NetScout Systems (NTCT) 6 Nov 212022 Q2 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to NetScout's Second Quarter Fiscal Year 2022 Financial Results Conference Call. [Operator Instructions] 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]. I would now like to turn the call over to Tony Piazza to begin the company's prepared remarks.

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

Joining me Officer; today Financial accompanies Chief NetScout's Executive our are Vice Officer. Anil Singhal, Michael Executive slide NetScout's NetScout's There Szabados, prepared is Chief presentation and remarks. Operating President and a Bua, Officer; Jean Chief President that and

in the the viewer information page. commentary. results Both our Relations can the prepared can our www.netscout.com, You remarks follow website advance within under financial quarterly slides landing including to in webcast multiple be of section the financial accessed slides itself the and Investor page the and areas results, webcast at on the under IR

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

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

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

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

Let's brief results our quarter of begin fiscal second year of Slide on Number and non-GAAP recap first for X months the with XXXX. X a the

same for of the atrophy year-over-year of was revenue compared by to first same growth mentioned the previously attributable fiscal increased year. earnings to diluted revenue earnings of than year. with $X.XX in $XXX.X have the growth a the revenue than XX% million, prior with to year-over-year the foundation share the year. Diluted and results move a per more revenue share year. into quarter partially of offset previous per year-to-date same X% our the revenue enhanced driven for product Strong in basis. of a are X% to half second software-only second year revenue months solid in than margins compared by line -- On decline to approximately product last quarter We period on decline the improved product contributed overall XX% in product we in fiscal X as last supported Revenue approximately more by by second provider basis, revenue which fiscal service to million, half less these more second relate consolidation Diluted XX% than quarter. for per for a reasons of X% earnings which fiscal our partially increased All growth increased pleased our XX%, in and on comparisons our X% offset the with share the XXXX, increased than more a same the $XXX.X quarter year. to fiscal which the the increase, period driven legacy the of -- quarter a service XX%, was service

Number Slide market for trends to insights. and on perspective business move now Let's X some

guardians performance, the be solution our vital. borderless visibility provide As of assure of and secure the availability solutions world, continues cybersecurity and ecosystem. We our customers' and digital connected that to security

is more which economy, essential the compete pandemic. in recent can COVID-XX customers brought to by efficiently the Our effectively most these leverage and increasingly about challenges given solutions new

the we these another Cyber supporting and accelerate. public are to the customers In has seek can frequencies Looking cloud positioned keeping continued greater report, year. for digital to for that organizations this continue our we the them assist crisis and transformation are and first organization the with tremendous, stage on ahead, migration solutions private trends in XG, cybersecurity challenges on Equipped and well up NetScout's track for impact groups enormous Report the Intelligence for record-setting continued cybersecurity while the advancement. half on area. released Elaborating safe. of protection The global continue is to Omnis Threat noted we long-term cybersecurity including are these Solutions, both Attack requirements area, our through that the technology XXXX. recently all setting with

monitoring, mitigation Our cybersecurity a and combines troubleshooting Omnis detection leading assurance, and capability Cyber financing service Solution intelligence, our solution. with

in area remarks. already see and Michael in his on to in some will later starting are advances We interest front, this discuss this

our next are also play we we year role our them new analyzing As our solution growth for XXXX. metrics year, business and fiscal key our start reporting cybersecurity area of in to expect in this fiscal to on a plan larger

like to provide would the our our trends. Now, performance more some to I technology perspective on previously turn customer mentioned and to verticals

quarter, to solution experienced accelerating the previously issues, customers our the a revenue been them enterprise half again our the timing second supply delayed of of difficulties the year. up emerge to utilize and purchases chain earlier Organization potential more mitigate the projects. deals last enabled on from as customer and supply X% in spend software-only half in by grew - rise previously year than us. XXXX period software-only deal that the same to fiscal from our vertical, with budgets operations they compared are helped procurement and effectively then constraint fiscal deals the environment challenging in first the also as in year. Conversely, with as some pandemic In chain During well. expected their had their our restart This fiscal beginning moved more to

remarks. momentum quarter current customer highlight We and enterprise wins customer revenue continue high we during expect our spending the fiscal in Michael anticipate some the based pipeline. single-digit to mid- vertical on his of will growth year full deal the to vertical this in for achieved this in our

gaining solutions, work Smart Edge landscape, as related which have Our the been customer well newer as [current] security remote Monitoring Cyber products address our for enterprise interest. to Intelligence environment Omnis

costs to proof conditions complete of as from fiscal more resumes our our product as customer start greater Such build to conducts traveling, solution a results more reducing expect and time We our of sales pipeline in contribution value allow us this and time, customers' year to mean in-person sales cutting to next offices our reopen. of saving meetings the will demonstrating the team concept, resolution. in our

service customer vertical. Moving provider to our

the first to X% fiscal period under of half fiscal in compared down the revenue For was year. year, the same prior the just

are continue, also orders expect modeling will XG frequency we the assist planning previously ahead, in advancing propagation to their we Looking project network. deployments which radio we received, we -- customers and

spending product lower as and provider we resulted service service vertical well the which of customer has in environment provider However, cautious the note revenue. lines, legacy as in consolidation atrophy also

our would on service pipeline, a like point that a comment service this from Tier flat order out during based vertical experience large revenue second received Michael the win we second our decline more that such, this for his provider we during deal also X domestic As to mid-single-digit XG-related to first I provider year. will current on anticipate could fiscal quarter. remarks.

let's review Now to our to Slide X outlook. move Number

are With to excited have fiscal foundation for the towards year. and meeting working behind operational first continue us, XXXX half build objectives of fiscal our and to on financial a the we year solid

customers to cybersecurity that expanding We through expanded focused our and our our our acquiring continue existing to reach is can and Border incumbency exit consumption leverage data initiative data high-value NetScout by business initiative. adjacencies leveraging and This new budgets, as choices such without new smart into big on with expanding current analytics. both new customers advance our

over As the revenue assurance low I deal in our world toughest diluted fiscal our world's remarks. to our going Michael emerge for meeting to on Based continues that our recap as turn the numbers the for remain additional pipeline, cybersecurity the focused full progress we XXXX. are look sharing results to-date to service the on the the for and everyone share connected per we need some pandemic, growth now forward and saw with will year challenges. and continues customers' her call of earnings a to will fiscal outlook provide unfold. single-digit in I from solutions reiterating updates. on forward current Jean year

XX today's Thank on morning, you, outlines will call. Anil, I everyone. good Slide the and cover areas

front, interest important emerge customer pandemic organizations cybersecurity assurance increased as vertical are enterprise projects. our refocus the and their the and on On solutions service we seeing from in

heavily resolve assurance drivers service reactive projects, business assurance are greater X-figure to core human Meanwhile, assurance company are this enterprise deal to was perspective of center approach assurance service by are and service less customer identify issue applications hour second won found days solutions a in large hours the needs Using capital struggle resolution and front. exporting customer time fulfilled even remain our solutions our our solving and problems to resolution. are low historically well company. its complexity some its an existing vertical provider of From application are organizations with interest for nGenius new expedited a technology, resolved terms the The services. this their quarter, of mean while our projects. fulfill Omnis existing from or business-critical Today, their and half ineffective to major on labor-intensive, the to the The demonstrated that costly. overly many business than meetings solutions war in during room that allowed for previous and our which cybersecurity we attracting man to making required and we transformation example challenged issues or suited the this which resolve, resolution. depends a with tools tools isolated which management it their challenged in still largest not obligations -- In to solution reduce data domestic

to our beginning the our On security side, gain in enterprise are traction. Omnis cybersecurity solutions vertical,

we years. prominence momentum security to service superiority During the VAS both vertical, offering. that deal XG won a patented our won has continue customer see provider ASI We the our gained the past domestic over the well institution as the well Omnis a solution of as around educational the globally. data X-figure quarter, our as due deal industry in against the technology, or a and Visibility to set our purchased as the we as security which differentiated In incumbent high with Service

radio are others customers planning are their their frequency continuing Some while projects propagation deployments. modeling with advancing

domestic X-figure the Anil as is an service won XG their accelerate mentioned, the offerings quarter, with that second domestic received provider. second deal we leading leadership. build-out we compete this during with to provider X have and This Tier XG-related a from order they As industry

our with this advance strong continue solid responsive win their and as relationships combined service, as to solutions, provider from offerings. business customer market-leading they Our incumbency

Cyber stop Intelligence partnerships assurance advance service In insight offerings, solution perspective and terms collaborations. From behavior provide the of go-to-market our the market-leading into of of and mitigate announced new the help solution. the attacks. normal and Cyber recently security By risks network NETSCOUT's earlier launch offerings we cycle leveraging to the can network to in and Omnis technology, attack Omnis Intelligence future anomalous activities, launch we life continue

the as a resources VAS NetScout announced or the our organizations turnkey faced and as This to alleviate offering, for help service launch applications leverage also deep on the team We to help companies provides protection business-critical quickly services as the Service, which VAS of by and customers' issues a engineering well basis. Visibility monitor worldwide. expertise digital troubleshoot subscription of allows IT

we Palo of and partnerships of and Networks terms service enterprises threats and the show complex and centered environment. availability and prepared DDoS From migration security in to turn security year, In reduce a announced increase our will products. exhibiting to the in solution Jean. to orchestration analyze Las with help in with detect, integrated involving the AWS will operations hybrid over Vegas remarks. recently now re:Invent this concludes our security That enabling This product with collaborations, be call my security the risk integration perspective, at Alto partnership later AWS mitigate areas. cloud I demo will we collaboration by collaboration

metrics. second first everyone. now review Thank you, fiscal quarter will morning, Michael, our and I year good and XXXX half

with on Regardless, results of will results our second this a quarter focuses such any first review half unless and Slide all nature year the XXXX. Number the reminder, XX presentation appendix. our details comparisons. stated, our otherwise for results reconciliations note fiscal our in are of I GAAP non-GAAP As and

sales. quarterly grew quarter the from software-only primarily to XX.X% the on year-over-year performance, same product higher due in revenue X.X% grew prior Product to million. Focusing $XXX.X revenue year the

over service of the revenue same in X.X% assurance prior fiscal year. compared the quarter. XX% of Software-only revenue with was revenue XX% product Service year's period prior product the declined

on decline provider to primarily nonrenewals is the line. we our in revenue As earnings service attributable associated call, service consolidation product with legacy and stated last

contribution revenue, The increased the software-only XX.X% occurred and higher of to profit year margin revenue, percentage per prior year. is onetime fiscal to higher from points quarter. same the due expenses Our in has from operating same XX.X%, the second same reported margin project last earnings to and has quarter higher quarter reversal the sales attributable last compared radio a accrual which increased fiscal primarily in growth lower higher X.X% a a period of XX.X% Diluted margin year. lower contribution to and that XX.X% marketing $X.XX $X.XX propagation in up due the modeling revenue, which spending over the was XXXX the prior from legal-related to prior compared largely expenses frequency X.X same gross by last year's gross compensation Quarterly attributable year margin the from increased with an year. operating year. to incentive the quarter program in penalties We quarter share increase

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

months vertical fiscal X.X% customer declined the For XXXX, year enterprise of the revenue vertical X first revenue X.X%. the grew while approximately service customer provider approximately

of of provider from the approximately For with vertical, remaining the the months revenue revenue of generated vertical. generated XX% the first fiscal total customer year, was customer total XX% service from enterprise X approximately the

or same sheet in and Slide in year. market shows of as of revenue price we the share. a the continues no $XX.X in balance From facility credit highlights We sheet We to of the geographic revenue the equivalents, million million subject capacity Free Turning million authorization, net a weighted decrease the share DSOs represented basis. flow or was domestically of shares XX the with geography our for days of currently to $XXX third be by of $XX.X outstanding our other ended in on our million. year. more first first flow. XX million, free half customer at the prior which down by quarter March. details our mix marketable the since a $XXX.X We quarter. revenue Slide active on end the time of despite and end cash securities XX, days XX% the XX repurchased balance compared at short-term market be to cash quarter that quarter, with weighted period common the from fiscal long-term quarter of at in such the international $XX.X XX last the one per of a million repurchase GAAP There had quarter. during end XXXX. conditions, customer To our debt of marketable representing increasing and versus Revenue of in the cash of $XX.XX end $XXX but planned cash, days accounts quarter, was the briefly to revolving perspective, July XXXX, year generated $XX.X securities stock our was average year. matures XXX,XXX and million, the during recap million $XXX.X fiscal have second were highlights, that receivable same

Slide on non-GAAP to for review move Let's XX our my will our I commentary outlook. outlook. on focus

quarter XX, outlook earlier during in his we first earnings non-GAAP are issued reiterating July comments, call As Anil our noted on XXXX. our

For range to million, lines. $XXX effective is provider reflects to XX% implies experience and low million revenue we to that consolidation due continue XX%. pressure XXXX, the tax slight and on expected to between year the revenue which and growth product anticipated fiscal is service rate be $XXX service single-digit expected legacy The

per diluted between non-GAAP Assuming color outlook our expected like $X.XX approximately some non-GAAP fiscal also offer share range quarter the average to be year. I'd weighted shares outstanding, the diluted of $X.XX. million on the is for earnings to XX third and

anticipate will front assess us, in third basis. a quarter As year-over-year revenue grow we low in single the we opportunities on digits of the that

propagation third fiscal that we that in diluted by will the formal We earnings prior our the share mix growth quarter. with digits in revenue, my type expect be of also this of year's lower That period quarter of prior concludes same the financial review per margin that than will quarter radio results. of mid-single third consist of Accordingly, higher year. to and the our fiscal the for third anticipate compared cost nature third and the we the modeling due in anticipate lower frequency the product quarter a revenue higher labor-intensive

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

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

It's Hedberg. Dan Bartus for Matt

So maybe in was like it about it for view forward? or second with was simply And the what this then pulled product some around deal outperformance comps? a the the the could around sounds strength year, talk product the little Is revenues bit It quarter? of easing you that half software. what's no drove

because pent-up trends was as were I talked there last in favor], we think, year. from the So multiple there about, [in enterprise demand

strong. continues Our to be core business, it

our were of some even the At on the our more Some our longer. solutions for have and especially time, but larger solutions why lot other new much lastly, products things. been the other have pull products, there having deals, they were software orders of a cycle some same they challenges we and don't solution through, while in especially though and big stuff, customers sales a which has providers of And our spending directions, and -- in second lot the interest, them been confidence supply our our that's some have money half. chain service to able we of since versus from

have of customers there because us not of of our I also the there the a COVID gross I drive terms been in upsides So were makes half driving in are think time. which think of the lot have but many able us solution, more and a first we competitive was of margins. the software-only combination to overall, price to the which direction of we half, investment while large making the because a movement of from second company the And some higher in confidence

some there, on last federal you I pipeline the end have the around commentary business and puts takes here? with year activity out any curious fiscal quarter? Historically, federal just around this then And called view there quarter. been good a know

and you generally do been has comment Overall, comment Jean on want maybe, that. to that think on… maybe has I some flattish, Jean,

portion XX% teens upper would in say, the the the I that, mostly grew which overall, for grew is Department federal that government And the of federal percentage. the in around vertical as of Defense, vertical, -- a QX.

was quarter it federal good us. a So for

Martinuzzi with question will from We Lake next our today Eric Street. take

question has with the to do services My line.

half see need get off point have trajectory to better year? where about same that for the for wondering feel Right the half that does other at that. now, of I full midway as did? I I'm at a kind the the back you think year, we're of words, the X%. least In And front

percentage and for give decline at half half so look of trajectory our for second the at second a the decline half, would I X% full the of that second is say I around you midpoint first would the for half be to our over guidance, When consistent the year. around X% revenue assuming a

what's being between And Is a of this? then software contracts driver Is being replaced. -- behind hardware revenue they maintenance minor key a come revenue kind recognition -- they're kind of in not and the What's where off this we're the line? this they're issue products, running this of decline?

people And older that renew the also more provide. that product network. in some that. and talked different the to on XG that not of pieces product service. really we there's on the product the plan in earnings acquired Tier be the X X in the their discontinued necessarily pieces product over we And is other quarter, that about decided the so product think we've of move some solutions I to to on older expand strategy where into to consolidation older. use tend equipment last of as acquired call some the they've is purchased, we were think, not less Xs of those forward, going -- the few don't lines to mentioned, XG They lines, assets those being have, our I renew largest pieces as lines get is of that then their And Danaher years to the can last

like of got seems a we've terrific was a whether side, quarter. provider then that X-figure win comment, But or but grand And large to I mid-single-digit Michael kind in flat things? outlier service the you'd then scheme to picture transaction of decline. the the a an Anil, of commentary X-figure big an of it care we've got in know me to example like to overall don't

don't the so. is a service overall, provider. But lot they pressure. on XG ranking the There mean, international no, think Well, and -- there's still I of are not price I investment, issue is still

year, it And had repeatable have sometimes, quarter-over-quarter difficult would it comparisons Asian when know fiscal X-figure a large I I happen we say, whether last deal big, make year, this very didn't certainly, this these time. you Like provider deals. don't it's which but from

So yearly the flat been come I trend decline mainly the is the more about, at to overall, able that very the one, -- service software interesting fact the revenue, think flat of coming because ASP maybe I for mean, have single-digit despite small which only. of maintain the is talked revenue which from have the Jean that even we product good down products despite year,

see think, I than in what overall, that much X, the I trend X years. better we the is So seen last had

companies I your because take certainly had to quarter from some and to where the I that. accommodate from hardware have that a nice away chain shifts within can supply anything optionality don't selling has budget software you're want to have and facing benefit customers solution it's actually the NetScout Yes, issues,

on take I don't year. quarter the want away from anything reiteration for the that. and So to the Congrats

to Piper James next Sandler. Fish move will We with

with think orders issues? in? the components any some associated to chain back any half I how of a see only? the about kind Is out-year the way extra side, is and that? We are cost about talked backlog deferred transport the little there ordering. we XXXX to guess, time we're even are much I come guys year is growth? of bit And there at earlier result about earlier, extra product mitigating it starting it cost taking of Or on Like to think guess, with a supply how also the as or this the you from

half, like part portion, are it remember the let's of don't the fiscal small the so We of from is But XXXX them it it no year we is was had. and was there's the do fiscal -- custom And any orders, full small we component pull-through hardware, second from have I anyway. part do all questions see maybe -- hardware. year So of if of plan first okay? a very that you've

one So vendors and already preferential that with top treatment. we get we customers where had of those of are so the we work we accommodated vendors,

been years, a So to chain we XX-plus were increases with the price these have because issues, we potential working big supply suppliers, such their and for of able we portion customers proactively are manage any business.

to the think So just the context. hit in James, an the put just I on you nail for to put quarter, the overall head it --

customer there into service since their our we -- have was what software-only from solution, at the year thought one would As least we moved be provider who quarter calendar budget XXXX QX. next

to towards given of budgets. came use orders in the the they want September, prioritized which end timing so we And of that, those shipping where those that --

to we for doing more that going of of able the year relatively into of commensurate get guidance forward, your half our the range. half the why to reason be to did so which and first have about is it be the create should confident second point, this the will part backlog feel So half well second year we

was Two it's we know very generally. as there. about days, for X early Dell, carrier contribution And what really rate well between normal, didn't Actually, follow-ups Arbor's follow-ups that. guess, Arbor? ramping? as then, is hear yet I but And and this kind much I that growth of enterprise or quarter? go-to-market any Jean, how

James. go over cover I'll Arbor will question the Jean question, and the Maybe Dell

and of teams have activities looking we go-to-market the at how on, are a So will going right now, lot we play.

we vendors, year. year, said And customer preferred buy in still next not have has multiple server so this the I so software-only hardware. -- we solution, Having that, impact see of now software-only a fiscal have solution this our even the to though

are have do accessible they And Arbor? we than the and had. Dell, more in now market vendors, previous because international to very vendor Jean, we so for convenient the with want X that's you go

back about our timing the that I of orders. going shipping So the context to gave

orders those first year, provider half the So X%. the we getting around at where is on quarter, the out end service the the of which for of door by grew focused

So his ship to said look a being to would see, for that were will had as that, deals probably flat have Arbor When the that in we required mid-single at slightly year at you in comments, digits. down not X:XX. flip Anil to full Arbor,

Arbor a digits. on looks right down now, like in mid-single basis, year-to-date it's the So

think expect year. as the his said the in is full Anil single do Arbor digits to teens low grow full However, we I for upper going to year the for comments, in that

we And K. Company. will & our from Kevin with take final question Liu Liu today

you bit hoping for could Are you orders on ways may your demand to particularly more some of sort that to the a kind any be more in solutions? color add look benefit solutions of use supply for guys not that able software from taking just for budget to customers as they was use dynamics, I elsewhere? little chain of

Yes, need that's still by second they have a for what our solution, defined demand the Obviously, is to so next half. exactly the in thing, have would demand the Ben. they bought

they for -- the we dynamic on a that because the some to not we sometimes people creates also calendar year, a fiscal for sometimes are different And use want next budget [color], to able year. fiscal are use they so are sometimes this want this to year, interesting use time

of to -- which mostly we less So -- that's results and we than the them dynamics, customer, for only, can that solution All in bigger have software a mean, allowed because that's already which demand quarter. issues kind top what have have -- are can have sized or deals which happened this other yes, funnel are, -- vendors of we has half. second we we which I chain a supply these

To to that. color add some additional

design, are deals of were of enterprise chip limits. -- to shortage, the a of they able multiple deployment to by annual into accommodate this budget partly large multiphased And budget because single Some as accelerate phase -- phases

from be guys And you attacks, on have security perspective? kind that's see Or down, benefiting some online maybe your coming you'll year? and increase where just Obviously, of the significant of cyclical demand pretty that to offset continue with you at a you are of DDoS the in help you'll Do years new seen top one How think looking and to growth. that? flow able past the imagine on Arbor ebb this have grow that here. more I to an there maybe new X of goes the especially next solutions solutions do DDoS

fiscal think DDoS And into all be as we upsides from right. much next mentioned revenue trend of might is we more we the think earlier, to in the as result security year it's the next starting overall more Omnis higher officially a overall, solution. will security growth solutions. revenue, the think I a carve with but as the result from of -- revenue flat bigger year, And that the -- timing I decide will probably next as year be up the reporting portion of and year and the coming be because this separately, may much of

of expecting Some been companies. people other our to like have us it do

this, overall means are that all in expecting the security So higher business. in we Kevin, growth than

to back will or session. I remarks turn any management for closing Q&A This call today. does the conclude our additional

day. conclude This Thank our appreciate call, this with good the spending you, and morning. time everybody Have a us everybody. we does

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

may disconnect at You time. any