Company Also Announces Plans to Increase Its
Credit Facility and Execute an Accelerated Share Repurchase
Program
NETSCOUT SYSTEMS, INC. (NASDAQ: NTCT), a leading provider of
business assurance, a powerful combination of service assurance,
cybersecurity, and business intelligence solutions, today announced
preliminary financial results for its third quarter of fiscal year
2018 ended December 31, 2017 and updated its outlook for fiscal
year 2018 ending March 31, 2018. The preliminary results announced
today are subject to change based on the completion of the
Company’s quarter-end review process.
The Company currently expects third-quarter fiscal year 2018
GAAP revenue in the range of approximately $267 million and $271
million with non-GAAP third-quarter revenue anticipated to be in
the range of approximately $270 million to $274 million. NETSCOUT’s
GAAP net income for the third quarter of fiscal year 2018 is
anticipated to range to between $87 million and $90 million, or
$0.99 per share (diluted) and $1.02 per share diluted. NETSCOUT’s
non-GAAP net income for the third quarter of fiscal year 2018 is
anticipated to range to between $58 million and $61 million, or
$0.66 per share (diluted) and $0.69 per share (diluted). A
reconciliation of the preliminary third-quarter fiscal year 2018
GAAP and non-GAAP results is included in the attached financial
tables.
Anil Singhal, NETSCOUT’s president and CEO, stated, “As we have
previously disclosed, we were optimistic that we could offset the
anticipated, substantial decline in spending by our largest
tier-one service provider customer with a strong second half of the
year aided in large part by modest expansion across our other
service provider customers and solid growth in our enterprise
customer segment. However, we are unable to achieve our targets as
service provider capital spending in North America remains under
significant pressure, we experience lengthening enterprise sales
cycles as our customers grapple with major digital transformation
initiatives and related changes to their technology architectures,
and we face funding delays for multiple large federal government
projects. These dynamics, among others, impacted third-quarter
revenue and we expect that to extend into our fourth quarter.
Although we have taken certain one-time actions that will reduce
our overall third-quarter cost structure by approximately $25
million, primarily through adjustments in variable incentive
compensation, the magnitude of the anticipated top-line shortfall
will have a tangible impact on our full-year operating
profitability and earnings per share performance.”
Singhal continued, “As a company that has prided itself on
building a long-term track record of setting and achieving key
financial, strategic, technology and operational objectives, our
revised fiscal year 2018 outlook is disappointing. In conjunction
with our revised outlook, we plan to execute an Accelerated Share
Repurchase of about 10 percent of our current market capitalization
as well as amend and expand our existing credit facility. We
believe these actions will return meaningful capital to
shareholders, improve the overall efficiency of our capital
structure, and demonstrate our confidence in our longer-term
prospects. Based on the substantial investments that we have made
during the past couple of years, we believe that customer interest
and our overall competitive position remain strong across our
product portfolio.”
Accelerated Share RepurchaseIn addition to preliminary
third-quarter results and revised fiscal year 2018 guidance,
NETSCOUT also announced that it plans to enter into accelerated
share repurchase (“ASR”) agreements to repurchase at least $250
million of its common stock, subject to the terms of the ASR
agreements. The planned ASR is expected to be executed under the
Company’s previously disclosed 25 million share repurchase program
shortly after the Company formally reports its third-quarter fiscal
year 2018 results on January 30, 2018. NETSCOUT anticipates that
the ASR will be funded by additional debt in conjunction with
amending and expanding the Company’s existing credit facility. The
Company anticipates expanding the size of its existing credit
facility from $800 million to $1 billion with potential to increase
it further upon closing.
NETSCOUT expects to close its amended and expanded credit
facility during the second half of January, subject to customary
closing conditions. Once the amended credit facility is closed, the
final dollar amount of the ASR will be set and is expected to range
from $250 million to $300 million. Final settlement of the
transaction under the ASR agreement is anticipated to occur no
later than the fall of 2018. NETSCOUT plans to fund the ASR
primarily from its credit facility. NETSCOUT plans to file a
Current Report on Form 8-K when the ASR is formally executed.
Revised Fiscal Year 2018 GuidanceNETSCOUT has updated its
full fiscal year 2018 outlook while continuing to advance its
planning processes for fiscal year 2019 and beyond. The updated
guidance for fiscal year 2018 is as follows:
- The Company’s fiscal year 2018 GAAP
revenue is now expected to be in the range of approximately $985
million and $1.015 billion versus prior guidance that called for
GAAP revenue growth, on a percentage basis, in the low single-digit
range over fiscal year 2017’s GAAP revenue of $1.162 billion. The
Company also now expects fiscal year 2018 non-GAAP revenue will be
in the range of approximately $1.0 billion to $1.025 billion versus
prior guidance of relatively flat revenue compared with fiscal year
2017’s non-GAAP revenue of $1.2 billion.
- NETSCOUT anticipates that fiscal year
2018 non-GAAP revenue in its service provider customer segment will
decline between 22 percent and 25 percent over fiscal year 2017’s
non-GAAP service provider segment revenue of $672 million largely
due to continued capital spending pressure from tier-one carriers,
primarily in North America. This is impacting the timing and
magnitude of order levels for the Company’s service assurance
solutions and, to a lesser extent, capacity-related orders for
Arbor’s DDoS offerings. This compares with its original service
provider customer segment revenue target for fiscal year 2018 that
called for a high-single digit decline from 2017 levels.
- The Company expects that fiscal year
2018 non-GAAP revenue in its enterprise customer segment will
decrease in the range of 5 percent to 7 percent over fiscal year
2017’s non-GAAP enterprise segment revenue of $528 million
primarily due to weaker federal spending. In addition, the Company
is encountering softer-than-expected orders for certain other
enterprise offerings and longer-than-anticipated sales cycles for
promising new products that remain in the earlier stages of their
pipeline development. This compares with its original enterprise
customer segment revenue target for fiscal year 2018 that called
for high-single digit to low double-digit growth over 2017
levels.
- Based on its preliminary assessment of
the impact of recently enacted tax legislation, NETSCOUT’s
effective (GAAP) tax rate for fiscal year 2018 is now expected to
be in the range of -5000 percent to -5500 percent versus prior
expectations of around 30 percent. The Company’s fiscal year 2018
non-GAAP effective tax is now anticipated to be around 28 percent
versus prior plans of 33 percent to 34 percent.
- Assuming completion of the ASR for $250
million, the Company now expects fourth-quarter fiscal year 2018
shares outstanding (diluted) to be approximately 83.6 million
shares, thereby reducing fiscal year 2018 shares outstanding
(diluted) to approximately 89.3 million. This compares with the
most recent guidance of 89.9 million shares outstanding (diluted)
for fiscal year 2018.
- Taking into account all of the
aforementioned items, NETSCOUT now expects that fiscal year 2018’s
GAAP net income per share (diluted) to range from $0.53 to $0.84.
This compares with the October 2017 guidance that called for fiscal
year 2018 GAAP net income per share (diluted) growth, on a
percentage basis, of approximately 115 percent to approximately 160
percent over fiscal year 2017’s GAAP EPS of $0.36. NETSCOUT now
anticipates non-GAAP net income per share (diluted) in the range of
approximately $1.30 to $1.45. This compares with October 2017
guidance that called for high single-digit to low double-digit
growth in fiscal year 2018 non-GAAP net income per share (diluted)
over fiscal year 2017 non-GAAP EPS of $1.92.
- 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.
Q318 Results Conference Call Date and
Instructions:NETSCOUT plans to announce its
third-quarter fiscal year 2018 financial results for the period
ended December 31, 2017 on Tuesday, January 30, 2018 at
approximately 7:30 a.m. ET. NETSCOUT will host a corresponding
conference call and live webcast to discuss its quarterly results
and its revised outlook for fiscal year 2018 on the same day at
8:30 a.m. ET. This call 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 (785)
424-1877. The conference call ID is NTCTQ318. A replay of the call
will be available after 12:00 p.m. ET on January 30, 2018 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 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 net income includes the
aforementioned revenue adjustments and also removes expenses
related to the amortization of acquired intangible assets,
stock-based compensation, and certain expenses relating to
acquisitions including depreciation costs, compensation for
post-combination services and business development and integration
costs, 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 table 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, 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) is a leading
provider of business assurance – a powerful combination of service
assurance, cybersecurity, and business intelligence solutions – for
today’s most demanding service provider, enterprise and government
networks. NETSCOUT’s Adaptive Service Intelligence (ASI) technology
continuously monitors the service delivery environment to identify
performance issues and provides insight into network-based security
threats, helping teams to quickly resolve issues that can cause
business disruptions or impact user experience. NETSCOUT delivers
unmatched service visibility and protects the digital
infrastructure that supports our connected world. To learn more,
visit www.netscout.com or follow @NETSCOUT on Twitter, Facebook, or
LinkedIn.
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
and other federal securities laws. Investors are cautioned that
statements in this press release, which are not strictly historical
statements, including without limitation, the statements related to
the anticipated third-quarter and full fiscal year 2018 financial
guidance and related performance trends for NETSCOUT including the
revenue contributions of new products, the settlement timing and
magnitude of its ASR and its effects on the Company’s capital
structure, and the successful and timely completion of an amended
and expanded credit facility, constitute forward-looking statements
which 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 potential differences between NETSCOUT’s
preliminary results and the final results for the quarter ended
December 31, 2017 as a result of the completion of financial
reporting processes and review, 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; 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, 2017 and the Company’s subsequent Quarterly Reports on
Form 10-Q, 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.
©2018 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. Reconciliation of GAAP to Non-GAAP
Financial Measures: Preliminary Third-Quarter Fiscal Year
2018 Financial Results (Unaudited) Q3
FY'18 GAAP revenue $267 million to $271 million Deferred
service revenue fair value adjustment ~$2 million Deferred product
revenue fair value adjustment ~$1 million Non-GAAP revenue $270
million to $274 million GAAP Net Income ~$87
million to ~$90 million Deferred service revenue fair value
adjustment ~$2 million Deferred product revenue fair value
adjustment ~$1 million Amortization of intangible assets ~$28
million Share-based compensation expenses ~$12 million Business
development & integration expenses* ~($2 million) New
accounting standard implementation ~$1 million Restructuring costs
~$3 million Total Adjustments ~$46 million Related impact of
adjustments on income tax ~($75 million) Non-GAAP Net Income ~$58
million to ~$61million GAAP net income per share (diluted)
$0.99 to $1.02 Non-GAAP net income per share (diluted) $0.66 to
$0.69 Average Weighted Shares Outstanding (diluted GAAP)
87.9 million Average Weighted Shares Outstanding (diluted non-GAAP)
87.9 million * Business development & integration
expenses include compensation for post-combination services and
acquisition-related depreciation expense ** Assumes a non-GAAP
effective quarterly tax rate of 25%
NETSCOUT SYSTEMS,
INC. GAAP to Non-GAAP Reconciliation of Financial Measures:
FY'18 Guidance (FY'17 in millions except per share)
FY'17 FY'18 Updated
(1/10/18) GAAP revenue $ 1,162.1 ~$985 million to
~$1,015 million Deferred service revenue fair value adjustment $
19.5 ~$8 million to ~$10 million Deferred product revenue fair
value adjustment $ 6.8 ~$2 million to ~$4 million Amortization of
intangible assets $ 11.4 - Non-GAAP revenue $ 1,199.8
$1,000 million to $1,025 million
FY'17
FY'18 GAAP Net Income $ 33.3 $47 million to $75
million Deferred service revenue fair value adjustment $ 19.5 ~$7
million to ~$9million Deferred product revenue fair value
adjustment $ 6.8 ~$2 million to ~$4 million Amortization of
intangible assets $ 123.6 ~$110 million to ~$112 million
Share-based compensation expenses $ 39.2 ~$45 million to ~$47
million Business development & integration expenses* $ 20.3 ~$4
million to ~$5 million New accounting standard implementation $ -
~$2 million to ~$3 million Restructuring costs $ 4.0 ~$4 million to
~$5 million Other income $ (0.4 ) - Total Adjustments $ 212.9 ~$174
million to ~$185 million Related impact of adjustments on income
tax $ (67.7 ) (~$119 million to ~$116 million) Non-GAAP Net Income
$ 178.5 $116 million to $130 million GAAP net
income per share (diluted) $ 0.36 $0.53 to $0.84 Non-GAAP net
income per share (diluted) $ 1.92 $1.30 to $1.45
Average Weighted Shares Outstanding (diluted) 92.9 89.3 million
*Business development & integration expenses include
compensation for post-combination services and acquisition-related
depreciation expense ** Assumes a non-GAAP effective annual tax
rate of 28%
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180110005341/en/
NETSCOUT SYSTEMS, INC.InvestorsAndrew Kramer, 978-614-4279Vice
President of Investor RelationsIR@netscout.comorMediaDonna
Candelori, 408-571-5226Senior Public Relations ManagerDonna.Candelori@netscout.com
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