NetScout Systems Reports Strong Growth For Third Quarter Fiscal 2002
Delivers 9% Sequential Revenue Growth and 13% Product Sales Increase; Adds More than 50 New Customers
WESTFORD, Mass., Jan. 16 /PRNewswire-FirstCall/ -- NetScout Systems, Inc. (Nasdaq: NTCT), a leading provider of network performance management solutions, today announced financial results for its third quarter of fiscal 2002 ended December 31, 2001.
Revenue for the third quarter of fiscal 2002 was $21.5 million, a 9% increase over revenue of $19.7 million in the previous quarter. Pro forma net income was $627,000 or $0.02 per pro forma diluted share, versus pro forma net income of $271,000, or $0.01 per pro forma diluted share, in the previous quarter. 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 December 31, 2001 were 30.0 million, compared to weighted average pro forma diluted shares of 29.8 million in the September quarter.
On a GAAP basis, the net loss for the quarter was $2.6 million, or ($0.09) per basic and diluted share, versus a net loss of $2.9 million, or ($0.10) per basis and diluted share for the previous quarter. A reconciliation of pro forma income to GAAP loss for the third quarter is included in the attached financial statements.
"This quarter's results reflect the strong performance of our sales force and the increasing recognition among global enterprises of the value of NetScout's network management solutions," said Anil Singhal, president and CEO of NetScout Systems. "Despite the general economic weakness and technology spending constraints in our market, NetScout has grown by showing customers a strong ROI from investing in all or part of our suite of nGenius products. Our growth continues to be driven by our many large customers with mission- critical networks. Even in today's difficult budgetary environment, many of them are investing in our products to build reliability, flexibility and efficiency into those networks. They have concluded that NetScout provides the most robust solution available today for managing the performance of high value networks."
HIGHLIGHTS FOR THE QUARTER:
- Total revenue grew 9% sequentially. Product revenue rose 13%; service revenue grew 7%. Gross margins remained at 74%.
- Transition of Cisco customers to direct or reseller relationships is complete. Direct sales increased to 48% of total revenue from 35% in the previous quarter. Cisco-channeled revenue accounted for 27% of total revenue, down from 40% last quarter, as expected.
- Cash and marketable securities increased $2.9 million from last quarter to $62.7 million.
- NetScout shipped the new Packet-over-SONET probe. Cisco shipped NetScout's nGenius Real Time Monitor(TM) Release 1.3 in their CiscoWorks2000 LAN Management Solution and Routed WAN Management Solution products.
- Competitive wins totaled over $4 million, involving large deals against other leading network management vendors.
- Over 40 large deals valued over $100,000, comparable to the previous quarter.
- More than 50 new accounts signed. Repeat orders comprised approximately 85% of total revenue.
- Expanded partnership with OPNET Technologies, providing greater value for our joint customers.
OUTLOOK
Commenting on the company's business outlook, Singhal said, "Our products provide the most robust, highest function network management solutions available today. We are adding to the value of our solution by managing new traffic types, such as Voice-over-IP, and by delivering integrated system-wide views of network behavior. NetScout remains committed to maintaining its leadership position in integrated network performance management solutions for global, mission-critical networks and to expanding those solutions to meet our customers' broader network management requirements."
GUIDANCE
NetScout's near-term expectations are based on external economic forecasts and the economic uncertainty caused by recent world events. The Company is cautious about these effects on its customers' business performance and their IT spending. Nevertheless, the Company is confident that the demonstrated customer acceptance of the value and importance of nGenius solutions will produce short term quarterly revenue growth in the range of 5 to 10 percent and modest quarterly earnings per share increases.
Long term, NetScout expects its prospects will be driven by the continued growth of global, high-speed network usage and the expanding applicability of its network management solutions to those networks. Accordingly, NetScout continues to expect that quarterly sequential growth in the long term will be in the range of 7 to 10 percent, and that profitability will increase to its target business model range, discussed below.
NetScout's target business model remains: gross margins between 72 and 75 percent, operating expenses between 50 and 55 percent of revenue, and operating margins of 18 to 20 percent.
CONFERENCE CALL INSTRUCTIONS:
The Company invites shareholders to listen to its conference call today at 4:45 p.m. EDT, which will be webcast live through the Company's website at http://www.netscout.com. Please log onto the website 15 minutes prior to the broadcast. Alternatively, people can listen to the call by dialing 800-289-0544 for U.S./Canada and 913-981-5533 for international callers. A replay of the call will be available after 8:00 p.m. EDT this evening for approximately one week. The number for the replay is 888-203-1112 for U.S./Canada, and 719-457-0820 for international callers. The access code is 640340.
About NetScout Systems
NetScout Systems, Inc. (Nasdaq: NTCT) is a market leader and pioneer of integrated infrastructure performance management solutions for leading companies and service providers worldwide. NetScout serves a major portion of the Fortune 500 and counts among its customers AmericanGreetings.com, ArvinMeritor, Blue Cross and Blue Shield of Massachusetts, Cable and Wireless, Cisco Systems, China Telecom, Fidelity Investments, Getronics, Goodyear Tire & Rubber, Hold Brothers, MBNA, Nextel Communications, Northwest Airlines, Optimus Telecommunications, Samsung SDS, Siemens Health Services Corporation, Travelocity.com, and Wachovia Bank. NetScout's solutions are offered through its nGenius(TM) Performance Management System, an integrated solutions-based suite of advanced monitoring and reporting applications 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 direct and indirect distribution channels, 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, 2001, and its quarterly report on Form 10-Q for the quarter ended September 30, 2001, on file with the Securities and Exchange Commission.
NetScout is a registered trademark, and the NetScout logo, nGenius, nGenius Application Service Level Manager, nGenius Real-Time Monitor and nGenius Capacity Planner are trademarks of NetScout Systems, Inc.
The Company's condensed consolidated statements of operations and balance sheets are attached.
NetScout Systems, Inc.
Condensed
Balance Sheets
(In thousands)
(Unaudited)
December 31, March 31,
2001 2001
Assets
Current assets:
Cash, cash equivalents and
marketable securities $62,718 $61,382
Accounts receivable, net 10,714 11,753
Inventories 5,747 8,653
Refundable income taxes 2,753 2,412
Deferred income taxes 1,069 1,374
Prepaids and other current assets 3,830 3,126
Total current assets 86,831 88,700
Fixed assets, net 8,723 6,937
Goodwill and other intangible assets,
net 33,648 41,549
Deferred income taxes 5,814 4,894
Total assets $135,016 $142,080
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $2,609 $4,220
Accrued compensation 5,139 5,013
Accrued other 2,252 1,749
Deferred revenue 11,453 10,053
Total current liabilities 21,453 21,035
Stockholders' equity:
Common stock 34 33
Additional paid-in capital 107,225 106,354
Deferred compensation (1,644) (3,409)
Treasury stock (25,755) (25,306)
Retained earnings 33,703 43,373
Total stockholders' equity 113,563 121,045
Total liabilities and
stockholders' equity $135,016 $142,080
NetScout Systems, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
2001 2000 2001 2000
Revenue:
Product $13,879 $24,064 $36,567 $62,615
Service 5,372 4,994 15,102 13,398
License and royalty 2,232 3,415 7,712 10,448
Total revenue 21,483 32,473 59,381 86,461
Cost of revenue:
Product (including stock-based
compensation
of $0, $0, $1 and $1,
respectively) 4,636 7,647 13,422 21,004
Service (including stock-based
compensation
of $2, $6, $6 and $7,
respectively) 881 964 2,668 2,416
Total cost of revenue 5,517 8,611 16,090 23,420
Gross margin 15,966 23,862 43,291 63,041
Operating expenses:
Research and development
(including stock-based
compensation of $551, $513, $1,642
and $1,044, respectively) 4,884 4,125 14,480 11,036
Sales and marketing (including
stock-based compensation
of $26, $67, $83 and $180,
respectively) 9,361 10,798 26,938 29,775
General and administrative
(including stock-based
compensation of $1, $5, $5 and $8,
respectively) 2,112 2,558 5,730 6,500
Amortization of goodwill and other
intangible assets 2,634 2,617 7,902 5,283
In-process research and
development - - - 268
Total operating expenses 18,991 20,098 55,050 52,862
Income (loss) from operations (3,025) 3,764 (11,759) 10,179
Interest income and other expenses,
net 373 930 1,559 3,072
Income (loss) before provision for
(benefit
from) income taxes (2,652) 4,694 (10,200) 13,251
Provision for (benefit from) income
taxes (65) 2,024 (530) 7,038
Net income (loss) $(2,587) $2,670 $(9,670) $6,213
Basic net income (loss) per share $(0.09) $0.09 $(0.33) $0.22
Diluted net income (loss) per share $(0.09) $0.09 $(0.33) $0.21
Shares used in computing:
Basic net income (loss) per
share 29,478 29,107 29,476 28,196
Diluted net income (loss) per
share 29,478 30,594 29,476 29,621
Supplemental information:
Net income (loss) $(2,587) $2,670 $(9,670) $6,213
Tax adjustment (1) - (681) - 23
Stock based compensation (as detailed
in expense categories above) 580 591 1,737 1,240
Amortization of goodwill and other
intangible assets 2,634 2,617 7,902 5,283
In-process research and development - - - 268
Pro forma net income (loss) excluding
acquisition and stock-based
compensation costs $627 $5,197 $(31) $13,027
Pro forma diluted net income (loss)
per share excluding acquisition $0.02 $0.17 $0.00 $0.44
and stock-based compensation
costs
Shares used in computing pro forma
diluted net income (loss) per
share excluding acquisition and
stock-based compensation costs 30,026 30,594 29,476 29,621
Note(1): Tax adjustment for the fiscal year ended March 31, 2001, which
was the year of the NextPoint acquisition, assumes an effective tax rate of
35% which represents the effective tax rate before factoring in timing issues
due to non-deductible costs related to the acquisition of NextPoint and stock-
based compensation.
Copyright © 2002. NetScout Systems, Inc. All rights reserved.
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