NetScout Systems Reports Fourth Quarter & Year-End Financial Results for Fiscal 2006; 15% Full Year Revenue Growth; 100% EPS Growth to $0.18.WESTFORD, Mass. -- NetScout Systems, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : NTCT NTCT Negative Temperature Coefficient Thermistor ), a leading provider of network performance management solutions, today announced financial results for its fourth quarter and fiscal year ended March 31, 2006. Total revenue for the fourth quarter of fiscal year 2006 was $25.8 million, a 14% increase year-over-year and a 4% increase sequentially. Within total revenue, product revenue was $17.2 million, which grew 20% year-over-year and 6% sequentially. Net income for the fourth quarter was $1.8 million, or $0.06 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to net income of $610,000, or $0.02 per diluted share, in the fourth quarter of fiscal year 2005 and compared to net income of $1.9 million, or $0.06 per diluted share, for the previous quarter. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for the quarter was $2.0 million, which includes stock-based compensation expense of $455,000 and amortization of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. of $144,000. Operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: on a GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). basis for the fourth quarter was 8%. For the fiscal year ended March 31, 2006, NetScout reported total revenue of $97.9 million, an increase of 15% over total revenue of $85.2 million for the fiscal year ended March 31, 2005. Net income for the fiscal year ended March 31, 2006 was $5.8 million, or $0.18 per diluted share, compared to a net income of $2.9 million, or $0.09 per diluted share, for the prior fiscal year. Anil Singhal, President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of NetScout Systems, stated "We are extremely pleased with the Company's performance in the fiscal fourth quarter, which was highlighted by revenue and profitability at or above the high-end of our expectations. Moreover, from a full year perspective, we achieved our goal of 15% revenue growth while delivering a 100% increase in earnings per share versus last year. We are optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op that strong market demand and our clear product leadership position will enable us to maintain our top line momentum while continuing to expand operating margins, leading to bottom line growth in the 40% to 60% range in fiscal 2007." Singhal added, "We are continuing to make investments for our long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. financial success demonstrated by the announcement today of NetScout's next generation Application Fabric Performance Management (AFPM AFPM Axial Flux Permanent Magnet (motor) AFPM Asymmetric Fabry-Perot Modulator AFPM Air Force Project Manager (USAF) ) architecture and our first AFPM product, nGenius Analytics. This will extend our performance management solution to embrace the important emerging multi-tier, composite and Service Oriented o·ri·ent n. 1. Orient The countries of Asia, especially of eastern Asia. 2. a. The luster characteristic of a pearl of high quality. b. A pearl having exceptional luster. 3. Application architectures." Guidance: For the first quarter of fiscal year 2007, the Company expects total revenue to be in the range of $25.5 million to $26.5 million and net income per diluted share to be in the range of $0.05 to $0.06. The Company expects its quarterly GAAP operating margin to reach 13% by the fourth quarter of fiscal 2007 and its annual GAAP net income per diluted share to grow by 40% to 60%. Current News: --Today NetScout released a new technology strategy, Application Fabric Performance Management (AFPM) architecture, that will serve as the basis of new products to address compound, multi-tier and Service Oriented Architectures (SOA (1) (Start Of Authority) The first record in a DNS zone file. See DNS records. (2) (Service Oriented Architecture) The modularization of business functions for greater flexibility and reusability. ). --In addition NetScout released its first product based on the AFPM architecture, nGenius(R) Analytics, the industry's first automated au·to·mate v. au·to·mat·ed, au·to·mat·ing, au·to·mates v.tr. 1. To convert to automatic operation: automate a factory. 2. performance anomaly detection An approach to intrusion detection that establishes a baseline model of behavior for users and components in a computer system or network. Deviations from the baseline cause alerts that direct the attention of human operators to the anomalies. See IDS and anomaly. system that proactively identifies and diagnoses application and network problems before they impact business services. Based upon qualified alarms generated by patented, statistical behavior modeling of application flow data, the product automatically learns network behavior patterns and provides an early warning system by identifying performance anomalies without the need to manually configure See configuration. (software) configure - A program by Richard Stallman to discover properties of the current platform and to set up make to compile and install gcc. Cygnus configure was a similar system developed by K. alarm thresholds. Highlights for the Fourth Fiscal Quarter 2006: --Product revenue increased 20% year-over-year and 6 % sequentially. Total revenue grew 14% year-over-year and 4% sequentially. --Cash and short and long-term marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has increased by $10.1 million to $87.5 million in the fourth quarter. The increase in cash was driven by strong cash from operations. --39 new customers were added worldwide. --265 customers made repeat purchases. --64 customers placed orders over $100,000. --International business represented 20% of total revenue. For the second consecutive year, NetScout received the NorthFace ScoreBoard(R) award for excellence in customer satisfaction from the Omega Management Group Corp. NetScout earned the award based on best-in-class customer satisfaction ratings from its user base throughout 2005. Fiscal Year 2006 in Review: --NetScout acquired the business and substantially all of the assets of privately-held Quantiva, Inc., a provider of automated analytics solutions for application performance management. The purchase price totaled approximately $9.5 million in cash. --NetScout achieved certification of its nGenius(R) Performance Management System's integration with HP OpenView HP OpenView was a Hewlett Packard product range consisting of an extensive portfolio of network and systems management products. In 2007 the entire HP OpenView portfolio was rebranded under the strengthened HP Software name. Network Node (networking) network node - (node) An addressable device attached to a computer network. If the node is a computer it is more often called a "host". Manager and HP OpenView Operations. Accompanying the certification, NetScout is a Platinum Business Partner in the HP Enterprise Management Alliance Program. --Customer implementations of the nGenius Performance Management System included: ExxonMobil, Aetna, Enterprise Rent-A-Car, Ericsson, Telecom Italia Telecom Italia is formerly a partially state-owned Italian telco. It was once known as SIP, and it has the largest user base in Italy. Telecom Italia also owns shares in Telecom Argentina and Telecom Personal, fixed and cellular networks in Argentina. , Telekom Austria Telekom Austria is a provider of a range of fixed line, mobile, data, and Internet communications services. In addition to its operations in Austria, Telekom Austria also has a wireline segment represented in the Czech Republic with Czech On Line, a leading Internet service , Virgin Mobile, BellSouth, U.S. Securities and Exchange Commission, and McAfee. --NetScout released a number of new products including its important new technology initiative called High Definition Performance Management (HDPM): --nGenius(R) Performance Manager 3.0 and nGenius(R) Probe firmware A category of memory chips that hold their content without electrical power. Firmware includes flash, ROM, PROM, EPROM and EEPROM technologies. When holding program instructions, firmware can be thought of as "hard software." See flash memory, ROM, PROM, EPROM, EEPROM and FOTA. - incorporating HDPM technology, a technology that significantly improves performance information detail and granularity The degree of modularity of a system. More granularity implies more flexibility in customizing a system, because there are more, smaller increments (granules) from which to choose. , extending the functionality of the nGenius Performance Management System with increased visibility into the activity and usage of web services (1) Loosely, any online service delivered over the Web. Such usage appears in articles from non-technical sources, but not in IT-oriented publications, because definition #2 below describes the correct use of the term. and other complex and multi-layered applications, including more accurate metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. for application and network traffic data at shorter intervals and enhanced reporting of user and application utilization. --nGenius(R) Flow Recorders - Enterprise and lower-priced Workgroup models offering more powerful performance troubleshooting Troubleshooting is a form of problem solving. It is the systematic search for the source of a problem so that it can be solved. Troubleshooting is often a process of elimination - eliminating potential causes of a problem. features, including expanded expert analysis and ease-of-use functionality. --nGenius(R) Performance Manager Workgroup - a lower-priced version of its flagship nGenius Performance Manager software providing fully integrated application and network performance management capabilities scaled down to a smaller number of managed elements. --nGenius(R) Performance Manager Appliance for NetFlow - highly-scalable, cost-effective cost-effective, n the minimal expenditure of dollars, time, and other elements necessary to achieve the health care result deemed necessary and appropriate. appliance dedicated to aggregating and analyzing data from large deployments of Cisco's NetFlow routers and switches. --nGenius(R) Performance Manager Standby standby Medtalk adjective Referring to the immediate availability of a certain specialist–anesthesiologist, surgeon, who can be deployed in a medical emergency. Cf Concurrent. Server - addresses large enterprises and government agencies' regulated requirements for business continuity, including disaster recovery. --nGenius(R) OC-48 Packet-over-SONET Probe - for the performance management of high-speed optical core networks, targeted at wireless carriers needs for visibility into converged IP-based voice, data, and video services. --nGenius(R) 10 Gigabit Ethernet An Ethernet standard that transmits at 1 Gbps. Used mostly to connect high-end workstations and servers as well as for network backbones, Gigabit Ethernet transmits full duplex from point to point using switches and half duplex in a shared environment (CSMA/CD) using a hub. Probes - for the performance management of high speed network backbones, targeted at enterprise and government organizations that are upgrading their network infrastructures. 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/investors. Alternatively, people can listen to the call by dialing 800-374-0581 for U.S./Canada and 706-634-5113 for international callers and using conference ID: 8108898. A replay of the call will be available after 5:30 p.m. ET on May 3rd for approximately two weeks. The number for the replay is 800-642-1687 for U.S./Canada and 706-645-9291 for international callers. The conference ID is: 8108898. About NetScout Systems, Inc. NetScout Systems, Inc. (NASDAQ: NTCT) is a market leader and pioneer of integrated network A network that supports both data and voice and/or different networking protocols. See converged network and new public network. performance management products that unify 1. (database, product) Unify - A relational database produced by Unify Corporation. 2. (algorithm) unify - To perform unification. 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 according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. business priorities. NetScout is headquartered in Westford, Massachusetts Westford is a town in Middlesex County, Massachusetts, United States. The population was 20,754 at the 2000 census. History Westford was first settled in 1635. Originally a part of neighboring Chelmsford, West Chelmsford soon grew large enough to sustain its own and has offices worldwide. Further information is available at http://www.netscout.com. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. : Forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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, 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 broad-based Of or relating to an index or average that provides a good representation of the overall market. The S&P 500 and NYSE Composite are generally regarded as broad-based stock indexes, while the popular Dow Jones Industrial Average is biased acceptance of the Company's network 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, High Definition Performance Management functionality, the analytic an·a·lyt·ic or an·a·lyt·i·cal adj. 1. Of or relating to analysis or analytics. 2. Expert in or using analysis, especially one who thinks in a logical manner. 3. Psychoanalytic. solutions acquired from Quantiva and the implementation of the Company's CDM 1. CDM - Content Data Model 2. CDM - Code Division Multiplexing 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, 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the fiscal year ended March 31, 2005 and its quarterly report on Form 10-Q Form 10-Q See 10-Q. for the quarter ended December 31, 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. (C)2006 NetScout Systems, Inc. All rights reserved. NetScout and the NetScout logo, nGenius, and Quantiva are registered trademarks of NetScout Systems, Inc. Other brands, product names and trademarks are property of their respective owners.
NetScout Systems, Inc.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
Three Months Twelve Months
Ended Ended
March 31, March 31,
----------------- -----------------
2006 2005 2006 2005
-------- -------- -------- --------
Revenue:
Product $17,202 $14,337 $63,591 $51,352
Service 8,612 7,839 34,101 32,124
License and royalty - 452 184 1,738
-------- -------- -------- --------
Total revenue 25,814 22,628 97,876 85,214
-------- -------- -------- --------
Cost of revenue:
Product (including
amortization expense
related to acquired
software of $105, $0,
$401, and $0, respectively
and stock-based
compensation of $11, $0,
$11, and $0, respectively) 4,959 4,628 18,639 16,251
Service (including stock-
based compensation of $14,
$0, $14, and $0,
respectively) 1,319 1,157 4,928 4,384
-------- -------- -------- --------
Total cost of revenue 6,278 5,785 23,567 20,635
-------- -------- -------- --------
Gross margin 19,536 16,843 74,309 64,579
-------- -------- -------- --------
Operating expenses:
Research and development
(including stock-based
compensation of $196, $0,
$411, and $0, respectively) 4,508 4,232 18,141 16,789
Sales and marketing
(including stock-based
compensation of $160, $0,
$228, and $0, respectively) 10,859 9,773 40,467 36,889
General and administrative
(including stock-based
compensation of $74, $0,
$131, and $0, respectively) 2,090 2,306 8,873 8,135
Amortization of
other intangible
assets 39 - 149 -
In-process research
and development - - 143 -
-------- -------- -------- --------
Total operating expenses 17,496 16,311 67,773 61,813
-------- -------- -------- --------
Income from operations 2,040 532 6,536 2,766
Interest income and
other expenses, net 836 402 2,627 1,053
-------- -------- -------- --------
Income before income
tax expense 2,876 934 9,163 3,819
Income tax expense 1,072 324 3,366 949
-------- -------- -------- --------
Net income $1,804 $610 $5,797 $2,870
======== ======== ======== ========
Basic net income per
share $0.06 $0.02 $0.19 $0.09
Diluted net income per
share $0.06 $0.02 $0.18 $0.09
Shares used in
computing:
Basic net income
per share 31,250 30,686 31,041 30,572
Diluted net income
per share 32,417 31,304 31,885 31,521
NetScout Systems, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
March 31, March 31,
2006 2005
----------- ---------
Assets
Current assets:
Cash and cash equivalents $61,676 $57,070
Marketable securities 19,810 26,793
Accounts receivable, net 16,765 11,886
Inventories 2,816 3,114
Refundable income taxes 985 1,399
Deferred income taxes 2,896 2,356
Restricted Cash 1,339 -
Prepaids and other current assets 3,119 3,003
----------- ---------
Total current assets 109,406 105,621
Fixed assets, net 7,577 6,011
Capitalized software development costs 312 221
Other intangible assets, net 1,015 -
Goodwill 36,561 28,839
Deferred income taxes 4,889 7,586
Other assets 16 9
Long-term marketable securities 5,979 -
----------- ---------
Total assets $165,755 $148,287
=========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $2,727 $2,520
Accrued compensation 8,635 6,385
Accrued other 2,325 2,058
Deferred acquisition payment - Quantiva 1,339 -
Deferred revenue 21,382 17,680
----------- ---------
Total current liabilities 36,408 28,643
Accrued compensation 72 -
Accrued other 1,085 918
Long-term deferred revenue 1,599 1,277
----------- ---------
Total liabilities 39,164 30,838
----------- ---------
Stockholders' equity:
Common stock 35 35
Additional paid-in capital 120,170 112,286
Accumulated other comprehensive income (122) (130)
Deferred compensation (4,547) -
Treasury stock (26,490) (26,490)
Retained earnings 37,545 31,748
----------- ---------
Total stockholders' equity 126,591 117,449
----------- ---------
Total liabilities and stockholders'
equity $165,755 $148,287
=========== =========
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