NETSCOUT SYSTEMS INC

Previous wording

We are an industry leader with nearly 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 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, the rapidly evolving cybersecurity threat landscape, business intelligence and analytics advancements, and the 5G technology evolution in both the service provider and enterprise customer verticals.

Current wording

We are an industry leader with nearly 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, the rapidly evolving cybersecurity threat landscape, artificial intelligence and business analytics advancements, and the 5G technology evolution in both the service provider and enterprise customer verticals.

Previous wording

Our operating results are influenced by a number of factors, including, but not limited to, the mix and quantity of products and services sold, pricing, costs and availability of materials used in our products, growth in employee-related costs, including commissions, and the expansion of our operations. Factors that affect our ability to maximize our operating results include, but are not limited to, our ability to introduce and enhance existing products, the marketplace acceptance of those new or enhanced products, continued expansion into international markets, expansion into new or adjacent markets, development of strategic partnerships, competition, successful acquisition integration efforts, and our ability to control costs and make improvements in a highly competitive industry.

Current wording

Our operating results are influenced by a number of factors, including, but not limited to, the volume, mix, and quantity of products and services sold, pricing, costs and availability of materials used in our products, growth in employee-related costs, including commissions, and the expansion of our operations. Factors that affect our ability to maximize our operating results include, but are not limited to, our ability to introduce and enhance existing products, the marketplace acceptance of those new or enhanced products, continued expansion into international markets, expansion into new or adjacent markets, development of strategic partnerships, competition, successful acquisition and integration efforts, and our ability to control costs, and make improvements in a highly competitive industry.

Previous wording

We continue to closely monitor current global and macroeconomic conditions, including the impacts of the ongoing Ukraine and Israel wars, global geopolitical tension, stock market volatility, industry-specific capital spending trends, exchange rate fluctuations, inflation, interest rates, and the risk of a recession, including the manner and extent to which they have impacted and could continue to impact our customers, employees, supply chain, and distribution network. The full extent of the impacts of these global and macroeconomic conditions remain uncertain. For the fiscal year ended March 31, 2023, we observed that technology and project spending normalized after observing elongated purchasing cycles resulting from the macroeconomic impacts of the COVID-19 pandemic and we focused on advancing our products, growing revenue, enhancing earnings per share, and generating free cash flow. In response to the Russian military operations in Ukraine, we ceased business operations in Russia, including sales, support on existing contracts and professional services. Late in the second quarter of fiscal year 2024, we experienced a slowing in order conversions as customers displayed higher spending scrutiny and delayed project funding as they navigate the challenging macro environment. This has primarily affected our service assurance business with the most prominent impact within our U.S. Tier-1 service provider customers. This dynamic affected our fiscal year 2024 results through the first three quarters as well as our outlook. The macro environment remains challenging with constrained customer spending scrutiny and we expect this to persist for the remainder of fiscal year 2024 and likely into next fiscal year. As a result, we have continued our efforts to manage discretionary costs and align spending with the current environment as initiated in the second fiscal quarter.

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, 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

Previous wording

Though we continue to monitor the impacts of evolving global and macroeconomic conditions on our business, we believe our current cash reserves and access to capital through our revolving credit facility leave us well-positioned to manage our business in today's environment. We expect net cash provided by operations combined with cash, cash equivalents, marketable securities and investments and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months. We continue to take actions to manage costs and increase productivity throughout our company, including managing discretionary spending and hiring activities, but are continuing to invest in areas that advance our business for the future. In addition to our cash equivalents, based on covenant levels at December 31, 2023, we had an incremental $700 million available to us under our revolving credit facility.

Current wording

Though we continue to monitor the impacts of evolving global and macroeconomic conditions on our business, we believe our current cash reserves and access to capital through our revolving credit facility leave us well-positioned to manage our business in today's environment. We expect net cash provided by operations combined with cash, cash equivalents, marketable securities and investments and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months. We continue to take actions to manage costs and increase productivity throughout our company, including managing discretionary spending and hiring activities, but are continuing to invest in areas that advance our business for the future. In addition to our cash equivalents, based on covenant levels at June 30, 2024, we had an incremental $725 million available to us under our revolving credit facility.

Previous wording

Net loss for the nine months ended December 31, 2023 was $115.3 million, as compared with net income for the nine months ended December 31, 2022 of $62.9 million, a decrease in net income (loss) of $178.2 million. The decrease in net income (loss) was primarily due to a $167.1 million goodwill impairment charge, an $80.4 million decrease in revenue, a $1.2 million increase in travel expense, a $1.1 million increase in contractor fees, and a $1.1 million increase in other marketing related costs. These decreases in net income (loss) were partially offset by a $24.0 million decrease in costs to deliver radio frequency propagation modeling projects, a $14.0 million decrease in employee-related expenses associated with a decrease in variable incentive compensation, a $5.8 million decrease in amortization expense, a $4.4 million increase in interest income, a $3.8 million gain on the divestiture of the Test Optimization business, a $3.4 million decrease in advertising expense, a $3.2 million decrease in commissions expense, a $2.9 million decrease in income tax expense, a $1.9 million decrease in legal fees, a $1.8 million decrease in restructuring expense, a $1.7M increase from the change in fair value of an equity investment, a $1.4 million decrease in expenses related to trade shows, user conferences and other events, a$1.2 million decrease in direct material costs, and a $1.1 million decrease from depreciation expense.

Current wording

Net loss for the three months ended June 30, 2024 was $443.4 million, as compared with net loss for the three months ended June 30, 2023 of $4.2 million, an increase in net loss of $439.2 million. The increase in net loss was primarily due to a $427.0 million goodwill impairment charge, a $36.6 million decrease in revenue, and a $16.6 million increase from restructuring charges due to the voluntary separation program. These increases to net loss were partially offset by a $9.2 million increase in income tax benefit, an $8.3 million increase in other income from the change in fair value of a foreign equity investment, a $6.7 million decrease in employee related expenses associated with a decrease in salaries as a result of a decrease in headcount, and a decrease in variable incentive compensation, a $3.0 million decrease in commissions expense, a $2.5 million decrease in direct material costs, a $1.8 million decrease in amortization expense, a $1.7 million decrease in contractor fees, a $1.1 million decrease from depreciation expense, a $1.1 million decrease in foreign exchange expense, and a $1.0 million decrease in expenses related to trade shows, user conferences and other events.

Previous wording

At December 31, 2023, we had cash, cash equivalents, marketable securities and investments (current and non-current) of $330.1 million. This represents a decrease of $97.8 million from $427.9 million at March 31, 2023. This decrease was primarily due to $50.0 million used to repurchase shares of our common stock, $34.8 million of net cash used in operations, $19.2 million used for tax withholdings on restricted stock units, and $4.7 million used for capital expenditures, partially offset by $7.8 million in proceeds from the divestiture of the Test Optimization business during the nine months ended December 31, 2023.

Current wording

At June 30, 2024, we had cash, cash equivalents, marketable securities and investments (current and non-current) of $407.2 million. This represents a decrease of $16.9 million from $424.1 million at March 31, 2024. This decrease was primarily due to $25.0 million used to repurchase shares of our common stock, $25.0 million used to repay long-term debt, $12.2 million used for tax withholdings on restricted stock units, and $1.3 million used for capital expenditures, partially offset by $38.4 million of net cash provided by operations, and an $8.7 million increase from the change in fair value of an equity instrument during the three months ended June 30, 2024.

Previous wording

We supplement the United States generally accepted accounting principles (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 net income, non-GAAP net income per share (diluted) and non-GAAP earnings before interest and other expense, income taxes, depreciation, and amortization (EBITDA) from operations. Non-GAAP gross profit removes expenses related to the amortization of acquired intangible assets, share-based compensation, and acquisition-related depreciation. Non-GAAP income from operations removes the aforementioned adjustments and also removes legal expenses related to civil judgments, goodwill impairment charges, gain on the divestiture of a business, and restructuring charges. Non-GAAP net income removes the foregoing adjustments related to non-GAAP income from operations, and also removes change in the fair value of derivative instrument, net of related income tax effects. Non-GAAP EBITDA from operations removes the aforementioned items related to non-GAAP income from operations and also removes non-acquisition related depreciation expense.

Current wording

We supplement the United States generally accepted accounting principles (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 net income, non-GAAP net income per share (diluted) and non-GAAP earnings before interest and other expense, income taxes, depreciation, and amortization (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 removes the aforementioned adjustments to non-GAAP gross profit and also removes legal expenses related to civil judgments, goodwill impairment charges, and restructuring charges. Non-GAAP net income removes the foregoing adjustments related to non-GAAP income from operations, and also removes change in the fair value of derivative instrument, net of related income tax effects. Non-GAAP EBITDA from operations removes the aforementioned items related to non-GAAP income from operations and also removes non-acquisition related depreciation expense.

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 nine months ended December 31, 2023 and 2022, respectively (in thousands, except for per share amounts):

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 months ended June 30, 2024 and 2023, 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 and stand-ready software as a service offerings. During the three months ended December 31, 2023, no direct customers or channel partners accounted for more than 10% of our total revenue. During the three months ended December 31, 2022, one direct customer, Verizon, accounted for more than 10% of our total revenue, while no channel partners accounted for more than 10% of our 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 and stand-ready software as a service offerings. During the three months ended June 30, 2024 and 2023, no direct customers orchannel partners accounted for more than 10% of our total revenue.

Previous wording

Product. The 36%, or $53.6 million, decrease in product revenue compared with the same period last year was primarily due to a decrease in revenue from service provider customers from service assurance offerings, including radio frequency propagation modeling projects, as a result of industry-specific capital spending constraints. This decrease in revenue was partially offset by an increase in revenue from cybersecurity offerings from both service provider and enterprise customers.

Current wording

Product. The 35%, or $33.5 million, decrease in product revenue compared with the same period last year was primarily due to a decrease in revenue from both service provider and enterprise customers from service assurance offerings, including radio frequency propagation modeling projects, as a result of industry-specific capital spending constraints, as well as a decrease in revenue from service provider customers from cybersecurity offerings. The results for the three months ended June 30, 2023 benefited from approximately $37 million of backlog-related revenue. Excluding backlog-related revenue, total revenue for the three months ended June 30, 2024 compared with the same period last year would have been relatively consistent year over year.

Previous wording

United States revenue decreased 32%, or $57.5 million, primarily due to a decrease in revenue from service provider and enterprise customers from service assurance offerings, including radio frequency propagation modeling projects, partially offset by an increase in revenue from service provider and enterprise customers from cybersecurity offerings. The 7%, or $6.0 million, increase in international revenue compared with the same period last year was primarily driven by 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, partially offset by a decrease in revenue from service provider customers from service assurance offerings.

Current wording

United States revenue decreased 22%, or $28.0 million, primarily due to a decrease in revenue from service provider and enterprise customers from service assurance offerings, including radio frequency propagation modeling projects, as well as a decrease in revenue from service provider and enterprise customers from cybersecurity offerings. The 10%, or $8.6 million, decrease in international revenue compared with the same period last year was primarily driven by a decrease in revenue from service provider and enterprise customers from service assurance offerings, as well as a decrease in revenue from service provider customers from cybersecurity offerings, partially offset by an increase in revenue from enterprise customers from cybersecurity offerings.

Previous wording

The 30%, or $62.9 million, decrease in revenue from the service assurance product line was due to a decrease in revenue from both enterprise and service provider customers, including a decrease in radio frequency propagation modeling projects. The 20%, or $11.5 million, increase in revenue from the cybersecurity product line was due to higher revenue from service provider and enterprise customers.

Current wording

The 20%, or $29.3 million, decrease in revenue from the service assurance product line was due to a decrease in revenue from both enterprise and service provider customers, including a decrease in radio frequency propagation modeling projects. The 11%, or $7.3 million, decrease in revenue from the cybersecurity product line was due to lower revenue from service provider customers for both product and service revenue, partially offset by an increase in revenue from enterprise customers for both product and service revenue.

Previous wording

The 20%, or $104.4 million, decrease in revenue from the service assurance product line was due to a decrease in revenue from both enterprise and service provider customers, including radio frequency propagation modeling projects, and the 13%, or $23.9 million, increase in revenue from the cybersecurity product line was due to an increase in revenue from service provider and enterprise customers.

Current wording

The 20%, or $19.9 million, decrease in revenue from the service provider customer vertical was due to a decrease in product and service revenue from both the service assurance and cybersecurity product lines. The 15%, or $16.7 million, decrease in revenue from the enterprise customer vertical was due to a decrease in product and service revenue from the service assurance product line, partially offset by an increase in product and service revenue from the cybersecurity product line.

Previous wording

Product. The 40%, or $10.0 million, decrease in cost of product revenue for the three months ended December 31, 2023 compared to the same period last year was primarily due to a $4.9 million decrease in costs related to the delivery of radio frequency propagation modeling projects, a $2.5 million decrease in direct material costs, a $0.7 million decrease in the amortization of intangible assets, a $0.6 million decrease in capitalized overhead, and a $0.6 million decrease in employee-related costs associated with a decrease in variable incentive compensation. The product gross profit percentage increased by one percentage point to 84% during the three months ended December 31, 2023 as compared with the three months ended December 31, 2022. The 35%, or $43.6 million, decrease in product gross profit is attributable to the 36%, or $53.6 million, decrease in product revenue, partially offset by the 40%, or $10.0 million, decrease in cost of product revenue.

Current wording

Product. The 28%, or $4.7 million, decrease in cost of product revenue for the three months ended June 30, 2024 compared to the same period last year was primarily due to a $2.5 million decrease in direct material costs, a $0.7 million decrease in costs related to the delivery of radio frequency propagation modeling projects, a $0.7 million decrease in the amortization of intangible assets, and a $0.5 million decrease in inventory related costs. The product gross profit percentage decreased by two percentage points to 80% during the three months ended June 30, 2024 as compared with the three months ended June 30, 2023. The 37%, or $28.8 million, decrease in product gross profit is attributable to the 35%, or $33.5 million, decrease in product revenue, partially offset by the 28%, or $4.7 million, decrease in cost of product revenue.

Previous wording

Service. The 10%, or $3.1 million, decrease in cost of service revenue for the three months ended December 31, 2023 compared to the same period last year was primarily due to a $2.7 million decrease in employee-related costs associated with a decrease in variable incentive compensation, as well as a decrease in headcount. The service gross profit percentage increased by three percentage points to 77% during the three months ended December 31, 2023 as compared with the three months ended December 31, 2022. The 6%, or $5.3 million, increase in service gross profit is attributable to the 2%, or $2.1 increase in service revenue, and the 10%, or $3.1 million, decrease in cost of service revenue.

Current wording

Service. The 4%, or $1.4 million, decrease in cost of service revenue for the three months ended June 30, 2024 compared to the same period last year was primarily due toa $0.7 million decrease in cost of materials used to support customers under service contracts, and a $0.7 million decrease in employee-related costs associated with a decrease in variable incentive compensation, as well as a decrease in headcount. The service gross profit percentage remained flat at 71% during the three months ended June 30, 2024 as compared with the three months ended June 30, 2023. The 2%, or $1.7 million, decrease in service gross profit is attributable to the 3%, or $3.1 decrease in service revenue, partially offset by the 4%, or $1.4 million, decrease in cost of service revenue.

Previous wording

Gross profit. Our gross profit decreased 18%, or $38.3 million, during the three months ended December 31, 2023 when compared with the three months ended December 31, 2022. This decrease is attributable to the decrease in revenue of 19%, or $51.5 million, partially offset by the 23%, or $13.2 million, decrease in cost of revenue. As a result, the gross profit percentage increased by one percentage point to 80% for the three months ended December 31, 2023 as compared with the three months ended December 31, 2022.

Current wording

Gross profit. Our gross profit decreased 19%, or $30.5 million, during the three months ended June 30, 2024 when compared with the three months ended June 30, 2023. This decrease is attributable to thedecrease in revenue of 17%, or $36.6 million, partially offset by the 12%, or $6.0 million, decrease in cost of revenue. As a result, the gross profit percentage decreased by one percentage point to 75% for the three months ended June 30, 2024 as compared with the three months ended June 30, 2023.

Previous wording

The 13%, or $5.5 million, decrease in research and development expenses for the three months ended December 31, 2023 compared to the same period last year was primarily due to a $4.6 million decrease in employee-related expenses associated with a decrease in variable incentive compensation.

Current wording

The 7%, or $3.1 million, decrease in research and development expenses for the three months ended June 30, 2024 compared to the same period last year was primarily due to a $2.4 million decrease in employee-related costs associated with a decrease in variable incentive compensation, and a $0.7 million decrease from depreciation expense.

Previous wording

The 3%, or $2.1 million, increase in total salesand marketing expenses for the three months ended December 31, 2023 compared to the same period last year was primarily due to a $4.0 million increase in expenses related to trade shows and other events, and a $0.5 million increase in employee-related expenses. These increases were partially offset by a $1.5 million decrease in commissions expense, and a $0.8 million decrease in advertising and other marketing related costs.

Current wording

The 11%, or $8.7 million, decrease in total salesand marketing expenses for the three months ended June 30, 2024 compared to the same period last year was primarily due to a $3.0 million decrease in commissions expense, a $2.9 million decrease in employee related costs associated with a decrease in variable incentive compensation, as well as a decrease in headcount, and a $1.0 million decrease in expenses related to trade shows and other events.

Previous wording

The 9%, or $2.4 million, decrease in general and administrative expenses for the three months ended December 31, 2023 compared to the same period last year was primarily due to a $1.6 million decrease in employee-related expenses associated with a decrease in variable incentive compensation, and a $1.2 million decrease in legal fees. These decreases were partially offset by a $0.5 million increase in accounting related expenses.

Current wording

The 9%, or $2.6 million, decrease in general and administrative expenses for the three months ended June 30, 2024 compared to the same period last year was primarily due to a $1.2 million decrease in contractor fees.

Previous wording

Amortization of acquired intangible assets. Amortization of acquired intangible assets consists primarily of amortization of customer relationships, definite-lived trademarks and trade names, and leasehold interests related to our acquisitions of Danaher Corporation's communications business (Comms Transaction), Network General Corporation, Avvasi Inc. and Efflux Systems, Inc.

Current wording

Amortization of acquired intangible assets. Amortization of acquired intangible assets consists primarily of amortization of customer relationships, definite-lived trademarks and trade names, and developed technology related to our acquisitions of Danaher Corporation's communications business (Comms Transaction), Network General Corporation, Avvasi Inc. and Efflux Systems, Inc.

Previous wording

The 9%, or $1.3 million, decrease in amortization of acquired intangible assets was largely due to a decrease in the amortization of intangible assets related to the Comms Transaction and Network General Corporation.

Current wording

The 9%, or $1.1 million, decrease in amortization of acquired inta ngible assets was largely due to a decrease in the amortization of intangible assets acquired as part of the Comms Transaction and the Network General Corporation transaction.

Previous wording

Goodwill impairment. As a result of a sustained decline in our stock price and overall market capitalization during the third quarter of fiscal year 2024, 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 a quantitative impairment test of our goodwill at December 31, 2023. We estimated the implied fair value of our goodwill using a market approach. As a result of the quantitative impairment test, we deter mined goodwill was impaired and recorded a goodwill impairment charge of $167.1 million during the three months ended December 31, 2023.

Current wording

Goodwill impairment. During fiscal year 2024, we recorded $217.3 million in goodwill impairment charges as a result of the sustained decline in our stock price and overall market capitalization. During the first quarter of fiscal year 2025, due to the continued 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 a quantitative impairment test of our goodwill at June 30, 2024. We estimated the implied fair value of our goodwill using a market approach. As a result of the quantitative impairment test performed during the first quarter of fiscal year 2025, we determined goodwill was impaired and recorded a goodwill impairment charge of $427.0 million during the three months ended June 30, 2024. The additional impairment charge recorded in the first quarter of fiscal year 2025 was primarily due to the continued decrease in our stock price from March 31, 2024 to June 30, 2024, an increase in our weighted-average cost of capital, and the refinement to the expected cost synergies that could be realized by a hypothetical buyer as a result of the VSP we implemented in the first quarter of fiscal year 2025, which impacted the company-specific control premium used to determine the fair value of the reporting unit under the market approach. We expect that these restructuring efforts will generate net annual run-rate savings of approximately $25 million to $27 million, of which we expect that approximately $18 million to $19 million will be realized in the remainder of fiscal year 2025.

Previous wording

The key assumption in the market approach was the company-specific control premium, which was estimated using expected synergies that would be realized by a hypothetical buyer. We also compared its implied control premium to recent control premiums paid in the industry, as evidenced by guideline public company comparable transactions. This information corroborated that the company-specific control premium was within the range of premiums for other companies operating in the industry. Changes in the estimates or assumptions used in its quantitative impairment test could materially affect the determination of fair value and the associated goodwill impairment assessment. Potential events and circumstances that could have an adverse impact on our estimates and assumptions include, but are not limited to, continued increases in costs, and rising interest rates and other macroeconomic factors. An increase or decrease of 1% in the company-specific control premium used in the determination of the fair value of the reporting unit under the market approach would have resulted in an increase or decrease in the goodwill impairment recorded during the three months ended December 31, 2023 of approximately $15.6 million.

Current wording

The key assumption in the market approach was the company-specific control premium, which was estimated using expected synergies that would be realized by a hypothetical buyer. We also compared its implied control premium to recent control premiums paid in the industry, as evidenced by guideline public company comparable transactions. This information corroborated that the company-specific control premium was within the range of premiums for other companies operating in the industry. Changes in the estimates or assumptions used in its quantitative impairment test could materially affect the determination of fair value and the associated goodwill impairment assessment. Potential events and circumstances that could have an adverse impact on our estimates and assumptions include, but are not limited to, continued increases in costs, and high interest rates and other macroeconomic factors. An increase or decrease of 1% in the company-specific control premium used in the determination of the fair value of the reporting unit under the market approach would have resulted in an increase or decrease in the goodwill impairment recorded during the three months ended June 30, 2024 of approximately $13.0 million.

Previous wording

The 123%, or $3.9 million, change in inte rest and other income (expense), net for the three months ended December 31, 2023 compared to the same period last year was primarily due to a $1.5 million increase from the change in fair value of the equity investment in Napatech, a $1.2 million decrease in foreign exchange expense, a $0.7 million increase in interest income, and a $0.7 million decrease in interest expense due to debt repayments on the credit facility in March 2023, partially offset by an increase in the average interest rate on the credit facility.

Current wording

The 1,607%, or $10.3 million, change in inte rest and other income (expense), net for the three months ended June 30, 2024 compared to the same period last yearwas primarily due to an $8.3 million increase from the change in fair value of the equity investment in Napatech, a $1.1 million decrease in foreign exchange expense, and a $0.8 million increase in interest income.

Previous wording

Income Taxes. The effective tax rates were 0.9% and 13.1% for the three months ended December 31, 2023 and 2022, respectively. The effective tax rate for the three months ended December 31, 2023 differed from the effective tax rate for the three months ended December 31, 2022, primarily due to the discrete income tax benefits related to the finalization of tax returns filings and the goodwill impairment incurred during the three months ended December 31, 2023.

Current wording

Income Tax Benefit. The effective tax rates were 2.3% and 21.3% for the three months ended June 30, 2024 and 2023, respectively. The effective tax rate for the three months ended June 30, 2024 differed from the effective tax rate for the three months ended June 30, 2023, primarily related to the goodwill impairment incurred during the three months ended June 30, 2024, a majority of which was not deductible for tax purposes.

Previous wording

At December 31, 2023, cash, cash equivalents, marketable securities and investments (current and non-current) totaled $330.1 million, a $97.8 million decrease from $427.9 million at March 31, 2023. This decrease was primarily due to $50.0 million used to repurchase shares of our common stock, $34.8 million of net cash used in operations, $19.2 million used for tax withholdings on restricted stock units, and $4.7 million used for capital expenditures, partially offset by $7.8 million in proceeds from the divestiture of the Test Optimization business during the nine months ended December 31, 2023. Cash held outside the United States was approximately $159.3 million.

Current wording

At June 30, 2024, cash, cash equivalents, marketable securities and investments (current and non-current) totaled $407.2 million, a $16.9 million decrease from $424.1 million at March 31, 2024. This decrease was primarily due to $25.0 million used to repurchase shares of our common stock, $25.0 million used to repay long-term debt, $12.2 million used for tax withholdings on restricted stock units, and $1.3 million used for capital expenditures, partially offset by $38.4 million of net cash provided by operations, and an $8.7 million increase from the change in fair value of an equity instrument during the three months ended June 30, 2024. Cash and short-term investments held outside of the United States was approximately $203.1 million.

Previous wording

Cash used in operating activities was $34.8 million during the nine months ended December 31, 2023, compared with $43.9 million of cash provided by operating activities during the nine months ended December 31, 2022. The $78.7 million change was due in part to a $178.2 million decrease from the change in net income (loss), a $38.4 million decrease from accrued compensation and other expenses, a $10.9 million decrease from prepaid expenses and other assets, a $10.7 million decrease from accounts receivable, a $9.0 million decrease from inventories, a $7.4 million decrease from depreciation and amortization expense, a $3.8 million decrease from the gain on the divestiture of the Test Optimization business, a $2.3 million decrease from deferred revenue, and a $1.8 million decrease from the fair value of an equity investment. These decreases were partially offset by a $167.1 million goodwill impairment charge, a $7.4 million increase from share-based compensation, a $6.1 million increase from accounts payable, and a $2.9 million increase from deferred income taxes during the nine months ended December 31, 2023 as compared with the nine months ended December 31, 2022.

Current wording

Cash provided by operating activities was $38.4 million during the three months ended June 30, 2024, compared with $22.4 million of cash used in operating activities during the three months ended June 30, 2023. The $60.7 million change was due in part to a $427.0 million goodwill impairment charge recorded during the three months ended June 30, 2024, a $46.4 million increase from accrued compensation and other expenses, a $27.2 million increase from accounts receivable, a $5.3 million increase from prepaid expenses and other assets, a $4.2 million increase from deferred revenue, a $3.7 million increase from accounts payable, a $2.7 million increase from income taxes payable, and a $1.4 million increase from share-based compensation. These increases were partially offset by a $439.2 million decrease from the change in net loss, a $9.2 million decrease from the change in the fair value of an equity investment, a $5.6 million decrease from deferred income taxes, and a $3.0 million decrease from depreciation and amortization expense during the three months ended June 30, 2024 as compared with the three months ended June 30, 2023.

Previous wording

Cash provided by investing activities was $13.4 million during the nine months ended December 31, 2023, compared with $5.6 million of cash used in investing activities during the nine months ended December 31, 2022. The $19.1 million change was due in part to a $7.5 million increase in cash inflow from marketable securities related to a $57.1 million decrease related to the purchase of marketable securities and investments, partially offset by a decrease of $49.6 million in proceeds from the sales and maturity of marketable securities during the nine months ended December 31, 2023 when compared with the nine months ended December 31, 2022. In addition, there was a $7.8 million increase in proceeds from the divestiture of the Test Optimization business during the nine months ended December 31, 2023.

Current wording

Cash used in investing activities was $3.0 million during the three months ended June 30, 2024, compared with $19.1 million of cash used in investing activities during the three months ended June 30, 2023. The $16.1 million change was due in part to a $15.3 million increase in cash inflow from marketable securities related to a $13.8 million decrease related to the purchase of marketable securities and investments, and an increase of $1.5 million in proceeds from the sales and maturity of marketable securities during the three months ended June 30, 2024 when compared with the three months ended June 30, 2023.

Previous wording

Cash used in financing activities changed by $250.1 million to $69.1 million during the nine months ended December 31, 2023, compared with $319.2 million of cash used in financing activities during the nine months ended December 31, 2022.

Current wording

Cash used in financing activities changed by $48.8 million to $62.2 million during the three months ended June 30, 2024, compared with $13.4 million of cash used in financing activities during the three months ended June 30, 2023.

Previous wording

During the nine months ended December 31, 2023, we repurchased a total of 1,209,153 shares for $33.6 million in the open market under the 2017 Share Repurchase Program, and 614,516 shares for $16.4 million in the open market under the 2022 Share Repurchase Program. During the nine months ended December 31, 2022, we repurchased 4,549,329 shares of our common stock under an accelerated share repurchase program for $150.0 million.

Current wording

During the three months ended June 30, 2024, we repurchased a total of 1,347,900 shares for $25.0 million in the open market under the 2022 Share Repurchase Program.

Previous wording

In connection with the delivery of our common stock upon vesting of restricted stock units, we withheld 644,125 and 555,651 shares at a cost of $19.2 million and $19.2 million related to minimum statutory tax withholding requirements on these restricted stock units during the nine months ended December 31, 2023 and 2022, respectively. These withholding transactions do not fall under the repurchase program described above, and therefore do not reduce the number of shares that are available for repurchase under that program.

Current wording

In connection with the delivery of our common stock upon vesting of restricted stock units, we withheld 617,826 and 435,172 shares at a cost of $12.2 million and $13.4 million related to minimum statutory tax withholding requirements on these restricted stock units during the three months ended June 30, 2024 and 2023, respectively. These withholding transactions do not fall under the repurchase program described above, and therefore do not reduce the number of shares that are available for repurchase under that program.

Previous wording

During the nine months ended December 31, 2022, we repaid $150.0 million of borrowings under the Second Amended and Restated Credit Agreement.

Current wording

During the three months ended June 30, 2024, we repaid $25.0 million of borrowings under the Second Amended and Restated Credit Agreement.

Previous wording

The Second Amended and Restated Credit Agreement provides for a five-year, $800.0 million senior secured revolving credit facility, including a letter of credit sub-facility of up to $75.0 million. We may elect to use the credit facility for general corporate purposes (including to finance the repurchase of shares of our common stock). The commitments under the Second Amended and Restated Credit Agreement will expire on July 27, 2026, and any outstanding loans will be due on that date. At December 31, 2023, $100 million was outstanding under the Second Amended and Restated Credit Agreement.

Current wording

The Second Amended and Restated Credit Agreement provides for a five-year, $800.0 million senior secured revolving credit facility, including a letter of credit sub-facility of up to $75.0 million. We may elect to use the credit facility for general corporate purposes (including to finance the repurchase of shares of our common stock). The commitments under the Second Amended and Restated Credit Agreement will expire on July 27, 2026, and any outstanding loans will be due on that date. During the three months ended June 30, 2024, we repaid $25.0 million of borrowings under the Second Amended and Restated Credit Agreement. At June 30, 2024, $75.0 million was outstanding under the Second Amended and Restated Credit Agreement.

Previous wording

We had unamortized capitalized debt issuance costs, net of $2.9 million at December 31, 2023, which are being amortized over the life of the revolving credit facility. The unamortized capitalized debt issuance costs balance of $1.1 million was included as prepaid expenses and other current assets and a balance of $1.8 million was included as other assets in our consolidated balance sheet at December 31, 2023.

Current wording

We had unamortized capitalized debt issuance costs, net of $2.3 million at June 30, 2024, which are being amortized over the life of the revolving credit facility. The unamortized capitalized debt issuance costs balance of $1.1 million was included as prepaid expenses and other current assets and a balance of $1.2 million was included as other assets in our consolidated balance sheet at June 30, 2024.

Previous wording

We have contractual obligations for long-term debt, operating leases, unconditional purchase obligations, pension benefits plans and certain other long-term liabilities. Our obligations related to these items are described further within Management’s Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report filed on form 10-K. We expect net cash provided by operating activities combined with cash, cash equivalents, marketable securities and investments and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirement over at least the next twelve months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and our revolving credit facility. However, macroeconomic conditions, including high inflation and interest rates, and a potential recession, could increase our anticipated funding requirements or make it more difficult for us to access capital.

Current wording

We have contractual obligations for long-term debt, operating leases, unconditional purchase obligations, pension benefits plans and certain other long-term liabilities. Our obligations related to these items are described further within Management’s Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report filed on Form 10-K. We expect net cash provided by operating activities combined with cash, cash equivalents, marketable securities and investments and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and our revolving credit facility. However, macroeconomic conditions, including high inflation and interest rates, and a potential recession, could increase our anticipated funding requirements or make it more difficult for us to access capital.

Previous wording

A portion of our cash may be used to acquire or invest in complementary businesses or products, to obtain the right to use complementary technologies, to repay borrowings under our Second Amended and Restated Credit Agreement, or to repurchase shares of our common stock through our stock repurchase programs. From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies. If our existing sources of liquidity are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities. Macroeconomic conditions, including rising interest rates and volatility in the capital markets, may make it difficult for us to secure additional financing on favorable terms or at all. Any sale of additional equity or debt securities could result in additional dilution to our stockholders.

Current wording

A portion of our cash may be used to acquire or invest in complementary businesses or products, to obtain the right to use complementary technologies, to repay borrowings under our Second Amended and Restated Credit Agreement, or to repurchase shares of our common stock through our stock repurchase programs. From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies. If our existing sources of liquidity are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities. Macroeconomic conditions, including high interest rates and volatility in the capital markets, may make it difficult for us to secure additional financing on favorable terms or at all. Any sale of additional equity or debt securities could result in additional dilution to our stockholders.