Good day, ladies and gentlemen. Thank you for standing by, and welcome to NETSCOUT’s Third Quarter 2017 Results Conference Call. At this time, all parties are in a listen-only mode until the question-and-answer portion of the call. As a reminder, this call is being recorded. Andrew Kramer, Vice President of Investor Relations, and his colleagues at NETSCOUT are on the line with us today. [Operator Instructions] I would now like to turn the call over to Andrew Kramer to begin the Company’s prepared remarks. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to NETSCOUT fiscal year 2017 third-quarter conference call for the period ended December 31, 2016. I am joined today by Anil Singhal, NETSCOUT’s Co-founder, President and CEO; Michael Szabados, NETSCOUT’s Chief Operating Officer; and Jean Bua, NETSCOUT’s Executive Vice President and Chief Financial Officer. There is a slide presentation that accompanies our prepared remarks, which can be accessed on the Investor Relations section of our website at www.NETSCOUT.com. You can advance the slides in the webcast viewer to follow along with our commentary. We will try to call out the slide number we are referencing in our remarks. Today’s agenda will be consistent with prior quarters. Our CEO, Anil Singhal, will share his perspective on our results, recent highlights, and outlook for the remainder of fiscal year 2017. Our COO, Michael Szabados, will briefly highlight key wins and notable go-to-market activities. Our CFO, Jean Bua will then provide greater detail and insight into our financial results and review our fiscal year 2017 guidance. Moving on to Slide number 3, I would like to remind everybody listening that forward-looking statements as part of this communication are made pursuant to the Safe Harbor provisions of section 21-E of the Securities Exchange Act of 1934 as amended and other federal securities laws. Investors are cautioned that statements on this conference call, which are not strictly historical statements, including but not limited to the statements related to the financial guidance and expectations for NETSCOUT, market conditions and customer demand, and all of the other various product developments, sales and marketing, expense management, integration and other initiatives planned for fiscal year 2017 and beyond, constitute forward-looking statements which involve risks and uncertainties. Actual results could differ materially from the forward-looking statements due to known and unknown risks,…

Thank you, Andy. Good morning, everybody, and thank you for joining us. Let’s begin on Slide 6 with a recap of our recent results. The table of this slide compares key non-GAAP metrics for the third quarter and the first nine months of FY17 against the prior year period. For the third quarter, we reported revenue of $311.4 million and operating profit of 27.1% and diluted EPS of $0.60, all of which were generally consistent with our plan entering the quarter. Jean will provide a more detailed review of our performance, but I will share several brief observations. Revenue declined modestly on a year over year basis as lower service assurance revenue more than offset another quarter of solid growth at hypernetworks. Service assurance revenue decreased against a very strong year ago quarter in the both enterprise and the service provider segments. Nevertheless, there are some very positive strategic developments that I will review shortly. In terms of profitability, we delivered solid margin performance despite lower revenue due to product mix shift and efforts to balance investment in product innovation and sales and marketing initiatives with prudent cost management. The same data mix for the third quarter are reflected in the nine months pro forma comparison, as our profitability improved despite the lower revenues. Overall, we are making good progress with our new product cycle, and we are seeing some very positive signs of traction with these initiatives. Let’s move to slide number 7 to cover recent highlights. Overall, we continue to make important progress to further evaluate our value proposition with both enterprise and service provider customers and help them advance a wide range of digital transformation initiatives, including virtualization and the cloud. In the service provider sector, the largest carriers around the world continue to aggressively manage their…

Thank you, Anil, and good morning, everyone. Let’s begin on slide number 10 which outlines the areas that I will cover. In terms of customer wins, Anil noted the early traction we are gaining with our InfiniStreamNG platform. Most specifically, we are seeing service providers show tangible interest in the software version of the product. During the past quarter, a major European tier one provider began deployment of our InfiniStreamNG software. Our ability to de couple the software from our InfiniStream appliance and allow the customer to leverage its purchasing power on standard, commercial, off the shelf costs or cost servers was critical to closing this deal. Without this option, this customer would have continue to limit their standing with us. Now they can instrument their network more pervasively, and in the process we protected our income, generated substantial revenues, and made this account even more profitable. Our flexible software approach combined with our social strength also appeals to customers who are interested in strategy full year enterprise commitment. During the third quarter one of our outstanding North American tier one service provider customers signed a 5 year, $75 million contract with us for our InfiniStreamNG software. This deal provides us with a large recurring revenue stream that also offers upside through the acquired additional licenses in any given year. In the enterprise sector, NETSCOUT closed a $5 million deal with a major U.S. banking institution to support a major data center modernization initiative involving the latest software defined data center architectures and virtualization technologies. As a result, our technology will continue helping this customer monitor all key retail applications and quickly triage a wide range of technical issues that could disrupt high impact customer facing applications for some of its fastest growing and most profitable business parts. We expect…

Thank you, Michael, and good morning, everyone. This morning I will review key metrics for the third quarter and first nine months of fiscal year 2017. After that, I will review our guidance for the fiscal year. As we’ve noted, there were a number of acquisition-related items that impacted are GAAP results, so our convention will be to refer to our non-GAAP results unless otherwise noted. Consistent with earlier comments, the timing of our acquisition of Danaher Communications business impact comparisons between the nine months ended of fiscal year 2017 and fiscal year 2016. When possible, we will frame our year-to-date results against the prior year’s nine month period on a pro forma basis. As noted earlier on the call, the appendix at the end of the slide presentation provides a reconciliation of the non-GAAP pro forma financials, along with our supplemental details. To begin our financial discussion, we will start with Slide number 12 of our presentation. For the third quarter of fiscal year 2017, total revenue declined 6.6% to $311.4 million, due in part to a large service provider’s exceptionally strong ordering in the year-ago quarter that did not recur in the same volume during this past quarter. Despite this difficult comparison, our overall revenue performance was in line with the color we offered on last quarter’s call. The presentation appendix provides details on certain customer segment trends. For the first nine months, service provider represented 55% of total revenue, with enterprise representing the balance. That is unchanged with the year-ago period. Overall, our service provider segment was down 5% for the quarter, and on a year-to-date basis through the first nine months, service provider was down about 2.5% and growth at Arbor has been more than offset by the decline in our service assurance product area. In…

[Operator Instructions] We will take our first question from Mark Kelleher with D.A. Davidson. Please go ahead. Your line is open.

I was wondering, maybe, starting from a macro perspective, could you talk a little bit more about what you’re seeing from the service providers: what their spending patterns are, what your new product launch expectations are into the service providers? That seems to be the area that’s kind of causing some headwinds to your product growth.

I think in terms of the budgets and challenges, everything, I think we have mostly bottomed out. There continues to be pressure on how do you manage your budget with the customer user experience expectation, and that directly translates into how much investment they’ll make in our solutions. They always have to make sort of a compromise between best products and best prices, and we are always the best product. But in terms of affordability, I think the appliance-based model was very tough for them to invest in. Our new announcement, which we talked about on the call, the software-based model, increases their investment in our solution -- not in absolute terms, but in terms of relative. They can cover the biggest portion of their traffic route and everything with same amount of money. We still get roughly the same revenue, yet we have higher margins. So all of this has been possible, based on some integration activities in the service provider side, which we put at the highest priority when we made the acquisition a year and a half ago.

So as a follow-up, should I just assume that the new product introductions as enabling reacceleration to the service providers? Is that the key element?

Yes, I think those are two parts. One is a new product introduction, which is a combination of TekComms and network technology. But even a bigger portion is the new packaging and deployment model, whether it’s for the cloud or virtualization. But all based on software, which we are calling commercial off the shelf. It is sort of a new innovation in our marketplace. The real time appliances have not been easy to use in a software model until very recently. I think this is going to be a big growth engine and margin growth opportunity for us in the coming year.

Thank you. We’ll take our next question from Matt Hedberg with RBC Capital Markets. Please go ahead.

I just wanted to get more clarity, Anil. I think in your prepared remarks you talked about maybe some Q4 deals that might slip into FY18. Is there any way that you could quantify that and maybe how that plays into your confidence in the $1.2 billion this year? Just a little bit more color on that comment would be helpful.

Let me give some high level view and then maybe Jean can add to that. First of all, we are providing the guidance which shows our confidence. But always in this quarter, we always have this challenge that how much of the budget they have allocated for [Indiscernible] into the year 2017 that will be used up in the first quarter. Traditionally, big carrier spent a lot of money in the fourth quarter, as it happened in the last couple of years. So we are counting on some of those projects, and that is where a little bit hesitation on what we talked about that we need to see how many of these deals will be followed through in this first quarter. At the same time, I think there is enough business out there for us to feel confident about our guidance.

And just to follow on Anil’s comment, as the landscape in rolling out 4G around the globe is that the large tier 1s, including some of the large domestic tier 1s, have moving into a cycle of enhancement and optimization in their 4G. As Anil talked about with our software only version, we have been, around the globe, looking at international carriers. And we have been well received with our software-only version. So what the situation is as some of the domestic carriers don’t spend to the levels they did a few years ago, we’ve been supplementing all of that product revenue with international. So it’s just more of a dynamic between domestic versus international customers.

That’s helpful, Jean. And then maybe one more for you. In the slide deck and on your prepared remarks, you talked about increasingly confident ability to deliver, I think you said notable improvements in both gross and operating margins next year. I think you said despite revenue growth, it’s not dependent upon revenue growth. Can you talk about how you think about the split between gross and operating margin improvement? Just from a high level framework would be helpful to think how we should think about 2018.

Sure. From an operating margin and operating expense, we have been managing our core structure in the areas of service assurance, as well as investing in some of the growth areas, which is Arbor. That’s what you’ll see in the operating expenses on a year over year basis. With the introduction of the InfiniStream NG, as well as the software only version, we anticipate that FY18 will show bigger profit improvement that we’ve been talking about from the beginning of the deal. So those new products should start to kick in more as they are introduced and the pipeline develops through FY18. We will continue to manage our investments in an operating expense form in both the service strength areas and some of our other growing areas.

We can take our next question from Alex Kurtz with Pacific Crest Securities. Please go ahead.

I wanted to dive into this $75 million win you just spoke about, and maybe Michael can jump in. Can you give us a first take on how competitive it was? Was it for 4G? Was it for 5G? Were there any smaller competitors in that deal for that contract? Then I have some follow-up questions for Jean.

I think the first thing is it was a very big win and very highly competitive with a sales cycle of almost a year. I was personally involved with that. All of our competitors are significantly smaller than us, but they can still undercut on prices. This was a big consolidation. So I think we feel that this will lead to a consolidation of vendors in this account and other places. We always had the best technology. Now we can meet the price points, even against competitors, lower competitors who don’t need high margins but who don’t have better solutions. So this was a cloud support, a great win. We are seeing signs of this, and it’s possible that we will be able to announce some of them in the coming years. But as you know a lot of people -- it’s hard for us to make specific announcements beyond what we talked about today.

Michael, is this historically one of your top two accounts in North America or maybe top three?

I think it was one of our top accounts, indeed.

Yes, this was a tier-1, a large tier-1, that has been a sporadic buyer over the last five years that tends to buy in lumps and had not purchased, as Anil had said, had not purchased for a couple of years. They were looking at their design, as well as looking at their vendors and, as Anil said, had won a very competitive process for over a year. We are very pleased that they decided to standardize on NETSCOUT.

And was this 4G or 5G?

The bulk of its 4G capacity improvement, but they are looking at Big Data Analytic, radio access networks. Obviously, there will be additional opportunity as they expand for 5G. 5G is not a major infrastructure change, but it’s the traffic route increases. So it’s not the kind of growth people saw when they went from 3G to 4G. The infrastructure stays the same, and you don’t have to [indiscernible] in place. In that sense, yes, everything they are buying for 4G will be applicable to 5G also.

A quick question for you Jean; talking again about margins for next year, very strong product margin in the quarter, looks like almost 78%, if that’s right. Can we start thinking about a 76% to 77% product margin for next year? Is that a reasonable starting point, or are there some factors in the December quarter that moved it to a sort of elevated level and we shouldn’t be thinking about that for next year?

I would say for the quarter, it was product mix, which would mean more of our higher-margin products, which includes security as well as the InfiniStream NG and as well as Cart. So as we go through our new products and we continue to develop those through our pipeline and our sales, I believe our product margin will increase to those levels that you talked about.

For next year, you think that a 76% is a good low-end range for product margin?

I don’t think it’s out of the ballpark.

And that last product is Cart? Is that what you are saying?

The Cart basically simply means that if you look at -- to quickly summarize, TekComms was using custom hardware, and Cart was using semi custom hardware bundled with software. What we have done is we have taken both the solutions combined into a single solution, which can be used in Mode A or Mode B or Mode A plus B. And it can bide up lines from third party vendors like HP, Dell, which we have certified. So that is a high margin, software-only solution. At the same time, customers can now use the same amount of money to deploy in more places and have a solution be more pervasive.

Our next question comes from Chad Bennett with Craig Hallum. Please go ahead. Your line is open.

Anil, just kind of diving into the software only trends you’re seeing, is there a way if you looked at or thought about your pipeline maybe entering last calendar year, entering 2016 and exiting this year, what percentage of deals across both service provider enterprise or percentage of that pipeline is software only today versus maybe a year ago? Is there any way to frame that for us?

I think the first thing is the pipeline is a very big portion, I can’t give you a number right now, but it is a very high portion of the pipeline for the next year is software. In fact, we are accelerating that. We have in looking at it as a development plan, which it could be for the top line. We think it’s a great plan for us and while still preserving the top line. So we are actually accelerating it rather than slowing it down. Because of all of those reasons and our product coming out next quarter, I think a big portion of the pipeline for the coming year is going to be software. That’s a sharp contrast to practically zero about a year ago.

And then that’s across service provider and enterprise, Anil?

Right now, we are seeing a bigger trend of service provider because of spending. We are not seeing the trend on the enterprise side, but there are two kinds of software products we have. One is the Cart, which is basically bare metal you buy from somewhere else, appliance and user software. That’s the trend on the service provider side. We also have a cloud version of the InfiniStream NG coming out next quarter. I think that, which is also software, is going to be more impactful on the enterprise side. But overall, to answer your question, the software solution is becoming more attractive on the service provider side. That’s great news for us because that’s where we’re facing the biggest growth challenge.

Right, and then one last one for me, probably for Anil again or Jean. Anil, you made the comment that you are cautiously optimistic of reacceleration of revenue growth in FY18. I guess I’m trying to figure out what the baseline is. Not to get too detailed in how you are thinking about FY18, but what the baseline is for growth or reacceleration of growth heading into next year, if there’s any color there? Thanks.

Well, baseline is whatever we end up with, so I’m not sure it’s clear to me. I think the point we are making is that because all the investments we have made in last two years, not only in the merger but all the follow on products all of them start hitting the pipeline in the next quarter or so. That’s what makes us cautiously optimistic about the growth. But regardless of what that growth is, we feel very good about the other aspect of improving margins.

Just to add on one comment to Anil. NETSCOUT has always been very innovative in software-only based. As you see all of the trends in the world moving towards software-only, NETSCOUT’s products, our best-in-class and our flexible deployment model, allow us to be ready for all the trends that are coming. So as customers are thinking about the major trends in service provider being virtualization, and as they are moving towards those and designing and cautious, they don’t necessarily invest as heavily in their existing network. That gives us opportunities to grow in the future, but it’s along the path of how the trend rolls out. In the enterprise, as Anil talked about, we have a product for cloud that will help them migrate their existing environment to a hybrid then to the cloud. But again, our growth is always based on change and added complexity. So as our customers migrate to these different trends, then our growth rate should accelerate along with those trend migrations.

Our next question comes from Kevin Liu with B. Riley. Please go ahead.

Just a couple of questions on the service providers. As they evaluate some of the potential changes that can come down the pipe from a regulatory standpoint, whether it’s changing net neutrality laws or what have you, is that making your customers a little bit more optimistic in terms of their willingness to invest? Then, more generally, are you seeing some of the priorities start to shift back to monitoring some of the more analytic solutions you have coming out soon for 2017?

Yes, analytics is an investment we have made. We didn’t have a net code standalone. We didn’t have a business analytic product; so that we will be announcing next quarter. That will have an impact. Net neutrality really -- it doesn’t have any positive or negative impact for us. Things are already happening in the marketplace. In the ODD area with the top applications, it is just one of the many use cases of a solution. Even if it is effective, it’s basically going to be in that portion of the deployment. I don’t think that’s a -- it’s a net neutral for us.

Just adding on too, one thing. When you think about tax reform and the conversations that are going on now, to the degree that tax reform goes along some of the lines that are being suggested, it could reinvigorate growth in the service provider market and their willingness to reinvest in capital, as well as increase some of their operating costs also.

Then just, generally, for nGeniusPULSE -- I saw that product announcement and was curious what sort of opportunity you see in the active growth market and whether it would be more relevant to your enterprise or service provider base?

It’s largely an enterprise play. If you look at the cloud, there are two kinds of cloud environments. One that is private and public cloud, where our virtual solution or cloud solution will be very applicable. But if it’s a SaaS offering, software-as-a-service, which is Salesforce.com, Office365; then our product cannot play directly in that. In those cases, customers are using -- looking for SLAs because they have also their applications to the SaaS model. That’s where nGeniusPULSE is going to play the role. It’s not a traditional active probe from other places. It complements the [Indiscernible] probe proposition for cloud infrastructure, especially SaaS infrastructure, and that’s going to be the place. Yes, it’s being received well; but the bulk of the reserve for that will be into the next year because we announced it very recently.

[Operator Instructions] We can go next to Eric Martinuzzi with Lake Street Capital. Please go ahead.

A couple of questions. First for Jean, a modeling question on the services look, and a similar question for Anil or Michael. On the services revs here, we are up sequentially but down year on year. I know sometimes there is a delay in maintenance contract renewal, or there is pricing issues with maintenance agreement renewals. Can you address the down year on year on the services revs and then how we should be thinking about it for next quarter?

Sure. I would say that there is some negotiation still going on, so we do have that phenomenon that you talked about with catch up revenue in certain quarters. On a year over year basis, there are a few things going on there. One, we had talked about before some pressure from some of our larger customers, who are looking to partner with us when it comes to their overall purchases, including their support maintenance and the OpEx that it presents. Then just lower product overall product growth still contributes to lower service revenue. For the year, I would think that service revenue would probably be flat to up in the low single digits.

Okay. All right, and then there was a recent big announcement about Cisco acquiring AppDynamics. I was curious. Obviously, AppDynamics is an agent solution, as opposed to the kind of hardware plus software offering that NETSCOUT has. Anil or Michael, if you care to address the differences there. Obviously with Cisco buying AppDynamics, they’re looking to get more into application performance monitoring. Interested to hear your comments on that transaction.

We are still observing this. I don’t think it’s going to have any impact on plus or minus for us in the short term. But it’s not clear what the primary reason was. Possible and this is to bolster their API initiative, which is more on the SDN and application of their networking side, and not necessarily to make more revenue on the APM side. That’s one comment. The other is that when you look at the solutions for service assurance, there have been three kinds of solutions. There have been active agents, which has been primarily used for SLA. We have a product, nGeniusONE’s area. Then what we do is actually completely different. We are looking at the health of the service. AppDynamics is looking at the health of the application [Indiscernible] how the software is written and the best proxy for service assurance. These markets have sort of developed independently. We hardly compete with each other. But I think moving into cloud area will make our solution more relevant, even in their field. So I think that with cloud deployment, it’s a great opportunity for us to apply our techniques. It’s not about hardware versus software agents, because everything is software now. It’s more about what is the best technique. In fact, we’ll have a more strategic advantage in the cloud area because the price disadvantage of advance appliance being a hardware-based solution goes away. Yet in the cloud area, they are looking for other creative ways to monitor the application performance. I think we will be able to present our solution as a more practical option for dev ops and APNP than we could do in the past. So I think overall, this acquisition by Cisco doesn’t make anything better or worse competitively for us. At the same time, it legitimizes the solution of application performance monitoring tools, for which we have a much more clear solution and affordable solution that we have had in the past, especially in the cloud.

Just one other comment. The main driver for the acquisition, in my view, is access to performance data, basic performance data for [indiscernible] instrumentation. That’s exactly our vision and philosophy. The question is whether our approach, which Anil has described, is more appropriate for automation, which is the next major phase of infrastructure technology. We believe that Cisco’s primary objective is really to optimize or to help their hardware configuration or optimize their hardware configuration and in the process get more relevant. Whereas our objective and value proposition is service performance management, which is more aligned with our enterprise customers’ business objectives. So it legitimizes our [indiscernible] approach in instrumentation, in my view.

It does appear we have no further questions. I will return the floor to Andrew Kramer for closing remarks.

Great, thank you very much, Operator. Thank you, everybody, for joining us. We look forward to seeing investors when we are on the road this quarter, and look forward to reporting back to you with our Q4 results later this spring. Thank you again.