NetScout Systems, Inc.

Ladies and gentlemen, thank you for standing by and welcome to NETSCOUT's second quarter 2021 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, Vice President of Corporate Finance, and his colleagues at NETSCOUT are on the line with us today. If you require operator assistance at any time, please press star zero. 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 second quarter fiscal year 2021 conference call for the period ended September 30, 2020. Joining me today are Anil Singhal, NETSCOUT's President and Chief Executive Officer, Michael Zavados, NETSCOUT's Chief Operating Officer, and Jean Bua, NETSCOUT's Executive Vice President and Chief Financial Officer. There is a slide presentation that accompanies our prepared remarks. You can advance the slides in the webcast viewer to follow our commentary. Both the slides and the prepared remarks can be accessed in multiple areas within the investor relations section of our website at www.netscout.com, including the IR landing page under financial results, the webcast itself, and under financial information on the quarterly results page. Moving on to slide number three, today's conference call will include forward-looking statements. These statements may be prefaced by words such as, anticipate, believe, and expect, and will cover a range of topics that are not strictly historical facts, such as our outlook, our market opportunities, and market share, key business initiatives, and future product plans, along with their potential impact on our financial performance. These forward-looking statements involve risks and uncertainties, and actual results could differ materially from the forward-looking statements due to known and unknown risks, uncertainties, assumptions, and other factors. which are described on this slide and in today's financial results press release, as well as in the company's annual report on Form 10-K for the year ended March 31, 2020. NETSCOUT assumes no obligation to update any forward-looking information contained in this communication or with respect to the announcements described herein. Let's turn to slide number four, which involves non-GAAP metrics. While this slide presentation includes both GAAP and non-GAAP results, unless otherwise stated, financial information discussed on today's conference call will be on a non-GAAP basis only. The rationale for providing non-GAAP measures along with the limitations of relying solely on those measures is described on the slide and in today's press release. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations of all non-GAAP metrics with the applicable GAAP measures are provided in the appendix of the slide presentation in today's earnings press release, and they are also on our website. I will now turn the call over to Anil for his prepared remarks. Anil?

Thank you, Tony. Good morning, everyone, and thank you for joining us. Let's begin on slide number six with a brief recap of our second quarter non-GAAP results. We delivered solid earnings per share growth on lower revenue of $205.3 million compared with the same quarter last year. Earnings per share was $0.38 in the quarter, an increase of more than 35% compared with the same period last year. Both service provider and security revenue grew in the quarter, but were more than offset by a decline in spending in the U.S. federal government sector, which impacted enterprise revenue. The quarter benefited from a focus on cost control as well as pandemic-related travel restrictions. Let's move to slide seven for some further perspective on the business. In the service provider vertical, revenue grew 4% compared with the same quarter last year. We continue to work with our service provider customer on the 4G LTE evolution project internationally and on their 5G project domestically and in certain Asian regions. Given that 5G build-out is one of our catalysts for future growth, I want to provide some insight into where we see the market right now and how it may evolve. Currently, many North American carriers have 5G offering utilizing their 4G network. These services are operated on what is called non-standalone 5G network. Over time, carriers and others will need to build new standalone 5G networks to support future use cases and ultimately a larger volume of traffic. These standalone 5G networks will be software or virtual installations, given that they will be more distributed at the edge in order to deliver on the promise of enhanced bandwidth, higher speed, and low latency to support 5G use cases like industrial automation, telemedicine, autonomous transportation and drones, augmented and virtual reality gaming, and the Internet of Things. Last year, we discussed a few projects we want related to the radio frequency propagation modeling or calibration, which is a precursor to 5G as the providers plan out their network based on signal data collected. From NETCorp's perspective, although we participate in all phases of 5G evolution from planning, development, deployment, and monitoring, we believe that we'll see the largest benefit once the standalone networks are deployed and traffic is flowing over those networks. Therefore, we see 5G as a bigger revenue opportunity for our next fiscal year and beyond, yet a major R&D investment now. In the short term, our 5G roadmap, investment, and leadership will be one of the key enablers for securing our income and for driving our 4G user plane monitoring business. Michael will highlight some of this quarter's service provider customer wins during his remarks. In the enterprise vertical, revenue declined approximately 14% over the same quarter last year. This was primarily attributable to lower spending in the federal government sector in our second quarter, which declined more than 60%. As we have previously mentioned, despite having a solid pipeline of user-approved projects in the federal government sector, the timing and magnitude of funding for these initiatives has been challenging to predict in the current environment. Removing federal government revenue from the comparison, enterprise revenue would have grown in the low single digits in the quarter. Even with this quarter's decline in enterprise revenue, the vertical has grown 1% year-to-date, and strong performance in our security offerings helped offset muted federal government spending. In this vertical, customers continue to advance their digital transformation, cloud migration, and security initiatives, initiated with even greater urgency as a result of the pandemic and the new normal of operating with remote resources and interacting with their customers in a more virtual fashion as they work to address speed, agility, and cost. On the security front, the threat landscape continues to evolve rapidly, and the pandemic has created more opportunities for bad actors to disrupt organizations given their distributed operations. Last month, we issued our first half 2020 threat intelligence report, which highlighted how cyber criminals are exploiting the pandemic through a radical change in the DDoS attack methods they are using. The report discussed how cybercriminals launched record-breaking DDoS attacks on online platforms and other services crucial during the pandemic and in increasingly connected worlds. These attacks targeted e-commerce, education platforms, financial services, and healthcare services. These multi-vector attacks were shorter, faster, hard-hitting, and more complex. These new methods put pressure on security teams as they have less time to react to defend their organization system, making the job much more difficult and highlighting the need to have strong DDoS detection and mitigation solution like ours. This dynamic has certainly played an important part in the strong performance of our security solution in the quarter and year to date. Michael will highlight some of our enterprise events related to these trends during his remarks. Now let's move to slide number eight, to the reviewer outlook. Our business and operations have proven to be largely resilient as we navigate the global pandemic and macroeconomic uncertainty. This is due to our relevant solutions, trusted brand, strong customer relationship, dedicated team, and solid financial profile. That said, we are not immune from the impacts of COVID-19 global pandemic. As we evaluate the outlook for the remainder of the fiscal year, we remain cautious given the uncertainty around the pandemic and the resulting macroeconomic environment. These dynamics have caused elongated purchase cycles, making timing, magnitude, and funding for deals difficult to predict, which we anticipate will negatively impact our traditionally strong second half of the fiscal year financial results. As a result, we now expect fiscal year 2021 revenue to decline in the mid to upper single digits on a percentage basis compared with fiscal year 2020. Despite the revenue decline, we are committed to delivering annual non-GAAP earnings per share in line with our fiscal year 2020 non-GAAP earnings per share as we continue to prudently manage our cost structure. In closing, we are pleased with our ability to serve our customers' visibility and security needs while ensuring the safety and productivity of our team as we attribute our success and deliver stable results in this tough and uncharted COVID-19 environment. We appreciate the continued dedication and support of our employees and other stakeholders as we navigate the global pandemic. With long-term market trends in our favor, such as digital transformation, cloud migration, increased cyber threats, and 5G networks, Nextot is well positioned as guardians of the connected world when we emerge from this global crisis. I look forward to sharing our progress with you as the fiscal year continues to unfold. I will now turn the call over to Michael Lentz for his remarks.