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Anil Singhal

Thank you, Tony, and good morning, everyone. Welcome and thank you all for joining us today.
We delivered Q3 fiscal year 2025 revenue and earnings results that exceeded our expectations with strong performance across both our Cyber Security and Service Assurance product lines. These results reflect solid execution and the strength of our differentiated solution in addressing the evolving needs of our customers.
It's important to note that certain customer order initially anticipated in the fourth quarter were instead received in the third quarter as customers leverage the calendar year and calendar year and budgets.
While the timing accelerated certain revenues into Q3, the contribution of these early orders has reinforced our confidence in achieving our full fiscal year 2025 goals and expectations as we capitalize on opportunity to address the complexity of today's market. We remain confident in our ability to deliver value and meet our customer cyber security and services need now and into the future.
Let's turn to slide number 6 for a brief recap of our non-GAAP financial results for the third quarter and first nine months of fiscal year 2025. For the third-quarter revenue, revenue was approximately $252 million, up approximately 16% compared to the prior year period.
This performance was driven by strong results in both our Cyber Security and Service Assurance product line diluted earnings per share was $0.94 for the third quarter, which was up approximately 29% from previous year. For the first nine months of the fiscal year 2025 or the period ended December 31, 2024, revenue was approximately $618 million, down approximately 1% year over year, reflecting the impact of previously disclosed closed AWTS.
This included unusually high levels of backlog related revenue and the test optimization business that we share that both benefited the prior year results and affected the comparison.
The corresponding diluted earning per share for the first nine months of the fiscal year, 2025 was $1.70 $0.70 an increase of approximately 3% year over year.
Now let's move to slide number 7 for some further perspective on business and market insight.
Starting with our Service Assurance offering, revenue in the third quarter increased approximately 9%, driven by the acceleration of a large service provider order previously expected in our fourth quarter. For the first nine months of the fiscal year 2025, Service Assurance revenue was down approximately 5%, primarily due to the previously discussed backlog and definition-related AWS in the service provider Customer Vertical of service.
Business carriers continue to invest in 5G initiatives at a major pace as they manage investments again, monetization opportunities on the enterprise front, customers are seeking solutions capable of better advancing their digital transformations and extending visibility to the edges of their network. Our new edge solutions are gaining traction in this area.
Moving to our Cyber Security offering revenue in the third quarter increased approximately 29% and increased approximately 7% for the first nine months. For the fiscal year 2025, Cyber Security continued to represent a solid growth opportunity for net out as customers prioritize spending to protect themselves from the expanding cyber threat landscape.
The threat landscape not only related to the data center but at the edge of their networks as well. Accordingly, we continue to enhance our Cyber Security offering with solutions like adaptive data. For example, we recently announced that our hardware and hardware enterprise manager products are now updated with artificial intelligence and machine learning technology as part of our adaptive data protection solution to combat AI-enabled data threats. Michael will provide more insight regarding customers in our offering areas during remarks.
Now let's move to slide number 8 to review our outlook. Given our strong performance in the third quarter, along with the acceleration of certain orders, we now have increased visibility and confidence in each achieving our full fiscal year 2025 financial objectives. As such with one quarter remaining in the fiscal year, we are updating our fiscal year 2025 outlook narrowing the ranges while maintaining the mid-point from the previous guidance for revenue and non-GAAP net income per share. Jean will provide additional color in our outlook in her remarks.
Looking ahead, we remain focused on executing effectively as we position the company for the fiscal year 2026 and beyond. At the same time, we continue to leverage the strength of our visibility with our border platform to enable customers to address the performance availability and security challenges inherent into this complex digital landscape.
We look forward to sharing our progress with everyone at the conclusion of our fiscal year. With that, I'll turn the call over to Michael.

Michael Szabados

Thank you and good morning, everyone. So I turn off the area I will be covering today starting with Q3 customer in highlights starting with our service offerings. One notable in this quarter in the services provider customer segment was a high tech as a high eight figure order from a longstanding Tier-1North American carrier customer for 5G-related solutions as they further expand their network capacity.
As you pointed out, this order was received earlier than anticipated in our fiscal year. We remain focused on supporting our carrier customers as they further advance their 5G network solutions in the enterprise Customer Vertical of our services offering. We are seeing a growing need for network visibility at the edges of our customers' networks.
One notable deal was a multiyear Enterprise License Agreement order, ELA it's called, with an aggregate value in the mid-eight figure range with additional amount in the amounts in the low seven figure range. This win was from a leading domestic health care provider customer who had grown through acquisition and attempted with limited success to address user experience challenges at its remote clinics and physician offices using competitor and homegrown solutions.
The customer tries to roll out our visibility solutions to thousands of locations over multiple years and phases. During the period, shifting to our Cyber Security offering, we want a mid-seven figure order from a longstanding North American cable operator. This customer purchased our new Arbor Distributed Threat Mitigation System or DTMS solution that allows them to dynamically allocate their DDoS mitigation capacity to protect the emerging new edges of the network.
In terms of go-to-market activities, we continue to actively promote our offerings to both existing and prospective customers as key industry events. In early December, we participated in the AWS re:Invent conference in Las Vegas where we demonstrated our NETSCOUT visibility resiliency and security solutions combined with the value of our Smart Data, unlock the power of our exceptional user experience in the AWS cloud ecosystem.
We partnered with power water networks to demonstrate the power of NETSCOUT's Smart Data to take threat detection and response to the next level to protect and secure multi cloud and hybrid cloud environments.
We plan to be an active participant in the Mobile World Congress in Barcelona in early March where we will present our latest innovations for enhancing our Smart Data to accelerate service provider efforts in the 5G NetOps, AIOps, and Mobile Network Security.
At the same time, we will have a NETSCOUT team at the 2025 HIMSS Global Conference in Las Vegas where we will demonstrate HOW NETSCOUT'S security solutions are protecting the performance and availability of essential health care networks, applications, and services for some of the world's leading healthcare organizations.
And finally, in late April, we will be attending the RSA Conference 2025 in San Francisco where we will showcase how NETSCOUT's visibility with our all platform combines nGenius Performance Management, Arbor DDoS Protection, and Omnis Network Security solutions to provide end-to-end security performance and availability for the world's most powerful digital ecosystem that concludes my remarks. Thank you, everyone. I will now turn the call to Jean.

Jean Bua

Thank you, Michael, and good morning, everyone. I will review key metrics for our third quarter and first nine months of fiscal year 2025 and provide some additional commentary on our fiscal year 2025 outlook.
As a reminder, this review focuses on our non-GAAP results unless otherwise stated and all reconciliations with our GAAP results appear in the presentation appendix regardless. I will note the nature of any such comparisons. Additionally, all comparisons are on a year over year basis unless otherwise noted.
Slide number 12 details the results for the third quarter and first nine months of fiscal year 2025. Focusing on our quarterly performance total revenue for the third quarter of fiscal year 2025 was $252 million, up 15.6%. Product revenue was $128.2 million, an increase of 33.8%. While service revenue was $123.8 million, an increase of 1.3%. Gross profit margin was 82.8% in the third quarter of 1% point quarterly operating expenses increased 3.2% accordingly.
We reported an operating profit margin of 35.6% compared with 29% in the same quarter last year. Diluted earnings per share was $0.94 which included an unrealized loss on a foreign investment of approximately $0.07. This was up 28.8% from $0.73 in the same quarter last year.
Turning to slide 13, I will review key revenue trends by product lines and customer verticals. Please note that all comparisons here are on a year over year basis, consistent with our other remarks for the first nine months of fiscal year 2025.
Our Service Assurance revenue decreased by 5.5% while our Cyber Security revenues grew by 7.4%. As a reminder, we entered the private fiscal year with approximately $50 million of backlog, which we did not get the benefit of this fiscal year. During the same period, our Service Assurance product line accounted for approximately 65% of our total revenue. While our Cyber Security product lines accounted for the remaining 35%.
Turning to our Customer Verticals for the first nine months of fiscal year 2025, our Enterprise customer vertical revenue grew 3.7%, while our Service Provider customer vertical revenue decreased 7.2% during the same period. Our Enterprise customer vertical accounted for approximately 57% of our total revenue while our Service Provider customer vertical accounted for the remaining 43%.
Turning to slide. 14. This shows our geographic revenue mix for the first nine months of fiscal year 2025. 59% of our revenue was derived from the United States with the remaining 41% provided by international markets. Also, one customer represented 10% or more of our total revenue in the third quarter as well as for the first nine months of fiscal year 2025.
Slide 15 details certain balance sheet and free cash flow items. We ended the third quarter with $427.9 million in cash, cash equivalents, short- and long-term marketable securities, and investments representing an increase of $3.8 million. Since the end of fiscal year 2024, free cash flow for the quarter was $39.6 million. We currently have capacity in our share repurchase authorization and subject to market conditions intend to be active in the market during fiscal year 2025.
From a debt perspective, we ended the third quarter of fiscal year 2025 with $75 million outstanding on our $600 million revolving credit facility which expires in October 2029. In the fourth quarter of fiscal year 2025, we intend to fully repay the outstanding $75 million of debt briefly recap.
Other balance sheet items, accounts receivable net was $214.6 million, representing an increase of $22.5 million since March 31, 2024. The DSO metric at the end of the third quarter of fiscal 2025 was 75 days versus 90 days for the same period in the prior year, and 81 days at the end of fiscal year 2024. The lower DSO metric in the third quarter of this fiscal year was due to the timing and composition of bookings.
Let's move to slide 16 for commentary on our outlook. I will focus my review on our non-GAAP targets for fiscal year 2025. As I noted earlier with one quarter remaining in the fiscal year, we are narrowing our fiscal year 2025 outlook ranges while maintaining the revenue and non-GAAP diluted earnings per share midpoint that were presented in October 2024, during our second-quarter earnings call for fiscal year 2025.
For fiscal year 2025, we now anticipate revenue in the range of $810 million to $820 million. Additionally, we now anticipate non-GAAP diluted earnings per share within the range of $2.15 to $2.25. The full-year effective tax rate is expected to be approximately 20%. Our weighted average diluted shares outstanding is assumed to be approximately 73 million shares which incorporates our year-to-date share repurchase activity but does not assume any further repurchase activity that concludes my formal review of our financial results.
Thank you and I'll now turn the call over to the operator for questions.

Question and Answer Session

Operator

(Operator Instructions)
Matthew Hedberg, RBC Capital Markets.

Matthew Hedberg

Hey, good morning, guys. This is Mike Richards on for Matt, thanks for taking the questions. Yeah, it was great to see the strength in the quarter. You know, I think coming into the quarter, we kind of expected a muted budget flush from service provider and you called out that high-teens eight figure polling.
But it kind of looks like guidance implies, another $10 million or so pulled in. So, maybe you could provide us some more detail on, what changed here. Is there a bigger shift in trends? And you know, what service providers looking to spend on and then just like a broader update on your views in the spending environment.

Anil Singhal

Yeah, I think the overall the business has stabilized, but I think the on the service provider side, it was many of the service provider customers, their fiscal year starts in January. And so we always have this battle sometime, sometime we get the our Q4 business in Q3. So that big order we're talking about was basically think of it instead of getting X plus Y two quarter, we got both X plus Y and so that's basically no big strategic reason.
It's just that they had more confidence, and they had more budget available this year. And that was mainly the reason, but there is a lot of activity in the spend is not, it's not backed by spend right now, but there's a lot of activity in the five G cloud area and slicing and other things which NETSCOUT has invested a lot but has not hit the revenue stream right now. So we expect that will be the reason for spending the next fiscal year.

Matthew Hedberg

Great. And then you guys seemed excited about an emerging opportunity to fix wireless. So I was just wondering if you could provide an update there and you know, maybe where we are in that journey.

Anil Singhal

I think it's still early. We have evaluation going on with three or four customers right now and our solution is ready. But and the amount of money spent on this is it is it could be huge because of the amount of traffic. So we are looking at some other creative way of looking at VIP traffic as a way to, to manage the situation. And so at this point, we don't have any success to report in that area, but they continue to be interested in the all top three or four customers of nets.

Matthew Hedberg

Awesome. Thanks guys and congrats again.

Anil Singhal

Thank you.

Operator

Kevin Liu, K Liu & Company.

Kevin Liu

Hi, good morning, guys, and congrats as well on the strong performance here in the third quarter. Maybe just to go back to the service provider side of things. You know, it certainly sounds like budgets have stabilized and we might be at the start of a new upswing in spending there.
As you look out for the rest of this calendar year, is that something that you guys are seeing and hearing your customers as well and then maybe just touch on some of these new areas we're spending on, in particular, this large order is that more tied to some of the legacy projects they've had going on or are you actually seeing them invest in kind of new areas of monetization?

Anil Singhal

Yeah, Kevin, I think business has sort of stabilized. And you'll see some swings because a large order from quarter to quarter. But next year, I mean, we are counting on our existing customers but not necessarily growing in the traditional mobile service assurance area. But there are opportunities in cyber security.
We have a product in the AI area which we have talked about in the previous calls. And we as earlier question indicated there could be a span in the fixed wireless area and slicing and, and other areas of 5G. There is some interest in utilities on the private 5G area. So we look at our investment in the service wider area in 4G and 5G, not necessarily delivering in the growth in the traditional area. But in other areas I just talked about.

Kevin Liu

Got it and maybe just on your Cyber Security products, very strong growth here in the third quarter. How did that split out between kind of enterprise versus service provider for Q3 specifically? And then as you look at your pipelines moving forward, do you think you can continue to accelerate, you know, your overall growth rate relative to what you've shown over the past nine months?

Anil Singhal

Yeah, so don't need checking that I don't have the breakdown right now on this. Jean, go ahead.

Jean Bua

So, Kevin, your question is in service provider and security service provider and enterprise for the quarter, how did they grow? On a quarter over quarter basis service provider grew in close to the mid-20s and enterprise grew close to the mid-30s, percentage wise.

Anil Singhal

So yeah, go ahead.

Kevin Liu

Sorry, I was going to just have you elaborate on that and, and kind of, the future outlook there, whether you can sustain, growth rates anywhere near these levels or how you're thinking about that.

Anil Singhal

Well, that was a quarterly one as you know, the year-to-date is in the in the 7% or so range overall aggregate. But we hope that we can do much better in this area. A lot of the growth is in the Adidas area. As you know, we announced a new product in this area and Omni Cyber Security and there's a lot of interest. We have a lot of valuation going on, but that is not a big contributor to this year's growth. So next year we expect growth from that area and as we share our guidance in the next quarter for the next fiscal year, I will highlight that.

Kevin Liu

All right, sounds great. Really appreciate you taking the question.

Anil Singhal

Thank you.

Operator

Thank you. And it appears that we have no further questions at this time. I will now turn the program back to Tony for any additional or closing remarks.

Tony Piazza

Excellent. Thank you, operator. This will conclude our call for today. Thank you for joining us and enjoy the rest of the day.

Operator

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.