EX-99.1 2 a5064696ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 NetScout Systems Reports Third Quarter Financial Results for Fiscal 2006; Product Revenue up 23%; Year-over-Year Adjusted Operating Margin at 10% WESTFORD, Mass.--(BUSINESS WIRE)--Jan. 25, 2006--NetScout Systems, Inc. (NASDAQ: NTCT), a leading provider of network and application performance management solutions, today announced financial results for its third quarter of fiscal year 2006. Revenue for the third quarter of fiscal year 2006 was $24.9 million, compared to revenue of $23.6 million in the previous quarter and revenue of $22.0 million in the third quarter of fiscal year 2005. Net profit for the quarter was $1.9 million, or $0.06 per diluted share, compared to net profit of $1.5 million, or $0.05 per diluted share, for the previous quarter and compared to a net profit of $906 thousand, or $0.03 per diluted share, in the third quarter of fiscal year 2005. On an adjusted basis, the net profit for the third quarter of fiscal year 2006 was $2.2 million, or $0.07 per diluted share, compared to net profit of $1.7 million, or $0.05 per diluted share for the second quarter of fiscal year 2006. Adjusted net profit and earnings per share exclude non-cash acquisition and stock-based compensation expenses; they are used by management internally to evaluate business performance. A reconciliation to GAAP results is provided on the Statements of Operations included in this release. "We are very pleased to report that this quarter was the tenth quarter of sequential growth for the company, allowing us to reach our 10% adjusted operating margin target a quarter ahead of the goal we set at the beginning of our fiscal year," said Anil Singhal, President and CEO of NetScout Systems. "The strong performance this quarter was backed by superior execution on all fronts. Order flow was strong in all geographies, our orders were larger and we won many competitive deals based on our differentiated technology and compelling solution set," he added. Guidance: For the fourth quarter of fiscal year 2006, the Company expects revenue to be in the range of $25.0 million to $26.0 million and net profit per diluted share on a GAAP basis to be in the range of $0.04 to $0.05. On an adjusted basis, the Company expects net profit per diluted share to be in the range of $0.05 to $0.06. Financial Highlights for the Third Quarter: -- Total revenue increased 5% sequentially and increased 13% from the third quarter of fiscal year 2005. Product revenue increased 8% sequentially and increased 23% from the third quarter of fiscal year 2005. Service revenue increased 1% sequentially and increased 3% from the third quarter of fiscal year 2005. -- Gross margin was 76% of total revenue, down 1 point sequentially and down 1 point compared to the third quarter of fiscal year 2005. -- Cash and short and long-term marketable securities decreased by $166 thousand to $77.3 million, and decreased by $2 million year-over-year. The decrease in cash year-over-year is a result of the acquisition of Quantiva. -- 39 new customers were added worldwide. -- 298 customers made repeat purchases. -- 69 customers placed orders over $100,000. -- Direct sales represented 42% of total revenue; indirect sales to resellers represented 58% of total revenue. -- International business comprised approximately 22% of total revenue. Product Highlights for the Third Quarter: -- NetScout introduced a new, highly scalable nGenius(R) Performance Manager Appliance for the cost-effective monitoring and analysis of large, Cisco NetFlow-enabled network environments. The new Appliance is security-hardened and dedicated to aggregating and analyzing data from large deployments of Cisco's NetFlow routers and switches. The nGenius Performance Manager Appliance is available in Windows 2003 or Red Hat Linux platforms and scales to support data collected from thousands of NetFlow interfaces. -- NetScout also released the nGenius(R) Performance Manager Standby Server to support its customers' needs for high-availability of their business networks and applications during times of crisis. Addressing large enterprises and government agencies' regulated requirements for business continuity, including disaster recovery, the nGenius Standby Server helps network administrators monitor network and application activity during a crisis by showing which systems and applications are on-line, which sites and users are able to continue to conduct business, and how business services are performing on backup or redundant networks and systems. The nGenius Performance Manager Standby Server maintains a frequently updated, replicated copy of the primary server's performance data and configuration settings so that if a primary server becomes unavailable, the administrator can quickly enable the standby server to assume control of all performance management processes. 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 800-288-8961 for U.S./Canada and 612-332-0530 for international callers. A replay of the call will be available after 8:00 p.m. ET on January 25 for approximately two weeks. The number for the replay is 800-475-6701 for U.S./Canada and 320-365-3844 for international callers. The access code is 814025. About NetScout Systems, Inc. NetScout Systems, Inc. (NASDAQ: NTCT) is a market leader and pioneer of integrated network performance management products that unify performance across the enterprise. NetScout's nGenius(R) Performance Management System is helping more than 3,000 leading companies increase their return on infrastructure investments by optimizing the performance of networks and applications according to business priorities. NetScout is headquartered in Westford, Massachusetts and has offices worldwide. Further information 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 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, the effects and challenges related to the Quantiva acquisition, including any integration issues, introduction and market acceptance of new products and product enhancements such as the delivery of nGenius product platform probes and software solutions, High Definition Performance Management functionality, the analytic solutions acquired from Quantiva and the implementation of the Company's CDM Technology strategy, 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 further 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, 2005 and its quarterly report on Form 10-Q for the quarter ended September 30, 2005 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)2005 NetScout Systems, Inc. All rights reserved. NetScout and the NetScout logo, nGenius, and Quantiva are registered trademarks of NetScout Systems, Inc. Other brands, product names and trademarks are property of their respective owners. The Company's condensed consolidated statements of operations and balance sheets are attached. NetScout Systems, Inc. Condensed Consolidated Statements of Operations (In thousands) (Unaudited) Three Months Nine Months Ended Ended December 31, December 31, ----------------- ----------------- 2005 2004 2005 2004 -------- -------- -------- -------- Revenue: Product $16,274 $13,231 $46,389 $37,015 Service 8,637 8,354 25,489 24,285 License and royalty - 415 184 1,286 -------- -------- -------- -------- Total revenue 24,911 22,000 72,062 62,586 -------- -------- -------- -------- Cost of revenue: Product (including amortization expense related to acquired software of $104, $0, $296, and $0, respectively) 4,754 4,069 13,680 11,623 Service 1,175 1,085 3,609 3,227 -------- -------- -------- -------- Total cost of revenue 5,929 5,154 17,289 14,850 -------- -------- -------- -------- Gross margin 18,982 16,846 54,773 47,736 -------- -------- -------- -------- Operating expenses: Research and development (including stock-based compensation of $73, $0, $215, and $0, respectively) 4,380 4,180 13,633 12,557 Sales and marketing (including stock-based compensation of $24, $0, $68, and $0, respectively) 10,054 9,531 29,608 27,116 General and administrative (including stock-based compensation of $49, $0, $57, and $0, respectively) 2,266 2,062 6,762 5,822 Amortization of other intangible assets 39 - 110 - In-process research and development - - 143 - -------- -------- -------- -------- Total operating expenses 16,739 15,773 50,256 45,495 -------- -------- -------- -------- Income from operations 2,243 1,073 4,517 2,241 Interest income and other expenses, net 687 346 1,770 644 -------- -------- -------- -------- Income before income tax expense 2,930 1,419 6,287 2,885 Income tax expense 1,043 513 2,294 625 -------- -------- -------- -------- Net income $1,887 $906 $3,993 $2,260 ======== ======== ======== ======== Basic net income per share $0.06 $0.03 $0.13 $0.07 Diluted net income per share $0.06 $0.03 $0.13 $0.07 Shares used in computing: Basic net income per share 31,106 30,621 30,972 30,534 Diluted net income per share 31,736 31,702 31,600 31,579 Reconciliation of GAAP & adjusted income from operations GAAP income from operations $2,243 $1,073 $4,517 $2,241 Stock-based compensation 146 - 340 - Amortization of acquired intangible assets 143 - 406 - In-process research and development - - 143 - -------- -------- -------- -------- Adjusted income from operations excluding acquisition and stock- based compensation costs 2,532 1,073 5,406 2,241 -------- -------- -------- -------- Reconciliation of GAAP & adjusted net income: GAAP Net income $1,887 $906 $3,993 $2,260 Stock-based compensation, net of tax 160 - 346 - Amortization of acquired intangible assets, net of tax 156 - 407 - In-process research and development, net of tax - - 123 - -------- -------- -------- -------- Adjusted net income excluding acquisition and stock-based compensation costs $2,203 $906 $4,869 $2,260 ======== ======== ======== ======== Adjusted basic net income per share excluding acquisition related and stock- based compensation costs $0.07 $0.03 $0.16 $0.07 Adjusted diluted net income per share excluding acquisition related and stock- based compensation costs $0.07 $0.03 $0.15 $0.07 Shares used in computing adjusted basic net income per share 31,106 30,621 30,972 30,534 Shares used in computing adjusted diluted net income per share 31,736 31,702 31,600 31,579 NetScout Systems, Inc. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) December March 31, 31, 2005 2005 ----------- ---------- Assets Current assets: Cash and cash equivalents $56,278 $57,070 Marketable securities 18,043 26,793 Accounts receivable, net 18,998 11,886 Inventories 4,121 3,114 Refundable income taxes 1,319 1,399 Deferred income taxes 2,406 2,356 Restricted Cash 1,337 - Prepaids and other current assets 2,225 3,003 ----------- ---------- Total current assets 104,727 105,621 Fixed assets, net 7,415 6,011 Capitalized software development costs 84 221 Other intangible assets, net 1,159 - Goodwill 36,561 28,839 Deferred income taxes 5,744 7,586 Other assets 19 9 Long-term marketable securities 3,022 - ----------- ---------- Total assets $158,731 $148,287 =========== ========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $2,818 $2,520 Accrued compensation 7,279 6,385 Accrued other 2,469 2,058 Deferred acquisition payment - Quantiva 1,337 - Deferred revenue 18,265 17,680 ----------- ---------- Total current liabilities 32,168 28,643 Accrued compensation 53 - Accrued other 1,066 918 Long-term deferred revenue 1,465 1,277 ----------- ---------- Total liabilities 34,752 30,838 ----------- ---------- Stockholders' equity: Common stock 35 35 Additional paid-in capital 115,435 112,286 Accumulated other comprehensive income (104) (130) Deferred compensation (638) - Treasury stock (26,490) (26,490) Retained earnings 35,741 31,748 ----------- ---------- Total stockholders' equity 123,979 117,449 ----------- ---------- Total liabilities and stockholders' equity $158,731 $148,287 =========== ========== CONTACT: NetScout Systems, Inc. Catherine Taylor, 978-614-4286 Director of Investor Relations IR@netscout.com