NetScout Systems, Inc.

Ladies and gentlemen, thank you for standing by and welcome to NETSCOUT's fourth quarter and full physical year 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 fourth quarter and full fiscal year 2021 conference call for the period ended March 31st, 2021. Joining me today are Anil Sinkhal, NETSCOUT's President and Chief Executive Officer, Michael Sabados, NETSCOUT's Chief Operating Officer, and Gene Buick, 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 ir.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, 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 this 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 this slide presentation and in today's earnings press release. both of which 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 today. I'm proud to report that we met the objectives we set for fiscal year 2021 as we managed through the unprecedented and challenging environment created by the COVID-19 global pandemic. We served and supported our customers well, kept our teams safe and productive, supported the communities that surround us, continued to invest for the future, and delivered on our financial goals of expanding operating leverage, growing diluted earnings per share, and generating strong free cash flow. Our performance demonstrates the importance of our smart visibility and cybersecurity solutions, as well as the flexibility, agility, and resiliency of our business. In addition to achieving our objectives, I'm also pleased to report that we continue to focus on our social responsibility initiatives despite the restrictive pandemic environment. As a few examples, we provided sponsorships for Tech Goes Home, which addresses the digital divide, Advancing Women of Color in Technology Coalition that focuses on equality, our annual civic hackathon with Shooting Stars Foundation, which helps foster students' interest in STEM topics and community issues, and COVID vaccination and aid to underserved communities. Now let's move to slide number six for a brief recap of our quarterly and full fiscal year 2021 non-GAAP results and strategic highlights. For the first quarter, we delivered stronger than anticipated diluted earnings per share results on overall revenue that was in line with our expectations. the revenue for the quarter was $213.4 million, with corresponding diluted earnings per share of 49 cents. For the fiscal year 2021, revenue was $831.3 million, diluted earnings per share increased 8% compared with the prior fiscal year to $1.70. This was supported by more than 2% point increase in our operating margin over the prior fiscal year, We also delivered strong free cash flow of nearly $200 million for the full fiscal year. From a strategic perspective, we continue to invest in and advance our product offering for both our service providers and enterprise customer verticals. Part of this effort was combining elements of our service assurance and cybersecurity technologies to provide enhanced capabilities to our customers. This combination leverages the strength of our smart visibility and smart edge protection offering and fosters the convergence of IT operations with security operations. These solutions are designed to enhance our customers' current investment in our technology while reducing the total cost of ownership and increasing the return on investment. We have also focused on adapting our product to move from the core to the edge as technology evolves. At our recent Engage21 Technology and User Conference, we launched our new Omnis brand, which has adapters for 5G, cloud, cybersecurity, and analytics. More on this later. Let's move to slide seven for some further perspective as we review market trends and business insights. Although the global pandemic created challenges on many fronts, it has highlighted the importance of our technology and connection as the world was forced to quickly adapt, operate, and stay connected in different ways for work, education, commerce, healthcare, and other aspects of life. It's clear that with greater reliance on technology, the need for actionable smart visibility and smart cybersecurity solutions to assure and secure our connected world and end-user experience is vital. As people around the world begin to get immunized and eventually move from a reactive state to a proactive state in advancing the digital transformation initiatives in the post-COVID environment, we believe that three technology trends will be accelerated. The first is expedited cloud migration for greater flexibility and agility to adapt to changing environments. The second relates to enhanced protection against the evolving cybersecurity threat landscape, given the unprecedented level of cyber and ransomware attacks over the past year. And the third is greater momentum on building out 5G networks to leverage even greater technology and communication opportunities for advanced analytics use cases, including artificial intelligence and machine learning. As this occurs, we believe that NETSCOUT is well positioned to capitalize on these technology market trends. We experienced record registration for our recent Engage technology and user event that we believe demonstrates a high level of interest in this trend and our solution. Michael will discuss our Engage 21 event in more detail during his remarks. Let me provide some more color in the technology trends as I review our business verticals. In the service provider vertical, revenue grew approximately 5% in the quarter and was down approximately 5% for the full fiscal year compared with the same period in the prior fiscal year. The increase in the fourth quarter was primarily related to Tier 1 North American carriers completing an initial purchase of a solution for a 5G network. This is the second Tier 1 North American carrier to select our 5G solution. Michael will provide more insight on this and other details that occurred in the quarter during his remarks. In the service provider customer vertical, we see some momentum around 5G standalone network and advancements given the competitive carrier environment, the recent spectrum options, and the trend towards private 5G networks. We continue to work with our customers as they plan their migrations and continue to consider our 5G-ready solutions to avoid disruption given we are the incumbent and they have already made base investments. As these networks advance, with the new spectrum currently recently purchased at the FCC auctions in the United States and auctions in other countries and more traffic running over them, NETSCORE's smart visibility solution will be important to maintain the control and user experience expected of the new technology. We are also advancing our analytics product to support our customers in understanding the customer behavior in order to assist in identifying new revenue sources to help monetize their investment. In addition, we are focusing on mobile security to help customers deal with the volume, complexity, and risks associated with IoT devices as they start to become more prolific on the mobile service provider network. Turning toward enterprise customer verticals, revenue declined approximately 19% for the quarter and approximately 8% for the full fiscal year, compared with the same period in the prior fiscal year. As discussed on prior calls, the primary drivers of the full fiscal year decline were lower spending in the federal government sector and the decrease in ancillary product lines like fluke systems. Overall, we see opportunities in the enterprise vertical as we partner with leaders in the cloud industry and as customers move from a reactive state in the pandemic to a proactive state where cloud migration accelerates and as the cybersecurity threat landscape continues to challenge organizations. We have introduced our new Omni solution to better address these visibility and cybersecurity needs. These solutions help provide customers with the confidence and control to innovate and the ability to detect, investigate, and mitigate advanced cybersecurity threats, reducing the mean time to resolution of issues, which saves time and cost. Our solutions like Smart Edge Monitoring and Cyber Investigator also leverage existing customers' investments to reduce total cost of ownership and enhance the return on investment while ensuring the user experience and security of their technology. We also see opportunity in the enterprise vertical for 5G utilization as enterprises and governments look to leverage 5G technology in private networks through network slices and at the edge for industrial automation, telehealth, virtual reality and gaming, autonomous transportation, smart warehouses, homes and cities, national defense and other new use cases. As one of only a handful of vendors that have both service provider and enterprise knowledge, our capabilities with both scale and functionality to serve us and our customers well as these advancements occur over the longer term. Michael will highlight some of the customer wins we experienced in this vertical during the quarter in his remarks. Now let's move to slide number eight to review our outlook. As we look forward, we are excited about the future and the opportunity we see to leverage the development investment we made in our solution during fiscal year 2021 to address the long-term technology market trends that favor NetSource. For fiscal year 2022, we are focusing on advancing our existing and new products like Omnis, growing revenue, further enhancing our diluted earnings per share, and generating strong free cash flow. Jeans will share some more details related to our fiscal year 2022 financial outlook during her remarks. Regarding revenue growth, we believe that as the global pandemic moves into the rearview mirror, the movement to spend for the future should resume. Until then, we are being cautious with our outlook. Approximately 40% of our revenue has historically come from international markets, which appear to be recovering at a slower pace than the United States. Given our strong customer base and relationships and approximately half of our total revenues historically coming from recurring service revenue, primarily associated with maintenance contracts, we expect our service revenue to remain solid for the fiscal year. With these dynamics, we are targeting overall revenue growth for fiscal year 2022 in the low single digits. We will continue to monitor the macroeconomic environment and recovery for improvement and will update our outlook on future calls as appropriate. Our strategy going forward focuses on three main tenets. One, we will further expand within our existing customer base to access existing and incremental budget dollars for 5G, cloud, and smart DDoS use cases. Two, we will require new customers through targeting new logos with existing and new products, including a tier below where we may normally operate today. Our software-centric solutions should provide us with the flexibility to target and sell into this price-sensitive market with our automated and affordable solutions. And third, we will further expand into high-value adjacencies such as cybersecurity beyond DDoS and big data analytics leveraging our smart data. We believe that we have all the right building blocks to address these areas and expect they will contribute to revenue growth in fiscal year 2022 and beyond. From a cost and investment perspective, we will continue to exercise the disciplined cost control and prudent capital allocation philosophies that have served us well in the past. We are committed to further enhancing our diluted earnings per share and generating solid free cash flow. This is important as the cost structure will be pressured as COVID-restricted activities such as travel and events start to resume this fiscal year. Finally, we expect to maintain a strong financial profile to provide us the resources and flexibility required to advance our strategy. In closing, I would like to thank my fellow NETSCOT guardians around the world for their tireless efforts, dedication and flexibility, as well as our customers, partners and other stakeholders for their support as we navigated the global pandemic this past fiscal year. Our result has been tested, but our lean but not mean philosophy and the culture has served us well in these trying times, as it has over 35 plus years in business. I look forward to sharing our progress and our achievements with you over the course of fiscal year 2022 and beyond. I will now turn the call over to Michael for his remarks at this point.