Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NetScout Systems Inc (NTCT, Financial) delivered Q1 fiscal year 2025 revenue at the higher end of expectations.
- EPS exceeded expectations due to continued cost management initiatives and an unrealized gain on foreign investments.
- The company secured significant deals, including a multiyear enterprise license agreement with a Tier one North American carrier and a European carrier.
- NetScout Systems Inc (NTCT) is focusing on enhancing cybersecurity offerings to meet customer needs in an expanding cyber threat landscape.
- The company is advancing its voluntary separation program, expecting to benefit from approximately $25 to $27 million of annualized cost reduction.
Negative Points
- Revenue for Q1 fiscal year 2025 was down 17% year-over-year due to a high level of backlog-related revenue in the prior year's quarter.
- Service assurance revenue decreased by 20% year-over-year, reflecting tight spending by customers.
- Cybersecurity revenue was down approximately 11% year-over-year, presenting a challenging comparison due to prior-year backlog.
- Operating profit margin decreased to 8% from 14% in the same quarter last year.
- Diluted earnings per share decreased by 10% year-over-year, impacted by lower revenue despite cost management initiatives.
Q & A Highlights
Q: What excites you the most about future investment and growth opportunities in your cybersecurity division?
A: Aneel, President and CEO: We are focusing on expanding our cybersecurity offerings, particularly in the area of new cyber intelligence. Additionally, we are investing in AI operations (AIOps) and edge instrumentation, which have shown significant customer interest and potential for growth.
Q: How do you think about the building blocks to return to more sustainable growth?
A: Jean, CFO: We are leveraging our Omnis platform and extending our service assurance capabilities to AIOps and edge instrumentation. These initiatives, along with strategic partnerships, are expected to drive future revenue growth.
Q: Can you provide more details on the agreements extended with your large carrier customers and the impact of 5G?
A: Aneel, President and CEO: The agreements were driven by 5G upgrades but also focus on AIOps, which we believe will drive more spending. We are leveraging existing hardware and introducing new software modules to appeal to a broader audience within our customer base.
Q: What is the expected growth rate for your cybersecurity business, and how does the pipeline look?
A: Aneel, President and CEO: We aim for double-digit growth in cybersecurity this year. Despite a strong previous year, we see a robust pipeline and expect long-term double-digit growth in this segment.
Q: How did the Q1 backlog impact your revenue growth, and what are the expectations for Q2 and fiscal year 2025?
A: Jean, CFO: The Q1 backlog created a headwind, but we expect revenue for Q2 to be in the range of $185 million to $195 million. For fiscal year 2025, we anticipate revenue between $800 million and $830 million, with non-GAAP EPS in the range of $2.01 to $2.30.
Q: What are the key areas of focus for NetScout in the coming quarters?
A: Michael, COO: We are focusing on enhancing our cybersecurity offerings, promoting our industry leadership, and leveraging partnerships with companies like Palo Alto Networks and AWS. We also plan to highlight new AI and machine learning capabilities at our upcoming Engage technology and user summit.
Q: How are you managing costs and what are the expected savings from the voluntary separation program?
A: Jean, CFO: We expect annualized cost reductions of approximately $25 to $27 million from the voluntary separation program, with $18 to $19 million of savings realized over the remaining three quarters of fiscal year 2025.
Q: What is the geographic revenue mix and customer concentration for Q1 fiscal year 2025?
A: Jean, CFO: 57% of our revenue was derived from the United States, with the remaining 43% from international markets. No customer represented 10% or more of our total revenue in Q1 fiscal year 2025.
Q: How did the service assurance and cybersecurity product lines perform in Q1 fiscal year 2025?
A: Jean, CFO: Service assurance revenue decreased by 20.1%, while cybersecurity revenue decreased by 11.1%. Service assurance accounted for 67% of total revenue, and cybersecurity accounted for 33%.
Q: What are the key financial metrics for Q1 fiscal year 2025?
A: Jean, CFO: Total revenue was $174.6 million, down 17.3%. Gross profit margin was 77.1%, and diluted earnings per share was $0.28. We ended the quarter with $407.2 million in cash and repurchased approximately 1.3 million shares of common stock.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
