Cathy Taylor – Director, IR Anil Singhal – Founder, President, CEO and Chairman Michael Szabados – COO Jean Bua – SVP and CFO.

Eric Martinuzzi – Lake Street Capital Markets, LLC Aaron Schwartz – Jefferies & Company, Inc. Alex Kurtz – Sterne Agee & Leach, Inc. Mark Kelleher – DA Davidson & Co. Matt Robinson – Wunderlich Sanjit Singh – Wedbush Kevin Liu – B. Riley Chad Bennett – Craig-Hallum Capital.

Ladies and gentleman, thank you for standing by, and welcome to NetScout Second Quarter of 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, and instructions will be given to you at that 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 Second Quarter Conference Call for the period ended September 30th.

Before we begin, let me remind you that during the conference of this conference call, we will be providing you with the 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 summary of key financial data that accompanies the financial section of today’s discussion.

For those listeners who have dialed into the call this morning and would like to view the 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 point out that growth rate discussions are based on a year-over-year basis unless otherwise noted. This concludes the introductory remarks. I would now like to turn the call over to Anil Singhal, our Chief Executive Officer..

Thank you, Cathy. I’m pleased to report that NetScout delivered a solid second quarter of fiscal year 2014. Non-GAAP revenue for the quarter was $92.2 million, which is up 9% over the same quarter a year ago. The year-over-year product revenue growth was even higher at 13%. Non-GAAP earnings per share was $0.34 comparable to last year.

Michael and Jean will later be providing additional details on our performance this quarter. I would like to primarily concentrate on our prospects in the second half and the full fiscal year. This is especially relevant as we are reiterating the revenue and EPS guidance we provided at the U.S. the beginning of this fiscal year.

With two quarters left in the current fiscal year, we are roughly in line with our historical average trend of 45% of total revenue in the first two quarters. This is despite the fact that our service provider business in the first half of last year included a few very large deals which weren’t anticipated to reoccur this quarter.

Our confidence for the second half is attributable to three main reasons. First, the new product nGeniusONE based on our Patent Pending ASI technology that we released this quarter is already generating a lot of excitement amongst our enterprise sales force and a lot of interest amongst our top customers.

Over 100 customers are running nGeniusONE in either their labs or in production. With the introduction of nGeniusONE, we have two major goals in mind. The first goal was to continue to create and expand our value to our NPM customer base.

The creation of value to our customers had served us well over our company’s history and is evident through our high service renewal rates and customer retention.

In this quarter, we have noted that our product roadmap and approach has resulted in a few instances of shorter sale cycles and increased deal sizes as customers have embraced to our new product and workflow. The second and broader goal of nGeniusONE was to expand our opportunity in the APM space.

While we continue to develop the integration of NPM and APM convergence – while we continue to drive the integration of NPM and APM convergence and strengthen the APM portion of nGeniusONE, we believe this will be more impactful in the last quarter of fiscal ‘14 and throughout fiscal year ‘15.

Coming back to the second reason for our confidence in the second half is the second half pipeline in the service provider business where we have some large deals in motion. We’ll also be releasing the next version of our voice and VoLTE solution – voice over LTE solution in November.

And we expect more of our service provider customer to start deploying nGeniusONE as well in the second half. And the third reason for our confidence is the number of competitive wins we are seeing in our Packet Flow Switch business.

Our Packet Flow Switch business has grown substantially in the first half, and we expect this to continue moving forward. As a side note, we – as we mentioned – as we have mentioned during our last call, we expect our government business to remain flat versus last year due to U.S. Federal Government continued budget uncertainty.

I would like to end my discussion by explaining why I decided to name our new product nGeniusONE as such. As you may be aware, the word nGenius in nGeniusONE is a well-established product branding we have been using for a while. Sorry everyone for the confusion. There was glitch – phone glitch.

I’m going to basically resume at the point where I left off last time. We talked about in just summary of the three big reasons why we feel confident about the second half and for reiterating the guidance. And I was just going to end with some statement about our new product.

And then Michael and Jean will cover their portions, and then we’ll do question and answers. So I’d like to end my discussion by explaining why we decided to name nGeniusONE as such. As you may be aware, the word nGenius in nGeniusONE is a well-established product branding we have been using for a while.

The word ONE in nGeniusONE truly represents one-of-a-kind product in the NPM plus APM space for the following reasons – it’s a single product and part number, not a suite of modules cobbled together with force integration like other solution in our market space. Complete price transparency and scalability.

There are no separately priced or hidden options. It’s a single-user interface and no learning card is required as we support more applications using our APM solutions or new environment. Next, it is based on obviously our unique ASI Patent Pending technology and which we have already spent over many years in development.

Next, we have, it is designed from day one to promote active IT collaboration between the network application and server operations team replacing the traditional finger-pointing which has been the current drama in the industry.

Next is the ease of use and quick deployment, which includes backward compatibility with hardware already owned by our existing customer, which is one of the big reasons we have 100 installations in the first couple of months.

And finally, the scalability from remote sites to cloud to virtualized data centers and big enterprises, however, people decide to deploy their applications. These unique product capabilities combined with our long-standing market leadership, customer relationships, and well trained sales force will continue our success in the future.

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

Thank you, Anil. As Anil just discussed, we have been experiencing rapid adoption in our customer base. During the past quarter, well over 100 of our top accounts have deployed nGeniusONE across all different segments, including general enterprise and service provider.

Our interactions with early adaptors validate that this new product will drive revenue growth by offering a deeper insight into the applications as they are originated in data center server forms and delivered through the infrastructure which can only be achieved through additional instrumentation.

In the near term, nGeniusONE also helps by demonstrating to our customer base a new prospect of technology leadership and commitment to their success.

With just two months of general availability, nGeniusONE has already made a difference in our business by helping to close deals in the quarter, especially in a number of important new accounts against large competitors.

Our sales teams are well trained and are successfully leveraging the new product both in current funnel deals and in new opportunities. As an example, one of our larger deal wins this quarter was a new financial services customer. This new customer had all their management tools that needed replacement.

These were involved in a competitive situation with other APM vendors, including a large established vendor. The customer had specific application monitoring requirements in the area of transaction authorization as well as a need for network monitoring aggregation switches in the two major data centers.

NetScout’s new nGeniusONE platform won the Proof-of-Concept trial because we were the only vendor that could provide a complete, unified, and fully integrated solution that was essential in all areas of network and application service management as well as being able to deliver the network monitoring fabric switch solution.

We are pleased to have won this business against a large established APM vendor. In other areas, we continue to successfully leverage our Unified Communications Performance Management for the product portfolio that includes all nGenius Voice | Video Manager product.

They have contributed to new customer acquisitions in the past quarters and are increasingly differentiating us in deals in the current funnel. We are continuing to invest in this technology.

And during the quarter, we officially qualified on interoperability with Microsoft Lync 2013 rounding out our support for earlier versions of Lync and Microsoft UCS, the product previous to Lync. In addition to seeing strong customer acceptance and market impact, our nGenius Packet Flow Switch continues to receive industry recognition.

In just the last three months, they have received six new awards such as being recognized as the People’s Choice for Favorite New Network Hardware and Favorite Telecommunications Product from American Business Awards.

The nGenius Packet Flow Switch also was named Best New Product of the Year by the American Business Awards in Hardware and Telecommunications category and Best New Hardware Product of the Year by International Business Awards. On a related note, we are extremely pleased to report that NetScout has recently been selected to the Barron’s 400 Index.

This marks the fourth time that we have been selected to the Index since its inception in 1997. Given that only about 6% of all North American publicly listed companies are selected to Barron’s 400 on the basis of their fundamental soundness, underscores the fundamental strength of our financial results.

And lastly, NetScout continues to maintain its ranking by Software Magazine’s Software 500 List ranking 6th in the Infrastructure Network Management category and 177th overall on the Software 500 List. This marks the company’s tenth consecutive year in the annual ranking of the world’s largest software and service providers.

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

Thank you, Michael, and good morning everyone. As Cathy noted earlier, my remarks this morning will be based on a non-GAAP results. Our accompanying slide presentation has the comparable GAAP results.

To begin our financial discussion, we will be starting with the third slide of our presentation which is accompanying our call and is posted on our website.

Our second quarter non-GAAP total revenue was $92.2 million, which is an increase of 9% from the same quarter in fiscal year ‘13; with a non-GAAP total revenue, non-GAAP product revenue was $52.4 million, which is an increase of 13% over the same quarter in fiscal year ‘13.

Service revenue was $39.8 million on a non-GAAP basis, which is a 4% increase from the same quarter in the prior year. Our earnings per share for the second quarter was $0.34. This is equivalent to the second quarter of fiscal year ‘13.

As we discussed in our earnings call one year ago, the second quarter of fiscal year 2013 was a unique quarter from a customer mix perspective where revenue was concentrated in our service provider sector. The customer mix added approximately 1.2 gross margin, 3.2 operating margin and $0.02 to earnings per share.

As we commented during our earnings call from last quarter, we did not expect the same customer dynamics that occurred a year ago this quarter to repeat in the current quarter. Therefore, turning to slide 4, the business continues to operate within our long-term operating model.

On a non-GAAP basis, our gross profit was $73.7 million, representing a 79.9% margin. Non-GAAP income from operations was $22.6 million. And our non-GAAP operating margin for the quarter was 24.5%. Non-GAAP net income was $14.3 million or $0.34 per diluted share. The non-GAAP net income margin was 15.5%.

Turning to slide 5, which shows our year-to-date results, our year-to-date second quarter non-GAAP total revenue was $174.2 million which is an increase of 8% from fiscal year ‘13 with a non-GAAP total revenue, non-GAAP product revenue, was $95.3 million which is an increase of 10% over fiscal year ‘13.

Service revenue was $78.9 million on a non-GAAP basis which is a 5% increase from the prior year. Our year-to-date earnings per share was $0.55. This is an increase of 4% from fiscal year ‘13. Turning to slide 6, this shows our year-to-date product revenue composition.

Total revenue for Q2 was $174.2 million of which product revenue was $95.3 million, an increase of $8.9 million or 10% over the prior year’s first half.

The components of our product revenue for the first half of fiscal year ‘14 were as follows – service providers, $37.2 million, 39% of product revenue; government, $10.5 million, 11% of product revenue; general enterprise, $47.7 million, 50% of product revenue.

This compares with the prior year’s quarter, product revenue components as follows – service provider, $38.5 million, 44% of product revenue; government, $9.4 million, 11% of product revenue; general enterprise, $38.6 million, 45% of product revenue. Slide 7 shows our product revenue growth rate by sector.

Our service product revenue was within 3% of our prior year service product revenues. This is significant that our first half of last year, so an 80% increase in service provider product revenue growth which was concentrated in the second quarter of last year. General enterprise grew 24% as we saw growth from our high-tech and manufacturing customers.

Government increased 12%. Slide 8 shows our total revenue composition. Total revenue for our year-to-date was $174.2 million, an increase of $13.0 million or 8% year-over-year.

The composition of our total revenue for the first half of fiscal year ‘14 was as follows – service provider, $59.8 million, 34% of total revenue; government, $22.2 million, 13% of total revenue; general enterprise, $92.2 million, 53% of total revenue.

This compares with the prior year’s first half total revenue components as follows – service provider, $58 million or 36% of total revenue; government, $22.3 million or 14% of total revenue; general enterprise, $80.9 million, 50% of total revenue.

Turning to slide 9, which shows our total revenue growth by sector, our total revenue for the service provider sector grew 3% on a year-over-year basis driven by continuing project wins. As we mentioned earlier, this growth rate is being impacted by the strength of service providers in the first half of last year.

Our general enterprise sector grew 14%. Total revenue for the government vertical was flat year-over-year. Turning to slide 10, this is a depiction of our first half revenue by geography.

For the first half of fiscal ‘14, the revenue mix between domestic and international revenue of 74% and 26% was generally consistent with our recent historical averages where domestic accounts for were approximately 75% of our revenue in the international account for the remaining 25%.

Within our international sales, the mix is generally consistent with prior results. Europe delivered 12% of our international sales, while Asia delivered 6%, and the rest of the world delivered the remaining 8%. Slide 11 includes highlights from our balance sheet.

And we continue to maintain strong liquidity at the end of the second quarter of fiscal 2014. We have invested cash, short-term marketable securities and long-term marketable securities of $159.4 million.

For the first six months of FY ‘14, we generated approximately $27 million of cash from operation, our capital expenditures were about $6 million which includes investment in our internal systems and building improvements in our international R&D facilities. Our year-to-date free cash flow is approximately $21 million.

Additionally in the quarter, we repurchased 225,000 shares for $5.9 million for a total year-to-date amount of 475,000 shares for $12 million. Accounts receivable, net of allowances, was $55.7 million down from $73.9 million at the end of fiscal year 2013.

Day sales outstanding was 54 days for the quarter compared to 68 days for the fourth quarter of FY ‘13. Inventories were $10.7 million. This is a $3.1 million increase from the fourth quarter of fiscal 2013. Additionally, our total differed revenue was $109.6 million. This is down from $121 million for the fourth quarter of last year.

This decrease is in line with our historical pattern for Q2 as this quarter historically sees lower levels for renewals. Differed revenue is up 12% from the ending Q2 fiscal 2013 balance sheet. Turning to our guidance for fiscal ‘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%.

We’re extremely pleased with our order half which included some deals that were anticipated in our second half as Anil and Michael had spoken about earlier. We are also pleased to anticipate our first $100 million revenue quarter occurring in Q3 of F14.

Our non-GAAP net income per share guidance for fiscal year 2014 is $1.40 to $1.50 yielding non-GAAP EPS growth of 6% to 14%. 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 effect the non-GAAP adjustments.

Before we conclude the financial portion of our remark, I would like to inform you of the upcoming conferences in which we will be attending. On November 13th, we will be attending the RBC Capital Markets Technology Conference in New York City. On November 19th, we will attend the Deutsche Bank Small and Mid-Cap in Florida.

And on December 3rd, we will attend the NASDAQ Conference in London. That concludes our financial discussion this morning. Thank you for joining us, and we look forward to taking your questions..

(Operator instructions) And your first question comes from Eric Martinuzzi with Lake Street. Your line is now open..

Thank you. Congratulations on the good quarter, the good solid execution. And I hope we’ve got as many people as we started with on the call given that pause in the middle.

Question for you regarding the Federal Government impact and not necessarily on government business but on communication service provider spending, is there any chance that deal approvals for NetScout could be impacted by Federal inspectors or Federal approvals in your service provider customer base?.

No, that’s not true. Yes, it’s not really impacted by anything happening in the Federal sector. That doesn’t affect the CSP market at all..

Okay. And then secondly, there’s been some acquisitions in this space. I don’t know The Now Factory that well. I do know that IBM bought them, and they do something in service assurance. I do know Empirix a little bit better, and I know that Thoma Bravo bought them.

I’d like to hear your comments on those acquisitions, and what do you think it means for this space..

Well, first of all, all these are good endorsements of the interest in this space. But in particular, I mean, Thoma Bravo has been accumulating a lot of assets and I’m sure they have some strategy in mind in the management area and this is one of those many ones.

And The Now Factory one is a small one in the CEM space, which is customer experience management, and we’ll be having our own strategy announced next year, and I think despite the fact that some of these acquisitions have happened, we still have opportunities to partnering with the same people.

And also, I mean, we are very familiar with most of the acquisitions which have happened on the last couple of years elsewhere outside of NetScout, and either has passed on them or they didn’t really fit our profile. So we are on top of this, and overall, I feel this was a good thing for the industry and NetScout..

Thank you..

Yes..

And your next question comes from Aaron Schwartz from Jefferies. Your line is now open..

Good morning. I know you made a handful of comments on nGeniusONE, but I did want to sort of flush it out a little bit. I know historically you don’t price for additional modules, et cetera. I think you disclosed that on the call, but can you walk through why you’re seeing larger deal flow, I believe you said that.

Are you just seeing more budget that was traditionally allocated APM coming to the solution or what exactly is driving a large deal flow related to nGeniusONE?.

Okay. As we said, we are happy with that, but the effect of the larger deal flow is not like huge right now, but it’s a much bigger positive trend versus last year in the NPM space. Their deal sizes are increasing because people are having very good taste in their mouth about our strategy for upgrades.

So we are not charging for nGeniusONE upgrade for anybody who is on the maintenance, and that is pushing them into using some of the moneys from other projects or which they were thinking about earlier in the NPM or maybe even APM space, employing that back into instrumenting a different part of the network which they were not considering earlier.

And second thing is Packet Flow Switch, which has really no role in life without being used – the data being sent to a device like NetScout and other products and the packet flow products in the market. That is getting added to all these deals as a result of – because of multiple reasons.

One is I think we have one of the best competitive products in the market, but also as I mentioned, the goodwill generated in the networking – in our standard NPM customer base is adding to those either slightly shorter deal cycle or slightly bigger deals. The APM, in fact, there is a lot of interest in that.

But any real impact on the revenue is going to be seen starting in January as we mentioned during the call..

Okay. And second question if I could. I appreciate the color and realize that the service provider had a very difficult comp in the first half here. But I think you said that you do expect some larger deals to come in the second half and that gives you comfort in the full-year outlook.

Are those with existing customers where you have some visibility to the timing of deployment or maybe could you just walk through the timing of those coming in the second half and sort of your visibility towards those deals? Thank you..

I think the timing is – I mean, it’s very hard to exactly predict, but there’ll be some good numbers in the third quarter and the rest in the fourth quarter, but they are all with existing customers. We have been doing a lot of business and we have done a lot of business in the last year.

It just so happened some of that big business with a couple of large providers happened in the first half and that’s going to happen in the second half. So, the point we are making is that we were able to keep the first half of the service provider revenue almost flat despite that we didn’t use the numbers from the big deals here last year.

And that’s why we said that we are expecting a good second half because some of the big deals which happened last year in the first half will probably happen in the second half. But it’s very hard to predict right now Q3 versus Q4. We are trying to get as much end of year budget as possible..

Great. Thanks, Anil..

Yes..

And your next question comes from Alex Kurtz with Sterne Agee. Your line is now open..

Yes. Thanks for taking the questions, guys. So, Anil, just to follow up on that last question, you have 100 customers, I think you said in your script capping [ph] nGeniusONE.

What could that mean for the fiscal – next fiscal ‘14 – well, more importantly fiscal ‘15 kind of growth rates? Is there some kind of incremental opportunity that this could drive as far as product growth maybe above what you’ve seen in the last couple of years?.

Yes. I mean, that’s what we are hoping for but, well, I guess we’ll have to just wait for the guidance for next year to provide you the special data – I mean, more detailed.

But certainly as we shared last year, we have increased the size of our market by the nGeniusONE and we have increased our – we solidified our footprint in the NPM space with nGeniusONE goodwill and we have increased our market opportunity beyond NPM to APM also.

So, all that means that we should see a lot of progress next year, but it’s still some time before we’ll be able to share those things with you..

Is there a percentage of growth in your overall addressable market? Have you thought about that as far as how many extra dollars or what kind of growth your comments [ph] created?.

You mean – can you go – you are talking about APM now?.

Or just nGeniusONE..

No, I think like it’s only two months of release. So, I mean, we get the subjective impact and a little bit of objective as you can see in the enterprise growth in the first half was quite good. Part of it is BFS and part of it is nGenius goodwill.

And the third impact which is on APM will be more longer and will be the bigger one, but that will be next calendar year..

And then a quick question for Jean. Obviously, strong operating margin execution, again, I imagine mostly driven by the revenue upside.

On a go forward basis versus your target model, what would be set of circumstances that you would need to revise the target model up when you go into fiscal ‘15? So what are the set of factors that would need to be in place for you guys to think about that at the board level?.

So, I think we have discussed in the past fiscal year ‘14 is a transitional year for us as we launch the new products that we’ve spent the last couple of months developing. So we’re going to go through FY ‘14 and keep the current long-term operating margin.

What would have to happen in FY ‘15 is we will have to see how the revenue grows, as you mentioned. We have a very stable infrastructure. We don’t really need to add that much cost to it.

Where we would be adding cost and keeping the margins in line with what they currently are would be in the R&D area to make sure that we continue to stay on the cutting edge of technology and deliver the products that our customers want.

Also in sales and marketing, mostly in the sales area, as we mentioned, we have a tenured, well trained geographically dispersed sales force to places where we would potentially add people and then hence keep the operating margin targets within what we have now would be in any of the geographic areas where we see customer demand, as we’ve mentioned in the past, service provider.

We continue to gain international customers. And any other kind of new product rollouts where we would require a product specialist. But again, the infrastructure that is needed for us to grow is pretty much already stable and is implemented in the current operating margins.

We would just be looking at whether we will continue with R&D development and those related costs and how much expansion is required in the sales force. At the end of FY ‘14, we’ll have a better insight into the pipeline and we’ll determine whether we need to change the operating margins to a higher level for FY ‘15 and forward..

All right. Thank you very much..

And your next question comes from Mark Kelleher with D.A. Davidson. Your line is now open..

Great. Thanks for taking the questions. Congrats on a great quarter. I wanted to ask a couple of things.

The APM capabilities that are now in nGeniusONE, do you think there’ll be a stronger uptake on the carrier side or on the enterprise side?.

Initially it will be – for nGeniusONE it’s a multi-pronged benefit product. And so, specifically, when we talk about APM, we are talking about enterprise opportunities. But similar application monitoring capabilities will be helpful to the service provider but that’s just not – people don’t call it APM.

So it’s a similar feature but when we are talking about the word APM, we are traditionally talking about enterprise..

And on the service provider side, where are you seeing the growth? Is it testing for 3G networks? Is it 4G networks that have gone in that you need testing? Is it international? Where are you seeing the push right now in the carrier market?.

Well, first of all, the first half as you know was similar to last year. So in the second – if you are asking where we see the potential in the second half and next calendar year, it’s a continued expansion of 4G.

We’re releasing next month our voice product and also there are new things coming in to the market with the initial roll out of 40G and 100G, they’re very high-speed stuff. And so, we either already have a product or we’ll have a product in those timeframe.

So it’s just basically basic expansion on 4G that is RAN radio access monitoring on 3G and it’s across the board, but most of them are obviously existing customers because we have over 150 providers as our customers..

Okay.

And on the packet flow switch side, is there any way you can kind of size that as how meaningful that is to your business right now, a few percentage revenue?.

We decided not to separate that out because it will give you maybe a wrong impression because we are the only company, really, in the enterprise space who had both the Pro product as well as a packet flow switch product.

So they help each other in terms of the sale and so qualifying one or the other separately I don’t think will do just this lower [ph] strategy..

Do you sell the packet flow switch separately, independently without connecting it to in different stream or anything else?.

Yes, yeah, we do because there are multiple application of packet flow switch. So yeah, we have sold to – for different use cases but it is mostly going to existing customers..

Okay, great. Thanks..

Yeah..

And your next question comes from Matt Robinson with Wunderlich. Your line is now open..

Hi, thanks for taking my question and congrats on the results..

Yeah..

Yeah..

I’m just hoping you could give me a little more perspective on what’s integrated into from the acquisitions into the November service provider release and maybe some other – what other kind of salient elements are coming with that product versus what you’ve been offering to service providers up for now..

Yeah, there is basically where our product line is instrumentation and so we had the Pro for the data space, VG [ph] 4G and we have this nGeniusONE application or PM and SDM which was a previous version of nGeniusONE. So that’s what we used to sell. And then, in addition, we used to sell a call-tracing product, a call-subscriber intelligence.

So with voice, we are creating a new probes and basically it’s the same probes with different software and it’s based on – partially based on the Accanto acquisition and there are two kinds of probe, one for voiceover LTE and one for traditional SS7.

So those are the new product and then there is a corresponding call trace product for trouble shooting. So those are the new things, completely new things. The rest of it is all made [ph] in the standard product..

How much does diameter signaling impact your product features?.

Well, that is already, I mean, that’s released a long time ago and yeah it’s a multi-million dollar impact but it’s just one of the many things..

And has this November release already been in beta for a while?.

Yeah, we had early versions of this. We call it EFD in a few places..

So these big service provider deals that are in motion for you, are they dependent upon this November release and are they, well, to what are they dependent upon it?.

A very small production and that the big impact of this will be next year..

So is the critical fast item for closing those service provider deals are basically just budgeting timing for your customers? Is that the way we should look at it?.

Yeah. And some new features we have already released in the last few months in the existing products..

How do you see the pace of the service providers and domestic versus overseas and particularly for VOLTE?.

Yeah, I don’t know. It’s hard to say but it’s percentage wise at some point next year will be same. I mean, it’s a similar pattern. So if people are using – the customer is using 4G data for us, whether it’s international or local, they’ll be a percentage of those people who will be using the voice over LTE product also from us..

So we should think in terms of the domestic market first?.

Because it is a bigger portion of revenue and not because it’s voice or something else. It’s just because we have, I mean, we have more North American business overall both in enterprise and service provider..

Do you see VOLTE as a market share catalyst for you?.

Well, it’s new for everyone. So, yeah, I mean, we continue to increase our market share. We were – we have no revenue five, six years ago in this area. And we crossed $100 million, close to that last year.

So yes, there is market share gain for every single thing we do whether it’s 4G, 3G data, some things we are doing in the application recognition, voice over LTE and support for higher speeds like 100 gigs. So it’s a constant changing thing but the new operation it is every six months..

Thank you very much..

Yeah..

And your next question comes from Sanjit Singh with Wedbush. Your line is now open..

Thank you for taking my questions. Jean, I was wondering if you talk about the guidance range, we’re halfway through the year and yet the range is still the same.

Could you just talk about why you thought the range is the same? Is it assumptions around when some of these large deals roll in? Can you just talk about the range?.

Sure. So, I usually talk about at the midpoint of guidance and in the past I’ve talked about it at the low point versus the midpoint and higher. And in the past, what we’ve said to get to through $385 million and that’s where in the first half of the year we are definitely executing well towards that range.

We needed our NPM platform to continue to sell well along with the packet flow switch. The packet flow switch is selling to our expectation. We’ve also clearly completed the second quarter where the Federal Government has done their traditional budget flush to get to the low end of the range.

We have said that we would need Federal to remain flat and government flat where it is at this point. So getting towards the low end of the guidance at this point, we feel comfortable with that.

Getting towards the midpoint or higher, as we said, we would need the nGeniusONE new product launch to get better traction than we had originally anticipated or we would need in the second half of the year for the Federal Government now that it has come back from shutdown mode at least for the next quarter or so to continue to spend funds.

As we’ve said over the last year or two, we have tremendous demand from our product with many new uses in the Federal Government and we still have and had in Q2 a lot of demand in the quarter for our product uses. It just goes back to whether the government will continue to spend money in the second half of the year.

So at this point we’ve chosen to leave the range as $385 million to $400 million. We see the potential for upside in service provider to get to the 20% growth.

Plus we do see potential still for nGeniusONE to have better traction but we would still need at least one more quarter to decide whether we think that that will impact the range to any significant degree. So clearly, at the end of Q3, as we have better visibility into Q4, we will adjust the range at that point if need be.

Q3 of this year, we’re going to pass off first $100 million quarter which is a very exciting time for the company.

We probably would pass it based on our estimate to the lower end of $100 million, so $100 million to somewhere maybe slightly north of that, with a lot of the uptick as Anil said from nGeniusONE and some of the traction beginning from the new product launch in our Q4..

Thanks for the explanation. That was great.

Anil, on the packet flow switch, what’s the impact on option of probes, is it a halo of fact or is it more cannibalistic? How does those two part [ph] for the product portfolio work with each other?.

I think so far, I mean, people have thought it would impact it negatively but so far it has been positive because they are – people are not reducing their cost on existing – this is making the solution cost effective enough to put place [ph] they had talked to me [ph] they will not do it before.

So I think so far we are seeing a positive impact on the probe revenue or it’s neutral to positive.

And, yeah, long term it could have some negative impact but that will be more than made up because of the better competitive solution we have and being deployed in more places now that we are going to be asking our customers to deploy for the APM reason and not just for the NPM reason..

And what are the gauge traction [ph] of – you’ve made some improvements of the product portfolio, what the initial traction on [inaudible] new account either with nGeniusONE or is it APM specific? Is that something more of a calendar ‘14 event or what’s the traction with the new part?.

Well, I think, first thing is that, I mean, we are a very mature company with 2,000 customers. And so, I mean, driving a deeper penetration into those accounts is much more effective and much more useful for both customer and NetScout. So yes, we have some new customers, some really big wins in financial first time.

But bulk of the investment is going to come from existing customer. And unlike other people’s business, our business is like a router of Cisco in that sense that you have new deployment within existing customers and new places, new data centers..

Right..

So we call that new business. And that’s how we come to Salesforce [ph] also. So it’s sometimes, it’s different than a traditional software company and we are a software company but different in this sense.

So we look at opportunity and the existing customer in new projects, whether it’s new projects because of new data centers, so new networks and now new APM and maybe next year because of fiber [ph], all those reasons are really the big opportunity and bulk of the growth is going to come from there..

Got it. And, Jean, my last question.

Do you have the data on the depreciated amortization as well as CapEx and headcount?.

Sure.

So you want it for the quarter or for year-to-date?.

For the quarter..

For the quarter, depreciation in amortization was about $5 million. Headcount is at about 1,013 people.

And what was the third part, Sanjit?.

CapEx..

CapEx for the quarter was about $4 million..

All right. Thank you for taking my question..

You’re welcome..

And your next question comes from Kevin Liu with B. Riley. Your line is now open..

Hi, good morning. Just a couple of questions on the packet flow switch offering.

The first one is in terms of selling to your existing base, can you give us a sense as to how many of these deals are kind of standalone packet flow switch deals versus bundled with your probes? And then, what sort of win rates are you seeing against some of the more established players like Gigamon and UE [ph] when you’re going in on these deals?.

Well, I think, we are winning quite a few of them. I think we are not separating, we are not looking at a PFS standalone and together in – we don’t track that because sometimes on the first month they will buy packet flow switch. In the second month they will the probe.

So today we’re bought [ph] for together really so it’s very hard to keep track of those things and because overall, the customer is getting a good feeling about the natural integration within our two products. And in terms of the, well, I think our growth rate is higher probably than anyone including Gigamon.

Obviously, the absolute number is lower because we just started a year ago, a year and a half ago..

Yep.

And then also one quick one on service provider, for me, just, since your business in the second half isn’t all that dependent on some of your newer solutions, can you just talk about where all that growth is going to be coming from? It seems like to get to your 20% target, you’d need a significant pump up on the products that – so are you just seeing more instrumentation throughout the network? So are you successfully moving into other areas of the network like the RAN? Just wanted as much clearer as possible there..

I mean [ph], a big portion is 3G and 4G expansions but we are moving to RAN area and we talked about voice also which will have some impact. And then there are projects in the 40G and 100G area which is, you can call it expansion but it’s really even higher speed environment.

And Jean just mentioned that we have increased our sales people in the cable/MSO segment also, some of which is going to come from there..

Okay. Thank you..

Yeah..

And your next question comes from Chad Bennett with Craig-Hallum Capital. Your line is now open..

Yeah, thanks.

So should we assume by your deals size commentary that, well, when you actually did give some color on deal sizes every quarter that seven-figure deals and six-figure deals are up meaningfully from where they were when you gave that data?.

Well, we are not providing that right now but, I mean, I think most important is the number of $100,000 deals, so it’s not just one or two big seven figure deals.

It is the reason for saying increased deal sizes, I think it speak [ph] more a number of $100,000 deals is going to become more of the norm than exceptions because you might have one [ph] packet flow switch and one probe and that’s it, you’ll be exceeding that number..

So the deal size commentary, that probably answers my next question isn’t a function of larger nGeniusONE or InfiniStream deals, whatever you want to call it.

It’s a function of a monitoring product and a packet flow switch product, right, that’s increasing deal sizes?.

[Inaudible] more the InfiniStream in one big deal..

Hi, Chad, this is Jean. The deal sizes are relatively comparable to Q2 clearly because it’s a bigger business at this point versus last year; having slightly more deals in the $1 million range and slightly more deals as Anil mentioned in the $100,000.

Right now, why we are seeing deal sizes increase is that the approach we’re taking with nGeniusONE, the convergence of NPM and APM and how we are as the only vendor can really do that to a very proactive and quick response.

We’ve changed the workflow such that within three clicks these people can get to the root of their problem as a team and solve their customer or their end-user issues much faster.

That road map and demoing that product has given them confidence to continue to want to instrument their network with our product and to some degree, we have won new customers because of that and we’ve also shortened sales cycle because the competition can’t compare at this point..

Okay.

So the financial services customer that you highlighted in the call, can you comment who you displaced there?.

We don’t really go into who the competitors are that we displaced there. That was a quicker sale when they saw our product. Michael can probably give you a lot more detail about the environment and what we sold and how we won them there..

Yeah, but it’s a bigger APM player. So other than that–.

Yeah, I mean, I don’t want to say who exactly it was but it was one of the leaders of the space and it’s a [inaudible] for us because we’ve won with all the combination of our strength including nGeniusONE and having the packet flow switch there and being able to address APM needs such as monitoring transaction flow.

So, but it was one of the big ones..

So, in the hundred plus customers that you indicate that are, I don’t know if they bought, demoed, trying nGeniusONE at this point, what applications, is there any consistency or any trend behind the applications that they’re trying out or demoing using your APM solution?.

Yeah, I mean, if you’re starting to see a pattern in Web-based applications, Citrix also, a set of applications that we used to be monitoring but now we are monitoring with more, in more detail custom application.

And just the first conjecture [ph] there, all of these customers have the product deployed, whether deployed in the full production or partial or in the lab, that’s differentiated, that may be different but all of them are deployed so it’s not just trailing. This is all being used..

And also, just one technical thing to mention is the way we have done the product is traditionally when you do a new release, you have to upgrade that infrastructure in order to try the product and you have to pay for it. So in our case, that portion of the [inaudible] is, there is no charge for it.

Plus they can deploy – they can use both the older and the new side by side. So that allows them to quickly test it out, otherwise it takes a long time for a big customer who have hundreds of [inaudible] to overnight move to the next generation. And so, that’s what we mean by shorter deployment time..

Okay.

So a little bit confused on the nGeniusONE hundred plus – so the product did contribute meaningful revenue in the quarter and definition of meaningful is different but millions of dollars in the quarter or it did not?.

Hi, Chad, as we talked about last time in Q1, we had a service provider win that bought nGeniusONE and we shipped it in this quarter. And we had a few other customers that also had bought early in Q1 that we shipped in this quarter. And then a few that also had bought in Q2 that were shipped or will ship in the subsequent quarters.

At this point, to be able to pull apart nGeniusONE and everything else, as Anil talked about, we don’t really look at products families [ph]. However, nGeniusONE this quarter probably contributed in the range of maybe, on standalone maybe 1%.

It’s really the trajectory, the roadmap, the approach and the convergence of NPM and APM that is driving our customers to see the value in our products..

Perfect, that’s great detail. Last one for me. I didn’t see a backlog number. I assume we did not report one because it’s not material in your mind..

So the backlog number, I think over the times we’ve discussed it extensively. The backlog number is still consistent with where it was at year end when we reported it. It’s still though, when you look at the midpoint or higher guidance, probably a little less than 10%.

So we’re still comfortable in our guidance and the back log is just a function of customers ordering and when they need their shipment..

Okay. Thanks for taking my questions..

You’re welcome. Thank you..

And we have no further questions at this time. I turn the call back to our presenters..

Thank you everyone for staying on. We saw more than 50 people despite the small glitch we had. And so sorry for the confusion but I think we were able to address most of your questions and we’ll speak to you again in three months..

And that concludes today’s conference call. You may now disconnect..