Ladies and gentlemen, thank you for standing by and welcome to NetScout third quarter of fiscal year 2010 operating results conference call. (Operator Instructions). With us today is NetScout’s President and CEO, Mr. Anil Singhal. He is accompanied by NetScout’s Chief Financial Officer, Mr. David Sommers; and NetScout’s Chief Operating Officer, Mr. Michael Szabados. Also with Mr. Singhal is NetScout’s Director of Investor Relations, Ms. Cathy Taylor. At this time, I will turn the call over to Ms. Taylor to provide the opening remarks. Ms. Taylor, please proceed.

Thank you and good afternoon everyone. Welcome to NetScout's third quarter fiscal year 2010 conference call for the period ended December 31st. In terms of the format of this call, Anil will begin with an overview of our financial and operating results and David will then discuss our financial results and company performance in more detail. At the conclusion, Anil, David or Michael will take your questions. Before we begin, however let me remind you that during the course of this conference call, we will be providing you with the discussion of the factors we currently anticipate that may influence our results going forward. Such statements are forward-looking statements made pursuant to the Safe Harbor Provisions of Section 21E of the Securities and Exchange Act, 1934 and other Federal Securities Laws. These forward-looking statements may involve judgment and individual judgments may vary. Forward-looking statements include expressed or implied statements regarding future economic and market conditions. Our guidance for fiscal year 2010 and our new product releases. It should be clearly understood that the projections on which we base our guidance and other forward-looking statements and our perception of the factors influencing those projections are highly likely to change overtime. Although those projections and the factors influencing them will likely change, we will not necessarily inform you when they do. Our company policy is to provide guidance only at certain points in the year such as during the quarterly earnings call. We do not plan to update that guidance otherwise. Actual results may differ materially from what we say today, and no one should assume later in the quarter that the comments we make today are still valid. For the further discussion of the risks and uncertainties that could cause our actual results to differ, see the specific risk and uncertainties discussed in NetScout’s annual report on Form 10-K for the year ended March 31 2009 and subsequent quarterly reports on Form 10-Q on file with the Securities & Exchange Commission. Also in our discussion non-GAAP revenue excludes the effect of purchase accounting adjustments representing the reduction to fair value of Network General’s deferred revenue and non-GAAP net income excludes share-based compensation expenses, amortization of acquired and tangible assets, costs and expense of various acquisition related items and related income tax adjustments. I will now turn the call over to Anil Singhal, our Chief Executive Officer.

Thank you, Cathy. Today we are reporting our third quarter results of fiscal year 2010. This quarter, our results were sequentially strong and consistent with the full year guidance that we first issued in April and then revised last October. Our guidance has been based on the belief that bookings and revenue would accelerate significantly in the second half. In Q3, that happened as we expected. Third quarter GAAP revenues were $70.7 million and non-GAAP revenue were $70.9 million, both up 18% sequentially. Our results reflect seasonality and end of the year budget, plus combined with that we believe is the beginning of an improving economic climate. These factors have affected bookings as expected, except for a slower than anticipated improvement in the general enterprise sector of our business. We are narrowing the range of our full-year revenue guidance today with only one quarter left maintaining the lower end of the range. More importantly our strong booking in the quarter confirm our confidence in our market position and in the long-term growth prospect in all of our vertical markets. We continue to target high teens percentage annual bookings growth going forward. Third quarter bottom-line results were also strong reflecting a discipline focus on expense control to maintain our strong margins and cash flow. GAAP net income for the quarter was $8.5 million, up 21% sequentially with earnings per diluted shares of $0.20. Non-GAAP net income was $10.3 million, up 14% sequentially with earnings per diluted share of $0.25. GAAP operating margin was 20% flat sequentially, non-GAAP operating margin was 24% down one point sequentially. These margins reflect our commitment to invest prudently in growth while continuing to target our long-term non-GAAP operating margin model of 24% to 27%. This strong financial performance has enabled us to raise once again the…

Thank you Anil. Our quarterly results are in our earnings press release financial statements. We report our results on a GAAP basis as well as on a non-GAAP basis. Our non-GAAP results eliminate the GAAP purchase accounting effects of the acquisition of Network General, by [adding] back revenue related to deferred revenue evaluation and removing the cost and expense of various acquisition related items. In addition, we removed the GAAP effects of stock-based compensation which increased significantly as a result of the acquisition. I will give you the specifics about the differences between GAAP and non-GAAP as I discuss our results. These differences are disclosed in a reconciliation table and the financial tables attached to the press release. We believe these adjusted financial measures will enhance your overall understanding of our current financial performance and our prospects for the future. We use these adjusted financial measures internally for the purpose of analyzing, managing and forecasting our business. For the third quarter, GAAP revenue was $70.7 million and non-GAAP revenue was $70.9 million. Non-GAAP revenue excludes $209,000 purchase accounting adjustment to reduce the fair value of the acquired Network General deferred revenue. Product revenue on a GAAP and non-GAAP basis was $40.8 million, GAAP down 5% year-over-year and non-GAAP down 6% year-over-year with both up 33% sequentially. Service revenue on a GAAP basis was $29.9 million, up 3% year-over-year and up3% sequentially. Non-GAAP service revenue was $30.1 million, down 3% year-over-year and up 2% sequentially. GAAP income from operations was $13.8 million. GAAP operating margin was 20%. GAAP net income for the quarter was $8.5 million yielding an earnings per diluted share of $0.20. GAAP net-after-tax margin was 12%. Non-GAAP income from operations was $16.7 million and operating margin was 24%. The following items totaling $2.9 million are adjustments to arrive…

(Operator instruction). Your first question comes from the line of Alex Kurtz , Merriman & Co. Your line is open. Alex Kurtz - Merriman & Co: David, can you just give us a little more color on why these maintenance renewals were signed so late in the quarter and caused the hockey stick in the DSO?

Well, we often have a closing rush at the end of any quarter. This one was as the business improved during the quarter, a little stronger we had one large multi-year maintenance renewal that came in close to the end of the quarter and that could have come in three weeks earlier and then it would have less impact, but nothing more dramatic than that, we often see a hockey stick. The issue with renewals as you probably appreciate is with renewals there are maintenance renewals, there is almost always never any revenue to offset the receivable. When you have DSO, so revenue doesn’t go up, but the receivable does. DSO measuring maintenance renewals is therefore, a little bit not the best measure of financials. Our receivables balance is better than ever before. Our ageing is extremely strong. There is nothing in the DSO related to collection problems. We don't have any collection problems. Alex Kurtz - Merriman & Co: Okay. I’ll just shift real quick and I'll pass it along. The enterprise vertical if you exclude sort of the core verticals that you report were up pretty strong quarter-over-quarter from a bookings perspective, David, what was the vertical that was the weak one that you sort of looked at and said you know what that one we're not seeing as much strength and thus we need to take our top end of our guidance down a bit.

Well, it wasn’t that way. The weakest vertical in terms of sequential growth in the quarter was the government vertical and that's due to seasonality. The issue with the top-end of the guidance was that we've not seen in the general enterprise yet, the pickup that we had expected we might see. We are starting to see it in carriers and financials, and we're having strong business in the federal government, just seasonally weak in the December quarter. It's the general enterprise, now we're seeing spotty pickup in the enterprise, but not across the board yet and we had in our earlier guidance anticipated that by now we would start to see more of a pickup there, and it's clearly been delayed from what we had expected. So that, it's really the general enterprise outside of the three major verticals that we discussed. Alex Kurtz - Merriman & Co: Okay and last question. I think you just mentioned a very large wireless provider that you guys had signed in the quarter. Was that really a new installation for you guys? Had you had a small footprint there and if you could maybe talk about who you displaced and why?

Well I think first of all, instead of saying who we displaced, I’d like to just mention that we compete with companies like Tektronix, Agilent and Radcom in the US and we didn’t replace (inaudible) necessarily, but we won against one of these players and it was a distinct account. We had done business with them, but this was for a new project.

So we've had a footprint in that company on the IT side of [substance] and a smaller equipment historically on the customer facing side. So this is a significant new step for us. Alex Kurtz - Merriman & Co: This is an expansion into their wireless network management tools?

Yes, yes correct.

Your next question comes from the line of Jonathan Ruykhaver from ThinkEquity. Your line is open.

Hey, David, is there anyway for you to quantify the actual dollar amount of these multi-year maintenance contracts that are in the receivable number for the quarter?

There is about $4 million of additional bookings, deferred revenue in the quarter and in the DSO that wouldn’t be there without the multi-year.

Just looking into the March quarters, should we expect the DSO to turn back into the 40 to 50 day range or you expect the continuation of these multi-year renewals to potentially keep that number higher than your target range?

We expect it to trend back I mean we do expect multi-year renewals to become more of a factor for us in the future but we don’t expect that to drive to keep DSO up in the 70 day range. We expect to collect that cash and see a significant increase in our cash as the AR comes down.

Second question I think Anil you commented with a comfort around high teens revenue growth I think you said in 2011 I just want to get a clarification does that assume that the impact to impaired revenue from the adoption of the new accounting standard is incorporated into that statement I assume it is.

David you want to go? No it doesn’t include that it's not because of that but David will add something.

So no on our high teens long-term revenue growth target assumes everything’s in balance meaning we have worked through this accounting change which will happen in fiscal '11 will just be starting to work through with them. So no, and its not the high teens growth isn’t until we give guidance in April is not a fiscal 2010 revenue target either or bookings target. So but to your specific question no it does not take into account any short-term transition effect of this new revenue accounting adoption.

But the more important number when this transition occurs is going to be the bookings growth number and I guess what you are suggesting is that you look into 2011 the bookings number on its own should be closer to high teens type of growth rate is that right?

No again we are not giving guidance for 2011 here today but our long-term growth target for bookings is in the high teens. And bookings will be a better measure going through this accounting transition.

I am just curious given the comment you made on the enterprise side of the business. What is the company’s view on application performance management and the importance of capabilities around monitoring in analytics on the server and system side? I think you have alluded to some initiatives at you user conference that the new K2 nGenius service monitor. But how important is that capability to NetScout is looking to broaden your penetration at the enterprise?

I think its becoming more and more important both in the enterprise and the service provider sector and we feel that we have the best application and business intelligence data available through our packet flow technology but all the value had not necessarily been delivered to all the customers and K2 allows us to do that and we think that’s going to have a major impact on our growth and potential and penetration in the account.

Or is it the need for the specific business level analytics that a user would value taken data and generated as that with K2 and that service monitor platform?

Yes for example I mean it depends and we talk about enterprise as a general vertical but inside the enterprise there are other verticals which are application focus for example Oracle, Microsoft Exchange and each of these people can benefit from what we are doing application centric analytics and monitoring we are doing in the K2 product.

Okay good and then just final quick question the new nGenius Virtual Agent is that product driving any business yet you see opportunities around them?

I think if we give those more account control it’s not going to have a big dollar impact on the revenue but it allows us to provide a complete solution and allow us to sell our InfiniStream product once we have that penetration.

Right, and I assume that is important in terms of your strategy to more broadly penetrate the enterprise in particular?

Yeah. That's right.

Your next question comes from the line of Mark Kelleher from Brigantine Advisors. Your line is open.

Just want to go back to the carrier win, is there a way you could size out in terms of what the ramp would look like going forward and was there any incremental revenue from that win in the December quarter?

Well, the ramp is hard to size. Certainly this carrier is investing heavily in the area in which we're participating and we expect there to be those certainly potential of multiple times what we've done where obviously we have to perform and you have to be satisfied with what we do. We think that will happen. And in terms of the quarter, it was a multi-million dollar booking in the quarter and about half of that revenue was recognized in the (inaudible); half of the booking was recognized as revenue in the quarter.

Okay. And how about Cisco, can you give us an update on how you perceive that relationship going?

I think we see a more longer term impact both on the revenue and account control in the short-term and longer term impact on the revenue, and we are just at the beginning stages of this, as we talked about we'll be making some announcements this quarter about the first thing which we are doing with them beyond what we have already announced with the Sniffer Global products. So we think again this increases our visibility into account, gives us account control, provides a broader solution to the customer from a single vendor, but short-term, the revenue impact will be minimal.

Your next question comes from the line of Eric Martinuzzi from Craig-Hallum. Your line is open.

Thanks and congratulations on the solid execution. That was a significant step up there on the product sales. The 3G versus 4G, obviously wireless spending up significantly for you guys. What, is this all pretty much still 3G or is there any next-gen spending that's going on, LTE spending going on?

The next-gen stuff is in the lab. So we are beginning to get some requirements about that but yes, most of it is 3G stuff right now.

Okay. The sales and marketing as a percent of revenue, that’s definitely higher than I had modeled for. Was there anything in the sales and marketing line this quarter that was an anomaly?

We did have some additional sales incentives in the quarter. As we looked at the beginning of the quarter, we say we got lots of opportunity, let’s make sure it happens and so we put some additional sales incentives that grow that up. You shouldn’t expect to see that same level of sales incentive going forward as you look in our, at our Q4, end of our fiscal year. We have natural incentives built into our end-of-year sales attainment. So that was something of an anomaly, yes.

Then just to dive a little bit deeper on the Cisco relationship, I'm wondering, I understand the borderless networks initiative. I understand the next generation integrated services router. How does this actually get implemented as a customer. Do they have to rollout new ISRs across their wide area networks for NetScout to benefit and then how are you going about training Cisco VARs on this product?

Well first of all on the ISRs, they have to have the right hardware in the ISR in order to run our agent and so many of the ISRs are already capable of that, it has already been sold with that hardware. So, in that case it will just be a simple software upgrade, upper agent and which will be managed through our centralized performance manager and we are going to have and it’s too early for that, but we will have some training programs for the VARs and Cisco sales people for collaboration and other reasons.

But if I’m a Cisco VAR, how do I benefit from this?

Well, I think if you are just at Cisco VAR, they are not going to get paid any commissions on this, but the way they have benefited that there is yet another reason for people to buy that additional hardware because it’s capable of running our technology. So, they will get to sell -- this is assuming that they have not sold before -- people have lot of branches and not every branch is equipped with that hardware and it depends on what application are able to run on that hardware besides how many people are going to buy that hardware [blade]. So, I think in the long run it will increase the sales of that hardware option on these ISRs which will benefit the VARs.

Okay. And last question on the guidance. If I look at the midpoint at $71.5 million non-GAAP revenue for Q4, that’s you just posted a quarter roughly $71 million, the mix there was about a little over $40 million, almost $41 million on the product. Should we expect a similar revenue mix for Q4?

Well our service revenue changes slowly, so that’s a reasonable expectation, product revenue had some and service revenue had to be about in the same range.

Your next question comes from the line of Scott Zeller from Needham & Co. Your line is open Scott Zeller - Needham & Co: Regarding the changes that are coming with revenue recognition, the commentary around how it would impact product hardware revenue versus the software appliance revenue, could you tell us a little bit more about that because my impression is that nearly everything you sell, every box has software as a component, so how much of the I guess the real question is how much of the product line is going to be impacted by the change throughout it?

Scott, we are still working through the details of this, but as we see it now, talk with our auditors at some length about this, our hardware products likely InfiniStream products and the Probe products and our collective products, although they have software embedded in them because we don’t sell the software separately it’s all an integral part of the product, they will fall under the new rules which make it easier to recognize revenue as upfront as if the sale were completed. You don’t have to go through all of the DSO demonstration with those products. With the software products like the K2 and PM that we sell separately from hardware. We can sell it within the hardware appliance, but that’s not necessary, those will still fall under 97-2. And so there will be no change for those, but without again going into all the details that we'll discuss it more length next time. We believe that because of the changed for our hardware products, as we do bundled sales, we may well lose of maintenance renewal. We may well lose VSOE under 97-2 for the software products. And it's an anticipation of that we would expect that our software products may lose upfront revenue recognition and have to go to ratable.

But that we should mention that's a small portion of our total.

Yeah. Between 10% and 15% of our total revenue is software. So, we haven’t completely sized the impact yet, but we don't expect it to be and we will show you both accounting approaches, so you will be able to track as if we hadn’t made the change as well and see the effect of the change. Scott Zeller - Needham & Co: Okay, so it sounds like the bottom-line here is that somewhere around 10% to 15% of total products, has a rough estimate would have some impact.

Yes. And of course, when we change the ratable, the revenue comes back over the period, which is typically a year, so once we been through fourth quarters of that, we'll be back to about the same levels that we would expect it otherwise. Scott Zeller - Needham & Co: Yeah.

It's just during that four year phase, four quarter phase in time that will see a dip in revenue and the associated EPS, but again we will report both, so you can help. Scott Zeller - Needham & Co: Could you offer some color around the pipeline when we meet for Analyst Day that was pretty positive commentary around the wireless pipeline, and we felt some good activity in the quarter, but how would you characterize that now. I'm looking forward to that, the pipeline.

We think our wireless pipeline is strengthening and is strong as we see it today. We expect a lot more of wireless business around the globe and we're adding sales resources in new countries as well as solidifying our position with wireless carriers in the geographies we already have good positions in principally in North America and Europe. We're also getting traction with a number of carriers in Asia that will, they're not ready to, we haven’t seen results from yet but we expect good traction there. So we're getting traction with wireless carriers around the world. Scott Zeller - Needham & Co: And the enterprise side, there has been some color from you around how that continues to be slower to recover when you look beyond financials for instance. How would you characterize the pipeline though for the traditional enterprise buyer? Would you say that there is pipeline but the orders have not yet converted? Are you getting a sense of pent up demand?

I can't say we see that in the pipeline yet, for the enterprise. There is clearly pent up demand but it's not manifest yet in our pipeline. Most of our pipeline growth is coming from the other verticals which is why as I mentioned earlier we took down the top end of the guidance for the balance of this year. Scott Zeller - Needham & Co: Okay. Thank you.

Your next question comes from the line of Rohit Chopra from Wedbush Securities. Your line is open.

David can you provide us an update on HP?

I think there is, we continue to work with them on embedding some of our software technology and just like we are similar to what we are doing with Cisco but there is no new development since the last time we talked about it.

And then on the wireless side I wanted to come back to that issue just one more time. Were there any new customer signed or are these all existing customers' wireless telecoms?

Well the big orders that drove our business as always happens are from customers with whom we have a relationship of some sort. The new one that we spoke of was really a big new penetration into the core of their customer facing network but the five big deals that we discussed before others were all from existing customers. So when we talk about the penetration that I spoke of in the market and the pipeline build and getting traction in new areas. The order flow from those new areas is always a slow ramp but obviously it's important because it is our future.

And then were there any in Europe and of these carriers?

Yes U.S. or North American.

Yes we had good order flow from Europe as well they were not all U.S.

Okay and then one last question here I think at a recent conference you talked about acquisitions and you have a lot of new products coming out. I think some have been released and there is a few more on the way. What area is actually missing at NetScout? May be Anil can take this question.

I think that I would say that I mean most of the areas we are working very hard, but we might still do some things to accelerate our business, as an example for the service provider side we have been focusing more on the data services, but there are opportunities in the voice area and so we might look into some companies in that area.

And your next question comes from line of Gabe Lowy from Noble Research. Your line is open.

A few questions from me, first just house keeping. David, I don’t know if you mentioned what cash flow from operations were and if you have the D&A and CapEx along with that?

Yes, cash from operations was $10.1 million. CapEx was 1.5, depreciation and amortization 3.7.

Second if you can talk a little about the competitive environment, not only within the three core verticals who you are seeing, if there is any changes in who you are seeing, but also out in the broader enterprise and if there’s been any impact on your take on market shares beyond CA’s acquisition of NetQoS?

Yes, there is no significant change in the competitive landscape. I mentioned already that we compete with two big players Tektronix and in the service provider area and the wireless service provider segment we compete with the two big vendors Tektronix and Agilent and as well as some regional players in Europe like Radcom and Nexus and we feel that we're gaining market share there. We lived practically zero a few years ago in that segment, and now we have a significant revenue and bookings from that area, which we might share with you at the end of the calendar year, you will be able to add up and see how we're gaining market share. On the enterprise side, there are a lot of small players and you are right, NetQoS was one of them, and there is a company called Network Instrument, there is company called [Offnet] and so there are several smaller players and yes, we see some competition. We lose some deals to them, but overall I think we're doing quite well, not necessarily gaining market share, but not losing either.

As you spend particularly behind building out your sales presence in some of the new markets, are we looking at a period of maybe flattening operating margin, I mean still sort of maybe at the bottom end of the target range or are you willing to give up a point or two here and there to try and build out that market presence.

Gabe, it's our intent, we’ve tried to indicate, it's our intent to invest now to capture the opportunities we see in front of those that are growing, presenting now and growing and there will be a window to go capture them, but to maintain our focus on the operating margin range, so you should expect us to be prudent about and resistant to giving up operating margin from where we are. I don't mean to imply there that we won't if we see a significant opportunity to go do something that we think is worth it, that we won't go, do that, but we will come and explain to you what we've done.

Okay, and then lastly you're still working through the ramifications of the accounting changes that are coming and you can't see that well but a question related to that. Would this be a time to also consider offering the product or a combination of product and service in a fast based solution and do you think there is a market for that?

Software to service.

Well I think yes. We have seen back in the past, we feel that our product is sophisticated and I think complex enough that we don’t see software as a service. I mean, those things work very well with pure software products like conquered. They are taking advantage of the existing instrumentation in the network. That means they'll go to the servers or routers or switches and collect information from them and those are easy to put in terms of software as a service but since we sell a appliance that David talked about InfiniStream is 90% of our sales. That’s very hard to sell a software as a service and plus there are some technical issues in terms of whether people can deal with that. So we don’t expect our solution to be, you should think of our solution partly as like a CISCO router and the router has not been, in most cases not been sold as a service, software as a service and similar to that is a solution for that.

Okay, thanks, that’s it for me.

Thank you Gabe.

(Operator Instructions) The next question comes from the line of Alex Kurtz from Merriman & Company. Your line is open. Alex Kurtz - Merriman & Company: Hey guys, just a quick follow-up on sorry if you already covered this David but could you just talk about the gross margin on the product and service side and you have seen some variability quarter-to-quarter all through this fiscal year. Can you just give us a sense of where you see that heading on either line?

We expect that the gross margins will stay within our target range, we are about at 80% non-GAAP today, we were about 80% a quarter ago and 81% a quarter before that and all of those numbers are above where we were last year. So generally we believe the trend is cost improvements is working in our favor. And we expect to be in the 78% to 81% target range going forward. It hasn’t been a great deal of variability, we have seen the modest slide down this year on some lighter volumes initially and more recently a little impact of discounting that we mentioned with very large deals in the December quarter. But we don’t expect that to be a major impact going forward. Alex Kurtz - Merriman & Company: Okay, thank you.

You bet.

There are no further questions at this time.

Well, thank you very much for joining us and for a very robust set of questions this time around. We appreciate that, thanks for your interest, we will plan to see you in 90 or so days at our April earnings call. Have a good evening.

This concludes today’s conference call. You may now disconnect.