NETSCOUT SYSTEMS INC

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements have been prepared by NetScout Systems, Inc. (NetScout or the Company). Certain information and footnote disclosures normally included in financial statements prepared under United States generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, the unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the Company's financial position and stockholders' equity, results of operations and cash flows. The year-end consolidated balance sheet data and statement of stockholders' equity were derived from the Company's audited financial statements, but do not include all disclosures required by GAAP. The results reported in these unaudited interim consolidated financial statements are not necessarily indicative of results that may be expected for the entire year. All significant intercompany accounts and transactions are eliminated in consolidation.

These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2026 filed with the SEC on May 14, 2026.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies disclosed in Note 2 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2026.

Recently Adopted Accounting Standard

The Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, during the first quarter of fiscal year ended March 31, 2027. This ASU allows companies to elect a practical expedient to simplify the measurement of credit losses for certain receivables and contract assets. The Company elected to apply the practical expedient prospectively. The adoption of this ASU had no impact on the Company’s consolidated financial statements.

Accounting Standards Issued and Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU 2024-03). Additionally, in January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03. ASU 2024-03 provides guidance to expand disclosures related to the disaggregation of income statement expenses. The standard requires, in the notes to the financial statements, disclosure of specified information about certain costs and expenses which include purchases of inventory, employee compensation, depreciation, and intangible asset amortization that are included on the face of the statements of income. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. ASU 2024-03 is effective for the Company beginning with its fiscal year ending March 31, 2028. The Company is in the process of evaluating the impact that the adoption of ASU 2024-03 will have on its disclosures.

In September 2025, the FASB issued ASU 2025-06, Intangibles (Subtopic 350-40): Update to modernize the accounting for internal-use software costs. ASU 2025-06 removes all references to software project development stages and clarifies the recognition threshold that entities must meet to begin capitalizing costs. ASU 2025-06 is effective for the Company beginning with its fiscal year ending March 31, 2029. The Company is currently evaluating the impact of this standard and does not expect the adoption of ASU 2025-06 to have a material impact on its consolidated financial statements and disclosures.

NOTE 2 – BUSINESS COMBINATION

DigiCert DDoS Protection Business Acquisition

On May 1, 2026, the Company acquired the assets and certain liabilities comprising DigiCert, Inc.'s distributed denial-of-service ("DDoS") protection business pursuant to an Asset Purchase Agreement (the "Acquisition").

The aggregate purchase price was $55.0 million, which consisted of $55.0 million cash consideration paid at closing, pending the final determination of any post-closing net working capital adjustment. The results of operations of the acquired business have been included in the Company's consolidated financial statements from May 1, 2026.

The acquisition has been accounted for as a business combination under Accounting Standards Codification 805, Business Combinations. Goodwill and intangible assets recorded as part of the acquisition are deductible for tax purposes. The Company determined that the results of operations related to the DDoS business are not material. As such, the pro forma information is not required for the period ended June 30, 2026. The following table summarizes the preliminary allocation of the purchase price to the identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date (in thousands):

The fair value of the intangible asset was based on a valuation using an income approach. The underlying assumptions include the estimated cash flows to be generated by the existing customer relationships. This fair value measurement was based on significant inputs not observable in the market and thus represents Level 3 fair value measurement. Customer relationship intangible assets are subject to amortization and will be amortized on a straight-line basis over an estimated useful life of 15 years, representing the period over which the Company expects to benefit from the acquired customer relationships.

From the acquisition date through June 30, 2026, the acquired assets did not contribute material revenue or net income to the Company’s consolidated results of operations.

Thepurchase price allocation is preliminary because the Company is continuing to evaluate the fair values of certain acquired assets and assumed liabilities and working capital balances. For changes in the valuation of intangible assets between the preliminary and final purchase price allocation, the related amortization is adjusted in the period it occurs. Measurement-period adjustments will be recorded in the period identified, with a corresponding adjustment to goodwill. The Company expects to finalize the acquisition accounting during the measurement period, which may extend up to one year from the acquisition date. Subsequent to the measurement period, any adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is identified.

NOTE 3 – REVENUE

Deferred Revenue

During the three months ended June 30, 2026, the Company recognized revenue of$107.5 million related to the Company's deferred revenue balance reported at March 31, 2026.

Performance Obligations

The Company did not have any material variable consideration such as obligations for returns, refunds or warranties at June 30, 2026.

At June 30, 2026, the Company had total deferred revenue and customer deposits of$472.3 million, which represents the aggregate total contract price allocated to undelivered performance obligations. The Company expects to recognize$313.3 million, or 66 %, of this revenue during the next 12 months, and expects to recognize the remaining$159.0 million, or 34 %, of this revenue thereafter.

The Company did not have material significant financing components, or variable consideration or performance obligations satisfied in a prior period recognized during the three months ended June 30, 2026.

Costs to Obtain Contracts

At June 30, 2026, the consolidated balance sheet included$12.2 million in assets related to sales commissions to be expensed in future periods. A balance of$6.6 million was included in prepaid expenses and other current assets, and a balance of$5.6 million was included in other assets in the Company's consolidated balance sheet at June 30, 2026. At March 31, 2026, the consolidated balance sheet included$10.9 million in assets related to sales commissions to be expensed in future periods. A balance of$6.0 million was included in prepaid expenses and other current assets, and a balance of$4.9 million was included in other assets in the Company's consolidated balance sheet at March 31, 2026.

During the three months ended June 30, 2026 and 2025, the Company recogn ized $2.2 million and $1.9 million of amortization related to this sales commission asset, which is included in the sales and marketing expense line in the Company's consolidated statements of operations.

Allowance for Credit Losses

The Company continually monitors collections from its customers. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for credit losses based on a combination of factors, including but not limited to, analysis of the aging schedules, past due balances, historical collection experience and prevailing economic conditions.

The following table summarizes the activity in the allowance for credit losses (in thousands):

NOTE 4 – CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of marketable securities and investments, trade accounts receivable and accounts payable. The Company's cash, cash equivalents, marketable securities and investments are placed with financial institutions with high credit standings.

At June 30, 2026, nochannel partners and no direct customers accounted for 10% or more of the accounts receivable balance. At March 31, 2026, one channel partner and no direct customers accounted for more than 10% of the accounts receivable balance.

During the three months ended June 30, 2026, and June 30, 2025, nochannel partners and no direct customers accounted for 10% or more of the Company's total revenue.

Historically, the Company has not experienced any significant failure of its customers' ability to meet their payment obligations, nor does the Company anticipate material non-performance by its customers in the future; accordingly, the Company does not require collateral from its customers. However, if the Company's assumptions are incorrect, there could be an adverse impact on its allowance for credit losses.

NOTE 5 – SHARE-BASED COMPENSATION

On September 10, 2025, the Company's stockholders approved an amendment and restatement of the 2019 Equity Incentive Plan (Amended 2019 Plan) to further increase the number of shares reserved for issuance by 3,500,000 from 27,794,651 shares to 31,294,651 shares. As of June 30, 2026, an aggregate of 6,063,690 shares remained available for grant under the Amended 2019 Plan.

Employee Stock Purchase Plan (ESPP) – During the three months ended June 30, 2026, no shares were purchased under the ESPP.

The following is a summary of share-based compensation expense including restricted stock units and performance-based restricted stock units granted pursuant to the Company's Amended 2019 Plan, and employee stock purchases made under the ESPP, based on estimated fair values within the applicable cost and expense lines identified below (in thousands):

NOTE 6 – CASH, CASH EQUIVALENTS, MARKETABLE SECURITIES AND INVESTMENTS

Cash and cash equivalents mainly consisted of U.S. government and municipal obligations, commercial paper, agency bonds, money market instruments and cash maintained with various financial institutions at June 30, 2026 and March 31, 2026.

Marketable Securities

The following is a summary of marketable securities held by the Company at June 30, 2026, classified as short-term and long-term (in thousands):

The following is a summary of marketable securities held by the Company at March 31, 2026, classified as short-term and long-term (in thousands):

Contractual maturities of the Company's marketable securities held at June 30, 2026 and March 31, 2026 were as follows (in thousands):

Investments

On August 4, 2025, the Company sold its entire equity investment in Napatech, receiving cash proceeds of $11.8 million. During thethree months ended June 30, 2025, the Company recognized a $2.5 million gain, on the Napatech equity investment in other (expense) income, net. For thethree months ended June 30, 2025, the unrealized gain related to foreign currency translation on the equity investment in Napatech was $1.0 million.

NOTE 7 – FAIR VALUE MEASUREMENTS

The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant unobservable inputs. Thefollowing tables present the Company's financial assets and liabilities measured on a recurring basis using the fair value hierarchy at June 30, 2026 and March 31, 2026 (in thousands):

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including marketable securities and derivative financial instruments.

The Company's Level 1 investments are classified as such because they are valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency.

The Company's Level 2 investments are classified as such because they are valued using observable inputs other than Level 1 quoted prices that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets in markets that are not active.

NOTE 8 – INVENTORIES AND DEFERRED COSTS

Inventories consist of the following (in thousands):

NOTE 9 – GOODWILL AND INTANGIBLE ASSETS

Goodwill

At June 30, 2026 and March 31, 2026, the carrying amounts of goodwill were $1.1 billion.

The change in the carrying amount of goodwill for the three months ended June 30, 2026 is primarily due to the May 1, 2026 DigiCert DDoS protection business acquisition.

The following table summarizes the changes in the carrying amount of goodwill for thethree months ended June 30, 2026 as follows (in thousands):

Intangible Assets

The net carrying amounts of intangible assets were$226.7 million and $214.3 million at June 30, 2026 and March 31, 2026, respectively.

Intangible assets include the following amortizable intangible assets at June 30, 2026 (in thousands):

Intangible assets include the following amortizable intangible assets at March 31, 2026 (in thousands):

Amortization included as cost of product revenue consists of amortization of developed technology, distributor relationships and technology licenses. Amortization included as cost of service revenue consists of customer relationships. Amortization included as operating expense consists of all other intangible assets. The following table provides a summary of amortization expense for thethree months ended June 30, 2026 and 2025 (in thousands):

The following is the expected future amortization expense at June 30, 2026 for the fiscal years ending March 31 (in thousands):

NOTE 10 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The notional amounts and fair values of deriv ative instruments used to manage foreign cash flow exposures in the consolidated balance sheets at June 30, 2026 and March 31, 2026 were as follows (in thousands):

(a) Notional amounts represent the gross contract/notional amount of the derivatives outstanding.

The following table provides the effect foreign exchange forward contracts had on other comprehensive income (loss), and results of operations for the three months ended June 30, 2026 and 2025 (in thousands):

(a)

The amount represents the change in fair value of derivative contracts due to changes in spot rates.

(b)

The amount represents reclassification from other comprehensive income (loss) to earnings that occurs when the hedged item affects earnings.

The Company hadno forward exchange contracts not designated as hedging instruments during the three months ended June 30, 2026 and 2025.

NOTE 11 – LONG-TERM DEBT

On October 4, 2024, the Company entered into the Third Amended and Restated Credit Agreement, which provides for a $600.0 million senior secured revolving credit facility maturing on October 4, 2029. At June 30, 2026 and March 31, 2026, there wereno amounts outstanding under the Third Amended and Restated Credit Agreement.

The Third Amended and Restated Credit Agreement requires the Company to maintain a certain consolidated net leverage ratio. The Company's consolidated net leverage ratio is the ratio of its Consolidated Total Debt minus the lesser of unrestricted cash and 125% of adjusted consolidated EBITDA compared to its adjusted consolidated EBITDA. The Company's maximum consolidated net leverage ratio is 4.00 to 1.00. These covenants and limitations are more fully described in the Third Amended and Restated Credit Agreement. At June 30, 2026, the Company was in compliance with all covenants, including the specified total consolidated net leverage ratio range of 4.00 to 1.00.

The Company had unamortized capitalized debt issuance costs, net of $2.4 million at June 30, 2026, which are being amortized over the life of the revolving credit facility. The unamortized capitalized debt issuance costs balance of $0.7 million was included as prepaid expenses and other current assets and a balance of $1.7 million was included as other assets in the Company's consolidated balance sheet at June 30, 2026.

NOTE 12 – RESTRUCTURING CHARGES

During the fiscal year 2025, the Company implemented a voluntary separation program (VSP) for employees who met certain age and service requirements to reduce overall headcount. As a result of the related workforce reduction, the Company recorded restructuring charges of $19.6 million to one-time termination benefits forone hundred forty-two employees who voluntarily terminated their employment with the Company during the fiscal year ended March 31, 2025. All one-time termination benefits were paid in full during the first quarter of the fiscal year ending March 31, 2026.

In addition to the VSP, during the third quarter of fiscal year 2025, the Company 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 the related workforce changes, during the fiscal year ended March 31, 2026, the Company recorded restructuring charges totaling $0.9 million. During thethree months ended June 30, 2026, the Company recorded restructuring charges of less than $0.1 million. The Company estimates approximately$0.1 million inremaining additional restructuring charges that will be recorded through the fiscal year ending March 31, 2027.

The following table provides a summary of the activity related to the restructuring plan and the related restructuring liability (in thousands):

NOTE 13 – LEASES

The components of operating lease cost for thethree months ended June 30, 2026 and 2025, respectively, were as follows (in thousands):

The table below presents supplemental cash flow information related to leases during the three months ended June 30, 2026 and 2025 (in thousands):

At June 30, 2026 and March 31, 2026, the weighted average remaining lease term in years and weighted average discount rate were as follows:

Future minimum payments under non-cancellable leases at June 30, 2026 are as follows (in thousands):

NOTE 14 – COMMITMENTS AND CONTINGENCIES

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, none of the Company’s current legal proceedings and claims, if determined adversely and based on the information known to the management as of the date of this Quarterly Report, is expected to have a material adverse effect on our financial condition, results of operations or cash flows.

NOTE 15 – TREASURY STOCK

There wasno share repurchase during the three months ended June 30, 2026. At June 30, 2026, approximately 20.5 million shares of common stock remained available to be purchased under the current share repurchase program.

In connection with the delivery of shares of the Company's common stock upon vesting of restricted stock units, the Company withheld 0.6 million shares and 0.6 million shares at a cost of $25.3 million and $13.8 million, respectively, related to minimum statutory tax withholding requirements during thethree months ended June 30, 2026 and 2025, respectively. These withholding transactions do not fall under the share repurchase programs described above, and therefore do not reduce the number of shares that are available for repurchase under those programs.

NOTE 16 – NET INCOME (LOSS) PER SHARE

Calculations of the basic and diluted net income (loss) per share and potential common shares are as follows (in thousands, except for per share data):

The following table sets forth restricted stock units excluded from the calculation of diluted net income (loss) per share, since their inclusion would be anti-dilutive (in thousands):

As the Company incurred a net loss during the three months ended June 30, 2025, all outstanding restricted stock units (including performance-based restricted stock units) have an anti-dilutive effect and are therefore excluded from the computation of diluted weighted average shares outstanding.

NOTE 17 – INCOME TAXES

Generally, the Company's effective tax rate differs from the U.S. federal statutory income tax rate primarily due to foreign withholding taxes and U.S. taxation on foreign earnings, which are partially offset by research and development tax credits and the foreign derived intangible income deduction.

The Company's effective tax rates were (15.2)% and 30.1% for thethree months ended June 30, 2026 and 2025, respectively. The effective tax rate for the three months ended June 30, 2026 differed from the effective tax rate for the three months ended June 30, 2025, primarily related to an increase in the forecasted benefit of the foreign derived intangible income deduction, a significant benefit related to stock compensation and a decrease in foreign withholding taxes.

NOTE 18 – SEGMENT AND GEOGRAPHIC INFORMATION

The Company's operating segments are determined based on the units that constitute a business for which discrete financial information is available and for which operating results are regularly reviewed by the chief operating decision-maker (CODM). The Company's President and CEO is the CODM. Operating results are reviewed by the CODM at the consolidated entity level for the purpose of making resource allocation decisions and for evaluating financial performance, primarily by monitoring actual results compared to forecasted results as well as by reviewing year-over-year results. The Company's CODM evaluates company-wide performance and determines allocation of resources based on multiple performance measures, including but not limited to net income (loss).

The Company has determined it operates as asingle operating segment and hasone reportable segment which includes product and service revenue related to the sale of enterprise observability, carrier service assurance, cybersecurity, and DDoS protection solutions. The Company's results for the one reportable segment are the same as presented in the Company's consolidated statements of operations and there is no expense information that is supplemental to those disclosed in these consolidated financial statements, which are regularly provided to the CODM. The measure of segment assets is reported on the Company's consolidated balance sheet as total assets. Segment asset information is not used by the CODM to allocate resources.

The Company manages its business in the following geographic areas: United States, Europe, Asia and the rest of the world. The Company's policies mandate compliance with economic sanctions and export controls.

Total revenue by geography is as follows (in thousands):

The United States revenue includes sales to resellers in the United States. These resellers fulfill customer orders and may subsequently ship the Company's products to international locations. Further, the Company determines the geography of its sales after considering where the contract originated. A majority of revenue attributable to locations outside of the United States is a result of export sales. Substantially all of the Company's identifiable assets are located in the United States.