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NETSCOUT Systems Reports Third Quarter Financial Results for Fiscal 2005

January 26, 2005

WESTFORD, Mass., Jan 26, 2005 /PRNewswire-FirstCall via COMTEX/ -- NetScout Systems, Inc. (Nasdaq: NTCT), a leading provider of network performance management solutions, today announced financial results for its third quarter of fiscal year 2005.

Revenue for the third quarter of fiscal year 2005, ended December 31, 2004, was $22.0 million, compared to revenue of $20.5 million in the previous quarter and revenue of $18.9 million in the third quarter of fiscal year 2004. Net profit for the quarter was $906,000, or $0.03 per diluted share, compared to a net profit of $1.1 million, or $0.03 per diluted share, for the previous quarter and compared to net profit of $184,000, or $0.01 per diluted share, in the third quarter of fiscal year 2004.

"We reported another quarter of good results, exceeding our expectations, resulting from strong customer year-end activity," said Anil Singhal, President and CEO of NetScout Systems. "This quarter we released a series of new products including two appliance-based extensions to the nGenius(R) product line, the nGenius(R) Flow Recorder and nGenius(R) Flow Collector. We also made a strategic announcement of a new technology initiative called High Definition Performance Management (HDPM) that will provide a greater level of detail and granular visibility for application performance management. Representing the next evolutionary step of NetScout's CDM architecture and strategy, HDPM is a powerful initiative that will further differentiate us from our competition. We will be releasing further details about HDPM in the coming quarter."

Financial Highlights for the Third Quarter:
     * Total revenue increased 7% sequentially and increased 16% from the
       third quarter of fiscal year 2004.  Product revenue increased 8%
       sequentially and increased 18% from the third quarter of fiscal year
       2004.  Service revenue increased 7% sequentially and increased 15%
       from the third quarter of fiscal year 2004.  Royalty revenue decreased
       5% sequentially and decreased 4% from the third quarter of fiscal year
       2004.
     * Gross margin was 77% of total revenue, up 1 point sequentially and up 1
       point compared to the third quarter of fiscal year 2004.
     * Cash flow from operations was positive.
     * Cash and short and long-term marketable securities increased by $1.1
       million to $79.3 million in the third quarter and increased by $5.6
       million year-over-year.
     * 36 new customers were added worldwide.
     * 296 customers made repeat purchases.
     * 58 customers placed orders over $100,000.
     * International business comprised approximately 24% of total revenue.

    Product and Company Highlights:
     * NetScout announced an important new technology initiative called High
       Definition Performance Management (HDPM), addressing the critical need
       for more detailed, granular visibility for application performance
       management.  HDPM, the next evolutionary step for NetScout's CDM
       architecture, will extend the functionality of the nGenius(R)
       Performance Management System with increased visibility into the
       activity and usage of web services and other complex and multi-layered
       applications, including more granular measurement of application and
       network traffic data at shorter intervals and enhanced reporting of
       user and application utilization. Upcoming HDPM enhancements to
       nGenius(R) Performance Manager and nGenius Probes(R) will be made
       available as free upgrades to current NetScout MasterCare customers.
     * NetScout launched the nGenius Flow Recorder, a Linux-based appliance
       providing continuous recording of network traffic for audit trails and
       forensic analyses, including anomaly detection, replay and long-
       interval detailed troubleshooting.
     * NetScout announced the nGenius Flow Collector, a new appliance used in
       combination with nGenius Performance Manager for dedicated, high-
       volume collection and analysis of NetFlow conversation records drawn
       from network infrastructure devices.
     * NetScout released a new software module, nGenius (R) Integrator for
       Cisco Network Analysis Modules (NAMs), as a migration solution for
       customers using NetScout's legacy nGenius(R) Real Time Monitor.
     * NetScout began shipping the nGenius Eight-Port T1/E1 Probe(R), the
       market's first high-density probe for monitoring T1/E1 wide area
       networks.
     * NetScout released an enhancement to the nGenius Performance Management
       System extending its leading-edge application-layer visibility across
       IPSec and MPLS-based Virtual Private Network (VPN) environments.

    Guidance:

For the fourth quarter of fiscal year 2005, the Company expects revenue to be in the range of $21.5 million to $22 million and net profit per diluted share to be in the range of $0.00 to $0.01.

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/investors. Alternatively, people can listen to the call by dialing 888-423-3281 for U.S./Canada and 612-288-0329 for international callers. A replay of the call will be available after 8:00 p.m. ET on January 26 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 765874.

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 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. 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 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, introduction and market acceptance of new products and product enhancements such as the delivery of nGenius product platform probes and software solutions, the delivery of HDPM functionality 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, 2004 and its quarterly report on Form 10-Q for the quarter ended September 30, 2004 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. 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.

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 Nine Months Ended

                                             December 31,      December 31,
                                            2004      2003    2004      2003
    Revenue:
       Product                             $13,231  $11,190  $37,015  $29,696
       Service                               8,354    7,268   24,285   21,017
       License and royalty                     415      432    1,286    1,295
          Total revenue                     22,000   18,890   62,586   52,008

    Cost of revenue:
         Product(1)                          4,069    3,462   11,623    9,601
         Service
         respectively)                       1,085    1,066    3,227    3,132
           Total cost of revenue             5,154    4,528   14,850   12,733

    Gross margin                            16,846   14,362   47,736   39,275

    Operating expenses:
       Research and development(2)           4,180    3,836   12,557   10,515
       Sales and marketing                   9,531    8,655   27,116   24,637
       General and administrative            2,062    1,553    5,822    4,752
       Amortization of other intangible
        assets                                 -        -        -        272
           Total operating expenses         15,773   14,044   45,495   40,176

    Income (Loss) from operations            1,073      318    2,241     (901)
    Interest income and other expenses,
     net                                       346      167      644      524
    Income (loss) before income tax
     expense (benefit)                       1,419      485    2,885     (377)
    Income tax expense (benefit)               513      301      625       (9)
    Net income (loss)                         $906     $184   $2,260    $(368)

    Basic net income (loss) per share        $0.03    $0.01    $0.07   $(0.01)
    Diluted net income (loss) per share      $0.03    $0.01    $0.07   $(0.01)
    Shares used in computing:
         Basic net income (loss) per share  30,621   30,182   30,534   30,092
         Diluted net income (loss) per
          share                             31,702   31,440   31,579   30,092


    (1) Cost of product revenue includes amortization of capitalized software
        of $166 for the three months ended December  31, 2004 and 2003 and
        $497 and $276 for the nine months ended December 31, 2004 and 2004,
        respectively.
    (2) Research and development costs are net of capitalized software
        development costs of $- and $1,325 for the three and nine months ended
        December 31, 2003.



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

                                                 December 31,       March 31,
                                                    2004              2004

    Assets
    Current assets:
       Cash and cash equivalents                   $33,500           $19,011
       Marketable securities                        39,842            50,432
       Accounts receivable, net                     13,172            10,851
       Inventories                                   3,113             3,366
       Refundable income taxes                       1,231             2,102
       Deferred income taxes                         2,082             1,667
       Prepaids and other current assets             2,486             2,175

          Total current assets                      95,426            89,604

    Fixed assets, net                                6,252             5,415
    Capitalized software development
     costs                                             387               884
    Goodwill, net                                   28,839            28,839
    Deferred income taxes                            8,006             8,378
    Long-term prepaid expense                           18                45
    Long-term marketable securities                  5,972             6,016
            Total assets                          $144,900          $139,181


    Liabilities and Stockholders' Equity
    Current liabilities:
       Accounts payable                             $2,674            $1,984
       Accrued compensation                          5,323             4,481
       Accrued other                                 3,093             2,140
       Income tax payable                              -                 490
       Deferred revenue                             15,751            15,968

          Total current liabilities                 26,841            25,063

    Long-term liabilities:
        Long-term deferred revenue                   1,247             1,006

           Total liabilities                        28,088            26,069

    Stockholders' equity:
       Common stock                                     35                34
       Additional paid-in capital                  112,236           110,683
       Accumulated other comprehensive
        income                                        (107)                7
       Treasury stock                              (26,490)          (26,490)
       Retained earnings                            31,138            28,878

          Total stockholders' equity               116,812           113,112

            Total liabilities and
             stockholders' equity                 $144,900          $139,181

SOURCE NetScout Systems, Inc.

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