Core Insights - NETSCOUT has been awarded the 2025 Global Competitive Strategy Leadership Award by Frost & Sullivan for its effective strategy in the next-generation application and network visibility platform industry [1][4] - The company's "Visibility Without Borders" strategy has solidified its position in network visibility and cybersecurity markets, leveraging its nGeniusONE portfolio [1][2] Company Strategy - NETSCOUT focuses on breaking down operational silos and enabling data sharing, which enhances SecOps, NetOps, and AIOps functions, leading to measurable improvements in mean time to resolution (MTTR) and operational efficiency [2] - The company has executed its strategy through strategic acquisitions, continuous product innovation, and securing key client wins with its Smart Data technology [2][3] Product Offerings - NETSCOUT's solutions include nGenius Enterprise Performance Management for real-time network traffic visibility, Omnis Cyber Intelligence for threat detection, and Arbor Edge Defense for DDoS attack mitigation [1] - The visibility solution operates across cloud, on-premises, and hybrid environments, catering to complex organizations, including 90% of the US Fortune 100 [1] Market Position - The company's multi-dimensional scalability and deployment flexibility are key differentiators, allowing efficient deployment of visibility tools across diverse infrastructures [3] - NETSCOUT's ability to provide comprehensive visibility into multi-cloud environments and east-west traffic has helped it win large deals across enterprises and telecom providers [3] Customer Engagement - Customer feedback highlights NETSCOUT's proactive approach, scalable solutions, and expertise in addressing modern IT challenges, contributing to its strong brand equity [4] - The company has strategically invested in brand equity through continuous product innovation and expanding its customer base, reinforcing its image as an innovative digital transformation partner [3][4]

Group 1 - NetScout Systems, Inc. (NASDAQ: NTCT) is a significant player in the network performance sector, despite not being the first company that comes to mind in information technology [1] - The company focuses on providing value to readers and investors interested in long-term investing, particularly in technology, infrastructure, and internet services sectors [1] Group 2 - The author has a strong foundation in financial modeling, valuation, and data analysis, holding certifications from the Corporate Finance Institute (CFI) [1] - The article aims to combine financial data with qualitative analysis to critically evaluate companies and sectors with great fundamentals and growth potential [1]

Revenue Performance - Total revenue decreased by $8.3 million, or 1%, for the nine months ended December 31, 2024, compared to the same period in 2023, which included approximately $48 million of backlog-related revenue[136] - Total revenue for the three months ended December 31, 2024, was $252.0 million, a 16% increase from $218.1 million in the same period of 2023[149] - Total revenue for the nine months ended December 31, 2024, was $617.7 million, a decrease of 1% or $8.3 million compared to the same period last year[175] - Revenue from service assurance offerings decreased due to industry-specific capital spending constraints, while revenue from enterprise customers in cybersecurity offerings increased[136] - Revenue from the United States increased by 24%, or $30.1 million, to $153.9 million, while international revenue grew by 4%, or $3.8 million, to $98.1 million[152] - Cybersecurity product line revenue surged by 29%, or $20.0 million, to $89.2 million, reflecting strong demand from both enterprise and service provider customers[153] - Service revenue saw a modest increase of 1%, or $1.6 million, totaling $123.8 million, primarily due to maintenance contracts[151] - Revenue from the service assurance product line decreased by 5%, or $23.1 million, while revenue from the cybersecurity product line increased by 7%, or $14.8 million[177] Profitability and Loss - Net loss for the nine months ended December 31, 2024, was $385.5 million, an increase of $270.2 million from a net loss of $115.3 million in the same period of 2023, primarily due to a $259.9 million increase in goodwill impairment charges[138] - Non-GAAP net income for the nine months ended December 31, 2024, was $122.4 million, compared to $119.3 million for the same period in 2023[144] - The gross profit for the nine months ended December 31, 2024, decreased by 1%, or $4.3 million, compared to the same period last year, with a gross profit percentage remaining flat at 78%[182] - Gross profit percentage remained flat at 78% during the nine months ended December 31, 2024, compared to the same period in 2023, due to a shift in product mix to higher margin products[137] - Gross profit rose by 18%, or $31.0 million, to $205.4 million, with a gross profit margin of 82%, up from 80% in the prior year[160] Expenses and Cost Management - Total operating expenses decreased by 53%, or $165.2 million, to $143.7 million, largely due to the absence of goodwill impairment charges[161] - Total operating expenses for the nine months ended December 31, 2024, were $872.1 million, a 45% increase from $601.8 million in the same period last year[184] - Research and development expenses increased by 2%, or $0.7 million, to $37.8 million, reflecting higher employee-related costs[162] - Research and development expenses decreased by 1%, or $1.5 million, to $116.1 million, primarily due to a $1.7 million decrease in depreciation expense[184] - Sales and marketing expenses rose by 1%, or $0.8 million, to $69.9 million, driven by increased commissions and event-related costs[164] - Sales and marketing expenses decreased by 4%, or $7.6 million, to $201.5 million, mainly due to an $8.6 million decrease in employee-related expenses[185] - General and administrative expenses increased by 2%, or $0.4 million, for the three months ended December 31, 2024, primarily due to a $1.3 million rise in employee-related costs associated with variable incentive compensation[165] Cash Flow and Liquidity - Cash, cash equivalents, marketable securities, and investments totaled $427.9 million at December 31, 2024, an increase of $3.8 million from $424.1 million at March 31, 2024[139] - Net cash provided by operating activities was $76.1 million for the nine months ended December 31, 2024, compared to a cash outflow of $34.8 million in the same period last year[202] - Cash provided by investing activities was $2.0 million during the nine months ended December 31, 2024, a decrease of $11.4 million compared to $13.4 million in the same period of 2023[204] - Cash used in financing activities was $66.5 million during the nine months ended December 31, 2024, a decrease of $2.6 million from $69.1 million in the same period of 2023[206] - The company expects net cash provided by operating activities combined with cash, cash equivalents, and marketable securities will be sufficient to fund current obligations over the next twelve months[226] Debt and Financing - The company had $525 million available under its revolving credit facility as of December 31, 2024, providing sufficient liquidity for current obligations and capital spending[135] - The company repaid $25.0 million of borrowings under the Second Amended and Restated Credit Agreement during the nine months ended December 31, 2024[209] - The Third Amended and Restated Credit Agreement provides for a new five-year, $600.0 million senior secured revolving credit facility[212] - The maximum consolidated net leverage ratio is set at 4.00 to 1.00, and the company was in compliance with all covenants at December 31, 2024[222] - The company recorded a loss on the extinguishment of debt of $1.1 million related to the Third Amended and Restated Credit Agreement[213] Strategic Initiatives - The company expects constrained customer spending to persist for the remainder of fiscal year 2025 due to ongoing macroeconomic challenges[134] - The company anticipates continued growth in revenue driven by strong demand in cybersecurity and service assurance offerings, with a focus on expanding its customer base[148] - The company ceased operations in Russia in response to the war in Ukraine, impacting its business strategy[134] - The company recorded restructuring charges of $19.6 million related to a voluntary separation program for 142 employees during the nine months ended December 31, 2024[189] - The company expects annual run-rate savings from restructuring efforts to be approximately $25.0 million to $27.0 million, with about $6.0 million expected to be realized in the remainder of fiscal year 2025[191] Foreign Currency and Interest Rate Exposure - The company engages in foreign currency hedging activities to limit exposure to fluctuations in foreign currency exchange rates[233] - The company had foreign currency forward contracts designated as hedging instruments with notional amounts totaling $10.3 million as of December 31, 2024[234] - The valuation of foreign currency forward contracts at December 31, 2024, resulted in a liability balance of $324 thousand due to unfavorable contract rates[234] - The effect of a hypothetical 10% change in foreign currency exchange rates would not have a material impact on the company's historical consolidated financial statements[234] - A hypothetical 10% increase or decrease in the current weighted-average interest rate would result in an annual increase or decrease to interest expense of approximately $0.4 million[232] - Declines in interest rates would reduce future interest income, but a 10% change in overall interest rates would not materially impact operating results[231] - The company believes it does not have material exposure to changes in the fair value of its investment portfolio due to the short-term nature of its instruments[231] - The company does not use derivative financial instruments for speculative trading purposes[233]

Financial Data and Key Metrics Changes - For Q3 fiscal year 2025, revenue was approximately $252 million, up approximately 16% compared to the prior year period [12][30] - Diluted earnings per share for Q3 was $0.94, an increase of approximately 29% from the previous year [12][32] - For the first nine months of fiscal year 2025, revenue was approximately $618 million, down approximately 1% year-over-year [13] - The corresponding diluted earnings per share for the first nine months was $1.70, an increase of approximately 3% year-over-year [13] Business Line Data and Key Metrics Changes - Service Assurance revenue in Q3 increased approximately 9%, while for the first nine months, it was down approximately 5% [15][33] - Cybersecurity revenue in Q3 increased approximately 29% and approximately 7% for the first nine months [17][33] - Product revenue for Q3 was $128.2 million, an increase of 33.8%, while service revenue was $123.8 million, an increase of 1.3% [31] Market Data and Key Metrics Changes - For the first nine months of fiscal year 2025, enterprise customer vertical revenue grew 3.7%, while service provider customer vertical revenue decreased 7.2% [34] - 59% of revenue was derived from the United States, with the remaining 41% from international markets [36] Company Strategy and Development Direction - The company is focused on executing effectively and positioning itself for fiscal year 2026 and beyond, leveraging its Visibility Without Borders platform [20] - The company is enhancing its cybersecurity offerings with solutions like Adaptive DDoS to address the expanding cyber threat landscape [17] Management's Comments on Operating Environment and Future Outlook - Management noted that the overall business has stabilized, with increased confidence in achieving full fiscal year 2025 goals due to accelerated orders [11][19] - There is optimism regarding spending in the 5G cloud area and other new monetization opportunities [47][56] Other Important Information - The company ended Q3 with $427.9 million in cash and equivalents, representing an increase of $3.8 million since the end of fiscal year 2024 [37] - Free cash flow for the quarter was $39.6 million, and the company intends to be active in share repurchases during fiscal year 2025 [37] Q&A Session Summary Question: Insights on service provider spending trends - Management indicated that service provider customers had more confidence and budget available this year, leading to earlier order placements [47] Question: Update on fixed wireless opportunities - Management stated that evaluations are ongoing with several customers, and while the solution is ready, significant spending is expected due to high traffic demands [49] Question: Outlook on service provider budgets and new investments - Management noted that while traditional mobile service assurance may not grow significantly, there are opportunities in cybersecurity and new areas like fixed wireless and private 5G [56] Question: Cybersecurity product growth split between enterprise and service provider - Service Provider cybersecurity grew in the mid-20s percentage-wise, while Enterprise grew in the mid-30s for Q3 [59] Question: Future growth sustainability in cybersecurity - Management expressed hope for better growth in cybersecurity, particularly in the DDoS area, with new products generating interest [62]

COO Update CFO Financial Review Q3 FY 2025 Conference Call NETSCOUT SYSTEMS, INC. January 30, 2025 ©2025 NETSCOUT 1 Agenda Introduction CEO Perspective 2 Tony Piazza, Deputy Chief Financial Officer • Safe Harbor & Non-GAAP Metrics Anil Singhal, President & Chief Executive Officer (CEO) • Summary Results, Business & Market Insights, FY'25 Outlook and Summary Michael Szabados, Chief Operating Officer (COO) • Customer Wins, Go-to-Market Activities Jean Bua, EVP and Chief Financial Officer (CFO) • Detailed Resu ...

Core Viewpoint - NetScout Systems (NTCT) reported quarterly earnings of $0.94 per share, exceeding the Zacks Consensus Estimate of $0.74 per share, and showing an increase from $0.73 per share a year ago [1][2]. Financial Performance - The earnings surprise for the quarter was 27.03%, with the company previously expected to post earnings of $0.45 per share but actually reporting $0.47 per share, resulting in a surprise of 4.44% [2]. - NetScout's revenues for the quarter ended December 2024 were $252.02 million, surpassing the Zacks Consensus Estimate by 14.28%, compared to $218.07 million in the same quarter last year [3]. - Over the last four quarters, the company has exceeded consensus EPS estimates four times and topped consensus revenue estimates three times [2][3]. Stock Performance - Since the beginning of the year, NetScout shares have increased by approximately 3.2%, outperforming the S&P 500's gain of 2.7% [4]. - The current Zacks Rank for NetScout is 3 (Hold), indicating that the shares are expected to perform in line with the market in the near future [7]. Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.73 on revenues of $220.64 million, and for the current fiscal year, it is $2.21 on revenues of $806.84 million [8]. - The outlook for the Computer - Networking industry, where NetScout operates, is currently in the top 36% of over 250 Zacks industries, suggesting a favorable environment for performance [9].

Revenue Performance - Total revenue for Q3 FY25 was $252.0 million, a 15.5% increase from $218.1 million in Q3 FY24[4] - Product revenue accounted for approximately 51% of total revenue at $128.2 million, up from 44% in Q3 FY24[5] - Service revenue was $123.8 million, representing approximately 49% of total revenue, compared to 56% in Q3 FY24[6] - Total revenue for the three months ended December 31, 2024, was $252.0 million, a 15.6% increase from $218.1 million in the same period of 2023[30] - Product revenue increased to $128.2 million, up 33.6% from $95.8 million year-over-year[30] - FY'24 revenue is projected at $829.5 million, while FY'25 revenue is estimated to be between $810 million and $820 million[40] Income and Profitability - GAAP income from operations was $61.7 million, a significant recovery from a GAAP loss of $134.4 million in Q3 FY24[7] - Non-GAAP net income for Q3 FY25 was $68.3 million, or $0.94 per share, compared to $52.0 million, or $0.73 per share in Q3 FY24[8] - Net income for the three months ended December 31, 2024, was $48.8 million, compared to a net loss of $132.6 million in the same period of 2023[30] - Basic net income per share for the three months ended December 31, 2024, was $0.68, compared to a loss of $1.87 per share in the same period of 2023[30] - Non-GAAP Gross Profit for the three months ended December 31, 2024, was $208,598,000, up from $178,461,000, reflecting a 16.9% increase year-over-year[33] - Non-GAAP Income from Operations for the three months ended December 31, 2024, was $89,746,000, compared to $63,249,000 in the prior year, indicating a 41.9% increase[33] - The company reported a GAAP Net Income of $48,810,000 for the three months ended December 31, 2024, compared to a loss of $(132,577,000) in the same quarter of 2023[33] Balance Sheet and Liabilities - Total current assets increased to $692.2 million as of December 31, 2024, from $672.5 million as of March 31, 2024[32] - Total liabilities decreased to $654.2 million as of December 31, 2024, from $703.2 million as of March 31, 2024[32] - The company reported a goodwill impairment of $427.0 million for the nine months ended December 31, 2024[30] - Goodwill impairment for FY'24 is projected at $217.3 million, with FY'25 expected to be around $427 million[40] Future Guidance and Projections - The company expects FY25 revenue to be in the range of $810 million to $820 million, maintaining the midpoint from previous guidance[13] - GAAP net loss per share for FY25 is projected to be between ($5.21) and ($5.10), primarily due to restructuring charges[13] - GAAP net loss for FY'24 is expected to be $(147.7) million, with FY'25 projected net loss ranging from $(373) million to $(366) million[40] - Non-GAAP net income for FY'24 is anticipated to be $159.1 million, with FY'25 expected to be between $156 million and $163 million[40] - Non-GAAP net income per share (diluted) for FY'24 is expected to be $2.20, with FY'25 projected between $2.15 and $2.25[40] Operational Changes and Strategy - NETSCOUT initiated a Voluntary Separation Program expected to reduce approximately 142 employees, representing about 6.2% of its workforce[14] - NETSCOUT continues to focus on executing its business strategy effectively as it positions for fiscal year 2026 and beyond[26] - The company emphasizes the importance of non-GAAP measures for understanding its operating results and future business trends[24] Product Developments - Recent product updates include enhancements to Arbor Edge Defense and Arbor Enterprise Manager to combat AI-enabled DDoS threats[18]

Core Viewpoint - Investors are encouraged to consider NetScout Systems (NTCT) due to improving earnings estimates and positive stock momentum [1][2] Earnings Estimate Revisions - Analysts are increasingly optimistic about NetScout's earnings prospects, leading to higher estimates that are expected to positively impact the stock price [2] - The earnings estimate for the current quarter is $0.74 per share, reflecting a +1.37% change from the previous year, with a 17.31% increase in the Zacks Consensus Estimate over the last 30 days [4] - For the full year, the expected earnings are $2.21 per share, indicating a +0.45% change from the prior year, with a 15.11% increase in the consensus estimate over the past month [5] Zacks Rank and Performance - NetScout currently holds a Zacks Rank 1 (Strong Buy), indicating strong agreement among analysts in raising earnings estimates, which historically correlates with stock performance [3][6] - Stocks with Zacks Rank 1 and 2 have shown significant outperformance compared to the S&P 500 [6] Recent Stock Performance - The stock has appreciated by 7.6% over the past four weeks due to strong estimate revisions, suggesting potential for further upside [7]

Financial Performance - Total revenue decreased by $42.3 million, or 10%, for the six months ended September 30, 2024, compared to the same period in 2023[100]. - Net loss for the six months ended September 30, 2024, was $434.3 million, a significant increase of $451.6 million from a net income of $17.3 million in the prior year[100]. - Gross profit percentage decreased by one percentage point to 76% during the six months ended September 30, 2024, primarily due to lower sales volume of higher margin products and services[100]. - Total revenue for Q3 2024 was $191.1 million, a decrease of 3% compared to $196.8 million in Q3 2023[108]. - GAAP net income for Q3 2024 was $9.0 million, down from $21.5 million in Q3 2023[108]. - Non-GAAP net income for Q3 2024 was $33.6 million, compared to $44.5 million in Q3 2023, reflecting a decrease of 25%[108]. - Total revenue for the six months ended September 30, 2024, was $365.7 million, a decrease of 10% or $42.3 million compared to $407.9 million in the same period last year[133]. - The decrease in product revenue for the six months ended September 30, 2024, was 19% or $33.0 million, primarily due to capital spending constraints in the industry[133]. - Revenue from the United States decreased by 13%, or $32.2 million, primarily due to a decline in service assurance offerings[136]. - International revenue decreased by 6%, or $10.1 million, driven by lower revenue from service provider customers in both service assurance and cybersecurity[136]. - Service assurance revenue was $238.4 million, a decrease of 13% or $37.1 million, while cybersecurity revenue was $127.3 million, down 4% or $5.2 million[137]. Cash and Investments - Cash, cash equivalents, marketable securities, and investments totaled $401.9 million as of September 30, 2024, a decrease of $22.2 million from $424.1 million at March 31, 2024[100]. - Net cash provided by operating activities was $34.7 million for the six months ended September 30, 2024, compared to cash used of $48.7 million in the same period of 2023, reflecting an $83.4 million change[158]. - Cash provided by investing activities was $0.9 million during the six months ended September 30, 2024, a significant improvement from $7.0 million used in the same period of 2023[160]. - Cash used in financing activities increased to $63.8 million during the six months ended September 30, 2024, compared to $49.9 million in the same period of 2023[161]. - The company repurchased 1,362,205 shares for $25.3 million under the 2022 Share Repurchase Program during the six months ended September 30, 2024[161]. Operational Changes - The company ceased business operations in Russia in response to the war in Ukraine, impacting its operational landscape[98]. - The decrease in revenue was attributed to lower revenue from service assurance offerings and cybersecurity services due to industry-specific capital spending constraints[100]. - The company is managing discretionary costs and aligning spending with the current environment while continuing to invest in future business advancements[98]. - The company recorded restructuring charges of $19.0 million related to a voluntary separation program for employees[148]. - The company expects annual run-rate savings of approximately $25 million to $27 million from restructuring efforts, with $18 million to $19 million expected to be realized in the remainder of fiscal year 2025[150]. Expenses and Impairments - Total operating expenses increased significantly to $728.4 million, a rise of 149% or $435.6 million compared to the previous year[144]. - A $427.0 million goodwill impairment charge significantly contributed to the net loss for the six months ended September 30, 2024[100]. - Research and development expenses increased by 2% or $0.8 million to $35.9 million for the three months ended September 30, 2024[121]. - Research and development expenses decreased by 3%, or $2.3 million, primarily due to a reduction in headcount[144]. Credit and Financing - An incremental $725 million was available under the revolving credit facility as of September 30, 2024, which was later amended to $525 million[98]. - The company amended its credit facility to a five-year, $800 million senior secured revolving credit facility, with $75 million outstanding as of September 30, 2024[162]. - The interest rate on the credit facility is 5.95%, and a 10% change in the interest rate would result in an annual increase or decrease of approximately $446,000 in interest expense[169]. - The company expects to meet its funding requirements for at least the next twelve months through operating cash flows and available credit[165]. - The maximum consolidated net leverage ratio is set at 4.00 to 1.00, and the company was in compliance with all covenants as of September 30, 2024[164]. Revenue Breakdown - Product revenue increased by 1% to $81.0 million, while service revenue decreased by 5% to $110.1 million compared to the same period last year[108][109]. - Revenue from service assurance decreased by 6% to $121.7 million, while cybersecurity revenue increased by 3% to $69.4 million[112]. - The company experienced a 4% decrease in U.S. revenue, primarily driven by declines in service assurance offerings[112]. - Revenue from the service provider customer vertical decreased by 25% or $22.3 million, while revenue from the enterprise customer vertical increased by 16% or $16.7 million[114][115].

Core Viewpoint - NetScout Systems (NTCT) has been upgraded to a Zacks Rank 1 (Strong Buy), indicating a positive outlook on its earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Impact - The Zacks rating system is based on the consensus measure of EPS estimates from sell-side analysts, reflecting the company's changing earnings picture [1][2]. - Changes in earnings estimates are strongly correlated with near-term stock price movements, particularly due to the actions of institutional investors who adjust their valuations based on these estimates [4][6]. Company Performance Indicators - NetScout is expected to earn $2.21 per share for the fiscal year ending March 2025, showing a year-over-year change of 0.5% [8]. - Over the past three months, the Zacks Consensus Estimate for NetScout has increased by 15.1%, indicating a positive trend in earnings estimates [8]. Zacks Rating System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [7]. - Only the top 5% of Zacks-covered stocks receive a 'Strong Buy' rating, suggesting that NetScout's upgrade places it among the best candidates for potential market-beating returns [9][10].