Third Quarter Revenue Doubles Year-over-Year with the Acquisition
of Network General
WESTFORD, Mass.--(BUSINESS WIRE)--Feb. 4, 2008--NetScout Systems
GAAP Non-GAAP
----------------------------------------------------------------------
Revenue $53.7 million $60.0 million
----------------------------------------------------------------------
Net income (loss) ($3.1) million $6.2 million
----------------------------------------------------------------------
Earnings (loss) per share ($0.09) $0.17
----------------------------------------------------------------------
NetScout Systems, Inc. (NASDAQ: NTCT), an industry pacesetter for
advanced network and service assurance solutions, today announced
financial results for its third quarter of fiscal year 2008, ended
December 31, 2007. Financial results include the acquisition of
Network General as of November 1, 2007.
Total GAAP revenue for the third quarter of fiscal year 2008 was
$53.7 million, up 103% year-over-year. Non-GAAP revenue for the third
quarter was $60 million. Non-GAAP revenue excludes the purchase
accounting adjustment to record at fair value the acquired Network
General deferred revenue. Product revenue on a GAAP basis was $36.1
million, up 120% year-over-year.
GAAP net loss for the quarter was $3.1 million, or a net loss per
share of $0.09. GAAP loss from operations was $2.4 million. On a
non-GAAP basis, net income was $6.2 million or $0.17 per diluted
share, and non-GAAP income from operations was $12.6 million. Non-GAAP
income from operations excludes the purchase accounting adjustment to
record at fair value the acquired Network General deferred revenue, as
well as share-based compensation expenses, amortization of acquired
intangible assets, inventory fair value adjustments and non-recurring
integration expenses. Non-GAAP net income excludes these effects as
well as their related impact on the provision for income taxes. A
reconciliation between GAAP and non-GAAP results is included in the
attached financial tables.
"We are pleased with our financial results this quarter following
the recent acquisition of Network General," said Anil Singhal,
President and CEO of NetScout Systems. "These strong results reflect
the market's endorsement of the prospects of the combination of our
two companies. We have brought together two world leaders in
network-based application performance management solutions and we are
well on our way to achieving our goal of providing our customers with
the most advanced technologies in a unified product portfolio. In the
upcoming fiscal year we will be bringing to market a modular suite of
performance management solutions that will protect our customers'
investments and further position NetScout for future revenue and
profitability growth. Our integration efforts are proceeding smoothly
and we look forward to sharing our goals and positive results from the
new and larger NetScout in the coming year."
Financial and Company Highlights for the Third Quarter 2008:
-- NetScout acquired privately-held Network General on November
1, 2007. The transaction was valued at approximately $212
million. The purchase price consisted of a combination of six
million shares of NetScout common stock, $100 million of
senior secured floating rate notes and approximately $56
million in cash.
-GAAP revenue increased 103% year-over-year and 82%
sequentially as a result of the acquisition and organic
growth. Non-GAAP revenue increased 127% year-over-year and
103% sequentially.
-GAAP product revenue increased 120% year-over-year and 91%
sequentially.
-Cash and cash equivalents and short and long-term marketable
securities were $81.9 million down from $108.9 million in the
prior quarter.
-- On December 21, 2007, NetScout refinanced the original
seller's loan issued in connection with the acquisition of
Network General. The new credit agreement, a $100 million
five-year term loan and a $10 million revolving credit
facility, was negotiated at favorable rates with a syndicate
of banks led by KeyBank. The proceeds of the term loan were
used to redeem all of the outstanding senior secured floating
rate notes due 2012.
Guidance:
For the fourth quarter of fiscal year 2008, NetScout expects GAAP
revenue to be in the range of $54 million to $58 million and GAAP net
loss per share to be in the range of ($0.18) to ($0.22). NetScout
expects non-GAAP revenue to be in the range of $60 million to $64
million and non-GAAP earnings per diluted share to be in the range of
$0.04 to $0.08. The fourth quarter of fiscal year 2008 non-GAAP
revenue and earnings estimates exclude the purchase accounting
adjustment to fair value of approximately $6.3 million of Network
General's deferred revenue, share-based compensation expenses of
approximately $1.3 million, amortization of acquired intangible assets
of approximately $1.8 million, and integration expenses of
approximately $5.4 million. While NetScout expects fourth quarter
results to be stronger than the third quarter, results will be
somewhat dampened as Network General's sales force transitions into
its former first fiscal quarter which historically has been weaker.
For the fiscal year 2009, NetScout expects GAAP revenue to be in
the range of $250 million to $260 million and GAAP earnings per
diluted share to be in the range of $0.08 to $0.18. NetScout expects
non-GAAP revenue to be in the range of $260 million to $270 million
and non-GAAP earnings per diluted share to be in the range of $0.50 to
$0.60. The fiscal year 2009 non-GAAP revenue and earnings estimates
exclude the purchase accounting adjustment to fair value of
approximately $11.2 million of Network General's deferred revenue,
share-based compensation expenses of approximately $6.9 million,
amortization of acquired intangible assets of approximately $6
million, and integration expenses of approximately $1.5 million. The
revenue guidance for FY 2009 recognizes the logistical and market
challenges of the integration with Network General as NetScout
combines and reorganizes the sales force and introduces new and
integrated products to the market early in the fiscal year.
Use of Non-GAAP Financial Information
To supplement the financial measures presented in the Company's
press release in accordance with accounting principles generally
accepted in the United States ("GAAP"), the Company also presents
non-GAAP measures relating to revenue, product revenue, income from
operations, net income and earnings per diluted share which were
adjusted from amounts determined based on GAAP to exclude the purchase
accounting adjustment representing the fair value of Network General's
deferred revenue, share-based compensation expenses, amortization of
acquired intangible assets, inventory fair value adjustments and
integration expenses.
These non-GAAP measures are not in accordance with, and should not
be considered an alternative for measures prepared in accordance with
GAAP, and these non-GAAP measures may have limitations in that they do
not reflect all of NetScout's results of operations as determined in
accordance with GAAP. These non-GAAP measures should only be used to
evaluate NetScout's results of operations in conjunction with the
corresponding GAAP measures. The presentation of non-GAAP information
is not meant to be considered superior to, in isolation from or as a
substitute for results prepared in accordance with GAAP.
The Company believes these non-GAAP financial measures will
enhance the reader's overall understanding of NetScout's current
financial performance and the Company's prospects for the future.
Presenting the GAAP measures on their own would not be indicative of
the Company's core operating results. Furthermore, NetScout believes
that the presentation of non-GAAP measures when shown in conjunction
with the corresponding GAAP measures provide useful information to
management and investors regarding present and future business trends
relating to its financial conditions and results of operations.
Company management regularly uses supplemental non-GAAP financial
measures internally to understand, manage and evaluate its business
and to make operating decisions. These non-GAAP measures are among the
primary factors that management uses in planning and forecasting
future periods.
CONFERENCE CALL INSTRUCTIONS:
The Company invites shareholders to listen to its conference call
today at 4:30 p.m. ET, which will be webcast live through the
Company's website at http://www.netscout.com/investors. Alternatively,
people can listen to the call by dialing 866-701-8242 for U.S./Canada
and 706-634-5113 for international callers and using conference ID:
31263476. A replay of the call will be available after 7:30 p.m. ET on
February 4 for approximately one week. The number for the replay is
800-642-1687 for U.S./Canada and 706-645-9291 for international
callers. The conference ID is: 31263476.
About NetScout Systems
NetScout Systems, Inc. (NASDAQ: NTCT) has been an industry leader
for advanced network and service assurance solutions for over twenty
years. NetScout's breakthrough technology solutions provide trusted,
comprehensive real-time and historical performance intelligence,
including advanced early warnings and rapid, definitive problem
analysis. These capabilities are vital to IT operators who are
accountable for reducing the Mean Time to Resolution. The world's
largest enterprises, government agencies, and service providers depend
upon NetScout's nGenius and Sniffer (formerly Network General) brand
solutions to assure service levels to their users by reducing or
preventing disruptions and degradations. More information about
NetScout is available at http://www.netscout.com.
Safe Harbor:
Forward-looking statements in this release are made pursuant to
the safe harbor provisions of Section 21E of the Securities Exchange
Act of 1934 and other federal securities laws. Investors are cautioned
that statements in this release, which are not strictly historical
statements, including the plans, objectives and future financial
performance of NetScout, such as the statement that a modular suite of
performance management solutions is expected to be released in fiscal
2009 and the Company's guidance for the fourth quarter of fiscal year
2008 and for fiscal year 2009 contained in this release, constitute
forward-looking statements which involve risks and uncertainties.
Actual results could differ materially from the forward-looking
statements. Risks and uncertainties which could cause actual results
to differ include, without limitation, risks and uncertainties
associated with the Company's acquisition of Network
General, including the ability to integrate the acquisition
successfully, costs associated with the acquisition, the ability to
achieve market introduction and acceptance of new products from the
acquisition, difficulties in managing geographically dispersed
operations and in achieving expected synergies and expense reductions,
and other factors relating to acquisitions generally, as well as the
Company's relationships with strategic partners, dependence upon
broad-based acceptance of the Company's network performance management
solutions, the Company's ability to achieve and maintain a high rate
of growth, introduction and market acceptance of new products and
product enhancements, the ability of the Company to take advantage of
service provider opportunities, competitive pricing pressures,
reliance on sole source suppliers, successful expansion and management
of direct and indirect distribution channels and dependence on
proprietary technology, and risks of slowdowns or downturns in
economic conditions generally and in the market for network
performance management solutions specifically. For a more detailed
description of the risk factors associated with the Company, please
refer to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2007 and Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007 on file with the Securities and Exchange
Commission. NetScout assumes no obligation to update any
forward-looking information contained in this press release or with
respect to the announcements described herein.
(C)2008 NetScout Systems, Inc. All rights reserved. NetScout and
the NetScout logo and nGenius are registered trademarks of NetScout
Systems, Inc.
(C)2008 Network General Corporation. All Rights Reserved. Network
General and the Network General logo are registered trademarks or
trademarks of Network General Corporation and/or its affiliates in the
United States and/or other countries. Only Network General Corporation
makes Sniffer(R) brand products.
NetScout Systems, Inc.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
Three Months Nine Months
Ended Ended
December 31, December 31,
---------------- ----------------
2007 2006 2007 2006
-------- ------- -------- -------
Revenue:
Product $36,085 $16,366 $ 72,509 $46,351
Service 17,656 10,133 38,757 28,803
-------- ------- -------- -------
Total revenue 53,741 26,499 111,266 75,154
-------- ------- -------- -------
Cost of revenue:
Product 11,627 4,528 21,483 12,766
Service 4,056 1,672 7,665 4,700
-------- ------- -------- -------
Total cost of revenue 15,683 6,200 29,148 17,466
-------- ------- -------- -------
Gross profit 38,058 20,299 82,118 57,688
-------- ------- -------- -------
Operating expenses:
Research and development 9,272 4,782 18,518 13,690
Sales and marketing 21,463 10,997 43,817 31,410
General and administrative 9,454 2,571 15,479 6,913
Amortization of acquired intangible
assets 314 39 320 116
-------- ------- -------- -------
Total operating expenses 40,503 18,389 78,134 52,129
-------- ------- -------- -------
Income(loss) from operations (2,445) 1,910 3,984 5,559
Interest and other income(expense),
net (1,343) 917 727 3,004
-------- ------- -------- -------
Income(loss) before income tax
expense(benefit) and cumulative
effect of accounting change (3,788) 2,827 4,711 8,563
Income tax expense(benefit) (682) 844 1,886 2,973
-------- ------- -------- -------
Income(loss) before cumulative
effect of accounting change (3,106) 1,983 2,825 5,590
Cumulative effect of accounting
change, net of taxes of $42 - - - 69
-------- ------- -------- -------
Net income(loss) $(3,106) $ 1,983 $ 2,825 $ 5,659
======== ======= ======== =======
Basic net income(loss) per share $ (0.09) $ 0.06 $ 0.08 $ 0.18
Diluted net income(loss) per share $ (0.09) $ 0.06 $ 0.08 $ 0.17
Shares used in computing:
Basic net income(loss) per share 36,495 31,735 33,651 31,626
Diluted net income(loss) per
share 36,495 33,026 35,065 32,925
NetScout Systems, Inc.
Non-GAAP Financial Measures and Reconciliations
(In thousands)
(Unaudited)
Three Months Nine Months Ended
Ended
December 31, December 31,
----------------- ------------------
2007 2006 2007 2006
-------- -------- --------- --------
GAAP Revenue $53,741 $26,499 $111,266 $75,154
Product deferred revenue fair
value adjustment 325 - 325 -
Service deferred revenue fair
value adjustment 5,960 - 5,960 -
-------- -------- --------- --------
Non-GAAP revenue $60,026 $26,499 $117,551 $75,154
======== ======== ========= ========
GAAP Gross profit $38,058 $20,299 $ 82,118 $57,688
Deferred revenue fair value
adjustment 6,285 - 6,285 -
Shared-based compensation
expense 17 12 65 37
Amortization of acquired
intangible assets 768 104 977 312
Inventory fair value
adjustment 1,287 - 1,287 -
Integration expense 438 - 438 -
-------- -------- --------- --------
Non-GAAP Gross profit $46,853 $20,415 $ 91,170 $58,037
======== ======== ========= ========
GAAP Income(loss) from
operations $(2,445) $ 1,910 $ 3,984 $ 5,559
Deferred revenue fair value
adjustment 6,285 - 6,285 -
Shared-based compensation
expense 343 357 1,056 1,077
Amortization of acquired
intangible assets 1,082 143 1,297 428
Inventory fair value
adjustment 1,287 - 1,287 -
Integration expense 6,024 - 6,024 -
-------- -------- --------- --------
Non-GAAP Income from operations $12,576 $ 2,410 $ 19,933 $ 7,064
======== ======== ========= ========
GAAP Net income(loss) $(3,106) $ 1,983 $ 2,825 $ 5,659
Deferred revenue fair value
adjustment 6,285 - 6,285 -
Shared-based compensation
expense 343 357 1,056 1,077
Amortization of acquired
intangible assets 1,082 143 1,297 428
Inventory fair value
adjustment 1,287 - 1,287 -
Integration expense 6,024 - 6,024 -
Income tax adjustments (1) (5,708) (190) (6,061) (572)
-------- -------- --------- --------
Non-GAAP Net income $ 6,207 $ 2,293 $ 12,713 $ 6,592
======== ======== ========= ========
Diluted Net income(loss) per
share $ (0.09) $ 0.06 $ 0.08 $ 0.17
Share impact of non-GAAP
adjustments identified above $ 0.26 $ 0.01 $ 0.28 $ 0.03
Non-GAAP Diluted net income per
share $ 0.17 $ 0.07 $ 0.36 $ 0.20
Shares used in computing
non-GAAP diluted net income
per share 36,495 33,026 35,065 32,925
(1) : Reflects the tax effect of non-GAAP adjustments above at the
statutory rate of 38%.
NetScout Systems, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
December 31, March 31,
2007 2007
------------ ---------
Assets
Current assets:
Cash and cash equivalents $ 52,497 $ 18,925
Marketable securities 29,237 69,204
Accounts receivable, net 48,517 18,317
Inventories 10,197 4,562
Refundable income taxes 1,278 657
Deferred income taxes 3,620 2,535
Prepaid expenses and other current assets 12,008 3,380
------------ ---------
Total current assets 157,354 117,580
Fixed assets, net 17,563 8,262
Goodwill 135,295 36,561
Acquired intangible assets, net 67,159 442
Capitalized software development costs, net 48 170
Deferred financing costs 952 -
Deferred income taxes 31,272 5,382
Long-term marketable securities - 11,975
Restricted cash 156 -
Other assets 991 47
------------ ---------
Total assets $410,790 $180,419
============ =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 14,027 $ 3,023
Accrued compensation 25,680 8,271
Accrued other 9,429 2,609
Income taxes payable 839 192
Long term debt, current portion 5,000 -
Deferred revenue 51,929 23,992
------------ ---------
Total current liabilities 106,904 38,087
Other long-term liabilities 915 1,008
Accrued long-term retirement benefits 1,254 1,155
Long-term deferred revenue 6,530 1,762
Long-term debt, net of current portion 95,000 -
------------ ---------
Total liabilities 210,603 42,012
------------ ---------
Stockholders' equity:
Common stock 43 36
Additional paid-in capital 180,882 122,074
Accumulated other comprehensive income(loss) 94 (46)
Treasury stock (28,939) (28,939)
Retained earnings 48,107 45,282
------------ ---------
Total stockholders' equity 200,187 138,407
------------ ---------
Total liabilities and stockholders'
equity $410,790 $180,419
============ =========
CONTACT: NetScout Systems, Inc.
Catherine Taylor, 978-614-4286
Director of Investor Relations
IR@netscout.com
SOURCE: NetScout Systems, Inc.