Ladies and gentlemen, thank you for standing by, and welcome to NETSCOUT's 1st Quarter of 2018 Results Conference Call. At this time, all parties are in a listen only Andrew Kramer, Vice President of Investor Relations and his colleagues at NETSCOUT are on the line with us today. I would now like to turn the call over to Andrew Kramer to begin the company's prepared remarks.
Great. Thank you, Dave. Good morning, everyone. Welcome to NETSCOUT's first quarter fiscal year 2018 conference call for the period ended June 30, 20 17. As usual, I'm joined today by Anil Singhal, NETSCOUT's Co Founder, President and CEO, Michael Zabados, NETSCOUT's Chief Operating Officer and Jean Boa, NETSCOUT's Executive Vice President And Chief Financial Officer.
There is a slide presentation that accompanies our prepared remarks can be accessed on the Investor Relations section of our website at www.netsgov.com. Slides can be advanced in the webcast viewer to follow along with our commentary. We will call out the slide number we are referencing in our remarks. Today's agenda will be consistent with prior quarters. Our CEO and Bill Singhal will share his perspective on our results and recent highlights, our COO, Michael Zabadosch, will briefly discuss key wins and go to market developments.
Our CFO, Jean Boel will then review our first quarter results results and our fiscal year 2018 guidance. Moving on to slide number 3, I would like to remind everybody listening that forward looking statements as part of this communication are pursuant to the Safe Harbor provisions of Section 21E of the Securities Exchange Act of 1934 as amended and other federal securities laws. Investors are cautioned that statements in this call, which are not strictly historical statements, including, but not limited to, the statements were related to the financial of the other various product development, sales and marketing, expense management and other initiatives planned for fiscal year 2018 and beyond constitute forward looking statements, which involve risks and uncertainties. Actual results could differ materially from the forward looking statements due to known and unknown risks, uncertainties, assumptions and other factors. This slide details these factors, and I strongly encourage you to review each and every one of them.
For a more detailed description of the company's risk factors, please refer to the company's annual report on Form 10 K for the fiscal year ended March 31, 2017, is 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 the the GAAP and non GAAP results unless otherwise stated financial information discussed on today's conference call will be on a non GAAP basis only. This slide which we also encourage you to read provides information about the use of GAAP and non GAAP measures because non GAAP measures are non intended to be superior to or a substitute for the equivalent GAAP metric. Non GAAP items are described and reconciled to GAAP results in today's press release, and those and other reconciliations and supplemental detail are included at the end of the slide presentation, which again is available on our website. As we detailed in our press release today, our first quarter results were consistent with our expectations entering the quarter.
And capabilities to the marketplace. And we've been pleased thus far with the strong interest and positive feedback on these offerings, from customers and prospects. With that, as the high level background, I'll now turn the call over to Anil. Anil?
Thank you, Andy. Good morning, everyone, and thank you for joining us. Let's begin on Slide 6 with a recap of our non GAAP results. Netcore's 1st quarter performance was generally in line with the plans entering the quarter with revenue coming in at $1,000,000, a gross margin of 75.9 percent and operating profit margin of 6.3 percent and diluted EPS of $0.08 per share. Gene will review our performance in more details, but I'll share a few observations.
Total revenue declined by 18%, which was consistent with the guidance we provided last quarter, a significant of the significant majority of this decrease versus last year was related to the ongoing moderation in spending by one of our Tier 1 carrier customers. Our gross margin improved by 3 percentage points were primarily due to favorable shifts in product mix. As we begin to see the benefits of our product strategy. In terms of profitability, we balance ongoing expense management with investment in major development and go to market activities. Overall, we are very pleased with the progress we made over the past several months.
To drive innovation and elevate our value proposition. Since holding our annual sales kickoff and user conference events in early April to start the quarter, we are officially introduced a number of exciting new products. Let's move to Slide 7 to cover this progress in more detail. As many of you know, our approach to collecting an network traffic or wide data is differentiated by our patented adaptive service intelligence or ASI technology. Which instantly converts high volume network traffic at the collection point into highly structured multi dimensional metadata or what we call smart data.
We are using the smart data to power an expanding range of analytics expanding network performance, application performance, cybersecurity and big data. During the past 2 years, we have applied ASI to the technologies and capabilities we acquired as part of the Danville Communication business, including best in class analytics for session trades for forensics, radio access network optimization, customer experience management, Wi Fi monitoring, infrastructure performance management, and advanced security threats. We believe this approach offers compelling value to their legacy workflow. Just as important, it provides customers with next generation capabilities that address important new use cases important new use cases and help facilitate more pervasive instrumentation of their networks. Point of our smart data strategy occurred last fall with the launch of our real time information platform called the Infini Stream NG.
Which is available in multiple form factors and deployment options. The software only version of this platform continues to gain traction in the service provider market because it enables these customers to maximize the utilization of the service assurance budgets and instrument their network more broadly than using traditional hardware probes. At the same time, these developments are typically negotiated multi year purchase agreement, which helps us fortify our incumbency while also providing us with improved revenue visibility. We also expect that the deals that we have closed thus far will yield comparable even higher revenue against prior year spends and superior profitability in terms of absolute gross profit dollars. Additionally, we are seeing that when customers standardize on this new platform, they are more likely to purchase other complimentary products from us.
The list of service providers who are now deploying the Infiniti's MNG software has continued to grow and Michael will recap another win we secured in the Asia Pacific region. We continue to expect that the software only version of our industry manager will represent between 8% to 10% of product revenue in fiscal year 2018, with much of that contribution coming in the second half of the year. Just as important, we anticipate that the adoption of a new platform will help drive better gross margins this year. During the past several months, we have launched a range of innovative new offerings that can extend our customer's visibility from the core of their infrastructure out to the edge of their networks and amplify the value of our smart data to new high value analytics. We first showcased these products these new products at our annual user of conference and have subsequently marketed them at major industry events and in customer basing.
The feedback on these new offerings from customers, prospects, partners and industry experts has been resoundingly positive. We are very excited about the value proposition for each of these new offerings, and we plan to highlight many of them on future quarterly calls as they gain traction. This morning, I want to briefly review why we are especially optimistic about the potential of our new cloud offerings called V stream, Viscout, and Virtual And G1. These product to expand, extend application assurance for off the shelf app or custom applications regardless of whether they run-in physical or virtual data centers, or in the cloud. By providing deeper visibility into the interactions of many components of modern applications, regardless of how or where they are deployed, we can help customers simplify and assure the success of cloud migration projects successfully monitor services running across complex hybrid cloud environments and efficiently expand visibility into the traditional application infrastructure.
We are very pleased to have already closed our first sale of this offering, and Michael will profile this win in a moment. This brings us to our outlook, which is covered on Slide 8. Overall, we made substantial progress on our development roadmaps during this past quarter, to largely complete our newest product cycle. We are excited about the potential of our smart data strategy to help customers fully harness the power of IP Networking and position NetSol as a strategic partner with proven business assurance solution that will help them monitor manage and protect their technology infrastructure. To capitalize on the potential we see for these new products, We'll continue to advance key sales and marketing initiatives.
For example, as we move forward, we intend to cross cross sell Arbor's offering into NETSCOUT installed base of customers, advanced campaigns to win new accounts and leverage our strong position in network operations to sell to different senior level decision makers within our installed base of customers. Although it will take time for these activities to build momentum, We are confident that our value proposition will resonate in the marketplace over the coming quarters. We are also dedicating resources to help guide our longer term development by maps in ways that will help us capitalize on emerging technologies and new markets such as internet of things, 5G, virtualization and machine learning. Looking ahead, our outlook for fiscal year 2018 is eventually unchanged. Although our EPS guidance was updated slightly to reflect the quarter share repurchase activity.
While the business has tracked according to clients thus far, we recognize that a lot of work left to be done and left to do in order to achieve a get from fiscal year 2018. We continue to expect that majority of our revenue and profits will be delivered during the second half of the fiscal year which is consistent with the historical trends in our business. Jean will provide some additional details on our outlook in a few minutes And at this point, I'll turn the call over to Michael for a recap of our key customer wins and go to market activities.
You, Anil, and good morning, everyone. Slide number 10 outlines the areas that I will cover. Moving into this fiscal year, that is 2018, of our top priorities has been to fortify our incumbency with service providers by driving adoption of our software only platform. We are continuing to make progress on that front. During the past several months, a major mobile operator in the Asia Pacific Regions selected and began deploying our infinostream NG software as part of its strategy to improve overall network quality.
The former tech comps business was an incumbent at this account but has seen its revenue drop to insignificant levels in recent years after a multiyear period of aggressive investment to support the build out of the carrier's 4G LTE network. More recently, this carrier saw service outages spike, which resulted in negative press coverage and higher subscriber churn. After conducting an extensive ten a review to evaluate a range of solutions. This customer selected the Infine stream NGE as its new monitoring platform due to its superior next generation features combined with the ability to support legacy workflows and the compelling total cost of ownership economics. We expect that this multiyear agreement will generate revenues in excess of $5,000,000 per year.
In addition to this deal, this customer recently expanded its relationship with Arbor for a major DDoS mitigation capacity expansion help protect its network and improve its ability to offer a DDoS managed service to its customers. The frequency, complexity and volume of VDoS attacks continue to rise and our ability to keep pace is critical to both providers and enterprises facing their continued trust in Arbor. We recently announced plans to quadruple the mitigation capacity of the Arbor Cloud DDoS managed service to 8 terabytes per second by the end of the calendar year. Having this roadmap in place was critical for 1 of Europe's largest online travel sites. Selected Arbor for both on premise and cloud based DDoS detection and mitigation.
The same customer also purchased Arbor Spectrum our network traffic analysis solution to identify and investigate advanced threats. A key driver in this selection process the planned integration between Spectrum and our ISNG platform, which we announced earlier this week. In the enterprise, Anil highlighted, our new VC and Vescat offerings provide enterprises with deeper application visibility, regardless whether they run-in the traditional data center or in the various forms of the cloud. I'm pleased to report that we recently closed our first order for this new offerings totaling nearly $1,000,000 with a longstanding customer in the energy sector. These products will be used to support a multi phased company wide IT initiative to achieve and to end visibility into the company's top 25 applications.
While NETSCOUT is the customer's defect or network to been in this project, involved extensive testing to validate that our solution was more flexible and cost effective than alternative APM tools along with substantial collaboration with various application teams who helped further refine the development of key features and functionality. Thus far, we've been pleased with the market's response to all of our new software products for our enterprise solutions. We believe that these new capabilities position us to party creating projects with budgets that we historically could not tap into. Our recently launched Ngenius Palls product is a great example of this because it extends our Ngenius 1 workflows to identify infrastructure performance issues with unprecedented speed, scale and precision across today's largest, most complex technology infrastructures. As a result, customers can leverage an investment in our technology to track issues all the way from the service to a specific infrastructure element directly.
Rather than using disparate tools from multiple vendors. We are building a robust new sales pipeline for this offering, and I look forward to coming call where we can highlight this use case. Regarding go to market activity, Overall, we generated good momentum with our go to market activities during the past quarter. Our marketing organization did an excellent job in cost effectiveness, maximizing the impact of earbuds such as the Engage user conference and Cisco Live driving 3rd party validation of our technology leadership and producing favorable media coverage. Our global sales force is moving forward with great enthusiasm.
About our newest products along with the campaigns that we are implementing to generate, cultivate and close new business with existing customers and prospects. In closing, we move forward in terms of further strengthening and expanding our customers relationships with a strong lineup of innovating new products. That concludes my prepared remarks at this point, and I will turn the call over to Jean.
Thank you, Michael, and good morning, everyone. This morning, I will review key after that, I will review the guidance for fiscal year 2018. As a reminder, this review will focus on our non GAAP Slide number 12 shows our results for the first quarter of fiscal year 2018. For the quarter, total revenue decreased 18 percent to $228,800,000. Our gross margin of 75.9 percent increased by 300 basis points.
The improvement in gross margin primarily reflects our progress with product aimed at replacing legacy hardware dependent offerings with our ASI technology. Our operating expenses were essentially flat as we continue to control headcount and selectively backfill attrition in certain areas, while we tactically expand our sales force to capture the market opportunities. We reported an operating profit margin of 6.3 percent. This translated into diluted earnings per share of $0.08. Turning to Slide calls, we are managing through a significant moderation in purchasing by one of our large Tier 1 service provider customers as they manage their network evolutions.
This moderation began in decline in this customer's purchasing in fiscal year 2018. Our revenue SKU for fiscal year 2018 reflects this purchasing pattern. Turning to the enterprise. This vertical decreased by 9%. The decline reflects the timing of certain large federal deals in the first quarter of last year that did not recur at the same level this past quarter and so often within certain ancillary product lines.
With that said, we are pleased with the strength of our federal sales pipeline as we head into the second quarter. The composition of of total revenue coming from service provider and 48 percent from enterprise. In terms of revenue by geography, which is calculated on a GAAP basis, International represented 39% of total 1st quarter revenue versus 37% in last year's quarter. The decline in the United States was driven by the decrease in revenue from that large Tier 1 carrier. Excluding that customer, we had mid single digit growth across all the U S.
Customers. We did not have a 10% customer this quarter. Slide 14 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 $409,700,000. Our revolver has $5,000,000 with total liquidity of nearly $49,300,000.
We still anticipate that our free cash During the quarter, we used repurchase activity, we repurchased 2,780,433 shares of our common stock at an average price of $35.97 per presented a negligible effect on the 1st quarter's earnings per share, it represents a $0.05 increase to our earnings per share outlook for the year. At present, we have approximately 4,000,000 shares available for repurchase under our existing 20,000,000 share repurchase authorization As we head toward the completion of our current authorization, we are working with our board to update and finalize our financial policies going forward and deter the vehicle, timing and funding for future share repurchases. We plan to be active in the market with our buyback program this quarter. To briefly recap other balance sheet highlights, accounts receivable net decreased by $108,500,000 from the end of the last fiscal year, DSOs were 71 days, which is down from 80 days in the 4th fiscal quarter, but up modestly from 66 days in first quarter of last year. Moving to Slide 15 for guidance.
I will focus on the non GAAP guidance and remind you that the reconciliation of our GAAP guidance to our non GAAP guidance is in the appendix. Our guidance for fiscal year 2018 is fundamentally unchanged. We continue to expect that fiscal year 2018 revenue will be relatively unchanged from fiscal year 2017 levels. We anticipate that adoption of our next generation real time information platform will improve our gross margins in fiscal year 2018 and be the primary factor for 200 basis improvement in income outlook for 1,000,000 shares due to our repurchase activity through the first quarter provides us with an incremental $0.05 of earnings per share. Accordingly, we are now targeting from the high single digits to the low double digits.
We continue to expect that 40% of fiscal 2018 revenue will be generated in the first half of the year with the remaining 60% of revenue coming in the second half. Based on our first quarter revenue performance and our view into revenue is around $250,000,000. Pattern change at this 1 Tier 1 service provider. We remain optimistic about the growth potential we see in the 3rd and 4th quarters. Other full year modeling assumptions are outlined on this slide.
Based on the quarterly impact of these assumptions, most notably, relatively flat operating costs, roughly 90,600,000 diluted shares outstanding. This would translate into 2nd quarter diluted earnings per share in the range of 25 to $0.28. That concludes my formal review of our financial results. Before we transition to Q And A, I will note that slide number 6 18 highlights the various investor conferences we plan to participate in over the next couple of months. That concludes our prepared remarks this morning.
You.
We'll take our first question from Mark Keller with D. A. Davidson. Please go ahead. Your line is open.
Perhaps you could go into some more insight into the Tier 1 vendor that has kind of moved off on their spending. Is that expected to continue? Are they is it a competitive situation? Is their market share loss? Is their move off of of spending likely to translate to other carriers, which is some more insight into that Tier 1 carrier would be great.
I think we have talked about it, David, in the past, that, that about this Tier 1 carrier. And I think this is, it development throughout the industry, it just happens to be more concentrated in terms of revenue in 1, so we have the notable impact But the software strategy was designed partly to impact to reduce the impact of this kind of situation, which is trailing LTE spend in 4G and otherwise, traffic growth with OTT competitive plans, all you can eat competitive plan is putting pressure on carriers to moderate this spending And that's what is happening. It's not because of competitive situation. In fact, we announced a $75,000,000 deal. Sometimes ago with the carrier, we announced Vodafone exclusive with the deal.
We just announced the Asia Pacific deal to be at our competitive situation. It's actually improved. And that required a lot of investment and integrating the assets from Danher And Tektronix and then moving to aggressive software software plan without necessarily compromising the top line revenue. So while this situation is happening with the provider, we have been able to make up most of it in other places. So just to recap that not a competitive situation.
It's not a product issue. It's just the timing and what's happening in the industry overall.
And as a follow-up, should we expect that to reaccelerate as 5G comes and the timing of that?
Not because of 5G, but more because of OTT and video surfings. See, 5G is a technology, which is not a complete refresh of the network. It only affects the last mile. So 5G will indirectly impact spending on 4G traffic because the last mile has the potential of increasing the traffic on the network on the core, which will put more pressure on the core, which will need to be expanded And then you need more monitoring solutions, but being able to charge big prices, whether you are infrastructure vendor or monitor a monitoring vendor like us is not going to be the same as before. So but we have been able to manage the by creating a more affordable solution for this increased traffic.
So 5G has an indirect impact on spending but it's not directly is the reason for buying more of a solution.
Okay, thanks. Yes.
Thank you. We'll take our next question from Alex Kurtz with KeyBanc Net Capital Markets. Please go ahead. Your line is open.
Yes, just a clarification and a question. So on this Tier 1 carrier, Anil, Is there a sense that there are, projects maybe 24 months from now, 18 months from now that will be software based that they're starting to initially discuss with you? Or is there just a broad based holding pattern on any kind of discussion around investments in network performance management? Incrementally?
I think both depending on the type of project, obviously, we are they are looking at our software solution. So there is no projects for software. I think software is a deployment mode once the value proposition is established. And, the value proposition is based on the not only what we have to offer, but what kind of spending appetite they have. So we are in the front of line or everywhere including this carrier.
And but only, only when they increase their spending for one reason or another, then we then our first in line position will deliver our revenue. So we are not counting that to be a any 10% customer, but we think we are going to be a makeup for this in other areas, as we have been doing for the last couple of years. And moving forward.
Okay. Well, I appreciate that. And Jean, can you just make the case for the can be a lot of questions around this, but just make your case on why the second half, is going to play out as you'd expect. I mean, there's a lot of this revenue expectation already in backlog, more than historically you would have going into 2nd half, just sort of how would you explain it to folks that you're going to see this great ramp into the Q3 and Q4 periods here?
I would say probably three things, Alex, off the top of my head. First off, service providers, separate from this one particular large tier 1 client, still tend to buy heavier in the Q3 and Q4 quarters. And so as Anil had explained, we have a lot of, strategic partnerships with existing service providers around the globe and our new products set allows us to consolidate other vendors, and other tools from vendors and go from the edge of the RAM through the data center up to the cloud, which resonates very well with them. That same story in other customers, so in the enterprise with the products that we had talked about earlier related cloud and APM, further going into the APM, segment of our addressable market, as well as going into APM. Combined with our long term relationships resonates very well with them also as they look to be as efficient as possible in their operating where possible on one particular vendor.
And then finally, I think as Michael had said in his comments, and as when I talked Salesforce, they're very excited about the opportunities to expand their relationships within the customers and to give new products to their existing base. The pipeline that we monitor is probably at the highest it's been in the last 12 months and has grown in the double digit range at this point. So at this point, sitting here today, we still feel confident that we will achieve our $200,000,000 in revenue, which is our revenue guidance.
Thank you.
We'll take our next question from Chad Bennett with Craig Hallum. Mister Bennett, you may need to check the mute function on your phone. Your line is open.
Sorry. Great. Thanks for taking my questions this morning. Jean, maybe a quick question for you. On your business development expense that you guys on a non GAAP basis, kind of back out of the income there.
It was up pretty decently sequentially. I think it was about 5,500,000 from roughly $3,000,000 last quarter. I guess I was under the impression that expense would kind of trend down So can you kind of address that? And then also remind us kind of why we backed this out of non GAAP and whether or not it's a cash expense?
Sure. The first thing is, and thank you for bringing that to the attention. On the call. Business development is actually has ratcheted down. There's a one time item in there of about I'm going to say about $4,000,000, which relates to conforming vacation policies across the organization.
It is a hit in Q1, but it actually will reverse in Q3. So that's why we took it out of non GAAP non GAAP expenses generally relate to incremental expenses due to the Lodge acquisition and relate to things like professional fees associated with infrastructure projects, facilities, those types of things that are not recurring in nature. So distort the run rate of the actual is. However, most of them are cash expenses. So they do flow through our free cash flow.
Got it. And then second question for me, and again, probably focus Dun Jean. Just in the September quarter guide, I think you talked about it's obviously a fairly big federal quarter for everybody. You talked about, I think, confidence in the pipeline there. Do you have visibility into the Fed demand for this quarter at this point?
Or is that just kind of historical norm kind of September month kind of fiscal year end demand that you just expect to happen?
Well, we have it's 2 parts. We are we have a group of projects that we know are funded. And so clearly that goes into our forecast. And then we have a large very high all in talking to the sales people and estimate how much of the unfunded, project demand that we have in the pipeline will come in.
Okay. Thanks for taking my questions.
Thank you.
We'll take our next question from Matt Hedberg with RBC Capital Markets. Please go ahead. Your line is open.
Hey guys, good morning. Thanks for taking my questions. Jean, maybe to put a finer point on the Tier 1 contributions, Can you help us think through roughly how much maybe your top 2 or 3 tier 1 customers spent a few years ago versus fiscal 2018? Maybe just kind of get a sense for the bottoming effect of that spending cycle?
Sure. So in the The 2 top tier one customers, when you think about their coverage in the U. S. And their race for subscribers. They probably spent in a year where they were actually deploying and optimizing their 4G LTE network, a magnitude of about 10 times larger than any of the other Tier 1s.
So in FY14 over FY15, we saw about a similar decline in the other Tier 1 which was about $100,000,000 decline on a year over year basis. That particular customer has leveled off. They now spend I would say maybe two times on average what the other Tier 1s or other carriers do around the globe. However, that particular customer to echo something that Anil had said about the projects that we have and the value that we add. That particular customer has grown anywhere from the mid to low double digits.
Over the last couple of quarters. So that type of pattern is what we're seeing with the other large Tier 1. So we expect that similar, they will reach a level where they're probably, maybe two times more than other tier 1 carriers. Other international carriers will probably equate to their largest Tier 1 competitor, but we expect that they will still continue to declined this year by about another $100,000,000. And as Anil has mentioned, we have a long term relationship with them.
We have many projects. It's mostly just focused on their economic condition today and where their network evolution is. And it's not a result of market share or any kind of competitive issues.
I think maybe just to add to that, just to so because your real question was about how much of it is bottom out. So if you look at 3 or 4, top carriers, tier 1 carriers. 1 of them was NETSCOT customer and 2 of them were tectonic. And so the NETSCOT 1, bought them out about 3 years ago. And then we had a big spend.
We announced earlier, in the earlier last year. About, renewing our incumbency and that was the big deal we had announced with or without the name. The second one at Watamot last year. And we see a slight increase in that this year. And third one is in the process of coming out this year, which is what Gene is talking about.
And so that's basically the situation on the top tier 1 carriers.
That's super helpful, Anil. And then Jean, maybe a quick one, maybe I missed this, but I was wondering if you could help clarify what percentage of product revenue would be software this year? Thank you.
I believe we said that we anticipate that software revenue as a percentage of product revenue would get close to around 10%.
Okay. So pretty consistent with kind of what you were saying last quarter?
Yes.
Okay. Thank you.
We'll take our next question from Eric Martinuzzi with Lake Street Capital Markets. Your line is open. Please go ahead.
Thanks. I want to kind of set the carriers aside for this question. The assumption on the rest of the revenue stream talks about sort of durability of the enterprise, their, their continued strength. And then also on the services side. Could you address the enterprise, should we expect kind of a normal seasonal trend strong federal in September, strong enterprise through calendar year end.
Is that what the guidance implies? And then also on the services side, And one of the things that, I get concerned about with the dramatic product decline is that we see a ripple effect in the services in future quarters. What should we be thinking about there?
So I'll take the service revenue first. I think we believe that service revenue in total on a year over year basis should be relatively flat to maybe slightly up about 1% in we've talked about in the past, it's mostly just the it's mostly the effect of, some large customers And when I say that, I want to say in the range of 5 to maybe 10 who have very large installed base who, negotiate contracts with us on operating expense for their service. It doesn't really affect our margin because if you think about fixed cost contributions in variable, they're still very profitable. On the enterprise, we still feel that we believe, given the pipeline that I talked about early that we should have a strong federal, quarter. Hopefully, most of that is focused in the DOD and some civilians we're looking to the government to see their spending and how they will do in the budget.
And then we do anticipate that enterprise should continue to be a contributor to revenue and stronger in the 3rd And Fourth quarters.
I just want to mention Eric when there's a couple of other aspects that for a given customer, product revenue is not declining. The ASP is declining with the software. So ASP declining doesn't necessarily mean that total deal size is declining. And because people can use, our product on a wider scale for a smaller price because of the software model in service provider. It actually makes our service revenue And, and that because of our backward compatibility with legacy product much stronger.
So yes, right that there is an impact on both product and service revenue, but these dynamics are playing, which are actually positive.
Understand. Thank you. One more question if I could on the repurchase program. Obviously, you guys were very active in Q1. I was looking at last quarter's press release and it looks like you bought, in all of FY 2017, you bought $80,000,000 worth of stock And then in Q1 here, you bought $100,000,000 worth of stock.
Would you care to comment on that, you know, the, the, the trend there?
Sure. We always plan on being active in the market. It's one of our capital structure efficiency goals. And we generally use a 10b5-one plan and an open market repurchase as you know, through the RMT rules, that's what we were restricted basically to for that 2 year period. And when we put in the grid, you have to put it in at the beginning of a quarter, before the, you know, before when you open window, opens.
And so in Q3 and Q4, while we intended to be in there, the grid that we set the prices at, at which levels to buy the stock fortunately ran up in Q3 and then it also fortunately ran up in Q4. So it just more exceeds the grids that we had originally thought would be in place for the market price for our shares during that time period. So in Q1 of this year, as we continue to deploy our capital, the grid was more in line with where the shares actually performed.
Understand. Thank you.
And we'll take our next question from Kevin Liu with B. Riley And Company. Please go ahead. Your line is open.
Hi, good morning. Just a quick follow on to that share repurchase question. I guess given that most of the $100,000,000 in is where done at a higher average price. Are you saying that you're comfortable continuing to buyback at about $100,000,000 per quarter as long as you have the capacity? Yes,
we we constantly look at our operating plans and our strategy and what we think the long term price will be and look at how that is reflected in the current quarter's share price and make a determination on what think we will be purchasing during that quarter. So we obviously were very comfortable with $100,000,000 last quarter, and we anticipate that we will be active again in the market. And it obviously depends on where the share price, goes throughout the rest of this quarter.
Got it. And switching gears a bit to some of the new product introductions, particularly on the cloud management side. I'm curious for that first deal that you guys closed, what was kind of the sales cycle link that you saw there? And then who are some of the folks that you were competing against in order to secure that deal?
Yes, I would say the sales cycle was about 6 months, 6 to 6 to 8 months. And, the competition was against one of the most prominent APM vendors in the space. And there was a head to head competition for the same kind of deployment in the same servers and same data center environment. So it was a very
instructive and rewarding experience. One thing I want to add, Gavin, is that So we were this was the existing customers on the network side for us. So one of the I mean, the excitement about this was that it's not that we were competing with somebody else. We were actually getting into somebody else's space and creating competition for them and 1. So this looks like it could be for us in the application area and, which is a good leading indicator of what's going to happen in the cloud.
And so we have the only solution in the market, which was on prem and in cloud. And that was one of the reasons. So when they move the application to cloud, if and when they do that, they don't have to change any of their procedures, processes, and use the tool. And that's going to, I think, resonate. So that's one of the things we are excited about that we scout and we stream is not just a cloud product.
It allows us to go deeper into the data server farms and be a player in a new market which was not easily accessible to us in the past.
Got it. I appreciate the color. Thank
It appears we have no further questions at this time.
Super. Well, thank you very much, David, for today. Thank you to all of our analysts and shareholders and prospective shareholders for tuning in this morning. If you do have questions, certainly feel free to get ahold of Investor Relations here at NETSCOUT. And we look forward to seeing you on the road at various investor conferences when that occurs and talking with you with about our Q2 results this fall.
Thank you very much.
This does conclude today's program. Thank you for your participation and you may disconnect at any time.