What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-05-16 compared with 2022-05-19 · 129 added, 127 removed, 301 unchanged (46% of the section changed)

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See the section titled "Cautionary Statement Concerning Forward-Looking Statements" that appears at the beginning of this Annual Report.

We are an industry leader with over three decades of experience in providing service assurance and cybersecurity solutions that are used by customers worldwide to protect their digital business services against disruption.

We are an industry leader with over three decades of experience in providing service assurance and cybersecurity solutions that are based on our pioneering deep packet inspection technology at scale, which is used by many fortune 500 companies to protect their digital business services against disruption.

Service providers and enterprises, including local, state and federal government agencies, rely on our solutions to achieve the visibility and protection necessary to optimize network performance, ensure the delivery of high-quality, mission-critical applications and services, gain timely insight into the end user experience and protect their networks from attack.

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The United States and other countries have imposed sanctions on Russia that could impact our future revenue streams.

These events have not had a material impact on our fiscal year 2022 financial statements.

These events did not have a material impact on our financial statements for the fiscal year ended March 31, 2023.

We will continue to monitor the impact of these events on all aspects of our business.

COVID-19 Impact

In March 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide.

The pandemic and these containment and mitigation measures have led to adverse impacts on the U.S.

and global economies.

While we have begun the process of reopening at some of our facilities, we remain focused on protecting the health and well-being of our employees and continue to support work from home flexibility where necessary and feasible.

The extent of further impact of the COVID-19 pandemic on our operational and financial performance will depend on certain developments, including the duration of the pandemic, its impact on our customers and suppliers and the range of governmental and community reactions to the pandemic, which continue to evolve and cannot be fully predicted at this time.

We will continue to proactively respond to the situation and may take further actions that could alter our business operations if required by governmental authorities, or that we determine are in the best interests of our stakeholders.

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it has impacted and could continue to impact our customers, employees, supply chain, and distribution network.

During fiscal year 2021, the COVID-19 pandemic and resulting challenging macro-economic environment caused elongated purchasing cycles that impacted our revenue.

However, the revenue impact in fiscal year 2021 was offset by a reduction in our operating expenses as a result of our cost control measures and COVID-19 related restrictions on travel and events.

For fiscal year 2022, as people in the world began to get immunized and started to adapt to a "new normal", we observed that technology and project spending resumed and we focused on advancing our products, growing revenue, enhancing earnings per share, and generating free cash flow.

We believe our current cash reserves and access to capital through our revolving credit facility leaves us well-positioned to manage our business as the pandemic continues and as a recovery slowly occurs.

We expect net cash provided by operations

combined with cash, cash equivalents and marketable securities and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months.

We continue to take actions to manage costs and increase productivity throughout our company but will invest in areas that advance our business for the future, as necessary.

In addition to our cash equivalents, based on covenant levels, we had as of March 31, 2022 an incremental $450 million available to us under our revolving credit facility.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) was enacted.

The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

We have elected to defer the employer-paid portion of social security taxes.

As of March 31, 2022, we had deferred $4.5 million of employer payroll taxes which is required to be deposited by December 2022.

Global and Macroeconomic Conditions

We continue to closely monitor current global and macroeconomic conditions, including the impact of the war in Ukraine, global geopolitical tension, stock market volatility, exchange rate fluctuations, rising inflation and interest rates, and the risk of a recession, including the manner and extent to which they have impacted and could continue to impact our customers, employees, supply chain, and distribution network.

The impacts of these global and macroeconomic conditions remain uncertain.

For the fiscal year ended March 31, 2023, we observed that technology and project spending resumed and we focused on advancing our products, growing revenue, enhancing earnings per share, and generating free cash flow.

Though we continue to monitor these impacts, 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 and marketable securities and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months.

We continue to take actions to manage costs and increase productivity throughout our company but will invest in areas that advance our business for the future.

In addition to our cash equivalents, based on covenant levels at March 31, 2023, we had, as of March 31, 2023, an incremental $700 million available to us under our revolving credit facility.

Results Overview

Total revenue increased for the fiscal year ended March 31, 2022 as compared to total revenue for the fiscal year ended March 31, 2021 primarily due to an increase in revenue from the product portion of our network performance management offerings from enterprise customers, and an increase in revenue from the service portion from our DDoS offerings.

Our gross profit percentage increased by two percentage points to 75% during the fiscal year ended March 31, 2022 as compared with the fiscal year ended March 31, 2021.

Total revenue increased $59.0 million for the fiscal year ended March 31, 2023 as compared to total revenue for the fiscal year ended March 31, 2022.

Although both our service assurance and cybersecurity businesses contributed to the growth, it was

primarily driven by an increase in service assurance radio frequency propagation modeling projects for Tier 1 North American service provider customers, which was partially offset by a decrease in revenue from other service assurance offerings.

Our gross profit percentage increased by one percentage point to 76% during the fiscal year ended March 31, 2023 as compared with the fiscal year ended March 31, 2022.

Net income for the fiscal year ended March 31, 2023 was $59.6 million, as compared with income for the fiscal year ended March 31, 2022 of $35.9 million, an increase of $23.7 million.

The increase in net income was primarily due to a $24.3 million increase in revenue, a $7.2 million decrease in amortization of intangible assets, a $5.3 million decrease in foreign exchange expense, a $2.8 million decrease in interest expense, a $2.4 million decrease in expenses related to trade shows, user conferences and other events, a $2.3 million decrease in depreciation expense, a $1.9 million decrease in cost of materials used to support customers under service contracts, and a $1.9 million decrease in costs to deliver radio frequency propagation modeling projects.

These increases in net income were partially offset by an $8.0 million increase in commissions expense, a $6.5 million increase in contractor fees, a $4.6 million increase in advertising and other marketing related costs, a $4.1 million increase in income tax expense, a $3.4 million increase in legal-related expenses and penalties, a $3.0 million increase in travel expenses attributable to the lifting of some COVID-19 related restrictions, a $2.4 million increase in obsolescence charges, and a $2.4 million increase in the provision for allowance in credit losses.

The increase in net income was primarily due to a $59.0 million increase in revenue, an $8.5 million decrease in amortization of intangible assets, a $5.6 million decrease in commissions expense, a $4.6 million decrease in direct material costs, a $4.6 million increase in interest income, a $2.8 million decrease in inventory obsolescence charges, a $1.5 million decrease in depreciation expense, a $1.2 million decrease in advertising expense, a $1.2 million decrease in the provision for allowance in credit losses, and a $1.0 million decrease in legal-related expenses.

These increases to net income were partially offset by a $16.4 million increase in costs to deliver radio frequency propagation modeling projects, a $12.1 million increase in expenses related to trade shows, user conferences and other events, a $9.4 million increase in travel expense attributable to the lifting of COVID-19 related restrictions, an $8.3 million increase in employee-related expenses, a $3.0 million increase in other marketing related expenses, a $2.6 million increase in foreign exchange expense, a $2.2 million increase in interest expense, a $1.8 million increase in restructuring expense, a $1.7 million increase from income tax expense, a $1.4 million increase from the change in fair value of a derivative instrument, and a $1.1 million increase in business tax expenses.

At March 31, 2023, we had cash, cash equivalents, and marketable securities (current and non-current) of $427.9 million.

This represents an increase of $226.7 million compared to the fiscal year ended March 31, 2021.

This increase was primarily due to $296.0 million in cash provided by operations during the fiscal year ended March 31, 2022.

During the fiscal year ended March 31, 2022, we collected $0.8 million of contingent consideration which represented earnout payments that were contingent upon achieving certain milestones related to the divestiture of our handheld network test (HNT) tools business in September 2018.

These increases were partially offset by $35.7 million used in treasury stock repurchases, $15.7 million used for tax withholdings on restricted stock units, $10.4 million used for capital expenditures, and $3.7 million used for the payment of debt issuance costs during the fiscal year ended March 31, 2022.

This represents a decrease of $275.3 million compared to the fiscal year ended March 31, 2022.

This decrease was primarily due to $250.0 million used to repay long-term debt, $150.0 million used in treasury stock repurchases under an ASR program, $19.4 million used for tax withholdings on restricted stock units, and $10.5 million used for capital expenditures.

These decreases were partially offset by $156.7 million of net cash provided by operations during the fiscal year ended March 31, 2023.

Use of Non-GAAP Financial Measures

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Non-GAAP revenue eliminates the GAAP effects of acquisitions by adding back revenue related to deferred revenue revaluation.

Non-GAAP gross profit includes the aforementioned revenue adjustments and also removes expenses related to the amortization of acquired intangible assets, share-based compensation, and acquisition-related depreciation.

Non-GAAP income from operations includes the aforementioned adjustments and also removes business development and integration expense, new standard implementation expense, compensation for post-combination services, legal expenses related to a civil judgment, restructuring charges, and transitional service agreement expenses.

Non-GAAP net income includes the foregoing adjustments related to non-GAAP income from operations, and also removes loss on extinguishment of debt and change in fair value of contingent consideration, net of related income tax effects.

Non-GAAP EBITDA from operations includes the aforementioned items related to non-GAAP income from operations and also removes non-acquisition related depreciation expense.

These non-GAAP measures are not in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP (revenue, gross profit, operating margin, net income (loss) and diluted net income (loss) per share), and may have limitations because they do not reflect all our results of operations as determined in accordance with GAAP.

Non-GAAP gross profit removes the aforementioned revenue adjustments and also removes expenses related to the amortization of acquired intangible assets, share-based compensation, and acquisition-related depreciation.

Non-GAAP income from operations removes the aforementioned adjustments and also removes business development and integration expense, compensation for post-combination services, legal expenses related to a civil judgment, restructuring charges, and transitional service agreement expenses.

Non-GAAP net income removes the foregoing adjustments related to non-GAAP income from operations, and also removes loss on extinguishment of debt, change in fair value of contingent consideration, and change in the fair value of derivative instrument, net of related income tax effects.

Non-GAAP EBITDA from operations removes the aforementioned items related to non-GAAP income from operations and also removes non-acquisition related depreciation expense.

These non-GAAP measures are not in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP (revenue, gross profit, operating margin, net income and diluted net income per share), and may have limitations because they do not reflect all our results of operations as determined in accordance with GAAP.

These non-GAAP measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

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We believe that providing these non-GAAP measures affords investors 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, without the supplemental non-GAAP disclosures, might not be indicative of our core operating results.

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 revenue, gross profit, income 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, 2022, 2021 and 2020:

The following table reconciles revenue, gross profit, income from operations, net income and net income per share on a GAAP and non-GAAP basis for the fiscal years ended March 31, 2023, 2022 and 2021:

Fiscal Year Ended March 31,

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Business development and integration expense — (5) 2

New standard implementation expense — — 5

Compensation for post-combination services — 2 251

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Non-GAAP income from operations $ 206,823 $ 179,999 $ 172,793

GAAP net income (loss) $ 35,874 $ 19,352 $ (2,754)

GAAP net income $ 59,648 $ 35,874 $ 19,352

Service deferred revenue fair value adjustment — — 6

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Business development and integration expense — (5) 2

New standard implementation expense — — 5

Compensation for post-combination services — 2 251

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Change in fair value of contingent consideration — (837) —

Change in fair value of derivative instrument 1,380 — —

Legal judgments expense 476 1,100 2,804

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Non-GAAP net income $ 159,561 $ 138,388 $ 125,823

GAAP diluted net income (loss) per share $ 0.48 $ 0.26 $ (0.04)

Fiscal Year Ended March 31,

(Dollars in Thousands, Except per Share Data)

2023 2022 2021

GAAP diluted net income per share $ 0.82 $ 0.48 $ 0.26

Per share impact of non-GAAP adjustments identified above 1.36 1.36 1.44

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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 security solutions for service provider and enterprise customers, which include hardware, software, and service offerings.

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 software only offerings and offerings which include hardware appliances with embedded software that are essential to providing customers the intended functionality of the solutions.

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Revenue is recognized when control of the products or services are 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 shipment, 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.

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.

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Judgment is required to determine the SSP for each distinct performance obligation.

We use a range of amounts to estimate SSP when we sell each of the products and services separately based primarily on the performance obligation's historical pricing.

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.

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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.

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.

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We performed our annual impairment analysis for goodwill at January 31, 2023 using the qualitative (Step 0) assessment, and we concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying value.

Indefinite-lived intangible assets are tested for impairment at least annually, or on an interim basis if an event occurs or circumstances change that would, more likely than not, reduce the fair value of the indefinite-lived intangible assets below its carrying value.

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 the indefinite-lived intangible is impaired.

If based on our qualitative assessment, we conclude that it is more likely than not that the fair value of the indefinite-lived asset is less than its carrying amount, quantitative impairment testing is required.

However, if we conclude otherwise, quantitative impairment testing is not required.

We completed two acquisitions during the three-year period ended March 31, 2022.

The acquisition method of accounting requires an estimate of the fair value of the assets and liabilities acquired as part of these transactions.

In order to estimate the fair value of acquired intangible assets, we use either an income, market or cost method approach.

The contingent purchase consideration related to the two acquisitions represent amounts deposited into escrow accounts, which were established to cover damages NetScout may have suffered related to any liabilities that NetScout did not agree to assume or as a result of the breach of representations and warranties of the sellers as described in the acquisition agreements.

The contingent purchase consideration of $0.7 million related to the Gigavation Incorporated (Gigavation) acquisition was paid to the seller in February 2021.

The contingent purchase consideration of $1.0 million related to the Eastwind Networks, Inc.

(Eastwind) acquisition was paid to the seller in April 2020.

The contingent purchase consideration represents amounts deposited into escrow accounts, which were established to cover damages we may have suffered related to any liabilities that we did not agree to assume or as a result of the breach of representations and warranties of the sellers as described in the acquisition agreements.

We did not complete any acquisitions during the three years ended March 31, 2023, 2022, and 2021.

Comparison of Years Ended March 31, 2023 and 2022

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Service revenue consists of customer support agreements, consulting, training and stand-ready software as a service offerings.

During the fiscal years ended March 31, 2022 and 2021, no direct customer or indirect channel partner accounted for more than 10% of our total revenue.

During the fiscal year ended March 31, 2023, one direct customer, Verizon, accounted for more than 10% of our total revenue, while no indirect channel partners accounted for more than 10% of our total revenue.

During the fiscal year ended March 31, 2022, no direct customer or indirect channel partner accounted for more than 10% of our total revenue.

Fiscal Year Ended March 31,

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Total revenue $ 914,530 100 % $ 855,575 100 % $ 58,955 7 %

The 9%, or $32.4 million, increase in product revenue compared with the same period last year was primarily due to an increase in revenue from network performance management offerings for enterprise customers.

The 2%, or $8.1 million, decrease in service revenue compared with the same period last year was primarily driven by non-renewals associated with service provider consolidation and discontinued product lines.

The 10%, or $40.7 million, increase in product revenue compared with the same period last year was primarily due to an increase in revenue from our radio frequency propagation modeling projects from service provider customers, partially offset by a decrease in revenue from other service assurance offerings.

The 4%, or $18.3 million, increase in service revenue compared with the same period last year was primarily due to an increase in revenue from maintenance contracts.

Total revenue by geography was as follows:

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Total revenue $ 914,530 100 % $ 855,575 100 % $ 58,955 7 %

United States revenue increased 3%, or $16.9 million, primarily due to an increase in revenue from network performance management offerings for enterprise and service provider customers, as well as an increase in revenue from DDoS enterprise customers.

These increases in revenue were partially offset by a decrease in revenue from DDoS offerings for service provider customers.

International revenue increased 2%, or $7.4 million, primarily driven by higher revenue from network performance management and DDoS offerings in Europe and Asia.

United States revenue increased 16%, or $82.4 million, compared with the same period last year primarily due to an increase in revenue from service assurance offerings, including radio frequency propagation modeling projects.

International revenue decreased 7%, or $23.5 million, compared to the same period last year primarily driven by lower revenue from service assurance offerings.

Total revenue by product line was as follows:

Fiscal Year Ended March 31,

(Dollars in Thousands)

2023 2022 Change

Service assurance $ 678,709 74 % $ 622,957 73 % $ 55,752 9 %

Cybersecurity 235,821 26 232,618 27 3,203 1 %

Total revenue $ 914,530 100 % $ 855,575 100 % $ 58,955 7 %

The 9%, or $55.8 million, increase in revenue from the service assurance product line was largely due to an increase in revenue from radio frequency propagation modeling projects from service provider customers.

Cost of Revenue and Gross Profit

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Total gross profit % 76 % 75 % 1 %

The 5%, or $5.2 million, decrease in cost of product revenue for the fiscal year ended March 31, 2022 compared to the same period last year was primarily due to a $5.8 million decrease in the amortization of intangible assets, and a $1.9 million decrease in costs related to the delivery of radio frequency propagation modeling projects.

These decreases were partially offset by a $2.4 million increase in obsolescence charges.

The product gross profit percentage increased by three percentage points to 78% during the fiscal year ended March 31, 2022 as compared to the same period in the prior year.

The 13%, or $37.6 million, increase in product gross profit, corresponds with the 9%, or $32.4 million, increase in product revenue, and the 5%, or $5.2 million, decrease in cost of product revenue.

The 2%, or $2.7 million, decrease in cost of service revenue for the fiscal year ended March 31, 2022 compared to the same period last year was primarily due to a $4.2 million decrease in employee-related expenses associated with a reduction in headcount as well as a decrease associated with the timing of certain projects, and a $1.9 million decrease in cost of materials used to support customers under service contracts.

These decreases were partially offset by a $2.9 million increase in contractor fees.

The service gross profit percentage remained flat at 72% during the fiscal year ended March 31, 2022 compared to the same period in the prior year.

The 2%, or $5.4 million, decrease in service gross profit corresponds with the 2%, or $8.1 million, decrease in service revenue, partially offset by the 2%, or $2.7 million, decrease in cost of services revenue.

The 5%, or $4.1 million, increase in cost of product revenue for the fiscal year ended March 31, 2023 compared to the same period last year was primarily due to a $16.4 million increase in costs related to the delivery of radio frequency propagation modeling projects, and a $0.8 million increase in overhead costs.

These increases were partially offset by a $4.6 million decrease in direct material costs, a $4.1 million decrease in the amortization of intangible assets, a $2.8 million decrease in obsolescence charges, and a $1.2 million decrease in employee-related costs associated with the timing of certain projects.

The product gross profit percentage increased by one percentage point to 79% during the fiscal year ended March 31, 2023 as compared to the same period in the prior year.

The 11%, or $36.5 million, increase in product gross profit, corresponds with the 10%, or $40.7 million, increase in product revenue, partially offset by the 5%, or $4.1 million, increase in cost of product revenue.

The 4%, or $4.8 million, increase in cost of service revenue for the fiscal year ended March 31, 2023 compared to the same period last year was primarily due to a $3.6 million increase in employee-related expenses largely due to costs associated with the timing of certain projects as well as an increase in variable incentive compensation, a $0.7 million increase in travel expense primarily attributable to the lifting of COVID-19 restrictions, and a $0.6 million incre ase in overhead costs.

These increases were partially offset by a $0.6 million decrease i n contractor fees.

T he service gross profit percentage remained

flat at 72% during the fiscal year ended March 31, 2023 compared to the same period in the prior year.

The 4%, or $13.5 million, increase in service gross profit corresponds with the 4%, or $18.3 million, increase in service revenue, partially offset by the 4%, or $4.8 million, increase in cost of services revenue.

Gross profit.

Our gross profit increased 8%, or $50.0 million, for the fiscal year ended March 31, 2023 compared to the same period last year.

This increase is attributable to the 3%, or $24.3 million, increase in revenue, and the 4%, or $7.9 million, decrease in cost of revenue.

The gross margin percentage increased by two percentage points to 75% during the fiscal year ended March 31, 2022 compared to the same period in the prior year.

This increase is attributable to the 7%, or $59.0 million, increase in revenue, partially offset by the 4%, or $8.9 million, increase in cost of revenue.

The gross margin percentage increased by one percentage point to 76% during the fiscal year ended March 31, 2023 compared to the same period in the prior year.

Operating Expenses

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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 $8.0 million, decrease in res earch and development expenses for the fiscal year ended March 31, 2022 compared to the same period last year was primarily due to a $6.8 million decrease in employee-related expenses associated with a reduction in headcount and a decrease in variable incentive compensation, and a $1.1 million decrease in depreciation expense.

The 3%, or $5.0 million, increase in res earch and development expenses for the fiscal year ended March 31, 2023 compared to the same period last year was primarily due to a $3.8 million increase in employee-related costs due to an increase in variable incentive compensation, a $1.2 million increase in travel expenses primarily attributable to the lifting of COVID-19 related restrictions, a $0.6 million increase in overhead costs, and a $0.5 million increase in expenses related to other events.

These increases were partially offset by a $0.8 million decrease in depreciation expense, and a $0.6 million decrease in so ftware license expense.

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 9%, or $21.5 million, increase in total sales and marketing expenses for the fiscal year ended March 31, 2022 compared to the same period last year was prima rily due to an $8.0 million increase in commissions expense, a $7.4 million increase in employee-related expenses largely due to an increase in variable incentive compensation, a $4.6 million increase in advertising and other marketing related expenses, a $2.2 million increase in travel expense primarily attributable to the lifting of COVID-19 related restrictions, a $1.4 million increase in contractor fees, and a $0.6 million in recruitment fees, partially offset by a $2.4 million decrease in expenses related to trade shows, user conferences and other events, and a $1.0 million decrease in depreciation.

The 5%, or $12.7 million, increase in total sales and marketing expenses for the fiscal year ended March 31, 2023 compared to the same period last year was prima rily due to a $12.1 million increase in expenses related to trade shows, user conferences and other events, a $6.7 million increase in travel expense primarily attributable to the lifting of COVID-19 related restrictions, a $3.0 million increase in other marketing related expenses, and a $1.3 million increas e in overhead costs.

T hese increases were partially offset by a $5.6 million decrease in commissions expense, a $2.4 million decrease in employee-related expenses largely due to a decrease in variable incentive compensation, a $1.2 million decrease in advertising expense, and a $0.8 million decreas e in contractor fees.

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 10%, or $8.7 million, increase in general and administrative expenses for the fiscal year ended March 31, 2022 compared to the same period last year was primarily due to a $3.4 million increase in legal-related expenses and penalties, a $2.7 million increase in employee-related expenses largely due to an increase in variable incentive compensation, and a $2.4 million increase in the provision for allowance in credit losses.

The 6%, or $5.8 million, increase in general and administrative expenses for the fiscal year ended March 31, 2023 compared to the same period last year was primarily due to a $2.8 million increase in employee-related costs largely due to an increase in variable incentive compensation, a $1.1 million increase in contractor fees, a $1.1 million increase in business taxes, a $0.7 million increase in travel expenses primaril y attributable to the lifting of COVID-19 related restrictions, a $0.6 million increase in rent and other facilities related expenses, and a $0.6 million incre ase in overhead costs .

These increases were partially offset by a $1.2 million decrease in the provision for allowance in credit losses, and a $1.0 million decrease in legal-related expenses.

Amortization of acquired intangible assets.

Amortization of acquired intangible assets consists primarily of amortization of customer relationships, and definite-lived trademark and tradenames related to our acquisition of Danaher Corporation's communication business (Comms Transaction) and the acquisitions of ONPATH Technologies, Inc., Simena, LLC, Psytechnics, Ltd, Network General Corporation, Avvasi Incorporated and Efflux Systems, Inc.

The 2%, or $1.4 million, decrease in amortization of acquired intangible assets compared to the fiscal year ended March 31, 2022 was prima rily due to a decrease in the amortization of intangible assets related to the Comms Transaction, partially offset by an increase in the amortization of the definite-lived trade name.

Amortization of acquired intangible assets consists primarily of amortization of customer relationships, and definite-lived trademark and tradenames related to our acquisition of Danaher Corporation's communication business (Comms Transaction) and the acquisitions of Simena, LLC, Network General Corporation, Avvasi Incorporated and Efflux Systems, Inc.

The 7%, or $4.4 million, decrease in amortization of acquired intangible assets for the fiscal year ended March 31, 2023 compared to the fiscal year ended March 31, 2022 was p rimarily due to a decrease in the amortization of intangible assets related to the Comms Transaction.

Restructuring charges.

During the fiscal year ended March 31, 2023, we restructured certain departments to better align functions.

As a result of the restructuring program, we recorded $1.9 million of restructuring charges related to one-time employee-related termination benefits for the employees that were notified of their termination during the period.

The one-time termination benefits were paid in full during the fiscal year ended March 31, 2023.

Interest and Other Expense, Net

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Interest and other expense, net $ (9,249) (1) % $ (5,742) (1) % $ (3,507) (61) %

The 61%, or $9.1 million, dec rease in interest and other expense, net was primarily due to a $5.3 million decrease in foreign exchange expense, a $2.8 million decrease in interest expense due to debt repayments on the credit facility as well as a decrease in the average interest rate partially offset by a loss on the extinguishment of debt, and a $0.6 million increase in transitional services agreement income related to the HNT tools business divestiture.

The 61%, or $3.5 million, change in interest and other expense, net was primarily due to a $2.6 million increase in foreign exchange expense, and a $2.2 million increase in interest expense on the credit facility due to an increase in the average interest rate during the fiscal year ended March 31, 2023 when compared to the fiscal year ended March 31, 2022, partially offset by a loss on the extinguishment of debt recorded during the fiscal year ended March 31, 2022, a $1.4 million decrease from the change in fair value of a derivative instrument, a $0.8 million decrease in transitional services agreement income related to the divestiture of the Company's handheld network test (HNT) tools business in September 2018, and a $0.8 million increase from the change in fair value of contingent consideration.

These changes in interest and other expense, net were partially offset by a $4.6 million increase in interest income.

Income Tax Expense

The annual effective tax rate for fiscal year 2022 was 16.4%, compared to an annual effective tax rate of 13.2% for fiscal year 2021.

Generally, the effective tax rate differs from the U.S.

federal statutory income tax rate primarily due to state income taxes, foreign withholding taxes, and earnings in jurisdictions subject to tax rates higher than the U.S.

federal statutory income tax rate, partially offset by the tax benefit associated with foreign derived intangible income deduction, foreign tax credits, and research and development tax credits.

The effective tax rate for the twelve months ended March 31, 2022 is higher than the effective rate for the twelve months ended March 31, 2021, primarily due to a significant increase in pre-tax income as compared to the prior year.

The annual effective tax rate for the fiscal year ended March 31, 2023 was 12.8%, compared to an annual effective tax rate of 16.4% for the fiscal year ended March 31, 2022.

The effective tax rate for the fiscal year ended March 31, 2023 is lower than the effective rate for the fiscal year ended March 31, 2022, primarily due to a significant increase in the foreign derived intangible income and stock-based compensation deductions as compared to the prior year.

Fiscal Year Ended March 31,

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In October 2017, a jury trial was held to address the parties' claims and counterclaims regarding infringement of three patents by the G10 and GeoBlade products, invalidity of these patents, and damages.

The jury rendered a verdict finding in favor of the Plaintiff and that Plaintiff was entitled to $3,500,000 for pre-suit damages and $2,250,000 for post-suit damages.

In October 2017, the jury rendered a verdict finding in favor of the Plaintiff and that Plaintiff was entitled to $3.5 million for pre-suit damages and $2.3 million for post-suit damages.

The jury indicated that the awarded damages amounts were intended to reflect a running royalty.

In September 2018, the Court entered judgment and

"enhanced" the jury verdict in the amount of $2.8 million as a result of a jury finding.

In September 2018, the Court entered judgment and "enhanced" the jury verdict in the amount of $2.8 million as a result of a jury finding.

The judgment also awarded pre- and post-judgment interest, and a running royalty on the G10 and GeoBlade products until the expiration of the patents at issue, the last date being June 2022.

Following the entry of final judgment, NetScout appealed, and in July 2020, the Court of Appeals for the Federal Circuit (Federal Circuit) issued a decision vacating the $3,500,000 pre-suit damages award, affirming the $2,250,000 post-suit damages award, and remanding to the district court to determine what, if any, enhancement should be awarded.

Following the entry of final judgment, NetScout appealed, and in July 2020, the Court of Appeals for the Federal Circuit (Federal Circuit) issued a decision vacating the $3.5 million pre-suit damages award, affirming the $2.3 million post-suit damages award, vacating the $2.8 million enhancement award, and remanding to the district court to determine what, if any, enhancement should be awarded.

In March 2021, NetScout filed a petition for a writ of certiorari to the United States Supreme Court, which was subsequently denied, challenging, among other issues, the basis for enhanced damages and the patentability of the claimed technology.

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After the PTAB decisions were issued, NetScout moved, among other things, to dismiss the case and enter judgment in its favor on the grounds that the PTAB decisions invalidating the asserted claims precluded Plaintiff from continuing to assert its patent infringement causes of action and from seeking damages from NetScout.

The District Court recently denied NetScout’s motion with respect to its request to dismiss the case and enter judgment in its favor, but in response to alternative requests for relief requested by NetScout, vacated $1.7 million of the "enhanced" jury verdict amount of $2.8 million and also lowered the ongoing royalty rate on the G10 and GeoBlade products.

The District Court denied NetScout’s motion with respect to its request to dismiss the case and enter judgment in its favor, but in response to alternative requests for relief requested by NetScout, "enhanced" the jury verdict in the amount of $1.1 million and also lowered the ongoing royalty rate on the G10 and GeoBlade products.

The District Court entered an amended final judgment awarding Plaintiff $2.3 million in post-suit damages, $1.1 million in enhanced damages, pre- and post-judgment interest, and a running royalty on the G10 and GeoBlade products until the expiration of the patents at issue, the last expiration date being June 2022.

NetScout has time remaining with respect to its right to appeal from the entry of the amended final judgment.

In view of the current circumstances, and if the post-suit and enhanced damages award along with the associated interest and royalties survives the recent PTAB invalidation decisions and any appeal NetScout may take, NetScout has concluded that the risk of loss associated with such damages award remains "probable" in accounting terms, and that the risk of loss associated with pre-suit damages is remote.

On July 20, 2022, NetScout filed a notice of appeal to the Federal Circuit from, among other things, the amended final judgment.

Enforcement of the amended judgment is stayed pending the resolution of the appeal.

In view of the current circumstances, and if the post-suit and enhanced damages award along with the associated interest and royalties survive the recent PTAB invalidation decisions and NetScout's appeal, NetScout has concluded that the risk of loss associated with such damages award remains "probable" in accounting terms, and that the risk of loss associated with pre-suit damages is remote.

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.

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At March 31, 2023, cash, cash equivalents and marketable securities (current and non-current) totaled $427.9 million.

This represents an increase of $226.7 million from $476.5 million at March 31, 2021.

This increase was primarily due to $296.0 million in cash provided by operating activities, partially offset by $35.7 million used in treasury stock repurchases, $15.7 million used for tax withholdings on restricted stock units, $10.4 million used for capital expenditures, and $3.7 million used for the payment of debt issuance costs during the fiscal year ended March 31, 2022.

This represents a decrease of $275.3 million from $703.2 million at March 31, 2022.

These decreases were partially offset by $156.7 million of net cash provided by operations during the fiscal year ended March 31, 2023.

At March 31, 2023, cash, short-term and long-term inves tments in the United States were $235.7 million, while cash held outside of the United States was approximately $192.2 million.

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Net cash provided by operating activities $ 156,650 $ 296,013

Net cash (used in) provided by investing activities $ (68,353) $ 24,698

Net cash provided by (used in) investing activities $ 15,304 $ (68,353)

Net cash used in financing activities $ (419,430) $ (54,165)

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Fiscal year 2023 compared to fiscal year 2022

Cash provided by operating activities was $296.0 million during the fiscal year ended March 31, 2022, compared to $213.9 million of cash provided by operating activities during the fiscal year ended March 31, 2021.

This $82.1 million increase was due in part to a $93.4 million increase from deferred revenue, a $32.4 million increase from accounts receivable, a $16.5 million increase from net income, an $11.1 million increase from deferred income taxes, a $5.9 million increase from accounts payable, and a $4.2 million increase from share-based compensation.

These increases were partially offset by a $29.6 million decrease from accrued compensation and other expenses, a $24.5 million decrease from prepaid expenses and other assets, a $10.0 million decrease from depreciation and amortization, a $9.8 million decrease from income taxes payable, a $6.0 million decrease from inventories, and a $1.8 million decrease from operating lease liabilities during the fiscal year ended March 31, 2022 as compared with the fiscal year ended March 31, 2021.

Net cash provided by operating activities was $156.7 million during the fiscal year ended March 31, 2023, compared to $296.0 million of net cash provided by operating activities during the fiscal year ended March 31, 2022.

This $139.3 million decrease was due in part to a $113.7 million decrease from deferred revenue, a $44.4 million decrease from accounts receivable and unbilled costs, a $41.4 million decrease from deferred income taxes, a $9.9 million decrease from depreciation and amortization, a $9.8 million decrease from accounts payable, and a $0.6 million decrease from the loss on extinguishment of debt.

These decreases were partially offset by a $23.8 million increase from the change in net income, an $18.0 million increase from prepaid expenses and other assets, a $17.0 million increase from inventories, a $9.7 million increase from accrued compensation and other expenses, a $5.9 million increase from share-based compensation, a $3.3 million increase from income taxes payable, a $1.4 million increase from the change in fair value of a derivative instrument, and a $0.8 million increase from the change in fair value of contingent consideration during the fiscal year ended March 31, 2023 as compared with the fiscal year ended March 31, 2022.

Accounts receivable days sales outstanding was 58 days at March 31, 2023 compared to 64 days at March 31, 2022.

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(Dollars in Thousands)

Cash (used in) provided by investing activities included the following:

Cash provided by (used in) investing activities included the following:

Purchase of marketable securities $ (114,513) $ (78,367)

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Purchase of intangible assets (161) (50)

(Increase) decrease in deposits (155) 88

Decrease (increase) in deposits 3 (155)

$ 15,304 $ (68,353)

Cash used in investing activities increased by $93.1 million to $68.4 million during the fiscal year ended March 31, 2022, compared to $24.7 million of cash provided by investing activities during the fiscal year ended March 31, 2021.

Net cash outflows relating to the purchase and sales of marketable securities increased $98.9 million relating to the amount of investments held at each respective balance sheet date, from an inflow of $41.1 million during the fiscal year ended March 31, 2021 to an outflow of $57.8 million during the fiscal year ended March 31, 2022.

During the fiscal year ended March 31, 2021, we entered into an agreement to acquire technology licenses for $4.5 million.

Net cash provided by investing activities increased by $83.7 million to $15.3 million during the fiscal year ended March 31, 2023, compared to $68.4 million of net cash used in investing activities during the fiscal year ended March 31, 2022.

Net cash inflows relating to the purchase and sales of marketable securities increased $83.7 million relating to the amount of investments held at each respective balance sheet date, from an outflow of $57.8 million during the fiscal year ended March 31, 2022 to an inflow of $25.9 million during the fiscal year ended March 31, 2023.

Our investments in property and equipment consist primarily of computer equipment, demonstration units, office equipment and facility improvements.

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Issuance of common stock under stock plans $ 2 $ 2

Payment of contingent consideration — (1,748)

Treasury stock repurchases (150,039) (35,653)

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$ (419,430) $ (54,165)

Cash used in financing activities decreased $64.1 million to $54.2 million during the fiscal year ended March 31, 2022, compared to $118.3 million of cash used in financing activities during the fiscal year ended March 31, 2021.

During the fiscal year ended March 31, 2021, we paid $1.7 million of contingent purchase consideration related to the Eastwind and Gigavation acquisitions.

During the fiscal years ended March 31, 2022, and 2021, we repurchased 1,330,678 shares and 154,271 shares of our common stock for $35.6 million and $3.3 million under our twenty-five million share repurchase program.

Net cash used in financing activities increased $365.3 million to $419.4 million during the fiscal year ended March 31, 2023, compared to $54.2 million of net cash used in financing activities during the fiscal year ended March 31, 2022.

During the fiscal year ended March 31, 2023, we repurchased 4,549,329 shares of our common stock under an ASR program for $150.0 million.

During the fiscal year ended March 31, 2022, we repurchased 1,330,678 shares of our common stock for $35.6 million.

Purchases during the fiscal year ended March 31, 2023 were under our twenty-five million share repurchase program (2017 Share Repurchase Program).

In connection with the delivery of common shares upon vesting of restricted stock units, we have withheld 562,360 shares for $19.4 million, and 546,053 shares for $15.7 million related to minimum statutory tax withholding requirements on these restricted stock units during the fiscal years ended March 31, 2023 and 2022, respectively.

These withholding transactions do not fall under the repurchase program described above, and therefore do not reduce the amount that is available for repurchase under that program.

During the fiscal year ended March 31, 2021, we repaid $100.0 million of borrowings under the Amended Credit Agreement, respectively.

During the fiscal year ended March 31, 2023, we repaid $250.0 million of borrowings under the Second Amended and Restated Credit Agreement.

During the fiscal year ended March 31, 2022, we paid $3.7 million in debt issuance costs related to the execution of our Second Amended and Restated Credit Agreement.

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Credit Facility

On January 16, 2018, we amended and expanded our existing credit agreement (Amended Credit Agreement), which provided for a five-year, $1.0 billion senior secured revolving credit facility, including a letter of credit sub-facility of up to $75.0 million.

The commitments under the Amended Credit Agreement were set to expire on January 16, 2023, and any outstanding loans were due on that date.

On July 27, 2021, we amended and extended the Amended Credit Agreement (Second Amended and Restated Credit Agreement) with a syndicate of lenders by and among:

On July 27, 2021, we amended and extended our existing credit facility (Second Amended and Restated Credit Agreement) with a syndicate of lenders by and among:

JPMorgan Chase Bank, N.A.

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The commitments under the Second Amended and Restated Credit Agreement will expire on July 27, 2026, and any outstanding loans will be due on that date.

In connection with the Second Amended and Restated Credit Agreement, we paid off the outstanding balance of $350 million under the Amended Credit Agreement on July 27, 2021 by borrowing the same amount under the Second Amended and Restated Credit Agreement.

In connection with the Second Amended and Restated Credit Agreement, during the fiscal year ended March 31, 2022, we paid off the outstanding balance of $350 million under the previous amended credit agreement by borrowing the same amount under the Second Amended and Restated Credit Agreement.

Additionally, we recorded a loss on the extinguishment of debt of $0.6 million, representing the write off of unamortized deferred financing costs, which was included in interest expense in the consolidated statements of operations for the fiscal year ended March 31, 2022.

On February 22, 2023, we entered into a First Amendment Agreement (First Amendment) of our Second Amended and Restated Credit Agreement with our syndicate of lenders.

We entered into the First Amendment in order to remove and replace the LIBOR-based interest rate benchmark provisions for U.S.

dollar-denominated loans with interest rate benchmark provisions for U.S.

dollar-denominated loans based on a term secured overnight financing rate (SOFR).

During the fiscal year ended March 31, 2023, we repaid $250.0 million of borrowings under the Second Amended and Restated Credit Agreement.

At March 31, 2023, $100 million was outstanding under the Second Amended and Restated Credit Agreement.

At our election, revolving loans under the Second Amended and Restated Credit Agreement bear interest at either (a) an Alternate Base Rate per annum equal to the greatest of (1) the Wall Street Journal prime rate;

(2) the New York Federal Reserve Bank (NYFRB) rate plus 0.50%, or (3) an adjusted one month LIBO rate plus 1%;

or (b) a Term Benchmark Borrowing rate (for the interest period selected by NetScout, subject to customary provisions regarding succession from LIBO rate to SOF rate in anticipation of the upcoming discontinuation of the LIBO rate), in each case plus an applicable margin.

For the period from the delivery of the Company's financial statements for the quarter ended December 31, 2021, until we have delivered financial statements for the quarter ended March 31, 2022, the applicable margin will be 1.25% per annum for Term Benchmark Revolving loans and 0.25% per annum for Alternate Base Rate loans, and thereafter the applicable margin will vary depending on our consolidated gross leverage ratio, ranging from 1.00% per annum for Alternate Base Rate loans and 2.00% per annum for Term Benchmark Revolving loans if our consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0.00% per annum for Alternate Base Rate loans and 1.00% per annum for Term Benchmark Revolving loans if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

Our consolidated gross leverage ratio is the ratio of our total funded debt compared to our consolidated EBITDA as defined in the Second Amended and Restated Credit Agreement (adjusted consolidated EBITDA).

The First Amendment provides that U.S.

dollar-denominated advances under the Second Amended and Restated Credit Agreement will bear interest at a term SOFR rate plus a credit spread adjustment of 0.10% or an Alternate Base Rate (defined in a customary manner), at the option of NetScout, plus a margin that ranges from 1.00% per annum for Alternate Base Rate loans and 2.00% per annum for term SOFR loans if our consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0% per annum for Alternate Base Rate loans and 1.00% per annum for term SOFR loans if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

For the period from the delivery of our financial statements for the quarter ended December 31, 2022, until we have delivered financial statements for the quarter ended March 31, 2023, the applicable margin will be 1.00% per annum for Term Benchmark Revolving loans and 0% per annum for Alternate Base Rate loans, and thereafter the applicable margin will vary depending on our consolidated gross leverage ratio, ranging from 1.00% per annum for Alternate Base Rate loans and 2.00% per annum for Term Benchmark Revolving loans if our consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0% per annum for Alternate Base Rate loans and 1.00% per annum for Term Benchmark Revolving loans if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

Our consolidated gross leverage ratio is the ratio of our consolidated total debt compared to our consolidated EBITDA as defined in the Second Amended and Restated Credit Agreement (adjusted consolidated EBITDA).

Adjusted consolidated EBITDA includes certain adjustments, including, without limitation, adjustments relating to extraordinary, unusual or non-recurring charges, certain restructuring charges, non-cash charges, certain transaction costs and expenses and certain pro forma adjustments in connection with material acquisitions and dispositions, all as set forth in detail in the Second Amended and Restated Credit Agreement.

Our secured net leverage ratio is the ratio of our Consolidated Total Debt minus the lesser of unrestricted cash and 125% of adjusted consolidated EBITDA compared to our adjusted consolidated EBITDA.

The Company’s maximum secured net leverage ratio is 4.00 to 1.00.

Commitment fees will accrue on the daily unused amount of the credit facility.

depending on our consolidated gross leverage ratio, ranging from 0.30% per annum if our consolidated gross leverage ratio is greater than 2.75 to 1.00, down to 0.15% per annum if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

Letter of credit participation fees are payable to each lender providing the letter of credit sub-facility on the amount of such lender's letter of credit exposure, during the period from the closing date of the Second Amended and Restated Credit Agreement to, but excluding, the date which is the later of (i) the date on which such lender's commitment terminates or (ii) the date on which such lender ceases to have any letter of credit exposure, at the applicable rate that would be used to determine the interest rate applicable to Term Benchmark Revolving loans assuming such loans were outstanding during the period.

For the period from the delivery of the Company's financial statements for the quarter ended December 31, 2022, until we have delivered financial statements for the quarter ended March 31, 2023, the commitment fee will be 0.15% per annum, and thereafter the commitment fee will vary depending on our consolidated gross leverage ratio, ranging from 0.30% per annum if our consolidated gross leverage ratio is greater than 2.75 to 1.00, down to 0.15% per annum if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

Letter of credit participation fees are payable to each lender providing the letter of credit subfacility on the amount of such lender’s letter of credit exposure, at a rate per annum equal to the applicable margin for term SOFR loans.

Letter of credit

participation fees are payable to each lender providing the letter of credit sub-facility on the amount of such lender's letter of credit exposure, during the period from the closing date of the Second Amended and Restated Credit Agreement to, but excluding, the date which is the later of (i) the date on which such lender's commitment terminates or (ii) the date on which such lender ceases to have any letter of credit exposure, at a rate per annum equal to the applicable margin for term SOFR loans assuming such loans were outstanding during the period.

Additionally, we will pay a fronting fee to each issuing bank in amounts to be agreed to between us and the applicable issuing bank.

Interest on Alternate Base Rate loans is payable at the end of each calendar quarter.

Interest on Term Benchmark Revolving loans is payable at the end of each interest rate period or at the end of each three-month interval within an interest rate period if the period is longer than three months.

Interest on term SOFR loans is payable at the end of each interest rate period or at the end of each three-month interval within an interest rate period if the period is longer than three months.

We may also prepay loans under the Second Amended and Restated Credit Agreement at any time, without penalty, subject to certain notice requirements.

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The Second Amended and Restated Credit Agreement contains certain covenants applicable to us and our 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 Second Amended and Restated Credit Agreement requires us to maintain a certain consolidated net leverage ratio and removes the previous requirement under the Amended Credit Agreement that we maintain a minimum consolidated interest coverage ratio.

The Second Amended and Restated Credit Agreement requires us to maintain a certain consolidated net leverage ratio and removes the previous requirement under our previous amended credit agreement that we maintain a minimum consolidated interest coverage ratio.

Our consolidated net leverage ratio is the ratio of our Consolidated Total Debt minus the lesser of unrestricted cash and 125% of adjusted consolidated EBITDA compared to our adjusted consolidated EBITDA.

The Company’s maximum consolidated net leverage ratio is 4.00 to 1.00.

These covenants and limitations are more fully described in the Second Amended and Restated Credit Agreement.

As of March 31, 2022, we were in compliance with these covenants, including the specified total consolidated net leverage ratio range of 4.00 to 1.00.

The Second 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 Second Amended and Restated Credit Agreement and related documents including a failure to meet the maximum total secured net leverage ratio covenant, defaults under certain other indebtedness, certain insolvency events, certain events arising under ERISA, a change of control and certain other events.

As of March 31, 2023, we were in compliance with all covenants, including the specified total consolidated net leverage ratio range of 4.00 to 1.00.

The Second 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 Second Amended and Restated Credit Agreement and related documents including a failure to meet the maximum total consolidated net leverage ratio covenant, defaults under certain other indebtedness, certain insolvency events, certain events arising under ERISA, a change of control and certain other events.

Upon an event of default, 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 and enforce certain other remedies under the Second Amended and Restated Credit Agreement and the other loan documents.

We had unamortized capitalized debt issuance costs, net of $3.7 million at March 31, 2023, which are being amortized over the life of the revolving credit facility.

The unamortized capitalized debt issuance costs balance of $1.1 million was included as prepaid expenses and other current assets and a balance of $3.7 million was in cluded as other assets in our consolidated balance sheet at March 31, 2022.

The unamortized capitalized debt issuance costs balance of $1.1 million was included as prepaid expenses and other current assets and a balance of $2.6 million was included as other assets in our consolidated balance sheet at March 31, 2023.

Contractual Obligations

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We believe that these factors will allow us to meet our anticipated funding requirements.

We expect net cash provided by operating activities combined with cash, cash equivalents, and marketable securities and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirement over at least the next twelve months.

We expect net cash provided by operating activities combined with cash, cash equivalents, and marketable securities and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirement over at least the next twelve months.

We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and our revolving credit facility.

Additionally, a portion of our cash may be used to acquire or invest in complementary businesses or products, to obtain the right to use complementary technologies, to repay borrowings under our Second Amended and Restated Credit Agreement, or to repurchase shares of our common stock through our stock repurchase programs.

However, macroeconomic conditions, including rising inflation and a potential recession, could increase our anticipated funding requirements.

A portion of our cash may be used to acquire or invest in complementary businesses or products, to obtain the right to use complementary technologies, to repay borrowings under our Second Amended and Restated Credit Agreement, or to repurchase shares of our common stock through our stock repurchase programs.

From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies.

If our existing sources of liquidity are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities.

The sale of additional equity or debt securities could result in additional dilution to our stockholders.

Macroeconomic conditions, including rising interest rates and volatility in the capital markets, may make it difficult for us to secure additional financing on favorable terms or at all.

Any sale of additional equity or debt securities could r esult in additional dilution to our stockholders.

Recent Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis