Business Wire | Oct 29, 2020 07:30AM EDT

NETSCOUT Reports Second Quarter Fiscal Year 2021 Financial Results

Oct. 29, 2020

WESTFORD, Mass.--(BUSINESS WIRE)--Oct. 29, 2020--NETSCOUT SYSTEMS, INC. (NASDAQ: NTCT), a leading provider of service assurance, security, and business analytics, today announced financial results for its second quarter fiscal year 2021 ended September 30, 2020.

"We delivered solid earnings per share growth in the second quarter of fiscal year 2021, compared with the same period last year," stated Anil Singhal, NETSCOUT's president and chief executive officer. "We are pleased with our ability to serve our customers' visibility and security needs while ensuring the safety and productivity of our team as we executed our strategy and delivered stable results in this tough and uncharted COVID-19 environment."

Singhal continued, "Our business and operations have proven to be largely resilient as we navigate the global pandemic and macroeconomic uncertainty. This is due to our relevant solutions, trusted brand, strong customer relationships, dedicated team, and solid financial profile. That said, we are not immune from the impacts of the COVID-19 global pandemic and resulting challenging macro-economic environment that is causing elongated purchasing cycles and we expect our fiscal year financial results to be affected given these uncertainties. However, with long-term market trends in our favor, such as, digital transformation, cloud migration, increased cyber threats, and 5G networks, NETSCOUT is well-positioned as "Guardians of the Connected World" when we emerge from this global crisis."

Q2 FY21 Financial Results

Total revenue (GAAP and non-GAAP) for the second quarter of fiscal year 2021 was $205.3 million, compared with $216.4 million (GAAP) and $216.5 million (non-GAAP) 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 second quarter of fiscal year 2021 was $92.0 million, which was approximately 45% of total revenue. This compares with second-quarter fiscal year 2020 product revenue (GAAP and non-GAAP) of $102.8 million, which was approximately 47% of total revenue.

Service revenue (GAAP and non-GAAP) for the second quarter of fiscal year 2021 was $113.4 million, or approximately 55% of total revenue versus service revenue (GAAP) of $113.6 million and (non-GAAP) of $113.7 million, or approximately 53% of total revenue, for the same quarter one year ago.

NETSCOUT's income from operations (GAAP) was $3.8 million in the second quarter of fiscal year 2021, compared with a loss from operations (GAAP) of $7.3 million in the comparable quarter one year ago. Second-quarter fiscal year 2021 non-GAAP EBITDA from operations was $46.8 million, or 22.8% of non-GAAP quarterly revenue, which compares with $38.5 million, or 17.8% of non-GAAP quarterly revenue in the second quarter of fiscal year 2020. The Company's second-quarter fiscal year 2021 (GAAP) operating margin was 1.8% versus -3.4% in the prior fiscal year's same period. Second-quarter fiscal year 2021 non-GAAP income from operations was $39.8 million with a non-GAAP operating margin of 19.4%. This compares with second-quarter fiscal year 2020 non-GAAP income from operations of $31.6 million and a non-GAAP operating margin of 14.6%.

Net loss (GAAP) for the second quarter of fiscal year 2021 was $3.7 million, or $0.05 per share (diluted) versus net loss (GAAP) of $17.5 million, or $0.23 per share (diluted), for the second quarter of fiscal year 2020. On a non-GAAP basis, net income for the second quarter of fiscal year 2021 was $28.2 million, or $0.38 per share (diluted), which compares with $21.4 million, or $0.28 per share (diluted), for the second quarter of fiscal year 2020.

As of September 30, 2020, cash and cash equivalents, and short and long-term marketable securities were $427.8 million, compared with $426.5 million as of June 30, 2020, and $389.1 million as of March 31, 2020. In addition, NETSCOUT has $450.0 million outstanding on its $1.0 billion credit facility.

First-Half FY21 Financial Results

* For the first half of fiscal year 2021, total revenue (GAAP and non-GAAP) was $389.2 million versus total revenue (GAAP) of $402.4 million and total revenue (non-GAAP) of $402.5 million for the comparable six-month period of fiscal year 2020. A reconciliation of GAAP and non-GAAP results is included in the attached financial tables. * Product revenue (GAAP and non-GAAP) for the first six months of fiscal year 2021 was $163.7 million, compared with $178.5 million in the same period one year ago. * First-half fiscal year 2021 service revenue (GAAP and non-GAAP) was $225.5 million versus $224.0 million in the same period last year. * NETSCOUT's loss from operations (GAAP) during the first six months of fiscal year 2021 was $10.7 million, compared with a loss from operations of $31.7 million for the comparable six-month period of fiscal year 2020. The Company's first-half fiscal year 2021 (GAAP) operating margin was -2.8% versus -7.9% in the comparable period of fiscal year 2020. During the first two quarters of fiscal year 2021, the Company's non-GAAP EBITDA from operations was $73.4 million, or 18.9% of non-GAAP total revenue versus non-GAAP EBITDA from operations of $57.4 million, or 14.3% of non-GAAP total revenue, in the first six months of fiscal year 2020. The Company's non-GAAP income from operations for the first half of fiscal year 2021 was $60.5 million with a non-GAAP operating margin of 15.5%, compared with non-GAAP income from operations for the same period of fiscal year 2020 of $43.7 million and a non-GAAP operating margin of 10.9%. * For the first six months of fiscal year 2021, NETSCOUT's net loss (GAAP) was $21.1 million, or $0.29 per share (diluted) compared with a net loss of $46.8 million, or $0.61 per share (diluted) in the same six-month period one year ago. Non-GAAP net income for the first half of fiscal year 2021 was $40.5 million, or $0.55 per share (diluted)versus non-GAAP net income for the same period of fiscal year 2020 of $27.0 million, or $0.35 per share (diluted).

Outlook:

For fiscal year 2021, NETSCOUT expects revenue (GAAP and non-GAAP) to decline in the mid-to -upper single digits, on a percentage basis, compared with fiscal year 2020. This outlook is due to the COVID-19 global pandemic and resulting challenging macro-economic environment causing elongated purchasing cycles. NETSCOUT will continue to prudently manage its cost structure and expects to deliver improved annual GAAP earnings per share and expects non-GAAP earnings per share to be in-line with our non-GAAP fiscal year 2020 earnings per share number.

Conference Call Instructions:

NETSCOUT will host a conference call to discuss its second-quarter fiscal year 2021 financial results today 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 NTCTQ221. A replay of the call will be available after 12:00 p.m. ET on October 29, 2020 for approximately one week. The number for the replay is (800) 283-8486 for U.S./Canada and (402) 220-0869 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 revenue, non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income, non-GAAP net income per share (diluted) and non-GAAP earnings before interest and other expense, income taxes, depreciation and amortization (EBITDA) from operations. Non-GAAP revenue 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, and acquisition-related depreciation. Non-GAAP income from operations includes the aforementioned adjustments and also removes business development and integration expense, compensation for post-combination services, legal expenses related to a civil judgment, restructuring charges, and costs related to new accounting standard implementation, and adds back transitional service agreement income. Non-GAAP net income includes the foregoing adjustments related to non-GAAP income from operations, net of related income tax effects while removing transitional service agreement income and changes in contingent consideration. Non-GAAP EBITDA from operations includes the aforementioned items related to non-GAAP income from operations and also removes non-acquisition related depreciation expense. 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.

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.

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 ,without limitation, statements regarding NetScout's revenue and earnings per share financial performance for fiscal year 2021, NetScout's ability to continue to navigate the global pandemic and macroeconomic uncertainty, that NetScout's business and operations have proven to be largely resilient due to our relevant solutions, trusted brand, strong customer relationships, dedicated team, and solid financial profile, that market trends such as, digital transformation, cloud migration, increased cyber threats, and 5G networks, position NetScout well, as "Guardians of the Connected World", when we emerge from the global pandemic, constitute forward looking statements that involve risks and uncertainties. Actual results could differ materially from the forward-looking statements due to impacts known and unknown risk, uncertainties, assumptions, and other factors. Such factors include impacts from the COVID-19 pandemic, slowdowns or downturns in economic conditions generally and in the market for advanced network, service assurance and cybersecurity solutions specifically; 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 the anticipated savings from 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, 2020 and the Company's subsequent Quarterly Report on Form 10-Q, both 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.

(c)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.

NETSCOUT SYSTEMS, INC.Condensed Consolidated Statements of Operations(In thousands, except per share data)(Unaudited) Three Months Ended Six Months Ended September 30, September 30, 2020 2019 2020 2019

Revenue: Product $ 91,979 $ 102,775 $ 163,672 $ 178,494

Service 113,360 113,646 225,482 223,951

Total revenue 205,339 216,421 389,154 402,445

Cost of revenue: Product 26,977 29,368 48,129 56,303

Service 31,923 29,764 63,751 57,572

Total cost of 58,900 59,132 111,880 113,875 revenue Gross 146,439 157,289 277,274 288,570 profit Operating expenses: Research and development 46,455 50,058 91,836 93,785

Sales and marketing 60,300 73,067 119,734 146,592

General and administrative 20,573 25,177 45,726 47,388

Amortization of acquired 15,363 16,132 30,624 32,275 intangible assets Restructuring charges (31 ) 150 62 273

Total operating 142,660 164,584 287,982 320,313 expenses Income (loss) from 3,779 (7,295 ) (10,708 ) (31,743 )operationsInterest and other expense, (3,394 ) (3,616 ) (8,174 ) (8,015 )net Income (loss) before income 385 (10,911 ) (18,882 ) (39,758 )tax expenseIncome tax expense 4,071 6,561 2,224 7,057

Net loss $ (3,686 ) $ (17,472 ) $ (21,106 ) $ (46,815 )

Basic net loss per share $ (0.05 ) $ (0.23 ) $ (0.29 ) $ (0.61 )

Diluted net loss per share $ (0.05 ) $ (0.23 ) $ (0.29 ) $ (0.61 )

Weighted average commonshares outstanding used incomputing: Net loss per share - basic 73,058 75,687 72,682 76,490

Net loss per share - 73,058 75,687 72,682 76,490 diluted NETSCOUT SYSTEMS, INC.Consolidated Balance Sheets(In thousands) September 30, March 31,

2020 2020

(Unaudited)AssetsCurrent assets:Cash, cash equivalents and marketable securities $ 427,846 $ 386,458

Accounts receivable and unbilled costs, net 169,687 213,514

Inventories 26,223 22,227

Prepaid expenses and other current assets 45,652 37,544

Total current assets 669,408 659,743

Fixed assets, net 53,168 57,715

Goodwill and intangible assets, net 2,270,378 2,307,859

Long-term marketable securities - 2,613

Operating lease right-of-use assets 65,562 68,583

Other assets 19,035 23,990

Total assets $ 3,077,551 $ 3,120,503

Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable $ 18,083 $ 20,004

Accrued compensation 61,842 75,632

Accrued other 34,717 22,743

Current portion of operating lease liabilities 11,325 10,337

Deferred revenue and customer deposits 236,240 270,281

Total current liabilities 362,207 398,997

Other long-term liabilities 14,646 10,039

Deferred tax liability 108,716 114,394

Accrued long-term retirement benefits 36,408 34,256

Long-term deferred revenue 99,581 104,240

Operating lease liabilities, net of current 66,673 70,658 portionLong-term debt 450,000 450,000

Total liabilities 1,138,231 1,182,584

Stockholders' equity:Common stock 123 122

Additional paid-in capital 2,924,757 2,891,553

Accumulated other comprehensive loss (1,258 ) (3,160 )

Treasury stock, at cost (1,318,535 ) (1,305,935 )

Retained earnings 334,233 355,339

Total stockholders' equity 1,939,320 1,937,919

Total liabilities and stockholders' equity $ 3,077,551 $ 3,120,503

NETSCOUT SYSTEMS, INC.Reconciliation of Current GAAP to Current and Historical Non-GAAP FinancialMeasures(In thousands, except per share data)(Unaudited) Three Three Months Ended Months Six Months Ended Ended

September 30, June 30, September 30, 2020 2019 2020 2020 2019

Revenue (GAAP) $ 205,339 $ 216,421 $ 183,815 $ 389,154 $ 402,445

Service deferred 1 48 2 3 96 revenue fairvalue adjustmentNon-GAAP Revenue $ 205,340 $ 216,469 $ 183,817 $ 389,157 $ 402,541

Gross Profit $ 146,439 $ 157,289 $ 130,835 $ 277,274 $ 288,570 (GAAP)Service deferred 1 48 2 3 96 revenue fairvalue adjustmentShare-based 2,154 2,187 1,595 3,749 3,921 compensationexpense (1)Amortization ofacquired 4,765 6,225 4,735 9,500 12,455 intangible assets(2)Acquisitionrelated 5 6 6 11 19 depreciationexpense (6)Non-GAAP Gross $ 153,364 $ 165,755 $ 137,173 $ 290,537 $ 305,061 Profit Income (loss) $ 3,779 $ (7,295 ) $ (14,487 ) $ (10,708 ) $ (31,743 )from Operations(GAAP)Service deferred 1 48 2 3 96 revenue fairvalue adjustmentShare-based 15,736 15,857 12,096 27,832 28,600 compensationexpense (1)Amortization ofacquired 20,128 22,357 19,996 40,124 44,730 intangible assets(2)Businessdevelopment and - 39 16 16 18 integrationexpense (3)New standard - - - - 9 implementationexpense (4)Compensation for 63 135 64 127 328 post-combinationservices (5)Restructuring (31 ) 150 93 62 273 chargesAcquisitionrelated 60 69 61 121 190 depreciationexpense (6)Transitional 101 275 - 101 1,184 service agreementincome (7)Legal judgments - - 2,804 2,804 - expense (8)Non-GAAP Income $ 39,837 $ 31,635 $ 20,645 $ 60,482 $ 43,685 from Operations Net Loss (GAAP) $ (3,686 ) $ (17,472 ) $ (17,420 ) $ (21,106 ) $ (46,815 )

Service deferred 1 48 2 3 96 revenue fairvalue adjustmentShare-based 15,736 15,857 12,096 27,832 28,600 compensationexpense (1)Amortization ofacquired 20,128 22,357 19,996 40,124 44,730 intangible assets(2)Businessdevelopment and - 39 16 16 18 integrationexpense (3)New standard - - - - 9 implementationexpense (4)Compensation for 63 135 64 127 328 post-combinationservices (5)Restructuring (31 ) 150 93 62 273 chargesAcquisitionrelated 60 69 61 121 190 depreciationexpense (6)Change in - (6 ) - - 517 contingentconsiderationLegal judgments - - 2,804 2,804 - expense (8)Income tax (4,027 ) 181 (5,496 ) (9,523 ) (994 )adjustments (9)Non-GAAP Net $ 28,244 $ 21,358 $ 12,216 $ 40,460 $ 26,952 Income Diluted Net Loss $ (0.05 ) $ (0.23 ) $ (0.24 ) $ (0.29 ) $ (0.61 )Per Share (GAAP)Share impact ofnon-GAAP 0.43 0.51 0.41 0.84 0.96 adjustmentsidentified aboveNon-GAAP Diluted $ 0.38 $ 0.28 $ 0.17 $ 0.55 $ 0.35 Net Income PerShare Shares used incomputing 73,594 76,310 73,454 73,521 77,387 non-GAAP dilutednet income pershare NETSCOUT SYSTEMS, INC.Reconciliation of Current GAAP to Current and Historical Non-GAAP FinancialMeasures - Continued(In thousands)(Unaudited) Three Three Months Ended Months Six Months Ended Ended September 30, June 30, September 30, 2020 2019 2020 2020 2019

Share-based(1 ) compensation expense included in these amounts is as follows: Cost of product $ 344 $ 345 $ 245 $ 589 $ 612 revenue Cost of service 1,810 1,842 1,350 3,160 3,309 revenue Research and 4,935 4,820 3,781 8,716 8,639 development Sales and 5,357 5,288 3,992 9,349 9,423 marketing General and 3,290 3,562 2,728 6,018 6,617 administrative Total share-based $ 15,736 $ 15,857 $ 12,096 $ 27,832 $ 28,600 compensation expense Amortization(2 ) expense related to acquired software and product technology, tradenames, customer relationships included in these amounts is as follows: Cost of product $ 4,765 $ 6,225 $ 4,735 $ 9,500 $ 12,455 revenue Operating 15,363 16,132 15,261 30,624 32,275 expenses Total $ 20,128 $ 22,357 $ 19,996 $ 40,124 $ 44,730 amortization expense Business(3 ) development and integration expense included in these amounts is as follows: Research and $ - $ - $ - $ - $ 43 development General and - 39 16 16 (25 ) administrative Total business development and $ - $ 39 $ 16 $ 16 $ 18 integration expense New standard(4 ) implementation expense included in these amounts is as follows: General and $ - $ - $ - $ - $ 9 administrative Total new standard $ - $ - $ - $ - $ 9 implementation expense Compensation for(5 ) post-combination services included in these amounts is as follows: Research and $ 62 $ 135 $ 63 $ 125 $ 328 development Sales and 1 - 1 2 - marketing Total compensation for $ 63 $ 135 $ 64 $ 127 $ 328 post-combination services Acquisition(6 ) related depreciation expense included in these amounts is as follows: Cost of product $ 3 $ 4 $ 4 $ 7 $ 14 revenue Cost of service 2 2 2 4 5 revenue Research and 42 48 42 84 131 development Sales and 9 9 9 18 19 marketing General and 4 6 4 8 21 administrative Total acquisition $ 60 $ 69 $ 61 $ 121 $ 190 related depreciation expense Transitional(7 ) service agreement income included in these amounts is as follows: Research and $ 11 $ 10 $ - $ 11 $ 112 development Sales and 16 42 - 16 168 marketing General and 74 223 - 74 904 administrative Other Income (101 ) (275 ) - (101 ) (1,184 ) (expense), net Total transitional $ - $ - $ - $ - $ - service agreement income Legal judgments(8 ) expense included in these amounts is as follows: General and $ - $ - $ 2,804 $ 2,804 $ - administrative Total legal $ - $ - $ 2,804 $ 2,804 $ - judgments expense (9 ) Total income tax adjustment included in these amounts is as follows: Tax effect of non-GAAP $ (4,027 ) $ 181 $ (5,496 ) $ (9,523 ) $ (994 ) adjustments above Total income tax $ (4,027 ) $ 181 $ (5,496 ) $ (9,523 ) $ (994 ) adjustments NetScout Systems, Inc.Reconciliation of Current GAAP to Current and Historical Non-GAAP FinancialMeasures -Non-GAAP EBIDTA from Operations(In thousands)(Unaudited) Three Three Months Ended Months Six Months Ended Ended September 30, June 30, September 30, 2020 2019 2020 2020 2019

Income (loss) $ 3,779 $ (7,295 ) $ (14,487 ) $ (10,708 ) $ (31,743 )from operations(GAAP)Previousadjustments to 36,058 38,930 35,132 71,190 75,428 determinenon-GAAP incomefrom operationsNon-GAAP Income 39,837 31,635 20,645 60,482 43,685 from operations Depreciationexcluding 6,955 6,905 5,952 12,907 13,746 acquisitionrelated Non-GAAP EBITDA $ 46,792 $ 38,540 $ 26,597 $ 73,389 $ 57,431 from operations View source version on businesswire.com: https://www.businesswire.com/news/home/20201029005153/en/

CONTACT: Investors Anthony Piazza Vice President, Corporate Finance 978-614-4286 IR@netscout.com Media Maribel Lopez Manager, Marketing & Corporate Communications 781-362-4330 Maribel.Lopez@netscout.com