Delivers 9% Sequential Revenue Growth and 13% Product Sales Increase; Adds More than 50 New Customers
WESTFORD, Mass., Jan. 16 --
NetScout Systems, Inc. (Nasdaq: NTCT), a leading provider of network
performance management solutions, today announced financial results for its
third quarter of fiscal 2002 ended December 31, 2001.
Revenue for the third quarter of fiscal 2002 was $21.5 million, a 9%
increase over revenue of $19.7 million in the previous quarter. Pro forma net
income was $627,000 or $0.02 per pro forma diluted share, versus pro forma net
income of $271,000, or $0.01 per pro forma diluted share, in the previous
quarter. 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 December 31, 2001 were
30.0 million, compared to weighted average pro forma diluted shares of 29.8
million in the September quarter.
On a GAAP basis, the net loss for the quarter was $2.6 million, or ($0.09)
per basic and diluted share, versus a net loss of $2.9 million, or ($0.10) per
basis and diluted share for the previous quarter. A reconciliation of pro
forma income to GAAP loss for the third quarter is included in the attached
financial statements.
"This quarter's results reflect the strong performance of our sales force
and the increasing recognition among global enterprises of the value of
NetScout's network management solutions," said Anil Singhal, president and CEO
of NetScout Systems. "Despite the general economic weakness and technology
spending constraints in our market, NetScout has grown by showing customers a
strong ROI from investing in all or part of our suite of nGenius products.
Our growth continues to be driven by our many large customers with mission-
critical networks. Even in today's difficult budgetary environment, many of
them are investing in our products to build reliability, flexibility and
efficiency into those networks. They have concluded that NetScout provides
the most robust solution available today for managing the performance of high
value networks."
HIGHLIGHTS FOR THE QUARTER:
- Total revenue grew 9% sequentially. Product revenue rose 13%; service
revenue grew 7%. Gross margins remained at 74%.
- Transition of Cisco customers to direct or reseller relationships is
complete. Direct sales increased to 48% of total revenue from 35% in the
previous quarter. Cisco-channeled revenue accounted for 27% of total revenue,
down from 40% last quarter, as expected.
- Cash and marketable securities increased $2.9 million from last quarter
to $62.7 million.
- NetScout shipped the new Packet-over-SONET probe. Cisco shipped
NetScout's nGenius Real Time Monitor(TM) Release 1.3 in their CiscoWorks2000
LAN Management Solution and Routed WAN Management Solution products.
- Competitive wins totaled over $4 million, involving large deals against
other leading network management vendors.
- Over 40 large deals valued over $100,000, comparable to the previous
quarter.
- More than 50 new accounts signed. Repeat orders comprised approximately
85% of total revenue.
- Expanded partnership with OPNET Technologies, providing greater value
for our joint customers.
OUTLOOK
Commenting on the company's business outlook, Singhal said, "Our products
provide the most robust, highest function network management solutions
available today. We are adding to the value of our solution by managing new
traffic types, such as Voice-over-IP, and by delivering integrated system-wide
views of network behavior. NetScout remains committed to maintaining its
leadership position in integrated network performance management solutions for
global, mission-critical networks and to expanding those solutions to meet our
customers' broader network management requirements."
GUIDANCE
NetScout's near-term expectations are based on external economic forecasts
and the economic uncertainty caused by recent world events. The Company is
cautious about these effects on its customers' business performance and their
IT spending. Nevertheless, the Company is confident that the demonstrated
customer acceptance of the value and importance of nGenius solutions will
produce short term quarterly revenue growth in the range of 5 to 10 percent
and modest quarterly earnings per share increases.
Long term, NetScout expects its prospects will be driven by the continued
growth of global, high-speed network usage and the expanding applicability of
its network management solutions to those networks. Accordingly, NetScout
continues to expect that quarterly sequential growth in the long term will be
in the range of 7 to 10 percent, and that profitability will increase to its
target business model range, discussed below.
NetScout's target business model remains: gross margins between 72 and 75
percent, operating expenses between 50 and 55 percent of revenue, and
operating margins of 18 to 20 percent.
CONFERENCE CALL INSTRUCTIONS:
The Company invites shareholders to listen to its conference call today at
4:45 p.m. EDT, which will be webcast live through the Company's website at
http://www.netscout.com. Please log onto the website 15 minutes prior to the
broadcast. Alternatively, people can listen to the call by dialing
800-289-0544 for U.S./Canada and 913-981-5533 for international callers. A
replay of the call will be available after 8:00 p.m. EDT this evening for
approximately one week. The number for the replay is 888-203-1112 for
U.S./Canada, and 719-457-0820 for international callers. The access code is
640340.
About NetScout Systems
NetScout Systems, Inc. (Nasdaq: NTCT) is a market leader and pioneer of
integrated infrastructure performance management solutions for leading
companies and service providers worldwide. NetScout serves a major portion of
the Fortune 500 and counts among its customers AmericanGreetings.com,
ArvinMeritor, Blue Cross and Blue Shield of Massachusetts, Cable and Wireless,
Cisco Systems, China Telecom, Fidelity Investments, Getronics, Goodyear Tire &
Rubber, Hold Brothers, MBNA, Nextel Communications, Northwest Airlines,
Optimus Telecommunications, Samsung SDS, Siemens Health Services Corporation,
Travelocity.com, and Wachovia Bank. NetScout's solutions are offered through
its nGenius(TM) Performance Management System, an integrated solutions-based
suite of advanced monitoring and reporting applications 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 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 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, 2001, and its
quarterly report on Form 10-Q for the quarter ended September 30, 2001, 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.
The Company's condensed consolidated statements of operations and balance
sheets are attached.
NetScout Systems, Inc.
Condensed
Balance Sheets
(In thousands)
(Unaudited)
December 31, March 31,
2001 2001
Assets
Current assets:
Cash, cash equivalents and
marketable securities $62,718 $61,382
Accounts receivable, net 10,714 11,753
Inventories 5,747 8,653
Refundable income taxes 2,753 2,412
Deferred income taxes 1,069 1,374
Prepaids and other current assets 3,830 3,126
Total current assets 86,831 88,700
Fixed assets, net 8,723 6,937
Goodwill and other intangible assets,
net 33,648 41,549
Deferred income taxes 5,814 4,894
Total assets $135,016 $142,080
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $2,609 $4,220
Accrued compensation 5,139 5,013
Accrued other 2,252 1,749
Deferred revenue 11,453 10,053
Total current liabilities 21,453 21,035
Stockholders' equity:
Common stock 34 33
Additional paid-in capital 107,225 106,354
Deferred compensation (1,644) (3,409)
Treasury stock (25,755) (25,306)
Retained earnings 33,703 43,373
Total stockholders' equity 113,563 121,045
Total liabilities and
stockholders' equity $135,016 $142,080
NetScout Systems, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
2001 2000 2001 2000
Revenue:
Product $13,879 $24,064 $36,567 $62,615
Service 5,372 4,994 15,102 13,398
License and royalty 2,232 3,415 7,712 10,448
Total revenue 21,483 32,473 59,381 86,461
Cost of revenue:
Product (including stock-based
compensation
of $0, $0, $1 and $1,
respectively) 4,636 7,647 13,422 21,004
Service (including stock-based
compensation
of $2, $6, $6 and $7,
respectively) 881 964 2,668 2,416
Total cost of revenue 5,517 8,611 16,090 23,420
Gross margin 15,966 23,862 43,291 63,041
Operating expenses:
Research and development
(including stock-based
compensation of $551, $513, $1,642
and $1,044, respectively) 4,884 4,125 14,480 11,036
Sales and marketing (including
stock-based compensation
of $26, $67, $83 and $180,
respectively) 9,361 10,798 26,938 29,775
General and administrative
(including stock-based
compensation of $1, $5, $5 and $8,
respectively) 2,112 2,558 5,730 6,500
Amortization of goodwill and other
intangible assets 2,634 2,617 7,902 5,283
In-process research and
development - - - 268
Total operating expenses 18,991 20,098 55,050 52,862
Income (loss) from operations (3,025) 3,764 (11,759) 10,179
Interest income and other expenses,
net 373 930 1,559 3,072
Income (loss) before provision for
(benefit
from) income taxes (2,652) 4,694 (10,200) 13,251
Provision for (benefit from) income
taxes (65) 2,024 (530) 7,038
Net income (loss) $(2,587) $2,670 $(9,670) $6,213
Basic net income (loss) per share $(0.09) $0.09 $(0.33) $0.22
Diluted net income (loss) per share $(0.09) $0.09 $(0.33) $0.21
Shares used in computing:
Basic net income (loss) per
share 29,478 29,107 29,476 28,196
Diluted net income (loss) per
share 29,478 30,594 29,476 29,621
Supplemental information:
Net income (loss) $(2,587) $2,670 $(9,670) $6,213
Tax adjustment (1) - (681) - 23
Stock based compensation (as detailed
in expense categories above) 580 591 1,737 1,240
Amortization of goodwill and other
intangible assets 2,634 2,617 7,902 5,283
In-process research and development - - - 268
Pro forma net income (loss) excluding
acquisition and stock-based
compensation costs $627 $5,197 $(31) $13,027
Pro forma diluted net income (loss)
per share excluding acquisition $0.02 $0.17 $0.00 $0.44
and stock-based compensation
costs
Shares used in computing pro forma
diluted net income (loss) per
share excluding acquisition and
stock-based compensation costs 30,026 30,594 29,476 29,621
Note(1): Tax adjustment for the fiscal year ended March 31, 2001, which
was the year of the NextPoint acquisition, assumes an effective tax rate of
35% which represents the effective tax rate before factoring in timing issues
due to non-deductible costs related to the acquisition of NextPoint and stock-
based compensation.
Contacts:
Peggy Flynn
Director of Corporate Relations
NetScout Systems, Inc.
978-614-4162
flynnp@netscout.com
Bill Zima Associate Director
Thomson Financial/Carson
212-510-9261
bill.zima@tfn.com
SOURCE NetScout Systems, Inc.
Web site: http://www.netscout.com
CONTACT: Peggy Flynn, Director of Corporate Relations of NetScout
Systems, Inc., +1-978-614-4162, flynnp@netscout.com; or Bill
Zima, Associate Director of Thomson Financial/Carson,
+1-212-510-9261, bill.zima@tfn.com