NETSCOUT Reports Financial Results for Fourth Quarter and Full Fiscal Year 2019

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 2019 ended March 31,
2019.

“Our fourth-quarter fiscal year 2019 performance was fundamentally
consistent with the preliminary results that we announced last month,”
stated Anil Singhal, NETSCOUT’s president and CEO. “Our fourth-quarter
revenue was lower than planned primarily due to delayed revenue
recognition on a large service assurance project at an international
mobile operator. Nevertheless, we produced a good quarter in our
enterprise customer segment with solid organic expansion due to strong
growth in our DDoS product area and relatively stable results in the
service assurance product area. Our operating profitability was driven
by strong gross margins due in part to higher software sales and lower
operating expenses, with EPS exceeding our preliminary estimate due to a
lower-than-anticipated tax rate.”

Commenting on the Company’s plans and outlook for fiscal year 2020,
Singhal said, “We move forward with a broader and more compelling range
of higher margin, software-centric products that address our customers’
most pressing performance management and security needs arising from
their digital transformation initiatives. We also have taken important
steps during the past year to adjust our cost structure, refine our
product lines, and realign our global sales organization to drive better
cross-selling of our solutions into our installed base. With the most
severe headwinds behind us, we are optimistic about our prospects for
improved organic revenue performance and modest EPS expansion in fiscal
year 2020.”

Notable developments and highlights:

• In mid-April, NETSCOUT held its annual user conference, Engage19,
  where it showcased its solutions to over 700 attendees representing
  many of the world’s largest and most innovative service providers and
  enterprises, highlighted product roadmaps including new enterprise
  threat analytics and packet forensics, and provided hands-on tutorial
  workshops.
• NETSCOUT has continued to advance key partnerships to help enterprises
  extend application visibility across hybrid cloud environments and
  quickly identify and resolve issues impacting application performance.
  In late March, NETSCOUT announced that it is co-sell ready to
  collaborate with Microsoft sales to assist mutual customers with
  migrating and managing applications and services in hybrid Microsoft
  Azure environments. In mid-February, the Company’s nGeniusONE
  Service Assurance Platform was verified as Citrix
  Ready on Citrix Virtual Apps and Desktops.
• In late February, the Company showcased its market-leading service
  assurance solutions for leading mobile, fixed line and cable operators
  at Mobile
  World Congress.
• NETSCOUT appointed Michael Szabados, the Company’s chief operating
  officer, and Vivian Vitale, an experienced human resources executive
  at top technology companies, to its Board
  of Directors in late February with Szabados becoming vice
  chairman. In conjunction with these appointments, Vincent J.
  Mullarkey, a NETSCOUT director since 2000, retired from the Board.
• NETSCOUT completed its previously announced restructuring program that
  began in the second quarter of fiscal year 2019. The restructuring
  included a voluntary separation program (VSP) and other related
  measures that resulted in a net reduction of approximately 140
  employees. In conjunction with these actions, the Company recorded a
  restructuring charge of $1.2 million in the fourth quarter associated
  with the headcount reduction. NETSCOUT’s restructuring actions are
  expected to produce total run-rate annual cost savings of
  approximately $23 million. The Company realized cost savings of
  approximately $6 million in the fourth quarter. The Company expects to
  generate savings of approximately $6 million in both the first and
  second quarters of fiscal year 2020.

Q4 FY19 Financial Results

Total revenue (GAAP) for the fourth quarter of fiscal year 2019 was
$235.0 million, compared with $235.2 million in the same quarter one
year ago. Non-GAAP total revenue for the fourth quarter of fiscal year
2019 was $235.2 million versus $238.5 million in the same quarter one
year ago. Fourth-quarter non-GAAP revenue in fiscal year 2018 included
$10.7 million attributable to the handheld network test (HNT) tools
business that was divested in mid-September 2018. Excluding revenue from
the HNT tools business, fourth-quarter fiscal year 2019 organic non-GAAP
revenue grew by 3% from the fourth quarter of fiscal year 2018. A
reconciliation of GAAP and non-GAAP results is included in the attached
financial tables.

On April 1, 2018, NETSCOUT adopted Accounting Standards Update No.
2014-09, Revenue from Contracts with Customers, as amended
(commonly referred to as ASC 606), using the modified retrospective
approach. The adoption of ASC 606 had a positive impact of $10.7 million
on fourth-quarter fiscal year 2019 revenue. In addition, starting in the
first quarter of fiscal year 2019, revenue and related costs for certain
subscription-oriented security offerings were classified as services
rather than product. Prior period revenue and related costs for those
offerings have been reclassified to conform to the current period
presentation for comparability purposes and this information is
available in the attached financial tables as supplementary data.

Product revenue (GAAP and non-GAAP) for the fourth quarter of fiscal
year 2019 was $125.5 million, which was approximately 53% of total
revenue. This compares with fourth-quarter fiscal year 2018 product
revenue (GAAP) of $122.2 million, which was approximately 52% of total
revenue, and fourth-quarter fiscal year 2018 non-GAAP product revenue of
$123.1 million, which was approximately 52% of total non-GAAP revenue.
Fourth-quarter fiscal year 2018 non-GAAP product revenue included $7.8
million associated with the divested HNT tools business.

Service revenue (GAAP) for the fourth quarter of fiscal year 2019 was
$109.5 million, or approximately 47% of total revenue versus service
revenue (GAAP) of $113.0 million, or approximately 48% of total revenue,
for the same period one year ago. On a non-GAAP basis, service revenue
for fiscal year 2019’s fourth quarter was $109.8 million, or
approximately 47% of total non-GAAP revenue, versus non-GAAP service
revenue of $115.3 million, or approximately 48% of total non-GAAP
revenue, for the same quarter one year ago. Fourth-quarter fiscal year
2018 non-GAAP service revenue included $2.9 million associated with the
divested HNT tools business.

NETSCOUT’s income from operations (GAAP) was $29.2 million in the fourth
quarter of fiscal year 2019, compared with a loss from operations (GAAP)
of $7.5 million in the comparable quarter one year ago. The Company’s
fourth-quarter fiscal year 2019 (GAAP) operating margin was 12.4% versus
-3.2% in the prior fiscal year’s fourth quarter. Fourth-quarter fiscal
year 2019 non-GAAP EBITDA from operations was $76.0 million, or 32.3% of
non-GAAP quarterly revenue, which compares with $51.5 million, or 21.6%
of non-GAAP quarterly revenue in the fourth quarter of fiscal year 2018.
Fourth-quarter fiscal year 2019 non-GAAP income from operations was
$68.7 million with a non-GAAP operating margin of 29.2%. This compares
with fourth-quarter fiscal year 2018 non-GAAP income from operations of
$42.5 million and a non-GAAP operating margin of 17.8%.

Net income (GAAP) for the fourth quarter of fiscal year 2019 was $19.2
million, or $0.24 per share (diluted) versus net income (GAAP) of $16.8
million, or $0.20 per share (diluted), for the fourth quarter of fiscal
year 2018. On a non-GAAP basis, net income for the fourth quarter of
fiscal year 2019 was $52.0 million, or $0.66 per share (diluted), which
compares with $30.1 million, or $0.36 per share (diluted), for the
fourth quarter of fiscal year 2018.

As of March 31, 2019, cash and cash equivalents, and short and long-term
marketable securities were $487.0 million, compared with $475.8 million
as of December 31, 2018 and $447.8 million as of March 31, 2018. During
the fourth quarter of fiscal year 2019, NETSCOUT repurchased 543,251
shares of its common stock at an average price of $26.63 per share,
totaling approximately $14.5 million in the aggregate. In addition,
during the fourth quarter, NETSCOUT repaid $50.0 million of the $600.0
million outstanding on its $1.0 billion revolving credit facility.

Full-Year FY19 Financial Results

• For fiscal year 2019, total revenue (GAAP) was $909.9 million and
  non-GAAP total revenue was $911.5 million versus total revenue (GAAP)
  of $986.8 million and non-GAAP total revenue of $999.3 million in
  fiscal year 2018. Non-GAAP revenue for fiscal year 2019 and fiscal
  year 2018 included $18.0 million and $44.1 million, respectively, from
  the divested HNT tools business. Excluding revenue from the HNT tools
  business, organic non-GAAP revenue in fiscal year 2019 declined by 6%
  from fiscal year 2018.
• Product revenue (GAAP) in fiscal year 2019 was $467.3 million compared
  with $520.4 million in fiscal year 2018. Non-GAAP product revenue in
  fiscal year 2019 was $467.7 million compared with $523.5 million in
  fiscal year 2018. Non-GAAP product revenue for the HNT tools business
  for fiscal year 2019 was $13.4 million versus $32.1 million in fiscal
  year 2018.
• For fiscal year 2019, service revenue (GAAP) was $442.6 million versus
  $466.4 million in the same period last year. Non-GAAP service revenue
  in fiscal year 2019 was $443.8 million, compared with $475.8 million
  in fiscal year 2018. The HNT tools business non-GAAP service revenue
  in fiscal year 2019 was $4.6 million versus $12.0 million in fiscal
  year 2018.
• NETSCOUT’s loss from operations (GAAP) in fiscal year 2019 was $71.6
  million, compared with a loss from operations (GAAP) of $4.1 million
  in fiscal year 2018. The Company’s operating margin (GAAP) in fiscal
  year 2019 was -7.9% versus -0.4% in fiscal year 2018. In fiscal year
  2019, the Company’s non-GAAP EBITDA from operations was $193.0
  million, or 21.2% of non-GAAP total revenue versus non-GAAP EBITDA
  from operations of $220.9 million, or 22.1% of non-GAAP total revenue,
  in fiscal year 2018. The Company’s fiscal year 2019 non-GAAP income
  from operations was $161.6 million with a non-GAAP operating margin of
  17.7%, compared with non-GAAP income from operations in fiscal year
  2018 of $183.4 million and a non-GAAP operating margin of 18.4%.
• NETSCOUT’s net loss (GAAP) in fiscal year 2019 was $73.3 million, or
  $0.93 per share (diluted) compared with net income of $79.8 million,
  or $0.90 per share (diluted) in fiscal year 2018. Non-GAAP net income
  in fiscal year 2019 was $109.2 million, or $1.38 per share (diluted)
  versus non-GAAP net income in fiscal year 2018 of $124.7 million, or
  $1.41 per share (diluted).
• In addition to the common stock repurchased during the fourth quarter
  of fiscal year 2019, NETSCOUT also completed its $300 million
  Accelerated Share Repurchase in the second quarter of fiscal year
  2019. As of March 31, 2019, there were 14,359,590 shares available for
  repurchase under NETSCOUT’s previously disclosed 25 million share
  repurchase program.

Guidance:

NETSCOUT’s fiscal year 2019 non-GAAP revenue of $911.5 million included
revenue of $18.0 million associated with the since divested handheld
network testing (HNT) tools business, which had roughly breakeven
operating profitability and no impact on fiscal year 2019 non-GAAP net
income per share (diluted) of $1.38. The Company’s guidance for fiscal
year 2020 is as follows:

• NETSCOUT expects GAAP and non-GAAP revenue in the range of $895
  million to $915 million in fiscal year 2020 with organic revenue
  growth (which excludes the $18.0 million in HNT tools revenue from
  fiscal year 2019) in the low single digit range.
• The Company’s fiscal year 2020 GAAP net income per share (diluted) is
  expected to range from $0.03 to $0.08. NETSCOUT’s fiscal year 2020
  non-GAAP net income per share (diluted) performance is expected to
  range from $1.40 to $1.45.
• A reconciliation between GAAP and non-GAAP revenue and net income per
  share (diluted) for NETSCOUT’s guidance is included in the attached
  financial tables.

Conference Call Instructions:
NETSCOUT
will host a conference call to discuss its fourth-quarter and full-year
fiscal year 2019 financial results, its outlook for fiscal year 2020 and
other matters 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 NTCTQ419. A replay of the call will be
available after 12:00 p.m. ET on May 2, 2019 for approximately one week.
The number for the replay is (800) 283-8217 for U.S./Canada and (402)
220-0868 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 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, as well as revenue impacted by the amortization of
intangible assets. 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 profit, 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, the financial guidance for NETSCOUT; the
statement that the Company moves forward with a broader and more
compelling range of higher margin, software-centric products that
address its customers’ most pressing performance management and security
needs arising from their digital transformation initiatives; the
statement that the most severe headwinds are behind the Company; the
statement that we are optimistic about our prospects for improved
organic revenue performance and modest EPS expansion in fiscal year
2020; the statement that NETSCOUT’s restructuring actions are expected
to produce total run-rate annual cost savings of approximately $23
million; and the statement that the Company expects to generate savings
of approximately $6 million in both the first and second quarters of
fiscal year 2020; 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; 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 recent 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, 2018 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.

©2019 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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