Ladies and gentlemen, thank you for standing by and welcome to NetScout's Fourth Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given to you at that time. As a reminder, this conference 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.

Thank you very much, Derrick, and good morning everyone. Welcome to NetScout’s fiscal 2015 fourth quarter and fiscal year end 2015 conference call for the period ended March 31, 2015. Joining me on this morning’s call are: Anil Singhal, NetScout’s Co-Founder, President and CEO; Michael Szabados, NetScout’s Chief Operating Officer; and Jean Bua, NetScout’s Senior Vice President And Chief Financial Officer. We have included a slide presentation of key financial data that accompanies the financial section of our prepared remarks. For those listeners who have dialed into the call this morning and would like to view this presentation, you can find it by going to our website at www.netscout.com/investors and then clicking on today’s webcast. You can advance the slides in the webcast viewer to follow along with our commentary. We will try to remember to call out the slide number we are on when we are referencing in our remarks. In terms of our agenda for today’s call, Anil Singhal will first provide an update on our previously announced plans to acquire Danaher’s communications business, and then he’ll share his perspective on our performance, and the key drivers behind it. Our COO Michael Szabados will provide perspective on Engage, our annual user forum, and other timely marketing activity. CFO Jean Bua will then provide additional insight into the financial performance as well as review our guidance. Before we begin with our prepared remarks, I’d like to direct your attention to slide number three. NetScout’s Registration Statement on Form S-4, Preliminary Proxy Statement on Schedule 14A and other documents concerning the proposed acquisition have been filed with the Securities and Exchange Commission. Investors are urged to read the S-4 Registration Statement and Proxy Statement, along with other relevant documents filed with the SEC, when they become available because they will…

Thank you, Andy. This is a very exciting time at NetScout. We once again delivered a strong financial performance in fiscal year 2015. And, as you may be aware, we passed one of the major milestone toward completing our acquisition of Danaher’s communications business when we announced last week that the Department of Justice has unconditionally cleared the transaction. While I plan to spend some time talking about our overall performance and key trends in fiscal year 2015, I would like to first focus on our future, as we start our new fiscal year 2016. More specifically, I’d like to discuss our continued belief in the strength of the combined company and our plans to successfully complete this transformative transaction. We believe the future for NetScout is very bright and we are pleased with the progress we have made to advance NetScout’s strategy. We are focused on providing customers with best-in-class service and user experience assurance solutions that maximize their returns while minimizing the risk as they implement newer and increasingly complex technology infrastructures. We believe that our plans to acquire Danaher’s communications business will help us accelerate our strategy execution by further strengthening our product portfolio and market reach to better capitalize on a range of attractive growth opportunities worldwide made possible by the confluence of IP convergence. I’d like to provide a brief update on our progress on this front. We announced last week that we received clearance from the Department of Justice to proceed with the acquisition without conditions. We are very pleased to have achieved this important milestone. We’ve scheduled a special meeting of the stockholders on June 25 for stockholders of record as of May 1, to approve the issuance of $62.5 million shares in connection with the acquisition. We have received positive feedback from…

Thank you, Anil. We continue to see our customers across our service provider, enterprise and government verticals drive significant return on their technology investments using NetScout’s solutions. Nowhere is this more evident than our annual Engage user forum. Our most recent Engage event was held earlier this month in National Harbor, Maryland, and it was the most successful one that we’ve staged to date. The show attracted nearly 500 attendees who represented approximately 250 customer and partner organizations. Overall attendance was up 30% compared to last year, with strong representation across our three major verticals. Customer feedback from the show was resoundingly enthusiastic and reflected broad adoption of the next generation workflows and solutions enabled by the nGeniusONE and ASI next generation technology platform we launched a little over a year ago. This, in turn, has opened the door for more innovation, greater efficiency, and increased value delivered to the business. One of the highlights from Engage was a keynote from a senior leader at a leading multibillion dollar provider of IT consulting and outsourcing services. Our solutions are critical to delivering robust, high-performance, scalable and resilient network and data center services to this customer at the same time as we assist in reducing operating expenses and capital investments. By providing this customer with a single pane of glass that offers visibility into and across dozens of their data centers dispersed around the world, we’re helping them reduce their mean time to information, preventing or quickly resolving problems if they arise. We are well positioned to expand our position with this vendor and others like it as the trends toward mobility, cloud computing, security, and big data accelerate. Engage is valuable to our customers because it helps them be more proficient, and therefore more impactful, to their business. At this…

Thank you, Michael, and good morning, everyone. This morning, I will plan to review key fiscal year 2015 metrics for both the fourth quarter and full year, and then I will discuss our guidance for the upcoming fiscal year. As mentioned at the outset, we will be referencing non-GAAP metrics when appropriate, and comparing all figures against the comparable prior year period unless otherwise noted. To begin our financial discussion, we will be starting with slide number eight of our presentation, which is accompanying our call and is posted on our website. For our fourth fiscal quarter, total revenue was $119.4 million, which is an increase of 6% from the same quarter in fiscal year 2014. Our product revenue was $74.1 million, which is a 5% increase over the same quarter in fiscal year 2014. As Anil mentioned, we experienced delays in purchasing with some of our international customers as they were impacted by the strengthening of the U.S. dollar against the euro and certain Latin America currencies. Some of these orders have already been received in the first weeks of fiscal year 2016 while others remain under negotiation. Service revenue was $45.3 million, which is an 8% increase. Additionally, for the fourth quarter, we reported non-GAAP earnings per diluted share of $0.67 cents, which is a 40% increase from the same quarter in the prior year. As we have driven innovation and benefited from the strategic investments we have made including nGeniusONE, unified communications, and packet flow switches, our scalable operating model has supported a strong EPS performance. We believe that this performance will be repeated over the next five-year period following our acquisition of the Danaher Communications Business. Turning to slide nine, we again achieved our quarterly results while delivering exceptionally strong margins that far exceeded our long-term…

Operator, if you can begin the Q&A process please. Thank you.

[Operator Instructions] Your first question comes from the line of Mark Kelleher with DA Davidson.

Great. Thanks for taking the questions. Just on the operating leverage, that's pretty impressive for the quarter. Was there – I think you mentioned some staging, or product launches, or something in there. Just what's sustainable – how much of that is sustainable as we go into Q1 and how much was kind of end of year affects?

So the operating margin was affected by, as we said in our comments, some just delays in our go to market activities. Right now, if you looked at what we would likely to be spending at $454 million, even a $# million increase in that would only be about 1%. So the majority of the delays were less than 1% on the operating margin and the operating margin that we reported of 29.5% for the year really reflects the scalability of our business. Going forward, we have some activities in Q1 that are already planned for sales and marketing. And then as we had mentioned, we will look at the combined business and figure out what marketing levels and what sales activities and programs make sense in the combined entity to further excite and interest customers and potential customers in the new NetScout.

Okay. And as just a follow-up to that comment about new products coming out, you mentioned there was – there might be a pause – you mentioned the consideration in your guidance that there might be a pause of your service provider customers as they anticipate these new offerings. Is that something you’ve gotten feedback from or is that just something you’re thinking might happen?

First of all, there were two separate events that you're talking about. The new product is a new release of the nGeniusONE product in the ASI that we announced last week and started shipping. And so that has nothing to do with the first. I think what Jean was talking about is we have some common customers and they are waiting for some integration roadmap between the – in the service provider customer base before they might make other decisions. So this is very common in these kind of acquisitions. So we are not sure whether that's going to happen to share this information directly with us, but it's possible that some of it may push into the future quarters.

Anil has talked to many of our customers and they're very excited about the possibilities of getting the combined product of the strength that Danaher brings to their technology, mostly in the control plane, and the strength that NetScout brings to the customers in the user and data plane. So our customers, our large scalable, service provider customers will get the benefits of both combinations going forward. And they're probably looking at how best to integrate that into their network builds, which is just gives us a note to mention that for our Q1 revenue guidance.

Okay, great. Thanks.

Your next question comes from the line of Scott Zeller with Needham.

Hi, good morning, thank you. And just building on Mark's question previously, is there or has there been commentary on when you plan to offer a combined single product set? I thought I remember hearing that they may be sold separately for some time going forward. Could you just clarify what the timeframe may be to actually combine the product sets?

So I think it's not a combined product. It's basically how the products work together. It will be about six to nine months from the day of the closing, where we'll start seeing some of the things. There will be some integration with Tektronix, some with Arbor and many other things we are discussing, some of which we don't have liberty to actually talk to the other side or to discuss at this time. But people are not necessarily waiting for the combined product. They want to know what the vision looks like. So they're not going to wait for too long to wait for the combined product. They just want to know what the NetScout vision is. And that's just a hunch right now, Scott. We don't know whether – we just want to be extra careful because these kind of interruptions happen when we acquired Network General for example in the past. And so that's why – but this is a short blip, we think and we – so people are not necessarily waiting for the combined product. They are waiting for the combined vision and what we are going to do with the combined assets. Some of them are Tek customers. Some of them are NetScout customers.

And Jean and Anil, could you please comment on growth expectations for the combined entity, understanding that you're not offering guidance. But could you please comment on the recent proxy materials and your mention today of 10% long-term CAGR top line and what we see on the proxies, just to maybe set broad expectations for near term versus long-term.

So I think we – in the proxy, maybe this is maybe slightly different, maybe off by one or two points. But overall, we have talked about the in the proxy, starting with the $1.2 billion base and today, we mentioned that we are comfortable in that 10% range. But we aren't starting after the first full year. So we'll be sharing more details as we move along, Scott, when we do the analyst day and when we announce our earnings in July. At that time, we can be much more clear about exactly how to answer your question.

Thank you very much.

Just as a refresh, in the projections that we put in, in the proxy on a five-year projection basis, we anticipate compounded annual revenue growth of 10% in the combined entities. And as Anil said, that will be on a $1.2 billion plus base. So by the time we complete the end of our five-year strategy period, we should be close to, if not a $2 billion revenue company. With that said, as you know, we have a lot of scale and we run a very prudent investment policies and conservative cost structure. To that end, we will continue to generate operating margins through leverage and we will increase earnings per share growth over that time period. The model right now calls for our operating targets to be in the 26% to greater than 30% range. And if you look at our last five-year history, we achieved our internal operating target of 27% a full year earlier than we had done – than we had anticipated. And then we've also, in this proxy, reflected on some tax strategies that we may be able to implement that will also further help the earnings per share growth and the cash flow.

Thank you.

Your next question comes from the line of Eric Martinuzzi with Lake Street Capital.

I'd like to ask about the FX impact, both for the quarter and the guide. I know in the past you've talked about you're selling a dollar denominated product. But was there a material impact in Q1, I mean just on the – I know there was delays due to – but just the FX impact in Q4 and then as well on the Q1 guide?

I think as you – as Jean mentioned and maybe Jean has additional comments, it was a very marginal impact and more prominent in the last quarter, and especially after we gave the upgraded guidance and so that put us slightly below the midpoint of the revised guidance. So I don't think it was a major of our international business is not as big as some of the other companies who are seeing a bigger impact. So we had a very small impact, like – Jean anything else you would like to…

Sure. Just for context, Eric, when you look at the fourth quarter calendar year and the first quarter calendar year of fiscal – of FY – I'm sorry of 2015, the three currencies that mainly impacted our customers were the euro, the peso, and the real in Brazil. The euro dropped at least 15% and 10% of that dropped in the last quarter – in our last fiscal quarter. The real dropped about 24% and close – a little less than 20% of that happened in the last quarter. So the FX affect that we're talking about is what we had seen is these customers that operate in Europe or in Brazil have been facing these economic squeezes in their own capital structure and have decided to delay purchasing. We saw a little bit of it in Q3 but in Q4, we really were impacted much more by it. By my calculations, if you'd looked at where the international percentage came out and where it would normally be at around 25%, it would probably be an impact just of an estimate of anywhere between $5 million to $15 million in our top line. And so again, we do sell in U.S. dollars 99% of it. So it is the fact that our customers experienced this. We also have operations in foreign currencies and we had about $1 million hit to our operating cost, reflecting the strengthening of the U.S. dollar also.

Okay, and then if I could one more. You did have strength in North America. Obviously, you've got a great footprint there and there's budget there, unimpacted by FX. Was this attributed more to a geographic rollout by your existing customers, or is this new product going into existing GOs?

Yeah, it's mostly existing customers with capacity upgrades. So traffic rates are increasing dramatically every year and they needed to buy existing capacity of the existing deployment. There were some new deployment related to voice-over-IP, so it's a combination of those two.

Okay, thank you.

Your next question comes from the line of Kevin Liu with B Riley and Company.

Hey, good morning. Just wanted to ask about kind of your service provider expectations for the year. I know you guys aren't giving specific guidance right now, but just at a high level given the strength you saw in the fourth quarter and the conversations you might be having with customers now, I’m curious as to whether you would have expected NetScout on a standalone basis to kind of continue that strong growth trajectory with service providers over the course of fiscal 2015?

Yes, we had talked about it, Kevin, in the past in the standalone basis as well as the contribution of NetScout in the combined company that Jean talked about. We continue to believe that contribution would be at the 20% or higher range as it has been for the last couple of years.

Okay. And so really kind of going back to Q4, it looked like enterprise was the area that came in a little bit softer. I think you guys mentioned most of that was related to kind of foreign customers, but did you see any softness within North America and what's your expectation for kind of overall enterprise growth over the coming year?

Yeah, the softness in enterprise was related to financial customers and their spending even in the US and it was not directly related to foreign exchange issues that Jean was talking about. That was mainly impacted the large service provider customers. So the softness in the enterprise was more related to slower traction than we anticipated of nGeniusONE. And I just wanted to mention that in order for us to really sell nGeniusONE, that one is for people to upgrade to the new nGeniusONE software and then buy additional capacity and additional deployment. So that first part is mostly done now and that's why we are feeling much better about next year in the enterprise.

Got it. Thank you.

Next question, operator.

Your next question comes from the line of Chad Bennett with Craig Hallum.

Good morning. Thanks for taking my questions. So I'm just trying to dig in a little bit into what I think you're trying to convey on the operating leverage side. You're clearly – I mean you did phenomenal this quarter and for the year it was above expectations. And you talk about being ahead of your five-year target there. So should we think about operating margin kind of a base case looking out this year, excluding any benefit from Danaher of like – should 30% be kind of the base case going forward and then when we layer on the Danaher business, obviously you believe there's some operating leverage with scale there, and overlap, and so forth. So I'm just trying to read what you're trying to convey on the operating leverage side. It seems very bullish and it seems like we're kind of on another level here. Any comments there?

Sure, Chad. So we did 29.5% this year and as we had mentioned in previous quarters, we had transitioned our marketing efforts and our marketing staff in the summertime of last year. And they were ramping, and getting new – and we also decided that we wanted to look at our marketing efforts and our activities and decide upon a campaign that truly captured the essence of NetScout and what its customers are doing for the interconnected world. And as such, some of our marketing efforts and spend were delayed. We're very excited about the marketing campaign going forward and we think probably in a combined basis, as well as a standalone basis, we would invest a little more heavily in marketing and some of the associated programs and activities that the sales force do also. With that said, with roughly $450 million of revenue, we could invest anywhere from $5 million to say $10 million more and still have operating leverage at the 27%, 28%. So I guess as we go forward and we delve more into the details that we have with the combined entity, we'll be able to give you a better viewpoint of the operating margin of the companies going forward.

Okay, but it's fair to say, which I think is fairly transparent in the proxy that the combined transaction you expect material operating leverage post the first year.

Yes, we do. We have always focused on operating leverage and earnings per share growth, and we will continue that perspective as we go forward after the Danaher transaction.

Okay, and then second question, probably for Anil. Anil, despite the kind of enterprise weakness in the quarter, can you talk about the traction you're seeing with nGeniusONE and kind of the penetration into the APM side of the market, if you will?

Yes, so Chad, so penetration is defined as maybe two, three aspects of that. I think the biggest one was as we shared with the – all of you more than a year ago, the way we are bringing on the nGeniusONE and the ASI technology to market is a free upgrade to existing customers who are on our support contracts. It's sort of one like what you see in the APM or rest of the industry. And that has a benefit of increasing renewal rates. As Jean talked about, we continue to have very high renewal rates and revenue shown partly by deferred revenue and customer loyalty, and attendance at user forum. But it does have the effect of delaying some of the spending on additional capacity. So we feel that we are almost done with all – practically all customers, now upgraded to nGeniusONE. And now, we expect that we'll see traction on them buying additional products, deploying our products in more places as they are getting – they already are getting a great experience from nGeniusONE on where it is deployed today.

Okay. All right. Thanks.

Hi, Chad. And just to add on, when you look at nGeniusONE and traction, and you look at some of the growth rates, as we talked about in our comments, government is also going to nGeniusONE. When you combine the growth in enterprise and government together, it is close to 10% that we have been hoping that nGeniusONE would drive. The other enterprises that we had talked about, some of the other sectors under the enterprise category grew in double-digits as a result of nGeniusONE traction. And the only area that they are still in deployment phase and moving over is the financials. And as we had talked about, they have been very focused on government and regulation, and compliance in that area as well as cybersecurity. So in this spending environment, hopefully with our acquisition we'll be able to see long-term traction in cybersecurity within the financials and enterprises going forward. And also, the financials as they move towards data consolidation, similar to what the government did, we'll see the value of nGeniusONE and be able to use that to provide visibility and information to senior leaderships, and manage applications, and also measure user experience.

Okay, got it. I appreciate the color. Thanks.

Thank you.

Operator, I think we have time for one more question.

Yes, sir. Your next question comes from the line of Jonathan Ruykhaver with Stephens.

Yes, good morning.

Good morning.

It was discussed in the most recent proxy filing, the initial projections from both Danaher and NetScout for the Tektronix business has proven to be too high and I'm wondering, Anil, if you could just talk about the weakness in the Tektronix business in more detail. I believe this last week, Danaher management, when they reported the March quarter commented that that business should accelerate, re-accelerate its growth in fiscal 2015. But maybe you can help us understand what has to happen for that business to grow again and what gives you the confidence that will happen?

Well, first thing is that we have a combination of incrementally of Tektronix accounts – at the Tektronix in major accounts. And some integration ideas we have with nGeniusONE and leading the NetScout growth strategy on both the service provider, enterprise customer is that combination is what's going to make a difference and that's why we feel bullish about the prospects of the combined company despite some recent challenges they have had in the Tektronix business, which was also reported. But the book to bill ratio have been quite good. Things have been turning around and we are feeling quite good about better traction for the – even the standalone Tek business or Danaher communications business in this calendar year 2015. And so far, none – we have not we have not seen any big surprises from the time when we decided to do this deal almost a year ago when we started talking to them. So we feel comfortable. It's not one thing, but a combination of things. Like I said, NetScout's strategy, ASI technology, Tektronix install base, and access to large accounts and additional features in the area of RAN monitoring and business analytics is what is providing us this confidence that we'll continue to do better moving forward.

Okay. So obviously the longer term synergies around product integration is positive, but I think you're saying that you see the business getting better even without that happening because I don't think that product integration happens in 2015. It's probably 2016, correct?

Yeah, that’s right.

Yeah, hi Jonathan. This is Jean. Danaher is strategically moving into other areas. So this piece of their business was not as strategic to them. With our strategy and our vision, we know we can turn that around. And their slight decrease in revenue in their latest projections, their latest registration statement versus the projection really is just a reflection of an order to one of their largest service providers that shipped a little later in the quarter and they delayed revenue recognition on it.

Okay. And they also disclosed that the operating profit margin for that – for those assets in the March quarter declined simultaneous with the revenue declines. So you would expect those margins to get better as that business begins to grow at a more healthy rate?

Yeah, and that revenue recognition delay that we talked about was – had a very large operating profit margin on it. So that also impacted their operating profit. So it's just really a delay in the timing of revenue recognition from their – from our projection to what they actually filed for their year-end statement.

Okay. And then last question I have is just, you've talked about 5% cost synergies coming out of cost of goods, but what about around OpEx synergies? It seems like there would be operational efficiencies across your go to market strategy in G&A. Is that an opportunity as well?

It is an opportunity and a little bit of those – of the $45 million to $55 million in operating synergies will comes from the overhead cost structure. As we had talked about before, it's a very good time for these businesses to come together. There's very little product overlap and very little customer overlap. With that said, we will look at our go to market activities related to service provider and determine what we want to do going forward. These are also operating companies. They don't come with any low hanging fruit like corporate overhead where there are redundant functions that you can just cut. So we look at it as the investment that we're making in FY 2016 in people and in infrastructure will probably carry us a long way through the next five year period. So we see that the investments are going to be made more up front and we won't need to add to them in the second, third, fourth, and fifth year to any material degree.

Right. Okay, good. Thank you.

Well, I think that concludes our call for today operator. I’d like to thank everybody for joining this morning, we know it’s a busy morning for everyone. We look forward to connecting with you throughout the next couple of months at various conferences, through calls, through meetings, and certainly will keep you apprised of your performance when we announce Q# in July. So thank you all very much.

Thank you for your participation in today’s conference call. You may now disconnect.