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NETSCOUT Systems Reports Fourth Quarter & Year-End Financial Results For Fiscal 2001

April 26, 2001

Surpasses $100 Million Mark with $108 Million in Annual Revenue

WESTFORD, Mass., April 26 /PRNewswire/ -- NetScout Systems, Inc. (Nasdaq: NTCT), a leading provider of infrastructure performance management solutions, today announced financial results for its fourth quarter and fiscal year ended March 31, 2001. Revenue and income were within the revised ranges the company issued earlier, in its preliminary announcement on March 27, 2001. The Company remains optimistic about achieving the aggressive targets it has set for the coming fiscal year.

Revenue for the fourth quarter of fiscal 2001 was $21.5 million, compared to revenue of $23.9 million for the same period last year. Pro forma net income for the three months ended March 31, 2001 was $673,000, or $0.02 per pro forma diluted share, compared to $4.6 million, or $0.16 per pro forma diluted share, for the same period last year. Pro forma net income excludes non-cash amortization of goodwill and other intangible assets and stock-based compensation. Weighted average pro forma diluted shares for the three-month period ended March 31, 2001 were 30.0 million, compared to 28.1 million for the same period in fiscal 2000.

On a GAAP basis, the net loss for the quarter was ($2.5) million, or ($0.09) per basic and diluted share, compared to net income of $4.5 million, or $0.16 per diluted share for the same period last year.

For the year ended March 31, 2001, NetScout reported revenue of $108.0 million, a 25 percent increase from $86.2 million for the year ended March 31, 2000. Pro forma net income for the year ended March 31, 2001 was $13.7 million, or $0.46 per pro forma diluted share, compared to pro forma net income of $15.7 million, or $0.58 per pro forma diluted share, for the comparable period one year earlier. Weighted average pro forma diluted shares for the year ended March 31, 2001 were 29.7 million, compared to 26.9 million for the same period in fiscal 2000.

On a GAAP basis, net income for the year was $3.7 million, or $0.12 per diluted share, compared to net income of $15.2 million, or $0.56 per diluted share in fiscal 2000.

"Revenue for the fourth quarter was heavily impacted by spending delays across most of our customer segments," said Anil Singhal, President and CEO of NetScout Systems. "New opportunities and evaluations progressed normally, but many of our customers suspended or delayed IT purchases abruptly while they reevaluated their overall capital spending programs."

He added, "This was still a very successful year at NetScout. We met or exceeded most of the goals we had set for the company at the beginning of the fiscal year."

    Highlights for the fourth quarter included:
    -- The addition of Voice-over-IP and Virtual Private Network monitoring,
       and expanded availability of URL traffic monitoring for all high
       performance probes.  These additions will enable NetScout customers to
       manage the growing impact of web-based applications on their enterprise
       networks and more successfully embrace the proposition of IP telephony.
    -- More than 60 new customers worldwide.  New accounts included, among
       others, Fleet Boston, Starband Communications, Voice Stream Wireless,
       Hull Trading, and Allmerica Financial.
    -- Ongoing business from our installed base was approximately 75 percent
       of total revenue.  Companies such as Arvin Meritor, DHL Systems,
       Galileo/Quantitude, Lands End, EDS, General Motors, Chase Bank, and
       Purdue Pharmacology placed orders to extend their use of NetScout
       solutions.
    -- Direct sales represented 30 percent of total revenue in the fourth
       quarter compared to 31 percent of total revenue in the fourth quarter.
       Indirect sales represented 70 percent of total revenue, with
       Cisco-channeled sales accounting for 51 percent of total revenue, up
       from 44 percent of total revenue in the previous quarter.  Other
       channel partners accounted for 19 percent of total revenue, down from
       25 percent in the third quarter.
    -- International business comprised approximately 20 percent of total
       revenue, down from approximately 25 percent in the third quarter.

    Fiscal 2001 in Review:

For Fiscal 2001, the Company focused on acceleration of growth-first, to achieve above-market growth through sales force and channel expansion, and- second, to further build our foundation for sustaining future growth. We achieved and sustained two quarters of higher sequential growth before economic conditions impacted our momentum. We invested heavily in sales, engineering and in our nGenius performance management platform, and have made substantial progress toward our goal of being the leader in network performance management. Highlights include.

Quarterly growth accelerated to over 10 percent sequentially in the second and third quarters, until economic conditions impacted momentum. The Company delivered its new nGenius architecture and software suite to leverage the value of its real-time monitoring technology and broaden its product offerings. The nGenius Performance Management System was launched mid- year and the new software solutions, nGenius Real Time Monitor, nGenius Capacity Planner and nGenius Application Service Level Manager, all shipped by year-end.

In July, the Company acquired NextPoint Networks. The NextPoint acquisition added market-leading offerings for reporting and service level management into nGenius. This was a significant step forward in fulfilling our goal of delivering a broad, powerful, integrated platform of performance management solutions to the market.

By year-end, the Company significantly expanded its worldwide sales infrastructure, nearly doubling its worldwide sales force and opening new headquarters and support operations in Hong Kong and Singapore to enable penetration in Asia Pacific, in addition to Europe.

Guidance:

NetScout remains committed to exceeding the industry's growth rate. As more companies complete the deployment of their next-generation infrastructures and address their initial concerns for faults and connectivity, they are turning their focus to proactive performance management. This is the area where NetScout has clearly established its leadership position. Our customers have long been using our technology to proactively decrease fault potential, increase service assurance, and maximize returns on their infrastructure investments. We expect service providers to also follow this trend of deploying performance management solutions that can proactively ensure the success of their infrastructures.

NetScout expects top line growth to be 8-12 percent sequentially for the fiscal year 2002. Over the next few quarters, gross margins are expected to be at the lower end of our target range. Operating margins are expected to run in the low single digits in the first two quarters, expanding to mid-teens by the end of the fiscal year. Consistent with NetScout's business model, the company's longer-term financial objectives remain as follows: sequential quarterly revenue growth at or above 9 percent, gross margins between 70 percent and 73 percent, operating expenses between 48 percent and 53 percent, and operating income between 18 percent and 20 percent.

CONFERENCE CALL INSTRUCTIONS:

The Company will host an investor's conference call at 5:00pm ET. Interested parties may listen via Webcast that will be broadcast through the Company's Web site, http://www.netscout.com. Please log on to the Web site at least 15 minutes prior to the broadcast. The call will be replayed for approximately one week. The replay number is 888-203-1112 (domestic) or 719-457-0820, with an access code 598685. The call will also be audio- archived on the Company's Web site.

ABOUT NETSCOUT SYSTEMS:

NetScout Systems, Inc. is a 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 360 employees, with offices in North America, Europe and Asia. Further information on the company is available on the World Wide Web at http://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 high rate of growth, 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 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 December 31, 2000, on file with the Securities and Exchange Commission.

                            NetScout Systems, Inc.
                    Condensed Consolidated Balance Sheets
                                (In thousands)
                                 (Unaudited)
                                                     March 31,      March 31,
                                                         2001            2000
    Assets
    Current assets:
       Cash and cash equivalents                       $61,542        $48,515
       Marketable securities                              --           21,807
       Accounts receivable, net                         11,753         10,390
       Inventories                                       8,653          3,131
       Refundable income taxes                           2,412          1,899
       Deferred income taxes                             1,374          1,022
       Prepaids and other current assets                 2,966          3,728

          Total current assets                          88,700         90,492

    Fixed assets, net                                    6,937          5,657
    Goodwill and other intangible assets, net           41,549             --
    Deferred income taxes                                4,894            599

           Total assets                               $142,080        $96,748

    Liabilities and Stockholders' Equity
    Current liabilities:
       Accounts payable                                 $4,220         $2,789
       Accrued compensation                              5,013          3,673
       Accrued other                                     1,749          2,448
       Deferred revenue                                 10,053          6,716

        Total current liabilities                       21,035         15,626

    Stockholders' equity:
    Common stock                                            34             31
    Additional paid-in capital                         106,353         67,366
    Deferred compensation                               (3,409)          (636)
    Treasury stock                                     (25,306)       (25,306)
    Retained earnings                                   43,373         39,667

       Total stockholders' equity                      121,045         81,122

       Total liabilities and stockholders' equity     $142,080        $96,748


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

                                       Three Months Ended  Twelve Months Ended

                                       March 31, March 31, March 31, March 31,
                                           2001      2000      2001     2000
    Revenue:
       Product                           $13,058   $16,267   $75,673 $57,206
       Service                             5,109     3,892    18,506  12,804
       License and royalty                 3,323     3,783    13,772  16,149
          Total revenue                   21,490    23,942   107,951  86,159

    Cost of revenue:
         Product (including stock-based
          compensation
         of $0, $0, $1 and $2,
          respectively)                    4,734     5,849    25,737  21,139
         Service (including stock-based
          compensation
         of $2, $10, $9 and $39,
          respectively)                    1,036       476     3,453   1,718
           Total cost of revenue           5,770     6,325    29,190  22,857

    Gross margin                          15,720    17,617    78,761  63,302

    Operating expenses:
       Research and development
       (including stock-based
       compensation of $533, $12,
       $1,577 and $120, respectively)      4,388     2,504    15,424   9,526
       Sales and marketing
        (including stock-based
        compensation of $57, $86,
        $236 and $275, respectively)      10,211     7,824    39,985  27,945
       General and administrative
        (including stock-based
        compensation of $2, $4,
        $11 and  $15, respectively)        1,881     1,210     8,382   4,631
       Amortization of goodwill and
        other intangible assets            2,609        --     7,892      --
       In-process research and development    --        --       268      --
           Total operating expenses       19,089    11,538    71,951  42,102

    Income (loss) from operations         (3,369)    6,079     6,810  21,200
    Interest income, net                     851       942     3,923   2,551
    Income (loss) before provision
        for income taxes                  (2,518)    7,021    10,733  23,751
    Provision for income taxes               (11)    2,508     7,027   8,539
    Net (loss) income                    $(2,507)   $4,513    $3,706 $15,212

    Basic net income (loss) per share     $(0.09)    $0.17     $0.13   $0.70
    Diluted net income (loss) per share   $(0.09)    $0.16     $0.12   $0.56
    Shares used in computing:
     Basic net income (loss) per share    29,282    26,286    28,487  21,750
     Diluted net income (loss) per share  29,282    28,115    29,726  26,946

    Supplemental information:
    Pro forma net income excluding
     acquisition and stock-based
       compensation costs (1)               $673    $4,626   $13,700 $15,663

    Pro forma diluted net income per
     share excluding acquisition and       $0.02     $0.16     $0.46   $0.58
        stock-based compensation costs

    Shares used in computing diluted
     net income per share
       excluding acquisition and stock-
        based compensation costs          29,961    28,115    29,726  26,946

    (1) Net income excluding acquisition and stock-based compensation costs
        assumes an effective tax rate of 34.0% which represents the effective
        tax rate before factoring in non-deductible costs related to the
        acquisition of NextPoint and stock-based compensation costs.

/CONTACT: Peggy Flynn, Director, Investor Relations of NetScout Systems, 978-614-4162, flynnp@netscout.com; or Bill Zima, Associate Director Technology Consulting of Thomson Financial, 212-510-9261, or bill.zima@tfn.com, for NetScout Systems, Inc./
SOURCE NetScout Systems, Inc.

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