What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-05-16 compared with 2022-05-19 · 285 added, 281 removed, 1124 unchanged (33% of the section changed)

13 unchanged sentences

Based on our assessment, we concluded that our internal control over financial reporting was effective as of March 31, 2023.

The effectiveness of our internal control over financial reporting as of March 31, 2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

The effectiveness of our internal control over financial reporting as of March 31, 2023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 8 herein.

Other Information

16 unchanged sentences

Consolidated Financial Statements.

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 238)

Consolidated Balance Sheets at March 31, 202 3 and 20 22

55 unchanged sentences

NetScout Systems, Inc.

Amended and Restated 2011 Employee Stock Purchase Plan (filed as Exhibit 10.1 to NetScout’s Current Report on Form 8-K, SEC File No.

000-26251, filed on September 13, 2018 and incorporated herein by reference).

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).

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.

13 unchanged sentences

NetScout Systems, Inc.

2019 Equity Incentive Plan, as amended and restated (filed as Exhibit 99.1 to NetScout’s Registration Statement on Form S-8, SEC File No.

333-248786, filed on September 14, 2020 and incorporated herein by reference).

2019 Equity Incentive Plan, as amended (filed as Exhibit 99.1 to NetScout’s Registration Statement on Form S-8, SEC File No.

333-267069, filed on August 25, 2022 and incorporated herein by reference).

Form of Restricted Stock Unit Agreement with respect to the NetScout Systems, Inc.

1 unchanged sentence

000-26251, filed on February 6, 2020 and incorporated herein by reference).

First Amendment Agreement, dated as of February 22, 2023, 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 Second Amended and Restated Credit Agreement, dated as of July 27, 2021 (as amended by the First Amendment Agreement), by and among NetScout Systems, Inc., as borrower;

JPMorgan Chase Bank, N.A., as administrative agent and collateral agent;

JPMorgan Chase Bank, N.A., Wells Fargo Securities, LLC, BofA Securities Inc., RBC Capital Markets, PNC Capital Markets LLC and Mizuho Bank, Ltd., as joint lead arrangers and joint bookrunners;

Santander Bank, N.A., U.S.

Bank National Association, Fifth Third Bank, National Association, Silicon Valley Bank and TD Bank, N.A.

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 February 22, 2023 and incorporated herein by reference).

Subsidiaries of NetScout (filed herewith).

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Director May 16, 2023

/ S / S HANNON N ASH

Director May 16, 2023

/ S / M ARLENE P ELAGE

Director May 16, 2023

Marlene Pelage

/ S / C HRISTOPHER P ERRETTA

11 unchanged sentences

Consolidated Statements of Operations for the Years Ended March 31, 202 3 , 202 2 and 20 21

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended March 31, 2022, 2021 and 2020

Consolidated Statements of Comprehensive Income for the Years Ended March 31, 202 3 , 202 2 and 20 21

Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 202 3 , 202 2 and 20 21

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of NetScout Systems, Inc.

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, 2022 and 2021, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended March 31, 2022, 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").

and its subsidiaries (the “Company”) as of March 31, 2023 and 2022, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended March 31, 2023, 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, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Revenue from Contracts with Customers - Identification of Distinct 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 security solutions for service provider and enterprise customers, which include hardware, software and service offerings.

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.

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Deferred income taxes 4,534 6,883

Long-term marketable securities 8,940 —

Other assets 12,540 12,979

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Additional paid-in capital 3,099,698 3,023,403

Accumulated other comprehensive income (loss) 141 ( 1,940 )

Accumulated other comprehensive income 5,738 141

Treasury stock at cost, 57,434,779 and 52,323,090 shares at March 31, 2023 and 2022, respectively

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Income tax expense 8,767 7,018 2,952

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

Basic net income (loss) per share $ 0.48 $ 0.26 $ ( 0.04 )

Diluted net income (loss) per share $ 0.48 $ 0.26 $ ( 0.04 )

Net income $ 59,648 $ 35,874 $ 19,352

Basic net income per share $ 0.83 $ 0.48 $ 0.26

Diluted net income per share $ 0.82 $ 0.48 $ 0.26

Weighted average common shares outstanding used in computing:

Net income (loss) per share—basic 74,019 73,103 75,162

Net income (loss) per share—diluted 75,084 73,822 75,162

Net income per share—basic 71,781 74,019 73,103

Net income per share—diluted 73,046 75,084 73,822

The accompanying notes are an integral part of these consolidated financial statements.

NetScout Systems, Inc.

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

(In thousands)

1 unchanged sentence

2023 2022 2021

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

Other comprehensive income (loss):

Net income $ 59,648 $ 35,874 $ 19,352

Other comprehensive income:

Cumulative translation adjustments ( 270 ) 153 2,926

2 unchanged sentences

Changes in market value of investments:

Changes in unrealized (losses) gains, net of (benefit) tax of ($ 9 ), ($ 41 ), and $ 39

Changes in unrealized gains (losses), net of tax (benefit) of $ 14 , ($ 9 ), and ($ 41 )

42 ( 29 ) ( 130 )

2 unchanged sentences

Changes in market value of derivatives:

Changes in market value of derivatives, net of tax (benefit) of $ 19 , $ 66 , and ($ 25 )

Changes in market value of derivatives, net of (benefit) tax of ($ 116 ), $ 19 , and $ 66

( 361 ) 63 208

Reclassification adjustment for net (loss) gain included in net income (loss), net of (benefit) tax of ($ 13 ), ($ 73 ), and $ 7

Reclassification adjustment for net gain (loss) included in net income, net of tax (benefit) of $ 137 , ($ 13 ), and ($ 73 )

427 ( 43 ) ( 236 )

Total net change in market value of derivatives

20 ( 28 ) ( 57 )

Other comprehensive income (loss) 2,081 1,220 ( 521 )

Total comprehensive income (loss) $ 37,955 $ 20,572 $ ( 3,275 )

Other comprehensive income 5,597 2,081 1,220

Total comprehensive income $ 65,245 $ 37,955 $ 20,572

The accompanying notes are an integral part of these consolidated financial statements.

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Balance, March 31, 2020 122,006,077 $ 122 $ 2,891,553 $ ( 3,160 ) 49,785,171 $ ( 1,305,935 ) $ 355,339 $ 1,937,919

Net loss ( 2,754 ) ( 2,754 )

Unrealized net investment gains 126 126

Net income 19,352 19,352

Unrealized net investment losses ( 130 ) ( 130 )

Unrealized net losses on derivative financial instruments ( 28 ) ( 28 )

Cumulative translation adjustments 2,926 2,926

Recognition of actuarial net gains from pension and other post-retirement plan 1,054 1,054

Recognition of actuarial net losses from pension and other post-retirement plan ( 1,548 ) ( 1,548 )

Issuance of common stock pursuant to vesting of restricted stock units 1,630,228 2 2

5 unchanged sentences

Unrealized net investment losses ( 29 ) ( 29 )

Unrealized net losses on derivative financial instruments ( 28 ) ( 28 )

Unrealized net gains on derivative financial instruments 20 20

Cumulative translation adjustments 153 153

Recognition of actuarial net losses from pension and other post-retirement plan ( 1,548 ) ( 1,548 )

Recognition of actuarial net gains from pension and other post-retirement plan 1,937 1,937

Issuance of common stock pursuant to vesting of restricted stock units 1,728,994 2 2

4 unchanged sentences

Net income 59,648 59,648

Unrealized net investment losses ( 29 ) ( 29 )

Unrealized net investment gains 42 42

Unrealized net gains on derivative financial instruments 66 66

13 unchanged sentences

Cash flows from operating activities:

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

Adjustments to reconcile net income (loss) to cash provided by operating activities, net of the effects of acquisitions:

Net income $ 59,648 $ 35,874 $ 19,352

Adjustments to reconcile net income to cash provided by operating activities, net of the effects of acquisitions:

Depreciation and amortization 85,918 95,784 105,828

3 unchanged sentences

Share-based compensation expense associated with equity awards 61,986 56,074 51,892

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

Net change in fair value of contingent and contractual liabilities — ( 837 ) —

Accretion of contingent consideration — — ( 36 )

Deferred income taxes ( 54,032 ) ( 12,681 ) ( 23,804 )

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Purchase of intangible assets ( 161 ) ( 50 ) ( 4,537 )

Acquisition of businesses, net of cash acquired — — ( 11,347 )

(Increase) decrease in deposits ( 155 ) 88 ( 31 )

Collection of contingent consideration — — 52

Net cash (used in) provided by investing activities ( 68,353 ) 24,698 ( 4,309 )

Decrease (increase) in deposits 3 ( 155 ) 88

Net cash provided by (used in) investing activities 15,304 ( 68,353 ) 24,698

Cash flows from financing activities:

9 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents ( 1,891 ) ( 4,510 ) 6,627

Net increase (decrease) in cash and cash equivalents 168,985 126,939 ( 69,583 )

Net (decrease) increase in cash and cash equivalents ( 249,367 ) 168,985 126,939

Cash and cash equivalents and restricted cash, beginning of year 636,161 467,176 340,237

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Issuance of common stock under employee stock purchase plans $ 14,353 $ 14,582 $ 14,429

Contingent consideration related to acquisition, included in accrued other $ — $ — $ 1,800

The accompanying notes are an integral part of these consolidated financial statements.

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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, valuation of goodwill and acquired assets and liabilities, valuation of the pension obligation, valuation of contingent consideration and share-based compensation.

Significant estimates in these financial statements include those involving revenue recognition, valuation of goodwill and acquired assets and liabilities, valuation of the pension obligation, valuation of a derivative instrument, valuation of contingent consideration and share-based compensation.

These items are continuously monitored and analyzed by management for changes in facts and circumstances and material changes in these estimates could occur in the future.

The Company considered the impact of the COVID-19 pandemic on the use of estimates and assumptions used for financial reporting.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets.

The Company has made estimates within the financial statements and there may be changes to those estimates in future periods.

Actual results may differ from these estimates.

COVID-19 Risks and Uncertainties

The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business.

The future impacts of the pandemic and any resulting economic impact on the Company's operations are evolving.

It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may materially and adversely affect the Company's future results of operations, cash flows and financial position as well as its customers.

Global and Macroeconomic Conditions

The Company continues to closely monitor the current global and macroeconomic conditions, including the impacts of the war in Ukraine and related sanctions, global geopolitical tension, stock market volatility, exchange rate fluctuations, rising inflation and interest rates, the risk of a recession, and the impacts of epidemics or pandemics such as the coronavirus (COVID-19) on all aspects of its business, including the manner and extent to which they have impacted and could continue to impact its customers, employees, supply chain, and distribution network.

The impacts of these global and macroeconomic trends remain uncertain.

It is possible that the measures taken by the governments of countries affected and the resulting economic impacts may materially and adversely affect the Company's future results of operations, cash flows and financial position as well as its customers.

The Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued.

The Company has and continues to take precautionary actions to manage costs and spending across the organization.

The Company has taken and continues to take precautionary actions to manage costs and spending across the organization.

This includes managing discretionary spending and hiring activities.

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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

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.

The Company elected to defer the employer-paid portion of social security taxes.

The Company had deferred $ 4.5 million of employer payroll

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

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.

The Company has elected to defer the employer-paid portion of social security taxes.

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

The balance of $ 4.5 million was included as accrued other in the Company's consolidated balance sheet at March 31, 2022.

taxes, which was included as accrued other in the Company's consolidated balance sheet at March 31, 2022.

The balance was paid in December 2022.

The Company expects net cash provided by operations combined with cash, cash equivalents, and marketable securities and borrowing availability under the 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.

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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 $ 9.4 million and $ 7.1 million at March 31, 2022 and 2021, respectively.

The aggregate amount of unrecognized accounts receivable and deferred revenue w as $ 6.6 million a nd $ 9.4 million at March 31, 2023 and 2022, respectively.

Concentration of Credit Risk

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NetScout's cash, cash equivalents, and marketable securities are placed with financial institutions with high credit standings.

At March 31, 2022, the Company had no direct customers or indirect channel partners which accounted for more than 10% of the accounts receivable balance.

At March 31, 2021 , the Company had one direct customer who accounted for more than 10% of the accounts receivable balance, while no indirect channel partners accounted for more than 10% of the accounts receivable balance.

During the fiscal ye ars ended March 31, 2022, 2021 and 2020 respectively, no direct customers or indirect channel partners accounted for more than 10% of total rev enue.

At March 31, 2023 and March 31, 2022, the Company had no direct customers or indirect channel partners which accounted for more than 10% of the accounts receivable balance.

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

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

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;

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The Company performed its annual impairment analysis for goodwill as of January 31, 2023, using the qualitative (Step 0) assessment, and the Company 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, 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 indefinite-lived intangible is impaired.

If based on the Company's qualitative assessment, the Company concludes 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 the Company concludes otherwise, quantitative impairment testing is not required.

The Company 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, the Company uses 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

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

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 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 Company did not have any acquisitions during the years ended March 31, 2023, 2022 and 2021.

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.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

customer shipment.

Such costs are amortized using the straight-line method over the estimated economic life of the product, which generally does not exceed three years .

3 unchanged sentences

The developments are added individually to the core code over a shorter period of time but marketed as a release once all portions are complete.

Amortization included as cost of product revenue was $ 37 thousand, $ 0.1 million, and $ 0.5 million for the fiscal years ended March 31, 2022, 2021, and 2020, respectively.

The Company did no t capitalize software development costs in the fiscal years ended March 31, 2022 or 2021.

Derivative Financial Instruments

Under authoritative guidance for derivative 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 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.

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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 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.

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

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Accounting for claims and contingencies requires NetScout to use its judgment.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

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.

NetScout 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

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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.

dollars using the period-end exchange rate, and income and expense items are translated using the

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

average exchange rate during the period.

Cumulative translation adjustments are reflected as a separate component of stockholders' equity.

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Advertising expense was $ 10.2 million, $ 11.4 million and $ 8.7 million for the fiscal years ended March 31, 2023, 2022 and 2021, respectively.

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 gain and losses on hedge contracts, actuarial gains and losses, and foreign currency translation adjustments.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income.

Other comprehensive income 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.

NetScout accounts for its income taxes under the asset and liability method.

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ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted.

ASU 2021-08 is

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

effective for the Company beginning April 1, 2023.

ASU 2021-08 is effective for the Company beginning April 1, 2023.

Amendments within the standard are required to be applied on a prospective basis from the date of adoption.

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In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform, which clarifies the scope and application of certain optional expedients and exceptions regarding the original guidance.

ASU 2021-01 may be applied prospectively through December 31, 2022.

The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.

The adoption is not expected to have a material impact on the Company's financial position, results of operations, and disclosures.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.

This guidance addresses accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities.

This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020.

The Company adopted the guidance as of April 1, 2021.

The adoption did not have a material impact on the Company's consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes.

ASU 2019-12 simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2020.

The Company adopted the guidance as of April 1, 2021.

The adoption did not have a material impact on the Company's consolidated financial statements.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848, which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform by delaying the effective date of the guidance issued in ASU 2020-04 to December 31, 2024.

The Company adopted this guidance in the fourth quarter of fiscal year 2023 on a prospective basis, which did not have a material impact on the Company's financial position, results of operations, and disclosures.

See Note 11 Long-term Debt for further discussion.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

NOTE 3 - REVENUE RECOGNITION

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

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 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 the Company's customers, in an amount that reflects the consideration the Company expects 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.

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

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

obligations have been fulfilled.

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.

The Company's service offerings include installation, integration, extended warranty and maintenance services, post-contract customer support, stand-ready software-as-a-service (SAAS) and other professional services including consulting and training.

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

The Company uses a range of amounts to estimate SSP when it sells each of the products and services separately based primarily on the performance obligation's historical pricing.

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.

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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 they have recorded revenue from the customer.

The Company records consideration given to a customer as a reduction of revenue to the extent they have

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

recorded revenue from the customer.

With limited exceptions, the Company's return policy does not allow product returns for a refund.

8 unchanged sentences

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, or satisfied at the completion of the service when control has transferred, or the services have expired unused.

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 30 to 90 days.

2 unchanged sentences

The Company did not have any material variable consideration such as obligations for returns, refunds or warranties at March 31, 2023.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

At March 31, 2022, the Company had total deferred revenue of $ 463.7 million, which represents the aggregate total contract price allocated to undelivered performance obligations.

The Company expects to recognize $ 330.6 million, or 71 %, of this revenue during the next 12 months, and expects to recognize the remaining $ 133.1 million, or 29 %, of this revenue thereafter.

At March 31, 2023, the Company had total deferred revenu e of $ 441.3 million, which represents the aggregate total contract price allocated to undelivered performance obligations.

The Company expect s to recognize $ 311.5 million, or 71 %, of this revenue during the next 12 months, and expects to recognize the remaining $ 129.8 million, or 29 %, of this revenue thereafter.

NetScout 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.

9 unchanged sentences

The Company expenses costs as incurred for sales commissions when the amortization period would have been one year or less.

At March 31, 2022, th e consolidated balance sheet included $ 8.8 million in assets related to sales commissions to be expensed in future periods.

A balance of $ 4.6 million was included in prepaid expenses and other current assets, and a balance of $ 4.2 million was included as other assets in the Company's consolidated balance sheet at March 31, 2022.

At March 31, 2021, the consolidated balance sheet included $ 7.4 million in assets related to sales commissions to be expensed in future periods.

At March 31, 2023, th e consolidated ba lance sheet included $ 9.4 million in assets related to sales commissions to be expensed in future periods.

A balance of $ 4.7 million was included in prepaid expenses and other current assets, and a balance of $ 4.7 million was in cluded in other assets in the Company's consolidated balance sheet at March 31, 2023.

At March 31, 2022, the consolidated balance sheet included $ 8.8 million in assets related to sales commissions to be expensed in future

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

A balance of $ 4.6 million was included in prepaid expenses and other current assets, and a balance of $ 4.2 million was included in other assets in the Company's consolidated balance sheet at March 31, 2022.

During each of the twelve months ended March 31, 2022 and 2021, the Company recognized $ 6.3 million of amortization related to this sales commission asset, which is included in the sales and marketing expense line in the Company's consolidated statements of operations.

During the twelve months ended March 31, 2023 and 2022, the Company recognized $ 7.0 million and $ 6.3 million of amortization related to this sales commission asset, which is included in the sales and marketing expense line in the Comp any's consolidated statements of operations.

Allowance for Credit Losses

7 unchanged sentences

Balance at March 31, 2023

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

NOTE 4 – CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

Cash and cash equivalents mainly consisted of U.S government and municipal obligations, commercial paper, corporate bonds, certificate of deposits, money market instruments and cash maintained with various financial institutions at March 31, 2022 and 2021.

Cash and cash equivalents mainly consisted of U.S government and municipal obligations, commercial pap er, corporate bonds, certificate o f deposits, money market instruments and cash maintained with various financial institutions at March 31, 2023 and 2022.

Cash, Cash Equivalents and Restricted Cash

6 unchanged sentences

The Company's restricted cash is included within prepaid and other current assets and consists of amounts related to holdbacks associated with prior acquisitions.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

Marketable Securities

1 unchanged sentence

Cost Unrealized

Gains (Losses) Fair

Type of security:

4 unchanged sentences

Total short-term marketable securities 32,205 ( 1 ) 32,204

government and municipal obligations 8,915 25 8,940

Total long-term marketable securities 8,915 25 8,940

Total marketable securities $ 41,120 $ 24 $ 41,144

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

The following is a summary of marketable securities held by NetScout at March 31, 2022, classified as short-term and long-term (in thousands):

3 unchanged sentences

Commercial paper 23,353 — 23,353

Corporate bonds 823 ( 2 ) 821

Certificates of deposit 2,000 — 2,000

Total short-term marketable securities 67,071 ( 34 ) 67,037

32 unchanged sentences

Commercial paper — 23,353 — 23,353

Corporate bonds 821 — — 821

Certificate of deposits — 2,000 — 2,000

Derivative financial instruments — 20 — 20

6 unchanged sentences

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.

The Company's Level 3 liabilities consisted of contingent purchase consideration related to the two acquisitions that occurred during the fiscal year 2020.

The contingent purchase consideration related to the two acquisitions represented 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 $ 0.7 million of purchase consideration related to the Gigavation acquisition was paid to the

The Company's Level 3 assets consisted of contingent consideration related to the divestiture of the Company's handheld network test (HNT) tools business in September 2018, which represented potential future earn outs to the Company that were contingent on the HNT tools business achieving certain milestones.

During the fiscal year ended March 31, 2022, the Company

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

seller in February 2021.

The $ 1.0 million contingent purchase consideration related to the Eastwind acquisition was paid to the seller in April 2020.

The Company's Level 3 assets consisted of contingent consideration related to the divestiture of the Company's handheld network test (HNT) tools business in September 2018.

The contingent consideration represented potential future earnout payments to the Company of up to $ 4.0 million over two years that were contingent on the HNT tools business achieving certain milestones.

During the fiscal years ended March 31, 2022 and 2020, the Company recorded an $ 0.8 million change in the fair value of the contingent consideration, which is included in other income (expense), net within the Company's consolidated statement of operations.

recorded an $ 0.8 million change in the fair value of the contingent consideration, which is included in other income (expense) , net within the Company's consolidated statement of operations related to the divestiture of the handheld network test (HNT) tools business in September 2018.

The contingent consideration, which was a Level 3 asset, represented potential future earn outs to the Company that were contingent on the HNT tools business achieving certain milestones.

The $ 0.8 million of contingent consideration was paid to the Company as the final earnout during the fiscal year ended March 31, 2022.

The following table sets forth a reconciliation of changes in the fair value of the Company’s Level 3 financial assets for the fiscal year ended March 31, 2022 (in thousands):

The Company’s Level 3 liability at March 31, 2023 consisted of a forward share purchase contract, which qualified as a derivative instrument under authoritative guidance.

In February 2023, the Company entered into an agreement with Napatech A/S (Napatech) to purchase approximately 6.2 million shares of Napatech’s common stock for $ 7.5 million.

The Company measured the forward share purchase contract at March 31, 2023 at fair value based on inputs which were observable and those which were not observable in the market, resulting in a charge related to the Level 3 fair value hierarchy classification.

During the fiscal year ended March 31, 2023, the Company recorded a $ 1.4 million change in the fair value of the derivative instrument in other income (expense) , net within the Company's consolidated statement of operations.

On April 14, 2023, the Company settled the contract and paid $ 7.5 million to Napatech in exchange for approximately 6.2 million shares of Napatech's common stock.

During the fiscal year ended March 31, 2021, the Company paid contingent purchase consideration related to the two acquisitions that occurred during fiscal year 2020.

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

The $ 1.0 million contingent purchase consideration related to the Eastwind acquisition was paid to the seller in April 2020.

The following table sets forth a reconciliation of changes in the fair value of the Company’s Level 3 financial asset for the fiscal year ended March 31, 2022 (in thousands):

Contingent Consideration

3 unchanged sentences

Balance at March 31, 2022 $ —

The following table sets forth a reconciliation of changes in the fair value of the Company’s Level 3 financial liabilities for the fiscal year ended March 31, 2021 (in thousands):

Consideration

The following table sets forth a reconciliation of changes in the fair value of the Company’s Level 3 financial liability for the fiscal year ended March 31, 2023 (in thousands):

Derivative Instrument

Balance at March 31, 2022 $ —

Payments made 1,748

Change in fair value of derivative instrument ( 1,380 )

Balance at March 31, 2023 $ ( 1,380 )

26 unchanged sentences

Depreciation expense was $ 18.8 million, $ 20.1 million and $ 22.4 million for the fiscal years ended March 31, 2023, 2022 and 2021, respectively.

NOTE 8 – ACQUISITIONS

Gigavation Acquisition

On February 5, 2020 (the Gigavation Closing Date), the Company acquired 100 % of the common stock of Gigavation Incorporated, a cybersecurity company for $ 8.0 million.

Gigavation's solutions provide security to device communication protocols, end point protection and security analytics.

The Gigavation technology and engineering talent have been integrated into our service assurance products in order to support the ongoing enhancement of that portfoli o.

Eastwind Acquisition

On April 3, 2019 (the Eastwind Closing Date), the Company completed the acquisition of certain assets and liabilities of Eastwind for $ 5.2 million.

Eastwind's breach analytics cloud analyzes data to identify malicious activity, insider threats and data leakage.

NOTE 8 – GOODWILL & INTANGIBLE ASSETS

5 unchanged sentences

The change in the carrying amount of goodwill for the fiscal year ended March 31, 2023 is due to the impact of foreign currency translation adjustments related to asset balances that are recorded in currencies other than the U.S.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

The changes in the carrying amount of goodwill for the fiscal years ended March 31, 2023 and 2022 are as follows (in thousands):

5 unchanged sentences

Intangible Assets

The net carrying amounts of intangible assets were $ 433.4 million and $ 511.9 million at March 31, 2022 and 2021, respectively.

The net carrying amounts of intangible assets we re $ 366.6 million and $ 433.4 million at March 31, 2023 and 2022, respectively.

Intangible assets acquired in a business combination are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition.

3 unchanged sentences

Prior to reclassifying the acquired trade name to a finite-lived intangible asset, the Company tested the acquired trade name for impairment and determined the fair value of the asset exceeded the carrying value.

This change in estimate does not materially impact the Company's income statement.

During the fiscal years ended March 31, 2022 and 2021, the Company acquired $ 50 thousand and $ 4.5 million of technology licenses, respectively.

This change in estimate did not materially impact the Company's income statement.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

During the fiscal years ended March 31, 2023, 2022 and 2021, the Company acquired $ 0.2 million , $ 50 thousand, and $ 4.5 million of technol ogy licenses, respectively.

These amounts are included within distributor relationships and are being amortizing using the economic benefit method over useful lives of between one and four years .

The Company did no t acquire any technology licenses during the fiscal year ended March 31, 2020.

Intangible assets include the following amortizable intangible assets at March 31, 2023 (in thousands):

7 unchanged sentences

11,547 ( 10,133 ) 1,414

Definite-lived trademark and trade name (a) 2 - 9 years

Definite-lived trademark and trade name 2 - 9 years

57,694 ( 43,489 ) 14,205

8 unchanged sentences

$ 1,099,332 $ ( 732,741 ) $ 366,591

(a) The Company's $ 18.6 million acquired trade name changed from indefinite-lived during the first quarter of fiscal year 2022.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

Intangible assets include the indefinite lived trade name with a carrying value of $ 18.6 million and the following amortizable intangible assets at March 31, 2021 (in thousands):

Intangible assets include the following amortizable intangible assets at March 31, 2022 (in thousands):

Estimated Useful Life in Years Cost Accumulated

6 unchanged sentences

11,408 ( 8,896 ) 2,512

Definite-lived trademark and trade name 2 - 9 years

Definite-lived trademark and trade name (a) 2 - 9 years

57,748 ( 37,944 ) 19,804

1 unchanged sentence

7,192 ( 7,192 ) —

Net beneficial leases 3 - 4 years

336 ( 336 ) —

Non-compete agreements 3 years

5 unchanged sentences

$ 1,100,816 $ ( 667,397 ) $ 433,419

(a) The Company’s $ 18.6 million acquired trade name changed from indefinite-lived to definite-lived during the first quarter of fiscal year 2022.

Amortization included as cost of product revenue consists of amortization of developed technology, distributor relationships and technology licenses, core technology and software.

7 unchanged sentences

$ 65,952 $ 74,361 $ 81,608

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

The following is the expected future amortization expense at March 31, 2023 for the fiscal years ended March 31 (in thousands):

2 unchanged sentences

Total $ 366,591

NOTE 10 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 9 – 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.

5 unchanged sentences

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

All of the Company's derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes.

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 twelve months and are expected to impact earnings on or before maturity.

The notional amounts and fair values of derivative instruments in the consolidated balance sheets at March 31, 2022 and 2021 were as follows (in thousands):

The notional amounts and fair values of foreign exchange forward contract derivative instruments in the consolidated balance sheets at March 31, 2023 and 2022 were as follows (in thousands):

Notional Amounts (a) Prepaid Expenses and Other Current Assets Accrued Other

1 unchanged sentence

Derivatives Designated as Hedging Instruments:

Forward contracts $ 5,578 $ 11,037 $ 20 $ 57 $ 78 $ 152

Foreign exchange forward contracts $ 10,265 $ 5,578 $ 59 $ 20 $ 29 $ 78

Derivatives Not Designated as Hedging Instruments:

Forward contracts — 6,373 — — — 39

Foreign exchange forward contracts 6,031 — — — 20 —

$ 59 $ 20 $ 49 $ 78

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

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

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, 2023 and 2022 (in thousands):

Gain Recognized

Gain (Loss) Recognized

in OCI on Derivative

(a) Loss Reclassified from

(a) Gain (Loss) Reclassified from

Accumulated OCI into Income

1 unchanged sentence

2023 2022 Location 2023 2022

Forward contracts $ 82 $ 274 Research and development $ ( 26 ) $ ( 57 )

Foreign exchange forward contracts $ ( 477 ) $ 82 Research and development $ 62 $ ( 26 )

Sales and marketing 502 ( 30 )

3 unchanged sentences

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, 2023 and 2022 (in thousands):

Gain Recognized in Income

Loss Recognized in Income

March 31, March 31,

Location 2023 2022

Forward contracts General and administrative $ 141 $ 115

Foreign exchange forward contracts General and administrative $ ( 21 ) $ ( 107 )

$ ( 21 ) $ ( 107 )

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

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

In addition to foreign exchange forward contracts, as discussed in Note 5, during the fiscal year ended March 31, 2023, the Company entered into a forward share purchase contract to purchase approximately 6.2 million shares of Napatech's common stock for $ 7.5 million, which qualified as a derivative instrument under authoritative guidance.

The notional amount of the derivative instrument was $ 7.5 million.

At March 31, 2023, the fair value of the derivative instrument of $ 1.4 million was included as accrued other in the Company's consolidated balance sheet.

During the fiscal year ended March 31, 2023, the Company recorded a $ 1.4 million charge related to the change in the fair value of the derivative instrument in other income (expense), net within the Company's consolidated statement of operations.

NOTE 10 – RESTRUCTURING CHARGES

During the fiscal year ended March 31, 2019, the Company implemented a voluntary separation program (VSP) for employees who met certain requirements to reduce overall headcount.

As a result of the related workforce reduction, the Company recorded restructuring charges totaling $ 17.2 million related to one-time termination benefits for employees who voluntarily terminated their employment with the Company during fiscal year 2019.

Additional one-time employee-related termination benefit charges of $ 0.1 million were recorded and paid in full in the fiscal year ended March 31, 2020.

During the fiscal year ended March 31, 2020, the Company approved two restructuring plans to restructure certain departments to better align functions.

2 unchanged sentences

The one-time employee-related termination benefits for the two approved restructuring plans were paid in full during the fiscal year ended March 31, 2021.

The Company did not approve any restructuring plans during the fiscal year ended March 31, 2022.

During the fiscal year ended March 31, 2022, the Company did not approve any restructuring plans.

During the fiscal year ended March 31, 2023, the Company restructured certain departments to better align functions resulting in the termination of eighteen employees.

As a result of the workforce reduction, during the fiscal year ended March 31, 2023, the Company recorded a restructuring charge totaling $ 1.9 million related to one-time employee-related termination benefits for the employees that were notified of their termination during the period.

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

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

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

VSP Q2 FY20 Plan Q4 FY20 Plan Total

Q2 FY20 Plan Q4 FY20 Plan FY23 Plan Total

Balance at March 31, 2020 $ 3 $ 1,717 $ — $ 1,720

3 unchanged sentences

Balance at March 31, 2021 $ — $ — $ — $ —

Balance at March 31, 2022 $ — $ — $ — $ —

Restructuring charges to operations — — 1,861 1,861

3 unchanged sentences

NOTE 11 – LONG-TERM DEBT

On January 16, 2018, the Company amended and expanded its 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, the Company 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, the Company amended and extended the existing credit facility (Second Amended and Restated Credit Agreement) with a syndicate of lenders by and among:

JPMorgan Chase Bank, N.A.

7 unchanged sentences

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, the Company 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.

Additionally, the Company 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

In connection with the Second Amended and Restated Credit Agreement, during the fiscal year ended March 31, 2022, the Company 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.

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

The Company 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, the Company 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.

The First Amendment provides that U.S.

dollar-denominated advances under the Second Amended 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 the Company, 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 the Company’s 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 the Company's consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

For the period from the delivery of the Company's financial statements for the quarter ended December 31, 2022, until the Company has 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 the Company's

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

consolidated statements of operations for the fiscal year ended March 31, 2022.

At March 31, 2022, $ 350 million was outstanding under the Second Amended and Restated Credit Agreement.

At the Company's 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 the Company, 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 the Company has 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 the Company's 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 the Company's 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 the Company's consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

The Company's consolidated gross leverage ratio is the ratio of its total funded debt compared to its consolidated EBITDA as defined in the Second Amended and Restated Credit Agreement (adjusted consolidated EBITDA).

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 the Company’s 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 the Company’s consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

The Company's consolidated gross leverage ratio is the ratio of its consolidated total debt compared to its 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.

The Company's secured net leverage ratio is the ratio of its Consolidated Total Debt minus the lesser of unrestricted cash and 125 % of adjusted consolidated EBITDA compared to its adjusted consolidated EBITDA.

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

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, 2022, until the Company has 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 the Company's consolidated gross leverage ratio, ranging from 0.30 % per annum if the Company's consolidated gross leverage ratio is greater than 2.75 to 1.00, down to 0.15 % per annum if the Company's 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.

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, the Company will pay a fronting fee to each issuing bank in amounts to be agreed to between the Company 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.

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

2 unchanged sentences

The Second 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 Second Amended and Restated Credit Agreement requires the Company to maintain a certain consolidated net leverage ratio and removes the previous requirement under the Amended Credit Agreement

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

that the Company maintain a minimum consolidated interest coverage ratio.

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

The Company's consolidated net leverage ratio is the ratio of its Consolidated Total Debt minus the lesser of unrestricted cash and 125 % of adjusted consolidated EBITDA compared to its adjusted consolidated EBITDA.

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

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

As of March 31, 2023, the Company was 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 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.

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.

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

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

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.

The Company 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 $ 2.6 million was included as other assets in the Company's consolidated balance sheet at March 31, 2023.

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):

NOTE 12 – NET INCOME PER SHARE

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

Fiscal Year Ended March 31,

2023 2022 2021

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

Denominator for basic net income (loss) per share - weighted average common shares outstanding 74,019 73,103 75,162

Net income $ 59,648 $ 35,874 $ 19,352

Denominator for basic net income per share - weighted average common shares outstanding 71,781 74,019 73,103

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 75,084 73,822 75,162

Net income (loss) per share:

Basic net income (loss) per share $ 0.48 $ 0.26 $ ( 0.04 )

Diluted net income (loss) per share $ 0.48 $ 0.26 $ ( 0.04 )

1,265 1,065 719

Denominator for diluted net income per share - weighted average shares outstanding 73,046 75,084 73,822

Net income per share:

Basic net income per share $ 0.83 $ 0.48 $ 0.26

Diluted net income per share $ 0.82 $ 0.48 $ 0.26

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

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Restricted stock units 1,799 1,222 2,864

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period.

Basic net income per share is calculated by dividing net income 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 the Company incurred a net loss in the fiscal year ended March 31, 2020, all outstanding restricted stock units have an anti-dilutive effect and are therefore excluded from the computation of diluted weighted average share outstanding.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

Diluted net income per share is calculated by dividing net income 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.

The delivery of 4.5 million shares under the Company's ASR agreements reduced the Company's outstanding shares used to determine the weighted average common shares outstanding for purposes of calculating basic and diluted earnings per share for the fiscal year ended March 31, 2023.

See Note 13 for additional information.

NOTE 13 – TREASURY STOCK

On October 24, 2017, 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.

On October 24, 2017, 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 (2017 Share Repurchase Program).

This program became effective once the Company's previously disclosed twenty million share repurchase program was completed.

The Company is not obligated to acquire any specific amount of common stock within any particular timeframe as a result of this share repurchase program.

The Company repurchased 1,330,678 shares for $ 35.6 million, 154,271 shares for $ 3.3 million, and 7,116,159 shares for $ 175.0 million of its common stock under the twenty-five million share repurchase program during the fiscal years ended March 31, 2022, 2021 and 2020, respectively.

At March 31, 2022, 5,758,482 shares of common stock remained available to be purchased under the current repurchase program.

In connection with the vesting and release of the restriction on previously vested shares of restricted stock, the Company repurchased 546,053 shares for $ 15.7 million, 506,917 shares for $ 13.3 million and 519,241 shares for $ 11.9 million related to minimum statutory tax withholding requirements on these restricted stock units during the fiscal years ended March 31, 2022, 2021 and 2020, respectively.

The Company is

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

not obligated to acquire any specific amount of common stock within any particular timeframe as a result of this share repurchase program.

On May 3, 2022, the Company's Board of Directors approved a new 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 will become effective once the 2017 Share Repurchase Program is completed.

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.

On May 9, 2022, the Company entered into accelerated share repurchase (ASR) agreements with Mizuho Markets Americas LLC (Mizuho) and Wells Fargo Bank, National Association (Wells Fargo) (collectively, the Dealers) to repurchase an aggregate of $ 150 million of the Company's common stock via accelerated stock repurchase transactions under the 2017 Share Repurchase Program.

Under the terms of the ASR, the Company made a $ 75 million payment to each of the Dealers on May 10, 2022, and received an initial delivery of 1,627,907 shares from each of the Dealers, or 3,255,814 shares in the aggregate, which was approximately 70 percent of the total number of shares of the Company's common stock expected to be repurchased under the ASR agreements.

These shares reduced the number of shares of the Company's common stock available for repurchase under the 2017 Share Repurchase Program.

Final settlement of the ASR agreements was completed in November 2022.

As a result, the Company received an additional 651,213 shares from Mizuho and 642,302 shares from Wells Fargo, or 1,293,515 shares in the aggregate, for $ 47.9 million, which reduced the number of shares of the Company's common stock available to be repurchased under the 2017 Share Repurchase Program.

In total, 4,549,329 shares of the Company's common stock were repurchased under the ASR agreements at an average cost per share of $ 32.97 during the fiscal year ended March 31, 2023.

Through March 31, 2023, the Company repurchased a total of 23,790,847 shares for $ 660.4 million in the open market under the 2017 Share Repurchase Program.

At March 31, 2023, 1,209,153 shares of common stock remained available to be purchased under the 2017 Share Repurchase Program, and 25,000,000 shares of common stock remained available to be purchased under the 2022 Share Repurchase Program.

The Co mpany repurchased 4,549,329 shares for $ 152.9 million, 1,330,678 shares for $ 35.6 million, and 154,271 shares for $ 3.3 million of its common stock under the 2017 Share Repurchase Program during the fiscal years ended March 31, 2023, 2022 and 2021, respectively.

In connection with the vesting and release of the restriction on shares of restricted stock, the Company repurchased 562,360 shares for $ 19.4 million, 546,053 shares for $ 15.7 million and 506,917 shares for $ 13.3 million related to minimum statutory tax withholding requirements on the se restricted stock units during the fiscal years ended March 31, 2023, 2022 and 2021, respectively.

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

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2011 Employee Stock Purchase Plan

On September 7, 2011, the Company's stockholders approved the 2011 Employee Stock Purchase Plan (the ESPP), under which 2,500,000 shares of the Company's common stock have been reserved for issuance.

On November 8, 2018, the Company increased the number of shares available under the ESPP by an additional 3,000,000 shares.

On September 7, 2011, the Company's stockholders approved the 2011 Employee Stock Purchase Plan (the ESPP), under which 2.5 million shares of the Company's common stock were reserved for issuance.

On November 8, 2018, the Company increased the number of shares available under the ESPP by an additional 3 million shares, and on August 24, 2022, the Company's stockholders approved an amendment to the ESPP that increased the number of shares available under the ESPP by another 2,000,000 shares .

The Company implemented the ESPP on March 1, 2012.

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At March 31, 2023, 2,772,615 shares were available for future issuance under the ESPP.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

2019 Equity Incentive Plan

On September 12, 2019, the Company's stockholders approved the 2019 Equity Incentive Plan (2019 Plan), which replaced the Company's Amended 2007 Plan.

On September 12, 2019, the Company's stockholders approved the 2019 Equity Incentive Plan (2019 Plan), which replaced the Company's 2007 Equity Incentive Plan, as Amended (Amended 2007 Plan).

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."

On September 10, 2020, the Company's stockholders approved an amendment to the 2019 Equity Incentive Plan (2019 Amended Plan).

The amendment increased the number of shares reserved for issuance by 4,700,000 shares, established a one-year minimum vesting requirement for awards granted on or after September 10, 2020, and changed the factor used to calculate the increase or reduction in the number of shares available for issuance under the 2019 Amended Plan.

The aggregate number of shares available for issuance under the 2019 Amended Plan will increase by 1.00 share for each share of common stock returned to the 2019 Amended Plan pursuant to a stock option or stock appreciation right and increase for each share:

On September 10, 2020, the Company's stockholders approved an amendment and restatement of the 2019 Equity Incentive Plan (2019 First Amended Plan) to increase the number of shares reserved for issuance by 4,700,000 shares, established a one-year minimum vesting requirement for awards granted on or after September 10, 2020, and change the "fungible share counting ratio" used to calculate the increase or reduction in the number of shares available for issuance under the 2019 First Amended Plan.

On August 24, 2022, the Company's stockholders approved an amendment to the 2019 First Amended Plan (2019 Second Amended Plan).

This amendment increased the number of shares reserved for issuance by 7,000,000 shares and changed the "fungible share counting ratio" used to calculate the increase or reduction in the number of shares available for issuance under the 2019 Second Amended Plan.

At August 24, 2022, there was a total of 8,764,811 shares reserved for issuance under the 2019 Second Amended Plan, which consisted of 7,000,000 new shares plus 1,764,811 shares that remained available for grant under the 2019 First Amended Plan as of August 24, 2022, the effective date of the 2019 Second Amended Plan.

We refer the the 2019 Plan, 2019 First Amended Plan and 2019 Second Amended Plan collectively as the "Amended 2019 Plan".

The aggregate number of shares available for issuance under the 2019 Second Amended Plan will increase for any shares (each a "Returning Share"):

(i) subject to an award granted under the Amended 2007 Plan or Amended 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) any shares subject to an award under the Amended 2007 Plan or 2019 Amended Plan that are not issued because such award is settled in cash;

(iii) any shares issued pursuant to an award granted under the Amended 2007 Plan or 2019 Amended Plan that are forfeited back to or repurchased by the Company because of failure to vest;

and (iv) any shares that are reacquired or withheld by the Company to satisfy tax withholding obligations in connection with common stock issued pursuant to restricted stock, restricted stock units, performance stock awards, or other stock awards granted under the Amended 2007 Plan and 2019 Amended Plan by 2.76 for awards that are returned to the 2019 Amended Plan prior to September 10, 2020 and by 2.32 shares

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

for awards that are returned to the 2019 Amended Plan on or after September 10, 2020.

Furthermore, the share reserve under the 2019 Amended Plan is reduced by one share for each share of common stock issued pursuant to a stock option or stock appreciation right, 2.76 shares for each share of common stock issued pursuant to restricted stock, restricted stock units, performance stock awards, or other stock awards granted under the 2019 Amended Plan on or after September 12, 2019 but prior to September 10, 2020 and 2.32 shares for each share of common stock issued pursuant to restricted stock, restricted stock units, performance stock awards, or other stock awards after September 10, 2020.

At March 31, 2022, an aggregate of 4,627,934 shares of unvested equity awards were outstanding under the 2019 Amended Plan.

(ii) subject to an award under the Amended 2007 Plan or Amended 2019 Plan that are not issued because such award is settled in cash;

(iii) issued pursuant to an award granted under the Amended 2007 Plan or Amended 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 Amended 2007 Plan or Amended 2019 Plan.

The amount of such increase will be (i) one share for each Returning Share subject to a stock option or stock appreciation right with an exercise or strike price that is at least 100% of the fair market value of the Company's common stock on the date of grant (an "Appreciation Award");

and (ii) 2.34 shares for each Returning Share subject to an equity award other than an Appreciation Award (a "Full Value Award") that is returned on or after August 24, 2022.

Furthermore, the share reserve under the 2019 Second Amended Plan is reduced by:

(i) one share for each share of common stock issued pursuant to an Appreciation Award, (ii) 2.76 shares for each share of common stock issued pursuant to a Full Value Award granted under the Amended 2019 Plan on or after September 12, 2019 but prior to September 10, 2020;

(iii) 2.32 shares for each share of common stock issued pursuant to a Full Value Award granted under the Amended 2019 Plan on or after September 10, 2020 but prior to August 24, 2022;

and (iv) by 2.34 shares for each share of common stock issued pursuant to a Full Value Award granted under the Amended 2019 Plan on or after August 24, 2022.

At March 31, 2023, an aggregate of 5,749,471 shares of unvested equity awards granted under the amended 2019 Plan were outstanding.

The 2019 Amended Plan is administered by the Compensation Committee of the Board of Directors.

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The term of stock options granted cannot exceed seven years ( five years for incentive stock options granted to holders of more than 10 % of the voting stock of NetScout).

Based on historical experience, the Company assumed an annualized forfeiture rate of 0 % for awards granted to its independent directors, approximately 2 % for awards granted to its senior executives, and approximately 5 % granted to all remaining employees during the fiscal years ended March 31, 2022, 2021 and 2020.

Based on historical experience, the Company assumed an annualized forfeit ure rate of 0 % for awards granted to its independent directors, approximately 2 % for awards granted to its senior executives, and approximately 5 % granted to all remaining employees during the fiscal years ended March 31, 2023, 2022 and 2021.

Periodically, the Company grants share-based awards to employees, officers, and directors of the Company and its subsidiaries.

During the fiscal year ended March 31, 2022, the Company granted 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 three-year period.

During the fiscal years ended March 31, 2023 and 2022, the Company granted 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 three-year period.

The performance-based restricted stock units were valued using the Monte Carlo Simulation model.

The measurement and recognition of compensation expense is based on estimated fair values for all share-based payment awards made to its employees and directors.

Share-based award grants are generally measured at fair value on the date of grant based on the number of shares granted and the quoted price of the Company's common stock.

Share-based award grants are generally measured at fair value on the date

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

of grant based on the number of shares granted and the quoted price of the Company's common stock.

Such value is recognized as a cost of revenue or an operating expense over the corresponding vesting period.

The following is a summary of share-based compensation expense including restricted stock units and performance-based restricted stock units granted pursuant to the Company's Amended 2007 Plan, the 2019 Plan, and the 2019 Amended Plan and employee stock purchases made under the Company's 2011 Employee Stock Purchase Plan, as amended, (ESPP), based on estimated fair values within the applicable cost and expense lines identified below (in thousands):

The following is a summary of share-based compensation expense including restricted stock units and performance-based restricted stock units granted pursuant to the Company's Amended 2007 Plan, the 2019 Plan, the 2019 Amended Plan, and the 2019 Second Amended Plan, and employee stock purchases made under the Company's 2011 Amended and Restated Employee Stock Purchase Plan (ESPP), based on estimated fair values within the applicable cost and expense lines identified below (in thousands):

Fiscal Year Ended March 31,

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$ 61,986 $ 56,074 $ 51,892

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

Transactions under the Amended 2007, 2019 Plan and 2019 Amended Plan during the fiscal years ended March 31, 2022, 2021 and 2020 are summarized in the table below.

Transactions under the Amended 2007, 2019 Plan, the 2019 Amended Plan, and the 2019 Second Amended Plan during the fiscal years ended March 31, 2023, 2022 and 2021 are summarized in the table below.

Restricted Stock Units

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Outstanding – March 31, 2023 5,749,471 $ 31.07

At March 31, 2022, there were 4,779,939 shares of common stock available for grant under the 2019 Amended Plan.

The Company does not currently expect to repurchase shares from any source to satisfy its obligations under the 2019 Amended Plan.

At March 31, 2023, the re were 6,241,002 shares of common stock available for grant under the 2019 Second Amended Plan.

The aggregate intrinsic value of stock options exercised and the fair value of restricted stock units vested at March 31, 2023, 2022 and 2021 were as follows (in thousands):

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Total fair value of restricted stock unit awards vested $ 61,128 $ 49,593 $ 42,510

At March 31, 2022, the total unrecognized compensation cost related to restricted stock unit awards was $ 95.9 million, which is expected to be amortized over a weighted-average period of 1.3 years.

At March 31, 2023, the total unrecognized compensation cost related to restricted stock unit aw ards was $ 135.1 million, which is expected to be amortized over a weighted-average period of 1.4 years.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

NOTE 15 – PENSION BENEFIT PLANS

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In general, these plans are funded based on considerations relating to legal requirements, underlying asset returns, the plan's funded status, the anticipated deductibility of the contribution, local practices, market conditions, interest rates and other factors.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

The components of the change in benefit obligation of the pension plan is as follows (in thousands):

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Benefits paid and other ( 535 ) ( 422 )

Actuarial (gain) loss ( 2,761 ) 2,205

Actuarial gain ( 8,207 ) ( 2,761 )

Foreign exchange rate impact ( 530 ) ( 2,445 )

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Rate of compensation increase 3.00 % 3.00 % 3.00 %

As of March 31, 2022, unrecognized actuarial gain of $ 2.8 million ($ 1.9 million, net of tax) which have not yet been recognized in net periodic pension cost are included in accumulated other comprehensive income (loss).

The unrecognized actuarial gains and losses are calculated as the difference between the actuarially determined projected benefit obligation and the value of the plan assets less accrued pension costs.

None of this amount is expected to be recognized in net periodic pension costs during the fiscal year ending March 31, 2022.

No plan assets are expected to be returned to the Company during the fiscal year ending March 31, 2022.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

As of March 31, 2023, unrecognized actuarial gain of $ 8.2 million ($ 5.8 million, net of tax) whi ch have not yet been recognized in net periodic pension cost are included in accumulated other comprehensive income.

None of this amount is expected to be recognized in net periodic pension costs during the fiscal year endin g March 31, 2024.

No plan assets are expected to be returned to the Company during the fiscal year ending March 31, 2024.

Expected Contributions

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$ 68,415 $ 42,892 $ 22,304

The components of the income tax expense (benefit) are as follows (in thousands):

The components of the income tax expense are as follows (in thousands):

Fiscal Year Ended March 31,

13 unchanged sentences

Notes to Consolidated Financial Statements—(Continued)

The income tax expense (benefit) computed using the U.S.

The income tax expense computed using the U.S.

statutory federal income tax rate differs from NetScout's effective tax rate primarily due to the following:

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Change in valuation allowance 3.5 5.1 24.0

Internal restructuring charges — — 196.5

Stock compensation ( 0.6 ) 2.0 5.1

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Foreign derived intangible income ( 11.7 ) ( 12.6 ) ( 24.5 )

Base erosion and anti-abuse act — — ( 322.8 )

Foreign withholding 4.1 5.2 13.8

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12.8 % 16.4 % 13.2 %

Certain amounts in the table above for the fiscal years ended March 31, 2021 and 2020 have been reclassified to conform to the current period presentation.

The components of net deferred tax assets and liabilities are as follows (in thousands):

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Accrued expenses $ 6,074 $ 8,721

Capitalized R&D expenses 40,909 —

Deferred revenue 24,112 17,267

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Total deferred tax liabilities $ ( 20,405 ) $ ( 72,016 )

The 2017 Tax Cuts and Jobs Act (TCJA) contained a provision which became effective for R&D expenditures incurred in years beginning on or after Jan.

1, 2022, that R&D expenditures incurred are no longer allowed as an immediate deduction for federal income tax purposes.

Rather, R&D expenditures incurred must be capitalized and amortized over a five-year period or fifteen -year period depending on if the expenditures are domestic or foreign, respectively.

NetScout Systems, Inc.

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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.

In situations where the Company concludes that it does not have sufficient objective and verifiable evidence to suppo rt the realizability of the asset it creates a valuation allowance against it.

As a result, the Company established a valuation allowance of $ 13.2 million as of March 31, 2022 and $ 15.6 million as of March 31, 2023, representing an increase of $ 2.4 million.

1 unchanged sentence

foreign tax credits that the Company believes are not more likely than not to be realized.

If it is later determined the Company is able to use all or a portion of the deferred tax assets for which a valuation allowance has been established, then the Company may be required to recognize these deferred tax assets as a tax benefit recorded in the period such determination is made.

I f it is later determined the Company is able to use all or a portion of the deferred tax assets for which a valuation allowance has been established, then the Company may be required to recognize these deferred tax assets as a tax benefit recorded in the period such determination is made.

At March 31, 2023, the Company had U.S.

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Reductions of prior years tax positions due to lapse of statute of limitations — ( 303 ) ( 286 )

Increase in unrecognized tax benefits as a result of a tax position taken during a prior period 358 — —

Balance at March 31, $ 1,024 $ 638 $ 913

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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 $ 141 million.

The Company does not expect taxes related to the unremitted foreign earnings to be material if they were distributed which would primarily consist of foreign withholding taxes.

Unremitted foreign earnings total approximatel y $ 144 million.

T he Company does not expect taxes related to the unremitted foreign earnings to be material if they were distributed which would primarily consist of foreign withholding taxes.

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

NOTE 17 – LEASES

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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

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

and to not recognize ROU assets and lease liabilities for short-term leases.

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.

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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.

1 unchanged sentence

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

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

NetScout Systems, Inc.

Notes to Consolidated Financial Statements—(Continued)

loss associated with such damages award remains "probable" in accounting terms, and that the risk of loss associated with pre-suit damages is remote.

associated with such damages award remains "probable" in accounting terms, and that the risk of loss associated with pre-suit damages is remote.

Unconditional Purchase Obligations

At March 31, 2022, the Company had unconditional purchase obligations of $ 74.1 million, which represent estimated open purchase orders to purchase inventory as well as commitments for products and services used in the normal course of business.

At March 31, 2023, the Company had unconditional purchase obligations of $ 100.1 million, which represent estimated open purchase orders to purchase inventory as well as commitments for products and services used i n the normal course of business.

NOTE 19 – SEGMENT AND GEOGRAPHIC INFORMATION

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Substantially all of the Company's identifiable assets are located in the United States.

NOTE 21 – SUBSEQUENT EVENTS

On May 3, 2022, the Company’s Board of Directors approved a new share repurchase program that will enable the Company to repurchase up to twenty-five million shares of its common stock.

This new program will become effective once the Company’s existing twenty-five million share repurchase program that was approved October 24, 2017 is completed.

As of March 31, 2022, there were 5,758,482 shares available for repurchase under the existing program.

The Company plans to acquire shares in open market transactions that may use a 10b5-1 plan, and may also repurchase shares via accelerated share repurchase program (ASR), tender offers, privately negotiated transactions or by other means.

Repurchases under this new program will be funded from one or a combination of existing cash balances, future free cash flow and indebtedness.

The Company is not obligated to acquire any specific amount of common stock within any particular timeframe as a result of its new share repurchase program.

The timing and amount of future repurchase activity under the new program will depend on market conditions, corporate considerations, debt agreements, and regulatory requirements.

The new program may be modified, suspended or terminated at any time by the Board.

On May 3, 2022, the Company's Board of Directors authorized an accelerated share repurchase program (ASR Program) to repurchase an aggregate of up to $ 150 million of the Company's common stock under the Company's existing twenty-five million share repurchase program approved on October 24, 2017 (until such program was completed) and the new twenty-five million share repurchase program approved on May 3, 2022.

On May 9, 2022, the Company announced that it entered into agreements with Mizuho Markets Americas LLC and Wells Fargo Bank, National Association (the Dealers) to repurchase an aggregate of $ 150 million of the Company's common stock via the ASR Program.

On May 9, 2022, the Company repaid $ 150.0 million of borrowings under the Second Amended and Restated Credit Agreement.

In May of 2022, the Company received the District Court's ruling regarding enhanced damages for the Packet Intelligence matter.

The Company accrued an additional $ 1.1 million related to that ruling after the issuance of its earnings release on May 5, 2022 as the amount became probable and estimable.

NetScout Systems, Inc.

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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 9A. Controls and Procedures