NETSCOUT SYSTEMS INC

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed with the Securities and Exchange Commission (SEC) on May 15, 2025 (Annual Report). This discussion contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in Part I, Item 1A "Risk Factors" in our Annual Report. These risks and uncertainties could cause actual results to differ significantly from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations. See the section titled "Cautionary Statement Concerning Forward-Looking Statements" that appears at the beginning of this Quarterly Report. These statements, like all statements in this report, speak only as of the date of this Quarterly Report (unless another date is indicated), and, except as required by law, we undertake no obligation to update or revise these statements in light of future developments.

Current wording

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed with the Securities and Exchange Commission (SEC) on May 15, 2025 (Annual Report). This discussion contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in Part I, Item 1A "Risk Factors" in our Annual Report and Part II, Item 1A of our Quarterly Report on From 10-Q for the fiscal quarter ended September 30, 2025, filed with the SEC on November 6, 2025. These risks and uncertainties could cause actual results to differ significantly from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations. See the section titled "Cautionary Statement Concerning Forward-Looking Statements" that appears at the beginning of this Quarterly Report. These statements, like all statements in this report, speak only as of the date of this Quarterly Report (unless another date is indicated), and, except as required by law, we undertake no obligation to update or revise these statements in light of future developments.

Previous wording

We are an industry leader with four decades of experience in providing service assurance and cybersecurity solutions that are based on our pioneering deep packet inspection technology at scale, which is used by many Fortune 500 companies to protect their digital business services against disruption. Service providers and enterprises, including local, state and federal government agencies, rely on our solutions to achieve the visibility and protection necessary to optimize network performance, ensure the delivery of high-quality, mission-critical applications and services, gain timely insight into the end user experience and to protect their networks from attack. With our offerings, customers can quickly, efficiently and effectively identify and resolve issues that result in downtime, interruptions to services, poor service quality or compromised data, thereby reducing meantime-to-resolution of issues and driving compelling returns on their investments in their networks and broader technology initiatives. Some of the more significant technology trends and catalysts for our business include the evolution of customers' digital transformation initiatives such as the migration to cloud environments and the edges of their networks, the rapidly evolving cybersecurity threat landscape, artificial intelligence and business analytics advancements that can help enhance observability, and the 5G technology evolution in both the service provider and enterprise customer verticals.

Current wording

We are an industry leader with over four decades of experience in providing enterprise network observability, carrier service assurance, cybersecurity, and Distributed-Denial-Of-Service, or DDoS, protection solutions. Our unique visibility platform and solutions are powered by our pioneering deep packet inspection technology at scale, which is used by many Fortune 500 companies to protect their digital business services against disruption. Service providers and enterprises, including local, state and federal government agencies, rely on our solutions to achieve the visibility and protection necessary to optimize network performance, ensure the delivery of high-quality, mission-critical applications and services, gain timely insight into the end user experience and to protect their networks from attack. With our offerings, customers can quickly, efficiently and effectively identify and resolve issues that result in downtime, interruptions to services, poor service quality or compromised data, thereby reducing meantime-to-resolution of issues and driving compelling returns on their investments in their networks and broader technology initiatives. Some of the more significant technology trends and catalysts for our business include the evolution of customers' digital transformation initiatives such as the migration to cloud environments and the edges of their networks, the rapidly evolving cybersecurity threat landscape, artificial intelligence and business analytics advancements that can help enhance observability, and the 5G technology evolution in both the service provider and enterprise customer verticals.

Previous wording

We continue to closely monitor current global and macroeconomic conditions, including the impacts of the ongoing war in Ukraine and hostilities in the Middle East, global geopolitical tension, stock market volatility, industry-specific capital spending trends, exchange rate fluctuations, inflation, interest rates, international trade relations (including trade protection measures, such as tariffs and other trade barriers), impacts associated with the U.S. Government shutdown, and the risk of a recession, including the manner and extent to which they have impacted and could continue to impact our business, customers, employees, supply chain, and distribution network. The full extent of the impacts of these global and macroeconomic conditions remain uncertain. In response to the war in Ukraine, we ceased business operations in Russia, including sales, support on existing contracts and professional services. We remain optimistic but cognizant of ongoing macroeconomic uncertainty and constrained customer spending in the service provider market and firmly focused on driving product innovation, returning to annual revenue growth, and enhancing margins through continued disciplined cost management as we navigate the current macroeconomic landscape that may persist through fiscal year 2026. As a result, we have continued our efforts to manage discretionary costs and align spending with the current environment while we continue to execute on our long-term strategic plans.

Current wording

We continue to closely monitor current global and macroeconomic conditions, including the impacts of the ongoing war in Ukraine and hostilities in the Middle East, global geopolitical tension, stock market volatility, industry-specific capital spending trends, exchange rate fluctuations, inflation, interest rates, international trade relations (including trade protection measures, such as tariffs and other trade barriers), and the risk of a recession, including the manner and extent to which they have impacted and could continue to impact our business, customers, employees, supply chain, and distribution network. In addition, our industry is experiencing AI-related supply-chain dynamics which could influence the timing and size of certain customer orders. The full extent of the impacts of these global and macroeconomic conditions remain dynamic. In response to the war in Ukraine, we ceased business operations in Russia, including sales, support on existing contracts and professional services. We remain optimistic but cognizant of ongoing macroeconomic dynamics and constrained customer spending in the service provider market and firmly focused on driving product innovation, returning to annual revenue growth, and enhancing margins through continued disciplined cost management as we navigate the current macroeconomic landscape that may persist through fiscal year 2026. As a result, we have continued our efforts to manage discretionary costs and align spending with the current environment while we continue to execute on our long-term strategic plans.

Previous wording

Total revenue increased $40.1 million, or 11%, for the six months ended September 30, 2025, as compared to total revenue for the six months ended September 30, 2024. The increase was attributable to an increase in both product and service revenue from both our service assurance and cybersecurity offerings. Within these offerings, both our enterprise and service provider customer verticals contributed to this growth as well. Product revenue benefited from an acceleration of some U.S. Government agency related orders received in the period that were originally expected in the second half of the fiscal year ending March 31, 2026. Service revenue benefited from the timing of customer maintenance renewals.

Current wording

Total revenue increased $38.8 million, or 6%, for the nine months ended December 31, 2025, as compared to total revenue for the nine months ended December 31, 2024. The increase was attributable to an increase in both product and service revenue from both our service assurance and cybersecurity offerings. Within these offerings, both our enterprise and service provider customer verticals contributed to this growth.

Previous wording

Our gross profit percentage increased 3 percentage points to 79% during the six months ended September 30, 2025, as compared with the six months ended September 30, 2024, primarily due to increased product and service revenue growth and a more favorable product mix associated with increased licensing of our software products.

Current wording

Our gross profit percentage increased 2 percentage points to 80% during the nine months ended December 31, 2025, as compared with the nine months ended December 31, 2024, primarily due to increased product revenue growth and a more favorable product mix associated with increased licensing of our software products.

Previous wording

Net income for the six months ended September 30, 2025 was $22.1 million, as compared with net loss for the six months ended September 30, 2024 of $434.3 million. The decrease of $456.5 million in net loss was primarily due to a $427.0 million decrease in goodwill impairment charges, a $40.1 million increase in revenue, and a $18.1 million decrease from restructuring charges. These decreases to net loss were partially offset by a $13.4 million increase in income tax expense, an $8.0 million decrease in other income primarily due to the change in fair value of the equity investment in Napatech that was sold in August 2025, and a $6.5 million increase to employee-related expenses primarily due to an increase in variable incentive compensation.

Current wording

Net income for the nine months ended December 31, 2025 was $77.3 million, as compared with a net loss for the nine months ended December 31, 2024 of $385.5 million. The decrease of $462.8 million in net loss was primarily due to a $427.0 million decrease in goodwill impairment charges, a $38.8 million increase in revenue, $19.0 million decrease from restructuring charges, $5.1 million decrease in interest expense, a $3.0 million decrease in direct material costs, and a $1.8 million increase in interest income. These decreases to net loss were partially offset by a $16.3 million increase in income tax expense, a $10.8 million increase to employee-related expenses primarily due to an increase in variable incentive compensation, and a $5.5 million decrease in other income primarily due to the change in fair value of the equity investment in Napatech that was sold in August 2025.

Previous wording

At September 30, 2025, we had cash, cash equivalents, marketable securities and investments (current and non-current) of $526.9 million. This represents an increase of $34.4 million from $492.5 million at March 31, 2025. This increase was primarily due to $80.2 million of net cash provided by operations, a $29.6 million increase in purchases of marketable securities, $11.8 million in proceeds from the sale of our entire Napatech equity investment and a $5.1 million increase in proceeds from the maturity of marketable securities. Partially offsetting the increase was $31.6 million used to repurchase shares of our common stock, $15.2 million used for tax withholdings on restricted stock units and $4.1 million used for capital expenditures during the six months ended September 30, 2025.

Current wording

At December 31, 2025, we had cash, cash equivalents, marketable securities and investments (current and non-current) of $586.2 million. This represents an increase of $93.7 million from $492.5 million at March 31, 2025. This increase was primarily due to $142.3 million of net cash provided by operations, $11.8 million in proceeds from the sale of our entire Napatech equity investment and a $47.1 million in proceeds from the maturity of marketable securities. Partially offsetting the increase was $69.3 million in purchases of marketable securities, $31.6 million used to repurchase shares of our common stock, $15.7 million used for tax withholdings on restricted stock units and $6.9 million used for capital expenditures during the nine months ended December 31, 2025.

Previous wording

We supplement the United States GAAP financial measures we report in quarterly and annual earnings announcements, investor presentations and other investor communications by reporting the following non-GAAP measures: non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP diluted net income per share, and non-GAAP earnings before interest and other expense, income taxes, depreciation, and amortization from operations (Non-GAAP EBITDA from operations). Non-GAAP gross profit removes expenses related to the amortization of acquired intangible assets, share-based compensation expense, and acquisition-related depreciation expense. Non-GAAP income from operations includes the aforementioned adjustments related to non-GAAP gross profit and also removes goodwill impairment charges, executive transition costs, and restructuring charges. Non-GAAP operating margin includes the foregoing adjustments related to non-GAAP income from operations. Non-GAAP net income includes the foregoing adjustments related to non-GAAP income from operations, and also removes the income tax effects of such adjustments. Non-GAAP diluted net income per share includes the foregoing adjustments related to non-GAAP net income. Non-GAAP EBITDA from operations includes the aforementioned adjustments related to non-GAAP income from operations and also removes non-acquisition related depreciation expense.

Current wording

We supplement the United States GAAP financial measures we report in quarterly and annual earnings announcements, investor presentations and other investor communications by reporting the following non-GAAP measures: non-GAAP gross profit, non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP diluted net income per share, and adjusted EBITDA. Non-GAAP gross profit removes expenses related to the amortization of acquired intangible assets, share-based compensation expense, and acquisition-related depreciation expense. Non-GAAP income from operations includes the aforementioned adjustments related to non-GAAP gross profit and also removes goodwill impairment charges, executive transition costs, and restructuring charges. Non-GAAP operating margin is non-GAAP income from operations expressed as a percentage of revenue. Non-GAAP net income includes the foregoing adjustments related to non-GAAP income from operations, and also removes the income tax effects of such adjustments as well as any loss on extinguishment of debt. Non-GAAP diluted net income per share is non-GAAP net income divided by total outstanding shares on a diluted basis. Adjusted EBITDA (formerly non-GAAP EBITDA from operations) includes the aforementioned adjustments related to non-GAAP net income and also removes interest and other expense, income taxes, and non-acquisition related depreciation from net income (GAAP). Beginning this quarter, we have renamed non-GAAP EBITDA from operations to adjusted EBITDA. We now reconcile this metric to GAAP net income, however, the adjustments included, and the resulting amounts are unchanged from prior periods. This change is intended to align terminology with common market practice.

Previous wording

The following table reconciles gross profit, income (loss) from operations, net income (loss) and net income (loss) per share on a GAAP and non-GAAP basis for the three and six months ended September 30, 2025 and 2024, respectively (dollars in thousands, except for per share data):

Current wording

The following table reconciles gross profit, income (loss) from operations, net income (loss) and net income (loss) per share on a GAAP and non-GAAP basis for the three and nine months ended December 31, 2025 and 2024, respectively (dollars in thousands, except for per share data):

Previous wording

Product revenue consists of sales of our hardware products and licensing of our software products. Service revenue consists of customer support agreements, consulting, training, subscription-based services, and stand-ready software as a service offerings. During the three months ended September 30, 2025, one channel partner who primarily serves U.S. Government agencies accounted for more than 10% of the Company's total revenue.

Current wording

Product revenue consists of sales of our hardware products and licensing of our software products. Service revenue consists of customer support agreements, consulting, training, subscription-based services, and stand-ready software as a service offerings. During the three months ended December 31, 2025, one direct customer and one channel partner each accounted for approximately 10% of total revenue. During thethree months ended December 31, 2024, one direct customer and no channel partners accounted for more than 10% of total revenue.

Previous wording

Service. The 13%, or $14.2 million, increase in service revenue compared with the same period last year was primarily due to an increase in revenue from maintenance contracts, partly due to the timing of customer maintenance renewals, as well as professional services and subscription services.

Current wording

Service. The 4%, or $5.1 million, increase in service revenue compared with the same period last year was primarily due to an increase in revenue from maintenance contracts as well as cloud and subscription services.

Previous wording

The 10%, or $20.5 million, increase in United States revenue compared to the same period last year was primarily due to an increase in revenue from service assurance offerings from enterprise customers as well as an increase in service provider customers from radio frequency propagation modeling projects, partly offset by a decrease in revenue from cybersecurity offerings to both enterprise and service provider customers. Also contributing to the increase was the timing of maintenance renewal orders and an acceleration of some U.S. Government agency related orders received in the period that were originally expected in the second half of the fiscal year ending March 31, 2026. The 13%, or $19.6 million, increase in international revenue compared with the same period last year was primarily driven by an increase in revenue from service provider and enterprise customers from both service assurance and cybersecurity offerings.

Current wording

The 8%, or $12.7 million, decrease in United States revenue compared to the same period last year was primarily due to a decrease in revenue from both service provider customers from service assurance offerings and enterprise customers from cybersecurity offerings, partly offset by an increase in revenue from enterprise customers from service assurance offerings. The 12%, or $11.3 million, increase in international revenue compared with the same period last year was driven by an increase in revenue from service provider and enterprise customers from both cybersecurity and service assurance offerings.

Previous wording

The 18%, or $22.4 million, increase in revenue from the service assurance product line compared to the same period last year was due to an increase from enterprise and service provider customers. The 8%, or $5.5 million, increase in revenue from the cybersecurity product line compared to the same period last year was due to an increase in revenue from enterprise and service provider customers. Revenue from both the service assurance and cybersecurity product lines benefited from the timing of orders and maintenance renewals within the fiscal year.

Current wording

The 3%, or $4.6 million, decrease in revenue from the service assurance product line compared to the same period last year was due to a decrease in revenue from service provider customers. The 4%, or $3.3 million, increase in revenue from the cybersecurity product line compared to the same period last year was due to an increase in revenue from enterprise and service provider customers.

Previous wording

The 25%, or $16.9 million, increase in revenue from the service provider customer vertical was due to an increase in product and service revenue from service assurance offerings as well as an increase from cybersecurity product lines, partially offset by a decrease in cybersecurity service lines. The 9%, or $11.0 million, increase in revenue from the enterprise customer vertical was due to an increase in product and service revenue from service assurance offerings as well as an increase from cybersecurity service lines, partially offset by a decrease in cybersecurity product lines. Revenue from both the service provider and enterprise customer verticals benefited from the timing of orders and maintenance renewals within the fiscal year.

Current wording

The 5%, or $6.5 million, decrease in revenue from the service provider customer vertical was due to a decrease in product revenue from service assurance offerings partly offset by an increase from cybersecurity product and service revenue. The 4%, or $5.1 million, increase in revenue from the enterprise customer vertical was due to an increase in product and service revenue from service assurance offerings as well as an increase from cybersecurity service lines, partially offset by a decrease in cybersecurity product lines.

Previous wording

Cost of product revenue consists primarily of material components, manufacturing personnel expenses, packaging materials, overhead and amortization of capitalized software, acquired developed technology and core technology. Cost of service revenue consists primarily of personnel, material, overhead and support costs.

Current wording

Cost of product revenue consists primarily of material components, manufacturing personnel expenses, packaging materials, overhead and amortization of acquired developed technology and core technology. Cost of service revenue consists primarily of personnel, material, overhead and support costs.

Previous wording

Product. The 14%, or $1.8 million, decrease in cost of product revenue for the three months ended September 30, 2025 compared to the same period last year was primarily driven by a 5 percentage point increase in our gross profit percentage to 88% due to a more favorable product mix associated with increased licensing of our software products.

Current wording

Product. The 10%, or $1.6 million, decrease in cost of product revenue for the three months ended December 31, 2025 compared to the same period last year was primarily driven by a $6.5 million or 5% decrease, in product revenue. Our product gross profit percentage increased 1 percentage point to 88% during the three months ended December 31, 2025 as compared with the three months ended December 31, 2024 due to a more favorable product mix associated with increased licensing of our software products.

Previous wording

Service. The 12%, or $3.4 million, increase in cost of service revenue for the three months ended September 30, 2025 compared to the same period last year was primarily driven by a $14.2 million or 13% increase, in service revenue, and an increase in employee-related variable incentive compensation. Our service gross profit percentage was consistent at 74% during the three months ended September 30, 2025 as compared with the three months ended September 30, 2024.

Current wording

Service. The 3%, or $1.0 million, increase in cost of service revenue for the three months ended December 31, 2025 compared to the same period last year was primarily driven by a $5.1 million or 4% increase, in service revenue, and an increase in employee-related variable incentive compensation. Our service gross profit percentage was consistent at 76% during the three months ended December 31, 2025 as compared with the three months ended December 31, 2024.

Previous wording

The 12%, or $4.4 million, increase in research and development expenses for the three months ended September 30, 2025 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation, partially offset by a $0.5 million decrease in employee-related costs due to a reduction in headcount, and a $0.4 million decrease in depreciation expense.

Current wording

The 5%, or $1.9 million, increase in research and development expenses for the three months ended December 31, 2025 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation, partially offset by $0.3 million decrease in depreciation expense.

Previous wording

The 6%, or $3.7 million, increase in total sales and marketing expenses for the three months ended September 30, 2025 compared to the same period last year was primarily due to a $3.3 million increase associated with the timing of trade shows and other events.

Current wording

The 6%, or $4.5 million, decrease in total sales and marketing expenses for the three months ended December 31, 2025 compared to the same period last year was primarily due to a $4.3 million decrease associated with the timing of trade shows and other events.

Previous wording

The 11%, or $2.5 million, increase in general and administrative expenses for the three months ended September 30, 2025 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation.

Current wording

The 3%, or $0.6 million, increase in general and administrative expenses for the three months ended December 31, 2025 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation, partially offset by $0.4 million decrease in legal expenses.

Previous wording

The 39%, or $0.7 million, decrease in interest and other expense, net, for the three months ended September 30, 2025 compared to the same period last year was primarily due to a $1.4 million decrease in interest expense from the payoff of our credit facility balance in February 2025, a $1.0 million increase in interest income and a $1.0 million decrease in foreign exchange expense. This increase was partially offset by a $2.5 million decrease in the change in fair value of our prior equity investment in Napatech that was sold in August 2025.

Current wording

The 153%, or $6.6 million, increase in interest and other income (expense), net, for the three months ended December 31, 2025 compared to the same period last year was primarily due to $4.5 million increase in the change in fair value of our prior equity investment in Napatech that was sold in August 2025, a $2.2 million decrease in interest expense, and a $0.7 million increase in interest income. This increase was partially offset by a $0.9 million increase in foreign currency exchange expense.

Previous wording

Income Tax Expense. The effective tax rates were 17.7% and 26.8% for the three months ended September 30, 2025 and 2024, respectively. The effective tax rate for the three months ended September 30, 2025 differed from the effective tax rate for the three months ended September 30, 2024, primarily due to the impact of our sales mix in different geographic areas.

Current wording

The effective tax rates were 17.2% and 14.9% for the three months ended December 31, 2025 and 2024, respectively. The effective tax rate for the three months ended December 31, 2025 differed from the effective tax rate for the three months ended December 31, 2024, primarily due to a decrease in the research and development tax credit and an increase in foreign derived intangible income deduction.

Previous wording

During the six months ended September 30, 2025, and 2024, no direct customer or channel partner accounted for more than 10% of our total revenue.

Current wording

During the nine months ended December 31, 2025, no direct customers or channel partners accounted for more than 10% of the Company's total revenue. During thenine months ended December 31, 2024, one direct customer and no channel partners accounted for more than 10% of total revenue.

Previous wording

Product. The 17%, or $13.7 million, increase in product revenue compared with the same period last year was attributable to an increase in revenue from both enterprise and service provider customers from service assurance offerings and service provider customers from cybersecurity offerings. Also contributing to the increase was an acceleration of some U.S. Government agency related orders received in the period that were originally expected in the second half of the fiscal year ending March 31, 2026.

Current wording

Product. The 7%, or$19.0 million, increase in product revenue compared with the same period last year was attributable to an increase in revenue from enterprise customers from service assurance offerings as well as an increase in revenue from service provider and enterprise customers from cybersecurity offerings. Also contributing to the increase in product revenue was an increase in U.S.Government agency related orders.

Previous wording

Service. The 7%, or $14.6 million, increase in service revenue compared with the same period last year was primarily due to an increase in revenue from maintenance contracts, partly due to the timing of customer maintenance renewals, as well as cloud and subscription services.

Current wording

Service. The 6%, or $19.7 million, increase in service revenue compared with the same period last year was primarily due to an increase in revenue from maintenance contracts, partly due to the timing of customer maintenance renewals, as well as cloud and subscription services.

Previous wording

The 18%, or $19.9 million, increase in United States revenue compared to the same period last year was primarily due to an increase in revenue from enterprise and service provider customers from service assurance offerings, partly offset by a decrease in revenue from enterprise and service provider customers from cybersecurity offerings. Also contributing to the increase was the timing of maintenance renewal orders and an acceleration of some U.S. Government agency related orders received in the period that were originally expected in the second half of the fiscal year ending March 31, 2026. The 10%, or $8.0 million, increase in international revenue compared with the same period last year was primarily driven by an increase in revenue from service provider and enterprise customers from both cybersecurity and service assurance offerings.

Current wording

The 2%, or $7.8 million, increase in United States revenue compared to the same period last year was primarily due to an increase in revenue from enterprise customers from both service assurance and cybersecurity offerings, partly offset by a decrease in revenue from service provider customers from both service assurance and cybersecurity offerings. Also contributing to the increase was the timing of maintenance renewal orders and an increase in U.S. Government agency related orders. The 12%, or $30.9 million, increase in international revenue compared with the same period last year was driven by an increase in revenue from service provider and enterprise customers from both service assurance and cybersecurity offerings.

Previous wording

The 10%, or $24.0 million, increase in revenue from the service assurance product line compared to the same period last year was due to an increase in revenue from both enterprise and radio frequency propagation modeling projects, partially offset by a decrease in service provider product revenue. The 13%, or $16.1 million, increase in revenue from the cybersecurity product line compared to the same period last year was due to an increase in revenue from service provider and enterprise customers. Revenue from both the service assurance and cybersecurity product lines benefited from the timing of orders and maintenance renewals within the fiscal year.

Current wording

The 5%, or $19.3 million, increase in revenue from the service assurance product line compared to the same period last year was due to an increase in revenue from enterprise customers, partially offset by a decrease in service provider product revenue. The 9%, or $19.4 million, increase in revenue from the cybersecurity product line compared to the same period last year was due to an increase in revenue from service provider and enterprise customers. Revenue from both the service assurance and cybersecurity product lines benefited from the timing of maintenance renewals within the fiscal year.

Previous wording

The 8%, or $12.4 million, increase in revenue from the service provider customer vertical was due to an increase in service revenue from both the service assurance and cybersecurity product lines, as well as an increase in product revenue from the cybersecurity product line. The 13%, or $27.7 million, increase in revenue from the enterprise vertical was due to an increase in product and service revenue from both the service assurance and cybersecurity product lines. Revenue from both the service assurance and cybersecurity product lines benefited from the timing of orders and maintenance renewals within the fiscal year.

Current wording

The 2%, or $5.9 million, increase in revenue from the service provider customer vertical was due to an increase in service revenue from both the service assurance and cybersecurity product lines, as well as an increase in product revenue from the cybersecurity product line. The 9%, or $32.8 million, increase in revenue from the enterprise vertical was due to an increase in product and service revenue from both the service assurance and cybersecurity product lines. Revenue from both the service assurance and cybersecurity product lines benefited from the timing of maintenance renewals within the fiscal year.

Previous wording

Product. The 8%, or $1.9 million, decrease in cost of product revenue for thesix months ended September 30, 2025 compared to the same period last year was prim arily driven by a 4 percentage point increase in our gross profit percentage to 86% due to a more favorable product mix associated with increased licensing of our software products.

Current wording

Product. The 8%, or $3.5 million, decrease in cost of product revenue for thenine months ended December 31, 2025 compared to the same period last year was prim arily driven by a 2 percentage point increase in our gross profit percentage to 87% due to a more favorable product mix associated with increased licensing of our software products.

Previous wording

Service. The 4%, or $2.5 million increase in cost of service revenue for the six months ended September 30, 2025 compared to the same period last year was primarily driven by a $14.6 million, or 7%, increase, in service revenue, and an increase in employee-related variable incentive compensation. The service gross profit percentage was consistent at 73% for the six months ended September 30, 2025 when compared to the six months ended September 30, 2024.

Current wording

Service. The 4%, or $3.5 million increase in cost of service revenue for the nine months ended December 31, 2025 compared to the same period last year was primarily driven by a $19.7 million, or 6%, increase, in service revenue, and an increase in employee-related variable incentive compensation. The service gross profit percentage was consistent at 74% for the nine months ended December 31, 2025 when compared to the nine months ended December 31, 2024.

Previous wording

Research and development. The 2%, or $1.7 million, increase in research and development expenses for the six months ended September 30, 2025 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation, partially offset by a $1.6 million decrease in employee-related costs due to a reduction in headcount, and a $0.8 million decrease in depreciation expense.

Current wording

Research and development. The 3%, or $3.6 million, increase in research and development expenses for the nine months ended December 31, 2025 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation, partially offset by a $1.8 million decrease in employee-related costs due to a reduction in headcount, and a $1.2 million decrease in depreciation expense.

Previous wording

Sales and marketing. The 3%, or $4.0 million, increase in sales and marketing expenses for the six months ended September 30, 2025 compared to the same period last year was primarily due to a $3.8 million increase associated with the timing of trade shows and other events.

Current wording

Sales and marketing. The 0%, or $0.6 million, decrease in sales and marketing expenses for the nine months ended December 31, 2025 compared to the same period last year was primarily due to a $1.8 million decrease in employee-related expenses due to a reduction in headcount, $1.6 million decrease associated with trade shows and other events partially offset by an increase in employee-related variable incentive compensation.

Previous wording

General and administrative. The 10%, or $4.8 million, increase in general and administrative expenses for the six months ended September 30, 2025 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation, a $1.3 million increase in contractor expenses and a $0.9 million increase in legal fees. These decreases were partially offset by a reduction in facility related costs.

Current wording

General and administrative. The 7%, or $5.4 million, increase in general and administrative expenses for the nine months ended December 31, 2025 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation, a $1.4 million increase in professional services, a $0.7 million increase in software expenses and a $0.5 million increase in legal fees.

Previous wording

Restructuring charges. During the third quarter of fiscal year 2024, we entered into transition agreements that provided termination benefits for certain employees to ensure an orderly transition of responsibilities for continuity purposes. As a result of this related workforce change, during the six months ended September 30, 2025 we recorded restructuring charges totaling $0.8 million. During the six months ended September 30, 2024, we recorded restructuring charges totaling $19.0 million related to one-time termination benefits for one hundred thirty-nine employees who voluntarily terminated their employment during the six months ended September 30, 2024.

Current wording

Restructuring charges. During the third quarter of fiscal year 2024, we entered into transition agreements that provided termination benefits for certain employees to ensure an orderly transition of responsibilities for continuity purposes. As a result of this related workforce change, during the nine months ended December 31, 2025 we recorded restructuring charges totaling $0.9 million. During the nine months ended December 31, 2024, we recorded restructuring charges totaling $19.9 million related to one-time termination benefits for one hundred forty-two employees who voluntarily terminated their employment during the nine months ended December 31, 2024.

Previous wording

Goodwill impairment. During the first quarter of fiscal year 2025, due to a decrease in our stock price and overall market capitalization, along with other qualitative considerations including the continued impact from the conditions in the macroeconomic environment, it was determined a Triggering Event occurred, indicating goodwill may be impaired. Accordingly, we conducted an interim quantitative impairment test of its goodwill at June 30, 2024 using the market approach to estimate the fair value of its reporting unit. As a result of that interim impairment test, we recorded a $427.0 million goodwill impairment charge during the six months ended September 30, 2024.

Current wording

Goodwill impairment. During the first quarter of fiscal year 2025, due to a decrease in our stock price and overall market capitalization, along with other qualitative considerations including the continued impact from the conditions in the macroeconomic environment, it was determined a Triggering Event occurred, indicating goodwill may be impaired. Accordingly, we conducted an interim quantitative impairment test of its goodwill at June 30, 2024 using the market approach to estimate the fair value of its reporting unit. As a result of that interim impairment test, we recorded a $427.0 million goodwill impairment charge during the nine months ended December 31, 2024.

Previous wording

The 66%, or $5.2 million, decrease in interest and other income (expense), net, was primarily due to a $7.8 million decrease in the change in fair value of our equity investment in Napatech that was sold in August 2025 and a $1.2 million increase in foreign exchange expense. This decrease was partially offset by a $2.9 million decrease in interest expense and a $1.1 million increase in interest income during the six months ended September 30, 2025, when compared to the six months ended September 30, 2024.

Current wording

The 41%, or $1.4 million, increase in interest and other income (expense), net, was primarily due to a $5.1 million decrease in interest expense and a $1.8 million increase in interest income. This increase was partially offset by $3.4 million decrease in the change in fair value of our equity investment in Napatech that was sold in August 2025, and a $2.1 million increase in foreign exchange expense during the nine months ended December 31, 2025, when compared to the nine months ended December 31, 2024.

Previous wording

Income Tax Expense (Benefit). Our effective tax rates were 22.4% and 1.6% for the six months ended September 30, 2025 and 2024, respectively. The effective tax rate for the six months ended September 30, 2025 differed from the effective rate for the six months ended September 30, 2024, primarily related to the impact of our sales mix in different geographic areas. Also contributing to the effective tax rate change was an impact related to stock compensation and goodwill impairment incurred during the six months ended September 30, 2024, which was not deductible for tax purposes.

Current wording

Our effective tax rates were 18.8% and 0.4% for the nine months ended December 31, 2025 and 2024, respectively. The effective tax rate for the nine months ended December 31, 2025 differed from the effective rate for the nine months ended December 31, 2024, primarily related to a decrease in the research and development tax credit and an increase in foreign derived intangible income deduction. Also contributing to the effective tax rate change was an impact related to stock compensation and goodwill impairment incurred during the nine months ended December 31, 2024, which was not deductible for tax purposes.

Previous wording

We produce our products on the basis of our forecast of near-term demand and maintain inventory in advance of receipt of firm orders from customers. We configure our products to customer specifications and generally deliver products shortly after receipt of the purchase order. Service engagements are also included in certain orders. Customers generally may reschedule or cancel unfulfilled orders with little or no penalty. Our total backlog at any particular time is not necessarily indicative of future sales levels. Within total backlog, fulfillable backlog includes what we consider to represent orders that are generally available to be delivered to customers as of the end of the reporting period. Delivery of our fulfillable backlog typically occurs early in the subsequent quarter. However, delivery may be delayed or accelerated due to various other reasons, including but not limited to, changes in timing of customer projects and product delivery schedules, which may not be within our control. Our total combined product backlog at September 30, 2025 was $39.8 million compared to $33.1 million at March 31, 2025. Combined product backlog included fulfillable backlog of $27.7 million and $25.1 million at September 30,

Current wording

We produce our products on the basis of our forecast of near-term demand and maintain inventory in advance of receipt of firm orders from customers. We configure our products to customer specifications and generally deliver products shortly after receipt of the purchase order. Service engagements are also included in certain orders. Customers generally may reschedule or cancel unfulfilled orders with little or no penalty. Our total backlog at any particular time is not necessarily indicative of future sales levels. Within total backlog, fulfillable backlog includes what we consider to represent orders that are generally available to be delivered to customers as of the end of the reporting period. Delivery of our fulfillable backlog typically occurs early in the subsequent quarter. However, delivery may be delayed or accelerated due to various other reasons, including but not limited to, changes in timing of customer projects and product delivery schedules, which may not be within our control. Our total combined product backlog at December 31, 2025 was $24.0 million compared to $33.1 million at March 31, 2025. Combined product backlog included fulfillable backlog of $18.7 million and $25.1 million at December 31, 2025 and March 31, 2025, respectively.

Previous wording

At September 30, 2025, cash, cash equivalents, marketable securities and investments (current and non-current) totaled $526.9 million, a $34.4 million increase from $492.5 million at March 31, 2025. This increase was primarily due to $80.2 million of net cash provided by operations, $30.4 million proceeds from sales and maturity of marketable securities, $11.8 million proceeds from the sale of our entire Napatech equity investment, partially offset by $50.6 million used to purchase marketable securities, $31.6 million used to repurchase shares of our common stock, $15.2 million used for tax withholdings on restricted stock units, $5.1 million due to effect of exchange rate changes on cash and cash equivalents, and $4.1 million used for capital expenditures, during thesix months ended September 30, 2025. Cash and short-term investments held outside of the United States was approximately $223.7 million.

Current wording

At December 31, 2025, cash, cash equivalents, and marketable securities totaled $586.2 million, a $93.7 million increase from $492.5 million at March 31, 2025. This increase was primarily due to $142.3 million of net cash provided by operations, $47.1 million in proceeds from sales and maturity of marketable securities, $11.8 million in proceeds from the sale of our entire Napatech equity investment, partially offset by $69.3 million used to purchase marketable securities, $31.6 million used to repurchase shares of our common stock, $15.7 million used for tax withholdings on restricted stock units, $5.6 million due to the effect of exchange rate changes on cash and cash equivalents, and $6.9 million used for capital expenditures, during the nine months ended December 31, 2025. Cash and short-term investments held outside of the United States was approximately $226.3 million.

Previous wording

Net cash provided by operating activities of $80.2 million for the six months ended September 30, 2025 was primarily attributable to net income, as adjusted for share-based compensation expense, depreciation and amortization, deferred income taxes, and a$2.2 million working capital inflow. The working capital inflow was primarily driven by a$33.8 million decrease in accounts receivable, partially offset by a$21.7 million increase in deferred revenue and a$5.6 million increase in operating lease liabilities. The decrease in accounts receivable, as well as the increase in deferred revenue, was primarily attributed to the timing of collections and shipments as our total revenue increased $40.1 million, or 11%, for thesix months ended September 30, 2025, as compared to total revenue for thesix months ended September 30, 2024.

Current wording

Net cash provided by operating activities of $142.3 million for nine months ended December 31, 2025, was primarily attributable to net income, as adjusted for share-based compensation expense, depreciation and amortization, deferred income taxes, goodwill impairment, and a $14.4 million working capital outflow. The working capital outflow was primarily driven by $70.6 million increase in accounts receivable, and a $9.0 million decrease in operating lease liabilities partially offset by $37.2 million increase in deferred revenue, $19.0 million increase in accrued compensation and a $9.4 million decrease in prepaid expenses.