NTCT - Earnings call transcript Q2 2019

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Operator

Ladies and gentlemen, thank you for standing by and welcome to NETSCOUT's Second Quarter Fiscal Year 2019 Results Conference Call. At this time, all participants are in a listen-only mode until the question-and-answer portion of the call.

As a reminder, this call is being recorded. Andrew Kramer, Vice President of Investor Relations and his colleagues at NETSCOUT are on the line with us today. I would now like to turn the call over to Andrew Kramer to begin the company's prepared remarks.

Andrew M. Kramer

Erica, morning, much, very you and everybody. good Thank fiscal conference XX, call to NETSCOUT'S the XXXX quarter second September Welcome for year period XXXX. ended

CEO; a Operating today NETSCOUT's and NETSCOUT's remarks. Chief me Anil . Michael that President and Szabados, There accompanies Officer is prepared Joining Executive Vice NETSCOUT's presentation and Officer; are Chief Financial Jean slide Bua, President Singhal, our

slides our advance the in commentary. can viewer follow the You to webcast

remarks. Both page. are multiple We the our IR Information will Results, Relations webcast Financial referring on slide remarks website prepared the we Quarterly out areas our page www.netscout.com, at Financial investor in section the slides call to the itself, can the number the section accessed and the of under the Results landing including and in be within under

that then wins will Our for follows. recap Bua year as metrics, quarter discuss guidance. performance, of highlight Jean review Singhal developments, fiscal longer-term and quarter highlights. go-to-market year trends briefly well near fiscal our XXXX. will review financial drivers, will and agenda and our as our is key recent Szabados recent and customer growth first-half as briefly key second XXXX outlook our second Anil results, performance highlight review help some Michael

and of limited XXXX cost management for statements X, to Moving related the Exchange statements expense to Securities pursuant reduction other everybody federal but listening of on Safe sales part forward-looking known revenue Actual and other and as strictly other demand; and to the customers conference and could like statements, communication call, of uncertainties, XXXX, development, related the securities Harbor number other and this and to operational risks actions forward-looking made initiatives of details various the which assumptions, XXE related are on that from not not marketing, and fiscal all statements, that results the customers, Section you year due review year conditions, historical anticipated technology materially of customer NETSCOUT; slide to products; market customer remind I'd constitute product planned involve Act encourage forward-looking financial benefits; cautioned this for fiscal specific slide amended, are This each specific trends, statements are relationships, including, the provisions of and as guidance strongly and laws. to Investors from factors, to, differ them. which these factors uncertainties. I and unknown and risks, statements XXXX,

company's the for the the factors, on report company's year For subsequent Form quarterly to XX, ended on Commission. any on update the described to NETSCOUT XXXX, communication report forward-looking Securities no a or obligation announcements of detailed this with please file refer with Form and respect information more annual risk XX-K assumes herein. description the fiscal March to and in contained XX-Q Exchange

to which X, turn involves non-GAAP number metrics. slide Let's

in in and measures supplemental equivalent those website. available which provides information the the items reconciled This are is While GAAP and use on you superior for, we the non- GAAP to results, basis and measures, about slide, be Non-GAAP on both a today's are GAAP information are the call which also intended and Appendix, metric. financial GAAP non-GAAP described to read, other non-GAAP a reconciliations or will stated, on not our non-GAAP and presentation be to, discussed unless otherwise slide GAAP substitute only. conference encourage results and presentation because of press to details today's included includes release,

HNT associated non-GAAP performance with revenue trends of certain costs Additionally, HNT or given the make business. sale exclude or tools business, pro tools forma the we to the may references that organic

delivered costs applicable product provided we also and the purposes Overall, of That exceeded for Appendix website. our the the at in presentation, related reclassification quarter. Investor targets release, quarterly for for As periods. comparability the end plans results of the to on Relations and can slide be and in supplemental data reminder, the have service prior revenue our EPS our press upper the found and the a we diluted information revenue of

We also key to while progress made expanding to lower initiatives funding our costs, business. important fundamental

for As now we reflect remarks. of backdrop, his updated second year, turn Anil. half to we've guidance the the a move With also into call to as I'll our factors. number the that over of a Anil prepared

Anil K. Singhal

Andy. you, joining Good for everyone, morning, us. thank and Thank you

results. number on non-GAAP a slide begin our quarter second Let's X with of brief recap

of We was delivered Our solid. EPS fiscal revenue XXXX quarter of diluted second on quarter year $X.XX second performance million. $XXX.X

reflected line within our segment assurance in revenue customer our the revenue and service performance security enterprise Our across lines provider flat segment. relatively customer and service top lower product

detail We diluted gross of results margins to performance. improved also costs both contributed and the strong EPS the continued in delivered moments. few will to a more quarter, during reduce which review our quarter second in second Jean

continue to to most we go-to-market near key financial, our growth long-term made to development expenses. quarter, and progress. aligned within took continued initiatives actions by During operating lower and margin, lower the important that manage in business, and and we organization, noncore promising operational, second key projects initiatives. our time, restructuring areas At invest to a strategic are costs the same our We divesting

carrier our expand after this provider we like two recent are briefly assurance this. are we will in seeing as dissipate customers of headwinds they our into substantial exit service quarters affected In I year. have second revenue stabilize that we year, years. to that area, believe in be look product many fiscal behind largely half service the our line declines the we largest would the top on recent seeing us of and from As

fortify we of the our incumbency in and business along mobile customers enterprise that product Fluke sold assets the the years acquired we test, tools the declines former top progress Fluke three second HNT, largest improved within at line or mid-September, former ago. lines as In to and important, year Communications enterprise, an to half to believe of other network we step contribute handheld business. Just network will many important the beyond. our Danaher took other this cable operators results we In address revenue with

Although system from been we remaining the first-half legacy Fluke the capability broader have of on drag highest our products value portfolio. integrated revenue, offerings into have enterprise a legacy remaining those enterprise modest many nGenius our

Fluke total DDoS, Moving is solutions. ongoing initiatives headwind of consist security that represented Service, which nGenius these Today, remaining top product more lines. last will Denial our affecting of our than or largely more from those offerings the line of forward, revenue XX% area, final offset fuel year's we revenue. products expect our and growth in legacy help The any enterprise than Distributed product erosion

Nevertheless, as as providers ISP DDoS they will on excess original carrier with their arising spend back and would historical have be capacity anticipate two high levels, capacity. past we behind Our customer from the trending from substantial profile over investment now attacks. spending absorbed to plan throttled revenue service provider DDoS DDoS is trends. DDoS following revenue consistent continue service cautiously our second-half outpace first-half which years,

will our actions growth. have and our line margins, taken improve As growth, these we also dissipate we earnings to we resume costs gross help operating and believe lower which strive to top future amplify headwinds

color some this. number slide X on additional for Let's to turn

personnel in at to ways our aggressively adjusting $XX to certain managing and to impede by values run operating plans important that customer costs costs million months recent this by I assets. costs, counter alluded Earlier run ability we reduce my to remarks, grow our in year, count-related rate to head As corporate support to of we culture. outlined not spending, do outset reduce the our have or steps operating selling discretionary or and annual up noncore taken

same and new our reduction the decreased million to by expenses operating of personnel at target excellent We now in cost attrition a declined least in to management In made areas progress million, result and the of Through over head initial of costs. have year lower this hires. first ago. particular, year, these by count by costs $XX operating each our period tied as a the removing half X% expect largely $XX of exceed from

we sale, in the XXX were tools business. tools divestiture $XX HNT transitioned which approximately of annual acquirer to And earlier, NETSCOUT from operating of costs. business, the noted approximately As million the in employees of this with completed September, HNT removes conjunction

second XXX employees to with restructuring products Communications areas the these fiscal a and certain VSP, programs consolidating other at the various are are assurance/security that of growth-oriented ways conjunction year. investment our other of net in quarter, In end we or associated result acquisition. resources the the our and we platforms, initiatives Danaher voluntary from across actions, previously a engineering service with also a program These teams, aimed expected separate approximately redundancy separation, in initiated of realign facilities, arising of started reduction the During and in technologies legacy eliminating business implemented measures. prioritizing to have this and related by combined integration

We expect of savings the in these $XX half $XX to this annual $X will that fiscal net year. million, of be actions which realized generate million to million second $XX will rate million of

forward, that costs. low a operate our As believe scalable very we we operating require to increases move can incremental infrastructure we would that

have adjusting structure, cost addition on remained operating we gross In also margins. our focused to improving

range product three cases. higher we focus of solutions that have margin, past reshaped on a the years, software-centric with use delivering broader our a Over expanded and portfolio address customer

our our most deployed service the a deployed provider revenue and for XX% carriers service solutions. ago. of assurance XX%. is the the up Our margins service The year, of progress ISNG evident product carries this already first service of XX% represents year with assurance gross half first platform over year, far the one majority Only three XX provider solution solution, thus service as range. our from of gross margins of in our revenue mid-XX% ago, which product XX the software-only segment Through service this largest of platform provider half assurance customer software-only as appliances years in carried

software-centric upside our gross As potential. for performance, adoption other and solutions our business platform significant that believe have software-only application we along intelligence, NFV, with margins security, of grows,

offset will Eastern we wins new service growth stronger lower higher this from our in networks. Asia by operators Pacific solid for key segment further mostly highlight in revenue longer new not the projects year, expect be U.S., we fiscal to for higher as but In slightly product term half only modestly second-half those turn of slide revenue X relatively revenue with DDoS this outside service one monitor Michael mobile Let's last with assurance over well. customer expect second will currently some drivers of and XG/LTE to In top of the service segment, on revenues. area, versus performance shortly. Europe assurance flat the we benefit provider color the year, as our for to

our calibration large continue from we mentioned that In contribution At radio to that we are X as spending. in higher service important design networks. limit benefit near-term operators new America next We the on are catalyst same providers X very visibility although addition, represents anticipate as early North larger helping that time, offering could their their Tier infrastructure. spending we call, drive we will quarter's also the remains XG however, network last bullish meaningful us XG that believe believe year, access term, this limited. as existing on to an Longer fiscal XG Tier

and capacity volumes, evolve addition with next that NFV on the we in greater will handle emphasis to new core XG over their monitoring capabilities years, to traffic ultimately infrastructure carriers technology. their In initial networks few edge expanding their computing anticipate

what carriers optimistic in expected to in recovery are In we at ramp field our and will for quarters. that a the trials of continue more our We to DDoS, year. gradual the help solutions areas we move provider growth anticipating coming forward service over XG these longer-term monitoring expect than originally remain well-positioned prospects. start the spending about we Nevertheless,

capitalize market-leading environment options. by along flexible we our with automation capabilities, solutions pricing As to improve, the new spending to deployment and plan with more enhancing continues further

second managed their services we provider as we into their to range have as quarters the customer look with out that the pleased mobility been the fiscal can service well further customers year, we in As customers. that our protect of sold can of half our focused on innovations be segment, are pipeline expand in networks, next we during help growth year enterprise DDoS delivering new of modest and anticipate our organic Within XXXX. recent enterprise growth

expanded our still While network management cases, troubleshooting to of is market. broaden and performance a to enterprise revenue use traditional have proposition our total addressable related majority we tied value our

application example, vSCOUT vSTREAM hybrid help For enterprises and data visibility their center our offering cloud extend infrastructure. performance into and across

Microsoft and largest application marketplaces. available their world's on Web the the of by cloud Services Over several providers, our management Amazon have validated respective two making Azure, past capabilities public months, performance solution our

an Azure which infrastructure. comprising with in that these provide worked their cloud developments. results and have Azure virtual customers some initiative, Michael further provides hybrid into network with TAP dependencies solution on-prem we in mutual on applications on their visibility addition, In environment and both will agentless detail

we service market-leading the with into outbound last pleased threats attractive and and it we threats. to potential initial AED. are as Looking the helps engine accordingly. our this not that also malware opportunities become on front. ahead, our of capability, or against This enterprise believe security cross-sell against a AED solution we with and we investing introduced see Defense platform, only growth other progress week, but also proven, serves perpetuating Edge defense Last the major to base, We incoming DDoS attack enterprise has line customer assurance enterprise protect are Arbor

In named Cyber data collect ISNG, and other within Enterprises it use before to to we forwarding packet-shaping software AED, new can tools. software now introduced our filter to Optimizer. this addition features cost-effectively packet security

in We forensics are plans anomalous threats advancing to and and network approach for an a our that identifying strength our packet through ISNG behavior. version new advanced platform of security-specific analytics leverage innovative also

our turn outlook slide X Let's on for number to some thoughts. perspective final additional and

those a and for We forma $XXX business, XXXX. tools year to to modest to of as HNT into moderate-sized revenue of number to tools the sale third revenue revenue excluding $XXX pro the quarter third in visibility between projects. fourth provider our guidance standard quarter comparable of of basis guidance year approximately new difficult of of projects results are originally service to for from fiscal fourth before of million. updated updated range this with unable range midpoint the our in would a customer quarter projects accounting end guidance primarily revenue is fiscal the for $XXX flat we account from and we to of expected. year, and we at range the $XXX recognition total our be currently XXXX end between revenue recognized we million. expect anticipate limited If to million than the million low $XX these would million revenue revenue small Adjusting equate reflect would the of Using factors, the those of prior skew achieve result business revenue forecast, revenue service Accordingly, third annual more second-half a DDoS primarily and in quarter. acceptance timing by The on recovery revenue the calendar the the assurance provider likely have revenue service versus in relatively currently a HNT year the

our $X.XX refined non-GAAP restructuring terms recent to of from $X.XX, to range In with the performance, earnings anticipated range track due remain our associated cost original guidance on our have largely achieve diluted and further we saving target EPS to to this actions.

can the past focused our the and we to this considerable closing, we achieving necessary target long-term and spring. second-half we we quarter sales are achieve demonstrating Moving outlined momentum that In build goals implemented progress this Michael forward, financial significant changes now. on over That commentary organization. to fellow NETSCOUT our turn for across on ongoing like and call support business continued would moving to our guardians my forward. the and thank I global I'll my the concludes focus made at

Michael Szabados

number plan Thank to you, XX morning, everyone. I outlines good cover. Anil, Slide and the areas

application packet software why success for probes. the capital seeing Asia to customer's of highlight to go-to- subscriber underscores operator also wins, ISNG across with More capabilities the increase recognized to investing its substantial North plan American with the consistent analytics order provider software benefiting Sullivan Visionary Innovation mobile we keeping & some that activities. our probes while centers, project international seven-figure hardware-based can part an ISNG into This carriers pace making In enterprises about the of improve market recently hardware Business high-quality deliver aggressively solution private began a growth, and out its Tier visibility as and has the are network. efficiently across the experience networks. X their global gain customer from smart rolling after over Award I the is customers data I software provide to into of migrating market, using will intersperse As Pacific our We This with with unlocks for traffic legacy workloads power steady switch in recent the solutions, subscriber greater comments platform our Using progress our experience. build-out while and flow plan recently deployment part product XG, consistent one to our recently, cloud the relationship our as reasons its In past the in also their our network in while multiyear service Leadership robust years the markets conventional NETSCOUT nGenius are software user clouds, efficiency, also largest insight to a the feed ISNG scalable migration. platform, expanded during, of industry. public initial regional of we for of in of speed received with smart data evolved before, XG/LTE initiative top and enterprise, This its region. and a Analytics are Frost cloud. related deployment our data from carriers several carriers data since

to operational the list we This of prospects both powerful of As Services Recently, Azure. further with a message on to AWS Web value expand Amazon million, these our as this and scalability, to of sales solution pipeline AWS. and established migration re:Invent $X at for marketplaces offerings, toward To we the U.S. the to we're our our customers readiness, and month. closed around participate the about solutions. their Platinum support a Microsoft large deal, planning to new software planned sends have a Partner Anil enterprise relationships another management noted, application end performance show

initiative TAP, combining are leveraging point, environment. assurance to customers. terminal Azure with the developed closely an we program. as solution partner recognized data a network and functionality by working Ignite access comprehensive and VTAP, to solution native with monitoring TAP, and and distributed the innovative wire network acquisition mutual were Azure addition, virtual By for management conference In streamline performance get it hybrid a or on application NPM/APM agentless user NETSCOUT the their technology, month, effective customers we a in at to in of their Last deliver VTAP

On the roadmaps, we product progress AED. launch are of the detailed on of security front, which by new Edge making Anil was Defense, highlighted some our or the recent Arbor

closed our e-commerce already have new a sale America. customer We hosting with North in first AED

banks. accelerating our is platforms, enterprise with portable multiple example out are on that to front this with this drive activity cross-selling well available other as offerings are adoption base. and solution nGenius platform and and rolling our our nGeniusPULSE flow applications assurance into A customer last success nGeniousONE our customers other occurred Banco Brazil's always DDoS mission-critical its customer We services of initial one for our as ISNGs, both Votorantim, for packet This service to largest employees. security great of systems, and to quarter ensure

of relationships. move campaigns can that we and continuing we array forward, go-to- activities wide strategic advance are a other As leverage technology market to sales

is VMware with partnership good illustration this. a Our of

enthusiasm this remarks edition generated VMUG at the fully the been ago. That and and then, Vegas our VMware and customers, regional prepared we certified you months at recall, at presented Security. for have have we of We've week. interest my VMworld call expect their two VMworld last vSCOUT Conferences pleased next VMware among at may Jean. Ready concludes the I in As participated Europe over turn User as NSX and similar point, with regularly quarter, Since attend when will mutual activities these that to Networking

Jean A. Bua

key updated This our along and quarter first-half with I everyone. and second will review Michael, morning, XXXX fiscal you, morning, year guidance. Thank good metrics,

our a GAAP stated, As non-GAAP results, the on unless our presentation all results focuses reconciliations appear review Appendix. in within reminder, and this otherwise

the of are to trends sure I'll on sale non-GAAP tools business tools be in to mid-September, will forma when excludes I certain reported. note basis, the HNT In revenue revenue. pro comparisons a the Regardless, addition, forma due HNT highlight the versus pro which

reminder period segment the security as to reclassified reflect period as revenue our to and offerings the of results of XXXX. our from were those it was and the Additionally, which can to detail products. higher attached conform top in number second presentation of offerings last fiscal the due Appendix our quarter the in our services service slides, for also a declined purposes. Total from million, first of our and while comparability related for customer Prior rather Slide website. be call enterprise second details line targets, our costs the quarter tables That conference of results press flat release, the XX subscription-oriented quarter, second softness current segment, than revenue is provider Relations our end reclassification across for downloaded financial certain available Investor posted $XXX.X half year quarter at XX% customer of results.

quarter at profit XXX percentage We of XX.X%, combined by revenue margin in Excluding EPS EPS, diluted our to would our been I'd high revenue, would diluted share X,XXX lower in the gross decline the timing due sale revenue Fluke tools $X.XX account the related head targets HNT $X.XX. of personnel the on been to to change XXX and by our September. to diluted targets. to and increased ended to update that the employees, We Despite with declined point. divestiture of at reported count the teams from have one-third approximately is Operating offered which associated margin is around of taking quarter of the transitioning like an XX%, quick effect the net with of prior quarter. end expenses of with XX% EPS we the Around operating ASC profit the quarterly the benefit HNT a a costs. the tools last down million, with After the second ASC $X a count. midpoint positive primarily overall X.X our related which same head of associated XXX have be adoption the of year. related on of business, people into the

implementing we measures, will During complete a expect and reduction by year. that in which VSP $X fiscal related year. began the million approximately to this these of the other of an $XX second XXX the fiscal of net savings and result quarter, employees in to we end anticipate this generate also actions additional We million in cost half

charges For be fiscal will million. totaling on fiscal year year cash with $XX operating XXXX, these $XX range reduction year we programs will onetime $XX actions The approximately the million of XXXX incur associated million. of in these a to effect expenses full

like XX, trends. review number I'd slide to revenue to key Turning

the quarter On customer Second revenue percentage quarter relatively enterprise, segment assurance product In was security basis, business, second grew pro with while and in revenue tools our areas. by the the declined unchanged. service revenue assurance in both DDoS service approximately digits provider the our excluding quarter, a double-digit mid-single XX%, second HNT flat. decreases in enterprise service was forma

terms the remainder the from enterprise In provider. revenue customer of first-half trends, from generated revenue XX% segment, was with total service of approximately

with securities In costs International Free decreased first flow Slide balance GAAP of some nonrecurring such the is cash calculated first We a in in restructuring one facilities. represented our the free includes geography, the transaction higher of year. marketable customers our HNT and on cash associated the items, long-term capital decline second have short-term basis, XX%, associated securities $X.X head cash, programs, markets. ended revenue million. of million $XXX.X as revenue XX% divestiture, with of customer the flow. details in quarter by international the relocate with XX terms which XX% versus expenditures by severance of cash and highlights payments to GAAP XX% the onetime, marketable U.S. revenue revenue XX% of with either of or sheet our We a and not equivalents, year. tools phase half did quarter count last a

from million, XX excluding accounts days head year conversion XXXX anticipate highlights, non-GAAP of by healthy recap of net, our programs. days count DSOs income, the the year restructuring at of million end other XX flow full were March. net sheet briefly receivable, with in and excess XXX% We the XX down continue for to free end were cash days of $XXX.X associated at $XX.X versus our fiscal the balance payments same last on time year day with Share average update of provide activities. million repurchase common second ASR, The timing associated of We security like brief share a shares one over payment longer increase we $XXX our year. of I'd certain the primarily terms. the with prior customers completed collections reflects to our Accelerated XX,XXX,XXX Repurchase, $XX.XX. or stock, an repurchased In during total, the quarter. with price To international

including items, guidance, sale and of for focus some of related the cost-reduction service which my to of in the reflect DDoS our the non- revenue more provider assumptions guidance. risk we revenue regarding a new to-date, to segment. Let's will number primarily tools gradual the recovery GAAP slide see in updated our on review I a XX business, results move HNT to actions, we've

HNT year As million, XXXX $XXX which fiscal is offset the detailed our second the $XXX on $XXX service earlier a our improve solutions segment. is the margins year in revenue operating adoption ramping be approximately We've million amount, begin anticipate the expected gross the $X are We guidance XXXX, currently $XX lower-than- anticipated in with of in that DDoS million. other the XX% to range, fiscal million. detailed revenue restructuring benefits due the fiscal mix from revenue earlier, Anil $XX the product tools We updated calibration million million selling product of this million had updated anticipate model, $XX tools around by significantly our the ranges and while of $XX including costs full of typically over $XXX to actions XG million business are to expenses, outlined reduction provider removing that mid-September slide. to $XX XX% shift, margins year In anticipated to sales range. will from this full to operating original business also in sale design Of assumptions lower of time. million as remaining we key projects volume lines. and costs which ongoing million and of guidance of gross $XX remove range remove tied The approximately of lower million those software year primarily is the our likely year the are HNT to otherwise of half XXXX operating new from to to currently

assumptions expense, other average from regarding and quarter. outstanding, rate, interest unchanged last largely shares are Our weighted tax

As original result, we our range and refined have $X.XX $X.XX. diluted within our EPS and EPS between now year guidance expect a diluted targets fiscal

In gross range of be margins XG at terms quarter, revenue network outlook, the reviewed to We phases between least X already initial that $XXX dynamics third a $XXX million creating the percentage customers' projects due with points associated the to roll-outs. our to primarily calibration second Anil to our currently X.X lower million. quarter near-term are anticipate the of for third quarter than

previously million, year million expenses from due levels XXXX operating will cost largely $X by the that discussed to reduction expect fiscal quarter actions. to We $X second decline

is a concludes expected That result, financial of third results. $X.XX $X.XX. formal from quarter EPS our diluted for range the As to review to my

with XX mention in additional turn now the over Q&A. to will we plan I'll operator in NDRs to centers conferences, investor start augment slide which the key transition we to Before the call U.S. that to upcoming Q&A, money details I

Operator

your Thank question our We'll Craig-Hallum. Bennett you. ahead. with Please Chad, from open. line go Chad take is first

Andrew M. Kramer

mute. on are they Maybe

Andrew M. Kramer

question, Chad. why go we back next the We'll get Well, to don't to operator.

Operator

Lake Martinuzzi Please Street. Eric go to next ahead. go from We'll Certainly.

Eric Martinuzzi

Hey.

Just growth had question regarding opportunity. a the

for growth we're to to get things comes the far XG referring a bullets X growth presentation and about kind I was bring I'm provider looking that the some exciting I'm provider to the the back speak, in NETSCOUT service encouragement shoots with the that as think are opportunities then provider business there's really talent under So DDoS outlining and potential, of half you that on these the green slide little as that that here, some Because there for the business and growth. the kind down bit give business, And opportunity back track. so outside year, me in the on you're service us sense gets we investment more highlight the where But the remain disappointing of back at encouragement? of talking growth U.S., any of when opportunities DDoS kind of, there, service to optimistic. just

Anil K. Singhal

things. maturity big for We in are to XG. about big I I and to are how in to depends then year, who in a things. things much NFV announce XG. service terms of about of Also, are of wanting other there And on XG, investing user there terms level opportunity something are few mean, outside people the We next we excitement spend. regard planning U.S., in things, space lot quarter. in when traction is are green announced So be security we in There to last provider. talked think April, have projects one – are parts there coming finally conference, and think additional shoots potential with of more virtualization There'll our I

enterprise. in at If provider and DDoS service both you be for largely today partly is opportunity the we But service about is segment. and advance security threat provider and will talking enterprise area, look the partly things main security DDoS

the to really security We mobility part the not network. applied have of

We have service been basically assurance.

things to able those it's year. today, this but early be to the it some of announce, after we So about fiscal are didn't the of which share should talk too we because end

Eric Martinuzzi

service And any By Tier and remain are flat Xs flat, expected stable, about can American are does you there just the Tier being keeping – the give is two North talked or mean stable. that large North to us those visibility you your provider, focus revenues Xs? on American on

Anil K. Singhal

Yeah.

We models. year. year to are not be could to was, upside, what I further on next margins this there mean, software but because it's not improve deteriorate we yeah, possibly meant of And will counting going movement – or

Eric Martinuzzi

my for Thanks taking questions. Understand.

Anil K. Singhal

Sure.

Operator

We'll to Piper go next the you. Fish ahead. of Thank James Jaffray. line Please go from

James E. Fish

against? of quarter. kind capabilities those the traditional from rumblings My their peer to software se, more first offerings. compete assurance per Congrats usually on competitively, in compared networking group more been kind guys pressure you Thanks. guys. onto Are seeing (XX:XX:XX) we've guys takeoffs this guys guys the Hey, hearing their you from upside question, of adding that traditional the

Anil K. Singhal

Yeah.

want that's didn't I additional ahead. question, that go Is thing the or interrupt. to – the Sorry, on it?

James E. Fish

Just that's it.

Anil K. Singhal

Okay.

won't to NEMs somehow single wrong, and without these which time are multivendor the it's gives competition and But and switching to to referring give a don't only to So want there competition for with multiple and can that NEMs, looking on to the IP for that time going And people mid-XXXXs, in ago, a No Ericsson, provide – environment, from those. they impression you're And multi we at in virtualization, always theory and typically, they're embedded been think with from mid-XXXXs, with a XG, for history Ciscos, of the I years going have are to but routing a that escalates technology there's is now single Huaweis, vendors. them, XX is when in feeling I to solution environment the who glass there people is solution, like solution. standard look proven survive. depend. all of going goes that turn, I NETSCOUT this They, every later since at points. a – multivendor this biases are pane any whether started customers security, of carrier a going every one a you looking carrier has will independent

Every and So, more really it we go do is creates some in there. yes, things, time of But awareness affect end, to usually new competition what it we the our this creates doesn't growth. disruption. these

and visibility our potential. improves it fact, In

James E. Fish

broader I in that and easier get deals? curious engaged the more with I Arbor kind is some as And a of on to just it. from, year. guys then the a you the robust CDN actually private I'm in business Arbor business, well exposed, do side, that or very why to just on winning decline not of but where more Seems the there this comps secure doing it guess, market actually space? of Got DDoS more is the why of out it's like some market. want maybe the more guys public provider service

Anil K. Singhal

the Yeah, that because market that growing. to that's a is studies, you looks market at see like question. good it natural And it's when look

think I quite this is, big. to are we two answers

the are one We number player from a perspective. DoS carrier

– because most by insurance lot buying attack remember, and and so And was we have That the we ago of years were if growth. outstanding year, people affected like capacity. (XX:XX:XX) XX% year-over-year you two

the customers really advantage as of plus on At we in service discussed including U.S. of that, have opportunities result of we paying spending the DDoS this a somehow are we time, which invested NETSCOUT So cross-sell. not not taken earlier. price of we all fronts, curtailing carriers could same enterprise some and assurance, who the

and CDN-based our will our off. with service April. year bottoming a on way new challenges have User that. Akamai. the to And be provider, invested we So I in This some announcing including going start a competing to to the we're have strategy service strategy, we'll was transition similar and be like new at different are our the that, after of And that strategy assurance, in negatives solution new our will solutions, Conference out taking year our the DDoS security mitigate able think of sense

spending enterprise with But are which because more investment to required There than NETSCOUT that's we commentary. good Yes, new going the we some And going guess, I on year. affected next basically so, reasons think for competition and on again new strategy, largely our people. and I been other start are leapfrog have the reduced down. of it, service provider, partly

James E. Fish

Anil. Got it. Thanks,

Anil K. Singhal

Yeah.

Operator

we'll the KeyBanc line Kurtz next to And Alex you. Thank of with Capital. go

Alex Kurtz

over segment, to in morning, understand adoption, a couple of is it's in that that in very made the investors next way to number every that the about creating timelines with software everyone. is think what sign to be Good terms, headwind encouraging a some help the also seeing you quarter. that more on there calculate definitive comment you're could Anil, specific it's just uptick hard I years? revenue but XX% service provider

what have by, least XXXX be software? to think back half appliance? And then, as calculate these is kind Maybe of software another a So revenue buying you customers fiscal are versus two you more could say, of Jean, is able service things, business to provider say there transition that time. the to at come impact you every that way to or quarter some the

Anil K. Singhal

mention. just me let So

also. and I we in question Alex, the So, think about talked good it past

a not are because So, erosion interestingly, model. that moving seeing of to for large revenue service provider deals, we software

deal using in almost we the software unit. allowed example, for actual to to and the increased. we million model are we million announced the this when for software, announced last price on our came which $XX which big we to Alex, so, deal $XXX past recently, a NETSCOUT had us remember, year, mitigate if price spend of you Because per points the And

made situation, being service price from overall making So short-term by unit very percentage is which to terms I because and technology volume better is pervasive. two of years many the possible. in of more in our most down And up go of current XX% I decline in XX% revenue competitive effect actually think think software, of cases, provider is increasing per in or yes, cases, getting

Alex Kurtz

Okay.

on point. I Jean no So, for then guess, that question

take domestic like happen going with it change to answer, year. big to two sounds momentum the could operator your be XG what you? that's it's on customers, It but not next would Just their clear

So to, top accounts what or used are things have one to get XX% be? happen the two that would two to they those to of maybe what say, back

Anil K. Singhal

obviously, we'll So those like I think, days. back people get to hear to

depend our I think XX%. to strategy those do on to is not

have it. problem. we at should was that we not and customer, time a had So We XX% think that that the

customer we'll where a in are base. We direction moving much broader have

depending have do it's for whether growth two when of plan rates, estimates, bigger growth revenue years, on, the today. the margin slightly biggest it but them and is think are two are still up next type the at down, a these even and going share go customer on they're now, We vendor provided for a I be or none these counting – to providers of much to X% doing is the providers, like than three they X% we going so not we

Alex Kurtz

you. Thank

Anil K. Singhal

Yeah.

Operator

Matthew to with RBC next Markets. Hedberg go We'll you. Capital Thank

Matthew George Hedberg

help landscape business taking enterprise I morning. products prepared remarks, both and, might maybe them on you your of questions. just available and the Hey, now see about how a In are there. on AWS your talk my segment? refresher and bit vSCOUT little competitive Thanks aiding guys. talked vSTREAM Good APM Azure. you for as Can the more you on And these a what think,

Anil K. Singhal

the they'll where customers There itself hybrid these So which – that's when look provide differentiator. application. no matter There from they as we company applications are our because data various where look a we cloud vSTREAM at we are that. areas, than you as are and say the see, smart or and environment, that to deploy SDN, side. multiple start-ups we great And company, we in positioning like to And will our vendors there's center. all a And that there environment but picture. AWS look there complete NETSCOUT no public, on put visibility job vein, players side we company were. do or the together area, at three data in don't glass And one on single And on all side. pane does is need on competition center revenue we which a across bits data provide have by – deploying vSCOUT are cloud the rather the providing of particularly SD-WAN, pieces, important at players places in for have we are solutions and they hybrid the

areas. you will I vSTREAM is the has sale, sale. to from something? and but it transition vSCOUT is know had all small when to vSCOUT/vSTREAM the differentiator software similar we contribution and don't And enabled Michael, our bigger So – short with margin overall in for term, have going but completes picture. margins the cloud these We the happen, think model cloud full our the revenue remain

Michael Szabados

are cloud, new a IT broker a are becoming is this use own that trend Yeah, a on-prem role, in I wanted data of customers, seeing we we that services, cloud, multiple case. And add center finding different to public private our of their whether offerings. number or a

their or or around key are We the to center be data to tool choice choices. able pick move right these choices migrate how internal their customers cloud different

IT So we are for an behavior. kind new becoming this of enabler a

Anil K. Singhal

data just a before Michael where that, is what can solution, varying to the having right architecture compare end-to-end just talks visibility, but single everyone consolidating the same think and big is provide end-to-end, about with solution and you our pick sources, differentiator. choices, and I is it, buzzword a it's So an after, saying end-to-end summarize up not

saying by we we have compete the plus center C deployment with data So story like compete have A we nobody with cloud-only have. data B We players also. also. saying center we plus people cloud had And

Matthew George Hedberg

to sequential That's is, expected timing I'm sort the too, just product sort and well. general, those. then can half into than XX% little And remarks you assumptions think, total higher I great. QX XX% difficultly, around the of That's in visibility several about deals QX's guidance, and your general guess, noted forecast helpful. as revenue think between And sort on we've of comfort on federal my large interested an QX. I Jean, your think you split side then, think in QX, question That's revenue of in past some of a the your of help over you about that But the seen think in of second when the as growth I level us prepared there. I years. per the I initiative

Jean A. Bua

we're the between probably in from said, They're customer. Anil some QX that at acceptance three we because and projects QX get just the we're a little have service as uncertain, need finishing on and guidance, finishing deals provider mostly to all double-digit millions that we our least So projects for. is

just plus QX December the to it them. that X, if always So budget able accelerators year-end it QX calendar a have our on team be in that then heavier and traditionally, get QX on incentives to budgets, a QX are certain we to happens just then January are sales in revenue; coming important due to new that happens whether January it be XX, revenue. would and And a becomes to the in skew

Anil K. Singhal

one add to thing. Just

visibility, not gap. the comes QX, in end a it range is the won't if to And much gap. $XX QX So be half It'll visibility high to XX% less. not XX% then a versus QX. a gap it visibility QX It's be million the second of in

Matthew George Hedberg

Okay.

more if between and close second you're saying basically question QX necessarily not the the that QX, half. in when the close – deals they is So

like your Sounds in confidence is half close second that will high. these the

Jean A. Bua

Yeah.

work been there So that these deals doing meaning on occurred, have order's and already already them. deals are the mostly we've

I it's on December and customer they would give and a did matter of If under if when event. us are QX when implemented, XX, And agree event. QX it it they a so to the like recognition they a acceptance. would as of And projects on it January control for did the then it be and said, – X, revenue control the our completed just under

Matthew George Hedberg

Got it. helpful. guys. Thanks, Super

Jean A. Bua

Thank you.

Anil K. Singhal

Yeah.

Operator

we'll ahead. you. to next go Bennett go Thank And with Group. Chad Please Craig-Hallum Capital

Chad Michael Bennett

not Hey. morning. Good hopefully questions. my taking for Thanks And hopping redundant. between so I'm calls, I'm

provider in I where to for Do where revenue XX% plan, software-only. of remarks product half the So service software-only end service think of the if I the maybe first talked year being could revenue everything you sense we a provider, goes from product about you solutions? a prepared again, of – mix as we believe, have

Anil K. Singhal

range. in I think probably don't – know, same Jean I this the is

Jean A. Bua

Yeah.

think say I would now... we right

Chad Michael Bennett

range. Same

Jean A. Bua

good – we're thought talked XXXX, FY what for probably just full with just I'm target quick for doing FY the completing, a XX% second probably XXXX. – year about for we're is probably had a projects of given – a I Yeah,

Chad Michael Bennett

that three software-only? deals on all so are to prior mentioned double-digit safe those say? question, And Is the you the just million that

Jean A. Bua

that ... I say one would

Anil K. Singhal

Two are... of three out

Jean A. Bua

Yeah, probably two out software. of three mostly are

Chad Michael Bennett

it. Got Okay.

the kind else over-buying last of since absorbing Is of market the that year kind on overall believe in this I DDoS the think do second – has for expectations you're anything Just that DDoS changed year? you there understand year. the phenomenon last and how you half,

Anil K. Singhal

with we are – carriers, No, provider, impacted. And combined been have we and so we overall the which about market think is I it deploying service similar two, that U.S. more carriers of the are or DDoS, And for Tier focused the as years is biggest we service that's were area, talked have effect and saw the biggest us, we is providers in the on U.S. growing player impacted we three we – U.S. most that. really earlier. X that carriers slightly. the been the service player ago sort in in in business And assurance

the be grow year the So second And a year, even the from will half the is start and overall half, lower in we'll though I last growing next down. start think we'll versus this where again. first base from year

Chad Michael Bennett

– much tell the me. you in I much can And change fiscal for how that you XG your And assume next is as as I Right. into second believe will maybe year. can or – – heading guess, implied improve probably one tell guidance? meaningfully half spend last much well, How you

Anil K. Singhal

are then, but – XG, in about there's very we Yeah. last for very our No, the Same compare those. we but the NEMs versus talked environment a I'll the But because need going minute. When a pane in to is the versus provide too against half it's call, early XG tell, two to next of fiscal we Similar year second to call provide is just customer because about make would a depend year, of in if comment to that story a solution. solution. our you single little XG it's the are best it's zero through (XX:XX:XX) XG, a troubleshoot, yeah, the the going glass question. a at rollout house. of of XG in glass tier, rollout. sides Why to applies to XG, cloud pane solution vendor-independent to we why all quality XG. comment true single have on all other a – I all mentioned previous networks, about the and you response – hybrid significant. we the next We year, competitive cover we of people speed prefer And But look

the because better line just technology, projects. for reestablished XG software not our point, of incumbency price So of better front in puts us and in area XG

But on case, rolled see out capacity should XG XG depend not all rolls of the be if will will And some how enough, because on XG fast built it we side. is either that. out. So growth fast then

Andrew M. Kramer

those Chad, to thinking And calibration network year XG. be services just for our infrastructures clear, design tied XG this primarily current that, projects used that access the to part of XG-related are is radio to fiscal are for

XG, assurance different eventually capability So, across deployed XG. network deployed service it's – for than we will been monitoring the solution and a traditional that XG, it's be

Chad Michael Bennett

Right. Good in. me color. for fitting Thanks

Anil K. Singhal

Sure, Chad.

Operator

would closing back remarks. I like Thank you. for And to to now Andrew turn it Kramer

Andrew M. Kramer

money I new Thanks, Erica. like know in looking very morning. busy a Thank everybody. a there. for day talk seeing yours, we'll everybody to different Look road forward forward be out If year. calendar otherwise, much. I'd tuning center for you investor thank this we'll to on to conferences. in seeing we're of And certainly it's the you in you to at the you

Operator

a feel to like free everybody call. disconnect have And on time. Please line great any to participation their conference your We'd for thank at today's day.

NetScout Systems (NTCT) 1 Nov 182019 Q2 Earnings call transcript