View all news

NETSCOUT Systems Reports Financial Results for Fourth Quarter & Fiscal Year End 2010

April 29, 2010

  • Fourth Quarter Revenue Up Year-over-Year: 9% GAAP, 8% Non-GAAP
  • Fourth Quarter Net Income Up Year-over-Year: 24% GAAP, 10% Non-GAAP
  • FY 2010 Revenue Down Year-over-Year: 3% GAAP, 6% Non-GAAP
  • FY 2010 Net Income Up Year-over-Year: 39% GAAP, 1% Non-GAAP

 

WESTFORD, Mass., Apr 29, 2010 (BUSINESS WIRE) --NetScout Systems, Inc. (NASDAQ: NTCT):

Q4 FY 2010 FY 2010
GAAP Non-GAAP GAAP Non-GAAP
Revenue (in millions) $71.9 $72.0 $260.3 $261.7
Net income (in millions) $7.1 $9.1 $27.9 $35.9
Earnings per share $0.17 $0.22 $0.67 $0.86

NetScout Systems, Inc. (NASDAQ: NTCT), an industry leader for advanced network and service assurance solutions, today announced financial results for its fourth quarter and fiscal year ended March 31, 2010.

Total GAAP revenue for the fourth quarter of fiscal year 2010 was $71.9 million. Non-GAAP revenue for the fourth quarter was $72.0 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 $42.3 million, and service revenue was $29.6 million. Non-GAAP product revenue was also $42.3 million, and non-GAAP service revenue was $29.7 million.

GAAP net income for the fourth quarter was $7.1 million, or net income per diluted share of $0.17. GAAP income from operations was $11.5 million. On a non-GAAP basis, net income for the quarter was $9.1 million, or $0.22 per diluted share, and non-GAAP income from operations was $14.9 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 and amortization of acquired intangible assets. Non-GAAP net income excludes these effects as well as their related impact on the provision for income taxes. A reconciliation of GAAP and non-GAAP results is included in the attached financial tables.

For the fiscal year ended March 31, 2010, NetScout reported total GAAP revenue of $260.3 million; non-GAAP revenue was $261.7 million. Non-GAAP revenue excludes the purchase accounting adjustment to record at fair value the acquired Network General deferred revenue. GAAP net income for the fiscal year was $27.9 million, or net income per diluted share of $0.67. GAAP income from operations was $45.9 million. Non-GAAP net income for the fiscal year was $35.9 million, or $0.86 per diluted share, and non-GAAP income from operations was $58.7 million. Non-GAAP income from operations excludes the purchase accounting adjustment to record the acquired Network General deferred revenue at fair value, as well as share-based compensation expenses and amortization of acquired intangible assets. Non-GAAP net income excludes these effects as well as their related impact on the provision for income taxes. A reconciliation of GAAP and non-GAAP results is included in the attached financial tables.

"We are pleased with our fiscal year 2010 results. Despite our fourth quarter earnings pre-announcement, we achieved the full-year revenue and earnings guidance that we released in April 2009," said Anil Singhal, President and CEO of NetScout Systems. "Total bookings grew 12% year-over-year, driving our deferred revenue up $22 million and demonstrating the strength of our underlying business. We met our goal of expanding operating margins through cost reductions and improved operating efficiencies despite lower revenue. In addition, cash and marketable securities hit a record high, over $170 million, increasing by more than $34 million year-over-year. We expect this momentum to continue into fiscal 2011 driven primarily by the high growth wireless service provider sector plus returning strength in the financial services sector. We have a growing stream of new product offerings scheduled to be released in the coming months which will extend our leadership across all our markets." Anil Singhal added, "In addition, we have been working on new patent pending technology that will revolutionize the functionality and performance of our solution suite, widen our technology leadership and expand our addressable market."

Financial and Company Highlights for the Fourth Quarter and Fiscal Year 2010:

  • In the fourth quarter of fiscal 2010, GAAP revenue increased 9% year-over-year and increased 2% sequentially. Non-GAAP revenue increased 8% year-over-year and increased 1% sequentially.
  • Fourth quarter GAAP and non-GAAP product revenue increased 15% year-over-year and increased 4% sequentially. GAAP service revenue increased 1% year-over-year and decreased 1% sequentially. Non-GAAP service revenue decreased 1% year-over-year and decreased 2% sequentially.
  • For fiscal year 2010, GAAP revenue decreased 3% year-over-year and non-GAAP revenue decreased 6% year-over-year. GAAP product revenue decreased 8% year-over-year and GAAP service revenue increased 4% year-over-year. Non-GAAP product revenue decreased 9% year-over-year and non-GAAP service revenue decreased 3% year-over-year.
  • Fiscal 2010 GAAP operating margin was 18%, up from 14% in fiscal 2009. Fiscal 2010 and fiscal 2009, non-GAAP operating margin was 22%.
  • As of March 31, 2010 cash and cash equivalents and short and long-term marketable securities were $170.6 million, up $19.3 million from $151.3 million as of the end of the prior quarter. Year-over-year, the increase was $34.7 million, up from $135.9 million as of March 31, 2009.
  • NetScout released nGenius Integrated Agent, a key component of its ongoing and expanding relationship with Cisco. The nGenius Integrated Agent is a software-based solution for deploying NetScout probe technology into Cisco's Integrated Service Routers. This extends NetScout's high-performance packet-flow monitoring and analysis capabilities further out to the network edge and removes the cost and complexity that have traditionally limited an IT organization's ability to monitor branch office locations.
  • In the fourth quarter, Network Computing magazine recognized NetScout's nGenius(R) Virtual Agent as "Datacenter Product of the Year" and the nGenius InfiniStream(R) 2900 Series intelligent Deep Packet Capture appliance was named runner-up for "Service Management Product of the Year".

 

Guidance:

In fiscal year 2011, NetScout is adopting new accounting standards relative to multiple deliverable arrangements, including certain arrangements that were within the scope of ASC Topic 985, Software Revenue Recognition. Specifically, this new accounting standard removes tangible products which bundle hardware and software from the more stringent requirements of ASC 985 and requires entities to allocate revenue across the deliverables based on their estimated selling prices. NetScout will report its fiscal year 2011 results under these new standards, but will also disclose what its results would have been under the previously applied standard for comparison with prior periods.

Under the new accounting rules, NetScout expects GAAP and non-GAAP revenue to be in the range of $278 million to $295 million. GAAP net income per diluted share is expected to be in the range of $0.72 to $0.81 and non-GAAP net income per diluted share between $0.91 to $1.00.

Under the former accounting rules, NetScout expects GAAP and non-GAAP revenue would be in the range of $280 million to $297 million. GAAP net income per diluted share would be in the range of $0.75 to $0.84 and non-GAAP net income per diluted share between $0.94 to $1.03.

Guidance FY 2011

Former Accounting Standards

Guidance FY 2011

New Accounting Standards

GAAP Non-GAAP GAAP Non-GAAP
Revenue (in millions) $280 - $297 $280 - $297 $278 - $295 $278 - $295
Earnings per share $0.75 - $0.84 $0.94 to $1.03 $0.72 - $0.81 $0.91 - $1.00

NetScout uses non-GAAP results internally for reporting and business management as those results most closely reflect the underlying dynamics of the business and are most comparable to prior results. The fiscal year 2011 non-GAAP revenue expectation before and after the accounting change excludes the purchase accounting adjustment to fair value of approximately $100 thousand of Network General's deferred revenue and the non-GAAP net income per diluted share expectation excludes the deferred revenue purchase accounting adjustment, as well as share-based compensation expenses of approximately $6.9 million, amortization of acquired intangible assets of approximately $5.9 million, and the related impact of these adjustments on the provision for income taxes of $4.9 million.

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 and integration expenses, as well as the related income tax effects.

These non-GAAP measures are not in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP, and 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 and following 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 condition and results of operations.

As discussed above, 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 763-416-6912 for international callers and using conference ID: 67207148. A replay of the call will be available after 7:30 p.m. ET on April 29 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: 67207148.

About NetScout Systems

NetScout Systems, Inc. is the market leader in Unified Service Delivery Management enabling comprehensive end-to-end network and application assurance. For 25 years, NetScout has delivered breakthrough packet-flow technology that provides trusted and comprehensive real-time network and application performance intelligence enabling unified assurance of the network, applications and users. These solutions enable IT staff to predict, preempt and resolve network and service delivery problems while facilitating the optimization and capacity planning of the network infrastructure. NetScout nGenius(R) and Sniffer(R) solutions are deployed at more than 20,000 of the world's largest enterprises, government agencies, and service providers, on over 740,000 network segments to assure the network, applications, and service delivery to their users and customers. More information about NetScout Systems 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, including without limitation, the Company's statements with respect to its patent pending technology for the packet flow analysis market and other planned new product releases, 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 slowdowns or downturns in economic conditions generally and in the market for advanced network and service assurance solutions specifically, 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. 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, 2009 and subsequent Quarterly Reports on Form 10-Q 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.

©2010 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, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
March 31 March 31
2010 2009 2010 2009
Revenue:
Product $ 42,317 $ 36,791 $ 142,113 $ 154,161
Service 29,557 29,295 118,229 113,443
Total revenue 71,874 66,086 260,342 267,604
Cost of revenue:
Product 10,092 10,157 35,564 43,315
Service 5,526 5,273 20,500 20,824
Total cost of revenue 15,618 15,430 56,064 64,139
Gross profit 56,256 50,656 204,278 203,465
Operating expenses:
Research and development 9,581 9,981 36,650 40,189
Sales and marketing 29,253 23,801 99,059 98,818
General and administrative 5,300 6,358 20,609 26,118
Amortization of acquired intangible assets 586 491 2,057 1,962
Total operating expenses 44,720 40,631 158,375 167,087
Income from operations 11,536 10,025 45,903 36,378
Interest and other (expense), net (536 ) (889 ) (2,832 ) (5,337 )
Income before income tax expense 11,000 9,136 43,071 31,041
Income tax expense 3,947 3,462 15,154 10,993
Net income $ 7,053 $ 5,674 $ 27,917 $ 20,048
Basic net income per share $ 0.17 $ 0.14 $ 0.69 $ 0.51
Diluted net income per share $ 0.17 $ 0.14 $ 0.67 $ 0.49
Weighted average common shares outstanding used in computing:
Net income per share - basic 41,386 39,925 40,691 39,351
Net income per share - diluted 42,477 41,505 41,915 40,925
NetScout Systems, Inc.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
March 31 March 31
2010 2009 2010 2009
GAAP Revenue $ 71,874 $ 66,086 $ 260,342 $ 267,604
Product deferred revenue fair value adjustment - 10 31 1,860
Service deferred revenue fair value adjustment 112 753 1,286 9,922
Non-GAAP revenue $ 71,986 $ 66,849 $ 261,659 $ 279,386
GAAP Gross profit $ 56,256 $ 50,656 $ 204,278 $ 203,465
Deferred revenue fair value adjustment 112 763 1,317 11,782
Shared-based compensation expense (1) 119 105 366 336
Amortization of acquired intangible assets (2) 995 995 3,980 3,997
Integration expense (3) - 50 - 373
Non-GAAP Gross profit $ 57,482 $ 52,569 $ 209,941 $ 219,953
GAAP Income from operations $ 11,536 $ 10,025 $ 45,903 $ 36,378
Deferred revenue fair value adjustment 112 763 1,317 11,782
Shared-based compensation expense (1) 1,682 1,521 5,456 5,122
Amortization of acquired intangible assets (2) 1,581 1,486 6,037 5,959
Integration expense (3) - 488 - 1,858
Non-GAAP Income from operations $ 14,911 $ 14,283 $ 58,713 $ 61,099
GAAP Net income $ 7,053 $ 5,674 $ 27,917 $ 20,048
Deferred revenue fair value adjustment 112 763 1,317 11,782
Shared-based compensation expense (1) 1,682 1,521 5,456 5,122
Amortization of acquired intangible assets (2) 1,581 1,486 6,037 5,959
Integration expense (3) - 488 - 1,858
Income tax adjustments (4) (1,283 ) (1,618 ) (4,868 ) (9,394 )
Non-GAAP Net income $ 9,145 $ 8,314 $ 35,859 $ 35,375
GAAP Diluted Net income per share $ 0.17 $ 0.14 $ 0.67 $ 0.49
Share impact of non-GAAP adjustments identified above 0.05 0.06 0.19 0.37
Non-GAAP Diluted net income per share $ 0.22 $ 0.20 $ 0.86 $ 0.86
Shares used in computing non-GAAP diluted net income per share 42,477 41,505 41,915 40,925
(1)

Share-based compensation expense included in these amounts is as follows:

Cost of product revenue $ 45 $ 39 $ 129 $ 119
Cost of service revenue 74 66 237 217
Research and development 453 389 1,364 1,278
Sales and marketing 705 659 2,299 2,232
General and administrative 405 368 1,427 1,276
Total share-based compensation expense $ 1,682 $ 1,521 $ 5,456 $ 5,122
(2)

Amortization expense related to acquired software and product technology included in these amounts is as follows:

Cost of Product Revenue $ 995 $ 995 $ 3,980 $ 3,997
Operating expenses 586 491 2,057 1,962
Total amortization expense $ 1,581 $ 1,486 $ 6,037 $ 5,959
(3) Integration expense included in these amounts is as follows:
Cost of product revenue $ - $ - $ - $ 141
Cost of service revenue - 50 - 232
Research and development - 82 - 328
Sales and marketing - 100 - 376
General and administrative - 256 - 781
Total integration expense $ - $ 488 $ - $ 1,858
(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)
March 31 March 31
2010 2009
Assets
Current assets:
Cash and cash equivalents $ 63,322 $ 82,222
Marketable securities 69,875 24,162
Accounts receivable, net 65,556 39,827
Inventories 9,181 6,850
Refundable income taxes 2,730 8,389
Deferred income taxes 2,698 2,796
Prepaid expenses and other current assets 5,422 4,939
Total current assets 218,784 169,185
Fixed assets, net 12,773 13,848
Goodwill 128,177 128,177
Acquired intangible assets, net 53,573 59,610
Deferred income taxes 30,062 34,941
Long-term marketable securities 37,354 29,528
Other assets 1,878 1,445
Total assets $ 482,601 $ 436,734
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 7,307 $ 6,385
Accrued compensation 19,806 23,156
Accrued other 5,051 5,407
Income taxes payable - 1,702
Long-term debt, current portion 11,250 10,000
Deferred revenue 84,196 70,815
Total current liabilities 127,610 117,465
Other long-term liabilities 551 771
Accrued long-term retirement benefits 1,645 1,330
Long-term deferred revenue 17,846 8,937
Long-term debt, net of current portion 68,106 82,500
Total liabilities 215,758 211,003
Stockholders' equity:
Common stock 46 45
Additional paid-in capital 209,146 192,844
Accumulated other comprehensive loss (1,817 ) (1,461 )
Treasury stock (31,691 ) (28,939 )
Retained earnings 91,159 63,242
Total stockholders' equity 266,843 225,731
Total liabilities and stockholders' equity $ 482,601 $ 436,734

SOURCE: NetScout Systems, Inc.

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

Categories: Press Releases
View all news