To My Fellow Shareholders:

Today, NETSCOUT’s solutions are more important than ever. Given the current geopolitical landscape and macroeconomic climate, organizations are finding it absolutely imperative to operate more efficiently while protecting against the rise in cybersecurity threats. As “Guardians of the Connected World,” NETSCOUT is well-positioned to assist customers on both fronts.

We are excited about our core service assurance and DDoS security businesses as well as the new innovative solutions we have launched to address the new challenges of the digital world. Customers are advancing their digital transformations in the enterprise customer vertical and rolling out 5G in the service provider customer vertical while also dealing with a rapidly evolving threat landscape. Our new innovations related to Smart Edge Monitoring, Adaptive DDoS, Smart Analytics, and 5G are all targeted at addressing these needs. We also are seeing new opportunities in cybersecurity, particularly in the area of network detection and response, with our new Omnis solution. Compared to today’s more traditional solutions, our new Omnis solution offers a uniquely differentiated approach, providing faster detection, investigation, and mitigation at a larger scale than most current alternatives. Our solutions, with our scalable deep packet inspection technology and Smart Data, provide our customers the advantage they need to succeed in today’s digital world.

Meeting Fiscal Year 2022 Objectives

In last year’s shareholder letter, I wrote about our business and financial objectives for fiscal year 2022. We made these commitments based on the potential we saw and continue to see within our “NETSCOUT without Borders” strategy as well as the key technology trends taking place. I am pleased to report that we achieved these objectives and more in fiscal year 2022.

In fiscal year 2022, we continued to execute on our “NETSCOUT without Borders” strategy. We increased our existing customer business, forged new customer relationships, and further advanced our cybersecurity agenda. These actions helped us to deliver a strong performance on multiple fronts, which included revitalizing revenue growth, enhancing margins, increasing diluted earnings per share, and generating strong free cash flow. At the top line, total revenue grew by approximately 3% year over year, driven by high single-digit product revenue growth. Additionally, the product mix in our transition to software-centric solutions along with our disciplined cost management approach allowed us to enhance both our gross and operating margins. At the bottom line, non-GAAP diluted earnings per share grew at a rate of over 8% year over year, more than twice that of our total revenue growth rate. As a result of this performance, we generated free cash flow of over $285 million in fiscal year 2022, which was more than 200% of our non-GAAP net income in the period. We also ended the fiscal year with a robust backlog, providing us with an excellent foundation for further revenue growth in fiscal year 2023.

Looking Ahead to Fiscal Year 2023

For fiscal year 2023, with the previously mentioned opportunities in mind and our new, innovative solutions, we remain committed to maintaining our industry leadership, continuing to advance our “NETSCOUT without Borders” strategy, extending our revenue growth, improving our non-GAAP diluted EPS performance, and generating solid free cash flow. We share these goals despite the various cost pressures related to the return of in-person business operations and broader macro headwinds currently being driven by the competitive labor market, elevated inflation, supply chain challenges, geopolitical events, and other factors. We also will continue to advance our ESG commitments as promised. I encourage readers to visit our website to get more information on NETSCOUT’s latest ESG progress. While ESG continues to be a growing area of interest for a diverse set of stakeholders, these principles have always been, and will continue to be, part of who we are at NETSCOUT.

Finally, we continue to maintain a solid financial position with strong liquidity, owing to our leadership in key markets, strong business performance, and focus on conserving capital during the pandemic. Our ample supply of dry powder positions us well to execute on several fronts, and we remain mindful of our capital allocation strategies. In May 2022, we decided to allocate approximately $300 million of our excess cash to two financial transactions. The first was to repurchase $150 million of our common stock through an accelerated share repurchase program, and the second was to repay $150 million of our outstanding debt under our revolving credit facility. We have accounted for both of these transactions in our outlook for fiscal year 2023. Our board also has authorized a new share repurchase program that allows for the repurchase of an additional 25 million shares of our common stock with no definitive time frame for execution. We believe these capital allocation strategies are in the best interest of our shareholders and NETSCOUT more broadly.

In closing, I would like to thank my fellow NETSCOUT Guardians around the world for their tireless determination and dedication and our customers, partners, and other stakeholders for their continued support. With more than three decades of experience here at NETSCOUT, I continue to be inspired by the work we are doing on a daily basis, and my pride and enthusiasm for the Company and our future remains as strong as ever. We entered the new fiscal year with a solid foundation from which to continue growing and remain well-positioned to help our customers address the challenges and opportunities of the digital world. I look forward to sharing our progress and achievements with you over the course of fiscal year 2023 and beyond.

Sincerely,

Anil Singhal
Co-Founder, President, Chief Executive Officer and Chairman of the Board