NetScout Systems Inc. (NASDAQ:NTCT) reported robust financial results for the third quarter of fiscal year 2025, surpassing market expectations with both earnings per share (EPS) and revenue figures. The company achieved a diluted EPS of $0.94, significantly beating the forecast of $0.73. Revenue reached $252 million, exceeding the anticipated $220.97 million. Despite these positive results, NetScout's stock saw a decline of 4.87% in aftermarket trading, closing at $23.84. According to InvestingPro analysis, the company maintains impressive gross profit margins of 77.67% and shows strong financial health indicators, with more cash than debt on its balance sheet.
Key Takeaways
- NetScout's Q3 FY2025 revenue increased by 16% year-over-year.
- EPS for the quarter rose by 29% compared to the previous year.
- The company saw a notable improvement in its operating profit margin, which increased to 35.6%.
- Stock price fell by 4.87% in aftermarket trading despite strong earnings.
- Full-year revenue guidance set between $810 million and $820 million.
Company Performance
NetScout demonstrated strong performance in Q3 FY2025, with revenue climbing 16% year-over-over to $252 million. This growth was driven by robust demand in cybersecurity and network visibility solutions, areas where the company is gaining market share. The company's operating profit margin improved to 35.6%, up from 29% the previous year, highlighting efficient cost management and operational effectiveness. InvestingPro data reveals that NetScout's current valuation implies a strong free cash flow yield, with analysts predicting continued profitability this year. Get access to 10+ additional exclusive ProTips and comprehensive analysis with an InvestingPro subscription.
Financial Highlights
- Revenue: $252 million, up 16% year-over-year
- EPS: $0.94, up 29% year-over-year
- Operating profit margin: 35.6%, an increase from 29% the previous year
- Cash and equivalents: $42.79 million
- Debt: $75 million outstanding on a $600 million credit facility
Earnings vs. Forecast
NetScout exceeded market expectations with an actual EPS of $0.94 versus the forecasted $0.73, marking a 28.8% surprise. Revenue similarly surpassed expectations, coming in at $252 million against a forecast of $220.97 million, representing a 14% beat. This performance reflects the company's strong position in the cybersecurity and network visibility markets.
Market Reaction
Despite the impressive earnings beat, NetScout's stock fell by 4.87% in aftermarket trading, closing at $23.84. This decline may reflect broader market trends or investor caution despite the company's positive financial performance. Based on InvestingPro's Fair Value analysis, the stock appears undervalued at current levels. The company has shown strong momentum with a 22.01% return over the past six months, and management has been actively buying back shares, demonstrating confidence in the company's future.
Outlook & Guidance
Looking ahead, NetScout has provided full-year revenue guidance of $810 million to $820 million and non-GAAP EPS guidance of $2.15 to $2.25. The company remains focused on opportunities in 5G, cloud, and cybersecurity, which are expected to drive future growth.
Executive Commentary
Anil Singhal, CEO of NetScout, stated, "We delivered revenue and earnings results that exceeded our expectations," highlighting the company's strong execution. He emphasized that "cybersecurity continued to represent a solid growth opportunity," reflecting the strategic focus on this expanding market.
Risks and Challenges
- Market volatility could impact investor sentiment and stock performance.
- Competitive pressures in the cybersecurity and network visibility sectors.
- Potential macroeconomic headwinds affecting enterprise spending.
- Managing debt levels with $75 million outstanding on a credit facility.
- Navigating the evolving regulatory landscape in technology and cybersecurity.
Q&A
During the earnings call, analysts inquired about the stabilization of service provider budgets and potential growth areas in fixed wireless and 5G-related markets. Questions also focused on the split of cybersecurity growth between service provider and enterprise segments, with growth rates in the mid-20s% and mid-30s%, respectively.
Full transcript - NetScout Systems Inc (NTCT) Q3 2025:
Conference Operator: Ladies and gentlemen, thank you for standing by, and welcome to NETSCOUT's Third Quarter Fiscal Year twenty twenty five Financial Results Conference Call. At this time, all parties are in a listen only mode until 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.
I would now like to turn the call over to Tony Piazza to begin the company's prepared remarks.
Tony Piazza, Deputy CFO, NETSCOUT: Thank you, operator, and good morning, everyone. Welcome to NETSCOUT's third quarter fiscal year twenty twenty five conference call for the period ended Dec. 31, 2024. Joining me today are Anil Singhal, NETSCOUT's President and Chief Executive Officer Michael Sabados, NetScout's Chief Operating Officer and Gene Buah, 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 3. 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 ks and subsequent SEC filings on file with the Securities and Exchange Commission. Netskav assumes no obligation to update any forward looking information except as required by law. Let's now turn to Slide 4, 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 to 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?
Anil Singhal, President and Chief Executive Officer, NETSCOUT: Thank you, Tony, and good morning, everyone. Welcome and thank you all for joining us today. We delivered 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 were instead received in the as customers leverage the calendar year end budgets.
While the timing accelerated certain revenues into the contribution of these early orders have reinforced our confidence in achieving our full goals and expectations. As we capitalize on opportunity to address the complexity of today's market, we remain confident in our ability to deliver value and meet our customers' cybersecurity and service assurance need now and into the future. Let's turn to Slide number 6 for a brief recap of our non GAAP financial results for the and of For the revenue was approximately $2.52,000,000 dollars 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 which was up approximately 29% from previous year.
For the first nine months of the fiscal year twenty twenty five or the period ended Dec. 31, 2024, revenue was approximately $6.18,000,000 dollars 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 divestiture that both benefited the prior year's results and affected the comparison. The corresponding diluted earnings per share for the first nine months of the fiscal year twenty twenty five was $1.7 an increase of approximately 3% year over year. Now let's move to Slide 7 for some further perspective on business and market insights.
Starting with our service assurance offering, revenue in the increased approximately 9% driven by the acceleration of a large service provider order previously expected in our For the first nine months of the fiscal year 2025, service assurance revenue was down approximately 5%, primarily due to the previously disclosed backlog and divestiture related headwinds. In the service provider customer vertical of our service assurance business, carriers continue to invest in 5 gs initiatives at a major 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 offering, revenue in the increased approximately 29 and increased approximately 7% for the first nine months for the Cybersecurity continued to represent a solid growth opportunity for NetStout 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 Argo license and Argo 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 offering area during remarks. Now let's move to Slide number 8 to review our outlook. Given our strong performance in the along with the acceleration of certain orders, we now have increased visibility and confidence in achieving our full financial objectives.
As such, with one quarter remaining in the fiscal year, we are updating our 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 and beyond. At the same time, we continue to leverage the strength of our visibility with our Board of 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, NETSCOUT: Thank you, Anil, and good morning, everyone. Slide 10 outlines the area I will be covering today, starting with customer win highlights. Starting with our service assurance offerings, 1 notable win this quarter in the service provider customer segment was a high-tech was a high teen 8 figure order from a long standing Tier 1 North American carrier customer for 5 gs 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 5 gs network solutions.
In the enterprise customer vertical of our service assurance offering, we are seeing a growing need for network visibility at the edges of our customers' networks. 1 notable deal was a multi year enterprise license agreement order ELA it's called, with an aggregate value in the mid teen 8 figure range with additional amount in the amounts in the low 7 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 tries 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 won a mid 7 figure order from a long standing North American cable operator.
This customer purchased our new Arbor 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 we participated in the AWS re invent 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 Power Automotive Networks to demonstrate the power of NetScout smart data to take threat detection and response to the next level to protect and secure multi cloud and hybrid cloud environments. We plan to be active an active participant in the Mobile World Congress in Barcelona in where we will present our latest innovations for enhancing our smart data to accelerate service provider efforts in the 5 gs, NetOps, AIOps and mobile network security.
At the same time, we will have a NETSCOUT team at the twenty twenty five HIMSS, HIMSS Cobalt Conference in Las Vegas, where we will demonstrate on EDGAR'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 we will be attending the RSA Conference twenty twenty five in San Francisco, where we will showcase how NETSCOUT's visibility with our borders platform combines our engineers' performance management, firewall data 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 Jean.
Gene Buah, Executive Vice President and Chief Financial Officer, NETSCOUT: Thank you, Michael, and good morning, everyone. I will review key metrics for our and of and provide some additional commentary on our 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 and of Focusing on our quarterly performance, total revenue for the was $2.52,000,000 dollars up 15.6%. Product revenue was $12,820,000,0.0 an increase of 33.8%, while service Quarterly operating expenses increased 3.2 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 verticals. Please note that all comparisons here are on a year over year basis consistent with our other remarks. For the first nine months of our service assurance revenue decreased by 5.5% while our cybersecurity revenues grew by 7.4%. As a reminder, we entered the private fiscal year with approximately $50,000,000 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 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 '50 09/00 of our revenue was derived from The United States with the remaining 41% provided by international markets. Also, 1 customer represented 10% or more of our total revenue in the as well as for the first nine months of Slide 15 details certain balance sheet and free cash flow items.
We ended the with $42,790,000,0.0 in cash, cash equivalents,
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Gene Buah, Executive Vice President and Chief Financial Officer, NETSCOUT: and long term marketable securities and investments representing an increase of $380,000,0.0 since the end of Free cash flow for the quarter was $3,960,000,0.0 We currently have capacity in our share repurchase authorization and subject to market conditions intend to be active in the market during From a debt perspective, we ended the with $75,000,000 outstanding on our $600,000,000 revolving credit facility, which expires in October 2029. In the we intend to fully repay the outstanding $75,000,000 of debt. Briefly recap other balance sheet items. Accounts receivable net was $21,460,000,0.0 representing an increase of $2,250,000,0.0 since March 31, 2024. The DSO metric at the end of the was seventy five days versus ninety days for the same period in the prior year and eighty one days at the end of The lower DSO metric in the 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 As Anil noted earlier with one quarter remaining in the fiscal year, we are narrowing our outlook ranges while maintaining the revenue and non GAAP diluted earnings per share midpoint that were presented in October 2024 during our earnings call for For we now anticipate revenue in the range of $8.10,000,000 dollars to $8.20,000,000 dollars 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 73,000,000 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.
Conference Operator: And we will take our first question from Matthew Hedberg with RBC Capital Markets. Please go ahead.
Mike Richards, Analyst, RBC Capital Markets: Hey, good morning guys. This is Mike Richards on for Matt. Thanks for taking the questions. Sure. Yes, it was great to see the strength in the quarter.
I think coming into the quarter, we kind of expected a muted budget flush from service provider and you called out that high teens pace figure pull in. But it kind of looks like guidance implies another 10,000,000 or so pulled in. So maybe you could provide us some more detail on what changed here, is there a bigger shift in trends, and what service providers you look 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, NETSCOUT: Yes. I think the overall business has stabilized, but I think that on the service provider side, it was many of the service provider customers, their fiscal year starts in Jan. 0. And so we always have this battle sometime. Sometimes we get our business in So that big order we're talking about was basically think of it instead of getting X plus Y in 2 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 it's not backed by spend right now, but there's a lot of activity in the 5 gs cloud area and slicing and other things, which Netskot 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, Analyst, 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, NETSCOUT: I think it's early. We have evaluation going on with 3 or 4 customers right now and our solution is ready. But the amount of money spent on this is it could be huge because of the amount of traffic. So we are looking at some other creative way of looking at VIP traffic as a way to to manage the this situation. And so at this point, we don't have any success to report in that area, but there continue to be interest in the all top 3 or 4 customers of Netskope.
Mike Richards, Analyst, RBC Capital Markets: Awesome. Thanks guys and congrats again.
Anil Singhal, President and Chief Executive Officer, NETSCOUT: Thank you.
Conference Operator: Thank you. And we will take our next question from Kevin Liu with K. Liu and Company. Please go ahead.
: Hi, good morning guys and congrats as well on the strong performance here in the Maybe just 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 some of these new areas you're 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, NETSCOUT: Yes. So I'd look at, Gavin, is that I think business has sort of stabilized and you will see some swings because of large orders from quarter to quarter. But next year, I mean, we are counting on our existing customers, but not necessarily growing in the traditional 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 5 gs. There is some interest in utilities on the private 5 gs area. So, we look at our investment in the service provider area in 4 gs and 5 gs, not necessarily delivering in the growth in the traditional area, but in other areas as I just talked about.
: Got it. And maybe just on your cybersecurity products, very strong growth here in the How did that split out between kind of enterprise versus service provider for specifically? And then as you look at your pipelines moving forward, do you think you can continue to accelerate your overall growth rate relative to what you've shown over the past nine months?
Anil Singhal, President and Chief Executive Officer, NETSCOUT: Yes. So Tony is checking it. I don't have the breakdown right now on this. But overall, go ahead, Jade.
Gene Buah, Executive Vice President and Chief Financial Officer, NETSCOUT: So, Kevin, your question is in service provider and security service provider and enterprise for the quarter, how do they grow? On a quarter over quarter basis, service provider grew in close to the mid-20s and enterprise grew close to the mid-30s percentage wise.
Anil Singhal, President and Chief Executive Officer, NETSCOUT: So, yes, go ahead.
: 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, NETSCOUT: Well, that was a quarterly 1. As you know, the year to date is in the 7% or so range overall aggregate. And 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 is 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, we'll highlight that.
: All right. Sounds great. Really appreciate you taking the questions.
Anil Singhal, President and Chief Executive Officer, NETSCOUT: Thank you.
Conference Operator: 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 CFO, NETSCOUT: Excellent. Thank you, operator. This will conclude our call for today. Thank you for joining us and enjoy the rest of
Conference Operator: the day. Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.
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