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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