycles compare to core SaaS sales cycles? And when we think about AI, like are you seeing an established budget owner yet on the other side of the table? Is it coming out of existing security budgets? Or is this like a net new area of spend in security?

Yes. So I think when you look at the -- most enterprises, right, they are trying to figure out how do I secure this unstoppable usage of and 90% of AI usage is shadow or end user business unit led. And so I think they're in the infancy, and we're in the early days of AI security. We've obviously seen fastest-growing pipeline we've ever had for a product with AI security.

And I think that budget is a mix. Some of it comes from a net new budget as they roll out AI programs. There's generally just like you roll out an app, there's generally a percentage of that attached to security. And then some of that will come from your app budget. Some of that will come from your infrastructure and security. But I think people are generally figuring that out. And so anyway, that's how we've seen it.

I think AI Command Center, for example, product we released this week, we developed that with many of our customers because they wanted unification of how they could view AI. And so for us, usually when we release something, we generally know it will hit the mark because we had a lot of customer involvement as we build it.

Our next question comes from the line of [ Katherine Trebnick ] with [ Rosenblatt ].

I want to go back and ask you about the 80% win rate you're seeing with the PLCs. Are you seeing any change in who the initiating the PLCs? Is it more displacement or greenfield? And any change in the competitive short list changing?

Great. Great question. When you look at the POCs, generally, if you look at the buyer for us, it crosses the CISO, the Head of Infrastructure and ops and the CIO. And often, the CIO has these people reporting to them, right? And he or she, in addition, may have a peer now called the Head of AI, right? And the Head of AI is in your role, doesn't necessarily have a large group, but is, I would say, an influencer as they drive AI security. So that would probably be the one change that you have this new role that some companies have, which is Head of AI. Otherwise, you have the common cast of folks who are often making these decisions.

From a competitive perspective, from a win rate perspective, we don't see a difference because we are broad now, we have over 25-plus products depending on the area, you may see some different folks. You may see, for example, when you're looking at modernizing remote access, you would have seen what I would call 2 generations ago incumbents. You may see the traditional VPN vendors from the past.

When you look at AI security, nobody has anything. It's all greenfield, right? And so really, when you think about the use case, some is greenfield some is, I'd say, like 2 generations ago replacements. And then is some is what I'd call first-gen replacements, which are first generate chassis where people get frustrated because they don't let them put the business policies they want, they don't let them protect their data and beyond. And so it is a mix.

Great. Thank you. And Drew, sorry, I won't get to work with you much. I came on the stock too late.

Our next question comes from the line of Eric Heath with KeyBanc Capital Markets.

This is [ Shan ] on for Eric. Sanjay, expectations or that security budgets would start to expand ahead of meet those like models becoming available yet peers no numbers seem to not be seeing that clear infection inflection yet. Is it fair to say that maybe rather than urgency customers are still more of in an evaluation phase? And if so, when do you expect to see that shift and demand for security budgets to meaningfully inflect?

Great. Appreciate it. I think when you -- in reality, I have a rule, I talk to generally 2 CXOs at least a day, right? Obviously, you have a big event to talk to hundreds, but 1:1. I try to talk to 2 CXOs a day. And when I talk to them about AI, the reality is they know they need something. They know they need to secure it. They need to -- what we say is, hey, you need to enable it and you need to secure it. Now how do they do that? The reality is there's no there's no article or book or text that they read to say, how do I do this? This is hitting them too to say, well, wait a minute, how do I do this? What's the best practice?

And so for us, just, for example, we are running something called AI Fast Lane in cities across the world. And we literally do this. We show them what to do. We bring in a customer who's done it and beyond. And so I think what you're seeing is that -- as I mentioned, the pipeline that we've seen for Security, fastest growing we've ever seen, people are in the infancy. And we do see adoption starting at least in our case, more in the second half. And I think time over the years, people will definitely mature and AI security will be -- here is the way to do it. Right now, they're learning.

Our next question comes from the line of Shrenik Kothari with Baird.

Great. This is [ Zack ] on for Shrenik. So you've highlighted stronger engagement with large GSIs and strategic partners, including some major enterprise transformation work I guess the question is are partners mostly helping with implementation still? Or are they becoming maybe a real source of pipeline for you guys?

Yes. It's a great question. So I think the answer is really both. The reality is when you look at partners, you can segment them, you could have alliance partners and obviously, we have strong alliance partners, folks like Okta, we were named Microsoft Security Partner of the Year last year, CrowdStrike others. And you work with them in the field and beyond and you want to make sure you integrate and they have great products and platforms and beyond.

And then you will generate and share of in the pipeline. And then you have what I'd call resellers and distributors and so on, great for procurement and also for sourcing, right? You want to have a portion of your deals where they're sourcing it, and we do see that. And then you have, of course, the system integrators, where their focus is implementation services, managed services, consulting services. right? Less so, hey, I want to resell what you do or beyond. And there is where I mentioned, for example, on the earnings call, the mandatary offerings with Deloitte and other system integrators.

And so really for us, we think about it that way, implementation services partners, partners who can source and sell and make procurement easy. And then in the mid-market managed service providers. who really do the whole thing. They sell, they implement and they manage. And our focus is really all of those to make sure that we cover the different needs of enterprises.

Our next question comes from the line of [ Trevor Rambeau ] with BTIG.

This is Trevor on for Gray Powell. Just one for me, maybe for Sanjay. What was there the demand or attach rate of the networking products like an SD-WAN looking like in new deals today versus a year ago? And is the networking side of the equation is gaining more traction this year? Or is it still more predominantly on the security side?

Yes, it's a good question. So when we think about what we do, we always think about it as security and networking. And the reason is that if you think about our customers, like we have customers who have hundreds and thousands of employees, they have now tons of AI agents, all that traffic goes through us. And one of the first things they do from a security side is, obviously, they do what I said, which is test detection and make sure the policies work and so on.

But in parallel, the infrastructure and network person, they need to make sure that wait a minute, what's my end user experience, right, or my end AI agent experience. And they're validating that. And so we kind of -- we do view like every sale of ours is security and the network we sell. Because new edge is becoming their new network, right? And so that's kind of how I think about it. From a specific product perspective, while we don't break out SD-WAN, one of the things that we have seen is that our SD-WAN is really an integration of security and networking functionality together to modernize the edge, right? You want as little as possible on-prem, at the branch edge or factory edge.

And that's really what that is meant to do, put as little as possible and as much as you can in the cloud. And so we've seen good uptick in that. And we mentioned some great wins and as well, folks wanting single vendor SASE, we're one of the vendors who truly can deliver it. in a unified way.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Michelle for closing remarks.

Thank you, everyone. As we wrap up, Sanjay, Drew and I want to thank you for joining us today and especially staying over a bit longer. We're pleased with our Q1 results and the momentum we're seeing across the business, and we remain focused on helping our customers with their cloud and AI transformation journeys. We appreciate your continued support, and we look forward to speaking with many of you over the coming months and weeks. With that, we can close the call.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect.

Thank you for standing by, and welcome to Netskope's Fourth Quarter and Full Year Fiscal 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Michelle Spolver, Chief Communications and Investor Relations Officer. You may begin.

Good afternoon, and thank you for joining us today. With me on the call are Netskope's CEO and Co-Founder, Sanjay Beri; and CFO, Drew Del Matto. The press release announcing our financial results for the fourth quarter and full year fiscal 2026 was issued earlier today and is posted to our Investor Relations website at investors.netskope.com, along with a supplemental presentation.

Before we begin, let me remind everyone that some of the statements we make on today's call are forward looking, including statements related to our guidance for the first quarter and full 2027 fiscal year, growth opportunities, competitive position, and the impact of AI adoption. These forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements. Additionally, these statements apply only as of today, and we undertake no obligation to update them in the future. For a detailed description of risks and uncertainties, please refer to our SEC filings as well as our earnings press release.

Finally, unless otherwise noted, all financial metrics we discuss on this call other than revenue will be on an adjusted non-GAAP basis. We have provided reconciliations of these non-GAAP financial measures against the most directly comparable GAAP financial measures in our earnings press release.

Now let me turn the call over to Sanjay to discuss our business and high-level Q4 financial performance.

Thanks, Michelle. Welcome, everybody, and thank you for joining us to discuss Netskope's Fourth Quarter and Fiscal Year 2026 results. We ended the year on a high note with results that exceeded our guidance across all key metrics. Our focus on delivering a market-leading platform for networking security and analytics in the modern world of cloud and AI is resonating well with customers and driving both new and expansion business.

Strong global execution resulted in robust fourth quarter results highlighted by record net new ARR of $57 million and ending ARR of $811 million, representing true organic growth of 31% year-over-year. Revenue in Q4 grew 32% year-over-year to $196 million, and revenue for the full fiscal year 2026 also grew 32% to $709 million. We continue to leverage the investments we've made in our Netskope One platform and NewEdge global private cloud network to drive efficient growth, which is reflected in the 5 percentage point improvement in operating margin in Q4 and an 18 percentage point improvement for the full fiscal year 2026.

We are also very pleased to generate $12 million in free cash flow for fiscal year 2026, marking a notable milestone of Netskope's first ever year of positive free cash flow.

We also saw a strong mix of both new logo growth and customer expansion across key verticals and geographies. The average number of products per customer increased to 4.4. Customers are solving key use cases through the adoption of our Netskope One platform of 25 security networking analytics and AI products. This is reflected in our net retention rate of 116% and 22% growth in customers with over $100,000 in ARR year-over-year. Drew will give more color on our Q4 and full year fiscal 2026 financials in a few minutes.

We've had many innovations, go-to-market and operational highlights during the quarter, and one theme that threaded prominently across all of these was AI. Netskope is uniquely positioned as a significant beneficiary of the AI super cycle because we have engineered a unified AI-native fabric that eliminates the legacy trade-off between performance and security.

We have organically built the Netskope One platform as the intelligent edge, an inherently adaptive architecture, where our native AI fluency and active context are seamlessly integrated into our global infrastructure, defined by its performance, resilience and dynamic orchestration. I'd like to spend some time today walking through the 4 pillars of our AI strategic framework, which demonstrate why Netskope is the essential engine powering the scale of the modern AI enterprise.

First, Netskope is an AI-native platform with sovereignty and privacy by design. From day one, we were engineered as an AI-native platform. Our competitive moat is architectural, not a single bolt-on feature. Since our inception, we have leveraged and integrated AI as foundational across our platform. In the early days, we use shallow and deep learning. And today, we further augment these capabilities with generative AI models to deliver maximum impact for our customers.

Every implementation follows our core principle of privacy by design. We believe intelligence should never come at the cost of data privacy or sovereignty. And we operate a library of more than 190 proprietary, purpose-built, specialized AI models optimized for security and network performance. This quarter, we continued to enhance those models, and our AI Labs released additional models that are used in our new AI security products. Unlike competitors using just generic LLMs Netskope's intelligence is purpose built, high speed and hyper accurate.

The second key pillar in our AI strategy is enabling and securing AI in real time. While legacy and first-generation SASE vendors perform so-called post-event autopsies with out-of-band scanners, Netskope provides real-time in-line AI security for corporate and shadow AI. We don't just see that an AI transaction is happening. We understand the data and intent within it and take real-time granular action. Let me explain.

Most solutions simply see a connection. Netskope understands the deep interaction. Because our proxy is natively AI fluent, we possess the active context to determine dynamically in real time the specific AI app instances, activities, data and more. We also determine the semantic intent of prompts and responses in real time and enforce in-line policy. Our Netskope One Agentic Broker, one of a number of new AI products we announced earlier today, also seamlessly applies this to all MCP transactions, either sanctioned or unsanctioned.

This is why, at Netskope, we aren't just observing and enabling the AI revolution. We are the engine generating the high-fidelity data that secures it. In today's world, the most valuable asset isn't just the AI model. It's the unique real-time data and transaction telemetry that understands the intent and lineage behind every interaction. Netskope One generates a vast and proprietary set of AI-fluent metadata and data for trillions and trillions of transactions a month that traditional security tools simply cannot see or generate, decoding the complex language of AI agents, generative AI apps, AI tools and cloud JSON in mid-flight.

But while the power of our unique data is a competitive moat, our purpose is singular: the dynamic protection of our customers and their non-humans and humans. We leverage this unprecedented visibility to protect our customers, ensuring that they can innovate at the speed of AI without ever compromising the integrity or sovereignty of their most sensitive information. We apply in line decisiveness; or put in another way, we make granular go or no-go decisions in-flight. This allows us to stop sensitive data from entering prompts and block poisoned AI responses or injection attacks before they ever reach a customer's environment, protecting users, apps and autonomous agents alike.

And our Netskope One AI Guardrails, also announced today, takes this to the next level. These deep contextual controls are necessary for enterprises to move from prohibiting AI to enabling AI with confidence. We don't just see more. We protect better, turning our unique data into the ultimate foundation of trust for the agentic era.

Our third AI strategy pillar centers around providing differentiated and unmatched performance and resilience through our NewEdge AI infrastructure. AI transactions are uniquely sensitive to legacy networks. Legacy networks create a latency tax that breaks AI performance. Conversely, our NewEdge infrastructure, the world's largest high-performance private security cloud, is the AI Fast Path. It is the most resilient high-speed highway for AI transactions globally, including AI applications and agents hosted in public, private and neoclouds.

It is also an agile edge. Our infrastructure is defined by performance, resilience and dynamic orchestration. We process complex security at the edge, closest to the agent, app or user, reducing lag for secure real-time inference while allowing the network to dynamically adapt to the high-velocity traffic patterns of the AI era.

And lastly, our fourth AI strategy pillar is a platform built organically and natively for the agentic economy, with an AI-fluent proxy and for autonomous operations. The perimeter has shifted from being filled with people to entities. Netskope uniquely addresses this with a platform that specifically speaks the language of AI. As we mentioned, our architecture and native AI speaking proxy innately understands APIs and JSON. This AI-native visibility enables hyper-granular zero trust control over AI transactions that other vendors simply cannot see.

Through our just announced Netskope AI Gateway, we extend this enforcement anywhere, public cloud, private data center or the edge. We also just released our first autonomous Netskope AI agents, which have already been met with exceptional customer feedback. One of the areas our agents will address will be automating operations. These classes of agents from Netskope automate complex network and security tasks, drastically reducing the human-in-the-loop requirements for global enterprises. Our recently released ZTNA AI agent has been received very well in this area.

And finally, we offer universal governance. By marrying our market-leading data protection with our newly introduced Netskope AI Guardrails, we secure and moderate for acceptable use all communications, either via model context protocol, MCP, via our agentic broker, prompts or shadow AI for humans and non-humans alike.

Because of these unique and highly differentiated 4 pillars of our AI strategic framework, many of the world's most sophisticated enterprises choose to secure, accelerate and analyze their AI transactions through Netskope. As a result, Netskope has become one of the most definitive sources of enterprise AI data usage and trends in the world. We were pleased to announce today the Netskope AI Index, which consists of a first-of-its-kind interactive view of real-time AI usage across the world, data covering virtually every country, industry vertical and company size, providing a granular view of AI adoption and attributable intelligence that positions Netskope as the authority that customers and the public can cite when describing the real-world trajectory of the AI economy.

We have also kept our foot on the gas, innovating across our Netskope One platform of security networking and analytics products in other related areas. Let me share a few recent examples. On the data security front, we strengthened our competitive edge with the introduction of Netskope One Data Lineage. Data Lineage enables security teams to track and visualize the movement of sensitive data across their entire organization through various levels of origin, usage and access, including visibility into when that data propagates or evolves.

We also introduced new capabilities and integrations to improve secure connections to enterprise applications from unmanaged or BYOD devices. Enterprise browser support was expanded to a new range of iOS and Android mobile devices, while deeper integration with our remote browser isolation and private access solutions provides a range of highly secured deployment models to enable users to connect to private apps through web browsers on their unmanaged devices.

And on the networking and infrastructure side, we delivered our DNS as a Service to enable customers to point their DNS traffic to Netskope for resolution, which can then use our DNS content filtering and security to provide secure access for often overlooked and unprotected use cases like guest WiFi access.

Our continued innovation expands our robust Netskope One unified platform of 25 security networking analytics and AI solutions, providing more opportunity to land and expand with customers. We are an organically built, truly integrated, modern platform for the AI and cloud era.

I want to emphasize this point about platforms in the context of what we repeatedly hear from customers. They are telling us that while they desire truly unified platforms over a slew of point solutions, they also are not seeking a single platform for all their security and networking needs.

The unification they desire in a platform is what Netskope uniquely delivers. We built our AI-native Netskope One organically not through M&A, which results in a disjointed, cobbled together solution and often frustration for customers. Our 25 products share one common code base, one engine, one console and one network, providing both better efficiency and a seamless customer experience. And our NewEdge private cloud runs Netskope's full stack of products at high speed at all of our more than 120 locations.

To illustrate how our customers are adopting our Netskope One platform, let me pivot to our go-to-market accomplishments during Q4. We saw significant customer wins across verticals and geographies, with customers turning to the Netskope One platform to enable AI adoption, modernize their security and infrastructure, consolidate vendors and replace legacy and first-generation cloud security products. I'll touch on some key wins and expansions across common use cases.

First, customers are choosing the Netskope One platform for modernization to facilitate secure access from humans and nonhuman identities to their AI ecosystem, including generative AI apps and LLMs, cloud apps, web apps and private apps. One notable win was a large global manufacturer who sought better data visibility and control and the ability to safely allow the use of AI and cloud. They chose 6 Netskope products to secure generative AI and cloud access, protect their data and improve their network performance.

We also landed a top regional health system in the U.S., who initiated a modernization selection process to replace its legacy security network infrastructure after previously suffering a severe and costly breach. We shined in this competitive bake-off, and the customer purchased 11 products within our Netskope One platform, including our Next Generation SWG with AI controls, ZTNA Next advanced DLP, which includes proprietary AI models from our AI Labs team, borderless WAN, cloud firewall, enterprise browser and other products to replace legacy firewall and networking products. Customers also continue to turn to Netskope for our superior unified data protection.

For example, one of the largest hotel companies in the world with operations in nearly 150 countries was a notable unified data expansion win during the quarter. This client needed continuous real-time visibility into the full breadth of its data security posture. They also needed to confidently manage and protect sensitive data across cloud, on-premises and hybrid environments, including AI and cloud data stored. They purchased Netskope's DSPM solution and are now using 14 products in the Netskope One platform across its organization.

Many customers also deploy our suite of Netskope One products to modernize their infrastructure, including replacing legacy VPNs with our zero trust architecture, branch firewalls with our borderless SD-WANs and migrating their networks to our high-performance private cloud, especially as they adopt more AI and cloud where performance becomes even more critical.

For example, we landed a Canadian gaming company that needed to modernize their network for AI and cloud, provide secure remote access to their global workforce and meet governmental regulatory requirements. This customer replaced legacy hardware products at more than 5,000 locations with Netskope's borderless SD-WAN and ZTNA Next secure access solutions and purchased our Next Gen Secure Web Gateway with added AI protections for secure generative AI usage.

In another win, a European government chose us to modernize its legacy on-prem security infrastructure and drive data sovereignty. They wanted to consolidate multiple point solutions into a single centrally managed platform to protect sensitive data while meeting strict government regulatory requirements. The organization purchased our comprehensive Netskope SSE platform, covering security for AI, web, cloud and data.

Finally, our global fast and resilient NewEdge private cloud network makes us particularly well suited to deliver globally distributed and highly regulated customers the data sovereignty and regulatory compliance that they require. For example, we landed 2 of the largest banks in Africa in 2 separate deals. One was a unified data protection deal that we successfully baked off against a primary competitor. The other was a network modernization deal where we replaced the same competitor with Netskope's market-leading SSE solutions and higher-performing NewEdge private cloud. Our local data centers in Africa were a driver for the wins as we are able to deliver superior performance and data sovereignty to these customers.

The geographic and vertical diversity of these customer wins and use cases is a testament to our clear technical differentiation and disciplined execution across all regions. Our new customer wins were all competitive bake-offs against primary competitors, where the capabilities of the Netskope platform proved itself in extensive POVs. We continue to land with multiple products and have seen strong growth in multi-product adoption across our customer base. As of the end of Q4, 56% of our customers were using 4 or more Netskope One products and 27% were using 6 or more products.

I'm pleased with the strong performance of our go-to-market team across the globe. Our newly hired sales reps are ramping, and our tenured reps are delivering strong productivity. We put great leaders in place and recently filled some of our remaining key sales leadership positions, including the appointment of Joe Welsh to lead our U.S. public sector vertical, an area where we are underpenetrated but have strong opportunities. Joe is a seasoned veteran with decades of public sector experience in this space.

We are also continuing to hire highly talented reps in all geographies, many of who are joining us from key competitors across our space. I just returned from our annual sales kickoff, and I can tell you that our team's excitement, energy and conviction is truly palpable. Our momentum is only building.

As part of our comprehensive go-to-market strategy, we also continue to strengthen our relationships with system integrators and strategic partners. During Q4, we partnered with the largest GSI in the world on a major enterprise deal in the energy sector, supporting digital transformation and zero trust for approximately 80,000 employees. Other recent engagements include a large government defense customer in Asia Pacific and a major health care customer in North America. This key partner holds over 150 certifications on the Netskope platform, and their support extends our global operations. This is just one example of how we are partnering well on a large scale, partner-driven enterprise transformations globally.

On the technology partner side, Netskope also recently achieved the Amazon Web Services Security Competency status for AI security. This competency assures AWS customers that Netskope has met technical and quality standards to deliver best-in-class solutions for securing AI workloads across AI security use cases.

In closing, I want to reiterate that we are in the early innings of an AI super cycle that is exposing a fundamental flaw in legacy and first-generation SASE architecture. Legacy security acts as a latency tax on AI performance, forcing enterprises to choose between safety and speed. We believe the next decade will be defined by a structural shift towards an intelligent edge architecture built specifically for an autonomous agentic economy.

Netskope is uniquely positioned for this era for 3 reasons: first, we have an architecture for the future. While legacy vendors proxy the past, Netskope is the distinctly AI-native proxy with innate fluency to secure the languages of the future, APIs, JSON and the emerging protocols like MCP.

Two, we also scale without friction. We have eliminated the security tax. Our AI Fast Path infrastructure has unique capabilities to perform complex, real-time security at the speed of AI inference.

And three, finally, we are an intelligence moat. Our advantage is rooted in active context and the real-time AI-fluent proprietary data we generate. While others count traffic, we understand intent. Our proprietary data from trillions of real-time transactions validated by the Netskope AI Index makes us the indispensable source of truth for the AI economy.

Sitting squarely at the intersection of cloud, AI, networking and security, Netskope has a massive market opportunity, which is projected to grow to at least $149 billion by 2028. We've just begun to scratch the surface and look forward to what's to come.

The plumbing of the AI era is being laid today, and it will take many years to fully realize. By unifying high-speed performance with deep semantic intelligence, Netskope isn't just selling a platform. We are providing the essential adaptive fabric to the modern AI enterprise for the next decade plus. This is a structural, durable moat designed to stand the test of time.

Fiscal 2026 was an incredible year of growth and expansion for Netskope, and our IPO in September was just the beginning of our public company journey. We see an incredible path ahead as we attack the AI security and networking opportunity with exciting new products, continue to bring more customers onto our platform, expand business with existing ones, drive further innovation, ramp our sales team and drive awareness globally.

I'm proud of what we have accomplished, particularly our first full year of positive free cash flow generation and industry-leading ARR growth at scale. I look forward to seeing many of you at RSA in a few weeks, where we'll demonstrate and share more about our AI strategy and new products, and engage in other ways in the months ahead.

With that, let me now turn it over to Drew to provide financial details on the fourth quarter and our outlook for the first quarter and fiscal year 2027. Drew?

Thank you, Sanjay, and hello, everyone. As Sanjay shared, Netskope had a very successful fourth quarter, closing out the year on a strong note. We continue to deliver significant growth as our investments in NewEdge, new product innovation and our go-to-market organization continued to pay off.

Before I share Q4 and fiscal year 2026 results, let me remind you that all financial comparisons are on both a year-over-year and non-GAAP basis, unless stated otherwise. For the full year 2026, we are proud of what we accomplished. We delivered revenue of $709 million or 32% growth; ARR of $811 million, up 31% year-over-year; net new ARR of $193 million, up 35% versus fiscal 2025; operating margin improvement of 18 percentage points while continuing to invest in our innovation and go-to-market engines; and we generated $12 million in positive free cash flow, which marks Netskope's first fiscal year of positive free cash flow and an improvement of $163 million over fiscal 2025. This translates to a 30 percentage point free cash flow margin improvement year-over-year.

Moving on to Q4 results. ARR grew 31% to $811 million at the end of Q4. As Sanjay noted, we also had a record quarter for net new ARR of $57 million. Q4 revenue grew 32% to $196 million. We also experienced strength across geographies. In Q4, revenue in the Americas grew 32%. EMEA increased 36%, and APJ grew 26%. Our teams executed well, and our investments in our sales organization are paying off.

In terms of customer metrics, the number of customers generating more than $100,000 in ARR in Q4 grew 22% year-over-year to 1,531. Enterprise and large enterprise customers are our focus, and more than 85% of our ARR comes from $100,000-plus ARR customers. Note, that the average ARR from this customer cohort grew to more than $450,000 per customer. This is indicative of our success in both expanding our installed base and securing significant new enterprise deployments.

Our Q4 net retention rate, or NRR, was 116%, while our churn and down-sell rates remained at historic lows. Composition of deals varies quarter-by-quarter, but our consistently strong NRR reflects our customers' ongoing confidence in Netskope's platform and expansion of their deployments as they consolidate vendors and modernize their infrastructure. Customers view Netskope as a long-term strategic partner given our commitment to innovation and ability to deliver products that solve the complex and evolving security challenges in the cloud and AI era.

In addition to NRR, we look at multiproduct adoption to demonstrate our expansion opportunity within our customer base. As Sanjay mentioned, at the end of Q4, 56% of our customers were using 4 or more products versus 48% a year ago, and 27% were using 6 or more products, up from 22% a year ago. We're pleased with this progress and believe our 25-product Netskope One platform gives us a clear opportunity to continually expand within our growing customer base as they consolidate more of their security and networking stack with us.

Moving on to the rest of the income statement, where we saw the benefits of Netskope being built to scale. Gross margin was 76%, an increase of approximately 5 percentage points from Q4 last year. Our gross margin expansion is being driven by the efficiency of our NewEdge architecture, which is generating better unit economics as we scale.

Q4 operating expenses totaled $171 million, up approximately 3% sequentially. Operating margin improved 5 percentage points year-over-year to negative 10%. R&D expenses improved 100 basis points year-over-year to 36% of revenue driven by earlier investments in a common data platform and hiring at high talent cost-efficient locations. Sales and marketing expenses remained flat at 40% of revenue as we continue to invest in quota carrying sales reps. Our consistent improvement in gross margin and operating margin reflect the operating leverage we've unlocked as our earlier strategic investments in infrastructure and talent begin to compound.

Net loss per share was $0.04 using 395 million weighted average shares outstanding. As a reminder, our non-GAAP EPS excludes the change in fair value of the convertible notes we issued prior to our IPO. Fully diluted share count using the treasury stock method was approximately 503 million shares as of January 31, 2026. We generated $4 million in free cash flow in Q4, representing a 2% free cash flow margin. Note that this was driven by our laser focus on efficiencies and in the first year of our transition to annual billings. We're pleased with our ability to drive positive free cash flow as this demonstrates the leverage inherent in our model.

While we'll continue to realize the benefits of being built to scale on margins and cash flow, our path to sustainable positive free cash flow is not expected to be linear. The timing of cash collections can vary quarter to quarter, and we expect to continue investing in the business for long-term growth. And finally, we ended the fourth quarter with $1.2 billion in cash, cash equivalents and marketable securities.

Before I share our guidance for the first quarter and fiscal year 2027, let me briefly outline some factors that should be considered. We're continuing to make investments in our business, most notably in R&D and sales and marketing. We're continuing to hire sales reps across the globe to support our expanding market opportunity aligned to the AI super cycle that Sanjay noted. At the same time, we are leaning further into our AI road map and expanding our AI-native Netskope One platform with additional products to support our customers' AI adoption journey spoke today and in the future.

While we're adding AI engineers and data scientists to drive further innovation in this important emerging area, we're also empowering our teams with AI tools to drive efficiencies in development and other areas of our business. We expect to see most of the impact from these investments to operating margin during the first half of the year leading to improving operating margin in the second half of the year.

As we look at gross margin, we are on track to achieve our long-term target of 80%. With the foundational investments we've made in NewEdge, we now expect margin gains to come through top line growth and continued optimization. Now that gross margins improved into the mid-70s, we expect progress from here to be more gradual and may not follow the linear step function seen in recent quarters.

Also, as we've discussed in the past, we are shifting customers to annual billing on multiyear contracts where possible. Billing annually will improve the predictability and consistency of our cash flows. I'm pleased to highlight that this transition is occurring faster than we originally expected. While it's difficult to predict exactly how this will impact future free cash flow, we expect to see the most significant impact in Q1 with negative free cash flow in the range of $50 million to $60 million. We expect that to improve in the second quarter, return to positive free cash flow during the second half of the year and to end the full year with positive free cash flow in the range of 2% to 4%.

We will continue to provide you with quarterly updates as we progress throughout the year. We began this billing transition a year ago and expect to see the bulk of the impact this year.

And finally, we believe we are uniquely positioned as a significant beneficiary of the AI super cycle due to our unified AI-native fabric that eliminates the trade-off between performance and security. At the same time, we are early in the year, still have a large portion of our sales reps ramping, and we are continuing to establish our reporting cadence as a public company. And while AI and cloud adoption are driving significant investments in platforms like Netskope, we recognize that macro and geopolitical factors have the potential to impact customer spending plans. We've built our guidance with these factors in mind.

Let me now provide our guidance for Q1 and fiscal year 2027. As a reminder, these numbers are all non-GAAP unless stated otherwise. For Q1, fiscal 2027, we expect revenue in the range of $197 million to $199 million, representing growth of approximately 26% at the midpoint; operating margin of approximately negative 16%; net loss per share of $0.06 to $0.07 using approximately 405 million weighted average common shares outstanding. We expect to see the largest free cash flow impact of our transition to annual billings in the first half of fiscal 2027, with much of that impact in Q1. As I mentioned, we expect negative free cash flow in Q1 of $50 million to $60 million.

For the full year, fiscal 2027, we expect revenue in the range of $870 million to $876 million, representing growth of approximately 23% at the midpoint; gross margin of approximately 77%; operating margin of approximately negative 10%, gradually improving from negative 16% in the first half of the year; net loss per share of $0.19 using approximately 415 million weighted average common shares outstanding; free cash flow margin in the range of 2% to 4%. Note that the annual billings transition is estimated to reduce our cash -- free cash flow margin by approximately 6 percentage points, which is reflected in this guidance.

As noted earlier, we expect that to improve in the second quarter, return to positive free cash flow during the second half of the year and end the year with positive free cash flow. We've highlighted these modeling points in the appendix of our investor presentation.

In closing, we remain confident in our ability to execute on our long-term strategy and innovation, driving strong and durable revenue growth and capturing share of our expanding opportunity. We remain focused on prioritizing disciplined execution and strategic investments that strengthen our competitive advantage and continue to drive growth and margin expansion.

Innovation drives our flywheel for growth. As such, we will continue to invest in data and AI engineers while utilizing AI to drive efficiency and product velocity. We'll also continue to invest in go to market while remaining fiercely committed to delivering profitable growth.

Thank you for your time today. With that, I'll turn it over to the operator for Q&A.

[Operator Instructions] Our first question comes from the line of Brian Essex with JPMorgan.

Congrats on some solid results. Maybe one question for Sanjay and then a follow-up for Drew. I guess for Sanjay, where would you assess that we are in the maturation cycle with respect to enterprises knowing what they need to secure AI? Are your AI security announcements ahead of the curve? Or are these approaches that you're already seeing CIOs demand as they look to kind of secure their AI estate?

And then for Drew, could you maybe just help us understand the context of the sequential revenue guide? It looks like 1Q would imply only up a couple of million dollars, so I would love to understand the puts and takes there.

Great question, Brian. So I think, first of all, from an AI perspective, most organizations are in the infancy. They're in the first inning. 90% of their usage of AI is shadow AI, meaning they actually didn't bring it in. Their end users did. And so when you think about that concept, you harken back to this really just being very early.

And so from an AI security perspective, our focus is always to kind of skate to where the puck's going, anticipate what they'll need and deliver a best-of-breed solution to solve this problem, discover their AI, guardrail it and control it and then enable it with precision. And so that's what these new products do, building upon our previous capabilities to enable AI. So we'll share more at RSA and beyond as well on that.

Drew?

Yes. Thanks, Brian. In terms of the Q1 -- I think you're talking about Q1 guidance. Again, first year as a public company, and so we're going to remain prudent as we've said in the past. And so there's that. We do have reps ramping as we talked about before. They tend to ramp more later in the year, let's say, and so we still have a little bit of -- quite a bit of ramping going on with terms of the reps that's come in over the last year. And then finally, there is some geopolitical macro headwinds have probably happened over the last -- I would say, the last couple of weeks.

Our next question comes from the line of Meta Marshall with Morgan Stanley.

Great. And echo congratulations. Maybe for Sanjay just in terms of are you seeing -- I think during the IPO process, you kind of talked about the 4 main use cases that people were kind of coming in with. Are you seeing any changes in what either those use cases are or as you start to expand more of the product portfolio that you're selling, just any changes to kind of where a majority of people are coming in? And then maybe a follow-up just in terms of maybe the net new ARR growth this quarter net expansion, stepping back from Q3. Just any commentary on kind of what you saw there would be helpful.

Yes. Great question. So from a use case perspective, when you look at our top use cases, they were -- come in to help people enable cloud and web no matter where they are. The second was securing and enabling AI. I will say that has moved up in the stack. Every conversation I have, people come to us and say, "Look, we already run all our AI traffic through you." We released the Netskope AI Index today. It's probably the first definitive source of worldwide AI tracking by vertical, by geo and by size of customer. Well, that kind of shows you the amount of AI traffic traversing the NewEdge network.

And so what people have come to us to say is, "Look, you are the fast path to AI. Let us -- like help us secure it, enable it, guardrail it, and let us say yes to it." And so that is a top, top use case that they're coming to us with, and that has been elevated. Obviously, the other one is remote access, modernize my infrastructure, converge, consolidate, simplify my network security. All of those are still top of mind, but definitely, the AI one has been raised.

And so we're very excited about that, to be blunt, because we feel like, hey, this is what we were born for, right? Our nuance, our proxy is really a JSON, API, MCP-fluent proxy. Started with cloud and now AI is sort of a 1-2 punch in a good way for us. And so we're very excited, obviously, about what's to come, to be blunt, in the many, many years because we're early, obviously, in the AI super cycle.

As far as net new ARR, we had obviously a high comp in Q4 of last year. You can see that as you kind of metric it and you watch through that growth. We're obviously happy to record the highest net new ARR we've ever had. You saw the growth in our customers of over $100,000 in ARR, right, and 23-plus percent and obviously strong upsell as well.

And so for us, the other big point to remember is we really started hiring and ramping our reps mid-year, so beginning in Q3 last year. It takes about 12 months for them to ramp to full productivity. And so that's another big piece for us that we continue to drive.

Our next question comes from the line of Rob Owens with Piper Sandler.

Great. Appreciate you taking my question this afternoon. I wanted to ask more high level just around revenue model and as you think forward. I know it's been disclosed here. You're primarily a seat-based model, and obviously, there are some concerns in the marketplace around what seat-based models look like going forward, especially in light of all the recent layoffs. So as you add new modules and new capabilities, do you see that shifting more either towards traffic or capacity or think that it will be an underlying seat-based model that you're protected by adding more modules on top? So would just love some color.

Yes, it's a great question. So when you look at what we do, we run the traffic for most enterprises. We run everything. All their generative AI, traffic, all their agentic traffic, their cloud traffic, their on-prem traffic, it goes through us. The reality, though, is there is no free lunch on our network, and so if you're going to run users through our infrastructure, which is what obviously people do, you pay for that by user.

If you're going to run agentic traffic right, either it's server-side RAG, client-side RAG, when you have an AI agent, you pay by transaction. And so all of the new products we released today, they're charged by transaction. What's a transaction? It's a prompt and a response, right? That's kind of the token for the agentic economy, and that's how we charge.

So no matter what people run and what that balance is over time, we're going to make money off that. And so you will see and you've already seen 4 new products today, all transaction-based, which just essentially maps to when you can think about tokens.

Our next question comes from the line of Gray Powell with BTIG.

Okay. Great. Yes, maybe one on the product side. So one of your larger network security peers, they appear pretty bulled up on the potential for improved demand in the SD-WAN market and the opportunity for legacy replacement this year. Netskope also often receives high marks on SD-WAN capabilities. So I'm just interested, what are you seeing in your pipeline? And then how often are you having discussions where both security and networking or the buying centers that are involved in deals?

Yes. Great question. So first of all, you're right, like in an organization, when you map out the structure, you have a CIO and you have the security leader and the infrastructure ops leader. You also now have an AI leader, and we often train all our reps, go after that square. You got to hit all 4. Now where buying decisions are made can be in one or it can be multiple, but we obviously hunt across all of those.

For us, we are a networking and a security company for the cloud and AI era, right? And so we think about consolidation of both. The SD-WAN, what does it do? It's for speed. It's for performance. It's for resilience. And that's how we view it. And so we offer it in software form factor on your endpoint, right? You can put it in your infrastructure. And we've seen great growth in it. You saw a great win we had in a very large, distributed organization where they combined SD-WAN as an on-ramp, a smart on-ramp to our NewEdge network and all our security functionality. And so that concept, often called unified SASE by analysts, for us, we can deliver on that.

And so what do I see in the future? Well, look at agentic traffic. The key is that agentic traffic going to come from a user working remote. It's going to come from an oil rig, which is running AI on it. It's going to come from agents, right, many of them running on servers. All of that traffic needs to be accelerated. And that's really what the AI Fast Path is. We are the best path for agentic and non-agentic traffic, either doing inference or beyond. And so SD-WAN is just one small part of that fast story.

Our next question comes from the line of Matt Hedberg with RBC.

Drew, I think in your prepared remarks, you said deal composition can change from quarter-to-quarter. I'm curious, was that sort of the reason why NRR ticked down by a couple of hundred basis points? Or I'm just trying to get a little bit more clarity on that element.

Well, first of all, we view 116% NRR as very strong, to be frank. I think anything in the mid- to upper teens is something we'd be very happy with, Matt. But look, NRR does vary quarter-to-quarter. Some quarters we have more upsell. Some quarters, we have more new logo revenue. I think we've said that before. And note that Q4 a year ago was one of the strongest, if not a record quarter from an upsell perspective, Q4 of FY '25.

That being said, looking forward, we have a large installed base. Average customer has, I think, 4.4 products. We have 25-plus products, 4 new products announced today. Again, as Sanjay said, transaction-based, so a lot of white space and hopefully, a lot of upside there. And just want to mention that down sell and churn remains at historic lows, so retention remains very strong.

Our next question comes from the line of Brad Zelnick with Deutsche Bank.

A lot of good information that you've revealed in these results. I've got one for Sanjay, one for Drew. Sanjay, you spoke to a lot of this in your remarks, but I just want to hit it head on. It's great to see the unveiling of Netskope One AI Security today. And I think there's consensus that network traffic will grow exponentially as AI agents are rolled out into production. My question is, with the massive throughput requirements that agentic east-west traffic may demand, why is SASE, and more specifically Netskope, best positioned to secure this traffic versus maybe a virtual firewall vendor?

And then just quickly for Drew, Drew, just why is the shift to annual billings happening faster? And should we expect to see that result in maybe an unexpected benefit to ARR and revenue as you get better pricing?

Thanks for the question. So when you look at agentic traffic, what is like an AI agent doing? And what are people most worried about it doing? Well, an AI agent unleashed will go access your endpoint. Guess what, Netskope, we monitor that. We have our endpoint data protection. It will go access your cloud apps, right, over the Internet. That's what we do. We monitor, understand what are they accessing, restrict what it can access dynamically, whether it's a shadow agent or not. Your on-prem data, that's what our AI-enabled ZTNA does.

And so I guess the summary is when you look at what Netskope does, we have a sensor that sees all traffic that goes back on-prem to your cloud to your AI applications, no matter where it goes, to a website. We also have a sensor on the endpoint where we do our data protection and beyond. And then we also have a sensor, which looks at all out-of-band activity, right, when you look at our lineage around understanding how these applications work with CASB and beyond.

And so we're in this unique spot where the world is about do you have unique data, can you generate proprietary data that no one else can see or has, and that's what we do because we are the most performant, largest cloud private network. Because we have the ability to interpret this data at a much more granular level, we understand the agentic interactions at that granular detail. And as a result, our policy enforcement, our analytics and everything else that we do and will do will be very, very precise, accurate and enable people to be secure. And so that's really why I think customers over -- well over 1,000 of them have chosen us to secure their agentic traffic.

Very helpful.

Yes. And Brad, great question on the billings. Look, I would remind everybody that the billings transition provides strong predictability and consistency of both billings and free cash flow ultimately. We added a Slide 24 to help illustrate the transition and where we are. We had -- I would point everybody to the 78% growth and the future billing commitments, the future committed billings.

And the interesting part about that is we can see what's coming. We can actually see the dates we bill. We can obviously model collections better. And again, we have been free cash flow positive, and that will obviously tilt up later in the year. But as far as like why going faster, it's just really strong execution. We've been very focused on it internally. We've been inspecting the deal, so to speak, and make sure that we're communicating with the salespeople and helping them through the transition, along with our customers.

And then just in terms of pricing, I mean, the way we really think about pricing is we focus on value. We have high win rates, and so pricing to us is more about selling the value of our products. And quite frankly, we'll continue to focus on that. We have new products to offer, I think, a stronger story with the new AI products coming out. And those are the things I'd really look to, to be -- to strengthen the trend on pricing.

Our next question comes from the line of Jonathan Ho with William Blair.

In terms of your profitability guide for 2026, I know you talked a little bit about investments. Can you help us understand maybe where you see the most opportunity to place those investments? And what would be sort of the time frame for us to see perhaps an inflection in growth as you spend more on R&D and sales and marketing?

Yes, thanks. Great question. So from an investment perspective, obviously, you've seen our yearly guide, but you also saw that we're investing upfront. And what that upfront investment is, it's really an AI enabling -- continuing to AI enable our R&D team. So when you look at the world today that we live in, I believe that every engineer can be a 10x engineer. And AI is not about by coding something or so on. It is about making your elite engineers 10x more productive and 10x more focused on architecture.

And so what do you have to do to enable that? Well, you want to invest in AI orchestration. That could be to help them automate workflows, to automate their validation and testing, to automate sort of that -- the rote stuff that they have to do, so they can focus on the unique part. And so that's what we're doing in Q1, investing in that in the first half in that AI tooling.

Now what you'll see after that is you'll see in the second half and beyond that we really don't need to ramp our R&D in terms of headcount as what you may have thought, right? We can be a lot more efficient. And so this is about laying continually the groundwork for R&D efficiency. You got to invest a little in the AI tooling, and then you see a lot of that benefit from an R&D leverage. And you'll see that obviously as we continue our R&D percentage revenue downwards. And so one, that's probably one of our bigger investments.

The second is in sales and marketing. We mentioned that really mid last year, we started bringing on more reps, and those reps take about 12 months to ramp. Well, one, not only we continue to invest in enabling them, but we're hiring more teams, right? And we know what's in front of us in terms of the TAM for the next decade, one of the most durable TAMs you'll ever find in any industry, including security, where we operate on the far right of security, right? We operate the network. We operate the infrastructure, the highway to everything that you can think of. And so we want to take advantage of that and continue to ramp and hire from a sales perspective.

But we're doing that very responsibly with this notion of being very efficient in R&D by investing in tooling. And so that's really our upfront investments in the first half, and that's why you see what you saw from the guide on Q1, Q2 versus the rest.

Our next question comes from the line of Richard Poland with Wells Fargo.

Just a quick one for me. I think it was Drew. You mentioned the geopolitical macro headwinds kind of happening over the last couple of weeks. I just wanted to clarify on that. Is that something that you're starting to see show up in demand and pipeline? Or is it just kind of you're observing what's going on in the macro environment, so you're taking some extra cautionary steps in the guide?

Fair question, Rich. I think it is something -- I think we can all recognize that there's been more events in the last couple of weeks. So it is something just to consider in terms of being prudent in our mind. So keep in mind, we have -- in terms of that area of the world, so to speak, we have a very small percentage of our business. So I don't -- it's less about that and just more about the, what I would call kind of a more macroeconomic risk. Just prudence.

Our next question comes from the line of Shrenik Kothari with Baird.

So the AI Fast Path is really interesting. As you said, it shifts focus from not just securing AI to securing and accelerate with AI-native fabric and the new modules that you announced. So as it pulls the conversation away from like traditional kind of SSE-based bake-offs towards more broader discussion, can you talk a little bit about how the AI Fast Path has been progressing in your pipeline right now? And then I had a quick follow-up.

Sure. Yes, it's a great question. Like we've always believed that, ultimately, nobody implements security unless it has a great end user experience. In the agentic world, performance matters more. Agents talk constantly, right? They can talk at a rate that's 100x a human, and so it accentuates the need for a fabric that can operate and perform and be resilient worldwide. If you look at our infrastructure, it is the largest private cloud in the world. It is the largest highway or airspace for AI.

And so those 120-plus data centers with our architecture and software and memory operating at high speed on all agentic traffic, that's a huge advantage for us. And what we tell customers is just try it, just measure it. You'll see a very, very noticeable performance difference whether you're an AI agent or you're an application, you're a user, right, you're an IoT device.

And so the AI Fast Path is the next evolution of that for the AI era. You're going to a coding application, right? You're going to any of the thousands of generative AI apps you can see on the AI Index. We're going to be the fastest path to get there. We're going to handle that. We're not going to throw it on the public Internet. We're going to get you there directly. And so for us, the AI Fast Path is a big part of how we think about the agentic era. It's performance, resilience in addition to security, and we're combining them all.

Our next question comes from the line of Eric Heath with KeyBanc.

Solid finish to the year, Sanjay and Drew, over 30%. Maybe just one for you, Sanjay, and maybe a quick one for Drew. Sanjay, just following up on some of your comments about the customer wins in the quarter being, I think all of them competitive bake-offs. And I think we all kind of fairly appreciate the static set of competitors that's been for a long time, but there are some incremental competitors out there that have popped up in the last couple of years. So curious if you could just talk to whether the competitive set, who you're bumping into in these deals, is changing at all. And then, Drew, if I could, just any high-level guardrails you want to give us on ARR for the year would be great.

Great. So from a competitive perspective, we have 25 products. We just released 4. One of the great things about efficiency in R&D that you've seen, obviously, R&D percentage, revenue going down, obviously, the supercharging it with AI and the need to not have as -- not to hire as many from an R&D perspective. You're also seeing velocity increase. I think I previously said that we release, on average, 2 products a year or so. Well, we've already released 4 plus. And I think that trend will continue for us, and so we're very excited, obviously, about that supercharging.

And as a result, because of the breadth of what we do, you do see different competitors. For example, in the data protection area, which data, frankly, is what drives the agentic world, we would have seen still some -- a lot of the legacy folks, right? You can't imagine how much legacy Broadcom, Blue Coat and all the rest is out there and Symantec and Trellix and so on, whereas perhaps in the traditional kind of web world, proxying web, you would see your competitors that you may see in a Magic Quadrant that you would expect.

And then when we delve into sort of what I called about the AI Fast Path, the performance, you really don't see anything there because the network is obviously just very different, very unique from that perspective. And so I think as we hit across a cross-section of competitors -- but what is noteworthy is our win rate of over 80%, if we get to a POC, a proof of concept, right, that is held. And so our nirvana is just get to a POC, whether it's about enabling securing AI, securing cloud, converging, consolidating your network infrastructure.

That's why we're growing our sales teams. That's why we announced the GSI partnership and that win with the largest GSI. And that's why we continue to power through in the mid-market with our MSPs. It's just -- that's why we went public, to be blunt, drive awareness. And so that awareness takes time. It's coming, and we definitely have the platform that when you get to knock that door open, we'll win.

And Eric, on ARR, again, why we don't guide, maybe I can be helpful with how to think about modeling. Last quarter, we pointed to history. I would do the same thing. You can see that I think we were -- ARR was about 1 point below revenue growth. So I would say if I were remodeling, kind of at 1 point above, point below, something like that, right in that range.

Our next question comes from the line of Shaul Eyal with TD Cowen.

Drew, maybe can you talk to us about ASP patterns in light rising memory prices?

I'll take that question. So for us, when you look, first of all, at our landing and our average ARR per deal size, you can calculate it, continues -- for our customers to continue to go up. When you look at memory, I think that -- in one case, people often talk about that as when you sell boxes and appliances, and everything ships in memory. That's obviously not really what we do in the majority case for us. It's our infrastructure. It's our network. It's what runs on it, is our software.

And so we feel good about our guide for this year in terms of incorporating what you just said. Obviously, that's a fluid environment. So we'll watch that for next year. But we definitely feel good about the guidance we've given from a financial metric perspective that incorporates all of what you described.

The reality is that, for us, when you think about us, we process all this traffic. You can see it. You should go to the ai-index.netskope.com. And when you look at that traffic, what matters there is what you do when you see it. And ultimately, that, in many cases, is our moat. It is uniquely take those transactions and generate very unique granular data that can then inform your security policies, your security analytics, optimization of that, your guardrails and so on. And so for us, obviously, we're excited about continuing to drive more into our existing infrastructure, which can more than handle what we need to drive for this year.

Our next question comes from the line of Trevor Walsh with Citizens.

Maybe just a quick one for you, Sanjay. I just wanted to square some of the comments that you made both in the prepared remarks and your responses to some of the questions. You said that the AI revolution is exposing legacy architectures within SASE. Is there something that -- is that going to result in like just breaking of those legacy architectures or more just dissatisfaction just generally with performance?

And then secondarily to that, is there some sort of leading indicator that investors could use to just determine whether or not more of that breaking or dissatisfaction is going to come once AI and agent traffic is getting to a certain point? Maybe the AI Index you just released could give us clues there. Just trying to get a sense of when we really start seeing that the wheels fall off potentially of other players if that makes sense.

Yes, it's a good question. So I'd look at it in 2 sides. So one is the infrastructure on the network side. One is security because you kind of need both. On the infrastructure and network side, the agentic era will expose networks that were built, for example, in the public cloud, where you're going to get way worse performance. When you have more interactions back and forth, the performance difference becomes bigger, right? It became big with cloud. It will become bigger with AI.

And so one, your infrastructure. The second is, for us, we run all services everywhere. 120 data centers, everything we do runs everywhere. We don't hairpin people to a public cloud for one, to your own infrastructure for another. And so just the purity and the modernness of our architecture and our infrastructure, it leads to just better performance and AI accentuates that. So one, I do think the infrastructure and the network of others gets exposed.

The second is, remember, since the beginning of Netskope, we have always said we're not trying to build a web proxy, right? We were building a modern API JSON proxy, and it sounds technical. But what does it mean? The language of AI is that. The language of AI is APIs and JSON. I have a patent sitting outside my door here, which is real-time interpretation of Internet traffic at the API level. And the reality is that the AI era is about that.

How do I say to someone that, hey, you can use a personal instance -- or you can't use a personal instance Gemini, but you can use a corporate version. And if you want to send sensitive data there, you can only do that with a corporate version. How do I face -- have all these policies that guardrail and enable people to use AI yet satisfy the business policies they want? You need something that truly understands the new language of the Internet, which is really what AI accentuates.

And so for us, one of the engines to our car is a high-speed distributed, in-memory, right, API, JSON proxy. And that's unique. And so I remember this customer who came to me and said, "Sanjay, I bought a SASE. I bought it, and it was working. But then I started adopting AI and cloud, and I have to bypass 70% of all traffic because all it can do is block the app or allow it. I don't want to block AI. I don't want to allow it either. I want something more granular," right?

And that customer moved all their traffic to Netskope, right? It's close to 100,000 users. And so -- and agents and beyond. And they're very happy. And so I think that will happen more and more over time. But as you know, it's an enterprise, and an enterprise doesn't do things instantly. And so that will be a transition that will happen over the next many years.

Ladies and gentlemen, due to the interest of time, our last questioner will come from the line of Michael Romanelli with Mizuho.

Sanjay, you touched on this in a prior response. But how is your sales capacity today compared to where you were a year ago, both in total as well as in the number of ramped reps? And then separately, I guess, how would you characterize or assess your pipeline as we head into fiscal '27?

Yes, it's a great question. So for us, we obviously started ramping hiring more reps really full force last year. And you can see that in sort of the S&M spend as well as it ramped early midyear last year. And it takes about 12 months for us to ramp those reps. And so if you look at that, it's really, for us, in the second half of the year when a lot of those reps will be fully ramped.

And by the way, for fully ramped, as you know, when you get a rep, we don't throw them into a place and give them a bunch of existing accounts. They're hunting new greenfield accounts. So they get on. They start hunting those accounts. They build their pipeline. They get to POC, do the MSA, and that's why you have those ramp times to be clear.

And then we are continuing to hire. And so we are building that rep funnel for next year as well. And so really, that's the best way for you to think about it, is a bunch of those reps, fully ramped reps coming online in the second half of the year.

I would now like to turn the call back over to Michelle for closing remarks.

Thank you, Twanda, and thank you all for joining us today and also staying a few minutes over. We look forward to engaging with you in the weeks and months ahead, including at RSA later this month, where we will be sharing more about our AI strategy as well as demonstrating our newly announced AI products. Thank you all. Have a good evening.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

And thank you for standing by. Welcome to Netskope Third Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions]

I'd now like to hand the conference over to Michelle Spolver, Chief Communications and Investor Relations Officer. You may begin.

Good afternoon, and thank you for joining us today. With me on the call are Netskope's CEO and Co-Founder, Sanjay Beri; and CFO, Drew Del Matto. The press release announcing our financial results for the third quarter of fiscal year 2026 was issued earlier today and is posted to our Investor Relations website at investors.netskope.com, along with a supplemental presentation.

Before we begin, let me remind everyone that some of the statements we make on today's call are forward-looking, including statements related to our guidance for the fourth quarter and full 2026 fiscal year, growth opportunities and competitive position. These forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements. Additionally, these statements apply only as of today, and we undertake no obligation to update them in the future.

For a detailed description of the risks and uncertainties, please refer to our SEC filings as well as our earnings press release. Finally, unless otherwise noted, all financial metrics we discuss on this call other than revenue will be on an adjusted non-GAAP basis. We have provided reconciliations of these non-GAAP financial measures against the most directly comparable GAAP financial measures in our earnings press release.

Now let me turn the call over to Sanjay to discuss our business and high-level Q3 financial performance.

Thanks, Michelle. Welcome, everyone, and thank you for joining us to discuss Netskope's third quarter fiscal year 2026 results. I'm very pleased to be here on our first public earnings call following our IPO in September. Our founding vision was anchored in redefining security and networking for the modern era of cloud and now redefining it for the modern era of cloud and AI.

We see that vision realized every day. Netskope is the secure and fast on-ramp to everything enterprises access from the Internet, including websites, cloud and AI to their own infrastructure, private apps, LLMs and data centers. We are helping thousands of enterprises modernize and operate safely in both cloud and hybrid environments. This is happening in the context of an ever-evolving landscape of sophisticated threats, exploding data volumes and the fast accelerating revolution of AI.

With a projected total available market size at $149 billion by 2028, Netskope's opportunity is massive, and we are truly just getting started. Turning to our Q3 metrics. I'm proud to say that we delivered very strong performance across all key metrics. Our team executed exceptionally well, continuing to expand our global footprint, innovate and extend our market-leading fully converged security networking and analytics platform and demonstrate accelerated top line growth while generating incremental leverage from our foundational investments. This strong execution resulted in a 34% year-over-year increase in annual recurring revenue, reaching $754 million and Q3 revenue growth of 33% to $184 million.

Prior investments in our Netskope One platform and NewEdge global private cloud network continue to demonstrate significant leverage. We built Netskope to scale, and that is reflected in our ability to generate $11 million in free cash flow in Q3 as well as improved operating margin by 11 percentage points year-over-year and deliver free cash flow margin of 6%. Our Q3 results also showed robust performance across all geographies, driven by continued adoption of our Netskope One security networking and analytics platform of products.

This adoption is reflected in a strong net retention rate of 118%. We also achieved broad vertical diversification, including expanding across financial services, health care, manufacturing, energy, retail and government. Drew will give more color on our Q3 financials and other key metrics in a few minutes.

But first, let me share some context on the trends shaping our business and driving our momentum. Cloud and AI have completely revolutionized work. We are more dispersed, more productive and more automated than ever, and the pace of change is accelerating. Not since the Internet has there been such a transformative shift. Organizations today gain competitive advantages by leveraging a dynamic ecosystem of devices, applications and AI agents that interact and communicate using the modern language of the Internet.

These interactions are accelerating in speed, scale and complexity, generating massive amounts of data across tens of thousands of SaaS and AI apps, websites, public cloud, on-premises systems, e-mail, endpoints and data stores. The vast majority of this data sits outside corporate IT's visibility and control, and the rapid adoption of generative and agentic AI is like throwing gasoline onto the fire, creating even more data, more ways to misuse data and more risk for data loss.

Cloud and AI have also transformed the cyber threat landscape. Adversaries are finding new ways to trick organizations and their employees into downloading and opening high-risk file types, such as executables, archives, documents and scripts while evading inspection. They are also targeting cloud and SaaS apps directly, stealing tokens and credentials and luring victims into authorizing the attacker to directly access their data, bypassing the endpoint completely. These cyber threat actors are leveraging AI to accelerate their attacks, whether it be through deep fakes and social engineering or in finding zero-day vulnerabilities in software.

This has created a need for modern security and networking solutions that enable organizations to use cloud apps and AI, but facilitate access in a way that doesn't put corporate assets at risk or degrade network performance. Legacy and first-generation cloud security and networking providers manage access to applications by giving administrators the binary option of blocking or allowing applications, thus creating a difficult trade-off between employee productivity and corporate security.

These solutions were built during prior eras when security and networking requirements were different, users worked differently and attackers themselves were far less sophisticated. All of this reinforces why enterprise buyers are highly focused on making smarter investments in platforms built for the modern world of cloud and AI. They strive to spend more intelligently by cutting operational overhead and investments in legacy products that cannot address today's problems.

Today, IT security and networking teams need a comprehensive yet adaptive approach to protecting their users and data while safely enabling the use of cloud and AI. And that is why Netskope was created. That is exactly what we deliver, and that is what is driving our growth and market leadership. For those new to the Netskope story, let me explain.

Netskope sits at the intersection of security, networking, cloud and AI. We uniquely enable enterprises to modernize their security networks and use the cloud and AI securely in their organizations, all while delivering an exceptional end-user experience. Our Netskope One platform was designed for a world where users, devices, applications and AI agents can access anything from anywhere. Our platform reads the language of the modern Internet, including APIs, JSON-based data flows and machine-to-machine protocols.

It understands digital interactions at a granular level, determines who or what is involved, what they're trying to do and with which data. We can then enforce granular policies and put appropriate guardrails in place to allow IT business leaders to safely say yes instead of no to unleash innovation, business efficiencies and intelligence from the cloud, web, SaaS apps, private apps and AI, including generative AI. We also understand data and data interactions with unmatched precision and context. We discover, classify, analyze and protect data in real time, in motion and at rest either in SaaS apps, public cloud, generative AIOs, agentic AI workflows, websites, e-mail endpoints, data lakes or on-prem apps.

We can track movement of that data across different parts of an organization and make sure it's being used in the right way by enabling organizations to implement granular policies around their most sensitive data based on risk and context. We do all this through our Netskope One platform of over 20 security networking and analytics products that were purpose-built organically from the ground up to be unified. One engine, one console, one client, one gateway and one global network that all operate seamlessly and simply together to deliver the best security and performance with fewer resources to implement and operate.

This is an important distinction for Netskope and our customers. It means that when customers adopt one of our Netskope One products, it's much easier and efficient for them to implement and operate the second, third and subsequent products. Our customers view this as a tremendous benefit and realize that all platforms are not created equal. A platform isn't merely a collection of organic and inorganic products bundled under one price list. A true platform is defined by genuine integration and seamless unification.

Customers also get an exceptional end-user experience from Netskope. This is in part due to the fact that our Netskope One products all run on our NewEdge private cloud network, which is one of the world's most connected and high-performing networks. NewEdge has been architected to be an intelligent, highly scalable, low-latency global network with each data center designed to run our full stack of integrated products at high speed to every customer worldwide.

In security, there's always been a paradox that if you add functionality, it makes things slower and the end user experience worse. Netskope shatters this paradox with NewEdge and our Netskope One platform. By converging security networking and analytics and a unified platform on NewEdge with shared context, intelligence and policy enforcement, we reduced latency for end users even in the largest, most complex environments and also provide data sovereignty not afforded with other infrastructures.

To do this correctly, we also recognize that network infrastructure and operations teams need advanced capabilities. And so we built products like Netskope One DNS-as-a-Service, Cloud Packet Stream and Dedicated Egress IP addresses so that our customers could regain control over how traffic gets managed.

In many cases, NewEdge becomes our customers' new network, ensuring high security without degrading network performance or the user experience. Finally, it's important to point out that AI is foundational to the Netskope One platform. It is not an add-on or a feature. It is fundamental to how we operate and even innovate. AI is intrinsically woven into our platform for superior threat detection, proactive data protection, digital experience management and the enablement of the adaptive real-time policy enforcement I just mentioned.

Our commitment in this area is powered by 2 distinct world-class internal teams that work closely together and have been in place for many years. Our Netskope Threat Labs, a team whose experts have discovered over 1,400 zero-day threats in the wild and Netskope AI Labs, which has created more than 170 proprietary AI and ML models and holds over 50 patents specific to AI and ML applications in security. These teams ensure that our platforms remain technologically superior and ahead of the constantly evolving cyber threat curve. I've spent a lot of time over the past months in one-on-one small group and advisory Board meetings with customers and prospects around the world.

Across my many discussions, one theme stood out, how to safely adopt cloud and AI at scale. Organizations want to modernize their security and infrastructure, reduce technology sprawl, safeguard sensitive data, ensure data sovereignty and manage GenAI and AI safely. The adoption of GenAI and custom AI tools is occurring at lightning speed. And with it comes even more data, a new and more complex attack surface and the need for internal resources to manage and secure these tools.

IT leaders want to responsibly allow employees to use productivity-enhancing AI apps and tools safely and with appropriate granular guardrails to reduce risk while actively fostering innovation and efficiency. They also want to safely use AI models and apps to connect to internal and external tools and data sources, allowing the AI to perform actions like accessing files, querying databases or calling APIs. Netskope has a distinctive ability to help customers achieve this balance based on the technology differentiators I just explained. This includes understanding the modern language of GenAI apps and their detailed digital interactions with both humans and nonhumans at a very granular level. For example, the preciseness and depth of our ability to recognize the AI application, trusted originating device browser user or agent, the instance of the app, the activity being performed, the data being transacted with and returned and the normal behavior expected and troublesome deviations.

This all leads to broad and precise discovery, visibility and protection and granular adaptive policy enforcement for AI. We have over 1,000 customers using us today to protect GenAI interactions, and this number is continuing to grow quickly. When securing AI end-to-end, it helps to use the analogy of a house. AI has a basement, a back door and a front door. The basement is the AI platform itself, which must be scanned for vulnerabilities, misconfigs and unintended access and includes proprietary data used by LLMs that requires granular controls to keep sensitive information locked down.

The back door represents interactions with external data, LLMs, MCP and other agent-to-agent traffic, which must be monitored and secured in real time. The front door is where users and agents interact with AI and production, requiring granular controls on prompts and responses to prevent data leakage and block malicious behavior. And of course, every other entry point must be protected so that AI systems and data are accessed only as intended.

Our current platform enables customers to protect key areas of this AI house, and we have many exciting innovations on the horizon in this area. Let me now pivot to some of our key achievements during the third quarter, beginning with go-to-market. We saw significant customer wins across verticals and geographies. We landed important net new and expansion wins with customers seeking to modernize their security and infrastructure, address greenfield use cases, consolidate vendors and replace legacy and first-generation cloud security products with our Netskope One platform.

Common use cases included enabling fast and secure cloud, web and AI access and secure application usage, including for generative AI apps, achieving highly effective and efficient unified data awareness, protection and loss prevention, both for data in motion and at rest and simplifying and modernizing infrastructure, including replacing legacy VPNs with our Zero Trust architecture, branch firewalls with our SD-WANs and migrating their networks to our high-performance private cloud.

Notable wins during the quarter included a Fortune 200 biotechnology company that replaced multiple legacy and first-generation cloud security tools with a unified SASE deployment of over a dozen Netskope One products. Also, a Fortune 50 global pharmaceutical retailer that selected Netskope to redesign their Internet edge connectivity supporting 50,000 employees in 8,000 locations.

They purchased several Netskope One products to construct the Zero Trust architecture for their globally distributed enterprise environment and safe AI, cloud and SaaS app usage, including generative AI. We also won a global manufacturing and energy conglomerate that chose Netskope for data protection, secure cloud access and NewEdge global scale connectivity to meet strict data sovereignty requirements.

And finally, a financial institution that previously attempted to modernize its environment using another cloud security vendor, but was unable to get the implementation operational due to platform complexity and architectural overhead. They selected Netskope for true platform unification, from network to gateway to client and to console across all their use cases, including secure web access, data security posture management, Zero Trust application access, cloud firewall and SD-WAN.

All these new logos were won against primary competitors due to Netskope's superior technology that shined in bake-offs. And all were platform wins that included multiple Netskope One products. Multiproduct adoption has been increasing and is a key driver of our accelerating ARR and strong NRR. As of the end of Q3, 53% of our customers were using more than 4 Netskope One products and 26% were using more than 6.

Expanding with existing customers through cross-sell and upsell of more products as well as more regions, more applications or more users represents a large growth driver for us, and we continue to execute well on this in Q3. A few notable expansion wins were a major SSE contract with one of the largest U.S. federal civilian agencies that increased from a piloted project of a few Netskope products for 7,000 users to 8 products for 300,000 users.

Netskope was selected to address critical security needs, meet M-21-31 cybersecurity requirements across levels EL1, 2 and 3 and protect sensitive data across all cloud apps. We delivered a single FedRAMP High platform with no reliance on VPNs. That enables efficient, modern Zero Trust, advanced security and meaningful cost savings. And we also won another sizable multiproduct expansion deal for a large SASE deployment. This customer, a leading supplier to the global automotive industry, began its journey with us 2 years ago, initially purchasing a small footprint of core products for a small portion of its geographic footprint.

In Q3, they expanded to 7 products across the Netskope One platform and tripled the number of global locations. As these and many other customer wins validate, our differentiated technology, innovative vision and customer-first philosophy are key elements in our success. They are also consistently validated by important technology industry analysts who have broadly recognized Netskope as a leader across several key markets.

Netskope's placement as a leader in both the 2025 Gartner Magic Quadrant for Secure Services Edge for 4 consecutive years and a leader in the 2025 Magic Quadrant for SASE platforms for 2 consecutive years serves as an undeniable testament to this. In Q3, we were also named a leader in the Forrester Wave for SASE, scoring the highest overall among all vendors as well as scoring highest within its strength of offering category.

And Netskope was also recognized as a leader in GigaOm's Radar reports for both data loss prevention and SD-WAN solutions, all testament to our superior technology, competitive advantage and astute and innovative vision. Our market leadership and industry recognition stems largely from our strong focus on innovation. I've long believed that in security networking, companies either innovate or die. Netskope innovates.

We innovate constantly to help our customers stay ahead in the relentless battle against cyber criminals and navigate the ever-evolving digital threat landscape. Our customers appreciate the organic built ground up and truly integrated benefits of our offerings and the Netskope One platform. During the third quarter, we delivered several security networking and AI innovations, including advancing our universal Zero Trust network access solution to extend Zero Trust to IoT and OT devices, improve dynamic risk assessment and enable the consolidation of legacy technologies beyond just VPN to also include network access control and virtual desktop infrastructure.

We also continued our AI-powered innovations that improve the efficiency and effectiveness of security teams. This included an integrated AI agent for Netskope One private access that provides insight into existing ZTNA network topologies and private application configurations for automated natural language policy recommendations. This helps administrators reduce their attack surfaces and optimize network operations.

Additionally, we began a limited release of our model context protocol server, which leverages this common language of AI to enable customers to easily and securely share Netskope security context with major LLMs like cloud desktop, Microsoft Copilot, Google Vertex or Amazon Bedrock to enhance critical enterprise workflows. On the networking side, we expanded our NewEdge private cloud with new data centers in Malaysia, Toronto, Hawaii and Oman to meet growing customer demand and our continued commitment to delivering best-in-class network performance.

NewEdge now covers close to 80 major metropolitan areas with over 120 data centers globally. Remember, Netskope NewEdge was uniquely and meticulously designed. We do not play marketing games with how many regions or data centers we have. Unlike others, all our regions and data centers are available to every customer and all have full edge compute and run all services. We also released several new products stemming from our technology alliances with Microsoft and CrowdStrike.

Netskope One now uniquely fully integrates with Microsoft Purview, combining Netskope's deep DLP enforcement with Purview's data classification policies. We also announced general availability of Netskope One advanced SSE for Microsoft Entra Global Secure Access and new protections for Microsoft 365 Copilot conversations, including GenAI queries, responses and AI-generated content, all using our market-leading data and threat protection delivered through our new CASB API for Microsoft 365 Copilot.

Together, these integrations help Microsoft customers accelerate their Zero Trust journey while protecting users' data and applications without compromising performance or experience. And finally, through our strong technology alliance with CrowdStrike, we released a new Direct to Zero Trust app. which provides out-of-the-box integration between Netskope One and CrowdStrike Falcon to enable the bidirectional sharing of indicators of compromise without the need for extensive manual integration work by the customer. We operate in a market where superior technology matters a lot.

We often get asked, what sets Netskope apart from others? What drives customer adoption and satisfaction and what fuels our market leadership. As market analysts and our thousands of customers validate, the core of our differentiation is our technology and the vision that it was born from. Innovation is the heartbeat of Netskope. We are committed to continuing to invest in R&D to drive innovations that expand our industry-leading security, networking and analytics platform and help our customers safely unleash the power of cloud and AI to stay ahead of the cybersecurity curve.

In closing, I'm pleased with our Q3 performance and proud of our team for demonstrating the guts, resolve, integrity and tenacity that are at the core of Netskope's culture to execute incredibly well in our first quarter as a public company. Our innovation engine is delivering seamlessly integrated products that are pushing boundaries in AI security, data protection, networking and analytics. And our road map has many exciting solutions in these areas on the horizon.

At the same time, our go-to-market engine and machine is [ revving ]. We continue to attract top industry talent to support growing demand, ramp our reps swiftly, leverage and expand our technology and channel partnerships and grow our brand awareness to drive incremental [ at bats ]. We look forward to the exciting road ahead and thank our customers, partners and you and long-standing investors for their support.

With that, let me now turn it over to Drew to provide financial details on the third quarter and our outlook for the fourth quarter and fiscal year 2026. Drew?

Thank you, Sanjay, and hello, everyone. As Sanjay shared, Netskope delivered a very strong third quarter, highlighted by accelerating growth in both ARR and revenue. Our ongoing investments in innovation and our go-to-market motion are driving tangible results as noted by our 11 percentage point improvement in operating margin.

Netskope is built to scale, which positions us very well for continued efficient growth. For those coming up to speed on Netskope, let me point out that we have a SaaS-based business model where we generate nearly all revenue through subscription sales of our cloud-based Netskope One platform of products. Because of this, we view ARR as an important metric in evaluating our current business performance. We generally price our subscriptions per user based on the scale of the customer's organization and the number of products deployed.

I will now share the financial highlights for Q3 fiscal 2026. As a reminder, all financial comparisons are on both a year-over-year and a non-GAAP basis, unless stated otherwise. ARR growth accelerated to 34% and totaled $754 million at the end of Q3. Total Q3 revenue grew 33% to $184 million. We also experienced strong revenue growth across the geographies. Revenue in Americas grew 34%, EMEA increased 34% and APJ grew 29%.

Our teams executed well, and our investments in our sales organizations are paying off. In terms of customer metrics, the number of customers generating more than $100,000 in ARR in Q3 grew 24% to 1,444. Enterprise and large enterprise segments are our focus and more than 85% of our ARR comes from $100,000-plus ARR customers. Furthermore, the average ARR from this key segment increased 10% year-over-year to more than $450,000 per customer. This is indicative of our success in both expanding our existing installed base and securing significant new enterprise deployments.

Our Q3 net retention rate, or NRR, was 118%, consistent with what we saw in Q2. Our strong NRR illustrates both the enduring value and stickiness of our solutions with customers as well as our ability to effectively upsell additional products and use cases to our installed base. In addition to NRR, we look at multiproduct adoption to demonstrate our expansion opportunity within our customer base. As of the end of Q3, 53% were using 4 or more products and 26% were using 6 or more products.

We're pleased with this product adoption and also know that we have meaningful white space opportunity for expansion by cross-selling our Netskope One platform of more than 20 products. Moving on to the rest of the income statement, where we saw the benefits of Netskope being built to scale. Gross margin was 75%, an increase of approximately 5 percentage points from Q3 last year.

Our gross margin expansion is being driven by the efficiency of our NewEdge architecture, which is generating better unit economics as we scale. Q3 operating expenses totaled $166 million, up approximately 3% sequentially. We realized a modest benefit to operating expenses in the quarter from the timing of a few onetime items that are now expected to fall into Q4. As I shared a few minutes ago, operating margin improved 11 percentage points year-over-year to negative 15%. R&D was 38% of revenue in Q3, down 300 basis points year-over-year as we realized the benefits of early investments in a common data platform and hiring at high talent, cost-efficient locations.

We also saw improving sales and marketing efficiency, which improved 300 basis points to 41% of revenue as we continue to invest in quota-carrying sales reps. Our consistent year-over-year improvement in both gross margin and operating margin demonstrate how we've built Netskope to grow and scale efficiently. Net loss per share was $0.10 using 245 million weighted average shares outstanding. Note that our non-GAAP EPS excludes the change in fair value of the convertible notes we issued when we were a private company. The magnitude of this adjustment is unpredictable and can vary significantly from quarter-to-quarter due to stock market volatility and other factors outside of our control.

Note that it's a noncash item and is not strategically relevant to our core operating performance. Therefore, this adjustment is excluded from our non-GAAP net income and EPS going forward. We've also updated our historical periods to reflect this presentation for comparability. Fully diluted share count using the treasury stock method was approximately 506 million shares as of October 31, 2025. As part of our going public process, we recognized a large onetime stock-based compensation expense as the liquidity condition on outstanding restricted stock units was satisfied.

This expense resulted in a GAAP net loss in Q3 of $453 million. Stock-based compensation, including related taxes for the quarter was $416 million, driven primarily by onetime expenses related to the vesting of RSUs in connection with our initial public offering. Going forward, we are focused on managing dilution. We anticipate that stock-based compensation expenses will decrease significantly in Q4 and for the most part, normalize thereafter.

We generated $11 million in free cash flow, representing a 6% free cash flow margin. We're pleased with our ability to drive positive free cash flow as this demonstrates the leverage inherent in our model. While we continue to realize the benefits of being built to scale on margins and cash flow, our path to sustainable positive free cash flow is not expected to be linear. The timing of cash collections can vary, and we expect to continue investing in the business for long-term growth. We also surpassed $1 billion in remaining performance obligations, or RPO, reflecting 41% year-over-year growth.

And finally, we ended the third quarter with $1.2 billion in cash, cash equivalents and marketable securities. This includes approximately $992 million in IPO proceeds, net of underwriting discounts and commissions. Before I share our guidance for the fourth quarter and fiscal year 2026, let me briefly outline some factors that should be considered. We plan to focus our investments on innovation as well as growth. This includes hiring engineers and data scientists in focused areas to drive Netskope's road map and innovation strategy. We'll also continue to focus on hiring and ramping reps to address growing market demand for our cloud security, networking, analytics and AI solutions.

Also, we expect continued improvement in our gross margin as we work toward an 80% target over the long term. The foundational investments we made in building our NewEdge private cloud network allow us to scale efficiently going forward. Also, as a reminder, we are in the midst of a shift in our customers' billing terms. where our multiyear contracts are now primarily billed annually. In the past, a higher percentage were billed upfront. This shift is expected to increase the predictability of future cash flows. Note that this transition creates some near-term variability in cash conversion, free cash flow and calculated billings.

And finally, we're encouraged by cloud modernization and AI tailwinds that favor Netskope. However, we're still early in our public company journey and also in an uncertain macroeconomic and geopolitical environment. We've built our guidance with these factors in mind. Let me now provide our guidance for Q4 and the full year fiscal 2026. As a reminder, these numbers are all non-GAAP, unless otherwise stated. For Q4 FY '26, we expect total revenue in the range of $188 million to $190 million, representing growth of approximately 27% at the midpoint, operating margin of negative 13% to negative 14%; net loss per share of $0.05 to $0.07 using approximately 400 million weighted average common shares outstanding.

Please note, this excludes the change in fair value of the convertible notes I noted earlier. For the full year fiscal 2026, we expect total revenue in the range of $701 million to $703 million, representing growth of approximately 30% at the midpoint; gross margin of approximately 75%, operating margin of negative 16.5% to 17%, with investments focused on supporting our continued innovation and go-to-market expansion initiatives. Net loss per share of $0.51 to $0.53 using approximately 215 million weighted average common shares outstanding.

Note, this also excludes the change in fair value of the convertible notes. Free cash flow in the range of $5 million to $8 million. In closing, we remain confident in our ability to execute on our long-term strategy and innovation, driving strong revenue growth and capturing market share. We remain focused on prioritizing disciplined execution, strategic investments that accelerate growth, strengthen our competitive advantage and continue to drive margin expansion and cash flow velocity while maintaining market leadership. Our innovation drives the flywheel for our growth, and as such, we'll continue to invest in our R&D engine and go-to-market while remaining fiercely committed to delivering profitable growth. Thank you for your time today.

With that, I'll turn it over to the operator for Q&A.

[Operator Instructions] Our first question comes from the line of Meta Marshall with Morgan Stanley.

Congrats so much on a great first quarter out of the gate. Sanjay, maybe a question for you. Just as you're seeing kind of increased attach of additional modules, are there any trends in the modules in which you're seeing traction with? And how does that change how you think about product road map?

Yes. Great. Great question. If you look at the use cases, and I always come back to use cases, one of the top use cases for us is securing cloud and web access. Securing AI in the past 6 months has been a big one. That has drove and continues to drive our next-gen swing and our premium version of that. In addition, the consolidation for remote users and contractors has really driven our ZTNA offering.

And the last one I would say is, especially with generative AI, data protection becomes even more important. People want to use and unleash AI, but they need to protect their data. And our unified data protection products, all the way from the endpoint to our in-line capabilities to our DSPM offering have also seen great growth.

Our next question comes from the line of Brian Essex with JPMorgan.

Drew, Sanjay, congrats on your first public quarter. Drew, I caught your comments on sales productivity. I was wondering if you can unpack that a little bit. I think pre-IPO, you accelerated hiring of quota-bearing reps and about half of those were still unramped. Could you help us maybe give us an update in terms of where you are in that ramping process? What percentage of reps might be now in that mature category? And how aggressively might you be hiring as you kind of like enter the end of the year?

From a rep perspective, we're on track for hiring. When you look at -- you can go to our website, and you will see just a slew of open racks for sales teams. And so we continue to accelerate hiring globally. We're getting some of the best reps you'll find out there. I just came from one of our new hire trainings, a room full of amazing reps, hunters.

And so this is really the place to be if any reps are listening, and we want to come to a great place with an over 80% conversion rate on POC, please come here. But -- so we're on track and our ramp time frames are the same, usually around 9 to 12 months.

Our next question comes from the line of Matt Hedberg with RBC.

Great. I'll offer my congrats as well. Sanjay, for you, obviously, agents and agentic technologies on everybody's mind. And it feels like you guys are well positioned to help customers think through their agentic journey. Just kind of curious on how you think of that piece as part of the growth story here?

Yes. Great. It's a great question. I recently did a tour kind of across the world with customers' prospects and agentic AI, agentic workflows, securing enabling AI, top topic. If you look at where we're positioned, we see the traffic of all of our customers. We see their human traffic, their nonhuman traffic. All their AI applications go through us. So they could be using ChatGPT, they could be using AI within a SASE app.

An AI agent could be originating that. We see that. And because we understand the language of AI, APIs, we see it at a more granular level than anybody else. We see -- oh, they're using Gemini, a personal instance and they're about to say reformat this health care data. Well, guess what, Netskope can stop that, yet still allow them to use that AI. And so I call that the front door of AI. It's users, AI agents, applications using LLMs and using AI.

We see it, we understand it, we can protect that data and then we can put guardrails around it. And so absolutely right in our wheelhouse, and it's a big reason that we're seeing sort of the success across different verticals that we are.

Our next question comes from the line of Shaul Eyal with TD Cowen.

Sanjay, Drew, Michelle, congrats on the first quarter as a public company. Thanks for the data on module growth during the quarter. I think it's a great practice. Also, great job on deals over $100,000. Any color you can share with us on 7-digit transactions during the quarter? And are there any 8-digit deals in the pipeline?

Yes, it's a great question. So I think we highlighted a couple of great wins. We mentioned, for example, a Fortune 50 global pharmaceutical retailer, 50,000 employees using us for AI, cloud, SaaS, generative AI. We talked about another one where a financial institution needed to modernize and they consolidated multiple products from network to gateway to on-prem clients and so on. Those type of multiproduct where you can see now over half of our customers have 4 products, now we have 20.

Those kind of multiproduct convergence where you're looking at what I call enterprise customers, right, well over 20,000, 10,000 users. Those have really been great wins for us. And the beautiful thing is the greenfield opportunity is, hey, we have 20 products. The average customer has just over 4. Our pipeline, we're not necessarily talking about specifics on that.

Can I -- I'm going to add one thing. Sanjay highlighted 2 of the larger deals that we're landing. Also remember, we have a lot of white space on the expansion side. So one of the expansion deals that he highlighted also was a very large deal.

Our next question comes from the line of Brad Zelnick with Deutsche Bank.

Excellent. And I echo my congrats as well. Drew, any help that you can offer in how we should think about ARR and net new ARR seasonality into Q4 and anything we might contemplate maybe even into next year? And I appreciate your comments about all the assumptions in your guidance, but also as a brand-new public company, I mean, you guys are growing in excess of 30% at real scale. I mean, it really stands out, really great. But anything you can do to help calibrate the kind of beats that we might expect going forward would be helpful.

Okay. Well, I think there's a couple of questions there. I think your first question really was on ARR, Brad. So we're not guiding ARR, but I do think it's helpful. We may want to just help you a little bit from a modeling perspective. If you look over really the last year, you could see that ARR was growing about 1 point faster than revenue. So just one way to kind of think about how to think about that. And then also last Q4 was very strong. It's a very strong quarter for us.

So what I would consider a high bar. And Q3, also a very strong quarter. We just saw 34 -- ARR accelerating to 34%. In terms of just the guidance, again, newly public company, we are being prudent. And we also -- what Sanjay was just talking about, we have a lot of reps ramping. We continue to hire, and it's very hard to predict the rate at which we'll hire and the rate at which they'll ramp.

Our next question comes from the line of Rob Owens with Piper Sandler.

Hope to focus a little bit just around new customer acquisition and what you guys are seeing, both from a size of new lands and how that's comparing as well as are these greenfield lands or are you seeing replacement of existing technologies in terms of older SASE implementations?

Yes, it's great. Great question. When you look at lands, there's a percentage that is greenfield. You think about the use case, securing AI enabling AI. People don't really have anything for that. Those are greenfield use cases. You think about unifying data protection, that's greenfield. No one has anything really for identifying data in their data lake for [ RAG ], but maybe they have something on endpoint.

And so there's a combo, data protection, greenfield and you're replacing endpoint, e-mail, in-line DLP systems. So greenfield, a mix. And then there's pure replacement. Legacy appliances dominate. You have first-generation cloud security providers. We mentioned one who the customer could not get implemented. And so there's also a lot of that where they want to take the next step in securing cloud and web and modernize their VPNs.

And so that is replacement. So it is a spectrum, and we do see all of them. As far as just size, I think you had a question on landing. You can calculate kind of our -- from previously, our average ARR and beyond. And obviously, for us, it's always been around over $150,000 or so on, and it's $170,000 now. So it continues to grow and customers continue to land with more products and then they continue to expand with more.

Our next question comes from the line of Ittai Kidron with Oppenheimer.

Congrats, again, guys, on the first great successful quarter out of the gate. I wanted to focus on the Americas, Sanjay and Drew. I mean clearly, that's a region that you've been investing significantly in recently. I think, Drew, if I got this right, I think you mentioned Americas grew 34% year-over-year. Correct me if I'm wrong, but it didn't seem like the growth there was any materially different than the other regions. So I would love to see if you can get some color on your progression in the Americas? And how should we think about the growth pattern in that specific area?

Yes. So you have the right numbers. We mentioned that revenue in the Americas grew 34% in EMEA, same rate and APJ, just under 30%. And so for us, when you think about the Americas, specifically, last year, we obviously focused on taking the next step in our Americas team, right? We brought on some great leaders. We mentioned we brought on great leaders below our main leader and so on.

And we've been in a big phase of just recruiting new reps. And as Drew mentioned, the focus is getting those reps ramped, getting them fully productive and so on. And so we see pretty consistent growth across all geographies, and that's great because that's great diversification for us.

Our next question comes from the line of Trevor Walsh with Citizens.

Interesting to hear about the Microsoft partnership, especially on the purview side and what you're doing around data security. Sanjay, I was wondering if you could just maybe weigh in a little bit on how you're thinking about maybe not just the Microsoft partnership, but more broadly with some of the -- with other large platforms and how you're balancing kind of the co-opetition piece there and as customers move towards consolidation kind of larger platforms, like how you're kind of balancing that module uptick that you're seeing with those -- where you choose to kind of do higher level integration?

Yes. So first of all, I've always believed that in security and networking, there is not one platform. Nobody wants one. I remember sitting in a room of 100 CIOs, and I asked them, where would you want to be on a spectrum of 100 to 1? Nobody wants 100, but nobody wants 1. And so the reality is they want a few, a few core platforms. and we're one of those. We consolidate 20-plus different things. It used to be called data network security, converged into one, right? But there are other platforms.

There is your identity platform, your EDR, SecOps. And our philosophy is, look, we fight a common enemy and the industry needs to play well. It needs to integrate. It needs to have an open ecosystem. And so for us, that's what we focus on, right? We have integrations with pretty much every platform, security networking out there, and that includes Microsoft. We integrate with everything Microsoft has from endpoint to identity to SecOps. And so that announcement in that framework was just the next step, integrating with their Copilot, Purview and more. And our philosophy on that integration will continue.

Our next question comes from the line of Gregg Moskowitz with Mizuho.

Okay. Great. Congratulations on the terrific quarter. I don't want to overstate this, but a few investors have become a bit more concerned about a slowdown or a general slowdown in network security growth this year and other aspects of network security, I should say, and whether that could portend some sort of incremental pressure on SASE going forward. Based on the strong Q3, I'm sure you're not seeing any signs of this today, but it would still be helpful, Sanjay, just to get your perspective on this.

Yes. So I always say customers now, they don't want to throw more bad money after bad money. What's bad money in network security. Appliances, things that don't understand natively cloud, AI, things that were built to do web filtering, but not the world that people want now, which is not a [ louver ] block. And so in the broader spectrum of network security, we feed off that. We're good money. And so for us, the reason we see this acceleration in the TAM and the opportunity is people want to spend on things that move them forward in the cloud and AI world. And a lot of network security is not that.

And so for us, why we don't concern ourselves with that stat or so on is we're the benefactor of that migration of that spend, right, to the right side of history, which is how do we enable cloud and AI. So SASE, one of the fastest-growing markets in security, I foresee for the next 10 years.

Our next question comes from the line of Eric Heath with KeyBanc.

Congrats on the strong start as well. Sanjay, I do want to come back to the comments on Microsoft. And if you can just expand a little bit more about the uniqueness of this Microsoft partnership relative to others in the industry. And then maybe, Drew, now that it's recently [ GA ], what this could mean to the model, if anything, as we look out into next year?

Yes. So when you look at the Microsoft partnership, we integrate with everything Microsoft has. And what we announced was -- and actually, what they announced was that they had chosen one SSE provider to go to market with. And the first one they decided was Netskope and they announced that at our conference earlier in the year. And that was what we partially announced in this announcement.

The second was a lot of our customers came to us and said, "Wait a minute, you already secure all my cloud. You already secure all my web, you secure all my private apps. You understand AI and now you're going to secure that for me. We're using Microsoft Copilot. Well, guess what we can do with Copilot. We can watch everything they do in the Copilot conversations and make sure they're not conversing in the wrong way with sensitive data or make sure that there aren't threats.

And so that multipronged partnership across the AI ecosystem of Microsoft, that's what our customers wanted, and that's kind of what we delivered. And so for us, when you look at organizations, mid- to large enterprises across the world, they want this independent layer, all AI, doesn't matter where it comes from. Anthropic, comes from Google, comes from Microsoft. doesn't matter what SASE app I use.

It doesn't matter what website I go to. They want this independent layer that understands it and put guardrails on it. And so naturally, we're not going to go partner with 100,000 systems and app providers. We don't require the partnership. But the big ones, we both see great go-to-market and technical value of doing it. And Microsoft is obviously perhaps one of the biggest.

Yes, Eric. And then just on the second quarter -- the second question, excuse me. The way to think about it, it's just part of the overall modernization trend that's accounted for in the $149 billion TAM that we share. So obviously, we'll account for that when we do guide at the end of next quarter or next quarter's earnings call.

Our next question comes from the line of Shrenik Kothari with Baird.

Congrats on the strong start, Sanjay, Drew and team. I had a question on NewEdge, right? You have clearly invested in infrastructure full compute with the NewEdge POPs. And as LLMs, AI agents interact in real time, I would imagine latency, inline enforcement matter more and more. Do you see the edge itself as a big differentiator in customer conversation decisions and especially where potentially hyperscaler footprints are thin? And just how do you see your investment strategy going forward?

Yes. So the short answer is yes. NewEdge is a huge differentiator. I can't tell you how many conversations I go in, and the infrastructure operations person says, "Wait a minute, you're faster. I mean I can just see it. No matter where I am in the world, I use NewEdge, my end users see that their experience is faster."

You think about that and you think about AI and you think about that, hey, over time, over half the transactions on the Internet won't be from humans. They'll be from AI agents. And that AI agent network, that highway, that's NewEdge. Because when you think about us, we're about 10 milliseconds from anybody in the world. And when you come to us, you don't go over the Internet to get to where are you going? You're going to Gemini, are you going to Anthropic, right?

We're one of the most peered connected networks in the world. And so for us, just like AI is an accelerator for security, it is an accelerator for the advantage we have in our infrastructure and optimizing the end user or end agent experience.

Our next question comes from the line of Gray Powell with BTIG.

Yes, congratulations on the first quarter out of the box. It's great to see. So I just want to focus back in on some of the headline numbers. The acceleration in net new ARR really stood out this quarter and it's been impressive all year. And I know there's a number of factors that are driving that between sales and marketing investments and new products.

Would it be possible to just sort of talk about what exactly is driving the improvement or maybe rank order what's driving that improvement? And then just how should we think about the sustainability of this improved productivity that you're seeing?

So from a net new perspective, we're a mix, right? We're hunters. So we're landing new logos, as you saw many, and we're expanding within our existing accounts, which you can see the growth of how many customers have 4 products, 6 and so on, right? This steadily increasing our NRR of 118. And so that net new ARR, it's a mix of both, net new logo and the prolific kind of upsell opportunity we have because the average customer is 4-plus and we have 20-plus modules. And so that's a mix.

Now on the go-to-market side, as you know, one of our big focuses last year was making sure worldwide we had all the sales leaders that can take us for many, many, many years to the next stage. And we brought those on. And then we brought on reps and we started ramping them and so on. And so we feel good about our go-to-market execution worldwide. You can see that in the growth, for example, in the Americas. And so that's also another driver. The summary for you is if you think about Netskope, we win over 80% of the time if we get a spot at the table, we get a POC.

So the Nirvana and the whole focus of our company is just broaden our awareness, right? And one of the reasons we went public broaden our awareness, right? When you write articles, that broadens our awareness. And so for us, a lot of that driver will also just be, hey, we're getting more at bats. We know that if we get in at bat, we have an amazing batting average. And so a lot of that also is just the go-to-market expansion, the awareness expansion that will come over time as well.

Yes. Great question, Greg. But if you go back over the last 18 months, 2 years, we put the leadership team in place. They've done a phenomenal job of building the go-to-market engine. And now it's really all about hiring reps. And we talked about that, the hiring there and the ramp time and that impact. And what you're seeing now as we invest more reps, 34% ARR growth, 44% net new ARR growth in the quarter. So we're seeing the results that we expected to see, and they're executing very well.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Michelle for closing remarks.

Great. Thank you, Towanda. And with that, we conclude our third quarter fiscal 2026 earnings call. Thank you for joining us all today, and we look forward to engaging with you in the weeks and months ahead.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.