NetScout Systems Inc. (NTCT) reported fiscal 2010 third-quarter earnings on Thursday. The company posted GAAP earnings of $8.5 million, compared to $7.9 million in the year-ago period. Excluding certain special items, adjusted earnings per share came in at 23 cents, which matched the Zacks Consensus Estimate.

NetScout designs, develops, manufactures, markets and supports a family of integrated products that enable optimization of the performance and cost management of complex, high-speed networks Incorporatedluding 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.

Net sales declined nearly 2% to $70.7 million, compared to $72.1 million in the year-ago quarter. The reduction was primarily the result of a 5.0% decline in product revenues to $40.8 million partially offset by a 2.9% growth in service revenue to $29.9 million.

NetScout’s gross profit dipped 1.3% year over year to $55.3 million, while gross margin rose by 50 basis points (bps) to 78.2%. The improvement in gross margin stemmed from favorable product mix. Operating income increased by 4.3% to $13.8 million, while operating margin grew by 120 bps to 19.6%. The margin growth was mainly attributable to a rise in gross margin coupled with a reduction in selling, general and administrative expenses by 1.7% to $31.8 million and a 7.3% decline in research and development expense to $9.2 million.

At the end of the quarter, NetScout had cash and cash equivalents of $66.5 million and long-term debt of $71.9 million, compared to $63.2 million of cash and $85.0 million of long-term debt in the year-ago period.

Moving forward, the company narrowed the revenue estimate for fiscal 2010 to a range of $259 million to $262 million, compared to its previous guidance of $259 million to $269 million. Moreover, NetScout now expects adjusted earnings for the fiscal year ending March 2010 to range between 88 cents and 92 cents, compared to the earlier prediction of 85 to 95 cents. The revised guidance remains well ahead of the Zacks Consensus Estimate, which is currently pegged at 81 cents per share.

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