Exhibit 99.1
NetScout Systems Reports Financial Results for Third Quarter of Fiscal 2008
Third Quarter Revenue Doubles Year-over-Year with the Acquisition of Network General
WESTFORD, Mass.--(BUSINESS WIRE)--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.
©2008 NetScout Systems, Inc. All rights reserved. NetScout and the NetScout logo and nGenius are registered trademarks of NetScout Systems, Inc.
©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® brand products.
| NetScout Systems, Inc. |
| Condensed Consolidated Statements of Operations |
| (In thousands) |
| (Unaudited) |
| | | | | | | | |
| | Three Months Ended | | Nine Months 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 Ended | | Nine Months 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
