NetScout Systems, Inc.

Please stand by, your program is about to begin. Should you need audio assistance during today's program, please press star zero. Ladies and gentlemen, thank you for standing by and welcome to NETSCOUT's second quarter fiscal year 2023 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, Senior 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 2023 conference call for the period ended September 30th, 2022. Joining me today are Anil Singhal, NETSCOUT's President and Chief Executive Officer, Michael Zabados, 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. Examples of forward-looking statements include statements regarding our future financial performance or position, results of operations, business strategy, plans and objectives of management for future operations, and other statements that are not historical facts. You can identify forward-looking statements by their use of forward-looking words such as anticipate, believe, plan, will, should, expect, or other comparable terms. We caution listeners not to place undue reliance on any forward-looking statements included in this presentation which speak only as of today's date. These forward-looking statements involve risks and uncertainty, and actual results could differ materially from the forward-looking statements due to known and unknown risks uncertainties, assumptions, and other factors, including but not limited to those described on this slide and in today's financial results press release. For a more detailed description of the risk factors associated with the company, please refer to the company's annual report on Form 10-K for the fiscal year ended March 31, 2022, on file with the Securities Exchange Commission. NETSCOUT assumes no obligation to update any forward-looking information contained in this communication or with respect to the announcements described herein. Let's now 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 the slide presentation in today's earnings press release and on our website. I will now turn the call over to Anil for his prepared remarks. Anil?

Thank you, Tony, and good morning, everyone. Welcome and thank you all for joining us today. Let's now turn to slide number six for a brief recap of our non-GAAP financial results in the second quarter and the first half of our fiscal year 2023. Focusing first on the second quarter of fiscal year 2023, we delivered strong financial results, and drove progress across our strategic growth priorities during the quarter. Importantly, this included further expanding our cybersecurity business. Second quarter revenue was $228.1 million, representing year-over-year growth of nearly 8%. Our revenue expansion was driven by 10% product revenue growth and more than 5% service revenue growth, both on a year-over-year basis. Of note, our cybersecurity and service assurance product line continue to grow in the quarter on a year-over-year basis. With this revenue growth and our healthy operating leverage, we delivered $0.50 per diluted share in the second quarter of fiscal year 2023, representing diluted earnings per share growth of approximately 21% year-over-year. Now moving on to the first half of fiscal year 2023. During the period, revenue was $436.9 million, growing by nearly 9% year-over-year. This increase was driven by product revenue growth of more than 14% and service revenue growth of nearly 4%. During the same period, cybersecurity revenue grew by 14%, while service assurance revenue grew by more than 6%. All comparisons are on a year-over-year basis. We delivered 81 cents of diluted earnings per share in the first half of the fiscal year 2023, representing diluted earnings per share growth of approximately 21% year over year. Now let's move to slide number seven for some further perspective on marketing, market and business insights. Starting on the cybersecurity front, we recently released our DDoS threat intelligence report for the first half of 2022. In it, we highlighted many of the current trends and challenges within this critically important area. Our report findings demonstrate how adept and sophisticated cyber criminals have become at leveraging new DDoS attack vectors and their other methodologies to attempt to bypass organizations' defense measures. The report also highlighted the significant geopolitical implications of today's DDoS attackers. In short, many of these bad actors are openly embracing online aggression to cause disruption and geopolitical unrest through the high-profile DDoS attack campaigns. Equipped with our state-of-the-art platform for increased visibility and defensibility, we play an important role in this ecosystem and remain confident in our ability to help customers navigate these challenges while also capitalizing on the opportunities of today's digital world. In line with these strengths, Our OmniSuite of cyber intelligence product has continued to gain traction, although it still only accounts for a small portion of our revenue stream. During the second quarter, for example, one of our large customers continued to integrate with the NETSCOT platform by incorporating OmniSuite into the current installation base. Additionally, we continue to innovate in the cybersecurity area, introducing new solutions like Arbor Insight to help address the evolving threat landscape. When combined with Arbor Sightline, this solution can dramatically enhance and extend a company's capabilities in threat detection, service delivery, and network operator visibility. Now let's turn to our customer verticals for more business insights, starting with our service provider. Service provider revenue increased by 11% year over year in the first half of fiscal year 2023. This increase was primarily driven by higher revenue related to radio frequency propagation modeling projects from Tier 1 carriers in North America. Importantly, we continue to see carriers invest in their 5G deployment, both for planning purposes as well as for standalone build-outs, where the same carriers also are starting to deploy commercial traffic. In our enterprise customer vertical, revenue grew by approximately 6% year-over-year in the first half of fiscal year 2023. This top line expansion was driven by growth in both our cybersecurity and service assurance business line as enterprises continue to demand best-in-class cybersecurity solution as well as visibility solutions capable of helping them to better protect their systems and facilitate the acceleration of their digital transformation. In addition, we are leveraging our growing set of comprehensive solutions to execute a platform approach, which is also starting to resonate with customers. Michael will provide more insight regarding customer wins within our verticals during his remarks. Now let's move to slide number eight to review our outlook. Looking ahead, we plan to continue managing our operations prudently, taking a balanced approach to revenue growth and profitability. Overall, we recognize the current uncertainty in the macroeconomic environment. We also remain confident about our business prospects and are excited about the market opportunity we are seeing for our NETSCOT visibility and defensibility platform. Within this context, we are reiterating our fiscal year 2023 outlook that we shared with you in early August on our first quarter earnings costs. As a reminder, this outlook targets revenue in the range of $895 million to $925 million and non-GAAP EPS in the range of $1.91 to $2.03 for fiscal year 2023. Jeevan will provide additional color on our outlook in her remarks. In summary, we delivered solid results in the second quarter and first half of our fiscal year 2023. We are driving clear progress to our strategic priorities, and we remain excited about our core service assurance and DDoS security solutions, as well as our new and innovative Omni solutions. With our unique and powerful platform, deep industry expertise, and established customer base, we are well positioned to help customers address the challenges and opportunities of today's increasingly connected and complex digital world. We look forward to sharing our progress with everyone throughout the remaining of our fiscal year. With that, I'll turn the call over to Michael. Thank you, Anil.