NTCT - Earnings call 2 2024 | NetScout Systems, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to NetScout's Second Quarter Fiscal Year 2024 Financial Results Conference Call. [Operator Instructions] 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. [Operator Instructions] I would now like to turn the call over to Tony Piazza to begin the company's prepared remarks.

Anthony Piazza

Thank you, operator, and good morning, everyone. Quarter September XXXX XX, Second the Call NetScout's ended period XXXX. to Fiscal Conference Year for Welcome

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

multiple Investor You the information page. slides results remarks follow section the Both commentary. the website can including in prepared to at the results, under quarterly advance the page slides be webcast can areas of our in IR financial accessed our and the itself Relations under the webcast within the and www.netscout.com, on viewer financial landing

forward-looking statements statements future Slide position, of other performance for our to results historical include or Today's are financial and operations on management business statements objectives will of #X. that and of not strategy, include future plans operations call regarding Moving Examples conference forward-looking statements. fact.

statements of to in place or which on can We as presentation, not other listeners by expect date. only You forward-looking today's statements caution any their of comparable should, speak such forward-looking forward-looking as undue believe, will, use this identify terms. plan, anticipate, included words reliance

in not could but involve limited uncertainties statements other risks, to, financial unknown risks due described release. These today's forward-looking to and press including, from and those differ this actual and the results materially known statements and and slide forward-looking uncertainties, factors, on assumptions

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

Let's now metrics. involves X. to I Slide which -- non-GAAP move

non-GAAP this press should is GAAP conference or and rationale measures in basis unless prepared of will relying for today's be isolation includes presentation otherwise on on along GAAP. These non-GAAP those a measures today's measures the on non-GAAP detailed with substitute on call financial a for accordance and with information information providing slide in While discussed this results, only. financial as slide both solely limitations in not stated, be from considered The release.

A with applicable of -- measures appendix in provided the the today's of Reconciliation earnings slide all presentation non-GAAP and release the metrics GAAP press our in website. on are

Anil? turn for now I the prepared remarks. Anil his will to call over

Anil Singhal

joining second to fiscal of everyone. was Thank expect you, conversion good quarter order for today. the in will We thank that in the industry second year with preliminary in economic half mid-October. and quarter all our related and Tony, revenue delivered slowing by morning, a headwinds in persist you us XXXX. second in announced impacted we line Revenue Welcome, rate and results

without the I second several year the discretionary to should manage our our and costs per -- reduce which quarter the these in fiscal outlook. to offset longer-term to In response earnings than compromising line actions impact dynamics, bottom negative fiscal we share full more impact initiated objectives.

affecting this provide will outlook. our market more information and we dynamics on performance our as We review business

half non-GAAP #X and our fiscal brief quarter to of a of for the turn financial results XXXX. second for Let's recap year first Slide our

XX. year. level with order million, mentioned as previously to a our customers industry frequency to the lower due as project and to to compared were down environment year well slowdown related economic -- revenue released Revenue $XXX.X our the year-over-year preliminary propagation in prior radio of modeling impacting last the line the XX.X% For quarter, was financial second October quarter expectations for results conversion on the

discretionary cost-saving year-over-year Despite the share quarter to increase X% from we $X.XX, in of that of as for per earnings actions an several diluted initiated environment. decline, the revenue the we we response delivered current benefited

second diluted for first $XXX.X fiscal revenue benefited was impacted the of XX, September of revenue. primarily XXXX, during period The first corresponding year, was half earlier reasons the million, per second half increase which for for down fiscal that year-over-year, -- the action ended the of earnings the stated For X.X% XX.X% $X.XX quarter from share the our fiscal our again taken quarter. an year-over-year

assurance our first growth revenue cybersecurity year, service year-over-year prioritize in half more to Finally, spending both our by we due was a of DDoS year-over-year for -- earlier. security the to of security as service due revenue core the customers than solutions. offset reasons approximately of and on XX% fiscal newer grew revenue omni our solutions. decline mentioned XX% and This approximately our the

revenue the from X% Radio declined project service Propagation Modeling year-over-year. churn approximately revenue comparison, Excluding Frequency

in more to was let's and #X line half year-over-year perspective by product vertical a assurance of further Now move fiscal enterprise insight. revenue. in some decline with Slide year on for revenue our enterprise Starting than market cybersecurity growth in line business customer our first the declined X% revenue approximately as service offset our product XXXX,

order health and as second customers the were government evolving and navigated reevaluated, in the flow-through offset affected project to partially some by and challenging delayed in delayed sectors, of softness multiple end financial the be were sectors resulted pockets most across rates or higher environment. enterprise care funding quarter, our began the which in macroeconomic growth deals Towards of sector. This spending scrutiny by as notably

to challenges off-premises enhanced blind confident solution cloud the our digital the of of part as architecture of from proposition spot, Despite leverage solution networks with cybersecurity continue of and economic resonate network remain to will that transformation we network their customers the and extending new initiatives. and cover value environment, visibility and current the edges protect to address control seek providing as they their facilitated enterprise attack,

the which level service declined year year-over-year to primarily Propagation half our Revenue XX% Frequency customer Modeling project revenue. to Moving of attributed the first the of provider in approximately vertical. are first lower Radio

a year-over-year in our line driven offset from Modeling was the line, decline vertical declined product revenue Propagation service by project as Frequency approximately customer growth the in provider by security the service Excluding our spending solutions revenue. product core revenue comparison, more assurance cybersecurity prioritization of Radio X% than revenue

Revenue likely late funding by in in through in as spending impacted delayed project due quarter observed, service higher was vertical was to the the second a constrained slowing this and capital providers. demand also scrutiny impacting flow well-publicized sending

in cable service recent of North this half year is similar most the updated in Notably, second news follow providers. the interaction, fiscal We order the a outlook. provider given delays vertical reflected which to our related anticipate in international the and pattern customer of American and service will

to believe regarding accelerates, increase, adoption required. during and and advance Despite XG use will carriers with this our new vertical in prepared his the increasingly and orders XG insight provide differentiated transition be industry volumes that challenges traffic in customer this cases remain inevitable our core through we visibility remarks. our as solutions. more solutions support ready Michael We vertical, cybersecurity will

Slide market Now economic enterprise scrutinized as revisited both updated This that ranges. let's combination outlook believe we and assuming take outlook headwinds We $XX to increasingly delayed outlook of longer due XXXX our deals move current environment. the in or industry pipeline a service be reduced related provider are close. the to fiscal and and for our opportunity our revenue and the may review outlook. to to represents to revenue #X our changed of We account our adjusted original year by midpoint million,

as opportunities expected lower as other project the originally Radio year-over-year. anticipated these more to $XX Frequency approximately Modeling We factors million offset well than Propagation of revenue

to programs in the costs, certain as and events outlook compromising As remarks. prudently variable of our to curtailing full hiring, our outlook adjusting earnings earlier, we without eliminating negative to a year objectives. manage Jean provide mentioned impact I per such our took long-term incentive fiscal compensation. immediate will the actions and recap share reduce

we to in we line as at demand that headwinds, results our the are we trends on and service solutions service committed deliver long-term require believe Despite continue position cybersecurity near-term and enterprises visibility business and value. intact driving the actionable assurance remain strategic ahead, deliver our that continue to Looking execute stakeholder scale. as providers updated longer-term to with NetScout outlook our priorities to delivering

positioned With and increasingly to remainder tackle challenges connected our everyone security our We availability throughout enabling complex forward strong our solid in with world. year. we visibility role profile, the industry-leading relationship play of the critical remain digital platform, performance, sharing progress to fiscal the customers look to customer and with of well our border financial a our

turn that, With I'll the call to over Michael.

Michael Szabados

our our good unified in trend the solutions, everyone. you, where be of custom Slide which seeing portfolio Anil, quarter. validates morning, I . the several are platform purchase supports believe experienced more deals. we customers strategy. of power XX vertical, Thank of NetScout's enterprise In covering across highlights we we that and in a and customer starting our the today will second areas with outlines

in assurance, availability placed the this service example, figures security orders For orders totaling a solution our mid-X of order. significant agency second us These quarter. of consisted was a which multi-solution federal within portion solutions with across our portfolio omni product and

We more deploy continue have new performance to as win our technology business historical a with our us relationship organization. solutions customer the long-standing and legacy and proven this they repeat broadly and within

network remain Now expand. supporting accelerate service carrier and attacks the efforts, to customer well focused as vertical. turning threat on evolutions We cyber providers security services XG their continue to our incidents as

order at a the sizes, XG areas through We invest albeit to carriers and see in continue and environment. other smaller pace given current slower

We about long-standing our American organization Tier as solution, continuing with carrier partner related follow-on as the across our systems. our access trusted accounting were X well network assurance their ecosystem. and business this XG their network mobile customer service quarter, X orders network with excited and for figures. their to the remain North During to for orders a as radio These second IT placed high to broaden for both customer relationship

adaptive Carrier our Turning mitigation RAN several and our call, go-to-market Since for we activities. this system earnings announced last of Aggregation. analytics release for product DDoS includes our to the advancements, threat

Forrester during we investment impact the study which DDoS Consulting, revealed Protection the that on total return XXX% period. recent over a economic delivered Arbor study our found by of Solution completed Additionally,

security that OCI our Services response. in the advanced Intelligence category We also Cyber or product for announced detection NDR we Amazon and Web AWS of for achieved Omnis threat competency

the a issued Intelligence revealed that criminal addition, approximately the million year, report attacks in XX% half rise cyber activities. place took of first year-over-year. our Threat the we In The half in Report, continued increase XXXX DDoS first X.X highlighting

latest report We environment our -- this important also demonstrating social and governance in of our progress issued area. reporting

October, XX% ENGAGE more loyalty another year-over-year, among in our and and hands-on demonstrating combination our increased technology attendance summit of partners panel solution which annual and customers at presentations, the early discussions, user Registration was users. in our and hosted than training. interest included Orlando, It event, Florida. Finally, we strong demonstrations and successful

the industry's we important how During pertinent it and multiplying of showcased the availability a event, security performance, issues, and approach are Borders addressing an most the Without and as often and platform are our to proposition interconnected provides industry unified value challenges overlapping. the Visibility

we announced AI small data event, at the export leagues solutions technology targeted and data footprint. running our analytics next-generation data platforms At on also expand our advanced to Ops

call will Thank I and That Jean. concludes now remarks, turn you, everyone my the to over

Jean A. Bua

Thank additional year commentary on metrics morning, of our you, quarter Michael, good half will and I fiscal year our review first fiscal for outlook. key some everyone. and XXXX XXXX and second provide

a As with nature appendix. stated, appear on any note presentation comparisons. reconciliations will results unless our and our non-GAAP review this the otherwise Regardless, in reminder, I such all of the results GAAP

our details #XX year and first results of half second quarter XXXX. Slide our for

revenue year-over-year XX.X% on declined Focusing flat, quarterly declined basis. on revenue to XX% Product and year-over-year was $XXX.X both service total a million. revenue performance,

Radio quarter primarily XXXX was variable compensation. increase percentage year and margin Modeling points up attributable quarter with to the Propagation a was XX.X%, in project gross reduction last of incentive cost year. Frequency last X.X lower profit fiscal this same compared quarter Our levels The second over year

gross other Propagation projects nature projects. our have reminder, due labor-intensive the products lower a to As to Radio tend Modeling of significantly those Frequency than margin

related compared profit operating XX.X% Quarterly quarter XX% events. with last operating variable XX.X% incentive primarily margin expenses same reported reductions with decreased the year. compensation in cost We to an year-over-year, of certain associated and

with compared the took previously we last in increase of year-over-year $X.XX revenue the as year, same earnings quarter of the decline. X% $X.XX offset the Diluted was per share an impact mentioned actions

the believe same be Optimization this year the $X a offering. the $X Spirent standpoint, approximately that absence for to of material financial of aligned This year-to-date portion I in the From to Finally, profile, a month performance lab test Optimization approximately fiscal places expect NetScout's we better to level not to the our headwind a We we Test the automation note owner. revenue wanted last business the divested million. nor sale core to And that the business comparisons with million. strategic Spirent in business was overall was of contribution in Test approximately company's second year-over-year XXXX.

Turning and key Slide review verticals XX. lines. to customer like to product trends I'd revenue now by

first half on vertical while our the a declined XX.X%. service For our XXXX revenue of declined customer enterprise X.X%, basis, vertical fiscal provider year-over-year year customer

of for half of first vertical the customer accounted the the accounted fiscal our During service year, revenue, while our for enterprise vertical total customer XX%. provider our remaining XX%

our our basis. both half cybersecurity fiscal turning decreased the lines. -- XXXX, first service on product In to XX.X% revenue while our year-over-year Now a revenue of assurance increased year XX.X%, and

half year, while service revenue, product XX%. our cybersecurity of total our line represented assurance first the represented fiscal the approximately remaining During of the line product XX%

derived the same of or the lower for partially was period which this fiscal Propagation from project XX% total domestic markets X provided The year, second shifted our first revenue United to international XX% Slide fiscal customers mix, XX, fiscal our the Also, domestic Radio by States, and remaining half last our the mix international of year. between Tier Turning with shows the in the of from to or the geographic revenue revenue Frequency more The XX% year revenue half due of represented the quarter in Modeling -- markets. year. first carrier

The highlights since Free fiscal cash with of representing $XX.X was cash $XX.X flow. equivalents, in ended cash securities investments, million. XXXX. -- of Slide our use for year decrease the marketable and and flow cash, sheet long-term XX the quarter a free end and $XXX.X short quarter million balance of the a details We million

$XXX July During million From perspective, of second or the year quarter, fiscal on ended of price of expires share. approximately for shares total debt average million a XXXX revolving stock facility, $XX.XX our which aggregate approximately a the an of repurchased second outstanding of we common million X.X with per million quarter in purchase price our $XXX credit $XX.X we an XXXX.

recap DSO year the I March since fiscal receivable million year other was end the of XX was metric versus -- our the and fiscal of increase second due at briefly the To XX $X.X year XX, and XXXX quarter days -- highlights, bookings. XXXX, higher days at XX the DSO The quarter accounts and at end to sheet composition $XXX.X an was end million, balance timing XXXX second the of metric our days net of -- the of fiscal and XXXX. of of

year Moving review commentary to Slide outlook. our XX non-GAAP for our on for on I my fiscal will targets XXXX. focus

our October year As Anil noted we earlier, updated XXXX outlook fiscal on XX, XXXX.

also $X fiscal full activity, fiscal XX some the the in of diluted anticipated with the share million. expect -- color quarter year. XX shares to And range in outstanding between $XXX and on the tax now repurchase range is share Assuming XXXX, the between which average to $X.XX. I'd rate we anticipate be we to effective quarter The million year million XX%. third revenue our Starting diluted includes now of of million the to revenue. be For and to like second non-GAAP earnings XX% per weighted impact offer of $XXX

our in QX take XXXX midpoint XXXX and to our year. As QX the Anil quarter quarter. anticipate longer fiscal used, in could using may that deals hit it close would the third pipeline calendar fiscal mentioned, calendar the the be cycles XX% place last million to by the may if budget we $XXX XX% on budget being the revenue of of approximately years, take timing hit the would meaning, of were budgets for Therefore, outlook influenced XXXX of customer our and year.

quarter be as as third timing revenue to will versus EPS XXXX anticipated in well cost regard which per by the fiscal of diluted impacted quarter ENGAGE event With historically fiscal of quarter. first third our our the the of occurring took in earnings year share, place

our $X.XX EPS we quarter result, a midpoint As approximately to of be of third the XX% to anticipate XX% outlook. EPS

That our concludes financial review of my results. formal

like participation IR is on that transition we quickly I'd Slide to our Q&A, upcoming XX. note Before conference to listed

start Thank the turn call you, now the to and operator to Q&A. over I'll

Operator

. Instructions] [Operator

will with Capital Matt question from first come Markets. Hedberg Our RBC

Dan Bergstrom

It's for your I Can hear Hedberg. Dan you me? Bergstrom appreciate taking question. Matt

Anil Singhal

Yes, yes..

Dan Bergstrom

Great. Okay.

been been all provider you've year, spending has the over but pressures the fairly much So kind of and environment insulated half. first not service great from of

you appreciate that quarter? the I emerged any environment just on if provide color you what commentary when but change the wondering maybe on the really as in and could the then call, further or what in changed view

Anil Singhal

of the Nokia that of if layoffs, cutbacks. and at Matt, this noticing we we and we but of Well, started look signs towards the big see second bellwether big X as you mentioned, NEMs, layoffs the quarter, big of announcing end Ericsson

all -- by of but continue this for anything. these none is competition will it impacting are So or some signs impacted of time. is -- And

and the XX cycle the happen that important, should think projects but we next has So are these sales lengthened months. they sometime in

Dan Bergstrom

Okay. Great. verticals. and on outside a And categorize more the the maybe X of segments. Curious care you demand enterprise health then financial how little

You like soft provider federal on sounds in markets. called [ service international much And was it the out side, like maybe the of those softness as ] Sounds then strong. was

Is not over half, North that it occurs correct? that in yet. assuming second You're but America you're the seeing

Anil Singhal

the I X are deals results. in the very service And mentioned, the think provider big in we lumpy. international basically, Matt, past, order can as polarize

I So providers U.S. of is cable mobility cable, mainly it's and even think XG doing and but and international are lot cable a now.

things event it's seeing why half. the like international affected look like but which the or international, we intertwined, timing the it's U.S. the of are are that's just looks think makes when. -- versus and So just an we timing just who in it's the first orders, think it only is it in the that I which And forecast, of

Jean A. Bua

Yes.

said, Anil add eliminated service delayed there we to with. provider the to business on like as had in and is what Asian So opposed just carrier that it. are a their purchase large they in more international, do to

it's So being international decreased. provider probably service why see you the

Going has projects, in change adjusted carriers, their we forward, constraints see given comments American projects the reported. the made the the that contribute revenue North that in to timing that you force about the which significantly the sales their and Anil of

XX% And the -- just on -- XX% the to because usually thing versus final up for this first very basis, year. well quarter. XX% the the we're quarter. of year a it's XX% also quarter. for Fed last And as the the grew little We half it's year-to-date -- federal to government of did between X on half a between first

Operator

Our next James question Piper come from will Fish Sandler. with

James Fish

Working off guys to March pushouts. But seasonal we you Dan's guide in comes on this delays back and the tight see? confident seeing I budgets in based on the quarter understanding Jean, are guess, based what that question there, makes you're your typically here, seasonality

in hits given force I reduced what's March in in of some As seen historically it much confidence guess, embeds here. a really we've to guide it the even instead hit time March than that sales much, fiscal that pickup the 'XX? quarter larger

Jean A. Bua

as So -- even in the the in a know, quarter. in part was later the as all the surprise change probably of September with of our up have -- showing And long-term relationships you -- has we mentioned, force sales Anil the actually carriers. the budget in

been think of a and What -- they our rightsized has believe list delayed in with they've QX going detailed using of right XXXX at and been the due this each a believes either the talking in flushes. budget our and with recently, of budget projects or force mostly something we're of is budget sales been have QX carriers, or customers now. be question or whether in that each dealing of that that our larger will timing has to historically point. QX is through sales And it the been flush our a remaining I the quarter

XXXX? have their your expectations the is, doesn't and significantly At And could what were. out fiscal see sales original it point, they changed question slip of further force that this

Anil Singhal

And where saying years I has out. is think customers add, are that using bigger carrier because dynamic been been QX times than QX. starting has what one more Jean many to of seen January. are this have thing -- to James, in There -- our we is fiscal their play are

sometimes for are the these we -- funded instead -- in when in budgets quarter, in kind of flush year. of -- going by budget the the in the instead our of happen, budget the are So impact, new opposite last using projects the we things new coming have fiscal December

the this we seen couple anticipating So what that's past, what QX. happened that a have we with of depending in carriers on big time are with and

Jean A. Bua

QX, just And clear, I thinking be in calendar QX said year. I I'm wasn't case to when Yes.

year budget accelerators calendar last teams QX discussed QX. into gets as is the flushes is past, can and QX that other So get our customer's our incentive QX the commissions we've And the compensations. and into their in quarter sales

usually have QX. incentive to our fiscal using in high the So they those try to Year's close New a deals budget.

James Fish

Guy. color, going strong about you they how the margins obviously, OpEx Can projects margins? RFP thinking As the of for Helpful how half pretty then but gross guys us we back were about just don't versus year? gross you the you're have through are -- on, this walk thinking quarter,

million. that near revenue you million I core uptick $XX cost $XX seems that quarter, fairly levels, OpEx despite guess, massive of just to guys the sequential hosted? of like actually current wouldn't is stay excluding the why my this of really conference It kind you're embedding headwind ENGAGE for a these about in the question

Jean A. Bua

QX been being of ENGAGE year-over-year closer to are and most in XX% margin that So some approaching in head Operating QX variable additions higher. due XX%, incentive has the QX, probably offset the see event, and XX% or change we compensation. count by expenses in gross the flat to

could by full see full would much for that to we compensation, operating operating the in incentive our year, mostly X%. as that variable would that due change anticipate When year-over-year expenses you be a basis the to a in expenses there decrease would out as we year go QX, down be such on

Operator

Kevin from Company. & question Liu K. with Liu next will Our come

Kevin Liu

service provider the business. on touch to wanted Just

an of while, weakness. As area as mentioned cable you

last your that for . And curious represented So come of either being half are over business year? look can types to some are that's of of or what first projects we what where I those back the the then potentially? percentage was delayed

Anil Singhal

Yes.

So -- we of the the in part enterprise to is of service -- of works break And out I U.S. cable most the -- all the business enterprise is vertical largely, cable that. the don't mean, business assurance carrier

So I don't of report cable have because that. don't the we the total breakdown the versus

the protection, But security of are Omni in in and are there DDoS the DNS of projects security cable. of types there -- area, a the lot area, projects are projects a type There area, lot security visibility type projects.

people And now, so also it XG are lot having are also a using of own cable initiatives. their

there that. So are related projects to

side they the things, cable been on except we there focus why more traditional has see time. past, and the the that's this So are recent impact all in

Kevin Liu

kind any parse assurance noticeable demand just change as of you Understood. portfolio the is between there kind of in through And priorities cybersecurity? environment, versus your service

Anil Singhal

Yes.

-- have area sets, multiple for uptick prioritization, in solution the higher see an companies especially assurance who think And the half. saw that is service any look project multiple if other . spending and or for the tough. first that's why you I verticals you many at we vendors, the get versus Cybesecurity like when

Operator

closing Q&A any Tony Thank to turn does would I today's for like And over or additional of call This portion to the you. now conclude call. remarks. the

Anthony Piazza

the of call you, That Thank Have very good Thank today. rest day. you us. much all . concludes for operator. for a joining our

Operator

today's Results and Financial concludes XXXX ladies This Fiscal Conference you, Call. Year NetScout's Quarter gentlemen. Second Thank

time. at disconnect may You any

NetScout Systems (NTCT) 2 Nov 232024 Q2 Earnings call transcript