NetScout Systems Reports Financial Results For First Quarter Fiscal Year 2014

NetScout Systems, Inc. (NASDAQ: NTCT):
        Q1 FY 2014
GAAP     Non-GAAP
Revenue $81.8 million     $81.9 million
Net income $5.3 million $8.7 million
Net Income per share         $0.12     $0.21
 

NetScout Systems, Inc. (NASDAQ: NTCT), an industry leader for advanced application and service assurance solutions, today announced financial results for its first quarter of fiscal year 2014 ended June 30, 2013.

“We are pleased with our business results this quarter, despite continued weakness in the government sector,” said Anil Singhal, President and CEO, NetScout Systems. “We are, however, most excited about the positive feedback from our recently released nGeniusONE™ solution. nGeniusONE is our single integrated platform for combining NPM and APM for IT operations. nGeniusONE is based on our second generation ASI technology which enables faster triage of complex performance problems and provides a holistic view of interactions between users, groups of users, and their related infrastructure and applications. We believe this is a one-of-a-kind solution, solving problems that traditional NPM and APM approaches cannot,” Mr. Singhal added.

Total GAAP revenue for the first quarter was $81.8 million; non-GAAP revenue was $81.9 million. A reconciliation of GAAP and non-GAAP results is included in the attached financial tables.

Product revenue for the first quarter, on a GAAP and non-GAAP basis was $43.0 million. Service revenue on a GAAP basis was $38.8 million and non-GAAP service revenue was $38.9 million.

GAAP net income for the first quarter was $5.3 million, or $0.12 per diluted share. GAAP income from operations was $8.9 million. On a non-GAAP basis, net income for the quarter was $8.7 million, or $0.21 per diluted share, and non-GAAP income from operations was $14.1 million.

Financial Highlights:

For the first quarter:
  • GAAP and non-GAAP revenue increased 7% year-over-year and decreased 17% sequentially.
  • GAAP and non-GAAP product revenue increased 7% year-over-year and decreased 28% sequentially.
  • GAAP service revenue increased 8% year-over-year and increased 1% sequentially. Non-GAAP service revenue increased 8% year-over-year and remained flat sequentially.
  • GAAP operating margin was 11%, flat from a year ago and down eleven points sequentially. Non-GAAP operating margin was 17%, flat from a year ago and down eleven points sequentially.
  • As of June 30, 2013, cash and cash equivalents and short and long-term marketable securities were $162.8 million, up $8.7 million from $154.1 million as of the end of the prior quarter.

In addition:
  • NetScout announced the release of the nGeniusONE™ Unified Performance Management platform. The nGeniusONE platform converges application and network performance management functionality into a single unified platform that delivers a top-down, serviced-focused perspective of performance characteristics of all infrastructure and application elements associated with service delivery.

Guidance:

For fiscal year 2014, we are reiterating the guidance we issued last quarter. We expect GAAP revenue to be in the range of $384 million to $399 million and non-GAAP revenue to be in the range of $385 million to $400 million. GAAP net income per diluted share is expected to be in the range of $1.06 to $1.16 and non-GAAP net income per diluted share between $1.40 and $1.50.

For fiscal year 2014, the non-GAAP net income per diluted share expectation excludes the acquisition accounting adjustment to fair value of approximately $0.6 million for deferred revenue, forecasted share-based compensation expenses of approximately $12.8 million, estimated amortization of acquired intangible assets of approximately $6.7 million, compensation for post combination services of approximately $2.6 million, business development charges of approximately $0.2 million, the related impact of these adjustments on the provision for income taxes of $8.7 million and a tax offset for tax impact of non-GAAP reconciling items in loss jurisdictions of approximately $0.4 million.

CONFERENCE CALL INSTRUCTIONS:

NetScout invites shareholders to listen to its conference call today at 8:30 a.m. ET, which 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: 16779166. A replay of the call will be available after 11:30 a.m. ET on July 18, 2013 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: 16779166.

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 Unified Service Delivery Management enabling comprehensive end-to-end network and application assurance. For 28 years, NetScout has delivered breakthrough packet-flow technology that provides trusted and comprehensive real-time network and application performance intelligence enabling unified assurance of the network, applications and users. These solutions enable IT staff to predict, preempt and resolve network and service delivery problems while facilitating the optimization and capacity planning of the network infrastructure. NetScout nGenius ® and Sniffer ® solutions are deployed at more than 20,000 of the world’s largest enterprises, government agencies, and more than 148 service providers, on over one million physical and 2,000 virtual network segments to assure the network, applications, and service delivery to their users and customers. For more information about NetScout go to www.netscout.com.

Safe HarborForward-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 2014, 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 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 Psytechnics, Fox Replay, Simena, 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, 2013 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.

©2013 NetScout Systems, Inc. All rights reserved. NetScout and the NetScout logo and nGenius are registered trademarks of NetScout Systems, Inc.
NetScout Systems, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
         
Three Months Ended
June 30,
2013 2012
Revenue:
Product $ 42,977 $ 40,262
Service   38,828     36,099  
Total revenue   81,805     76,361  
 
Cost of revenue:
Product 9,773 10,070
Service   7,149     6,793  
Total cost of revenue   16,922     16,863  
 
Gross profit   64,883     59,498  
 
Operating expenses:
Research and development 15,965 14,077
Sales and marketing 32,200 30,149
General and administrative 6,981 6,557
Amortization of acquired intangible assets 854 586
Restructuring charges   -     (87 )
Total operating expenses   56,000     51,282  
 
Income from operations 8,883 8,216
Interest and other expense, net   (73 )   (356 )
 
Income before income tax expense 8,810 7,860
Income tax expense   3,557     2,852  
Net income $ 5,253   $ 5,008  
 
 
Basic net income per share $ 0.13 $ 0.12
Diluted net income per share $ 0.12 $ 0.12
Weighted average common shares outstanding used in computing:
Net income per share - basic 41,405 41,742
Net income per share - diluted 42,068 42,453
 
 

NetScout Systems, Inc.
Reconciliation of Current GAAP to Current and Historical Non-GAAP Financial Measures
(In thousands, except per share data)
         
Three Months Ended
June 30,
2013 2012
 
GAAP Revenue $ 81,805 $ 76,361
Deferred revenue fair value adjustment   140     138  
Non-GAAP Revenue $ 81,945   $ 76,499  
 
GAAP Gross profit $ 64,883 $ 59,498
Deferred revenue fair value adjustment 140 138
Shared-based compensation expense (1) 190 115
Amortization of acquired intangible assets (2) 819 1,417
Compensation for post combination services (4)   8     -  
Non-GAAP Gross profit $ 66,040   $ 61,168  
 
GAAP Income from operations $ 8,883 $ 8,216
Deferred revenue fair value adjustment 140 138
Shared-based compensation expense (1) 2,812 2,247
Amortization of acquired intangible assets (2) 1,673 2,003
Business development and integration expense (3) 170 357
Compensation for post combination services (4) 444 372
Restructuring charges   -     (87 )
Non-GAAP Income from operations $ 14,122   $ 13,246  
 
GAAP Net income $ 5,253 $ 5,008
Deferred revenue fair value adjustment 140 138
Shared-based compensation expense (1) 2,812 2,247
Amortization of acquired intangible assets (2) 1,673 2,003
Business development and integration expense (3) 170 357
Compensation for post combination services (4) 444 372
Restructuring charges - (87 )
Income tax adjustments (5)   (1,785 )   (1,911 )
Non-GAAP Net income $ 8,707   $ 8,127  
 
GAAP Diluted Net income per share $ 0.12 $ 0.12
Share impact of non-GAAP adjustments identified above   0.09     0.07  
Non-GAAP Diluted net income per share $ 0.21   $ 0.19  
 
Shares used in computing non-GAAP diluted net income per share 42,068 42,453
 
 

(1) Share-based compensation expense included in these amounts is as follows:
Cost of product revenue $ 44 $ 49
Cost of service revenue 146 66
Research and development 896 644
Sales and marketing 845 718
General and administrative   881     770  
Total share-based compensation expense $ 2,812   $ 2,247  
 
 

(2) Amortization expense related to acquired software and product technology included in these amounts is as follows:
Cost of product revenue $ 819 $ 1,417
Operating expenses   854     586  
Total amortization expense $ 1,673   $ 2,003  
 
 

(3) Business development and integration expense included in these amounts is as follows:
Cost of service revenue $ - $ -
Research and development - -
Sales and marketing - -
General and administrative 170 357
Other income (expense), net   -     -  
Total business development and integration expense $ 170   $ 357  
 
 

(4) Compensation for post combination services included in these amounts is as follows:
Cost of product revenue 6 -
Cost of service revenue 2 -
Research and development 113 372
Sales and marketing 39 -
General and administrative   284     -  
Total compensation for post combination services $ 444   $ 372  
 
 

(5) Total income tax adjustment is as follows:
Tax effect of non-GAAP adjustments above at 38% $ (1,992 ) $ (1,911 )
Tax impact of non-GAAP reconciling items in loss jurisdictions   207     -  
Total income tax adjustments $ (1,785 ) $ (1,911 )
 
 

NetScout Systems, Inc.
Consolidated Balance Sheets
(In thousands)
         
June 30, March 31,
2013 2013
 
Assets
Current assets:
Cash, cash equivalents and marketable securities $ 149,060 $ 137,268
Accounts receivable, net 50,922 73,900
Inventories 10,940 7,563
Prepaid expenses and other current assets   18,319     18,581  
 
Total current assets 229,241 237,312
 
Fixed assets, net 20,565 19,678
Goodwill and intangible assets, net 264,899 266,280
Deferred income taxes 8,751 9,211
Long-term marketable securities 13,762 16,823
Other assets   2,439     2,872  
 
Total assets $ 539,657   $ 552,176  
 
 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 12,130 $ 10,161
Accrued compensation 20,132 31,585
Accrued other 6,671 8,370
Deferred revenue   93,749     95,055  
 
Total current liabilities 132,682 145,171
 
Other long-term liabilities 6,738 6,497
Deferred tax liability 950 941
Accrued long-term retirement benefits 1,747 1,757
Long-term deferred revenue   24,087     25,907  
 
Total liabilities   166,204     180,273  
 
Stockholders' equity:
Common stock 49 49
Additional paid-in capital 256,762 253,202
Accumulated other comprehensive income 878 671
Treasury stock, at cost (90,950 ) (83,480 )
Retained earnings   206,714     201,461  
 
Total stockholders' equity   373,453     371,903  
 
Total liabilities and stockholders' equity $ 539,657   $ 552,176  

Copyright Business Wire 2010

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