Ixia Reports Operating Results (10-Q)

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Nov 05, 2010
Ixia (XXIA, Financial) filed Quarterly Report for the period ended 2010-09-30.

Ixia has a market cap of $1.05 billion; its shares were traded at around $16.29 with a P/E ratio of 66.7 and P/S ratio of 5.9. XXIA is in the portfolios of Bruce Kovner of Caxton Associates.

Highlight of Business Operations:

Sales to our largest customer accounted for approximately $9.0 million, or 12.7%, and $30.5 million, or 15.3%, of our total revenues for the three and nine months ended September 30, 2010, respectively, and $6.4 million, or 13.7%, and $20.3 million, or 16.7%, of our total revenues for the three and nine months ended September 30, 2009, respectively. To date, we have sold the majority of our products to network equipment manufacturers. While we expect that we will continue to have some customer concentration for the foreseeable future, we continue to sell our products to a wider variety and increasing number of customers. To the extent that we continue to develop a broader and more diverse customer base, our reliance on any one customer or customer type should decline. From a geographic perspective, we have historically generated the majority of our revenues from product shipments to customer locations within the United States. For the three and nine months ended September 30, 2010, we generated revenues from product shipments to international locations of $37.2 million, or 52.5%, and $97.1 million, or 48.8%, of our total revenues for the three and nine months ended September 30, 2010, respectively, compared to $19.1 million, or 41.3%, and $49.3 million, or 40.5%, of our total revenues for the three and nine months ended September 30, 2009, respectively. During the three and nine months ended September 30, 2010, our revenues generated from international locations increased both in dollars and as a percentage of revenues when compared to the same periods in 2009 primarily due to additional international sales arising from our acquisitions of Catapult in June 2009 and N2X in October 2009. Our sales in the Asia Pacific region were $22.1 million and $59.5 million for the three and nine months ended September 30, 2010, respectively, and $11.8 million and $28.3 million for the three and nine months ended September 30, 2009, respectively. The increase in sales for the Asia Pacific region was led by Japan, which generated sales of $8.6 million and $21.2 million for the three and nine months ended September 30, 2010, respectively, compared to $4.0 million and $10.8 million for the three and nine months ended September 30, 2009, respectively. The increase in Japan sales was primarily due to the contributions from our acquisitions in 2009. We also intend to continue increasing our sales efforts internationally with a targeted focus in the Europe and Asia Pacific regions. Looking forward, and given our 2009 acquisitions of Catapult and N2X, we expect our international revenues to be approximately 50% of our total revenues on an annualized basis.

In the first nine months of 2010, total revenues increased 63.3% to $199.0 million from $121.9 million recorded in the same period of 2009. As a result of our 2009 Acquisitions, revenues for the first nine months of 2010 included approximately $56.2 million related to the 2009 Acquisitions. The first nine months of 2009 included approximately $10.4 million in revenue related to Catapult from the acquisition date through September 30, 2009. Excluding the revenues from our 2009 Acquisitions, revenues increased to $142.8 million in the first nine months of 2010 from $111.5 million in the first nine months of 2009 principally due to a $26.5 million increase in shipments of our hardware products (primarily our 10 Gigabit and 40/100 Gigabit Ethernet interface cards) in the first nine months of 2010 over the same period in 2009.

Research and Development Expenses. In the third quarter of 2010, research and development expenses increased 30.0% to $17.8 million from $13.7 million in the third quarter of 2009. As a result of our 2009 Acquisitions, our research and development expenditures in the third quarter of 2010 and 2009 included approximately $4.9 million and $3.0 million, respectively, related to the research and development activities of the acquired operations. Excluding the incremental research and development costs related to the 2009 Acquisitions, research and development expenses in the third quarter of 2010 were $12.9 million compared to $10.7 million in the third quarter of 2009. This increase was primarily due to an increase in compensation and related employee costs of $1.1 million and an increase in stock-based compensation expense of $595,000. The increase in compensation and related employee costs was primarily due to the reinstatement of our global bonus plan in 2010.

Research and development expenses for the first nine months of 2010 increased 46.8% to $54.3 million from $37.0 million in the same period of 2009. As a result of our 2009 Acquisitions, our research and development expenditures in the first nine months of 2010 and 2009 included approximately $16.2 million and $3.2 million, respectively, related to the research and development activities of the acquired operations. Excluding the incremental research and development costs related to the 2009 Acquisitions, research and development expense in the first nine months of 2010 was $38.1 million compared to $33.8 million in the first nine months of 2009. This increase was primarily due to an increase in compensation and related employee costs, including travel, of $3.7 million. The increase in compensation and related employee costs was primarily due to the reinstatement of our global bonus plan in 2010.

Sales and Marketing Expenses. In the third quarter of 2010, sales and marketing expenses increased 29.6% to $19.7 million from $15.2 million in the third quarter of 2009. As a result of our 2009 Acquisitions, our sales and marketing costs in the third quarter of 2010 and 2009 included approximately $6.4 million and $3.5 million, respectively, related to these acquisitions. Excluding the incremental sales and marketing costs related to the 2009 Acquisitions, sales and marketing expenses in the third quarter of 2010 were $13.3 million compared to $11.7 million in the third quarter of 2009. This increase was primarily due to an increase in commissions of $855,000 as revenues increased compared to the same period last year, as well as an increase in stock-based compensation expense of $501,000.

For the first nine months of 2010, general and administrative expenses increased 27.7% to $25.7 million from $20.1 million in the same period of 2009. As a result of our 2009 Acquisitions, the first nine months of 2010 and 2009 included approximately $892,000 and $1.1 million, respectively, of general and administrative costs of the acquired operations. Excluding the incremental general and administrative costs related to the 2009 Acquisitions, general and administrative expenses in the first nine months of 2010 were $24.8 million compared to $19.0 million in the first nine months of 2009. This increase was primarily due to an increase in compensation and related employee costs of $2.9 million, higher systems and application related costs of approximately $900,000 and an increase in stock-based compensation expense. The increase in compensation and related employee costs was primarily due to the reinstatement of our global bonus plan in 2010 and annual salary increases.

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