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NETSCOUT Systems Reports Record Revenue for Second Quarter Fiscal 2001; Revenue of $28.8 Million Marks 42% Increase Year-Over-Year and 15% Increase Sequentially

October 19, 2000

WESTFORD, Mass.--(BUSINESS WIRE)--Oct. 19, 2000--NetScout Systems, Inc. (NASDAQ: NTCT), the leading provider of infrastructure performance management solutions, today announced financial results for its second quarter of fiscal 2001 ended September 30, 2000.

Revenue for the second quarter of fiscal 2001 was $28.8 million, a 42% increase over revenue of $20.3 million for the same period a year earlier, and a 15% increase over revenue of $25.2 million for the first quarter of fiscal 2001. Excluding non-cash amortization of intangible assets, IPR&D and stock-based compensation, net income for the second quarter of fiscal 2001 was $3.5 million, or $0.11 per diluted share, compared to $3.3 million, or $0.12 per diluted share, for the same quarter last year. Net loss for the second quarter of fiscal 2001 was $761,000, or $0.03 per diluted share, compared to net income of $3.2 million, or $0.12 per diluted share for the second quarter of fiscal 2000. Weighted average diluted shares for the second quarter of fiscal 2001 were 28.6 million, compared to 26.6 million for the second quarter of fiscal 2000, and 28.0 million for the first quarter of fiscal 2001.

For the six months ended September 30, 2000, NetScout reported total revenue of $54.0 million, an increase of 37% over revenue of $39.4 million for the same period last year. Excluding non-cash amortization of intangible assets, IPR&D and stock-based compensation, net income for the period was $7.8 million, or $0.27 per diluted share, compared to $6.5 million, or $0.25 per diluted share for the same period last year. Net income for the six months ended September 30, 2000, was $3.5 million, or $0.12 per diluted share, compared to $6.3 million, or $0.25 per diluted share for the same period of fiscal 2000.

"We are reporting record results and spectacular growth for the period," said Anil Singhal, chairman and CEO of NetScout Systems. "We are very pleased with the results of this quarter and the progress we have made during the past 12 months. Since our IPO in August 1999, we have steadily increased our top line year over year growth rate from the low 20s to more than 40 percent. In addition, we continue to maintain our long track record of profitability, even as we increase our investments in sales and engineering. This performance reflects the strong demand for our products, the strength of our unique business model, and major investments we made in our sales operations during the beginning of this fiscal year."

BUSINESS HIGHLIGHTS:

During the second quarter of fiscal 2001, NetScout:

  • Completed its acquisition of NextPoint Networks. The Company has fulfilled a number of milestones for integration of operations, products and sales, including: product training of sales and channel partners; marketing programs; initial integration of NextPoint products into the nGenius suite, and presentations of our expanded offerings to key accounts.

  • Signed more than 40 new accounts. Large deals--valued at more than $100,000--were up 21% from last quarter from both new and existing customers. Business from our installed base comprised approximately 60% of total revenue, representing the strong willingness of our clients to invest strategically in NetScout technology.

  • Received new and follow-on business from domestic enterprise and e-business clients such as: Nickelodeon, 123Signup.com, Net QOS, Bear Stearns, AmeriGroup, New York Life and Northern Light. Domestic business from service providers included new and repeat orders from several of our major US telecommunication clients, Exenet Networks, and Cable and Wireless. Cable and Wireless selected NetScout instrumentation as the data source for a new, usage-based billing initiative the company is considering for rollout over its high-speed, global IP network.

  • Business channeled through Cisco Systems, Inc. remains strong, representing 55% of revenue during the quarter, although slightly lower than our previous quarter. This reflects the strength of the continued alliance between NetScout and Cisco sales activities, both domestically and overseas.

  • Generated approximately 25% of total revenue from international business. These sales included new and follow-on orders from our major accounts in the banking and insurance industries, as well as BMW, Arag Insurance, Provinzial Insurance, the Hong Kong Futures Exchange, D2, China Telecom, Samsung SDS, Nipon Telecom and ChungHwa Telecom. Demand for infrastructure performance management is emerging particularly strong in the AsiaPac region where service providers are building new, wide-scale, IP-based networks.

  • Shipped the initial components of its nGenius Performance Management System -- the nGenius Server and the nGenius Traffic Monitor. These components will be sold through all NetScout sales channels including our direct sales force, Cisco Systems and other resellers.

  • Announced new, innovative pricing models for nGenius solutions. The new pricing offers simplified server- and site-based licensing. This highly attractive pricing can deliver significant savings to our customers versus the element-based pricing used elsewhere in the industry.

  • Launched its DS3/E3 Frame Probe, which is designed to monitor DS3/E3 frame-based wide area network (WAN) links.

OUTLOOK

Commenting on the company's business outlook, Singhal said, "Our goal for the future is to continue to grow above 40%, a growth rate we estimate to be higher than the average growth in the network management industry. Initiatives for sustaining future strong growth include successful integration of NextPoint Networks, the delivery of nGenius as a fully JAVA-based platform with attractive features and pricing, extensions and enhancements to NetScout's probe line, and increased focus on service provider opportunities."

Consistent with NetScout's business model, the company's near-term financial objectives are as follows: revenue growth at or above 40%; gross margins between 70% and 73%; operating expenses between 48% and 53%; and operating income between 18% and 20%.

CONFERENCE CALL INSTRUCTIONS:

To participate in today's conference call at 5:15pm ET, interested parties may listen via Webcast that will be broadcast through the Company's Web site, www.netscout.com, or dial (719) 457-2633. The call will be replayed from 8:00PM ET, this evening, through midnight, October 26. The replay number is (719) 457-0820, with a confirmation code 631945. The call will also be audio-archived on the Company's Web site.

ABOUT NETSCOUT SYSTEMS

NetScout Systems, Inc. is the leading provider of infrastructure performance management solutions for leading companies and service providers worldwide. NetScout serves approximately half of the Fortune 500 and counts among its customers 3M Corporation, AT&T, Datek Online, Bristol-Myers Squibb, Amazon.com, Webhire, Intel Online, Fidelity Investments and Sun Microsystems.

NetScout's nGenius (TM) Performance Management System is a solutions-based system offering advanced monitoring and reporting applications suites that draw on the rich performance data generated by NetScout's real-time, application-aware probe suite, advanced intelligent software agents, and network devices. The nGenius System helps organizations increase their return on infrastructure investments by optimizing the performance of their network, applications and content. NetScout is headquartered in Westford, Massachusetts and has approximately 320 employees, with offices in North America, Europe and Asia. Further information on the company is available on the World Wide Web at www.netscout.com.

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, including the plans, objectives and future financial performance of NetScout, 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 Infrastructure Performance Management solutions, the company's ability to achieve and maintain a growth rate of 40% or greater, introduction and market acceptance of new products and product enhancements such as the delivery of nGenius product platform probes and software solutions, the ability of NetScout to take advantage of service provider opportunities, 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 slowdowns or downturns in economic conditions generally and in the market for infrastructure 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, 2000, and Quarterly Report on 10-Q for the quarter ended June 30, 2000, on file with the Securities and Exchange Commission.

NetScout is a registered trademark, and the NetScout logo, nGenius, nGenius Application Service Level Manager, nGenius Real-Time Monitor and nGenius Capacity Planner are trademarks of NetScout Systems, Inc.

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

                                       September 30,      March 31,
                                          2000              2000


Assets
Current assets:
Cash and cash equivalents               $ 37,204           $48,515
Marketable securities                     17,785            21,807
Accounts receivable, net                  13,237            10,390
Inventories                                3,634             3,131
Refundable income taxes                      274             1,899
Deferred income taxes                      1,164             1,022
Prepaids and other current assets          3,878             3,728

      Total current assets                77,176            90,492

Fixed assets, net                          6,887             5,657
Intangible assets, net                    46,442                 -
Deferred income taxes                      4,652               599

       Total assets                     $135,157           $96,748

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                        $  3,417           $ 2,789
Accrued compensation                       3,631             3,673
Accrued other                              2,295             2,448
Customer deposits                             24                78
Deferred revenue                           8,608             6,638

      Total current liabilities           17,975            15,626


Stockholders' equity:
Common stock                                  33                31
Additional paid-in capital               104,045            67,366
Deferred compensation                     (4,800)             (636)
Treasury stock                           (25,306)          (25,306)
Retained earnings                         43,210            39,667

     Total stockholders' equity          117,182            81,122

     Total liabilities and stockholders'
      equity                            $135,157           $96,748


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

                           Three Months Ended    Six Months Ended
                             September 30,         September 30,
                            2000        1999      2000       1999
Revenue:
 Product                 $ 20,790    $ 13,541   $ 38,551   $ 26,355
 Service                    4,427       3,099      8,404      5,564
 License and royalty        3,602       3,664      7,033      7,456
  Total revenue            28,819      20,304     53,988     39,375

Cost of revenue:
 Product                    7,262       5,086     13,356      9,900
 Service                      857         397      1,451        801
  Total cost of revenue     8,119       5,483     14,807     10,701

Gross margin               20,700      14,821     39,181     28,674

Operating expenses:
 Research and
  development               3,818       2,447      6,380      4,675
 Sales and marketing       10,197       6,644     18,864     12,629
 General and
  administrative            2,347       1,146      3,939      2,079
 Stock-based
  compensation                576          94        649        175
 Amortization of
  intangible assets         2,666        --        2,666       --
 In-process research
  and development             268        --          268       --
  Total operating
   expenses                19,872      10,331     32,766     19,558

Income from operations        828       4,490      6,415      9,116
Interest income, net        1,108         504      2,142        776
Income before provision
 for income taxes           1,936       4,994      8,557      9,892
Provision for income
 taxes                      2,697       1,800      5,014      3,564
Net income (loss)        $   (761)   $  3,194   $  3,543   $  6,328

Basic net income (loss)
 per share               $  (0.03)   $   0.16   $   0.13   $   0.36
Diluted net income
 (loss) per share        $  (0.03)   $   0.12   $   0.12   $   0.25
Shares used in
 computing:
 Basic net income
  (loss) per share         28,585      20,556     27,561     17,461
 Diluted net income
  (loss) per share         28,585      26,575     28,955     25,749

Supplemental
 information:

Net income excluding
 acquisition and
 stock-based
 compensation costs (1)  $  3,454    $  3,287   $  7,830   $  6,504

Diluted net income per
 share excluding
 acquisition and
 stock-based
 compensation costs      $   0.11    $   0.12   $   0.27   $   0.25

Shares used in computing
 diluted net income per
 share excluding
 acquisition and
 stock-based
 compensation costs        30,182      26,575     28,955     25,749


(1) Net income excluding acquisition and stock-based compensation
costs assumes an effective tax rate of 35.5% which represents the
effective tax rate before factoring in non-deductible costs related to
the acquisition of NextPoint and stock-based compensation costs.
 


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