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NETSCOUT Systems Reports Financial Results for Third Quarter of Fiscal 2008

February 04, 2008

Third Quarter Revenue Doubles Year-over-Year with the Acquisition

                          of Network General

WESTFORD, Mass.--(BUSINESS WIRE)--Feb. 4, 2008--NetScout Systems

                                               GAAP        Non-GAAP
----------------------------------------------------------------------
Revenue                                   $53.7 million  $60.0 million
----------------------------------------------------------------------
Net income (loss)                         ($3.1) million $6.2 million
----------------------------------------------------------------------
Earnings (loss) per share                    ($0.09)         $0.17
----------------------------------------------------------------------

NetScout Systems, Inc. (NASDAQ: NTCT), an industry pacesetter for advanced network and service assurance solutions, today announced financial results for its third quarter of fiscal year 2008, ended December 31, 2007. Financial results include the acquisition of Network General as of November 1, 2007.

Total GAAP revenue for the third quarter of fiscal year 2008 was $53.7 million, up 103% year-over-year. Non-GAAP revenue for the third quarter was $60 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 $36.1 million, up 120% year-over-year.

GAAP net loss for the quarter was $3.1 million, or a net loss per share of $0.09. GAAP loss from operations was $2.4 million. On a non-GAAP basis, net income was $6.2 million or $0.17 per diluted share, and non-GAAP income from operations was $12.6 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, inventory fair value adjustments 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 are pleased with our financial results this quarter following the recent acquisition of Network General," said Anil Singhal, President and CEO of NetScout Systems. "These strong results reflect the market's endorsement of the prospects of the combination of our two companies. We have brought together two world leaders in network-based application performance management solutions and we are well on our way to achieving our goal of providing our customers with the most advanced technologies in a unified product portfolio. In the upcoming fiscal year we will be bringing to market a modular suite of performance management solutions that will protect our customers' investments and further position NetScout for future revenue and profitability growth. Our integration efforts are proceeding smoothly and we look forward to sharing our goals and positive results from the new and larger NetScout in the coming year."

    Financial and Company Highlights for the Third Quarter 2008:

    --  NetScout acquired privately-held Network General on November
        1, 2007. The transaction was valued at approximately $212
        million. The purchase price consisted of a combination of six
        million shares of NetScout common stock, $100 million of
        senior secured floating rate notes and approximately $56
        million in cash.

        -GAAP revenue increased 103% year-over-year and 82%
         sequentially as a result of the acquisition and organic
         growth. Non-GAAP revenue increased 127% year-over-year and
         103% sequentially.
        -GAAP product revenue increased 120% year-over-year and 91%
         sequentially.
        -Cash and cash equivalents and short and long-term marketable
         securities were $81.9 million down from $108.9 million in the
         prior quarter.
    --  On December 21, 2007, NetScout refinanced the original
        seller's loan issued in connection with the acquisition of
        Network General. The new credit agreement, a $100 million
        five-year term loan and a $10 million revolving credit
        facility, was negotiated at favorable rates with a syndicate
        of banks led by KeyBank. The proceeds of the term loan were
        used to redeem all of the outstanding senior secured floating
        rate notes due 2012.

    Guidance:

For the fourth quarter of fiscal year 2008, NetScout expects GAAP revenue to be in the range of $54 million to $58 million and GAAP net loss per share to be in the range of ($0.18) to ($0.22). NetScout expects non-GAAP revenue to be in the range of $60 million to $64 million and non-GAAP earnings per diluted share to be in the range of $0.04 to $0.08. The fourth quarter of fiscal year 2008 non-GAAP revenue and earnings estimates exclude the purchase accounting adjustment to fair value of approximately $6.3 million of Network General's deferred revenue, share-based compensation expenses of approximately $1.3 million, amortization of acquired intangible assets of approximately $1.8 million, and integration expenses of approximately $5.4 million. While NetScout expects fourth quarter results to be stronger than the third quarter, results will be somewhat dampened as Network General's sales force transitions into its former first fiscal quarter which historically has been weaker.

For the fiscal year 2009, NetScout expects GAAP revenue to be in the range of $250 million to $260 million and GAAP earnings per diluted share to be in the range of $0.08 to $0.18. NetScout expects non-GAAP revenue to be in the range of $260 million to $270 million and non-GAAP earnings per diluted share to be in the range of $0.50 to $0.60. The fiscal year 2009 non-GAAP revenue and earnings estimates exclude the purchase accounting adjustment to fair value of approximately $11.2 million of Network General's deferred revenue, share-based compensation expenses of approximately $6.9 million, amortization of acquired intangible assets of approximately $6 million, and integration expenses of approximately $1.5 million. The revenue guidance for FY 2009 recognizes the logistical and market challenges of the integration with Network General as NetScout combines and reorganizes the sales force and introduces new and integrated products to the market early in 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, product revenue, income from operations, net income and earnings 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, inventory fair value adjustments and integration expenses.

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. 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.

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: 31263476. A replay of the call will be available after 7:30 p.m. ET on February 4 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: 31263476.

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 a modular suite of performance management solutions is expected to be released in fiscal 2009 and the Company's guidance for the fourth quarter of fiscal year 2008 and 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, 2007 and Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 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.

(C)2008 Network General Corporation. All Rights Reserved. Network General and the Network General logo are registered trademarks or trademarks of Network General Corporation and/or its affiliates in the United States and/or other countries. Only Network General Corporation makes Sniffer(R) brand products.

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

                                      Three Months      Nine Months
                                           Ended            Ended
                                       December 31,     December 31,
                                     ---------------- ----------------
                                      2007     2006     2007    2006
                                     -------- ------- -------- -------
Revenue:
    Product                          $36,085  $16,366 $ 72,509 $46,351
    Service                           17,656   10,133   38,757  28,803
                                     -------- ------- -------- -------
        Total revenue                 53,741   26,499  111,266  75,154
                                     -------- ------- -------- -------

Cost of revenue:
    Product                           11,627    4,528   21,483  12,766
    Service                            4,056    1,672    7,665   4,700
                                     -------- ------- -------- -------
        Total cost of revenue         15,683    6,200   29,148  17,466
                                     -------- ------- -------- -------

Gross profit                          38,058   20,299   82,118  57,688
                                     -------- ------- -------- -------

Operating expenses:
Research and development               9,272    4,782   18,518  13,690
Sales and marketing                   21,463   10,997   43,817  31,410
General and administrative             9,454    2,571   15,479   6,913
Amortization of acquired intangible
 assets                                  314       39      320     116
                                     -------- ------- -------- -------
    Total operating expenses          40,503   18,389   78,134  52,129
                                     -------- ------- -------- -------

Income(loss) from operations          (2,445)   1,910    3,984   5,559
Interest and other income(expense),
 net                                  (1,343)     917      727   3,004
                                     -------- ------- -------- -------
Income(loss) before income tax
 expense(benefit) and cumulative
 effect of accounting change          (3,788)   2,827    4,711   8,563
Income tax expense(benefit)             (682)     844    1,886   2,973
                                     -------- ------- -------- -------
Income(loss) before cumulative
 effect of accounting change          (3,106)   1,983    2,825   5,590
Cumulative effect of accounting
 change, net of taxes of $42               -        -        -      69
                                     -------- ------- -------- -------
Net income(loss)                     $(3,106) $ 1,983 $  2,825 $ 5,659
                                     ======== ======= ======== =======

Basic net income(loss) per share     $ (0.09) $  0.06 $   0.08 $  0.18
Diluted net income(loss) per share   $ (0.09) $  0.06 $   0.08 $  0.17
Shares used in computing:
    Basic net income(loss) per share  36,495   31,735   33,651  31,626
    Diluted net income(loss) per
     share                            36,495   33,026   35,065  32,925
                        NetScout Systems, Inc.
           Non-GAAP Financial Measures and Reconciliations
                            (In thousands)
                             (Unaudited)

                                    Three Months    Nine Months Ended
                                        Ended
                                    December 31,       December 31,
                                  ----------------- ------------------
                                    2007     2006     2007      2006
                                  -------- -------- --------- --------

GAAP Revenue                      $53,741  $26,499  $111,266  $75,154
   Product deferred revenue fair
    value adjustment                  325        -       325        -
   Service deferred revenue fair
    value adjustment                5,960        -     5,960        -
                                  -------- -------- --------- --------
Non-GAAP revenue                  $60,026  $26,499  $117,551  $75,154
                                  ======== ======== ========= ========

GAAP Gross profit                 $38,058  $20,299  $ 82,118  $57,688
   Deferred revenue fair value
    adjustment                      6,285        -     6,285        -
   Shared-based compensation
    expense                            17       12        65       37
   Amortization of acquired
    intangible assets                 768      104       977      312
   Inventory fair value
    adjustment                      1,287        -     1,287        -
   Integration expense                438        -       438        -
                                  -------- -------- --------- --------
Non-GAAP Gross profit             $46,853  $20,415  $ 91,170  $58,037
                                  ======== ======== ========= ========

GAAP Income(loss) from
 operations                       $(2,445) $ 1,910  $  3,984  $ 5,559
   Deferred revenue fair value
    adjustment                      6,285        -     6,285        -
   Shared-based compensation
    expense                           343      357     1,056    1,077
   Amortization of acquired
    intangible assets               1,082      143     1,297      428
   Inventory fair value
    adjustment                      1,287        -     1,287        -
   Integration expense              6,024        -     6,024        -
                                  -------- -------- --------- --------
Non-GAAP Income from operations   $12,576  $ 2,410  $ 19,933  $ 7,064
                                  ======== ======== ========= ========

GAAP Net income(loss)             $(3,106) $ 1,983  $  2,825  $ 5,659
   Deferred revenue fair value
    adjustment                      6,285        -     6,285        -
   Shared-based compensation
    expense                           343      357     1,056    1,077
   Amortization of acquired
    intangible assets               1,082      143     1,297      428
   Inventory fair value
    adjustment                      1,287        -     1,287        -
   Integration expense              6,024        -     6,024        -
   Income tax adjustments (1)      (5,708)    (190)   (6,061)    (572)
                                  -------- -------- --------- --------
Non-GAAP Net income               $ 6,207  $ 2,293  $ 12,713  $ 6,592
                                  ======== ======== ========= ========

Diluted Net income(loss) per
 share                            $ (0.09) $  0.06  $   0.08  $  0.17
   Share impact of non-GAAP
    adjustments identified above  $  0.26  $  0.01  $   0.28  $  0.03
Non-GAAP Diluted net income per
 share                            $  0.17  $  0.07  $   0.36  $  0.20

     Shares used in computing
      non-GAAP diluted net income
      per share                    36,495   33,026    35,065   32,925

(1) : 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)

                                                December 31, March 31,
                                                    2007       2007
                                                ------------ ---------

Assets
Current assets:
   Cash and cash equivalents                       $ 52,497  $ 18,925
   Marketable securities                             29,237    69,204
   Accounts receivable, net                          48,517    18,317
   Inventories                                       10,197     4,562
   Refundable income taxes                            1,278       657
   Deferred income taxes                              3,620     2,535
   Prepaid expenses and other current assets         12,008     3,380
                                                ------------ ---------

      Total current assets                          157,354   117,580

Fixed assets, net                                    17,563     8,262
Goodwill                                            135,295    36,561
Acquired intangible assets, net                      67,159       442
Capitalized software development costs, net              48       170
Deferred financing costs                                952         -
Deferred income taxes                                31,272     5,382
Long-term marketable securities                           -    11,975
Restricted cash                                         156         -
Other assets                                            991        47
                                                ------------ ---------
        Total assets                               $410,790  $180,419
                                                ============ =========


Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                $ 14,027  $  3,023
   Accrued compensation                              25,680     8,271
   Accrued other                                      9,429     2,609
   Income taxes payable                                 839       192
   Long term debt, current portion                    5,000         -
   Deferred revenue                                  51,929    23,992
                                                ------------ ---------

      Total current liabilities                     106,904    38,087

Other long-term liabilities                             915     1,008
Accrued long-term retirement benefits                 1,254     1,155
Long-term deferred revenue                            6,530     1,762
Long-term debt, net of current portion               95,000         -
                                                ------------ ---------
       Total liabilities                            210,603    42,012
                                                ------------ ---------

Stockholders' equity:
   Common stock                                          43        36
   Additional paid-in capital                       180,882   122,074
   Accumulated other comprehensive income(loss)          94       (46)
   Treasury stock                                   (28,939)  (28,939)
   Retained earnings                                 48,107    45,282
                                                ------------ ---------

      Total stockholders' equity                    200,187   138,407
                                                ------------ ---------

        Total liabilities and stockholders'
         equity                                    $410,790  $180,419
                                                ============ =========

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

SOURCE: NetScout Systems, Inc.

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