Image source: Gigamon.  

What happened

Gigamon Inc. (NYSE:GIMO), the IT networking and security specialist, blew past estimates in its third-quarter earnings report last night. As of 12:42 p.m. EDT, its shares were up 18.1%.

So what

Revenue jumped 47% from a year ago to $83.5 million, topping expectations at $79.3 million, while adjusted earnings per share improved from $0.22 to $0.36, ahead of the analyst view at $0.31.

Adjusted gross margin increased 200 basis points in the quarter to 83%, and operating income more than doubled in the quarter, indicating an all-around strong performance. A higher tax rate was the reason bottom-line growth was slower than operating income.

CEO Paul Hooper noted the company set a record revenue growth in the quarter, and said that it was the third straight quarter that revenue accelerated. 

Separately, the company announced a new CFO, saying Rex Jackson would join the team, replacing Mike Burns, who will stay on in an advisory role. That news seemed to have little bearing on the stock's surge today.

Now what

Gigamon did not provide guidance in the quarter, though investors should be encouraged by the recent acceleration in revenue growth and the strong earnings beats. The third-quarter results marked the company's fifth straight earnings beat by 16% or more. Analysts were expecting $0.33 for the fourth quarter, though that number should soon move higher with last night's results.

While Gigamon's earnings report was essentially flawless, investors may want to keep an eye on stock-based compensation, which inflated the company's earnings per share from $0.16 to $0.36 in the recent quarter. It's a common tool used be tech companies, which are often short on cash but have valuable stock to dish out. It's not a problem as long as growth continues, but it does mean the stock's valuation is higher than it may seem.

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