NetScout Systems (NTCT) 8-K NetScout Systems Reports Financial Results for Third Quarter Fiscal Year 2009

Exhibit 99.1

NetScout Systems Reports Financial Results for Third Quarter Fiscal Year 2009

GAAP Revenue up 34% Year-over-Year

Non-GAAP Revenue up 24% Year-over-Year

WESTFORD, Mass.--(BUSINESS WIRE)--January 22, 2009--NetScout Systems, Inc. (NASDAQ: NTCT):

	Q3 FY 2009
	GAAP	Non-GAAP
Revenue	$72.0 million	$74.2 million
Net income	$7.9 million	$11.1 million
Net Income per share	$0.20	$0.27

NetScout Systems, Inc. (NASDAQ: NTCT), an industry leader for advanced network and service assurance solutions, today announced financial results for its third quarter of fiscal year 2009, ended December 31, 2008.

Total GAAP revenue for the third quarter of fiscal year 2009 was $72.0 million, and non-GAAP revenue was $74.2 million. Non-GAAP revenue excludes the purchase accounting adjustment to record the acquired Network General deferred revenue at fair value. Product revenue was $42.9 million on a GAAP basis and $43.2 million non-GAAP. Service revenue was $29.1 million GAAP and $31.0 million non-GAAP.

GAAP net income for the quarter was $7.9 million, or net income per diluted share of $0.20. GAAP income from operations was $13.3 million. On a non-GAAP basis, net income was $11.1 million, or $0.27 per diluted share, and non-GAAP income from operations was $18.4 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, amortization of acquired intangible assets, and non-recurring integration expenses. Non-GAAP net income excludes these effects as well as their related impact on the provision for income taxes. A reconciliation between GAAP and non-GAAP results is included in the attached financial tables.

“We are announcing results today slightly above the high end of our preliminary announcement earlier this month, primarily because operating expenses were lower than originally estimated. In addition, we are reiterating the raised guidance for the balance of the 2009 fiscal year. Order flow in our seasonally strong third quarter was good with bookings from our core vertical markets offsetting weakness in sectors more impacted by the economy,” said Anil Singhal, President and CEO of NetScout Systems. “We are entering our fiscal fourth quarter with good visibility, however, we remain cautious about the impact of the historic economic downturn on our business in fiscal 2010.”

Company and Financial Highlights for the Third Quarter 2009:

• During the quarter NetScout released a software upgrade fulfilling our promise to our customers to deliver a single software solution unifying the two product lines from the acquisition of Network General: nGenius^® AFMON and Network General InfiniStream into the new nGenius InfiniStream platform.
• Strongest bookings came from financial services led by commercial banks and exchange and high-speed trading, telecommunications led by wireless carriers, government, healthcare and energy sectors.
• GAAP revenue increased 34% year-over-year and 5% sequentially as a result of the continued strong performance from wireless carriers, financials, and government. Non-GAAP revenue increased 24% year-over-year and 2% sequentially. Note: year-over-year comparisons to third quarter fiscal year 2008 include two months of Network General revenue following the acquisition on November 1, 2007.
• GAAP product revenue increased 19% year-over-year and 9% sequentially. Non-GAAP product revenue increased 19% year-over-year and 5% sequentially.
• GAAP service revenue increased 65% year-over-year and decreased 1% sequentially. Non-GAAP service revenue increased 31% year-over-year and decreased 3% sequentially.
• Non-GAAP operating margin improved to a record 25% driven principally by product cost improvement. GAAP operating margin was 18%.
• As of December 31, 2008, total cash and cash equivalents and short and long-term marketable securities were $119.2 million, versus $109.4 million at September 30, 2008.

Guidance

On January 6, 2009 NetScout raised its outlook for revenue and net income per diluted share for fiscal year 2009 ending March 31. GAAP revenue is now expected to be in the range of $266 million to $274 million, with GAAP net income per diluted share between $0.44 and $0.54, and non-GAAP revenue in the range of $278 million to $286 million, with non-GAAP net income per diluted share between $0.81 and $0.91. The fiscal year 2009 non-GAAP revenue expectation excludes the purchase accounting adjustment to fair value of approximately $11.8 million 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 $4.8 million, amortization of acquired intangible assets of approximately $6 million, non-recurring integration expenses of approximately $1.7 million, and the related impact of these adjustments on the provision for income taxes of $9.3 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, 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 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: 81397934. A replay of the call will be available after 7:30 p.m. ET on January 22 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: 81397934.

About NetScout Systems

NetScout Systems, Inc. (NASDAQ: NTCT) is the industry leader in advanced network, application and service delivery management solutions. For over twenty years, NetScout has delivered breakthrough technology solutions that provide trusted, comprehensive real-time and historical performance intelligence, including advanced early warnings and rapid, definitive problem analysis. These capabilities have become vital, and increasingly strategic, to IT organizations. The world’s largest enterprises, government agencies, and service providers depend upon NetScout nGenius solutions to assure service delivery to their users by preventing disruptions and degradations. 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, 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, 2008 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.

©2009 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						Nine Months Ended
			December 31						December 31
				2008			2007			2008			2007
Revenue:
	Product		$	42,940		$	36,085		$	117,370		$	72,509
	Service			29,110			17,656			84,148			38,757
		Total revenue		72,050			53,741			201,518			111,266
Cost of revenue:
	Product			10,755			11,627			33,158			21,483
	Service			5,271			4,056			15,551			7,665
		Total cost of revenue		16,026			15,683			48,709			29,148
Gross profit				56,024			38,058			152,809			82,118
Operating expenses:
	Research and development			9,900			9,272			30,208			18,518
	Sales and marketing			25,219			21,463			75,017			43,817
	General and administrative			7,149			9,454			19,760			15,479
	Amortization of acquired intangible assets			490			314			1,471			320
		Total operating expenses		42,758			40,503			126,456			78,134
Income (loss) from operations				13,266			(2,445	)		26,353			3,984
Interest and other income (expense), net				(1,267	)		(1,343	)		(4,448	)		727
Income (loss) before income tax expense				11,999			(3,788	)		21,905			4,711
Income tax expense (benefit)				4,064			(682	)		7,531			1,886
Net income (loss)			$	7,935		$	(3,106	)	$	14,374		$	2,825
Basic net income (loss) per share			$	0.20		$	(0.09	)	$	0.37		$	0.08
Diluted net income (loss) per share			$	0.20		$	(0.09	)	$	0.35		$	0.08
Weighted average common shares outstanding used in computing:
	Net income (loss) per share - basic			39,334			36,495			39,164			33,651
	Net income (loss) per share - diluted			40,506			36,495			40,707			35,065

NetScout Systems, Inc.
Non-GAAP Financial Measures and Reconciliations
(In thousands, except per share data)
(Unaudited)
		Three Months Ended						Nine Months Ended
		December 31,						December 31,
			2008			2007			2008			2007
GAAP Revenue		$	72,050		$	53,741		$	201,518		$	111,266
Product deferred revenue fair value adjustment			239			325			1,850			325
Service deferred revenue fair value adjustment			1,863			5,960			9,169			5,960
Non-GAAP revenue		$	74,152		$	60,026		$	212,537		$	117,551
GAAP Gross profit		$	56,024		$	38,058		$	152,809		$	82,118
Deferred revenue fair value adjustment			2,102			6,285			11,019			6,285
Shared-based compensation expense (1)			84			17			231			65
Amortization of acquired intangible assets (2)			995			768			3,002			977
Inventory fair value adjustment (4)			-			1,287			-			1,287
Integration expense (3)			37			438			323			438
Non-GAAP Gross profit		$	59,242		$	46,853		$	167,384		$	91,170
GAAP Income from operations		$	13,266		$	(2,445	)	$	26,353		$	3,984
Deferred revenue fair value adjustment			2,102			6,285			11,019			6,285
Shared-based compensation expense (1)			1,222			343			3,601			1,056
Amortization of acquired intangible assets (2)			1,485			1,082			4,473			1,297
Inventory fair value adjustment (4)			-			1,287			-			1,287
Integration expense (3)			281			6,024			1,370			6,024
Non-GAAP Income from operations		$	18,356		$	12,576		$	46,816		$	19,933
GAAP Net income		$	7,935		$	(3,106	)	$	14,374		$	2,825
Deferred revenue fair value adjustment			2,102			6,285			11,019			6,285
Shared-based compensation expense (1)			1,222			343			3,601			1,056
Amortization of acquired intangible assets (2)			1,485			1,082			4,473			1,297
Inventory fair value adjustment (4)			-			1,287			-			1,287
Integration expense (3)			281			6,024			1,370			6,024
Income tax adjustments (5)			(1,934	)		(5,708	)		(7,776	)		(6,061	)
Non-GAAP Net income		$	11,091		$	6,207		$	27,061		$	12,713
GAAP Diluted Net income per share		$	0.20		$	(0.09	)	$	0.35		$	0.08
Share impact of non-GAAP adjustments identified above			0.07			0.26			0.31			0.28
Non-GAAP Diluted net income per share		$	0.27		$	0.17		$	0.66		$	0.36
Shares used in computing non-GAAP diluted net income per share			40,506			36,495			40,707			35,065
(1)	Share-based compensation expense included in these amounts is as follows:
	Cost of product revenue	$	27		$	2		$	80		$	23
	Cost of service revenue		57			15			151			42
	Research and development		278			80			889			264
	Sales and marketing		532			152			1,573			473
	General and administrative		328			94			908			254
	Total share-based compensation expense	$	1,222		$	343		$	3,601		$	1,056
(2)	Amortization expense related to acquired software and product technology included in these amounts is as follows:
	Cost of Product Revenue	$	995		$	768		$	3,002		$	977
	Operating expenses		490			314			1,471			320
	Total amortization expense	$	1,485		$	1,082		$	4,473		$	1,297
(3)	Integration expense included in these amounts is as follows:
	Cost of product revenue	$	-		$	302		$	141		$	302
	Cost of service revenue		37			136			182			136
	Research and development		69			645			246			645
	Sales and marketing		77			794			276			794
	General and administrative		98			4,147			525			4,147
	Total integration expense	$	281		$	6,024		$	1,370		$	6,024
(4)	Inventory Fair Value Adjustment:
	Cost of Product Revenue	$	-		$	1,287		$	-		$	1,287
		$	-		$	1,287		$	-		$	1,287
(5)	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
		2008			2008
Assets
Current assets:
Cash and cash equivalents	$	63,204		$	56,702
Marketable securities		25,353			10,465
Accounts receivable, net		45,979			32,048
Inventories		7,955			12,083
Refundable income taxes		5,751			5,036
Deferred income taxes		4,257			6,052
Prepaid expenses and other current assets		5,673			13,546
Total current assets		158,172			135,932
Fixed assets, net		13,965			16,729
Goodwill		131,754			131,802
Acquired intangible assets, net		61,095			65,569
Deferred income taxes		35,812			34,891
Long-term marketable securities		30,658			33,764
Other assets		1,542			2,250
Total assets	$	432,998		$	420,937
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	6,688		$	9,207
Accrued compensation		22,719			23,594
Accrued other		7,067			7,805
Income taxes payable		5,076			1,065
Long-term debt, current portion		10,000			6,250
Deferred revenue		69,330			74,257
Total current liabilities		120,880			122,178
Other long-term liabilities		804			917
Accrued long-term retirement benefits		1,309			1,245
Long-term deferred revenue		7,476			6,764
Long-term debt, net of current portion		85,000			92,500
Total liabilities		215,469			223,604
Stockholders' equity:
Common stock		44			43
Additional paid-in capital		189,491			182,789
Accumulated other comprehensive gain (loss)		(635	)		246
Treasury stock		(28,939	)		(28,939	)
Retained earnings		57,568			43,194
Total stockholders' equity		217,529			197,333
Total liabilities and stockholders' equity	$	432,998		$	420,937

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