NETSCOUT Reports Financial Results For Fourth Quarter and Full Fiscal Year 2020
WESTFORD, Mass., May 7, 2020–NETSCOUT SYSTEMS, INC. (NASDAQ: NTCT), a leading provider of service assurance, security, and business analytics, today announced financial results for its fourth quarter and full fiscal year 2020 ended March 31, 2020.
“For fiscal year 2020, we delivered solid earnings per share growth on relatively flat revenue compared with fiscal year 2019, excluding the divested HNT Tools business, despite some order delays in our fourth quarter related to the COVID-19 global pandemic. These delays occurred in one of our historically stronger quarters, as customers were focused on adjusting their operations to react to the rapidly evolving COVID-19 situation,” stated Anil Singhal, NETSCOUT’s president and CEO.
Singhal added, “In these unprecedented times, our purpose as “Guardians of the Connected World” has never been more important. Our customers rely on our service assurance and security solutions to support and protect critical networks and infrastructure that connect people and support businesses around the globe. We believe that this global pandemic could accelerate certain trends such as digital transformation and cloud migration, security requirements, and 5G over the longer term. We are committed and well positioned to fulfill our purpose. As we move forward, we will maintain our disciplined cost and capital management approach while continuing to innovate and invest in our technology and solutions to maintain our leadership position. In the meantime, we are confident that our solid balance sheet and strong financial position will provide us with the liquidity and flexibility necessary to weather these uncertain and challenging times.”
Notable developments and highlights:
- In April, NETSCOUT held its annual user conference, Engage20, virtually. The interest hit record levels with approximately 3,500 people registered (vs. approximately 900 last year) representing more than 1,000 companies globally, which included many of the world’s largest and most innovative service providers and enterprises. At the event, we demonstrated our products, highlighted product roadmaps, and provided virtual tutorial workshops.
- In March, NETSCOUT announced the public availability of Cyber Threat Horizon, a free threat intelligence portal that offers network and security operators greater visibility into Distributed Denial of Service (DDoS) attacks in real-time. Cyber Threat Horizon collects, analyzes, prioritizes, and disseminates data on past and emerging DDoS threats across the internet. This macro view gives users contextual awareness of the DDoS attacks that could impact their organizations and allows them to gain unique insights into DDoS attack trends to provide the situational awareness they need to assess risk and prepare for cyberattacks.
- In mid-February, NETSCOUT released the findings of its Threat Intelligence Report for the second half of 2019, which also incorporates insights from its 15th Annual Worldwide Infrastructure Security Report™ (WISR™) survey. The report underscores the proliferation of risks faced by global enterprises and service providers. These organizations must now not only defend IT infrastructures, but also manage risks caused by increased Distributed Denial of Service (DDoS) attacks on customer-facing services and applications, mobile networks, and unsecured IoT devices.
- In early February, NETSCOUT announced the availability of its 7000 series nGenius® Packet Flow Switches (PFS 7000 Series), nGenius Decryption Appliance (nDA), NETSCOUT™ External PowerSafe Tap (EPT) and PFS Monitor, which enable unified security and visibility to address the growing need for simplified data center security management.
- In early February, NETSCOUT completed the acquisition of Gigavation Incorporated, a cyber security company with technology that provides security to device communication protocols, end point protection and security analytics. The technology and engineering talent will support the ongoing enhancement of the service assurance product portfolio.
Q4 FY20 Financial Results
Total revenue (GAAP) for the fourth quarter of fiscal year 2020 was $229.4 million, compared with $235.0 million in the same quarter one year ago. Non-GAAP total revenue for the fourth quarter of fiscal year 2020 was $229.4 million versus $235.2 million in the same quarter one year ago. A reconciliation of GAAP and non-GAAP results is included in the attached financial tables.
Product revenue (GAAP and non-GAAP) for the fourth quarter of fiscal year 2020 was $116.5 million, which was approximately 51% of total revenue. This compares with fourth-quarter fiscal year 2019 product revenue (GAAP and non-GAAP) of $125.5 million, which was approximately 53% of total revenue.
Service revenue (GAAP) for the fourth quarter of fiscal year 2020 was $112.8 million, or approximately 49% of total revenue versus service revenue (GAAP) of $109.5 million, or approximately 47% of total revenue, for the same period one year ago. On a non-GAAP basis, service revenue for fiscal year 2020’s fourth quarter was $112.9 million, or approximately 49% of total non-GAAP revenue, versus non-GAAP service revenue of $109.8 million, or approximately 47% of total non-GAAP revenue, for the same quarter one year ago.
NETSCOUT’s income from operations (GAAP) was $12.6 million in the fourth quarter of fiscal year 2020, compared with income from operations (GAAP) of $29.2 million in the comparable quarter one year ago. Fourth-quarter fiscal year 2020 non-GAAP EBITDA from operations was $54.9 million, or 24.0% of non-GAAP quarterly revenue, which compares with $76.0 million, or 32.3% of non-GAAP quarterly revenue in the fourth quarter of fiscal year 2019. The Company’s fourth-quarter fiscal year 2020 (GAAP) operating margin was 5.5% versus 12.4% in the prior fiscal year’s fourth quarter. Fourth-quarter fiscal year 2020 non-GAAP income from operations was $48.7 million with a non-GAAP operating margin of 21.2%. This compares with fourth-quarter fiscal year 2019 non-GAAP income from operations of $68.7 million and a non-GAAP operating margin of 29.2%.
Net income (GAAP) for the fourth quarter of fiscal year 2020 was $7.3 million, or $0.10 per share (diluted) versus net income (GAAP) of $19.2 million, or $0.24 per share (diluted), for the fourth quarter of fiscal year 2019. On a non-GAAP basis, net income for the fourth quarter of fiscal year 2020 was $37.4 million, or $0.50 per share (diluted), which compares with $52.0 million, or $0.66 per share (diluted), for the fourth quarter of fiscal year 2019.
As of March 31, 2020, cash and cash equivalents, and short and long-term marketable securities were $389.1 million, compared with $346.5 million as of December 31, 2019 and $487.0 million as of March 31, 2019. During the fourth quarter of fiscal year 2020, NETSCOUT repurchased 1,951,566 shares of its common stock through its share repurchase program at an average price of $25.62 per share, totaling approximately $50.0 million in the aggregate. As of March 31, 2020, NETSCOUT had $450.0 million outstanding on its $1.0 billion revolving credit facility.
Full Year FY20 Financial Results
- For fiscal year 2020, total revenue (GAAP) was $891.8 million and non-GAAP total revenue was $892.0 million compared with total revenue (GAAP) of $909.9 million and non-GAAP total revenue of $911.5 million for fiscal year Non-GAAP revenue for fiscal year 2019 included $18.0 million attributable to the Handheld Network Test (HNT) tools business that was divested in mid-September 2018. A reconciliation of GAAP and non-GAAP results is included in the attached financial tables.
- Product revenue (GAAP) in fiscal year 2020 was $438.3 million compared with $467.3 million in fiscal year 2019. Non-GAAP product revenue in fiscal year 2020 was $438.3 million compared with $467.7 million in fiscal year Non-GAAP product revenue for the HNT tools business for fiscal year 2019 was $13.4 million.
- For fiscal year 2020, service revenue (GAAP) was $453.5 million compared with $442.6 million in fiscal years 2019. Non-GAAP service revenue in fiscal year 2020 was $453.7 million compared with $443.8 million for fiscal year The HNT tools business non-GAAP service revenue for fiscal year 2019 was $4.6 million.
- NETSCOUT’s income from operations (GAAP) in fiscal year 2020 was $17.6 million, compared with a loss from operations of $71.6 million in fiscal year NETSCOUT’s loss from operations (GAAP) in fiscal year 2019 included approximately $45 million in charges associated with the sale of the HNT tools business. The Company’s operating margin (GAAP) in fiscal year 2020 was 2.0% versus -7.9% in fiscal year 2019. In fiscal year 2020, the Company’s non-GAAP EBITDA from operations was $189.6 million, or 21.3% of non-GAAP total revenue versus non-GAAP EBITDA from operations of $193.0 million, or 21.2% of non-GAAP total revenue, for fiscal year 2019. The Company’s non-GAAP income from operations for fiscal year 2020 was $163.3 million with a non-GAAP operating margin of 18.3% compared with non-GAAP income from operations of $161.6 million and a 17.7% non-GAAP operating margin for fiscal year 2019.
- NETSCOUT’s net loss (GAAP) in fiscal year 2020 was $2.8 million, or a loss of $04 per share (diluted) compared with a net loss of $73.3 million, or a loss of $0.93 per share (diluted) in fiscal year 2019. NETSCOUT’s net loss (GAAP) in fiscal year 2019 included approximately $45 million in charges associated with the sale of the HNT tools business. Non-GAAP net income in fiscal year 2020 was $119.1 million, or $1.57 per share (diluted) versus non-GAAP net income in fiscal year 2019 of $109.2 million, or $1.38 per share (diluted).
Given the rapidly evolving COVID-19 situation, it is not possible, with reasonable accuracy, to estimate the impact of the pandemic on future financial performance. Therefore, the Company will defer providing fiscal year 2021 guidance until there is greater visibility on the duration, magnitude, and effects of the COVID-19 global pandemic.
Conference Call Instructions:
NETSCOUT will host a conference call to discuss its fourth quarter and full fiscal year 2020 financial results on Thursday, May 7, 2020 at 8:30 a.m. ET. This call will be webcast live through NETSCOUT’s website at https://ir.netscout.com/investors/overview/default.aspx. Alternatively, people can listen to the call by dialing (785) 424-1667. The conference call ID is NTCTQ420. A replay of the call will be available after 12:00 p.m. ET on May 7, 2020 for approximately one week. The number for the replay is (800) 388-5895 for U.S./Canada and (402) 220-1110 for international callers.
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 total revenue, non-GAAP product revenue, non-GAAP service revenue, non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, non-GAAP earnings before interest and other expense, income taxes, depreciation and amortization (EBITDA) from operations, non-GAAP net income, and non-GAAP net income per share (diluted). Non-GAAP revenue (total, product and service) eliminates the GAAP effects of acquisitions by adding back revenue related to deferred revenue revaluation. Non-GAAP gross profit includes the aforementioned revenue adjustments and also removes expenses related to the amortization of acquired intangible assets, share-based compensation, certain expenses related to acquisitions including depreciation cost, and adds back transitional service agreement income. Non-GAAP income from operations includes the aforementioned revenue adjustments and also removes expenses related to the amortization of acquired intangible assets, share-based compensation, restructuring charges, intangible asset impairment charges, loss on divestiture, costs related to new accounting standard implementation, and certain expenses relating to acquisitions including depreciation costs, compensation for post-combination services and business development and integration costs while adding back transitional service agreement income. Non-GAAP EBITDA from operations, which has been presented herein as a measure of NETSCOUT’s performance, includes the aforementioned items related to non-GAAP income from operations and also removes non-acquisition-related depreciation expense. Non-GAAP operating margin is calculated based on the non-GAAP financial metrics discussed above. Non-GAAP net income includes the aforementioned items related to non-GAAP income from operations, and also removes changes in contingent consideration, 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. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures included in the attached tables within this press release. NETSCOUT also references organic non-GAAP revenue, which includes all of the aforementioned revenue adjustments for non-GAAP revenue and also removes revenue associated with the HNT tools business for comparability purposes with the Company’s quarterly and year-to-date fiscal year 2019 results.
These non-GAAP measures are not in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP (revenue, gross profit, operating margin, net income and diluted net income per share), and may have limitations because 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, without the supplemental non-GAAP disclosures, might 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 provides 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.
About NETSCOUT SYSTEMS, INC.
NETSCOUT SYSTEMS, INC. (NASDAQ: NTCT) assures digital business services against disruptions in availability, performance, and security. Our market and technology leadership stems from combining our patented smart data technology with smart analytics. We provide real-time, pervasive visibility, and insights customers need to accelerate and secure their digital transformation. Our approach transforms the way organizations plan, deliver, integrate, test, and deploy services and applications. Our nGenius service assurance solutions provide real-time, contextual analysis of service, network, and application performance. Arbor security solutions protect against DDoS attacks that threaten availability and advanced threats that infiltrate networks to steal critical business assets. To learn more about improving service, network, and application performance in physical or virtual data centers, or in the cloud, and how NETSCOUT’s performance and security solutions, powered by service intelligence can help you move forward with confidence, visit www.netscout.com or follow @NETSCOUT and @ArborNetworks on Twitter, Facebook, or LinkedIn.
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 without limitation, statements that NetScout believes that this global pandemic could accelerate certain trends such as digital transformation and cloud migration, security requirements, and 5G over the longer term; that NetScout is committed and well positioned to fulfill its purpose; that NetScout will maintain its disciplined cost and capital management approach while continuing to innovate and invest in its technology and solutions to maintain its leadership position; and that NetScout is confident that its solid balance sheet and financial position provides it with the liquidity and flexibility necessary to weather these uncertain and challenging times, constitute forward looking statements that involve risks and uncertainties. Actual results could differ materially from the forward-looking statements due to known and unknown risk, uncertainties, assumptions and other factors. Such factors include slowdowns or downturns in economic conditions generally and in the market for advanced network, service assurance and cybersecurity solutions specifically, including the potential impact of the COVID-19 pandemic; the volatile foreign exchange environment; the Company’s relationships with strategic partners and resellers; dependence upon broad-based acceptance of the Company’s network performance management solutions; the presence of competitors with greater financial resources than we have, and their strategic response to our products; our ability to retain key executives and employees; the Company’s ability to realize anticipated savings from any restructuring actions and other expense management programs; lower than expected demand for the Company’s products and services; and the timing and magnitude of stock buyback activity based on market conditions, corporate considerations, debt agreements, and regulatory requirements. 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, 2019 and the Company’s subsequent Quarterly Reports on Form 10-Q, all of which are 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.
©2020 NETSCOUT SYSTEMS, INC. All rights reserved. NETSCOUT and the NETSCOUT logo are registered trademarks or trademarks of NETSCOUT SYSTEMS, INC. and/or its subsidiaries and/or affiliates in the USA and/or other countries.
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