NetScout Systems Reports Fourth Quarter & Year-End Financial Results For Fiscal 2001
Company Meets Revised Range with $21.5 Million in Revenue for the Quarter and Surpasses $100 Million Mark with $108 Million in Annual Revenue
WESTFORD, Mass., April 26 /PRNewswire/ -- NetScout Systems, Inc. (Nasdaq: NTCT), a leading provider of infrastructure performance management solutions, today announced financial results for its fourth quarter and fiscal year ended March 31, 2001. Revenue and income were within the revised ranges the company issued earlier, in its preliminary announcement on March 27, 2001. The Company remains optimistic about achieving the aggressive targets it has set for the coming fiscal year.
Revenue for the fourth quarter of fiscal 2001 was $21.5 million, compared to revenue of $23.9 million for the same period last year. Pro forma net income for the three months ended March 31, 2001 was $673,000, or $0.02 per pro forma diluted share, compared to $4.6 million, or $0.16 per pro forma diluted share, for the same period last year. Pro forma net income excludes non-cash amortization of goodwill and other intangible assets and stock-based compensation. Weighted average pro forma diluted shares for the three-month period ended March 31, 2001 were 30.0 million, compared to 28.1 million for the same period in fiscal 2000.
On a GAAP basis, the net loss for the quarter was ($2.5) million, or ($0.09) per basic and diluted share, compared to net income of $4.5 million, or $0.16 per diluted share for the same period last year.
For the year ended March 31, 2001, NetScout reported revenue of $108.0 million, a 25 percent increase from $86.2 million for the year ended March 31, 2000. Pro forma net income for the year ended March 31, 2001 was $13.7 million, or $0.46 per pro forma diluted share, compared to pro forma net income of $15.7 million, or $0.58 per pro forma diluted share, for the comparable period one year earlier. Weighted average pro forma diluted shares for the year ended March 31, 2001 were 29.7 million, compared to 26.9 million for the same period in fiscal 2000.
On a GAAP basis, net income for the year was $3.7 million, or $0.12 per diluted share, compared to net income of $15.2 million, or $0.56 per diluted share in fiscal 2000.
''Revenue for the fourth quarter was heavily impacted by spending delays across most of our customer segments,'' said Anil Singhal, President and CEO of NetScout Systems. ''New opportunities and evaluations progressed normally, but many of our customers suspended or delayed IT purchases abruptly while they reevaluated their overall capital spending programs.''
He added, ''This was still a very successful year at NetScout. We met or exceeded most of the goals we had set for the company at the beginning of the fiscal year.''
Highlights for the fourth quarter included:
-- The addition of Voice-over-IP and Virtual Private Network monitoring, and expanded availability of URL traffic monitoring for all high performance probes. These additions will enable NetScout customers to manage the growing impact of web-based applications on their enterprise networks and more successfully embrace the proposition of IP telephony.
-- More than 60 new customers worldwide. New accounts included, among others, Fleet Boston, Starband Communications, Voice Stream Wireless, Hull Trading, and Allmerica Financial.
-- Ongoing business from our installed base was approximately 75 percent of total revenue. Companies such as Arvin Meritor, DHL Systems, Galileo/Quantitude, Lands End, EDS, General Motors, Chase Bank, and Purdue Pharmacology placed orders to extend their use of NetScout solutions.
-- Direct sales represented 30 percent of total revenue in the fourth quarter compared to 31 percent of total revenue in the fourth quarter. Indirect sales represented 70 percent of total revenue, with Cisco-channeled sales accounting for 51 percent of total revenue, up from 44 percent of total revenue in the previous quarter. Other channel partners accounted for 19 percent of total revenue, down from 25 percent in the third quarter.
-- International business comprised approximately 20 percent of total revenue, down from approximately 25 percent in the third quarter.
Fiscal 2001 in Review:
For Fiscal 2001, the Company focused on acceleration of growth-first, to achieve above-market growth through sales force and channel expansion, and-second, to further build our foundation for sustaining future growth. We achieved and sustained two quarters of higher sequential growth before economic conditions impacted our momentum. We invested heavily in sales, engineering and in our nGenius performance management platform, and have made substantial progress toward our goal of being the leader in network performance management.
Highlights include:
- Quarterly growth accelerated to over 10 percent sequentially in the second and third quarters, until economic conditions impacted momentum.
- The Company delivered its new nGenius architecture and software suite to leverage the value of its real-time monitoring technology and broaden its product offerings. The nGenius Performance Management System was launched mid-year and the new software solutions, nGenius Real Time Monitor, nGenius Capacity Planner and nGenius Application Service Level Manager, all shipped by year-end.
- In July, the Company acquired NextPoint Networks. The NextPoint acquisition added market-leading offerings for reporting and service level management into nGenius. This was a significant step forward in fulfilling our goal of delivering a broad, powerful, integrated platform of performance management solutions to the market.
- By year-end, the Company significantly expanded its worldwide sales infrastructure, nearly doubling its worldwide sales force and opening new headquarters and support operations in Hong Kong and Singapore to enable penetration in Asia Pacific, in addition to Europe.
Guidance:
NetScout remains committed to exceeding the industry's growth rate. As more companies complete the deployment of their next-generation infrastructures and address their initial concerns for faults and connectivity, they are turning their focus to proactive performance management. This is the area where NetScout has clearly established its leadership position. Our customers have long been using our technology to proactively decrease fault potential, increase service assurance, and maximize returns on their infrastructure investments. We expect service providers to also follow this trend of deploying performance management solutions that can proactively ensure the success of their infrastructures.
NetScout expects top line growth to be 8-12 percent sequentially for the fiscal year 2002. Over the next few quarters, gross margins are expected to be at the lower end of our target range. Operating margins are expected to run in the low single digits in the first two quarters, expanding to mid-teens by the end of the fiscal year. Consistent with NetScout's business model, the company's longer-term financial objectives remain as follows: sequential quarterly revenue growth at or above 9 percent, gross margins between 70 percent and 73 percent, operating expenses between 48 percent and 53 percent, and operating income between 18 percent and 20 percent.
ABOUT NETSCOUT SYSTEMS:
NetScout Systems, Inc. is a leading provider of infrastructure performance management solutions for leading companies and service providers worldwide. NetScout serves approximately half of the Fortune 500 and counts among its customers 3M Corporation, AT&T, Datek Online, Bristol-Myers Squibb, Amazon.com, Webhire, Intel Online, Fidelity Investments and Sun Microsystems.
NetScout's nGenius (TM) Performance Management System is a solutions-based system offering advanced monitoring and reporting applications suites that draw on the rich performance data generated by NetScout's real-time, application-aware probe suite, advanced intelligent software agents, and network devices. The nGenius System helps organizations increase their return on infrastructure investments by optimizing the performance of their network, applications and content. NetScout is headquartered in Westford, Massachusetts and has approximately 360 employees, with offices in North America, Europe and Asia. Further information on the company is available on the World Wide Web at http://www.netscout.com.
Forward-looking statements in this release are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. 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 strategic relationships with Cisco Systems and other partners, dependence upon broad-based acceptance of the company's infrastructure 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, the ability of NetScout to take advantage of service provider opportunities, competitive pricing pressures, reliance on sole source suppliers, successful expansion and management of indirect distribution channels, the integration of NextPoint Networks and dependence on proprietary technology, as well as risks of slowdowns or downturns in economic conditions generally and in the market for infrastructure 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, 2000, and Quarterly Report on 10-Q for the quarter ended December 31, 2000, on file with the Securities and Exchange Commission.
NetScout Systems, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 31, March 31,
2001 2000
Assets
Current assets:
Cash and cash equivalents $61,542 $48,515
Marketable securities -- 21,807
Accounts receivable, net 11,753 10,390
Inventories 8,653 3,131
Refundable income taxes 2,412 1,899
Deferred income taxes 1,374 1,022
Prepaids and other current assets 2,966 3,728
Total current assets 88,700 90,492
Fixed assets, net 6,937 5,657
Goodwill and other intangible assets, net 41,549 --
Deferred income taxes 4,894 599
Total assets $142,080 $96,748
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $4,220 $2,789
Accrued compensation 5,013 3,673
Accrued other 1,749 2,448
Deferred revenue 10,053 6,716
Total current liabilities 21,035 15,626
Stockholders' equity:
Common stock 34 31
Additional paid-in capital 106,353 67,366
Deferred compensation (3,409) (636)
Treasury stock (25,306) (25,306)
Retained earnings 43,373 39,667
Total stockholders' equity 121,045 81,122
Total liabilities and stockholders' equity $142,080 $96,748
NetScout Systems, Inc.
Condensed Consolidated Statements of Income
(In thousands, except
per share amounts)
(Unaudited)
Three Months Ended Twelve Months Ended
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
Revenue:
Product $13,058 $16,267 $75,673 $57,206
Service 5,109 3,892 18,506 12,804
License and royalty 3,323 3,783 13,772 16,149
Total revenue 21,490 23,942 107,951 86,159
Cost of revenue:
Product (including stock-based
compensation
of $0, $0, $1 and $2,
respectively) 4,734 5,849 25,737 21,139
Service (including stock-based
compensation
of $2, $10, $9 and $39,
respectively) 1,036 476 3,453 1,718
Total cost of revenue 5,770 6,325 29,190 22,857
Gross margin 15,720 17,617 78,761 63,302
Operating expenses:
Research and development
(including stock-based
compensation of $533, $12,
$1,577 and $120, respectively) 4,388 2,504 15,424 9,526
Sales and marketing
(including stock-based
compensation of $57, $86,
$236 and $275, respectively) 10,211 7,824 39,985 27,945
General and administrative
(including stock-based
compensation of $2, $4,
$11 and $15, respectively) 1,881 1,210 8,382 4,631
Amortization of goodwill and
other intangible assets 2,609 -- 7,892 --
In-process research and development -- -- 268 --
Total operating expenses 19,089 11,538 71,951 42,102
Income (loss) from operations (3,369) 6,079 6,810 21,200
Interest income, net 851 942 3,923 2,551
Income (loss) before provision
for income taxes (2,518) 7,021 10,733 23,751
Provision for income taxes (11) 2,508 7,027 8,539
Net (loss) income $(2,507) $4,513 $3,706 $15,212
Basic net income (loss) per share $(0.09) $0.17 $0.13 $0.70
Diluted net income (loss) per share $(0.09) $0.16 $0.12 $0.56
Shares used in computing:
Basic net income (loss) per share 29,282 26,286 28,487 21,750
Diluted net income (loss) per share 29,282 28,115 29,726 26,946
Supplemental information:
Pro forma net income excluding
acquisition and stock-based
compensation costs (1) $673 $4,626 $13,700 $15,663
Pro forma diluted net income per
share excluding acquisition and $0.02 $0.16 $0.46 $0.58
stock-based compensation costs
Shares used in computing diluted
net income per share
excluding acquisition and stock-
based compensation costs 29,961 28,115 29,726 26,946
(1) Net income excluding acquisition and stock-based compensation costs
assumes an effective tax rate of 34.0% which represents the effective
tax rate before factoring in non-deductible costs related to the
acquisition of NextPoint and stock-based compensation costs.
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