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NetScout Systems Reports First Quarter Fiscal 2003 Financial Results

July 17, 2002

WESTFORD, Mass., July 17 /PRNewswire-FirstCall/ -- NetScout Systems, Inc. (Nasdaq: NTCT), a leading provider of network performance management solutions, today announced financial results for its first quarter of fiscal year 2003.

Revenue for the first quarter of fiscal 2003 was $17.8 million, a 22% percent decrease from revenue of $22.9 million in the previous quarter and a 2% decrease from revenue of $18.2 million in the first quarter of fiscal 2002. Pro forma net loss for the three months ended June 30, 2002 was $163,000 or ($0.01) per pro forma diluted share, versus pro forma net income of $1.4 million or $0.05 per pro forma diluted share, in the previous quarter and compared to pro forma net loss of $931,000, or ($0.03) per pro forma diluted share, in the first quarter of fiscal 2002. Pro forma net income excludes acquisition and stock-based compensation costs. Effective April 1, 2002 the Company ceased amortization of goodwill in accordance with SFAS No. 142. Weighted average pro forma basic and diluted shares for the three-month period ended June 30, 2002 were 29.8 million, compared to weighted average pro forma diluted shares of 30.3 million in the quarter ended March 31, 2002 and weighted average pro forma diluted shares of 29.4 million in the quarter ended June 30, 2001.

On a GAAP basis, the net loss for the quarter was $1.1 million, or ($0.04) per basic and diluted share, compared to a net loss of $1.7 million, or ($0.06) per basic and diluted share for the previous quarter and compared to a net loss of $4.1 million or ($0.14) per basic and diluted share for the first quarter of fiscal 2002.

"In this challenging economic environment we are confident that we will extend our market leadership position in network performance management. Our recently announced Common Data Model (CDM(TM)) technology and architecture will allow our customers to consolidate performance management functions through our single solution, the nGenius Performance Management System. Our customers will be able to reduce the number of tools and complexity and optimize the performance, monitoring and troubleshooting of their networks," said Anil Singhal, President and CEO of NetScout Systems. "CDM technology integrates key management tasks and links them together in a network-wide context making IT managers' jobs easier and allowing them to make quicker decisions in managing their networks and related business services. Our single solution will enable enterprises to improve ROI and reduce the total cost of ownership of their infrastructures."

    Highlights for the Quarter:
     * Total revenue decreased 22% sequentially and is slightly below the
      first quarter of fiscal year 2002.  Product revenue decreased 31%
      sequentially, and is slightly below the first quarter of fiscal year
      2002.  Service revenue decreased 4% sequentially, and increased 22%
      over the first quarter of fiscal year 2002.
     * Gross margin improved to 76% and increased 2 points sequentially and
      increased 6 points over the first quarter of fiscal year 2002.
     * Cash flow from operations was positive.
     * Cash and short and long-term marketable securities increased by
      $404,000 in the first quarter to $69.7 million.
     * 29 new customers were added worldwide and 310 customers had repeat
      business in the quarter.
     * Sales to repeat customers were approximately 90% of orders in the first
      quarter.
     * 46 large deals valued over $100,000 were received in the first quarter.
     * Direct sales represented 47% of total revenue; reseller revenue
      represented 53% of total revenue.
     * International business comprised approximately 21% of total revenue in
      the first quarter.
     * Competitive wins totaled over $3 million in the first quarter,
      involving approximately 30 deals against other leading network
      management vendors.
     * A new product was released, nGenius Performance Manager 1.4(TM), which
      combines real-time monitoring, historical reporting, capacity planning,
      troubleshooting and protocol analysis based on traffic information
      collected from probes and LAN switches for voice, web and data traffic.


    Future product announcements include the following:
     * Future expansion of the nGenius(TM) Performance Management System will
      include data collected from a wider range of network devices such as
      routers, flow-based switches, and load balancers through partnerships
      with infrastructure vendors as recently announced with F5 Networks,
      Extreme Networks and Foundry Networks.  The nGenius single solution
      will also include added functionality from Capacity Planner and
      Application Service Level Manager and will introduce new, intelligent
      performance alarms and self-management capabilities.
     * New probes incorporating reduced size, higher function and speeds such
      as a new storage area network probe and probes for ATM OC-12.

    Guidance:

NetScout's near term expectations are based on the current climate of tight enterprise IT spending and the uncertain timing of the impact of improving general economic conditions. For the second quarter, the Company expects revenue and pro forma earnings per share to show little change from the first quarter. The Company expects to be cash neutral in the quarter. Due to the uncertain economic climate, the Company is not able to give guidance beyond the second quarter. The Company expects to update guidance in its second quarter earnings release.

CONFERENCE CALL INSTRUCTIONS:

The Company invites shareholders to listen to its conference call today at 4:30 p.m. EDT, which will be webcast live through the Company's website at http://www.netscout.com/investors. Please log onto the website 15 minutes prior to the broadcast. Alternatively, shareholders can listen to the call by dialing 888-273-9885 (U.S.) and 612-332-0923 (International). A replay of the call will be available after 9:45 p.m. EDT this evening for approximately one week. The numbers for the replay are 800-475-6701 (U.S.) and 320-365-3844 (International). The access code is 644001.

About NetScout Systems, Inc.

NetScout Systems, Inc. (Nasdaq: NTCT) is a market leader and pioneer of integrated network performance management solutions for leading companies and service providers worldwide. NetScout serves the Global 5000 and counts among its customers Arvin Meritor, Blue Cross and Blue Shield of Massachusetts, Cable and Wireless, Cisco Systems, China Telecom, Fidelity Investments, Getronics, Goodyear Tire & Rubber, Nextel Communications, Samsung SDS, Siemens Health Services Corporation, StarBand Communications, Travelocity.com, Visa International and Wachovia Bank. NetScout's solutions are offered through its nGeniusO Performance Management System, an integrated suite of advanced monitoring and reporting applications that draw on the rich performance data generated by NetScout's real-time, application-aware probes, 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 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, and the implementation of the Company's CDM(TM) technology strategy, the ability of NetScout 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, as well as risks of slowdowns or downturns in economic conditions generally and in the market for 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, 2002 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.

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

The Company's condensed consolidated statements of operations and balance sheets are attached.

                            NetScout Systems, Inc.
                    Condensed Consolidated Balance Sheets
                                (In thousands)
                                 (Unaudited)
                                                      June 30,      March 31,
                                                        2002           2002
    Assets
    Current assets:
       Cash and cash equivalents                       $32,754        $19,332
       Marketable securities                            31,875         44,849
       Accounts receivable, net                         10,644         12,932
       Inventories                                       3,612          3,698
       Deferred income taxes                             1,380          1,293
       Prepaids and other current assets                 1,710          2,876

          Total current assets                          81,975         84,980

    Fixed assets, net                                    8,381          8,628
    Goodwill and other intangible assets,
     net                                                29,927         30,199
    Deferred income taxes                                8,430          7,617
    Long-term marketable securities                      5,040          5,084
    Other assets                                           318            790

            Total assets                              $134,071       $137,298


    Liabilities and Stockholders' Equity
    Current liabilities:
       Accounts payable                                 $1,298         $2,456
       Accrued compensation                              4,060          5,775
       Accrued other                                     2,634          2,715
       Income tax payable                                  358            542
       Deferred revenue                                 13,344         13,103

          Total current liabilities                     21,694         24,591

    Stockholders' equity:
       Common stock                                         34             34
       Additional paid-in capital                      108,218        107,529
       Deferred compensation                              (324)        (1,063)
       Treasury stock                                  (26,367)       (25,755)
       Retained earnings                                30,816         31,962

          Total stockholders' equity                   112,377        112,707

            Total liabilities and
             stockholders' equity                     $134,071       $137,298


                            NetScout Systems, Inc.
                     Condensed Consolidated Statements of
                                  Operations
                                (In thousands)
                                 (Unaudited)

                                                        Three Months Ended
                                                             June 30,
                                                    2002               2001
    Revenue:
       Product                                     $10,321           $10,425
       Service                                       5,739             4,699
       License and royalty                           1,789             3,042
          Total revenue                             17,849            18,166

    Cost of revenue:
         Product                                     3,374             4,450
         Service (including stock-based
          compensation
         of $2 and $2, respectively)                   974               917
           Total cost of revenue                     4,348             5,367

    Gross margin                                    13,501            12,799

    Operating expenses:
       Research and development
        (including stock-based
       compensation of $687 and $542,
        respectively)                                4,802             4,613
       Sales and marketing (including
        stock-based compensation
       of $21 and $29, respectively)                 8,471             9,090
       General and administrative
        (including stock-based
       compensation of $2 and $2,
        respectively)                                2,107             1,714
       Amortization of goodwill and other
        intangible assets                              272             2,634
           Total operating expenses                 15,652            18,051

    Loss from operations                            (2,151)           (5,252)
    Interest income and other expenses,
     net                                               313               687
    Loss before benefit from income taxes           (1,838)           (4,565)
    Benefit from income taxes                         (691)             (427)
    Net Loss                                       $(1,147)          $(4,138)

    Basic and diluted net loss per share            $(0.04)           $(0.14)

    Shares used in computing:
         Basic and diluted net loss per
          share                                     29,804            29,407

    Supplemental information:
    Net loss                                       $(1,147)          $(4,138)
    Stock-based compensation (as detailed
     in expense categories above)                      712               575
    Amortization of goodwill and other
     intangible assets                                 272             2,634
    Pro forma net loss excluding
     acquisition and stock-based
       compensation costs                            $(163)            $(929)

    Pro forma basic and diluted net loss
     per share, excluding acquisition               $(0.01)           $(0.03)
        and stock-based compensation
         costs

    Shares used in computing pro forma
     basic and diluted net loss per
        share excluding acquisition and
         stock-based compensation costs             29,804            29,407

     Contacts:
     Catherine Taylor
     Director of Investor Relations
     NetScout Systems, Inc.
     978-614-4286
     IR@netscout.com

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SOURCE NetScout Systems, Inc.
Web site: http: //www.netscout.com
CONTACT: Catherine Taylor, Director of Investor Relations for NetScout Systems, Inc., +1-978-614-4286, IR@netscout.com

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