Ladies and gentlemen, thank you for standing by, and welcome to NetScout's Third Quarter Fiscal Year 2022 Financial Results Conference Call. At this time, all parties are in a listen-only mode until the Q&A session portion of the call. As a reminder, this call is being recorded. Tony Piazza, 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.

Thank you, operator, and good morning, everyone. Welcome to NetScout's Third Quarter Fiscal Year 2022 Conference Call for the period ended December 31, 2021. Joining me today are Anil Singhal, NetScout's President and Chief Executive Officer; 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. You can advance the slides in the webcast viewer to follow our commentary. Both the slides and the prepared remarks can be accessed in multiple areas within the Investor Relations section of our website at www.netscout.com, including the IR landing page under financial results, the webcast itself and under financial information on the Quarterly Results page. Moving on to Slide #3, today's conference call will include forward-looking statements. Examples of forward-looking statements include statements regarding our future financial performance or position, results of operations, business strategy, plans and objectives of management for future operations, and other statements that are not historical facts. You can identify forward-looking statements by their use of forward-looking words such as “anticipate,” “believe,” “plan,” “will,” “should,” “expect,” or other comparable terms. We caution listeners not to place undue reliance on any forward-looking statements included in this presentation which speak only as of today’s date. These forward-looking statements involve risks and uncertainties, and actual results could differ materially from the forward-looking statements due to known and unknown risks, uncertainties, assumptions, and other factors, which are described on this slide and in today’s financial results press release, as well as in the Company’s Annual Report on Form 10-K for the year ended March 31, 2021, on file with the Securities and Exchange Commission. NetScout assumes no obligation to update any forward-looking information contained in this communication or with respect to the announcements described herein. Let's turn to Slide #4 which involves non-GAAP metrics. While this slide presentation includes both GAAP and non-GAAP results, unless otherwise stated, financial information discussed on today’s conference call will be on a non-GAAP basis only. The rationale for providing non-GAAP measures along with the limitations of relying solely on those measures is detailed on this slide and in today’s press release. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations of all non-GAAP metrics with the applicable GAAP measures are provided in the appendix of the slide presentation, in today’s earnings press release, and they are also on our website. I will now turn the call over to Anil for his prepared remarks. Anil?

Thank you, Tony. Good morning everyone, and thank you all for joining us today. Let's begin on Slide #6 with a brief recap of our third quarter and first nine months non-GAAP results. During the third quarter, we delivered strong performance across the board. Higher quarterly sales, margins, and profitability were mainly driven by increased enterprise customer demand and customers’ acceleration of orders, primarily within our service provider vertical, of approximately $25 million to $30 million dollars that were previously forecasted to occur in our fourth quarter. As a result, we achieved strong top-line growth, with revenue increasing more than 14% year-over-year to $262.2 million dollars. Product revenue grew more than 25%, and service revenue grew more than 3%, both on a year-over-year basis. We exited the third quarter with a product backlog of approximately $30 million dollars in unshipped orders, which excludes radio frequency propagation modeling orders. Moving to our bottom-line, based on the third quarter’s revenue performance and product mix, diluted earnings per share increased to $0.89 from $0.66 a year ago, an increase of approximately 35%. On a year-to-date basis, revenue in the first nine months of fiscal year 2022 increased more than 7% to $664.4 million dollars. This was driven by product revenue growth of more than 17%, partially offset by a 0.8% decline in service revenue. Diluted earnings per share increased approximately 29% to $1.56 for the first nine months of the fiscal year. These comparisons are all made on a year-over-year basis. In summary, our strong third-quarter performance has further demonstrated the financial strength of our business model. This success, combined with our year-to-date results, has provided us with even greater clarity into our full fiscal year outlook and the confidence to update it. I'll provide more details on all of this later in…

Please turn to Slide #9. Thank you, Anil, and good morning, everyone. Slide 10 outlines the areas that I will be covering today. Customer wins. We continue to see momentum around 5G in our service provider customer vertical. As Anil mentioned, we received 5G-related orders from both domestic Tier-1 as well as international carriers in the third quarter. One of these deals was a low-8-figure order for our 5G-related solutions from a certain domestic Tier-1 carrier, which represents the third 5G-related order this carrier has placed with us. The international market also continued to show momentum. We received a mid-7-figure order for our 5G-related solutions from an international carrier in the third quarter, which represents the second 5G-related order from this organization. We also received a second low-8-figure order from a domestic Tier-1 carrier for additional radio frequency propagation modeling services as the carrier continued to plan its 5G network build out. As these carriers increasingly look to integrate 5G capabilities and further advance the competitiveness of their offerings, our unique combination of market-leading solutions, depth of experience, responsive customer service, and strong relationships continue to win us business in this service provider segment. We have also continued to observe renewed momentum within our enterprise customer vertical. As Anil touched on earlier, these customers are now in the process of refocusing on those important projects that were either previously delayed due to the pandemic constraints or newly created as a result of the broad impact of the pandemic on underlying digital transformation trends today. We are well-positioned to capitalize on this momentum, and our robust suite of offerings is gaining traction with both existing and new enterprise customers. During the third quarter, for example, we won a low 7-figure deal with a new customer that is a global household and…

Thank you, Michael, and good morning, everyone. I will now review our key third quarter and year-to-date fiscal year 2022 metrics. As a reminder, this review focuses on our non-GAAP results unless otherwise stated, and all reconciliations with our GAAP results appear in the presentation appendix. Regardless, I will note the nature of any such comparisons. Slide #12 details the results for our third quarter and year-to-date fiscal year 2022. Focusing on the quarterly performance, revenue grew 14.6% over the same quarter in the prior year to $262.2 million. Product revenue grew 25.6% and service revenue grew 3.5% over the prior year’s quarter. Our third quarter fiscal year 2022 gross profit margin was 78.8%, up 0.2 percentage points over the same quarter last year, primarily attributable to product volume and mix. Our third quarter software-only revenue was 34% of our service assurance product revenue, compared to 31% in the same period last fiscal year. Quarterly operating expenses increased 3.5% from the prior year, largely due to investments in sales and marketing. We reported an operating profit margin of 33.2% compared with 28.2% in the same quarter last year. Diluted earnings per share was $0.89 compared with $0.66 in the same quarter last year. Turning to Slide 13, I’d now like to review key revenue trends for the first nine months of fiscal year 2022. Year-to-date, the service provider customer vertical revenue grew approximately 7.4%, while the enterprise customer vertical grew approximately 7.7%. Approximately 51% percent of total revenue for the first nine months of the fiscal year was generated from the service provider customer vertical, while the remaining 49% was from the enterprise customer vertical. Turning to Slide 14, which shows our geographic revenue mix on a GAAP basis. Revenue by geography continues to be domestically weighted. Both domestic and…

[Operator Instructions] We will take our first question from Matt Hedberg with RBC Capital Markets.

Hi guys, thanks for taking my questions. Congrats on the quarter.

Thank you.

Anil, obviously there's a lot of positive this quarter and I guess I'm curious the acceleration in service provider deals this quarter, is it just a function of timing or was there anything else that caused some of these deals to accelerate this quarter?

Matt, I think the main reason was as we have mentioned little bit of this happened in last quarter also, I mean the big service, big deals often done by big service provider customers, a bit large orders is required, has some challenges with many other vendors who have a bigger hardware content because of supply chain problems. And as a result, they wanted to use their yearend budgets and that we think is the most, I mean most likely reason why we got Q4 orders moved into Q3. So that's a fact which has been happening, but it was more prominent in the third quarter because even though it is the third quarter for us, it is the fourth quarter, fiscal quarter for all of them. And that put lot of pressure on us to shift things, but we had to do it because of customer satisfaction reasons.

Got it, that makes a ton of sense. And then I think one question that we get from a lot of investors is potential questions about supply chain constrains. It does not look like that impacted you this quarter or on your guidance, but any commentary on if that is something you can think about just kind of given your global reach?

Well, yes, we see that also, but there have not been detrimental to our revenue and orders. And for example, there are challenges in disk drive, we use lot of disk drive for our packet recording and everything. And so sometimes we have to pay more and so we have been managing our margin despite paying some higher cost and so we have those problems, but we don’t make custom hardware, but we do use lot of hardware from third parties and otherwise and there have been people who buy hardware from our preferred suppliers and there we had to work with them to keep the inventory enough of them. There are people who buy directly from other vendors and those things have been delayed and as a result sometime it affects the delay of the shipment of our hard disks also. So, but overall I feel that the challenges we are facing also, but they are pale in comparison to many other companies in our space.

Got it, that makes a ton of sense. Thanks Anil, thanks everybody.

Sure.

Thank you.

We will go next to James Fish with Piper Sandler.

Hi guys, nice execution there. On the guide, there was another quarter in which you cite a pull in of deals, I guess what makes [indiscernible] more of a pull in of deals rather than just rising demand or even an acceleration of the 5G cycle in terms of the timeframe as deferred revenue also was materially higher than normal. Is there any way to think about also your total backlog sequentially including radio frequency? And really what I'm trying to understand is, why would you have seen larger guide race here on the strength the last few quarters, the demand environment and upside in the metrics?

The main reason is because we have -- obviously have the forecast. I am very glad to be able to forecast in December for the Q4. So we see clear decrease in forecast for Q4 from the sales teams as a result of what happened in Q3 and that's the prime reason like for all these big deals, 8-digit deals we have, I mean clear idea of which quarter they generally will fall. And that's what happened at this time that our forecast for Q4 for those very large customers has correspondently decreased in Q4 versus Q3. So, I think that there is a 5G acceleration and that will be great for us. And yes, there is a lot of talk about 5G, but we don't think that ex-5G acceleration is the primary reason for this earlier than expected orders.

Hi James, this is Jean. I just want to comment on one of your observations about deferred revenue and put it in context of the backlog. As you know from our Q disclosure, our backlog was about, just round numbered, $80 million to $85 million at the end of Q2. In total the backlog going into Q or exiting Q3, including radio frequency calibration, is about $75 million. And that is actually, a portion of that you will see sitting in deferred revenue, because one of our large carriers asked us to please build them for the project before it was actually completed. So, you will see the deferred revenue was up by $20 million, $25 million due to that, and that's one of the reasons why the DSO is up at 76, because the invoice went out but the revenue hasn't been recognized yet.

That's really helpful, and Jean, on the security side, obviously service assurance had a really good quarter. I think it was much on the security element. Can you just give us an update on what percentage of revenue security represents for you today, what it grew year-over-year and the breakdown within Arbor only between service provider and enterprise?

So, I would say that, Arbor is still roughly on our guided, probably roughly just round numbers, 25%. For the quarter they grew in the mid-teens and they grew mostly in service provider and were relatively flat in enterprise. On a year-over-year basis, their overall growth is approaching the mid-single digits, and again, it's skewed mostly towards service provider and enterprise tends to be flat on a year-over-year basis.

Helpful, thanks, guys.

Thank you.

Yes.

And we will go next to Kevin Liu with K. Liu & Company.

Hi, good morning. I just wanted to start on the service provider side as well. Obviously, you have the prior C-band auction and now some of that is getting lit-up by I think your large Tier 1s and you've seen some benefits to your product revenue growth. So I'm wondering if you could kind of walk us through subsequent to the prior C-band auction, how that sort of benefits your business or flowed into it and what you expect, following the status around mid-band auction?

So, there are two factors, Kevin. One is that, we are the incumbent in the 4G space and so as they come out with 5G RFPs and all that, we still have to go through the mechanics of winning the business. So, our 5G wins are really extension of our 4G incumbency and all the investments we have made. So, all the carriers we were talking about, Michael had talked about, are really doing 5G as an extension of our success in 4G. And that’s about the previous spectrum and all those. The new spectrum oftentimes requires new propagation delay solutions, and so we think that new spectrums are laid out, it’s going to affect our propagation based solution which Michael talked about, which we got two large orders. And we have been working with smaller carriers now and on a more software-based solution for propagation measurements, which could be applicable and more cost effective for them. So, that’s what I look at. Existing spectrum moving from 4G to 5G as a result of our incumbency for new -- for the planning purposes on the new spectrum we have the second kind of orders.

Got it and maybe switching over to the enterprise side of things, you guys have seen kind of building momentum there over the course of the year. Now as you look forward here, do you feel like this is kind of a good cadence in terms of where you want growth to be for this vertical or do you see further opportunity for acceleration?

Yes, we see that even though there was not a big contribution as of this -- in this year, but all the projects we -- or the two big areas we announced Smart Edge Monitoring for service assurance solution beyond the data centers and Omnis Cyber Intelligence which we feel is [indiscernible] with a big market size for us are both tracking very well. And so, while there is not much contribution to these because we just released them three to six months ago, and there is lot of interest. We already have quite a few customers and we think that's going to be a big driver for growth next year in the enterprise.

I'm Michael. Just one other point, I do believe that there is a growing need for our scale solutions, visibility that other tools cannot handle, and that's because of the growing complexity and all these additional detailed transformation moves it's inevitable for large customers to and either needing all kinds of solutions, I see that trend.

All right, [indiscernible] great to hear that, congrats on the strong quarter, and thanks for taking the questions.

Thank you.

And we have no further questions at this time. I'll turn it back to the speakers for any closing remarks.

Great. Thank you for joining us today. This now concludes our call. Have a nice day. Thank you.

That does conclude today's program. We appreciate your participation and you may now disconnect.