Ladies and gentlemen, thank you for standing by, and welcome to NetScout’s Third Quarter Fiscal Year 2024 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 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 2024 conference call for the period ended December 31, 2023. 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 Number 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 fact. 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 financial year ended March 31, 2023, 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 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 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. At a high level, we delivered third quarter revenue and non-GAAP EPS ahead of our expectations due to the timing of customer year-end budget spending and our continued cost containment efforts. However, the macro environment remains challenging with constrained customer spending and elongated sales cycles. We continue to see strength in our cybersecurity business, where we delivered double-digit revenue growth during the first nine months of fiscal year 2024. Our service assurance business continues to face headwinds, primarily due to the Tier-1 U.S. carriers’ capital constrained environment. Accordingly, our enterprise customer vertical was relatively flat for this period, while our service provider customer vertical is creating the majority of the revenue pressure. Given the macro dynamics, we anticipate delivering full fiscal year 2024 revenue at the low end of our previously disclosed outlook range, while our cost containment efforts and other activities should position us to deliver non-GAAP EPS for the full fiscal year at the higher end of our previously disclosed outlook or relatively in-line with last fiscal year’s EPS, on a lower revenue base year-over-year. We will provide more specifics during our remarks. With that as a backdrop, let’s turn to Slide Number 6 for a brief recap of our non-GAAP financial results for the third quarter and first nine months of our fiscal year 2024. For the third quarter of fiscal year 2024, revenue was ahead of our expectations at approximately $218 million, due to the timing of customer year-end budget spending. On a year-over-year basis, this was down approximately 19%, as growth in the cybersecurity product line only partially offset a decline in the service assurance product line for the reasons previously mentioned. Non-GAAP diluted earnings per share for the…

Thank you, Anil, and good morning, everyone. Slide 10 outlines the areas that I will be covering today, starting with customer win highlights in the third quarter. In our enterprise customer vertical, during the quarter we displaced a competitor to win a low-seven digit figure – low-seven figure order from a leading domestic insurance company, which is a new logo for us. The opportunity related to our service assurance solutions needed to address datacenter and hybrid cloud visibility. We won this deal due to our superior technology that addressed incumbent vendor shortfalls and our strong reputation as an industry leader. We believe that there are more opportunities on the horizon to support this new customer with further service assurance deployments as well as potential cybersecurity solutions, given strong explicit interest in this area as well. Turning to our service provider customer vertical, a Tier 1 European carrier renewed a multi-year agreement with us and placed a mid-seven figure order that included both service assurance solutions to advance their 5G network evolution as well as cybersecurity solutions. The order included our recently released Mobile Security Solution that leverages our innovative MobileStream and Sightline offerings to detect DDoS attacks on the mobile network, a product derived from our market-leading solution generally deployed in the fixed line network. We won this opportunity due to our proven technology and strong long-standing incumbent relationship with this customer. As we advance this new Mobile Security Solution we are encouraged by the high interest in this offering as we are actively engaged in multiple deal discussions in addition to a handful of trials across the service provider landscape. Now in terms of go-to-market activities, recently we announced the launch of Adaptive DDoS for Arbor Edge Defense to protect ISPs and enterprises from so called DNS Water Torture Attack as we enhance our solutions with our new technologies. Additionally, we plan to attend Mobile World Congress, MWC in Barcelona in late February, where we will be meeting with existing and prospective customers. Our focus will be on sharing our latest service assurance, AI and ML analytics and cybersecurity solutions related to 5G network visibility and cybersecurity requirements. That concludes my remarks. Thank you everyone. I will now turn the call over to Jean for a review of our financial results.

Thank you, Michael, and good morning, everyone. I will review key metrics for our third quarter and first nine months of fiscal year 2024 and provide some additional commentary on our fiscal year 2024 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 2024. Focusing first on our quarterly performance, total revenue was $218.1 million, down 19.1% year-over-year. Product revenue was $95.8 million, a decrease of 35.9%, while service revenue was $122.2 million, up 1.8% both on a year-over-year basis. Gross profit margin was 81.8% in the third quarter, up 1.3 percentage point’s year-over-year, primarily attributable to higher service revenue and lower variable incentive compensation expense as compared to the last fiscal year. Quarterly operating expenses decreased 5.2% year-over-year primarily due to cost containment efforts including reduced variable incentive compensation. Operating expenses for the quarter included our ENGAGE, User and Technology Event which had historically occurred in our first quarter. We reported an operating profit margin of 29% compared with 35.5% in the same quarter last year. Diluted earnings per share was $0.73 compared to $1 in the same quarter last year. Turning to Slide 13, I will review key revenue trends by customer verticals and product lines. Please note that all comparisons here are on a year-over-year basis consistent with our other remarks. For the first nine months of fiscal year 2024, our enterprise customer vertical revenue was effectively flat. Our service provider customer vertical revenue decreased 22.1%. During the same period, our enterprise customer vertical accounted for approximately 54% of our total revenue,…

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

Hey, good morning guys. Thanks for taking my questions.

Sure.

Anil, you noted in your prepared remarks, obviously some of the pressure on service provider spending, I think you said you think some of that could drift into next year, but that 5G could start to improve some spending trends there. I guess I'm wondering, as you talk to customers, I think we've always been sort of curious on what that spark could be on 5G? What are some things that you're hearing from customers that gives you sort of the confidence that some of those trends could start to reverse, something maybe with consumer broadband, anything on the wireless side. Just anything that you're kind of seeing there that kind of gives you the thought that those trends there could start to improve?

Thanks Matt. So I think maybe we can talk about our strategy for next year at a high level rather than some of the estimates from people because they're still finalizing their budget and we keep hearing different stories at different time, even though I've met with almost all of the Tier 1 carriers in the last six months. So what we are looking at it is that with this Omnis product line, we have our data while there is lot of pressure on capital spending on the service assurance solution, but is very good for AIOps type and automation applications. So that's one direction we are talking to them, appeal to a different audience in the customer base and user incumbency. And second is reducing our dependency on the service assurance service provider business. And so with a combination of those things if 5G takes off in other words, there could be some upside. But that's basically what we are looking at because I think it's not deterministic what's going to happen to the capital spending on the traditional service assurance part of our service provider business.

Got it. That's helpful. And then you noted on this a second ago, I guess just double clicking on the cyber business, which seems to be doing quite well. Are there things that relative to expectations are doing a bit better? And maybe just to double click on that because it feels like there's a lot of good things happening, kind of even below some of the top line growth estimates that we're seeing there?

So if you – we have mentioned in the past that we didn't integrate the Arbor business, so in high level we have service assurance business which is like 65% of the business. In that we have service provider spending challenges as a bigger issue. Then we have the Arbor business, which also have a service provider enterprise. And then Omnis was introduced just last year and still taking some time for traction. So if Arbor business was integrated into NetScout roughly two years ago and we are seeing the effect on this – on from a technology point of view we're bringing the DPI technology to the DDoS market. So typically DDoS is for volumetric attack and we have introduced something called adaptive DDoS, which is really application layer attacks. We talked about – Michael talked about DNS Water Torture Attack and that's driving this growth this year and hopefully this will continue next year.

Thank you very much, appreciate the color.

Thank you. Our next question will come from Jim Fish with Piper Sandler.

Hey, guys. Thank you. This is Quinto on for Jim; maybe double clicking on Matt's second question there. We've heard from both you and other vendors in the space about the acceleration of those DDoS attacks that have occurred this year. Can you talk about any relationship you've seen between the pace or the volume of these attacks and your cyber performance in the past? And as we look towards Fiscal 2025 is this something that could kind of reaccelerate or continue to accelerate security growth as customers may be nearing their upper end of capacity and are in need for an upgrade?

Yeah. Sure. So first thing that I want to mention that on our website, we publish a threat report which talks about how the attacks are morphing and like there are attacks called carpet-bombing attack, which is new, which is basically, you – instead of attacking a server, you basically attack multiple devices in customer’s network. It's very hard to detect. And then there's a DNS water torture attacks where you bring down a DNS server, then nobody can do anything. So these are the two areas we introduce new functionality. So yes, attacks are increasing, but we are now handling new kinds of attacks, which we call Adaptive DDoS, and we think there's going to be that there is a lot of interest in that. Plus Arbor business was more service provider business. NetScout had a lot of enterprise business. So as we combined the sales forces, we are seeing traction on the enterprise portion of DDoS, which is our AD – AED product which is different than in the past.

Makes a lot of sense. And then maybe, for Anil, for you, in your prepared remarks, you talked about benefiting from the year-end budget flush, it sounds like this was more on that cyber side. But can you walk through any verticals or segments specifically that benefited from this flush compared to last year? Thank you.

Yes. Maybe Jean can add to this. But this was not necessarily budget flush. Maybe some of the orders from Q4 went into Q3. And so we didn't see this traditional budget flush, which we have seen in the past, especially after COVID. Jean, anything you'd like to say?

No. You are correct. Anil, when we had given our color for Q3, we were not sure whether the – our customers would be using their calendar year 2023 budgets or start using their calendar year 2024 budgets, hence the skew between our Q3 and our Q4. And so what we found was that they did use their 2023 budgets, which is our fiscal calendar – fiscal year Q3 year.

Fantastic. Appreciate it.

Sure, Jim.

Our next question will come from Kevin Liu with K. Liu & Company.

Hi, good morning. Just wanted to ask, about kind of your early expectations for next fiscal year. Specifically on the cybersecurity side, given what you're seeing in terms of pipeline build for your new products versus some of the growth coming from the Arbor side of the business? How should we think about, what the mix of business on cybersecurity and ultimately, should we expect that to accelerate growth or do you think it'll stay pretty consistent with what you've seen over the past 12 months?

Yes. So this one was much higher growth versus in the past and like I mentioned some of the integration of technology, some of the new product resulted in that. I also want to add that we also have a product called Omnis Security, which is in the NDR space. And so when we talk about security revenue, we will include both of them. This year Omnis Security has not picked up, so bulk of the growth is because of Arbor. So we think that security growth will be better – continue to be better than the service assurance next year also. And hence the percentage of security might go higher and but we should be able to provide some guidance on this in the next earnings call.

Understood. And then Anil, could you also elaborate a little bit on kind of the opportunities outside of Tier-1 service provider as we move into this current calendar year? Just wondering if you believe there's enough opportunity there to help offset some of the declines that might be coming from the capital spending side. Yes, if you could just talk about that a little bit?

I think, the challenge is, Kevin, is in that there are cheaper price incumbents on the lower end of the market beyond the top 10 or 20 where we already are coverage. So I see in service assurance the bigger opportunities 5G takes off in terms of user plan much faster or, and or doing something with the Mobile Security area or applying some of our solution to AI use cases like heavy user bandwidth, air fiber which is like the fiber over FTTH, which is AT&T recently announced. And so those are the trends which are going to be, but I think going after that below Tier-1 or where we are not incumbent, I see is hard because there are a lot of regional vendors and there is very big price competition.

Got it. That's helpful. Thanks for taking the questions.

Sure.

This does conclude the question-and-answer portion of today's call. So I'd like to turn the call back over to Tony for any additional or closing remarks.

Thank you, operator. That concludes our call for today. Thank you all for joining us and enjoy the rest of the day.

Thank you. Ladies and gentlemen, this does conclude today's program and we appreciate your participation. You may disconnect at this time.