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NETSCOUT Systems Reports Financial Results for First Quarter Fiscal Year 2009

July 24, 2008

Completes Q1 Sales Force Integration

First Quarter GAAP Revenue up 117% Year-over-Year

First Quarter Non-GAAP Revenue up 134% Year-over-Year

Following Acquisition of Network General

WESTFORD, Mass.--(BUSINESS WIRE)--July 24, 2008--NetScout Systems, Inc.:

                                            Q1 FY 2009
                            ------------------------------------------
                                    GAAP               Non-GAAP
Revenue                        $60.6 million         $65.4 million
Net income                      $1.5 million         $6.6 million
Net Income per share               $0.04                 $0.16
----------------------------------------------------------------------

NetScout Systems, Inc. (NASDAQ: NTCT), industry pacesetter for advanced network and service assurance solutions, today announced financial results for its first quarter of fiscal year 2009, ended June 30, 2008.

Total GAAP revenue for the first quarter of fiscal year 2009 was $60.6 million. Non-GAAP revenue for the first quarter was $65.4 million. Non-GAAP revenue excludes the purchase accounting adjustment to record at fair value the acquired Network General deferred revenue. Product revenue on a GAAP basis was $34.9 million, and service revenue was $25.7 million.

GAAP net income for the quarter was $1.5 million, or net income per diluted share of $0.04. GAAP income from operations was $4.0 million. On a non-GAAP basis, net income was $6.6 million, or $0.16 per diluted share, and non-GAAP income from operations was $12.3 million. Non-GAAP income from operations excludes the purchase accounting adjustment to record at fair value the acquired Network General deferred revenue, as well as share-based compensation expenses, amortization of acquired intangible assets, and non-recurring integration expenses. Non-GAAP net income excludes these effects as well as their related impact on the provision for income taxes. A reconciliation between GAAP and non-GAAP results is included in the attached financial tables.

"We have started our new fiscal year on very solid footing posting good revenue growth and strong profitability. In our seasonally slow first quarter, we are pleased with the strength of our business from our high-end vertical markets, financial services, telecommunications and government," said Anil Singhal, President and CEO of NetScout Systems. "We successfully integrated the two sales forces without major disruption in order flow. This was the last important organizational step in the integration of the two companies. We are on schedule for the delivery of new products and upgrades that will support our growth and extend our market leadership. Despite growing indications of an economic slowdown we have not yet seen significant cutbacks in IT spending for our products, because we believe our customers recognize the high value derived from our integrated packet flow-based application management solutions," he added.

Financial and Company Highlights for the First Quarter 2009:

  • In the first quarter GAAP revenue increased 117% year-over-year and 5% sequentially as a result of organic growth and the acquisition of Network General. Non-GAAP revenue increased 134% year-over-year and 2% sequentially. GAAP product revenue increased 99% year-over-year and increased 4% sequentially. GAAP service revenue increased 147% year-over-year and increased 7% sequentially.
  • As of June 30, 2008 cash and cash equivalents and short and long-term marketable securities were $109.8 million, up from $100.9 million in the prior quarter.
  • During the quarter NetScout joined the Riverbed Technology Alliance (RTA) program. Through this alliance NetScout has extended its nGenius(R) Performance Management system to support the signaling protocol used among Riverbed's Steelhead(R) appliances providing customers with unprecedented visibility into the performance of applications over optimized wide area networks. The technology alliance allows enterprises to accurately assess the impact and performance of Steelhead appliances as is common practice with any key piece of the enterprise IT infrastructure.
  • NetScout was recently named to the "FSB 100" list, Fortune's Small Business 100 fastest growing small public companies in the U.S., ranked #66 based upon three-year annualized rates of revenue growth, EPS growth, and total return to investors.

Guidance:

NetScout reaffirms revenue guidance for fiscal year 2009 and raises its profitability outlook for GAAP and non-GAAP net income per diluted share. The new range for net income per share has increased by five cents compared to guidance in the prior quarter, incorporating the earnings performance of the first quarter. For the 2009 fiscal year, NetScout expects GAAP revenue to be in the range of $250 million to $260 million and the new GAAP net income per diluted share expected range is $0.13 to $0.23. NetScout expects non-GAAP revenue to be in the range of $260 million to $270 million and the new non-GAAP net income per diluted share expected range is $0.55 to $0.65. The fiscal year 2009 non-GAAP revenue and net income per diluted share estimates exclude the purchase accounting adjustment to fair value of approximately $11.5 million of Network General's deferred revenue, share-based compensation expenses of approximately $4.8 million, amortization of acquired intangible assets of approximately $6 million, and integration expenses of approximately $1.7 million. The revenue guidance for FY 2009 recognizes the challenging economic environment and its potential impact on enterprise IT spending and the introduction of new, integrated products to the market throughout the fiscal year.

Use of Non-GAAP Financial Information

To supplement the financial measures presented in the Company's press release in accordance with accounting principles generally accepted in the United States ("GAAP"), the Company also presents non-GAAP measures relating to revenue, income from operations, net income and net income per diluted share which were adjusted from amounts determined based on GAAP to exclude the purchase accounting adjustment representing the fair value of Network General's deferred revenue, share-based compensation expenses, amortization of acquired intangible assets, integration expenses as well as the related income tax effects.

These non-GAAP measures are not in accordance with, and should not be considered an alternative for measures prepared in accordance with GAAP, and these non-GAAP measures may have limitations in that they do not reflect all of NetScout's results of operations as determined in accordance with GAAP. These non-GAAP measures should only be used to evaluate NetScout's results of operations in conjunction with the corresponding GAAP measures. The presentation of non-GAAP information is not meant to be considered superior to, in isolation from or as a substitute for results prepared in accordance with GAAP.

The Company believes these non-GAAP financial measures will enhance the reader's overall understanding of NetScout's current financial performance and the Company's prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how the Company plans and measures its own business. The Company believes that providing these non-GAAP measures affords investors a view of the Company's operating results that may be more easily compared to peer companies and also enables investors to consider the Company's operating results on both a GAAP and non-GAAP basis during the integration period of the Company's acquisition of Network General. Presenting the GAAP measures on their own would not be indicative of the Company's core operating results. Furthermore, NetScout believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures provide useful information to management and investors regarding present and future business trends relating to its financial conditions and results of operations.

As discussed above, the Company management regularly uses supplemental non-GAAP financial measures internally to understand, manage and evaluate its business and to make operating decisions. These non-GAAP measures are among the primary factors that management uses in planning and forecasting future periods.

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 866-701-8242 for U.S./Canada and 706-634-5113 for international callers and using conference ID: 55969842. A replay of the call will be available after 7:30 p.m. ET on July 24 for approximately one week. The number for the replay is 800-642-1687 for U.S./Canada and 706-645-9291 for international callers. The conference ID is: 55969842.

About NetScout Systems

NetScout Systems, Inc. (NASDAQ: NTCT) has been an industry leader for advanced network and service assurance solutions for over twenty years. NetScout's breakthrough technology solutions provide trusted, comprehensive real-time and historical performance intelligence, including advanced early warnings and rapid, definitive problem analysis. These capabilities are vital to IT operators who are accountable for reducing the Mean Time to Resolution. The world's largest enterprises, government agencies, and service providers depend upon NetScout's nGenius and Sniffer (formerly Network General) brand solutions to assure service levels to their users by reducing or preventing disruptions and degradations. More information about NetScout 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 release, which are not strictly historical statements, including the plans, objectives and future financial performance of NetScout, such as the statement that the Company intends to release new products and upgrades during fiscal year 2009 as well as the Company's guidance for fiscal year 2009 contained in this release, 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 acquisition of Network General, including the ability to integrate the acquisition successfully, costs associated with the acquisition, the ability to achieve market introduction and acceptance of new products from the acquisition, difficulties in managing geographically dispersed operations and in achieving expected synergies and expense reductions, and other factors relating to acquisitions generally, as well as 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, 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, and risks of 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, 2008 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.

(C)2008 NetScout Systems, Inc. All rights reserved. NetScout and the NetScout logo and nGenius are registered trademarks of NetScout Systems, Inc.

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

                                                       Three Months
                                                           Ended
                                                         June 30,
                                                     -----------------
                                                       2008      2007
                                                     --------  -------
Revenue:
    Product                                          $34,917   $17,512
    Service                                           25,690    10,400
                                                     --------  -------
         Total revenue                                60,607    27,912
                                                     --------  -------

Cost of revenue:
     Product                                          10,346     4,652
     Service                                           4,992     1,800
                                                     --------  -------
          Total cost of revenue                       15,338     6,452
                                                     --------  -------

Gross profit                                          45,269    21,460
                                                     --------  -------

Operating expenses:
    Research and development                          10,173     4,534
    Sales and marketing                               24,059    11,228
    General and administrative                         6,532     2,833
    Amortization of acquired intangible assets           490         6
                                                     --------  -------
        Total operating expenses                      41,254    18,601
                                                     --------  -------

Income from operations                                 4,015     2,859
Interest and other income (expense), net              (1,752)    1,009
                                                     --------  -------

Income before income tax expense                       2,263     3,868
Income tax expense                                       766     1,188
                                                     --------  -------
Net income                                           $ 1,497   $ 2,680
                                                     ========  =======

Basic net income per share                           $  0.04   $  0.08
Diluted net income per share                         $  0.04   $  0.08
Shares used in computing:
    Basic net income per share                        38,954    32,140
    Diluted net income per share                      40,504    33,253
                        NetScout Systems, Inc.
           Non-GAAP Financial Measures and Reconciliations
                            (In thousands)
                             (Unaudited)

                                                    Three Months Ended
                                                         June 30,
                                                    ------------------
                                                      2008      2007
                                                    --------  --------

GAAP revenue                                        $60,607   $27,912
   Product deferred revenue fair value adjustment       190         -
   Service deferred revenue fair value adjustment     4,582         -
                                                    --------  --------
Non-GAAP revenue                                    $65,379   $27,912
                                                    ========  ========

GAAP gross profit                                   $45,269   $21,460
   Deferred revenue fair value adjustment             4,772         -
   Shared-based compensation expense                     66        23
   Amortization of acquired intangible assets         1,012       105
   Integration expense                                  246         -
                                                    --------  --------
Non-GAAP gross profit                               $51,365   $21,588
                                                    ========  ========

GAAP income from operations                         $ 4,015   $ 2,859
   Deferred revenue fair value adjustment             4,772         -
   Shared-based compensation expense (1)              1,191       385
   Amortization of acquired intangible assets (2)     1,502       111
   Integration expense (3)                              824         -
                                                    --------  --------
Non-GAAP income from operations                     $12,304   $ 3,355
                                                    ========  ========

GAAP net income                                     $ 1,497   $ 2,680
   Deferred revenue fair value adjustment             4,772         -
   Shared-based compensation expense (1)              1,191       385
   Amortization of acquired intangible assets (2)     1,502       111
   Integration expense (3)                              824         -
   Income tax adjustments (4)                        (3,150)     (188)
                                                    --------  --------
Non-GAAP net income                                 $ 6,636   $ 2,988
                                                    ========  ========

GAAP diluted net income per share                   $  0.04   $  0.08
   Per share impact of non-GAAP adjustments
    identified above                                   0.12      0.01
                                                    --------  --------
Non-GAAP diluted net income per share               $  0.16   $  0.09
                                                    ========  ========

     Shares used in computing non-GAAP diluted net
      income per share                               40,504    33,253



(1)Share-based compensation expense included in
    these amounts is as follows:
        Cost of product revenue                     $    26   $    11
        Cost of service revenue                          40        12
        Research and development                        311       114
        Sales and marketing                             530       171
        General and administrative                      284        77
                                                    --------  --------
         Total share-based compensation expense     $ 1,191   $   385
                                                    ========  ========

(2)Amortization expense related to acquired
    software and product technology included in
    these amounts is as follows:
        Cost of product revenue                     $ 1,012   $   105
        Operating expenses                              490         6
                                                    --------  --------
         Total amortization expense                 $ 1,502   $   111
                                                    ========  ========

(3)Integration expense included in these amounts is
    as follows:
        Cost of product revenue                     $   141   $     -
        Cost of service revenue                         105         -
        Research and development                        102         -
        Sales and marketing                             114         -
        General and administrative                      362         -
                                                    --------  --------
         Total integration expense                  $   824   $     -
                                                    ========  ========


(4)Reflects the tax effect of non-GAAP adjustments
    above at the statutory rate of 38%
                        NetScout Systems, Inc.
                Condensed Consolidated Balance Sheets
                            (In thousands)
                             (Unaudited)

                                                 June 30,    March 31
                                                   2008        2008
                                                ----------  ----------

Assets
Current assets:
   Cash and cash equivalents                    $  68,708   $  56,702
   Marketable securities                            8,556      10,465
   Accounts receivable, net                        26,433      32,048
   Inventories                                     12,590      12,083
   Refundable income taxes                          5,629       5,036
   Deferred income taxes                            5,985       6,052
   Prepaid expenses and other current assets        6,804      13,546
                                                ----------  ----------

      Total current assets                        134,705     135,932

Fixed assets, net                                  15,747      16,729
Goodwill                                          131,802     131,802
Acquired intangible assets, net                    64,066      65,569
Deferred financing costs                              892         956
Deferred income taxes                              34,891      34,891
Long-term marketable securities                    32,522      33,764
Restricted cash                                       121         121
Other assets                                          787       1,173
                                                ----------  ----------
        Total assets                            $ 415,533   $ 420,937
                                                ==========  ==========


Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                             $   7,319   $   9,207
   Accrued compensation                            20,397      23,594
   Accrued other                                    5,842       7,805
   Income taxes payable                             1,290       1,065
   Long-term debt, current portion                  7,500       6,250
   Deferred revenue                                73,651      74,257
                                                ----------  ----------

      Total current liabilities                   115,999     122,178
Other long-term liabilities                           853         917
Accrued long-term retirement benefits               1,277       1,245
Long-term deferred revenue                          7,008       6,764
Long-term debt, net of current portion             90,000      92,500
                                                ----------  ----------
       Total liabilities                          215,137     223,604
                                                ----------  ----------

Stockholders' equity:
   Common stock                                        43          43
   Additional paid-in capital                     185,497     182,789
   Accumulated other comprehensive income
    (loss)                                           (896)        246
   Treasury stock                                 (28,939)    (28,939)
   Retained earnings                               44,691      43,194
                                                ----------  ----------

      Total stockholders' equity                  200,396     197,333
                                                ----------  ----------

        Total liabilities and stockholders'
         equity                                 $ 415,533   $ 420,937
                                                ==========  ==========

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

SOURCE: NetScout Systems, Inc.

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