Ladies and gentlemen, thank you for standing by, and welcome to NetScout's Third Quarter Fiscal Year 2023 Financial 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. Tony Piazza, Senior Vice President of Corporate Finance and his colleagues at NetScout are on the line with us today. [Operator Instructions] I would now like to turn the call over to Tony Piazza to begin the company's prepared remarks.

Thank you, operator, and good morning, everyone. Welcome to NetScout's third quarter fiscal year 2023 conference call for the period ended December 31st, 2022. 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's 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 number three. 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, including, but not limited to, those described on this slide and in today's financial results press release. For a more detailed description of the risk factors associated with the company, please refer to the company's annual report on Form 10-K for the fiscal year ended March 31st, 2022, 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 now turn to slide number four, 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 on our website. I will now turn the call over to Anil for his prepared remarks. Anil?

Thank you, Tony, and good morning, everyone. Welcome and thank you all for joining us today. Let’s now turn to slide number six for a brief recap of our non-GAAP financial results in the third quarter and first nine months of our fiscal year 2023. In the third quarter, we delivered solid financial results with Q3 revenue of $269.5 million, representing year-over-year growth of approximately 3%. This revenue increase was driven by product revenue growth of 3.5% and service revenue growth of 2%, both on a year-over-year basis. As a result of this top-line growth and our healthy operating leverage, we delivered $1 of diluted earnings per share in the third quarter, representing a growth rate of approximately 12% year-over-year. Our service assurance performance was strong and was supported by the acceleration of service provider orders previously forecasted to occur in our fourth quarter. As such, we achieved higher quarterly sales, margins, and profitability on a year-over-year basis. Now, moving to the first nine months of fiscal year 2023. During the period, revenue was $706.4 million, growing by more than 6% year-over-year. On a year-over-year basis, product revenue grew nearly 10% and service revenue grew approximately 3%, while service assurance revenue grew by more than 8% and cybersecurity revenue grew by more than 1%. Additionally, we delivered $1.81 of diluted earnings per share in the first nine months of fiscal year 2023, representing approximately 16% year-over-year growth, more than double that of our revenue growth rate over the same period. Now, let’s move to slide 7 for some further perspective on market and business insights. In our service provider vertical, revenue grew by more than 9% year-over-year in the first nine months of fiscal year 2023. This increase was primarily driven by higher revenue related to radio frequency propagation modeling…

Thank you, Anil, and good morning, everyone. Slide 10 outlines the areas that I will be covering today, starting with customer wins. Customer Wins: in our service provider customer vertical, we remained focused on supporting providers as they further advanced their network build-outs. Through this focus, our robust portfolio of offerings, and established incumbency, we continued to expand our installed base. During the quarter, for example, a long-standing, Tier-1 North American carrier customer placed orders with us amounting to close to mid-eight figures. Consistent with Anil’s earlier comment, we had expected to receive a portion of these orders in our fourth quarter. Orders from this customer were for a combination of our service assurance and cybersecurity solutions, which included 5G core and RAN service assurance, additional radio frequency propagation modeling, and our CyberStream and Omnis Cyber Intelligence solutions, with this being the first time this customer purchased certain cybersecurity solutions from us. Importantly, these orders represented successful expansion within and outside of our traditional projects and in certain cases, we replaced competitors’ products. Today, this customer is utilizing our solutions within both its mobile business and corporate IT systems, and we remain excited about this collaboration as a model for additional customer engagement going forward. Now, turning to our enterprise customer vertical. We received two notable mid-seven figure orders during the quarter. One was from a financial institution, while the other was from a healthcare organization, both of which are large-scale and long-standing customers. These wins represent an expansion of our service assurance footprint to new, mission-critical applications that are directly relevant to these customers’ success in their markets. Our ability to win these deals and continue expanding our footprint with our customers is a testament to the strength of our platform offerings, established incumbency, and ability to expand further…

Thank you, Michael, and good morning, everyone. I will review key metrics for our third quarter and first nine months of fiscal year 2023 and provide some additional commentary on our fiscal year 2023 outlook. 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 number 12 details the results for the third quarter and first nine months of our fiscal year 2023. Focusing first on our quarterly performance, total revenue grew 2.8% year-over-year to $269.5 million. Product revenue grew 3.5%, and service revenue grew 2%, both on a year-over-year basis. At the end of the third quarter, our backlog was approximately $54 million, consisting of approximately $31 million of fulfillable orders and approximately $23 million of radio frequency propagation modeling projects, with most of the radio frequency propagation modeling amount categorized as deferred revenue from a financial reporting perspective. As a reminder, while fulfillable orders are those we consider ready and available to be converted into revenue upon shipment or fulfillment, the radio frequency propagation modeling projects require certain execution steps, in conjunction with the carrier’s timing, before they can convert to revenue. Gross profit margin was 80.5% in the third quarter, up 1.7 percentage points year-over-year. This quarter’s gross margin was impacted by the acceleration of a high-margin radio frequency propagation modeling project that was expected to occur in our fourth quarter. Quarterly operating expenses increased 1.7% year-over-year, mostly due to the return of pre-pandemic activities, such as travel and events. We reported an operating profit margin of 35.5%, compared with 33.2% in the same quarter last year. Diluted earnings per share was $1 compared with $0.89 in the same quarter last…

[Operator Instructions] We'll take our first question from Matt Hedberg from RBC Capital.

Great. Thanks for taking my questions. Anil, strong results in the quarter, particularly service assurance. There's obviously a lot of concern about just general IT spending patterns for calendar 2023. Can you start just by talking about your conversations with customers and executives? And how do you think about prioritizing new projects this year?

Well, so far, Matt, thanks for your question. So, right now, we are still getting -- gathering data and we are confident about our guidance for this year. And by the time we reach April on the next conference call, I think we'll have a lot more detail and that will obviously influence some guidance for next year. Right now, we are not getting any direct indication from the customers about slowdowns and budget controls, but we hear other releases from NEMs and other players which indirectly point to that. So, right now, we have sort of a wait and see attitude. Our customers are still very interested in our solutions. Sometimes in slower times, there is more tool consolidation. So, right now, we are not in a position to really say how that next year is going to work out. Fortunately, we have three months to assess that and then we'll project our guidance accordingly.

Got it. Thanks. And then maybe on your cyber business, growth is slowing a bit there, which candidly is consistent with a lot of the field work that we've done. Can you talk about why this might be? And are there any things like a new product front in calendar 2023 that might help that growth profile?

Yeah. So in the cybersecurity area, we have -- I mean, we introduced a new product about nine months ago. And it has a slow uptick, and there are some learnings from there. And also, you will see that there will be some pickup when we do year-over-year number, the percentage will come slightly higher after Q4 in cybersecurity. But really, the new product, which we announced has a slower traction and we got a lot of customer input, and I think it's going to pick up slightly more in Q4. But I think next year, we should see much better results in cybersecurity.

Got it. Thanks. Congrats again especially on the profitability side as well.

Thank you.

Our next question comes from James Fish from Piper Sandler.

Hey guys, congrats on the quarter here. I just wanted to touch on that mid eight-figure service provider order a bit. You guys mentioned a little bit of a pull-in from fiscal Q4. And we're backing in roughly based on your guide for the year, about $90 million of product revenue for fiscal Q4. Is there any way to think about that pull in and normalizing for that at this point?

Okay. I think Jean is looking into that. But I don't know whether your question is that, I mean, obviously, that pull-forward was not there then our Q4 would have been bigger than what we are projecting. But on a full quarter basis, I think it was just normalized. So we got some advanced orders in Q3, once we got advanced order in Q3, which made the Q3 bigger than expected.

Yeah. Maybe just looking that up for you. You mentioned long-term objectives here. Can you just refresh us where we are on those long-term objectives and how you're thinking about those? And additionally, you mentioned on that deal that it's the first time that this customer purchased cybersecurity from NetScout, do you have any sense to what the white space opportunity is, or your current penetration of accounts is with security?

Yeah. So I think basically, we have current -- so cybersecurity is a little bit continued. We have an ongoing business with Arbor, which is roughly 25% of the total business. This other stuff, which we talked about today, was the new product we announced Omnis Cyber Intelligence and CyberStream last year and which was a slow uptick notwithstanding this big order or a couple of big orders. And so in terms of number of customers, I mean, less than 5% of our service assurance customers who can use our cybersecurity product has been sold the cybersecurity product. So, there's a lot of scope, and this is only first nine months. And so we are counting on much bigger growth from that source and from the DDoS business, flat to single digit up and then additional stuff coming from the Omnis Cyber Security. And that's what we are saying that, while we did get a couple of big orders on this from existing customers, the penetration rate has been slow and we are putting more resources and creating a -- relaunching that product in April, which will have a big, I think, impact next year.

Hi Jim, this is Jean. So, in reference to the question that you were asking about the effect of orders that we received in Q4 versus -- Q3, I'm sorry, versus Q4. I would say that the pull-forward was probably close to $25 million with a little more than half of that being a radio frequency calibration modeling projects that gave us the higher gross margins. So, you're looking at the math that is at the midpoint of our guidance, which is $910 million, the number of -- I think you said $92 million in Q4 for product revenue would be accurate. That would represent still a 12% year-over-year growth from Q4 of 2022. And at the midpoint of guidance, we would have about a 6% year-over-year growth from FY '22.

Very helpful. Thank you, guys.

You’re welcome.

Our last question comes from Kevin Liu from K. Liu & Company.

Good morning. I just wanted to get some of your thoughts around kind of the CapEx cycle from the large Tier 1 providers in North America. Could you just comment a bit on if you think NetScout has benefited disproportionately from kind of the outside spend they had on Seabed [ph] spectrum deployment this year? And then, whether there are any sort of emerging 5G use cases that you think will continue to carry the business forward on the service assurance side?

Yes. So we are relying a lot, Kevin, on our incumbency with the top end carriers around the world. And there were some challenges two years ago, where slow spend on 5G or competition from other sources, and that has all settled down, and we started seeing a lot of business initially in the calibration area, some of it was in the backlog starting this year, , which helped the revenue and other is just more 5G spend. So, we think that there is still a lot of spend to be done in the -- with the same customers to put additional capacity in 5G area. But given some recent announcement of some NEMs and infrastructure companies, potential slowdown CapEx spending, we are just having this wait-and-see attitude until April. So I think we'll be in a better position when we have -- we'll have -- we’ll know much more about the budgets. Fortunately, our fiscal year is three months later than some of the other people fiscal year, our customers. So at this point, I think we really -- we did benefit from all the investments we made. I mean, almost 100 maneuvers were spent on 5G technology over the last three, four years by us. And so that's what -- that beginning to pay off. But how does this impacted by the macro environment next year remains to be same.

Understood. And then just on fiber, I was hoping you could elaborate on some of the learnings you've had as you've rolled out the new solution. Is it more kind of additional product features that need to be added integrations. I'm just kind of curious what the customer feedback has been?

Yes. So I think basically, as happens in the first year of the product, I mean, we gather a lot of information and competitive information. And I think maybe our expectation was too high in the first year. I mean, we're going to do over $10 million to $15 million in the nine months of introduction so far. So I think overall, that's the main thing. We are just fine-tuning of our strategy at adding some feature set and some of the comments we have got from other customers. The integration with other security tools has actually gone very well, and that was not a reason for it just takes time. The sales cycle in the new product takes longer than the other products. And also sometimes, as I mentioned, the cybersecurity includes the new product as well as the traditional Arbor DDoS business. And some of it is seasonal, and there will be some improvement on the percentage growth year-over-year versus the first nine months as the fourth quarter closes.

All right, guys. Thanks for taking the questions and congrats on the strong result.

Thank you.

We have reached our allotted time for Q&A. I will now turn the call back over to Tony for any additional or closing remarks.

Thank you, operator, and thank you all for joining us today. That concludes our call for the third quarter of fiscal year 2023. Enjoy the rest of the day.

This does conclude today's program. Thank you for your participation. You may now disconnect.