NetScout Systems (NTCT) 25 Jan 242024 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to NETSCOUT's Third Quarter Fiscal Year 2024 Financial Results Conference Call. [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. Welcome to NETSCOUT's Third Quarter Fiscal Year 2024 Conference Call for the period ended December 31, 2023.

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

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

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

forward-looking their anticipate, of only such forward-looking statements or any by use included not should, caution expect, on this unknown You this of These forward-looking financial believe, speaks known comparable will, place those not on and to to, results in actual and and due presentation, statements can as from as and terms. We to and differ forward-looking limited today's uncertainties, materially in results uncertainties, other date. factors, listeners forward-looking words could press including, the assumptions, described other plan, reliance but involve identify undue statements today's release. slide risks, statements which risks

this obligation the with any associated XX, report NETSCOUT the information with with March respect described to no of factors Securities file the company, to risk year detailed or in XX-K Form announcements forward-looking Exchange on annual herein. the to description for the on update Commission. contained refer For company's a the assumes communication more XXXX, and ending please financial

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

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

morning, level, budget for everyone. thank At our joining third a to ahead all of spending the continued of due containment and our quarter and customer efforts. today. year-end non-GAAP you, Tony, cost and Welcome, and EPS you expectations good timing us high Thank we the delivered revenue

spending constrained remains challenging However, sales cycle. customer with the microenvironment elongated and

see our the X we strength We of fiscal where months revenue in cybersecurity business first XXXX. continue delivered double-digit to growth during year

customer pressure. X was continues assurance service vertical Our for customer this the provider is our while relatively face Tier Accordingly, business period environment. flat enterprise the primarily our due of carrier the U.S. capital to vertical service creating majority headwinds, revenue constraint to

third year results first EPS during We'll and the our delivering our as fiscal anticipate non-GAAP backdrop, fiscal the quarter a With XXXX. our outlook our end at the in at should of other disclosed brief previously year's let's non-GAAP are more outlook X turn base revenue and a that of for of specifics previously year remarks. XXXX cost line Given macro the for our the a higher to end Slide of us for provide low full with lower range dynamics, full EPS disclosed financial on the position last fiscal containment #X we months year deliver to our year-over-year. relatively recap revenue while efforts activities fiscal

higher For this $XXX product in timing year-over-year due cyber decline XX% approximately our expectations line down the XXXX, revenue at spending. as quarter only ahead security On offset of was year the product the of a to approximately a of fiscal basis, service customer growth million was assurance the to third year-end partially diluted budget the a partially efforts than in and share by for lower exceeded other previously This continued earnings offset was previously primarily cost expectations line reasons for quarter due cost decrease which XX% mentioned. our year-over-year, was we lower Non-GAAP the per revenue, anticipated. $X.XX, related and containment activities. to of revenue

the ended of fiscal was approximately XXXX revenue XXXX, $XXX months XX, year million, period down X first December the year-over-year. or For XX%

revenue cybersecurity was decline a more basis. XX% on revenue both service our of XX%, approximately assurance than period, this by service year-over-year than more but During a grew offset

Excluding cost first by of revenue lower partially the for was and radio a approximately from the impact revenue service as share declined $X.XX, lower revenue diluted months frequency offset comparison, X earnings propagation containment assurance project Non-GAAP year-over-year year-over-year. down count. approximately XX% $X.XX the per share efforts modelling was

let's months flow-through our Now customer delayed market, cybersecurity growth scrutiny year to with the and by our for revenue affected was In enterprise as percentage line XXXX, continue vertical. assurance customers product enterprise current of insights. and environment. navigated enterprise flat be on a product fiscal as perspective service lines Starting in business in funding offset rates middle-digit the the year-over-year spending to macroeconomic further In essentially project market #X higher Slide decline move revenue revenue. the some first X

grew sectors others like financial year-to-date as while and the government notably were some However, sector healthcare such softer.

leverage to within customers. continue solutions from attack, to customers' We control networks protect expand will the help with These solutions cover address due expect transformation architecture spots, blind of initiatives. and challenges, edge facilitate the network our solution non-cybersecurity and to resonate and cloud new ability our and off-premises visibility digital

Moving provider in of declined X to our Revenue fiscal vertical. year year-over-year. service approximately first months the the customer XX%

revenue given customer frequency was declined propagation approximately in product our than provider XX% line service decline from radio core service more The a revenue. revenue in offset service impacting spending as This the is by line and growth the vertical revenue funding appears provider service provider intense Excluding year-over-year assurance Cavium challenging, finalization product budgets Tier comparison, year dynamic to calendar funding. U.S. modelling which as the scrutiny be capital market of remains well. our project cybersecurity delayed spending project and the especially constraints, X new for causing

persist the We the to into market expect dynamics and challenging likely the fiscal fiscal of the year for next year. remainder

Cavium adoption traffic solution, our We core and visibility remarks. selling remain our solutions. orders XG with increasingly our and by this differentiated with transition inevitable we his be required. DDoS DDoS new like believe use solution increases, the support and ready cybersecurity Despite Omnis regarding as verticals However, the our volume security. will including adaptive our new prepared we will that cases and accelerates, advance, offering, the encouraged XG current and environment, through customer in are during traction other Michael provide insight interest cybersecurity recent our mobile in more particularly offerings to

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

EPS revenue Looking require the deliver cost-containment to end as benefit or fundamental We end we EPS previously our fiscal of demand will environment be performance, of world. our continue full headwinds, continuation of cybersecurity help for assurance on anticipate consideration the relatively and customers outlook industry-leading line provide long-term range higher we a such Visibility $XXX current on ahead, that tackle enterprises the activities. low Jean increasingly of believe leveraging scale. XXXX, in taking availability, into lower other providers complex EPS delivering disclosed million. the as near-term digital disclosed recap our year trends previously the last her expect the at This and the for will the fiscal non-GAAP cybersecurity visibility ours in outlook Borders connected we as intact remarks. at our industry-leading efforts year-over-year. platform outlook our Without of focused approximately actionable revenue NETSCOUT service Despite revenue from solutions at EPS Accordingly, service would with challenges remain range and to non-GAAP we the to put and year remain our

continued at the I conclusion our this to over Michael. We our call fiscal sustainable for turn look will that, sharing of With year. forward will to deliver strategy to the enable shareholders. the our of We everyone with expect execution us value progress

that vendors incumbent there displaced won We a everyone. to new the as competitor win an highlights Thank center We customer reputation company, from us. XX starting win outlines well that new and quarter industry our in The opportunities hybrid for quarter. due cybersecurity needed service addressed as areas Slide X-figure in you, to to the strong shortfalls technology deployment support customer to good as further the visibility. opportunity morning, logo enterprise data area we solution our low that with interest assurance on strong and well. the our potential during a and is figure, related are this domestic In X-digit leading covering address solutions explicit leader. believe order today this assurance more the as superior given horizon deal Anil, third which this vertical, be our I cloud service to will with insurance a customer

recently cybersecurity customer that a strong both Sightline network solution a well long-standing to derived proven Mobile to technology Security line leverages We the released agreement multiyear their offerings order MobileStream filer market-leading product the customer. us in XG vertical, due service incumbent X figure with and opportunity included included this with this solutions service from relationship our to network, fixed solution The DDoS detect order assurance solutions. on our deployed won innovative Tier and as placed to our our Turning a mobile attacks our generally network. that carrier a renewed as and mid-seven address European evolution

addition solution, advance handful we we by service interest actively this high the As as in provider trials are Mobile landscape. multiple new deal a this discussions are to the offering in across Secure in of encouraged engaged we

DDoS Now attacks water with we go-to-market we announced solutions Adaptive protect activities, in the DNS of recently, so-called from launch for enhance ISPs of Edge Arbor Defense technologies. new enterprises our torture to as our and terms

in to Congress be Barcelona in plan meeting with we Additionally, we World and where existing attend will February, customers. late prospective Mobile

over XG focus to and ML the will a requirements. of solutions related That my call on our Thank service I sharing you, and latest will review cybersecurity turn be Our network results. now our assurance, financial for and Jean analytics, to visibility AI remarks. everyone. concludes cybersecurity

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

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

basis. our the on due and $XXX.X service year-over-year, year-over-year. first cost up operating revenue performance. XX% our $XXX.X in Technology $XX.X Operating in compared reduced compensation expense Gross points percentage variable Focusing higher was Total was our for User in included profit down same quarter was third Event, Diluted primarily variable revenue million, margin a ENGAGE first earnings service reported efforts, profit million, last in to same margin had decrease a expenses share last million, lower which revenue XX.X% compared incentive X.X%, on fiscal year. the both the an expenses quarter, including compensation. $X.XX historically operating incentive primarily per was of the occurred and quarterly year. the We to quarter with to attributable decreased compared quarter XX.X% up Quarterly containment year. XX.X% was XX.X% revenue $X quarter. X.X year-over-year, Product X.X% year-over-year while of as last to

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

the X revenue customer fiscal our XXXX, of first year months was For effectively flat. vertical enterprise

provider Our revenue XX.X%. vertical decreased service customer

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

Turning product lines. to our

cybersecurity while our first our X by the XX.X%. by service fiscal months XXXX, assurance decreased of increased revenue revenue XX.X%, year For

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

our to XX% year States, shows geographic the Slide with mix. provided This from fiscal by remaining of United In derived XX% XX. markets. was X international of first revenue our Turning XXXX, the months revenue the

in investments, from the modelling more shifted months XX% to mix As partially last revenue customer or million free XX total international between $XX.X of X period quarter lower expected, first highlights cash the domestic represented year, cash Tier with markets year. second third the flow sheet the third and of end balance fiscal the million. of our and domestic a project fiscal radio this year. X equivalents, Free and carrier year ended We the for long-term decrease frequency fiscal quarter cash, same the and our short $XXX.X revenue since no details Also, million of $X.X the marketable due propagation representing cash or flow. the Slide in securities, quarter was of quarter XXXX.

net a balance recap revolving During third the with shares per of facility, total a the year representing million, of fiscal this the fiscal price approximately quarter the the million which XXXX year credit metric fiscal XXXX highlights, to for From and was The $XX.XX quarter of XXXX. fiscal accounts average our since common DSO XXXX. To and DSO was other an of of July receivable of fiscal we share. metric briefly quarter, purchase outstanding the XX end days bookings. ended quarter an perspective, third $XX.X $XX.X timing of of March in price approximately third million was versus in at stock of due year $XXX year repurchased an of year quarter the we XX $XXX expires end XX of at aggregate the sheet XXXX. The $XXX.X third XX, of increase third million the our on composition end days at days XXXX XXX,XXX higher million or of debt

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

our from towards effective our benefit disclosed previously share earlier, is This be XXXX, approximately per efforts X, tax is non-GAAP upper continued end rate we the We a be count. for fiscal previously share cost at range. we and as The end $XXX We anticipate As November well management tax of as rate lower range as Anil fiscal which outlook XX% the $X.XX. XXXX, $X.XX our to our of tax to to to million lower second end at related noted of lower are the now XXXX our be the of as range on to updating earnings of diluted R&D with the impacts year range quarter expected within legislation anticipate last capitalization revenue of disclosed was during now year presented the costs. XX% finalize associated earnings to call. we

the for activity. Our million and call weighted diluted now review share shares of assumed the I'll average my of over operator Thank is formal our concludes to between repurchase turn be Q&A. outstanding XX and million our XX shares, results. you, impact That which recent the to includes financial

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

of there. next some Anil, guess always as on you I you're the customers some be hearing sort curious could that What reverse? something are start side. trends on been could with some of wireless from provider to of into but year, some think talk trends start think you to things drift your on what XG said I remarks, broadband, wondering, that the spending improve those sort service that in obviously, that spending, think the noted of the on confidence spark prepared to gives I that we've pressure customers, some could you Is could XG. you of anything maybe consumer I'm you

of you're those gives could trends Just you there to the improve? of anything that start that there that kind seeing kind thought

Thanks, Matt.

Even I've we carriers we from the rather of still of though the are different different keep high about at strategy next almost finalizing with because hearing level X people their talk budget, at than in some for all maybe think met stories times. Tier and the months. I So X last our estimates year can a they

AI our is So applications. good this service what a automation outtype Omnis for capital very have on we data, it lot are product that is pressure is of while with solution, and assurance looking at on but line, there we spending the

the So incumbency. service reducing provider assurance a we service customer is dependency in appeal base talking to And user them, that's different their audience to one second our on business. direction and are

with we on so at happen capital deterministic words, But provider are to think I it's what's spending because could of And takes that's if combination the upside. in -- traditional to things, looking it's up, XG there what not be some part those the other service going business. assurance the our service basically of

to double-clicking expectations Got it. doing this guess cyber I doing a helpful. happening just seems it on, second there. bit seeing business, the things on lot ago. a because that better? we're things which of that relative even feels there's of And That's to maybe growth then you that well. noted quite Are -- the below double-click are to there line a be like some top on And of estimates the just kind good

we past integrate So Arbor the -- the business. that if you have mentioned in we didn't

in have a spending business, also service provider then enterprise. we So Then we to business assurance which and And service still issue. last high is just Arbor have like XX% some as the the time that business, a bigger in have we traction. challenges was year and level, Omnis have provider which for of taking introduced service

technology NETSCOUT into -- on integrated point of trying was from the a market. roughly bringing business are seeing Arbor technology And to years we're view, effect the we the X DPA DDoS ago. So

Adaptive about water that's typically, is have -- which So we this introduced application next hopefully, talked and attack, for continue talked will attacks. Michael year. growth torture DDoS, And really about is layer and DNS this year. something DDoS this volumetric called We attacks, driving

next Jim Piper Fish from will come with question Our Sandler.

volume question something second relationship of any Can 'XX, this acceleration of and for end could in of you attacks the growth And there. capacity Maybe or on the space and vendors This this the DDoS both double-clicking an and kind have about performance we of talk between heard be as those fiscal you or these for you've attacks need We've year. that nearing in seen the that accelerate upper other the as reaccelerate pace in occurred Matt's is to their from towards your past? security cyber are about on is Quinton customers look may continue Jim. upgrade?

Sure. Yes.

server, attacks attack, we So and I which that called customers' network multiple And about our of to instead is which a attack to a a devices how is a carpet hard first are torture then mention bombing DNS water very there report, there's bring basically talks basically server, where thing morphing attacks the in new, website, third you are do down on DNS detect. anything. nobody want can publish then attacking which you is attack like

So these new two introduced functionality. we areas the are

of attacks lot we new are -- yes, Arbor is adaptive call So And are interest lot we going a increasing, of kinds there's provider business. service handling to had in more of attacks, which now that. business. we be enterprise DDoS. NETSCOUT but think business was Plus there a

So the the in is which DDoS, on forces, we combine different product, is than traction as are of enterprise past. sales AED seeing which the our we portion

compared more side, a maybe benefiting Makes Anil, from you was talked budget through year? flush. from sounds lot specifically walk this year-end of remarks, like sense. you in this to And can last segments about on any you the then It verticals benefited flush or cyber prepared but for that for the your

orders this QX add from budget into can maybe to necessarily not went was Jean some QX. of but Yes, maybe this, the like

like And didn't anything we past, you after which the Jean, COVID. this in have see we budget especially traditional seen add? to so flush

budgets and be had XXXX Anil, skew their year would QX, given year sure not correct. were QX. are whether calendar our -- you between budgets, we when their QX color we start the or our No, our using calendar hence using XXXX the customers our for

is that which And so use was found what they their our calendar fiscal we fiscal did -- XXXX QX budget, year. year

come will K. Liu with & from Company. next Our question Kevin Liu

coming about early ask terms of some cybersecurity the the from the specifically expectations you've over for in the think Or mix the for I pretty that of growth new fiscal past next just you're accelerate business year, cybersecurity? on seeing to with what XX on of it ultimately, And products side we consistent harbor of pipeline wanted kind your months? should side, should seen business. to the what think of given How we build you will about versus expect do growth? stay

Yes.

higher that called the versus product of growth the integration So I in of new also Security, this add I in we a of some NDR is the which space. have mentioned, technology, And the one was in want past. also like much Omni that. products some resulted to

And security will Omni security both we them. has about talk include we of when picked revenue, This up. year, so not

of Arbor. bulk of is So because the growth

than of will And should insurance go -- be call. the security we guidance we to that to be able the some might better the -- better earnings growth also. next be So on continue but think security service next provide this higher percentage and year in hence,

Understood. And if provider on to Tier of Yes, declines offset move kind of of wondering Just there then, be the I coming the the service is... think it there's spending might Anil, believe could outside you this that opportunities X also elaborate some from current help opportunity capital barrier? the count as side. enough into you a little bit we

of that on is, the the lower in incumbents I challenge are cheaper-price end think the Kevin, market. there is

we So where XX beyond top or XX are already the coverage.

user terms So like XG off bigger over cases fiber, opportunities, heavy is I the the something plane much FTTH, is doing to AI takes air of the Security use user our which and or faster announced. service area in are Mobile see like solution of AT&T bandwidth, in assurance, in some which recently applying fiber

not are going is competition. price lot are very a hard that I those which and or are be. where because to think are And going there Tier of regional the trends But is I see vendors incumbent, below X big after we so there

That's helpful.

question-and-answer This of portion the call. does today's conclude

Tony like for to So the additional call over I'd to remarks. or back turn any closing

the day. for call all rest today. joining us, of Thank That Thank and our you, enjoy operator. you concludes the for

we gentlemen. does and conclude your participation. This today's and ladies program, appreciate you, Thank

at disconnect may this time. You