NetScout Systems Reports Second Quarter Financial Results for Fiscal 2006
Revenue Up 15% Year-over-Year Adjusted Operating Margin Up Over 8%
WESTFORD, Mass., Oct 26, 2005 /PRNewswire-FirstCall via COMTEX News Network/ -- NetScout Systems, Inc. (Nasdaq: NTCT), a leading provider of network and application performance management solutions, today announced financial results for its second quarter of fiscal year 2006.
Revenue for the second quarter of fiscal year 2006 was $23.6 million, compared to revenue of $23.5 million in the previous quarter and revenue of $20.5 million in the second quarter of fiscal year 2005. Net profit for the quarter was $1.5 million, or $0.05 per diluted share, compared to net profit of $652,000, or $0.02 per diluted share, for the previous quarter and compared to a net profit of $1.1 million, or $0.03 per diluted share, in the second quarter of fiscal year 2005.
On an adjusted basis, the net profit for the second quarter of fiscal year 2006 was $1.7 million, or $0.05 per diluted share, compared to net profit of $945,000, or $0.03 per diluted share for the first quarter of fiscal year 2006. Adjusted net profit and earnings per share excludes non-cash acquisition and stock-based compensation expenses and related tax adjustments. Adjusted earnings are presented because management believes they better reflect operational trends and performance. A reconciliation to GAAP results is provided on the Statements of Operations included in this release.
"With the quarterly revenue up 15% year-over-year, we are beginning to see significant operating leverage. We remain focused on our goal of attaining 10% adjusted operating margin by the fourth quarter. This will be largely driven by strong year-over-year product revenue growth, a positive indicator of the adoption of our nGenius solution within our customer base," said Anil Singhal, President and CEO of NetScout Systems. "The increasing interest in our continuously expanding product set, was further validated by the inputs and comments we received at our largest ever User Forum, held during October," he added.
Guidance:
For the third quarter of fiscal year 2006, the Company expects revenue to be in the range of $24.0 million to $25.0 million and net profit per diluted share on a GAAP basis to be in the range of $0.03 to $0.05. On an adjusted basis, the Company expects net profit per diluted share to be in the range of $0.04 to $0.06. The Company reiterates its previous guidance of attaining 10% adjusted operating margin by the fourth quarter and expects FY 2006 revenue growth to be at the low end of its 15-20% target range.
Financial Highlights for the Second Quarter:
- Total revenue increased 1% sequentially and increased 15% from the
second quarter of fiscal year 2005. Product revenue was flat
sequentially and increased 23% from the second quarter of fiscal year
2005. Service revenue increased 4% sequentially and increased 10% from
the second quarter of fiscal year 2005.
- Gross margin was 77% of total revenue, up 2 points sequentially and up 1
point compared to the second quarter of fiscal year 2005.
- Cash and short and long-term marketable securities increased by $224,000
to $77.5 million, and decreased by $739,000 year-over-year. The
decrease in cash year-over-year is a result of the acquisition of
Quantiva.
- 31 new customers were added worldwide.
- 254 customers made repeat purchases.
- 55 customers placed orders over $100,000.
- Direct sales represented 35% of total revenue; indirect sales to
resellers represented 65% of total revenue.
- International business comprised approximately 18% of total revenue.
Product and Company Highlights for the Second Quarter:
- NetScout received the Computerworld Horizon Award for its Progressive
Analytics technology. The Horizon Awards are selected by a group of
independent CIOs and presented to companies with the most innovative,
promising new technologies. NetScout's Progressive Analytics technology
automates the process of detecting and diagnosing application and
network performance problems before they impact critical business
services. The patent-pending technology uses real time performance
metrics to establish statistically expected behavior values using
advanced modeling and analytics.
- NetScout achieved certification of its nGenius Performance Management
System's integration with HP OpenView Network Node Manager.
Accompanying the certification, NetScout has become a Platinum Business
Partner in the HP Enterprise Management Alliance Program.
- NetScout refreshed its line of nGenius Flow Recorder products with new
Workgroup models at a lower price and Enterprise models offering more
powerful performance troubleshooting features, including improved expert
analysis and ease-of-use functionality. For deployment flexibility
nGenius Flow Recorders are available in 4- and 8- port configurations
and can be used in a variety of LAN and WAN network topologies, either
via direct attachment or via nGenius Probes.
- NetScout released the new Workgroup version of its flagship nGenius
Performance Manager software providing the same fully integrated
application and network performance management capabilities scaled down
to a smaller number of managed elements and at a lower price.
- In early October, NetScout hosted its fourth annual User Forum
conference, titled "Automation; From Reactive to Proactive", with a
record number of attendees. Customers from around the world attended the
three-day conference, to meet with NetScout executives and engineers,
share best practices, and learn about NetScout's new products and
directions.
CONFERENCE CALL INSTRUCTIONS:
The Company invites shareholders to listen to its conference call today at 4:30 p.m. ET, which will be webcast live through the Company's website at http://www.netscout.com. Alternatively, people can listen to the call by dialing 800-230-1074 for U.S./Canada and 612-288-0318 for international callers. A replay of the call will be available after 8:00 p.m. ET on October 26 for approximately two weeks. The number for the replay is 800-475-6701 for U.S./Canada and 320-365-3844 for international callers. The access code is 800464.
About NetScout Systems, Inc.
NetScout Systems, Inc. (Nasdaq: NTCT) is a market leader and pioneer of integrated network performance management products that unify performance across the enterprise. NetScout's nGenius(R) Performance Management System is helping more than 3,000 leading companies increase their return on infrastructure investments by optimizing the performance of networks and applications according to business priorities. NetScout is headquartered in Westford, Massachusetts and has offices worldwide. Further information is available at http://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 and other federal securities laws. 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 and the statements concerning the expected effects, synergies and product offerings resulting from the Quantiva acquisition, 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 relationships with strategic partners, dependence upon broad-based acceptance of the Company's network performance management solutions, the Company's ability to achieve and maintain a high rate of growth, the effects and challenges related to the Quantiva acquisition, including any integration issues, introduction and market acceptance of new products and product enhancements such as the delivery of nGenius product platform probes and software solutions, High Definition Performance Management functionality, the analytic solutions acquired from Quantiva and the implementation of the Company's CDM Technology strategy, the ability of the Company 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 associated with a continued climate of tight IT spending, and risks of further slowdowns or downturns in economic conditions generally and in the market for network 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, 2005 and its quarterly report on Form 10-Q for the quarter ended June 30, 2005 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.
NetScout and the NetScout logo, nGenius, and Quantiva are registered trademarks of NetScout Systems, Inc. The CDM logo, MasterCare and the MasterCare logo, are trademarks of NetScout Systems, Inc. Other brands, product names and trademarks are property of their respective owners.
The Company's condensed consolidated statements of operations and balance sheets are attached.
Contact:
Catherine Taylor
Director of Investor Relations
NetScout Systems, Inc.
978-614-4286
IR@netscout.com
NetScout Systems, Inc.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
2005 2004 2005 2004
Revenue:
Product $15,069 $12,224 $30,115 $23,784
Service 8,581 7,826 16,852 15,931
License and royalty - 439 184 871
Total revenue 23,650 20,489 47,151 40,586
Cost of revenue:
Product (including amortization
expense related to acquired
software of $105, $0, $192, and
$0, respectively) 4,300 3,901 8,926 7,554
Service 1,177 1,077 2,434 2,142
Total cost of revenue 5,477 4,978 11,360 9,696
Gross margin 18,173 15,511 35,791 30,890
Operating expenses:
Research and development (including
stock-based
compensation of $83, $0, $142,
and $0, respectively) 4,639 4,058 9,253 8,377
Sales and marketing (including
stock-based
compensation of $24, $0, $44, and
$0, respectively) 9,532 8,802 19,554 17,585
General and administrative
(including stock-based
compensation of $8, $0, $8, and
$0, respectively) 2,211 1,806 4,496 3,760
Amortization of other intangible
assets 39 - 71 -
In-process research and development - - 143 -
Total operating expenses 16,421 14,666 33,517 29,722
Income from operations 1,752 845 2,274 1,168
Interest income and other expenses,
net 569 119 1,083 298
Income before income tax expense 2,321 964 3,357 1,466
Income tax expense 867 (93) 1,251 112
Net income $1,454 $1,057 $2,106 $1,354
Basic net income per share $0.05 $0.03 $0.07 $0.04
Diluted net income per share $0.05 $0.03 $0.07 $0.04
Shares used in computing:
Basic net income per share 30,970 30,533 30,905 30,491
Diluted net income per share 31,614 31,288 31,512 31,517
Reconciliation of GAAP & adjusted
income from operations:
GAAP income from operations $1,752 $845 $2,274 $1,168
Stock-based compensation 115 - 194 -
Amortization of acquired intangible
assets 144 - 263 -
In-process research and development - - 143 -
Adjusted income from operations
excluding acquisition
and stock-based compensation costs 2,011 845 2,874 1,168
Reconciliation of GAAP & adjusted net
income:
GAAP net income $1,454 $1,057 $2,106 $1,354
Stock-based compensation 115 - 194 -
Amortization of acquired intangible
assets 144 - 263 -
In-process research and development - - 143 -
Tax adjustment(1) 8 - (40) -
Adjusted net income excluding
acquisition and stock-based
compensation costs $1,721 $1,057 $2,666 $1,354
Adjusted basic net income per share
excluding $0.06 $0.03 $0.09 $0.04
acquisition related and stock-based
compensation costs
Adjusted diluted net income per share
excluding $0.05 $0.03 $0.08 $0.04
acquisition related and stock-based
compensation costs
Shares used in computing adjusted
basic net income
per share 30,970 30,533 30,905 30,491
Shares used in computing adjusted
diluted net income
per share 31,614 31,288 31,512 31,517
(1) Tax adjustment for three and six month periods ending September 30,
2005, which was the period of the Quantiva acquisition,
assumes an annual effective tax rate of 33% which represents an
effective tax rate before factoring in costs related to the
acquisition of Quantiva and stock-based compensation.
NetScout Systems, Inc.
Condensed Consolidated
Balance Sheets
(In thousands)
(Unaudited)
September 30, March 31,
2005 2005
Assets
Current assets:
Cash and cash equivalents $32,706 $57,070
Marketable securities 38,796 26,793
Accounts receivable, net 12,204 11,886
Inventories 4,514 3,114
Refundable income taxes 1,419 1,399
Deferred income taxes 2,318 2,356
Prepaids and other current assets 2,098 3,003
Total current assets 94,055 105,621
Fixed assets, net 6,880 6,011
Capitalized software development
costs - 221
Other intangible assets, net 1,302 -
Goodwill 36,561 28,839
Deferred income taxes 6,640 7,586
Restricted cash 1,334 -
Other assets 9 9
Long-term marketable securities 6,007 -
Total assets $152,788 $148,287
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $3,481 $2,520
Accrued compensation 6,585 6,385
Accrued other 3,073 2,976
Deferred revenue 16,272 17,680
Total current liabilities 29,411 29,561
Long-term liabilities:
Accrued compensation 35 -
Deferred acquisition payment -
Quantiva 1,334 -
Long-term deferred revenue 1,124 1,277
Total long-term liabilities 2,493 1,277
Total liabilities 31,904 30,838
Stockholders' equity:
Common stock 35 35
Additional paid-in capital 114,338 112,286
Accumulated other comprehensive
income (114) (130)
Deferred compensation (739) -
Treasury stock (26,490) (26,490)
Retained earnings 33,854 31,748
Total stockholders' equity 120,884 117,449
Total liabilities and
stockholders' equity $152,788 $148,287
SOURCE NetScout Systems, Inc.
Catherine Taylor, Director of Investor Relations of NetScout Systems, Inc.,
+1-978-614-4286, IR@netscout.com
http://www.prnewswire.com
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