Thank you, operator, and good morning, everyone. Welcome to NetScout's first quarter fiscal year 2020 conference call for the period ended June 30, 2019. Joining me today are Anil Singhal, NetScout's President and CEO; Michael Szabados, NetScout's Chief Operating Officer; and Jean Bua, NetScout's Executive Vice President and Chief Financial Officer. There's 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, the webcast itself and under financial information on the quarterly results page. Moving on to Slide number 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 financial guidance, 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 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 number 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 the 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. Additionally, as a result of the sale of the HNT tools business, we will provide certain organic non-GAAP performance trends, which remove HNT tools revenue for comparability purposes. Reconciliations of all non-GAAP metrics with the applicable GAAP measures are provided in the appendix of this slide presentation, in today's earnings press release and they are also on our website. I will now turn the call over to Anil for his prepared remarks.

Thank you, Tony. Good morning, everyone, and thank you for joining us. Let's begin on Slide number 6 with a brief recap of our quarterly non-GAAP results. Our first quarter revenue of $186.1 million was approximately $10 million lower than we anticipated, as we continue to see constrained spending and elongated purchase cycles in our service provider segment. Despite the revenue shortfall, we delivered first quarter diluted earnings per share of $0.07, which was in line with our expectations, as we continue to closely manage our cost structure. Let's move to Slide 7 for some further perspective on this and the trends we see in our business. Overall, our service provider segment revenue decreased 3% compared to the first quarter of last year. We continue to see elongated purchase cycles within some of the major North American service providers as they move toward their 5G service offerings. We are excited to see increased activity related to 5G networks this past quarter as we work with some of our customers on their 5G initiatives. I'm also happy to report that we received an eight-figure order at the beginning of the second quarter related to a radio frequency propagation modeling use case. This project is scheduled to be completed by the end of this calendar year and convert to revenue in the second half of the fiscal year. Additionally, Michael will highlight one large order we recognized as revenue in the first quarter related to a domestic 5G monitoring deal. Within our international service provider segment, we completed the implementation and received customer approval for the large international service provider order that we had discussed over the past few quarters. This service provider operates a national LTE network that covers a significant geography. They chose us to monitor their 4G network as they disrupted their local markets and became a market leader in wireless services. We continue to see 4G-related offerings throughout EMEA, Latin America, and emerging Asia Pacific countries. These offerings include services such as Voice over LTE. Turning to our enterprise segment; revenue was down about 7% on an organic basis after three quarters of consecutive organic growth. The decline was largely driven by disruption in our international enterprise sales force from the sales reorganization we announced at the beginning of our fiscal year as discussed on last quarter's earnings call. We have reviewed the issues and have made improvements in this geography. Based on our understanding of the competitive landscape within certain international geographies, we believe we have good opportunities for growth during the remainder of the fiscal year. Included in both our service provider and enterprise segments are our security offerings. Our overall DDoS security revenue grew modestly this quarter in the low single digits. This growth was primarily attributable to our international service provider customers. Within the enterprise segment, we continue to provide DDoS capabilities for a major corporation as they continue to build on their cloud provider platform. Further, in our security product line, we just announced the availability of Arbor Threat Analytics or ATA, which we will showcase next week at the annual Black Hat cybersecurity show in Las Vegas. This is our network-based threat detection and response platform, which combines NetScout's unique visibility into both the Internet and enterprise networks with our proven packet monitoring technology to speed detection and response in today's challenging threat landscape. We anticipate that this will be a key differentiator of our offering. This new offering will be particularly valuable to current customers who have instrumentation already in place for network and application performance management, which can now also serve cybersecurity use cases. At the show, we'll introduce Cyber Threat Horizon, a real-time human-readable threat intelligence service aimed at enterprises and ISPs looking to make better decisions faster when faced with threats and attacks. This service provides a real-time view of attack activity in a given geo or vertical segment and affords the responder a valuable context for response decisions. Now let's move to Slide 8 to review our outlook. Despite our revenue performance in the first quarter, we remain excited about the opportunities we are seeing and our ability to capitalize on them. Accordingly, we are reiterating our guidance provided on our May 2019 earnings call. Our fiscal year 2020 revenue target range continues to be $895 million to $915 million. Our revenue represents a range of less than 1% growth to approximately 2.5% growth on an organic basis compared with fiscal year 2019. We are committed to continue to closely manage and review our cost structure as the year progresses to deliver our diluted EPS target within our guidance range of $1.40 to $1.45. I look forward to sharing our continued progress with you over the remainder of the year. I will now turn the call over to Michael at this point.

Thank you, Anil, and good morning, everyone. Slide 10 outlines the areas I will cover. In the area of customer wins. In the service provider segment, 5G continues to build momentum. In addition to the cadence of radio frequency propagation modeling deals we have been winning over the past two years, this past quarter, we won a large, high seven-figure 5G core monitoring project at a tier one U.S. carrier. With our solutions, this carrier can have end-to-end network visibility of their 4G and 5G networks from the core to the RAN or radio access network. This win, against one of the incumbent network equipment manufacturers, demonstrates the value of our solutions and our ability to further assist our customers as they evolve. It further demonstrates the completeness of our offering for 5G and our potential for future 5G opportunities. In the enterprise segment, we continue to attract new logos with our leading network performance monitoring capabilities. Our newest generation products have the capability of supporting speeds of up to 100 gigabits per second network segments. Additionally, our commercial off-the-shelf offering has been enticing to our enterprise customers. One example is a first quarter win from a leading German automobile manufacturer, which is a new logo for us. This automobile manufacturer purchased our solution in order to run their network at 100 gigabits and be able to deploy our products in their software-only or COTS form. This was a low six-figure order for us and demonstrates our ability to attract new logos. In the security space, we won a mid-7-figure DDoS deal at a large U.S. internet service provider or an ISP. This ISP, for whom we are the DDoS provider, completed an acquisition of a company that used a competitor's solution. The ISP wanted to standardize on a single solution, single vendor, as well as choose a product that could offer their large customer base DDoS protection services. This ISP's customers face a rapidly shifting threat landscape, and they wanted to provide a scalable and robust offering that can manage these threats. Accordingly, they selected our solution and intend to replace the incumbent solution with an all NetScout deployment. In the DDoS arena, in general, we continue to leverage our core product strengths and differentiation of scalability and robustness of the Arbor Sightline and TMS portfolio. This differentiation includes our superior threat intelligence given our access to over a third of the world's Internet traffic. Talking about go-to-market highlights. In the cloud area, following our partnering with Microsoft on Azure VTAP offering earlier this year, we participated in Amazon's AWS VPC traffic monitoring launch at their reinforce event in Boston in June and are working with them on ongoing field trials and road map collaboration. The significance of these new capabilities is that cloud traffic can now be made available for monitoring and analysis without having to deploy agents inside the workloads, thereby, expanding alternatives to extend visibility to the cloud. Additionally, to meet requirements from our large U.S. government agency customers, we are planning to expand our existing public cloud offerings to Azure Gov and AWS Gov Cloud, with target availabilities in the early fall. In terms of future events, finally, in our second quarter, we plan to exhibit at VMWorld and the Black Hat cybersecurity show. At VMWorld, we will demonstrate our integration with VMWare's new NSX-T and VeloCloud SDN platforms or SD WAN platforms, extending IT team's visibility to workloads running in the software-defined data center and SD WAN environments. At the Black Hat show, as Anil mentioned, we will showcase our Arbor Threat Analytics and Cyber Threat Horizon products that we highlighted earlier. That concludes my remarks, and I will turn the call over to Jean.

Thank you, Michael, and good morning, everyone. I will review key first quarter metrics, along with our guidance. 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. Additionally, due to the sale of the HNT tools business in mid-September of 2018, I will highlight certain revenue trends on an organic non-GAAP basis, which removes HNT tools revenue for the relevant period. Regardless, I will note the nature of any such comparisons. Slide number 12 details our results for the first quarter of fiscal year 2020. Focusing on the quarterly performance, we reported revenue of $186.1 million. First quarter revenue declined by 10% year-over-year and 5% on an organic basis, excluding the HNT tools business. Our first quarter fiscal year 2020 gross margin was 74.9%, relatively flat compared to the same quarter last year. Quarterly operating expenses decreased by 13% from the prior year, mainly due to lower personnel-related costs from reduced headcount. We reported an operating profit margin of 6.5% with diluted earnings per share of $0.07. Turning to Slide 13, I'd like to review key revenue trends for the first quarter. In the service provider customer segment, revenue declined by 3%, with service assurance down 9% and DDoS security up 12%. In the enterprise segment, revenue declined 16%, partly due to the sale of the HNT tools business. On an organic basis, enterprise revenue declined 7%. In terms of revenue by geography, this is calculated on a GAAP basis and includes revenue from the HNT tools business. International revenue increased by 1% because of our service assurance and DDoS product offerings for service providers in Europe and elsewhere. The U.S. experienced a 16% revenue decline, which was partly attributable to the sale of the HNT tools business. We estimate that the U.S. declined about 11% on an organic basis due to reduced spending by U.S. service providers. International customers represented 42% of GAAP revenue compared to 38% last quarter. We had no customers accounting for 10% or more of revenue during the quarter. Slide 14 highlights our balance sheet and free cash flow. We ended the quarter with GAAP cash and cash equivalents of $443.2 million, which is a decrease of $43.8 million since the end of the fourth quarter. We generated free cash flow of $46.2 million for the quarter. Last quarter, our board approved a $50 million share repurchase program. We repurchased $33.2 million of our common stock before the end of June, with the remaining $16.8 million repurchased in July. In total, we repurchased 1,946,418 shares of our common stock at an average price of $25.69 per share. In addition to our share repurchase, we also repaid $50 million of debt, and at the end of the first fiscal quarter, we had $5 million outstanding on our $1 billion revolving credit facility. To briefly recap other GAAP balance sheet highlights, accounts receivable net was $160.0 million, down by $75.3 million since the end of March. DSOs were 73 days compared to 88 days at the end of fiscal year 2019 and 69 days at the same time last year. The increase in the DSOs compared to the first quarter of the prior year reflects a higher component of receivables from renewal bookings this quarter. Finally, I want to mention that effective April 1, 2019, NetScout adopted the new Lease Accounting Standards Codification Topic 842. We adopted it under the modified retrospective method and, as a result, did not adjust prior periods or modify disclosures in those periods. The adoption of ASC 842 resulted in the recognition of operating lease right-of-use assets of approximately $68.2 million, operating lease liabilities of approximately $83.2 million, and the elimination of deferred rent of approximately $15 million. Operating leases are included in the operating lease right-of-use assets and lease liabilities on our balance sheet. The adoption of ASC 842 did not materially impact our consolidated statement of operations, consolidated statement of stockholders' equity, consolidated statement of comprehensive income/loss, or consolidated statement of cash flows. The new standard had no material impact on liquidity or on our debt-covenant compliance under current debt agreements. I’d like to provide a brief update on our capital usage. As discussed previously, we plan to keep up to $300 million in cash on our balance sheet for working capital purposes and in consideration of overseas cash. In the near term, we plan to allocate $50 million for stock repurchases and an additional $50 million for debt repayment. Accordingly, we expect to remain active in the market, depending on market conditions and subject to daily trading volumes and price considerations. Let’s move to Slide 15 for guidance. I will focus on our non-GAAP guidance. As a reminder, we sold the HNT tools business in September 2018, which contributed $18 million to last year’s revenue before the sale was completed. Therefore, the impact of the divestiture should be considered when comparing fiscal years 2019 and 2020, especially for the first two quarters of both years. Consistent with Anil’s earlier comments, we continue to target fiscal year 2020 revenue in the range of $895 million to $915 million, indicating low single-digit organic growth. Regarding the other key fiscal year 2020 operating model assumptions, we currently expect further gross margin improvement as we drive adoption of our software solutions. Our current plan calls for relatively flat operating costs compared to last year as we account for annual merit adjustments and critical personnel replacements. We expect our non-GAAP tax rate to be at the lower end of our initial range of 23% to 25%. We have begun implementing a tax structure that should allow us to maintain a similar non-GAAP tax rate to last year. Assuming 78.2 million shares outstanding, we anticipate delivering earnings growth with diluted EPS between $1.40 and $1.45. Additionally, I want to provide some insights on the second quarter. Last year's second quarter revenue of $224 million included $7.6 million from the disposal of the HNT tools business. In assessing upcoming opportunities, we now anticipate revenue in the range of $205 million to $215 million. We are planning for modest gross margin improvement in the second quarter, with operating expenses expected to be 7% to 8% lower than the same quarter a year ago. Diluted EPS for the second quarter is expected to range from $0.25 to $0.27. That concludes my formal review of our financial results. Before we transition to Q&A, I want to quickly note that our upcoming IR conference participation is listed on Slide 16. Thank you. I will now turn the call over to Tony to start Q&A.

Operator, if you could start the Q&A process?

We'll take our first question from Matt Hedberg with RBC Capital Markets. Please go ahead. Your line is open.

Thanks. Good morning, everybody. So I want to start, Anil. When we sort of think about the start of this year versus last year, it kind of seems kind of similar, kind of challenging Q1, but you're maintaining the full-year guidance. It seems to me like, listening to your prepared remarks, that there are more positives this year that give you confidence in the full-year numbers. You outlined some of them on the call, but maybe could you sort of rank some of the things? Obviously, the eight-figure deal is encouraging, and it seems like that's going to be a second-half revenue catalyst. But maybe could you just sort of outline sort of what you're most excited about as you sort of think about the back half of this year.

So I think, Matt, I will just talk about incremental gains, which were not possible last year. Obviously, this big deal, the eight-figure deal we announced, which contributed to orders but not to revenue in the first half. But there are a few things which are completely new; one is our security direction, this new ATA product, which was announced in April, and we should see some revenue intake from them in the second half, and we are doing a lot of POCs. We're going to be talking about it at the Black Hat conference. Second is, we also have something called Visibility-as-a-Service where some of our products can be consumed as a service, and some of our customers have challenges in having enough talent to operate our product. This allows them to outsource that to our company, which not only increases the revenue but increases the speed of deployment. And third is, while we saw some disruption in the sales force in the U.S. as a combination of the Arbor and NetScout sales forces, I think there are good cross-sell opportunities in the second half as a result of that.

That's helpful. And then maybe just one other thing that I think could be an opportunity here, and you talked a little bit about in your prior remarks about the reorganized international sales force. I'm curious how that might set you guys up for better international enterprise results. And I think you alluded to, you don't think necessarily it's competitive there. Maybe just review sort of additional thoughts on the competitive angle on the enterprise side internationally, specifically?

I believe the competitive challenges have actually decreased because many of our direct competitors in both the service provider and enterprise segments are leaving the market, with one of them recently making an announcement. However, this also poses a challenge for market development. The primary cross-sell opportunity arises from the fact that the security market is now more mature in terms of global spending, while 4G investments are rising in other sectors. These two factors are new; one stemming from our combined sales force and the other being the maturation of 4G. Consequently, we have improved prospects for expanding our international business, especially as direct competition is diminishing. Nevertheless, there is still indirect competition from NEMs and ongoing confusion in the marketplace due to digital transformation, NFV, and virtualization. Overall, the overall impact is a reduction in competition.

Great. Thanks, guys.

Thank you. And next, we'll move to Eric Martinuzzi with Lake Street Capital. Please go ahead. Your line is open.

I wanted to discuss the Q2 outlook. Jean, you mentioned that there is approximately $7 million from the HNT, the handheld networking tools, from fiscal '19. This suggests a revenue decline of about 3% for Q2 of 2020. Is the reason for this decline the same issue we discussed regarding Q1, specifically weak service providers, or do we anticipate any recovery in service providers in Q2? Additionally, could you provide insights on the impact to enterprise for Q2?

The range represents the forecast provided by the sales team, and the $10 million estimate assumes that some of the 5G-related deals we discussed will materialize. We expect a few of those to come through. Additionally, regarding the international enterprise sales force disruption that Anil mentioned and the competitive environment, we anticipate that the international enterprise sales team will begin to close some of their deals. This likely accounts for the range in Q2.

I would like to express my agreement with the previous caller regarding a sense of familiarity with our experience. We have a year that is weighted towards the latter half, and while the confidence to reiterate the full year guidance is evident, the revenue split of approximately 44% for the first half and 56% for the second half indicates a somewhat riskier outlook. However, the information you provided about the eight-figure order received at the start of Q2 helps to ease those concerns. I'm interested in learning more about this order and whether there is an opportunity for additional business with other major carriers or even potential similar eight-figure orders from the same carrier. I recognize that such deals are challenging to secure, but given our current scale, we really need to pursue these types of agreements.

Let me address your deja vu comment. You're correct that this perception or reality may have existed in the past. Previously, we relied on an increase in spending during the second half of the year, primarily from the service provider sector. This year, we are focusing on converting that revenue, which was part of a deal exceeding $20 million. Additionally, we are looking to introduce new solutions in the security sector. The situation is quite different now compared to previous years. Regarding the calibration business, it has seen some upside, though not all of it qualifies as such. Overall, the 5G calibration business will exceed our initial estimates for the year, but the increase isn't substantial. We are talking about a difference of $20 million against a projected $30 million. Most of this revenue has already materialized in the first half of the year, and while we do expect some additional 5G business in the calibration sector, the upside isn't significant. The majority of the growth is already accounted for, and we anticipate receiving more 5G orders, which were already included in our plans.

And then as far as other tier one carriers, these types of eight-figure orders, are you well-positioned? Do you have pipeline width?

I don't anticipate eight-figure orders, but collectively, it will reach eight figures across various deals. We need to consider the market consolidation due to the T-Mobile and Sprint merger and how that impacts us. This year, we expect to deliver higher numbers in 5G calibration because of this significant order compared to our forecasts from six months ago. While we might see seven-figure orders, eight-figure deals are unlikely.

I have a housekeeping item. Jean, you mentioned the expectations for share count that support the reiterated full-year non-GAAP EPS of $1.40 to $1.45, which is set at 78.2. Can you clarify the share count for just Q2, considering the repurchases that occurred in July?

For Q2, it's 78.2. The share repurchases are pretty minimal. And when we execute in the market in the next tranche that we do, we always update the share count at that time. So we'll update it again at the end of Q3. So right now, we're looking at about 78.2 for Q2, and for the full fiscal year, probably about 78.2 to 78.3.

Thank you.

You're welcome.

Thank you. And next, we'll move to Alex Kurtz with KeyBanc Capital Markets. Please go ahead. Your line is open.

Thanks. This is Steve Anders speaking for Alex. I wanted to inquire about the cloud business and the joint go-to-market strategy with Azure and AWS, specifically what's happening in that area.

Yes. We have partnerships with Microsoft where their sales teams earn commissions on deals that include NetScout products. In these cases, we have technology partnerships that involve certification of our products. Additionally, we collaborate on projects like the VTAP initiative, where we provide guidance on network monitoring strategies and requirements. This is a multifaceted partnership, and we are engaging on various accounts together.

I think it's important to highlight that beyond the partnership, the usage of our product within cloud architecture will significantly enhance our growth and market penetration in that area. We have found ways to access packets in non-cloud settings, and changes in the cloud environment were previously causing deployment challenges for our technology. However, with the VTAP initiative, which began with Microsoft and is now being adopted by AWS, one of the major obstacles to deploying our technology will be removed. This is a positive development; our cloud deployment will now mirror our non-cloud deployment. As existing customers consider moving their assets to the cloud, they will find it easier to extend our technology. While the partnership plays a role, I believe the recognition of our monitoring approach through this initiative, facilitated by our partnership, represents one of the most significant changes.

And do you guys have any early proof points about how that's resonating within enterprises at this point?

Yes, we have our vSTREAM products and native deployment, which showcase strong proof points. We have generated some business, though it's not significant yet. As this technology becomes more mainstream, I believe we'll see broader deployment. Currently, many customers, including several in the double digits, are using our technology for cloud or cloud-related products.

And almost every single data center-related deal, networking deal, involves the necessity of having this solution as part of the portfolio. So it's a necessary component. It's an enabler, even in deals that today are really mapping just to...

So I think, yes, that's a very important point that Michael made, just to add to that is that, in terms of revenue content, it's very small in a given deal, but it's a necessary component, and that completes the solution. So it could be 5% of the dollar value, but without having that, it would be more difficult to get the remaining 95%.

Okay, great. That's helpful. Thanks for taking the questions.

Thank you. And next, we'll move to Chad Bennett with Craig-Hallum. Please go ahead. Your line is open.

Thank you for taking my questions. I have a few inquiries about the high seven-figure 5G core monitoring win from this quarter. It's great to see some activity in 5G finally emerging. My first question is for Jean: when do you anticipate recognizing revenue from that deal? Is it expected in the second half? Secondly, Michael mentioned that it was a win against an incumbent at a U.S. tier one. Does this imply that the incumbent was already handling the 4G core monitoring for this tier one? Any insights on that would be appreciated. Finally, from a pipeline perspective, are we optimistic that 5G core monitoring wins will continue to gain traction and we'll hear more about them consistently for the rest of the year? Thank you.

So let me see if I can cover all this. So first thing is, it was an eight-figure deal. There was...

Let me briefly interrupt Anil. I apologize for doing so. This is Jean. I’ll address one of your questions. There were two 5G-related deals. One occurred in the quarter, which Michael mentioned, and we recognized revenue from that in Q1. The other deal, worth $20 million or more, was received in July, and we expect the project to be completed by the end of this calendar year. Thus, it is more likely to generate revenue recognition in Q3, with the possibility of it extending into Q4. I apologize again.

I would like to add that, regarding size, as Jean clarified, our competition is not in the 5G monitoring space, where we are performing well. However, the business and maturity levels are not yet sufficient to secure significant deals, although we did achieve one 5G monitoring deal. What Michael referred to was competition from network equipment manufacturers. In the calibration area, we don’t face direct competition outside of RAN optimization, although certain NEMs and equipment manufacturers do compete, along with some smaller players. Michael, would you like to add anything?

Yes. In fact, it was a NEM, network equipment manufacturer, and they were doing some parts of the monitoring at the packet level, but we also were present. So they weren't the incumbent exclusively at LTE. Nevertheless, they were the main competition and they are incumbent in other parts of the overall monitoring.

I just wanted to clarify that there may have been some confusion. The $20 million deal was related to calibration, which has a different kind of competition. Although there is less opportunity in terms of financial value, we actually found a larger upside than anticipated. Additionally, in the 5G monitoring sector, we faced competition from a network equipment manufacturer, and we succeeded against them.

Great, thanks for the color. And then maybe an update on where you're at today as a percentage of product revenue coming from software-only and maybe your expectation for exiting this year from that standpoint.

In the quarter, the product revenue from software-only service assurance was approximately 30% for service providers in Q1, compared to around 28% in Q1 of the previous year. For the entire year, it was about 30%. Given that the service provider revenue is primarily from international sources, we anticipate that this percentage could be higher than 30% for the fiscal year '20.

Got it. All right. Thank you.

Thank you. And next, we'll move to James Fish with Piper Jaffray. Please go ahead. Your line is open.

Thanks for the questions here. I guess, first, you guys did call out service provider has the weakness in the quarter, but looking what you disclosed, it was actually enterprise that I think surprised a bunch of us, given it was down 7% organically. I guess, first, what are you seeing from a macro perspective with enterprise on-prem spending? And second, maybe could you just double click into exactly what happened with the sales reorg and why that caused disruption more than you guys thought?

So I think Jean will provide more details on this, but we will discuss the developments in the service provider segment. There was some disruption, but I want to highlight that a lot of the excitement around our enterprise business is driven by our security products and cross-selling efforts, along with the ATA product. It's important to note that the growth will be gradual. We did experience some negative effects from the sales force reorganization, which we had to balance with our sales systems, resulting in some disruption. However, I believe we are largely past that, and any lingering effects should be cleared up by the end of the quarter. This is what has occurred in the enterprise segment. There are no competitive challenges or significant spending issues there. Overall, we don't anticipate major spending problems in the enterprise, but we need to concentrate on the right priorities with our combined sales force. We’ve identified two key areas for growth: cross-selling opportunities enabled by our combination and the recently announced security products.

If I may add to that, there are competing dynamics as always. The fundamental uptick and growth driver is coming from the disruption. So you implied in your question that there is enough on-prem spending whether it's moving to the cloud. What's really happening is all core customer base, which is a very large enterprise, are slower to move than the rest of the market and they are much more concerned about the risks and that's exactly what we are addressing here in our service assurance solution. So as these opportunities get matured, this is going to be a major driver of growth in addition to the security components. The negative is the disruption that was caused. So there is a strategic growth driver here, very important.

I would like to reiterate what Matt Hedberg mentioned earlier regarding the challenging outlook for the second half of the year, especially if 5G spending does not pick up. It seems that core network spending is being pushed back more into 2020. So, I have a two-part question for you, Jean. How much visibility do you have on a quarter-to-quarter basis, now that there is a significant deal in the pipeline? What actions are you taking to improve the situation, as it appears there have been several misses on the top line each quarter? Additionally, Jean, product gross margins have noticeably declined, and while we're undergoing a software transition, do you think that competition is impacting the business more than anticipated, or is it related to pricing concessions, or possibly calibration exposure?

Let me highlight that before Jean speaks, I want to clarify that your question referenced what Matt asked, not the answer I previously provided. The reality is that the comparison of the first half of this year to the first half of last year is affected by some delayed deals, which could have been offset by a significant deal had we recognized the revenue. This explains why we anticipate the second half to be more back-end loaded compared to last year. Jean did address that the revenue will be recognized in the third or fourth quarter. Additionally, regarding last year's spending patterns, we are relying on issues related to customers to resolve and for spending to pick up again. This year, our focus is on new product intake in areas like security, which has been slow to gain traction but remains within our control. These are the dynamics at play, and as we enter the second half, we believe the challenges are significantly lower compared to last year, with the potential for higher opportunities due to the new product launches.

And Jean, on the gross margins on the product side?

The product gross margin in Q1 is approximately 73%, which is around 3 percentage points lower than Q1 of the previous year. This decline is primarily due to volume changes and some shifts in product mix. Overall, the situation is quite clear.

Got it. Thanks.

You're welcome.

Thank you. And next, we'll move to Kevin Liu with K. Liu and Company. Please go ahead. Your line is open.

Hi, good morning. Just want to dig further into the enterprise sales group as well, especially internationally; you cited some competitive dynamics that you think will drive improvement in the back half of the year. What sort of visibility do you have into that? Is that reflected in the pipeline already or is it just kind of an assumption that the market will kind of come your way with the exit of a competitor?

Well, we discussed our expectations and guidance, which are based on our forecasting and analysis, rather than mere guesses. We are optimistic about the situation because the minor disruptions in international enterprise are subsiding, and some of the initiatives we have implemented in security and other areas are beginning to gain traction and are expected to accelerate in the second half of the year. Additionally, the competitive landscape is not worsening for us, which contributes to our confidence in the guidance we've provided. I also want to address the numerous questions regarding our quarterly performance; our business often involves large deals, and analyzing quarterly stats can be somewhat confusing. I believe that as we accumulate more data from the first half and the full year, many of these margins and other metrics will become clearer.

And then just one follow-up on the security side. It sounds like with some of the cross-selling efforts you have in place and the new products that you would expect that to improve over the course of the year, do you see the security business getting back to kind of a double-digit growth profile and what sort of expectations do you have built in for this year for newer solutions like the Arbor Cloud analytics?

Well, we talked about $10 million to $20 million impact this year from the new product introduction and cross-selling, and you can look at that as the difference between the low end and the high end of the guidance.

Okay. Thank you for taking my questions.

Sure.

Thank you. And at this time, we have no further questions. I'd like to turn the call back to Mr. Piazza for any closing remarks.

Thank you, operator. This concludes our remarks. We look forward to seeing many of you at the upcoming conferences. Thank you for joining us today and enjoy the rest of the day.

Thank you. This does conclude today's conference. You may disconnect and have a great day.