NETSCOUT SYSTEMS INC Q2 FY2025 earnings call

• Anil Singhal noted that NetScout delivered Q2 fiscal year 2025 revenue and earnings results in line with expectations, and they remain confident in their differentiated solutions for cybersecurity and service assurance. They released products and enhancements aligned with technology trends and had strong turnout at the Engage Technology and User Summit.
• Michael Szabados highlighted Q2 customer win highlights, including an 8-figure order from a leading global financial institution spanning service assurance and cybersecurity. They announced product advancements like the Omnis AI Insights solution and updates to the Omnis Cyber Intelligence platform, and the successful annual Engage Technology and User Summit with strong attendance.
• Jean Bua reviewed key metrics for the second quarter and first half of fiscal year 2025, discussed balance sheet items such as cash, receivables, and the revolving credit facility, and provided commentary on the fiscal year 2025 outlook, reaffirming revenue and EPS ranges and noting the revenue skew and impact of the voluntary separation program.

For the second quarter of fiscal year 2025, revenue was approximately $191 million, down approximately 3% compared to the prior year period. Normalizing for backlog-related revenue and the divested test optimization business, Q2 revenue would have grown at a mid-single-digit percentage. Diluted earnings per share was $0.47 for the second quarter. For the first half of fiscal year 2025 (ended September 30, 2024), revenue was approximately $366 million, down approximately 10% year-over-year. Service assurance revenue in the first half of fiscal year 2025 decreased by 13.5%, accounting for approximately 65% of total revenue. Cybersecurity revenue in the first half decreased by 3.9%, accounting for the remaining 35%. In Q2, cybersecurity revenue increased approximately 3%, while service assurance revenue was down due to backlog-related headwinds and a constrained spending environment.

• Reaffirmed full year 2025 non-GAAP revenue in the range of $800 million to $830 million.
• Anticipated non-GAAP diluted earnings per share within the range of $2.10 to $2.30 with a midpoint consistent year-over-year.
• Full year effective tax rate expected to be approximately 20%.
• Revenue skew is expected to be 45% in the first half and 55% in the second half of fiscal year 2025, with Q3 and Q4 expected to have an even split of the second half revenue.
• Anticipated benefits from the voluntary separation program, with annual run rate savings of approximately $25 million, $19 million of which will be realized in fiscal year 2025.

• Forward-looking statements involve risks and uncertainties, including those described in the financial results press release, annual report on Form 10-K, and subsequent SEC filings. Actual results could differ materially from forward-looking statements. Risks include market uncertainties, carrier consolidations that may impact business, and the impact of changing technology trends on product demand.

Q: Maybe just broadly to start, are you guys seeing things stabilize in the environment? And then given that you expect an even split between Q3 and Q4 revenue which usually shows a seasonally strong Q3, do you think you could get some boost from a December budget flush this year that you're maybe not factoring in?

A: Yes. I mean, that's why we have a guidance range and to account for those kinds of upsides. And yes, usually, we benefit from the budget flush because we work with very big companies, large carriers. And that's why often the Q3 is actually better than Q4 in terms of bookings. So yes, we are looking to that and we are working on several opportunities.

Q: Nice quarter here. Maybe just to start off with, Verizon has started talking about moving towards stand-alone 5G in the near future. I'm wondering if you can talk through some of the puts and takes on how that either increases your opportunity as they do things like network slicing versus any risk you might see if they start to deprecate some of the more legacy 4G networks?

A: Well, there is continue to be, Kevin, a consolidation in the market, both in Europe and which does affect some of our business. But overall, I think the vendors are introducing slicing this year. We are announcing a new release. I don't see a big potential in the short term on private 5G or stand-alone but slicing is both a revenue opportunity for our customer as well as for us because slicing is an option -- optional module in our solution which doesn't require new hardware upgrade but it's a software solution. So yes, we are looking for initial 2 or 3 customers in the U.S. very interested in leveraging that functionality.

Q: And if I could just ask one last one. Any update on your AIOps strategy as it relates to how much contribution you expect from some of the leading partners that you talked about versus what you guys might be focused on directly?

A: Yes, this is very early. We have seen a lot of interest, a lot of discussions are going on with the customer and partners but we don't expect much impact from that this year, this fiscal year from AIOps.