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NETSCOUT Reports Financial Results for Fourth Quarter and Fiscal Year 2017

May 04, 2017

Achieves FY’17 Financial Targets;

New Agreement with Vodafone Underscores Market and Technology Leadership

WESTFORD, Mass.--(BUSINESS WIRE)--May 4, 2017-- NETSCOUT SYSTEMS, INC. (NASDAQ: NTCT), a leading provider of business assurance, a powerful combination of service assurance, cybersecurity, and business intelligence solutions, today announced financial results for its fourth quarter and fiscal year ended March 31, 2017.

“NETSCOUT delivered a solid finish to fiscal year 2017 to achieve our annual revenue, operating profitability and EPS targets,” stated Anil Singhal, NETSCOUT’s president and CEO. “Our fourth-quarter revenue performance was driven by good traction for our nGeniusONE service assurance solutions with enterprise customers and exceptional results at Arbor Networks.”

Singhal concluded, “We have made excellent progress on our new product cycle that is aimed at further elevating our value proposition and solidifying our incumbency in key accounts. We are pleased with the traction that we have generated thus far in the service provider market with our InfiniStreamNG real-time information platform in its software-only form factor. We are moving aggressively to accelerate adoption of our new software platform and navigate a challenging spending environment within this vertical without any significant erosion to our overall revenue. Just as important, we anticipate that our continued success on this front will enable us to generate improved gross margins in fiscal year 2018. We believe that this dynamic, in combination with prudent expense management, will help us deliver further operating profitability improvement and EPS growth.”

Notable fourth-quarter and recent operational highlights include:

Q4 FY17 Financial Results

Total revenue (GAAP) for the fourth quarter of fiscal year 2017 was $318.9 million, compared with $285.9 million in the same quarter one year ago. Non-GAAP total revenue for the fourth quarter of fiscal year 2017 was $327.2 million, compared with $308.7 million in the same quarter one year ago. A reconciliation of GAAP and non-GAAP results is included in the attached financial tables.

Product revenue (GAAP) for the fourth quarter of fiscal year 2017 was $210.1 million, which was approximately 66% of total revenue. This compares with product revenue (GAAP) of $195.8 million in the prior fiscal year’s fourth quarter, which was approximately 68% of total revenue. On a non-GAAP basis, product revenue for the fourth quarter of fiscal year 2017 was $213.7 million, which was approximately 65% of total non-GAAP revenue. This compares with fourth-quarter fiscal year 2016 non-GAAP product revenue of $200.3 million, which was approximately 65% of total non-GAAP revenue. Service revenue (GAAP) for the fourth quarter of fiscal year 2017 was $108.9 million, or approximately 34% of total revenue, compared with $90.1 million in the same period one year ago, or 32% of total revenue. Non-GAAP service revenue for fiscal year 2017’s fourth quarter was $113.5 million, which was approximately 35% of total non-GAAP revenue, compared with $108.4 million in the year-ago quarter, which was approximately 35%.

NETSCOUT’s income from operations (GAAP) was $38.7 million in the fourth quarter of fiscal year 2017 versus a loss from operations of $4.9 million in the same quarter one year ago. The Company’s fourth-quarter fiscal year 2017 operating profit margin (GAAP) was 12.1% versus -1.7% in fiscal year 2016’s fourth quarter. Fourth-quarter fiscal year 2017 non-GAAP EBITDA from operations was $98.7 million, or 30.2% of total non-GAAP quarterly revenue, compared with non-GAAP EBITDA from operations of $76.2 million, or 24.7% of total non-GAAP quarterly revenue in the fourth quarter of fiscal year 2016. Fourth-quarter fiscal year 2017 non-GAAP income from operations was $89.9 million and the non-GAAP operating margin was 27.5%. This compares with non-GAAP income from operations of $69.1 million and a non-GAAP operating margin of 22.4% in the fourth quarter of fiscal year 2016.

Net income (GAAP) for the fourth quarter of fiscal year 2017 was $22.3 million, or $0.24 per share (diluted) versus a net loss (GAAP) for the fourth quarter of fiscal year 2016 of $3.6 million, or $0.04 per share (diluted). On a non-GAAP basis, net income for fiscal year 2017’s fourth quarter was $60.6 million, or $0.65 per share (diluted), compared with non-GAAP net income of $42.9 million, or $0.44 per share (diluted), for the same quarter one year ago.

As of March 31, 2017, cash and cash equivalents, and short and long-term marketable securities were $464.7 million, compared with $376.9 million as of December 31, 2016 and $352.1 million as of March 31, 2016.

During the fourth quarter of fiscal year 2017, NETSCOUT repurchased 21,030 shares of its common stock at an average price of $33.66 per share, totaling approximately $0.7 million in the aggregate. As of March 31, 2017, NETSCOUT had approximately 6.8 million shares available for repurchase under its existing, previously disclosed common stock repurchase plan that originally authorized the repurchase of up to 20 million shares of its common stock.

FY17 Financial Results

As a reminder, NETSCOUT acquired Danaher’s Communications Business in mid-July 2015. Accordingly, the timing and magnitude of the contributions from the businesses acquired as part of the Danaher Communications Business transaction impact year-over-year comparisons between fiscal year 2017 and fiscal year 2016.

Highlights for fiscal year 2017 included:

  • For fiscal year 2017, total revenue (GAAP) was $1.162 billion and non-GAAP total revenue was $1.2 billion versus total revenue (GAAP) of $955.4 million and non-GAAP total revenue of $1.025 billion in fiscal year 2016.
  • Product revenue (GAAP) in fiscal year 2017 was $735.5 compared with $633.4 million in fiscal year 2016. Non-GAAP product revenue in fiscal year 2017 was $753.8 million versus $651.0 million in fiscal year 2016.
  • Fiscal year 2017 service revenue (GAAP) was $426.6 versus $322.0 million in fiscal year 2016. Fiscal year 2017 non-GAAP service revenue was $446.1 million compared with $373.6 million in fiscal year 2016.
  • NETSCOUT’s fiscal year 2017 operating income from operations (GAAP) was $62.1 million versus a fiscal year 2016 operating loss of $25.6 million. Fiscal year 2017 non-GAAP EBITDA from operations was $309.5 million, or 25.8% of non-GAAP total annual revenue. This compares with non-GAAP EBITDA from operations of $270.1 million, or 26.4% of non-GAAP total annual revenue, in fiscal year 2016. The Company’s non-GAAP operating income for fiscal year 2017 was $275.4 with a non-GAAP operating margin of 23.0%, compared with fiscal year 2016 non-GAAP operating income of $246.8 million and a non-GAAP operating margin of 24.1%.
  • For fiscal year 2017, NETSCOUT’s net income (GAAP) was $33.3 million, or $0.36 per share (diluted), compared with a net loss of $28.4 million, or $0.35 per share (diluted) for fiscal year 2016. Non-GAAP net income for fiscal year 2017 was $178.5 million, or $1.92 per share (diluted), compared with $157.4 million, or $1.91 per share (diluted) for fiscal year 2016.
  • During fiscal year 2017, NETSCOUT repurchased a total of 3,148,426 shares of its common stock at an average price of $25.41 per share, totaling approximately $80.0 million in the aggregate.

Guidance:

For fiscal year 2018, NETSCOUT is providing the following guidance:

  • NETSCOUT expects fiscal year 2018 GAAP revenue to grow over fiscal year 2017, on a percentage basis, in the low single-digit range. The Company anticipates that fiscal year 2018 non-GAAP revenue will be relatively flat compared with fiscal year 2017.
  • NETSCOUT expects that fiscal year 2018’s GAAP net income per share (diluted) growth over fiscal year 2017, on a percentage basis, will be in the range of approximately 110 percent to approximately 160 percent. Non-GAAP net income per share (diluted) growth for fiscal year 2018 over fiscal year 2017 is expected to be, on a percentage basis, in the mid-single to high single-digit range. Net income per share (diluted) guidance does not take into account any share repurchase activity that may occur during fiscal year 2018.
  • A reconciliation between GAAP and non-GAAP revenue and net income per share (diluted) for NETSCOUT’s guidance is included in the attached financial tables.

Conference Call Instructions:
NETSCOUT will host a conference call to discuss its fourth-quarter and fiscal year-end 2017 financial results today at 8:30 a.m. ET. This call will be webcast live through NETSCOUT’s website at http://ir.netscout.com/phoenix.zhtml?c=92658&p=irol-irhome. Alternatively, people can listen to the call by dialing (785) 424-1051. The conference call ID is NTCTQ417. A replay of the call will made be available after 12:00 p.m. ET on May 4 for approximately one week. The number for the replay is (800) 753-0348 for U.S./Canada and (402) 220-2672 for international callers.

Use of Non-GAAP Financial Information:
To supplement the financial measures presented in NETSCOUT's press release in accordance with accounting principles generally accepted in the United States ("GAAP"), NETSCOUT also reports the following non-GAAP measures: non-GAAP total revenue, non-GAAP product revenue, non-GAAP service revenue, non-GAAP income from operations, non-GAAP operating margin, non-GAAP earnings before interest and other expense, income taxes, depreciation and amortization (EBITDA) from operations, non-GAAP EBITDA from operations margin, non-GAAP net income, and non-GAAP net income per share (diluted). Non-GAAP revenue (total, product and service) eliminates the GAAP effects of acquisitions by adding back revenue related to deferred revenue revaluation, as well as revenue impacted by the amortization of intangible assets. Non-GAAP income from operations includes the aforementioned revenue adjustments and also removes expenses related to the amortization of acquired intangible assets, stock-based compensation, and certain expenses relating to acquisitions including inventory fair value adjustments, depreciation costs, compensation for post-combination services and business development and integration costs. Non-GAAP EBITDA from operations, which has been presented herein as a measure of NETSCOUT’s performance, includes the aforementioned items related to non-GAAP income from operations and also removes non-acquisition-related depreciation expense. Non-GAAP operating margin is calculated based on the non-GAAP financial metrics discussed above. Non-GAAP net income includes the aforementioned items related to non-GAAP income from operations, net of related income tax effects. Non-GAAP diluted net income per share also excludes these expenses as well as the related impact of all these adjustments on the provision for income taxes. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures included in the attached tables within this press release.

These non-GAAP measures are not in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP (revenue, gross profit, operating profit, net income and diluted net income per share), and may have limitations because 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.

NETSCOUT believes these non-GAAP financial measures will enhance the reader’s overall understanding of NETSCOUT’s current financial performance and NETSCOUT’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. NETSCOUT believes that providing these non-GAAP measures affords investors a view of NETSCOUT’s operating results that may be more easily compared to peer companies and also enables investors to consider NETSCOUT’s operating results on both a GAAP and non-GAAP basis during and following the integration period of NETSCOUT’s acquisitions. Presenting the GAAP measures on their own, without the supplemental non-GAAP disclosures, might not be indicative of NETSCOUT’s core operating results. Furthermore, NETSCOUT believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures provides useful information to management and investors regarding present and future business trends relating to its financial condition and results of operations.

NETSCOUT 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.

About NETSCOUT SYSTEMS, INC.
NETSCOUT SYSTEMS, INC. (NASDAQ: NTCT) is a leading provider of business assurance – a powerful combination of service assurance, cybersecurity, and business intelligence solutions – for today’s most demanding service provider, enterprise and government networks. NETSCOUT’s Adaptive Service Intelligence (ASI) technology continuously monitors the service delivery environment to identify performance issues and provides insight into network-based security threats, helping teams to quickly resolve issues that can cause business disruptions or impact user experience. NETSCOUT delivers unmatched service visibility and protects the digital infrastructure that supports our connected world. To learn more, visit www.netscout.com or follow @NETSCOUT on Twitter, Facebook, or LinkedIn.

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 without limitation, the statements related to the financial guidance for NETSCOUT; statements about progress on the Company’s new product cycle progress that is aimed at further elevating its value proposition; statements about moving aggressively to accelerate adoption of the Company’s new InfiniStreamNG software platform and navigate challenging spending environment within the service provider market without any significant erosion to its overall revenue; statements about improved gross margins driven by the Company’s continued success with service provider adoption of its software platform; and statements about delivering further operating profitability and EPS growth related to improved gross margin and prudent expense management, constitute forward-looking statements which involve risks and uncertainties. Actual results could differ materially from the forward-looking statements due to known and unknown risk, uncertainties, assumptions and other factors. Such factors include slowdowns or downturns in economic conditions generally and in the market for advanced network and service assurance solutions specifically; the volatile foreign exchange environment; the Company’s relationships with strategic partners and resellers; dependence upon broad-based acceptance of the Company’s network performance management solutions; the presence of competitors with greater financial resources than we have, and their strategic response to our products; our ability to retain key executives and employees; lower than expected demand for the Company’s products and services; and the ability of NETSCOUT to successfully integrate the merged assets and the associated technology and achieve operational efficiencies. 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, 2016 and the Company’s subsequent Quarterly Reports on Form 10-Q, which are 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.

©2017 NETSCOUT SYSTEMS, INC. All rights reserved. NETSCOUT and the NETSCOUT logo are registered trademarks or trademarks of NETSCOUT SYSTEMS, INC. and/or its subsidiaries and/or affiliates in the USA and/or other countries.

                       
NETSCOUT SYSTEMS, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
   
Three Months Ended Twelve Months Ended
March 31, March 31,
2017 2016 2017 2016
Revenue:
Product $ 210,059 $ 195,792 $ 735,531 $ 633,408
Service   108,861     90,095     426,581     322,011  
Total revenue   318,920     285,887     1,162,112     955,419  
 
Cost of revenue:
Product 66,232 72,971 238,002 238,037
Service   26,685     27,880     108,137     90,412  
Total cost of revenue   92,917     100,851     346,139     328,449  
 
Gross profit   226,003     185,036     815,973     626,970  
 
Operating expenses:
Research and development 53,020 59,545 232,701 208,630
Sales and marketing 87,122 84,704 328,628 293,335
General and administrative 27,444 35,237 118,438 117,714
Amortization of acquired intangible assets 17,495 10,472 70,141 32,373
Restructuring charges   2,271     -     4,001     468  
Total operating expenses   187,352     189,958     753,909     652,520  
 
Income (loss) from operations 38,651 (4,922 ) 62,064 (25,550 )
Interest and other expense, net   (1,797 )   (3,012 )   (9,879 )   (6,889 )
 
Income (loss) before income tax benefit 36,854 (7,934 ) 52,185 (32,439 )
Income tax expense (benefit)   14,544     (4,318 )   18,894     (4,070 )
Net income (loss) $ 22,310   $ (3,616 ) $ 33,291   $ (28,369 )
 
 
Basic net income (loss) per share $ 0.24 $ (0.04 ) $ 0.36 $ (0.35 )
Diluted net income (loss) per share $ 0.24 $ (0.04 ) $ 0.36 $ (0.35 )
Weighted average common shares outstanding used in computing:
Net income (loss) per share - basic 91,882 96,436 92,226 81,927
Net income (loss) per share - diluted 92,801 96,436 92,920 81,927
 

           
NETSCOUT SYSTEMS, INC.
Consolidated Balance Sheets
(In thousands)
 
March 31, March 31,
2017 2016
   
 
Assets
Current assets:
Cash, cash equivalents and marketable securities $ 442,772 $ 338,714
Accounts receivable and unbilled costs, net 294,374 247,199
Inventories 40,002 58,029
Prepaid expenses and other current assets   77,318   96,536
 
Total current assets 854,466 740,478
 
Fixed assets, net 61,393 62,033
Goodwill and intangible assets, net 2,649,431 2,763,409
Long-term marketable securities 21,933 13,361
Other assets  

14,290

  13,562
 
Total assets $

3,601,513

$ 3,592,843
 
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 37,407 $ 43,969
Accrued compensation 77,607 82,303
Accrued other 34,579 34,136
Deferred revenue and customer deposits   310,594   296,648
 
Total current liabilities 460,187 457,056
 
Other long-term liabilities 8,765 7,539
Deferred tax liability

277,599

285,359
Accrued long-term retirement benefits 32,117 31,378
Long-term deferred revenue 86,595 68,129
Long-term debt   300,000   300,000
 
Total liabilities  

1,165,263

  1,149,461
 
Stockholders' equity:
Common stock 116 114
Additional paid-in capital 2,693,846 2,642,745
Accumulated other comprehensive loss (3,472) (1,501)
Treasury stock, at cost (570,921) (481,366)
Retained earnings   316,681   283,390
 
Total stockholders' equity   2,436,250   2,443,382
 
Total liabilities and stockholders' equity $

3,601,513

$ 3,592,843
 

NETSCOUT SYSTEMS, INC.
Reconciliation of Current GAAP to Current and Historical Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
                                 
Three Months Ended Three Months Ended Twelve Months Ended
March 31, December 31, March 31,
2017 2016 2016 2017 2016
 
Product Revenue (GAAP) $ 210,059 $ 195,792 $ 192,010 $ 735,531 $ 633,408
Product deferred revenue fair value adjustment 797 2,100 1,514 6,786 10,166
Delayed transfer entity adjustment (1) - - - - 633
Amortization of acquired intangible assets (3)   2,842     2,361     2,851     11,439     6,746  
Non-GAAP Product Revenue $ 213,698   $ 200,253   $ 196,375   $ 753,756   $ 650,953  
 
Service Revenue (GAAP) $ 108,861 $ 90,095 $ 110,182 $ 426,581 $ 322,011
Service deferred revenue fair value adjustment   4,678     18,309     4,797     19,476     51,625  
Non-GAAP Service Revenue $ 113,539   $ 108,404   $ 114,979   $ 446,057   $ 373,636  
 
Revenue (GAAP) $ 318,920 $ 285,887 $ 302,192 $ 1,162,112 $ 955,419
Product deferred revenue fair value adjustment 797 2,100 1,514 6,786 10,166
Service deferred revenue fair value adjustment 4,678 18,309 4,797 19,476 51,625
Delayed transfer entity adjustment (1) - - - - 633
Amortization of acquired intangible assets (3)   2,842     2,361     2,851     11,439     6,746  
Non-GAAP Revenue $ 327,237   $ 308,657   $ 311,354   $ 1,199,813   $ 1,024,589  
 
Gross Profit (GAAP) $ 226,003 $ 185,036 $ 220,514 $ 815,973 $ 626,970
Product deferred revenue fair value adjustment 797 2,100 1,514 6,786 10,166
Service deferred revenue fair value adjustment 4,678 18,309 4,797 19,476 51,625
Inventory fair value adjustment - 6,380 - - 28,638
Delayed transfer entity adjustment (1) - - - - 535
Share-based compensation expense (2) 1,116 933 1,270 4,890 3,246
Amortization of acquired intangible assets (3) 13,140 17,158 13,816 53,455 51,873
Business development and integration expense (4) 217 501 91 398 1,401
Compensation for post-combination services (5) - 476 27 552 4,148
Acquisition related depreciation expense (6)   44     103     43     240     293  
Non-GAAP Gross Profit $ 245,995   $ 230,996   $ 242,072   $ 901,770   $ 778,895  
 
Income (Loss) from Operations (GAAP) $ 38,651 $ (4,922 ) $ 33,362 $ 62,064 $ (25,550 )
Product deferred revenue fair value adjustment 797 2,100 1,514 6,786 10,166
Service deferred revenue fair value adjustment 4,678 18,309 4,797 19,476 51,625
Inventory fair value adjustment - 6,380 - - 28,638
Delayed transfer entity adjustment (1) - - - - 383
Share-based compensation expense (2) 8,918 7,967 10,461 39,189 28,351
Amortization of acquired intangible assets (3) 30,635 27,630 31,331 123,596 84,246
Business development and integration expense (4) 3,185 5,765 2,252 12,083 29,434
Compensation for post-combination services (5) 238 4,549 256 5,076 35,118
Restructuring charges 2,271 - (199 ) 4,001 468
Acquisition related depreciation expense (6)   555     1,365     556     3,136     3,898  
Non-GAAP Income from Operations $ 89,928   $ 69,143   $ 84,330   $ 275,407   $ 246,777  
 
Net Income (Loss) (GAAP) $ 22,310 $ (3,616 ) $ 21,245 $ 33,291 $ (28,369 )
Product deferred revenue fair value adjustment 797 2,100 1,514 6,786 10,166
Service deferred revenue fair value adjustment 4,678 18,309 4,797 19,476 51,625
Inventory fair value adjustment - 6,380 - - 28,638
Share-based compensation expense (2) 8,918 7,967 10,461 39,189 28,351
Amortization of acquired intangible assets (3) 30,635 27,630 31,331 123,596 84,246
Business development and integration expense (4) 3,185 5,765 2,252 12,083 29,434
Compensation for post-combination services (5) 238 4,549 256 5,076 35,118
Restructuring charges 2,271 - (199 ) 4,001 468
Acquisition related depreciation expense (6) 555 1,365 556 3,136 3,898
Loss on extinguishment of debt (7) - - - - 55
Other income (426 ) - - (426 ) -
Income tax adjustments (8)   (12,584 )   (27,544 )   (17,006 )   (67,662 )   (86,263 )
Non-GAAP Net Income $ 60,577   $ 42,905   $ 55,207   $ 178,546   $ 157,367  
 
Diluted Net Income (Loss) Per Share (GAAP) $ 0.24 $ (0.04 ) $ 0.23 $ 0.36 $ (0.35 )
Share impact of non-GAAP adjustments identified above   0.41     0.48     0.37     1.56     2.26  
Non-GAAP Diluted Net Income Per Share $ 0.65   $ 0.44   $ 0.60   $ 1.92   $ 1.91  
 
Shares used in computing non-GAAP diluted net income per share 92,801 96,776 92,402 92,920 82,380

                             
NETSCOUT SYSTEMS, INC.
Reconciliation of Current GAAP to Current and Historical Non-GAAP Financial Measures - Continued
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended Three Months Ended Twelve Months Ended
March 31, December 31, March 31,
2017 2016 2016 2017 2016
(1 ) Delayed transfer entity adjustment included in these amounts
is as follows:
Product revenue $ - $ - $ - $ - $ 633
Cost of product revenue - - - - (98 )
Sales and marketing - - - - (152 )
Other income (expense)   -     -     -     -     (383 )
Total delayed transfer entity adjustment $ -   $ -   $ -   $ -   $ -  
 
(2 ) Share-based compensation expense included in these amounts
is as follows:
Cost of product revenue $ 218 $ 180 $ 255 $ 934 $ 645
Cost of service revenue 898 753 1,015 3,956 2,601
Research and development 2,401 2,564 3,456 12,362 9,205
Sales and marketing 3,119 2,364 3,367 12,823 8,725
General and administrative   2,282     2,106     2,368     9,114     7,175  
Total share-based compensation expense $ 8,918   $ 7,967   $ 10,461   $ 39,189   $ 28,351  
 
(3 ) Amortization expense related to acquired software and product
technology, tradenames, customer relationships included in these
amounts is as follows:
Total revenue adjustment $ 2,842 $ 2,361 $ 2,851 $ 11,439 $ 6,746
Cost of product revenue 10,298 14,797 10,965 42,016 45,127
Operating expenses   17,495     10,472     17,515     70,141     32,373  
Total amortization expense $ 30,635   $ 27,630   $ 31,331   $ 123,596   $ 84,246  
 
(4 ) Business development and integration expense included in
these amounts is as follows:
Cost of product revenue $ 108 $ 501 $ 91 $ 289 $ 1,307
Cost of service revenue 109 - - 109 94
Research and development 21 - 11 32 256
Sales and marketing 271 24 7 312 1,465
General and administrative   2,676     5,240     2,143     11,341     26,312  
Total business development and integration expense $ 3,185   $ 5,765   $ 2,252   $ 12,083   $ 29,434  
 
(5 ) Compensation for post-combination services included in these
amounts is as follows:
Cost of product revenue $ - $ 194 $ 1 $ 156 $ 664
Cost of service revenue - 282 26 396 3,484
Research and development 184 1,470 219 1,964 13,780
Sales and marketing 54 1,717 6 1,786 10,979
General and administrative   -     886     4     774     6,211  
Total compensation for post-combination services $ 238   $ 4,549   $ 256   $ 5,076   $ 35,118  
 
(6 ) Acquisition related depreciation expense included in these
amounts is as follows:
Cost of product revenue $ 27 $ 55 $ 27 $ 139 $ 156
Cost of service revenue 17 48 16 101 137
Research and development 343 937 344 2,047 2,671
Sales and marketing 54 150 54 321 420
General and administrative   114     175     115     528     514  
Total acquisition related depreciation expense $ 555   $ 1,365   $ 556   $ 3,136   $ 3,898  
 
(7 ) Loss on extinguishment of debt included in these
amounts is as follows
Interest and other income/(expense), net $ -   $ -   $ -   $ -   $ 55  
Total loss on extinguishment of debt $ -   $ -   $ -   $ -   $ 55  
 
(8 ) Total income tax adjustment included in these
amounts is as follows:
Tax effect of non-GAAP adjustments above $ (12,584 ) $ (27,544 ) $ (17,006 ) $ (67,662 ) $ (86,263 )
Total income tax adjustments $ (12,584 ) $ (27,544 ) $ (17,006 ) $ (67,662 ) $ (86,263 )
 

                                 
NETSCOUT SYSTEMS, INC.
Reconciliation of Current GAAP to Current and Historical Non-GAAP Financial Measures - Non-GAAP EBITDA
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended Three Months Ended Twelve Months Ended
March 31, December 31, March 31,
2017 2016 2016 2017 2016
 
Income (loss) from operations (GAAP) $ 38,651 $ (4,922 ) $ 33,362 $ 62,064 $ (25,550 )
Previous adjustments to determine non-GAAP income from operations   51,277   74,065     50,968   213,343   272,327  
Non-GAAP Income from operations   89,928   69,143     84,330   275,407   246,777  
 
Depreciation excluding acquisition related 8,784 7,028 8,421 34,131 23,289
         
Non-GAAP EBITDA from operations $ 98,712 $ 76,171   $ 92,751 $ 309,538 $ 270,066  
 

           
NETSCOUT SYSTEMS, INC.
Reconciliation of GAAP Financial Guidance to Non-GAAP Financial Guidance
(Unaudited)
(In millions, except net income per share - diluted)
 
 
FY'17 FY'18
GAAP revenue $ 1,162.1   Low single-digit growth over FY'17
Deferred service revenue fair value adjustment $ 19.5 ~$7 million to ~$9 million
Deferred product revenue fair value adjustment $ 6.8 ~$2 million to ~$4 million
Amortization of intangible assets $ 11.4   ~$8 million to ~$10 million
Non-GAAP revenue $ 1,199.8   Relatively flat versus FY'17
 
 
FY'17 FY'18
GAAP Net Income $ 33.3   ~110% to ~160% growth over FY'17
Deferred service revenue fair value adjustment $ 19.5 ~$7 million to ~$9million
Deferred product revenue fair value adjustment $ 6.8 ~$2 million to ~$4 million
Amortization of intangible assets $ 123.6 ~$110 million to ~$112 million
Share-based compensation expenses $ 39.2 ~$45 million to ~$47 million
Business development expenses $ 12.1 ~$1 million to ~$3 million
New accounting standard implementation $ - ~$1 million to ~$2 million
Compensation for post-combination services $ 5.1 -
Acquisition-related depreciation expense $ 3.1 -
Restructuring costs $ 4.0 -
Other income $ (0.4 ) -
Total Adjustments $ 212.9 ~$166 million to ~$177 million
Related impact of adjustments on income tax $ (67.7 ) (~$55 million to ~$60 million)
Non-GAAP Net Income $ 178.5   Mid-single to high single-digit growth over FY'17
 
GAAP Net Income Per Share (diluted) $ 0.36 ~110% to ~160% growth over FY'17
Non-GAAP Net Income Per Share (diluted) $ 1.92   Mid-single to high single-digit growth over FY'17
 
Average Weighted Shares Outstanding (diluted) 92.9 92.9
 
Certain numbers may not total due to rounding.
 

Source: NETSCOUT SYSTEMS, INC.

NETSCOUT SYSTEMS, INC.
Investors
Andrew Kramer, 978-614-4279
Vice President of Investor Relations
IR@netscout.com
or
Media
Donna Candelori, 408-571-5226
Director, Corporate Communications
Donna.Candelori@netscout.com

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