NetScout Systems (NTCT) 31 Oct 202021 Q2 Earnings call transcript

Please stand by your program is about to begin. Ladies and gentlemen, thank you for standing by and welcome to NETSCOUT's Second Quarter 2021 financial 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 Peot, our Vice President of Corporate Finance and his colleagues at NETSCOUT are on the line with us today.

assistance time, operator press require you at please any zero. If the now Company's to like would call prepared to the I begin turn over to Tony remarks. Peot

Quarter everyone. you, the for September to Thank good ended Year morning XXXX. and NETSCOUT's Conference operator period Second of XX, Call Fiscal XXXX Welcome

viewer landing presentation Both NETSCOUT's is are multiple prepared areas and webcast accompanies Bua follow Executive NETSCOUT's slides under that Vice webcast and The President Officer, page www.NetScout.com a of under Officer slides Michael you in remarks Investor the me today and the at Relations section financial President information Operating Jean Joining results. Szabados, Financial results. to and the quarterly our There Officer. Chief slide Anil Singhal and remarks, advance prepared on commentary. the within our Chief NETSCOUT's itself accessed Chief our IR can financial the Executive can be the website the including in

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

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

financial GAAP slide rationale While relying appendix are with be today's along the today's release. isolation this should Anil from results is with providing and all non-GAAP The remarks. non-GAAP limitations with described website. now are of or on the for GAAP and our only. release substitute over non-GAAP call Reconciliations applicable conference the accordance and measures I slide slide will stated provided GAAP. financial non-GAAP discussed the for in press presentation measures, solely presentation on Anil? the measures measures also his includes unless prepared turn they information as on call basis will for both of be not in today's on in a information a These considered press otherwise in metrics those on in prepared of to the earnings

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

were impacted same We same quarter compared growth cost on the U.S. Both revenue $X.XX brief begin enterprise an in the Government Slide in spending revenue XX% of and from with a focus service our grew control solid the offset which Earnings as well the pandemic as compared related benefited was but million year. last on share of travel quarter provider a revenue. Let's X $XX.X period by in lower The security recap last than more in delivered quarter than second restriction. with our quarter results. the non-GAAP earnings-per-share with increase of decline Federal year. by per more on quarter, sector

the perspective year. quarter X with revenue service the on business. the last Slide further vertical to same move compared provider Let's grew In for some X%

as security the a more a initiated to normal in interacting continue with pandemic customers the work of the they speed operating virtual even and provider as and and remote greater service result with with the of resources with fashion our We look cost. in agility new address year to

other and hard to new the job back much it shorter, faster These their react landscape has this deed to strong to as to are during like and of the on part pressure going to pandemic solution related to exploiting multi record security a they and how created cyber services in strong more highlight his less month defend security they quarter methods third hitting managed of tags This pandemic and time making rise online and network continues on launch report has and for front organization highlighted healthcare at are our the given back operations. the attacks dynamic difficult platforms mitigation which platform, radical e-commerce, method criminals attacks security change these important bad we our to cyber in certainly opportunities increasingly and this Michael complex. connect will pandemic first solution discuss some rapidly of financials more to services. need detection On leaders were have disrupt ours. distributed and report and performance highlighting that using. that The intelligence system half services on criminals played to remarks. in the targeted issued education breaking have XXXX the year-to-date. being the and put the Last times There organization how during more

to to rereview Now our outlook. X let's move Slide

customer we CovidXX traditionally we tested as half the anticipate have global team which the said, year as the pandemic immune predict, and resilient macroeconomic resulting cycles of impact brand, the the the impact to financial second profile. remainder operations pandemic we for the from global financial funding dynamic outlook remain make relationship evaluate and results. these business largely and we Our and difficult timing negatively uncertainty. are a navigate of dedicated not caused fiscal fiscal macroeconomic will around our we long has of year, the pandemic, the and relevant That environment. uncertainty due given be the for This is magnitude to This cautious purchase solid stronger strong to proven our solutions

to sharing you serve As a his increased call turn revenue basis to line XG the the crisis, are percentage dedication from XXXX and this cost result the as stakeholders the earnings in upper we migration to digital our cyber as non-GAAP COVID uncharted and and and our with security such navigate stable this the decline our deliver we year next annual share a XXXX. for closing, global strategy world continues our progress non-GAAP to We with the visibility increased as continued with productivity the to Guardians we revenue execute pandemic other single transformation manage employees are expect decline, team we and mid delivering transformation, support cloud with In we the fiscal to environment. in we trends now the per as Despite and over favor we With prudently forward to tracks needs customers look as global connected as migration navigate the long-term ability networks digital global market cloud appreciate unfold. while fiscal as of our in committed and that XX the safety continue compared flavors digits such ensuring our year in XXXX pleased of remarks. our tough as of per to year year results on share earnings our in now pandemic. market we when Michael started I position the fiscal trans emerge will I term long well structure.

trials everyone. Slide growth continue morning cost in events has will mentioned base outlines Anil. the cover, as Thank bit. North in XX America. and see areas service Anil provider our I with customer quarter good solid you, a first, customer international little And in XG it our vertical expansions we to the Starting as XG

to quarter. and their enables the provided figures XG to a XG XG revenue a kick-in in positions solutions European expand that cost deal a figure cycle in carrier, major to to forward As eight multi-year capacity the we XG await and was then seven future. oil in investment notable the investment the transition mid quarter The support a software long-standing internal win the carrier of

other to will and a one On network. the and this to a stand-alone It are of still the logos value the is our and our solutions with as producing seven days make of service in is our they North financial American base. continued the the brand, but for XG relevant so-called to front figure progress Tier American start new user these In loyal demonstrate be our XG early trial sign North us has importance a for Assurant with highly carrier Solutions allow all for customer explore enterprise incumbency the healthcare XG we vertical a in and good important project strength trust sectors. visibility stand-alone,

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provider front the enterprise and transport the verticals. On security service

the outlined protection, interest volume threat explain our in of report We Anil first intelligence as a continue sophistication FX to half which strong especially our and we earlier. in quickly XXXX grow DDoS referenced as

now the the company after deal domestically exchange. shore During our mid-six the the and with prompting due exemplified solutions deployment, requires on and is thwarted their to fences to ATV space such this work more large attention large increased leading sophisticated a Board settling demand both with international layer HD-- the this protection in a trend solutions customers and in on with for as quarter, rush checked premise for the customers, attacks rapid other infrastructure This insurance protection on have for successfully even to figure seven solution deal we the multinational for level of low large pandemic U.S. our started. initial and up redesigning remote the long haul seven stock extortion

who solutions We about to provide sales customers are excited these to our worldwide force. unified are ability our

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morning and feel really Michael good you Thank XXXX first and half of everyone. fiscal key second quarter I year and metrics outlook.

on number appendix. the over quarter. the fiscal the our Revenue XXXX X.X% revenue prior the quarterly same our details of X.X% otherwise quarter focuses product focusing second reminder, $XXX.X all to year performance. half revenue XX.X% and a Slide by year million declined on and prior in quarter service and for over declined in year with review this first our GAAP appear unless stated reconciliations results XX our presentation results non-GAAP results As the declined

Our were second prior last product mix, XX.X% the quarter per same margins, prior profit and the last XX% propagation frequency year. travel control quarter compared much the due quarter to XX.X% profit with year. compared the for quarter radio down most year. notably sales in reported project software-only service year, modeling of with $X.XX continued an decreased Quarterly revenue primarily restriction. of over Diluted of X.X% cost fiscal due same the margin year $X.XX XX% of year margin operating was increased expenses product in quarter We XX.X%, operating gross earnings pandemic gross with last same XXXX to our revenue lower second assurance points in XX.X% share the compared was related

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

revenue approximately XXXX, service fiscal X%. each service The contributed while year. of months total provider X% provider revenues and approximately vertical declined approximately to grew the months vertical customer six for first first enterprise of six the year XX% fiscal verticals the For enterprise the the

repurchase year sheet with There XX, of the which quarter XX% no short-term Slide was our quarter more first the of $XXX securities million end we billion on since or the on XX% million, States was our quarter, securities XX% XX during cash the to of stock not revenue. if of in $X.X of outstanding the providing balance shows in approximately this credit cushion The our million, half internationally. against is cash, customers and marketable capacity were United borrowing our times Turning a needed. of cash We covenant that of marketable free $XXX.X facility. equivalents, the generated end budget. had geographic $X potential perspective in debt flow the leverage second we basis, quarter and flow, gross the Slide cash did the free quarter represented X.X $X.X which of first our the gain revenue long-term From details shares of and million had increase quarter. common we an revenue GAAP ended highlights mix as revolving

the accounts facility in of were XX March. recap principal XX credit briefly required was at since balance and days down the net revolving receivable has maturity. XXXX expires January repayments by To no it highlights, Our versus DSOs days $XXX.X the $XX.X the other million last at sheet of quarter fiscal million, end year. days the in the year this quarter end of XX of XXXX, prior of quarter. second at compared is The improvement the attributable the same year in DSOs orders, within to year time timing the to second of the primarily

the the structure distributed performance I results. our share our pandemic our on operating cost fiscal year, and will items remaining year manage our XX stated anticipate we with a earnings XXXX. as management with the Moving to the we in second fiscal related to prudently cost our in year with mid equally few it share operating between half focus, earnings continue anticipate single XXXX revenue should line anticipate fiscal expenses to the a fiscal prior share, for fiscal But third year, on his fourth was non-GAAP Despite third of our year XXXX. number revenue, fiscal also digits be year to from per that earnings expense and line upper outlook in for second lower comment to as delivering compared we expect that per nil be quarter fiscal than given our annual quarters structure. quarter in we remarks, for decline we a in want percentage Slide the conditions current basis per perspective more capital the XXXX,

diluted be tax of outstanding results. for That XX%, We review additionally, the expect concludes year share. the we million rate to approximately the be expect XX our share to approximately financial formal my

call Before operator Q&A. now turn we participation the to IR note I'll is I'd quickly to that like transition XX. upcoming Slide to the Q&A, our on listed conference over for

our Liu & with from [Operator question take first Kevin today Liu Instructions] K. We'll Company.

is line Your open.

morning. good Hi,

here. question First

elaborate You if deals the I talked elongating. could about some you more. wondering was of

seeing kind provider terms then, grow in side? the the from just of been what you're enterprise building, both that on to still And waiting vertical just terms perspective the of able do we service put pushing have are if what your you pipeline So, for actually of of in you government out, forward in and these exactly to of opportunities? deals customers move aside, think order with some

Kevin. question, for Thanks the

there hospitality of the is Federal industries I A think would certain projects unpredictable one there is areas, where that around timing I whether on top So, of lot uncertainty the of certain and industry in are there two go the pipeline government. put that. was is and with

buyback that one. number the So, is

The second And one verification go the slowed security products, and second to some the space. in are those lot cycle. But new people that and one and been down. is especially normally enterprise. to during buckets, install has new difficult of we the and cycle, in to is that a in And elongated have in and extend our the cycle successes, the logos. go through sales buyers and are two that trials new cycle purchase thing that interest is we are the them some somebody has time sales in new also software-based requires that who logos has released though and we offerings, first had there of Even for especially evaluate

this COVID-related which we the on mostly year, has those are certainly which So, are changed. and factors which counting are

about in enterprise talked interesting of coming seeing quickly of emerging can you an terms Maybe trend just large you talk still of then over in how the And it. see an as Are years? XG. that Got that for opportunity you've past, opportunity kind the you about build-out?

on see that I opportunities. as Yes. a follow

about. talked been had you if So,

for the And And carriers year will we opportunities are year be carry XG revenue, will user much because we think some some partly where participating and are be small have which will and monitoring. the are. vendors the for but we early see XG last I those private in solution like next of that. this in using caveat phases and our to also. Then, step than later the in calibration pre-deployment that leave that's efforts cloud

of So, that then private carrier and a longer-term XG. I more And the see more opportunity. XG as a

Got question. it. you for thank That's the taking helpful,

Sure.

Piper Sandler. James next with Our question from comes Fish

Your line is open.

that you're to guys. hear Hey, doing Glad all well.

the now hear from capacity. carrier more customers that said to and guys these to you security seeing we And going we're your a Are capacity to you bought where with harbor? to more need to point customers are starting attacks. On additional get side, we're larger add starting carrier

I I they they capacity. mean, they quite think mean, I need, have I think have but will I don't good

side. think about We two see is we versus harbor. business enterprise is have: we other for talk there bigger next being much and products part I security, the when provider the are enterprise service for which side one the

have that layer into which attack on-prime device gets to looks it seen entry it lot vectors. a fix or basically of AED with signals We the the application is cloud of at cloud. type, It's to the and then product set harbor new a area in which opportunity called and in the trouble

couple solutions. do on being area because And and are of sort it people a trials. growth slowed of able our that's are to which down So, counting not been speedy go-to-market has big initiative, of have started the we we released

we the with new and conference side business at on the area DDoS seven So, user forecast enterprise for a Investigator. while and Cyber for called attack see our the we attack Layer product growth be, announced some have Genius there carrier securities application-layer steady-state is will

similar the carriage. so harbor sometime things area enterprise we and are past for be the those those year, the needed are And somewhat XG. XG those the mobility capacity will for more see opportunity growth those more functionality different in are next through in -- both the sector. provider, then And So, products revenue things than

confidence there it enterprise you. us give fairly it. you a and expecting could attach also backlog and bit than do be that strong? here better you amount a Yes, additional product services? good just that are like across or of trends us of between our appeared carrier And should then for some or Can were seeing Was typically within Jean, give harbor little some you're greater got billings you color

now generally for And in for institutions much enterprise and integration in They the So, they year of I very can of areas financial also An we about all doing many that's year-over-year nature. the the government. is the increase. grew our basis. of with details Second more play provider opportunities behind too because year again well large the service are of to sales them. very If -- than They the security strongly. like talk of any in grew understanding are flat institutions the a quarter where given service continue they that a force assurance and do issues had on to we the the their guess that has about with date, a ago mostly more They good harbor they XX% probably harbor in a better the territories year-to-date

done half for the this harbor of So, pretty has well year. first

I backlog And quarter? product the being additional than billings services more it was then cash mean greater it or on normal is this of stronger.

is growth -- would grew very rate check. I them. when It's mostly strongly year-to-date and on for look One just I product say in The mostly at the it's QX me second. product Let it. okay

you. thank it, Got

welcome. You are

Lake Again, one to that for with star Martinuzzi is now go Street. and today. Eric questions We'll your

open. is line Your

full-year X.X%. to clarification mid try the down prior between to numbers X%, single Just those to a make on put guide. down upper I Do have Is some digits. want and a the you revenue preference to two? around this

And to X% to I single X%. guess upper then we digits X%. would X% mid say is the I think

would to X%. So, my be X% range

a a sub then with that's being Could quarter would looking quarter looking a projects? Are something issue or in business. at of alright. the December? the in Okay, new it's appropriations? September Are Fed, snap main, where to the kill pending multi-quarter we you view? the this at good is we potentially federal a NETSCOUT it lumpy, your on be just And for historically, back vagary Is just

snap it past, don't it's think they never sometimes, COVID without back be federal seen projects, have think they two December. just, in to die, in And could I in going government, the a we years. last longer-term, for I even

that are approved. budgets the think I So,

selected fiscal but something changing the radically are unlikely. in I year, the partner is We think,

Okay, your the on have the alright. the you And business, guys done always commentary good management. on for earnings a job cost non-GAAP

You've an done a of hit earnings your basis. on non-GAAP annual to able targets good job being

You did see a But I that structure is decline because of EPS in points QX of in I less to non-GAAP our think less cost it to target? believe are operating the COVID. of as part -- just manage you was that leverage to of TV, XX% or expense. XX% what conferences we're trying got are

of which is variable in investment levers the of which is one rest of that force obviously compensation, achieve they on upper in be and travel would per the The and the incrementally that incentive did basis, whether per share. investment targets investment. we comes that And population, or the will of than rest the them earnings generally, the incentive year, do. sales, goes backfilling the the the those achievement if one that of like In annual an the to employee or with headcount, condition continue make for first a to down form of the share, revenue the basically they the doing have compensation other amount travel attrition, of levels So, or resources that we the sales that of any I certain earnings the we'd of in in available with to once more don't pandemic delay for QX. sales are areas are function the obviously our larger commissions, there QX, view

we And uptick last we're guess services is for would to Historically, not we're we me. down but an here, revenue. in are see -- times. certainly times, question not. normal this It in historic the comes I

QX. revenue. guess in and some QX quarters, on revenue? looking Can in services And based you in prior QX on in in that services that negative You is insight comps be would the had it a sales or on sequentially services revenue fact at comp product I could up expectation negative we're Is the sequentially? us QX down the give your the probably

I one thing looking would I wouldn't looks when forecasting the model, why service that look at it's revenue accurate say revenue service that revenue consistent service generally I FY we're I with very say at midpoint. I we which based I'm is achieved mean, is the for. fairly relatively revenue. to like would service our XXXX. going just in be on in say

that this to to As was renewal. year, catch-up be you year full $X a you later a year's had service estimates point generally signing out, due QX flat a million But will compared of for level. year pretty last last at actually on revenue I flat. revenue about Last of the to year, would look

taking for my Thanks questions. helpful. That's

Thanks, Eric.

we time. questions And for remarks. further it additional now the call that like I back no this does any appear our to would turn speakers at to have

us for call today. our day. concludes a joining That and everybody We great appreciate have

your today’s concludes Thank participation. you program. That for

any You may at disconnect time.