ArcSight Reports 27% Year-over-Year Growth

Company Posts Total Revenues of $46.1M for Fiscal Third Quarter and GAAP and Non-GAAP Earnings per Diluted Share of $0.06 and $0.15, Respectively

For the Fiscal Third Quarter:

Total Revenue: $46.1M, a 27% increase year-over-year
GAAP Net Income: $2.2M or $0.06 per diluted share
Non-GAAP Net Income: $5.3M or $0.15 per diluted share
Positive Cash Flows from Operations: $23.2M

CUPERTINO, CA – March 4, 2010 – ArcSight, Inc. (NASDAQ: ARST), a leading global provider of security and compliance management solutions that protect enterprises and government agencies, today announced financial results for its fiscal third quarter ended January 31, 2010.

For the third quarter of fiscal 2010, ArcSight reported total revenues of $46.1 million compared to total revenues of $36.4 million reported in the third quarter of fiscal 2009. Net income on a GAAP basis for the third quarter of fiscal 2010 was $2.2 million, or $0.06 per diluted share, including $223,000 in amortization of intangible assets and $2.8 million in stock-based compensation expense. This compares to a GAAP net income of $5.1 million, or $0.15 per diluted share, reported in the third quarter of fiscal 2009, including $210,000 in amortization of intangible assets and $1.7 million in stock-based compensation expense. During the third quarter of fiscal 2009, ArcSight made significant reductions in operating expenses in response to the rapid deterioration in global and U.S. economic and financial market conditions, resulting in an unusually high level of profitability during the period as revenues remained relatively strong. In fiscal 2010, the company returned to its more typical investment for future growth, making it difficult to compare third quarter fiscal 2010 profitability with the same period of the prior year.

Non-GAAP net income for the third quarter of fiscal 2010 was $5.3 million, or $0.15 per diluted share, which compares to a non-GAAP net income of $6.9 million, or $0.21 per diluted share, reported in the third quarter of fiscal 2009, in each case excluding the above-mentioned amortization and stock-based compensation charges.

During the third quarter of fiscal 2010, the company generated $23.2 million in cash from operations and closed the third quarter with cash, cash equivalents and short term investments of $131.8 million.

“We are very pleased with another quarter of strong results and the growth opportunities going forward,” commented Tom Reilly, president and CEO of ArcSight. “We believe the long-term growth opportunities in the public sector and emerging regulations in healthcare and critical infrastructure verticals will continue to fuel investments in security and compliance solutions.”

Business Outlook

The following forward-looking statements reflect expectations as of March 4, 2010. Results may be materially different and could be affected by the factors detailed in this release and in recent ArcSight SEC filings.

Fourth Quarter Expectations – Ending April 30, 2010
Based on current business trends and the visibility the company has from third quarter performance, ArcSight expects revenue for the fourth quarter of fiscal 2010 to be in the range of $48 million to $52 million, representing growth in the range of 22-32% over the same quarter of fiscal 2009.

ArcSight expects non-GAAP net income for the fourth quarter of fiscal 2010 to be in the range of $5.0 million to $6.7 million, or $0.14 to $0.18 per diluted share, which excludes stock-based compensation expense and amortization of intangibles.

Full Year Expectations – Fiscal Year Ending April 30, 2010
For fiscal 2010, ArcSight expects revenue to be in the range of $174.2 million to $178.2 million and non-GAAP net income in the range of $18.7 million to $20.4 million, or $0.52 to $0.57 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 March 4, 2010. To access the conference call, dial (877) 303-6129 for the U.S. or Canada and (678) 809-1057 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 5:00 p.m. Pacific Time on March 4, 2010 until 9:00 p.m. Pacific Time on March 9, 2009, by dialing (800) 642-1687 for the U.S. or Canada or (706) 645-9291 for international callers, and entering passcode 57157070. 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 unaudited 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” (“Fourth Quarter Expectations – Ending April 30, 2010” and “Full Year Expectations – Fiscal Year Ending April 30, 2010”); and ArcSight’s belief that the long-term growth opportunities in the public sector and emerging regulations in healthcare and critical infrastructure verticals continue to fuel investments in security and compliance solutions. 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 our security and compliance management solutions may not increase and may decrease, including in the verticals that ArcSight believes represent long term growth opportunities; 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 ArcSight Quarterly Report on Form 10 Q filed with the Securities and Exchange Commission, or the SEC, on December 9, 2009 and the company’s other filings with the SEC. You can obtain copies of the company’s Quarterly Report on Form 10 Q 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 security and compliance management solutions that protect businesses and government agencies. ArcSight identifies, assesses, and mitigates both internal and external cyber threats and risks across the organization for activities associated with critical assets and processes. With the market-leading ArcSight SIEM platform, organizations can proactively safeguard their assets, comply with corporate and regulatory policy and control the risks associated with cyber-theft, cyber-fraud, cyber-warfare and cyber-espionage. For more information, visit www.arcsight.com. (ARST-IR)

Investor Relations Contact:
Robert Dougherty
FD
415-293-4427
robert.dougherty@fd.com