NTCT earnings call analysis

NASDAQ:NTCT Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Gene Bua | Executive Vice President and Chief Financial Officer: Please stand by. Operator | Conference Operator: Your program is about to begin. Ladies and gentlemen, thank you for standing by. And welcome to NETSCOUT's fourth quarter and fiscal year 2025 financial results conference call. At this time, all parties are in a listen-only mode and tell the question and answer portion of the call. As a reminder, this call is being recorded. Tony Piazza, Deputy CFO, and his colleagues at NETSCOUT are on the line with us today. If you require operator assistance at any time, please press star zero. I would now like to turn the call over to Tony Piazza to begin the company's prepared remarks. Tony Piazza | Deputy Chief Financial Officer: Thank you, operator, and good morning, everyone. Welcome to NETSCOUT's fourth quarter and full fiscal year 2025 conference call for the period ended March 31st, 2025. Joining me today are Anil Singhal, NETSCOUT's President and Chief Executive Officer, Michael Zavados, Netscouts Chief Operating Officer, and Gene Bua, Netscouts Executive Vice President and Chief Financial Officer. There's 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.netscouts.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 three, 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 facts. Actual results could differ materially from any forward-looking statements. These statements speak only as of today's date and involve risks and uncertainties, including but not limited to those described on this slide and in today's financial results press release, which are available on the investor relations section of our website, as well as in the company's most recent annual report on Form 10-K and subsequent filings with the Securities and Exchange Commission. NESCow assumes no obligation to update any forward-looking information except as required by law. Let's now turn to slide number four, 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 financial results 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 financial results press release and on our website. I will now turn the call over to Anil for his prepared remarks. Anil Singhal | President and Chief Executive Officer: Anil? Thank you, Tony, and good morning, everyone. Welcome and thank you all for joining us today. We close fiscal year 2025 revenue on a strong note with fourth quarter revenue exceeding our expectations, driven by solid performance in our cybersecurity product lines. We are pleased with our full-year revenue performance, which was in line with our original guidance range provided at the beginning of the fiscal year and consistent with the prior year's revenue after adjusting for the deferred share of the test optimization business. More importantly, we are able to generate approximately $50 million in additional revenue this year and ultimately overcome the challenge of backlog usage from the prior fiscal year. We delivered non-GAAP EPS growth for fiscal year 2025, driven by our continued focus on prudent cost management initiatives. With a strong financial foundation and a clear strategic direction entering fiscal year 2026, we believe NETSCOUT is well positioned to navigate the current macroeconomic uncertainty and deliver sustainable long-term growth. With that as the backdrop, let's now turn to slide number six, for a brief high-level recap of our non-GAAP financial results for the fourth quarter and full fiscal year 2025. Gene will provide more detail on the results later in the call. For the fourth quarter, revenue increased 1% to approximately $205 million, and non-GAAP diluted earnings per share was 52 cents, down approximately 5% on a year-over-year basis. For the full fiscal year 2025, we delivered revenue of approximately $823 million, essentially flat year over year, down less than 1%. As I mentioned earlier, we are happy with this performance given the diversions of the test optimization business and the previously mentioned prior year backlog-driven revenue gains. When adjusting for the sale of the test optimization business, revenue was consistent year over year, and adjusting for the prior year's backlog benefits would have resulted in mid-single-digit revenue growth year-over-year. From a non-GAAP EPS perspective, for the full fiscal year 2025, we delivered $2.22 per diluted share, a $0.02 or approximately 1% improvement over fiscal year 2024. We achieved this performance due to our ongoing focus on efficiency, which has contributed to an improved cost structure. We plan to carry those cost management priorities into fiscal year 2026. Now let's turn to slide number seven, where we'll dive deeper into our key business drivers and share some additional market insights. Starting with our service assurance offerings, in fiscal year 2025, service assurance revenue declined approximately 4% year over year. This was partially attributable to the debauchery of the test optimization business in fiscal year 2024 and the lower level of radio frequency propagation and modeling project revenue compared to last fiscal year. As we consider the demand and mix for the service assurance offering moving forward, we continue to see service provider customer invest in 5G initiatives at a measured space. Customers are also making investment in network performance and new services such as fixed wireless access. We believe we remain well positioned to support both domestic and international carriers as customer demand evolves and innovative network technology trends materialize. We are in active discussion with our service provider customers to demonstrate the critical value of our enhanced smart data generated from deep packet inspection or DPI to accelerate service provider efforts in 5G net ops, AI ops, and mobile network security. In the enterprise vertical, we are cautiously optimistic that the growth we experienced in the second half of fiscal year 2025 will continue into fiscal year 2026 as customers evolve their digital transformation and enhance monitoring at the edges of their networks. However, we recognize that ongoing economic uncertainty may influence customer behavior, and we are actively monitoring these trends. Shifting to our cybersecurity offerings. In fiscal year 2025, our cybersecurity offerings delivered nearly 7% year-over-year revenue growth, driven by strong momentum within our enterprise customer vertical. As I highlighted in our recently released DDoS threat intelligence report, I think geopolitical tensions continue to drive up the number of DDoS attacks. At this time, AIML automation and the abuse of enterprise-grade infrastructure is enabling more sophisticated and agile attacks. This increases the need for proactive and adaptive defense measures to effectively mitigate evolving threats. Attacks have been powered by the Mirai malware-created botnets which cause service provider attacks to surge. With this high activity landscape, companies are increasingly depending on NETSCAR's scalable and real-time adaptable solutions for their cybersecurity protection methods. As we look to fiscal year 2026, we believe the value proposition of our solutions should continue to resonate with customers and expect our core portfolio as well as our newer offerings such as adaptive DDoS, mobile security, and distributed threat mitigation system solutions to fuel continued momentum in this space. Michael will provide more insight regarding customer wins during his remarks. Now let's move to slide number eight regarding our outlook and summary. As we look ahead to fiscal year 2026, we remain encouraged by the momentum in our cybersecurity offerings. While we remain cautious given the broader economic uncertainty, We are committed to continuing our investments in product-related AI and cybersecurity solutions. We also plan to maintain our disciplined approach to cost management and preserve our strong financial position. Based on our current view, in fiscal year 2026, we expect to achieve year-over-revenue growth, improve our operating margin, and dilute EPS performance, and continue to generate solid free cash flows. Jean will provide more specifics on the outlook in her remarks. Our long-term strategy remains unchanged. We will continue to invest in innovation, deepen relationship with our customers, and leverage our mission-critical solution to support the evolving performance, availability, and security need of today's complex digital environments. With a strong foundation and clear strategic direction, We believe NETSCOUT is well positioned for sustainable long-term success. We look forward to keeping you updated on our progress as we move through the new fiscal year. Now let's move to slide number nine regarding our leadership transition. Before I turn the call over to CEO Michael Sabatos, I want to take a moment to address the announcement we made earlier today. As shared, both Michael and our CFO, Jean Bua, will be retiring and stepping down from their roles effective May 31st, 2025. We appreciate their continued commitment to the company as they transition into advisory roles through June 2026, ensuring a smooth leadership transition. As part of our succession plan, Sanjay Munshi, the company's deputy CEO, and Tony Piazza, next door deputy CFO, will become CEO and CFO respectively and will join the executive team effective June 1st, 2025. On behalf of our board and executive team, I want to thank Jean and Michael for their many contributions in support of NETSCOUT over the years and wish them well in their retirement. We are fortunate to have capable and experienced leaders like Sanjay and Tony ready to take on the roles of CEO and CFO and I look forward to working closely with each of them. With that, I turn the call over to Michael. Michael Zavados | Chief Operating Officer: Good morning, everyone, and thank you, Anil, for the kind words. It has been a true pleasure working with you and the outstanding team over these many years. I'm confident that the organization is in great hands with Sanjay Seppin as our new COO. Moving on to our quarterly update, slide 11 outlines the areas that I will be covering customer win highlights. Starting with our service assurance offering, one notable win this quarter was a competitive low seven-figure deal with a new customer, which is a leading financial services company. They were utilizing a competitor's solution that was not satisfying their requirements. During our proof of concept, we demonstrated how our solution delivers end-to-end network from the customer's core network to their external trading partners. This significantly reduced issue resolution times from days to mere minutes, highlighting our clear operational advantage over their existing solution. The power of our service assurance offerings to address issues quickly and accurately at scale was the clear catalyst to this win. In our cybersecurity offering, We extended our relationship with a leading cloud service provider with a mid-seven figure deal that included our sightline detection and TMS mitigation solutions to enhance their security posture at their network edge as well as inside their data centers. The customer recognizes the value of our industry-leading scalability, advanced detection, and surgical mitigation, and it is critical to supporting the growth of their cloud and AI services businesses, and with increasingly larger and sophisticated TDoS attacks. Turning briefly to our go-to-market activities, we continue to actively promote our offerings to both existing and prospective customers. For example, in March, we participated in the Mobile World Congress in Barcelona, where we held a series of productive meetings with both existing and prospective customers. discussion centered around our latest innovations for enhancing our smart data to accelerate service provider efforts in 5G, NetOps, AIOps, and mobile network security. More recently, in May, we participated in the RSA Security Conference in San Francisco, where we demonstrated our visibility without border solutions to deliver next-generation performance management, network security, and DDoS protection to ensure security performance and availability for the most complex and mission-critical network. In June, we will head to San Diego for Cisco Live, where we will showcase our visibility and security solutions, which are designed to ensure organizations are operationally resilient by ensuring every interaction is safer, faster, and flawless from the edge to the cloud. In early August, we will be in Las Vegas participating in the Black Hat USA Conference, where we will demonstrate our DDoS protection and on-disk network security solutions to ensure performance, security, and availability for the world's most powerful digital ecosystems. That concludes my final update. Thank you for your support over the years. I will now turn the call over to Gene. Gene Bua | Executive Vice President and Chief Financial Officer: Thank you, Michael, and good morning, everyone. I will review key metrics for our fourth quarter and the fall fiscal year 2025 and provide some additional commentary on our fiscal year 2026 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. Additionally, all comparisons are on a year-over-year basis unless otherwise noted. Slide number 13 details the results for the fourth quarter and full fiscal year 2025. Focusing on our quarterly performance first, total revenue for the fourth quarter of fiscal year 2025 was $205 million, up 0.8%. Product revenue was $89.5 million, an increase of 0.1%, and service revenue was $115.5 million, an increase of 1.3%. At the end of the fourth quarter, our total combined product backlog was $33.1 million, consisting of a fillable backlog of $25.1 million, $0.9 million of radio frequency propagation modeling projects, and $7.1 million related to one multi-year customer enterprise license commitment. Additionally, at the end of the fourth quarter, there was $8.3 million of radio frequency modeling projects and deferred revenue. Growth profit margin was 79.2% in the fourth quarter, up two percentage points. Quarterly operating expenses decreased 2.5%, primarily due to the previously announced cost reduction actions and lower variable compensation expense. Accordingly, we reported an operating profit margin of 23.1% compared with 19.2% in the same quarter last year. Diluted earnings per share was 52 cents, which included an unrealized loss on a foreign investment of approximately 3 cents. This was down 5.5% from 55 cents in the same quarter last year. For the full fiscal year 2025, revenue was $822.7 million, which was a decrease of 0.8 percentage points year over year. Normalizing for the test optimization business that we disposed of in fiscal year 24, total revenue would have been consistent year over year. Product revenue was $359.9 million, a decline of 0.2%, and service revenue was $462.8 million, a decline of 1.3%. A gross profit margin was 80%, an increase of 0.6 percentage points. Annual operating expenses decreased 1.9% from the prior year, primarily due to previously announced cost reduction actions. We reported an operating profit margin of 23.7% up 1.1 percentage points compared to the prior year. Diluted earnings per share was $2.22, a 0.9% increase. Our annual tax rate was 19% compared to 17.2% in the prior year. As a reminder, the prior year tax rate was impacted by a valuation gain in a foreign investment with favorable tax treatment. Turning to slide 14, I will review key revenue trends by product lines and customer verticals. Please note that all comparisons here are on a year-over-year basis consistent with our other remarks. For the fiscal year 2025, our service assurance revenue decreased by 4.4%. while our cybersecurity revenues grew by 6.6%. During the same period, our service assurance product line accounted for approximately 65% of our total revenue, while our cybersecurity product line accounted for the remaining 35%. Turning to our customer verticals, for the first fiscal year 2025, our enterprise customer vertical grew 7.5%, while our service provider customer vertical revenue decreased 10.1%. During the same period, our enterprise customer vertical accounted for approximately 57% of our total revenue, while our service provider customer vertical accounted for the remaining 43%. Turning to slide 15, this shows our geographic revenue mix for the fiscal year 2025 57% of our revenue was derived from the United States, with the remaining 43% provided by international markets, which is consistent with the prior year. Also, no customer represented 10% or more of our total revenue in either the fourth quarter or full fiscal year 2025. Slide 16 details certain balance sheet and free cash flow items. We ended fiscal year 2025 with $492.5 million in cash, cash equivalents, short and long-term marketable securities and investments, representing an increase of $68.4 million since the end of fiscal year 2024. Free cash flow for the fourth quarter was $140 million and $211 million for the full fiscal year 2025. From a debt perspective, during the fourth quarter, we repaid the $75 million that was outstanding on our $600 million revolving credit facility. We did not repurchase any of our common stock during the fourth quarter. We currently have capacity in our share repurchase authorization and subject to market conditions intend to be active in the market during fiscal year 2026. To briefly recap other balance sheet items, accounts receivable net was $163.7 million, representing a decrease of $28.4 million since March 31, 2024. The DSO metric at the end of the fourth quarter of fiscal year 2025 was 68 days versus 81 days at the end of fiscal year 2024. the lower DSO metric in the fourth quarter of this fiscal year was due to the timing and composition of bookings. Let's move to slide 17 for commentary on our outlook. I will refocus my review on our non-GAAP targets for fiscal year 2026. I would like to first address the current macro environment and the impact of the proposed tariff policies. As it stands, current global tariff regulations and negotiations are not expected to have a material impact on our business from a direct force perspective. More than 80% of our revenue comes from services and software, which are largely unaffected by these tariffs. On the hardware side, most components for our appliances are sourced either domestically from Canada or from Mexico, and are currently exempt under the USMCA arrangements. As such, our direct cost exposure is currently minimal and could be addressed through pricing adjustments or efficiency initiatives if required. That said, broader tariff-related activity is contributing to some uncertainty in the global macroeconomic landscape. While we haven't seen a meaningful impact on customer demand or revenue so far, we are closely monitoring the situation for any potential shifts in customer behavior or market dynamics that could influence our outlook. Moving on to our fiscal year 2026 outlook, we anticipate our fiscal year 2026 revenue to be in the range of approximately $825 million to $865 million. Additionally, we anticipate non-GAAP diluted earnings per share within the range of $2.25 to $2.40. The full year effective tax rate is expected to be approximately 20%. Our weighted average diluted shares outstanding is assumed to be approximately 74 to 75 million shares. Finally, I would like to provide some color for the first quarter of fiscal year 2026. In comparison to the first quarter of last year, we anticipate our first quarter fiscal year 2026 revenue to grow by approximately 3% to 5%, with approximately the same growth rate for earnings per share. That concludes my formal review of our financial results. I'd like to quickly note that our upcoming IR conference participation is listed on slide 18. As this is my final earnings call, I would like to note that the company is in a strong position thanks to the dedication of our team and the strategic vision that has been built over the years. I would also like to take a moment to express my gratitude to all of my financial team members and company colleagues. It has been an honor to serve alongside you. Thank you again for your trust and support. With that, I'll now turn the call over to the operator for questions. Operator | Conference Operator: And at this time, if you would like to ask a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, press star two. We do ask in the interest of time that you limit yourself to one question and one follow-up. We'll take our first question from Matthew Hedberg with RBC Capital Markets. Please go ahead. Matthew Hedberg | Analyst, RBC Capital Markets: Hey, guys. This is Mike Richards. I'm from Matt. Thanks for taking the questions. And, uh, Congrats on the retirement and promotions. It's great to see the continuity in the team. Thank you. And on tariffs, it was great to hear that you guys haven't seen anything yet and you're relatively insulated from a cost perspective. Maybe you could just double click on what you're hearing from customers. And does guidance assume any deterioration in the macro or provide any room for some uncertainty or deal pushes or things like that? Just any color there would be great. Thanks. Anil Singhal | President and Chief Executive Officer: Well, at this point, Matt, so right now we see some delayed sales cycles. And so it's maybe quarter to quarter, there might be some issues. We are having broader conferences in Europe, one in Barcelona in June, and then in Asia later in the year. And we'll hear directly sentiments from hundreds of customers. But that's where we see, and I think our, as Gene said, our guidance range covers some of those uncertainties, but it's a little bit wait and see with some customers about timing of the orders. Matthew Hedberg | Analyst, RBC Capital Markets: Great. That's super helpful. I guess just maybe my second one would be the cyber momentum has been pretty strong throughout this year. So looking into next year, as we see that momentum continue, are you expecting a step up in any of those newer products that you highlighted? And what are customers most excited about beyond Core DDoS there? Anil Singhal | President and Chief Executive Officer: Thanks. I think I'd like to say maybe a little bit broader than that. I think our service assurance business has been tough, but over time, because of AI and other things, that business is becoming part of a broader observability market, which is really... allows us to shine our smart data to a larger set of customers, broader budgets, and all those. So we announced a couple of products in that area also. The DDoS area, we have more automation through our adaptive DDoS announcement, but also we are becoming part of a broader cybersecurity market. So I look at for the next two or three years, our market size in both the service assurance area becoming part of the observability and AI market, as well as DDoS expanding to broader cybersecurity market is a real opportunity. And I think we have a very solid and loyal customer base, and this will be relevant to the same set of people or other departments in the same accounts. Matthew Hedberg | Analyst, RBC Capital Markets: Thanks for that, and congrats again, guys. Anil Singhal | President and Chief Executive Officer: Thank you. Operator | Conference Operator: Thank you. And your next question comes from the line of Kevin Liu with K. Liu and Company. Please go ahead. Kevin Liu | Analyst, K. Liu & Company: Hi. Good morning, everyone. Gene and Michael, certainly wanted to wish you well in your retirement and also congrats in order for Tony and Sanjay, of course. On the topic of tariffs, I know you guys haven't seen much impact yet, but I was wondering if you felt there was any sort of pull forward in terms of folks perhaps wanting to get ahead of any potential increases. And if that was reflected in kind of the product backlog exiting the quarter. Gene Bua | Executive Vice President and Chief Financial Officer: Hi, Kevin. Thank you for the congratulations. I would say that we did not see any pull forward from the tariffs. If you think about what happened to us during post-COVID when the hardware components were hard to get, and so people focused towards software. you have the potential through FY26 and the future years of the tariffs to have a similar effect where the software companies could be able to see some growth due to the componentry not being affected by the tariffs. Kevin Liu | Analyst, K. Liu & Company: That certainly makes sense. And actually, just along those lines, within your own pipelines or maybe customer conversations, are you seeing even more interest from customers today to go to more kind of software-only solutions, or is it still fairly consistent in terms of demand for kind of the traditional systems and appliances? Anil Singhal | President and Chief Executive Officer: Yeah, so we have, I mean, our solution does require hardware, but we have unbundled that, and we have been pushing the software solution, and that's one of the reasons we have been able to maintain high margins during the, when we face growth challenges. So, yeah, overall, I think there is, I don't see any change, especially there's no change because of tariffs. And most people buy our software version solution. We do offer a bundle solution, but very few customers are interested because they get us better and user pricing. And we can offer higher discounts on software. Kevin Liu | Analyst, K. Liu & Company: Yeah, makes sense. And then if I could squeeze one more in, just as it relates to your government and defense business, I'm wondering if there was any impact from all the DOGE-related headlines on sales cycles within the quarter and just kind of how you're thinking about contribution from federal in your fiscal 26 guidance. Anil Singhal | President and Chief Executive Officer: So that was a big, there was some refresh cycle in our product line, and it was contributed to some of the numbers last year. And we are expecting some more, but so far we have not seen any effect. But we'll see as six months left in the federal quarter to close. whether our pipeline really delivers. So, yeah, that's a big question mark going forward. But so far, we have not seen anything. Kevin Liu | Analyst, K. Liu & Company: Understood. Well, I appreciate you taking the questions, and congrats on the strong outlook here for 26. Anil Singhal | President and Chief Executive Officer: Okay, thank you. Operator | Conference Operator: Thank you. And there are no further questions at this time. I will now turn the call back to Tony for any additional or closing remarks. Tony Piazza | Deputy Chief Financial Officer: Great. Thank you, operator. That concludes our call for today. Thank you all for joining us, and enjoy the rest of the day. Operator | Conference Operator: Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time. jsPDF 3.0.3 D:20260606090313-00'00'

NASDAQ:NTCT Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Moderator: Please stand by. Your program is about to begin. Ladies and gentlemen, thank you for standing by. And welcome to NETSCOUT's third quarter fiscal year 2025 financial results conference call. At this time, all parties are in a listen-only mode and tell the question and answer portion of the call. As a reminder, this call is being recorded. Tony Piazza, NETSCOUT's deputy CFO, and his colleagues at NETSCOUT are on the call with us today. If you require operator assistance at any time, please press star zero. I would now like to turn the call over to Tony Piazza to begin the company's prepared remarks. Tony Piazza | Deputy Chief Financial Officer: Thank you, operator, and good morning, everyone. Welcome to NETSCOUT's third quarter fiscal year 2025 conference call for the period ended December 31st, 2024. Joining me today are Anil Singhal, NETSCOUT's President and Chief Executive Officer, Michael Sabados, NETSCOUT's Chief Operating Officer, and Gene 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 three, 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 facts. Actual results could differ materially from any forward-looking statements. These statements speak only as of today's date and involve risks and uncertainties, including but not limited to those described on this slide and in today's financial results press release, which are available on the investor relations section of our website, as well as in the company's most recent annual report on Form 10-K and subsequent SEC filings. on file with the Securities and Exchange Commission. NESCAP assumes no obligation to update any forward-looking information except as required by law. Let's now turn to slide number four, 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 the GAAP. Reconciliations of all non-GAAP metrics will be applicable if 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 Singhal | President and Chief Executive Officer: Anil? Thank you, Tony, and good morning, everyone. Welcome and thank you all for joining us today. We delivered Q3 fiscal year 2025 revenue and earnings results that exceeded our expectations with strong performance across both our cybersecurity and service assurance product lines. These results reflect solid execution and the strength of our differentiated solution in addressing the evolving needs of our customers. It's important to note that certain customer orders initially anticipated in the fourth quarter were instead received in the third quarter as customers leveraged the calendar year end budgets. While the timing accelerated certain revenues into Q3, The contribution of these early orders have reinforced our confidence in achieving our full fiscal year 2025 goals and expectations. As we capitalize on opportunity and address the complexity of today's market, we remain confident in our ability to deliver value and meet our customers' cybersecurity and service assurance needs now and into the future. Let's turn to slide number six for a brief recap of our non-GAAP financial results for the third quarter, and first nine months of fiscal year 2025. For the third quarter, revenue was approximately $252 million, up approximately 16% compared to the prior year period. This performance was driven by strong results in both our cybersecurity and service assurance product lines. Diluted earnings per share was $0.94 for the third quarter, which was up approximately 29% from previous year. For the first nine months of the fiscal year 2025, or the period ended December 31, 2024, revenue was approximately $618 million, down approximately 1% year-over-year, reflecting the impact of previously disclosed headwinds. This included unusually high levels of backlog-related revenue and the test optimization business diversions that both benefited the prior year's results and affected the comparisons. The corresponding diluted earnings per share for the first nine months of the fiscal year 2025 was $1.70, an increase of approximately 3% year over year. Now let's move to slide number seven for some further perspective on business and market insights. Starting with our service assurance offering, revenue in the third quarter increased approximately 9%, driven by the acceleration of a large service provider order previously expected in our fourth quarter. For the first nine months of the fiscal year 2025, service assurance revenue was down approximately 5%, primarily due to the previously discussed backlog and deficit-related headwinds. In the service provider customer vertical of our service assurance business, carriers continue to invest in 5G initiatives, at a measured pace as they manage investments against monetization opportunities. On the enterprise front, customers are seeking solutions capable of better advancing their digital transformations and extending visibility to the edges of their network. Our new edge solutions are gaining traction in this area. Moving to our cybersecurity offerings, revenue in the third quarter increased approximately 29%, and increased approximately 7% for the first nine months for the fiscal year 2025. Cybersecurity continues to represent a solid growth opportunity for NetScout, as customers prioritize spending to protect themselves from the expanding cyber threat landscape, not only related to the data center, but at the edge of their networks as well. Accordingly, we continue to enhance our cybersecurity offering with solutions like Adaptive DDoS. For example, we recently announced that our Arbor Edge Defense and Arbor Enterprise Manager products are now updated with artificial intelligence and machine learning technology as part of our adaptive DDoS protection solution to combat AI-enabled DDoS threats. Michael will provide more insight regarding customers in our operating area during remarks. Now let's move to slide number eight to review our outlook. Given our strong performance in the third quarter, along with the acceleration of certain orders, we now have increased visibility and confidence in achieving our full fiscal year 2025 financial objectives. As such, with one quarter remaining in the fiscal year, we are updating our fiscal year 2025 outlook, narrowing the ranges while maintaining the midpoint from the previous guidance for revenue and non-GAAP net income per share. Jean will provide additional color in our outlook in her remarks. Looking ahead, we remain focused on executing effectively as we position the company for the fiscal year 2026 and beyond. At the same time, we continue to leverage the strength of our Visibility Without Borders platform to enable customers to address the performance, availability, and security challenges inherent into this complex digital landscape. We look forward to sharing our progress with everyone at the conclusion of our fiscal year. With that, I'll turn the call over to Michael. Michael Sabados | Chief Operating Officer: Thank you, Anil, and good morning, everyone. Slide 10 outlines the area I will be covering today, starting with Q3 customer win highlights. Starting with our service assurance offerings, one notable win this quarter in the service providers customer segment, was a high-tech, was a high-team, eight-figure order from a long-standing Tier 1 North American carrier customer for 5G-related solutions as they further expand their network capacity. As Anil pointed out, this order was received earlier than anticipated in our fiscal year. We remain focused on supporting our carrier customers as they further advance their 5G network solutions. In the enterprise customer vertical of our services transfering, We are seeing a growing need for network visibility at the edges of our customers' networks. One notable deal was a multi-year enterprise license agreement order, ELA it's called, with an aggregate value in the mid-teen eight-figure range with additional amount in the low seven-figure range. This win was from a leading domestic healthcare provider customer who had grown through acquisition and attempted with limited success to address user experience challenges at its remote clinics and physician offices using competitor and homegrown solutions. The customer plans to roll out our visibility solutions to thousands of locations over multiple years and phases during the ELA period. Shifting to our cybersecurity offering, we want a mid-seven-figure order from a longstanding North American cable operator This customer purchased our new onboard distributed threat mitigation system or DTMS solution that allows them to dynamically allocate their DDoS mitigation capacity to protect the emerging new edges of the network. In terms of go-to-market activities, we continue to actively promote our offerings to both existing and prospective customers at key industry events. In early December, we participated in the AWS reInvent Conference in Las Vegas, where we demonstrated how NETSCOUT's visibility, resiliency, and security solutions, combined with the value of our smart data, unlock the power of our exceptional user experience in the AWS cloud ecosystem. We partnered with Palo Alto Networks to demonstrate the power of NETSCOUT's smart data to take threat detection and respond to the next level to protect and secure multi-cloud and hybrid cloud environments. We plan to be an active participant in the Mobile World Congress in Barcelona in early March, where we will present our latest innovations for enhancing our smart data to accelerate service provider efforts in the 5G, NetOps, AIOps, and mobile network security. At the same time, we will have a NETSCOUT team at the 2025 IMSS, HIMSS Global Conference in Las Vegas, where we will demonstrate our NETSCOUT's visibility and security solutions of protection of performance and availability of essential healthcare networks, applications, and services for some of the world's leading healthcare organizations. And finally, in late April, we will be attending the RSA Conference 2025 in San Francisco, where we will showcase how NETSCOT's visibility with our borders platform combines our engineers' performance management, RBO DDoS protection, and omnis network security solutions to provide end-to-end security, performance, and availability for the world's most powerful digital ecosystem. That concludes my remarks. Thank you, everyone. I will now turn the call over to Gene. Gene Bua | Executive Vice President and Chief Financial Officer: Thank you, Michael, and good morning, everyone. I will review key metrics for our third quarter and first nine months of fiscal year 2025 and provide some additional commentary on our fiscal year 2025 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. Additionally, all comparisons are on a year-over-year basis unless otherwise noted. Slide number 12 details the results for the third quarter and first nine months of fiscal year 2025. Focusing on our quarterly performance, total revenue for the third quarter of fiscal year 2025 was $252 million, up 15.6%. Product revenue was $128.2 million. an increase of 33.8%, while service revenue was $123.8 million, an increase of 1.3%. Gross profit margin was 82.8% in the third quarter, up one percentage point. Quarterly operating expenses increased 3.2%. Accordingly, we reported an operating profit margin of 35.6%, compared with 29% in the same quarter last year. Diluted earnings per share was $0.94, which included an unrealized loss on a foreign investment of approximately $0.07. This was up 28.8% from $0.73 in the same quarter last year. Turning to slide 13, I will review key revenue trends by product lines and customer 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 2025, our service assurance revenue decreased by 5.5%, while our cybersecurity revenues grew by 7.4%. As a reminder, we entered the prior fiscal year with approximately $50 million of backlog, which we did not get the benefit of this fiscal year. During the same period, our service assurance product line accounted for approximately 65% of our total revenue, while our cybersecurity product line accounted for the remaining 35%. Turning to our customer verticals, for the first nine months of fiscal year 2025, our enterprise customer vertical revenue grew 3.7%. while our service provider customer vertical revenue decreased 7.2%. During the same period, our enterprise customer vertical accounted for approximately 57% of our total revenue, while our service provider customer vertical accounted for the remaining 43%. Turning to slide 14, this shows our geographic revenue mix. For the first nine months of fiscal year 2025, 59% of our revenue was derived from the United States, with the remaining 41% provided by international markets. Also, one customer represented 10% or more of our total revenue in the third quarter, as well as for the first nine months of fiscal year 2025. Slide 15 details certain balance sheet and free cash flow items. We ended the third quarter with $427.9 million in cash, cash equivalents, short and long-term marketable securities and investments, representing an increase of $3.8 million since the end of fiscal year 2024. Free cash flow for the quarter was $39.6 million. We currently have capacity in our share repurchase authorization and subject to market conditions, intend to be active in the market during fiscal year 2025. From a debt perspective, we entered the third quarter of fiscal year 2025 with $75 million outstanding on our $600 million revolving credit facility, which expires in October 2029. In the fourth quarter of fiscal year 2025, we intend to fully repay the outstanding $75 million of debt. Briefly recap other balance sheet items. Accounts receivable net was $214.6 million, representing an increase of $22.5 million since March 31st, 2024. The DSO metric at the end of the third quarter of fiscal year 2025 was 75 days, versus 90 days for the same period in the prior year and 81 days at the end of fiscal year 2024. The lower DSO metric in the third quarter of this fiscal year was due to the timing and composition of bookings. Let's move to slide 16 for commentary on our outlook. I will focus my review on our non-GAAP targets for fiscal year 2025. As Annelle noted earlier, with one quarter remaining in the fiscal year, we are narrowing our fiscal year 2025 outlook ranges while maintaining the revenue and non-GAAP diluted earnings per share midpoints that were presented in October 2024 during our second quarter earnings call for fiscal year 2025. For fiscal year 2025, we now anticipate revenue in the range of $810 million to $820 million Additionally, we now anticipate non-GAAP diluted earnings per share within the range of $2.15 to $2.25. The full year effective tax rate is expected to be approximately 20%. Our weighted average diluted shares outstanding is assumed to be approximately 73 million shares, which incorporates our year-to-date share repurchase activity, but does not assume any further repurchase activity. That concludes my formal review of our financial results. Thank you, and I'll now turn the call over to the operator for questions. Operator | Moderator: At this time, if you would like to ask a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, press star 2. We do ask in the interest of time that you limit yourself to one question and one follow-up. And we will take our first question from Matthew Hedberg with RBC Capital Markets. Please go ahead. Mike Richards | Representative for Matt Hedberg, RBC Capital Markets: Hey, good morning, guys. This is Mike Richards on for Matt. Thanks for taking the questions. Sure. Yeah, it was great to see the strength in the quarter. You know, I think coming into the quarter, we kind of expected a muted budget flush from service provider. And, you know, you called out that high team's ace figure pulling. But it kind of looks like guidance implies, you know, another 10 million or so pulled in. So, you know, maybe you could provide us some more detail on, you know, what changed here? Is there a bigger shift in trends? And, you know, what service providers are looking to spend on? And then just like a broader update on your views in the IT spending environment. Anil Singhal | President and Chief Executive Officer: Yeah, I think the overall business has stabilized, but I think on the service provider side, it was many of the service provider customers, their fiscal year starts in January. And so we always have this battle sometime. Sometime we get the our Q4 business in Q3. So that big order we're talking about was basically think of it instead of getting X plus Y into quarter, we got both X plus Y. And so that's basically no big strategic reason. It's just that they had more confidence and they had more budget available this year. And that was mainly the reason. But there is a lot of activity in the Spend is not backed by spend right now, but there's a lot of activity in the 5G cloud area and slicing and other things, which NETSCOT has invested a lot, but has not hit the revenue stream right now. So we expect that will be the reason for spend in the next fiscal year. Mike Richards | Representative for Matt Hedberg, RBC Capital Markets: Great. And then... You guys seemed excited about an emerging opportunity in fixed wireless, so I was just wondering if you could provide an update there and maybe where we are in that journey. Anil Singhal | President and Chief Executive Officer: I think it's still early. We have evaluation going on with three or four customers right now, and our solution is ready, but the amount of money spent on this could be huge because of the amount of traffic. We are looking at some other creative way of looking at VIP traffic as a way to manage the situation. And so at this point, we don't have any success to report in that area, but they continue to be interested in the all top three or four customers of NETSCOUT. Mike Richards | Representative for Matt Hedberg, RBC Capital Markets: Awesome. Thanks, guys, and congrats again. Thank you. Operator | Moderator: Thank you. And we will take our next question from Kevin Liu with K. Liu and Company. Please go ahead. Kevin Liu | Analyst at K. Liu and Company: Hey, good morning, guys, and congrats as well on the strong performance here in the third quarter. Maybe to go back to the service provider side of things, it certainly sounds like budgets have stabilized and we might be at the start of kind of a new upswing in spending there. As you look out for the rest of this calendar year, is that something that you guys are seeing and hearing from your customers as well? And then maybe just touch on You know, some of these newer areas are spending on, in particular, this large order. Is that more tied to some of the legacy projects they've had going on, or are you actually seeing them invest in kind of new areas of monetization? Anil Singhal | President and Chief Executive Officer: Yeah, so I look at, Kevin, is that I think business has sort of stabilized, and you will see some swings because of large order from quarter to quarter. But next year, I mean, we are counting on our existing customers, but not necessarily growing in the traditional way mobile service assurance area, but there are opportunities in cybersecurity. We have a product in the AI area, which we have talked about in the previous calls. And as earlier question indicated, there could be a span in the fixed wireless area and slicing and other areas of 5G. There is some interest in utilities on the private 5G area. So we look at Our investment in the service provider area in 4G and 5G, not necessarily delivering in the growth in the traditional area, but in other areas, as I just talked about. Kevin Liu | Analyst at K. Liu and Company: And maybe just on your cybersecurity products, you know, very strong growth here in the third quarter. How did that split out between kind of enterprise versus service provider for Q3 specifically? And then as you look at your pipelines moving forward, Do you think you can continue to accelerate, you know, your overall growth rate relative to what you've shown over the past nine months? Anil Singhal | President and Chief Executive Officer: Yeah, so Tony is checking us. I don't have the breakdown right now on this, but overall, go ahead, Jay. Gene Bua | Executive Vice President and Chief Financial Officer: So, Kevin, your question is in service provider, in security service provider and enterprise for the quarter, how do they grow? On quarter-over-quarter basis, service provider grew in close to the mid-20s. and enterprise grew close to the mid-30s percentage-wise. Kevin Liu | Analyst at K. Liu and Company: Sorry, I was going to just have you elaborate on that and kind of the future outlook there, whether you can sustain growth rates anywhere near these levels or how you're thinking about that. Anil Singhal | President and Chief Executive Officer: Well, that was the quarterly one. As you know, the year-to-date is in the 7% or so range overall aggregates. But we hope that we can do much better in this area. A lot of the growth is in the DDoS area. As you know, we announced a new product in this area, Omni Cybersecurity. And there's a lot of interest. We have a lot of valuation going on. But that is not a big contributor to this year's growth. So next year, we expect growth from that area. And as we share our guidance in the next quarter, for the next fiscal year, I will highlight that. Kevin Liu | Analyst at K. Liu and Company: All right. Sounds great. Really appreciate you taking the question. Anil Singhal | President and Chief Executive Officer: Thank you. Operator | Moderator: Thank you. Thank you. And it appears that we have no further questions at this time. I will now turn the program back to Tony for any additional or closing remarks. Tony Piazza | Deputy Chief Financial Officer: Excellent. Thank you, operator. This will conclude our call for today. Thank you for joining us and enjoy the rest of the day. Operator | Moderator: Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time. jsPDF 3.0.3 D:20260606090315-00'00'

NASDAQ:NTCT Q2 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Ladies and gentlemen, thank you for standing by, and welcome to NETSCOUT's second quarter fiscal year 2025 financial results conference call. At this time, all parties are in a listen-only mode, and tell the question and answer portion of the call. As a reminder, this call is being recorded. Tony Piazza, NETSCOUT's Deputy CFO, and his colleagues at NETSCOUT are on the line with us today. If you require operator assistance at any time, please press star zero. I would now like to turn the call over to Tony Piazza to begin the company's prepared remarks. Tony Piazza | Deputy Chief Financial Officer: Thank you, Operator, and good morning, everyone. Welcome to NETSCOUT's second quarter fiscal year 2025 conference call for the period ended September 30th, 2024. Joining me today are Anil Sankal, NETSCOUT's President and Chief Executive Officer, Michael Zabados, NETSCOUT's Chief Operating Officer, and Jean Bua, NETSCOUT's Executive Vice President and Chief Financial Officer. There's 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 three, 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. Actual results could differ materially from any forward-looking statements. These statements speak only as of today's date and involve risks and uncertainties, including but not limited to those described on this slide and in today's financial results press release, which are available on the investor relations section of our website, as well as in the company's most recent annual report on Form 10-K and subsequent SEC filings on file with the Securities and Exchange Commission. NETSCOUT assumes no obligation to update any forward-looking information except as required by law. Now, let's turn to slide number four, 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 based 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 the 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 Sankal | President and Chief Executive Officer: Anil. Thank you, Tony, and good morning, everyone. Welcome and thank you all for joining us today. We delivered Q2 fiscal year 2025 revenue and earning results in line with our expectations as we continue to position NETSCORE to win in the market. We remain confident that our differentiated solutions are well positioned to address our customer cybersecurity and service assurance needs well into the future. During the quarter, we released several products and product enhancement aligned with key technology trends that help address our customer cybersecurity and service assurance needs, including our AI-ready smart data solutions. We also had a strong turnout and interest in our recent annual Engage Technology and User Summit that we attribute to our customer enthusiasm for our current and upcoming portfolio of solutions. Looking ahead, we remain focused on executing against our full fiscal year 2025 non-GAAP expectations as we capitalize on the opportunity and navigate the challenges of the current market environment. Let's turn to slide number six for a brief recap of our non-GAAP financial results for the second quarter and first half of our fiscal year 2025. For the second quarter, Revenue was approximately $191 million, down approximately 3% compared to the prior year period. The comparison was impacted by two items that benefited the prior year period. Approximately $11 million of backlog-related revenue and approximately $3 million for the now-devastated test optimization business. Normalizing for those, Q2 revenue would have grown at a mid-single-digit percentage. The diluted earnings per share was 47 for the second quarter, which is down approximately 23 cents or 14 cents from the prior year. As we previously noted, this includes an approximately 15 cents had been from the reversal of incentive-based related expenses that benefited last year's Q2. Normalizing for this Q2 earnings would have been slightly higher year over year, even after absorbing the $0.02 impact from an unrealized foreign investment loss. For the first half of the fiscal year, or the six-month period ended September 30, 2024, revenue was approximately $366 million, down approximately 10% year-over-year, primarily due to the unusually high levels of backlog-related revenue that benefited last year, as well as the aforementioned test optimization divestiture. Normalizing for this factor, our first half revenue would have grown low single digits year over year due to solid order flow growth. The corresponding diluted earning per share for the first half of 75 cents was a decrease of approximately 18 cents year over year. Normalizing for the previously mentioned incentive-related expense headwind alone, our first half EPS would be relatively consistent year over year, as cost management measures and again on a foreign investment help to offset the revenue headwind impacts. Now let's move to slide number seven for some further perspective on business and market insights. Starting with our service assurance offerings, revenue for the first half of fiscal year 2025 was down approximately 13% year over year. That decline was largely attributed to the backlog related revenue headwind and the constrained spending environment primarily from the service provider element of the market. Importantly though, carriers continue to invest their 5G initiatives domestically and internationally at a measured pace as they manage investments against monetization opportunities. On the enterprise front, we also see spending scrutiny but maintain traction and remain confident that as customers advance their digital transformation initiatives, NETSCOUT is well positioned to be an additional business by leveraging our value proposition of extending visibility to the edges of the network. Additionally, as customers advance their AI initiative, we believe our new AI-ready, high-quality, smart data will be invaluable to ensure unique and deep insights critical for enabling organizations to improve decision-making and optimize the user experience. Moving to our cybersecurity offering, revenue in the second quarter increased approximately 3% and was down approximately 4 cents for the first half, primarily due to the backlog-related headwind. Cybersecurity continued to represent a strong growth opportunity for NETSCOUT as customers prioritized spending to protect themselves from the expanding cyber threat landscape. This was validated by our recently released first half 2024 threat intelligence report, where we highlighted that the surge in DDoS attacks and activist activity continues to threaten critical global infrastructure, including banking, financial services, government, and utilities. The report points to a dramatic 43% increase in the number of application layer attacks and 30% increase in volumetric attacks. Michael will provide more insight regarding customer wins in our offering areas during his remarks. Now let's move to slide number eight to review our outlook. Looking ahead, we are reaffirming our full year 2025 non-GAAP revenue and EPS outlooks. Jean will provide a recap of the outlook in her remarks. As we navigate both the opportunities and challenges of the current market environment, we remain focused on executing against our full fiscal year 2025 expectations as we advance our strategic priorities. These include enhancing our cybersecurity offerings to meet growing customer needs, given the expanding cyber threat landscape, and continue to prudently manage costs. During the first half of the fiscal year, we completed the majority of the previously announced voluntary separation program. We expect this to have a benefit of approximately $25 million of annualized cost reduction, a portion of which will be recognized during fiscal year 2025. Long-term, we remain committed to leveraging our Visibility Without Borders platform to help customers address the performance, availability, and security challenges of the complex digital world. We look forward to sharing our progress with everyone throughout the remainder of our fiscal year. With that, I'll turn the call over to Michael. Michael Zabados | Chief Operating Officer: Thank you, Anil, and good morning, everyone. Slide 10 outlines the areas I will be covering today, starting with Q2 customer win highlights. This quarter, I will begin by focusing on a high single-digit, eight-figure combination of orders from a leading global financial institution that spans both our service assurance and cybersecurity product lines. This has been a longstanding customer of ours who uses our service assurance solutions to manage the performance of their networks and customer-facing applications in order to ensure the quality of their customers' experience. They leverage our cybersecurity solutions to protect the availability of their infrastructure against DDoS attacks to prevent disruption to their digital services. In both product lines, they upgraded and expanded our solutions to ensure they had the most current technological capabilities, such as adaptive DDoS insecurity, to assure and secure their network. We were awarded this additional business relationship. Turning to our growth go-to-market activities now. As I stated, we recently released our first half 2024 DDoS threat intelligence report. The report provides a significant insight into the evolving cybersecurity landscape, leveraging our visibility into nearly half of all internet traffic. Additionally, since the last earnings call, we have announced several products that have This includes the release of our Omnis AI Insights solution to deliver high-quality, actionable, AI-ready streaming smart data based on deep packet inspection technology to feed our customers AI initiatives and enable critical insights and outcomes. We also announced an update of our advanced, scalable deep packet inspection-based Omnis cybersecurity network detection and response for NDR platform. which now has additional behavior analytics to enable earlier detection of advanced threats. Finally, we recently hosted our NUI Engage Technology and User Summit in Arlington, Texas. It was another successful event with strong attendance and interest in our new technology initiatives. At the show, we highlighted our upgraded legacy and new solutions and showcased how our highly curated data set can solve security, observability, and service assurance problems faster when integrated with AIOps platforms from our industry-leading partner network, including Splunk and ServiceNow, who co-presented this with us and engaged with our customer attendees. We also conducted our typical combination of presentations, panel discussions, solution demonstrations, and hands-on training. Thank you, everyone. That concludes my remarks, and I will now turn the call over to Jean. Jean Bua | Executive Vice President and Chief Financial Officer: Thank you, Michael, and good morning, everyone. I will review key metrics for our second quarter and first half of fiscal year 2025 and provide some additional commentary on our fiscal year 2025 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. Additionally, all comparisons are on a year-over-year basis unless otherwise noted. Slide number 12 details the results for the second quarter and first half of fiscal year 2025. Focusing on our quarterly performance, total revenue for the second quarter of fiscal year 2025 was $191.1 million, down 2.9%. As Anil shared, our Q2 fiscal year 2025 revenue would have grown at a mid-single-digit percentage when normalizing for the $11 million in backlog usage and $3 million from the disposition of our test optimization business that took place last year. Product revenue of $81 million was up 0.6% year over year. Service revenue was $110.1 million, a decrease of 5.3%, which was primarily due to the timing of the renewal of a large customer's maintenance contract that is expected to close in Q3. Gross profit margin was 79.7% in the second quarter, down 0.6 percentage points. Quarterly operating expenses increased 5.2% in comparison to the prior fiscal year, which benefited from the reversal of incentive-related expenses. Normalizing for this, operating expenses would have declined in single digits primarily attributable to cost management initiatives, including the voluntary separation program. We reported an operating profit margin of 23.1% in Q2 fiscal year 2025, compared with 28% in the same quarter last year. Diluted earnings per share was 47 cents, which included an unrealized loss on a foreign investment of approximately two cents. This was down 23% from 61 cents in the same quarter last year due to the incentive-related expense reversals in the prior period, as well as the unrealized investment loss. Turning to slide 13, I will review key revenue trends by product lines and customer verticals. Please note that all comparisons here are on a year-over-year basis, consistent with our other remarks. As a reminder, we entered the prior fiscal year with approximately $48 million of backlog, which we did not get the benefit of this fiscal year. For the first half of fiscal year 2025, our service assurance revenue decreased by 13.5%. while our cybersecurity revenue decreased by 3.9%. During the same period, our service assurance product line accounted for approximately 65% of our total revenue, while our cybersecurity product line accounted for the remaining 35%. Turning to our customer verticals, for the first half of fiscal year 2025, our enterprise customer vertical revenue was consistent while our service provider customer vertical revenue decreased 22.2%. During the same period, our enterprise customer vertical accounted for approximately 60% of our total revenue, while our service provider customer vertical accounted for the remaining 40%. Turning to slide 14, this shows our geographic revenue mix. For the first half of fiscal year 2025, 58% of our revenue was derived from the United States, with the remaining 42% provided by international markets. Also, no customer represented 10% or more of our total revenue in the second quarter or the first half of fiscal year 2025. Slide 15 details certain balance sheet and free cash flow items. We ended the second quarter with $401.9 million in cash, cash equivalents, short and long-term marketable securities, and investment. representing a decrease of $22.3 million since the end of fiscal year 2024. Free cash flow for the quarter was a use of $5.8 million. During the second quarter of fiscal year 2025, we repurchased approximately 14,000 shares of our common stock for approximately $257,000, or an average price of $18 per share. We currently have capacity in our share repurchase authorization and subject to market conditions and tend to be active in the market during the balance of the fiscal year. From a debt perspective, we ended the second quarter of fiscal year 2025 with $75 million outstanding on our revolving credit facility. In October, we leveraged the favorable financing market environment to amend and extend our credit facility. The amended revolving credit facility reduces the facility size from $800 million to $600 million and extends the maturity from July 2026 to October 2029 while maintaining financial flexibility and lowering financing costs. To briefly recap other balance sheet items, accounts receivable net was $118.6 million, representing a decrease of $73.5 million since March 31st, 2024. The DSO metric at the end of the second quarter of fiscal year 2025 was 53 days versus 69 days for the same period in the prior year and 81 days at the end of fiscal year 2024. The lower DSO metrics in the second quarter of this fiscal year was due to the timing and composition of bookings. Let's move to slide 16 for commentary on Iowa Outlook. I will focus my review on our non-GAAP targets for fiscal year 2025. As Anil noted earlier, we are reaffirming our non-GAAP outlook for fiscal year 2025 that was presented during our July 25, 2024 first quarter earnings call. As a reminder, for fiscal year 2025, we anticipate revenues in the range of $800 million to $830 million. Additionally, we continue to anticipate non-GAAP diluted earnings per share within the range of $2.00 to $2.30 with the midpoint consistent year over year. The full year effective tax rate is expected to be approximately 20%. Our weighted average diluted shares outstanding is assumed to be approximately 73 million shares, which incorporates our recent share repurchase activity, but does not assume any further repurchase activity. Finally, given that we are only halfway through the fiscal year, any further impact associated with the previously mentioned foreign investment, which currently reflects the year-to-date unrealized gains, will be evaluated as the fiscal year progresses as its value and therefore impact to our outlook fluctuates. Our fiscal year 2025 non-GAAP guidance also reflects the anticipated benefits associated with the previously mentioned voluntary separation program restructuring actions and ongoing cost management initiatives. In conjunction with these actions, we recorded a gap restructuring charge in the first half of fiscal year 2025 attributable to one-time separation payments of $19 million, $2.4 million of which was in the second quarter. We expect to record an additional restructuring charge of approximately $6.6 million in the third quarter of fiscal year 2025, primarily for severance costs associated with the remaining implementation of the current BSP. We expect that these actions will generate annual 1 rate savings of approximately 25M dollars of which approximately 19M dollars will be realized in fiscal year 2025 due to the timing of these actions. Finally, I would like to provide some color for the second half of fiscal year 2025. Consistent with the expectations that we shared on our last earnings call, we anticipated a revenue skew of approximately 45% in the first half of fiscal year and 55% in the second half of the fiscal year. We expect the remaining 55% of the full fiscal year's revenue to be essentially split evenly between the third and fourth quarters. We also expect the corresponding non-GAAP earnings per share to be split evenly between the third and fourth quarters. 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 participation is listed on slide 17. Thank you. And I'll now turn the call over to the operator for questions. Operator | Conference Operator: Thank you. And at this time, if you would like to ask a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, press star 2. We do ask in the interest of time that you limit yourself to one question and one follow-up. And we will take our first question from Matthew Hedberg with RBC Capital Markets. Please go ahead. Mike Richards | Analyst: Hey, good morning. This is Mike Richards on for Matt. Thanks for taking the question. Maybe just more 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? Thanks. Anil Sankal | President and Chief Executive Officer: Yeah, I think that's why we have a guidance range to account for those kinds of upsides. Usually, we benefit from the budget flush because we work with very big companies, large carriers, and that's why you often the Q3 is actually better than Q4 in terms of booking. Yeah, we are looking to that and we are working on several opportunities. Mike Richards | Analyst: Got it. And then maybe is there anything, you know, notable to call out in cybersecurity in terms of, you know, what's driving growth and then maybe how that's tracking against your internal expectations and getting to that double-digit growth that you guys are aiming towards? Anil Sankal | President and Chief Executive Officer: Yeah, so we have made a slight pivot about six months ago in terms of our positioning to cover some of the gaps in cybersecurity solutions in the market, which is more around the analytics part, which we have some of the best technology in the DPI area. So that's going very well. Traction is a little slow, but we are looking So over the next six to 12 months, I think we're going to see this attached to some of our customers. And we have also come up with some interesting ideas on how we can position our OCI or Omnis Cyber Intelligence solution in the DDoS space, which was not in the plans last year. Mike Richards | Analyst: Great. Thanks, guys. Operator | Conference Operator: Thank you. And we will take our next question from Kevin Liu with K. Liu and Company. Please go ahead. Kevin Liu | Analyst: Hey, good morning, guys. Nice quarter here. Maybe just to start off with, you know, Verizon has started talking about moving towards standalone 5G in the near future. I'm wondering if you can talk through some of the puts and takes on how that either, you know, increases your opportunity as they do things like network slicing versus any risk you might see if they start to, you know, deprecate some of the more legacy 4G networks. Anil Sankal | President and Chief Executive Officer: Well, there is continued to be, Kevin, a consolidation in the market, both in Europe and this, so it 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 standalone, but slicing is both a revenue opportunity for our customer as well as for us because slicing is the option. optional module in our solution, which doesn't require new hardware upgrade, but this software solution. So yeah, we are looking for initial two or three customers in the US very interested in leveraging that functionality. Kevin Liu | Analyst: Got it. And then also just on the carrier front, there seems to be more talks on their part about this convergence of mobile and fiber broadband. I'm wondering if you have solutions to address the latter piece of that, or if there's anything in the pipeline that you could do in order to help carriers as they move down that strategy? Anil Sankal | President and Chief Executive Officer: Yeah, so there are two kinds of carriers. People who are monitoring user plan, and those people will obviously drive more business with us as fixed wireless initiatives take over in the US and elsewhere. And we are counting on that for next year. For people who are not monitoring user plane, they are largely not impacted from a revenue point of view for us. But our top five or six big customers are all very interested and we think that there'll be uptake in the dramatic uptake in the fixed wireless traffic. And also the R pools for those are much better than the mobility. So because of that, I think there'll be potential investment on NETSERC. Kevin Liu | Analyst: Great. 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? Anil Sankal | President and Chief Executive Officer: Yeah, this is very early. We have We've 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 fiscal year from AIOps. Kevin Liu | Analyst: Thanks for taking the question. Operator | Conference Operator: Thank you. And it appears that there are no further questions at this time. I will now turn the program back to Tony Piazza. Tony Piazza | Deputy Chief Financial Officer: Thank you, operator. That concludes our financial results call for today. Thank you for joining us and enjoy the rest of the day. Operator | Conference Operator: Thank you. This does conclude today's presentation. Thank you for your participation. 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