Q4 2021 Netscout Systems Inc Earnings Call
Yeah.
[music].
Except in multiple areas within the Investor Relations section of our website at <unk> Dot net scout dot com, including the I R lending 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. These statements may be prefaced by words, such as anticipate believe and expect and we will cover a range of topics that are not strictly historical facts, such as our outlook or market opportunities.
And market share key business initiatives in future product plans, along with their potential impact on our financial performance.
These forward looking statements involve risks and uncertainties, an 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, 2020, and subsequent quarterly reports on form 10-Q net.
Net scout assumes no obligation to update any forward looking information contained in this communication for with respect to the announcements described herein.
Let's turn to slide number for which involves non-GAAP metrics. While this slide presentation includes both gap 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.
Relying solely on those measures.
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 new <unk>.
Lawrence with GAAP.
Reconciliation of all non-GAAP metrics would be applicable GAAP measures are provided in the appendix of this slide presentation and in today's earnings press release, both of which are available on our web site I will now turn the call over to kneel for his prepared remarks Ah mills.
Thank you Tony Good morning, everyone and thank you for joining us per day.
I am proud to report that we met the objective.
For fiscal year 2021, as the managed to the unpleasant for it but they've been challenging environment created by the COVID-19 global pandemic vs.
Both the board there on a customer for them get bored being safe and productive.
Posted the communities that surround us connect continue to invest for the future and delivered.
Nor financial growth of expanding operating leverage growing diluted earnings per share and debating strong free cash flow.
However performance for most paradigm part importance of a smart be duplicated cyber security solution as well as the flexibility agility and resiliency for business.
From a service provider and enterprise customer verticals.
<unk>.
For it was combining elements of our service assurance cyber security technologies to provide enhanced capabilities to our customers.
This combination of leveraging the strength of our smart visibility and smart edge protection offerings and fosters the conversions of idea operations with security operation.
These solutions are designed to enhance our customers' current investment in our technology, while reducing their total cost of ownership and increasing the return on investment.
We are also focused on adapting our product to move from the core to the edge as technology volume.
At a recent engaged on day, one technology and user conference, we launched our new <unk> brand, which has adapter for <unk>.
<unk> cloud cyber security and analytics more on this later.
Let's move to slide seven for some further perspective, as we review market trends and business insights.
For doing his remarks.
Let me provide some more color in the technology trends either review our business work because.
And the service provider vertical.
Revenue grew approximately 5% in the quarter and was down approximately 5% for the for fiscal year compared with the same period and the price fiscal year.
The increase in the fourth quarter growth by movie.
Related to tier one not American carriers, completing an initial patches of a solution for it <unk>.
This is the second tier one north American a carrier to select a a <unk> solution.
Michael will provide more insight on this and other details that occurred in the quarter during the day Max.
And does identify the customer vertical.
We see some momentum around five day, Standalone network and advancement given the competitive getty of environment that Ethan protector spectrum options and the credit towards price required gnex.
We continue to work with our customers as they blended migrations and contained consider are fine either the solutions for awhile disruption given.
The incumbent and they have already made based investments.
Add these networks advance with the new spectrum currently recently bridges at the FCC option for the United fit and options in other countries and more traffic at running over them net cost Mart visibility solution will be important to maintain the control and new that expedient expected of the new technology.
We are also advancing of our analytics product to support our customers in understanding the customers behavior in order to assist in identifying new revenue sources to Moscow monetize aggressively.
In addition, we are focusing on mobile security to help customers deal with the volume complexity typically associated with Iot devices at this start to become more profit.
Probably take on the mobile service provider net.
Turning towards enterprise customer vertical revenue declined approximately 19% for the quarter and approximately 8% for the for fiscal year.
Compared with the same period in the per year prior fiscal year.
As discussed on product cause the primary driver for the for fiscal year decline, where low expanding in the federal government sector and the technician ancillary product lines like fluke systems.
Overall BC opportunity in Atlanta breads vertical as the partner with leader from the cloud investing and our customers moved from a reactive stayed in the pandemic.
Focusing on advancing our existing and new products like governance growing revenue for that.
Hansen, our diluted earnings per share and generating strong free cash flow.
Deemed good share some more details related to our fiscal year currently run day to financial outlook during her remarks.
Regarding revenue growth, we believe that as the global pandemic moved into the rear view mirror the movement to spend.
For the future through the zone until then we are being cautious with our outlook.
Approximately 40% of our revenue has historically come from international markets.
There appear to be recovering at a slower pace players based in the United States.
Given our strong customer base and relationships and approximately half of our total revenue historically coming from recurring service revenue primarily associated maintenance contract. We expect our service revenue to remain solid for the fiscal year.
With these dynamics, we are targeting overall revenue growth for fiscal year. Currently current nickel in the low single digits. We will continue to monitor the macroeconomic environment and recovery for improvement and we will update our outlook on future calls as appropriate.
Our strategy average strategy going forward focusing on three main tenets.
For one we will expand further expand within our existing customer base to access existing and incremental budget dollars for <unk> cloud and smart Ddos use cases.
Two we will acquire new customers through targeting new logos with existing and new products, including a day or below where we may normally be.
Normally operate per day.
Our software centric solution should provide us with the flexibility product and sell into this price sensitive market with our automated and affordable solutions.
And third we will further expand into high value adjacencies, such as cyber security beyond Ddos and big data analytics, leveraging our smart data.
We believe that we have all the right building blocks to address this area and expect they will contribute to revenue growth in fiscal year 2022 and beyond.
From a cost and investment perspective, we will continue to exercise a disciplined cost control and prudent capital allocation philosophy that has served us well in the past.
We are committed to for that and enhancing our diluted earnings per share and generating solid free cash flow.
This is important as the cost structure will be pressure at COVID-19 restricted activities, such as travel and events start to resume this fiscal year.
Finally, we expect to maintain a strong financial profile to provide it provide us the resources and flexibility required to advance of our strategy.
In closing I would like to thank my fellow Nexstar Guardians around the world for their tireless efforts dedication and flexibility as well as our customers partners and other stakeholders for their support as we navigated the global pandemic this past fiscal year.
Our resolve has been tested but from a lean, but not mean philosophy and culture has served us well in these trying times as it has over there.
35, plus years in business.
I look forward to sharing our progress on achievements with you over the course of fiscal year 2022 and beyond.
I will now turn the call over to Michael but his remarks at this point.
Do you want to.
Morning, everyone lifestyle outlines the areas.
Hi, low code.
During those customers starting with customer wins in the service provider vertical we have.
Starting to see some momentum in the stand alone <unk> network deployment with multiple deals in the fourth quarter reported one.
And compete to carriers in North America.
We started to see fine jewelry with its projects with calibration a few years ago and should start to move to monitoring the core brands.
Cash and user experience analytics for Thailand for example.
Simple in the fourth quarter, we closed a low eight figure deal with a leading tier one north American carrier that included more calibration services as well as comprehensive service assurance solutions for their <unk> network.
Consistently we've discussed includes $5 implementation. Our deployment include a combination of Virtualized software and hardware component.
Components. This is the second tier one carrier in North America to utilize third party solutions. We also closed two smaller low seven figure deals we reached a multiyear deal to providers.
In the fourth quarter as they started implementing <unk> standalone deployment.
Both deals demonstrate our value in being able to provide consistent service assurance solutions are scheduled to transition from from <unk> to <unk>, regardless of the size of the carrier.
In the enterprise vertical we continued to serve our existing customers as well as opposed to new logos in the fourth quarter. We won a low seven figure deal with a north American insurance company.
This is a new customer for us and the bonds are combined to etc solution, including active passive virtual and software growth.
Finally, we also won.
Our new logos in the fourth quarter with some smaller deals involving <unk> enterprise cyber security product onboard ex effects, which can be the customers first and last line of defense.
Cyber attacks, meaning it addresses both inbound and outbound trends.
With the increased volume of cyber security debt over the past year as outlined in our recently issued second half 'twenty 'twenty threat Intelligence report.
And our enhanced focus on cyber security through our new on this for security brand, we are targeting more activity.
In the future.
Now, let's go into go to market activities.
On this front, we continue to focus on our strategic partnerships and customer engagement last month, we announced the partnership with Dell Technologies OEM solutions group.
We certified that technologies OEM.
Our edge servers and power switch switches to work seamlessly with our engine use that cash flow operating systems or defaults and infinite stream.
<unk> software.
We will be joined by selling new solutions to existing and new debt like items.
As Anil mentioned last month, we have engaged <unk> annual technology and user confidence, where we had record attendance with more than 4200 people.
For registrants, including more than 1000 for the first time.
First time attendees over the two week event, we showcased our service assurance and cyber security capabilities and growth at our visibility without borders campaign.
The virtual conference for the combination of presentations panel discussion demonstrations.
Zone training the feedback from attendees was et cetera.
With cloud migration being a key topic nowadays.
One highly attended session for the panel discussion with Vmware AWS and net Scott discussing the approach in partnership.
Implementing consistent and contiguous traffic visibility across on premises private cloud public cloud domains.
At the event. We also have a separate enterprise security day attended by more than 1500 people, both from customers and prospects that cuts.
The external chemo towards given by Alex <unk> stainless.
<unk> CIO of Facebook.
And Stanford Professor who discussed by cyber security leader to employ at AWS strategy to successfully navigate their for speech response and emerged better defend and on the other side.
Finally at day event, we announced on this cyber security platform combining the power of net Scott smartly visibility technology with our voice smart edge defense technology.
The combination resulted in extensive next network traffic visibility.
Boost attack from box service assurance solutions enhanced by our board's proven detection and blocking cyber security capabilities.
We are truly a shooting.
Availability performance and security for our customers.
Technology of our customers technology that concludes my prepared remarks in August.
For <unk>, Thank you Michael and good morning, everyone.
Key metrics for fourth quarter and for fiscal 2021 assets.
Comment on our fiscal year 2022, new outlook as a reminder, HIV and focusing on our non-GAAP results unless otherwise stated and all reconciliations with our GAAP results appear in the presentation on the appendix slide.
<unk> detailed results for fourth quarter and full fiscal year 2021 for.
<unk> on the quarterly performance current.
Revenue declined 7% over the same quarter in the prior year and $213 4 million for.
Product revenue declined 16% and service revenue grew one 3% over the prior year for them.
For fiscal year 2021, gross profit margin was 77, 2%.
One two percentage points over the same quarter last year.
Software only sales were 34% of service assurance product revenue compared with 23% in the fourth quarter of the prior year.
Quarterly operating expenses decreased 7% from the prior year, primarily reflecting continued pumps.
Related cost per action we've been.
Appointed an operating profit margin of 22, 4% up one two percentage points from prior year.
Diluted earnings per share of 49.
For the full fiscal year 2021.
Revenue was $831 3 million.
Which was a decrease of six 8% over the prior year. The gross profit margin was 76 for.
Flat compared with the.
Prior year.
Strong software only sales at 32% of service assurance product revenue versus 29% last fiscal year produced higher margin that were offset by lower radio frequency propagation modeling margin and higher customer support cost.
Annual operating expenses decreased 10, 8% from the prior year, primarily debt. His continued cost control pandemic related cost savings and head Count management, We reported an operating profit margin of 28% up two five percentage points over the prior fiscal year with diluted.
Earnings per share of $1 70.
And eight 3% increase compared to the client.
Turning to slide 13, I'd like to be in key revenue trends for fiscal year 2021 revenue for the service provider customer practice loans declined five 5%, while the enterprise vertical declined.
Approximately 52 percentage of total revenue was generated from new service provider customer vertical for the remainder for the enterprise customer.
Turning to slide 14, which shows our geographic revenue mix on a GAAP based net revenue by geography was 58% United States, 42% internationally.
<unk> there were no customers that represented 10% or more of revenue for the full fiscal year.
Slide 15 details our balance sheet highlights from free cash flow, we ended the quarter with cash cash equivalents short term marketable securities and long term marketable securities of $476 five.
$5 million.
Which is a decrease of $14 million since the end of the third quarter free cash flow generated in the quarter was $89 1 million.
We repaid $100 million of our revolving credit facility debt during the quarter ended fiscal year 2021 with $350 million of debt outstanding on our credit facility.
We have capacity on our share repurchase authorization from plan to be active in the market depending on market conditions, even though we did not repurchase any of our common stock starting to flow.
To briefly recap other balance sheet highlights accounts receivable net was $197 $7 million down.
Downtime <unk> are down by $10 $3 million since the end of December Dsos were 75 day versus 73 days at the end of fiscal year 2022, and 70 days at the end of December 2020 ex.
Moving to slide 16% commentary on our fiscal year 2022 financial outlook.
In Illinois in his earlier comments that the outlook takes into consideration the pandemic recovery in current macroeconomic environment for fiscal year 2022 revenue range is $835 million to $865 million, which implies low single digit growth the anticipated effective tax rate is between 20.
And 22%.
Assuming approximately 75 million weighted average diluted shares outstanding the earnings per share range is between $1 17 loans.
And $1 77.
I'd also like to offer some color on the first quarter of <unk>.
FY 'twenty two as we assess the opportunities in front of US we can see we currently anticipate flat to approximately net.
Revenue growth with a corresponding increase in earnings per share.
That concludes my formal review of our financial results as loans.
Q&A I'd like to quickly note that our upcoming IR conference participation is listed on slide 17, Thank you and I'll now turn the call over to the operating to start Q&A.
Yes.
At this time of day would like to ask a question. Please press star and one on your Touchtone phone.
To remove yourself from the queue. Please press the pound key.
For asking the interest of time that you limit yourself to one question and one follow up.
And we will take our first question from Matt Hedberg with RBC. Your line is now open.
Hey, good morning, guys. Thanks for my questions.
Good to hear the software only sales.
<unk> to accelerate in your service insurance mix.
You noted in your prepared remarks, but going forward do you think this could aid into new customer wins, I think a little bit in that you're below your typical large enterprise customers. Just wondering if you can talk a little bit more about the go to market strategy for software centric solutions and maybe what is the competitive environment look like.
Tier kind of below the low to enterprise.
Thanks, Matt.
One of the big things via the prerequisite to providing its subscription.
A lot of people are looking or subscription based deployment models.
In order to do that you have to have it.
Software only solution and so what we are done with the software solution in the past is built with the ability to offer a subscription based solution as well as perhaps.
For some SaaS offering.
Maintain the product for debt estimate so.
Our our new strategy, our expanded strategy for new logo wins.
Is it going to rely on those two aspects of using our software product.
But in the enterprise, but offer it as it also offer it as a subscription and SaaS based models resolve to broaden and wanted debt initial investment is low for their customers.
And they don't need to learn the product as much debt they had to do in the past and that's going to be ideal for the next level of the customer base and also we have done some other interesting things in the product line to.
Support some of the use cases, what work from home, which we then support in the past because of our solution was.
From a price point of view is not very effective that for all these things.
And then finally the company continues to move into cyber security, which was a very.
Trusting and well attended topic and engage use it for them that we just had so as we watched that for us over the coming fiscal year and it gains traction in the sales force, we should see growth in that area also.
Just one thing more to add.
Towards do for work.
I mean for me federal spending point of view and and revenue. It was not a good day or last year. So there is some pent up demand what we're hearing so that's obviously reported as part of your enterprise sector. So that's another area, where we are we see upside in the coming year.
That's great. That's what I was just going to go through O'neill on the federal funding things like that could be a real opportunity to share vs last year based options from some pent up from that sounds good to hear as well, but congrats goes.
Thank you.
And we will take our next question from Eric Man Zuni, Martin duty I apologize with Blake Street.
Yes, I wanted to.
Into the queue. One color that you provided just curious to know where the.
Talked about product being up for the year, roughly 4% you see that facing in Q1 our service.
Does that.
Both of the product sales are better meow quarters.
I would say the way we are thinking about the.
Revenue.
The defense quarter is that Q1 will probably I think around the mid point of our guidance should probably for low total revenue around say, 1%. So low single digits that that means that product revenue should grow also say correspondingly around 2% and so we can we can see that.
Bad debt and the ability to do that in the second half definitely but even after for July.
It's much better than we had our.
We have a board the board of the user group Board and.
So we got lot of Intel from them prior to and after the after debt during the meeting and then lastly, Michael hosted this.
The session with AWS.
AWS and Azure.
And Vmware every day external speaker and all these things I think this gives a very good feeling about.
M.
Sure.
Single digit growth at Liza and hopefully that will improve EBITDA.
If the situation internationally start getting better.
Okay.
And then last thing for me.
OEM relationship you've had OEM relationships in the past.
<unk>.
It was really transformative when we think back.
20 years ago, or so back of Aneel 30 days of net scout, how you came to market but.
Lessons learned there obviously formed your relationship with Dell.
On the OEM side, but just curious to know is this more of a.
Kind of.
A hunting license, where we we may or may not see success Tagalong come along revenue unveil servers and switches or is there a robust effort on the Dell side to make this work.
Quota for instance.
Initiatives on their side to help drive that scout traction alongside Don.
Yes, sorry.
I'm glad you're on the few people who are with US for 20 year for Andy you remember the Cisco relationship. So I don't think its not that cloud for relationship plus veeva.
When we did the relationship we had a 30 million dollar company.
And everything was going out there and now we have like three.
<unk>.
800 million plus growth.
Our daughter company in revenue, but.
We see that we look at good partners on beta that's brought in them. So.
Our application moves north of what hardware.
And.
Partners coming on in terms of bookings contribution or is it something you guys are doing behind the scenes in terms of changing your own kind of reps.
Your own reps behaviors, and how much will visibility of the service where they play a role with.
The mid market.
So I just wanted to maybe expand ma'am.
M C or your question to a little bit per our debt on what what day, <unk> investing which we didn't have revenue in the past.
Bigler Avenue in the past and so first of all the main portion of the business our standard service insurance and maintaining or income Betsy will continue to be a big portion, but to new low to marketing, which we have implemented.
Last year and now between help this you had one is in the cyber security area, which will include some new logos and there we have created a OLS sales structure and we had more salespeople.
So that's going to help.
That initiative some of them will be new logo some will be.
Additional sale Adjacencies, an existing account and the second is for the service assurance part in enterprise I mentioned that.
Go to market. There is I believe you two offers subscription based model Rick.
Requiring simple solution a portion of the product at a lower price and we.
We don't really glad customers to actually spend a lot of time in learning average short term sales cycle. So that basically day or go to market that nature day, we we had a team which was generating lead for.
New logos, but we didn't have the deployment microloan price point to serve that market and that's like our attraction was not very good daily nevers towards the second half will allow us to have more leads and all for the ex solution to those customers also.
So basically those are the two new go to what good one is in the cyber security area, which is in direct sales, but a lot less sales for another is the new deployment model for a day or two of the market, where we are not income and I don't see that I mean that number is.
I'm in less than 10% those two combined for the new area, so 80% to 90% of revenue.
Will still come from existing customer additional sales to them.
If I may.
Let's see energy.
And moving.
Product service product to smaller customers because of soon simpler sales smaller one time investment for the product is as I mentioned in my remarks is very successful.
Being.
First product to be sold for new posters new.
Many new rules.
Domain.
That's very helpful details fair Michael.
And gene maybe one for you I'm sure you were expecting it for me, but given it your year and we get an update a mix between the service insurance and the security busy.
Business as well as with being that security business, what the vertical each day I guess just high level why not start reaching it for maybe like a lot of your peers are really starting to do that could help you evaluation that that that security mix and I think it's bigger than most realize.
For you are correct that the portion of security that we have that under the brand of offer is more than $200 million in our business and located probably one of the largest security company around the globe.
This year, even though we declined almost seven per cent and product revenue offer for the total against it grow equivalent of low single digit that was more heavily.
<unk> sorry.
Within the vertical for then I.
I guess in general within service assurance, such as where we normally talk about the vertical.
We had very good.
Traction and the international as we have talked about with.
A couple of years ago, when we actually integrated sales plus the sales force over there has come to get this very well and make it very and make it better to share, which I think is C and a sly when we have put that international growth and the.
Domestic composition there.
The financial for it very well service provider.
Especially at the end of this call it a pretty well given the fact that we had.
A very large deal at work one for one of our society related customers and.
And as actually.
Overall point about our financial reporting as we go forward. We are looking at changing some of the metrics that we look for it and we will probably will important more.
Which is a higher growth areas. The areas that are expected to go out and we will show more of the service to share in law.
The product center in a more mature market as well as how offer is going in AE and from any other type of security areas.
To add to this.
Yeah, we really got about what we want to walk before we run don't get ahead of ourselves.
And while we're on.
We have now announced product and toward that areas of security beyond Ddos, which is 100% of a security business per day, and one is mobility guilty and we'll have a product out mixed slaughtered on that day.
And that is on the enterprise area going beyond Ddos, where there is.
Some other advanced security areas, which you'll hear more about.
Once we have that some traction with that which are we hope before the end of this fiscal year.
Makes sense to fight about a day.
For the differently.
Thanks for the color day.
Okay.
And we will take our final question from Kevin Mail with <unk>, Inc Company.
Hi, good morning could you.
Could you speak to the service providers February business, and specifically, whether you've seen an uptick rfps or trouser involved in.
See them spectrum auctions, and then also more generally with some of these initial <unk>. When you talked about today does that start to produce some more kind of steady cadence opportunities has.
Then rollout, whereas or a fair amount of traffic patsy that needs to be absorbed.
Furthermore, follow on sales.
Yeah, I look at the way.
Kevin relocate it is that because we have income in bulk over business come from a bar top guarantee deer when providers across the water.
And the.
The day will continue to invest with us and Y G. U S is a heck of that two of the people who are seriously announced by a jeep.
Using our product, but I would have a revenue in this area, it's sort of blended for <unk>. So we should not look at fight you opportunity is incremental do for a day last year model.
Drivers and moving from for <unk> and.
And so some.
Some of the for the revenue from Pier, one will be replaced by <unk> net effect hopefully it should be.
Slightly positive that day, but the new areas, which we can count on by a day, which you have not there yet.
What day of in the calibration area, which we talked about last year now, we're moving into the cord and replacing the <unk> Avenue, it's <unk>, but the new area. It will be then.
<unk> security, which will be held by moving security and hopefully later in the year will have something about it and seconded private price. So we have created a model sales group in net forward it to look into private five the opportunity with the enterprise. We've given that we also have and for the price sales for.
So that's how I look at the <unk> attraction I think it's.
Much better.
More demand now then we had this time last year.
Thank you here and then just one on the security side of the business. How are you guys thinking about kind of a puts intake of growth over the course of this year, obviously last year Ddos attack.
Sky Rocketed, you guys I think benefited from that earlier in the fiscal year. So does that present, a comparison for you or do you feel there.
Opportunity growth that side as well as at the new AED solutions.
Yeah, I think overall, we see the aggregate growth in security this did.
Will be more than that service.
Insurance dislike last year.
And it's all blended into the guidance and conduct via provided but overall that should be higher growth in the.
In the security area.
Alright, thanks for taking the question.
Kevin.
And there are no further questions at this time I will turn the program back of our Tarpley's that takes for any additional have closing remarks.
Thank you.
The there'll be a recording of this.
Call afternoon today on our website and even like to listen to it again.
<unk>. Thank you for joining us today and have a great day.
This does conclude today's presentation. Thank you for your participation.
Disconnected any time have a wonderful day.
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