NetScout Systems Reports Financial Results for Third Quarter Fiscal Year 2013

  NetScout Systems Reports Financial Results for Third Quarter Fiscal Year
  2013

             YTD GAAP and Non-GAAP Revenue Up 15% Year-over-Year

                  YTD Net Income Up: 34% GAAP; 24% Non-GAAP

Business Wire

WESTFORD, Mass. -- January 17, 2013

NetScout Systems, Inc. (NASDAQ: NTCT):

                       Q3 FY 2013
                         GAAP            Non-GAAP
Revenue                  $91.6 million   $92.0 million
Net income               $11.1 million     $15.3 million
Net Income per share   $0.26           $0.36
                                           

NetScout Systems, Inc. (NASDAQ: NTCT), an industry leader for advanced
application and service assurance solutions, today announced financial results
for its third quarter of fiscal year 2013 ended December 31, 2012.

“We are happy to report another strong quarter. As we proceed through fiscal
year 2013, we are pleased to continue our double digit growth rates. Our third
quarter contributed bookings growth of 20% over the same quarter last year. On
a year-to-date basis we have made good progress against our goals, achieving
15% revenue growth over last year while our product revenue has grown by 22%,”
said Anil Singhal, President and CEO of NetScout. “Additionally, during the
quarter we further strengthened our product lineup by adding scalable packet
flow switching technology with our acquisition of ONPATH Technologies, Inc.
Our Unified Service Delivery Management strategy continues to resonate with
our customers as we continue to deliver product enhancements and technology
through acquisitions and in-house development.” Finally, Mr. Singhal said,
“Based on our solid nine month results and in anticipation of executing in our
fourth quarter, we are tightening our annual revenue guidance range and
raising non-GAAP EPS guidance that we provided at the beginning of fiscal year
2013.”

Total GAAP revenue for the third quarter was $91.6 million; non-GAAP revenue
was $92.0 million. A reconciliation of GAAP and non-GAAP results is included
in the attached financial tables.

Product revenue for the third quarter, on a GAAP and non-GAAP basis was $52.7
million. Service revenue on a GAAP basis was $38.9 million and non-GAAP
service revenue was $39.3 million.

GAAP net income for the third quarter was $11.1 million, or $0.26 per diluted
share. GAAP income from operations was $17.6 million. On a non-GAAP basis, net
income for the quarter was $15.3 million, or $0.36 per diluted share, and
non-GAAP income from operations was $24.0 million.

Financial Highlights:

For the third quarter:

  *GAAP revenue increased 10% year-over-year and increased 8% sequentially.
    Non-GAAP revenue increased 10% year-over-year and increased 9%
    sequentially.
  *GAAP and non-GAAP product revenue increased 15% year-over-year and
    increased 14% sequentially.
  *GAAP service revenue increased 4% year-over-year and increased 1%
    sequentially. Non-GAAP service revenue increased 5% year-over-year and
    increased 2% sequentially.
  *GAAP operating margin was 19%, down two points from 21% a year ago and
    down 1 point sequentially. Non-GAAP operating margin was 26%, down three
    points from 29% a year ago and down two points sequentially.
  *As of December 31, 2012 cash and cash equivalents and short and long-term
    marketable securities were $136.7 million, down $98.9 million from $235.6
    million as of the end of the prior quarter due to debt retirement of $62.0
    million, the acquisition of ONPATH and stock buyback activity. Since March
    31, 2012 cash and securities decreased $76.8 million.

In addition:

During the quarter NetScout acquired privately held ONPATH based in Marlton,
NJ, which provides scalable packet flow switching technology for
high-performance networks for the aggregation and distribution of network
traffic for data, voice, video testing, monitoring, performance management,
and cybersecurity deployments. The acquisition of ONPATH builds on the prior
acquisition of Simena, adding industry-leading ultra low latency, modular and
high density network monitoring switching solutions.

Guidance:

We are reiterating fiscal year 2013 guidance for GAAP and non-GAAP revenue but
narrowing it with one quarter remaining. We expect GAAP revenue to be in the
range of $346 million to $351 million, while non-GAAP revenue will be in the
range of $347 million to $352 million. We have narrowed GAAP net income per
diluted share to be in the range of $0.92 to $0.96, and raised non-GAAP net
income per share to be between $1.28 and $1.32.

For fiscal year 2013, the non-GAAP net income per diluted share expectation
excludes the acquisition accounting adjustment to fair value of approximately
$1.2 million for deferred revenue, forecasted share-based compensation
expenses of approximately $9.7 million, estimated amortization of acquired
intangible assets of approximately $7.5 million, inventory fair value
adjustment of approximately $500 thousand, compensation for post combination
services of approximately $2.5 million, restructuring charges of approximately
$1.1 million, business development charges of approximately $1.4 million and
the related impact of these adjustments on the provision for income taxes of
$8.6 million.

CONFERENCE CALL INSTRUCTIONS:

NetScout invites shareholders to listen to its conference call today at 8:30
a.m. ET, which 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(866)701-8242 for U.S./Canada and
(763)416-6912 for international callers and using conference ID: 86124564. A
replay of the call will be available after 11:30 a.m. ET on January 17 for
approximately one week. The number for the replay is (855)859-2056 for
U.S./Canada and (404)537-3406 for international callers. The conference ID is:
86124564.

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
revenue, non-GAAP net income and non-GAAP net income per diluted share.
Non-GAAP revenue eliminates the GAAP effects of acquisitions by adding back
revenue related to deferred revenue revaluation. Non-GAAP net income includes
the foregoing adjustment and also removes inventory fair value adjustments,
expenses related to the amortization of acquired intangible assets,
stock-based compensation, restructuring, certain expenses relating to
acquisitions including compensation for post-combination services and business
development charges and loss on early extinguishment of debt, 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.

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

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 would 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 provide 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 future periods.

About NetScout Systems, Inc.

NetScout Systems, Inc. (NASDAQ: NTCT) is the market leader in Unified Service
Delivery Management enabling comprehensive end-to-end network and application
assurance. For 28 years, NetScout has delivered breakthrough packet-flow
technology that provides trusted and comprehensive real-time network and
application performance intelligence enabling unified assurance of the
network, applications and users. These solutions enable IT staff to predict,
preempt and resolve network and service delivery problems while facilitating
the optimization and capacity planning of the network infrastructure. NetScout
nGenius^® and Sniffer^® solutions are deployed at more than 20,000 of the
world’s largest enterprises, government agencies, and more than 148 service
providers, on over one million physical and 2,000 virtual network segments to
assure the network, applications, and service delivery to their users and
customers. For more information about NetScout go to 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, as
amended and other federal securities laws. Investors are cautioned that
statements in this press release, which are not strictly historical
statements, including without limitation, our financial guidance for fiscal
2013, and the expected effect of the acquisition of ONPATH Technologies, Inc.,
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, NetScout’s relationships
with strategic partners, dependence upon broad-based acceptance of NetScout’s
network performance management solutions, NetScout’s ability to achieve and
maintain a high rate of growth, introduction and market acceptance of new
products and product enhancements, the ability of NetScout 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
the ability of NetScout to successfully integrate Psytechnics, Fox Replay,
Simena, Accanto Systems and ONPATH Technologies, and achieve operational
efficiencies. For a more detailed description of the risk factors associated
with NetScout, please refer to NetScout’s Annual Report on Form 10-K for the
fiscal year ended March 31, 2012 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.

©2013 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)
                                                                   
                     Three Months Ended            Nine Months Ended
                     December 31,                  December 31,
                      2012         2011         2012          2011    
Revenue:
Product              $ 52,676       $ 46,005       $ 139,100       $ 113,616
Service               38,891       37,292       113,373       105,601 
Total revenue         91,567       83,297       252,473       219,217 
                                                                   
Cost of revenue:
Product                12,182         10,731         32,582          27,439
Service               6,982        6,508        20,386        19,273  
Total cost of         19,164       17,239       52,968        46,712  
revenue
                                                                   
Gross profit          72,403       66,058       199,505       172,505 
                                                                   
Operating
expenses:
Research and           15,352         13,593         44,630          36,073
development
Sales and              30,105         27,518         86,997          81,144
marketing
General and            8,539          6,564          22,071          20,135
administrative
Amortization of
acquired               846            565            2,077           1,541
intangible
assets
Restructuring         (1     )      372          1,065         372     
charges
Total operating       54,841       48,612       156,840       139,265 
expenses
                                                                   
Income from            17,562         17,446         42,665          33,240
operations
Interest and
other expense,        (104   )      (1,208 )      (576    )      (2,442  )
net
                                                                   
Income before
income tax             17,458         16,238         42,089          30,798
expense
Income tax            6,320        6,207        16,033        11,317  
expense
Net income           $ 11,138      $ 10,031      $ 26,056       $ 19,481  
                                                                   
                                                                   
Basic net income     $ 0.27         $ 0.24         $ 0.62          $ 0.46
per share
Diluted net          $ 0.26         $ 0.24         $ 0.62          $ 0.46
income per share
Weighted average
common shares
outstanding used
in computing:
Net income per         41,709         41,523         41,715          42,126
share - basic
Net income per         42,298         42,303         42,364          42,815
share - diluted



NetScout Systems, Inc.
Reconciliation of Current GAAP to Current and Historical Non-GAAP Financial
Measures
(In thousands, except per share data)
                                                          
                     Three Months Ended            Nine Months Ended
                     December 31,                  December 31,
                      2012         2011         2012          2011    
                                                                   
GAAP Revenue         $ 91,567       $ 83,297       $ 252,473       $ 219,217
Deferred revenue
fair value            400          118          671           158     
adjustment
Non-GAAP Revenue     $ 91,967      $ 83,415      $ 253,144      $ 219,375 
                                                                   
GAAP Gross           $ 72,403       $ 66,058       $ 199,505       $ 172,505
profit
Deferred revenue
fair value             400            118            671             158
adjustment
Inventory fair         249            -              249             -
value adjustment
Shared-based
compensation           157            98             425             298
expense (1)
Amortization of
acquired               959            1,215          3,861           3,412
intangible
assets (2)
Business
development and        -              6              -               10
integration
expense (3)
Compensation for
post combination      7            -            7             -       
services (4)
Non-GAAP Gross       $ 74,175      $ 67,495      $ 204,718      $ 176,383 
profit
                                                                   
GAAP Income from     $ 17,562       $ 17,446       $ 42,665        $ 33,240
operations
Deferred revenue
fair value             400            118            671             158
adjustment
Inventory fair         249            -              249             -
value adjustment
Shared-based
compensation           2,464          2,170          7,243           6,117
expense (1)
Amortization of
acquired               1,805          1,780          5,938           4,953
intangible
assets (2)
Business
development and        543            1,781          1,374           3,885
integration
expense (3)
Compensation for
post combination       1,005          168            1,819           168
services (4)
Restructuring         (1     )      372          1,065         372     
charges
Non-GAAP Income      $ 24,027      $ 23,835      $ 61,024       $ 48,893  
from operations
                                                                   
GAAP Net income      $ 11,138       $ 10,031       $ 26,056        $ 19,481
Deferred revenue
fair value             400            118            671             158
adjustment
Inventory fair         249            -              249             -
value adjustment
Shared-based
compensation           2,464          2,170          7,243           6,117
expense (1)
Amortization of
acquired               1,805          1,780          5,938           4,953
intangible
assets (2)
Business
development and        543            1,780          1,374           4,253
integration
expense (3)
Compensation for
post combination       1,005          168            1,819           168
services (4)
Restructuring          (1     )       372            1,065           372
charges
Loss on
extinguishment         -              690            -               690
of debt (5)
Income tax            (2,257 )      (2,299 )      (6,498  )      (5,598  )
adjustments (6)
Non-GAAP Net         $ 15,346      $ 14,810      $ 37,917       $ 30,594  
income
                                                                   
GAAP Diluted Net     $ 0.26         $ 0.24         $ 0.62          $ 0.46
income per share
Share impact of
non-GAAP              0.10         0.11         0.28          0.25    
adjustments
identified above
Non-GAAP Diluted
net income per       $ 0.36        $ 0.35        $ 0.90         $ 0.71    
share
                                                                   
Shares used in
computing
non-GAAP diluted       42,298         42,303         42,364          42,815
net income per
share
                                                                   
(1) Share-based
compensation
expense included
in these amounts
is as
follows:
Cost of product      $ 61           $ 49           $ 176           $ 137
revenue
Cost of service        96             49             249             161
revenue
Research and           778            600            2,164           1,702
development
Sales and              775            775            2,301           2,152
marketing
General and           754          697          2,353         1,965   
administrative
Total
share-based          $ 2,464       $ 2,170       $ 7,243        $ 6,117   
compensation
expense
                                                                   
(2) Amortization
expense related
to acquired
software and
product            
technology
included in
these amounts is
as follows:
Cost of product      $ 959          $ 1,215        $ 3,861         $ 3,412
revenue
Operating             846          565          2,077         1,541   
expenses
Total
amortization         $ 1,805       $ 1,780       $ 5,938        $ 4,953   
expense
                                                                   
(3) Business
development and
integration
expense included   
in
these
amounts is as
follows:
Cost of service      $ -            $ 6            $ -             $ 10
revenue
Research and           15             1,353          15              1,411
development
Sales and              -              179            -               305
marketing
General and            528            243            1,359           2,159
administrative
Other income          -            (1     )      -             368     
(expense), net
Total business
development and      $ 543         $ 1,780       $ 1,374        $ 4,253   
integration
expense
                                                                   
(4) Compensation
for post
combination
services           
included in
these
amounts is
as follows:
Cost of product        3              -              3               -
revenue
Cost of service        4              -              4               -
revenue
Research and           389            168            1,203           168
development
Sales and              25             -              25              -
marketing
General and           584          -            584           -       
administrative
Total
compensation for     $ 1,005       $ 168         $ 1,819        $ 168     
post combination
services
                                                                   
(5) Loss on
extinguishment
of debt included                                               
in this amount
is as follows:
Interest and
other income         $ -           $ 690         $ -            $ 690     
(expense), net
                                                                   
(6) Total income
tax adjustment
is as follows:
Tax effect of
non-GAAP             $ (2,457 )     $ (2,689 )     $ (6,976  )     $ (6,350  )
adjustments
above at 38%
Discrete tax          200          390          478           752     
adjustment
Total income tax     $ (2,257 )     $ (2,299 )     $ (6,498  )     $ (5,598  )
adjustments

                                                            
                                                                             
NetScout Systems, Inc.
Consolidated Balance Sheets
(In thousands)
                                                                             
                                                December 31,     March 31,
                                                2012             2012
Assets
Current assets:
Cash, cash equivalents and marketable           $  126,160       $ 196,872
securities
Accounts receivable, net                           61,908          69,795
Inventories                                        7,427           8,021
Prepaid expenses and other current assets         24,046        14,999  
                                                                             
Total current assets                               219,541         289,687
                                                                             
Fixed assets, net                                  18,077          16,457
Goodwill and intangible assets, net                268,684         225,069
Deferred income taxes                              11,755          17,892
Long-term marketable securities                    10,540          16,644
Other assets                                      3,523         2,008   
                                                                             
Total assets                                    $  532,120      $ 567,757 
                                                                             
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                                $  9,151         $ 7,539
Accrued compensation                               29,016          23,050
Accrued other                                      11,628          10,009
Deferred revenue                                  90,567        93,493  
                                                                             
Total current liabilities                          140,362         134,091
                                                                             
Deferred tax liability                             2,467           1,410
Other long-term liabilities                        4,414           7,175
Accrued long-term retirement benefits              1,818           1,990
Long-term deferred revenue                         22,717          18,722
Long-term debt                                    -             62,000  
                                                                             
Total liabilities                                 171,778       225,388 
                                                                             
Stockholders' equity:
Common stock                                       49              48
Additional paid-in capital                         248,694         237,289
Accumulated other comprehensive income             1,450           212
Treasury stock, at cost                            (76,759 )       (56,032 )
Retained earnings                                 186,908       160,852 
                                                                             
Total stockholders' equity                        360,342       342,369 
                                                                             
Total liabilities and stockholders' equity      $  532,120      $ 567,757 

Contact:

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