UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0000-26251
NETSCOUT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 04-2837575 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
310 Littleton Road, Westford, MA 01886
(978) 614-4000
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of February 5, 2004 was 30,348,140.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2003
TABLE OF CONTENTS
| PART I: FINANCIAL INFORMATION |
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| Item 1. Financial Statements |
3 | |
| a.) Condensed Consolidated Balance Sheets: |
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| 3 | ||
| b.) Condensed Consolidated Statements of Operations: |
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| For the three and nine months ended December 31, 2003 and December 31, 2002 |
4 | |
| c.) Condensed Consolidated Statements of Cash Flows: |
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| For the nine months ended December 31, 2003 and December 31, 2002 |
5 | |
| 6 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
34 | |
| Item 4. Controls and Procedures |
34 | |
| PART II: OTHER INFORMATION |
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| 35 | ||
| Item 6. Exhibits and Reports on Form 8-K |
35 | |
| 36 | ||
| 37 | ||
2
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
| December 31, 2003 |
March 31, 2003 |
|||||||
| Assets |
||||||||
| Current assets: |
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| Cash and cash equivalents |
$ | 23,154 | $ | 43,823 | ||||
| Marketable securities |
38,028 | 27,442 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $90 and $146 at December 31, 2003 and March 31, 2003, respectively |
9,486 | 11,906 | ||||||
| Inventories, net |
2,973 | 2,982 | ||||||
| Refundable income taxes |
1,935 | 1,226 | ||||||
| Deferred income taxes |
1,667 | 1,782 | ||||||
| Prepaids and other current assets |
2,037 | 2,088 | ||||||
| Total current assets |
79,280 | 91,249 | ||||||
| Fixed assets, net |
5,844 | 6,912 | ||||||
| Capitalized software development costs, net |
1,049 | - | ||||||
| Goodwill, net |
28,839 | 28,839 | ||||||
| Other intangible assets, net |
- | 272 | ||||||
| Deferred income taxes |
7,586 | 7,651 | ||||||
| Long-term marketable securities |
12,528 | - | ||||||
| Total assets |
$ | 135,126 | $ | 134,923 | ||||
| Liabilities and Stockholders’ Equity |
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| Current liabilities: |
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| Accounts payable |
$ | 1,915 | $ | 1,403 | ||||
| Accrued compensation |
3,728 | 3,658 | ||||||
| Accrued other |
2,201 | 1,819 | ||||||
| Deferred revenue |
14,619 | 16,242 | ||||||
| Total current liabilities |
22,463 | 23,122 | ||||||
| Commitments and contingencies (Note 7) |
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| Stockholders’ equity: |
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| Preferred stock, $0.001 par value: 5,000,000 shares authorized; no shares issued or outstanding at December 31, 2003 and March 31,2003 |
- | - | ||||||
| Common stock, $0.001 par value: 150,000,000 shares authorized; 34,489,595 and 34,151,894 shares issued and 30,286,372 and 29,982,671 shares outstanding at December 31, 2003 and March 31, 2003, respectively |
34 | 34 | ||||||
| Additional paid-in capital |
110,101 | 108,835 | ||||||
| Accumulated other comprehensive income (loss) |
(11 | ) | 7 | |||||
| Deferred compensation |
(26 | ) | (132 | ) | ||||
| Treasury stock at cost, 4,203,223 and 4,169,223 shares at December 31, 2003 and March 31, 2003, respectively |
(26,490 | ) | (26,366 | ) | ||||
| Retained earnings |
29,055 | 29,423 | ||||||
| Total stockholders’ equity |
112,663 | 111,801 | ||||||
| Total liabilities and stockholders’ equity |
$ | 135,126 | $ | 134,923 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| Three Months Ended December 31, |
Nine Months Ended December 31, |
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| 2003 |
2002 |
2003 |
2002 |
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| Revenue: |
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| Product |
$ | 11,190 | $ | 10,641 | $ | 29,696 | $ | 31,473 | |||||||
| Service |
7,268 | 6,401 | 21,017 | 18,086 | |||||||||||
| License and royalty |
432 | 1,113 | 1,295 | 4,382 | |||||||||||
| Total revenue |
18,890 | 18,155 | 52,008 | 53,941 | |||||||||||
| Cost of revenue: |
|||||||||||||||
| Product |
3,462 | 3,363 | 9,601 | 10,212 | |||||||||||
| Service (including stock-based compensation of $-, $2, $2 and $5, respectively) |
1,066 | 1,228 | 3,132 | 3,362 | |||||||||||
| Total cost of revenue |
4,528 | 4,591 | 12,733 | 13,574 | |||||||||||
| Gross margin |
14,362 | 13,564 | 39,275 | 40,367 | |||||||||||
| Operating expenses: |
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| Research and development (including stock-based compensation of $24, $46, $95 and $779, respectively) |
3,836 | 4,050 | 10,515 | 12,834 | |||||||||||
| Sales and marketing (including stock-based compensation of $3, $16, $13 and $54, respectively) |
8,655 | 8,502 | 24,637 | 25,289 | |||||||||||
| General and administrative (including stock-based compensation of $-, $2, $- and $5, respectively) |
1,553 | 1,708 | 4,752 | 5,953 | |||||||||||
| Amortization of other intangible assets |
- | 272 | 272 | 816 | |||||||||||
| Total operating expenses |
14,044 | 14,532 | 40,176 | 44,892 | |||||||||||
| Income (loss) from operations |
318 | (968 | ) | (901 | ) | (4,525 | ) | ||||||||
| Interest income and other expenses, net |
167 | 258 | 524 | 897 | |||||||||||
| Income (loss) before income tax expense (benefit) |
485 | (710 | ) | (377 | ) | (3,628 | ) | ||||||||
| Income tax expense (benefit) |
301 | (382 | ) | (9 | ) | (1,443 | ) | ||||||||
| Net income (loss) |
$ | 184 | $ | (328 | ) | $ | (368 | ) | $ | (2,185 | ) | ||||
| Basic net income (loss) per share |
$ | 0.01 | $ | (0.01 | ) | $ | (0.01 | ) | ($0.07 | ) | |||||
| Diluted net income (loss) per share |
$ | 0.01 | $ | (0.01 | ) | $ | (0.01 | ) | ($0.07 | ) | |||||
| Shares used in computing: |
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| Basic net income (loss) per share |
30,182 | 29,940 | 30,092 | 29,870 | |||||||||||
| Diluted net income (loss) per share |
31,440 | 29,940 | 30,092 | 29,870 | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Nine Months Ended December 31, |
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| 2003 |
2002 |
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| Cash flows from operating activities: |
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| Net loss |
$ | (368 | ) | $ | (2,185 | ) | ||
| Adjustments to reconcile net loss to cash provided by operating activities: |
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| Depreciation |
2,320 | 2,784 | ||||||
| Amortization of other intangible assets |
272 | 816 | ||||||
| Amortization of capitalized software |
276 | - | ||||||
| Loss on disposal of fixed assets |
38 | 28 | ||||||
| Loss on write-off of note receivable |
- | 1,019 | ||||||
| Compensation expense associated with equity awards |
110 | 843 | ||||||
| Deferred income taxes |
414 | (1,406 | ) | |||||
| Changes in assets and liabilities: |
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| Accounts receivable, net |
2,420 | 2,297 | ||||||
| Inventories |
9 | 558 | ||||||
| Refundable income taxes |
(709 | ) | - | |||||
| Prepaids and other current assets |
42 | 72 | ||||||
| Accounts payable |
512 | (961 | ) | |||||
| Accrued compensation and other expenses |
452 | (2,377 | ) | |||||
| Income taxes payable |
- | (430 | ) | |||||
| Deferred revenue |
(1,623 | ) | 646 | |||||
| Net cash provided by operating activities |
4,165 | 1,704 | ||||||
| Cash flows from investing activities: |
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| Purchase of marketable securities |
(84,338 | ) | (73,802 | ) | ||||
| Proceeds from maturity of marketable securities |
61,215 | 83,765 | ||||||
| Purchase of fixed assets |
(1,290 | ) | (1,629 | ) | ||||
| Software development cost expenditures |
(1,325 | ) | - | |||||
| Net cash provided by (used in) investing activities |
(25,738 | ) | 8,334 | |||||
| Cash flows from financing activities: |
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| Proceeds from issuance of common stock |
1,028 | 976 | ||||||
| Purchase of common stock as treasury stock |
(124 | ) | - | |||||
| Net cash provided by financing activities |
904 | 976 | ||||||
| Net increase (decrease) in cash and cash equivalents |
(20,669 | ) | 11,014 | |||||
| Cash and cash equivalents, beginning of year |
43,823 | 19,332 | ||||||