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NetScout Systems Reports Financial Results for Second Quarter Fiscal Year 2015

Date: Thursday October 16, 2014

Q2 GAAP and Non-GAAP Revenue Up 12% Year-over-Year
Q2 EPS Up Year-over-Year: 13% GAAP; 18% Non-GAAP
 

Q2 FY 2015
GAAP % Growth v. Q2 FY14 Non-GAAP % Growth v. Q2 FY14
Revenue $103.6 million 12% $103.6 million 12%
Net income $11.2 million 14% $16.6 million  16%
Net income per share $0.27 13% $0.40  18%

WESTFORD, Mass.,  October 16,  2014 NetScout Systems, Inc. (NASDAQ: NTCT), an industry leader for advanced network, application and service assurance solutions, today announced financial results for its second quarter of fiscal year 2015 ended September 30, 2014.

“NetScout continued to execute during the second quarter of fiscal year 2015, producing solid revenue and profit growth that was generally consistent with our expectations entering the quarter,” said Anil Singhal, President and CEO of NetScout Systems.  “Our performance this quarter reflects the continued market acceptance of our nGeniusONE product, which is powered by our ASI software and was launched about a year ago.  We are becoming a more strategic partner to our customers as a result of our ability to provide a more scalable, unified platform for performance analytics and operational intelligence across their mission-critical IT infrastructures.  As we look ahead, we remain confident in NetScout’s strategic direction and in our prospects for continued growth.  We look forward to a strong finish to fiscal year 2015 and we are reiterating our full-year guidance ranges.  We are also excited about the potential of our planned acquisition of Danaher’s Communications business to help us accelerate our strategic progress and enhance our ability to compete on a larger and more global scale.  We expect that the transaction will close in the summer of next year, which is the first half of NetScout’s fiscal year 2016.”

Total revenue for the second quarter of fiscal year 2015 was $103.6 million, a 12% increase over $92.1 million in the same period last year.  Non-GAAP revenue for the second quarter of fiscal year 2015 also increased by 12%.  A reconciliation of GAAP and non-GAAP results is included in the attached financial tables.

Total product revenue for the second quarter of fiscal year 2015 was $58.0 million, an increase of 11% from the same period last year.  Service revenue of $45.6 million for the second quarter of fiscal year 2015 grew by 15% on a GAAP basis.  Non-GAAP service revenue was $45.6 million for the second quarter of fiscal year 2015, a 14% increase over the same quarter in fiscal year 2014.

Income from operations was $18.6 million in the second quarter of fiscal year 2015, a 17% increase over the same quarter last year.  Second-quarter fiscal year 2015 non-GAAP income from operations was $26.9 million, a 19% increase over the same quarter one year ago.

Net income for the second quarter of fiscal year 2015 was $11.2 million, or $0.27 per diluted share, compared with net income of $9.9 million, or $0.24 per diluted share in the second quarter one year ago.  On a non-GAAP basis, net income for the quarter was $16.6 million, or $0.40 per diluted share, versus non-GAAP net income of $14.3 million, or $0.34 per share, in the second quarter of fiscal year 2014.

Other notable financial highlights for the second quarter and first half of fiscal year 2015 included:

  • NetScout’s operating margin for the second quarter of fiscal year 2015 was 18.0%, up from 17.2% one year ago and down sequentially from 18.1% in the first quarter of fiscal year 2015.  NetScout’s non-GAAP operating margin for the second quarter of fiscal year 2015 was 26.0%, up notably from 24.5% a year ago and up from 23.4% on a sequential basis.
  • For the first six months of fiscal year 2015, total revenue was $211.5 million, 22% higher than the comparable period one year ago.  On a non-GAAP basis, total revenue of $211.5 million increased by 21% over the same period one year ago.
  • For the first six months of fiscal year 2015, product revenue of $122.3 million grew by 28% over the same period last year.  During the first half of fiscal year 2015, service revenue was $89.1 million on a GAAP and non-GAAP basis, which represented a 13% increase on both a GAAP and non-GAAP basis.
  • For the first six months of fiscal year 2015, product revenue by customer segment was 45% for service provider, 42% for general enterprise and 13% for government.
  • For the first six months of fiscal year 2015, net income was $22.7 million, or $0.54 per diluted share, compared with $15.1 million, or $0.36 per diluted share, in the same period of fiscal year 2014.  Non-GAAP net income for the first six months of fiscal year 2015 was $31.8 million, or $0.76 per diluted share, compared with $23.0 million, or $0.55 per diluted share, in the first six months of fiscal year 2014.
  • As of September 30, 2014, cash and cash equivalents, and short and long-term marketable securities were $217.3 million, down by $17.1 million from the end of the first quarter and a decline of $1.5 million since the end of fiscal year 2014.
  • During the second quarter of fiscal year 2015, as part of its existing $100 million open market stock repurchase program, NetScout repurchased 250,000 shares of its common stock at an average price of $44.83 per share, totaling $11.2 million.  For the fiscal year 2015 to date, NetScout has repurchased 500,000 shares at an average price of $41.81 per share, totaling $20.9 million.

 

Guidance:

For fiscal year 2015, NetScout is reiterating the guidance that was originally issued in May 2014.  The Company expects GAAP and non-GAAP revenue to be in the range of $450 million to $465 million.  GAAP net income per diluted share is expected to be in the range of $1.32 to $1.39, and non-GAAP net income per diluted share to be in the range of $1.74 and $1.81.
For fiscal year 2015, the non-GAAP net income per diluted share expectation excludes forecasted share-based compensation expenses of approximately $17.0 million, estimated amortization of acquired intangible assets of approximately $7.1 million, compensation for post-combination services of approximately $1.2 million, business development expense of $1.5 million, and the related impact of these adjustments on the provision for income taxes of $9.2 million.

Conference Call Instructions:

NetScout will host a conference call to discuss its second-quarter fiscal year 2015 financial results today at 8:30 a.m. ET.  This call 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: 11184871.  A replay of the call will be available after 11:30 a.m. ET on October 16, 2014 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: 11184871.

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 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, 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 application and network performance management solutions that enable enterprise and service provider organizations to assure the quality of the user experience for business and mobile services. Used by 92 percent of Fortune 100 organizations and more than 165 service providers worldwide, NetScout’s technology helps these organizations proactively manage service delivery and identify emerging performance problems, helping to quickly resolve issues that cause business disruptions or negatively impact users of information technology. For more information about NetScout, visit www.netscout.com.

Additional Information and Where You Can Find It

NetScout will file a Registration Statement on Form S-4 containing a proxy statement/prospectus of NetScout and other documents concerning the proposed acquisition with the Securities and Exchange Commission (the “SEC”).  Investors are urged to read the proxy statement/prospectus when it becomes available and other relevant documents filed with the SEC because they will contain important information.  Security holders may obtain a free copy of the proxy statement/prospectus (when it is available) and other documents filed by NetScout with the SEC at the SEC’s website at www.sec.gov.  The proxy statement/prospectus and other documents may also be obtained for free by contacting Andrew Kramer, Vice President of Investor Relations, by telephone at 978-614-4000, by email at ir@netscout.com, or by mail at Investor Relations, NetScout Systems, Inc., 310 Littleton Road, Westford, MA 01886.

This communication is not a solicitation of a proxy from any security holder of NetScout.  However, NetScout, Danaher and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from NetScout’s stockholders in connection with the proposed transaction.  Information about NetScout’s directors and executive officers and their beneficial ownership of NetScout’s common stock may be found in its definitive proxy statement relating to its 2014 Annual Meeting of Shareholders filed with the SEC on July 24, 2014. This document can be obtained free of charge from the SEC website at www.sec.gov.

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 year 2015, constitute forward-looking statements which involve risks and uncertainties. Actual results could differ materially from the forward-looking statements related to the company’s confidence in its strategic guidance and the timing associated with completing the acquisition of Danaher’s Communications business. Risks and uncertainties which could cause actual results to differ include, without limitation, risks and uncertainties associated with the failure to obtain, delays in obtaining or adverse conditions related to obtaining shareholder or regulatory approvals; the anticipated tax treatment of the transaction and related transactions; risks relating to any unforeseen changes to or the effects on liabilities, future capital expenditures, revenue, expenses, synergies, indebtedness, financial condition, losses and future prospects; failure to consummate or delay in consummating the transaction for other reasons; our ability to retain key executives and employees; 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 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, 2014 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.

©2014 NetScout Systems, Inc. All rights reserved. NetScout and the NetScout logo and nGenius are registered trademarks of NetScout Systems, Inc.

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