NetScout Systems, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to NETSCOUT's third quarter fiscal year 2024 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 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 2024 conference call for the period ended December 31st, 2023. Joining me today are Anil Singhal, 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 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. 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 speaks 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 risks factors associated with the company, Please refer to the company's annual report on Form 10-K for the financial year ended March 31, 2023, 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 the 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 the 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. At a high level, we deliver third quarter revenue and non-GAAP EPS ahead of our expectations due to the timing of the customer year-end budget spending and our continued cost containment efforts. However, the microenvironment remains challenging with constrained customer spending and elongated sales cycle. We continue to see strength in our cybersecurity business where we deliver double-digit revenue growth during the first nine months of fiscal year 2024. Our service assurance business continues to face headwinds. primarily due to the Tier 1 US carrier capital constraint environment. Accordingly, our enterprise customer vertical was relatively flat for this period, while our service provider customer vertical is creating the majority of the revenue pressure. Given the macro dynamics, we anticipate delivering full fiscal year 2024 revenue at the low end of our previously disclosed outlook range, While our cost containment efforts and other activities should position us to deliver non-GAAP EPS for the full fiscal year at the higher end of our previously disclosed outlooks are relatively in line with the last fiscal year's EPS on a lower revenue base year over year. We'll provide more specifics during our remarks. With that as a backdrop, let's turn to slide number six for a brief recap of our non-GAAP financial results for the third quarter and first nine months of our fiscal year 2024. For the third quarter of fiscal year 2024, Ranu's revenue was ahead of our expectations at approximately $218 million due to the timing of customer year-end budget spending. On a year-over-year basis, this was down approximately 19% as growth in the cybersecurity product line only partially offset a decline in the service assurance product line, the reasons previously mentioned. Non-GAAP diluted earnings per share for the quarter was 73 cents, which exceeded our expectations due to higher revenue and lower costs than we previously anticipated. This was a decrease of 27% year-over-year, primarily related to lower revenue, partially offset by continued cost containment efforts and other activities. For the first nine months of fiscal year 2024, or the period ended December 31st, 2023 revenue was 626 million dollars down approximately 11 percent year over years during this period our cyber security revenue grew more than 13 percent but was more than offset by a service assurance service revenue decline of approximately 20 percent both on a year-over-year basis excluding radio frequency propagation modeling project revenue from the comparison service revenue decline approximately 13% year-over-year. Non-GAAP diluted earnings per share for the first nine months was $1.65, down approximately 9 cents year-over-year, as the impact of low revenue was partially offset by cost containment efforts and a lower share count. Now let's move to slide number seven for some further perspective on market and business insights. starting with the enterprise customer vertical. In the first nine months of fiscal year 2024, enterprise revenue was essentially flat year over year, as revenue growth in our cybersecurity product lines offset a middle-digit percentage decline in our service assurance product line revenue. In the enterprise market, flow-through rates continued to be affected by higher spending scrutiny and delayed project funding as customers navigated the current macroeconomic environment. However, some sectors grew year to date, such as government and financial, while others, like the healthcare sector, were notably softer. We expect our enhanced cybersecurity solution and ability to expand visibility to the edge will continue to resonate with our customers. These solutions help protect customers' networks from attack, cover blind spots, address control challenges, and facilitate the leverage of off-premises and cloud solution within digital transformation and new network architecture initiatives. Moving to our service provider customer vertical. Revenue in the first nine months of the fiscal year declined approximately 22% year over year. Excluding radio frequency propagation modeling project revenue from the comparison, the service provider customer vertical revenue declined approximately 13% year over year as revenue growth in our cybersecurity product line was more than offset by a decline in our core service assurance product line revenue. The service provider market remains challenging, especially for the U.S. Tier 1 service provider given capital spending constraints, which is causing intense spending scrutiny and delayed project funding. This dynamic appears to be impacting the finalization of carriers' new calendar year budgets and funding as well. We expect the challenging market dynamics to persist for the remainder of the fiscal year and likely into the next fiscal year. However, we believe that as 5G adoption accelerates, new use cases advance, and the 5G traffic volume increases, our core visibility and cybersecurity solution will be increasingly required. We remain prepared and ready to support carriers through this inevitable transition with our differentiated solutions. Despite the current selling environment, we are encouraged by the interest in our new offerings like Omnis and recent traction with our other cybersecurity solution, particularly our DDoS offering, including adaptive DDoS and mobile security. Michael will provide more insight regarding customer orders in our verticals during his remarks. Now let's move to slide number eight to review your outlook. Looking ahead, taking into consideration the current environment for the full fiscal year 2024, we expect revenue will be at the low end of our previously disclosed revenue outlook range, or approximately $840 million. We anticipate delivering non-GAAP EPS at the higher end of our previously disclosed EPS outlook range as we continue to benefit from our cost containment efforts and other activities. This would put our non-GAAP EPS relatively in line with last fiscal year EPS on lower revenue year over year. Jean will provide a recap of the outlook in her remarks. Despite the continuation of near-term headwinds, we believe that the fundamental long-term demand trends remain intact for NETSCOUT as enterprises and service providers require industry-leading cybersecurity and service assurance solutions such as ours to deliver actionable visibility at scale. Accordingly, we remain focused on leveraging our industry-leading Visibility Without Borders platform to help customers tackle the performance, availability, and cybersecurity challenges of the increasingly complex connected digital world. We expect the continued execution of this strategy will enable us to deliver sustainable value for our shareholders. We look forward to sharing our progress with everyone at the conclusion of our fiscal year. With that, I will turn the call over to Michael. Thank you, Anil, and good morning, everyone.