EX-99.1 2 a5258454ex991.txt NETSCOUT SYSTEMS, INC. EXHIBIT 99.1 Exhibit 99.1 Netscout Systems Reports Financial Results for Second Quarter of Fiscal 2007 Operating Margin Reaches 10% EPS up 40% Year-over-Year WESTFORD, Mass.--(BUSINESS WIRE)--Oct. 25, 2006--NetScout Systems, Inc. (NASDAQ: NTCT), a leading provider of network performance management solutions, today announced financial results for its second quarter of fiscal year 2007. Total revenue for the second quarter was $25.1 million, up 6% year-over-year and up 6% sequentially. Net income for the second quarter of fiscal 2007 was $2.3 million, an increase of 53% on a year-over-year basis, leading to net income per diluted share of $0.07 per diluted share, an increase of 40% on a year-over-year basis. Operating income, which included stock-based compensation expense of $333,000 and amortization of intangible assets of $143,000, was $2.6 million in the second quarter of fiscal 2007, representing an operating margin of 10% and growth of 3 points on a year-over-year basis. "Our second quarter financial results were at or above our previously issued guidance, highlighted by better-than-expected profitability," said Anil Singhal, President and CEO of NetScout Systems. "We generated a double digit operating margin in the second quarter as we continue to drive operating leverage through tight expense controls, and we remain confident in our EPS growth target of 40% in each of fiscal years 2007 and 2008. We continue to see enthusiastic customer response to our new products that support our Application Fabric Performance Management strategy, which was further validated by record attendance at our recent User Forum held during October." Financial and Company Highlights for the Second Fiscal Quarter 2007: -- Total revenue increased 6% year-over-year and 6% sequentially. -- EPS increased 40% year-over-year and 75% sequentially. -- Operating margin was 10% of total revenue, up 3 points year-over-year and up 6 points sequentially. -- Cash and short and long-term marketable securities were $90.7 million at the end of the quarter, essentially flat compared to the end of the prior quarter. Cash outflows for shares repurchased and one-time annual incentive compensation payments were largely offset by positive cash flow from operations. -- During the quarter NetScout received a patent for its Anomaly Detection System in nGenius(R) Analytics. The sophisticated, self-learning analysis technology from the acquisition of Quantiva, enables intelligent, timely recognition and diagnosis of application and network performance problems. -- NetScout's nGenius Analytics product, based on the Quantiva technology, has achieved a certified integration with HP OpenView Network Node Manager and HP OpenView Operations. The integrations enable nGenius Analytics to provide highly qualified, proactive alarms of network and application performance anomalies to HP OpenView to help customers prevent and resolve operational problems faster, improving business service reliability and IT efficiency. -- In early October, NetScout hosted its fifth annual User Forum conference, titled "Conquering the Chaos: Real Performance in a Virtual World" where a record number of customers from around the world shared best practices and learned how NetScout's products are focused on meeting the complex operational challenges introduced by virtualization in today's application and network infrastructures. Guidance: For the third quarter of fiscal year 2007, the Company expects total revenue to be in the range of $25.5 million to $26.5 million and net income per diluted share to be in the range of $0.05 to $0.06. The Company reiterates its long-range guidance for net income per diluted share growth of 40% in each of fiscal years 2007 and 2008 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: 8803807. A replay of the call will be available after 7:00 p.m. ET on October 25 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: 8803807. 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, 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 Application Fabric Performance Management 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, 2006 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)2006 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. NetScout Systems, Inc. Condensed Consolidated Statements of Operations (In thousands) (Unaudited) Three Months Six Months Ended Ended September 30, September 30, ----------------- ----------------- 2006 2005 2006 2005 -------- -------- -------- -------- Revenue: Product $15,758 $15,069 $29,985 $30,115 Service 9,322 8,581 18,670 16,852 License and royalty - - - 184 -------- -------- -------- -------- Total revenue 25,080 23,650 48,655 47,151 -------- -------- -------- -------- Cost of revenue: Product (1) (2) 4,382 4,300 8,238 8,926 Service (1) 1,315 1,177 2,582 2,434 -------- -------- -------- -------- Total cost of revenue 5,697 5,477 10,820 11,360 -------- -------- -------- -------- Gross margin 19,383 18,173 37,835 35,791 -------- -------- -------- -------- Operating expenses: Research and development (1) 4,486 4,639 8,908 9,253 Sales and marketing (1) 10,028 9,532 20,858 19,554 General and administrative (1) 2,236 2,211 4,342 4,496 Amortization of other intangible assets 39 39 78 71 In-process research and development - - - 143 -------- -------- -------- -------- Total operating expenses 16,789 16,421 34,186 33,517 -------- -------- -------- -------- Income from operations 2,594 1,752 3,649 2,274 Interest income and other expenses, net 1,072 569 2,087 1,083 -------- -------- -------- -------- Income before income tax expense and cumulative effect of accounting change 3,666 2,321 5,736 3,357 Income tax expense 1,364 867 2,130 1,251 -------- -------- -------- -------- Income before cumulative effect of accounting change 2,302 1,454 3,606 2,106 Cummulative effect of accounting change, net of taxes of $41 - - 70 - -------- -------- -------- -------- Net income $2,302 $1,454 $3,676 $2,106 ======== ======== ======== ======== Basic net income per share $0.07 $0.05 $0.12 $0.07 Diluted net income per share $0.07 $0.05 $0.11 $0.07 Shares used in computing: Basic net income per share 31,661 30,970 31,571 30,905 Diluted net income per share 32,673 31,614 32,867 31,512 (1) Share-based compensation expense included in these amounts are as follows: Cost of product revenue $10 $- $19 $- Cost of service revenue 12 - 25 - Research and development 99 83 232 142 Sales and marketing 145 24 302 44 General and administrative 67 8 142 8 -------- -------- -------- -------- Total share-based compensation expense $333 $115 $720 $194 ======== ======== ======== ======== (2) Amortization expense related to acquired software included in theses amounts are as follows: Cost of Product Revenue $104 $105 $208 $191 NetScout Systems, Inc. Condensed Consolidated Balance Sheets (In thousands) (Unaudited) September March 30, 31, 2006 2006 ----------- --------- Assets Current assets: Cash and cash equivalents $56,108 $61,676 Marketable securities 31,247 19,810 Accounts receivable, net 17,913 16,765 Inventories 4,323 2,816 Refundable income taxes 198 985 Deferred income taxes 2,827 2,896 Restricted cash - 1,339 Prepaids and other current assets 2,198 3,119 ----------- --------- Total current assets 114,814 109,406 Fixed assets, net 8,217 7,577 Goodwill 36,561 36,561 Other intangible assets, net 729 1,015 Capitalized software development costs, net 252 312 Deferred income taxes 4,640 4,889 Long-term marketable securities 3,315 5,979 Other assets 29 16 ----------- --------- Total assets $168,557 $165,755 =========== ========= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $4,070 $2,727 Accrued compensation 6,074 8,635 Accrued other 2,249 2,325 Income tax payable 1,135 - Deferred acquisition payment - Quantiva - 1,339 Deferred revenue 20,250 21,382 ----------- --------- Total current liabilities 33,778 36,408 Accrued other 1,101 1,157 Long-term deferred revenue 1,510 1,599 ----------- --------- Total liabilities 36,389 39,164 ----------- --------- Stockholders' equity: Common stock 36 35 Additional paid-in capital 118,445 120,057 Accumulated other comprehensive loss (60) (122) Deferred compensation - (4,434) Treasury stock (27,473) (26,490) Retained earnings 41,220 37,545 ----------- --------- Total stockholders' equity 132,168 126,591 ----------- --------- Total liabilities and stockholders' equity $168,557 $165,755 =========== ========= CONTACT: NetScout Systems, Inc. Catherine Taylor, 978-614-4286 Director of Investor Relations IR@netscout.com