Edgar Filing: NETSCOUT SYSTEMS INC

425

November 11, 2014

NetScout Systems, Inc.

2014 Technology, Internet, Media &

Telecommunications Conference

Filed by NetScout Systems, Inc.

Pursuant to Rule 425 under the Securities Act of 1933, as amended

and deemed filed pursuant to Rule 14a-12

under the Securities Exchange Act of 1934, as amended

Subject Company: NetScout Systems, Inc.

(Commission File No. 000-26251)

The following is a copy of a slide deck to be presented by NetScout Systems, Inc. at an investor conference on November 11, 2014.

Additional Information and Where You Can Find It

NetScout

will

file

Preliminary

Proxy

Statement

Schedule

14A

and

Registration

Statement on Form S-4 containing a prospectus of NetScout and other documents

concerning the proposed acquisition with the Securities and Exchange Commission (“SEC”).

Investors are urged to read the proxy statement and prospectus when they become available

and other relevant documents filed with the SEC because they will contain important

information. Security holders may obtain free copies of the proxy statement and prospectus

(when they are available) and other documents filed by NetScout with the SEC at the SEC’s

website at www.sec.gov. The proxy statement and the prospectus and other documents may

also be obtained for free by contacting Andrew Kramer, Vice President of Investor Relations,

telephone

978-614-4000,

ir@netscout.com,

mail

Investor

Relations,

NetScout Systems, Inc., 310 Littleton Road, Westford, MA 01886.

This communication is not a solicitation of a proxy from any security holder of NetScout.

However, NetScout, Danaher and certain of their respective directors and executive officers

may be deemed to be participants in the solicitation of proxies from NetScout’s stockholders

in connection with the proposed transaction. Information about NetScout’s directors and

executive officers and their beneficial ownership of NetScout’s common stock may be found

in its definitive proxy statement relating to its 2014 Annual Meeting of Shareholders filed with

the SEC on July

24, 2014. This document can be obtained free of charge from the SEC

website at

www.sec.gov.

Safe Harbor & Non-GAAP Financial Metrics

Forward

Looking

Statements:

Forward-looking

statements

this

communication

are

made

pursuant

the

safe

harbor

provisions

Section

21E of the Securities Exchange Act of 1934 and other federal securities laws. Investors are cautioned that statements in this communication,

which are not strictly historical statements. Actual results could differ materially from the forward-looking statements due to known and unknown

risk,

uncertainties,

assumptions

and

other

factors.

Such

factors

include

the

failure

obtain,

delays

obtaining

adverse

conditions

obtaining shareholder or regulatory approvals; the anticipated tax treatment of the transaction and related transactions; risks relating to any

unforeseen changes to or the effects on liabilities, future capital expenditures, revenue, expenses, synergies, indebtedness, financial condition,

losses and future prospects; failure to consummate or delay in consummating the transaction for other reasons; our ability to retain key

executives and employees; slowdowns or downturns in economic conditions generally and in the market for advanced network and service

assurance solutions specifically, the Company’s relationships with strategic partners, dependence upon broad-based acceptance of the

Company’s network performance management solutions, the presence of competitors with greater financial resources than ours and their

strategic response to our products; and the ability of NetScout to successfully integrate the merged assets and the associated technology and

achieve operational efficiencies.

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,

2014

file

with

the

Securities

and

Exchange

Commission.

NetScout

assumes

obligation

update

any

forward-looking information contained in this communication or with respect to the announcements described herein.

Regulation

Disclosure:

This

presentation

makes

reference

certain

non-GAAP

measures

such

non-GAAP

revenue

and

non-GAAP

earnings per share. 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 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. 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 would 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 provide 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

make

operating

decisions.

These

non-GAAP

measures

are

among

the

primary

factors

that

management

uses

planning

and

forecasting.

The

reconciliation

these

non-GAAP

metrics

the

comparable

GAAP

metrics

are

set

forth

the

accompanying

tables

the

index

this

presentation

and

are

available

our

website

http://ir.netscout.com.

NetScout Investment Highlights

•

Market leader

in network and application

performance management

•

Award-winning solutions based on proprietary

software:

“ASI”

enabling

real-time

intelligence

and analytics

•

Helping

our

customers

achieve

ROI

and

manage

risk

through

the

operational

intelligence

gained

from

our

analytics

•

Financial

strength

built

profitability

and

cash

flow

arising

from

increasing

revenue

within

scalable infrastructure

•

Capitalizing on attractive growth opportunities

being

shaped

today’s

trends

•

Announced

transformational

acquisition

Danaher’s Communications Business

Total

Revenue

(non-GAAP)

Earnings

Per Share

(non-GAAP)

Free

Cash

Flow

$309

$352

$397

$57

$83

$97

$1.10

$1.32

$1.53

Our Value Proposition for IT Operations

NetScout Enables Proactive Network, Service and UC Triage

ROI:

Reduce costs

Improve productivity

Generate incremental

revenue

Risks:

Outages/downtime

Cyber attacks

Non-compliance/fines

Reputational damage

Real-time

operational intelligence and analytics

Mobility Trends Driving our Growth:

•

4G/LTE:

Global deployments

Consumer adoption

•

Services deployed (e.g.

VoLTE)

•

Network analytics

•

Geo-analytics

•

Virtualization

•

Voice/video/data

convergence

•

“Big Data”

Source: Ericsson Mobility Report, May 2014

Service Providers:

Monetize their investment and retain customers

Trends Impacting Enterprise IT

Enterprise: “Uptime”

and user experience with cost-effective delivery

Incident

Session

Analysis

Packet

Analysis

IP Traffic Deep Dive

Problem Solved

UMC/OSS

Service Dashboard

Service Monitors

Dependency Mapping

Component Performance

Management

•

Mobility: “BYOD”

•

Virtualization

•

Unified

communications

•

Converged

infrastructure

•

Cloud-based services

•

“Big Data”

•

“Internet of things”

Network

Application

Server

Why NetScout will continue to win….

Today’s fundamentals:

Secular IT Trends

Product Strategy

Financial Strength

Tomorrow’s information:

ASI solving “Big Data’s”

data problem

NetScout: Proven technology for proving change…

Revenue and EPS Performance

CAGRS at FY ‘15 Guidance Mid-points:

Revenue: 9.5% EPS: 11%

Guidance as of October 16, 2014

Non-GAAP, in millions except EPS

EPS range:

$1.74 -

$1.81

Revenue range:

$450 -

$465

$174

$211

$0.55

$0.76

$290

$309

$352

$397

$465

$1.04

$1.10

$1.32

$1.53

$1.81

FY '11

FY '12

FY '13

FY '14

FY '15

Guidance

1H'14

Q1'15

Cumulative Free Cash Flow Generation (in millions)

Capital deployment priority: product development

$100

$200

$300

$400

FY '10

FY '11

FY '12

FY '13

FY '14

FY '15 YTD

FY '15 YTD FCF

FY '14 FCF

FY '13 FCF

FY '12 FCF

FY '11 FCF

FY '10 FCF

$40

$100

$157

$240

$337

$362

NetScout Investment Position:

Balance Sheet Highlights (in millions)

Total liquidity exceeds $465M

Q2 FY ‘15

FY ’14

FY ’13

FY ’12

FY ’11

Cash and Securities

$217

$219

$154

$214

$229

Accounts Receivable

$50

$61

$74

$70

$63

Total Debt

$62

$68

Total Deferred Revenue

$118

$134

$121

$112

$100

Total Stockholders’

Equity

$413

$409

$372

$342

$320

Free Cash Flow

$25

$97

$83

$57

$60

NetScout Operating Targets

Operating targets

attained at mid-

teens revenue

growth.

Operating

Targets

FY ’15

Guidance

(as of 10/16/14)

Gross Margin

78 –

81%

79 –

80%

R&D of Revenue

13 –

15%

15 –

16%

S&M of Revenue

33 –

35%

32 –

33%

G&A of Revenue

6 –

Operating Margin

24 –

27%

26 –

27%

Scalable organization increases operating leverage

Non-GAAP

Strategic Direction and Opportunity

•

NetScout is well positioned within its core

markets with a differentiated product

portfolio, innovative technology and a

compelling value proposition

•

Service providers and enterprises have

invested significantly in their infrastructures

during the past decade but they lack holistic

IT management

Acquiring Danaher’s Communications

Expanded solutions for addressing

customer needs

Go-to-market advantages

Scale and leverage

Virtualization

Cloud

SDN

Mobility

BYOD

Internet

iPhone

Voice

Cable

IP Convergence

10gig

40gig

100gig

Business provides:

Go-to-Market

More global and diverse

Broader sales and

channel presence

worldwide

More customers and

more touch points within

the customer

Increased customer

mindshare

Best-In-Class

Solutions

Broader portfolio for

service providers

Extends reach into the

mid-tier enterprise

market

Jump-starts our entry

into Cyber Intelligence

Next-Gen platform and

software

Financially Compelling

$1.2B+ revenue base*

positioned for growth

Accretive to non-GAAP

earnings

Year 2 run-rate cost

synergies of ~5% of total

combined cost base*

Continued prudent cost

control

NetScout to Acquire Danaher’s Communications Business:

Strategic Rationale

Non-GAAP

First full year of combined operations

Doubles our total

addressable market to

$8B+

Furthering our strategic

capabilities to our

customers

Increasing operating

margins and cash flow

NetScout to Acquire Danaher’s Communications Business:

Transaction Overview

Structure and

Consideration

Ownership

(2)

Board of

Directors

Management

Headquarters

Closing

Conditions

•

NetScout to acquire Danaher’s Communications Group

•

NetScout

issue

62.5

million

shares,

valued

approximately

$2.3

billion

(1)

•

Structured as Reverse Morris Trust

•

Danaher shareholders: 59.5%

•

NetScout shareholders: 40.5%

•

Current NetScout Board to remain in place

•

Anil Singhal to continue as Chairman of the Board

•

James A. Lico, EVP of Danaher, to join the Board, expanding it to 8 directors

•

NetScout CEO and other executives to continue in their respective roles

•

Westford, MA

•

Transaction anticipated to close in first 6 months of NetScout’s FY 2016,

subject to NetScout shareholder and regulatory approvals, and receipt by

Danaher of a ruling by the U.S. Internal Revenue Service and opinions of

counsel regarding certain tax matters

(1)

Based on NetScout’s closing share price of $37.34 on November 4, 2014.

(2)

Includes estimated RSUs to be issued to SpinCo employees.

Strategy:

Continued leadership in the major computing trends over the next

decade

Helping our customers achieve ROI and manage risk through the

operational intelligence gained from our analytics

Transformational acquisition positions NetScout with a broader, longer

runway to drive revenue, profit and free cash flow growth over the long-

term.

Fundamentals:

Visionary leadership

Cutting edge technology: ASI and nGeniusONE

Brand recognition through market leadership

Scalable infrastructure requiring limited future investment

Solid cash flow and investment position

Proven track record of leadership and financial strength

Thank You

Appendix: Non-GAAP Measure Reconciliation

Non-GAAP Measure Reconciliation:

Revenue, EPS and Free Cash Flow

($ in millions)

1H FY'15

Operating Cash Flow

29.0

Purchase of Fixed Assets & Intangible Assets

(4.1)

Free Cash Flow

24.9

Free Cash Flow

(in thousands, except per share data)

For the Fiscal Years Ended

March 31,

2011

2012

2013

2014

GAAP Revenue

290,540

308,679

350,550

396,647

Deferred revenue fair value adjustment

132

312

1,215

558

Non-GAAP Revenue

290,672

308,991

351,765

397,205

GAAP Gross profit

229,179

243,007

276,542

$ 312,134

Deferred revenue fair value adjustment

132

312

1,215

558

Inventory fair value adjustment

453

Share-based compensation expense (1)

352

419

577

969

Amortization of acquired intangible assets (2)

3,980

4,651

4,547

3,333

Compensation for post combination services (4)

Non-GAAP Gross profit

233,643

248,399

283,348

317,028

GAAP Income from operations

58,065

53,683

64,529

78,014

Deferred revenue fair value adjustment

132

312

1,215

558

Inventory fair value adjustment

453

Share-based compensation expense (1)

6,439

8,702

9,580

12,930

Amortization of acquired intangible assets (2)

5,887

6,782

7,424

6,765

Business development and integration expense (3)

755

4,347

1,618

523

Compensation for post combination services (4)

438

2,721

2,215

Restructuring charges

603

1,065

Non-GAAP Income from operations

71,278

74,867

88,605

101,005

GAAP Net income

37,265

32,428

40,609

49,106

Deferred revenue fair value adjustment

132

312

1,215

558

Inventory fair value adjustment

453

Share-based compensation expense (1)

6,439

8,702

9,580

12,930

Amortization of acquired intangible assets (2)

5,887

6,782

7,424

6,765

Business development and integration expense (3)

755

4,715

1,618

523

Compensation for post combination services (4)

438

2,721

2,215

Loss on extinguishment of debt (5)

603

Income tax adjustments (6)

(5,021)

(7,700)

(8,671)

(7,879)

Restructuring charges

690

1,065

Non-GAAP Net income

45,457

46,970

56,014

64,218

GAAP Diluted Net income per share

0.87

0.76

0.96

1.17

Share impact of non-GAAP adjustments identified above

0.19

0.34

0.36

Non-GAAP Diluted net income per share

1.06

1.10

1.32

1.53

Shares used in computing non-GAAP diluted net income per share

42,973

42,750

42,322

41,955

(1) Share-based compensation expense included in these amounts is as follows:

Cost of product revenue

134

192

235

228

Cost of service revenue

218

227

342

741

Research and development

1,651

2,486

2,944

4,361

Sales and marketing

2,527

3,052

3,035

3,791

General and administrative

1,909

2,745

3,024

3,809

Total share-based compensation expense

6,439

8,702

9,580

12,930

(2) Amortization expense related to acquired software and product technology included in these amounts is as follows:

Cost of product revenue

3,980

4,651

4,547

3,333

Operating expenses

1,907

2,131

2,877

3,432

Total amortization expense

5,887

6,782

7,424

6,765

(3) Business development and integration expense included in these amounts is as follows:

Cost of service revenue

Research and development

1,545

Sales and marketing

346

General and administrative

755

2,446

1,593

523

Other income (expense), net

368