NetScout Systems Reports Financial Results for Second Quarter Fiscal Year 2009

Second Quarter GAAP Revenue up 133% Year-over-Year

Second Quarter Non-GAAP Revenue up 147% Year-over-Year

Following Acquisition of Network General
WESTFORD, Mass.--(Business Wire)--
NetScout Systems, Inc.

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Q2 FY 2009
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GAAP Non-GAAP
Revenue $68.9 million $73.0 million
Net income $4.9 million $9.3 million
Net Income per share $0.12 $0.23
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NetScout Systems, Inc. (NASDAQ: NTCT), an industry leader for
advanced network and service assurance solutions, today announced
financial results for its second quarter of fiscal year 2009, ended
September 30, 2008.

Total GAAP revenue for the second quarter of fiscal year 2009 was
$68.9 million, and non-GAAP revenue was $73.0 million. Non-GAAP
revenue excludes the purchase accounting adjustment to record the
acquired Network General deferred revenue at fair value. Product
revenue was $39.5 million on a GAAP basis and $40.9 million non-GAAP.
Service revenue was $29.4 million GAAP and $32.1 million non-GAAP.

GAAP net income for the quarter was $4.9 million, or net income
per diluted share of $0.12. GAAP income from operations was $9.1
million. On a non-GAAP basis, net income was $9.3 million, or $0.23
per diluted share, and non-GAAP income from operations was $16.2
million. Non-GAAP income from operations excludes the purchase
accounting adjustment to record the acquired Network General deferred
revenue at fair value, as well as share-based compensation expenses,
amortization of acquired intangible assets, and non-recurring
integration expenses. Non-GAAP net income excludes these effects as
well as their related impact on the provision for income taxes. A
reconciliation between GAAP and non-GAAP results is included in the
attached financial tables.

"We posted strong results in the second quarter and saw only
minimal impact from the turmoil in the financial markets and the
slowing economy. We have solid visibility entering the third quarter
that gives us confidence that we will achieve our guidance for the
full fiscal year 2009. Backed by orders coming from the government and
wireless telecommunications markets, we have entered the third quarter
with strong product deferred revenue and backlog," said Anil Singhal,
President and CEO of NetScout Systems. "We remain cautious about the
economic impact in calendar 2009 on our banking and enterprise
customers; however we see continued strength in wireless carriers,
exchange and trading, and government sectors. Looking beyond the
economic slowdown, we are bullish about our prospects based on our
successful integration of Network General and on the enthusiastic
customer feedback that we received at our just concluded User Summit
in San Diego about the combination of the companies and our new
integrated product releases. Our long term confidence is reflected in
our new operating margin model, which increases our target operating
margin by five points."

Company and Financial Highlights for the Second Quarter 2009:

-- During the quarter NetScout announced the release of new
integrated nGenius(R) Performance Manager and nGenius
InfiniStream version 4.5 software, and the evolution of its
nGenius InfiniStream continuous capture Deep Packet Inspection
(DPI) appliances, the company's next step in executing on the
integration of its acquisition of Network General.

-- In early October, NetScout hosted its seventh annual User
Summit conference in San Diego, titled "Engage '08". A record
number of attendees, 62% more than last year, from 18
countries around the world gathered to learn about the next
evolution of nGenius and Sniffer solutions and best practices
in monitoring applications and services across the modern IP
network; view product demonstrations; receive training; learn
about NetScout partnerships; discuss product directions and
collaborate with NetScout engineers, executives and fellow
customers.

-- GAAP revenue increased 133% year-over-year and 14%
sequentially as a result of the Network General acquisition
and strong performance from wireless carriers, financials, and
government. Non-GAAP revenue increased 147% year-over-year and
12% sequentially.

-- GAAP product revenue increased 109% year-over-year and 13%
sequentially. Non-GAAP product revenue increased 116%
year-over-year and 17% sequentially. NetScout is seeing
continued strong business from the majority of its vertical
segments with some slowing of orders from investment banks
within financial services which has been offset with strong
orders from high-speed trading and exchange customers.

-- GAAP service revenue increased 174% year-over-year and 14%
sequentially. Non-GAAP service revenue increased 200%
year-over-year and 6% sequentially.

-- As of September 30, 2008 cash and cash equivalents and short
and long-term marketable securities were $109.4 million,
versus $109.8 million at June 30, 2008.

-- NetScout increased its long term financial objectives for
non-GAAP gross margin to between 76% and 79% and non-GAAP
operating margin to between 22% and 25%. In the second
quarter, NetScout reported GAAP operating margin of 13% and
non-GAAP operating margin of 22%, at the low end of the new
target range.

Guidance

NetScout reaffirms revenue guidance for fiscal year 2009 and
continues to expect GAAP revenue to be in the range of $250 million to
$260 million, with GAAP net income per diluted share between $0.19 and
$0.29, and non-GAAP revenue to be in the range of $260 million to $270
million, with non-GAAP net income per diluted share between $0.55 and
$0.65. The fiscal year 2009 non-GAAP revenue and net income per
diluted share expectations exclude the purchase accounting adjustment
to fair value of approximately $11.3 million of Network General's
deferred revenue, share-based compensation expenses of approximately
$4.8 million, amortization of acquired intangible assets of
approximately $6 million, and non-recurring integration expenses of
approximately $1.8 million.

The revenue guidance for the remainder of fiscal year 2009
recognizes the challenging economic environment and its potential
impact on enterprise IT spending.

Use of Non-GAAP Financial Information

To supplement the financial measures presented in the Company's
press release in accordance with accounting principles generally
accepted in the United States ("GAAP"), the Company also presents
non-GAAP measures relating to revenue, income from operations, net
income and net income per diluted share which were adjusted from
amounts determined based on GAAP to exclude the purchase accounting
adjustment representing the fair value of Network General's deferred
revenue, share-based compensation expenses, amortization of acquired
intangible assets, integration expenses as well as the related income
tax effects.

These non-GAAP measures are not in accordance with, and should not
be considered an alternative for measures prepared in accordance with
GAAP, and these non-GAAP measures may have limitations in that 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.

The Company believes these non-GAAP financial measures will
enhance the reader's overall understanding of NetScout's current
financial performance and the Company'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. The
Company believes that providing these non-GAAP measures affords
investors a view of the Company's operating results that may be more
easily compared to peer companies and also enables investors to
consider the Company's operating results on both a GAAP and non-GAAP
basis during the integration period of the Company's acquisition of
Network General. Presenting the GAAP measures on their own would not
be indicative of the Company's core operating results. Furthermore,
NetScout believes that the presentation of non-GAAP measures when
shown in conjunction with the corresponding GAAP measures provide
useful information to management and investors regarding present and
future business trends relating to its financial conditions and
results of operations.

As discussed above, the Company 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 future periods.

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 866-701-8242 for U.S./Canada
and 706-634-5113 for international callers and using conference ID:
69285275. A replay of the call will be available after 7:30 p.m. ET on
October 23 for approximately one week. The number for the replay is
800-642-1687 for U.S./Canada and 706-645-9291 for international
callers. The conference ID is: 69285275.

About NetScout Systems

NetScout Systems, Inc. (NASDAQ: NTCT) has been an industry leader
for advanced network and service assurance solutions for over twenty
years. NetScout's breakthrough technology solutions provide trusted,
comprehensive real-time and historical performance intelligence,
including advanced early warnings and rapid, definitive problem
analysis. These capabilities are vital to IT operators who are
accountable for reducing the Mean Time to Resolution. The world's
largest enterprises, government agencies, and service providers depend
upon NetScout's nGenius and Sniffer (formerly Network General) brand
solutions to assure service levels to their users by reducing or
preventing disruptions and degradations. More information about
NetScout is available at http://www.netscout.com.

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 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 slowdowns
or downturns in economic conditions generally and in the market for
network performance management solutions specifically, the Company's
relationships with strategic partners, dependence upon broad-based
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, 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. 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, 2008 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)2008 NetScout Systems, Inc. All rights reserved. NetScout and
the NetScout logo and nGenius are registered trademarks of NetScout
Systems, Inc.

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NetScout Systems, Inc.
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)

Three Months Ended Six Months Ended
September 30 September 30
------------------ -----------------
2008 2007 2008 2007
---------- ------- --------- -------
Revenue:
Product $39,513 $18,911 $ 74,430 $36,424
Service 29,348 10,701 55,038 21,101
---------- ------- --------- -------
Total revenue 68,861 29,612 129,468 57,525
---------- ------- --------- -------

Cost of revenue:
Product 12,057 5,204 22,403 9,856
Service 5,289 1,809 10,280 3,608
---------- ------- --------- -------
Total cost of revenue 17,346 7,013 32,683 13,464
---------- ------- --------- -------

Gross profit 51,515 22,599 96,785 44,061
---------- ------- --------- -------

Operating expenses:
Research and development 10,135 4,711 20,308 9,246
Sales and marketing 25,739 11,126 49,798 22,355
General and administrative 6,080 3,192 12,611 6,025
Amortization of acquired
intangible assets 490 - 981 6
---------- ------- --------- -------
Total operating expenses 42,444 19,029 83,698 37,632
---------- ------- --------- -------

Income from operations 9,071 3,570 13,087 6,429
Interest and other income
(expense), net (1,428) 1,061 (3,181) 2,070
---------- ------- --------- -------

Income before income tax expense 7,643 4,631 9,906 8,499
Income tax expense 2,701 1,380 3,467 2,568
---------- ------- --------- -------
Net income $ 4,942 $ 3,251 $ 6,439 $ 5,931
========== ======= ========= =======

Basic net income per share $ 0.13 $ 0.10 $ 0.16 $ 0.18
Diluted net income per share $ 0.12 $ 0.10 $ 0.16 $ 0.18
Shares used in computing:
Basic net income per share 39,201 32,302 39,078 32,221
Diluted net income per share 41,008 33,600 40,781 33,435
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NetScout Systems, Inc.
Non-GAAP Financial Measures and Reconciliations
(In thousands)
(Unaudited)

Three Months Ended Six Months Ended
September 30, September 30,
------------------ ------------------
2008 2007 2008 2007
--------- -------- --------- --------

GAAP Revenue $68,861 $29,612 $129,468 $57,525
Product deferred revenue fair
value adjustment 1,422 - 1,611 -
Service deferred revenue fair
value adjustment 2,723 - 7,306 -
--------- -------- --------- --------
Non-GAAP revenue $73,006 $29,612 $138,385 $57,525
========= ======== ========= ========

GAAP Gross profit $51,515 $22,599 $ 96,785 $44,061
Deferred revenue fair value
adjustment 4,145 - 8,917 -
Shared-based compensation
expense 81 25 147 49
Amortization of acquired
intangible assets 995 105 2,007 209
Integration expense 39 - 286 -
--------- -------- --------- --------
Non-GAAP Gross profit $56,775 $22,729 $108,142 $44,319
========= ======== ========= ========

GAAP Income from operations $ 9,071 $ 3,570 $ 13,087 $ 6,429
Deferred revenue fair value
adjustment 4,145 - 8,917 -
Shared-based compensation
expense (1) 1,188 326 2,379 711
Amortization of acquired
intangible assets (2) 1,485 105 2,988 215
Integration expense (3) 266 - 1,089 -
--------- -------- --------- --------
Non-GAAP Income from operations $16,155 $ 4,001 $ 28,460 $ 7,355
========= ======== ========= ========

GAAP Net income $ 4,942 $ 3,251 $ 6,439 $ 5,931
Deferred revenue fair value
adjustment 4,145 - 8,917 -
Shared-based compensation
expense (1) 1,188 326 2,379 711
Amortization of acquired
intangible assets (2) 1,485 105 2,988 215
Integration expense (3) 266 - 1,089 -
Income tax adjustments (4) (2,692) (164) (5,842) (352)
--------- -------- --------- --------
Non-GAAP Net income $ 9,334 $ 3,518 $ 15,970 $ 6,505
========= ======== ========= ========

GAAP Diluted Net income per share $ 0.12 $ 0.10 $ 0.16 $ 0.18
Share impact of non-GAAP
adjustments identified above 0.11 - 0.23 0.01
--------- -------- --------- --------
Non-GAAP Diluted net income per
share $ 0.23 $ 0.10 $ 0.39 $ 0.19
========= ======== ========= ========

Shares used in computing
non-GAAP diluted net income
per share 41,008 33,600 40,781 33,435

(1)Share-based compensation
expense included in these
amounts is as follows:
Cost of product revenue $ 26 $ 10 $ 53 $ 21
Cost of service revenue 55 15 94 28
Research and development 300 70 611 184
Sales and marketing 511 149 1,041 319
General and administrative 296 82 580 159
--------- -------- --------- --------
Total share-based
compensation expense $ 1,188 $ 326 $ 2,379 $ 711
========= ======== ========= ========

(2)Amortization expense related
to acquired software and
product technology included
in these amounts is as
follows:
Cost of Product Revenue $ 995 $ 105 $ 2,007 $ 209
Operating expenses 490 - 981 6
--------- -------- --------- --------
Total amortization
expense $ 1,485 $ 105 $ 2,988 $ 215
========= ======== ========= ========

(3)Integration expense included
in these amounts is as
follows:
Cost of product revenue $ - $ - $ 141 $ -
Cost of service revenue 39 - 145 -
Research and development 75 - 177 -
Sales and marketing 85 - 199 -
General and administrative 67 - 427 -
--------- -------- --------- --------
Total integration expense $ 266 $ - $ 1,089 $ -
========= ======== ========= ========

(4)Reflects the tax effect of non-GAAP adjustments
above at the statutory rate of 38%
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NetScout Systems, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)

September 30 March 31
2008 2008
------------ -----------

Assets
Current assets:
Cash and cash equivalents $ 64,810 $ 56,702
Marketable securities 13,053 10,465
Accounts receivable, net 25,906 32,048
Inventories 7,285 12,083
Refundable income taxes 5,723 5,036
Deferred income taxes 5,191 6,052
Prepaid expenses and other current assets 5,132 13,546
------------ -----------

Total current assets 127,100 135,932

Fixed assets, net 15,104 16,729
Goodwill 131,754 131,802
Acquired intangible assets, net 62,581 65,569
Deferred financing costs 829 956
Deferred income taxes 34,891 34,891
Long-term marketable securities 31,487 33,764
Restricted cash 122 121
Other assets 723 1,173
------------ -----------
Total assets $ 404,591 $ 420,937
============ ===========

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 7,326 $ 9,207
Accrued compensation 18,441 23,594
Accrued other 5,825 7,805
Income taxes payable 2,173 1,065
Long-term debt, current portion 8,750 6,250
Deferred revenue 58,731 74,257
------------ -----------

Total current liabilities 101,246 122,178

Other long-term liabilities 878 917
Accrued long-term retirement benefits 1,294 1,245
Long-term deferred revenue 6,407 6,764
Long-term debt, net of current portion 87,500 92,500
------------ -----------
Total liabilities 197,325 223,604
------------ -----------

Stockholders' equity:
Common stock 44 43
Additional paid-in capital 188,068 182,789
Accumulated other comprehensive income
(loss) (1,540) 246
Treasury stock (28,939) (28,939)
Retained earnings 49,633 43,194
------------ -----------

Total stockholders' equity 207,266 197,333
------------ -----------

Total liabilities and stockholders'
equity $ 404,591 $ 420,937
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NetScout Systems, Inc.
Catherine Taylor, 978-614-4286
Director of Investor Relations
IR@netscout.com

Copyright Business Wire 2008