What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-05-16 compared with 2023-05-16 · 164 added, 138 removed, 292 unchanged (51% of the section changed)

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

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

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

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

With our offerings, customers can quickly, efficiently and effectively identify and resolve issues that result in downtime, interruptions to services, poor service quality or compromised data, thereby reducing meantime-to-resolution of issues and driving compelling returns on their investments in their networks and broader technology initiatives.

Some of the more significant technology trends and catalysts for our business include the evolution of customers' digital transformation initiatives such as the migration to cloud environments, the rapidly evolving cybersecurity threat landscape, business intelligence and analytics advancements, and the 5G evolution in both the service provider and enterprise customer verticals.

Some of the more significant technology trends and catalysts for our business include the evolution of customers' digital transformation initiatives such as the migration to cloud environments, the rapidly evolving cybersecurity threat landscape, artificial intelligence and business analytics advancements, and the 5G technology evolution in both the service provider and enterprise customer verticals.

Our operating results are influenced by a number of factors, including, but not limited to, the mix and quantity of products and services sold, pricing, costs and availability of materials used in our products, growth in employee-related costs, including commissions, and the expansion of our operations.

Factors that affect our ability to maximize our operating results include, but are not limited to, our ability to introduce and enhance existing products, the marketplace acceptance of those new or enhanced products, continued expansion into international markets, expansion into new or adjacent markets, development of strategic partnerships, competition, successful acquisition integration efforts, and our ability to control costs and make improvements in a highly competitive industry.

In response to the Russian military operations in Ukraine, we have ceased business operations in Russia, including sales, support on existing contracts and professional services.

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

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

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

Factors that affect our ability to maximize our operating results include, but are not limited to, our ability to introduce and enhance existing products, the marketplace acceptance of those new or enhanced products, continued expansion into international markets, expansion into new or adjacent markets, development of strategic partnerships, competition, successful acquisition and integration efforts, and our ability to control costs and make improvements in a highly competitive industry.

Global and Macroeconomic Conditions

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

The impacts of these global and macroeconomic conditions remain uncertain.

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

Though we continue to monitor these impacts, we believe our current cash reserves and access to capital through our revolving credit facility leave us well-positioned to manage our business in today's environment.

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

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

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

We continue to closely monitor current global and macroeconomic conditions, including the impacts of the ongoing war in Ukraine and hostilities in the Middle East, global geopolitical tension, stock market volatility, industry-specific capital spending trends, exchange rate fluctuations, inflation, interest rates, and the risk of a recession, including the manner and extent to which they have impacted and could continue to impact our business, customers, employees, supply chain, and distribution network.

The full extent of the impacts of these global and macroeconomic conditions remain uncertain.

For the fiscal year ended March 31, 2024, we observed that our cybersecurity revenue grew, likely due to heightened geopolitical tensions and the evolving cyber threat landscape, while our service assurance revenue declined, primarily related to the domestic service provider industry which is challenged by a constrained spending environment.

In this environment, we continued to focus on advancing our products, expanding revenue, enhancing earnings per share, and generating free cash flow.

In response to the war in Ukraine, we ceased business operations in Russia, including sales, support on existing contracts and professional services.

The macroeconomic environment remains challenging with constrained customer spending and we expect this to persist into the remainder of fiscal year 2025.

Although we expect our cybersecurity momentum to continue, this is likely to be offset with continued pressure on the service assurance offerings, primarily impacting our service provider customers.

The enterprise vertical of service assurance is anticipated to stabilize.

As a result, we have continued our efforts to manage discretionary costs and align spending with the current environment while we continue to execute on our long-term strategic plans.

Though we continue to monitor the impacts of evolving global and macroeconomic conditions on our business, we believe our current cash reserves and access to capital through our revolving credit facility leave us well-positioned to manage our business in today's environment.

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

We continue to take actions to manage costs and increase productivity throughout our company, including managing discretionary spending and hiring activities, but are continuing to invest in areas that advance our business for the future.

In addition to our cash equivalents, based on covenant levels at March 31, 2024, we had an incremental $700 million available to us under our revolving credit facility.

Results Overview

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

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

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

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

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

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

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

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

Total revenue decreased $85.1 million for the fiscal year ended March 31, 2024 as compared to total revenue for the fiscal year ended March 31, 2023 primarily due to a decrease in revenue from our service assurance offerings from both enterprise and primarily service provider customers, partially offset by an increase in revenue from our cybersecurity offerings, and an increase in service revenue from maintenance contracts and professional service contracts.

The decrease in revenue from our service provider customers included lower revenue from radio frequency propagation modeling projects during the fiscal year ended March 31, 2024.

Our gross profit percentage increased by one percentage point to 77% during the fiscal year ended March 31, 2024 as compared with the fiscal year ended March 31, 2023 primarily due to product mix with less revenue during the fiscal year ended March 31, 2024 from radio frequency propagation modeling projects, which have lower margins, as well as lower incentive compensation expense.

Net loss for the fiscal year ended March 31, 2024 was $147.7 million, as compared with net income for the fiscal year ended March 31, 2023 of $59.6 million, a decrease in net income (loss) of $207.3 million.

The decrease in net income (loss) was primarily due to a $217.3 million goodwill impairment charge, an $85.1 million decrease in revenue, a $1.4 million increase in contractor fees, a $1.3 million increase in travel expense, and a $1.0 million increase in accounting related expenses.

These decreases in net income (loss) were partially offset by a $23.7 million decrease in costs to deliver radio frequency propagation modeling projects, a $17.1 million decrease in employee-related expenses associated with a decrease in variable incentive compensation, a $7.9 million decrease in amortization expense, a $7.2 million increase in the fair value of an equity investment, a $6.0 million decrease in legal fees mainly due to a favorable decision related to the Packet Intelligence LLC appeal, a $5.5 million decrease in expenses related to trade shows, user conferences and other events, a $5.5 million decrease in income tax expense, a $4.7 million increase in interest income, a $3.8 million gain on the divestiture of the Test Optimization business, a $3.4 million decrease in advertising expense, a $2.8 million decrease from depreciation expense, a $1.8 million decrease in restructuring expense, a $1.7 million decrease in recruiting expenses, a $1.6 million decrease in commissions expense, a $1.6 million decrease in interest expense, a $1.3 million decrease in direct material costs, and a $1.1 million decrease in business taxes.

At March 31, 2024, we had cash, cash equivalents, and marketable securities and investments (current and non-current) of $424.1 million.

This represents a decrease of $3.8 million compared to the fiscal year ended March 31, 2023.

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

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

This decrease was primarily due to $50.0 million used to repurchase shares of our common stock, $19.4 million used for tax withholdings on restricted stock units, and $6.3 million used for capital expenditures.

These decreases were partially offset by $58.8 million of net cash provided by operating activities, and $7.8 million in proceeds from the divestiture of the Test Optimization business during the fiscal year ended March 31, 2024.

Use of Non-GAAP Financial Measures

We supplement the United States generally accepted accounting principles (GAAP) financial measures we report in quarterly and annual earnings announcements, investor presentations and other investor communications by reporting the following non-GAAP measures:

non-GAAP revenue, non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income, non-GAAP net income per share (diluted) and non-GAAP earnings before interest and other expense, income taxes, depreciation, and amortization (EBITDA) from operations.

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

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

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

non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income, non-GAAP net income per share (diluted) and non-GAAP earnings before interest and other expense, income taxes, depreciation, and amortization (EBITDA) from operations.

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

Non-GAAP income from operations removes the aforementioned adjustments and also removes business development and integration expense, compensation for post-combination services, legal (benefit) expense related to civil judgments, goodwill impairment charges, gain on the divestiture of a business, restructuring charges, and transitional service agreement expenses.

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

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The presentation of non-GAAP information is not meant to be considered superior to, in isolation from, or as a substitute for results prepared in accordance with GAAP.

Management believes these non-GAAP financial measures will enhance the reader's overall understanding of our current financial performance and our prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how we plan and measure our business.

measures and providing a level of disclosure that helps investors understand how we plan and measure our business.

We believe that providing these non-GAAP measures affords investors a view of our operating results that may be more easily compared to peer companies and also enables investors to consider our operating results on both a GAAP and non-GAAP basis during and following the integration period of our acquisitions.

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Furthermore, management believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures provides useful information to management and investors regarding present and future business trends relating to our financial condition and results of operations.

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

The following table reconciles gross profit, income (loss) from operations, net income (loss) and net income (loss) per share on a GAAP and non-GAAP basis for the fiscal years ended March 31, 2024, 2023 and 2022, respectively (dollars in thousands, except for per share data):

Fiscal Year Ended March 31,

(Dollars in Thousands, Except per Share Data)

2024 2023 2022

GAAP revenue $ 914,530 $ 855,575 $ 831,282

Service deferred revenue fair value adjustment — — 6

Non-GAAP revenue $ 914,530 $ 855,575 $ 831,288

Revenue (GAAP and non-GAAP) $ 829,455 $ 914,530 $ 855,575

GAAP gross profit $ 642,043 $ 691,432 $ 641,389

Service deferred revenue fair value adjustment — — 6

Share-based compensation expense 10,229 8,415 7,042

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Non-GAAP gross profit $ 658,833 $ 709,153 $ 661,840

GAAP income from operations $ 77,664 $ 48,634 $ 37,130

Service deferred revenue fair value adjustment — — 6

GAAP income (loss) from operations $ (149,826) $ 77,664 $ 48,634

Share-based compensation expense 70,799 61,986 56,074

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Restructuring charges — 1,782 —

Goodwill impairment 217,260 — —

Acquisition related depreciation expense 119 241 254

Transitional service agreement expense — — 814

Legal judgments expense 476 1,100 2,804

Gain on divestiture of a business (3,806) — —

Legal (benefit) expense related to civil judgments (4,380) 476 1,100

Non-GAAP income from operations $ 187,052 $ 206,823 $ 179,999

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

Service deferred revenue fair value adjustment — — 6

GAAP net income (loss) $ (147,734) $ 59,648 $ 35,874

Share-based compensation expense 70,799 61,986 56,074

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Restructuring charges — 1,782 —

Goodwill impairment 217,260 — —

Acquisition-related depreciation expense 119 241 254

Gain on divestiture of a business (3,806) — —

Loss on extinguishment of debt — — 596

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

Legal (benefit) expense related to civil judgments (4,380) 476 1,100

Change in fair value of derivative instrument (206) 1,380 —

Legal judgments expense 476 1,100 2,804

Income tax adjustments (29,828) (30,626) (27,796)

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Fiscal Year Ended March 31,

(Dollars in Thousands, Except per Share Data)

2024 2023 2022

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

GAAP diluted net income (loss) per share $ (2.07) $ 0.82 $ 0.48

Per share impact of non-GAAP adjustments identified above 4.27 1.36 1.36

Non-GAAP diluted net income per share $ 2.20 $ 2.18 $ 1.84

GAAP income from operations $ 77,664 $ 48,634 $ 37,130

GAAP income (loss) from operations $ (149,826) $ 77,664 $ 48,634

Previous adjustments to determine non-GAAP income from operations 336,878 129,159 131,365

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Critical Accounting Policies and Estimates

We consider accounting policies and estimates related to revenue recognition, and valuation of goodwill, intangible assets and other acquisition accounting items to be critical in fully understanding and evaluating our financial results.

We consider accounting policies and estimates related to revenue recognition, and valuation of goodwill, intangible assets and other acquisition and divestiture accounting items to be critical in fully understanding and evaluating our financial results.

We apply significant judgment and create estimates when applying these policies.

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Bundled arrangements are concurrent customer purchases of a combination of our product and service offerings that may be delivered at various points in time.

We allocate the transaction price among the performance obligations in an amount that depicts the relative standalone selling prices (SSP) of each obligation.

We allocate the transaction price among the performance obligations in an amount that

depicts the relative standalone selling prices (SSP) of each obligation.

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

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In addition, we have a history of successfully collecting receivables from our resellers and distributors.

Valuation of Goodwill, Intangible Assets and Other Acquisition Accounting Items

Valuation of Goodwill, Intangible Assets and Other Acquisition and Divestiture Accounting Items

We amortize acquired definite-lived intangible assets over their estimated useful lives.

Goodwill and other indefinite-lived intangible assets are not amortized but subject to annual impairment tests;

more frequently if events or circumstances occur that would indicate a potential decline in their fair value.

Goodwill is not amortized but subject to annual impairment tests;

more frequently if events or circumstances occur (a "triggering event") that would indicate the fair value of our reporting unit is below its carrying value.

We perform the assessment annually during the fourth quarter and on an interim basis if potential impairment indicators arise.

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

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

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

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

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

We did not complete any acquisitions and completed one divestiture during the three years ended March 31, 2024.

Comparison of Years Ended March 31, 2024 and 2023

The sections that follow discuss our consolidated statement of operations data for the fiscal years ended March 31, 2024 and March 31, 2023 including results as a percentage of revenue for those periods.

For a discussion of (i) our consolidated statement of operations data for the fiscal year ended March 31, 2021 including results as a percentage of revenue for that period, as well as (ii) our liquidity and capital resources for the fiscal year ended March 31, 2021, see "Comparison of Years Ended March 31, 2022 and 2021" and "Liquidity and Capital Resources" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the SEC on May 19, 2022 (our 2022 Annual Report).

For a discussion of (i) our consolidated statement of operations data for the fiscal year ended March 31, 2022 including results as a percentage of revenue for that period, as well as (ii) our liquidity and capital resources for the fiscal year ended March 31, 2022, see "Comparison of Years Ended March 31, 2023 and 2022" and "Liquidity and Capital Resources" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, filed with t he SEC on May 16, 2023 (our 2023 Annual Report).

Results of Operations

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

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

During the fiscal year ended March 31, 2024, no direct customer or indirect channel partner accounted for more than 10% of our total revenue.

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

Fiscal Year Ended March 31,

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Total revenue $ 829,455 100 % $ 914,530 100 % $ (85,075) (9) %

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

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

The 20%, or $90.3 million, decrease in product revenue compared with the same period last year was due to a decrease in revenue from service assurance offerings from both service provider and enterprise customers, including radio frequency propagation modeling projects, as a result of industry-specific capital spending constraints.

This decrease in revenue was partially offset by an increase in revenue from cybersecurity offerings from both service provider and enterprise customers.

The 1%, or $5.3 million, increase in service revenue compared with the same period last year was primarily due to an increase in revenue from maintenance contracts and professional service contracts.

Total revenue by geography was as follows:

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Total revenue $ 829,455 100 % $ 914,530 100 % $ (85,075) (9) %

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

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

United States revenue decreased 19%, or $113.1 million, compared with the same period last year primarily due to a decrease in revenue from service assurance offerings from both enterprise and service provider customers, including radio frequency propagation modeling projects.

International revenue increased 8%, or $28.1 million, compared to the same period last year primarily driven by higher revenue from both enterprise and service provider customers from cybersecurity offerings.

Total revenue by product line was as follows:

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Total revenue $ 829,455 100 % $ 914,530 100 % $ (85,075) (9) %

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

The 18%, or $121.1 million, decrease in revenue from the service assurance product line included a decrease in revenue from radio frequency propagation modeling projects from service provider customers as well as industry-specific capital spending constraints among both service provider and enterprise customers.

The 15%, or $36.0 million, increase in revenue from the cybersecurity product line was due to an increase in revenue from service provider and enterprise customers.

Cost of Revenue and Gross Profit

Cost of product revenue consists primarily of material components, personnel expenses, packaging materials, overhead and amortization of capitalized software, acquired developed technology and core technology.

Cost of product revenue consists primarily of material components, personnel expenses, packaging materials, overhead and amortization of acquired developed technology.

Cost of service revenue consists primarily of personnel, material, overhead and support costs.

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Total gross profit % 77 % 76 % 1 %

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

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

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

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

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

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

T he service gross profit percentage remained

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

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

The 32%, or $30.8 million, decrease in cost of product revenue for the fiscal year ended March 31, 2024 compared to the same period last year was primarily due to a $23.7 million decrease in costs related to the delivery of radio frequency propagation modeling projects, a $2.8.

million decrease in the amortization of intangible assets, a $1.6 million decrease in employee-related costs associated with the timing of certain projects, a $1.3 million decrease in direct material costs, and a $0.8 million decrease in obsolescence charges.

The product gross profit percentage increased by three percentage points to 82% during the fiscal year ended March 31, 2024 as compared to the same period in the prior year.

The 17%, or $59.5 million, decrease in product gross profit, corresponds with the 20%, or $90.3 million, decrease in product revenue, partially offset by the 32%, or $30.8 million, decrease in cost of product revenue.

The 4%, or $4.9 million, decrease in cost of service revenue for the fiscal year ended March 31, 2024 compared to the same period last year was primarily due to a $5.4 million decrease in employee-related expenses largely due to a decrease in variable incentive compensation partially offset by an increase in employee-related costs associated with the timing of certain projects.

This decrease was partially offset by a $1.4 million increase in cost of materials used to support customers under service contracts.

The service gross profit percentage increased by two percentage points to 74% during the fiscal year ended March 31, 2024 compared to the same period in the prior year.

The 3%, or $10.1 million, increase in service gross profit

corresponds with the 1%, or $5.3 million, increase in service revenue and the 4%, or $4.9 million, decrease in cost of services revenue.

Gross profit.

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

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

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

Our gross profit decreased 7%, or $49.4 million, for the fiscal year ended March 31, 2024 compared to the same period last year.

This decrease is attributable to the 9%, or $85.1 million, decrease in revenue, partially offset by the 16%, or $35.7 million, decrease in cost of revenue.

The gross profit percentage increased by one percentage point to 77% during the fiscal year ended March 31, 2024 compared to the same period in the prior year.

Operating Expenses

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Restructuring charges — — 1,782 — (1,782) (100) %

Goodwill impairment 217,260 26 — — 217,260 100 %

Gain on divestiture of a business (3,806) — — — (3,806) (100) %

Total operating expenses $ 791,869 96 % $ 613,768 66 % $ 178,101 29 %

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Research and development expenses consist primarily of personnel expenses, fees for outside consultants, overhead and related expenses associated with the development of new products and the enhancement of existing products.

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

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

The 8%, or $15.0 million, decrease in res earch and development expenses for the fiscal year ended March 31, 2024 compared to the same period last year was primarily due to an $11.5 million decrease in employee-related costs due to a decrease in variable incentive compensation, a $1.6 million decrease in contractor fees, and a $1.6 million decrease in depreciation expense.

These decreases were partially offset by a $0.7 million increase in rent and other facilities related expense.

Sales and marketing.

Sales and marketing expenses consist primarily of personnel expenses and commissions, overhead and other expenses associated with selling activities and marketing programs such as trade shows, seminars, advertising, and new product launch activities.

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

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

The 2%, or $5.9 million, decrease in total sales and marketing expenses for the fiscal year ended March 31, 2024 compared to the same period last year was prima rily due to a $5.5 million decrease in expenses related to trade shows, user conferences and other events, a $3.4 million decrease in advertising expense, a $1.6 million decrease in commissions expense, a $0.8 million decrease in recruitment expense, and a $0.5 million decrease in other marketing related expenses.

These decreases were partially offset by a $4.0 million increase in employee-related expenses largely due to an increase in variable incentive compensation as well as an increase in headcount, and a $1.8 million increase in travel expense.

General and administrative.

General and administrative expenses consist primarily of personnel expenses for executive, financial, legal, and human resource employees, overhead, and other corporate expenditures.

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

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

The 7%, or $7.6 million, decrease in general and administrative expenses for the fiscal year ended March 31, 2024 compared to the same period last year was primarily due to a $6.0 million decrease in legal-related expenses mainly due to a favorable decision related to the Packet Intelligence LLC appeal, a $1.6 million decrease in employee-related costs largely due to a decrease in variable incentive compensation, a $1.3 million decrease in business taxes, and a $0.8 million decrease in depreciation expense.

These decreases were partially offset by a $1.7 million increase in contractor fees, and a $1.0 million increase in accounting related expenses.

Amortization of acquired intangible assets.

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

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

Amortization of acquired intangible assets consists primarily of amortization of customer relationships, definite-lived trademark and trade names, and leasehold interests related to our acquisition of

Danaher Corporation's communication business (Comms Transaction), Network General Corporation, Avvasi Incorporated and Efflux Systems, Inc.

The 9%, or $5.1 million, decrease in amortization of acquired intangible assets for the fiscal year ended March 31, 2024 compared to the fiscal year ended March 31, 2023 was p rimarily due to a decrease in the amortization of intangible assets acquired as part of the Comms Transaction and the Network General Corporation transaction.

Restructuring charges.

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

Interest and Other Expense, Net

Interest and other expense, net includes interest earned on our cash, cash equivalents and marketable securities, interest expense and other non-operating gains or losses.

Goodwill impairment.

During the fiscal year ended March 31, 2024, we recorded $217.3 million in goodwill impairment charges.

As a result of a sustained decline in our stock price and overall market capitalization during the third quarter of fiscal year 2024, along with other qualitative considerations including the continued impact from the macroeconomic environment, we determined a triggering event occurred, indicating goodwill may be impaired.

Accordingly, we performed a quantitative impairment test of goodwill at December 31, 2023.

We estimated the implied fair value of our reporting unit using a market approach.

As a result of the quantitative impairment test, we determined goodwill was impaired and recorded a goodwill impairment charge of $167.1 million during the third quarter of fiscal year 2024.

During the fourth quarter of fiscal year 2024, we performed our annual goodwill impairment test as of January 31, 2024, again using a quantitative assessment and estimated the implied fair value of our reporting unit using a market approach.

As a result of the quantitative impairment test, we determined goodwill was further impaired and recorded an impairment charge of $50.2 million during the fourth quarter of fiscal year 2024.

The additional impairment charge recorded in the fourth quarter of fiscal year 2024 was primarily due to a decrease in our stock price from December 31, 2023 to January 31, 2024 and an increase in the forecasted interest rate, which impacted our weighted-average cost of capital.

At March 31, 2024, we performed a triggering event assessment and concluded no events or circumstances occurred that indicated goodwill was further impaired.

During fiscal year 2023, our annual impairment tests was completed as of January 31, 2023 using the qualitative assessment, which indicated that goodwill was not impaired.

The key assumption in the market approach utilized in fiscal year 2024 to determine the fair value of the reporting unit in our quantitative goodwill impairment assessment was the company-specific control premium, which was estimated using expected synergies that would be realized by a hypothetical buyer.

We also compared the implied control premium to recent control premiums paid in the industry, as evidenced by guideline public company comparable transactions.

This information corroborated that the company-specific control premium was within the range of premiums for other companies operating in the industry.

Changes in the estimates or assumptions used in its quantitative impairment test could materially affect the determination of fair value and the associated goodwill impairment assessment.

Potential events and circumstances that could have an adverse impact on our estimates and assumptions include, but are not limited to, continued increases in costs, and rising interest rates and other macroeconomic factors.

An increase or decrease of 1% in the company-specific control premium used in the determination of the fair value of the reporting unit under the market approach at December 31, 2023 and January 31, 2024 would have resulted in an increase or decrease in the goodwill impairment recorded of approximately $15.6 million and $15.3 million, respectively.

We will continue to monitor relevant facts and circumstances, including future changes in our stock price.

We may be required to record additional goodwill impairment charges.

While management cannot predict if or when additional goodwill impairments may occur, future goodwill impairments could have material adverse effects on our results of operations and financial condition.

Gain on Divestiture of a Business.

During the fiscal year ended March 31, 2024, we recorded a $3.8 million gain on the divestiture of the Test Optimization business.

Interest and Other Income (Expense), Net

Interest and other income (expense), net includes interest earned on our cash, cash equivalents and marketable securities, interest expense and other non-operating gains or losses.

Fiscal Year Ended March 31,

(Dollars in Thousands) Change

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

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

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

Interest and other income (expense), net $ 5,316 1 % $ (9,249) (1) % $ 14,565 157 %

The 157%, or $14.6 million, change in interest and other income (expense), net was primarily due to a $7.2 million increase in the fair value of the equity investment in Napatech A/S (Napatech), a $4.7 million increase in interest income, and a $1.6 million decrease in interest expense due to debt repayments on the credit facility in March 2023, partially offset by an increase in the average interest rate on the credit facility during the fiscal year ended March 31, 2024 when compared to the fiscal year ended March 31, 2023.

In addition, there was a $0.9 million decrease in foreign exchange expense, and a $0.5 million increase in other income.

Income Tax Expense

In 2021, the Organization for Economic Co-operation and Development announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large multinational corporations at a minimum rate of 15%.

Subsequently multiple sets of administrative guidance have been issued.

Many non-US tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 with the adoption of additional components in later years or announced their plans to enact legislation in future years.

Considering we do not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, these rules are not expected to materially increase our global tax costs.

There remains uncertainty as to the final Pillar Two model rules.

We are continuing to evaluate the impacts of enacted legislation and pending legislation to enact Pillar Two Model Rules in the non-US tax jurisdictions we operate in.

The annual effective tax rate for the fiscal year ended March 31, 2024 was 2.2%, compared to an annual effective tax rate of 12.8% for the fiscal year ended March 31, 2023.

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

The effective tax rate for the fiscal year ended March 31, 2024 is lower than the effective rate for the fiscal year ended March 31, 2023, primarily due to a discrete benefit related to the finalization of our tax return filings and a significant nondeductible goodwill impairment charge.

Fiscal Year Ended March 31,

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NetScout filed an Answer denying Plaintiff's allegations and asserting that Plaintiff's patents were, among other things, invalid, not infringed, and unenforceable due to inequitable conduct.

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.

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

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

In October 2017, a 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.

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

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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.

In addition, on September 8 and 9, 2021, in proceedings initiated by third parties that did not involve NetScout, the Patent Trial and Appeal Board (PTAB) invalidated all the patent claims that were also asserted against NetScout in this case.

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

On September 8 and 9, 2021, in proceedings initiated by third parties that did not involve NetScout, the Patent Trial and Appeal Board (PTAB) invalidated all the patent claims that were also asserted against NetScout in this case.

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 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 denied NetScout’s motion with respect to its request to dismiss the case and enter judgment in its favor.

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.

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

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

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

On May 2, 2024, in a separate action the Federal Circuit affirmed the PTAB decisions, which as a result found that all of the patent claims asserted by Packet Intelligence against NetScout were invalid.

Also on May 2, 2024, the Federal Circuit ruled in NetScout's favor in its appeal, vacating the District Court's final judgment and remanding the case to the District Court to dismiss the case against NetScout as moot.

In view of the current circumstances, NetScout has concluded that the risk of loss associated with damages that may result from this case is remote.

As a result, we recorded a $4.6 million reduction in contingent liabilities and legal fees during the year ended March 31, 2024.

Warranty and Indemnification - We warrant that our software and hardware products will substantially conform to the documentation accompanying such products on their original date of shipment.

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Liquidity and Capital Resources

Cash, cash equivalents and marketable securities consist of the following (in thousands):

Cash, cash equivalents and marketable securities and investments consisted of the following (in thousands):

(Dollars in Thousands)

Cash and cash equivalents $ 389,674 $ 386,794

Short-term marketable securities 32,204 67,037

Short-term marketable securities and investments 33,459 32,204

Long-term marketable securities 994 8,940

Cash, cash equivalents and marketable securities $ 427,938 $ 703,198

Cash, cash equivalents and marketable securities

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

Cash, cash equivalents, marketable securities and investments $ 424,127 $ 427,938

Cash, cash equivalents, marketable securities and investments

At March 31, 2024, cash, cash equivalents, marketable securities and investments (current and non-current) totaled $424.1 million.

This represents a decrease of $3.8 million from $427.9 million at March 31, 2023.

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

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

These decreases were partially offset by $58.5 million of net cash provided by operating activities, and $7.8 million in proceeds from the divestiture of the Test Optimization business during the fiscal year ended March 31, 2024.

At March 31, 2024, cash, short-term and long-term marketable securities in the United States was approximately $254.6 million, while cash and short-term investments held outside of the United States was approximately $169.5 million.

Cash and cash equivalents were impacted by the following:

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Net cash provided by operating activities $ 58,811 $ 156,650

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

Net cash provided by investing activities $ 13,358 $ 15,304

Net cash used in financing activities $ (69,352) $ (419,430)

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Net cash provided by operating activities was $58.8 million during the fiscal year ended March 31, 2024, compared to $156.7 million of net cash provided by operating activities during the fiscal year ended March 31, 2023.

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

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

This $97.9 million decrease was due in part to a $207.4 million decrease from the change in net income (loss), a $53.3 million decrease from accounts receivable and unbilled costs, a $45.8 million decrease from accrued compensation and other expenses, a $10.9 million decrease from depreciation and amortization, a $10.9 million decrease from prepaid expenses and other assets, an $8.4 million decrease from inventories, a $5.5 million decrease in other gains related to the change in the fair value of an equity investment, a $3.8 million decrease from the gain on the divestiture of the Test Optimization business, a $3.8 million decrease from income taxes payable, and a $1.6 million decrease from the change in fair value of a derivative instrument.

These decreases were partially offset by a $217.3 million goodwill impairment charge, a $15.4 million increase from deferred revenue, an $8.8 million increase from share-based compensation, an $8.1 million increase from deferred income taxes, and a $3.7 million increase from accounts payable during the fiscal year ended March 31, 2024 as compared with the fiscal year ended March 31, 2023.

Accounts receivable days sales outstanding was 81 days at March 31, 2024 compared to 58 days at March 31, 2023.

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(Dollars in Thousands)

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

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

Proceeds from maturity of marketable securities 140,462 20,569

Cash provided by investing activities included the following:

Purchase of marketable securities and investments $ (52,774) $ (114,513)

Proceeds from sales and maturity of marketable securities 64,728 140,462

Purchase of fixed assets (6,337) (10,487)

Purchase of intangible assets — (161)

Decrease (increase) in deposits 3 (155)

Proceeds from divestiture of a business 7,766 —

(Increase) decrease in deposits (25) 3

$ 13,358 $ 15,304

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

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

Net cash provided by investing activities decreased by $1.9 million to $13.4 million during the fiscal year ended March 31, 2024, compared to $15.3 million of net cash provided by investing activities during the fiscal year ended March 31, 2023.

Net cash inflows relating to the purchase and sales of marketable securities and investments decreased $14.0 million relating to the amount of investments held at each respective balance sheet date, from an inflow of $25.9 million during the fiscal year ended March 31, 2023 to an inflow of $12.0 million during the fiscal year ended March 31, 2024.

The overall net decrease in cash inflow was due in part to the settlement of the forward purchase contract with Napatech in exchange for approximately 6.2 million shares of Napatech's common stock valued at $6.2 million in April 2023.

There was a $7.8 million increase in proceeds from the divestiture of the Test Optimization business during the fiscal year ended March 31, 2024.

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

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Issuance of common stock under stock plans $ 3 $ 2

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

Treasury stock repurchases, including accelerated share repurchases (50,000) (150,039)

Tax withholding on restricted stock units (19,355) (19,393)

Payment of debt issuance costs — (3,660)

Repayment of long-term debt — (250,000)

Proceeds from issuance of long-term debt — 350,000

Collection of contingent consideration — 837

$ (69,352) $ (419,430)

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

Net cash used in financing activities decreased $350.0 million to $69.4 million during the fiscal year ended March 31, 2024, compared to $419.4 million of net cash used in financing activities during the fiscal year ended March 31, 2023.

During the fiscal year ended March 31, 2024, we repurchased a total of 1,209,153 shares for $33.6 million in the open market under our twenty-five million share repurchase program authorized in 2017 (2017 Share Repurchase Program), and 614,516 shares for $16.4 million in the open market under the 2022 Share Repurchase Program.

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

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

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

Purchases during the fiscal year ended March 31, 2023 were under the 2017 Share Repurchase Program.

In connection with the delivery of common shares upon vesting of restricted stock units, we have withheld 653,645 shares for $19.4 million, and 562,360 shares for $19.4 million related to minimum statutory tax withholding requirements on these restricted stock units during the fiscal years ended March 31, 2024 and 2023, respectively.

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

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

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

Sources of Cash and Cash Requirements

Credit Facility

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

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

JPMorgan Chase Bank, N.A.

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

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

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

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

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

At March 31, 2024, $100 million was outstanding under the Second Amended and Restated Credit Agreement.

On May 13, 2024, we repaid $25.0 million of borrowings under the Second Amended and Restated Credit Agreement.

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

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

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

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

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

The First Amendment provides that U.S.

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

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

Letter of credit

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

For the period from the delivery of our financial statements for the quarter ended December 31, 2023, until we have delivered financial statements for the quarter ended March 31, 2024, the commitment fee will be 0.15% per annum, and thereafter the commitment fee will vary depending on our consolidated gross leverage ratio, ranging from 0.30% per annum if our consolidated gross leverage ratio is greater than 2.75 to 1.00, down to 0.15% per annum if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

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

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

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

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

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

The Second Amended and Restated Credit Agreement generally prohibits any other liens on the assets of NetScout and our restricted subsidiaries, subject to certain exceptions as described in the Second Amended and Restated Credit Agreement.

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

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

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

At March 31, 2024, we were in compliance with all covenants, including the specified total consolidated net leverage ratio range of 4.00 to 1.00.

The Second Amended and Restated Credit Agreement provides that events of default will exist in certain circumstances, including failure to make payment of principal or interest on the loans when required, failure to perform certain obligations under the Second Amended and Restated Credit Agreement and related documents including a failure to meet the maximum total consolidated net leverage ratio covenant, defaults under certain other indebtedness, certain insolvency events, certain events arising under ERISA, a change of control and certain other events.

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Contractual Obligations

Our contractual obligations at March 31, 2023 consisted mainly of (i) principal and interest related to our long-term debt obligations (see Long-Term Debt, Note 11 to the Consolidated Financial Statements), (ii) operating lease obligations (see Leases, Note 17 to the Consolidated Financial Statements), (iii) unconditional purchase obligations, primarily under purchase orders to purchase inventory as well as commitments for products and services used in the normal course of business (see Commitments and Contingencies, Note 18 to the Consolidated Financial Statements), and (iv) pension benefit plan (see Pension Benefit Plans, Note 15 to the Consolidated Financial Statements).

Our contractual obligations at March 31, 2024 consisted mainly of (i) principal and interest related to our long-term debt obligations (see Long-Term Debt, Note 12 to the Consolidated Financial Statements), (ii) operating lease obligations (see Leases, Note 18 t o the Consolidated Financial Statements), (iii) unconditional purchase obligations, primarily under purchase orders to purchase inventory as well as commitments for products and services used in the normal course of business (see Commitments and Contingen cies, Note 19 to the Consolidated Financial Statements), and (iv) pension benefit plan (see Pension Benefit Plans, Note 16 to the C onsolidated Financial Statements).

At March 31, 2024, the total accrual of our retirement obligation for our chairman and CEO was $1.1 million.

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We are unable to make a reliable estimate when cash settlement, if any, will occur with a tax authority as the timing of examinations and ultimate resolution of those examinations is uncertain.

Expectations for Fiscal Year 2024

Cash Requirements

We are actively managing the business to generate cash flow and believe that we currently have adequate liquidity.

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

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

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

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

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

However, macroeconomic conditions, including high inflation and interest rates, and a potential recession, could increase our anticipated funding requirements or make it more difficult for us to access capital.

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

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

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

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis