ArcSight Achieves Record Revenues for Fourth Quarter and Fiscal Year Ended April 30, 2008

CUPERTINO, CA, Jun 19 (MARKET WIRE) --
ArcSight, Inc. (NASDAQ: ARST), a leading global provider of compliance
and security management solutions that protect enterprises and government
agencies, today announced financial results for the fourth quarter and
fiscal year ended April 30, 2008.

For the fourth quarter of fiscal 2008, ArcSight reported total revenues of
$29.4 million compared to total revenues of $25.4 million reported in the
fourth quarter of fiscal 2007. Net loss on a GAAP basis for the fourth
quarter of fiscal 2008 was $1.1 million, or $0.04 per diluted share,
including $143,000 in amortization of intangible assets and $1.5 million
in stock-based compensation expense. This compares to a GAAP net income of
$3.4 million, or $0.13 per diluted share, reported in the fourth quarter
of fiscal 2007, including $130,000 in amortization of intangible assets
and $688,000 in stock-based compensation expense. To understand the
year-over-year results, the impact of the historical VSOE-related revenue
adjustments needs to be considered. In the fourth quarter of fiscal 2007,
revenue was favorably impacted by $4.2 million of historical VSOE
adjustments, whereas the fourth quarter of fiscal 2008 only included $0.2
million of such adjustments. The impact of these adjustments needs to be
considered when comparing both revenue results as well as the net income
results for the fourth quarters of fiscal 2007 and 2008.

Non-GAAP net income for the fourth quarter of fiscal 2008 was $0.6
million, or $0.02 per diluted share, excluding the above-mentioned
amortization and stock-based compensation charges. This compares to a
non-GAAP net income of $4.2 million, or $0.16 per diluted share, reported
in the fourth quarter of fiscal 2007, excluding the above-mentioned
charges. As mentioned above, revenues in the fourth quarter of fiscal
2007 were favorably impacted by historical VSOE adjustments. ArcSight's
operating expenses for the fourth quarter of fiscal 2008 included sales
commissions related to five large sales transactions that were all
deferred at the end of the quarter, resulting in $1.9 million of
incremental variable cost without the associated revenue benefit,
reducing earnings by $0.06 per diluted share.

During the fourth quarter of fiscal 2008, the company generated $2.1
million in cash from operations and closed the fourth quarter with cash
and cash equivalents of $71.9 million. The company completed its initial
public offering during the fourth quarter, raising net proceeds of $45.9
million, after deducting the underwriting discounts and offering expenses.

For the fiscal year ended April 30, 2008, ArcSight reported total revenues
of $101.5 million compared to $69.8 million reported for fiscal 2007. GAAP
net loss for fiscal year 2008 was $2.0 million, or $0.08 per diluted
share, including $573,000 in amortization of intangible assets and $4.9
million in stock-based compensation expense. This compares to a net loss
of $0.3 million, or $0.03 per diluted share, reported for fiscal 2007,
including $476,000 in amortization of intangible assets and $1.5 million
in stock-based compensation expense.

Non-GAAP net income for the fiscal year ended April 30, 2008 was $3.5
million, or $0.12 per diluted share, excluding the above-mentioned
charges. This compares to a non-GAAP net income of $1.7 million, or $0.07
per diluted share, reported for fiscal 2007, excluding the above-mentioned
charges.

"We had another record-breaking revenue quarter while also significantly
overachieving our expectations in sales bookings, resulting in strong
deferred revenue growth. While this positive sales momentum resulted in
incremental variable operating expenses in the fourth quarter, it allows
us to begin our fiscal 2009 year from a position of strength," commented
Robert W. Shaw, chairman and CEO of ArcSight. "Greater protection against
security threats and compliance violations has clearly emerged as a top
priority and our unique offering, interoperability and expansive partner
networks are driving traction and expansion on a global basis."

"Our strong business momentum is a result of our continued execution
across all market verticals as well as new client wins, an evolving
channel partner strategy, and further penetration into the installed
base. This strong performance gives us the confidence to invest ahead of
the curve to drive strong results in fiscal 2009," Shaw concluded.

Business Outlook

The following forward-looking statements reflect expectations as of June
19, 2008. Results may be materially different and are affected by the
factors detailed in this release and in the ArcSight SEC filings.

First Quarter Expectations - Ending July 31, 2008

Based on current business trends and the visibility the company has from
fourth quarter performance, ArcSight expects revenue for the first quarter
of fiscal 2009 to be in the range of $26 million to $28 million,
representing growth in the range of 31-41% over the same quarter of fiscal
2008.

ArcSight expects non-GAAP net loss for the first quarter of fiscal 2009 to
be in the range of $1.8 million to $0.6 million, or ($0.06) to ($0.02)
cents per diluted share, which excludes stock-based compensation expense
and amortization of intangibles.

Full Year Expectations - Fiscal Year Ending April 30, 2009

For fiscal 2009, ArcSight anticipates revenue in the range of $124 million
to $128 million and non-GAAP net income of $6.8 million to $9.0 million,
or $0.20 to $0.26 cents per diluted share, excluding the above-mentioned
charges.

Conference Call and Webcast Information

ArcSight will host a conference call and live webcast to discuss these
financial results for investors and analysts at 2:00 p.m. Pacific Time on
June 19, 2008. To access the conference call, dial 877-604-9670 for the
U.S. or Canada and 719-325-4863 for international callers. The webcast
will be available live on the Investor Relations section of the company's
website at www.arcsight.com. An audio replay of the call will also be
available to investors by phone beginning at approximately 4:00 p.m.
Pacific Time on June 19, 2008 until 11:59 p.m. Pacific Time on June 26,
2008, by dialing 888-203-1112 for the U.S. or Canada or 719-457-0820 for
international callers, and entering passcode 6504280. In addition, an
archived webcast will be available on the Investor Relations section of
the company's website at www.arcsight.com.

Use of Non-GAAP Financial Measures

ArcSight reports all financial information required in accordance with
generally accepted accounting principles (GAAP). To supplement the
ArcSight condensed consolidated financial statements presented in
accordance with GAAP, ArcSight uses certain non-GAAP measures of
financial performance. The presentation of these non-GAAP financial
measures is not intended to be considered in isolation from, as a
substitute for, or superior to, the financial information prepared and
presented in accordance with GAAP, and may be different from non-GAAP
financial measures used by other companies. In addition, these non-GAAP
measures have limitations in that they do not reflect all of the amounts
associated with the results of ArcSight operations as determined in
accordance with GAAP. The non-GAAP financial measures used by ArcSight
include historical non-GAAP net income (loss) and non-GAAP basic and
diluted earnings (loss) per share. These non-GAAP financial measures
exclude amortization of intangible assets and stock-based compensation
from the ArcSight statement of operations.

For a description of these items, including the reasons why management
adjusts for them, and reconciliations of these non-GAAP financial measures
to the most directly comparable GAAP financial measures, please see the
section of the accompanying tables titled "Use of Non-GAAP Financial
Information" as well as the related tables that precede it. ArcSight may
consider whether other significant non-recurring items that arise in the
future should also be excluded in calculating the non-GAAP financial
measures it uses.

ArcSight believes that these non-GAAP financial measures, when taken
together with the corresponding GAAP financial measures, provide
meaningful supplemental information regarding the performance of ArcSight
by excluding certain items that may not be indicative of the company's
core business, operating results or future outlook. ArcSight management
uses, and believes that investors benefit from referring to, these
non-GAAP financial measures in assessing operating results of ArcSight,
as well as when planning, forecasting and analyzing future periods. These
non-GAAP financial measures also facilitate comparisons of the
performance of ArcSight to prior periods.

Cautionary Statement Regarding Forward-Looking Statements

This news release contains forward-looking statements, including without
limitation those regarding ArcSight's "Business Outlook" ("First Quarter
Expectations - Ending July 31, 2008" and "Full Year Expectations - Fiscal
Year Ending April 30, 2009"); the belief of ArcSight that greater
protection against security threats and compliance violations has clearly
emerged as a top priority for potential customers; the company's belief
that its unique offering, interoperability, and expansive partner networks
are driving traction and expansion on a global basis; the company's belief
that its continued execution across all market verticals as well as new
client wins, an evolving channel partner strategy, and further penetration
into the installed base contribute to strong business momentum; and the
company's belief that its investment ahead of the curve will drive strong
results in fiscal 2009. These forward-looking statements are subject to
material risks and uncertainties that may cause actual results to differ
substantially from expectations. Investors should consider important risk
factors, which include: the risk that demand for enterprise risk
compliance management solutions may not increase and may decrease; the
risk that competitors may be perceived by customers to be better
positioned to help handle compliance violations and security threats and
protect their businesses from major risk; the risk that the growth of
ArcSight may be lower than anticipated; and other risks detailed under
the caption "Risk Factors" in the final prospectus for the ArcSight
initial public offering filed with the Securities and Exchange Commission
(SEC) under Rule 424(b)(4) (Registration File No. 333-145974) and the
company's other filings with the SEC. You can obtain copies of the final
prospectus for the ArcSight initial public offering and its other SEC
filings on the SEC's website at www.sec.gov.

The foregoing information represents the company's outlook only as of the
date of this press release, and ArcSight undertakes no obligation to
update or revise any forward-looking statements, whether as a result of
new information, new developments or otherwise.

About ArcSight

ArcSight (NASDAQ: ARST) is a leading global provider of compliance and
security management solutions that protect enterprises and government
agencies. ArcSight helps customers comply with corporate and regulatory
policy, safeguard their assets and processes, and control risk. The
ArcSight platform collects and correlates user activity and event data
across the enterprise so that businesses can rapidly identify, prioritize,
and respond to compliance violations, policy breaches, cybersecurity
attacks, and insider threats. For more information, visit
www.arcsight.com. (ARST-IR)

Copyright2008 ArcSight, Inc. All rights reserved. ArcSight and the
ArcSight logo are trademarks of ArcSight, Inc.

ARCSIGHT, INC.
Consolidated Balance Sheets
(In thousands, except share amounts and par value)

As of As of
April 30, April 30,
2008 2007
------------ ------------
(Unaudited)
------------
Assets
Current assets:
Cash and cash equivalents $ 71,946 $ 16,917
Accounts receivable, net 26,658 15,554
Capitalized software licenses, current 1,900 249
Other prepaid expenses and current assets 3,665 2,207
------------ ------------
Total current assets 104,169 34,927
Restricted cash 842 842
Income taxes receivable 391 761
Property and equipment, net 4,834 2,753
Goodwill 5,746 5,746
Acquired intangibles assets, net 2,161 2,734
Capitalized software licenses, non-current 144 394
Other long-term assets 292 833
------------ ------------
Total assets $ 118,579 $ 48,990
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,115 $ 2,846
Accrued compensation and benefits 11,864 6,678
Obligations for software licenses 2,222 551
Other accrued liabilities 3,745 3,869
Deferred revenues, current 36,512 24,794
------------ ------------
Total current liabilities 57,458 38,738
Deferred revenues, non-current 4,754 4,794
Other long-term liabilities 1,598 328
------------ ------------
Total liabilities 63,810 43,860
Stockholders' equity:
Convertible preferred stock, $0.00001 par
value per share, 10,000,000 and 21,601,752
authorized as of April 30, 2008 and 2007,
respectively; no shares and 13,032,497
issued and outstanding as of April 30, 2008
and 2007, respectively; aggregate
liquidation preference of $0 and $26,918 as
of April 30, 2008 and 2007, respectively - 26,758
Common stock, $0.00001 par value per share;
150,000,000 and 32,500,000 shares
authorized as of April 30, 2008 and 2007,
respectively; 31,022,190 and 10,620,041
issued and outstanding as of April 30, 2008
and 2007, respectively - -
Additional paid-in capital 101,574 23,479
Deferred stock-based compensation (53) (544)
Accumulated other comprehensive income (loss) (45) 13
Accumulated deficit (46,707) (44,566)
------------ ------------
Total stockholders' equity 54,769 5,130
------------ ------------
Total liabilities and stockholders' equity $ 118,579 $ 48,990
============ ============

ARCSIGHT, INC.
Consolidated Statement of Operations
(On a GAAP basis)
(In thousands, except per share amounts)
(Unaudited)

For the Three
Months Ended Fiscal Year Ended
------------------ ------------------
April April April April
30, 30, 30, 30,
2008 2007 2008 2007
-------- -------- -------- --------
Revenues:
Products $ 18,192 $ 17,106 $ 63,765 $ 43,989
Maintenance 7,980 6,383 27,607 18,762
Services 3,204 1,891 10,173 7,082
-------- -------- -------- --------
Total revenues 29,376 25,380 101,545 69,833
Cost of revenues:
Products 1,466 895 4,767 2,569
Maintenance(1) 1,608 997 5,691 3,498
Services(1) 1,906 790 5,800 3,521
-------- -------- -------- --------
Total cost of revenues 4,980 2,682 16,258 9,588
-------- -------- -------- --------
Gross profit 24,396 22,698 85,287 60,245
Operating expenses(1):
Research and development 5,592 3,966 19,762 14,535
Sales and marketing 16,086 11,898 53,453 36,587
General and administrative 3,495 3,467 13,422 9,453
-------- -------- -------- --------
Total operating expenses 25,173 19,331 86,637 60,575
-------- -------- -------- --------
Income (loss) from
operations (777) 3,367 (1,350) (330)
Interest income 435 188 857 637
Other income and expense, net (101) (41) (385) (175)
-------- -------- -------- --------
Income (loss) before provision for
income taxes (443) 3,514 (878) 132
Provision for income taxes 617 97 1,131 389
-------- -------- -------- --------
Net income (loss) $ (1,060) $ 3,417 $ (2,009) $ (257)
======== ======== ======== ========

Net income (loss) per common share,
basic $ (0.04) $ 0.33 $ (0.08) $ (0.03)
======== ======== ======== ========
Net income (loss) per common share,
diluted $ (0.04) $ 0.13 $ (0.08) $ (0.03)
======== ======== ======== ========
Shares used in computing basic net
income (loss) per common share 30,195 10,258 25,936 10,042
======== ======== ======== ========
Shares used in computing diluted
net income (loss) per common share 30,195 27,152 25,936 10,042
======== ======== ======== ========

(1) Stock-based compensation expense as included in above
Cost of maintenance revenues 44 1 106 3
Cost of services revenues 46 7 115 14
Research and development 416 143 1,356 501
Sales and marketing 773 456 2,685 661
General and administrative 232 81 664 350

ARCSIGHT, INC.
Consolidated Statement of Operations
(GAAP to Non-GAAP Reconciliation)
(In thousands, except per share amounts)
(Unaudited)

For the Three
Months Ended Fiscal Year Ended
------------------ ------------------
April April April April
30, 30, 30, 30,
2008 2007 2008 2007
-------- --------- -------- --------
GAAP net income (loss) $ (1,060) $ 3,417 $ (2,009) $ (257)
Plus:
a) Stock-based expenses 1,511 688 4,926 1,529
b) Amortization of intangibles 143 130 573 476
-------- --------- -------- --------
Non-GAAP net income $ 594 $ 4,235 $ 3,490 $ 1,748
======== ========= ======== ========
GAAP net income (loss) per common
share, basic $ (0.04) $ 0.33 $ (0.08) $ (0.03)
Plus:
a) Stock-based expenses 0.05 0.07 0.19 0.15
b) Amortization of intangibles 0.01 0.01 0.02 0.05
Non-GAAP net income, basic $ 0.02 $ 0.41 $ 0.13 $ 0.17
======== ========= ======== ========
Non-GAAP net income, diluted $ 0.02 $ 0.16 $ 0.12 $ 0.07
======== ========= ======== ========
Shares used in computing basic net
income (loss) per common share 30,195 10,258 25,936 10,042
======== ========= ======== ========
Shares used in computing diluted
net income (loss) per common share 32,535 27,152 28,576 24,026
======== ========= ======== ========

Use of Non-GAAP Financial Information

In addition to the reasons stated above, which are generally applicable to
each of the items ArcSight excludes from its non-GAAP financial measures,
ArcSight believes it is appropriate to exclude certain items for the
following reasons:

Amortization of Intangibles. When analyzing the operating performance of
an acquired entity, ArcSight management focuses on the total return
provided by the investment (i.e., operating profit generated from the
acquired entity as compared to the purchase price paid) without taking
into consideration any allocations made for accounting purposes. Because
the purchase price for an acquisition necessarily reflects the accounting
value assigned to intangible assets (including acquired in-process
technology and goodwill), when analyzing the operating performance of an
acquisition in subsequent periods, ArcSight management excludes the GAAP
impact of the amortization of acquired intangible assets to its financial
results. ArcSight believes that such an approach is useful in
understanding the long-term return provided by an acquisition and that
investors benefit from a supplemental non-GAAP financial measure that
excludes the accounting amortization expense associated with acquired
intangible assets.

In addition, in accordance with GAAP, ArcSight generally recognizes
expenses for internally-developed intangible assets as they are incurred
until technological feasibility is reached, notwithstanding the potential
future benefit such assets may provide. Unlike internally developed
intangible assets, however, and also in accordance with GAAP, ArcSight
generally capitalizes the cost of acquired intangible assets and
recognizes that cost as an expense over the useful lives of the assets
acquired (other than goodwill, which is not amortized, and acquired
in-process technology, which is expensed immediately, as required under
GAAP). As a result of their GAAP treatment, there is an inherent lack of
comparability between the financial performance of internally developed
intangible assets and acquired intangible assets. Accordingly, ArcSight
believes it is useful to provide, as a supplement to its GAAP operating
results, a non-GAAP financial measure that excludes the amortization of
acquired intangibles.

Stock-Based Compensation. When evaluating the performance of its
consolidated results, ArcSight does not consider stock-based compensation
charges. Likewise, the ArcSight management team excludes stock-based
compensation expense from its operating plans. In contrast, the ArcSight
management team is held accountable for cash-based compensation and such
amounts are included in its operating plans. Further, when considering the
impact of equity award grants, ArcSight places a greater emphasis on
overall stockholder dilution rather than the accounting charges associated
with such grants.

ArcSight believes it is useful to provide a non-GAAP financial measure
that excludes stock-based compensation in order to better understand the
long-term performance of its business. In addition, given its adoption of
SFAS 123R, "Share-Based Payment," beginning in its fiscal year 2007,
ArcSight believes that a non-GAAP financial measure that excludes
stock-based compensation will facilitate the comparison of its
year-over-year results.

Copyright 2008, Market Wire, All rights reserved.

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