NetScout Systems (NTCT) 9 May 242024 Q4 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to NetScout's Fourth Quarter and Full Fiscal Year 2024 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Tony Piazza, Senior Vice President of 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 period Fiscal ended Fourth Call XXXX NetScout's the for March to and Year Full Conference Welcome XX, XXXX.

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

remarks. is There prepared slide that presentation a our accompanies

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include results Commission. section Today's available but the annual involve performance speak call could today's statements. on Slide statements of statements company's report differ materially future operations, results include including, of fact. statements #X. our the and SEC are any with to and XX-K release, not uncertainties, as Moving subsequent statements. other and slide results to, future recent for our of financial filings well strategy, file limited that as as today's of date or in Securities which management conference are These described and objectives and those Relations risks in only Investor financial Exchange historical website, most not forward-looking plans forward-looking operations press and on on and position, will the on Form the forward-looking regarding business statements Examples from of Actual

required update except to obligation information, no as assumes by law. forward-looking NetScout any

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

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

our was and all expanding cybersecurity you, spending and joining Thank strong Tony, Welcome, prioritize good provider domestic a assurance flexible for primarily service With to and related the financial year quarter and actions to offerings, our fourth containment full our top non-GAAP the for heightened constrained amid year NetScout than cybersecurity now #X turn customers. as continue us of cost by customers contributed year-over-year. XXXX, results offset service affecting backdrop, per Slide high-level our everyone. share environment non-GAAP Despite revenue more line morning, a growth for earnings thank This landscape. tensions cost you trend let's as brief the I was a In geopolitical highlight that fiscal customer and recap XXXX. growth today. threat fiscal headwind, mean, spending, to diligent structure cyber to for

the Jean call. detail the later will more in provide results on

million, or diluted $X.XX down share basis. earnings quarter, X%, of fourth up approximately and a revenue per $X.XX, non-GAAP of we year-over-year XX%, on both the For delivered $XXX approximately

a modeling unusually decline fiscal From X% radio the million, to diluted delivered frequency year revenue, of X% propagation representing or due the year the full in $X.XX year revenue in radio approximately our X% of excluding high to for of a a delivered revenue compared a non-GAAP service fiscal $XXX year project over share, For part an approximately XXXX. full EPS level the modeling decline XXXX, a propagation per perspective, approximately year-over-year project revenue total When we from improvement lower was level fiscal $X.XX frequency XXXX, year-over-year. XXXX. fiscal approximately we assurance,

result our revenue fiscal the headwinds during We achieved partially despite cost this actions containment to due year. taken the

modeling previously Now for declined to XXXX, from Service the was discussed. well and approximately primarily fiscal domestic year-over-year as #X This Starting year-over-year. offerings. as Slide constrained XX% project X In market Assurance Assurance with attributable on lower perspective as frequency some to let's revenue insights. move radio further year business market, our spending carrier Tier propagation revenue Service

modeling propagation radio were year-over-year. frequency revenue down Assurance impact approximately the XX% Excluding project revenue, Service of

remain As Assurance required we Service of we customers moving cautious forward, to consider the tight the approvals budgets being and as number elevated. demand offering remains dynamics the continue see for

much While believe stability and which in vertical ongoing relative we customers solutions at the edge, we the to enterprise of expect year fiscal in the the for mission-critical continue as XXXX. monitoring the service vertical, prioritize persist provider headwinds

clearer material investments. with further driving This to delay increasing deploy no to capacity provider caused is issue is domestic. their Domestic cautious has delivered providers below the infrastructure service new as obtain on for dynamic until monetization acceptable network an significant yet not a XG demand. return demand a The that has the application investment strategy investment providers decision returns stand-alone traffic service in and becomes remain primarily spending on

network we the customer to gain momentum. continue ready and progress emerging support as as market both demand domestic international carriers technology to be trends and the Strategically,

although wireless fixed the opportunity, For been to deployments. service long-term bandwidth currently has a providers support recent have already promising access example,

early but slicing is network in stages. opportunity for Additionally, also offers NetScout, long-term still

by We XG are encouraged investment carriers. international the activity at also

market, long-term growth. remain tend domestic be international the levels spending important lower carrier they contributor than to to While

new is relates value requirements of proposition our to our increasing to data we for available intend the AI critical be use AI we technology innovators partnership customer DPI data sets and of other customers technology. with smart NetScout an contributor technology this cases opportunity as generated early bringing unlock emerging our tool the steps future, This actively it this important of with smart make of strategies, value taking in collaborates as needs in Finally, to to field. the fully emerging from and In market applications.

Shifting year both approximately offering. service result to revenue year-over-year, cybersecurity in verticals. XX% was In offering of growth growth fiscal cybersecurity and the enterprise delivered XXXX, provider which our our our customer

In addition, we and spending geopolitical heightened amid tensions the believe customers threat prioritize landscape. expanding

This over released in globally DDoS As depending revealed our the an increase increase Intelligence is hacktivist threat in million contributed for this cybersecurity of high the half With motivated first attack groups protection the needs. NetScout XXXX. X an year. of second recently their landscape, activity XX% in water DDoS of Report, politically Threat are DNS increasingly to on from torture half companies and

solution to As this solution our during Adaptive Omnis DDoS, mobile customer to should offering more the to fiscal customers momentum in we and proposition expect of continue value believe space. the we remarks. customer well as look our continued resonate such core well regarding as with as insight fuel Michael year and new as will XXXX, vertical product Cyber Gene security Intelligence provide performance and and wins, offerings as

summary. Now regarding outlook and our let's to #X move Slide

encouraged year As cybersecurity we to offerings. fiscal in momentum our look XXXX, by we are the forward

enhance our domestic service as create in slightly as begun have that the investments focus strategy a offering. of a on top Assurance well fiscal includes lingering in our This to Also, new go-to-market flat resulting our provider revenue actions the increased the further the scenario modification. likely line will vertical year offset, continued recognize in cybersecurity offerings. down despite growth Service We R&D for to will cybersecurity. This we take headwinds

continue We'll with cost current to align environment. our demand structure the

position to believe visibility her remarks. focused providers well the effort the always to for actionable as provide success. have We separation Gene and deliver as and focused has fundamental solution our specific execute benefit at restructuring service company, preserve leading are in we implemented for trends service of we long-term demand scale. will headcount and a enterprise remains earnings more a voluntary from assurance and been as strategic shareholders future reducing long-term require cybersecurity on to part we program priorities, in NetScout positioned outlook on NetScout seek and

Without world turn everyone that shareholder we remain helping sharing I call the to our tackle the forward committed our is our We of value. long-term We With essential to quarterly earnings delivering will to platform remain performance, on the Michael. Borders cybersecurity as with progress confident challenges look increasingly also Visibility over digital connected that, availability and customers for complex calls.

that a new prioritize geographic cybersecurity quarter. areas markets, we In with threat Thank various our and multiple industry to Anil, customers today DDoS-related the both fourth offering, existing you, protect and highlights deals as customers good everyone. expanding XX that continue landscape. against the them and across investments sectors X-figure with Slide outlines covering cybersecurity I be the in customer secured win morning, will starting

enterprise example, low Middle deal the financial For new customer we the a we East. won as in X-figure acquired industry

our We while this have of multiple customer over leveraging with leading proposition been engaged DDoS managed value pitching service. competitor's capabilities they a years, were the

an were Although experienced Cloud, the multi-solution suite both XG Defense, the benefit capabilities solution domestically and Edge defenses. support continue This capability Service situation. persuaded included a better engineer, from deployments, this buy demonstrate cyber vertical, challenging to the somewhat vertical. and in to a cyber-attack, the resident service customer we on-prem customer in Services offering Managed the catalyst, the during muted able in-house our and for control internationally, and and purchase in full Arbor and provider albeit Arbor particularly capacity a pace customer environment to upgrades unfortunate our spending that superior the quickly a Assurance constrained with their of expansions, bringing to given of Shifting us we at contracts

One the with network service leading we prior our mid-teen, Tier-X already through a that quarter XG solutions X-figure with XG-related support example was deal win efforts. Asian provider during a

is of future. historical potential they to the for our believe we expand provide network the XG this with customer, first their as performance network. visibility opportunities selected they XG Given strong the incumbent NetScout the their bigger deal in In relationship, picture, and other

held Turning our solutions network the customers. with Francisco, cybersecurity we solutions existing to activities. Securities related meetings AI/ML and our meetings analytics Conference RSA valuable February, including Congress and assurance, existing in leaders to productive prospective customers MWC We More late cybersecurity visibility in prospective Mobile cybersecurity May, we many XG recently, our requirements. service held San and offerings, with go-to-market World and attended to Barcelona we discuss and where attended showcased in in

and to of type in our call the Networks, entered In customers Palo technology June, XG companies without Vegas to Conference alliances, customers establishing with current order expand alliance well Cisco over example will the prospective now partners, help a our market which customers our our as in private other everyone. against we Alto Gene space. good are Live for Nvidia This to Thank to such and recently prospects. protect benefit you, we effort Borders and Splunk presence, as a both network meeting for Visibility Las the with financial remarks. to In and my look User results. forward head turn our into and our will a offering. This cyber-attacks of demonstrating as value-creating we to the is business of review I nascent includes concludes

Michael, XXXX fiscal year for you, some morning, everyone. Thank will on quarter commentary key our I metrics review full outlook. fiscal additional and and year fourth XXXX provide our good and

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

year fiscal details full #XX results the fourth the Slide XXXX. and for quarter

in efforts. year-over-year, operating percentage last to an expenses $X.XX was was the while quarter XX.X% basis. revenue service $X.XX, the year. on up on of earnings decreased cost points in comparisons $XXX margin quarter, reported same Product the XX.X% Quarterly million, year-over-year of total Focusing year-over-year. with per Gross of operating a quarterly was million, margin was compared fourth our XX.X% revenue in from decrease was last share are profit a a down All Accordingly, performance, Diluted down revenue X%, decrease profit containment quarter million, XX.X% we X.X X.X% same $XXX.X primarily $XX.X due X.X%. X.X%. year.

was revenue previously reasons the decrease $XXX.X over year For which for of was the a the prior full million, XXXX, year fiscal X.X% stated.

$X.XX, driven X.X% operating mentioned decreased prior expenses lower $XXX.X previously year. from and was of lower-margin The revenue operating an prior propagation gross modeling of cost primarily due service compensation revenue, revenue a Product year-over-year actions. frequency year, XX.X%. was contribution points. a profit less variable primarily increase X.X margin year-over-year. attributable expenses decline was profit was through is $XXX over Annual actions. margin the improved XX.X%, year-over-year, project of from radio increase profit reported earnings to of an We share million, margin X.X% containment cost Diluted percentage and Gross a XX% million, X.X% to per increase the consistent containment

in favorable finalization investment rate an tax combination had reduced in with we a Additionally, tax treatment. valuation the annual a investment with This, minority tax increase our to certain XX.X%. held positions of

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

of year full increased assurance by fiscal by year XX.X%, mentioned. our Anil previously the decreased while our revenue the For cybersecurity revenue XX.X% XXXX, for reasons service

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

customer to Turning verticals. our

prior our while enterprise fiscal revenue our year full year, vertical the XXXX, with For provider consistent customer vertical XX.X%. customer the decreased service was revenue

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

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

our mix ago, related the as the quarter shift revenues impacted Regarding year discussed. or fourth headwinds XXXX for were the revenues and XX% to XXXX. while no fiscal year growth of Also, represented full versus in the the customer benefited cybersecurity offerings, previously primarily both service domestic revenue a X providers assurance domestic or in more Tier international service total fiscal from by year

securities full short year investments, details representing of Slide with cash since which the and from long-term fourth in perspective, the of marketable flow. increase outstanding cash Also, We And XXXX, a for fiscal facility, $XX debt ended XXXX. equivalents, July end highlights cash XXXX approximately for on sheet expires the million our we ended fiscal Free fourth million for third of revolving and stock and of credit our million $XX.X in an year $XX year quarter million XX cash, million. quarter balance common was X.X fiscal $XXX of the we our with year quarter the shares $XXX.X flow approximately repurchased free XXXX. million. million the $XXX

the fiscal planned share days year year end representing The $XX.X the the currently at XX, $XXX.X XXXX. of authorization an The DSO our fourth market fiscal We in metric since quarter was fiscal accounts subject year have increase XXXX bookings. due other market of and to at recap composition XX during the first be of in fiscal the this XX days To the of XXXX. higher fourth end balance and to active repurchase to capacity of March the million versus quarter year million, was timing in of half XXXX. DSO receivable sheet of conditions, highlights, briefly metric was the net

revenue range We on Moving will to XXXX be to for Slide to commentary be the for $XXX a XX% flat rate. year effective I tax midpoint normalized $XXX approximately $X.XX our rate XX million. review targets to year-over-year. to The outlook. my year we approximately share is focus our fiscal XXXX. earnings on to diluted a per tax We return effective our non-GAAP within expected anticipate million fiscal anticipate of with as non-GAAP $X.XX,

ongoing previously diluted anticipated weighted be with mentioned the repurchase is approximately currently fiscal million company's shares, program, shares benefits planned Our and reflects outstanding separation guidance to average cost XXXX which assume initiatives. actions XX the year any associated does restructuring activity. assumed NetScout's not voluntary management

separation in savings year in the range expected aggregate. attributable these million restructuring the the range actions will as The with $XX annual primarily million XXXX, conjunction expects of company finalized that fiscal quarter to In is fiscal of approximately due these first similar a in XX% will benefit approximately company with $XX expects range in the timing rate of the estimated to in and record the completed. an XXXX to actions, these to of program GAAP actions. generate payments onetime is year be run charges This

Finally, for half I year XXXX. fiscal would the like some to color first of provide

benefiting in This the we in midpoint XX% skew revenue of half a attributable of the the year from expect half. approximately revenue and revenue prior we second in million the the backlog. to the first usage from first $XXX of our to to of $XXX year's fiscal be of Accordingly, million. range, $XX XXXX quarter fiscal quarter, million the approximately million year fiscal Assuming primarily $XX range anticipate is first XX% to

partially due As in the a to $X.XX continued non-GAAP corresponding efforts, $X.XX result, cost of to range backlog containment we expect impact. usages share earnings per revenue the offsetting the

That concludes our my financial formal review of results.

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

the that [Operator one to Instructions] We interest and you of do limit ask question in one follow-up. time yourself

from our question Matt We Markets. Hedberg Capital first will with take RBC

Dan It's Bergstrom Hedberg. Matt for

Just around know year them you time contrast what as X Tier could new with far lot seeing I Anil, hearing from demand budgeting are them from carriers. from those here? the service as for prepared maybe the trends you Maybe spend remarks on what you're Tier beyond of you then a with provider Xs? spending. and international And the

Yes.

XX about NetScout. X you on X -- big Matt, are world customers the our look of them, the or overall, So at top provider if out in the of

area this didn't if increasing, of from the tight. still our -- have think from are quarter, they're numbers year, in overhang -- they're the So we year, their big not stuff had we -- I calibration big bookings seem international to the mean, stabilizing. last I had the for last budget And cycles overall, some Budgets different lumpy. be But are budgets are benefited and -- side, from the often have revenue with stabilizing. we we this and I we orders think

is months are technology be different purpose, a is Omnis our we in thing offering and redeployed for or hearing that our second X can AI what And used ago. we about announced

think or And that can we so we the area buyer. already which on to solution. additional selling that's the more will different we have network, technology the we and that use opportunities there. drive can think same in have And At a demand I AI we be to time, for already are repurpose we be where because some

the or what are to and some of and will will in So that business cybersecurity. even -- will growth account, the perhaps that's grow the hoping of there rest that stabilize growth plus use assurance are benefits AI we then come being it we service from

Great. dig you And there, the then of areas with a could cybersecurity that you're this leaning some more bit year? little a into here deeper into

-- area, I our think we has into a them integrated DDoS some at mean, X in but So we ago, acquired up bulk never you the if main revenue of time business. until Arbor, the now years until I look been the ago about company

core traditional to DDoS. the we are and to to flat One business addition the adaptive some DDoS more And of there. that's is doing X there -- been which our up, have there world, DDoS, bringing seems technology DPI in So to what calling moving are be we areas. are is other things

in some companies Cyber the and where product. And Omnis The Darktrace players Vectra space, other and second have been area product is Intelligence playing. NDR a the brand-new like that's

the in some category. third service NDR The is in we technology new using have -- side. solution Intelligence number market. the is summary, adaptive we can DDoS assurance basically, year's from the business the first last the Omnis in core of Cyber Arbor, And the you mostly DDos; have So

third continued that's in And is of the area. bullish maturing so the that sort about in and why think are solution we second now growth this category, and we

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

still your wondering, little kind of access flowing through services this other the a customers' if like side Just aren't on new yet. you lot was wireless current do applications pause I terms that of things. a beyond is talk term service Anil, see just provider of bit and this opportunity you longer year. the Do think capital may you the in could be fixed being deployment? development of a Or of network just around there

Kevin, a budget. see, interest in that area, there's but of of I lot a challenge Yes. still

are it And are some saying different -- for the buyers. is appeals even case, which use which assurance are But other there business there but fixed in almost bandwidth And of in industry traditional service new the and to cases name misuse in the AIOps is all our the of of cases, in people fall area. the carrier. wireless ITOps, AIOps done there

that the to think of core will XG the So additional big business in of keep world, up it that's pick we parts and a going. is different will portion opportunity. what the continue

there there though AIOps. different be the slightly in market that for And will a additional opportunity, is then is even which buyer in adjacency market,

So area. technology in as that the of enterprise, the some we look think AIOps assurance into place. will the context markets at provider we the already as service that we both move have And and best in for well service

Understood. product for And AIOps the that in your done could traditionally you of providers. actually just wireless opportunity? elaborate a market usage of kind versus you've bit what is that the is How on different

Yes.

all So a level the end instead users experience like both abuses differently, and could in service have are subscriber, could user be for customers side, different for to fixed look pay internal and calling use on impact cases people traditional who service. at radio may the audiences need area, plants, wireless which they of There access external are assurance at could of high-value more the who network. better a looking the example, willing on other bandwidth

technically experience. direct So are area, those for not and are in user AIOps the traditionally fall they end

then you visibility activity. the on there their to want AIOps, in things cybersecurity with into not are area get hackers, hacking where So all just the borderline

Slicing put also Ops the AI area. can cases. in a of So technically bunch there is whole use be

it in and higher that's level appealing and about business is of And more are XX use can more say or going of troubleshooting interest to think service experience which and cases terms so and end-user budgets. so over command I a have triage been why beside XX I or new from there people. to So triaging we moving analytics,

cybersecurity Can year much And over attributable in business I the more one directly of a how little just bit been your could going if And the Great. have geopolitical talk on some be you go of you're might about sneak Or customers? to your side. the repeated kind buying as for spending expect of year, you would do and on? that from to customer acquire out new conflicts have existing you customers? this about to thinking your past

Yes.

-- I it's hard know attributable DDoS is and because think to don't yes, for what the that. have special various cyberattacks have it's like now But for elections there very was in directly everywhere, option the attack rising a coming, we reasons. and impact. we And are Olympics But France. have overall, coming we

go sort all of events these for after. so And to hackers an opportunity are

have U.S. So in Olympics and elections. Europe area, area we the seeing the that been in for example, for interest

increasing. -- attack, it's call in can So in I attack which sophisticated smaller another there we sense. think addition there's is all dimension, Also, I mean, to But Kevin, layer some activity is we going geopolitical application something -- them which is on normal attacks. like events always more this call

these DDoS, volumetric have allows which adaptive of So attack. Arbor after us where those the option go come prior that was mainly with, to up we traditional solution activities

product other we it's because have of type of reasons. whether newer situation some geopolitical so to or our And attacks, adjusted those of

at turn questions over this Tony have we that further Piazza no the back to I will program now closing for appears time. remarks. It

Thank for us, good call and have for today. our joining operator. you, That you a Thank day. concludes

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

at any may time. disconnect You