Q1 2022 Netscout Systems Inc Earnings Call
With the same quarter last year.
To the large domestic cable operator of investing in the price equal in Haiti environment of solutions.
We also benefited from an international carrier customer accepting completion of an implementation earlier than expected.
As we recognize revenue on a quarter earlier than planned.
During the quarter.
We also received the low 8 figure of radio frequency propagation modeling order from a tier 1 north American carrier as the progress there.
The <unk> network planning.
We anticipate debt will be able to complete these projects by the end of.
Clear.
Within the service by the market, we have started seeing some momentum around by the network advancement of globally, Michael will discuss all of these wins during his remarks.
Turning to our enterprise customer vertical revenue declined approximately 1% compared with the same quarter last year.
Single digit revenue growth on the service assurance. The idea was offset by a mid single digit decline in the enterprise security area, primarily attributable to reduced spending from the financial institution sector compared to the same quarter in the earlier years.
Despite the relatively flat overall enterprise.
Customer.
The local performance in the first quarter, we see opportunity in this vertical for the full fiscal year as customer the accelerate cloud <unk> on cyber security investments the.
The ability of our solutions to provide visibility and protection during our cloud transition and in hybrid multi cloud environment environments. The custom.
On a reported control and confidence of acquired to innovate.
<unk> recently launched solutions of it.
The include Smart edge monitoring anomaly type of investigator will help address the visibility and security needs.
Our gross.
Margaret monitoring solution uses of an innovative approach that combines smart data.
Some of the synthetic transaction testing the assistant earlier identification of rapid resolution of the performance issues to protect the digital experience from an EBIT.
This unique solution gives teams complete visibility and insight to assure the highest quality and user experience any any net growth of our application.
Lots of your employees perform the job.
We believe on new products and gain greater traction as of.
Net sales teams assumes traveling conducted impacts on customer meetings and complete a proof of the complete proof of concept the demonstrate the value of our solution introducing meantime to resolution of issues while saving.
The time and expense.
Michael will highlight some of the customer wins the experience business vertical during the quarter in the history.
Our remarks.
In the longer term, we see potential opportunity emerging in the enterprise customer vertical.
The utilization as the enterprises and government look through leverage of <unk> technology.
In private networks through network slated and net debt net card is 1 of the only 1 of the only handful of vendors that are both service provider enterprise knowledge in providing both scale and functionality.
This should serve sales.
Gross and our assessment of <unk> unfolds in the future.
Now, let's move to slide number 8 to review our outlook.
We then on a quarter with 1 quarter behind US we are off to a solid start of the fiscal year as the world continues to emerge from the pandemic. We remain focused on meeting our customer needs from our service assurance and cyber security solution the <unk>.
Some of the connected world tougher.
Jared.
As we advance of on New service as chairman of the nominal cyber security solutions.
Normal customer interaction.
Indirect and selling the solutions, we believe sales will accelerate towards the second half of the fiscal year.
We also believe we will be greater momentum with a net cash with our BARDA initiative that is.
So on expanding on our business with existing customers by leveraging of our incumbency the access both existing of new budgets.
Adding new customer through new consumption choices and expanding of our reach into high value of adjacencies, such as expanding cyber security and big data analytics that can leverage of our smart.
Data.
We remain committed to delivering within the non-GAAP fiscal year 2022 outlook that was provided on our metrics 2021 earnings call.
The call for low single digit revenue growth and enhanced diluted diluted earnings per share at the midpoint of our outlook.
Dean will recap.
The focus during her remarks.
Finally, I am proud to announce that we recently issued on our inaugural environmental social and governance ESG report, which is available in the Companys section of the website at Www <unk> Dot com.
While it is a growing area of interest.
Diverse set of stakeholders. This principle has always been part of who we are at Mexico.
To obtain greater insight into how we think about ESG and our efforts in the area.
I invite you to explore this new report and join US as we strive to increase the positive impact on the world.
I look for.
The number of fiber the sharing of of progress with you as the fiscal year progresses.
Ill turn the call over to Michael for his remarks, Thank you Elliot and good morning, everyone slide that outlines the areas that value will cover in the service provider customer vertical we continue to see some momentum.
Some of that on 5 G globally.
Some.
Liberals pumping of the planning the radio frequency propagation modeling project, while others are starting initial deployments.
During the quarter view on a couple of low 7 figures.
Sales in the large domestic cable operator space.
Using both our service assurance and cyber security solutions as the build out there.
<unk> core data centers.
Protect that edge environment internationally, we want a low 7 figure deal with the mobile carrier in Asia to the.
The core.
To the and service assurance visibility for the initial rollout of <unk> the some.
<unk> 1 of these deals due to our superior technology.
The comprehensive solutions and the incumbency, despite the competitive bid process using some of these transactions.
In the enterprise customer vertical the continues to gain traction existing as well as new customers.
The pharmaceutical sector of recourse to low 7 figure deals the 2 leading pharmaceutical.
Yes.
First the longstanding customer that Leverages, our solutions will be the ability of all of the network of Pepe create that do their manufacturing operations.
On a variety of application because it really started to ensure the operations smoothly by identifying and assessing and mitigating service disruptions.
Customer.
The factors will be poised on our cyber security solutions, given the unwelcome interest from bad actors due to the Companys Tracy Greg.
Cigarettes and medical importance.
Second our new customers every day.
Share solutions to replace the incumbent the product to gain superior visibility as they sort.
In addition, the hybrid.
And all the infrastructure and advanced digital transformation.
This deal was 1 during the highly competitive bid process, both wins demonstrate the critical value of a comprehensive and thoughtful solution in winning deals by leveraging of our incumbency and executive new customers.
In terms.
Terms of book to market activities, we continue to focus on advancing the cyber security and public cloud brand awareness beyond marketing campaigns are also attending.
Of the leading ratios to showcase of vendor solutions.
Later this month, that's got the left and the virtual version of Black at 2020.
21, and later this year, we will be attending the AWS re invent conference in Las Vegas.
At the Black hat event, we will showcase the on the cyber security of onboard Ddos solutions as well as both presentations addressing the threat of duplex portion being used by ransomware gangs.
Gangs. During these events, we will demonstrate our visibility and cyber security solution can be levered.
Investigate and respond to these threats and reduce mean time to resolution and cost by fostering collaboration between it and segregate the operations teams.
At the AWS.
The investor confidence in support of our partnership with AWS and showcase of our visibility tools that can be leveraged in the cloud environment.
That concludes my prepared remarks, I will not turn on the call.
Thank you Michael and good morning, everyone the penalty being key metric the opex quarter, along with our outlook.
As a reminder of this immune from continued on a non-GAAP results unless otherwise stated and all reconciliations to our GAAP results of the Pn the presentation appendix, regardless I will note the nature of the intention.
Finally on the trial details on our results for first quarter fiscal year 2020 revenue.
325% over the same store net in the prior fiscal year to $193 million product revenue grew 14, 3% and service revenue declined 3.4% over the prior fiscal year's quarter, but decline in service revenue.
The non renewals associated with service provider consolidation of discontinued product line.
First quarter of fiscal year 2022, gross profit margin was 74, 2% down.
Full percentage points over the same quarter last fiscal year as inventory associated.
Were discontinued products with the current <unk>.
Quarterly operating expenses increased 2.4% from the prior fiscal year, largely due to variable sales compensation and increased cost associated with off price quarter sales kickoff and engage event.
We reported an operating profit margin of 11.
As of 4% compared with 11, 2% in the same quarter last fiscal year diluted earnings per share was <unk> 20.
17, 6% from the same period last fiscal year.
Turning to slide 13, I'd like to review the key revenue trends for the first quarter and the service provider.
Perhaps in the vertical revenue grew 9.6% while on the enterprise customer of article declined 1.1% approximately 54% of total revenue was generated from the net estimate of article with the remainder of from the service provider customer of ours.
Turning to slide.
<unk>, which shows our geographic revenue mix on a GAAP basis revenue by geography continues to be domestically weighted but international revenue increased compared to the same quarter of the prior year. There was no customers that represented 10% of wall of revenue in the quarter.
Slide 15 details on.
<unk> 4 sheet highlights and free cash flow, we ended the quarter with cash cash equivalents and short term and long term of marketable securities of $493.9 million.
Which is an increase of $17.5 million since the end of the fourth quarter of fiscal year 2021 free.
Free cash flow generated.
In the quarter was $21.5 million.
We currently have capacity on our share repurchase authorization and depending on market conditions plants. The active in the market, we did not repurchase any of our common stock during the current quarter again.
From the debt perspective as of the end of the first quarter we had.
$350 million outstanding on our revolving credit and me on July 27, 2021, we leverage the favorable financing financing market environment to amend and extend our revolving credit facility.
<unk> 800 million dollar the bomb.
Credit facility extending the maturity.
The church from January 20th of 23 to July 2000.
Net increases financial flexibility and low and financing costs to briefly recap other balance sheet highlights accounts receivable net was $146.2 million down by $51.5 million.
1 since the end of March the.
So those were 63 days versus 75 days at the end of fiscal year 2021 and 57 days at the same time last year the increase in the Dsos in the first quarter of this year compared with the first quarter of the prior year is primarily attributable to the timing.
Orders were received in the quarter.
Let's move on to slide 16 for commentary on our outlook I'll focus my view on on non-GAAP outlook.
As of now noted in his earlier comments, we are reiterating the non-GAAP outlook that was presented on on May 6.2021 of earnings call.
The fiscal year 2022, the expected revenue range is $835 million to $865 million, which implies low single digit growth. The anticipated effective tax rate is expected to be between 21 and 23% as we incorporate the impact from the recent UK.
The tax legislation change increasing the tax rate from 19% to 25.
Assuming approximately 75 million weighted average diluted shares outstanding the non-GAAP diluted earnings per share range is expected to be between $1.71.
And $1.
All of our at 77%.
The GAAP diluted net income per share range has been updated to account for certain charges, including the impact of the amendment of Bob revolving credit facility.
I'd also like to offer some color on the non-GAAP outlook for the first half of the fiscal year as we assess the opportunities in front of US we currently.
We paid approximately 1.5% revenue growth with corresponding mid single digit diluted earnings per share growth compared to the first half of the prior fiscal year <unk>.
That concludes my formal review of our financial results before we transition to Q&A I'd like to quickly note that our upcoming IR conference participants.
The patient is listed on slide 17.
Thank you kind of on I'll turn the call over to the California the stocks.
This time of people would like to ask the question. Please press star 1 on your Touchtone phone.
If it was true.
Income from the queue press the pound key we do ask of the interest of time net you limit yourself to 1 question and 1 follow up on.
And we will take our first question from Matt Hedberg with RBC our.
Our RBC capital markets. Your line is now open.
Hi, Mr finished off on Matt Hedberg.
Thanks for taking my question.
Could you talk about half of the federal vertical performed in the quarter and do you see any benefits.
And then picks up.
Well the.
Our big federal quarter of is actually the coming quarter and so we have lot of.
The artist.
Alright blend, but as always.
The federal spending on it.
And last minute spend is still up for the GAAP. So we are looking for the good quarter and normally Q1 is not the perfect quarter, but Q2 is the good third quarter of being the end of the fiscal year. So.
Im not sure of being what we had in this quarter, but I think big order for say about expected in the coming quarter.
The federal sector this quarter on a quarter over the quarter basis was down in the single.
Millions of dollars, the ranging from $2.4 million less this quarter.
At the end of Q1 of last year.
Got it and if I could ask 1 more did you mention anything on the Chaucer on Munich.
So the software what we've been calling software only which is the transition of customers from the hardware appliances to cost or 2.
To just buying software from us for the quarter was about 32%. It was 40% in Q1 of last year, which was predominantly due to the financials of the government.
The dynamics this quarter versus last quarter and last year for the full fiscal year, we ended the.
Software only portion at about 34%.
Got it thank you.
Ken We will take our next call. Our next question from Jamie.
I apologize we will take our next question from Eric Martin Nancy.
With Lake Street. Your line is now open.
Yeah.
On the side of this is the revenue it was down sequentially a little bit of more than I would've thought is that tied to is that just the lagging indicators tied to the weak product sales a year ago.
Eric Vantage.
There's a few things going on.
1 is.
The comparison of the difficult compared of about a $1 million, where we head back maintenance in Q1 of last year. The other item is as I mentioned in the script service provider consolidation where.
The largest 1 of the 2 largest.
On the carrier combined and the reassessing their renewals on all of their equipment.
<unk> lines there the network deployment and then we've talked in the past about some ancillary product lines, such as Luke and as those product line continues to.
If he sold the certain customers do not renew.
On their on their service revenue.
Okay, and then how should we think about it for the September quarter is Q1 of base from which we grow.
I would say those dynamics continue at this point into Q2.
And that there are programs in place the sales.
Turning to <unk>.
The incentivize current customers as well as just looking at other areas, where they can improve the service revenue renewal of focus.
For the full year.
It would appear.
Point that will probably be flat to maybe down slightly 1% in service revenue at the midpoint of guidance.
So true thanks for taking my questions.
Sure.
And we will take our next question from James Fish with Piper Sandler Your line is now open.
Thank.
Good morning, Doug.
The securities.
Good morning.
So you kind of hold up enterprise security weakness.
Honestly, we've been hearing strength across the board given what's going on in the year.
Talk environment much like what we have on <unk>.
7 years ago, now and really some of the strongest budget in terms of it.
Come.
Thank you good from a long long time, I guess why is why isn't the scope.
<unk> seen that strength is that of competitive thing that the financial institutions, specifically are shifting towards others in your space or is it just the flow through of running out of the pipeline from last year, and then Jean any way to think about the mix for net scout.
With service assurance versus Arbor.
Across all of the Harbor enterprise versus service provider to help us with what's going on with the enterprise Arbor weakness there.
Again, let me just kind of a high level and maybe Jean can add some commentary. So this 1 quarter is not the trend over on the breathing debt service initiatives.
As the cyber security growth towards the year will be close to the date of service assurance.
And the year.
So as we talked about single digit over on the road security growth will be.
Much much higher than that I think it's just the timing of some big day.
These in different quarters.
1 quarter trend.
There is no other yield.
Issues related to what's happening in the competitive environment.
The timing of the deals and some timing of Q1 last day of May have been better for some reason, but overall trend. This year is that we are going to see higher gross spend.
So of insecurity.
Even though some of the new products.
May not hit the Mark EPS.
Nor the will to do trials because of Covid issue. The internationally also type of securities.
Almost the much larger percentage of our business is international and as you know we have lot of index.
Pandemic related issue so all of them.
You will see.
Debt, our cybersecurity growth will be higher then.
The overall growth and could be it could be as much as 2 times the sort of as I showed it this year.
Continuing on the.
Sure.
So what I would say is all of the decline this quarter due to.
Most of the U S financials as you pointed out probably the decline was again, probably around somewhere between $3 million to $5 million and overall revenue.
The color and the Nellix and its monthly due to.
The timing of deal.
Going forward.
Focusing on EBITDA and the outcome.
New products coming out which would include mobile security.
And as we've talked about in the past all of our is a cadillac so they do.
Well the law.
Large institutions that are enterprise service provider and then going forward with.
With the security products and now <unk> are rolling out.
The anticipated growth on that.
That is probably the difference between.
The new for the different ranges in our guidance.
Understood just 1 more from me.
Yes.
1 of your networks, Inc. Peers actually called out earlier product orders due to the supply chain shortages and it does seem like you guys have some more net pull on effect this quarter, especially as you left the guidance range.
On the product upside here.
Sure Laurie.
The deal that we were talking about.
Is it fair to think about that net pull on the effect of a couple of million dollars and that's kind of the difference between where the street is here or total revenue.
Verse, Inc.
Fiscal Q1 and versus fiscal Q2 that we got the.
Just back on.
Yes, I would say, it's not only to the supply chain. It is related to 1 of the Asian provider that has been rolling out the 14 network over a few years now and they completed 1 of their projects involving our solution in this quarter rather.
Than last quarter, and then I'm sorry, this quarter other than next quarter and actually stated, it's probably somewhere between a $2 million to $4 million that was pulled forward from Q2 over Q1 until the normalized for that where our product revenue grew 14%. If you normalize for that product revenue would probably.
The upside of ground somewhere between 8 of our 8% in Q1.
That's helpful. Jim Thanks, Scott.
Hello again.
And we will take our final question from Kevin Liu with Kansas and the company LLC. Your line is now open.
Hey.
Probably just the.
The follow up on the security side of the business on.
Tuck in past quarters, it's about the ability of the demo. Some of these newer solutions have you guys seen that start to open up much at all or is there still some risks of being able to the trial, let me get that in front of customers.
So yes, Kevin there is some of it.
Can do that I just wanted to mention that what type of cyber security line is 100 per ton based on Adler solutions right now so not only we expect to grow the bay area with some new ideas, we have and new way of deploying the product, but we also adding non non dogs and non ddos.
Good morning, the deep pool of portfolio nitpicky.
And the security so far the Ddos product line, we are not as much ddos.
Extensions to the product line, we have not as much dependent on doing <unk>.
But for the new <unk>.
Additional non Ddos security, which is we are counting.
So given at least towards due to meet the higher end of the guidance as gene mentioned, Michigan.
And the security we are counting on <unk>, and yes that could be impacted but that will be the difference between.
Where we ended up in the guidance so all of our guidance range of zoomed. These scenarios.
The investigators and the end.
The big difference is going to be how well, we do well.
Well of affection goes in the face of pandemic, both international and U S and the fiscal year.
Got it I appreciate that color.
1 for Jean as well on the product gross margin side I think you mentioned.
On the inventory reserve taken I was wondering if you could provide the size of the and then maybe more generally just talk to whether that was the primary factor in kind of the decline relative to the back half of last year, north or other things, whether it's component costs are.
Free that might be also.
And the margin there.
So.
On the quarter of this quarter as product margin is down.
The $1 billion.
Discontinued products that we are I would say the last half year.
Brian fiscal year, but gross margin was probably a little more suppressed by the product net where we had more calibration.
Some of it.
As you know is low end markets lower gross adds and nimble.
Paul.
Got it and then just 1 last 1 just with respect to the smart edge monitoring solution that you guys introduced I'm curious if that's something that your customers of masking for well more of this is more of kind of an opportunity.
You.
<unk> given some of the the hybrid work dynamics of that's gone on since the pandemic.
Yes, so Kevin the B, we have announced on the smart bed monitoring solution last year.
And for the most site.
Unfortunately, most of the remote site people went on because of the naming so we got lot of input from.
Some of our customers that day.
We're looking for similar capability from a work from home users.
So this now the revised smart bed the solution, which we sort of re announced then we had the recent press release.
Is basically provides the same functionality, which of the available in data center and the remote site to the work from home.
All of them use enriches the debt.
We have a deeper on them is at the <unk> is at the.
Cloud providers is at the on.
Laptop or is it the VPN and we are the only solution in the market.
Quickly with the AD.
Toward debt. This also the glass.
<unk>.
But it's still with the existing customer and is the incremental to the existing solution. So I think yes that is the we are counting on some traction in that the area in the coming quarters.
Okay, great well, thanks for taking the questions and the luck as you make your way through the rest of the year.
Thanks, Thank you.
Can you kind of will now take the program back over to Tony Piazza for any additional or closing remarks.
Thank you operator. This now concludes our call. Thank you for joining us today and have a great day.
Yeah.
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