NetScout Systems Inc. (NTCT, Financial) filed Quarterly Report for the period ended 2009-12-31.
Netscout Systems Inc. has a market cap of $570 million; its shares were traded at around $14.02 with a P/E ratio of 19.4 and P/S ratio of 2.2. NTCT is in the portfolios of Chuck Royce of ROYCE & ASSOCIATES, PRIMECAP Management.
to a 15% decline in product revenue for the nine months ended December 31, 2009 when compared to the nine months ended December 31, 2008. This revenue decline was the result of the impact of the global economic downturn on our customers capital spending, which caused a $9.8 million decline in product revenues for our financial vertical and a $5.2 million revenue decline for our telecommunications vertical. In a reversal of this trend, we experienced growth in our telecommunications vertical of $7.4 million during the quarter ended December 31, 2009 as compared to the same period in the prior year. During the nine months ended December 31, 2009, we experienced an increase in average selling price per unit due to a shift in product mix towards our higher priced Infinistream product line and away from our lower priced probes. We also recorded $5.5 million of product revenue for a new lower capacity Infinistream product launched during fiscal 2010. Revenue for the nine months ended December 31, 2009 also reflects a decline of $9.8 million in the impact of purchase accounting adjustments resulting from our acquisition of Network General Central Corporation, or Network General, in November 2007. As a result of this acquisition, acquired deferred revenue was reduced to fair value to eliminate selling profit from the contracts that were acquired from Network General. As the fair value adjusted deferred revenue amortizes over time, it comprised a smaller proportion of total maintenance and product revenue during the nine months ended December 31, 2009. Subsequent product revenues and maintenance renewal contracts are recorded at their full value and thus result in significantly higher recorded revenue.
Our cost of revenue decreased by $8.3 million, or 17%, to $40.4 million compared to $48.7 million for the nine months ended December 31, 2008. This decrease is primarily due to decreased revenue and product mix. Gross profit of $148.0 million, or 79% of revenue, for the nine months ended December 31, 2009 decreased from $152.8 million, or 76% of revenue, for the nine months ended December 31, 2008. The increase in gross profit percentage is attributable to the favorable product mix and higher revenue associated with the decline in the purchase accounting adjustments to acquired deferred revenue. Our gross profit is affected by the mix and volume of our product and service revenue. Product revenue for the nine months ended December 31, 2009 decreased $17.6 million, or 15%, to $99.8 million from $117.4 million for the nine months ended December 31, 2008. Service revenue for the nine months ended December 31, 2009 increased $4.5 million, or 5%, to $88.7 million from $84.1 million for the nine months ended December 31, 2008. We realize higher gross profit on service revenue than on product revenue, so this shift in mix towards service revenue contributed to the increase in gross profit percentage.
For the nine months ended December 31, 2009, our total operating expenses, which include research and development, sales and marketing, general and administrative expenses, and amortization of intangible assets, were $113.7 million, decreasing by $12.8 million, or 10%, compared to $126.5 million of total operating expenses in the nine months ended December 31, 2008. The primary contributors to this decrease in operating expenses were a $3.5 million decline in sales commissions because of the lower sales revenue, a $3.3 million decrease in other incentive compensation and employee related expenses, a $1.4 million decrease in travel expenses, a $2.2 million decrease in professional fees, a $1.4 million decrease in non recurring integration expenses and a $384 thousand reduction in bad debt expense.
Net income for the nine months ended December 31, 2009 increased by $6.5 million, or 45%, to $20.9 million compared to net income of $14.4 million for the nine months ended December 31, 2008. This increase was attributable to the 10%, or $12.8 million, decrease in operating expenses and a $2.2 million decrease in total interest and other income (expense), net, partially offset by a decrease in total product and service gross profit of $4.8 million as well as an increase of $3.7 million, or 49%, in income tax expense due to the higher pre-tax income.
Service. The 3%, or $831 thousand, increase in service revenue was primarily due to a decline of $1.7 million in purchase accounting adjustments to deferred service revenue associated with our acquisition of Network General, as well as growth in other services. As a result of this acquisition, acquired deferred revenue was reduced to fair value to eliminate selling profit from the contracts that were acquired from Network General. As the fair value adjusted deferred revenue amortized over time, it comprised a smaller proportion of total maintenance revenue during the three months ended December 31, 2009. Subsequent maintenance renewal contracts are recorded at their full value and thus result in significantly higher recorded revenue. This was offset by a $1.2 million decrease in maintenance revenue due to a portion of our customers not renewing their customer support agreements as well as the Company regularly ending support for some of its older product models. While
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Netscout Systems Inc. has a market cap of $570 million; its shares were traded at around $14.02 with a P/E ratio of 19.4 and P/S ratio of 2.2. NTCT is in the portfolios of Chuck Royce of ROYCE & ASSOCIATES, PRIMECAP Management.
Highlight of Business Operations:
For the nine months ended December 31, 2009, our total revenue decreased $13.1 million, or 6%, to $188.5 million compared to $201.5 million for the nine months ended December 31, 2008. This decrease is attributableto a 15% decline in product revenue for the nine months ended December 31, 2009 when compared to the nine months ended December 31, 2008. This revenue decline was the result of the impact of the global economic downturn on our customers capital spending, which caused a $9.8 million decline in product revenues for our financial vertical and a $5.2 million revenue decline for our telecommunications vertical. In a reversal of this trend, we experienced growth in our telecommunications vertical of $7.4 million during the quarter ended December 31, 2009 as compared to the same period in the prior year. During the nine months ended December 31, 2009, we experienced an increase in average selling price per unit due to a shift in product mix towards our higher priced Infinistream product line and away from our lower priced probes. We also recorded $5.5 million of product revenue for a new lower capacity Infinistream product launched during fiscal 2010. Revenue for the nine months ended December 31, 2009 also reflects a decline of $9.8 million in the impact of purchase accounting adjustments resulting from our acquisition of Network General Central Corporation, or Network General, in November 2007. As a result of this acquisition, acquired deferred revenue was reduced to fair value to eliminate selling profit from the contracts that were acquired from Network General. As the fair value adjusted deferred revenue amortizes over time, it comprised a smaller proportion of total maintenance and product revenue during the nine months ended December 31, 2009. Subsequent product revenues and maintenance renewal contracts are recorded at their full value and thus result in significantly higher recorded revenue.
Our cost of revenue decreased by $8.3 million, or 17%, to $40.4 million compared to $48.7 million for the nine months ended December 31, 2008. This decrease is primarily due to decreased revenue and product mix. Gross profit of $148.0 million, or 79% of revenue, for the nine months ended December 31, 2009 decreased from $152.8 million, or 76% of revenue, for the nine months ended December 31, 2008. The increase in gross profit percentage is attributable to the favorable product mix and higher revenue associated with the decline in the purchase accounting adjustments to acquired deferred revenue. Our gross profit is affected by the mix and volume of our product and service revenue. Product revenue for the nine months ended December 31, 2009 decreased $17.6 million, or 15%, to $99.8 million from $117.4 million for the nine months ended December 31, 2008. Service revenue for the nine months ended December 31, 2009 increased $4.5 million, or 5%, to $88.7 million from $84.1 million for the nine months ended December 31, 2008. We realize higher gross profit on service revenue than on product revenue, so this shift in mix towards service revenue contributed to the increase in gross profit percentage.
For the nine months ended December 31, 2009, our total operating expenses, which include research and development, sales and marketing, general and administrative expenses, and amortization of intangible assets, were $113.7 million, decreasing by $12.8 million, or 10%, compared to $126.5 million of total operating expenses in the nine months ended December 31, 2008. The primary contributors to this decrease in operating expenses were a $3.5 million decline in sales commissions because of the lower sales revenue, a $3.3 million decrease in other incentive compensation and employee related expenses, a $1.4 million decrease in travel expenses, a $2.2 million decrease in professional fees, a $1.4 million decrease in non recurring integration expenses and a $384 thousand reduction in bad debt expense.
Net income for the nine months ended December 31, 2009 increased by $6.5 million, or 45%, to $20.9 million compared to net income of $14.4 million for the nine months ended December 31, 2008. This increase was attributable to the 10%, or $12.8 million, decrease in operating expenses and a $2.2 million decrease in total interest and other income (expense), net, partially offset by a decrease in total product and service gross profit of $4.8 million as well as an increase of $3.7 million, or 49%, in income tax expense due to the higher pre-tax income.
Service. The 3%, or $831 thousand, increase in service revenue was primarily due to a decline of $1.7 million in purchase accounting adjustments to deferred service revenue associated with our acquisition of Network General, as well as growth in other services. As a result of this acquisition, acquired deferred revenue was reduced to fair value to eliminate selling profit from the contracts that were acquired from Network General. As the fair value adjusted deferred revenue amortized over time, it comprised a smaller proportion of total maintenance revenue during the three months ended December 31, 2009. Subsequent maintenance renewal contracts are recorded at their full value and thus result in significantly higher recorded revenue. This was offset by a $1.2 million decrease in maintenance revenue due to a portion of our customers not renewing their customer support agreements as well as the Company regularly ending support for some of its older product models. While
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