Anil Singhal - President & Chief Executive Officer Michael Szabados - Chief Operating Officer Jean Bua - Chief Financial Officer Cathy Taylor - Director of Investor Relations.

Alex Kurtz - Sterne, Agee & Leach, Inc. Mark Kelleher - Dougherty & Company LLC Matthew Robison - Wunderlich Securities, Inc. Scott Zeller - Needham & Company, LLC Gary Spivak - ABR Investment Strategy Sanjit Singh - Wedbush Securities Kevin Liu - B. Riley & Co., LLC Aaron Schwartz - Jefferies & Company, Inc.

Mark Jordan - Noble Financial Group Chad Bennett - Craig-Hallum Capital Group.

Ladies and gentlemen, thank you for standing by, and welcome to NetScout’s first quarter fiscal year 2014 operating results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given to you at this time. As a reminder this conference call is being recorded.

With us today is NetScout’s President and CEO, Mr. Anil Singhal. He is accompanied by NetScout’s Chief Operating Officer, Mr. Michael Szabados; and NetScout’s Chief Financial Officer, Ms. Jean Bua. At this time, I will turn the call over to Ms. Cathy Taylor, NetScout’s Director of Investor Relations to provide the opening remarks. Ms.

Taylor, please proceed..

Thank you and good morning everyone. Welcome to NetScout’s fiscal 2014 first quarter conference call for the period ended June 30. Before we begin, let me remind you that during the course of this conference call we will be providing you with a discussion of the factors that we currently anticipate may influence our results going forward.

These statements include forward-looking statements made pursuant to the Safe Harbor provisions of Section 21E of the Securities Exchange Act of 1934 and other federal securities laws. These forward-looking statements may involve judgment and individual judgments may vary.

Forward-looking statements include expressed or implied statements regarding future economic and market conditions, guidance for fiscal year 2014, acquisition integration success and new product releases.

It should be clearly understood that the projections on which we base our guidance and other forward-looking statements and our perception of the factors influencing those projections are highly likely to change over time. Although those projections and the factors influencing them will likely change, we will not necessarily inform you when they do.

Our company policy is to provide guidance only at certain points in the year such as during the quarterly earnings call. We do not plan to update that guidance otherwise. Actual results may differ materially from what we say today and no one should assume later in the quarter that the comments we make today are still valid.

For the further discussion of the risks and uncertainties that could cause our actual results to differ, see the specific risks and uncertainties discussed in NetScout’s Annual Report on Form 10-K for the year ended March 31, 2013 on file with the Securities and Exchange Commission.

We have included on today’s webcast a slide presentation that provides a summery of key financial data that accompanies the financial sector of today’s discussion.

For those listeners who have dialed into the call this morning and would like to view this slide presentation, you can find it by going to your website at www.netscout.com/investors and then clicking on today’s webcast.

While the 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. Non-GAAP items are described and reconciled to GAAP results in today’s press release.

I would also like to point out that growth rate discussions are based on a year-over-year basis unless otherwise noted. This concludes the introductory remarks and I would now like to turn the call over to Mr. Anil Singhal, our Chief Executive Officer..

Thank you Cathy. We are pleased with our results of the first quarter of our new fiscal year. Non-GAAP revenue for the quarter was $81.9 million, which is up 7% over the same quarter a year ago, despite continued weakness in the government sector of our business. Non-GAAP earnings per share were $0.21, up 11% over last year.

Our non-GAAP operating margin was 17%, flat compared to last year this quarter. Starting with the current fiscal year, we have decided to make some changes to our reporting and our continuing efforts to report and convey our company’s business results to our shareholders in a clear and transparent manner.

First we’ll be focusing the bulk of our discussion on non-GAAP revenue and removing discussion on new business bookings, renewal bookings and total bookings. Non-GAAP revenue represents actual customer delivered services and solutions that we provided for the reporting period.

Secondly, we will discover our revenue achievement based on three sectors; service provider, general enterprise, and government. We have selected these three sectors based on their operating, marketing and buying characteristics as it pertains to our product and customer focus.

At the aggregate level we will focus our discussion on product revenue and total revenue. We will discuss total revenue composition by sector, revenue growth by sector and our revenue composition by geography.

We will discuss the sectors on a year-to-date basis rather than quarterly, since there can be anomalies in any given quarter which makes comparison more difficult. Lastly, we continue to believe that our performance is more easily measured over a longer time period and we’ll continue to provide annual guidance.

We’ll update our annual guidance at the end of any reporting quarter if needed. Jean will discuss these measurements later in our call. Continuing with our business results within our three sectors, service provider continued to deliver high growth rates that are consistent with our expectations.

In this arena we have continued to win deals with our 3G and LTE data monitoring capabilities and are experiencing a steady increase in interest in our early VoLTE, Voice Over LTE service assurance solutions. General enterprise in which we saw and which we are now including financial services grew at a respectable growth rate.

Our investments in auxiliary products such as our Packet Flow Switch technology continued to do well in this area. Sales of our Packet Flow Switch products have grown since a year ago and are shifting to a balanced mix of modular and chassis-based deals, leveraging both our Simena and ONPATH acquisitions.

Our initial growth has been fueled primarily by enterprise performance management related deals and our plan is to increase our capture of the equally sizable enterprise security and service provider opportunities.

Focus development effort is ongoing towards leadership software features and hardware capabilities, including the release of a super high-density chassis and 100 gigabit capability in the near future. The government sector is still in the midst of sequestration and cost cutting issues.

Our overall growth was impacted by the year-over-year continued decline in our government business. Despite the funding challenges that have permeated the sector, our solutions have continued to be highly relevant to the needs of the key government agencies.

This is collaborated by the solid ongoing renewal business, indicating high loyalty levels of our government installed base, as well as good attendance at our visa mini user growth meeting in DC.

We believe that the federal government will continue to be an important part of our business and for now we are maintaining our level of investment in government sector initiatives and the growth level.

As we have discussed in the past, we launched our next-generation product targeted at service assurance triage and conversion of NPM and APM called nGeniusONE. nGeniusONE is the result of our leadership and understanding of technology trends within the industry and is based on our unique and patent timing ASI technology.

nGeniusONE represents the first integrated product platform in the industry, to address service delivery issues from a network-based and application management perspective. nGeniusONE represents a truly new platform as using a very different approach, technology and go to market strategy.

We believe our core data source technology ASI provides a unique advantage in speed and scale of collecting and exporting relevant data sets to big data analytics platforms.

We have been successful in providing business intelligence for our large German enterprise and service provider customers and will continue to make this value-added component of our product and service available to our customer base.

I will now turn the call over to Michael who will talk about the nGeniusONE rollout as well as some exciting news on our continued market leadership..

INTERNET TELEPHONY Product of the Year and network computing, testing and monitoring product of the year just to name a few. We believe that the introduction of nGeniusONE last month and the rollout of the new product to our existing customers and the broader market will help to continue and strengthen our market leadership in the coming years.

I will now turn the call over to Jean for the detailed financial result discussion..

Service provider, $26.8 million or 35% of total revenue; government, $10.7 million or 14% of total revenue; and general enterprise, $39 million or 51% of total revenue.

Turning to slide eight which shows our total revenue growth by sector, our total revenue for the service provider sector grew 18% on a year-over-year basis, driven by our continuing project wins; our general enterprise sector grew 8%; total revenue for the government sector decreased 25% year-over-year.

Turning to slide nine, this is a depiction of our first quarter revenue by geography. For the first quarter of fiscal ‘14 the revenue mix between domestic and international revenue of 77% and 23% was generally consistent with our historical averages, where domestic revenue is approximately 75% of our revenue and international is the remaining 25%.

Within our international sales, the mix is also generally consistent with prior results. Europe delivered 11% of our international sales, while Asia delivered 5% and the rest of the world delivered the remaining 7%. Slide ten includes highlights from our balance sheet. We continue to maintain strong liquidity.

At the end of the first quarter of fiscal 2014 we have invested cash, short-term marketable securities and the long-term marketable securities of $162.8 million. This represents an increase of $8.7 million from the prior year’s ending balance of cash and short and long-term marketable securities of $154.1 million.

Our first quarter fiscal year ‘14 free cash flow generation was $16.2 million. In the quarter we continued our share repurchase program and repurchased 250,000 shares for $5.9 million. Accounts receivable, net of allowances was $50.9 million, down from $73.9 million at the end of fiscal year 2013.

Day sales outstanding were 55 days for the quarter, compared to 68 days for the fourth quarter of FY ‘13. The day sales outstanding of 55 days for the quarter is ten days more than the first quarter of fiscal 2013. The ten-day differential in the quarter-over-quarter DSO is the result of the timing of orders and shipments in each quarter.

In Q1 FY ‘14 approximately 80% of our quarterly shipments were invoiced in the second half of the quarter, in comparison with approximately 60% being invoiced in the second half of our Q1 FY ‘13 quarter. Inventories were $10.9 million. This is a $3.3 million increase from the fourth quarter of fiscal 2013.

Additionally, our total deferred revenue was $117.8 million. This is down from $121 million for the fourth quarter of last year. This decrease is in line with our historical pattern for Q1 as this quarter historically seized lower levels for renewals. Deferred revenue is up 10% from the ending Q1 fiscal 2013 balance.

Turning to our guidance for fiscal year ‘14, slide 11 illustrates our guidance range for revenue and earnings per share. We are reiterating our guidance for FY ‘14 for both revenue and earnings per share. Our non-GAAP revenue guidance for fiscal year 2014 is $385 million to $400 million, yielding a revenue growth rate of 10% to 14%.

As noted on our second quarter earnings call of last year, due to the new product introduction and the related back sales pipeline generation, our performance and guidance will be slightly more skewed to the second half of our fiscal year.

We anticipate that are second half will contribute approximately 56% to 57% of our total revenue at the midpoint of guidance. Additionally, as we head into the second quarter, I would like to remind you of our service provider sector’s lumpy purchasing patterns.

For the second quarter of last year, service provider new business bookings growth was 117%. This translated into 113% products revenue growth for Q2 FY ‘13 over Q2 FY ‘12. We continue to believe that service provider has the ability to be a 20% grower for the company.

However, last years quarter’s performance is not expected to be repeated in Q2 of this year. Therefore the service provider effective growth on a comparative basis may appear to decline on both the quarterly and year-to-date basis.

Our non-GAAP net income per share guidance for fiscal year 2014 is $1.40 to $1.50, using non-GAAP EPS growth of 6% to 14%. As an additional effect of the higher service provider growth in Q2 of fiscal year 2013 that I noted a moment ago, we also experienced increased profitability related to the quarters customer mix.

The customer mix profitability, resulted in historically high gross margin and operating margin for the quarter of Q2 FY ’13, which we do not believe will be repeated in our upcoming fiscal Q2. The extraordinary margin performance also contributed approximately $0.02 to our reported $0.34 of non-GAAP EPS for the second quarter of last year.

This resulted in our non-GAAP EPS skew being approximately 40% for the first half of fiscal year 2013. Adjusting for the $0.02 higher profitability and the revenue skew associated with new product introductions noted earlier, we anticipate the non-GAAP EPS skew for fiscal year 2014 will be approximately 36% to 38% for the first half of fiscal 2014.

Additionally, this quarter’s non-GAAP provision for income taxes was approximately one percentage point higher at 38%. This was due to the pattern of our quarterly earnings over the fiscal year. We continue to project that our effective non-GAAP tax rate for fiscal year ‘14 will be approximately 37%.

Consistent with past practice, we have used the statutory tax rate of 38% to tax affect the non-GAAP adjustments. Before we conclude the financial portion of our remarks, I would like to inform you of the upcoming conferences in which we will be attending.

On August 6 we will be attending the Needham conference in New York City; on August 12 we will attend the Sterne, Agee conference in Boston; on August 14 we will attend the Oppenheimer conference in Boston; and on September 17 and 18 we will attend the Credit Suisse conference in New York City. That concludes our financial discussion this morning.

Thank you for joining us and we look forward to taking your questions. Denise, we will take questions now. Thank you..

(Operator Instructions). Your first question comes from Alex Kurtz with Sterne, Agee. Your line is open..

Thanks guys for taking a couple of questions here. First Jean, can you talk about the government business? I think sequestration ratio really was a big part of this year, but it just seems like there has been a structural shift in how that segment has performed for you.

Is there something just structurally different now, and it’s beyond just government cost? There is just you are reaching a certain amount of saturation with that vertical?.

No, I mean we are not obviously reaching anywhere close to saturation. It was less than 10% of our business and it’s becoming even lower this year.

So we are not seeing any improvement, but at the same time, there are a lot of interest in our product, including the new one, but they are just budget holes and so the reasoning is we don’t see at least right now any difference than last year and certainly there is nothing to do saturation..

So let me just ask a follow-up and I’ll jump off the line here, Anil. So you guys have talked about mid-teens type of growth rate for the company as sort of a target goal.

Looking forward can you get to those growth rates with government performing the way it has in the last year or so?.

I think our guidance is what you should look at and that guidance assumes what expectations we have from the government sector, which is continued weakens. So we gave the guidance, keeping in mind that there will be quite a duration, it maybe even from last year into that business..

Hi Alex, this is Jean. At the low end of our guidance we have anticipated that federal will remain at the same levels that we experienced in FY ‘13. As we get towards the higher end of our guidance, which as you pointed out is more towards the mid-teens growth, we would want a few things to happen.

One we would want federal to do slightly better than it did last year, but not to any degree better than it did before. Cost consolidation and sequestration hit in FY ‘12. And then there are other factors in there; as you know our guidance is second half skewed more this year and last year.

We would also want the nGeniusONE product to do very, very well in this year. It has a long sales cycle. Our general sales cycles are six to nine months and we launched it at the end of June, but we’ve had tremendous reception from the customers that have seen it so far, so we are optimistic..

All right, thank you..

Your next question comes from Mark Kelleher with Dougherty & Company. Your line is open..

Great, thanks for taking the questions. I was wondering if you could give us some more insight in the carrier market. There is certainly some thoughts that there’s a CapEx cycle underway in the carrier market.

How exposed are you to that versus connected specifically to the 4G and 3G rollouts? And where are we in the cycle of the 4G and 3G rollouts? Thanks..

I think its just sort of, it’s somewhere midway through that. I mean even Voice Over LTE is really part of the 4G cycle.

So I look at the early stages of LTE, our product was most used for troubleshooting and now it’s being used for more planning and reporting and trending, and next year maybe more towards business intelligence reporting and market intelligence.

The common factor in all three is that we have the common, the way we have the ASI technology, which we feed to all three-use cases. So while we talk about LTEs, that’s like more of the monolithic one time growth rate, I think it’s a continuing experience and I think we see a lot of opportunities.

Even if the LTE infrastructure is fully deployed, in terms of what people need to do with our product, I think we are still in the mid-stages of that growth..

And do you get a sense of carriers are opening up their wallets a little bit more these days?.

I mean, we have not seen too much difference from last year, but I think as our new product in the voice area from the Accanto acquisition is coming align, we see some growth which we didn’t see last year in that area as well..

Okay, great, thanks..

And your next question comes from Eric Martinuzzi with Lake Street Capital. Your line is open..

Thanks for taking my question. In Michael’s part of the prepared remarks you talked about an anecdote of a customer who would use the streams in nGeniusONE for kind of a large global e-commerce website.

Curious to know if that was competitively bid and if so, who was it competitive with?.

It wasn’t competitive to my knowledge. It was certainly in the later stages of the deal. But, I don’t know the answer in more detail at this point..

So that particular customer that Michael mentioned is a prime example of our customer penetration strategy, where they were an existing customer monitoring their network.

We had had them look at nGeniusONE and they were very impressed and decided to use it for applications and discovered through the testing that the tool was probably the best way to do the convergence of NPM and APM. So there wasn’t a need for them to look at other competitors..

I think website monitoring is one of the areas which was not fully developed in the previous solution, so this deal which Michael talked about came about more because of nGeniusONE focus on the application side, which indirectly translate into website monitoring for performance and things like that, which traditionally we have not been used in that area..

Okay, and then just a follow-up on the guidance. Obviously, a huge back half skewing here is implied in the guidance just based on the percentage first half versus second half.

You’re looking for kind of a 30% revenue uplift and as I do it quarter-by-quarter, you got an average about $111 million in the back half versus the $85 million implied in the quarters in the front half.

As I look at slide seven, which is the slide that talks about the revenue, the total revenue composition in Q1, does that revenue composition change much for the fiscal year and maybe even just going down to the product level. In other words, is that back half, that substantial back half growth.

What got you here in Q1, is that what got you there for the fiscal year?.

So just to make sure we are talking on the same page Eric, the way I look at our guidance range, at the midpoint of guidance, we would have to grow in the second half roughly the 25% – the uplift over last year would roughly have to be, if I have this right, closer to 15% to 17%, just to make sure we are talking apples to apples.

In the back half of the year what I think we see is the nGeniusONE product being successful. It will be successful in the general enterprise sector, as well as in the service provider sector. And we continue to build the pipeline and service provider, and we continue to have good success.

So at this point, since we are reaffirming guidance, we are confident in our second-half performance..

Okay, yes. We are talking about the same numbers. I was just talking sequential half, second half versus first half and you were talking second half versus second-half a year ago..

Thank you..

Your next question comes from Matthew Robison with Wunderlich Securities. Your line is open..

Hey, thanks for taking the question.

First, can you comment on why inventory increased as much as it did?.

Yes, well primarily because of product and the platform transition and also because of the new products coming in from primary from the packet flow switch areas. So there are more product lines that we need to stage for and so that’s one of the key factors.

The second key factor is position for growth, and so I believe that the inventory levels will probably be the level off as we go through these transitions..

I guess that’s a pretty hardware intensive product, so I can see that maybe above.

Does it have a – is it going to have an impact on gross margin?.

No, it’s not. We’ve been maintaining the gross margin and the initial deployment, I mean we are looking at like Michael is saying some product transition, but anybody who has bought the product in the last couple of years, they don’t need to refresh the hardware or anything.

So we don’t expect any implications in that area or in terms of gross margins moving forward..

So just to add on to what Anil said, the gross margin as we talked about on previous calls for the packet-flow switch is more hardware-based than it is software-based. So to the extent that the composition is more hardware, it does have lower gross margin.

So in some quarters where we experienced, say a higher configuration of packet flow switch technology in our normal products, we may see a smaller deterioration in the gross profit margin. However, it will remain in line with our long-term operating model..

To what degree should we think of the packet flow switch driving that strength in your second half?.

I mean, not much different than last year. We don’t break it out. I mean the packet flow switch is still going to be a very small portion of the, maybe bigger portion of the growth, but not substantially bigger than the overall nGeniusONE growth, but is a very small portion of the total.

So that’s way Jean is saying even though the individual margins maybe lower, the aggregate margins will be around the same, at the gross margin level for the company..

Okay.

And Jean, can you tell us what CapEx and depreciation were?.

Sure. For the quarter depreciation was $3.2 million and amortization was $1.7 million, and CapEx itself was $2.4 million..

Okay, so the big difference in the cash flow for the first quarter this year versus last year looks like a big – the accrued comp decrease was much more dramatic this year I guess, and that new inventory would you say..

Well, it’s a few things. The cash flow of Q1 FY ’13, we had generated $36 million of free cash flow and about $3 million of CapEx. So the cash flow for that quarter was about $33 million of free cash flow.

And as you know, the FY ‘13 performance over FY ‘12, during that time period the business grew in the mid-teens and its also the usage of backlog, how it came in FY ‘12 and how it affected the accounts receivable and especially the DSO as I noted in my comments. So you did see a large generation in Q1 of working capital.

As you mentioned also accrued comp in FY ’13, first quarter was a large driver and we also started an employee stock purchase plan in that quarter. So there was some one-time anomalies in FY ‘13 that made the cash flow, the free cash flow over FY ‘12 grow more substantially.

I don’t think the growth in the free cash flow that you saw in FY ‘13 from FY ’12 will occur in FY ’14, but we do believe that our free cash levels will remain consistent if not slightly higher than FY ‘13 free cash flow levels..

What should we expect to see tax levels to be for GAAP and non-GAAP?.

For non-GAAP we believe that the tax rate for this year will still be around 37% and the earnings pattern, how the earnings come in, the composition of what we sell and the fact that the Accanto products should probably come in and be starting to be shipped in Q2, Q3; it mostly affects that pattern.

So over the long-term, over this year we see it coming down from the 38% that we reported on a non-GAAP tax rate this quarter, down to about the 37% by the end of the year..

So you recognize he Accanto revenues in the middle of the year I guess; is that right?.

Its more of the operating expenses and how they get treated for GAAP accounting, and then all we really do is take the non-GAAP items out at a 38% tax rate. So its more the accounting of how the tax provisions are supposed to be handled and the results of your foreign operations that skewed it more in this quarter..

What was the original flavor for your service provider business?.

Its still consistent with prior quarters where about say 75% of the service provider revenue is still coming from our larger Tier 1 domestic clients..

And book-to-bill?.

We don’t calculate that..

So how did the backlog grow?.

Backlog at this point is below the reporting threshold. Its basically relatively consistent with where it was at the end of Q4 of last year..

Thank you..

Your welcome..

Your next question comes from Scott Zeller with Needham & Company. Your line is open..

Thanks. I’d like to ask a question; looking at previous guidance and then you reiterated the guidance today. Anil when you first guided for the year saying that it was going to be slightly more weighted to the second half, I believe the last conference call you had mentioned it would be about a 5% shift.

When you were formulating that guidance, was there any impact of a pause in customer buying ahead of nGeniusONE or was your thinking mostly based on macro?.

I think it is not even – I mean I don’t whether you’re mentioning the macro conditions being from outside. I think it was more internal that in order for us to drive growth we need to find new opportunities and nGeniusONE by the time it leverages those opportunities will be second half.

And if we announced it in June it takes a couple of months, but based on the initial interest, I think we seem to be guessing right on the impact on the second half. So I think it was mainly not the macro condition outside; it was more of our own product cycle and where we see the impact..

And just a follow-up on that.

Could you tell us from your own viewpoint, what is the single or the top one or two things that are most compelling about nGeniusONE? There was a mentioned earlier, I think Michael had mentioned it or you about website monitoring, and I wondered if just for investors, what is it that you think is most compelling about nGeniusONE versus the older products?.

Okay, so I’ll mention something and then plus next time we will have in a few months another Investors Day and which we’ll announce next time and that time we’ll cover in even more detail. By that time we would have had some more information on how well it’s shaping up. But overall I think it’s very simple.

People who are using our solution is proportional to the degree, a customer instrument, their environment instrument meaning where they put this meter for agents approach, which we call InfiniStream. And previously they were putting it only in places where network performance was an issue, or mostly in those places.

Now they are putting it in places for example in front of the server farm. Not just in front of their routers. So every server farm and there are key sets of server farms.

One of the big server farms is the website, and so people are really – when people are looking at traditional APM, they are simply looking at how the application code is performing, that’s a traditional APM solution.

But how that’s impacted by network, how it’s impacted by how the server farm, because today’s server farm is like yesterdays, much bigger than a yesterday’s mainframe, but it is not a single component, a lot of things can fail.

So one of the key portions of the strategy is server farm, which are simply there to provide the best application performance. There is no good solution for monitoring those as an entity. So that’s where we’ll be selling more InfiniStream. So that’s one of the big use cases of us going into APM through nGeniusONE..

Thank you. Last question is regarding the financials vertical. Maybe Jean, you could give us some color.

I know you are not breaking out separately, but can you give us some color about the performance of the financials?.

Sure. The performance of the financial sector, of the industry was in the general enterprise sector, is basically the same trends that we have seen over FY ‘13 where we have some of our domestic based financial institutions doing various projects. Either a data refresh or use of our voice and video product.

Again, we still see a little bit of signs of life in the international based financial services, but it’s still mostly domestic based financial services that have contributed to growth this year..

Should we assume that it was positive?.

Yes, yes, it was..

All right, thank you..

Your next question comes from Gary Spivak with ABR Investment Strategy. Your line is open..

A question; I want to follow-up on the backlog question. Is it still your intent to report backlog when it’s over.

What I guess is a $10 million threshold? Is that accurate?.

Less than $10 million in general always is to give information that is material and important to the story. At $10 million you get varying perspectives. $10 million of backlog on a $385 million to the $400 million business is not necessarily that material.

Clearly it is an item that we’ll report in our 10-K as required, but if it is an important piece of information in any given quarter earnings, we will definitely talk to you about it..

Okay, so we shouldn’t think of that as the magic number?.

No, I don’t think that is the magic number at all..

I think we’ll report if there’s something really unusual, then we’ll report it. That’s what Jean is saying. Not just traditionally, other than what we have to do it in the 10-Ks and 10-Qs..

Okay. I want to ask a little bit of the project that you are seeing in the service providers.

Are you seeing them – I mean you mentioned VoLTE, are you seeing them continuing to expand the basic LTE infrastructure or have they migrated to new services like VoLTE and how much of that is driving the service provider versus LTE build out in the Tier 1’s and beyond?.

I think as I mentioned in the past that people look for the future but buy for today. So just knowing that we have a good roadmap for Voice Over LTE makes them continue to invest in their existing infrastructure, even 3G. So I think that’s what is happening, so they are not necessarily buying VoLTE right now. They are not there yet.

There are a lot of POCs and projects going on, but because they feel comfortable about our direction, they continue to expand the traditional infrastructure and also a lot of the solutions that our deployment is going to be shared between voice and data as you go through VoLTE.

So they might be buying in anticipation of VoLTE stuffy, Voice Over LTE stuff, but not necessarily using it that right now. I think its still early stage of deployment.

Michael is there anything that you want to…?.

No I do believe that there are specific reparations for both, where they are starting to spend money. But as Anil pointed out, we with VoLTE has only deployed maybe in one specific account, maybe one or two that we know about, that’s the data..

Okay. And then if we look at cloud or cloud service providers, what’s going on there? We don’t really talk about that as much as we talk about the wireless carriers.

Is there the need for these cloud service providers to enhance their performance management capabilities, are they doing it? Where do you see what’s going on there?.

I think that what we are all feeling on that, we looked at private and public cloud and many are looking at the cloud service provider, you are referring to, mostly referring to public cloud. And in those areas, the kind of community being served is a very, very small number of customers, small size customers.

Even Amazon doesn’t necessarily have very large customers, and those people are still doing component management and they are really not good candidates for a solution like ours, the more sophisticated solution like ours. But everyone is building clouds.

The government is build clouds, the service providers are building clouds and enterprises are building clouds, which is just yesterday’s data vendors and so we have a great cloud opportunity and budgets in the private cloud area.

We have really not seen that with this provider cloud public opportunity develop, but if it does develop we’ll be there, because we’ll be recommended by the parent company who is using it for the private site..

Okay, and then my last question is on the traction from the 3900 PFS.

What are you seeing with that? Is that performing to expectations? And do you think that segment gets to 10% of revenues by the end of the year or in any quarter by the end of the year?.

We won’t be able to, like I said in the quarter, its just hard to predict. But yes, we think that we’ll get to that level by the end of the year. But at the end we won’t be reporting it and it’s doing well, better than we thought..

The packet flow switch Gary is looked at as complementary or part of our integrated solution. So we don’t necessarily report on individual products..

Okay, but anecdotally, do you see that as kind of expanding within your footprint and what was the traction? Was there traction in revenues in Q1 with the 3900?.

Yes, definitely. Yes, go ahead..

It has taken over the lion’s share of the revenues from the previous platform. So they are – both platforms are continuing to be part of our portfolio and they are based on the same technology. The 3900 is now the boss of the revenues..

Okay, thank you..

Your next question comes from Sanjit Singh with Wedbush Securities. Your line is open..

I think you are on mute Sanjit..

Hi, I – oh! hi Sanjit..

Sorry about that, I was on mute. So regarding deal sizes, you guys used to break out deals over 500,000, deals over 1 million.

If you are not going to break out those exact metrics, can you just give us a sense, maybe in the enterprise market where you are seeing, if you are seeing any signs of deal size getting smaller or deals getting cut into smaller pieces? Any color on what deal sizes are trending like?.

Deal sizes are relatively consistent. We haven’t really seen them in general enterprise as you mentioned, a change in shape or size at this point..

Great, and then on the competitive environment are there any changes there, given the Riverbed Opnet integration? Any easing of the competitive intensity in the enterprise market?.

I think if at all it is getting better and like I said, later this year we’ll talk to you about how our NPM plus APM strategy is shaping up. I just don’t want to mention what’s happening in the general – you would take this opportunity to let everyone know, how we see NPM plus APM.

Why we call our product nGeniusONE, because its one product from one company, okay.

Then you look at NPM and APM solution or server solutions from all other players, including the names you had given, the company has three products and you are confusing between one product from one company which is nGeniusONE, with a company having solutions for multiple things. Nobody can buy NPM plus APM product from anywhere except from NetScout.

So we have a truly integrated product and whereas other companies have products, so you can say company X has an NPM plus APM product, but there is no A product which a current customer can buy. So which is almost like buying two products from two different companies, but with the same label, especially when acquisition happens.

And the reason I mention this is this is going to be a big reason for people. We hope, well people will be buying into this new concept and ASI technologies behind us. So I just want to mentioned because of that reason, we are not seeing any increased competition and hopefully we’ll see even less moving forward..

Anil, I appreciate the commentary.

Just to follow-up on that, is there any sense, in your installed base, traditional NPM type customers, what is the sales process like? Is nGeniusONE a complementary to their existing installments or is this more of a upgrade or rip and replace? How does the install base sale work?.

Yes, good question. So right now we have been through special pains in terms of customer satisfaction and investment protection.

So nGeniusONE has, of course nGeniusONE has two parts; one is on the user interface site, which basically runs on the same machine as of our APM product and then there is a ASI technology upgrade, which runs on the same place as where InfiniStream is.

So for evaluation purposes, customer doesn’t have to do anything, it’s a free upgrade and hardware upgrade is not required. But once they like it, they will find that they don’t have enough of our solution and enough over the places and we talked about server farm earlier.

So that basically, the sales cycle is long, but it is not as long as hopefully as before, because its a very easy way to evaluate without making any investment and once you have a good experience they will deploy in more parts of the infrastructure.

Some of it which was never instrumented with that sort of stuff like the website example we had earlier..

In fact one of our key strategies is to migrate the customers as quickly as we can within their own interest and limits..

And for my final question, just given the consolidation that’s going on in the U.S. carrier market, do you see any signs of a pause in terms of CapEx projects, given what’s going on in the U.S.

carrier market?.

I mean there is really not substantial, I mean there is noting big going on which we think will see a fall. But I remember when T-Mobile and AT&T stuff was going on, there was a big pause and then there was something else, U.S. Cell or somebody was bought by T-Mobile, I forgot ..

Yes, so we see a little bit pause, but I don’t think there is enough consolidation going on, plus we have a big portion of our business that’s coming from the Tier 1 and I think luckily that none of that has been impacted by this..

I appreciate the answers. Thank you..

Your next question comes from Kevin Liu with B. Riley & Company. Your line is open..

Hi, good morning. It sounds like the 3,900 has seen good growth in the enterprise market.

I was wondering if you could speak to whether there is been any adoption in the service provider market and whether you anticipate that to be a big source of revenues for PFS?.

Yes, it’s going well there also, but the service provider I mean look at these refresh cycles to do that. So it has been a little bit slower, because at the last time we were not there. And our enterprise, we have better traction than the service provider.

But by the end of the year we see some refresh cycles coming up which we will be a well to participate in the service provider where we’ll start seeing improvement, I mean good growth there also..

But from a technology standpoint our technology is totally applicable, same way there is no difference. So we see good successes initially there as well..

And just one last one for me.

Just when you look at the 20% plus growth you anticipated in the service provider vertical, given some of the comments around a tough Q2 comp, the 18% growth in this first quarter here on the product side, just wondering what sort of projects you anticipate coming in or what sort of visibility you have in to the back half of the year being much stronger for you guys from a growth rate perspective..

I think what we have, I mean the pipeline looks very good and we are working on several, very light number of multimillion dollar projects. So I think that’s the main visibility we have. But it takes time and I think we feel quite good about the number of projects we are involved in worldwide..

Okay, thank you..

Your next question comes from Aaron Schwartz with Jefferies. Your line is open..

Good morning, I just had two quick questions on revenue concentration.

First of all in the service provider segment, is that still somewhat concentrated between maybe five or 10 customers, and when you talk about the growth there, is that really growth in sort of the project you maybe alluded to out of those larger customers or are you starting to see expansion to maybe that Tier 2 providers? And then secondly, as you look at service providers becoming a much larger part of your overall business, how do you envision that over time? Do think some of the products you released here over the last six months or so well help the enterprise business and bring some diversification the other way in the overall mix between the segments? Thanks..

Well, maybe Jean can go over the breakdown. I mean the 40% is not dramatically different than last year and plus it’s not five to 10 customers a year. So in anything top end customer dominate, any business, even in enterprise, but it’s not as skewed as you might be thinking to five, 10 customers.

Also, I wanted to mention, we are talking about nGeniusONE, but we are also releasing a new product and we have a customer product for service provider called Subscriber Intelligence, nGenius Subscriber Intelligence, which most of the service providers has bought.

But it only works for data, so the Accanto product is not going to be coming live this quarter and that’s the same product for voice and so at that time, I think we will see some traction in that area also with this.

So a lot of investment we have made in the voice side and with the Accanto acquisition will result in additional thing beyond nGeniusONE in the service provider area..

So just to follow on Aaron from Anil’s comments. As we’ve talked in the past, the concentration has generally been more weighted towards the domestic carriers. In that concentration we do supply a service almost every single U.S. carrier. So there is a diversification of U.S. carriers that we have. Around the globe we do continue to look at new wins.

We did get a new win this quarter with one of our international carriers that we are very happy about also. But as Anil said, the goal of nGeniusONE and USDM, our Unified Service Delivery Management Strategy is to have the enterprise growth closer to the 10% rates that we are hopeful for over the long-term.

So these new investments do go into the enterprise and do so well. But because service provider is somewhat complementary and similar, at some of its major course, they also play well into the service provider market also.

So the packet-flow switch, the 3,900 as well as nGeniusONE should sell into the service provider overtime on our domestic and global basis..

Okay, maybe just a quick follow-up. On the sort of larger Q1 domestic service provider, you’ve been with these customers for a while and you certainly had a growing presence here.

Has your forecasting, maybe not forecasting but the predictability, does that improve at all or is it still just a very lumpy business and even at your sort of long-running Tier 1 domestic service providers that can still fall quarter-to-quarter?.

I think quarter-to-quarter; I mean that’s why we give yearly guidance. I think the predictability is quite good over a longer period and that’s what I think we are counting on and that’s why you’ll see some lumpiness. And whether something exactly happens in the same quarter, I mean it’s not always clear because these things do take time..

Right, so these carriers, we work on project basis with all these carriers. These carriers all have their own internal projects that they are working, their own timelines. We are cognizant in our pipeline and with our sales group of what projects the customers are working on and where they are going.

So the timing of those projects, like when they actually get funded though may come in a quarter earlier or make him in a quarter later, which goes to the lumpiness and just the overall complexion of each of these projects, each of these carriers doing different projects at different times also contributes to the lumpiness..

Got it, thank you..

You’re welcome..

Your next question comes from Mark Jordan with Noble Financial. Your line is open..

Good morning. A question relative to the government sector.

With the 25% revenue decline year-over-year, was that virtually all in the product side and does the service component of your revenues from the government remain relatively stable through this period of pressure?.

Yes, that’s true Mark. I should point it out. The decline in product was about 50% and the overall decline was only 25%. So again, just to clarify the government position, they still are customers, they still demonstrate customer loyalty by doing maintenance with us. We still actually have a large pipeline for the governments.

So the customers themselves that we deal with still have projects and still have demand for our product. So there is nothing structurally wrong in the demand and the projects that our customers want us to supply. It does go back to the federal government’s ability and decision-making and what they are going to fund..

Okay. Second question relative to nGeniusONE.

Could you give us a sense as to the revenue impact of an install and what would be the differential between an upgrade versus a sort of a green field installation?.

That is going to be very, very hard to do and we are not even tracking that directly like that. I mean a lot of – there is a Greenfield opportunity in the Brownfield or whatever you want to say.

We are going into existing customers and we have opportunities in the department and areas and so Greenfield is sort of defined like that and in those environments it’s very, very hard to keep track of.

Like for example, the application group will buy our product now or a server group and then just the networking group and so we see the bulk of opportunity with the existing customer, even though technically there are like Greenfield opportunities and because of that it will be very hard to track, because they’d be using some of the old products from the user interface point, buying new InfiniStream, some will be doing deep pressure and moving things around.

So I think we overall, you can attribute most of our growth this year to be because of nGeniusONE..

Okay, thank you very much..

Your last question comes from Chad Bennett with Craig-Hallum. Your line is open..

Yes, good morning. Thanks for taking my questions..

Chad, how are you?.

I’m doing great. So can you give us a sense for, I think if you look back 12 months, the two acquisitions were ONPATH and Accanto.

What do they contribute in the quarter?.

So the ONPATH acquisition is the one that’s the 3,900 and they did contribute as part of our solution to some of the growth on a quarter-over-quarter basis. Again we consider the 3,900 to be organic growth, so we don’t really break it out separately. The Accanto product is scheduled to be released in this quarter, in our Q2 quarter.

So it hasn’t really contributed anything at this point. As we develop the voice technology, as Anil said to go onto one platform, so that our customers can buy one product from one company in an integrated solution. We expect that product will be available during our Q2 and again we will be hopefully shipping it in Q3 or Q4..

Okay. And following up on a couple of questions or guidance that have been asked. So the revenue growth you saw in the segments, the two main segments this quarter, the product revenue growth I’m speaking of, service provider up 18 and enterprise, I believe general enterprise up about 9.

At the end of the year is that kind of the representative growth rates that you would think or that you through when you give guidance and originally and that you are still thinking today?.

So service provider, we have been fairly consistent over the last few years and believing it would be a 20% grower for us. And the metrics switch from new business bookings is what we were talking about before to revenue.

So yes, we still believe that it’s a 20% grower and we are shooting for service provider to remain that way through the rest of the year. Enterprise, our long-term goal for enterprises is to get the enterprise segment up to 10% or more. So with our 9% growth this quarter we are very pleased with that growth.

We would like for it clearly to continue through the rest of the year..

So we are in the ballpark right, this quarter?.

Yes we are..

So I think Kevin asked a question, so I think you implied because of the tough comps, September quarter service provider probably certainly down on a year-over-year on a quarterly basis, and even first half service provider revenue could be down year-over-year. Let’s just say its flat for just simplicity in the first half year-over-year.

Second half service provider growth, all else equal, actually has to be more than this because the year is second half weighted, has to be 40% plus.

You guys have visibility and I know you’ve been asked this a little bit, but you have visibility in that type of growth in the second half?.

Yes, so I just wanted to clarify, as you had pointed out on the call, I just wanted to caution because sometimes people get concerned when they look at a shorter term measure and our service provider growth over last year was more lumpy than normal, where Q2 is probably our largest quarter and on a new business bookings basis at the end of the first half we were up 70% and we trended for the remainder of the year to about 20% to 22%.

We still believe this year that we will still grow at the 12 month mark, FY ‘14 over FY ’13, around the same growth rate for the year of around 20 %-ish. So the math to get to that will be along the lines of what you indicated..

Okay. And then last for me, in the packet flow switch market, how should we think about your penetration there? I imagine you are going into existing customers first.

I’m just curious, how well penetrated is Gigamon into your existing InfiniStream customer base and are you betting on replacing Gigamon in those places or are you betting on hey, we have InfiniStream customers that don’t have any packet flow switches today.

So we are betting on some Greenfield uptake?.

I think we are first of all coming to coming to your shares. I mean we are looking for 10% market share, but more in this space, in the packet flow switch space and that would mean that kind number as overall market share for part of our own product line also.

That will require us to go into places where Gigamon is there, fully embedded and again there are two reasons people buy our solutions, the packet flow switch solution for multiple reasons; one of the reasons is applicable to NetScout but Gigamon, both the reasons are applicable.

So we need to look at how good we are in leveraging some of the opportunities which we are not participating in until recently, until the 3,900 switch to figure out what our update will be in those markets..

Is it fair to say in your existing enterprise, InfiniStream customer base, are they pretty will penetrated with – and it doesn’t have to be Gigamon, but have they adopted packet flow switch already just in general?.

Basically we’ll be going. Yes, it will be mostly competitive. We’ll be going to places where demand is already there. So our sales access is going to be one of the challenge, but after that it will be mainly competition. So since they are the larger sales force going after this portion of the market, it is a little more challenging for us.

But overall we are not in the demand generation area. We are in terms of some – its mostly based on access, market access, customer access and then competing with other vendors..

Okay, makes sense. Thanks for taking my questions..

Thank you for hanging in there. It was a long call..

Okay, thanks everyone for tuning-in. I will talk to you again in about three months..

Okay. This concludes today’s conference call. You may now disconnect..