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NETSCOUT Systems Reports Second Quarter Fiscal 2004 Financial Results

October 14, 2003

WESTFORD, Mass., Oct. 14 /PRNewswire-FirstCall/-- NetScout Systems, Inc. (Nasdaq: NTCT), a leading provider of network performance management solutions, today announced financial results for its second quarter of fiscal year 2004.

Revenue for the second quarter of fiscal year 2004 ended September 30th was $17.5 million, compared to revenue of $15.6 million in the previous quarter and revenue of $17.9 million in the second quarter of fiscal year 2003. Results for the quarter were breakeven, or $0.00 per diluted share, compared to a net loss of ($552,000), or ($0.02) per basic and diluted share, for the previous quarter and compared to a net loss of ($710,000), or ($0.02) per basic and diluted share, in the second quarter of fiscal year 2003.

"Our results this quarter were in-line with our expectations," said Anil Singhal, President and CEO of NetScout Systems. "More importantly, our customers and prospects are beginning to show strong interest in our recently released products that deliver unified performance management through our market-leading CDM(TM) technology. They are understanding the value of a single management solution that provides a cost-effective and uncluttered environment while ensuring the delivery of business services across their networks."

    Financial Highlights:
    -- Total revenue increased 12% sequentially and decreased 2% from the
       second quarter of fiscal year 2003.  Product revenue increased 14%
       sequentially and was down 6% from the second quarter of fiscal year
       2003.  Service revenue increased 10% sequentially and increased 21%
       from the second quarter of fiscal year 2003.  Royalty revenue increased
       6% sequentially and was down 70% from the second quarter of fiscal year
    -- Gross margin was 75% of total revenue, flat sequentially and up 1 point
       compared to the second quarter of fiscal year 2003.
    -- Cash flow used in operations was $352,000.
    -- Cash and short and long-term marketable securities decreased by
       $969,000 in the second quarter to $72.2 million.
    -- 21 new customers were added worldwide in the second quarter.
    -- 256 customers made repeat purchases.
    -- 34 orders over $100,000 were received.
    -- Direct sales represented 54% of total revenue; reseller revenue
       represented 46% of total revenue.
    -- International business comprised approximately 14% of total revenue in
       the second quarter.

    Product and Company Highlights:
    -- During the quarter NetScout began shipments of the major product
       releases announced in July. The nGenius(R) Performance Manager 2.0 and
       related nGenius Probe firmware 6.0 products represent the first
       solution in the market to unify the information, features and functions
       of multiple performance management disciplines within a single product
       while also leveraging and integrating a vast array of network and
       application performance management data sources.
    -- NetScout released the nGenius(R) Two Port T3/E3 ATM Probe that
       addresses a widespread need among enterprises for cost-effective
       monitoring and management of ATM environments.  The probe delivers
       several market firsts for NetScout:
          * Simultaneous monitoring of two separate or two redundant wide area
            T3/E3 ATM circuits.
          * Simultaneous monitoring of Fast Ethernet LAN and ATM WAN traffic.
          * Extending security visibility into the WAN by allowing a Network
            Intrusion Detection System (NIDS) to access WAN traffic using the
            nGenius Flow Director probe option.
    -- NetScout hosted its second annual User Forum conference in early
       October.  The three-day conference, titled "Partners in Performance --
       Putting CDM to Work," provided a forum for NetScout customers to
       exchange views about current and future product capabilities and about
       the value that CDM brings to their businesses.  Customers participated
       worldwide from financial services, telecommunications, pharmaceutical,
       healthcare, retail, government and other sectors.


For the third quarter of fiscal 2004, the Company expects revenue to be in the range of $17.5 million to $18.5 million and loss per share to be in the range of ($0.02) to $0.00. The Company expects to be cash neutral in the quarter.

Conference Call Instructions:

The Company invites shareholders to listen to its conference call today at 4:15 p.m. ET, which will be webcast live through the Company's website at Alternatively, people can listen to the call by dialing 800-450-0788 for U.S./Canada and 612-332-0819 for international callers. A replay of the call will be available after 7:30 p.m. ET on October 14 for approximately two weeks. The number for the replay is 800-475-6701 for U.S./Canada and 320-365-3844 for international callers. The access code is 701259.

About NetScout Systems, Inc.

NetScout Systems, Inc. (Nasdaq: NTCT) is a market leader and pioneer of integrated network performance management products that unify performance across the enterprise. NetScout's nGenius(R) Performance Management System is helping more than 3,000 leading companies increase their return on infrastructure investments by optimizing the performance of networks and applications according to business priorities. NetScout is headquartered in Westford, Massachusetts and has offices worldwide. Further information is available at

Safe Harbor:

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 network 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(R) product platform probes and software solutions and the implementation of the company's CDM(TM) Technology strategy, the ability of the company 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 associated with a continued climate of tight IT spending, and risks of further slowdowns or downturns in economic conditions generally and in the market for network 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, 2003 and its quarterly report on Form 10-Q for the quarter ended June 30, 2003 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 and the NetScout logo and nGenius are registered trademarks of NetScout Systems, Inc. CDM and the CDM logo, Universal Response Time, Power Alarms, Workspaces and MasterCare and the MasterCare logo are trademarks of NetScout Systems, Inc. NetScout reserves the right, at its sole discretion, to make changes at any time in its technical information and specifications and service and support programs.

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

     Catherine Taylor
     Director of Investor Relations
     NetScout Systems, Inc.

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

                                                  Sept. 30,         March 31,
                                                    2003              2003

    Current assets:
       Cash and cash equivalents                   $30,723           $43,823
       Marketable securities                        34,986            27,442
       Accounts receivable, net                     10,758            11,906
       Inventories                                   2,231             2,982
       Refundable income taxes                       1,567             1,226
       Deferred income taxes                         1,792             1,782
       Prepaids and other current assets             1,064             2,088

          Total current assets                      83,121            91,249

    Fixed assets, net                                6,247             6,912
    Capitalized software development
     costs                                           1,215               -
    Goodwill, net                                   28,839            28,839
    Other intangible assets, net                       -                 272
    Deferred income taxes                            7,773             7,651
    Long-term marketable securities                  6,503               -
            Total assets                          $133,698          $134,923

    Liabilities and Stockholders' Equity
    Current liabilities:
       Accounts payable                             $2,392            $1,403
       Accrued compensation                          3,703             3,658
       Accrued other                                 1,880             1,819
       Deferred revenue                             14,260            16,242

          Total current liabilities                 22,235            23,122

    Stockholders' equity:
       Common stock                                     34                34
       Additional paid-in capital                  109,108           108,835
       Accumulated other comprehensive
        income                                          (7)                7
       Deferred compensation                           (53)             (132)
       Treasury stock                              (26,490)          (26,366)
       Retained earnings                            28,871            29,423

          Total stockholders' equity               111,463           111,801

            Total liabilities and
             stockholders' equity                 $133,698          $134,923

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

                                         Three Months Ended  Six Months Ended
                                             September 30,     September 30,
                                             2003     2002     2003     2002
       Product                              $9,878  $10,511  $18,506  $20,832
       Service                               7,192    5,946   13,749   11,685
       License and royalty                     445    1,480      863    3,269
          Total revenue                     17,515   17,937   33,118   35,786

    Cost of revenue:
         Product(1)                          3,358    3,475    6,139    6,849
         Service (including stock-based
          compensation of $1, $1, $2 and
         respectively)                       1,022    1,160    2,066    2,134
           Total cost of revenue             4,380    4,635    8,205    8,983

    Gross margin                            13,135   13,302   24,913   26,803

    Operating expenses:
       Research and development (including
        stock-based compensation of
       $32, $46, $71 and $733,
        respectively)(2)                     3,670    3,982    6,679    8,784
       Sales and marketing (including
        stock-based compensation of
       $3, $16, $10 and $37, respectively)   8,038    8,316   15,982   16,787
       General and administrative
        (including stock-based compensation
       of $-, $2, $- and $4, respectively)   1,550    2,138    3,199    4,245
       Amortization of other intangible
        assets                                 -        272      272      544
           Total operating expenses         13,258   14,708   26,132   30,360

    Loss from operations                      (123)  (1,406)  (1,219)  (3,557)
    Interest income and other expenses, net    160      326      357      639
    Income (loss) before income tax expense
     (benefit)                                  37   (1,080)    (862)  (2,918)
    Income tax expense (benefit)                37     (370)    (310)  (1,061)
    Net income (loss)                         $-      $(710)   $(552) $(1,857)

    Basic net income (loss) per share         $-     $(0.02)  $(0.02)  $(0.06)
    Diluted net income (loss) per share       $-     $(0.02)  $(0.02)  $(0.06)
    Shares used in computing:
         Basic net income (loss) per share  30,058   29,865   30,046   29,834
         Diluted net income (loss) per
          share                             30,585   29,865   30,046   29,834

    (1) Cost of product revenue includes amortization of capitalized software
        of $110 for the three and six months ended September 30, 2003.
    (2) Research and development costs are net of capitalized software
        development costs of $257 for the three months
        ended September 30, 2003 and $1,325 for the six months ended September
        30, 2003.

SOURCE NetScout Systems, Inc.

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