NetScout Systems (NTCT) 27 Jan 222022 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to NetScout's Third Quarter Fiscal Year 2022 Financial Results Conference Call. At this time, all parties are in a listen-only mode until the Q&A session 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] I would now like to turn the call over to Tony Piazza to begin the company's prepared remarks.

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

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

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

#X, call that other position, or objectives plans statements. to include of conference future statements forward-looking management on strategy, include and historical of of regarding will our statements financial Moving statements for and are operations, not business Examples Slide facts. future forward-looking results performance today's operations,

year update as communication forward-looking financial on assumes the the which herein. Report respect Securities other the press or presentation These assumptions, differ and Company’s information announcements uncertainties, on this the no only in slide included and forward-looking known involve You of “anticipate,” forward-looking well on on unknown terms. place from contained ended XX-K today’s forward-looking in uncertainties, factors, can date. statements speak statements reliance and described caution the “expect,” of in forward-looking file and for as Form materially actual obligation “should,” results which listeners words Exchange could their other risks, and this XX, this and risks release, We or with undue Commission. as XXXX, statements are use by “plan,” results “will,” to today’s as not “believe,” any such described to Annual with due forward-looking statements in NetScout any identify comparable to to March

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

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

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

Let's recap and third non-GAAP our begin months Slide on #X results. quarter of first with a brief nine

within our fourth $XX quarter. million During mainly primarily in vertical, quarter, the approximately that margins, customer customers’ the service Higher we were were sales, delivered million provider increased and occur profitability demand board. to acceleration of $XX and enterprise performance across dollars driven previously to strong quarterly forecasted our by third orders, of

in than more the unshipped exited than XX%, XX% As than more which service increasing grew year-over-year a million dollars. We growth, dollars basis. frequency achieved modeling third radio revenue $XXX.X a quarter backlog with grew of a we top-line approximately on result, X%, with orders. orders, excludes million revenue both strong more propagation to $XX Product and product year-over-year revenue

in product from XX%. the a share diluted of basis, mix, year on year-to-date increased approximately revenue Moving On third to our $X.XX per to increase ago, bottom-line, quarter’s based a revenue and the $X.XX an first X% earnings than X.X% to Diluted nine by months more in partially per decline of by revenue dollars. earnings XX%, of service $XXX.X XXXX This increased than offset was product share a approximately more driven the million fiscal our These revenue. with has of it. our growth year. XX% year fiscal increased on are basis. strong the success, I'll made the combined on all year-over-year more business greater remarks. of provided year-to-date In outlook all us our to this has our This summary, even nine demonstrated to model. in fiscal with my into financial a update provide first and year comparisons details months full results, clarity third-quarter for further of later $X.XX confidence performance strength performance the

three some to see for have has cultivating assurance close-knit we inception, accelerated Slide business relationships. now decades around modern and cybersecurity markets, and longer-term #X customer at industry-leading connectivity of reputation the crossroads increasing cutting-edge a of and solutions insights. market Let’s developed and technology. providing the by Starting service more and delivering performance for move pandemic being with business innovative, now NetScout the digital further solutions, perspective than technology on Since continue to trends. our experience solid we world,

Omnis capitalize Our including with growing well Edge released positioned customers Monitoring have on we landscape, several “new normal,” activity, the established hybrid and Smart to Intelligence. and connectivity. challenges best-in-class To dealing new world’s mindshare Cyber and of address the threat recently the us cybersecurity workforces, our solutions ever-expanding products, edge the latest

recently these to in and momentum which year excited starting of the next and and are traction, our potential offerings are gain about released services, business beyond. further help fiscal will the believe accelerate products We these

their technical with provide will remarks. during quality partners integrate many capabilities We the on are his our better of working actively solutions to context these and Michael developments ecosystems more of into tools. their overall also enhance technology our and thereby

performance seeing. our verticals on well more that customer to provide perspective we would to as I the Now, trends our as related like discuss are

we than three customer provider more year-over-year. revenue For fiscal by the first of our grew in quarters year, vertical the X% service

occur anticipated the quarter in service fiscal XXXX. previously customers As provider of earlier, quarter, fourth that to mentioned in third us with our orders were the several accelerated year

they deployed carriers lit-up we XG their radio propagation see vertical, example, our carrier solutions frequency for domestic Tier-X planning. trends for globally to week, used continue XG modeling being networks Last two of in and terms In this leveraged Meanwhile, $XX auction industry’s persistent over solutions. as mid-band in and in These latest initiatives. raised underscore the spectrum steady the to progress spectrum XG-related events FCC the interest deliver billion. U.S. further their just mid-band

We Tier-X continued which XG-related carriers. in to from quarter, win and service provider the deals orders international third notable included more domestic

frequency as XG modeling remarks. Michael wins also second service organization will these carrier from won a in domestic comment its a his Tier-X radio network We provider propagation some to the continues advance of on large order planning.

by in customers of their the first Michael X% for today’s achieved they to year. some fiscal projects quarter, his will of by our highlight year-over-year grew previously three continue this operating more delayed than the this to during customer reactivity quarter proactivity quarters In moving remarks execution, in line Now, from enterprise to our vertical. customer wins in moving normal restart of enterprise last Revenue adjust we see from vertical we our environment. the the remarks. pandemic as and new the to vertical in with

move outlook. to Slide Now, #X review to our let’s

business of have performance so on solid our with three quarters delivered momentum. we business back results strong far, Looking

revenue greater our update of full quarter fiscal the all our with customers for our for we by reflect full-year previously of considering year regarding demonstrated fourth to expectation decision unshipped our our meet year with our for remarks. our quarter backlog increasing provide year our forecast. end our revenue provided XXXX. And, third her the to results. acceleration in a in orders third financial raising mid-point fiscal orders the the significant movement updates revenue demonstrated next clarity product the In have We growth these excited lower track fourth recap product We our color made guidance, the turn remain and quarter With Michael. call the year year-to-date, I’ll to will call. strength. our third objectives the to and fourth attributable XXXX EPS further and of over to conclusion, fiscal I the quarter, and strength of from Importantly, It year. similar even future to quarter we XXXX and quarter. performed business has financial financial outlook also improved, confidence performance that the our after on our Jean fiscal These to outlook reflects mentioned well fiscal remain on factors, has us a and earnings model everyone and results our numbers look our model final about that, XXXX with business visibility forward sharing on our additional has to of prospects, expectation have and

today. Slide Customer Please morning, Thank XX Anil, turn you, Slide to be I outlines good will and wins. covering everyone. the areas that #X.

momentum provider We XG around service see vertical. in customer our continue to

domestic both from the orders XG-related as received carriers quarter. as we mentioned, in third international Anil As Tier-X well

market the our show our We third a carrier was deals solutions XG-related in organization. which certain quarter, represents Tier-X XG-related received order an a from which us. for solutions these a of represents with order domestic from has mid-X-figure also third second for continued placed The the international One this the XG-related order low-X-figure order this momentum. to international carrier from XG-related carrier,

additional from radio order XG as network a plan for modeling to out. Tier-X the a carrier second continued received carrier frequency also We build propagation domestic low-X-figure its services

strong depth our integrate the these XG further offerings, their segment. increasingly As market-leading capabilities service, of and win provider look of to in relationships business continue responsive us to this solutions, and customer advance experience, of carriers competitiveness combination unique service

our momentum to also observe renewed have vertical. within customer We enterprise continued

customers those of to touched due Anil a that digital process now pandemic are refocusing impact the of trends projects As pandemic constraints important created on earlier, result previously today. of in or on transformation underlying the were either delayed broad the newly on the as these

and customers. to both our new existing suite this well-positioned and with offerings We capitalize are traction momentum, enterprise of gaining on is robust

problems new the sales customer the complexity low Once with a IT today. this massive This products won at disruptions, to that visibility of not a win data a center critical with is services let consumer cycle. team operations customer’s tools. example, another During did company its IT were in scale tools. from business IT is headquartered growing has quarter, By have their existing very example such able possible deal now global resolve, conventional demonstrating for our to a realized reached experienced prevent, larger the protect and By ability we management necessitates to critical their threshold rapidly a that using they only operations IT alone X-figure customer household third U.S. within we deal than help already the ability the after breakdown, the a to IT a short

challenges, the as new agency well constantly a These well example, the including U.S. new wins of of the differentiated as due of Beyond demonstrate clients, in and dynamic our result today’s we this in similar highly and nature have breadth continue to of Defense. IT economy. which to several digital us the depth noteworthy further serve won approach, our offerings, and evolving Department

ENGIE, worldwide cloud with security month, activities. On Cyber workloads of AWS workloads low-carbon we and turning Summit. the with also and visibility reported in our User digital ENGIE strong we a added seamlessly IT, From this the to the to to Now, journey. supplier, customers continuing front, and IT preparing Omnis XXXX this a able Earlier collaboration Intelligence focused highlight new OCI will a that and to we solutions, recently support perspective, go-to-market AWS of migrating Engage services integration our Security few, and energy for when for partnership announced use or company’s Technology migrate To now our integrating announced in on several its early partnerships, Annual in XXXX, support subsidiary Hub remain cultivating be AWS. to we AWS of and collaborations. transformation integration November

ITOM year, Finally, Operations integration ITOM NetScout's assurance we IT Health. end and solution service at a that or with of the Visibility last nGeniusONE announced ServiceNow connects new Management

Our nGeniusONE for generate enhanced launch is ServiceNow contextual module with integration alerts service ITOM enabling capability to triage. a to

increasingly world thus of the can we We these with connected their on our protection are our and solution excited and what customers organizations. help confidence far. integrations collaborations, they about quality these to so with, and working we interdependent our partnerships, can Through matters are most the focus people more navigate

its Orlando, year Looking ahead, Annual host at NetScout plans and XXth Florida. to and April Engage April User Summit this to from its Technology in partners XXth customers

prepared capabilities Visibility provide Without call this a solicit meet now tradition, remarks, more is also Engage us cybersecurity, concludes and and through for our turn to with to user event plan Borders to true to of with DDoS our partner assurance, demonstrations, will That opportunities I our year my At the regarding offerings. NetScout. discuss annual feedback communities panel over service an Jean. and will discussions, we training. showcase hands-on and XXXX, the and This highlight As presentations, event

morning, key fiscal Michael, you, Thank metrics. year-to-date everyone. XXXX and quarter I our now year and review good third will

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

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

fiscal profit last was quarter attributable mix. year, primarily the same margin X.X product XX.X%, quarter XXXX percentage gross third points and Our year volume to up over

expenses the operating and of XX% same XX.X% increased due $X.XX $X.XX XX.X% to per year. our from the software-only earnings last last compared revenue in product in was investments the profit with largely XX% with year. year, quarter same operating prior compared of sales X.X% fiscal compared the same an year. margin service share reported quarter assurance quarter marketing. last Quarterly Diluted Our period in revenue, third to in We was

provider from Slide of XX, X.X%. service the Approximately vertical. X.X%, was nine months XX% of to XX% service total review while customer percent for provider vertical, customer enterprise the generated first trends nine from approximately key the first remaining I’d the grew customer revenue year fiscal customer revenue Turning months of Year-to-date, enterprise the XXXX. approximately the fiscal to was vertical the grew for while year vertical like revenue now the

a year-to-date be to shows a continues on XX, basis. to our Revenue domestic GAAP by basis. which Both Turning revenue mix and international geographic weighted. geography increased Slide domestically on revenue

XX short-term free Slide an and For quarter $XX.X the XX% was both sheet outstanding the revolving equivalents, nine recap represented up the XXXX. highlights, year the same July accounts in shares fiscal last of $XX.X by our of and revenue. expires March. quarter. flow. approximately and or million. months long-term of balance million, our the representing From highlights our million debt million the the at of XX sheet receivable, net, facility, metric quarter, $XXX marketable of flow cash securities, end year, on the which was total since XX We stock third common was million XXX,XXX of end more a million year. balance $XXX Free end XXXX of in quarter. cash cash, first DSO since the increase details $XXX.X the the customer days as million quarter quarter $XX.X ended $XX cash The and days of perspective, fiscal XX in had one with days that credit million and briefly there at of other in end third we versus second repurchased time We or generated the To was $XXX.X

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

full-year earlier raising mid-point As our expect range be $XXX and year have fiscal EPS $XXX revenue remarks, we our revenue now outlook in our XXXX year to noted in million. XXXX. to of updated outlook, million his We for the fiscal increasing Anil

the product mentioned Assuming to fourth and approximately It results. similar share be diluted a is outstanding, $XX quarter product quarter reflects acceleration and propagation turn for end That the financial update product $X lower orders $XX average the our expect of the of to to to concludes our backlog earnings Q&A. formal backlog the radio now my revenue quarter. start also result third of unshipped which the third projects approximately frequency into $XX million quarter weighted revenue we $XX of non-GAAP from This million and of reflects over to fourth review a of modeling I’ll excludes that $X.XX. shares in between expectation fourth million, expectation per $X.XX quarter diluted our million the operator results. approximately with our call as previously to of

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

taking quarter. for my on the thanks guys, Hi Congrats questions.

you. Thank

acceleration guess quarter timing curious quarter? else accelerate was service just caused of I Anil, of provider anything is to obviously it a the or I'm and a this that deals function quarter, some of these this this lot positive there's deals in there

vendors many was is we some hardware last with required, think a customers, challenges other the big in mean happened reason QX often orders moved I bigger this mentioned of the wanted bit why of Matt, I think done is got most into service quarter have And use to bit their main I as yearend problems. have big that content result, reason by a most, orders mean the big large deals a we supply and because who budgets we little they provider QX. has likely also, service, chain as

happening, that prominent So though quarter fact the had quarter to it of but third for us but quarter, that's put us, all lot which And them. a is it more fiscal has is do of things, it was been in for on pressure because the quarter customer the we reasons. shift it fourth satisfaction because of third to even

of Got or on lot if think we can something sense. a reach? potential impacted think of from look does questions then on like one not that ton question just supply And It your chain of your given about you that investors about you but that constrains. it, a get kind guidance, is this is quarter any I that makes global commentary

everything. and and been we challenges packet And of there but drive, that disk lot see detrimental revenue our drive also, not for we example, for are recording there use disk have yes, in Well, to orders. our

there we with we had our so from have as work those hardware we do we despite things There parties affects and use vendors them and a have And to of have margin cost keep so we the of are but other but and hard who been and some people of the delay of enough who paying make preferred higher custom from our third lot and hardware disks and sometime delayed managing our have them. from buy directly those to also. buy shipment been more hardware, problems, been sometimes people there suppliers otherwise we don’t and to so have it the inventory result pay

also, in facing pale feel we So, I are in to they but that our companies many overall space. are challenges the but other comparison

sense. that Anil, everybody. thanks makes a of ton Got Thanks it,

Sure.

Thank you.

go will Fish with James Sandler. to We next Piper

Hi guys, nice execution there.

than to On was there way to Is the And of quarter you any guess rising also terms and your in sequentially larger timeframe about you in was higher upside backlog XG trying of environment pull including which revenue acceleration understand what guide deferred here the race why deals, frequency? demand normal. I materially guide, think the makes [indiscernible] in the another cite deals just rather a what last of pull in demand an the of a really or the even also there is, quarters, more than as cycle I'm of the few on seen have metrics? would radio total strength in

QX. in The obviously have -- have because to main to able the forecast I glad forecast. am is December very be we for reason the

these reason we what fall. decreased mean QX which QX deals, the happened at QX. we the very So a QX time that like those clear from in customers that's in this sales large result forecast And quarter versus X-digit of for for clear correspondently generally deals what teams our prime will I has and big have, happened they all as for that's idea QX in see for decrease forecast of

lot great than there a that there acceleration orders. but about acceleration primary yes, us. for XG, is be is ex-XG expected we talk that that think I a of and reason XG And earlier think for don't So, the is will this

one of James, about is and in the of Hi Jean. to on put deferred I observations context backlog. this just comment want revenue it your

$XX Q our million is or exiting $XX the million going of our it our disclosure, deferred that large for project QX, from actually please because radio of In And into to was to portion numbered, build that the completed. you about them you round is in actually, backlog QX. the a backlog As end about, calibration, Q us see including million. sitting before know one frequency of revenue, at carriers will just asked was $XX total

the went been reasons revenue hasn't deferred up So, $XX was to is why but yet. the million invoice at that, revenue out due that's and the one you $XX will by because XX, million, see recognized up the of DSO the

That's service a on and side, helpful, had Jean, good assurance really the really quarter. obviously security

today, much represents the within security the percentage element. was it on grew Arbor enterprise? us and for of it provider and give Can between security think update year-over-year you I what an on you revenue only just what service breakdown

say Arbor would just is roughly XX%. guided, I our on round still numbers, So, that, probably roughly

and provider the is towards and a relatively quarter basis. year-over-year be provider skewed basis, again, on in they and flat in were grew enterprise digits, mostly mid-teens they approaching overall mostly to it's the year-over-year grew For their mid-single the service service a flat tends On in growth enterprise. and

Helpful, thanks, guys.

you. Thank

Yes.

will we And next Kevin Liu & with Liu Company. K. to go

I Hi, and Obviously, getting and think Xs I by well. product service is start wanted you your growth. your provider good lit-up morning. prior revenue some side on to some Tier benefits C-band you've auction large as the to that of have now the just seen

could or what wondering I'm auction, how So you prior that around your us it through the of mid-band the expect, and auction? to flowed sort walk kind subsequent into you of business status following C-band if benefits

of XG are One in factors, we the with through So, as there out that, come winning incumbent have all and and are we they the the Kevin. so space to mechanics business. still XG the RFPs two go is that,

wins incumbency made. really our the XG have we of and our XG investments all extension are So,

large propagation solution those. we And spectrums and about, as solution it’s oftentimes our out, based so about, more got think really more on a that’s that talked about, to effective So, cost could new in of And XG. orders. and working been had for applicable an XG now talking our are measurements, going solutions, doing and with success them. new Michael all all The spectrum which extension new Michael two the we propagation which have carriers and affect about carriers which requires be the for smaller propagation we delay we laid are software-based talked spectrum were previous

look So, the moving spectrum -- I as to for second have the Existing spectrum our new orders. we on that’s result from XG at. what of XG kind planning purposes for of a new incumbency the

maybe and enterprise switching it year. there the of over side to kind the Got course things, building of of you the guys seen momentum have over

like you see as forward a be for where Now feel is cadence or here, growth opportunity this look of you you to terms good acceleration? vertical do this in want for kind further you do of

we we of in well. as areas was size [indiscernible] -- Intelligence all market this Monitoring or that -- Yes, big projects a beyond contribution this are but there us feel even we a not though is the two and big data year, tracking the Edge see announced Cyber for very Smart service centers Omnis big the which with assurance for both solution we

in these And for few to the year next already there customers much quite going ago, lot so, because be we have growth think of them we to three to released there is and enterprise. interest. six driver and big We while months just is a a contribution that's not

I'm Michael.

it's that and cannot transformation and these of one is handle, detailed of and a scale that's growing the do point, other Just trend. I believe moves need additional tools inevitable solutions, for growing needing I for complexity that all see solutions, that kinds either all because other large to customers there visibility our

taking All [indiscernible] quarter, right, strong to hear and that, for questions. on great thanks congrats the the

Thank you.

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

you for a nice call. Have Thank today. joining us Thank This you. now our concludes Great. day.

We That and does now you may conclude participation your disconnect. today's appreciate program.