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NETSCOUT Systems Reports First Quarter Financial Results for Fiscal 2006

July 27, 2005

Strong Q1 FY '06 Revenue, Up 17% Year-over-Year

WESTFORD, Mass., July 27 /PRNewswire-FirstCall/ -- NetScout Systems, Inc. (Nasdaq: NTCT), a leading provider of network and application performance management solutions, today announced financial results for its first quarter of fiscal year 2006.

Revenue for the first quarter of fiscal year 2006 was $23.5 million, compared to revenue of $22.6 million in the previous quarter and revenue of $20.1 million in the first quarter of fiscal year 2005. Net profit for the quarter was $652,000, or $0.02 per diluted share, compared to net profit of $610,000, or $0.02 per diluted share, for the previous quarter and compared to a net profit of $297,000, or $0.01 per diluted share, in the first quarter of fiscal year 2005.

On an adjusted (pro forma) basis, the net profit for the first quarter of fiscal year 2006 was $945,000, or $0.03 per diluted share, compared to net profit of $610,000, or $0.02 per diluted share for the fourth quarter of fiscal year 2005. Adjusted net profit excludes non-cash acquisition and stock- based compensation expenses and a tax adjustment resulting from the acquisition of substantially all of the assets of Quantiva, Inc. completed early in the first quarter of fiscal year 2006. Adjusted earnings are presented because management believes they better reflect operational trends and performance. A reconciliation to GAAP results is provided on the Statements of Operations included in this release.

"We are pleased to report that we achieved our eighth quarter of revenue growth, up 17% year-over-year, and grew our adjusted operating margin to 4%. We are on track to achieve our goal of 15-20% revenue growth for the fiscal year and 10% adjusted operating margin in the fourth quarter," said Anil Singhal, President and CEO of NetScout Systems. "In the first quarter, we delivered our new High Definition Performance Management (HDPM) technology that provides unparalleled application traffic visibility across the enterprise. This new technology combined with our acquisition of Quantiva, furthers our strategy to deliver automated analytics to our customers. We are on schedule to deliver those products in the second half of this fiscal year."

Guidance:

For the second quarter of fiscal year 2006, the Company expects revenue to be in the range of $23.5 million to $24.5 million and net profit per diluted share on a GAAP basis to be in the range of $0.02 to $0.03. On an adjusted basis, the Company expects net profit per diluted share to be in the range of $0.03 to $0.04. The Company reiterates its previous guidance of growing revenue 15-20% for the full 2006 fiscal year and of attaining 10% adjusted operating margin by the fourth quarter.

Financial Highlights for the First Quarter:

  • Total revenue increased 4% sequentially and increased 17% from the first quarter of fiscal year 2005. Product revenue increased 5% sequentially and increased 30% from the first quarter of fiscal year 2005. Service revenue increased 6% sequentially and increased 2% from the first quarter of fiscal year 2005. As expected, royalty revenue decreased 59% sequentially and decreased 57% from the first quarter of fiscal year 2005.
  • Gross margin was 75% of total revenue, up 1 point sequentially and down 2 points compared to the first quarter of fiscal year 2005.
  • Cash and short and long-term marketable securities decreased by $6.6 million to $77.3 million as a result of the acquisition of Quantiva, Inc., and increased by $781,000 year-over-year. Excluding the cash used in the Quantiva acquisition, cash grew $2.9 million in the quarter.
  • 16 new customers were added worldwide.
  • 287 customers made repeat purchases.
  • 54 customers placed orders over $100,000.
  • Direct sales represented 39% of total revenue; indirect sales to resellers represented 61% of total revenue.
  • International business comprised approximately 21% of total revenue.

 

Product and Company Highlights for the First Quarter:

  • NetScout completed the acquisition of the business and assets of privately held Quantiva, Inc., a provider of automated analytics solutions for application performance management. The purchase price totaled approximately $9.4 million in cash.
  • NetScout released its High Definition Performance Management (HDPM) technology, delivered in nGenius(R) Performance Manager 3.0 and nGenius(R) Probe firmware release CDM 3.0. HDPM is an important new technology initiative that significantly improves performance information detail and granularity, extending the functionality of the nGenius Performance Management System with increased visibility into the activity and usage of web services and other complex and multi- layered applications, including more accurate metrics for application and network traffic data at shorter intervals and enhanced reporting of user and application utilization.
  • NetScout released its first-to-market OC-48 Packet-over-SONET Probe for the performance management of high-speed optical core networks. The nGenius OC-48 Probe addresses wireless carriers needs for visibility into converged IP-based voice, data, and video services as they deploy third-generation networks.
  • NetScout updated its integration with HP OpenView Network Node Manager and has become a Platinum Business Partner in the HP Enterprise Management Alliance Program.

 

CONFERENCE CALL INSTRUCTIONS:

The Company invites shareholders to listen to its conference call today at 4:30 p.m. ET, which will be webcast live through the Company's website at http://www.netscout.com. Alternatively, people can listen to the call by dialing 866-219-5264 for U.S./Canada and 703-639-1118 for international callers. A replay of the call will be available after 8:00 p.m. ET on July 27 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 789837.

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 http://www.netscout.com.

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 and other federal securities laws. 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 and the statements concerning the expected effects, synergies and product offerings resulting from the Quantiva acquisition, 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 relationships with strategic 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, the effects and challenges related to the Quantiva acquisition, including any integration issues, introduction and market acceptance of new products and product enhancements such as the delivery of nGenius product platform probes and software solutions, HDPM functionality, the analytic solutions acquired from Quantiva and the implementation of the Company's CDM 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, 2005 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, nGenius, and Quantiva are registered trademarks of NetScout Systems, Inc. The CDM logo, MasterCare and the MasterCare logo, are trademarks of NetScout Systems, Inc. Other brands, product names and trademarks are property of their respective owners

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

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


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

                                                      Three Months Ended
                                                            June 30,
                                                     2005              2004
    Revenue:
       Product                                     $15,046           $11,560
       Service                                       8,271             8,105
       License and royalty                             184               432
          Total revenue                             23,501            20,097

    Cost of revenue:
         Product                                     4,539             3,653
         Service                                     1,257             1,065
           Total cost of revenue                     5,796             4,718

    Gross margin                                    17,705            15,379

    Operating expenses:
       Research and development (including stock-
        based compensation of $59 and $0,
        respectively)                                4,614             4,319
       Sales and marketing (including stock-based
        compensation of $20 and $0, respectively)   10,022             8,783
       General and administrative                    2,285             1,954
       Amortization of other intangible assets         119               -
       In-process research and development             143               -
           Total operating expenses                 17,183            15,056

    Income from operations                             522               323
    Interest income and other expenses, net            514               179
    Income before income tax expense                 1,036               502
    Income tax expense                                 384               205
    Net income                                        $652              $297

    Basic net income per share                       $0.02             $0.01
    Diluted net income per share                     $0.02             $0.01
    Shares used in computing:
         Basic net income per share                 30,840            30,448
         Diluted net income per share               31,413            31,710

    Reconciliation of GAAP & Adjusted Net Income:
    Net income                                        $652              $297
    Stock-based compensation (as detailed
      in expense categories above)                      79               -
    Amortization of other intangible assets            119               -
    In-process research and development                143               -
    Tax adjustment(1)                                  (48)              -
    Adjusted net income excluding acquisition
      and stock-based compensation costs              $945              $297

    Adjusted basic net income per share excluding    $0.03             $0.01
     acquisition and stock-based compensation
     costs

    Adjusted diluted net income per share excluding  $0.03             $0.01
      acquisition and stock-based compensation
      costs

    Shares used in computing adjusted basic net
     income per share excluding acquisition and
     stock-based compensation costs                 30,840            30,448

    Shares used in computing adjusted basic net
     income per share excluding acquisition and
     stock-based compensation costs                 31,413            31,710



    (1) Tax adjustment for three month period ended June 30, 2005, which was
        the period of the Quantiva acquisition, assumes an effective tax rate
        of 31% which represents an effective tax rate before factoring in
        costs related to the acquisition of Quantiva and stock-based
        compensation.


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

                                                   June 30,         March 31,
                                                     2005              2005

    Assets
    Current assets:
       Cash and cash equivalents                   $33,498           $57,070
       Marketable securities                        43,786            26,793
       Accounts receivable, net                     11,107            11,886
       Inventories                                   3,123             3,114
       Refundable income taxes                       1,477             1,399
       Deferred income taxes                         2,361             2,356
       Prepaids and other current assets             2,954             3,003

          Total current assets                      98,306           105,621

    Fixed assets, net                                6,407             6,011
    Capitalized software development costs              55               221
    Other intangible assets, net                     1,446               -
    Goodwill                                        36,533            28,839
    Deferred income taxes                            7,286             7,586
    Restricted cash                                  1,332               -
    Other assets                                        12                 9
          Total assets                            $151,377          $148,287


    Liabilities and Stockholders' Equity
    Current liabilities:
       Accounts payable                             $2,524            $2,520
       Accrued compensation                          6,595             6,385
       Accrued other                                 2,927             2,976
       Deferred revenue                             17,425            17,680

          Total current liabilities                 29,471            29,561

    Long-term liabilities:
        Accrued compensation                            16               -
        Deferred acquisition payment -- Quantiva     1,332               -
        Long-term deferred revenue                   1,260             1,277

           Total long-term liabilities               2,608             1,277

           Total liabilities                        32,079            30,838

    Stockholders' equity:
       Common stock                                     35                35
       Additional paid-in capital                  114,158           112,286
       Accumulated other comprehensive income          (92)             (130)
       Deferred compensation                          (713)              -
       Treasury stock                              (26,490)          (26,490)
       Retained earnings                            32,400            31,748

          Total stockholders' equity               119,298           117,449

            Total liabilities and stockholders'
             equity                               $151,377          $148,287

SOURCE NetScout Systems, Inc.

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

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