NetScout Systems (NTCT) 30 Jan 202020 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by and welcome to NetScout's Third Quarter Fiscal Year 2020 Results Conference Call. At this time, all parties are in a listen-only mode until the question-and-answer portion of the call.

As a reminder, this call is being recorded. Tony Piazza, Vice President of Corporate Finance and his colleagues at NetScout are on the line with us today. [Operator Instructions]

to the call Company's like Piazza to now begin to prepared would turn over the Tony I remarks. Please go ahead.

Great, everyone. Welcome year and good third XXXX. December operator, for fiscal ended call XXXX thank quarter conference period XX, to you, NetScout's the morning

Joining President NetScout's and and Officer. Szabados, Anil Chief CEO; Jean Bua, Singhal, Officer; Chief Financial Operating and are NetScout's me Michael today President NetScout's Executive Vice

in section our itself www.netscout.com to prepared under at multiple in There the our under the areas remarks, can landing results, is financial within on that a investor page. and slides slides of viewer slide our page results IR advance the remarks relations accessed financial the website webcast the both accompanies the webcast prepared can information including quarterly follow presentation commentary, the the you and be

unknown assumptions Commission. any communication the information with with on Reports Quarterly obligation contained Moving actual forward-looking include such that in words and year expect other in call Report herein. to and as and ended involve materially of to our the uncertainties, Form and update opportunities a Annual and factors, on financial statements. on forward-looking prefaced described share, risks, as March and today's subsequent as as initiatives performance. to business range no financial XXXX Securities today's on respect for These along described and and forward-looking anticipate, Slide to by conference historical in slide facts be and not strictly Exchange and on believe, cover known such results potential product may market from will assumes on X, will plans, are Company's These XX-Q statements file the the statements financial are key forward-looking future with and this our differ market statements press due NETSCOUT the XX-K uncertainties announcements their guidance, well results or which release our this could impact risks topics Form XX,

which Slide metrics. turn non-GAAP involves Let's to X,

both While providing on conference on the call presentation unless results, measures of a on press information only. otherwise for not release. in limitations rationale solely along financial those discussed includes be this or accordance Non-GAAP measures relying a slide with GAAP slide substitute stated, non-GAAP The from be on and non-GAAP for as detailed with measures information this financial basis today's will and in is These isolation prepared today's considered GAAP. in should

which will of the certain Additionally, as organic provide the we non-GAAP for business, HNT purposes. performance tools of a revenue sale tools result comparability trends, removes HNT

provided Reconciliations the applicable the of measures are in on all this earnings our press also metrics website. with slide release of and in GAAP presentation, are they non-GAAP appendix today's

Anil over turn the I prepared remarks. to call Anil? will now his for

everyone, Good Tony. you thank joining you, morning us. Thank for and

Let's recap results. quarterly our begin Slide on X non-GAAP of with a brief

same quarter From quarter. a strong third-quarter at of X% the over year for last Revenue end financial share, million. revenue, year the for quarter both the expectations our high with per fiscal earnings XXXX performance perspective, the exceeding increased delivered $XXX.X we

both acceleration the from originally due primarily transaction to that of revenue a and enterprise provider exceeded year-over-year we our expectation next in on We quarter occur benefited The verticals. growth to quarter. service service our provider expected

last capital clarifications benefited management more the as share that revenue increased and record software expectation Earnings with corporate quarter. year. per XX% to exceeded which benefits was gross than margin due quarter $X.XX earnings that per added structure incremental share tax initiatives our compared as in We the our same well only

our of begun that security a capabilities technologies marketplace. steady in offerings. provide provides our service something advance strengths this valuable and pace our We perspective, strategic and elements the customers combining believe enhanced to to a of product unique and From to our at have we combination assurance continue leverage initiatives the

On initiatives, build showcase that pipeline our good and products traction. and our stabilized, gain continue sales believe to industry force teams events major at and we to beginning the our are go-to-market integration has

evolve to as we provider our revenue grew further same transaction for perspective this review the X we compared North quarter, quarter that his year. American tier-X service network. carrier some remarks. move in order Michael XG from this carrier business This Let's elaborate is XG fiscal further In last a the to Slide In related with X% on continues revenue highlights. from this vertical, its second the recognized year. nationwide will

from their XG-LTE revenue of of also from as our value were their continue carriers recognized These a deals orders international large During these our carriers our quarter, with that the the relationships and networks. incumbency solutions a couple visibility that of evolve networks. evolve they we demonstrate to continuation

next the as from benefited alter earlier, expected it timing Finally, occur said this service with but I of year. vertical related, for quarter. a early, the recognize pleased were it fiscal the revenue but originally We expectation acceleration also to to not transaction revenue does related our is as - associated timing that we provider is revenue full

XG-LTE We Latin international of geographies, including see their parts and networks America, Asia. Middle East, in customers Europe, advancing the

and as XG We their Asian continue to closely initiatives. our also they work customers with American North advance

growth long-term see initiatives, more becomes of is numerous in a some mainstream. to we opportunity pleased as driver benefit will accelerate leading XG are carrier believe computing that our their our that ways and XG business especially we While

Mobile showcasing in looking the our next are service Spain Conference at XG Barcelona, We assurance solutions to month. forward World

year. vertical, transformation digital Overall, to Enterprise their continue initiatives. customers X% revenue over advance to security Turning our this and quarter grew vertical, our same the in last

of during cloud. these solutions the which our wins visibility transition customers' his to Michael some demonstrate at of highlight the remarks will value

from in our this We also past believe that us. that reorganization of side primarily we is experienced the disruption sales force vertical now the behind international

XX% of our from products. saw service with customers quarter both record assurance form coming software-only software-only factor revenue and product during In our area revenue that this adopting the verticals, in are these we

enterprises. recently of to advance unique and of value visibility an DDoS and This for is with the initiatives continue our announced combination next how customers. to and of Finally, Sentinel technologies our for add Arbor service Sightline security security assurance can example large our the service protection deliver generation providers and we

will We Nevada. month in product Las next at further Conference RSA will showcase this Vegas, the remarks. elaborate Michael this his on during

quarters range move are expected capitalize X to quarter, in our We narrowing to radio review to our and Now to them. the let's the produce behind pipeline, modeling and frequency about that on revenue With excited the us, Slide our opportunities projects are propagation view ability remain we of are seeing we fourth our on three to the outlook. million $XXX rate a The earnings structure legislation implies clarification capital management $X.XX. digit range to $X.XX a to of $XXX primarily and share recent benefits such with benefits share revenue and guidance as tax reform, over low-single year repurchases. to million $X.XX our increase of per a guidance last associated increasing which growth organic reflects

of trends XXXX we XG, business our fiscal should about fiscal to transformation, are in benefit year As as forward look experienced should that start and with to analytics. these year security, fiscal few We we have as that see of in future excited digital we end we to sharing approach over to with you believe us the XXXX, and in finish we we such the the us look front seeing year headwinds the to I years from again our transition the and the past future. progress the that this look and trends growth dealing business.

I'll point. the this over call now turn to at Michael

everyone. and good morning you, Thank Anil,

by In fiscal that American from pace XG the will the their I as Slide win strong cover. the incumbency. traction this additional gain continuation of provider demonstrates well an continue North value to our orders year. monitoring of service solutions is as and areas from earlier XX evidenced that build-out our XG service deployments outlines X-figure placed vertical, we provider the for the The same high as provider similar of this orders in

displaced on In enterprise. competitor enterprise of low-seven-figure customer, local institution incumbent customer's locations assurance a head financial opportunity regional the at across the standardized the this as NETSCOUT arose situation, we deal. service initiative. The an the a vertical, transformation as won solution at we digital office they result In the large, and a

solutions into the cloud. to offices, remote Centers, the than The Data well more local within their XX our their in head East as and award interconnects XX support regional deploying West as offices, encompassed to colocations

Our win strategy this with network and the strong for us. product secured collaboration and close both application what is teams

superior the initiatives NETSCOUT enterprise. solution and across Our cloud cloud to standardize on alignment decision capabilities the as to NETSCOUT the and lead virtualization our and customer's for the to positioned

an during security as case which and space, base because and simple to with the well customer large in solutions enterprise configure alternatives. lead continue DDoS robust can protection, not adapt is provide network-wide as-a-service we as our visibility to Arbor In the our attack,

range large another our staying incremental institution, fast-evolving financial expansion threat closed high opportunity For a and we in six-figure an demonstrating at in continued role example, critical landscape. power the

We massive player. also solutions. -- business revenues for already expand customer this customer solid from strong to X our at as cloud to major expanded a continue low the installed and they repeat our base Annual figure deployment a added their have be been

participate go-to-market continue over shows In we major events key coming to of attempt the in to activities, industry weeks. terms and

space. insights are in in and The and participate XG will we our our Barcelona, where share World experience highlighting in Congress capabilities We the Mobile will early

a of new focus application-layer as participate with security visibility understanding provide well ISPs the on also technologies, Combining Sightline new and deep use their in San and a will with RSA core NETSCOUT which will them value-added enable our product range DDoS Arbor Francisco, detect services product announced threats broader will customers Arbor allow breed Sentinel, where we as of was to We to services. last of week. called in the a

will we in Summit Florida Finally, April. User our Technology Engage Hollywood, in and host annual

in and attendance. exceed record currently mode expecting full are last We are to year's recruitment

engaging showcasing customers and about our excited are solutions at event. We this our with

will the to my now concludes over call prepared Jean. I remarks turn That and

everyone. Thank you, morning good Michael, and

along key review fiscal nine guidance months, XXXX for remainder the or third our the quarter will year fiscal metrics of I with for performance, and our year-to-date year. first

and this non-GAAP results As otherwise focuses review our in appear our unless stated, presentation a with reminder, the reconciliations GAAP on all appendix. results

note In to organic the tools I period any basis, comparisons. of will which HNT will HNT certain revenue business applicable on for revenue an nature the such I non-GAAP Regardless, trends of referenced. sale of the mid-September due highlight addition, in tools the removes XXXX,

Slide XX quarter for third our and details fiscal performance. year-to-date results XXXX our

revenue the quarter revenue in on prior to X.X% quarterly performance, the grew quarter. the Focusing Product same X.X% year's year $XXX.X revenue over over million. service prior grew and X.X% the grew

quarter third fiscal year. sales only year. software X.X profit at the percentage compared in gross the as margin points quarter of last assurance XXXX the to the of over year XX% third XX.X%, to Contributing revenue XX% strong same the was improved Our was prior quarter up margin service

Quarterly share diluted operating to and $X.XX. the expenses continued cost XX.X% reported management. decreased year, earnings prior from an of controls margin per headcount operating primarily profit due with X.X% We of

review Turning XX, revenue to for I'd of nine to Slide months key the like year. the trends first

first while was generated the For X% revenue nine the from the fiscal the revenue service Approximately provider the vertical enterprise vertical of vertical remainder removing X%, the year customer approximately Tools the with XX% impact after enterprise. months of the XXXX, service business. divested approximately grew revenue of HNT from provider declined total

which by first our prior relatively the geography Turning with on Revenue mix, of shows XX, GAAP geographic the quarters consistent to Slide revenue basis. year. a three was

of that in were represented year the Additionally, customers the or revenue. first quarter no more the months nine XX% or there of

of XX cash, quarter. million, our million cash increase marketable quarter cash of details equivalents, and $XX.X free since sheet Slide and ended long-term is marketable balance the with securities $XXX.X securities short-term which an end the We flow. second the of highlights

flow cash in $XX.X generated quarter Free the million. was

we approximately considerations. daily the price stock million to first approximately the $XX share. the we of X.X three of active per have We be and average year, quarter, to common and continuing or cost our fiscal an trading of our shares During market, conditions anticipate returned this quarters price volumes million in subject at $XXX of depending $XX.XX a to repurchased million shareholders. market on In

the million end quarter, of credit our on outstanding a perspective, as debt the revolving From $XXX facility. we have of third one-billion-dollar

briefly end XXXX fiscal To versus net of at accounts other $XXX.X DSOs DSO's strong receivable the XX recap third the is of year September. to days million, end highlights, the the compared up time days was were at the quarter balance million XX since activities. this quarter and by of year of sheet in the decrease last primarily The with days year. XX in third year collection the same attributable $XX.X prior

on review XX guidance. Moving my focus for I will to our Slide guidance, non-GAAP

business taken tools of last years the consideration HNT for the especially reminder, both completion prior the September years. should be $XX sold we revenue Accordingly, the sale. a the As to divestiture contributed XXXX, in XXXX comparing of when million quarters XXXX two the fiscal impact of and to it and into year's first

with in of Consistent Anil's $XXX the million, single-digit fiscal to which year, one guidance fiscal organic XXXX revenue with we year narrowed a remarks implies $XXX quarter range low million go growth. to have to

tax to our of issuance to by rate was December Jobs items XX% non-GAAP in that to and treatment after clarified the passed expect regulations XX% XXXX. in certain range Treasury We the of Act the Cut related be U.S. that of the Tax the of

$X.XX, diluted with outstanding, and per to our million are growth with deliver approximately Assuming prior in after performance. between share for expecting share shares to earnings the updating compared $X.XX XX year's range we high-single recent our activities, earnings low-teens repurchase

my the call now results to Q&A. review formal financial of we turn start concludes That our over can and

[Operator Hedberg question Instructions] first from RBC Capital our with we'll And take Matt Markets.

this have on service I'm or additional Maybe XG great. you this, is trends, year order this this network? the noted provider, America as they second North out an for service might on more provider fiscal much to this carrier within X-figure how such continue which Anil provider, is for guess build-out capacity like build monitoring sounds their the wondering it additional based this as XG orders historic service I for win

other capacity opportunities don't Yes this U.S. next for lot I to being Matt, provider is the a bought this this there in but year, think more is

a big talk it run vendors ourselves this that people don't side though establishes this the that's are about we won competition. know the and names So because other even we and against

helps in other year lot this us 'XX solution. cement next are of solidified year the we And with fiscal plus deals credibility XG which so related

other this orders something be is and to big next is see them which deployed. don't is to us all I places this while think really where of help XG year, going space So, from I in going

know great. It's great to of like - last of the hear talked this to quarters really now. some it really about we've through it's I and come seems momentum That's starting of some the in the couple XG

for talked know you and great that's a about you So being guys. I it benefit long-term

for good transactions, hear. as on assurance is then record talking maybe of also which last in XX% side about years. know been service from I order And several a follow-up to the was really software-only revenue to we've the this

talked look mix in mix maybe years I like, forward we've next the of you to software the again on there, And what know wondering? Anil historically I'm and service us of secondarily, you where If sit landscape landscape assurance were go guys is couple side? for only about competitive might what sort remind look that where then I Can that the what can you guess like looks the transactions. of competitive sort

service one-third over So is assurance is which of first XX% our business, and dominated business, software we have by introduced say only Matt about doing just was that's have pure or on the the part, maybe enterprise I later. would the business provider we little of started offering it a harbor where started that started The we solution, us. for software model, service

So for of XX% this contribution order on the provider. reason the because big XG to big service and is higher

get couple I we share term, into all the of this to the goal XX% the And over is span know timing, three long areas. So but don't can think XX%, trend next XXs, years.

we our direct grow competition, As size, has our size I is one-tenth of in as of each them. that been, not past, landscape, the challenge market really to I most competition a of to competitive market the the leader the mentioned mean -

needed past, than because margin who we competitors been price higher more of smaller, public. competition has there that much are other completely not even in solved has are model some them And software the problem. And the

last our same time, term technology competition them, the that - there competition is seen we at life, So like from throughout is have and a there perceived whenever years. from XX XG,

competition So our competition issue, grow the X time, same at we the is need or X market I number think do size. number to

go [Operator our Alex from next We'll Please take Kurtz. ahead. question Instructions]

on follow-up that previous question. to Just

the that in years be XX% So, couple Anil you business next to the do service said I correctly? of of provider to only understanding software your goal date, of

No total of XX% the business.

Of business. the total

XX% which enterprise we I just if we business, in of know, harbor What almost remaining the the and reasons Total dominated have there introduced like - one already I in saying harbor - XX% is ago. the is this because quarter be business, may said later don't big introduce don't provider. harbor that business, six we of business months portion success much is we like XX%. because service the I was is of by was

So range total of our trend goal long-term the not continues revenue, service think we is if this XX%, provider. XX%

of at gross there's And did, just large the question economics that of washout traditional just around always way on kind you dollars like XG a the deal, of deal you front. push a profit is was Anil through the guide deal versus look software-only it between would to software-only deals unit kind us any that think like there the is appliance like this the that, I net-net been say

on the up the what want I profits was -- they will XG. past, the by outcome in but go and happening they gone overall were up is provider masked think by the in we have US on the gross service downturn

that competitiveness, have units, spend. it say I think money our I it overall, I to to say So, don't they'd want deal buy People the XX increases feel improve I size. much this

we the have so units and sticky. creates solution our pervasiveness and if budget that's makes when more so it And can more

we are down. talk are the unit going about spite we to our of prices coming in that about benefit, So, units -- I think year when guidance if it's be fact long-term growth, mean talk I next

that great it's can drive growth the effect you growth. multiplying prices EPS story a even has coming down are on and that And so a

within up software-only dollars Just with a with solution the you to finish more than capturing say traditional then would you would appliance. have ended you

Yes, ago. the deal That carrier we a five-year like I deal, has half remember, if $XX five said had that announced years million like a years. previous few in done you money

on they people other a kind the market. typically pricing fronts have of the rid technology the versus and consolidate incumbent So, best get this it's and from when net yeah, tend competitors to positive of all

are net really a But spend spend So, they goes goes up. got as a on net their vendor, as not -- is the down. customer, actually

take question next Martinuzzi ahead. we with our Street. will Eric from And Lake go Please

Curious I if about line. patterns, the seasonal pattern you service that sequentially Historically, revenue guys expected take QX, a normal in FY QX between is back to repeat itself look your seasonal XXXX? and to breather

Hi, Eric. calendar higher said Jean. is, quarter, due it QX service year. This you with Yes, to generally a being equated the is revenue as

on so been to basis QX, a a And slight step revenue has from there down. historically QX

that service still anticipate revenue prior will growth of we I over the think year. QX show QX

does, nice not back is year-on-year comfortably in as believe on a then back see anticipating side, product perspective looking that NETSCOUT into just you to but product growth this growth product are backing the HNT sustainable, here, And now for Do I'm mode. of kind for based where it's mode? revenue a in growth we is XXXX, it from guidance

trend why that's mean think last can see from I single-digit growth Yes, from minus the line past. I in double-digit you year. the

trend. can you the think see I

tough even our improved cemented the all have times, think made, I we margins. have leadership, during So investment we the

year continue trend with quarter. this to I we you that and are we'll to think share So wait next expecting next guidance

will question is next Chad, Craig-Hallum. Our Chad Please ahead. your line go open. from with Bennett come

one, next the to go then. can we Maybe,

Kevin K. we'll & question with our from And Company. Liu Liu take next

feed are grow of next of kind to And ability and of speak what larger that at just on looking quarters? Can Propagation projects. maybe this how into? historically forward as top of in question, you your you RF few of just First or and either this sort you confident your as Modelling pipeline look naturally kind the opportunities you with to as the completion

very talking clear. Are you RF say - was about not did you it

up year, about so talking which we if usually in Yeah, we phases think calibration high I order, once order are You was got that's that's that the last going early case. I because think the big to the of don't be calibration. deployment, XG got that

on which order radio the bigger expect core a on not and way from on year the side, is actually side, the front We a in better next margin other access perspective.

of order had year, we there'll don't year be calibration but year as we this contribution. type So kind expect that last revenue coming

it in next the because of the Some from last year. order year of

transformation you the opportunities And talked grow enterprise that business. then about some the digital help of

into the used enterprise As sort forward you enterprise what business. continued and the side driving on growth prospects the of see for going adoption you cases look pipeline are what of the do

more is and that challenges analysis, I or people think those transformation do more the as root another have those, more me is and and they more our issues. finger-pointing biggest triaging in cause it thing and product instrumental is is of it provider

and moving are savings And are moving from to of service OpEx using the so they to they and benefits the worrying without issues issues want our cons. transformation by CapEx if want to digital people digital assurance make have enjoy sure about able OpEx, solution potential savings by the they not transformation, negated cloud to so or by

and and So acceleration the adoption in enterprise. the digital directly helps -- our transformation growth

apologize. question we from further James time. appear Fish. [Operator to a questions We I no at this have And go do ahead. Instructions] have Please

quarter on how, to hear where the we revenue, congrats pressure the or quarter? a whole Arbor coming Jean, rates the one still compared assurance. win. guys, in service Arbor and didn't lot on security this Hey growth large there Is

the changes, think general the I to some organization product. versus the we effects up we announced changes for the because combined see this those of still see the year. last quarter next Sentinel product pace winding lingering effect this from down and and down year of We it slightly was assurance in and pick of service

is carriers Anil purchase kind the spectrum should that, in after assurance think of then How either service that the timing timing power ahead about obviously there core sort or on core June, of deals. looking maybe big And of deals, auction especially to we to related

so do want are helping to of think part spend look waiting the auction they already the How innovations of They have them they not we to incumbency. XG at necessarily and a us for I at the that. spend if we complete all helped have plans. to money. look in the I is lab are That done. Yes, money people innovation

gets of XG get some XG on expansion the network XG, of for spent the spent on it Some part XG is common. and because the

we XG price So at position, combined XG our with power it incumbency put in look have leadership overall, our and software. I'll when of the unique unlike in we that before. in a

that's help So equipment the and reason that's see loud a is I us asking of for to service business our lot and for the are year. I outside of going assurance provider and I think what overall PoC service people think us, next U.S. even XG

questions no this to it closing back remarks. I'll the to appear we have for so at speakers further time, any And turn

day. thank Great, a great everybody you. you appreciate our joining Thank everybody call very hope concludes has and today. We much. That for

Thank you This program. does your today's for participation. conclude

may You now disconnect.