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, 2024, filed with the Securities and Exchange Commission. 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 on Form 10-K for the fiscal year ended March 31, 2024. 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. 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, 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.

Current 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, 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 wars in Ukraine and 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

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. 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 cautiously optimistic amid 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.

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, 2024, we had an incremental $525 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, 2025, the Company had $600 million available under a revolving credit facility.

Previous wording

Net loss for the nine months ended December 31, 2024 was $385.5 million, as compared with net loss for the nine months ended December 31, 2023 of $115.3 million. The increase of $270.2 million in net loss was primarily due to a $259.9 million increase in goodwill impairment charges, a $19.9 million increase from restructuring charges due to the restructuring programs implemented during the nine months ended December 31, 2024, an $8.3 million decrease in revenue, a $4.1 million increase in expenses related to trade shows, user conferences, and other events, a $1.4 million increase from software licenses, and a $1.2 million increase in legal fees. These increases to net loss were partially offset by a $5.2 million decrease in amortization expense of intangible assets, a $4.1 million net decrease in employee related expenses as a result of a decrease in headcount, partially offset by an increase in variable incentive compensation, a $3.8 million gain on the divestiture of the Test Optimization business recognized in fiscal year 2024, a $3.4 million decrease from depreciation expense, a $2.2 million decrease in direct material costs, a $2.2 million decrease in income tax expense, a $1.5 million decrease in contractor fees, a $1.4 million decrease in advertising expense, a $1.2 million increase in interest income, a $1.6 million increase in other income from the change in fair value of a foreign equity investment, and a $1.0 million decrease in commissions expense.

Current wording

Net loss for the three months ended June 30, 2025 was $3.7 million, as compared with net loss for the three months ended June 30, 2024 of $443.4 million. The decrease of $439.7 million in net loss was primarily due to a $427.0 million decrease in goodwill impairment charges, a $16.0 million decrease from restructuring charges, a $12.2 million increasein revenue, a $5.2 million decrease in other income primarily due to the change in fair value of the equity investment in Napatech, a $4.8 million decrease in employee related expenses as a result of a decrease in headcount, partially offset by an increase in variable incentive compensation, a $1.4 million decrease in interest expense due to repayment of outstanding loan balance and a $1.1 million decrease in amortization expense of intangible assets. These decreases to net loss were partially offset by an $11.2 million increase in income tax expense, a $2.3 million increase in foreign exchange expense, and a $1.0 million increase in salaries associated with executive transition costs.

Previous wording

At December 31, 2024, we had cash, cash equivalents, marketable securities and investments (current and non-current) of $427.9 million. This represents an increase of $3.8 million from $424.1 million at March 31, 2024. This increase was primarily due to $76.1 million of net cash provided by operations, partially offset by $25.3 million used to repurchase shares of our common stock, net $25.0 million used to repay long-term debt, $13.8 million used for tax withholdings on restricted stock units, $4.0 million used for capital expenditures, $2.5 million used for the payment of debt issuance costs, and $1.3 million used to acquire technology licenses during the nine months ended December 31, 2024.

Current wording

At June 30, 2025, we had cash, cash equivalents, marketable securities and investments (current and non-current) of $543.5 million. This represents an increase of $51.0 million from $492.5 million at March 31, 2025. This increase was primarily due to $73.6 million of net cash provided by operations, $4.7 million increase from the exchange rate changes and $3.5 million increase from the change in fair value of an equity investment, partially offset by $15.0 million used to repurchase shares of our common stock, $13.8 million used for tax withholdings on restricted stock units and $1.9 million used for capital expenditures during the three months ended June 30, 2025.

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 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, gain on the divestiture of a business, goodwill impairment charges, and restructuring charges. Non-GAAP net income removes the foregoing adjustments related to non-GAAP income from operations, and also removes loss on extinguishment of debt and 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 operating margin, 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 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 removes the foregoing adjustments related to non-GAAP income from operations, and also removes the income tax effects of such adjustments. 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

These non-GAAP measures are not in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP (revenue, gross profit, operating margin, net income and diluted net income per share), and may have limitations because they do not reflect all our results of operations as determined in accordance with GAAP. These non-GAAP measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. The presentation of non-GAAP information is not meant to be considered superior to, in isolation from, or as a substitute for results prepared in accordance with GAAP.

Current wording

These non-GAAP measures are not prepared in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP (revenue, gross profit, operating margin, net income and diluted net income per share), and may have limitations because they do not reflect all our results of operations as determined in accordance with GAAP. These non-GAAP measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. The presentation of non-GAAP information is not meant to be considered superior to, in isolation from, or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should not be used to evaluate our results of operations against those of our peers or other companies, as the definitions and calculations of our non-GAAP measures may not be the same as those used by other companies, even if the measures share the same name.

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, 2024 and 2023, 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 months ended June 30, 2025 and 2024, respectively (dollars in thousands, except for per share data):

Previous wording

Please refer to the critical accounting policies set forth in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities and Exchange Commission (SEC) on May 16, 2024, for a description of all of our critical accounting policies and estimates.

Current wording

Please refer to the critical accounting policies set forth in our Annual Report for a description of all of our critical accounting policies and estimates.

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, 2024, 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. During the three months ended December 31, 2023, no direct customers or 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, subscription-based services, and stand-ready software as a service offerings. During the three months ended June 30, 2025 and June 30, 2024, no direct customers or channel partners accounted for more than 10% of our total revenue.

Previous wording

Service. The 1%, or $1.6 million, increase in service revenue compared with the same period last year was primarily due to an increase in revenue from maintenance contracts.

Current wording

Service. The 0.3%, or $0.4 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

United States revenue decreased 1%, or $2.1 million, primarily due to a decrease in revenue from service assurance offerings from enterprise customers, including radio frequency propagation modeling projects. The 2%, or $6.3 million, decrease in international revenue compared with the same period last year was primarily driven by lower revenue from service provider customers from both service assurance and cybersecurity offerings, partially offset by an increase in revenue from enterprise customers from both service assurance and cybersecurity offerings.

Current wording

United States revenue increased 1%, or $0.6 million, 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. The 16%, or $11.6 million, increase in international revenue compared with the same period last year was primarily driven by an increase in revenue from service provider customers from cybersecurity offerings and an increase from enterprise customers from service assurance offerings.

Previous wording

The 9%, or $13.9 million, increase in revenue from the service assurance product line was due to an increase in product revenue from both enterprise customers and service provider customers, including the acceleration of a large service provider order previously expected in the fourth quarter of fiscal year 2025, and an increase in service revenue from service provider customers, partially offset by a decrease in service revenue from enterprise customers. The 29%, or $20.0 million, increase in revenue from the cybersecurity product line was due to higher product revenue from both enterprise and service provider customers, and an increase in service revenue from enterprise customers, partially offset by a decrease in service revenue from service provider customers.

Current wording

The 1%, or $1.6 million, increase in revenue from the service assurance product line was due to an increase in product revenue from enterprise customers, partially offset by a decrease in both product and service revenue from service provider customers. The 18%, or $10.6 million, increase in revenue from the cybersecurity product line was due to higher product revenue from both enterprise and service provider customers, and an increase in service revenue from both enterprise customers and service provider customers.

Previous wording

The 7%, or $20.7 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 4%, or $12.4 million, increase in revenue from the enterprise customer vertical was due to an increase in product and service revenue from the cybersecurity product line, partially offset by a decrease in the service assurance product line, including radio frequency propagation modeling projects.

Current wording

The 6%, or $4.5 million, decrease in revenue from the service provider customer vertical was due to a decrease in product and service revenue from the service assurance product line, partially offset by an increase in both product and service revenue from the cybersecurity product line. The 18%, or $16.7 million, increase in revenue from the enterprise customer vertical was due to an increase in product and service revenue from both the service assurance and cybersecurity product line.

Previous wording

Product. The 7%, or $1.1 million, increase in cost of product revenue for the three months ended December 31, 2024 compared to the same period last year was primarilydue to a $1.4 million increase in costs related to the delivery of radio frequency propagation modeling projects, and a $1.3 million increase in direct material costs. These increases were partially offset by a $0.8 million decrease in the amortization of intangible assets, and a $0.6 million decrease in inventory obsolescence charges. The product gross profit percentage increased by three percentage points to 87% during the three months ended December 31, 2024 as compared with the three months ended December 31, 2023. The 39%, or $31.2 million, increase in product gross profit is attributable to the 34%, or $32.3 million, increase in product revenue, partially offset by the 7%, or $1.1 million, increase in cost of product revenue.

Current wording

Product. The 1%, or $0.1 million, decrease in cost of product revenue for the three months ended June 30, 2025 compared to the same period last year was primarily due to a $0.6 million decrease in the amortization of intangible assets, a $0.2 million decrease in depreciation and a $0.1 million decrease in inventory obsolescence charges, offset by $0.8 million increase in direct material costs. The product gross profit percentage increased by 24 percentage points to 84% during the three months ended June 30, 2025 as compared with the three months ended June 30, 2024. The 24%, or $11.9 million, increase in product gross profit was attributable to the 19%, or $11.8 million, increase in product revenue and by the 1%, or $0.1 million, decrease in cost of product revenue.

Previous wording

Gross profit. Our gross profit increased 18%, or $31.0 million, during the three months ended December 31, 2024 when compared with the three months ended December 31, 2023. This increase is attributable to the increase in revenue of 16%, or $33.9 million, partially offset by the 7%, or $3.0 million, increase in cost of revenue. The gross profit percentage increased by two percentage points to 82% for the three months ended December 31, 2024 as compared with the three months ended December 31, 2023.

Current wording

Gross profit. Our gross profit increased by 10%, or $13.1 million, during the three months ended June 30, 2025 when compared with the three months ended June 30, 2024. This increase was attributable to the increase in revenue of 7%, or $12.2 million and the 2%, or $0.9 million, decrease in cost of revenue. The gross profit percentage increased by two percentage points to 77% for the three months ended June 30, 2025 as compared with the three months ended June 30, 2024.

Previous wording

The 2%, or $0.7 million, increase in research and development expenses for the three months ended December 31, 2024 compared to the same period last year was primarily due to a $1.1 million increase in employee-related costs associated with an increase in variable incentive compensation partially offset by a decrease in cost due to a reduction in headcount, and a $0.5 million increase in allocated overhead. These increases were partially offset by a $0.5 million decrease from depreciation expense.

Current wording

The 6%, or $2.7 million, decrease in research and development expenses for the three months ended June 30, 2025 compared to the same period last year was primarily due to a $2.5 million decrease in employee-related costs associated with a decrease in headcount.

Previous wording

The 1%, or $0.8 million, increase in total sales and marketing expenses for the three months ended December 31, 2024 compared to the same period last year was primarily due to a $2.6 million increase in commissions expense, and a $1.2 million increase related to trade shows, user conferences and other events. These increases were partially offset by a $2.1 million decrease in employee-related costs associated with a decrease in cost due to a reduction in headcount, and a $0.7 million decrease in advertising expense.

Current wording

The 0.4%, or $0.3 million, increase in total sales and marketing expenses for the three months ended June 30, 2025 compared to the same period last year was primarily due to a $1.5 million increase in commissions expense. This increase was partially offset by a $0.5 million decrease in advertising expenses, $0.4 million decrease in trade shows and $0.3 million decrease in employee-related costs associated with a decrease in cost due to a reduction in headcount.

Previous wording

The 7%, or $0.9 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.

Current wording

The 4%, or $0.5 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

Restructuring charges. During the first quarter of fiscal year 2025, we 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, during the nine months ended December 31, 2024, we recorded restructuring charges totaling $19.6 million related to one-time termination benefits for one hundred forty-two employees who voluntarily terminated their employment with us during that period. During the third quarter of fiscal year 2025, 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 the related workforce changes, during the nine months ended December 31, 2024, we recorded restructuring charges totaling $0.3 million.

Current wording

Restructuring charges. During the third quarter of fiscal year 2025, 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 three months ended June 30, 2025, we recorded restructuring charges totaling $0.5 million. During the three months ended June 30, 2024, we recorded restructuring charges totaling $16.6 million related to one-time termination benefits for one hundred sixteen employees who voluntarily terminated their employment through our voluntary separation program that was implemented in the first quarter of fiscal year 2025.

Previous 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 $25.0 million to $27.0 million, of which we expect that approximately $6.0 million will be realized in the remainder of fiscal year 2025. At September 30, 2024 and December 31, 2024, we performed a Triggering Event assessment and concluded no event or circumstances occurred that indicated goodwill was further impaired.

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.

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 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 nine months ended December 31, 2024 of approximately $13.0 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 the 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 695%, or $5.1 million, change in interest and other income (expense), net for the three months ended December 31, 2024 compared to the same period last year was primarily due to $6.0 million decrease from the change in fair value of the equity investment in Napatech, partially offset by a $0.7 million decrease in foreign exchange expense.

Current wording

The 61%, or $5.9 million, decrease in interest and other income (expense), net for the three months ended June 30, 2025 compared to the same period last year was primarily due to $5.2 million decrease from the change in fair value of the equity investment in Napatech and a $2.3 million increase in foreign exchange expense, partially offset by a $1.4 million decrease in interest expense.

Previous wording

Income Tax Expense. Our effective tax rates were 0.4% and 3.3% for the nine months ended December 31, 2024 and 2023, respectively. The effective tax rate for the nine months ended December 31, 2024 differed from the effective rate for the nine months ended December 31, 2023, primarily related to a decrease in the research and development tax credit, and an increase in foreign withholding taxes and goodwill impairment incurred during the nine months ended December 31, 2024, which was not deductible for tax purposes.

Current wording

Income Tax Expense (Benefit). The effective tax rates were 30.1% and 2.3% for the three months ended June 30, 2025 and 2024, respectively. The effective tax rate for the three months ended June 30, 2025 differed from the effective tax rate for the three months ended June 30, 2024, primarily related to a decrease in foreign withholding taxes offset by a $427.0 million goodwill impairment charge incurred during the three months ended June 30, 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 December 31, 2024 was $29.9 million compared to $6.8 million at March 31, 2024. Combined product backlog included fulfillable backlog of $21.8 million and $2.5 million at December 31, 2024 and March 31, 2024, respectively. Total backlog includes orders that were received late in the quarter and radio frequency propagation modeling projects. In some cases, we have begun these projects but have not yet hit billable milestones. At December 31, 2024 and March 31, 2024 deferred revenue contained a gross balance of $3.2 million and $1.2 million, respectively, related to these radio frequency propagation modeling project orders.

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 June 30, 2025 was $30.9 million compared to $33.1 million at March 31, 2025. Combined product backlog included fulfillable backlog of $23.3 million and $25.1 million at June 30, 2025 and March 31, 2025, respectively. Total backlog includes orders that were received late in the quarter and radio frequency propagation modeling projects, as well as multi-year enterprise license agreements. In some cases, we have begun these projects but have not yet hit billable milestones. At June 30, 2025 and March 31, 2025 deferred revenue contained a gross balance of $6.3 million and $8.3 million, respectively, related to these radio frequency propagation modeling project orders.

Previous wording

At December 31, 2024, cash, cash equivalents, marketable securities and investments (current and non-current) totaled $427.9 million, a $3.8 million increase from $424.1 million at March 31, 2024. This increase was primarily due to $76.1 million of net cash provided by operations, partially offset by $25.3 million used to repurchase shares of our common stock, $25.0 million used to repay long-term debt, $13.8 million used for tax withholdings on restricted stock units, $4.0 million used for capital expenditures, $2.5 million used for the payment of debt issuance costs, and $1.3 million used to acquire technology licenses during the nine months ended December 31, 2024. Cash and short-term investments held outside of the United States was approximately $180.5 million.

Current wording

At June 30, 2025, cash, cash equivalents, marketable securities and investments (current and non-current) totaled $543.5 million, a $51.0 million increase from $492.5 million at March 31, 2025. This increase was primarily due to $73.6 million of net cash provided by operations and $13.6 million proceeds from sales and maturity of marketable securities, partially offset by $29.0 million used to purchase marketable securities, $15.0 million used to repurchase shares of our common stock, $13.8 million used for tax withholdings on restricted stock units, and $1.9 million used for capital expenditures, during thethree months ended June 30, 2025. Cash and short-term investments held outside of the United States was approximately $227.7 million.

Previous wording

Cash provided by investing activities was $2.0 million during the nine months ended December 31, 2024, compared with $13.4 million of cash provided by investing activities during the nine months ended December 31, 2023. The $11.4 million decrease in cash provided by investing activities was due in part to a $7.8 million decrease in proceeds due to the divestiture of the Test Optimization business during the nine months ended December 31, 2023, a $3.1 million net decrease in cash inflow from the purchase and sale of marketable securities during the nine months ended December 31, 2024 when compared with the nine months ended December 31, 2023, and $1.3 million in cash used to acquire technology licenses during the nine months ended December 31, 2024. These decreases to cash were partially offset by a $0.7 million decrease in cash used to purchase fixed assets during the nine months ended December 31, 2024, compared with the nine months ended December 31, 2023.

Current wording

Cash used in investing activities was $17.3 million during the three months ended June 30, 2025, compared with $3.1 million of cash used in investing activities during the three months ended June 30, 2024. The $14.2 million increase in cash used in investing activities was partially due in part to an additional $16.9 million purchase and sale of marketable securities during the three months ended June 30, 2025 as compared with the three months ended June 30, 2024, an additional $0.6 million in fixed asset purchase, partially offset by a $3.3 million increase in proceeds from maturity of marketable securities in the three months ended June 30, 2025 as compared to the three months ended June 30, 2024.

Previous wording

Cash used in financing activities changed by $2.6 million to $66.5 million during the nine months ended December 31, 2024, compared with $69.1 million of cash used in financing activities during the nine months ended December 31, 2023.

Current wording

Cash used in financing activities changed by $33.4 million to $28.8 million during the three months ended June 30, 2025, compared with $62.2 million of cash used in financing activities during the three months ended June 30, 2024.

Previous wording

During the nine months ended December 31, 2024, we repurchased a total of 1,362,205 shares for $25.3 million in the open market under the 2022 Share Repurchase Program. 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.

Current wording

During the three months ended June 30, 2025, we repurchased a total of 761,249 shares for $15.0 million in the open market under the 2022 Share Repurchase Program. 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 697,899 and 644,125 shares at a cost of $13.8 million and $19.2 million related to minimum statutory tax withholding requirements on these restricted stock units during the nine months ended December 31, 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.

Current wording

In connection with the delivery of our common stock upon vesting of restricted stock units, we withheld 597,115 and 617,826 shares at a cost of $13.8 million and $12.2 million related to minimum statutory tax withholding requirements on these restricted stock units during the three months ended June 30, 2025 and 2024, 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, 2024, we repaid $25.0 million of borrowings under the Second Amended and Restated Credit Agreement.

Current wording

During the three months ended June 30, 2025, there were no amounts outstanding under the Third Amended and Restated Credit Agreement (as defined below) and therefore no amounts repaid. During the three months ended June 30, 2024, we repaid $25.0 million of borrowings under the Second Amended and Restated Credit Agreement (as defined below).

Previous wording

The Third Amended and Restated Credit Agreement provides for a new five-year, $600.0 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 amended credit facility for working capital and other general corporate purposes (including to refinance revolving loans outstanding under the Second Amended and Restated Credit Agreement and to repurchase of shares of our common stock). The commitments under the Third Amended and Restated Credit Agreement will expire on October 4, 2029, and any outstanding loans will be due on that date.

Current wording

The Third Amended and Restated Credit Agreement provides for a five-year, $600.0 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 amended credit facility for working capital and other general corporate purposes (including to repurchase shares of our common stock). The commitments under the Third Amended and Restated Credit Agreement will expire on October 4, 2029, and any outstanding loans will be due on that date.

Previous wording

In connection with the Third Amended and Restated Credit Agreement, we paid off the outstanding balance of $75.0 million under the Second Amended and Restated Credit Agreement on October 4, 2024 by borrowing the same amount under the Third Amended and Restated Credit Agreement. Additionally, we recorded a loss on the extinguishment of debt of $1.1 million, representing the write off of unamortized deferred financing costs, which was included in interest expense in the consolidated statements of operations for the three and nine months ended December 31, 2024. At December 31, 2024, $75.0 million was outstanding under the Third Amended and Restated Credit Agreement. On February 3, 2025, we paid the outstanding balance of $75.0 million in full under the Third Amended and Restated Credit Agreement.

Current wording

In connection with the Third Amended and Restated Credit Agreement, we paid off the outstanding balance of $75.0 million under the Second Amended and Restated Credit Agreement on October 4, 2024 by borrowing the same amount under the Third Amended and Restated Credit Agreement. Additionally, we recorded a loss on the extinguishment of debt of $1.1 million, representing the write off of unamortized deferred financing costs, which was included in interest expense in the consolidated statements of operations for the fiscal year ended March 31, 2025. On February 3, 2025, we paid the outstanding balance of $75.0 million in full under the Third Amended and Restated Credit Agreement. At June 30, 2025, there were no amounts outstanding under the Third Amended and Restated Credit Agreement.

Previous wording

At our election, revolving loans under the Third Amended and Restated Credit Agreement bear interest at either (a) a term SOFR rate plus a credit spread adjustment of 0.10% or (b) an Alternate Base Rate (defined in a customary manner), in each case plus an applicable margin. For the initial period until we have delivered financial statements for the quarter ended December 31, 2024, the applicable margin will be 1.00% per annum for term SOFR loans and 0% per annum for Alternate Base Rate loans, and thereafter the applicable margin will vary depending on our consolidated gross leverage ratio, ranging from 1.00% per annum for Alternate Base Rate loans and 2.00% per annum for term SOFR loans if our consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0% per annum for Alternate Base Rate loans and 1.00% per annum for term SOFR loans if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

Current wording

At our election, revolving loans under the Third Amended and Restated Credit Agreement bear interest at either (a) a term SOFR rate plus a credit spread adjustment of 0.10% or (b) an Alternate Base Rate (defined in a customary manner), in each case plus an applicable margin. For the period from the delivery of our financial statements for the year ended March 31, 2025, until we have delivered financial statements for the quarter ended June 30, 2025, the applicable margin will be 1.00% per annum for term SOFR loans and 0% per annum for Alternate Base Rate loans, and thereafter the applicable margin will vary depending on our consolidated gross leverage ratio, ranging from 1.00% per annum for Alternate Base Rate loans and 2.00% per annum for term SOFR loans if our consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0% per annum for Alternate Base Rate loans and 1.00% per annum for term SOFR loans if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

Previous wording

Commitment fees will accrue on the daily unused amount of the credit facility. For the initial period until we have delivered financial statements for the quarter ended December 31, 2024, the commitment fee will be 0.15% per annum, and thereafter the commitment fee will vary depending on our consolidated gross leverage ratio, ranging from 0.30% per annum if our consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0.15% per annum if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

Current wording

Commitment fees will accrue on the daily unused amount of the credit facility. For the period from the delivery of our financial statements for the quarter ended March 31, 2025, until we have delivered financial statements for the quarter ended June 30, 2025, the commitment fee will be 0.15% per annum, and thereafter the commitment fee will vary depending on our consolidated gross leverage ratio, ranging from 0.30% per annum if our consolidated gross leverage ratio is greater than 2.75 to 1.00, down to 0.15% per annum if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

Previous wording

The loans and other obligations under the credit facility are (a) guaranteed by each of our wholly-owned material domestic restricted subsidiaries, subject to certain exceptions, and (b) are secured by substantially all of the assets of us and the subsidiary guarantors, including a pledge of all the capital stock of material subsidiaries held directly by us and the subsidiary guarantors (which pledge, in the case of any foreign subsidiary, is limited to 65% of the voting stock), subject to certain customary exceptions and limitations. The Third Amended and Restated Credit Agreement generally prohibits any other liens on the assets of NetScout and our restricted subsidiaries, subject to certain exceptions as described in the Third Amended and Restated Credit Agreement.

Current wording

The loans and other obligations under the credit facility are (a) guaranteed by each of our wholly-owned material domestic restricted subsidiaries, subject to certain exceptions, and (b) secured by substantially all of the assets of us and the subsidiary guarantors, including a pledge of all the capital stock of material subsidiaries held directly by us and the subsidiary guarantors (which pledge, in the case of any foreign subsidiary, is limited to 65% of the voting stock), subject to certain customary exceptions and limitations. The Third Amended and Restated Credit Agreement generally prohibits any other liens on the assets of NetScout and our restricted subsidiaries, subject to certain exceptions as described in the Third Amended and Restated Credit Agreement.

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 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.

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. 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, international trade relations (including trade protections measures, such as tariffs and other trade barriers), and a potential recession, could increase our anticipated funding requirements or make it more difficult for us to access capital.