NETSCOUT Systems Reports Record First-Quarter Revenue and Earnings

20 Jul 2000
Quarter Highlighted by NextPoint Networks Acquisition; Strong Penetration of New Accounts in Enterprise, eCommerce and Service Provider Markets

WESTFORD, Mass.--(BUSINESS WIRE)--July 20, 2000-- NetScout Systems, Inc. (NASDAQ: NTCT), the leader in real-time network and application performance management for e-business, today announced financial results for its first quarter of fiscal 2001 ended June 30, 2000.

Revenue for the first quarter of fiscal 2001 was $25.2 million, a 32 percent increase over revenue of $19.1 million for the same period a year earlier, and a 5 percent increase over revenue of $23.9 million for the fourth quarter of fiscal 2000. Net income for the first quarter ended June 30, 2000 was $4.3 million, or $0.15 per diluted share, compared to $3.1 million, or $0.13 per diluted share, for the first quarter of fiscal 2000 and $4.5 million, or $0.16 per diluted share for the fourth quarter of fiscal 2000. Weighted average diluted shares for the first quarter of fiscal 2001 were 28.0 million, compared to 24.9 million for the first quarter of fiscal 2000, and 28.2 million for the fourth quarter of fiscal 2000.

"We are off to a strong start in the new fiscal year," said Anil Singhal, chairman and CEO of NetScout Systems. "We added more than 70 new accounts in the quarter, furthering good penetration into each of our focused markets: enterprise, e-commerce, and service provider. Large deals were up approximately 66% from last quarter from both new and repeat business. Slightly after the end of the quarter, we closed on the acquisition of NextPoint Networks. We are moving ahead swiftly with product and organizational integration and have completed the first phase of sales training to introduce NextPoint's products into our installed base. We anticipate no significant disruption to ongoing operations or sales momentum from the merger."

Flagship new accounts signed during the quarter through direct and channel sales included Chase Manhattan Bank, Sprint, Worldcom Wireless, Clear Channel Communications, Chicago Public Schools, General Dynamics, IBM Europe, Singapore Ministry of Defense, Discover Card, Sprint BWG, Nestle, and AT&T Wireless. These roll outs of our solutions were for performance management of telecommunications services, networked enterprise applications and new e-business infrastructures.

Significant repeat business was received from Price WaterhouseCoopers, Morgan Stanley, PacificCorp, GTE Corporation, MCI Worldcom, The DataStore Inc., General Datatech, Andersen Consulting, Bristol-Myers Squibb and Exenet Technologies. Repeat business with Exenet included selling of NetScout solutions into their enterprise customer base to achieve end-to-end quality of service and performance monitoring in their applications infrastructure services.

First-quarter highlights also include the acquisition of NextPoint Networks, an award-winning developer of performance and service level management solutions. With the acquisition of NextPoint, NetScout adds new capabilities to its nGenius Performance Management System for eBusiness.

Also during the first quarter, NetScout launched its nGenius (TM) e-business performance management system, including the nGenius Performance Monitor (TM), nGenius Traffic Monitor (TM) , nGenius Server (TM) and the nGenius Probe (TM). The nGenius product suite is an integral part of NetScout's strategy for meeting the needs of enterprise, e-commerce and service provider markets. The nGenius system allows customers access to real-time critical network performance data from anywhere in the system, providing its customers with a complete view of their entire infrastructure at a glance.

The acquisition of NextPoint adds significant capabilities to the nGenius suite in application service level management based on end-user experience and capacity planning on both network and device utilization trends. It also assembles a powerful suite of network performance data through a single performance management system--from real-time, application-aware probes to network devices and active agents--providing an unparalleled system-wide view into the performance of the network from a single vendor.

As part of the company's investments in creating top line growth, NetScout continued to develop its sales force. NetScout expanded its presence domestically, in Europe and Asia. In Hong Kong, the company established a headquarters site for its sales and marketing operations for the Asia Pacific regions.

NetScout received two other distinctions during the quarter. The company joined the Russell 3000 indexes, which ranks the largest 3,000 U.S. companies based on market capitalization. Moreover, the company was named to BusinessWeek magazine's list of 100 Hot Growth Companies.

About NetScout Systems, Inc.

NetScout Systems, Inc. (NASDAQ: NTCT) is a leading provider of network and application performance management solutions. NetScout's solutions ensure e-business applications stay up and running at optimum performance through real-time, system-wide visibility and actionable information for fault isolation. NetScout's nGenius(TM) Performance Management System for e-business delivers one stop shopping for customers' network performance management needs. nGenius lets users analyze network and application performance, monitor website responsiveness and isolate problem areas throughout the network infrastructure. With the recent acquisition of NextPoint Networks, nGenius adds new capabilities in application service level management based on end-user experience and capacity planning on both network and device utilization trends. The NetScout solution draws from the widest range of data sources - from real-time, application-aware probes to network devices and active agents, providing a system-wide view into the performance of the network. NetScout's products are deployed worldwide in industries such as e-commerce, finance, healthcare, government, manufacturing and others. NetScout serves approximately half of the Fortune 500 and counts among its customers 3M Corporation, AT&T, Datek Online,, Webhire, Intel Online, Fidelity Investments, Xerox and Sun Microsystems.

Headquartered in Westford, Massachusetts, NetScout has approximately 300 employees and offices in North America, Europe and Asia. Further information on the company is available on the World Wide Web at

Forward-looking statements in this release are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that statements in this press release which are not strictly historical statements 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 strategic relationships with Cisco Systems and other partners, dependence upon broad-based acceptance of the company's Application Flow Management solutions, introduction and market acceptance of new products and product enhancements, competitive pricing pressures, reliance on sole source suppliers, successful expansion and management of the indirect distribution channels, the integration of NextPoint Networks and dependence on proprietary technology, as well as risks of downturns in economic conditions generally and in the market for network and application performance management solutions specifically, and risks associated with year 2000 problems affecting the company, its partners and its customers. 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, 2000, on file with the Securities and Exchange Commission.

NetScout is a registered trademark, and the NetScout logo, nGenius, WebCast, AppScout, and NetScout Manager Plus are trademarks of NetScout Systems, Inc.

                        NetScout Systems, Inc.
                 Condensed Consolidated Balance Sheet
                            (In thousands)

                                                 June 30,    March 31,
                                                   2000        2000

Current assets:
Cash and cash equivalents                        $ 56,722     $48,515
Marketable securities                              17,611      21,807
Accounts receivable, net                           12,604      10,390
Inventories                                         4,362       3,131
Refundable income taxes                                 -       1,899
Deferred income taxes                               1,022       1,022
Prepaids and other current assets                   4,306       3,728

      Total current assets                         96,627      90,492

Fixed assets, net                                   6,051       5,657
Deferred income taxes                                 599         599

       Total assets                             $ 103,277     $96,748

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                                  $ 3,887     $ 2,789
Accrued compensation                                4,221       3,673
Accrued other                                       1,661       2,448
Income taxes payable                                  290           -
Customer deposits                                      25          78
Deferred revenue                                    7,357       6,638

    Total current liabilities                      17,441      15,626

Stockholders' equity:
Common Stock                                           31          31
Additional paid-in capital                         67,658      67,366
Deferred compensation                                (518)       (636)
Treasury stock                                    (25,306)    (25,306)
Retained earnings                                  43,971      39,667

   Total stockholders' equity                      85,836      81,122

   Total liabilities and
    stockholders' equity                        $ 103,277     $96,748

                        NetScout Systems, Inc.
              Condensed Consolidated Statement of Income
               (In thousands, except per share amounts)

                                          Three Months Ended June 30,
                                           2000                 1999

   Product                              $ 17,761              $ 12,814
   Service                                 3,976                 2,465
   License and royalty                     3,432                 3,792

      Total revenue                       25,169                19,071

Cost of revenue:
     Product                               6,094                 4,814
     Service                                 595                   413

       Total cost of revenue               6,689                 5,227

Gross margin                              18,480                13,844

Operating expenses:
   Research and development                2,572                 2,241
   Sales and marketing                     8,727                 6,040
   General and administrative              1,594                   937

       Total operating expenses           12,893                 9,218

Income from operations                     5,587                 4,626
Interest income, net                       1,034                   272

Income before provision for
    income taxes                           6,621                 4,898
Provision for income taxes                 2,317                 1,764

Net income                               $ 4,304               $ 3,134

Basic net income per share                $ 0.16                $ 0.22
Diluted net income per share              $ 0.15                $ 0.13
Shares used in computing:
     Basic net income per share           26,762                14,331
     Diluted net income per share         27,954                24,909