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
NetScout Systems Reports Financial Results for Third Quarter Fiscal Year 2013
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