NetScout Systems, Inc.

Ladies and gentlemen, thank you for standing by and welcome to NETSCOUT's third 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 third quarter fiscal year 2023 conference call for the period ended December 31st, 2022. Joining me today are Anil Sankal, 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 fact. 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 uncertainties, 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 and 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'll 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 third quarter and first nine months of our fiscal year 2023. In the third quarter, we delivered solid financial results with Q3 revenue of $269.5 million, representing year-over-year growth of approximately 3%. This revenue increase was driven by product revenue growth of 3.5% and service revenue growth of 2%, both on a year-over-year basis. As a result of this top-line growth, and our healthy operating leverage, we delivered $1 of diluted earnings per share in the third quarter, representing a growth rate of approximately 12% year over year. Our service assurance performance was strong and was supported by the acceleration of service provider orders previously forecasted to occur in our fourth quarter. As such, we achieved higher quarterly sales, margins, and profitability on a year-to-year basis. Now moving to the first nine months of the fiscal year 2023. During the period, revenue was $706.4 million, growing by more than 6% year-over-year. On a year-over-year basis, product revenue grew nearly 10%, and service revenue grew approximately 3%, while service assurance revenue grew by more than 8% and cybersecurity revenue grew by more than 1%. Additionally, we delivered $1.81 of diluted earnings per share in the first nine months of the fiscal year 2023, representing approximately 16% year-over-year growth, more than double that of a revenue growth rate over the same period. Now let's move to slide number seven for some further perspective on market and business insights. In our service provider vertical, revenue grew by more than 9% year-over-year in the first nine months of the 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. In addition, as mentioned earlier, we received some service provider customer orders in our third quarter that we had previously forecast to occur in our fourth quarter. Overall, both domestically and internationally, we continue to see Carrier invest in their 5G-related network deployments. In our enterprise customer vertical, revenue grew by approximately 3% year-over-year in the first nine months of fiscal year 2023. This expansion was driven by growth in both our service assurance and cybersecurity business lines during the period. Notably, enterprises continue to require those solutions capable of helping them to better protect their systems and accelerate their digital transformation. To better address these market trends, we are focused in leveraging our growing suite of comprehensive offerings to provide customers with an integrated platform for service assurance and cybersecurity solutions. As the market for these solutions grows and converges, we are pleased to see that this approach is resonating with our customers. Michael will provide some insight regarding customer wins within our verticals during his remarks. Now let's move to slide number eight to review our outlook. NETSCOUT continues to play a mission-critical role for organizations around the globe As guardians of the connected world, we provide our customers with what we believe to be unparalleled visibility into the performance and security of their digital operations. We are a trusted brand with more than three decades of operating experience, and our customers utilize our solutions to navigate and capitalize on the opportunities and challenges of today's digital landscape. Given our solid year-to-date performance, Along with the acceleration of service provider orders, we now have increased visibility into our full fiscal year outlook. As such, we are upgrading our fiscal year 2023 outlook, which we most recently shared on our second quarter earnings call. We are narrowing our target total revenue range to be between $905 and $915 million from the prior range of $895 million to $925 million, with the midpoint of both ranges remaining the same. In addition, we are increasing our non-GAAP diluted earnings per share range to $2.06 and $2.10 from the prior range of $1.97 and $2.03. Jean will provide additional color on our outlook and our remarks. As we continue to closely monitor today's macro environment, we recognize that the current landscape remains dynamic. Nevertheless, we believe that we are well positioned for the future and remain focused on achieving our long-term objectives. In addition, we plan to continue managing our operations prudently with a balanced approach to revenue growth and profitability. Before I close my commentary, I wanted to mention, for those that may have missed it, that we announced yesterday the addition of Shannon Nash, and Marlene Pelage to the NETSCOT Board of Directors. Shannon and Marlene are two accomplished professionals who will bring additional financial and operational expertise as well as other valuable experience to the board. We are confident that they will play an important role as we advance our business. I personally look forward to working with them both. With that, I'll turn the call over to Michael. Thank you, Anil.