Netscout Systems Inc

NASDAQ:NTCT

Earnings Call Transcript 2022-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to NetScout's Second Quarter Fiscal Year 2022 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Tony Piazza, Vice President of Corporate Finance, and his colleagues at NetScout are on the line with us today. [Operator Instructions]

I would now like to turn the call over to Tony Piazza to begin the company's prepared remarks.

[Anthony Piazza, executive]

Thank you, operator, and good morning, everyone. Welcome to NetScout's Second Quarter Fiscal Year 2022 Conference Call for the period ended September 30, 2021. Joining me today are Anil Singhal, NetScout's President and Chief Executive Officer; Michael Szabados, NetScout's Chief Operating Officer; and Jean Bua, NetScout's Executive Vice President and Chief Financial Officer. There is a slide presentation that accompanies our prepared remarks. You can advance the slides in the webcast viewer to follow our commentary. Both the slides and the prepared remarks can be accessed in multiple areas within the Investor Relations section of our website at www.netscout.com, including the IR landing page under financial results, webcast itself and under financial information on the quarterly results page.

Moving on to Slide #3. Today's conference call will include forward-looking statements. These statements may be prefaced by words such as anticipate, believe and expect, and will cover a range of topics that are not strictly historical facts, such as our outlook, our market opportunities and market share, key business initiatives and future product plans, along with their potential impact on our financial performance. These forward-looking statements involve risks and uncertainties, and actual results could differ materially from the forward-looking statements due to known and unknown risks, uncertainties, assumptions and other factors which are described on this slide and in today's financial results press release as well as in the company's annual report on Form 10-K for the year ended March 31, 2021, and the company's subsequent quarterly reports on Form 10-Q, all on file with the Securities and Exchange Commission. NetScout assumes no obligation to update any forward-looking information contained in this communication or with respect to announcements described herein.

Let's turn to Slide #4, which involves non-GAAP metrics. While this slide presentation includes both GAAP and non-GAAP results, unless otherwise stated, financial information discussed on today's conference call will be on a non-GAAP basis only. The rationale for providing non-GAAP measures, along with the limitations of relying solely on those measures, is detailed on this slide and in today's press release. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.

Reconciliations of all non-GAAP metrics with the applicable GAAP measures are provided in the appendix of the slide presentation and in today's earnings press release. They are also available on our website.

I will now turn the call over to Anil for his prepared remarks. Anil?

[Anil Singhal, executive]

Thank you, Tony. Good morning, everyone, and thank you for joining us today.

Let's begin on Slide #6 with a brief recap of our non-GAAP results for the second quarter and the first 6 months of fiscal year 2022.

We are pleased with our second quarter results which have contributed to a solid foundation as we move into the second half of the fiscal year. Strong software-only product revenue growth in the second quarter supported our overall revenue increase, enhanced our margins and improved our diluted earnings per share on a year-over-year basis.

Revenue increased more than 3% in the second quarter to $211.9 million, driven by product revenue growth of more than 10%, which was partially offset by a decline of less than 3% in the service revenue attributable to service provider consolidation and legacy product line atrophy compared with the same period last fiscal year.

Diluted earnings per share increased approximately 24% to $0.47 compared with the same quarter last year. On a year-over-year -- on a year-to-date basis, for the 6 months of fiscal year 2022, revenue increased more than 3% to $402.2 million, driven by product revenue growth of more than 12%, which was partially offset by a decline of 3% in service revenue for the same reasons previously mentioned for the quarter. Diluted earnings per share increased approximately 22% to 67% for the first half of fiscal year. All these comparisons relate to the same period in the previous -- in the prior fiscal year.

Let's now move to Slide #7 for some perspective on market trends and business insights. As guardians of the connected world, our solution continues to be vital. We provide borderless visibility and cybersecurity solutions that assure and secure the performance, availability and security of our customers' digital ecosystem. Our customers can leverage these solutions to compete more efficiently and effectively in the new economy, which is increasingly essential given the most recent challenges brought about by COVID-19 pandemic. Looking ahead, long-term technology trends including 5G, digital transformation through cloud migration and the requirements for greater cybersecurity protection are all setting the stage for NetScout's continued advancement.

Elaborating on the cybersecurity area, we recently released our Threat Intelligence Report for the first half of 2021. In the report, we noted that the global cybersecurity crisis has continued to accelerate. Attack frequencies are up and on track for another record-setting year. The impact on both public and private organizations is tremendous, and these groups continue to seek solutions that can assist them with these enormous challenges while keeping the organization safe.

Equipped with our Omnis Cyber Solutions, we are well positioned to continue supporting customers in this area. Our Omnis Cyber Solution combines our leading service assurance, monitoring, troubleshooting and financing capability with a cybersecurity intelligence, detection and mitigation solution. We are already starting to see interest in this front, and Michael will discuss some advances in this area later on in his remarks. As we expect our new cybersecurity solution to play a larger role in our growth next fiscal year, we are also analyzing key metrics for this area of our business and plan to start reporting on them in our fiscal year 2023.

Now, I would like to turn to our customer verticals to provide some more perspective on our performance and the previously mentioned technology trends. During the quarter, as our customers deal with a challenging supply chain environment and experienced procurement issues, our software-only solution enabled them to utilize their budgets more effectively by accelerating the timing of their purchases with us. This moved some deals that had been previously expected in the second half up earlier in the fiscal year. Conversely, the rise in software-only deals also helped to mitigate potential constraint on our operations from supply chain difficulties as well.

In our enterprise customer vertical, revenue grew more than 7% in the first half of fiscal year 2022 compared to the same period last fiscal year. Organization are beginning to spend again as they emerge from the pandemic and then - and restart previously delayed projects. We expect this spending momentum to continue and anticipate mid- to high single-digit revenue growth in our enterprise customer vertical for the full fiscal year based on our current deal pipeline. Michael will highlight some of the customer wins we achieved during the quarter in this vertical in his remarks.

Our newer enterprise products related to Smart Edge Monitoring for remote work environment as well as our Omnis Cyber Intelligence solutions, which address the security landscape, have been gaining [ current ] customer interest. We expect a greater contribution to our results from sales of this product in our next fiscal year as customers' offices start to reopen. Such conditions will allow us to build our pipeline as our sales team resumes traveling, conducts more in-person customer meetings and complete more proof of concept, demonstrating the value of our solution in saving time, cutting costs and reducing the mean time to resolution.

Moving to our service provider customer vertical. For the first half of the fiscal year, revenue was down just under 1% compared to the same period in the prior fiscal year.

Looking ahead, we expect 5G deployments to continue, and we are also advancing the radio frequency propagation modeling project orders we previously -- we received, which will assist customers in planning their network. However, we also note the cautious spending environment in the service provider customer vertical as well as provider consolidation and atrophy of legacy product lines, which has resulted in lower service revenue. As such, based on our current deal pipeline, we anticipate that this vertical could experience flat to mid-single-digit revenue decline for the first fiscal year.

I would also like to point out that we received a second large 5G-related order from a Tier 1 domestic service provider during our second quarter. Michael will comment more on this service provider win during his remarks.

Now let's move to Slide #8 to review our outlook. With the first half of fiscal year 2022 behind us, we have a solid foundation to build on and are excited to continue working towards meeting our financial and operational objectives for the fiscal year. We continue to advance our NetScout without Border initiative. This initiative is focused on expanding our business with current customers by leveraging our incumbency to exit both existing and new budgets, acquiring new customers through new consumption choices and expanding our reach into high-value adjacencies that can leverage our smart data such as expanded cybersecurity and big data analytics. As the world continues to emerge from the pandemic, we remain focused on meeting customers' need for service assurance and cybersecurity solutions that saw some of the connected world's toughest challenges.

Based on our results to-date and our current deal pipeline, we are reiterating our outlook for low single-digit revenue and diluted earnings per share growth in the full fiscal year 2022. Jean will provide a recap on the numbers in her remarks.

I look forward to sharing our progress with everyone going forward as the fiscal year continues to unfold. I will now turn the call over to Michael for additional updates.

[Michael Szabados, executive]

Thank you, Anil, and good morning, everyone. Slide 10 outlines the areas I will cover on today's call.

On the enterprise customer vertical front, we are seeing increased interest in our service assurance and cybersecurity solutions as organizations emerge from the pandemic and refocus on their important projects. In terms of service assurance projects, some of the drivers are data center transformation and business-critical application assurance projects. Meanwhile, our new Omnis solutions are attracting greater interest from the cybersecurity front.

From a service assurance solution perspective in our enterprise customer vertical during the second quarter, we won a low 8-figure service assurance deal with a major domestic provider of human capital management services. The company depends heavily on its core business applications to fulfill its business obligations and found that this previous approach to solving issues was overly reactive and labor-intensive, making it ineffective and costly. Using our nGenius technology, we demonstrated expedited issue resolution which allowed the customer to identify and resolve in less than half an hour problems that historically required large war room meetings and many man hours or even days for resolution.

The needs fulfilled by our solutions in this example are not isolated to this company. Today, while the largest organizations still struggle with exporting complexity for which their existing tools are challenged or which their existing tools are resolved -- challenged to resolve, our solutions remain well suited to reduce their mean time to resolution.

On the cybersecurity side, in our enterprise vertical, our Omnis security solutions are beginning to gain traction. During the quarter, we won a high 6-figure deal with a domestic educational institution that purchased both our Omnis security solution as well as our Visibility as a Service or VAS offering. We won the deal against the incumbent due to the superiority of our security data set as well as our patented and differentiated ASI technology, which has gained prominence in the industry over the past years.

In the service provider customer vertical, we continue to see momentum around the 5G globally. Some customers are continuing their planning with radio frequency propagation modeling projects while others are advancing their deployments.

As Anil mentioned, during the second quarter, we won an 8-figure deal with a leading Tier 1 domestic service provider. This is the second 5G-related order that we have received from this provider as they accelerate their 5G build-out and offerings to compete with domestic industry leadership. Our market-leading solutions, combined with our responsive customer service, solid relationships and strong incumbency continue to win as business from this provider as they advance their offerings.

In terms of go-to-market activities, we continue to launch new offerings and advance our partnerships and collaborations.

From the perspective of offerings, we recently announced the launch of the Omnis Cyber Intelligence solution. By leveraging NETSCOUT's market-leading service assurance technology, the Omnis Cyber Intelligence solution can provide insight into normal and anomalous network behavior to help mitigate network security risks earlier in the attack life cycle and stop future attacks. We also announced the launch of our Visibility as a Service, or VAS offering, which provides turnkey protection for customers' business-critical applications and digital services on a subscription basis. This service allows companies to leverage the deep expertise of the NetScout VAS engineering team to help monitor and troubleshoot issues quickly as well as help alleviate the resources faced by IT organizations worldwide.

In terms of partnerships and collaborations, we recently announced the partnership with Palo Alto Networks involving the integration of our DDoS product with the security and orchestration products. This integrated solution will help enterprises reduce risk and increase service availability by enabling security operations centered to detect, analyze and mitigate security threats in complex hybrid environment.

From a collaboration perspective, later this year, we will be exhibiting at AWS re:Invent show in Las Vegas to demo our collaboration with AWS in cloud migration and security areas.

That concludes my prepared remarks. I will now turn the call over to Jean.

[Jean A. Bua, executive]

Thank you, Michael, and good morning, everyone. I will now review our second quarter and first half fiscal year 2022 metrics.

As a reminder, this review focuses on our non-GAAP results unless otherwise stated, and all reconciliations with our GAAP results are in the presentation appendix. Regardless, I will note the nature of any such comparisons.

Slide #12 details our results for our second quarter and first half of fiscal year 2022. Focusing on the quarterly performance, revenue grew 3.2% from the same quarter in the prior year to $211.9 million. Product revenue grew 10.5% year-over-year primarily due to higher software-only product sales. Software-only product revenue was 45% of service assurance product revenue compared with 27% in the same period of the prior fiscal year. Service revenue declined 2.7% over the prior year's quarter. As we stated on our last earnings call, the decline in service revenue is primarily attributable to nonrenewals associated with service provider consolidation and legacy product line.

Our second quarter fiscal year 2022 gross profit margin was 78.3%, up 3.6 percentage points over the same quarter last year. The increase is primarily due to the higher contribution from software-only revenue, which has a higher growth margin and lower contribution from radio frequency propagation modeling project revenue, which has a lower gross margin compared to the same period in the prior year. Quarterly operating expenses increased 4.4% from the prior year largely due to higher sales incentive compensation attributable to higher revenue, increased marketing program spending and a onetime accrual reversal attributable to legal-related expenses and penalties that occurred in the prior year's quarter. We reported an operating margin of 22.3% compared with 19.4% in the same quarter last year. Diluted earnings per share increased by 23.7% to $0.47 from $0.38 in the same quarter of the last fiscal year.

Turning to Slide 13. I'd like to review key revenue trends for the first half of the year. For the first 6 months of fiscal year 2022, the enterprise customer vertical revenue grew approximately 7.5% while the service provider customer vertical revenue declined approximately 0.9%. For the first 6 months of the fiscal year, approximately 52% of total revenue was generated from the enterprise customer vertical, with the remaining approximately 48% of total revenue generated from the service provider customer vertical.

Turning to Slide 14, which shows our geographic revenue mix on a GAAP basis. Revenue by geography continues to be domestically weighted despite international revenue increasing compared with the same period in the prior year. There was one customer that represented 10% or more of revenue in the quarter, but no such customer for the first half of the fiscal year.

Slide 15 details our balance sheet highlights and free cash flow. We ended the quarter with cash, cash equivalents, short-term marketable securities and long-term marketable securities of $475.8 million, representing a decrease of $18.1 million since the end of the first quarter. Free cash flow generated in the quarter was $21.6 million. We repurchased $24.6 million or 921,299 shares of our common stock during the quarter at a weighted average price of $26.75 per share. We currently have capacity in our share repurchase authorization, and subject to market conditions, planned to be active in the market during our third quarter. From a debt perspective, as of the end of the second quarter, we had $350 million outstanding on our $800 million revolving credit facility that matures in July of 2026.

To briefly recap other balance sheet highlights, accounts receivable net was $162.9 million, down by $34.8 million from the end of March. DSOs were 64 days versus 75 days at the end of fiscal year 2021, and 65 days at the same time last year.

Let's move to Slide 16 for commentary on our outlook. I will focus my review on our non-GAAP outlook. As Anil noted in his earlier comments, we are reiterating our non-GAAP outlook issued during our first quarter earnings call on July 29, 2021. For fiscal year 2022, the expected revenue range is $835 million to $865 million, which implies low single-digit growth and reflects the slight pressure on service revenue that we continue to experience due to service provider consolidation and legacy product lines. The anticipated effective tax rate is expected to be between 21% and 23%. Assuming approximately 75 million weighted average diluted shares outstanding, the non-GAAP diluted earnings per share range is expected to be between $1.71 and $1.77.

I'd also like to offer some color on our non-GAAP outlook for the third quarter of the fiscal year. As we assess the opportunities in front of us, we anticipate that third quarter revenue will grow in the low single digits on a year-over-year basis. We also anticipate that the product mix for the third quarter will consist of higher radio frequency propagation modeling revenue and due to the labor-intensive nature and higher cost of this type of revenue, we expect a lower growth margin in the third quarter than that of the same period in the prior fiscal year. Accordingly, we anticipate that our diluted earnings per share in the third quarter will be lower by mid-single digits compared with the prior year's third fiscal quarter.

That concludes my formal review of our financial results. Before we transition to Q&A, I'd like to quickly note that our upcoming IR conference participation is listed on Slide 17. Thank you, everyone, and I'll now turn the call over to the operator to start Q&A.

[Operator]

[Operator Instructions] We'll take our first question today from Matt Hedberg with RBC Capital Markets.

[Matthew Hedberg, analyst]

It's Dan Berger for Matt Hedberg. So could you talk a little bit about the strength in product revenues this quarter? It sounds like it was around software. Is that what drove the outperformance? Or was it simply some deal pulled forward? And then maybe what's the view around product for the second half of the year, with no easing comps?

[Anil Singhal, executive]

Yes. Thanks, Ed. So I think, as we talked about, there were multiple trends because [ in favor ], there was pent-up demand in the enterprise from last year. Our core business, it continues to be strong. Some larger deals, even though some of our new products, while they have a lot of interest, but the sales cycle for them has been much longer. At the same time, our big customers having a lot of confidence in our products and our solution and directions, and that's why they have been spending more money on our solutions versus some other stuff, especially since we -- our software solutions don't have the challenges of supply chain and other things. And lastly, there were some orders which we were able to pull through, especially in service providers from the second half. So overall, I think there was a lot of movement from the second half to the first half, but I think there were some upsides also which we are able to drive because of a combination of a software-only solution, which makes us more price competitive while driving higher gross margins. And because of the confidence not many of our large customers have in us in terms of the direction of the company and the investment we have been making in the COVID time.

[Matthew Robison, analyst]

Very helpful. And then any commentary around the federal business with fiscal year end here? I know you called out a good pipeline last quarter. Historically, there have been some puts and takes there, just curious on the view around federal activity this quarter?

[Anil Singhal, executive]

Yes. I think that has been generally flattish, and maybe Jean has some comment on that. Overall, maybe, Jean, do you want to comment on --

[Jean A. Bua, executive]

Sure. I would say, overall, the government vertical grew around 30% for Q2. And in that vertical, the federal -- the federal portion of that, which is mostly the Department of Defense, grew in the upper teens as a percentage. So it was a good federal quarter for us.

[Operator]

We will take our next question today from Eric Martinuzzi with Lake Street.

[Eric Martinuzzi, analyst]

Yes. My question has to do with the services line. I think I need to get a better feel for that. Right now, at least at the midway point of the year, we're off about 3%. And I'm wondering where you see that for the full year? In other words, does the back half have that same kind of trajectory as the front half did?

[Jean A. Bua, executive]

Sure, Eric, this is Jean. When I look at our first half over our second half and assuming the midpoint of guidance, I would say the trajectory for the second half is to be a consistent percentage of revenue decline at around 3% for the second half, so that would give you around a 3% decline for the full year.

[Eric Martinuzzi, analyst]

And then what's behind this? Is this -- we're kind of running off hardware maintenance contracts and they're being -- they're not being replaced. Is this a kind of a revenue recognition issue between software products, where they come in the revenue line? What's the key driver of this minor decline?

[Jean A. Bua, executive]

Sure. I think there's really 2 pieces to that. And as we mentioned, I think, on the earnings call last quarter, the consolidation of 2 of the largest Tier 1s where the strategy is to expand into 5G and 4G in some of the acquired assets tend to be older. And their plan is not to necessarily use that equipment going forward, so they've decided not to renew our product on those pieces of the network. And then the other pieces we've talked about over the last few years is in some of the more discontinued product lines, that older product lines that we have, some older product lines that were acquired in Danaher as those get -- less product being purchased, the people don't also renew their service. They move on to different solutions that we can provide.

[Eric Martinuzzi, analyst]

Okay. And then it seems to me like the service provider side, we've got a terrific example of a large 8-figure win in the quarter. But then we've got an overall big picture commentary of a flat to mid-single-digit decline. I don't know whether Michael or Anil, you'd like to care to comment, but was that 8-figure transaction kind of an outlier in the grand scheme of things?

[Anil Singhal, executive]

Well, no, I don't think so. But overall, the issue is the international service provider. There is still -- I mean, they are not ranking on 5G investment, and there's still a lot of price pressure. And sometimes, quarter-over-quarter comparisons make it difficult when you have these large deals. Like last year, we had a very big, I would say, 8-figure deal from Asian provider which I don't know whether it's repeatable this fiscal year, but certainly, it didn't happen this time. So I think overall, maybe the yearly trend is the more interesting one, which is that we have been able to maintain good product revenue even at flat for the year, despite the flat -- I mean, very small single-digit decline mainly coming from the service revenue, which Jean talked about, despite the fact that ASP of the products have come down because of software only. So I think, overall, I see that the trend is much better than what we had seen in the last 3, 4 years.

[Eric Martinuzzi, analyst]

Yes, I certainly don't want to take anything away from the quarter because I have had some hardware companies facing supply chain issues, and it's nice to have the optionality that NetScout has where you're selling a software solution and can actually benefit from budget shifts within your customers to accommodate that. So I don't want to take anything away from that. Congrats on the quarter and the reiteration for the year.

[Operator]

We will move next to James Fish with Piper Sandler.

[James Fish, analyst]

We talked a little bit about earlier, ordering. I guess, is there any way to think about how much earlier we're kind of taking from out-year growth? Like is it the back half of the year only? Or are we starting to even see some 2023 orders come in? Is there any extra backlog or product deferred to think about it as a result of that? And I guess, also on the cost side, how are you guys mitigating the extra cost associated with transport and the components at this time with the supply chain issues?

[Anil Singhal, executive]

Yes. So maybe let's see if I remember all the questions you've had. But first of them is that we are -- there's no pull-through from fiscal year 2023 orders, okay? And it is from the second half, so it was -- part of it was part of the full fiscal year plan anyway. We do have a small component of the hardware, like very small portion, and we don't do any custom hardware. So we had already accommodated that and we work with vendors where we are one of the top customers of those vendors, so we get preferential treatment. So we were able to manage any potential supply chain issues, price increases proactively because we have been working with these customers for 10-plus years, the suppliers, and we are such a big portion of their business.

[Jean A. Bua, executive]

Yes. So James, just to put the -- I think you hit the nail on the head for the quarter, just to put it in an overall context. As -- since we have the software-only solution, there was at least one service provider customer who moved their calendar year 2021 budget from what we thought would be our next quarter into Q2. And so given the timing of that, which came in towards the end of September, we prioritized shipping those orders that -- where they want to use those budgets. So to your point, it did create backlog that we will have for the second half of the year going forward, which is part of the reason why we feel more confident about this first half of the year doing so well and the second half should be relatively commensurate to be able to get into our guidance range.

[James Fish, analyst]

That's really great color, Anil and Jean. Two follow-ups there. Actually, 2 follow-ups generally. Dell, we didn't really hear much about that. I know it's very early days, but any contribution yet or how is that go-to-market kind of ramping? And then, Jean, as normal, I guess, what was Arbor's growth rate this quarter? And between carrier and enterprise as well for Arbor?

[Anil Singhal, executive]

Maybe I'll cover the Dell question and Jean will go over the Arbor question, James.

So right now, we have a lot of go-to-market activities going on, and we are looking at how the teams will play. And so I -- we see the impact of this in next fiscal year, not this year. Having said that, our software-only solution now have multiple preferred vendors, so even though we have a software-only solution, customer still has to buy the server hardware. And so now with Dell, we have 2 vendors, and that's very convenient because they are more accessible in the international market than the previous vendor we had.

Jean, do you want to go for Arbor?

[Jean A. Bua, executive]

So going back to the context that I gave about the timing of shipping our orders. So service provider for the first half of the year, which is where we focused on getting those orders out the door by the end of the quarter, grew at around 3%. So we see, as Anil said in his comments, that, that will probably flip for a full year to being flat to down slightly in the mid-single digits. When you look at Arbor, Arbor would have had deals that were not required to ship at 9:30. So on a year-to-date basis, right now, Arbor looks like it's down in the mid-single digits. However, as I think Anil said in his comments, we do expect that Arbor is going to grow for the full year in the upper single digits to low teens for the full year.

[Operator]

And we will take our final question today from Kevin Liu with K. Liu & Company.

[Kevin Liu, analyst]

I was just hoping you could add a little bit more color to some of the supply chain dynamics, particularly on demand for your solutions? Are you guys taking in any sort of benefit from kind of more software orders as customers look for ways to use that budget that they may not be able to use for solutions elsewhere?

[Anil Singhal, executive]

Yes. That's exactly the thing, Ben. Obviously, they still need to have a demand for our solution, so the demand is defined by what they would have bought next in the second half. And sometimes they are able to use this [ color ], we are on a different -- we are not a calendar fiscal year, so that also creates some time interesting dynamic because sometimes people want to use the budget for this year, sometimes they want to use for the next fiscal year. So yes, that's what -- that's allowed them to -- we have a solution which can have -- I mean, we can -- we have bigger sized deals which are mostly software only, which has less supply chain issues than other vendors and we are, because of top customer, we already have a demand or funnel for the second half. All that results in these kind of dynamics, which happened this quarter.

[Michael Szabados, executive]

To add some additional color to that. Some of the large enterprise deals are multiphased by design, partly to accommodate budget -- annual budget limits. And because of this chip shortage, they were able to accelerate multiple phases into a single phase of deployment as --

[Anil Singhal, executive]

Yes. Good point, yes.

[Kevin Liu, analyst]

Great. And maybe just one on security here. Obviously, the past 2 years have seen pretty significant increase in DDoS attacks, and I imagine that's benefiting your Arbor growth. How are you guys looking at this from more of a cyclical perspective? Do you think you'll be able to continue to grow on top of that especially with the new solutions coming online next year? Or do you see kind of an ebb and flow there where maybe the DDoS demand goes down, that you'll have some of the new solutions to help offset that?

[Anil Singhal, executive]

Yes. I think overall, we think the trend into next year will be higher growth in the security solutions. And as a result of DDoS may be flat from this year and next year, but all the upsides coming from the Omnis solution. And as -- as I mentioned earlier, we might decide to carve up the revenue reporting of the security revenue separately, more officially starting with the next fiscal year as a result of that because it's probably will be much more -- much bigger portion of the overall revenue, and we think timing is right. Some of our people have been expecting us to do it like other companies. So all this, Kevin, means that we are expecting higher growth in security than in the overall business.

[Kevin Liu, analyst]

All right. Great to hear. Congrats on the strong quarter.

[Operator]

This does conclude our Q&A session. I will turn the call back to management for any additional or closing remarks today.

[Michael Szabados, executive]

Thank you, everybody. This does conclude our call, and we appreciate everybody spending the time with us this morning. Have a good day.

[Operator]

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