NetScout Systems (NTCT) 26 Jan 232023 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to NetScout's Third Quarter Fiscal Year 2023 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 Piazza, Senior 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.

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

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

prepared remarks. a There's accompanies slide that our presentation

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

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

forward-looking place this such date. reliance forward-looking as We You words of caution forward-looking comparable will, anticipate, not today's or believe, their presentation, plan, listeners which to use speak identify statements should, any terms. in by on expect, can statements of as included other undue only

including, press forward-looking factors, statements today's financial involve other in to due statements known on release. the not could results assumptions, this and those from and described forward-looking These risks, and materially risks and actual limited uncertainties results differ slide unknown uncertainties, to, and but

report year March Exchange file the refer company, factors risk for XXst, XXXX, associated the to and fiscal of the ended a For description XX-K more Securities the annual company's Form detailed please on Commission. with on the with

this with communication NetScout forward-looking obligation to contained described announcements update any respect or herein. the to in information assumes no

four, non-GAAP which now slide metrics. Let's involves to number turn

with will conference discussed financial this is on presentation measures, results, While relying be providing basis only. release. unless non-GAAP slide the stated, along today's this includes slide non-GAAP on otherwise in on The solely for call limitations on and both information press today's a measures, of detailed rationale and GAAP those non-GAAP

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

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

number XXXX. results nine six of our for brief third now of fiscal quarter non-GAAP a to slide our Let’s financial first recap turn in year the months and

product third In results year-over-year with representing basis. revenue growth by and we revenue quarter, service the increase of This revenue solid was million, revenue driven X%. X.X% both of approximately of of growth growth year-over-year X%, financial a QX delivered $XXX.X on

of As of per a leverage, result our this $X in top-line representing share healthy approximately a the quarter, growth growth diluted earnings we operating rate year-over-year. third of XX% delivered and

of service acceleration orders occur performance quarter. our and provider in the fourth was assurance supported forecasted strong service previously Our by was to

we achieved such, year-over-year As profitability on margins, basis. sales, a higher quarterly and

first XXXX. of Now, year months to nine moving fiscal the

X% assurance year-over-year revenue grew approximately was than more X% revenue grew while service growing by revenue $XXX.X nearly grew revenue than year-over-year. revenue X%. than and more a period, the million, grew by During and more cybersecurity by On product XX% X%, basis, service

representing fiscal same diluted period. year year-over-year per XXXX, Additionally, rate in approximately nine than we of that share the revenue first delivered months $X.XX growth of double growth, of more earnings XX% our the over

year in the on frequency Tier-X projects insights. America. first revenue grew XXXX. X% vertical, carriers market fiscal some was by than X modeling This slide In Now, our increase let’s in driven radio further from to of by more to related North higher revenue provider for perspective service propagation year-over-year business and nine primarily months move

In that our we continue quarter. and addition, provider had as mentioned to see network earlier, quarter we their deployments. to our received domestically in fourth invest occur forecast Overall, previously both in some internationally, XG-related in customer service orders we carriers third

enterprises their expansion require revenue In cybersecurity them in to XXXX. digital solutions months transformations. by approximately better our assurance capable those and fiscal our accelerate period. of and enterprise the their customer of vertical, growth business X% during grew year-over-year the year both in by first service nine continued driven Notably, to helping protect systems This lines was

are with an we cybersecurity trends, suite service to market platform assurance for growing of our these solutions. comprehensive address offerings better integrated focused on leveraging customers To provide and

and As remarks. the within this customers. for regarding see are his is our resonating we provide solutions more converges, will approach grows that insight wins Michael our during to these pleased market verticals customer with

for to Now, the move a organizations let’s role review outlook. slide NetScout to play globe. number mission-critical our continues around to X

provide World, to into Guardians and we customers we with visibility our Connected operations. believe As digital performance unparalleled their the what be of the security of

than operating brand and solutions trusted experience, on opportunities the today’s capitalize with our digital customers of navigate a more three to challenges and landscape. are decades our and We of utilize

year we fiscal have our Given into our service performance, the along full acceleration orders, increased solid year-to-date with outlook. of now provider visibility

quarter we fiscal -- most which such, most our shared year we call. updating XXXX second our on outlook, recently earnings As are recently which

are the from to to our We of remaining target be million the range million narrowing same. $XXX total of the both with and million, million, prior between ranges range $XXX mid-point $XXX $XXX revenue

on prior $X.XX, range to will In in addition, and per provide from additional our her remarks. are increasing our $X.XX. we earnings $X.XX non-GAAP outlook color Jean diluted the and range of share $X.XX

monitor current remain well-positioned macro our closely landscape long-term we that focused objectives. remains believe Nevertheless, and environment, achieving that to the continue dynamic. we we on for today’s recognize As future are the we

to to operations with revenue prudently, our In growth balanced we plan addition, profitability. continue a and managing approach

Shannon announced that it, have those Board Nash of Marlene we NetScout mention wanted Directors. and to the for Pelage missed to of Before my may that close I addition the commentary, I yesterday

valuable and who to experience accomplished bring will are Shannon Board. as Marlene operational well the financial two and other expertise, professionals additional as

that as we confident to an personally both. We look our advance they are them business. I working will important with forward play role

I’ll that, call the Michael. over to turn With

Thank that and our you, customer provider the as further on be today, areas wins. I Anil, will service in advanced outlines everyone. we starting focused XX remained Slide they build-outs. Wins: their covering morning, good supporting providers with customer Customer network vertical,

offerings, we Through and our of expand robust this installed focus, continued our incumbency, to base. established portfolio

had long-standing, a orders portion us figures. comment, mid-eight fourth in quarter, the quarter. to of a with Tier-X During North to example, Consistent expected close our receive carrier these amounting to Anil’s placed earlier we orders for customer American with

and a RAN first from of frequency assurance Orders assurance, this customer solutions, XG this being and solutions and service with customer purchased combination modeling, were this from propagation our included radio solutions, and the additional certain us. which service our cybersecurity Omnis time CyberStream Intelligence for cybersecurity Cyber core

projects for certain about competitors’ and its represented Today, additional these we excited remain Importantly, going customer successful is products. this as orders IT our replaced our utilizing solutions customer expansion and and we within a business this model mobile forward. collaboration of systems, in both outside corporate cases, engagement traditional and within

healthcare during was enterprise our orders an applications assurance to customer the organization, to the a customers. One which received financial long-standing figure large-scale quarter. from notable customers’ These turning expansion both mission-critical vertical. two mid-seven from while other Now, institution, represent these new, are We to directly a their are of our service footprint success markets. wins of that in and was relevant

and customers with and win these customer expanding deals ability our our to ability within of strength base. the footprint established further continue Our incumbency, our is offerings, our expand testament to to a existing platform

go-to-market activities. about Now

driving performance go-to-market through We also remained focused on business activities.

partners. collaborate November, re:Invent events we NETSCOUT’s attend conference, attended the as more our we platform the collaborations our as During continued In we with quarter, where AWS. to with well showcased in-person and AWS

interoperability to successful At Amazon allowing Cyber detection with Services’ threats Amazon network advance the event, Lake Intelligence infrastructures. By Omnis visibility, manage investigation, Security complex and Cyber hybrid-cloud detection, deliver cybersecurity and response Omnis companies Amazon can and Web we smart network between Security ultimately better Intelligence insights, comprehensive our pair announced across to providing Lake. contextual the

In our in winning prestigious capture the line cybersecurity during solutions also progress, two mindshare with with of and awards to assurance we continued this recognition service quarter. industry publications,

we & equity, Sullivan Frost Sullivan’s Award XXXX Year & our value the Company assurance based For solid this strong us service customer brand Frost for performance. service of with solutions. Global and presented recognition proposition, received wireless and overall compelling assurance, experience, network customer our monitoring on

first This XXXX to in threats, Award CyberSecured as inbound both Today’s Security. Arbor doing Network of the was and stop for solution’s received line ability for Edge based and addition, serve defense organizations. outbound the and Defense both on recognition last In to effectively so, we Security

with this I and Technology Engage on in Annual our this event an on touch is and Summit. to one. everyone event April, held like third our I'd Finally, quarter call User Usually, preview provide

our to later time, update to cycles, its this better arrival. to as planning with we plan this Thus, budgeting this provide an hold event Engage year, move on I October. Summit XXXX However, will in our we with closer align and everyone customer's

Thank and Jean. the to call my concludes will over you, remarks, everyone. That I turn now

for fiscal of fiscal morning, provide good some XXXX everyone. year key review year commentary outlook. on will Michael, nine you, XXXX our quarter Thank our and metrics I additional and months first and third

appendix. results our all unless GAAP appear this of reminder, and our the a presentation note such As results with Regardless, I will on non-GAAP comparisons. in review nature the any focuses otherwise reconciliations stated,

of for Slide first quarter and the months the year our XX number nine details third XXXX. results fiscal

total X%, both million. year-over-year first revenue our service performance, Focusing grew revenue quarterly $XXX.X year-over-year to revenue and on X.X%, X.X% grew on a grew Product basis.

of reporting $XX amount fulfillable propagation consisting radio backlog $XX million, end approximately of of the million projects, was the categorized perspective. most with third as frequency propagation million the approximately radio $XX orders our of At deferred from frequency financial a modeling modeling revenue and approximately quarter, of

frequency converted those they while to ready and fulfillment, fulfillable to radio propagation into or can execution steps, upon convert reminder, conjunction before the revenue. a revenue certain As shipment available projects carrier’s the orders in timing, be we require are with modeling consider

X.X Gross year-over-year. third profit margin quarter, was the XX.X% up points in percentage

was gross of mostly quarter’s return project X.X% radio in expenses by expected occur quarter. the modeling operating as Quarterly increased high-margin of events. the to activities, margin year-over-year, to acceleration and due was our such a frequency pre-pandemic travel This that propagation impacted fourth

the year, in increase per XX.X%, earnings an We XX.X% with same same of quarter of was with quarter reported compared an profit share XX.X% Diluted year. the $X.XX last year-over-year. in $X operating representing compared margin last

review slide to to like a revenue remarks. other lines. comparisons on Please are note our year-over-year all I’d here XX, verticals with trends Turning basis, by consistent customer now key product that and

our fiscal year-over-year the customer service revenue enterprise customer our while In X.X%, grew basis. provider months grew on of nine year revenue first a vertical both XXXX, vertical X.X%,

XX% approximately the for During period, the accounted our vertical customer provider enterprise our while accounted same total remaining for service revenue, of XX%. vertical customer our

Now, lines. to turning product our

For service the first X.X%, nine increased our increased on X.X%, basis. by months our year-over-year assurance of revenue XXXX, both a cybersecurity year fiscal revenue while by

During the cybersecurity our XX%. same line assurance period, for accounted for our approximately XX% total remaining service of product revenue, line while the our accounted product

XX, slide in the revenue shows nine the X modeling months propagation year which concentrated geographic revenue more to radio projects domestic from US the XXXX, increase year-over-year, to fiscal carriers. our primarily Tier Turning in our In revenue of related was frequency mix. first to due

customer our XXXX. third quarter first revenue months of our the one XX% Additionally, represented of nine in more or total year fiscal and

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

$XX.X for flow the quarter cash Free was million.

quarter transaction, we of third or receiving facility, we year revolving X.X shares, price $XXX expires on a million $XX.XX. third perspective, weighted credit with X.X XXXX XXXX, in a our total quarter share Share per average million of fiscal debt $XXX in million amount which From resulted the fiscal million year a outstanding of Repurchase ended at XXXX. concluded $XXX the our July million the repurchase shares, During final of which approximately Accelerated

representing quarter quarter was million, at metric recap XXXX fiscal of XXXX year third at briefly sheet the of XX and of receivable, XXXX. million The $XXX.X XX DSO days the balance accounts at the days highlights, $XX.X fiscal To end versus increase fiscal days, of XXXX. XX the the year year net, since of end an end March of third XXst, other our was

our slide focus Let’s non-GAAP to outlook. on for year I XXXX. our for will fiscal review XX on move commentary my targets

earnings As updating last for we call. our quarter outlook October non-GAAP Anil XXXX, are that year during noted XXXX year presented fiscal earlier, fiscal was our on second XXth, XXXX

to imply million rate. $XXX range now growth We The in of that million. of to revenue prior midpoint same and range our continues a mid-single-digit the this the range anticipate remains topline $XXX of as

non-GAAP per a and $X.XX, forecast growth XX%. million share accelerated In now for diluted partial anticipated XX midpoint $X.XX also $X.XX dilution. This tax the by It between impact and implying bottom-line. we increasing stock anticipate to between weighted addition, in million includes earnings be our effective utilizes a year-over-year offset which shares an share for the rate low-double-digit outstanding, average million assumes diluted program, with XX% compensation to of range $XXX and the repurchase rate XX of the

was slower with return EPS outlook the anticipated, an cost leveraging travel-related primarily continued It recent data, which frequency projects. is originally management The as due when library pre-pandemic gross to increase than in propagation has similar large non-GAAP modeling efforts. well also costs attributable our of diluted is margin the above-average compared as radio to project

financial concludes turn and call Q&A. the you the of now Thank I’ll That over my operator review our to results. for formal

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

Thanks questions. just Great. my projects how patterns XXXX. in taking start about for you new conversations Anil, talking quarter, And and concern think IT by for obviously your particularly a year? of general with assurance. customers calendar lot service just about spending the about There's this results Can prioritizing you do executives? strong

thanks your so for far, Matt, Well, question.

next now, right detail lot confident on next call, some the year. we -- still gathering about have that And we and for this time guidance think a our for I getting year. and we influence will we'll So, are obviously more reach the by April are guidance data conference

NEMs now, we we point which getting from other but indication customers Right and the indirectly direct not are budget from players that. slowdowns to other and any controls, about releases hear

right see a wait So, we attitude. now, have sort and of

Our interested solutions. still in customers very our are

there is slower consolidation. in times, tool Sometimes more

say not that we in really So, year going right is a now, to next out. are how work to position

accordingly. Fortunately, then project we'll and we guidance our have three that months to assess

Thanks. on work Can the why XXXX of things talk growth cyber lot is bit your is this might any it. And there might growth Got profile? new a consistent be? slowing And product like business, calendar a you done. that candidly then there, which maybe help front we've are that a with about field that in

Yeah.

really, there And product that also, So in nine it results there. has QX think uptick, percentage the introduced slightly about will see customer will and there have better I of some I more higher a new product, year, are we cybersecurity. it's from we going a lot -- months up next got we And a area, see you pickup But be But cybersecurity has new traction mean, to slow input, we QX. should ago. and which pick after slower much in a do will the some learnings slightly when we in in we year-over-year the cybersecurity. number, announced think I and come

profitability the as especially Congrats well. again Thanks. on it. side Got

Thank you.

James Our Sandler. Piper next from question Fish comes from

on guys, wanted the a mid I touch on quarter provider eight-figure to that bit. congrats order service Hey just here.

little You for about your for a we're from guys QX. fiscal for in QX. the normalizing product think million point? that of that and there bit this about based backing And way $XX in pull-in a mentioned on revenue year, at roughly fiscal guide Is any pull to of

Okay.

that I it basis, But QX than is don't full was just bigger looking a question we was then mean, there know I is into would that. on think pull-forward are your that, I I But have Jean normalized. think our projecting. obviously, quarter what been whether not

got made in orders than which QX, advanced the QX, some once bigger got order we expected. advanced QX we in So

you. that looking just up for Yeah. Maybe

the You your where opportunity accounts about objectives first what NetScout, here. this that mentioned refresh Can is of white the long-term we those deal just on long-term are you penetration And mentioned us and security? have how with on cybersecurity or you're from to purchased you sense space any customer you thinking time do is, objectives those? it's that current additionally, that

Yeah.

basically, continued. have So bit current is so cybersecurity we little I -- think a

This is roughly announced total this CyberStream uptick Cyber or stuff, a couple the year we big orders. with the have which and big today, slow ongoing was new business. Omnis which of XX% talked last we product about and which was notwithstanding business We an of Arbor, a other order Intelligence

product. in of so customers X% number terms assurance less can service sold And has I than use product of our been cybersecurity customers, the mean, of our who cybersecurity

months. is first a this lot and nine there's So, only of scope,

And much DDoS a of so And we while get relaunching and impact we did are from on Omnis big, to are from rate a Security. from orders and the that, customers, that's we resources from digit slow single product up and and this in stuff couple bigger business, has will counting -- Cyber next that April, saying a that additional existing growth are on then been creating more coming flat what which penetration source think, big year. putting the we have I the

Jean. is Hi Jim, this

So, to the -- asking in probably effect the modeling frequency gave half was close sorry, that that versus that pull-forward the QX. projects of I'm little QX you higher to million in radio calibration QX, the a versus a I more would received gross than margins. reference say with question that being of about were $XX we us orders that

still QX of is at is looking the in $XX math the you're you think I So, $XXX of for midpoint million, our said that revenue product at midpoint the year-over-year have XX% number guidance, -- which FY we QX million X% represent 'XX. from That growth year-over-year from the of would at guidance, would be growth a And a about accurate. would of XXXX.

guys. you, Thank Very helpful.

welcome. You’re

Company. from Liu Liu comes from & Kevin question last Our K.

And of America. X in the Could your on NetScout think you some a on kind any comment to has they are CapEx the you business bit sort morning. from large think [ph] just emerging XG service outside assurance Seabed you wanted the providers on then, side? spend cycle whether Good of of spectrum will this year? thoughts to disproportionately the North of just from there kind I the benefited around get if carry had Tier forward that continue deployment cases use

Yes.

around ago, on or has are there business end and top incumbency with lot, XG sources, on two the the we other Kevin, challenges we , the of And it and more spend started spend. which some a initially is year, starting this backlog years was from just carriers the world. area, were a XG the lot relying down, where settled competition slow of and some So all that our helped seeing calibration in in revenue other

wait-and-see that area. So, think done a infrastructure there announcement attitude But XG is be to the to in spend still having capacity we additional NEMs with customers recent are CapEx some April. the in potential -- of until some same companies, and lot of this given put spending, we just slowdown

So we'll be in know budgets. we I when -- have the more think better we'll we’ll have a -- about position much

later our of Fortunately, people other fiscal the than three customers. is year, fiscal our some months year

point, benefit us. did technology the So we from made. last we years over all four I XXX -- investments the spent at I were maneuvers this by XG really we think almost on three, mean,

impacted off. so next by to -- remains And be that what does that's macro But the pay to year environment beginning same. this how

you've the what that has features out Understood. solution. added kind customer some Is the learnings you've just feedback integrations. additional be it I'm elaborate as And need I product to hoping on you new curious rolled of more been? had of on fiber, could the of just kind was then

Yes.

year too a we introduction of of the and first so think going we're I I maybe in mean, And I So months over in high gather nine million expectation the the first our as the was $XX basically, in information. to information happens mean, far. year. lot do million I to $XX competitive product, think of

So I the main overall, think that's thing.

at We from comments set are other got and our some adding have of just strategy customers. feature of we fine-tuning the some

longer actually it cybersecurity as than as the for the a product security has includes other other And The cycle I product mentioned, takes reason well very was the as takes integration that Arbor traditional new sales gone The time. the well, sometimes, tools products. with the also just and DDoS not new in business.

of some and the the growth closes. some year-over-year the on percentage seasonal, nine quarter will be it first improvement as there is fourth months And versus

guys. for on right, congrats All Thanks and questions the the result. taking strong

Thank you.

for to over for Q&A. additional I the or We any have will reached our remarks. call turn back now allotted Tony closing time

operator, and of you us Enjoy for you, XXXX. thank Thank call the fiscal day. of That quarter concludes for year our the rest today. all third joining the

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

disconnect. now may You