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Articles 

NetScout Systems Inc. Reports Operating Results (10-Q)

November 06, 2009 | About:

NetScout Systems Inc. (NASDAQ:NTCT) filed Quarterly Report for the period ended 2009-09-30.

NetScout Systems designs develops manufactures markets and supports afamily of integrated products that enable optimization of the performance and cost management of complex high-speed networks including their ability to deliver critical business applications and content to end-users efficiently. They manufacture and market these products in an integrated hardware and software solution suite that is used by enterprise and service provider businesses worldwide. Netscout Systems Inc. has a market cap of $513.7 million; its shares were traded at around $12.73 with a P/E ratio of 17.9 and P/S ratio of 1.9.

Highlight of Business Operations:

For the six months ended September 30, 2009, our total revenue decreased $11.7 million, or 9%, to $117.8 million compared to $129.5 million for the six months ended September 30, 2008. This decrease is attributable to a 21% decline in product revenue for the six months ended September 30, 2009 when compared to the six months ended September 30, 2008. This revenue decline was the result of the impact of the global economic downturn on our customers capital spending. Our cost of revenue decreased by $7.6 million, or 23%, to $25.0 million compared to $32.7 million for the six months ended September 30, 2008. This decrease is primarily due to decreased revenue as well as cost savings in our manufacturing and service organizations. Gross profit of $92.7 million, or 79% of revenue, for the six months ended September 30, 2009 decreased from $96.8 million, or 75% of revenue, for the six months ended September 30, 2008. The increase in gross profit percentage is attributable to product mix, the decline in the purchase accounting adjustments related to the Network General acquisition and realized cost savings. Our gross profit is significantly affected by the mix and volume of our product and service revenue. Product revenue for the six months ended September 30, 2009 decreased $15.4 million, or 21%, to $59.0 million from $74.4 million for the six months ended September 30, 2008. Service revenue for the six months ended September 30, 2009 increased $3.7 million, or 7%, to $58.7 million from $55.0 million for the six months ended September 30, 2008. We realize significantly higher gross profit on service revenue than on product revenue.

For the six months ended September 30, 2009, our total operating expenses, which include research and development, sales and marketing, general and administrative expenses, and amortization of intangible assets, were $72.2 million, decreasing by $11.5 million, or 14%, compared to $83.7 million of total operating expenses in the six months ended September 30, 2008. The primary contributors to this decrease in operating expenses were a $5.1 million in decreased sales commissions commensurate with the lower sales revenue, a $2.3 million decrease in other incentive compensation and employee related expenses, an $841 thousand decrease in travel expenses, a $1.0 million decrease in professional fees, an $805 thousand decrease of non recurring integration expenses and a $259 thousand reduction in bad debt expense.

Net income for the six months ended September 30, 2009 increased by $5.9 million, or 91%, to $12.3 million compared to net income of $6.4 million for the six months ended September 30, 2008. This increase was attributable to the 14%, or $11.5 million, decrease in operating expenses and a $1.7 million decrease in total

We have continued to see significant benefit from operating leverage and remain focused on increasing our operating margin by increasing overall gross profit while limiting the growth of operating expenses. For the six months ended September 30, 2009, our income from operations was $20.5 million, increasing by $7.4 million compared to income from operations of $13.1 million for the six months ended September 30, 2008. As networks continue to expand, traffic continues to increase, applications become more complex, converged networks become more prevalent, and virtualization, web services and service oriented architectures become more pervasive, our products are ideally positioned to enable IT organizations to optimize, protect and simplify their modern IP network and the services delivered to their users from within the network with packet-flow technology through a unified service delivery management platform. In the first quarter of fiscal year 2010, we announced a technology partnership with Cisco Systems and the integration of our Sniffer® Global product with Ciscos Unified Wireless Networking solution. In the second quarter, we extended our strategic hardware instrumentation offering through the nGenius Infinistream 2900 Series appliance to enable our customers to deploy intelligent Deep Packet Capture capabilities in more places. We also shipped the Sniffer Global network analyzer v3.1 which provided integration into the Cisco Wireless Mobility Service Engine. These enhancements extend the value of our solutions while enabling IT organizations to more effectively manage network and application performance over wired and wireless networks.

Service. The 13%, or $705 thousand, decrease in cost of service revenue was primarily due to decreases in employee related expenses, travel in our support and consulting groups and a decrease in the use of outside contractors by our consulting and training groups. The 2%, or $417 thousand, increase in service gross profit corresponds with the 13%, or $705 thousand, decrease in cost of services offset by the 1%, or $288 thousand, decrease in service revenue. Average headcount in cost of service revenue was 103 and 98 for the three months ended September 30, 2009 and 2008, respectively.

Gross profit. Our gross profit decreased 9%, or $4.7 million. This decrease is attributable to our decrease in revenue of 13%, or $9.2 million, offset by the reduction in product cost of revenue. The net effect of the combined decreases in revenue and cost of revenue was a three point increase in gross profit percentage from the three months ended September 30, 2008 to the three months ended September 30, 2009. This increase in gross profit percentage is primarily attributable to component cost reductions that we have been making over the last several quarters, favorable product mix towards higher margin hardware platforms, a larger percentage of higher margin service revenue, acquisition related synergies and a $3.8 million reduction in purchase accounting adjustments. Our gross profit is significantly affected by the mix and volume of our product and service revenue. Product revenue for the three months ended September 30, 2009 decreased $8.9 million, or 22%, to $30.6 million from $39.5 million for the three months ended September 30, 2008. Service revenue for the three months ended September 30, 2009 decreased $288 thousand, or 1%, to $29.1 million from $29.3 million for the three months ended September 30, 2008. We realize significantly higher gross profit on service revenue than on product revenue.

Read the The complete Report

About the author:

10qk
Charlie Tian, Ph.D., is the founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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