NetScout (NASDAQ: NTCT) outlines observability and cybersecurity focus in 2026 10-K
Rhea-AI Filing Summary
NetScout Systems, Inc. provides enterprise network observability, carrier service assurance, cybersecurity and DDoS protection built on its deep packet inspection and “Smart Data” platform. The company serves enterprises, telecom providers and government agencies, offering hardware, software, virtual and SaaS form factors.
NetScout reports combined product backlog of $50.8 million at March 31, 2026, up from $33.1 million a year earlier, driven by timing of orders from two large enterprise-related customers. As of May 7, 2026, 71,495,215 common shares were outstanding and non‑affiliate market value was about $1.80 billion as of September 30, 2025.
The filing highlights growth priorities around platform innovation, broader observability and AI-driven use cases, expansion into adjacent markets and cost efficiency. It also details extensive risk factors including macroeconomic uncertainty, supply‑chain constraints, cybersecurity threats, AI‑related compliance, regulatory complexity and intense competition across observability and security markets.
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Key Figures
Key Terms
deep packet inspection technical
Smart Data technical
Distributed Denial-of-Service (DDoS) technical
observability technical
Artificial Intelligence (AI) technical
General Data Protection Regulation (EU GDPR) regulatory
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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The aggregate market value of common stock held by non-affiliates of the registrant as of September 30, 2025 (based on the last reported sale price on the Nasdaq Global Select Market as of such date) was approximately $
DOCUMENTS INCORPORATED BY REFERENCE
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NETSCOUT SYSTEMS, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 2026
TABLE OF CONTENTS
PART I |
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Item 1. |
Business |
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Item 1A. |
Risk Factors |
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Item 1B. |
Unresolved Staff Comments |
34 |
Item 1C. |
Cybersecurity |
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Item 2. |
Properties |
35 |
Item 3. |
Legal Proceedings |
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Item 4. |
Mine Safety Disclosures |
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PART II |
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Item 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |
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Item 6. |
[Reserved] |
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Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
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Item 8. |
Financial Statements and Supplementary Data |
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Item 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
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Item 9A. |
Controls and Procedures |
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Item 9B. |
Other Information |
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Item 9C. |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
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PART III |
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Item 10. |
Directors and Executive Officers of the Registrant |
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Item 11. |
Executive Compensation |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. |
Certain Relationships and Related Transactions |
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Item 14. |
Principal Accountant Fees and Services |
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PART IV |
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Item 15. |
Exhibits and Financial Statement Schedules |
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Item 16. |
Form 10-K Summary |
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Signatures |
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Unless the context suggests otherwise, references in this Annual Report on Form 10-K (Annual Report) to "NetScout," the "Company," "we," "us," and "our" refer to NetScout Systems, Inc. and, where appropriate, our consolidated subsidiaries.
NetScout, the NetScout logo, Adaptive Service Intelligence and other trademarks or service marks of NetScout appearing in this Annual Report are the property of NetScout Systems, Inc. and/or its subsidiaries and/or affiliates in the United States and/or other countries. Any third-party trade names, trademarks and service marks appearing in this Annual Report are the property of their respective holders.
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Cautionary Statement Concerning Forward-Looking Statements
This Annual Report contains forward-looking statements under Section 21E of the Exchange Act (as defined below) and other federal securities laws. These statements relate to future events or our future financial performance and are identified by terminology such as "may," "will," "could," "should," "expects," "plans," "intends," "seeks," "anticipates," "believes," "estimates," "potential" or "continue," or the negative of such terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on these forward-looking statements. Actual events or results may differ materially. Factors that may cause such differences include, but are not limited to, the factors discussed under the heading "Risk Factors" and in our other filings with the Securities and Exchange Commission (SEC). These factors may cause our actual results to differ materially from any forward-looking statement. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.
Except as required by law, we do not undertake any obligation to release publicly any revisions to these forward-looking statements after completion of the filing of this Annual Report to reflect later events or circumstances or the occurrence of unanticipated events.
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PART I
Item 1. Business
Overview
NetScout is an industry leader with over four decades of experience in providing enterprise network observability, carrier service assurance, cybersecurity, and Distributed Denial-of-Service (DDoS), protection solutions. Our unique visibility platform and solutions are powered by our pioneering deep packet inspection, or DPI, 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. The majority of our solutions are designed to provide Smart Data, a high-fidelity, decision-grade data foundation derived from real-time network activity across legacy, hybrid, and cloud-native environments. This data enables a unified view of performance, availability, and security, supports faster root-cause analysis and operational decision-making, and is increasingly used to inform broader observability platforms and automated and AI-driven workflows. With our offerings, customers can quickly, efficiently and effectively identify and resolve issues that result in downtime, service interruptions, poor service quality, or compromised data, thereby reducing mean time to resolution of issues and driving compelling returns on their investments in their networks and broader technology initiatives. Significant technology trends and catalysts for our business include the evolution of customers' digital transformation initiatives, such as migration to cloud environments and to the edges of their networks; the rapidly evolving cybersecurity threat landscape; advancements in artificial intelligence (“AI”) and business analytics that can enhance observability and are increasing the need for high-quality, real-time data to support automated and AI-driven operations; and the continued evolution and potential opportunities related to 5G technology across both the service provider and enterprise customer verticals.
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 new 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.
Markets
Our service assurance solutions are used by enterprises (including government agencies) and service providers to optimize network performance, quickly identify and resolve issues impacting application and service quality, and to gain insight into the end user experience. Our cybersecurity solutions are used by enterprises and service providers to identify and mitigate advanced, volumetric, multi-vector, and application-specific DDoS attacks, as well as assist enterprise security teams in rapidly identifying, isolating, investigating, and resolving other advanced network threats. These combined solutions provide a powerful platform to address observability, service assurance and cybersecurity challenges for our customers. Additionally, we are starting to allow our Smart Data to be leveraged for third party observability platform use and automated and AI workflows to complement other provider solutions.
Enterprise Market
Within the enterprise market, NetScout's nGeniusONE, ISNG, Omnis Insights, Omnis Cybersecurity solutions, and Arbor Edge Defense offerings enable IT organizations to support a growing range of performance management, observability, AI Ops, and cybersecurity use cases including:
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Government Markets
Considered as part of our enterprise customer vertical, we have built a strong position with federal, state and local government agencies, both in the United States and abroad. Similar to our enterprise customers, government agencies are focused on streamlining and transforming IT into more efficient and more easily managed environments. To accomplish this, agencies are turning to IT solutions that will help simplify managing and assuring their IT environments as well as reducing costs. However, governmental markets differ from enterprise markets primarily due to their purchasing cycles being influenced by potential changes in government administrators, budgetary priorities and allocated funding for key projects.
Telecommunication Service Provider Markets
Today's service providers are focused on delivering a compelling set of services and ensuring a high-quality user experience, while also striving to minimize operational complexity, control costs and improve automation. This, coupled with the challenge of internet protocol (IP) transformation activities and complex technologies such as 5G, Long-Term Evolution (LTE), Network Functions Virtualization (NFV), Internet Protocol Television (IP-TV), WiFi, Fixed Wireless Access (FWA), network slicing and cloud services drives the need for a more automated and unified approach to managing service delivery and the subscriber experience and protecting the mobile network. Our service provider solutions support an expanding range of use cases including:
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Products Overview
Since our founding in 1984, we have been an industry innovator in using IP-based network traffic to help organizations manage and optimize the delivery of services and applications over their networks, improve end-user experience, and protect networks from cybersecurity threats. Using our patented ASI technology, our platform is designed to captures every network-based interaction, transaction, and experience happening across the business in real time, at wire speed, and with high fidelity to produce “Smart Data.” Rather than sampled metrics or synthetic data, Smart Data is structured, enriched, AI-ready metadata that captures how services and applications are performing. This Smart Data forms the foundation of our platform, supporting observability, service assurance, AI Ops, and cybersecurity use cases across our product portfolio. Our offerings can help customers quickly identify and troubleshoot network and application performance issues, defend their networks from DDoS and other cybersecurity attacks, and rapidly find and isolate advanced network threats. Our solutions are deployed by customers in one of four form factors: as integrated hardware and software appliance, as software only that is then integrated into commercial off-the-shelf hardware, in a virtualized environment as software only, or as a SaaS solution. Our solutions help our customers keep pace with increasing customer demands and technological complexity. To further elevate our value proposition and address the near- and long-term needs of customers and prospects, we have delivered major product upgrades across our product lines by integrating key functionality from acquired product lines, increasing the deployment flexibility of our solutions, and adding new features and capabilities that enable us to address a broader range of use cases. Our primary products can be categorized as follows:
Service Assurance Solutions for Network Observability, Artificial & Business Intelligence Analytics
Cybersecurity Solutions
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Integration with Third-Party Solutions
To have greater operational impact on assuring performance of applications and service delivery, we have integrated our technology with third-party management consoles and business service management systems. This integration allows organizations to receive alarms on impending performance problems and to link into the nGenius Service Assurance solution in order to perform detailed problem analysis and troubleshooting. The third-party solution providers that we have integrated our solutions with include Cisco Systems, Cisco Sourcefire, Citrix Systems, Dell Technologies, Hewlett-Packard Company, IBM Tivoli, ServiceNow, Splunk, and VMWare. In addition, we have embedded NetScout Arbor DDoS mitigation capabilities on a blade within Cisco's market-leading ASR9000 router and will continue to evaluate partnership opportunities to support integration of its smart DDoS capabilities into various third-party platforms.
Growth Strategy
The following are key elements in our growth strategy for fiscal year 2027:
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Support Services
Customer satisfaction is a key driver of our success. Our programs offer customers various levels of high-quality support services to assist in the deployment and use of our solutions. We have support personnel strategically deployed across the globe to deliver 24/7 support to our customers. Our support also includes updates to our software and firmware at no additional charge, if and when such updates are developed and made generally available to our commercial customer base. If ordered, support commences upon fulfilment or expiration of the standard warranty for software. For software, which also includes firmware, the standard warranty commences upon fulfilment and expires 60 to 90 days thereafter. With regard to hardware, the standard warranty commences upon fulfilment and expires 60 days to 12 months thereafter. Our warranties are consistent with commonly accepted industry standards. We expect to continue to provide support services for the acquired platforms under existing agreements and will explore opportunities to further simplify and standardize our support obligations over the coming years. For customers requiring additional levels of service, we offer managed services in various forms, where we operate our technology platform to meet the customers’ requirements for observability and threat mitigation.
Manufacturing
Our manufacturing operations consist primarily of final product assembly, configuration, and testing. We purchase components and subassemblies from suppliers and construct our hardware products in accordance with NetScout standard specifications. We inspect, test and use process controls to ensure the quality and reliability of our products. We maintain an ISO 9001 quality systems registration, a certification showing that our corporate procedures and manufacturing facilities comply with standards for quality assurance and process control. We also maintain an ISO 9001:2000 quality systems registration, a certification showing that our corporate procedures comply with standards for continuous improvement and customer satisfaction.
We generally use standard parts and components for our products, which can be sourced from various suppliers. We have generally been able to obtain adequate supplies of components in a timely manner from current suppliers. While certain components, such as computer network interface cards, are currently purchased from a single supplier, we have identified
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alternate suppliers that we believe can be qualified to fulfill our needs should an issue arise with the existing supplier. We also maintain escrow arrangements for certain technologies. We continue to monitor the impact of global geopolitical tension and conflicts, memory shortages related to significant AI-related datacenter buildouts, and macroeconomic conditions, as well as other factors, on our supply chain. Although we have been able to manage supply challenges in the past, there is no guarantee that we will be able to continue to manage these challenges without significant impacts to our business if our supply chain becomes increasingly strained. Our reliance on single source suppliers and impacts on our supply chain are further described in Item 1A "Risk Factors."
We manufacture our products based upon near-term demand estimates resulting from sales forecasts and historical fulfillment information. However, since these forecasts have a high degree of variability because of factors that include time of year, overall economic conditions and sales employee incentives, we believe it is prudent to maintain inventory levels in advance of receipt of firm orders to ensure that we have sufficient stock to satisfy incoming orders. The potential impacts of the global and macroeconomic conditions and potential supply chain disruptions on our business are further described in Item 1A "Risk Factors."
Sales and Marketing
Sales
We sell our products, support and services through a direct sales force and an indirect reseller and distribution channel.
Our direct sales force generally uses a "high-touch" sales model that consists of face-to-face or virtual meetings with customers to understand and identify their unique business challenges and requirements. Our sales teams translate our customers' requirements into tailored business solutions. Due to the complexity of the systems and the capital expenditures involved, our sales cycles typically take between three and twelve months. We build strategic relationships with our customers by continually enhancing our solution to help them address their evolving needs. In addition to providing a comprehensive solution to meet these needs, we continually provide software enhancements to our customers as part of their maintenance contracts with us. These enhancements are designed to provide additional and ongoing value to our existing customers to promote loyalty and the expansion of their deployment of our products. Existing customer growth is also driven by the expansion and changes in their networks or services in the case of the service assurance products or the need for more capacity or capabilities in the case of the Arbor DDoS solutions.
Historically and currently, generally, we use indirect distribution channels principally as intermediaries on contractual terms for customers with whom we do not have a contract or if the customer would like to use the channel for services. Generally, our sales force uses the same “high-touch” approach in most markets. In some international markets where we do not have strong sales presence, the channel partners participate in the selling process. However, in most markets, the sale is led by the NetScout sales teams.
During the fiscal years ended March 31, 2026 , 2025, and 2024, no direct customers or channel partners accounted for more than 10% of our total revenue.
Marketing
Our marketing organization drives our market research, strategy, product positioning and messaging, and produces and manages a variety of programs such as customer forums, trade shows, industry events, advertising, public and analyst relations, social media, direct mail, seminars and webinars, sales promotions and other online marketing programs. These programs are focused on promoting the sale and acceptance of our solutions to further build the NetScout brand for our service assurance and cybersecurity products within the marketplace.
Key elements of our marketing strategy focus on thought leadership, market positioning, market education, go to market strategies, reputation management, demand generation, and the acceleration of our strategic selling relationships with local and global resellers, systems integrators, and our technology alliance partners. During fiscal year 2026, we continued to invest in the promotion of the NetScout brand related to service assurance and cybersecurity products in their respective markets. We expect to continue these initiatives during fiscal year 2027.
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Research and Development
Our continued success depends significantly on our ability to anticipate and create solutions that will meet emerging customer requirements. We work closely with our largest enterprise and service provider customers to better understand and address their near-term and longer-term requirements. By better understanding the key, time-sensitive needs of our global customer base, we believe our development programs will continue to result in enhanced products that are able to meet the increasing challenges of an increasingly complex and dynamic global network environment.
We have invested significant financial resources and personnel into the development of our products and technology. Our continued investment in research and development is crucial to our business and our continued success in the market. We have assembled a team of highly skilled engineers with expertise in various technologies associated with our business and the technologies being deployed by our customers. We plan to continue to enhance and expand our product offerings and capabilities in the near future while integrating key capabilities from acquired product lines as appropriate. As a result, we plan to continue to invest and dedicate significant resources to our research and development activities for both our enterprise and service provider customers.
We predominantly develop our products internally, with some limited third-party contracting. We have also acquired developed technology through business acquisitions. To promote industry standards and manifest technology leadership, we participate in and support the activities and recommendations of industry standards bodies, and we also engage in close and regular dialogue with our key customers and alliance partners. These activities provide early insight into the direction of network and application performance requirements and the changing cybersecurity landscape that impacts current and emerging technologies.
Seasonality
We have experienced, and expect to continue to experience, quarterly variations in our order bookings as a result of a number of factors, including the calendar year-end and budget and procurement cycle of many of our customers, as well as the fiscal year end procurement cycle of our government customers, particularly U.S. government customers with a fiscal year end of September 30. Due to these factors, we historically have experienced stronger bookings during our fiscal third and fourth quarters than in our fiscal first and second quarters. The timing of our order bookings can also be impacted by the length of certain product and service sales offerings cycles, complexity of certain customer environments, and new product introductions and their market acceptance.
Customers
We sell our products to enterprises, service providers and local, state, and federal governmental agencies with large-and medium-sized high-speed IP computer networks. Our enterprise customers cover a wide variety of industries, such as financial services, technology, manufacturing, healthcare, utilities, education, transportation and retail as well as government and associated agencies. Our telecommunications service provider customer group includes mobile operators, wireline operators, cable operators, internet service providers, and cloud providers.
Backlog
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 March 31, 2026 was $50.8 million compared to $33.1 million at March 31, 2025. Combined product backlog included fulfillable backlog of $45.8 million and $25.1 million at March 31, 2026 and 2025, respectively. The increase in backlog was driven by the timing of orders from two large enterprise related customers.
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Competition
We compete with many companies in the markets we serve. The service assurance market, including the infrastructure, network, and application performance management markets, is highly competitive, rapidly evolving, and fragmented with overlapping technologies and a wide range of competitors, both large and small, who may deliver certain elements of our solution. Consequently, there are a number of companies who have greater name recognition and substantially greater financial, management, marketing, service, support, technical, distribution and other resources than we do. Additionally, certain competitors, either due to their size and resources or due to their technological strengths, may be able to respond more effectively than we can to new or changing opportunities, technologies, standards and customer requirements.
Principal competitive factors in our service assurance market include scalability; ability to address a large number of applications, locations and users; product performance; the ability to easily deploy into existing network environments; the ability to offer virtualized solutions; and the ability to administer and manage the solution.
While we face multiple competitors within the service assurance industry, we believe that we compete favorably on the basis of the following factors:
In the enterprise market, our competitors include companies who provide network observability, application performance management, infrastructure performance management and other related solutions such as CA Technologies (a Broadcom Inc. business), Cisco Systems, Dynatrace, Datadog, ExtraHop, IBM, Infovista, Viavi, Gigamon, New Relic, Riverbed Technology, and SolarWinds. In addition, we both compete with and partner with large enterprise management vendors, such as HP and IBM, who offer performance management solutions. We also compete with smaller, privately held competitors who often focus on specific vertical markets.
In the service provider market, we compete with traditional probe vendors, network equipment manufacturers, big data and analytics vendors, and virtualization vendors. These vendors include Anritsu, Cisco, Ericsson, EXFO, Huawei, IBM, Infovista, Niksun, Elisa Polystar, Radcom, Splunk (a Cisco Systems business), Nokia and Viavi. We face additional competitive threats from startups and new entrants that seek to offer innovative solutions in an industry characterized by rapid technological change.
In the cybersecurity market, we face a range of competitors, including those that may have greater name recognition and substantially greater financial, management, marketing, service, support, technical, distribution and other resources than we do. We believe that the scalability of our solutions, flexible deployment, and price-performance of our cybersecurity solutions positions us well to compete against both larger network equipment and security companies and smaller niche security solutions vendors. We compete under the NetScout Arbor brand with a broad range of vendors including Radware, Akamai, F5 Networks, A10 Networks, Fortinet, Fastly, Cloudflare and Corero Network Security.
Our ability to sustain a competitive advantage depends on our ability to deliver continued technology innovation and adapt to meet the evolving needs of our customers. Competitive factors in our industry are further described in Item 1A "Risk Factors."
Intellectual Property Rights
We rely on patent, copyright, trademark, and trade secret laws and contract rights to establish and maintain our rights in our technology and products.
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While our intellectual property rights are an important element in our success, our business does not depend on any one particular patent, trademark, copyright, trade secret, license, or other intellectual property right.
We use contracts, statutory laws, domestic and foreign intellectual property registration processes, and international intellectual property treaties to protect our intellectual property portfolio and rights from infringement. From a contractual perspective, we use license agreements and non-disclosure agreements to control the use of our intellectual property and protect our trade secrets from unauthorized use and disclosure. In addition to license agreements, we rely on U.S. and international copyright law to protect against unauthorized copying of software programs in the U.S. and abroad. We have obtained U.S. and international trademark registrations to preserve and protect certain trademarks. We have also filed and obtained U.S. patents and international counterparts to protect certain unique NetScout inventions from being unlawfully exploited by other parties. However, there is no assurance that pending or future patent applications will be granted, that we will be able to obtain patents covering all our products, or that we will be able to license, if needed, patents from other companies on favorable terms or at all. Our proprietary rights are subject to other risks and uncertainties described under Item 1A "Risk Factors."
Human Capital Management
We strive to remain a team of entrepreneurs, with the agility of a start-up and the sophistication of a global technology company. We believe that our culture is critical to our success and growth. Our Lean But Not Mean culture complements and augments our technology, exceptional talent, and forward-thinking innovation. "Lean" decision-making enables early resolution of tough choices and puts employees and the long-term success of the company first. We believe our commitment to our culture and values, an inclusive workforce, talent development, and health and safety, and providing competitive total rewards motivates our employees around the world. Our Compensation Committee oversees our key human capital management strategies and programs and shares oversight of health and safety matters with the Nominating and Corporate Governance Committee of the Board of Directors.
Employees
At March 31, 2026, we had 2,073 employees worldwide – approximately 99% of whom were full time employees. Our employees are in 35 countries with 62% of our employees located in the United States.
Culture & Values
We believe that our company culture is critical to our success and growth. Our culture complements and augments our technology, exceptional talent, and forward-thinking innovation. As a result of our philosophy, we have pledged to be respectful of, committed to, and appreciative of our employees while also enacting decision-making processes and business strategies that result in efficient business outcomes.
We dedicate heightened attention to our mission as Guardians of the Connected World and this mission serves as a key component in our employee engagement program. We continuously communicate our mission, values, and goals to all of our global employees through town hall meetings that provide direct interaction with the CEO, and in-depth focus groups that support messaging from top executives. These meetings allow leaders to stay connected with all employees and ensure everyone is equipped with the knowledge and tools to align their efforts with our vision, mission and goals. The Nominating and Corporate Governance Committee oversees these efforts as part of its comprehensive review of corporate governance, sustainability, and engagement and the Compensation Committee oversees NetScout's talent and human capital management as related to culture and values as well.
Commitment to Workplace Culture
NetScout's commitment to workplace culture is important to our organizational excellence and complements our core values of performing with integrity, compassion, collaboration, and innovation. We embrace our employees' differences and other characteristics that make our employees unique. Our ESG team, covering our Impact Programs (as described below), includes members from multiple functional areas whose activities are overseen by our executive Steering Committee, to foster transparent, merit-based, and consistent processes in employee engagement, onboarding, learning and development, policymaking, and career planning. Further, our Women in NetScout Network (WiNN) works to foster community and share insight into women’s
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experiences to inspire members to succeed in the workplace.
Talent Development
We invest in the ongoing development of our employees across the globe. As part of that program, we offer opportunities to identify leaders and develop and support all employees, including:
Health and Safety Regulatory Compliance
Our Health and Safety (H&S) Council is responsible for H&S policy, managing and coordinating H&S regulatory compliance, and tracking goals and results. The H&S Council reports to senior executives and its results are reported to the Nominating and Corporate Governance Committee of the Board of Directors.
Total Rewards
We offer a competitive compensation and benefits package to attract, retain and motivate our employees. Our compensation package includes market-competitive pay, cash and equity incentive compensation, an Employee Stock Purchase Plan, retirement benefits, health benefits, paid time off and leave benefits.
Sustainability and Engagement
We are committed to making a positive impact on the lives of our employees, customers, investors, and communities in which we operate, and believe that effectively managing sustainability and engagement through strong governance is an important part of creating long-term value. As set out in its Charter, our Nominating and Corporate Governance Committee oversees our governance, sustainability, and engagement programs, including those related to environmental, social and governance (ESG) matters. Underpinned by a strong governance foundation, these programs focus on driving meaningful impact toward NetScout’s sustainability in its operations and in the products we bring to market, as well as advancing the wellbeing of our workforce and the communities in which we live and work (“Impact Programs”). The Nominating and Corporate Governance Committee meets regularly and reviews our Impact Programs and advises on our strategy and progress, and apprises the full Board of Directors. Our Board of Directors considers our overall strategy and its alignment with our mission. The Audit Committee also regularly reviews governance-related topics such as enterprise risk management, our anticorruption program, ethics and compliance issues, supply chain issues including human rights protections, and data privacy and security. The Compensation Committee regularly reviews workforce-related topics such as talent development, human capital management, compensation, and leadership training.
A steering committee, under the strategic direction of the Chief Executive Officer and chaired by our General Counsel, provides guidance and management oversight for our Impact Programs. The Office of ESG, covering our efforts on sustainability and engagement, chaired by our General Counsel, is responsible for the development and implementation of our Impact Programs. With representation across key business functions, the mandate of the Office is to consider our existing sustainability and engagement efforts, understand stakeholder perspectives (including customers, investors, and employees among others), promote a positive and engaged workplace culture through our Lean But Not Mean philosophy, identify areas for improvement that align with our business, and monitors and reports on the progress of our program to hold ourselves accountable to our stakeholders and the broader community.
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Government Regulation
As a company with global operations, we are subject to a variety of evolving legal and regulatory requirements in the jurisdictions in which we operate and in which we offer our service assurance and cybersecurity solutions, including requirements related to data privacy, data security and cybersecurity, AI, trade restrictions (including export controls and tariffs), economic sanctions, antibribery and anti-corruption, and other compliance requirements. In the ordinary course of business, we may collect, receive, use, store, generate, transfer, dispose of, transmit, share, and process (collectively, "process") sensitive, proprietary, and confidential information, including personal information, business data, trade secrets, intellectual property, and confidential third-party data (collectively, "sensitive data"). Accordingly, we may be subject to numerous data privacy and security obligations, including federal, state, and local laws, regulations, industry standards, guidance, and other obligations related to data privacy, cybersecurity and information security.
Additionally, to the extent we collect personal information from individuals outside of the United States, we are, or may become, subject to foreign data privacy and security laws, such as the European Union's General Data Protection Regulation ("EU GDPR") as well as other evolving requirements regarding cross-border data transfers and related compliance obligations. In addition, because we are embedding AI features in our products, emerging and evolving laws, regulations, and standards relating to the development, training, testing, deployment, and use of AI may impose additional compliance obligations (including requirements relating to transparency, documentation, monitoring, and risk management) and may restrict how we develop, market, or offer certain features. Foreign data privacy and security laws impose significant and complex compliance obligations on entities that are subject to those laws.
We are also subject to global laws and regulations that govern or restrict our business and activities in certain countries and with certain persons, including the U.S. Commerce Department's Export Administration Regulations and economic and trade sanctions regulations maintained by the Office of Foreign Asset Control (OFAC), as well as anti-bribery and anti-corruption laws and regulations, including the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act.
These laws are examples of the stringent and evolving regulatory frameworks related to our business activities that may increase our compliance obligations and exposure for any noncompliance. For more information on the potential impacts of government regulations affecting our business, see "Risk Factors" included under Part I, Item 1A.
Corporate Information
Our corporate headquarters are located at 310 Littleton Road, Westford, Massachusetts, and our telephone number is (978) 614-4000. We were incorporated in Delaware in 1984.
Our internet address is http://www.NetScout.com.Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Exchange Act, are made available free of charge on or through our website at ir.netscout.com as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. None of the information posted on our website is incorporated by reference into this Report.
We webcast our earnings calls and certain events we participate in or host with members of the investment community. They are made available on our investor relations website at ir.netscout.com/investors/events-and-presentations/events-calendar/default.aspx. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, as part of our investor relations website. We also use our investor relations website to disclose important information about the Company and comply with our disclosure obligations under Regulation Fair Disclosure. The contents of these sections of our investor relations website are not intended to be incorporated by reference into this report or in any other report or document we file with the SEC.
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Item 1A. Risk Factors.
You should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this Annual Report and in our other SEC filings. The risks and uncertainties described below are those that we have identified as material; but they are not exhaustive; additional risks and uncertainties not currently known to us or that we currently believe are immaterial may also impair our business, including our results of operations, liquidity, and financial condition.
Because of the following factors, as well as other variables affecting our results of operations, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
Summary of Risk Factors
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Risks Related to Our Business and Industry
Unfavorable and uncertain conditions in our industry, our customers' industries, the global economy, or reductions in information technology spending could limit our ability to grow or maintain our business and negatively affect our results of operations.
Unfavorable and uncertain conditions in the economy both in the United States and abroad, including conditions resulting from financial and credit market fluctuations, high interest rates, inflation, international trade policies (including trade protection measures, such as tariffs, sanctions, and other trade barriers), domestic and international geopolitical unrest and turmoil, a shifting regulatory landscape, changes in government spending patterns, natural catastrophes, outbreaks of contagious diseases, armed conflicts or warfare, and terrorist attacks, could cause a decrease in business investments, including spending on information technology (IT), and negatively affect the growth of our business and our results of operations. In addition, we serve certain industries that have historically been cyclical and have experienced periodic downturns that have had a material adverse impact on demand for the products, software, and services that we offer. Many of our customers are concentrated in certain industries, including financial services, public sector, healthcare, and the service provider market. Furthermore, consolidation in certain industries may result in reduced overall spending on our products and solutions. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or how any such event may impact our business.
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Potential product vulnerabilities or critical security defects, prioritization decisions regarding remedying vulnerabilities or security defects, or customers not deploying security releases or deciding not to upgrade products, services, or solutions could result in claims of liability against us, damage our reputation, or otherwise harm our business.
The products and services we sell or license to customers may contain vulnerabilities or critical security defects which have not been identified or remedied. We may also make prioritization decisions in determining which vulnerabilities or security defects to fix, and the timing of these fixes, which could result in exploitation that compromises security.
In addition, advances in tools and automation, including artificial intelligence (“AI”), may both increase the speed and sophistication with which vulnerabilities are identified or exploited and influence how vulnerabilities are detected, prioritized, and remediated.
Customers also sometimes need to test security releases before they can be deployed, which can delay implementation. In addition, we rely on third-party providers of software and cloud-based services, and we cannot control the rate at which they remedy vulnerabilities. Customers may also not deploy a security release or decide not to upgrade to the latest versions of our products or services leaving them vulnerable.
If our products contain material errors or quality issues, such issues may be costly to correct, revenue may be delayed, we could be sued, and our reputation could be harmed.
Our products are inherently complex, and, despite our quality assurance processes and testing by our customers and us, errors or quality issues may be found in our products after commencement of commercial shipments, especially when products are first introduced or when new versions are released. These errors may result from components supplied by third parties incorporated into our products, which makes us dependent upon the cooperation and expertise of such third parties for the diagnosis and correction of such errors. If errors are discovered, we may not be able to correct them in a timely manner or at all. In addition, we may need to make significant expenditures to eliminate errors and failures. Material errors and failures in our products could result in loss of or delay in market acceptance of our products and could damage our reputation. Regardless of the source of these defects or errors, we may need to divert the attention of our engineering personnel from our product development efforts to address the detection and correction of these errors and defects. If one or more of our products fail, a customer may assert warranty and other contractual claims for substantial damages against us. Our contracts with customers contain provisions relating to warranty disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management's attention and harm the market's perception of us and our products. In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, operating results, and financial condition could be adversely impacted.
The occurrence or discovery of these types of errors or failures could have a material and adverse impact on our business, operating results, and financial condition. Any such errors, defects, or security vulnerabilities could also adversely affect the market's perception of our products and business.
If our information technology systems, or those of third parties with whom we work, or our data are or were compromised, we could experience adverse consequences resulting from such compromise, including but not limited to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; and other adverse consequences.
Cyber-attacks, malicious internet-based activity, fraud, and similar activities threaten the confidentiality, integrity, and availability of our sensitive, proprietary, and confidential information, including personal information, business data, trade secrets, intellectual property, and confidential third-party data, and IT systems, and those of the third parties with whom we work. Such threats are prevalent and continue to rise, are increasingly difficult to detect and increasingly sophisticated, including through the use of automation and AI, and come from a variety of sources, including traditional computer "hackers," threat actors, "hacktivists" promoting certain causes, organized criminal threat actors, personnel (such as through theft or misuse or unintentional disclosure), sophisticated nation states, and nation-state-supported actors.
Increasingly, cyber-attacks are being used for geopolitical reasons and in conjunction with military conflicts and defense activities to drive strategic advantages for nation states and their supporters. During times of war and other major conflicts, we and the third parties with whom we work may be vulnerable to heightened risk of these attacks, including retaliatory cyber-attacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services.
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We have experienced cyber incidents in the past, and we expect to continue to face such risks that could cause us to experience cyber incidents in the future. We and the third parties with whom we work have been, and continue to be, subject to a variety of evolving threats, including but not limited to social-engineering attacks (including phishing attacks), malicious code (such as viruses and worms), malware (including advanced persistent threat intrusions), denial-of-service attacks, credential stuffing, credential harvesting, personnel misconduct or human error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other IT assets, telecommunications failures, and other similar threats, including attacks enhanced or facilitated through the use of AI, such as AI-enabled social engineering attacks. Severe ransomware attacks are also prevalent and could lead to significant interruptions in our operations, ability to provide our products or services, loss of sensitive data and income, reputational harm, and diversion of funds for us and our customers.
In addition, some of our customers are subject to the EU's Digital Operational Resilience Act and similar UK regulatory requirements on operational resilience which may obligate such customers to impose contractual provisions on us, including certain mandatory third-party risk management provisions. If we fail to materially comply with these contractual requirements, we may be subject to investigations, audits, or other adverse consequences.
Additionally, future or past business transactions could expose us to additional cybersecurity risks, as our systems could be negatively affected by vulnerabilities present in acquired or integrated systems or technologies. Security issues not previously discovered during due diligence may arise in such systems or technologies.
Our reliance on third parties exposes us to cybersecurity risks and vulnerabilities, including supply-chain attacks, and other threats to our business operations due to security incidents or other interruptions they experience. For example, we rely on third parties and technologies to operate some of our business systems and process sensitive data in a variety of contexts, including, without limitation, cloud-based infrastructure, data center facilities, encryption and authentication technology, employee email, content delivery to customers, and other information systems. We also rely on third-party service providers to provide other products, services, or parts to our customers. Our ability to monitor these third parties' information security practices is limited. Third parties may not sufficiently maintain their information security measures or may change them without our knowledge or delay notification to us in a timely manner. If the third parties we rely on are subject to a security breach or otherwise suffer disruptions that affect the services we use, as has occurred in the past, the integrity and availability of our internal information could be compromised causing the loss of confidential or proprietary information, damage to our reputation, and economic loss. In addition, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties' infrastructure in our supply chain or the supply chains of third parties with whom we work have not been compromised. If a third party with whom we work fails to satisfy their data privacy or security-related obligations to us, we cannot be certain that our applicable contracts with these third parties will adequately limit our data privacy or security-related liability to them or others, be sufficient to allow us to obtain indemnification or recovery from them, or be sufficient to cover all or any of our damages.
Although we have multiple and layered controls and security measures designed to prevent, detect, and respond to cyberattacks, experienced computer hackers are increasingly organized and sophisticated, and we cannot guarantee that our security measures will be sufficient to protect against unauthorized access to our IT networks, software, and systems. Malicious attack efforts operate on a large-scale and sometimes offer targeted attacks as a paid-for service. In addition, the techniques used to obtain access or sabotage networks change frequently, and we may be unable to anticipate such techniques, implement adequate preventative measures, or detect and stop security breaches that may arise from such techniques. As a provider of security solutions, we may be a more attractive target for such attacks. Other individuals or entities, including personnel or vendors, may also intentionally or unintentionally provide unauthorized access to our IT environments.
While we take steps to detect, mitigate, and remediate vulnerabilities in our information systems (such as hardware and/or software), vulnerabilities could be exploited and result in a security incident. We rely on third parties for vulnerability reporting including severity assessments that help prioritize patching. We may not, however, detect or remediate all such vulnerabilities including on a timely basis.
Any of the previously identified or similar threats can cause security incidents or other interruptions that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive data or our IT systems, or those of the third parties with whom we work. A security incident or other interruption could disrupt our ability (and that of third parties with whom we work) to provide our products and services.
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Applicable data privacy and security obligations have required, and may in the future require us, or we may voluntarily choose, to notify relevant stakeholders, including affected individuals, customers, regulators and investors, of security incidents, or take other actions. Such disclosures and related actions could be costly, and the disclosure or the failure to comply with such applicable requirements could lead to adverse consequences.
If we, or a third party with whom we work, experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences, such as government enforcement actions; additional reporting, disclosure, notification and/or oversight requirements; restrictions on processing sensitive data; litigation; indemnification obligations; negative publicity; reputational harm; interruptions in our operations (including availability of data); financial loss; and other similar harms. Security incidents and attendant consequences may cause customers to stop using our services, deter new customers from using our services, and negatively impact our ability to grow and operate our business.
Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. We cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims.
If we fail to introduce new products and solutions or enhance our existing products and solutions to keep up with rapid technological change, demand for our products and solutions may decline.
The market enterprise network observability, carrier service assurance, cybersecurity, and DDoS protection solutions is highly competitive and characterized by rapid changes in technology, including AI, evolving industry standards, changes in customer requirements, a current high level of and increasing competition, and frequent product introductions and enhancements. Our success is dependent upon our ability to meet our customers' needs, which are driven by changes in technologies, new application technologies, new security risks and the emergence of new industry standards. In addition, new technologies may shorten the life cycle for our products and solutions or could render our existing or planned products and services less competitive or obsolete. We must address demand from our customers for advancements in our products and services applications to support our customers' growing needs and requirements in complex networks. To meet this challenge and remain competitive in the market, we must introduce new enhancements to our existing product lines and service offerings. If we are unable to develop, introduce and communicate new enterprise network observability, carrier service assurance, cybersecurity, and DDoS protection solutions or products ,or enhancements to existing solutions or products in a timely and successful manner, this inability could have a material and adverse impact on our business, operating results and financial condition.
As our success depends in part on our ability to develop product enhancements and new products and solutions that keep pace with continuing changes in technology, cyber risk and customer preferences, we must devote significant resources to research and development, development and introduction of new products and enhancements on a timely basis, and obtaining market acceptance for our existing products and new products. We have introduced and intend to continue to introduce new products and solutions. If the introduction of these products and solutions is significantly delayed or if we are unsuccessful in bringing these products and solutions to market, our business, operating results, and financial condition could be materially and adversely impacted. We are developing and are already deploying a number of new products as well as enhancements to our existing products and offerings, as well as additional software only solutions and products available in multiple form factors for most of our existing solutions.
We must invest in research and development to remain competitive in our industry. However, there can be no assurances that continued investment and increased research and development expenses will ultimately result in our maintaining or increasing our market share, which could result in a decline in our operating results. The process of developing new solutions is complex and uncertain; we must commit significant resources to developing new services or features without knowing whether our investments will result in services or features the market will accept. If our research and development expenses increase without a corresponding increase in our revenues, it could have a material adverse effect on our operating results. Also, we may not be able to successfully complete the development and market introduction of new products or product enhancements in a timely manner. If we fail to develop and deploy new products and product enhancements on a timely basis, or if we fail to gain market acceptance of our new products, our revenues will likely decline, and we may lose market share to our competitors.
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If we are unable to effectively use or integrate AI, or if our use of AI exposes us to significant risks, we may not achieve intended benefits and our results of operations could be adversely affected.
We have integrated, and plan to further integrate, AI technologies developed by third parties and open-source communities into our products, services, and internal operations. These AI-related initiatives, whether successful or not, could require us to incur substantial costs and could result in delays in developing, enhancing, or releasing products and services.
In addition, AI algorithms and models may be flawed, and the datasets underlying them may be insufficient, outdated, or contain biased or otherwise problematic information. If AI tools that we develop, integrate, or use, including AI systems that operate with varying levels of autonomy and may interact with other systems or tools, generate outputs, analyses, or recommendations that are or are alleged to be deficient, inaccurate, or biased, our reputation, business, financial condition, and results of operations may be adversely affected.
AI technologies, including those integrated into our products, services or operations or used by our workforce or vendors, are subject to evolving laws and regulations and increased scrutiny, including with respect to data privacy, cybersecurity and intellectual property.
The use of AI by third parties or us may increase the risk of cybersecurity incidents or unauthorized access and could expose sensitive, confidential, proprietary, or personal data. In addition, while we have policies, protocols, and procedures in place, our use of AI may increase the risk of claims that our use of data, training materials, or outputs violates contractual, legal, or ethical standards, including with respect to intellectual property. Any legislation or regulatory requirements concerning AI adopted domestically or globally may require us to expend significant resources to comply, lead to regulatory investigations, fines, or penalties, require changes to our products, services, or business practices, or prevent or limit our use of AI. In addition, our use of third-party AI services may subject us to risks related to service availability, performance, and cost volatility.
In addition, if we are unable to effectively integrate AI into our products and services, or if our competitors adopt AI more rapidly or successfully, our competitive position may be adversely affected.
Disruptions in our global supply chain and our reliance on sole or limited source suppliers could adversely impact our business.
We rely on a global supply chain for the production of components for our products. Disruptions to the global supply chain generally and hardware shortages caused by the rapid build out of AI data centers have led to and could in the future continue to lead to delays, shortages, longer than normal lead times, unfavorable contractual terms relating to pricing and refundability and cancellation, discontinued components, and increased costs, which could negatively impact our revenue and our results of operations. Continued price increases across our supply chain may adversely affect our gross margins.
In response, we may take steps to mitigate supply-chain issues, including entering into additional or long‑term purchase commitments with suppliers or maintaining higher inventory levels. However, these actions could negatively impact our cash flow and financial results if we do not accurately forecast customer demand or if customers change their purchasing patterns in response to evolving supply‑chain conditions. We continue to monitor supply‑chain categories and key suppliers to manage these risks.
Specific components that are necessary for the hardware assembly of our instruments are obtained from separate sole source suppliers or a limited group of suppliers, including some with operations in locations with geopolitical uncertainty. These components include our network interface cards and proprietary hardware. Our reliance on sole or limited suppliers involves several risks, a lack of control over the manufacturing process and inventory management, potential inability to obtain an adequate supply of required components, and the inability to exercise control over pricing, quality, and timely delivery of components. For most of our products, we do not have the internal manufacturing capabilities to meet our customers' demands so we rely on third parties to supplement our capabilities. It is our practice to mitigate these risks by partnering with key suppliers, including distributors, to establish a variety of supply continuity practices. These practices may include, among other approaches, establishing buffer supply requiring suppliers to maintain adequate stocks of materials and use-based and kanban programs to set supply thresholds. We also maintain escrow arrangements for certain technologies. Where possible, we use widely available off-the-shelf hardware and work with large suppliers with multiple factories in diverse geographies. However, failure of supply, including because of a public health crisis, geopolitical conflicts, terrorism or war, tariffs and associated trade wars, sanctions or embargoes, or failure to execute effectively on any of our risk mitigation practices could result in our inability to obtain adequate supply or deliveries or to ship our products on a timely basis or
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at all. Moreover, if we are unable to continue to acquire from these suppliers on acceptable terms or should any of these suppliers cease to supply us with components for any reason, we may not be able to identify and integrate an alternative source of supply in a timely fashion or at the same costs. Any transition to one or more alternate manufacturers could result in significant delays, operational problems, and increased costs, and may limit our ability to deliver our products to our customers on time for such transition period or, in extreme circumstances, at all. These risks could damage relationships with our current and prospective customers, cause shortfalls in expected revenue, and could materially and adversely impact our business, operating results and financial condition.
A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.
Our public sector sales are conducted primarily through third‑party distribution and other intermediary arrangements or channel partners, which may limit our control over certain aspects of the sales process and increase our reliance on a limited number of such distributors or channel partners.
Selling to government entities can be highly competitive, expensive, and time-consuming, and often requires significant upfront time and expense without any assurance that we will win a sale. In addition, certain government customers require our products and service offerings to obtain and maintain specific certifications, authorizations, or accreditations, before they may be deployed. The process of obtaining and maintaining such certifications, authorizations, or accreditations can be costly, time-consuming and subject to evolving standards and ongoing compliance requirements, and there can be no assurance that we will obtain, maintain or timely renew any required certifications, authorizations, or accreditations. If we fail to do so, or if applicable requirements change, we may be unable to sell to certain government customers or may incur additional costs, which could adversely affect our public sector revenue.
Government demand and payment for our products and service offerings may also be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our offerings. Actual or threatened government shutdowns, continuing resolution, sequestration and other fiscal or budgetary disruptions may delay procurements, contract awards, renewals and payments, reduce spending on cybersecurity initiatives and otherwise adversely affect our public sector revenue and cash flows. Government entities may also have statutory, contractual or other legal rights to terminate contracts with us for convenience or due to a default, and any such termination may adversely affect our future operating results.
In the United States, federal government agencies may promulgate regulations, and the President may issue executive orders, requiring federal contractors to adhere to different or additional requirements after a contract is signed. Government contract laws and regulations affect how we do business with our customers and, in some instances, impose added costs on our business, including the establishment of compliance procedures and obtaining and maintaining required security clearances. If we do not meet applicable requirements of law or contract, we could be subject to fines and penalties, contract termination, suspension or debarment from government contracting, or other adverse consequences, which could materially and adversely affect our business, results of operations and financial condition.
Increased customer demands on our technical support services may adversely affect our relationships with our customers and our financial results.
We offer technical support services with many of our products. Our customers depend on our support organization to resolve issues relating to our products deployed on their networks. A high level of support is critical for continued relationships with our customers. If we or our channel partners do not effectively assist our customers in deploying our products, succeed in helping our customers quickly resolve post-deployment issues, and provide effective ongoing support, it could adversely affect our ability to sell our products to existing customers and could harm our reputation with existing and potential customers. Any failure to maintain high quality support and services could harm our operating results and reputation. Further, if customers demand these services, and we cannot adequately meet their demand, or if we cannot realize revenues in connection with our provision of services related to product support, it could have a material and adverse impact on our financial condition and results of operations.
The success of our business depends, in part, on the continued growth in the market for and the continued commercial demand for enterprise network observability, carrier service assurance, cybersecurity, and DDoS protection solutions.
We derive nearly all our revenue from the sale of products and services that are designed to protect our customers from cyberattacks and performance and availability disruptions. We have expanded our operations in the past through acquisitions and
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organic growth and may continue to expand them in the future to gain share in the evolving markets in which we operate. Therefore, we must be able to predict the appropriate features and prices for future products and services to address the market, the optimal distribution strategy, and the future changes to the competitive environment. For us to be successful, our potential customers must recognize the value of more sophisticated solutions, decide to invest in the management of their networks and adopt our management solutions. Any failure of this market to continue to be viable would materially and adversely impact our business, operating results, and financial condition. Additionally, businesses may choose to outsource the operations and management of their networks to managed service providers. Our business may depend on our ability to continue to develop relationships with these service providers and successfully market our products to them.
Failure to manage growth properly and to implement enhanced automated systems, including systems with AI, could adversely impact our business.
The growth in size and complexity of our business and our customer base has been and will continue to be a challenge to our management and operations. Additional growth will place significant demands on our management, infrastructure, and other resources. To manage further growth effectively, we must increase management depth and enhance succession planning. It is also important to our continued success that we hire qualified employees, properly train them, and appropriately address underperformance issues, all while maintaining our corporate culture and spirit of innovation. If we are not successful at these efforts, our growth and operations could be adversely affected, and we may not be able to achieve our near- and long-term financial or operational goals. We will also need to maintain and continually improve our financial and management controls, reporting systems, and procedures as our business grows and evolves over time. If we are unable to manage our growth effectively, our costs, the quality of our products, the effectiveness of our sales organization, our ability to attract and retain key personnel, our business, our operating results and financial condition could be materially and adversely impacted. To manage our growth effectively, we may need to implement new or enhanced automated infrastructure technology and systems, including systems with AI.
Any disruptions or ineffectiveness relating to our systems implementations and enhancements could adversely affect our ability to process customer orders, ship products, provide services and support to our customers, bill and track our customers, fulfill contractual obligations, and otherwise run our business.
As our business evolves, we must also expand and adapt our IT and operational infrastructure. Our business relies on our data systems, billing systems and other operational and financial reporting and control systems. These systems have become increasingly complex due to the complexity of our business and acquisitions of new businesses with different systems. To manage our technical support infrastructure effectively and improve our sales efficiency, we will need to continue to upgrade and improve our data systems, billing systems, ordering processes, customer relationship management systems, and other operational and financial systems, procedures and controls. These upgrades and improvements may be difficult and costly, and they may require employees to dedicate a significant amount of time to implement. If we are unable to adapt our systems and organization in a timely, efficient, and cost-effective manner to accommodate changing circumstances, our business may be adversely affected.
Our success depends, in part, on our ability to manage and leverage our distribution channels. Disruptions to, or our failure to effectively develop and manage, these partners and the processes and procedures that support them could adversely affect our ability to generate revenues from the sale of our products and services. Managing these distribution channels and relationships requires experienced personnel, and lack of sufficient expertise could lead to a decrease in sales of our products and services, which could cause our operating results to suffer.
Our future growth and success may require us to increase the number and use of our indirect sales efforts through our distributors and channel partners and to leverage those relationships to expand these distribution channels and to develop new indirect distribution channels to increase revenue. Our channel partners have no obligation to purchase any products from us. Some of our distribution and channel partners also distribute and sell competitive products and services and the reduction in sales of our products by these partners could materially reduce our revenues. In addition, they could internally develop products that compete with our solutions or partner with our competitors and bundle or resell competitors' solutions, possibly at lower prices. The potential inability to develop relationships with new partners in new markets, expand and manage our existing partner relationships, the unwillingness of our partners to market and sell our products effectively or the loss of existing partnerships or experienced personnel could have a
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material and adverse impact on our business, operating results and financial condition. Sales to customers outside the United States accounted for 45%, 43%, and 36% of our total revenue for the fiscal years ended March 31, 2026, 2025 and 2024, respectively.
The need to develop such relationships can be particularly acute in areas outside of the U.S. Recruiting and retaining qualified channel partners and training them in the use of our technology and services and ensuring that they comply with our legal and policy requirements requires significant time and resources throughout the relationship. If we are unable to retain and train such channel partners, our revenues could be negatively impacted.
International trade policies, including trade protection measures such as tariffs, sanctions, and trade barriers may adversely affect our business, financial condition, results of operations, and prospects.
Developments relating to tariffs and restrictive trade policies have created a dynamic trade landscape, which may adversely impact our business. In addition, many of our customers operate businesses that may be impacted by trade policies, which may result in decreased demand for our products and services or extended sales cycles as customers assess the impact of evolving trade policies on their operations and face increased costs or decreased revenue due to tariffs and trade restrictions.
Trade disputes, trade restrictions (including export control laws and regulations and tariffs) and political tensions between the U.S. and other countries may also exacerbate unfavorable macroeconomic conditions, including inflationary pressures, foreign exchange volatility, financial market instability and economic recessions or downturns, which may in turn negatively impact customer demand for our products and services, delay renewals, or limit expansion opportunities with existing customers or otherwise negatively impact our business and operations. Ongoing trade-related and macroeconomic uncertainty may contribute to volatility in the price of our common stock.
Although the ultimate impact of these risks has not significantly affected our business to date, it remains uncertain and any prolonged economic downturn or escalation in trade tensions could materially and adversely affect our business, results of operations, financial condition and prospects. In addition, tariffs and other international trade developments have heightened and may continue to heighten the risks related to the other risk factors described elsewhere in this report.
Our business and operations, and the operations of our customers, partners, and/or suppliers, may be adversely affected by significant business continuity events.
We face risks related to epidemics, pandemics, public health crises, natural disasters, acts of war or terrorism, and other significant business continuity events that could disrupt our operations and the operations of our customers, suppliers and other business partners. Such events may impair or prevent normal business activities for uncertain periods of time and could adversely affect commercial activity, supply chains, financial markets and the communities in which we operate.
We rely on third-party suppliers, manufacturers and service providers globally, and these parties may be impacted by such events, including through facility closures, workforce disruptions, transportation constraints, border closures, or restrictions on the export, import, or shipment of products. These disruptions may result in the delays or interruptions in product availability, increased costs, or reduced demand of our products and services, which could adversely affect our revenues and operating results.
In addition, our operations depend on the effective functioning of our technology infrastructure and systems, many of which are operated or hosted by third parties. The business continuity and disaster recovery programs we maintain may not anticipate or effectively address every risk scenario, and they may not always be fully or even partially successful or effective in preventing or mitigating third-party risks, which are out of our control, that could have a material impact on our business, operations and financial condition. A significant disruption could result in the loss of data, delays in completing sales or providing products and services, challenges in producing accurate and timely financial statements, or difficulties in meeting our disclosure obligations, which could adversely affect our reputation and the trading price of our common stock.
To the extent any such event adversely affects our business or financial results, it may also heighten many of the other risks described in this "Risk Factors" section, such as those relating to the estimates made for our critical accounting policies and the operation of internal controls over such estimates, as well as on our liquidity and on our ability to satisfy any indebtedness obligations and debt covenants.
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Risks Related to Our Intellectual Property
Necessary licenses for third-party technology may not be available to us on commercially reasonable terms or at all.
We currently, and will in the future, license technology from third parties that we use to produce or embed in our products. Third-party licenses required in the future may not be available to us on commercially reasonable terms or at all. If we are unable to obtain any necessary third-party licenses, we would be required to redesign our product or obtain substitute technology, which may not perform as well, be of lower quality, or be more costly. The loss of these licenses or the inability to maintain any of them on commercially acceptable terms could delay development of future products or the enhancement of existing products. We may also choose to pay a premium price for such a license in certain circumstances where continuity of the licensed technology would outweigh the premium cost of the license. The unavailability of these licenses or the necessity of agreeing to commercially unreasonable terms for such licenses could materially adversely affect our business, financial condition, operating results, and cash flows.
Our success depends on our ability to protect our intellectual property rights.
Our business is heavily dependent on our intellectual property. We rely upon a combination of patent, copyright, trademark, and trade secret laws and registrations and non-disclosure and other contractual and license arrangements to protect our intellectual property rights. The reverse engineering, unauthorized copying, or other misappropriation of our intellectual property, including intentionally or unintentionally through AI, could enable third parties to benefit from our technology without compensating us or make claims on our intellectual property. Furthermore, the laws of some foreign jurisdictions do not offer the same protections for our proprietary rights as the laws of the United States, and we may be subject to unauthorized use of our products in those countries. Legal proceedings to enforce our intellectual property rights could be burdensome and expensive and could involve a high degree of uncertainty. In addition, legal proceedings may divert management's attention from growing our business. There can be no assurance that the steps we have taken to protect our intellectual property rights will be adequate to deter misappropriation or loss of proprietary information, or that we will be able to detect unauthorized use by third parties and take appropriate steps to enforce our intellectual property rights. The unauthorized copying or use of our products or proprietary information could result in reduced sales of our products and eventually harm our operating results.
Others may claim that we infringe on their intellectual property rights.
We have been and may continue to be subject to claims by others, whether valid or not, that our products infringe on their intellectual property rights, patents, copyrights, or trademarks. Further, intellectual property issues, such as ownership, copyright, and patentability, have not been fully settled with respect to AI technology. Inventions or works of authorship created through the use of AI technology may be based or rely on, or contain, materials that were used in the training of such technologies and which are subject to third-party intellectual property, which could further limit our ability to obtain intellectual property protection in such inventions or works of authorship.
These claims, whether valid or not, could require us to spend significant sums in litigation, pay damages or royalties, delay product shipments, reengineer our products, rename our products and rebuild name recognition, or acquire licenses to such third-party intellectual property. We may not be able to secure required licenses on commercially reasonable terms or secure them at all, which could force our customers to stop using our products, or in the case of resellers and others, stop selling our products. In some instances, we have defended against specious patent infringement claims by non-practicing or patent assertion entities and ultimately achieved successful outcomes. In some cases, we have agreed to contract terms that indemnify our customers and partners if our products or technology infringe or misappropriate third party intellectual property rights; therefore, we could become involved in litigation or claims brought against our customers or partners if our products or technology are the subject of such allegations. Any of these claims or resulting events could have a material and adverse impact on our business, operating results, and financial condition.
Risks Related to Our Liquidity and Financial Condition
Any current or future indebtedness may limit our operations and our use of our cash flow, and any failure to comply with the covenants that apply to any indebtedness could adversely affect our liquidity and financial condition.
We are party to a Third Amended and Restated Credit Agreement, which provides for a five-year $600 million senior secured revolving credit facility, including a letter of credit sub-facility of up to $75 million. We may elect to use the credit facility for working capital or for other capital allocation purposes. The commitments under the Third Amended and Restated Credit Agreement
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will expire on October 4, 2029, and any outstanding loans will be due on that date. As of the date of this report, we did not have any amounts outstanding under the Third Amended and Restated Credit Agreement.
The revolving credit facility also imposes certain restrictions on us; for a more detailed description please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations." Upon an event of default, for example, the administrative agent, with the consent of, or at the request of, the holders of more than 50% in principal amount of the loans and commitments, may terminate the commitments and accelerate the maturity of the loans outstanding and enforce certain other remedies under the Third Amended and Restated Credit Agreement and other loan documents, which would adversely affect our liquidity and financial condition. If we take on additional indebtedness, the risks described above could increase.
Moreover, our debt level can have negative consequences, including exposing us to future interest rate risk. We may incur additional debt in the future, and there can be no assurance that our cost of funding will not substantially increase at that time.
Any failure to meet our debt obligations could damage our business.
Our ability to meet our obligations, if any, under the Third Amended and Restated Credit Agreement will depend on market conditions and our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. If we are unable to remain profitable, or if we use more cash than we generate in the future, our level of indebtedness at such time could adversely affect our operations by limiting or prohibiting our ability to obtain financing for additional capital expenditures, acquisitions and general corporate purposes. In addition, if we are unable to make payments as may be required under the Third Amended and Restated Credit Agreement, we would be in default under the terms of the loans, which could result in the acceleration of our indebtedness, restrictions on our operations, or the exercise of remedies by the lenders, and seriously harm our business. If we incur significantly more debt, this could intensify the risks described above.
We may fail to secure necessary additional financing.
Our future success may depend in part on our ability to obtain additional financing to support our continued growth and operations and any downgrades in our credit rating could affect our ability to obtain additional financing in the future or may affect the terms of any such financing. If our existing sources of liquidity are insufficient to satisfy our operating requirements, we may need to seek to raise capital by one or more of the following:
However, we may not be able to obtain additional capital when we want or need it, or capital may not be available on satisfactory terms, including in light of current macroeconomic conditions, such as heightened inflation and increasing interest rates, stock price volatility, and the risk of a potential recession. Furthermore, any additional capital may have terms that adversely affect our business, such as new financial or operating covenants, or that may result in dilution to our stockholders.
We expect that existing cash, cash equivalents, marketable securities, cash provided from operations and our bank credit facilities will be sufficient to meet ongoing cash requirements. However, our failure to generate sufficient cash as our debt becomes due or to renew credit lines prior to their expiration could materially adversely affect our business, financial condition, operating results, and cash flows.
Other Risks Related to Our Business
The failure to recruit and retain qualified personnel and plan for and manage the succession of key executives could hinder our ability to successfully manage our business, which could have a material adverse effect on our financial position and operating results.
We operate in global markets where there is intense competition for experienced personnel. We depend on our ability to identify, recruit, hire, train, develop and retain qualified and effective professionals and to attract and retain talent needed to execute our business strategy. Our future success depends in large part upon our ability to attract, train, motivate and retain highly skilled employees, particularly executives, sales and marketing personnel, software engineers, and technical support personnel. The
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complexity of our products, software systems and services require highly trained professionals. The labor market for these individuals has historically been very competitive due to the limited number of people available with the necessary technical skills and understanding. If we are unable to attract and retain the highly skilled technical personnel that are integral to our sales, marketing, product development and technical support teams, the rate at which we can generate sales and develop new products or product enhancements may be limited. This inability could have a material and adverse impact on our business, operating results, and financial condition.
In addition, we must maintain the size of our sales force to support our direct sales and indirect sales channels. Because our products are very technical, salespeople require a comparatively long period of time to become productive, typically three to twelve months. This lag in productivity, as well as the challenge of attracting qualified candidates, may make it difficult to maintain our sales force. If we are unable to maintain our sales capability, our business, operating results and financial condition could be materially and adversely impacted.
Loss of key personnel or a failure of our succession plan could adversely impact our business. Our future success depends to a significant degree on the skills, experience and efforts of Anil Singhal, our President, Chief Executive Officer, and co-founder, and our other key executive officers and senior managers to work effectively as a team. Effective succession planning is also important for our long-term success, and any future failure to ensure effective transfers of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. The loss of one or more of our key personnel could have a material and adverse impact on our business, operating results, and financial condition. We must, therefore, continuously plan for and manage the succession of key executives due to retirement, illness, or competitive offers.
We may not successfully complete acquisitions or integrate acquisitions we do make, which could impair our ability to compete and could harm our operating results.
We may choose to acquire complementary businesses, products, or technologies to remain competitive or expand our business. We investigate and evaluate potential acquisitions of complementary businesses, products, and technologies in the ordinary course of business. We may compete for acquisition opportunities with entities having significantly greater resources than we have. As a result, we may not succeed in acquiring some or all businesses, products, or technologies that we seek to acquire. Our inability to effectively consummate acquisitions on favorable terms could significantly impact our ability to compete effectively in our targeted markets and could negatively affect our results of operations.
Acquisitions that we do complete could adversely impact our business. The potential adverse consequences from acquisitions include:
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If we are not able to successfully manage these issues, the anticipated benefits and efficiencies of the acquisitions may not be realized fully or at all, or may take longer to realize than expected, and our ability to compete, our revenue and gross margins and our results of operations may be adversely affected.
We face significant competition from other technology companies.
The enterprise network observability, carrier service assurance, cybersecurity, and DDoS protection solutions markets are highly competitive, rapidly evolving, and fragmented markets that have overlapping technologies and competitors, both large and small, and we expect increasing competition on solutions offerings and pricing. We believe customers make purchasing decisions based primarily upon the following factors:
We compete with a large and growing number of providers of enterprise network observability, carrier service assurance, cybersecurity, and DDoS protection solutions. In addition, leading network equipment, network security and service assurance and application technology vendors offer their own management solutions, including products which they license from other competitors. Some of our current and potential competitors have greater name recognition and substantially greater financial, management, marketing, service, support, technical, distribution and other resources than we do. Other competitors may take greater advantage of emerging new technologies and applications to compete with us. In addition, some of our customers develop their own in-house solutions to meet their technological needs. Further, in recent years some of our competitors have been acquired by larger companies that are seeking to enter or expand in the markets in which we operate. We expect this trend to continue as companies attempt to strengthen or maintain their market positions in an evolving industry. Therefore, given their larger size and greater resources, our competitors may be able to respond more effectively than we can to new or changing opportunities, technologies, standards and customer requirements, including by lowering prices to attract our customers, and may be less dependent on key industry events to generate sales for their products.
As a result of the competitive factors highlighted in this section and in other risk factors, including the introduction of disruptive technologies, we may not be able to compete effectively with our current or future competitors. If we are unable to anticipate or react to these competitive challenges or if existing or new competitors gain market share in any of our markets, our competitive position could weaken, and we could experience a decline in our sales that could adversely affect our business and operating results. This competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses, and failure to increase, or the loss of market share, any of which would likely have a material and adverse impact on our business, operating results and financial condition.
Uncertainties in the regulation of the Internet could have a material and adverse impact on our financial condition and results of operations.
We could be materially adversely affected by increased regulation of the Internet in any country where we operate, as well as access to or commerce conducted on the Internet. Governments may change or increase regulations or impose restrictions on sales, licensing, distribution, and the exporting or importing of certain technologies to or from certain countries.
The adoption of additional regulations of the Internet could decrease demand for our products, and, at the same time, increase the cost of selling our products, which could have a material and adverse effect on our financial condition and results of operations. Our business is subject to regulation by various federal, state, local and foreign governments. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. These laws and regulations may also impact our innovation and business drivers in developing or using new and emerging technologies, including those related to AI and machine learning.
Failure to comply with applicable laws and regulations governing Internet access could subject us to investigations, sanctions, enforcement actions, lost profits, fines, damages, civil and criminal penalties, injunctions or other consequences, and could materially
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adversely affect our business, reputation, results of operations and financial condition. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources.
We are subject to stringent and evolving U.S. state, local, and federal, and foreign laws, regulations, and rules, contractual obligations, industry standards, policies, and other obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations (or such failure by third parties with whom we work) could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business, results of operations; reputational harm; loss of revenue or profits; and other adverse business consequences.
Our data processing activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security. The regulatory framework for data privacy and security issues worldwide has and will continue to evolve, and as a result, legal requirements and enforcement practices are likely to continue to impact business requirements regarding the processing of sensitive data. In many jurisdictions, enforcement activities and consequences for noncompliance are rising.
In the United States, federal, state, and local governments have enacted and are continuing to enact numerous data privacy and security laws, including data breach notification laws, personal information privacy laws, consumer protection laws, and other similar laws. Furthermore, under various privacy laws and other obligations, we may be required to obtain certain consents to process personal information. Our inability or failure to do so could result in adverse consequences.
Numerous U.S. states have enacted comprehensive data privacy and security laws that impose certain obligations on covered businesses, including providing specific disclosures in privacy notices and affording residents with certain rights concerning their personal information, such as the right to access, correct, or delete certain personal information. As applicable, the exercise of these rights may impact our business and ability to provide our products and services. These state laws allow for statutory fines for noncompliance. These developments may further complicate compliance efforts and increase legal risk and compliance costs for us and the third parties with whom we work.
Outside the United States, a number of laws, regulations, and industry standards also govern data privacy and security. These and other obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. For example, the EU GDPR, the United Kingdom's GDPR and similar laws in other countries impose strict requirements for processing personal information. Complying with these obligations requires us to devote resources and may necessitate changes to our services, information technologies, systems, and practices and to those of any third parties that process personal information on our behalf.
In addition, we may be unable to transfer personal information from Europe and other jurisdictions to the United States or other countries due to data localization requirements or limitations on cross-border data transfers. The various legal mechanisms available to transfer personal information from Europe to the United States and other countries such as the European Economic Area’s standard contractual clauses, the UK's International Data Transfer Agreement/Addendum, and the EU-U.S. Data Privacy Framework, are subject to legal challenges, and there is no assurance that in the future we will be able to rely on these measures to lawfully transfer personal information to the United States. If there is no lawful manner for us to transfer personal information from Europe or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, fines and penalties, the inability to transfer data and work with resellers, vendors and other third parties, and injunctions against our processing or transferring of personal information necessary to operate our business.
In addition to data privacy and security laws, we are also bound by contractual obligations related to data privacy and security, and our efforts to comply with such obligations may not be successful.
We publish policies, marketing materials and other statements regarding our data privacy and security compliance activities. Regulators in the United States are increasingly scrutinizing these statements, and if these policies, materials or statements are found to be inaccurate, misleading, or incomplete we may be subject to investigation, enforcement actions by regulators, or other adverse consequences.
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We may at times fail, or be perceived to have failed, in our efforts to comply with our data privacy and security obligations. Moreover, despite our efforts, our personnel or third parties with whom we work may fail to comply with such obligations, which could negatively impact our business operations. If we or the third parties with whom we work fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions; litigation; additional reporting requirements and/or oversight; bans on processing personal information; and orders to destroy or not use personal information. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to, loss of customers, inability to process personal information or to operate in certain jurisdictions, limited ability to develop or commercialize our products, expenditure of time and resources to defend any claim or inquiry, adverse publicity, or substantial changes to our business model or operations.
If we violate the U.S. Foreign Corrupt Practices Act or applicable anti-bribery laws in other countries, or if we fail to comply with U.S. export controls and government contracting laws, our business could be harmed.
A material portion of our revenue is derived from international sales. We must comply with foreign and U.S. laws and regulations, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and other local laws prohibiting corrupt payments to government officials and others, as well as anti-competition regulations.
The U.S. Foreign Corrupt Practices Act (FCPA) prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment and requires companies to maintain appropriate record-keeping and internal accounting practices to accurately reflect the transactions of the company. Under the FCPA, U.S. companies may be held liable for actions taken by agents or local partners or representatives. In addition, regulators may seek to hold us liable for successor liability FCPA violations committed by companies which we acquire. We are also subject to the U.K. Bribery Act and may be subject to anti-corruption laws of other countries in which we do business.
In addition to anti-bribery and anti-corruption laws, we are also subject to the export and re-export control laws of the U.S., including the U.S. Export Administration Regulations (EAR) and the Office of Foreign Asset Control (OFAC), as well as to U.S. and state and local government contracting laws, complex procurement rules and regulations, and may be subject to government contracting laws of other countries in which we do business. If we or our distributors, resellers, agents, or other intermediaries fail to comply with the FCPA, the EAR, OFAC, or U.S. or state and local government contracting laws, or the anti-corruption, export or governmental contracting laws of other countries, governmental authorities in the U.S. or other countries could seek to impose civil and/or criminal penalties, which could have a material adverse effect on our business, results of operations, financial conditions and cash flows. Violations of these laws and regulations could result in fines and penalties, criminal sanctions, restrictions on our business conduct including suspension or debarment from future government business, and on our ability to offer our products and services in one or more countries. Such violations could also adversely affect our reputation with existing and prospective customers, which could negatively impact our operating results and growth prospects.
Our business is subject to laws, regulations and expectations relating to sustainability, human capital, governance and other corporate responsibility matters, which could increase costs and expose us to additional risks.
We and our suppliers are subject to evolving laws and regulations pertaining to identifying, measuring, and reporting sustainability, human capital, governance, and other corporate responsibility matters. In addition, regulators, customers, investors, employees, and other stakeholders remain focused on these matters and related disclosures. These changing rules, regulations, and requirements have resulted in, and are likely to continue to result in, expense, time, and attention spent complying with or meeting such regulations. We also communicate certain corporate responsibility initiatives and goals in our public disclosures. Statements about our initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. If our corporate responsibility-related data, processes and reporting are incomplete or inaccurate, or if we fail or are perceived to have failed to achieve progress with respect to our corporate responsibility goals on a timely basis, or at all, may expose us to government investigations, enforcement actions or private litigation, and our reputation, business, financial performance and growth could be adversely affected. The lack of harmonization in the legal and regulatory landscape across the jurisdictions in which we operate may also subject us to enhanced compliance risks and costs.
General Risk Factors
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Our actual operating results may differ significantly from our guidance.
We generally release guidance regarding our future performance on our quarterly earnings conference calls, quarterly earnings releases, and otherwise. Such guidance, which includes forward-looking statements, reflects our management’s estimates as of the date of release and is based on projections prepared by our management. We may also decide not to release, or to defer, issuing guidance, where such guidance might not be appropriate or when we do not have sufficient visibility or clarity to issue such guidance. In those situations, we expect to communicate our reasons for not releasing or deferring release of guidance.
Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. We are not responsible for any projections or reports published by any such analysts or investors.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date of release. Actual results may vary from our guidance, and the variations may be material. In light of the foregoing, investors are urged not to rely solely upon our guidance in making an investment decision regarding our common stock.
Any failure to successfully implement or execute our operating strategy or the occurrence of any of the events or circumstances set forth in this "Risk Factors" section in this report could result in the actual operating results being different from our guidance, and the differences may be adverse and material.
Our effective tax rate may fluctuate, which could increase our income tax expense and reduce our net income.
Our effective tax rate or the taxes we owe could be adversely affected by several factors, many of which are outside of our control, including:
We are subject to income taxes in the United States and in numerous foreign jurisdictions. From time to time, we may receive notices that a tax authority in a particular jurisdiction believes that we owe a greater amount of tax than we have reported to such authority. There can be no assurance that our provision for income taxes is sufficient and that a determination by a tax authority will not have an adverse effect on our results of operations. An adverse change in our effective tax rate could have a material and adverse effect on our financial condition and results of operations and the price of our common stock could decline if our financial results are materially affected by an adverse change in our effective tax rate.
We may be impacted by changes in taxation, trade, tariffs, and other regulatory requirements.
We are subject to income tax in local, national, and international jurisdictions. In addition, our products are subject to import and excise duties and/or sales or value-added taxes ("VAT") in many jurisdictions. We are also subject to the examination of our tax returns and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for taxes.
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Additionally, changes in or the improper application of import and excise duties and or sales taxes or VAT may negatively impact our operating results. There can be no assurance as to the outcome of these examinations. Fluctuations in tax rates and duties, changes in tax legislation or regulation or adverse outcomes of these examinations could have a material adverse effect on our results of operations, financial condition, and cash flows.
There is increased uncertainty with respect to tax policy, continuing trade agreements, and trade relations between the U.S. and other countries. Major developments in tax policy or trade relations, such as the imposition of unilateral or retaliatory tariffs or international sanctions on imported products, could have a material adverse effect on our results of operations, financial condition, and cash flows.
Foreign currency exchange rates may adversely affect our financial statements.
A material portion of our revenue is derived from international operations. Our consolidated financial results are reported in U.S. dollars. Most of the expenses of our foreign subsidiaries are denominated in local currencies. Given that cash is typically received over an extended period of time for many of our license and support agreements and given that a material portion of our revenue is generated outside of the United States, fluctuations in foreign exchange rates (including the Euro, British Pound, Indian Rupee, and Canadian Dollar) against the U.S. dollar could result in substantial changes in reported revenues and operating results due to the foreign exchange impact upon translation of these transactions into U.S. dollars.
In the normal course of business, we employ various hedging strategies to partially mitigate these risks, including the use of derivative instruments. These strategies may not be effective in fully protecting us against the effects of fluctuations from movements in foreign exchange rates, including the increased volatility in foreign exchange rates relating to armed conflicts or wars, related geopolitical tensions, as well as public health crises. Fluctuations of the foreign exchange rates could materially adversely affect our business, financial condition, operating results, and cash flow.
Additionally, sales and purchases in currencies other than the U.S. dollar expose us to fluctuations in foreign currencies relative to the U.S. dollar and may adversely affect our financial statements. Increased strength of the U.S. dollar increases the effective price of our products sold in U.S. dollars into other countries, which may require us to lower our prices or adversely affect sales. Decreased strength of the U.S. dollar could adversely affect the cost of materials, products, and services we purchase overseas. Sales and expenses of our non-U.S. businesses are also translated into U.S. dollars for reporting purposes and the strengthening or weakening of the U.S. dollar could result in unfavorable translation effects. In addition, we may invoice customers in a currency other than the functional currency of our business, and movements in the invoiced currency relative to the functional currency could also result in unfavorable translation effects. We also face exchange rate risk from our investments in subsidiaries owned and operated in foreign countries.
Our estimates and judgments related to critical accounting policies could be inaccurate.
We consider accounting policies related to revenue recognition, and valuation of goodwill to be critical in fully understanding and evaluating our financial results. Management makes judgments and creates estimates when applying these policies. These estimates and judgments affect, among other things, the reported amounts of our assets, liabilities, revenue and expenses, the amounts of charges accrued by us, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances and at the time they are made. If our estimates or the assumptions underlying them are not correct, actual results may differ materially from our estimates and we may need to, among other things, accrue additional charges or impair assets that could adversely impact our business. As a result, our operating results and financial condition could be materially and adversely impacted in future periods.
If we fail to maintain effective disclosure controls and procedures and internal control over financial reporting, investor confidence in our financial statements could decline, which could negatively impact the market price of our stock or our ability to raise capital.
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with applicable accounting standards. Like all control systems, they are subject to inherent limitations and may not prevent or detect all errors, misstatements or intentional misconduct. These limitations may arise from, among other things, management judgments, human errors, misinterpretation of information or circumvention of controls.
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Under Section 404 of the Sarbanes-Oxley Act, management is required to evaluate and determine the effectiveness of our internal control over financial reporting, which requires significant management attention and resources. As our business, operations, systems and regulatory requirements evolve, we may be required to modify or enhance our disclosure controls and procedures and internal control over financial reporting to address new or increased complexity. If we are unable to adapt our controls to such changes in the future, or if control deficiencies arise that are not adequately remediated, investor confidence in our reported financial information could decline, which could negatively impact the market price of our stock or our ability to access capital.
Our stock price has been subject to fluctuations, and will likely continue to be subject to fluctuations, which may be volatile and due to factors beyond our control.
The market price of our common stock is subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this "Risk Factors" section and elsewhere in this report, factors that could cause fluctuations in the market price of our common stock include the following:
In addition, the market for technology stocks and the stock markets in general have experienced extreme price and volume fluctuations. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business, results of operations, financial condition, and cash flows. A decline in the value of our common stock, including as a result of one or more factors set forth above, may result in substantial losses for our stockholders.
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Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk management and strategy
NetScout has implemented and maintains information security processes designed to identify, assess, and manage material risks from cybersecurity threats to our critical computer networks, third party hosted services, communications systems, hardware and software, and our critical data, including intellectual property, confidential information, and the information of our customers and employees ("Information Systems and Data").
Our Cybersecurity Executive Council ("Council"), which is led by the Chief Information Security Officer ("CISO") and includes our Chief Information Officer ("CIO"), Chief Operating Officer ("COO"), General Counsel ("GC"), Chief Compliance Officer ("CCO"), SVP of Research & Development, and SVP of Global Services Operations, oversees NetScout's cybersecurity program, including strategy, threats, risks, and mitigations. The CISO, who reports to the CIO, with oversight by the Council, works to identify and assess risks from cybersecurity threats by monitoring and evaluating our threat environment and NetScout's risk profile using various methods such as implementing manual and automated tools, subscribing to services that identify cybersecurity threats, analyzing reports of certain threats and actors, conducting scans of the threat environment, evaluating our and our industry’s risk profile, conducting audits and threat assessments, conducting vulnerability assessments to identify vulnerabilities, and engaging in tabletop incident response exercises.
Depending on the environment, we implement and maintain various technical, physical, and organizational measures, processes, and policies designed to manage and mitigate material risks from cybersecurity threats to our Information Systems and Data, including, among other things: incident response, identity and access management, vulnerability management, logging and systems monitoring, disaster recovery and business continuity plans; risk assessments; encryption of certain data; network security controls for certain systems; data segregation and access controls for certain systems; physical security measures; asset management; annual employee training; certain testing; and IT and software development lifecycle training. NetScout also employs certain proprietary detection tools, enabling enhanced visibility and warning systems in response to certain cybersecurity threats.
We also use third-party service providers to assist us from time to time to identify,
We use
Governance
Our Board of Directors addresses NetScout's cybersecurity risk management as part of its oversight function. The
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Our cybersecurity risk assessment and management processes are implemented and maintained by certain members of NetScout's management, including our CISO, who reports to the CIO and has over 25 years of experience in cybersecurity and information technology management, the CCO, who reports to the General Counsel, and the Senior Director of Engineering, who reports to the SVP of Research and Development.
The CISO and Senior Director of Engineering are each responsible for helping to integrate cybersecurity risk considerations into NetScout’s overall risk management strategy and communicating key priorities to relevant personnel. The CISO and Senior Director of Engineering are also responsible for helping prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.
To date, we have not experienced any material cybersecurity incidents and the expenses we have incurred from cybersecurity incidents were immaterial. For a description of the risks from cybersecurity threats that may
Item 2. Properties
Our headquarters and our U.S. manufacturing are located in Westford, MA, in approximately 175,000 square feet of space under a lease expiring in September 2030. As of March 31, 2026, we leased 18 facilities in 10 countries of approximately 600,000 square feet of office and warehousing space and other related facilities, primarily in the United States, Europe and India. Additional information regarding our leases is provided in Note 18 to the consolidated financial statements included in Item 8 of this Form 10-K.
Item 3. Legal Proceedings
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, the amount of ultimate expense with respect to any current legal proceedings and claims, if determined adversely, will not have a material adverse effect on our financial condition, results of operations or cash flows.
For additional information regarding our legal proceedings, if any, refer to Note 19, Commitments and Contingencies to the Consolidated Financial Statements included in Part IV, Item 15 of this report.
Item 4. Mine Safety Disclosures
None.
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Table of Contents
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Market Information
Our common stock trades on the Nasdaq Global Select Market, under the symbol NTCT.
Stockholders
At May 7, 2026, we had 70 stockholders of record. We believe that the number of beneficial holders of our common stock exceeds 24,000.
Stock Performance Graph
This performance graph shall not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of NetScout under the Exchange Act or the Securities Act of 1933, as amended.
The Stock Performance Graph set forth below compares the yearly change in the cumulative total stockholder return on our common stock during the five-year period from March 31, 2021 through March 31, 2026 with the cumulative total return of the Nasdaq Composite Index and the Nasdaq U.S. Benchmark Computer Services TR Index. The comparison assumes $100 was invested on March 31, 2021 in our common stock or in the Nasdaq Composite Index, or the Nasdaq U.S. Benchmark Computer Services TR Index, as applicable, and assumes reinvestment of dividends, if any.
The stock price performance shown on the graph below is not necessarily indicative of future price performance. Information used in the graph was obtained from Zacks Investment Research, Inc.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Assumes Initial Investment of $100
36
Table of Contents
|
|
3/31/2021 |
|
|
3/31/2022 |
|
|
3/31/2023 |
|
|
3/31/2024 |
|
|
3/31/2025 |
|
|
3/31/2026 |
|
||||||
NetScout Systems, Inc. |
|
$ |
100.00 |
|
|
$ |
113.91 |
|
|
$ |
101.72 |
|
|
$ |
77.53 |
|
|
$ |
74.57 |
|
|
$ |
112.82 |
|
Nasdaq Composite – Total Returns |
|
$ |
100.00 |
|
|
$ |
108.06 |
|
|
$ |
93.71 |
|
|
$ |
126.58 |
|
|
$ |
134.65 |
|
|
$ |
169.11 |
|
Nasdaq US Benchmark Computer Services TR Index |
|
$ |
100.00 |
|
|
$ |
103.01 |
|
|
$ |
86.59 |
|
|
$ |
109.50 |
|
|
$ |
119.88 |
|
|
$ |
122.25 |
|
Dividend Policy
In fiscal years 2026 and 2025, we did not declare any cash dividends and do not anticipate declaring cash dividends in the foreseeable future. In addition, the terms of our credit facility limit our ability to pay cash dividends on our capital stock. It is our intention to retain all future earnings for reinvestment to fund our expansion and growth, and to fund our stock buyback program further described under "Liquidity and Capital Resources" in Item 7. Any future cash dividend declaration will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, general financial conditions, capital requirements, existing bank covenants and general business conditions.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer
The following table provides information about purchases we made during the quarter ended March 31, 2026 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:
|
|
Total Number |
|
|
Average Price |
|
|
Total Number of |
|
|
Maximum Number |
|
||||
1/1/2026 - 1/31/2026 |
|
|
— |
|
|
$ |
— |
|
|
— |
|
|
|
21,521,049 |
|
|
2/1/2026 - 2/28/2026 |
|
|
589,000 |
|
|
|
29.03 |
|
|
|
589,000 |
|
|
|
20,932,049 |
|
3/1/2026 - 3/31/2026 |
|
|
411,000 |
|
|
|
29.53 |
|
|
|
411,000 |
|
|
|
20,521,049 |
|
Total |
|
|
1,000,000 |
|
|
$ |
29.23 |
|
|
|
1,000,000 |
|
|
|
20,521,049 |
|
(1) On May 3, 2022, the Company's board of directors approved a share repurchase program that enables the Company to repurchase up to twenty-five million shares of its common stock (2022 Share Repurchase Program). The 2022 Share Repurchase Program became effective in the third quarter of fiscal year 2024. The Company is not obligated to acquire any specific amount of common stock within any particular timeframe as a result of the 2022 Share Repurchase Program. During the quarter ended March 31, 2026, the Company repurchased 1,000,000 shares of its common stock.
Item 6. [Reserved]
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the audited consolidated financial information and the notes thereto included in this Annual Report. In addition to historical information, the following discussion and other parts of this Annual Report contain forward-looking statements that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. Actual events or results may differ materially due to the factors discussed in Item 1A. "Risk Factors" and elsewhere in this Annual Report. These factors may cause our actual results to differ materially from any forward-looking statement. See the section titled "Cautionary Statement Concerning Forward-Looking Statements" that appears at the beginning of this Annual Report.
Overview
We are an industry leader with over four decades of experience in providing enterprise network observability, carrier service assurance, cybersecurity, and DDoS, protection solutions. Our unique visibility platform and solutions are powered by our pioneering DPI, 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. The majority of our solutions are designed to provide Smart Data, a high-fidelity, decision-grade data foundation derived from real-time network activity across legacy, hybrid, and cloud-native environments. This data enables a unified view of performance, availability, and security, supports faster root-cause analysis and operational decision-making, and is increasingly used to inform broader observability platforms and automated and AI-driven workflows. With our offerings, customers can quickly, efficiently and effectively identify and resolve issues that result in downtime, service interruptions, poor service quality, or compromised data, thereby reducing mean time to resolution of issues and driving compelling returns on their investments in their networks and broader technology initiatives. Significant technology trends and catalysts for our business include the evolution of customers' digital transformation initiatives, such as migration to cloud environments and to the edges of their networks; the rapidly evolving cybersecurity threat landscape; advancements in artificial intelligence and business analytics that can enhance observability and are increasing the need for high-quality, real-time data to support automated and AI-driven operations; and the continued evolution and potential opportunities related to 5G technology across both the service provider and enterprise customer verticals.
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.
Global and Macroeconomic Conditions
We continue to closely monitor current global and macroeconomic conditions, including the impacts of armed conflicts or warfare, global geopolitical tension, stock market volatility, industry-specific capital spending trends, exchange rate fluctuations, inflation, interest rates, international trade relations (including trade protection measures, such as tariffs and other trade barriers), and the risk of a recession, including the manner and extent to which they have impacted and could continue to impact our business, customers, employees, supply chain, and distribution network. In addition, our industry is experiencing AI-related supply-chain dynamics which could influence the timing and size of certain customer orders. The full extent of the impacts of these global and macroeconomic conditions remain dynamic. We remain optimistic but cognizant of ongoing macroeconomic dynamics and constrained customer spending in the service provider market and firmly focused on driving product innovation, sustaining annual revenue growth, and enhancing margins through continued disciplined cost management as we navigate the current macroeconomic landscape. 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.
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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, 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 March 31, 2026, we had an incremental $600 million available to us under our revolving credit facility.
Results Overview
Total revenue increased $36.8 million, or 4% for the fiscal year ended March 31, 2026, compared to the fiscal year ended March 31, 2025, driven by increases in both product and service revenue. Growth was supported by higher demand for service assurance and cybersecurity offerings across enterprise and service provider customer verticals. International revenue increased 8% and U.S. revenue increased 2%.
Our gross profit percentage increased by one percentage point to 79% during the fiscal year ended March 31, 2026 as compared with the fiscal year ended March 31, 2025 primarily driven by a two percentage point increase to 86% in product gross profit percentage due to a more favorable product mix associated with increased licensing of our software products.
Net income for the fiscal year ended March 31, 2026 was $95.5 million as compared with net loss for the fiscal year ended March 31, 2025 of $366.9 million. The increase of $462.5 million in net income was primarily due to the absence of goodwill impairment charges in 2026, compared to $427.0 million in goodwill impairment charges in fiscal year 2025, as well as a $36.8 million increase in revenue, a $19.6 million decrease in restructuring charges, a $5.5 million decrease in interest expense, and a $3.1 million increase in interest income. The increases to net income were partially offset by a $21.8 million increase in income tax expense, and a $17.9 million increase in employee-related expenses primarily due to an increase in variable incentive compensation.
At March 31, 2026, we had cash, cash equivalents, and marketable securities and investments (current and non-current) of $705.1 million . This represents an increase of $212.7 million compared to the fiscal year ended March 31, 2025. This increase was primarily due to $294.5 million of net cash provided by operations, $67.9 million proceeds from maturity of marketable securities, $11.8 million proceeds from sale of an equity investment, partially offset by $163.4 million used to purchase of marketable securities, $60.8 million used to repurchase shares of our common stock, $15.9 million used for tax withholdings on restricted stock units, and $9.1 million used for capital expenditures, during the fiscal year ended March 31, 2026.
39
Table of Contents
Use of Non-GAAP Financial Measures
We supplement the United States GAAP financial measures we report in quarterly and annual earnings announcements, investor presentations and other investor communications by reporting the following non-GAAP measures: non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income, non-GAAP diluted net income per share, and adjusted EBITDA. Non-GAAP gross profit removes expenses related to the amortization of acquired intangible assets, share-based compensation expense, and acquisition-related depreciation expense from gross profit (GAAP). 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 from income (loss) from operations (GAAP). Non-GAAP net income includes the foregoing adjustments related to non-GAAP income from operations, and also removes the income tax effects of such adjustments as well as any loss on extinguishment of debt from net income (loss) (GAAP). Non-GAAP diluted net income per share is non-GAAP net income divided by total outstanding shares on a diluted basis. Adjusted EBITDA includes the aforementioned adjustments related to non-GAAP net income and also removes interest and other expense, income taxes, and non-acquisition related depreciation from net income (GAAP). Beginning in the third quarter of fiscal year 2026, we have renamed non-GAAP EBITDA from operations to adjusted EBITDA. We now reconcile this metric to GAAP net income, however, the adjustments included, and the resulting amounts are unchanged from prior periods. This change is intended to align terminology with common market practice.
These non-GAAP measures are not prepared in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP (gross profit, income (loss) from operations, 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.
Management believes these non-GAAP financial measures will enhance the reader's overall understanding of our current financial performance and our prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how management plans and measures our business. We believe that providing these non-GAAP measures to investors provides them with a view of our operating results that may be more easily compared to peer companies and also enables investors to consider our operating results on both a GAAP and non-GAAP basis during and following the integration period of our acquisitions. Presenting the GAAP measures on their own may not be indicative of our core operating results. Furthermore, management believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures provides useful information to management and investors regarding present and future business trends relating to our financial condition and results of operations.
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 fiscal years ended March 31, 2026, 2025, and 2024, respectively (dollars in thousands, except for per share data):
40
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|
|
Fiscal Years Ended March 31, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Revenue |
|
$ |
859,482 |
|
|
$ |
822,679 |
|
|
$ |
829,455 |
|
|
|
|
|
|
|
|
|
|
|
|||
GAAP gross profit |
|
$ |
682,494 |
|
|
$ |
643,944 |
|
|
$ |
642,043 |
|
Share-based compensation expense |
|
|
9,830 |
|
|
|
9,806 |
|
|
|
10,229 |
|
Amortization of acquired intangible assets |
|
|
2,202 |
|
|
|
3,978 |
|
|
|
6,549 |
|
Acquisition related depreciation expense |
|
|
7 |
|
|
|
6 |
|
|
|
12 |
|
Non-GAAP gross profit |
|
$ |
694,533 |
|
|
$ |
657,734 |
|
|
$ |
658,833 |
|
|
|
|
|
|
|
|
|
|
|
|||
GAAP income (loss) from operations |
|
$ |
109,825 |
|
|
$ |
(367,602 |
) |
|
$ |
(149,826 |
) |
Share-based compensation expense |
|
|
59,948 |
|
|
|
64,785 |
|
|
|
70,799 |
|
Amortization of acquired intangible assets |
|
|
46,804 |
|
|
|
50,418 |
|
|
|
56,886 |
|
Restructuring charges |
|
|
883 |
|
|
|
20,500 |
|
|
|
— |
|
Goodwill impairment |
|
|
— |
|
|
|
426,967 |
|
|
|
217,260 |
|
Acquisition related depreciation expense |
|
|
48 |
|
|
|
47 |
|
|
|
119 |
|
Executive transition costs |
|
|
959 |
|
|
|
— |
|
|
|
— |
|
Gain on divestiture of a business |
|
|
— |
|
|
|
— |
|
|
|
(3,806 |
) |
Legal benefit related to civil judgments |
|
|
— |
|
|
|
— |
|
|
|
(4,380 |
) |
Non-GAAP income from operations |
|
$ |
218,467 |
|
|
$ |
195,115 |
|
|
$ |
187,052 |
|
|
|
|
|
|
|
|
|
|
|
|||
GAAP net income (loss) |
|
$ |
95,531 |
|
|
$ |
(366,922 |
) |
|
$ |
(147,734 |
) |
Share-based compensation expense |
|
|
59,948 |
|
|
|
64,785 |
|
|
|
70,799 |
|
Amortization of acquired intangible assets |
|
|
46,804 |
|
|
|
50,418 |
|
|
|
56,886 |
|
Restructuring charges |
|
|
883 |
|
|
|
20,500 |
|
|
|
— |
|
Goodwill impairment |
|
|
— |
|
|
|
426,967 |
|
|
|
217,260 |
|
Acquisition-related depreciation expense |
|
|
48 |
|
|
|
47 |
|
|
|
119 |
|
Executive transition costs |
|
|
959 |
|
|
|
— |
|
|
|
— |
|
Gain on divestiture of a business |
|
|
— |
|
|
|
— |
|
|
|
(3,806 |
) |
Loss on extinguishment of debt |
|
|
— |
|
|
|
1,134 |
|
|
|
— |
|
Legal benefit related to civil judgments |
|
|
— |
|
|
|
— |
|
|
|
(4,380 |
) |
Change in fair value of derivative instrument |
|
|
— |
|
|
|
— |
|
|
|
(206 |
) |
Income tax adjustments |
|
|
(22,135 |
) |
|
|
(36,503 |
) |
|
|
(29,828 |
) |
Non-GAAP net income |
|
$ |
182,038 |
|
|
$ |
160,426 |
|
|
$ |
159,110 |
|
GAAP diluted net income (loss) per share |
|
$ |
1.30 |
|
|
$ |
(5.12 |
) |
|
$ |
(2.07 |
) |
Per share impact of non-GAAP adjustments identified above |
|
|
1.18 |
|
|
|
7.34 |
|
|
|
4.27 |
|
Non-GAAP diluted net income per share |
|
$ |
2.48 |
|
|
$ |
2.22 |
|
|
$ |
2.20 |
|
|
|
|
|
|
|
|
|
|
|
|||
GAAP net income (loss) |
|
$ |
95,531 |
|
|
$ |
(366,922 |
) |
|
$ |
(147,734 |
) |
Previous adjustments to determine non-GAAP net income |
|
|
86,507 |
|
|
|
527,348 |
|
|
|
306,844 |
|
Non-GAAP net income |
|
|
182,038 |
|
|
|
160,426 |
|
|
|
159,110 |
|
|
|
|
|
|
|
|
|
|
|
|||
Interest and other income, net non-GAAP |
|
|
(8,683 |
) |
|
|
(2,942 |
) |
|
|
(5,110 |
) |
Depreciation excluding acquisition related depreciation expense |
|
|
9,681 |
|
|
|
13,321 |
|
|
|
17,981 |
|
Income tax expense non-GAAP |
|
|
45,112 |
|
|
|
37,631 |
|
|
|
33,052 |
|
Adjusted EBITDA |
|
$ |
228,148 |
|
|
$ |
208,436 |
|
|
$ |
205,033 |
|
41
Table of Contents
Critical Accounting Policies and Estimates
We consider accounting policies and estimates related to revenue recognition, and valuation of goodwill to be critical in fully understanding and evaluating our financial results. We apply significant judgment and create estimates when applying these policies.
Revenue Recognition
We exercise judgment and use estimates in connection with determining the amounts of product and service revenues to be recognized in each accounting period.
We derive revenues primarily from the sale of network management tools and cybersecurity solutions for service provider and enterprise customers, which include hardware, software, and service offerings. Our product sales consist of offerings which include hardware appliances with embedded software that are essential to providing customers the intended functionality of the solutions, and software only offerings.
We account for revenue once a legally enforceable contract with a customer has been approved by the parties and the related promises to transfer products or services have been identified. A contract is defined by us as an arrangement with commercial substance identifying payment terms, each party's rights and obligations regarding the products or services to be transferred and the amount we deem probable of collection. Customer contracts may include promises to transfer multiple products and services to a customer. Determining whether the products and services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation may require significant judgment. Revenue is recognized when control of the products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for products and services.
Product revenue is typically recognized upon fulfillment, provided a legally enforceable contract exists, control has passed to the customer, and in the case of software products, when the customer has the rights and ability to access the software, and collection of the related receivable is probable. If any significant obligations to the customer remain post-delivery, typically involving obligations relating to installation and acceptance by the customer, revenue recognition is deferred until such obligations have been fulfilled. Our service offerings include installation, integration, extended warranty and maintenance services, post-contract customer support, stand-ready SaaS solutions and other professional services including consulting and training. We generally provide software and/or hardware support as part of product sales. Revenue related to the initial bundled software and hardware support is recognized ratably over the support period. In addition, customers can elect to purchase extended support agreements for periods after the initial software/hardware warranty expiration. Support services generally include rights to unspecified upgrades (when and if available), telephone and internet-based support, updates, bug fixes and hardware repair and replacement. Consulting services are recognized upon delivery or completion of performance depending on the terms of the underlying contract. Reimbursements of out-of-pocket expenditures incurred in connection with providing consulting services are included in services revenue, with the offsetting expense recorded in cost of service revenue. Training services include on-site and classroom training. Training revenues are recognized upon delivery of the training.
Generally, our contracts are accounted for individually. However, when contracts are closely interrelated and dependent on each other, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts.
Bundled arrangements are concurrent customer purchases of a combination of our product and service offerings that may be delivered at various points in time. We allocate the transaction price among the performance obligations in an amount that depicts the relative standalone selling prices (SSP) of each obligation. Judgment is required to determine the SSP for each distinct performance obligation. We use a range of amounts to estimate SSP for each of the products and services sold, based primarily on the performance obligation's historical pricing. We also consider our overall pricing objectives and practices across different sales channels and geographies, and market conditions. Generally, we have established SSP for a majority of our service performance obligations based on historical standalone sales. In certain instances, we have established SSP for services based upon an estimate of profitability and the underlying cost to fulfill those services. SSP has primarily been established for product performance obligations as the average or median selling price the performance obligation was recently sold for, whether sold alone or sold as part of a bundle transaction. We review sales of the product performance obligations on a quarterly basis and update, when appropriate, SSP for such performance obligations to ensure that it reflects recent pricing experience. Our products are distributed through our direct sales force and indirect distribution channels through alliances with resellers and distributors. Revenue arrangements with resellers and distributors are recognized on a sell-in basis; that is, when control of the product transfers to the reseller or distributor. We record consideration given
42
Table of Contents
to a customer as a reduction of revenue to the extent we have recorded revenue from the customer. With limited exceptions, our return policy does not allow product returns for a refund. Returns have been insignificant to date.
Valuation of Goodwill
Goodwill is not amortized but is subject to annual impairment tests; or more frequently if events or circumstances occur (a "Triggering Event") that would indicate the fair value of our reporting unit is below its carrying value. We perform the assessment annually during the fourth quarter and on an interim basis if potential impairment indicators arise.
Reporting units are determined based on the components of a company's operating segments that constitute a business for which financial information is available and for which operating results are regularly reviewed by segment management. We have one reporting unit.
To test impairment, we first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that goodwill is impaired. If based on our qualitative assessment it is more likely than not that the fair value of the reporting unit is below its carrying amount, quantitative impairment testing is required. However, if we conclude otherwise, quantitative impairment testing is not required. The key assumption used in the quantitative impairment testing is the company-specific control premium, which is estimated using expected synergies that would be realized by a hypothetical buyer.
Comparison of Years Ended March 31, 2026 and 2025
The sections that follow discuss our consolidated statement of operations data for the fiscal years ended March 31, 2026 and March 31, 2025 including results as a percentage of revenue for those periods. For a discussion of (i) our consolidated statement of operations data for the fiscal year ended March 31, 2024 including results as a percentage of revenue for that period, as well as (ii) our liquidity and capital resources for the fiscal year ended March 31, 2024, see "Comparison of Years Ended March 31, 2025 and 2024" and "Liquidity and Capital Resources" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2025, filed with the SEC on May 15, 2025.
Results of Operations
Revenue
Total revenue increased $36.8 million, or 4% for the fiscal year ended March 31, 2026, compared to the fiscal year ended March 31, 2025, driven by increases in both product and service revenue. Service revenue increased 6%, primarily due to the timing and composition of maintenance and contract renewals and continued expansion of cloud and subscription services. Product revenue increased 3%, driven by increased service provider demand for cybersecurity offerings, as well as increased U.S. Government agency orders across both service assurance and cybersecurity offerings. International revenue increased 8%, benefiting from increased enterprise and service provider demand, and U.S. revenue increased 2%, benefiting from increased enterprise demand. By product line, cybersecurity revenue increased 8% and service assurance revenue increased 3%, both supported by the timing of maintenance renewals. The increase in revenue from the cybersecurity product line compared to the same period last year was due to an increase in revenue from service provider and enterprise customers. The increase in revenue from the service assurance product line compared to the same period last year was due to an increase in revenue from enterprise customers, partially offset by a decrease in service provider product revenue. From a customer-vertical perspective, service provider revenue increased 3%, driven by an increase in service revenue. Enterprise revenue increased 5%, driven by an increase in both product and service revenue.
|
Fiscal Years Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
2026 |
|
|
2025 |
|
|
Change |
|
|||||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
$ |
|
|
% |
|
||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Product |
$ |
370,145 |
|
|
|
43 |
% |
|
$ |
359,894 |
|
|
|
44 |
% |
|
$ |
10,251 |
|
|
|
3 |
% |
Service |
|
489,337 |
|
|
|
57 |
|
|
|
462,785 |
|
|
|
56 |
|
|
|
26,552 |
|
|
|
6 |
% |
|
$ |
859,482 |
|
|
|
100 |
% |
|
$ |
822,679 |
|
|
|
100 |
% |
|
$ |
36,803 |
|
|
|
4 |
% |
43
Table of Contents
Total revenue by geography was as follows:
|
Fiscal Years Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
2026 |
|
|
2025 |
|
|
Change |
|
|||||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
$ |
|
|
% |
|
||||||
United States |
$ |
474,359 |
|
|
|
55 |
% |
|
$ |
465,470 |
|
|
|
57 |
% |
|
$ |
8,889 |
|
|
|
2 |
% |
International: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Europe |
|
158,766 |
|
|
|
19 |
|
|
|
156,715 |
|
|
|
19 |
|
|
|
2,051 |
|
|
|
1 |
% |
Asia |
|
63,075 |
|
|
|
7 |
|
|
|
63,624 |
|
|
|
8 |
|
|
|
(549 |
) |
|
|
(1 |
)% |
Rest of the world |
|
163,282 |
|
|
|
19 |
|
|
|
136,870 |
|
|
|
16 |
|
|
|
26,412 |
|
|
|
19 |
% |
Subtotal international |
|
385,123 |
|
|
|
45 |
|
|
|
357,209 |
|
|
|
43 |
|
|
|
27,914 |
|
|
|
8 |
% |
Total revenue |
$ |
859,482 |
|
|
|
100 |
% |
|
$ |
822,679 |
|
|
|
100 |
% |
|
$ |
36,803 |
|
|
|
4 |
% |
Total revenue by product line was as follows:
|
Fiscal Years Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
2026 |
|
|
2025 |
|
|
Change |
|
|||||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
$ |
|
|
% |
|
||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Service assurance |
$ |
547,021 |
|
|
|
64 |
% |
|
$ |
532,884 |
|
|
|
65 |
% |
|
$ |
14,137 |
|
|
|
3 |
% |
Cybersecurity |
|
312,461 |
|
|
|
36 |
|
|
|
289,795 |
|
|
|
35 |
|
|
|
22,666 |
|
|
|
8 |
% |
Total revenue |
$ |
859,482 |
|
|
|
100 |
% |
|
$ |
822,679 |
|
|
|
100 |
% |
|
$ |
36,803 |
|
|
|
4 |
% |
Total revenue by customer vertical was as follows:
|
Fiscal Years Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
2026 |
|
|
2025 |
|
|
Change |
|
|||||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
$ |
|
|
% |
|
||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Service provider |
$ |
362,510 |
|
|
|
42 |
% |
|
$ |
350,968 |
|
|
|
43 |
% |
|
$ |
11,542 |
|
|
|
3 |
% |
Enterprise |
|
496,972 |
|
|
|
58 |
|
|
|
471,711 |
|
|
|
57 |
|
|
|
25,261 |
|
|
|
5 |
% |
Total revenue |
$ |
859,482 |
|
|
|
100 |
% |
|
$ |
822,679 |
|
|
|
100 |
% |
|
$ |
36,803 |
|
|
|
4 |
% |
44
Table of Contents
Cost of Revenue and Gross Profit
Cost of product revenue consists primarily of material components, personnel expenses, packaging materials, overhead and amortization of acquired developed technology. Cost of service revenue consists primarily of personnel, material, overhead and support costs.
|
Fiscal Years Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
2026 |
|
|
2025 |
|
|
Change |
|
|||||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
$ |
|
|
% |
|
||||||
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Product |
$ |
50,594 |
|
|
|
6 |
% |
|
$ |
57,463 |
|
|
|
7 |
% |
|
$ |
(6,869 |
) |
|
|
(12 |
)% |
Service |
|
126,394 |
|
|
|
15 |
|
|
|
121,272 |
|
|
|
15 |
|
|
|
5,122 |
|
|
|
4 |
|
Total cost of revenue |
$ |
176,988 |
|
|
|
21 |
% |
|
$ |
178,735 |
|
|
|
22 |
% |
|
$ |
(1,747 |
) |
|
|
(1 |
)% |
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Product $ |
$ |
319,551 |
|
|
|
37 |
% |
|
$ |
302,431 |
|
|
|
37 |
% |
|
$ |
17,120 |
|
|
|
6 |
% |
Product gross profit % |
|
86 |
% |
|
|
|
|
|
84 |
% |
|
|
|
|
|
2 |
% |
|
|
|
|||
Service $ |
|
362,943 |
|
|
|
42 |
% |
|
|
341,513 |
|
|
|
42 |
% |
|
|
21,430 |
|
|
|
6 |
% |
Service gross profit % |
|
74 |
% |
|
|
|
|
|
74 |
% |
|
|
|
|
|
0 |
% |
|
|
|
|||
Total gross profit $ |
$ |
682,494 |
|
|
|
|
|
$ |
643,944 |
|
|
|
|
|
$ |
38,550 |
|
|
|
6 |
% |
||
Total gross profit % |
|
79 |
% |
|
|
|
|
|
78 |
% |
|
|
|
|
|
1 |
% |
|
|
|
|||
Product. The 12%, or $6.9 million, decrease in cost of product revenue for the fiscal year ended March 31, 2026, despite a 3% increase in total product revenue compared to the same period last year, was primarily driven a more favorable product mix associated with increased licensing of our software products. Our product gross profit percentage increased two percentage points during the fiscal year ended March 31, 2026 compared to the same period in the prior year, primarily due to favorable product mix.
Service. The 4%, or $5.1 million, increase in cost of service revenue for the fiscal year ended March 31, 2026 compared to the same period last year was primarily driven by a $26.6 million, or 6% increase, in service revenue, and an increase in employee-related variable incentive compensation. Our service gross profit percentage remained consistent at 74% during the fiscal year ended March 31, 2026 compared to the same period in the prior year.
45
Table of Contents
Operating Expenses
|
Fiscal Years Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
2026 |
|
|
2025 |
|
|
Change |
|
|||||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
$ |
|
|
% |
|
||||||
Research and development |
$ |
159,461 |
|
|
|
19 |
% |
|
$ |
152,864 |
|
|
|
19 |
% |
|
$ |
6,597 |
|
|
|
4 |
% |
Sales and marketing |
|
264,538 |
|
|
|
31 |
|
|
|
268,051 |
|
|
|
32 |
|
|
|
(3,513 |
) |
|
|
(1 |
)% |
General and administrative |
|
103,185 |
|
|
|
12 |
|
|
|
96,724 |
|
|
|
12 |
|
|
|
6,461 |
|
|
|
7 |
% |
Amortization of acquired intangible assets |
|
44,602 |
|
|
|
5 |
|
|
|
46,440 |
|
|
|
6 |
|
|
|
(1,838 |
) |
|
|
(4 |
)% |
Restructuring charges |
|
883 |
|
|
|
— |
|
|
|
20,500 |
|
|
|
2 |
|
|
|
(19,617 |
) |
|
|
(96 |
)% |
Goodwill impairment |
|
— |
|
|
|
— |
|
|
|
426,967 |
|
|
|
52 |
|
|
|
(426,967 |
) |
|
|
(100 |
)% |
Total operating expenses |
$ |
572,669 |
|
|
|
67 |
% |
|
$ |
1,011,546 |
|
|
|
123 |
% |
|
$ |
(438,877 |
) |
|
|
(43 |
)% |
Research and development. Research and development expenses consist primarily of personnel expenses, fees for outside consultants, overhead and related expenses associated with the development of new products and the enhancement of existing products.
The 4%, or $6.6 million, increase in research and development expenses for the fiscal year ended March 31, 2026 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation, partially offset by a $1.4 million decrease in depreciation expense and a $1.2 million increase in software capitalization.
Sales and marketing. Sales and marketing expenses consist primarily of personnel expenses and commissions, overhead and other expenses associated with selling activities and marketing programs such as trade shows, seminars, advertising, and new product launch activities.
The 1%, or $3.5 million, decrease in sales and marketing expenses for the fiscal year ended March 31, 2026 compared to the same period last year was primarily due to a $1.9 million decrease in expenses associated with events and a $1.8 million decrease in employee-related expenses due to a reduction in headcount, partially offset by an increase in employee-related variable incentive compensation.
General and administrative. General and administrative expenses consist primarily of personnel expenses for executive, financial, legal, and human resource employees, overhead, and other corporate expenditures.
The 7%, or $6.5 million, increase in general and administrative expenses for the fiscal year ended March 31, 2026 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation, a $1.8 million increase in professional services, a $1.0 million increase in software expenses, partially offset by a $2.3 million increase in software capitalization.
Restructuring charges. During the first quarter of fiscal year 2025, we implemented a voluntary separation program for employees who met certain age and service requirements to reduce overall headcount. As a result of the related workforce reduction, during the fiscal year ended March 31, 2025, 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 also 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 these related workforce changes, during the fiscal year ended March 31, 2026 and 2025, we recorded restructuring charges in each year totaling $0.9 million, respectively.
Goodwill impairment. During the first quarter of fiscal year 2025, due to a decrease in our stock price and overall market capitalization, along with other qualitative considerations including the continued impact from the conditions in the macroeconomic environment, it was determined a Triggering Event occurred, indicating goodwill may be impaired. Accordingly, we conducted an interim quantitative impairment test of our goodwill at June 30, 2024 using the market approach to estimate the fair value of its reporting unit. As a result of that interim impairment test, we recorded a $427.0 million goodwill impairment charge during the fiscal year ended March 31, 2025.
46
Table of Contents
Interest and Other Income, Net
Interest and other income, net includes interest earned on our cash, cash equivalents and marketable securities, interest expense and other non-operating gains or losses.
|
Fiscal Years Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
2026 |
|
|
2025 |
|
|
Change |
|
|||||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
$ |
|
|
% |
|
||||||
Interest and other income, net |
$ |
8,683 |
|
|
|
1 |
% |
|
$ |
1,808 |
|
|
|
— |
% |
|
$ |
6,875 |
|
|
|
380 |
% |
The 380%, or $6.9 million, increase in interest and other income, net for the fiscal year ended March 31, 2026 compared to the same period last year was primarily due to a $5.5 million decrease in interest expense and a $3.1 million increase in interest income. This increase was partially offset by a $1.6 million increase in foreign exchange expense.
Income Tax Expense
In 2021, the Organization for Economic Co-operation and Development announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued, including the release of a comprehensive Side-by-Side Package announced by the OECD in January 2026. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future years. Considering we do not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, these rules are not expected to materially increase our global tax costs. There remains uncertainty as to the final Pillar Two model rules. We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions we operate in.
The annual effective tax rate for the fiscal year ended March 31, 2026 was 19.4%, compared to an annual effective tax rate of 0.3% for the fiscal year ended March 31, 2025. The effective tax rate for the fiscal year ended March 31, 2026 is different than the effective rate for the fiscal year ended March 31, 2025, primarily due to a significant nondeductible goodwill impairment charge, a discrete benefit related to the finalization of our tax return filings, and a charge related to stock compensation.
|
Fiscal Years Ended March 31, |
|
|
|
|
|
|
|
|||||||||||||||
|
2026 |
|
|
2025 |
|
|
Change |
|
|||||||||||||||
|
|
|
|
% of |
|
|
|
|
|
% of |
|
|
$ |
|
|
% |
|
||||||
Income tax expense |
$ |
22,977 |
|
|
|
3 |
% |
|
$ |
1,128 |
|
|
|
— |
% |
|
$ |
21,849 |
|
|
|
1937 |
% |
Commitment and Contingencies
We account for claims and contingencies in accordance with authoritative guidance that requires us to record an estimated loss from a claim or loss contingency when information available prior to issuance of our consolidated financial statements indicates that it is probable that a liability has been incurred at the date of the consolidated financial statements, and the amount of the loss can be reasonably estimated. If we determine that it is reasonably possible, but not probable, that an asset has been impaired or a liability has been incurred, or if the amount of a probable loss cannot be reasonably estimated, then, in accordance with the authoritative guidance, we disclose the amount or range of estimated loss if the amount or range of estimated loss is material. Accounting for claims and contingencies requires us to use our judgment. We consult with legal counsel on those issues related to litigation and seek input from other experts and advisors with respect to matters in the ordinary course of business.
Legal -From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, none of our current legal proceedings and claims, if determined adversely and based on the information known to the
47
Table of Contents
management as of the date of this Annual Report, is expected to have a material adverse effect on our financial condition, results of operations or cash flows.
Warranty and Indemnification- We warrant that our software and hardware products will substantially conform to the documentation accompanying such products on their original date of shipment. For software, which also includes firmware, the standard warranty commences upon shipment and generally expires 60 to 90 days thereafter. With regard to hardware, the standard warranty commences upon shipment and generally expires 60 days to 12 months thereafter. Additionally, this warranty is subject to various exclusions which include, but are not limited to, non-conformance resulting from modifications made to the software or hardware by a party other than NetScout; customers' failure to follow our installation, operation or maintenance instructions; and events outside of our reasonable control. We also warrant that all support services will be performed in a good and workmanlike manner. We believe that our product and support service warranties are consistent with commonly accepted industry standards. Warranty cost information is presented, and no material warranty costs are accrued since service revenue associated with warranty is deferred at the time of sale and recognized ratably over the warranty period.
Contracts that we enter into in the ordinary course of business may contain standard indemnification provisions. Pursuant to these agreements, we may agree to defend third party claims brought against a partner or direct customer claiming infringement of such third party’s (i) U.S. patent and/or European Union (EU), or other selected countries' patents, (ii) Berne convention member country copyright, and/or (iii) U.S., EU, and/or other selected countries’ trademark or intellectual property rights. Moreover, this indemnity may require us to pay any damages awarded against the partner or direct customer in such type of lawsuit as well as reimburse the partner or direct customer for reasonable attorney's fees incurred by them from the lawsuit.
We may also agree from time to time to provide other forms of indemnification to partners or direct customers, such as indemnification that would obligate us to defend and pay any damages awarded to a third party against a partner or direct customer based on a lawsuit alleging that such third party has suffered personal injury or tangible property damage legally determined to have been caused by negligently designed or manufactured products.
We have agreed to indemnify our directors and officers and our subsidiaries' directors and officers if they are made a party or are threatened to be made a party to any proceeding (other than an action by or in the right of NetScout) by reason of the fact that the indemnified are agents of NetScout. The indemnity is for any and all expenses and liabilities of any type (including but not limited to, judgments, fines and amounts paid in settlement) reasonably incurred by the directors or officers in connection with the investigation, defense, settlement or appeal of such proceeding, provided they acted in good faith.
Liquidity and Capital Resources
Cash, cash equivalents and marketable securities and investments consisted of the following (in thousands):
|
As of March 31, |
|
|||||
|
(Dollars in Thousands) |
|
|||||
|
2026 |
|
|
2025 |
|
||
Cash and cash equivalents |
$ |
586,499 |
|
|
$ |
457,415 |
|
Short-term marketable securities and investments |
|
81,458 |
|
|
|
34,058 |
|
Long-term marketable securities |
|
37,188 |
|
|
|
1,004 |
|
Cash, cash equivalents, marketable securities and investments |
$ |
705,145 |
|
|
$ |
492,477 |
|
Cash, cash equivalents, marketable securities and investments
At March 31, 2026, cash, cash equivalents, marketable securities and investments (current and non-current) totaled $705.1 million. This represents an increase of $212.7 million from $492.5 million at March 31, 2025. This increase was primarily due to $294.5 million of net cash provided by operations, $67.9 million proceeds from maturity of marketable securities, $11.8 million proceeds from sale of equity investment, partially offset by $163.4 million used to purchase marketable securities, $60.8 million used to repurchase shares of our common stock, $15.9 million used for tax withholdings on restricted stock units, and $9.1 million used for capital expenditures during the fiscal year ended March 31, 2026.
48
Table of Contents
At March 31, 2026, cash, short-term and long-term marketable securities in the United States was approximately $488.4 million, while cash and short-term investments held outside of the United States was approximately $216.7 million.
Cash and cash equivalents were impacted by the following:
|
Fiscal Years Ended March 31, |
|
|||||
|
2026 |
|
|
2025 |
|
||
Net cash provided by operating activities |
$ |
294,538 |
|
|
$ |
217,670 |
|
Net cash used in investing activities |
$ |
(92,830 |
) |
|
$ |
(6,996 |
) |
Net cash used in financing activities |
$ |
(76,691 |
) |
|
$ |
(142,011 |
) |
Net cash from operating activities
Fiscal year 2026 compared to fiscal year 2025
Net cash provided by operating activities of $294.5 million for year ended March 31, 2026, was primarily attributable to net income, as adjusted for share-based compensation expense, depreciation and amortization, deferred income taxes, operating lease right-of-use assets, and a $99.8 million working capital inflow. The working capital inflow was primarily driven by a $49.2 million increase in deferred revenue, a $35.1 million increase in accrued compensation, a $12.4 million decrease in accounts receivable, a $10.9 million decrease in prepaid expenses, a $4.7 million increase in accounts payable, partially offset by a $11.6 million decrease in operating lease liabilities.
Net cash from investing activities
|
Fiscal Years Ended March 31, |
|
|||||
|
2026 |
|
|
2025 |
|
||
Net cash used in investing activities included the following: |
|
|
|
|
|
||
Purchase of marketable securities and investments |
$ |
(163,365 |
) |
|
$ |
(45,061 |
) |
Proceeds from sales and maturity of marketable securities |
|
67,875 |
|
|
|
44,762 |
|
Purchase of fixed assets |
|
(9,112 |
) |
|
|
(5,407 |
) |
Purchase of intangible assets |
|
— |
|
|
|
(1,290 |
) |
Proceeds from sale of equity investment |
|
11,772 |
|
|
|
— |
|
|
$ |
(92,830 |
) |
|
$ |
(6,996 |
) |
Net cash used in investing activities increased by $85.8 million to $92.8 million of net cash used in investing activities during the fiscal year ended March 31, 2026, compared to $7.0 million of net cash used in investing activities during the fiscal year ended March 31, 2025. The $85.8 million increase in net cash used in investing activities was partially due to an additional $118.3 million in purchase of marketable securities, and an additional $3.7 million used to purchase of fixed assets during the fiscal year ended March 31, 2026, compared with the fiscal year ended March 31, 2025. These increases in cash were partially offset by an additional $23.1 million in proceeds from maturity of marketable securities, and an $11.8 million in proceeds from the sale of our entire Napatech equity investment during the fiscal year ended March 31, 2026, compared with the fiscal year ended March 31, 2025.
Our investments in property and equipment consist primarily of computer equipment and internal use software, demonstration units, office equipment and facility improvements. We plan to continue to invest in capital expenditures to support our infrastructure in our fiscal year 2027.
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Table of Contents
Net cash from financing activities
|
Fiscal Years Ended March 31, |
|
|||||
|
2026 |
|
|
2025 |
|
||
Net cash used in financing activities included the following: |
|
|
|
|
|
||
Issuance of common stock under stock plans |
$ |
2 |
|
|
$ |
3 |
|
Treasury stock repurchases |
|
(60,799 |
) |
|
|
(25,257 |
) |
Tax withholding on restricted stock units |
|
(15,894 |
) |
|
|
(13,962 |
) |
Payment of debt issuance costs |
|
— |
|
|
|
(2,795 |
) |
Repayment of long-term debt |
|
— |
|
|
|
(175,000 |
) |
Proceeds from issuance of long-term debt, net of issuance costs |
|
— |
|
|
|
75,000 |
|
|
$ |
(76,691 |
) |
|
$ |
(142,011 |
) |
Net cash used in financing activities decreased $65.3 million to $76.7 million during the fiscal year ended March 31, 2026, compared to $142.0 million of net cash used in financing activities during the fiscal year ended March 31, 2025.
During the fiscal year ended March 31, 2026, we repurchased approximately 2.5 million shares of our common stock for $60.8 million in the open market under our 2022 Share Repurchase Program. During the fiscal year ended March 31, 2025, we repurchased a total of approximately 1.4 million shares of our common stock for $25.3 million in the open market under our 2022 Share Repurchase Program.
There was no debt outstanding during the fiscal year ended March 31, 2026. During the fiscal year ended March 31, 2025, we repaid a net $100.0 million of borrowings under the Third Amended and Restated Credit Agreement, and we paid $2.8 million in debt issuance costs related to the execution of our Third Amended and Restated Credit Agreement.
Sources of Cash and Cash Requirements
Credit Facility
We have a five-year, $600 million senior secured revolving credit facility under our Third Amended and Restated Credit Agreement, which matures on October 4, 2029. The facility includes a $75 million letter-of-credit sub-facility and may be used for working capital and other general corporate purposes.
We had no outstanding borrowings under the facility at March 31, 2026 or March 31, 2025, and the full commitment was available. Borrowings under the facility bear interest at variable rates based on term SOFR or an alternate base rate, plus an applicable margin. We also pay commitment fees on the unused portion of the facility.
The credit agreement contains customary covenants, including a consolidated net leverage ratio requirement and certain limitations on additional indebtedness, liens, investments, dividends, and other matters. We were in compliance with all covenants as of March 31, 2026.
Contractual Obligations
Our contractual obligations at March 31, 2026 consisted mainly of (i) unconditional purchase obligations, primarily under purchase orders to purchase inventory as well as commitments for products and services used in the normal course of business (see Commitments and Contingencies, Note 19 to the Consolidated Financial Statements), (ii) operating lease obligations (see Leases, Note 18 to the Consolidated Financial Statements), and (iii) pension benefit plan (see Pension Benefit Plans, Note 16 to the Consolidated Financial Statements).
At March 31, 2026, the total accrual of our retirement obligation for our chairman and CEO was $1.2 million. The payment stream for this retirement obligation is based upon the retirement date which is currently not determinable.
At March 31, 2026, the total amount of net unrecognized tax benefits for uncertain tax positions and the accrual for the related interest was $0.9 million. We are unable to make a reliable estimate when cash settlement, if any, will occur with a tax authority as the timing of examinations and ultimate resolution of those examinations is uncertain.
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Table of Contents
Cash Requirements
We are actively managing the business to generate cash flow and believe that we currently have adequate liquidity. We believe that these factors will allow us to meet our anticipated funding requirements for at least the next twelve months and the foreseeable future.
We have contractual obligations for operating leases, unconditional purchase obligations, pension benefits plans and certain other long-term liabilities. 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, and working capital requirements over at least the next twelve months and the foreseeable future. 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 international trade relations (including trade protections measures, such as tariffs and other trade barriers), could increase our anticipated funding requirements or make it more difficult for us to access capital.
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, 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
Recent Accounting Standards
For information with respect to recent accounting pronouncements on our consolidated financial statements, See Note 2 contained in the "Notes to Consolidated Financial Statements" included in Part IV of this Annual Report.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. We hold our cash, cash equivalents and investments for working capital purposes. Some of the securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. To minimize this risk, we maintain our portfolio of cash, cash equivalents and investments in a variety of securities, including money market funds and corporate and government debt securities. The risk associated with fluctuating interest rates is limited to our investment portfolio. Due to the short-term nature of these instruments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Declines in interest rates, however, would reduce future interest income. The effect of a hypothetical 10% increase or decrease in overall interest rates would not have had a material impact on our operating results or the total fair value of the portfolio.
Credit Risk. Our cash equivalents and marketable securities consist primarily of U.S government and municipal obligations, agency bonds, corporate bonds, commercial paper, certificates of deposit, and money market instruments.
At March 31, 2026 and periodically throughout the year, we have maintained cash balances in various operating accounts in excess of federally insured limits. We limit the amount of credit exposure with any one financial institution by evaluating the creditworthiness of the financial institutions with which we invest.
Foreign Currency Exchange Risk. As a result of our foreign operations, we face exposure to movements in foreign currency exchange rates, primarily the Euro, British Pound, Indian Rupee, and Canadian Dollar. The current exposures arise primarily from expenses denominated in foreign currencies. We currently engage in foreign currency hedging activities in order to limit these exposures. We do not use derivative financial instruments for speculative trading purposes.
At March 31, 2026, we had foreign currency forward contracts designated as hedging instruments with notional amounts totaling $11.0 million. The valuation of outstanding foreign currency forward contracts at March 31, 2026 resulted in a liability balance of $0.3 million, reflecting unfavorable contract rates in comparison to current market rates at this date and an asset balance of less than $0.1 million, reflecting favorable rates in comparison to current market rates. At March 31, 2025, we had foreign currency forward contracts designated as hedging instruments with notional amounts totaling $10.6 million. The valuation of outstanding foreign currency forward contracts at March 31, 2025 resulted in a liability balance of $0.1 million, reflecting unfavorable contract rates in comparison to current market rates at this date and an asset balance of $0.2 million, reflecting favorable rates in comparison to current market rates. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our historical consolidated financial statements. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates.
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Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements and Schedule and Report of Independent Registered Public Accounting Firm appear beginning on page F-1 attached to this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no changes in or disagreements with accountants on accounting or financial disclosure matters.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of March 31, 2026, NetScout, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Exchange Act. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2026 our disclosure controls and procedures were effective in ensuring that material information relating to NetScout, including its consolidated subsidiaries, required to be disclosed by NetScout in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2026, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting was designed to provide reasonable assurance regarding reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2026. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework in 2013. Based on our assessment, we concluded that our internal control over financial reporting was effective as of March 31, 2026.
The effectiveness of our internal control over financial reporting as of March 31, 2026 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 8 herein.
Item 9B. Other Information
Insider Adoption or Termination of Trading Arrangements:
During the fiscal quarter ended March 31, 2026,
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 relating to our nominees and directors will be included under the heading “Proposal 1 – Election of Directors” in our definitive Proxy Statement with respect to our 2026 Annual Meeting of Stockholders to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Annual Report (our “Proxy Statement”) and is incorporated herein by reference.
The information required by this Item 10 relating to our executive officers will be included under the heading “Executive Officers” in our Proxy Statement and is incorporated herein by reference.
The information required by this Item 10 regarding our Audit Committee will be included under the headings “Audit Committee Matters” and “Corporate Governance” in our Proxy Statement and is incorporated herein by reference. We will provide disclosure of delinquent Section 16(a) reports, if any, in our Proxy Statement, and such disclosure, if any, is incorporated herein by reference.
We have adopted a written code of business conduct that applies to all of our employees, officers and directors, including our principal executive officer, principal financial officer and principal accounting officer. The code of business conduct and ethics is available on our corporate website at ir.netscout.com under the section entitled "Governance Overview & Related Materials" in the "Corporate Governance" menu. If we make any substantive amendments to our code of business conduct or grant any of our directors or executive officers any waiver, including any implicit waiver, from a provision of our code of business conduct and ethics, we will disclose the nature of the amendment or waiver on our website or in a Current Report on Form 8-K.
The information required by this Item 10 relating to our insider trading policies and procedures will be included under the sub-heading “Compensation Discussion and Analysis – Policies for Compensation Risk Mitigation” in our Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item 11 relating to director and executive compensation will be included under the headings “Compensation Discussion and Analysis,” “Report of Compensation Committee of the Board of Directors,” “Compensation Committee Interlocks and Insider Participation” and “Compensation and Other Information Concerning Executive Officers” in our Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 relating to security ownership of certain beneficial owners and management will be included under the heading “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement and the information required by this Item 12 relating to securities authorized for issuance under equity compensation plans is included under the heading “Equity Compensation Plan Information” in our Proxy Statement, and in each case is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 relating to the review, approval or ratification of transactions with related persons will be included under the heading “Transactions with Related Persons” in our Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item 14 will be included under the heading “Audit Committee Matters” in our Proxy Statement and is incorporated herein by reference.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) |
1. |
|
Consolidated Financial Statements. |
|
|
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm (PCAOB ID 238) |
F-2 |
|
|
|
|
|
|
|
|
Consolidated Balance Sheets at March 31, 2026 and 2025 |
F-4 |
|
|
|
|
|
|
|
|
Consolidated Statements of Operations for the Years Ended March 31, 2026, 2025 and 2024 |
F-5 |
|
|
|
|
|
|
|
|
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended March 31, 2026, 2025 and 2024 |
F-6 |
|
|
|
|
|
|
|
|
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2026, 2025 and 2024 |
F-7 |
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended March 31, 2026, 2025 and 2024 |
F-8 |
|
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements |
F-9 |
|
|
|
|
|
|
2. |
|
Financial Statement Schedule. |
|
|
|
|
|
|
|
|
|
Valuation and Qualifying Accounts for the Years Ended March 31, 2026, 2025 and 2024 |
S-1 |
|
|
|
|
|
|
|
|
No other financial statement schedules have been included because they are either not applicable or the information is in the consolidated financial statements. |
|
|
|
|
|
|
|
3. |
|
Exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this report. |
|
|
|
|
|
|
(b) |
|
We hereby file as part of this Annual Report on Form 10-K the exhibits listed in Item 15(a)(3) above. |
|
|
|
|
|
|
|
(c) |
|
We hereby file as part of this Annual Report on Form 10-K the financial statement schedule listed in Item 15(a)(2) above. |
|
|
55
Table of Contents
NetScout Systems, Inc.
Index to Exhibits
3.1 |
|
Composite conformed copy of Third Amended and Restated Certificate of Incorporation of NetScout (as amended) (filed as Exhibit 3.2 to NetScout’s current report on Form 8-K, SEC File No. 000-26251, filed on September 21, 2016, and incorporated herein by reference). |
|
|
|
3.2 |
|
Amended and Restated By-laws of NetScout (filed as Exhibit 3.1 to NetScout’s current Report on Form 8-K, SEC File No. 000-26251, filed on May 11, 2020 and incorporated herein by reference). |
|
|
|
4.1 |
|
Description of Common Stock (filed as Exhibit 4.4 to NetScout's Annual Report on Form 10-K for the fiscal year ended March 31, 2020, SEC File No. 000-26251, filed on May 20, 2020 and incorporated herein by reference). |
|
|
|
10.1* |
|
Form of Amended and Restated Indemnification Agreement between NetScout and each director and executive officer (filed as Exhibit 10.1 to NetScout's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2013, SEC File No. 000-26251, filed January 28, 2014, and incorporated herein by reference). |
|
|
|
10.2 |
|
Lease between Arturo J. Gutierrez and John A. Cataldo, Trustees of Nashoba Westford Realty Trust, u/d/t dated April 27, 2000 and recorded with the Middlesex North Registry of Deeds in Book 10813, Page 38 and NetScout for Westford Technology Park West, as amended (filed as Exhibit 10.26 to NetScout’s Annual Report on Form 10-K for the fiscal year ended March 31, 2001, SEC File No. 000-26251, filed on June 29, 2001, and incorporated herein by reference). |
|
|
|
10.3 |
|
Third Amendment Agreement, dated August 10, 2010, to that certain Lease, dated August 17, 2000, as amended, between the Company and Westford West I Limited Partnership, as successor to Arturo J. Gutierrez and John A. Cataldo, Trustees of Nashoba Westford Realty Trust, u/d/t dated April 27, 2000 (filed as Exhibit 10.1 to NetScout’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010, SEC File No. 000-26251, filed November 9, 2010 and incorporated herein by reference). |
|
|
|
10.4 |
|
Third Amendment and Restatement Agreement, dated as of October 4, 2024, to the Second Amended and Restated Credit Agreement, dated as of July 27, 2021, by and among NetScout Systems, Inc., as borrower; certain subsidiaries of NetScout Systems, Inc., as loan parties; the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent attaching the Third Amended and Restated Credit Agreement, dated as of October 4, 2024, by and among NetScout Systems, Inc., as borrower; JPMorgan Chase Bank, N.A., as administrative agent and collateral agent; JPMorgan Chase Bank, N.A., Bank of America, N.A., RBC Capital Markets, PNC Capital Markets LLC and Mizuho Bank, Ltd., as joint lead arrangers and joint bookrunners; TD Bank, N.A. and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, as co-documentation agents; and the lenders and issuing banks party thereto (filed as Exhibit 10.1 to NetScout's current report on Form 8-K, SEC File No. 000-26251, filed on October 4, 2024 and incorporated herein by reference). |
|
|
|
10.5* |
|
Agreement Relating to Employment, dated January 3, 2007, by and between NetScout and Anil K. Singhal (filed as Exhibit 10.2 to NetScout’s Current Report on Form 8-K, SEC File No. 000-26251, filed on January 5, 2007 and incorporated herein by reference). |
|
|
|
10.6* |
|
Amendment No. 1, dated February 2, 2007, to Agreement Relating to Employment by and between the Company and Anil K. Singhal (filed as Exhibit 10.1 to NetScout’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2006, SEC File No. 000-26251, filed February 5, 2007 and incorporated herein by reference). |
|
|
|
10.7* |
|
Amendment No. 2, dated December 22, 2008, to Agreement Relating to Employment by and between the Company and Anil K. Singhal (filed as Exhibit 10.1 to NetScout’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2008, SEC File No. 000-26251, filed February 6, 2009 and incorporated herein by reference). |
|
|
|
10.8* |
|
Amendment No. 3, dated May 28, 2012, to Agreement Relating to Employment, by and between the Company and Anil K. Singhal (filed as Exhibit 10.3 to NetScout’s Current Report on Form 8-K, SEC File No. 000-26251, filed on June 1, 2012 and incorporated herein by reference). |
|
|
|
10.9* |
|
Form of Amended and Restated Severance Agreement for Executive Officers (other than the CEO) (filed as Exhibit 10.1 to NetScout’s Current Report on Form 8-K, SEC File No. 000-26251, filed on June 1, 2012 and incorporated herein by reference). |
10.10* |
|
Form of Amendment to Amended and Restated Severance Agreement for Executive Officers (filed as Exhibit 10.9 to NetScout’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2014, SEC File No. 000-26251, filed on January 27, 2015 and incorporated herein by reference). |
|
|
|
56
Table of Contents
10.11* |
|
Transition and Separation Agreement, dated May 7, 2025 by and between the Company and Jean Bua (filed as Exhibit 10.8 to NetScout’s Annual Report on Form 10-K, SEC File No. 000-26251, filed on May 15, 2025 and incorporated herein by reference). |
|
|
|
10.12* |
|
Transition and Separation Agreement, dated May 7, 2025 by and between the Company and Michael Szabados (filed as Exhibit 10.9 to NetScout’s Annual Report on Form 10-K, SEC File No. 000-26251, filed on May 15, 2025 and incorporated herein by reference). |
|
|
|
10.13* |
|
Offer Letter, dated May 7, 2025, by and between the Company and Anthony Piazza (filed as Exhibit 10.10 to NetScout’s Annual Report on Form 10-K, SEC File No. 000-26251, filed on May 15, 2025 and incorporated herein by reference). |
|
|
|
10.14* |
|
Offer Letter, dated May 7, 2025, by and between the Company and Sanjay Munshi (filed as Exhibit 10.11 to NetScout’s Annual Report on Form 10-K, SEC File No. 000-26251, filed on May 15, 2025 and incorporated herein by reference). |
|
|
|
10.15* |
|
NetScout Systems, Inc. Amended and Restated 2011 Employee Stock Purchase Plan, as amended (filed as Exhibit 99.2 to NetScout’s Registration Statement on Form S-8, SEC File No. 333-267069, filed on August 25, 2022 and incorporated herein by reference). |
|
|
|
10.16* |
|
Summary of Non-Employee Director Compensation (filed as Exhibit 10.2 to NetScout's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, SEC File No. 000-26251, filed on November 4, 2021 and incorporated herein by reference). |
|
|
|
10.17* |
|
NetScout Systems, Inc. 2019 Equity Incentive Plan, as amended (filed as Exhibit 99.1 to NetScout's Registration Statement on Form S-8, SEC File No. 333-290226, filed on September 12, 2025 and incorporated herein by reference). |
|
|
|
10.18* |
|
Form of Restricted Stock Unit Award Agreement with respect to the NetScout Systems, Inc. 2019 Equity Incentive Plan (filed as Exhibit 10.18 to NetScout’s Annual Report on Form 10-K for the fiscal year ended March 31, 2025, SEC File No. 000-26251, filed on May 15, 2025 and incorporated herein by reference). |
|
|
|
10.19* |
|
Form of Performance-Based Restricted Stock Unit Award with respect to the NetScout Systems, Inc. 2019 Equity Incentive Plan (filed as Exhibit 10.1 to NetScout’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024, SEC File No. 000-26251, filed on August 5, 2024 and incorporated herein by reference). |
|
|
|
10.20* |
|
Form of Restricted Stock Unit Award Agreement with respect to the NetScout Systems, Inc. 2019 Equity Incentive Plan (filed as Exhibit 10.5 to NetScout’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2025, SEC File No. 000-26251, filed on August 7, 2025 and incorporated herein by reference). |
|
|
|
10.21* |
|
Form of Performance-Based Restricted Stock Unit Award with respect to the NetScout Systems, Inc. 2019 Equity Incentive Plan (filed as Exhibit 10.6 to NetScout’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2025, SEC File No. 000-26251, filed on August 7, 2025 and incorporated herein by reference). |
|
|
|
19 |
|
NetScout Systems, Inc. Amended and Restated Insider Trading and Trading Window Policy (filed as Exhibit 19 to NetScout’s Annual Report on Form 10-K, SEC File No. 000-26251, filed on May 15, 2025 and incorporated herein by reference). |
|
|
|
21 |
|
Subsidiaries of NetScout (filed herewith). |
|
|
|
23 |
|
Consent of PricewaterhouseCoopers LLP (filed herewith). |
|
|
|
31.1 |
|
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
|
|
31.2 |
|
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
|
|
32.1† |
|
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 (furnished herewith). |
|
|
|
32.2† |
|
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 (furnished herewith). |
|
|
|
97 |
|
NetScout Systems, Inc. Executive Compensation Recovery Policy (filed as Exhibit 97 to NetScout’s Annual Report on Form 10-K for the fiscal year ended March 31, 2024, SEC File No. 000-26251, filed on May 16, 2024 and incorporated herein by reference). |
|
|
|
57
Table of Contents
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents. |
|
|
|
104 |
|
The cover page from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2026 has been formatted in Inline XBRL and contained in Exhibit 101 |
* |
Indicates a management contract or compensatory plan or arrangement. |
† |
Exhibit has been furnished, is not deemed filed and is not to be incorporated by reference into any of the Company's filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing |
Item 16. Form 10-K Summary
Not provided.
58
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
NETSCOUT SYSTEMS, INC. |
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|
|
|
|
By: |
/S/ ANIL K. SINGHAL |
|
|
Anil K. Singhal |
|
|
President, Chief Executive Officer, and Chairman |
|
|
|
|
Date: May 14, 2026 |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
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Title(s) |
|
Date |
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|
||
/S/ ANIL K. SINGHAL |
|
President, Chief Executive Officer, and Chairman (Principal Executive Officer) |
|
May 14, 2026 |
Anil K. Singhal |
|
|
||
|
|
|
|
|
/S/ ANTHONY PIAZZA |
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
|
May 14, 2026
|
Anthony Piazza |
|
|
||
|
|
|
|
|
/S/ ERIC WATT |
|
Chief Accounting Officer (Principal Accounting Officer) |
|
May 14, 2026
|
Eric Watt |
|
|
||
|
|
|
|
|
/S/ MICHAEL SZABADOS |
|
Vice Chairman |
|
May 14, 2026 |
Michael Szabados |
|
|
||
|
|
|
|
|
/S/ ROBERT E. DONAHUE |
|
Director |
|
May 14, 2026 |
Robert E. Donahue |
|
|
||
|
|
|
|
|
/S/ JOHN R. EGAN |
|
Director |
|
May 14, 2026 |
John R. Egan |
|
|
||
|
|
|
|
|
/S/ ALFRED GRASSO |
|
Director |
|
May 14, 2026 |
Alfred Grasso |
|
|
||
|
|
|
|
|
/S/ JOSEPH G. HADZIMA, JR. |
|
Director |
|
May 14, 2026 |
Joseph G. Hadzima, Jr. |
|
|
||
|
|
|
|
|
/S/ SHANNON NASH |
|
Director |
|
May 14, 2026 |
Shannon Nash |
|
|
||
|
|
|
|
|
/S/ MARLENE PELAGE |
|
Director |
|
May 14, 2026 |
Marlene Pelage |
|
|
||
|
|
|
|
|
/S/ CHRISTOPHER PERRETTA |
|
Director |
|
May 14, 2026 |
Christopher Perretta |
|
|
||
|
|
|
|
|
/S/ VIVIAN VITALE |
|
Director |
|
May 14, 2026 |
Vivian Vitale |
|
|
||
59
Table of Contents
NetScout Systems, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID |
F-2 |
Consolidated Balance Sheets at March 31, 2026 and 2025 |
F-4 |
Consolidated Statements of Operations for the Years Ended March 31, 2026, 2025 and 2024 |
F-5 |
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended March 31, 2026, 2025 and 2024 |
F-6 |
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2026, 2025 and 2024 |
F-7 |
Consolidated Statements of Cash Flows for the Years Ended March 31, 2026, 2025 and 2024 |
F-8 |
Notes to Consolidated Financial Statements |
F-9 |
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of NetScout Systems, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of NetScout Systems, Inc. and its subsidiaries (the "Company") as of March 31, 2026 and 2025, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended March 31, 2026, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of March 31, 2026, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2026 and 2025, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2026 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2026, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded
F-2
Table of Contents
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue from Contracts with Customers - Identification of Performance Obligations
As described in Note 3 to the consolidated financial statements, the Company derives revenues primarily from the sale of network management tools and cybersecurity solutions for service provider and enterprise customers, which include hardware, software and service offerings. Customer contracts may include promises to transfer multiple products and services to a customer. Determining whether the products and services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation may require significant judgment. During the year ended March 31, 2026, the Company recognized revenue from contracts with customers of $859.5 million. The principal considerations for our determination that performing procedures relating to revenue from contracts with customers - identification of performance obligations is a critical audit matter are (i) the significant judgment by management in determining whether the products and services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s identification of performance obligations. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the identification of performance obligations. These procedures also included, among others, for a sample of contracts, (i) reading the executed contract to understand the terms and conditions and (ii) evaluating management’s identification of the performance obligations.
/s/
May 14, 2026
We have served as the Company’s auditor since 1993.
F-3
Table of Contents
NetScout Systems, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
|
|
March 31, |
|
|
March 31, |
|
||
Assets |
|
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|
||
Current assets: |
|
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|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Marketable securities |
|
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|
||
Accounts receivable and unbilled costs, net of allowance for doubtful accounts of $ |
|
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Inventories and deferred costs |
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|
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Prepaid income taxes |
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|
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Prepaid expenses and other current assets |
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|
||
Total current assets |
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|
||
Fixed assets, net |
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|
||
Operating lease right-of-use assets |
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Goodwill |
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|
||
Intangible assets, net |
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|
||
Deferred income taxes |
|
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|
||
Long-term marketable securities |
|
|
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|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued compensation |
|
|
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|
||
Accrued other |
|
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|
||
Income taxes payable |
|
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|
||
Deferred revenue and customer deposits |
|
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|
||
Current portion of operating lease liabilities |
|
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|
||
Total current liabilities |
|
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|
||
Other long-term liabilities |
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|
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Deferred tax liability |
|
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|
||
Accrued long-term retirement benefits |
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Long-term deferred revenue and customer deposits |
|
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|
||
Operating lease liabilities, net of current portion |
|
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|
||
Total liabilities |
|
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|
||
|
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|
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|
|||
Stockholders’ equity: |
|
|
|
|
|
|
||
Preferred stock, $ |
|
|
|
|
|
|
||
Common stock, $ |
|
|
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|
||
Additional paid-in capital |
|
|
|
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|
||
Accumulated other comprehensive income |
|
|
|
|
|
|
||
Treasury stock at cost, |
|
|
( |
) |
|
|
( |
) |
Retained earnings (Accumulated deficit) |
|
|
|
|
|
( |
) |
|
Total stockholders’ equity |
|
|
|
|
|
|
||
Total liabilities and stockholders’ equity |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
NetScout Systems, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
|
|
Fiscal Years Ended March 31, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Revenue: |
|
|
|
|
|
|
|
|
|
|||
Product |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Service |
|
|
|
|
|
|
|
|
|
|||
Total revenue |
|
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|||
Cost of revenue: |
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|||
Product |
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Service |
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|||
Total cost of revenue |
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|
|||
Gross profit |
|
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|
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|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
|
|
|
|
|
|
|
|||
Sales and marketing |
|
|
|
|
|
|
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|
|||
General and administrative |
|
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|
|||
Amortization of acquired intangible assets |
|
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|
|||
Restructuring charges |
|
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|
|||
Goodwill impairment |
|
|
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|
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|
|||
Gain on divestiture of a business |
|
|
|
|
|
|
|
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( |
) |
||
Total operating expenses |
|
|
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|
|||
Income (loss) from operations |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Interest and other income, net: |
|
|
|
|
|
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|
|||
Interest income |
|
|
|
|
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|
|
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|
|||
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other (expense) income, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Total interest and other income, net |
|
|
|
|
|
|
|
|
|
|||
Income (loss) before income tax expense |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Basic net income (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Diluted net income (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Weighted average common shares outstanding used in computing: |
|
|
|
|
|
|
|
|
|
|||
Net income (loss) per share—basic |
|
|
|
|
|
|
|
|
|
|||
Net income (loss) per share—diluted |
|
|
|
|
|
|
|
|
|
|||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
NetScout Systems, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
|
|
Fiscal Years Ended March 31, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|||
Cumulative translation adjustments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Recognition of actuarial net gain (loss) from pension and other post-retirement plans, net of tax (benefit) of $ |
|
|
|
|
|
|
|
|
( |
) |
||
Changes in market value of investments: |
|
|
|
|
|
|
|
|
|
|||
Changes in unrealized (loss) gain, net of (benefit) tax of ($ |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Total net change in market value of investments |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Changes in market value of derivatives: |
|
|
|
|
|
|
|
|
|
|||
Changes in market value of derivatives, net of benefit of $ |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Reclassification adjustment for net (loss) gain included in net income (loss), net of (benefit) tax of ($ |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Total net change in market value of derivatives |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Comprehensive income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
NetScout Systems, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
|
|
Common stock |
|
|
Additional |
|
|
Accumulated |
|
|
Treasury stock |
|
|
Retained |
|
|
Total |
|
||||||||||||||
|
|
Shares |
|
|
Par |
|
|
Paid In |
|
|
Comprehensive |
|
|
Shares |
|
|
Stated |
|
|
(Accumulated |
|
|
Stockholders’ |
|
||||||||
Balance, March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||||
Unrealized net investment losses |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||||||
Unrealized net losses on derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||||||
Cumulative translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||||||
Recognition of actuarial net losses from pension and other post-retirement plan |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||||||
Issuance of common stock pursuant to vesting of restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Stock-based compensation expense for restricted stock units granted to employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Issuance of common stock under employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Shares withheld for employee taxes related to equity awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
Repurchase of common stock as treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||
Balance, March 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||||||
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||||
Unrealized net investment gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unrealized net gains on derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Cumulative translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
||||||
Recognition of actuarial net gains from pension and other post-retirement plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Issuance of common stock pursuant to vesting of restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Stock-based compensation expense for restricted stock units granted to employees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Issuance of common stock under employee stock purchase plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Shares withheld for employee taxes related to equity awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
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( |
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Repurchase of common stock as treasury |
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( |
) |
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( |
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Balance, March 31, 2025 |
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( |
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Net income |
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Unrealized net investment losses |
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( |
) |
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( |
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Unrealized net losses on derivative financial instruments |
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( |
) |
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( |
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Cumulative translation adjustments |
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( |
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( |
) |
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Recognition of actuarial net gains from pension and other post-retirement plan |
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Issuance of common stock pursuant to vesting of restricted stock units |
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Stock-based compensation expense for restricted stock units granted to employees |
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Issuance of common stock under employee stock purchase plan |
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Shares withheld for employee taxes related to equity awards |
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( |
) |
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( |
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Repurchase of common stock as treasury |
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( |
) |
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( |
) |
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Balance, March 31, 2026 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
F-7
Table of Contents
NetScout Systems, Inc
Consolidated Statements of Cash Flows
(In thousands)
|
Fiscal Years Ended March 31, |
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2026 |
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2025 |
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2024 |
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Cash flows from operating activities: |
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Net income (loss) |
$ |
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$ |
( |
) |
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$ |
( |
) |
|
Adjustments to reconcile net income (loss) to cash provided by operating activities, net of the effects of acquisitions: |
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Depreciation and amortization |
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Loss on extinguishment of debt (non cash portion) |
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Operating lease right-of-use assets |
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Gain on divestiture of a business |
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( |
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Loss on disposal of fixed assets |
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Share-based compensation expense associated with equity awards |
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Change in fair value of derivative instrument |
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( |
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Goodwill impairment |
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Deferred income taxes |
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( |
) |
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( |
) |
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( |
) |
Loss (gain) in equity investment |
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( |
) |
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( |
) |
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Other gains (losses) |
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( |
) |
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( |
) |
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Changes in assets and liabilities |
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Accounts receivable and unbilled costs |
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( |
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Inventories |
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( |
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Prepaid expenses and other assets |
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( |
) |
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( |
) |
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Accounts payable |
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( |
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Accrued compensation and other expenses |
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( |
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Operating lease liabilities |
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( |
) |
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( |
) |
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( |
) |
Income taxes payable |
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( |
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Deferred revenue |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchase of marketable securities |
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( |
) |
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( |
) |
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( |
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Proceeds from maturity of marketable securities |
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Purchase of fixed assets |
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( |
) |
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( |
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( |
) |
Purchase of intangible assets |
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( |
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Proceeds from sale of equity investment |
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Proceeds from divestiture of a business |
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Net cash (used in) provided by investing activities |
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( |
) |
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( |
) |
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Cash flows from financing activities: |
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Issuance of common stock under stock plans |
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Treasury stock repurchases |
|
( |
) |
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|
( |
) |
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( |
) |
Tax withholding on restricted stock units |
|
( |
) |
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( |
) |
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( |
) |
Payment of debt issuance costs |
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( |
) |
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Repayment of long-term debt |
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( |
) |
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Proceeds from issuance of long-term debt |
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Net cash used in financing activities |
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( |
) |
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( |
) |
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( |
) |
Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents, beginning of year |
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Cash and cash equivalents, end of year |
$ |
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$ |
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$ |
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Supplemental disclosures of cash flow information: |
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Cash paid for interest |
$ |
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|
$ |
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$ |
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Cash paid for income taxes |
$ |
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$ |
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$ |
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|||
Non-cash transactions: |
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|||
Transfers of inventory to fixed assets |
$ |
|
|
$ |
|
|
$ |
|
|||
Additions to property, plant and equipment included in accounts payable |
$ |
|
|
$ |
|
|
$ |
|
|||
Issuance of common stock under employee stock plans |
$ |
|
|
$ |
|
|
$ |
|
|||
Stock-based compensation included in fixed assets and other assets |
$ |
|
|
$ |
|
|
$ |
|
|||
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
NOTE 1 – NATURE OF BUSINESS
NetScout Systems, Inc., or NetScout or the Company, has been a technology innovator for four decades since its founding in 1984. The Company's solutions, based on patented Adaptive Service Intelligence technology, help customers identify network and application performance issues, defend their networks from Distributed Denial-of-Service (DDoS) attacks, and rapidly find and isolate advanced network threats. As a result, customers can quickly resolve issues that cause business disruptions, downtime, poor service quality or compromised security, thereby driving compelling returns on their investments in their network and broader information technology initiatives.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of NetScout and its wholly owned subsidiaries. Inter-company transactions and balances have been eliminated in consolidation.
Segment Reporting
The Company's operating segments are determined based on the units that constitute a business for which discrete financial information is available and for which operating results are regularly reviewed by the chief operating decision maker (CODM). The Company's President and CEO is the CODM. Operating results are reviewed by the CODM primarily at the consolidated entity level for the purpose of making resource allocation decisions and for evaluating financial performance, primarily by monitoring actual results compared to forecasted results as well as by reviewing year-over-year results. The Company's CODM evaluates company-wide performance and determines allocation of resources based on multiple performance measures, including, but not limited to net income (loss).
The Company has determined it operates as a single operating segment and has
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include those involving revenue recognition and expenses, valuation of goodwill and acquired assets and liabilities, valuation of pension obligations, valuation of derivative instruments, valuation of contingent consideration and share-based compensation. These estimates and assumptions are monitored and analyzed by management for changes in facts and circumstances and material changes in these estimates could occur in the future.
Cash and Cash Equivalents and Marketable Securities
Under authoritative guidance, NetScout has classified its investments as "available-for-sale" which are carried at fair value associated unrealized gains or losses are recorded as a separate component of stockholders' equity until realized. NetScout considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents and those investments with original maturities greater than three months to be marketable securities.
At March 31, 2026 and periodically throughout the year, NetScout has maintained cash balances in various operating accounts in excess of federally insured limits. NetScout limits the amount of credit exposure by investing only with credit worthy institutions which the Company believes are those institutions with an investment grade rating for deposits.
F-9
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Revenue Recognition
The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers (Topic 606). For further discussion of the Company's accounting policies related to revenue see Note 3, "Revenue Recognition."
Commission Expense
Sales commissions are recorded as an asset when the initial contract's duration is longer than 12 months and amortized to expense ratably over the remaining performance periods of the related contracts.
Uncollected Deferred Revenue
Because of NetScout's revenue recognition policies, there are circumstances for which the Company does not recognize revenue relating to sales transactions that have been billed, but the related account receivable has not been collected. While the receivable represents an enforceable obligation, the Company does not believe its right to payment is unconditional, therefore for balance sheet presentation purposes, the Company has not recognized the deferred revenue or the related account receivable, and no amounts appear in the consolidated balance sheets for such transactions because control of the underlying deliverable has not transferred. The aggregate amount of unrecognized accounts receivable and deferred revenue was $
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of investments, trade accounts receivable and accounts payable. NetScout's cash, cash equivalents, and marketable securities are placed with financial institutions with high credit standings.
At March 31, 2026, one channel partner and no direct customers accounted for more than
During the fiscal years ended March 31, 2026, 2025, and 2024, no direct customers or channel partners accounted for more than
Historically, the Company has not experienced any significant failure of its customers to meet their payment obligations, nor does the Company anticipate material non-performance by its customers in the future; accordingly, the Company does not require collateral from its customers. However, if the Company’s assumptions are incorrect, there could be an adverse impact on its allowance for doubtful accounts.
Trade Receivable Valuations
Accounts receivable are stated at their net realizable value. The allowance against gross trade receivables reflects the best estimate of probable losses inherent in the receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information.
Inventories
Inventories are stated at the lower of actual cost or net realizable value. Cost is determined by using the first-in, first-out (FIFO) method.
Fixed Assets
F-10
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Fixed assets are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or anticipated useful life of the improvement. Gains and losses upon asset disposal are recognized in the year of disposition. Expenditures for replacements and building improvements are capitalized, while expenditures for maintenance and repairs are charged against earnings as incurred.
Leases
The Company has operating leases for administrative, research and development, sales and marketing and manufacturing facilities and equipment under various non-cancelable lease agreements. Lease commencement occurs on the date the Company takes possession or control of the property or equipment. The Company's lease terms may include options to extend or terminate the lease where it is reasonably certain that the Company will exercise those options. The Company considers several economic factors when making this determination, including but not limited to, the significance of leasehold improvements incurred in the office space, the difficulty in replacing the asset, underlying contractual obligations, or specific characteristics unique to a particular lease. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. For further discussion of the Company's policies related to leases see Note 18, "Leases."
Valuation of Goodwill and Intangible Assets
The Company amortizes acquired definite-lived intangible assets over their estimated useful lives. Goodwill is not amortized but subjected to annual impairment tests; or more frequently if events or circumstances occur (a "Triggering Event") that would indicate the fair value of its reporting unit is below its carrying value. The Company performs the goodwill impairment assessment annually during the fourth quarter and on an interim basis if potential impairment indicators arise.
Reporting units are determined based on the components of a Company's operating segments that constitute a business for which financial information is available and for which operating results are regularly reviewed by segment management. The Company has
To test impairment for long-lived assets, including tangible and definite-lived intangible assets, the Company first assesses qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the long-lived assets are impaired. If, based on the Company's qualitative assessment, it is more likely than not that the fair value of the long-lived assets are less than its carrying amount, quantitative impairment testing is required. However, if the Company concludes otherwise, quantitative impairment testing is not required.
Capitalized Software Development Costs
Costs incurred in the research and development of the Company's products are expensed as incurred, except for certain software development costs. Costs associated with the development of computer software are expensed prior to the establishment of technological feasibility and capitalized thereafter until the related software products are available for first customer shipment. Such costs are amortized using the straight-line method over the estimated economic life of the product, which generally does not exceed
The majority of research and development investments have not been capitalized because of the development methodology employed. Historically, developments are added individually to the core code over a shorter period of time but marketed as a release once all portions are complete.
F-11
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Derivative Financial Instruments
Under authoritative guidance for derivative financial instruments and hedging activities, all hedging activities must be documented at the inception of the hedge and must meet the definition of highly effective in offsetting changes to future cash flows in order for the derivative to qualify for hedge accounting. Under the guidance, if an instrument qualifies for hedge accounting, the changes in the fair value each period for open contracts, measured at the end of the period, are recorded to other comprehensive income (loss). Otherwise, changes in the fair value are recorded in earnings each period. Management must perform initial and ongoing tests in order to qualify for hedge accounting. In accordance with the guidance, the Company accounts for its instruments under hedge accounting. The effectiveness and a measurement of ineffectiveness of qualifying hedge contracts are assessed by the Company quarterly. The Company records the fair value of its derivatives in and in the Company's consolidated balance sheet. The effective portion of gains or losses resulting from changes in the fair value of qualifying hedges are recorded in other comprehensive income (loss) until the forecasted transaction occurs, with any ineffective portion classified directly to the Company's consolidated statement of operations based on the expense categories of the items being hedged. When forecasted transactions occur, unrealized gains or losses associated with the effective portion of the hedge are reclassified to the respective expense categories in the Company's consolidated statement of operations. Gains or losses related to hedging activity are included as operating activities in the Company's consolidated statement of cash flows. If the underlying forecasted transactions do not occur, or it becomes probable that they will not occur, the gain or loss on the related cash flow hedge is recognized immediately in earnings.
NetScout also periodically enters into foreign exchange forward contracts to manage exchange rate risk associated with certain third-party transactions and for which the Company does not elect hedge accounting treatment as there is no difference in the timing of gain or loss recognition on the hedge instrument and the hedged item.
Contingencies
The Company accounts for claims and contingencies in accordance with authoritative guidance that requires an estimated loss to be recorded from a claim or loss contingency when information available prior to issuance of its consolidated financial statements indicates that it is probable that a liability has been incurred at the date of the consolidated financial statements, and the amount of the loss can be reasonably estimated. If the Company determines that it is reasonably possible but not probable that an asset has been impaired or a liability has been incurred or if the amount of a probable loss cannot be reasonably estimated, then in accordance with the authoritative guidance, the Company discloses the amount or range of estimated loss if the amount or range of estimated loss is material. Accounting for claims and contingencies requires the Company to use its judgment. The Company consults with legal counsel on those issues related to litigation and seeks input from other experts and advisors with respect to matters in the ordinary course of business.
Share-Based Compensation
The Company recognizes compensation expense for all share-based payments granted. Under the fair value recognition provisions, share-based compensation is calculated net of an estimated forfeiture rate and compensation cost is only recognized for those shares expected to vest on a straight-line basis over the expected requisite service period of the award.
Foreign Currency
The Company accounts for its reporting of foreign operations in accordance with guidance which establishes guidelines for the determination of the functional currency of foreign subsidiaries. In accordance with the guidance, the Company has determined its functional currency for those foreign subsidiaries that are an extension of the Company's U.S. operations to be the U.S. Dollar.
Assets and liabilities of subsidiaries operating outside the United States with a functional currency other than U.S. dollars are translated into U.S. dollars using the period-end exchange rate, and income and expense items are translated using the average exchange rate during the period. Cumulative translation adjustments are reflected as a separate component of stockholders' equity.
The Company will experience currency exchange risk with respect to foreign currency denominated expenses. In order to partially offset the risks associated with the effects of certain foreign currency exposures, the Company has established a program that
F-12
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
utilizes foreign currency forward contracts. Under this program, increases or decreases in foreign currency exposures are partially offset by gains or losses on forward contracts, to mitigate the impact of foreign currency transaction gains or losses. The Company does not use forward contracts to engage in currency speculation. All outstanding foreign currency forward contracts are recorded at fair value at the end of each fiscal period.
The Company had foreign currency losses of $
Advertising Expense
NetScout recognizes advertising expense as incurred. Advertising expense was $
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) typically consists of unrealized gains and losses on marketable securities, unrealized gains and losses on hedge contracts, actuarial gains and losses, and foreign currency translation adjustments.
Income Taxes
NetScout accounts for its income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis, as well as the effect of any net operating loss and tax credit carryforwards. Income tax expense is comprised of the current tax liability or benefit and the change in deferred tax assets and liabilities. NetScout evaluates the recoverability of deferred tax assets by considering all positive and negative evidence relating to future profitability. NetScout weighs objective and verifiable evidence more heavily in this analysis. In situations where NetScout concludes that it does not have sufficient objective and verifiable evidence to support the realizability of the deferred tax asset, NetScout creates a valuation allowance against it.
Recent Accounting Standards Recently Adopted
In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, enhancing income tax disclosure requirements by requiring specified categories and greater disaggregation within the rate reconciliation table, disclosure of income taxes paid by jurisdiction, and providing clarification on uncertain tax positions and related financial statement impacts. The guidance was adopted on April 1, 2025 and it did not have a material impact on the Company's consolidated financial statements.
Recent Accounting Standards Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU 2024-03). Additionally, in January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03. ASU 2024-03 provides guidance to expand disclosures related to the disaggregation of income statement expenses. The standard requires, in the notes to the financial statements, disclosure of specified information about certain costs and expenses which includes purchases of inventory, employee compensation, depreciation, and intangible asset amortization that are included on the face of the statement of income. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. ASU 2024-03 is effective for NetScout beginning with its fiscal year ending March 31, 2028. The Company is in the process of evaluating the impact that the adoption of ASU 2024-03 will have on its disclosures.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. ASU 2025-05 provides a practical expedient and an accounting policy election related
F-13
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
to the estimation of expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606, "Revenue from Contracts with Customers." The practical expedient allows entities to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset. ASU 2025-05 is effective for the annual periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. ASU 2025-05 should be applied on a prospective basis with early adoption permitted. ASU 2025-05 is effective for the Company beginning with its fiscal year ending March 31, 2027. The Company is currently evaluating the impact of this standard and does not expect the adoption of ASU 2025-05 to have a material impact on its consolidated financial statements and disclosures.
In September 2025, the FASB issued ASU 2025-06, Intangibles (Subtopic 350-40): Update to modernize the accounting for internal-use software costs. ASU 2025-06 removes all references to software project development stages and clarifies the recognition threshold, entities must meet to begin capitalizing costs. ASU 2025-06 is effective for the Company beginning with its fiscal year ending March 31, 2029. The Company is currently evaluating the impact of this standard and does not expect the adoption of ASU 2025-06 to have a material impact on its consolidated financial statements and disclosures.
NOTE 3 - REVENUE RECOGNITION
Revenue Recognition Policy
The Company exercises judgment and uses estimates in connection with determining the amounts of product and service revenues to be recognized in each accounting period.
The Company derives revenues primarily from the sale of network management tools and cybersecurity solutions for service provider and enterprise customers, which include hardware, software, and service offerings. The Company's product sales consist of offerings which include hardware appliances with embedded software that are essential to providing customers the intended functionality of the solutions, and software only offerings.
The Company accounts for revenue once a legally enforceable contract with a customer has been approved by the parties and the related promises to transfer products or services have been identified. A contract is defined by the Company as an arrangement with commercial substance identifying payment terms, each party's rights and obligations regarding the products or services to be transferred and the amount the Company deems probable of collection. Customer contracts may include promises to transfer multiple products and services to a customer. Determining whether the products and services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation may require significant judgment. Revenue is recognized when control of the products or services are transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for products and services.
F-14
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Product revenue is typically recognized upon fulfillment, provided a legally enforceable contract exists, control has passed to the customer, and in the case of software products, when the customer has the rights and ability to access the software, and collection of the related receivable is probable. If any significant obligations to the customer remain post-delivery, typically involving obligations relating to installation and acceptance by the customer, revenue recognition is deferred until such obligations have been fulfilled. The Company's service offerings include installation, integration, extended warranty and maintenance services, post-contract customer support, stand-ready software-as-a-service and other professional services including consulting and training. The Company generally provides software and/or hardware support as part of product sales. Revenue related to the initial bundled software and hardware support is recognized ratably over the support period. In addition, customers can elect to purchase extended support agreements for periods after the initial software/hardware warranty expiration. Support services generally include rights to unspecified upgrades (when and if available), telephone and internet-based support, updates, bug fixes and hardware repair and replacement. Consulting services are recognized upon delivery or completion of performance depending on the terms of the underlying contract. Reimbursements of out-of-pocket expenditures incurred in connection with providing consulting services are included in services revenue, with the offsetting expense recorded in cost of service revenue. Training services include on-site and classroom training. Training revenues are recognized upon delivery of the training.
Generally, the Company's contracts are accounted for individually. However, when contracts are closely interrelated and dependent on each other, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts.
Bundled arrangements are concurrent customer purchases of a combination of the Company's product and service offerings that may be delivered at various points in time. The Company allocates the transaction price among the performance obligations in an amount that depicts the relative standalone selling prices (SSP) of each obligation. Judgment is required to determine the SSP for each distinct performance obligation. The Company uses a range of amounts to estimate SSP for each of the products and services sold, based primarily on the performance obligation's historical pricing. The Company also considers its overall pricing objectives and practices across different sales channels and geographies, and market conditions. Generally, the Company has established SSP for a majority of its service performance obligations based on historical standalone sales. In certain instances, the Company has established SSP for services based upon an estimate of profitability and the underlying cost to fulfill those services. SSP has primarily been established for product performance obligations as the average or median selling price the performance obligation was recently sold for, whether sold alone or sold as part of a bundle transaction. The Company reviews sales of the product performance obligations on a quarterly basis and updates, when appropriate, its SSP for such performance obligations to ensure that it reflects recent pricing experience. The Company's products are distributed through its direct sales force and indirect distribution channels through alliances with resellers and distributors. Revenue arrangements with resellers and distributors are recognized on a sell-in basis; that is, when control of the product transfers to the reseller or distributor. The Company records consideration given to a customer as a reduction of revenue to the extent it has recorded revenue from the customer. With limited exceptions, the Company's return policy does not allow product returns for a refund. Returns have been insignificant to date. In addition, the Company has a history of successfully collecting receivables from its resellers and distributors.
During the fiscal year ended March 31, 2026, the Company recognized revenue of $
F-15
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Performance Obligations
Customer contracts may include promises to transfer multiple products and services to a customer. Determining whether the products and services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation may require significant judgment. The transaction price is allocated among performance obligations in bundled contracts in an amount that depicts the relative standalone selling prices of each obligation.
For contracts involving distinct hardware and software licenses, the performance obligations are satisfied at a point in time when control is transferred to the customer. For standalone maintenance and post-contract support (PCS) the performance obligation is satisfied ratably over the contract term as a stand-ready obligation. For consulting and training services, the performance obligation may be satisfied over the contract term as a stand-ready obligation, satisfied over a period of time as those services are delivered, satisfied at the completion of the service when control has transferred, or the services have expired unused.
Payments for hardware, software licenses, one-year maintenance, PCS and consulting services, are typically due up front with payment terms of
At March 31, 2026, the Company had total deferred revenue and customer deposits of $
The Company expects that the amount of billed and unbilled deferred revenue will change from quarter to quarter for several reasons, including the specific timing, duration and size of large customer support and service agreements, varying billing cycles of such agreements, the specific timing of customer renewals, and foreign currency fluctuations. The Company did not have material significant financing components, or variable consideration or performance obligations satisfied in a prior period recognized during the twelve months ended March 31, 2026.
Contract Balances
The Company may receive payments from customers based on billing schedules as established by the Company's contracts. Contract assets relate to performance obligations where control has transferred to the customer in advance of scheduled billings. The Company records unbilled accounts receivable representing the right to consideration in exchange for goods or services that have been transferred to a customer conditional on the passage of time. Deferred revenue relates to scenarios where billings with an unconditional right to payment occur before all performance obligations are delivered or payments are received in advance of performance under the contract.
Costs to Obtain Contracts
The Company has determined that the only significant incremental costs incurred to obtain contracts with customers are sales commissions paid to its employees. Sales commissions are recorded as an asset and amortized to expense ratably over the remaining performance periods of the related contracts with remaining performance obligations. The Company expenses costs as incurred for sales commissions when the amortization period would have been one year or less.
At March 31, 2026, the consolidated balance sheet included $
F-16
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
During the twelve months ended March 31, 2026 and 2025, and 2024, the Company recognized $
Allowance for Credit Losses
The Company continually monitors collections from its customers. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for credit losses based on a combination of factors, including but not limited to, analysis of the aging schedules, past due balances, historical collection experience and prevailing economic conditions.
The following table summarizes the activity in the allowance for credit losses (in thousands):
Balance at March 31, 2025 |
|
$ |
|
|
Additions resulting in charges to operations |
|
|
|
|
Recoveries to other accounts |
|
|
( |
) |
Deductions due to write-offs |
|
|
( |
) |
Balance at March 31, 2026 |
|
$ |
|
NOTE 4 – CASH, CASH EQUIVALENTS, MARKETABLE SECURITIES AND INVESTMENTS
Cash and cash equivalents mainly consisted of U.S. government and municipal obligations, commercial paper, money market instruments and cash maintained with various financial institutions at March 31, 2026 and 2025.
Marketable Securities
The following is a summary of marketable securities held by the Company at March 31, 2026 classified as short-term and long-term (in thousands):
|
Amortized |
|
|
Unrealized |
|
|
Fair |
|
|||
Type of security: |
|
|
|
|
|
|
|
|
|||
U.S. government and municipal obligations |
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Commercial paper |
|
|
|
|
|
|
|
|
|||
Corporate bonds |
|
|
|
|
( |
) |
|
|
|
||
Certificates of deposit |
|
|
|
|
|
|
|
|
|||
Agency bonds |
|
|
|
|
( |
) |
|
|
|
||
Total short-term marketable securities |
|
|
|
|
( |
) |
|
|
|
||
U.S. government and municipal obligations |
|
|
|
|
( |
) |
|
|
|
||
Agency bonds |
|
|
|
|
( |
) |
|
|
|
||
Total long-term marketable securities |
|
|
|
|
( |
) |
|
|
|
||
Total marketable securities |
$ |
|
|
$ |
( |
) |
|
$ |
|
||
F-17
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
The following is a summary of marketable securities held by the Company at March 31, 2025, classified as short-term and long-term (in thousands):
|
Amortized |
|
|
Unrealized |
|
|
Fair |
|
|||
Type of security: |
|
|
|
|
|
|
|
|
|||
U.S. government and municipal obligations |
$ |
|
|
$ |
|
|
$ |
|
|||
Commercial paper |
|
|
|
|
|
|
|
|
|||
Certificates of deposit |
|
|
|
|
|
|
|
|
|||
Total short-term marketable securities |
|
|
|
|
|
|
|
|
|||
U.S. government and municipal obligations |
|
|
|
|
( |
) |
|
|
|
||
Total long-term marketable securities |
|
|
|
|
( |
) |
|
|
|
||
Total marketable securities |
$ |
|
|
$ |
|
|
$ |
|
|||
Contractual maturities of the Company's marketable securities held at March 31, 2026 and 2025 (in thousands) were as follows:
|
March 31, 2026 |
|
|
March 31, 2025 |
|
||
Available-for-sale securities: |
|
|
|
|
|
||
Due in 1 year or less |
$ |
|
|
$ |
|
||
Due after 1 year through 5 years |
|
|
|
|
|
||
|
$ |
|
|
$ |
|
||
Investments
In February 2023, the Company entered into a forward share purchase agreement with Napatech A/S (Napatech), a publicly traded Danish company registered on the Oslo stock exchange, to purchase approximately
F-18
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
NOTE 5 – FAIR VALUE MEASUREMENTS
The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant unobservable inputs.
|
Fair Value Measurements at |
|
|||||||||||||
|
March 31, 2026 |
|
|||||||||||||
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S. government and municipal obligations |
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
||||
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
||||
Agency Bonds |
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
|
Fair Value Measurements at |
|
|||||||||||||
|
March 31, 2025 |
|
|||||||||||||
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash and cash equivalents |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S. government and municipal obligations |
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
|
|
|
|
|
|
|
|
|
|
||||
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
||||
Equity investment in Napatech |
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
||||
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including marketable securities and derivative financial instruments.
The Company's Level 1 investments are classified as such because they are valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency.
F-19
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
The Company's Level 2 investments are classified as such because they are valued using observable inputs other than Level 1 quoted prices that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets in markets that are not active.
NOTE 6 – INVENTORIES AND DEFERRED COSTS
Inventories are stated at the lower of actual cost or net realizable value. Cost is determined by using the FIFO method. Inventories consisted of the following (in thousands):
|
March 31, |
|
|||||
|
2026 |
|
|
2025 |
|
||
Raw materials |
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
||
Deferred costs |
|
|
|
|
|
||
|
$ |
|
|
$ |
|
||
NOTE 7 – FIXED ASSETS
Fixed assets consisted of the following (in thousands):
|
|
Estimated |
|
March 31, |
|
|||||
|
|
In Years |
|
2026 |
|
|
2025 |
|
||
Furniture and fixtures |
|
|
$ |
|
|
$ |
|
|||
Computer equipment and internal use software |
|
|
|
|
|
|
|
|||
Leasehold improvements (1) |
|
up to |
|
|
|
|
|
|
||
Demonstration and spare part units |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
||
Less – accumulated depreciation |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
$ |
|
|
$ |
|
||
Depreciation expense was $
NOTE 8- DIVESTITURES
Business Divestiture
On September 8, 2023, the Company entered into an Asset Purchase Agreement to divest its Test Optimization business (TO business) for a purchase price of $
The Company determined that the sale of the TO business did not represent a strategic shift and will not have a major effect on its consolidated results of operations, financial position or cash flow. Accordingly, the Company has not presented the sale as a discontinued operation in the consolidated financial statements.
F-20
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
NOTE 9 – GOODWILL & INTANGIBLE ASSETS
Goodwill
The Company has
During fiscal year 2024, the Company recorded $
During fiscal year 2026 and 2025, the Company completed its annual goodwill impairment tests using the qualitative assessment, and the Company concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying value.
The Company will continue to monitor relevant facts and circumstances, including future changes in its stock price. The Company may be required to record additional goodwill impairment charges. While management cannot predict if or when additional goodwill impairments may occur, future goodwill impairments could have material adverse effects on the Company's results of operations and financial condition.
At March 31, 2026 and 2025, the carrying amounts of goodwill were $
The following table summarizes the changes in the carrying amount of goodwill for the fiscal years ended March 31, 2026 and 2025 as follows (in thousands):
Balance at March 31, 2024 |
$ |
|
|
Goodwill impairment |
|
( |
) |
Foreign currency translation impact |
|
|
|
Balance at March 31, 2025 |
$ |
|
|
Foreign currency translation impact |
|
( |
) |
Balance at March 31, 2026 |
$ |
|
Intangible Assets
The net carrying amounts of intangible assets were $
The Company reviews long-lived assets including tangible and definite-lived intangible assets for impairment when an event occurs that may indicate potential impairment. In conjunction with the goodwill impairment analysis performed at June 30, 2024, the Company conducted an impairment test of its long-lived assets at June 30, 2024. Based on this assessment, the Company concluded that the carrying values of the Company's long-lived assets were recoverable. During the fiscal year ended March 31, 2026 and 2025, the Company performed a quarterly Triggering Event assessment and concluded no events or circumstances occurred that indicated intangible assets may be impaired. However, if future events occur or if business conditions deteriorate, the Company may be required to record an impairment loss, and or accelerate the amortization of definite-live intangible assets in the future, which could be material to its results of operations and financial condition.
F-21
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Intangible assets include the following amortizable intangible assets at March 31, 2026 (in thousands):
|
Cost |
|
|
Accumulated |
|
|
Net |
|
|||
Developed technology |
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Customer relationships |
|
|
|
|
( |
) |
|
|
|
||
Distributor relationships and technology licenses |
|
|
|
|
( |
) |
|
|
|
||
Definite lived trademark and trade name |
|
|
|
|
( |
) |
|
|
|
||
Core technology |
|
|
|
|
( |
) |
|
|
|
||
Capitalized software |
|
|
|
|
( |
) |
|
|
|
||
Other |
|
|
|
|
( |
) |
|
|
|
||
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Intangible assets include the following amortizable intangible assets at March 31, 2025 (in thousands):
|
Cost |
|
|
Accumulated |
|
|
Net |
|
|||
Developed technology |
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Customer relationships |
|
|
|
|
( |
) |
|
|
|
||
Distributor relationships and technology licenses |
|
|
|
|
( |
) |
|
|
|
||
Definite-lived trademark and trade name |
|
|
|
|
( |
) |
|
|
|
||
Core technology |
|
|
|
|
( |
) |
|
|
|
||
Capitalized software |
|
|
|
|
( |
) |
|
|
|
||
Other |
|
|
|
|
( |
) |
|
|
|
||
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Amortization included as cost of product revenue consists of amortization of developed technology, and distributor relationships and technology licenses. Amortization included as operating expense consists of all other intangible assets.
|
Fiscal Years Ended March 31, |
|
|||||||||
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Amortization of intangible assets included as: |
|
|
|
|
|
|
|
|
|||
Cost of product revenue |
|
|
|
|
|
|
|
|
|||
Operating expense |
|
|
|
|
|
|
|
|
|||
|
$ |
|
|
$ |
|
|
$ |
|
|||
The following is the expected future amortization expense at March 31, 2026 for the fiscal years ended March 31 (in thousands):
2027 |
$ |
|
|
2028 |
|
|
|
2029 |
|
|
|
2030 |
|
|
|
2031 |
|
|
|
Thereafter |
|
|
|
Total |
$ |
|
NOTE 10 – DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
NetScout operates internationally and, in the normal course of business, is exposed to fluctuations in foreign currency exchange rates. The exposures result from costs that are denominated in currencies other than the U.S. Dollar, primarily the Euro, British Pound, Indian Rupee, and Canadian Dollar. The Company manages its foreign cash flow risk by hedging forecasted cash flows for operating expenses denominated in foreign currencies for up to
F-22
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
The Company enters into foreign currency exchange contracts to hedge cash flow exposures from costs that are denominated in currencies other than the U.S. Dollar. These hedges are designated as cash flow hedges at inception.
NetScout also periodically enters into forward contracts to manage exchange rate risk associated with certain third-party transactions and for which the Company does not elect hedge accounting treatment as there is no difference in the timing of gain or loss recognition on the hedge instrument and the hedged item.
All of the Company's foreign exchange forward contract derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes. These contracts will mature over the next
The notional amounts and fair values of foreign exchange forward contract derivative instruments in the consolidated balance sheets at March 31, 2026 and 2025 were as follows (in thousands):
|
|
Notional Amounts (a) |
|
|
Prepaid Expenses and Other Current Assets |
|
|
Accrued Other |
|
|||||||||||||||
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Forward contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The following table provides the effect foreign exchange forward contracts had on other comprehensive income (loss), (OCI) and results of operations during the fiscal years ended March 31, 2026 and 2025 (in thousands):
|
|
Loss Recognized |
|
|
|
|
(Loss) Gain Reclassified from |
|
||||||||||
|
|
March 31, |
|
|
March 31, |
|
|
|
|
March 31, |
|
|
March 31, |
|
||||
|
|
2026 |
|
|
2025 |
|
|
Location |
|
2026 |
|
|
2025 |
|
||||
Forward contracts |
|
$ |
( |
) |
|
$ |
( |
) |
|
Research and development |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
( |
) |
|
|
|
|||
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
$ |
( |
) |
|
$ |
|
|
The following table provides the effect foreign exchange forward contracts not designated as hedging instruments had on the Company's results of operations during the fiscal years ended March 31, 2026 and 2025 (in thousands):
|
|
|
|
|
|
|
|
Loss Recognized in Income |
|
|||||
|
|
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
||
|
|
|
|
|
|
Location |
|
2026 |
|
|
2025 |
|
||
Forward contracts |
|
|
|
|
|
General and administrative |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|
F-23
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
In addition to foreign exchange forward contracts, during the fiscal year ended March 31, 2023, the Company entered into a forward share purchase contract to purchase approximately
NOTE 11 – RESTRUCTURING CHARGES
During the fiscal year 2025, the Company implemented a voluntary separation program (VSP) for employees who met certain age and service requirements to reduce overall headcount. As a result of the related workforce reduction, during the fiscal year ended March 31, 2025, the Company recorded restructuring charges totaling $
In addition to the VSP, during the third quarter of fiscal year 2025, the Company entered into transition agreements that provided termination benefits for certain employees to ensure an orderly transition of responsibilities for continuity purposes. As a result of the related workforce changes, during the fiscal years ended March 31, 2026 and March 31, 2025, the Company recorded restructuring charges totaling $
The following table provides a summary of the activity related to the restructuring plan and the related restructuring liability (in thousands):
|
|
Q1 FY25 VSP |
|
|
Q3FY25 Plan |
|
|
|
|
|||
|
|
Employee-related |
|
|
Employee-related |
|
|
TOTAL |
|
|||
Balance at March 31, 2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Restructuring charges to operations |
|
|
|
|
|
|
|
|
|
|||
Payments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other adjustments |
|
|
|
|
|
|
|
|
||||
Balance at March 31, 2026 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
NOTE 12 – LONG-TERM DEBT
On July 27, 2021, the Company amended and extended its existing credit facility (as amended, the Second Amended and Restated Credit Agreement), which provided for a
On October 4, 2024, the Company amended and restated the Second Amended and Restated Credit Agreement (as amended and restated, the Third Amended and Restated Credit Agreement) which provides for a
In connection with the Third Amended and Restated Credit Agreement, the Company paid off the outstanding balance of $
F-24
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
outstanding balance of $
At the Company's 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
Commitment fees will accrue on the daily unused amount of the credit facility. For the period from the delivery of the Company's financial statements for the quarter ended December 31, 2025, until the Company has delivered financial statements for the quarter ended March 31, 2026, the commitment fee will be
The loans and other obligations under the credit facility are (a) guaranteed by each of the Company's wholly-owned material domestic restricted subsidiaries, subject to certain exceptions, and (b) are secured by substantially all of the assets of the Company and the subsidiary guarantors, including a pledge of all the capital stock of material subsidiaries held directly by the Company and the subsidiary guarantors, subject to certain customary exceptions and limitations. The Third Amended and Restated Credit Agreement generally prohibits any other liens on the assets of the Company and its restricted subsidiaries, subject to certain exceptions as described in the Third Amended and Restated Credit Agreement.
The Third Amended and Restated Credit Agreement contains certain covenants applicable to the Company and its restricted subsidiaries, including, without limitation, limitations on additional indebtedness, liens, various fundamental changes, dividends and distributions, investments (including acquisitions), transactions with affiliates, asset sales, including sale-leaseback transactions, speculative hedge agreements, payment of junior financing, changes in business and other limitations customary in senior secured credit facilities.
The Third Amended and Restated Credit Agreement requires the Company to maintain a certain consolidated net leverage ratio. The Company's consolidated net leverage ratio is the ratio of its Consolidated Total Debt minus the lesser of unrestricted cash and
The Third Amended and Restated Credit Agreement provides that events of default will exist in certain circumstances, including failure to make payment of principal or interest on the loans when required, failure to perform certain obligations under the Third Amended and Restated Credit Agreement and related documents, defaults under certain other indebtedness, certain insolvency events, certain events arising under ERISA, a change of control and certain other events.
The Company had unamortized capitalized debt issuance costs, net of $
F-25
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
NOTE 13 – NET INCOME (LOSS) PER SHARE
Calculations of the basic and diluted net income (loss) per share and potential common shares are as follows (in thousands, except for per share data):
|
|
Fiscal Years Ended March 31, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Numerator: |
|
|
|
|
|
|
|
|
|
|||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|||
Denominator for basic net income (loss) per share - weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|||
Dilutive common equivalent shares: |
|
|
|
|
|
|
|
|
|
|||
Weighted average restricted stock units and performance-based restricted stock units |
|
|
|
|
|
|
|
|
|
|||
Denominator for diluted net income (loss) per share - weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|||
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|||
Basic net income (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Diluted net income (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
The following table sets forth restricted stock units excluded from the calculation of diluted net income (loss) per share, since their inclusion would be antidilutive (in thousands):
|
|
Fiscal Years Ended March 31, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|||
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic earnings per share. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding restricted shares and restricted stock units using the treasury stock method. The calculation of the dilutive effect of outstanding equity awards under the treasury stock method includes consideration of proceeds from the assumed exercise of unrecognized compensation expense as additional proceeds. As the Company incurred a net loss for the fiscal years ended March 31, 2025 and 2024, all outstanding restricted stock units and performance-based restricted stock units have an anti-dilutive effect and are therefore excluded from the computation of diluted weighted average shares outstanding.
NOTE 14 – TREASURY STOCK
On October 24, 2017, the Company's Board of Directors approved a share repurchase program that enabled the Company to repurchase up to
On May 3, 2022, the Company's Board of Directors approved an additional share repurchase program that enables the Company to repurchase up to
F-26
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
respectively. At March 31, 2026, approximately
In connection with the delivery of shares of the Company's common stock upon vesting of restricted stock units, the Company withheld approximately
NOTE 15 – STOCK PLANS
2011 Employee Stock Purchase Plan
The Company maintains the 2011 Employee Stock Purchase Plan (the ESPP), under which eligible employees may purchase shares of the Company's common stock through regular payroll deductions of up to
2019 Equity Incentive Plan
The Company maintains the 2019 Equity Incentive Plan (2019 Plan), which replaced the Company's 2007 Equity Incentive Plan, as amended. The 2019 Plan permits the granting of incentive and nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and other stock awards, collectively referred to as "share-based awards."
The 2019 Plan has been amended several times, including most recently on September 10, 2025, when the Company's stockholders approved an amendment and restatement to the 2019 Plan to further increase the number of shares reserved for issuance by
The aggregate number of shares available for issuance under the 2019 Plan will increase for any shares (each a "Returning Share"): (i) subject to an award granted under the 2019 Plan that are not issued because such award expires or otherwise terminates without all of the shares covered by such award having been issued; (ii) subject to an award under the 2019 Plan that are not issued because such award is settled in cash; (iii) issued pursuant to an award granted under the 2019 Plan that are forfeited back to or repurchased by the Company because of failure to vest; and (iv) that are reacquired or withheld by the Company to satisfy tax withholding obligations in connection with common stock issued pursuant to a Full Value Award (as defined below) granted under the 2019 Plan. The amount of such increase will be (i)
Based on historical experience, the Company assumed an annualized forfeiture rate of
F-27
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Periodically, the Company grants share-based awards to employees, officers, and directors of the Company and its subsidiaries. Additionally, the Company periodically grants performance-based restricted stock units to certain executive officers that vest based upon the Company's total shareholder return as compared to the Russell 2000 Index over a
The following is a summary of share-based compensation expense including restricted stock units and performance-based restricted stock units granted pursuant to the Company's 2019 Plan, and employee stock purchases made under the ESPP, based on estimated fair values within the applicable cost and expense lines identified below (in thousands):
|
|
Fiscal Years Ended March 31, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Cost of product revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Cost of service revenue |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
|
|
|
|
|
|
|
|||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|||
General and administrative |
|
|
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Transactions under the 2019 Plan during the fiscal years ended March 31, 2026, 2025 and 2024 are summarized in the table below.
|
|
Restricted Stock Units |
|
|||||
|
|
Number of |
|
|
Weighted |
|
||
Outstanding – March 31, 2024 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Canceled |
|
|
( |
) |
|
|
|
|
Outstanding – March 31, 2025 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Canceled |
|
|
( |
) |
|
|
|
|
Outstanding – March 31, 2026 |
|
|
|
|
$ |
|
||
At March 31, 2026, there were
The aggregate intrinsic value of stock options exercised, and the fair value of restricted stock units vested at March 31, 2026, 2025 and 2024 were as follows (in thousands):
|
|
Fiscal Years Ended March 31, |
|
|||||||||
|
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Total fair value of restricted stock unit awards vested |
|
$ |
|
|
$ |
|
|
$ |
|
|||
At March 31, 2026, the total unrecognized compensation cost related to restricted stock unit awards was $
F-28
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
NOTE 16 – PENSION BENEFIT PLANS
401(k) Plan
The Company has a defined contribution program for certain employees that is qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. The Company matches
Defined Benefit Pension Plan
Certain of the Company's non-U.S. employees participate in certain noncontributory defined benefit pension plans.
The Company recognizes on its balance sheet a liability equal to the under-funded benefit obligation of its defined benefit pension plan. Actuarial gains or losses are not recognized as components of net periodic benefit cost, but are recognized, net of tax, as a component of other comprehensive income (loss).
The following sets forth the amounts included in accumulated other comprehensive income (loss) at March 31, 2026 and 2025 (in thousands):
|
March 31, |
|
|||||
|
2026 |
|
|
2025 |
|
||
Unrecognized actuarial net gain |
$ |
|
|
$ |
|
||
For fiscal year 2026 and 2025, the unrecognized net actuarial gains exceeded
The following sets forth the change in accumulated other comprehensive income (loss) during the fiscal years ended March 31, 2026 and 2025 (in thousands):
|
March 31, |
|
|||||
|
2026 |
|
|
2025 |
|
||
Unrecognized actuarial gain |
$ |
( |
) |
|
$ |
( |
) |
Amortization of net actuarial gain |
|
|
|
|
|
||
Change in accumulated other comprehensive income (loss) |
$ |
( |
) |
|
$ |
( |
) |
The following sets forth the components of the Company's net periodic pension cost of the noncontributory defined benefit pension plans for the fiscal years ended March 31, 2026, 2025, and 2024 (in thousands):
|
Fiscal Years Ended March 31, |
|
|||||||||
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Service cost |
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
||||
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net periodic pension cost |
$ |
|
|
$ |
|
|
$ |
|
|||
F-29
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
The components of the change in benefit obligation of the pension plan at March 31, 2026 and 2025 are as follows (in thousands):
|
March 31, |
|
|||||
|
2026 |
|
|
2025 |
|
||
Benefit obligation, at beginning of year |
$ |
|
|
$ |
|
||
Service cost |
|
|
|
|
|
||
Interest cost |
|
|
|
|
|
||
Benefits paid and other |
|
( |
) |
|
|
( |
) |
Actuarial gain |
|
( |
) |
|
|
( |
) |
Foreign exchange rate impact |
|
|
|
|
( |
) |
|
Benefit obligation, at end of year |
$ |
|
|
$ |
|
||
The Company's benefit obligation of the pension plan is reported in the following components of the Company's consolidated balance sheet at March 31, 2026 and 2025:
|
March 31, |
|
|||||
|
2026 |
|
|
2025 |
|
||
Accrued compensation |
$ |
|
|
$ |
|
||
Accrued long-term retirement benefits |
|
|
|
|
|
||
Benefit obligation, at end of year |
$ |
|
|
$ |
|
||
The reconciliation of the beginning and ending balances of the fair value of the assets of the pension plan at March 31, 2026 and 2025 are as follows (in thousands):
|
March 31, |
|
|||||
|
2026 |
|
|
2025 |
|
||
Fair value to plan assets, at beginning of year |
$ |
|
|
$ |
|
||
Employer direct benefit payments |
|
|
|
|
|
||
Benefits paid and other |
|
( |
) |
|
|
( |
) |
Fair value of plan assets, at end of year |
$ |
|
|
$ |
|
||
Weighted average assumptions used to determine net periodic pension cost at date of measurement:
|
March 31, |
|
|||||||||
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Discount rate |
|
% |
|
|
% |
|
|
% |
|||
Rate of compensation increase |
|
% |
|
|
% |
|
|
% |
|||
During the fiscal year ended March 31, 2026, the Company contributed $
2027 |
$ |
|
|
2028 |
$ |
|
|
2029 |
$ |
|
|
2030 |
$ |
|
|
2031 |
$ |
|
|
2032-2036 |
$ |
|
NOTE 17 – INCOME TAXES
Income before income tax expense consisted of the following (in thousands):
F-30
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
|
Fiscal Years Ended March 31, |
|
|||||||||
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Domestic |
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Foreign |
|
|
|
|
|
|
|
|
|||
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
The components of the income tax expense are as follows (in thousands):
|
Fiscal Years Ended March 31, |
|
|||||||||
|
2026 |
|
|
2025 |
|
|
2024 |
|
|||
Current income tax expense: |
|
|
|
|
|
|
|
|
|||
Federal |
$ |
|
|
$ |
|
|
$ |
|
|||
State |
|
|
|
|
|
|
|
|
|||
Foreign |
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
Deferred income tax benefit: |
|
|
|
|
|
|
|
|
|||
Federal |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
State |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The reconciliation of the income taxes at the federal statutory rate to the reported rate of income taxes pursuant to the disclosure requirements of ASU 2023-09 for the fiscal year ended March 31, 2026 is as follows:
|
Fiscal Years Ended March 31, |
|
|||||
|
2026 |
|
|||||
|
Amount |
|
|
Percent |
|
||
U.S. federal statutory tax rate |
$ |
|
|
|
% |
||
*State and local income tax, net of federal income tax effect |
|
|
|
|
|
||
Foreign tax effects |
|
|
|
|
|
||
United Kingdom |
|
|
|
|
|
||
Withholding taxes |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Other foreign jurisdictions |
|
|
|
|
|
||
Effect of cross-border tax laws |
|
|
|
|
|
||
Foreign-derived intangible income |
|
( |
) |
|
|
( |
) |
Foreign branch income |
|
|
|
|
|
||
Withholding taxes |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Tax credits |
|
|
|
|
|
||
Research and development tax credits |
|
( |
) |
|
|
( |
) |
Foreign tax credits |
|
( |
) |
|
|
( |
) |
Changes in valuation allowance |
|
|
|
|
|
||
Nontaxable or nondeductible items |
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Changes in unrecognized tax benefits |
|
|
|
|
|
||
Effective tax rate |
$ |
|
|
|
% |
||
* State taxes in Illinois and New Jersey made up the majority (greater than 50%) of the tax effect in this category. |
|
|
|
|
|
||
F-31
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
|
Fiscal Years Ended March 31, |
|
|||||
|
2025 |
|
|
2024 |
|
||
Statutory U.S. federal tax rate |
|
% |
|
|
% |
||
State taxes, net of federal tax effect |
|
( |
) |
|
|
( |
) |
U.S. federal and state research and development tax credits |
|
|
|
|
|
||
Effect of foreign operations |
|
( |
) |
|
|
|
|
Meals and entertainment |
|
( |
) |
|
|
( |
) |
Changes in valuation allowance |
|
( |
) |
|
|
( |
) |
Goodwill impairment |
|
( |
) |
|
|
( |
) |
Share-based compensation |
|
( |
) |
|
|
( |
) |
Divestiture |
|
|
|
|
( |
) |
|
Global intangible low taxed income |
|
|
|
|
( |
) |
|
Foreign derived intangible income |
|
|
|
|
|
||
Foreign withholdings |
|
( |
) |
|
|
( |
) |
Other permanent differences |
|
|
|
|
( |
) |
|
|
|
( |
)% |
|
|
( |
)% |
The components of net deferred tax assets and liabilities are as follows (in thousands):
|
Fiscal Years Ended March 31, |
|
|||||
|
2026 |
|
|
2025 |
|
||
Deferred tax assets: |
|
|
|
|
|
||
Accrued expenses |
$ |
|
|
$ |
|
||
Capitalized research and development expenses |
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
||
Reserves |
|
|
|
|
|
||
Pension and other retiree benefits |
|
|
|
|
|
||
Net operating loss carryforwards |
|
|
|
|
|
||
Tax credit carryforwards |
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
||
Lease liabilities |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Total gross deferred tax assets |
|
|
|
|
|
||
Valuation allowance |
|
( |
) |
|
|
( |
) |
Net deferred tax assets |
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
||
Intangible assets |
|
( |
) |
|
|
( |
) |
Right-of-use assets |
|
( |
) |
|
|
( |
) |
Depreciation |
|
( |
) |
|
|
( |
) |
Other deferred tax liabilities |
|
( |
) |
|
|
( |
) |
Total deferred tax liabilities |
$ |
|
|
$ |
|
||
A reconciliation of income taxes paid, net of refunds received, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended March 31, 2026 is as follows:
F-32
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
|
Fiscal Year Ended March 31, |
|
|
|
2026 |
|
|
U.S. Federal |
$ |
|
|
U.S. State |
|
|
|
Foreign |
|
|
|
United Kingdom |
|
|
|
Other foreign jurisdictions |
|
|
|
Total |
$ |
|
|
Deferred tax assets and liabilities are recognized based on the anticipated future tax consequences, attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company evaluates the recoverability of deferred tax assets by considering all positive and negative evidence. The Company weighs objective and verifiable evidence more heavily in this analysis. In situations where the Company concludes that it does not have sufficient objective and verifiable evidence to support the realizability of the asset it creates a valuation allowance against it. As a result, the Company established a valuation allowance of $
At March 31, 2026, the Company had state net operating loss carry forwards of $
The Company files U.S. federal tax returns and files returns in various state, local and foreign jurisdictions. With respect to the U.S. federal and primary jurisdictions, the Company is no longer subject to examinations by tax authorities for tax years before 2019, although carryforward attributes that were generated prior to 2019 may still be adjusted upon examination if they either have been or will be used in a future period. The Company also receives inquiries from various tax jurisdictions during the year, and some of those inquiries may include an audit of tax returns previously filed. In the normal course of business, NetScout and its subsidiaries are examined by various taxing authorities, including the IRS in the United States.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, for the fiscal years ended March 31, 2026, 2025 and 2024 is as follows (in thousands):
|
Fiscal Years Ended March 31, |
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2026 |
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2025 |
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2024 |
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|||
Balance at April 1, |
$ |
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|
$ |
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$ |
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|||
Additions based on tax positions related to the current year |
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Release of tax positions of prior years |
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|
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( |
) |
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||
Balance at March 31, |
$ |
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|
$ |
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|
$ |
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The Company includes interest and penalties accrued in the consolidated financial statements as a component of the tax provision. The interest and penalties are immaterial to the provision. Over the next twelve months, previously unrecognized tax benefits primarily due to the lapse of statute of limitations will be immaterial.
F-33
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
The Company continues to assert that certain historical book over tax outside basis differences primarily related to unremitted foreign earnings are permanently reinvested. The Company's intent is to only make distributions from its foreign subsidiaries in the future when they can be made at no or an immaterial net tax cost. Unremitted foreign earnings total approximately $
In 2021, the Organization for Economic Co-operation and Development announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%. Subsequently multiple sets of administrative guidance have been issued, including the release of a comprehensive Side-by-Side Package announced by the OECD in January 2026. Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future years. Considering the Company does not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, these rules are not expected to materially increase its global tax costs. There remains uncertainty as to the final Pillar Two model rules and the Company continues to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions it operates in.
On July 4, 2025, the One Big Beautiful Bill Act was signed into law, making permanent certain expiring provisions of the Tax Cuts and Jobs Act, including 100% accelerated depreciation deductions on qualified property and immediate expensing of domestic research and development costs, as well as modifying some of the international tax rules. These changes have not had a material impact on the Company’s income tax provision for the year ended March 31, 2026.
NOTE 18 – LEASES
The Company determines if an arrangement is a lease at inception. Right-of-use (ROU) assets represent the Company's right to use an underlying asset for the duration of the lease term. Lease liabilities represent the Company's contractual obligation to make lease payments over the lease term. The Company's policy is to combine lease and non-lease components and to not recognize ROU assets and lease liabilities for short-term leases. Leases with an initial term of twelve months or less are classified as short-term leases. ROU assets are recorded and recognized at commencement for the lease liability amount, plus initial direct costs incurred less lease incentives received. Lease liabilities are recorded at the present value of future lease payments over the lease term at commencement. The discount rate used is generally the Company's estimated incremental borrowing rate unless the lessor's implicit rate is readily determinable. Incremental borrowing rates are calculated periodically to estimate the rate the Company would pay to borrow the funds necessary to obtain an asset of similar value over a similar term. Lease expenses relating to operating leases are recognized on a straight-line basis over the lease term.
The Company has operating leases for administrative, research and development, sales and marketing and manufacturing facilities and equipment under various non-cancelable lease agreements. The Company's leases have remaining lease terms ranging from
The Company has asset retirement obligations (ARO) to return certain leased facilities to their original condition at the end of the respective lease term. The estimated fair value of these ARO liabilities is recognized in the period in which the liability is generated and a corresponding increase to the carrying value of the related asset is recorded and depreciated over the useful life of the asset. The Company's estimates of its ultimate AROs could change because of changes in regulations, the extent of environmental remediations required, the means of reclamation, cost estimates, exit or disposal activities or time period estimates. ARO liabilities totaled $
F-34
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
sheets for the fiscal year ended March 31, 2025. Accretion expense related to these liabilities was not material for any periods presented.
Most of the Company's lease agreements contain variable payments, primarily for common area maintenance, which are expensed as incurred and not included in the measurement of the ROU assets and lease liabilities.
The components of operating lease cost for the fiscal years ended March 31, 2026 and 2025 were as follows (in thousands):
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|
Fiscal Years Ended March 31, |
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|||||
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2026 |
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2025 |
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Lease cost under long-term operating leases |
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$ |
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$ |
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Lease cost under short-term operating leases |
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Variable lease cost under short-term and long-term operating leases |
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Total operating lease cost |
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$ |
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$ |
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||
The table below presents supplemental cash flow information related to leases during the fiscal years ended March 31, 2026 and 2025 (in thousands):
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Fiscal Years Ended March 31, |
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2026 |
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2025 |
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Right-of-use assets obtained in exchange for new operating lease liabilities |
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$ |
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$ |
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||
At March 31, 2026 and 2025, the weighted average remaining lease term in years and weighted average discount rate were as follows:
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March 31, 2026 |
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March 31, 2025 |
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Weighted average remaining lease term in years - operating leases |
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Weighted average discount rate - operating leases |
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% |
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% |
||
Future minimum payments under non-cancellable leases at March 31, 2026 are as follows (in thousands):
Fiscal Years Ended March 31, |
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2027 |
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$ |
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2028 |
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2029 |
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2030 |
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2031 |
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Thereafter |
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Total lease payments |
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$ |
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|
Less imputed interest |
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( |
) |
Present value of lease liabilities |
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$ |
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|
NOTE 19 – COMMITMENTS AND CONTINGENCIES
Legal
From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, none of the Company’s current legal proceedings and claims, if determined adversely and based on the information known to the management as of the date of this Annual Report, is expected to have a material adverse effect on the Company's financial condition, results of operations or cash flows.
F-35
Table of Contents
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Unconditional Purchase Obligations
At March 31, 2026, the Company had unconditional purchase obligations of $
NOTE 20 – SEGMENT AND GEOGRAPHIC INFORMATION
The Company's operating segments are determined based on the units that constitute a business for which discrete financial information is available and for which operating results are regularly reviewed by the CODM. The Company's is the CODM.
The Company has determined it operates as a single operating segment and has
Geographic Information
The Company manages its business in the following geographic areas: United States, Europe, Asia and the rest of the world. The Company's policies mandate compliance with economic sanctions and export controls.
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Fiscal Years Ended March 31, |
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2026 |
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2025 |
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2024 |
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United States |
|
$ |
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$ |
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$ |
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|||
Europe |
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Asia |
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Rest of the world |
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$ |
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$ |
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$ |
|
|||
The United States revenue includes sales to resellers in the United States. These resellers fulfill customer orders and may subsequently ship the Company's products to international locations. Further, the Company determines the geography of its sales after considering where the contract originated. A majority of revenue attributable to locations outside of the United States is a result of export sales. Substantially all of the Company's identifiable assets are located in the United States.
NOTE 21 – SUBSEQUENT EVENT
On May 1, 2026, the Company acquired the assets of DigiCert, Inc.’s DDoS protection business, for cash consideration of $
F-36
Table of Contents
NetScout Systems, Inc.
Schedule II—Valuation and Qualifying Accounts
(in thousands)
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Balance at |
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Additions |
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Recoveries to |
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Deductions |
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Balance at |
|
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Fiscal year ended March 31, 2024 |
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|||||
Allowance for credit loss |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Deferred tax asset valuation allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Fiscal year ended March 31, 2025 |
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|||||
Allowance for credit loss |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Deferred tax asset valuation allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Fiscal year ended March 31, 2026 |
|
|
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|
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|
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|
|||||
Allowance for credit loss |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Deferred tax asset valuation allowance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
S-1