NetScout Systems, Inc.

Ladies and gentlemen, thank you for standing by and welcome to NETSCOUT's third 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, Leo, and good morning, everyone. Welcome to NETSCOUT's third quarter fiscal year 2021 conference call for the period ended December 31st, 2020. Joining me today are Nelson Gall, NETSCOUT's President and Chief Executive Officer, Michael Zabados, NETSCOUT's Chief Operating Officer, and Gene Bua, NETSCOUT's Executive Vice President and Chief Financial Officer. There's 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, risks, assumptions, uncertainties, assumptions, and other factors, which are described on this slide in today's financial press release. as well as in the company's annual report in Form 10-K for the year ended March 31, 2020, and subsequent quarterly reports on Form 10-Q. 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 detailed on the slides 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 are available 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 third quarter non-GAAP results. We are generally pleased with our third quarter results. They contributed to a strong year-to-date earnings per share growth over the same period in the prior fiscal year. Revenue for the quarter was $228.7 million. Earnings per share was 66 cents in the quarter. The quarter had solid growth and operating margins of 78.6% and 28.2% respectively. This was attributable to high margin security product performance and reduced expenses from our continued cost control focus and benefits from the pandemic-related restrictions on travel and events. Today, we are narrowing our revenue range and increasing our EPS outlook as a result of our year-to-date performance. Let's move to slide number seven for some further perspective on market trends and business insights. From a market perspective, our offerings are being well received given our ability to provide service assurance with real-time, pervasive visibility and insight. Our security solutions mitigate disruption for our customers, and all of our products provide solutions regardless of the customer's underlying infrastructure. This is important as customers further safeguard their information technology infrastructure in this pandemic environment that is straining their networks in terms of volume and attempted security breaches. Despite these needs, it continues to be a challenging selling environment as many companies are financially constrained as they manage through the current pandemic and macroeconomic environment and are forced to make tough choices on balancing visibility and protection against pending constraints. In the service provider vertical, revenue declined approximately 11% for the quarter and approximately 9% on a year-to-date basis. We do not see any immediate changes to the service provider spending environment, but are optimistic about 5G given the recent spectrum options. As we have discussed on prior calls, the next technology evolution that we believe will create increased customer spending in this vertical is 5G, and specifically the build-out of the standalone 5G networks. Although we are not at the standalone 5G network point yet, we are starting to see progress on this front. The conclusion of the SPC-US auction process for the C-band spectrum required to advance the standalone 5G networks saw record-breaking prices. Bidders are currently awaiting the spectrum allocations, which should be a catalyst to advancing the build-out of standalone 5G networks in the U.S. Michael will highlight some recent customer wins in this article during his remarks. In the enterprise customer vertical, revenue declined approximately 13% for the quarter and approximately 4% on a year-to-date basis. The primary driver of the year-to-date decrease was lower federal government spending. As we have previously mentioned, even with a solid pipeline of user-approved projects in the federal government sector, the timing and magnitude of funding for these initiatives has been difficult to predict in the current environment. Removing federal government revenue from the comparison, enterprise revenue would have grown in the low to mid-single digits on a year-to-date basis. Given the heightened awareness around cybersecurity from the pandemic and the recent news of the Sunburst attack, I would like to take a moment to frame our security product line. Our security offerings, in particular, our smart DDoS solutions have done well this year. Our year-to-date security revenue growth is in the low single double digits, with growth in both the service provider and enterprise verticals compared to the same period last fiscal year. Our security offerings currently make up approximately a quarter of our total annual revenue. From a competitive perspective, our security offerings are differentiated in that they are driven by broad and deep visibility that illuminates our customers' network infrastructure using patented NETSCOT packet and flow processing technologies and our unique intelligence. We also focus in two areas, speed of detection from the network to the application layer, and fast access to forensic capabilities that allow our customers to quickly understand what happened during any incident. Most importantly, our products are delivered against the requirements of most demanding organizations all around the world. We are increasing our focus in the security area as we continue to integrate our service assurance security solutions to provide this unique offering in the market. For example, we recently released two new products, Cyber Investigator and CyberStream, which combine our packet-based technologies and are designed to accelerate threat hunting, forensics, and incident response. Our AD product is designed to catch and block an attack, and cyber investigator and cyber stream provide insight into the minds of the hackers. Michael will highlight more on this and some of our enterprise in this vertical during his remarks. Now let's move to slide number eight to review our outlook. Our focus during these challenging times has been to keep our team safe and productive, to serve our customers well with the highest quality solutions and the service, and to drive overall margin expansion while preserving liquidity to maintain a strong balance sheet and financial flexibility. Our relevant solutions, trusted brand, strong customer relationships, dedicated team, and solid financial profile have positioned as well as we continue to weather the current environment. That said, we are not immune to the impacts of the pandemic and resulting challenging macroeconomic environment that is causing elongated purchasing cycles. In the face of this climate, we remain committed to enhancing our profitability. Today, we are raising our fiscal year 2021 earnings per share outlook, given our solid year-to-date earnings performance. With one quarter remaining of our fiscal year 2021, we are also narrowing our annual revenue guidance range, although the midpoint remains the same. Jean will provide more details on our updated guidance during her remarks. We appreciate the dedication and support of our employees and other stakeholders during this time. We also look forward to interacting with many of our users and partners at our upcoming Virtual Engage 2021 technology and user event. Michael will provide more information on this event during his remarks. With long-term market trends such as digital transformation, cloud migration, increased cyber threats, and 5G networks in net cost favors, we continue to believe we are well positioned as guardians of the connected world when we emerge from this global crisis. I look forward to updating you on our progress as we finish this fiscal year and sharing our strategy for fiscal year 2022 and beyond on a future call. I'll now turn the call over to Michael for his remarks.