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Item 7. Management’s Discussion and Analysis

2025-05-15 compared with 2024-05-16 · 152 added, 158 removed, 298 unchanged (51% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the audited consolidated financial information and the notes thereto included in this Annual Report on Form 10-K.

The following information should be read in conjunction with the audited consolidated financial information and the notes thereto included in this Annual Report.

In addition to historical information, the following discussion and other parts of this Annual Report contain forward-looking statements that involve risks and uncertainties.

You should not place undue reliance on these forward-looking statements.

Actual events or results may differ materially due to competitive factors and other factors discussed in Item 1A.

Actual events or results may differ materially due to the factors discussed in Item 1A.

"Risk Factors " and elsewhere in this Annual Report.

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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 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.

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

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

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

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

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.

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

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

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

Global and Macroeconomic Conditions

We continue to closely monitor current global and macroeconomic conditions, including the impacts of 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.

We continue to closely monitor current global and macroeconomic conditions, including the impacts of the ongoing wars in Ukraine and the Middle East, global geopolitical tension, stock market volatility, industry-specific capital spending trends, exchange rate fluctuations, inflation, interest rates, international trade relations (including trade protection measures, such as tariffs and other trade barriers), and the risk of a recession, including the manner and extent to which they have impacted and could continue to impact our business, customers, employees, supply chain, and distribution network.

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

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.

The macroeconomic environment remains challenging with constrained customer spending and we expect this to persist during fiscal year 2026.

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

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Results Overview

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.

Total revenue decreased $6.8 million for the fiscal year ended March 31, 2025 as compared to total revenue for the fiscal year ended March 31, 2024.

In the aggregate, the decline was primarily attributable to the Test Optimization business (TO Business) we divested in September of 2024.

Additionally, fiscal year 2024 benefited from approximately $48 million of

backlog-related revenue that created a headwind for fiscal year 2025 and a challenging comparison.

Adjusting for these two factors, revenue would have increased on a year-over-year basis.

The decrease in total revenue for the fiscal year ended March 31, 2025 as compared to total revenue for the fiscal year ended March 31, 2024 reflected lower revenue from both service provider and enterprise customers from service assurance offerings, including radio frequency propagation modeling projects, due to industry-specific capital spending constraints, as well as a decrease in revenue from service provider customers from cybersecurity offerings, partially offset by an increase in revenue from enterprise customers from cybersecurity offerings.

Our gross profit percentage increased by one percentage point to 78% during the fiscal year ended March 31, 2025 as compared with the fiscal year ended March 31, 2024 primarily due to lower employee-related expenses in fiscal year 2025.

Net loss for the fiscal year ended March 31, 2025 was $366.9 million, as compared with net loss for the fiscal year ended March 31, 2024 of $147.7 million.

The increase of $219.2 million in net loss was primarily due to a $209.7 million increase in goodwill impairment charges, a $20.1 million increase from restructuring charges, a $6.8 million decrease in revenue, a $6.7 million increase in expenses related to trade shows, user conferences, and other events, a $5.6 million decrease in other income mainly due to the change in fair value of a foreign equity investment, a $5.6 million increase in legal fees mainly due to a favorable decision related to the Packet Intelligence LLC appeal recorded during the fiscal year ended March 31, 2024, a $3.8 million gain on the divestiture of the TO business recognized in fiscal year 2024, a $2.5 million increase in commissions expense, a $2.0 million increase from software licenses, and a $1.6 million increase in other marketing related expenses.

These increases to net loss were partially offset by a $21.0 million net decrease in employee related expenses as a result of a decrease in headcount, partially offset by an increase in variable incentive compensation, a $7.0 million decrease in amortization expense of intangible assets, a $4.0 million decrease from depreciation expense, a $1.9 million decrease in advertising expense, a $1.6 million decrease in rent and other facilities related costs, a $1.5 million decrease in interest expense, a $1.3 million decrease in direct material costs, a $1.3 million decrease in the cost of materials used to support customers under service contracts, and a $1.1 million increase in interest income.

At March 31, 2025, we had cash, cash equivalents, and marketable securities and investments (current and non-current) of $492.5 million.

This represents a decrease of $3.8 million compared to 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.

This represents an increase of $68.4 million compared to the fiscal year ended March 31, 2024.

This increase was primarily due to $217.7 million of net cash provided by operations, partially offset by a net $100.0 million used to repay long-term debt, $25.3 million used to repurchase shares of our common stock, $13.9 million used for tax withholdings on restricted stock units, $5.4 million used for capital expenditures, $2.8 million used for the payment of debt issuance costs, and $1.3 million used to acquire technology licenses during the fiscal year ended March 31, 2025.

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 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.

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

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

Non-GAAP income from operations includes the aforementioned adjustments and also removes restructuring charges, goodwill impairment charges, gain on the divestiture of a business, and legal (benefit) expense related to civil judgments.

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

Non-GAAP diluted net income per share includes the foregoing adjustments related to non-GAAP net income.

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

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

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

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

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

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.

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

Presenting the GAAP measures on their own may not be indicative of our core operating results.

Presenting the GAAP measures on their own may not be indicative of our

core operating results.

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

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2025 2024 2023

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

Revenue $ 822,679 $ 829,455 $ 914,530

GAAP gross profit $ 643,944 $ 642,043 $ 691,432

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Amortization of acquired intangible assets 50,418 56,886 64,674

Business development and integration expense — — (5)

Compensation for post-combination services — — 2

Restructuring charges 20,500 — 1,782

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Acquisition related depreciation expense 47 119 241

Transitional service agreement expense — — 814

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

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Amortization of acquired intangible assets 50,418 56,886 64,674

Business development and integration expense — — (5)

Compensation for post-combination services — — 2

Restructuring charges 20,500 — 1,782

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Loss on extinguishment of debt 1,134 — —

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

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

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Non-GAAP net income $ 160,426 $ 159,110 $ 159,561

Fiscal Year Ended March 31,

2024 2023 2022

GAAP diluted net income (loss) per share $ (5.12) $ (2.07) $ 0.82

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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 and divestiture 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 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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If any significant obligations to the customer remain post-delivery, typically involving obligations relating to installation and acceptance by the customer, revenue recognition is deferred until such obligations have been fulfilled.

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

Our service offerings include installation, integration, extended warranty and maintenance services, post-contract customer support, stand-ready SaaS solutions and other professional services including consulting and training.

We generally provide software and/or hardware support as part of product sales.

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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 and Divestiture Accounting Items

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

Valuation of Goodwill

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.

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

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

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We have one reporting unit.

To test impairment, we first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the intangible asset is impaired.

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

To test impairment, we first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that goodwill is impaired.

If based on our qualitative assessment it is more likely than not that the fair value of the reporting unit is below its carrying amount, quantitative impairment testing is required.

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

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

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

The contingent purchase consideration 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 and completed one divestiture during the three years ended March 31, 2024.

The key assumption used in the quantitative impairment testing is the company-specific control premium, which is estimated using expected synergies that would be realized by a hypothetical buyer.

Comparison of Years Ended March 31, 2025 and 2024

The sections that follow discuss our consolidated statement of operations data for the fiscal years ended March 31, 2025 and March 31, 2024 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, 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).

For a discussion of (i) our consolidated statement of operations data for the fiscal year ended March 31, 2023 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, 2023, see "Comparison of Years Ended March 31, 2024 and 2023" 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, 2024, filed with t he SEC on May 16, 2024.

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, 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.

During the fiscal years ended March 31, 2025 and 2024, no direct customer or indirect channel partner accounted for more than 10% of our total revenue.

Fiscal Year Ended March 31,

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Total revenue $ 822,679 100 % $ 829,455 100 % $ (6,776) (1) %

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.

The $0.6 million decrease in product revenue compared with the same period last year was due to a decrease in revenue from service provider customers from service assurance and cybersecurity offerings, partially offset by an increase in revenue from enterprise customers from service assurance and cybersecurity offerings.

The results for the fiscal year ended March 31, 2024 benefited from approximately $48 million of backlog-related revenue.

Excluding backlog-related revenue, as well as revenue related to the divested TO business, total revenue for the fiscal year ended March 31, 2025 compared with the same period last year would have increased year over year.

The 1%, or $6.2 million, decrease in service revenue compared with the same period last year was primarily due to a decrease in revenue from maintenance contracts and professional service contracts primarily related to the service assurance product line.

Total revenue by geography was as follows:

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Total revenue $ 822,679 100 % $ 829,455 100 % $ (6,776) (1) %

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.

United States revenue decreased 1%, or $4.9 million, compared with the same period last year primarily due to a decrease in revenue from service assurance offerings from enterprise customers, including the impact from the divested TO business.

International revenue decreased 1%, or $1.9 million, compared to the same period last year primarily driven by lower revenue from service provider customers from both service assurance and cybersecurity offerings, partially offset by an increase in revenue from enterprise customers from both service assurance and cybersecurity offerings.

Total revenue by product line was as follows:

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Total revenue $ 822,679 100 % $ 829,455 100 % $ (6,776) (1) %

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.

The 4%, or $24.7 million, decrease in revenue from the service assurance product line was due to a decrease in revenue from both enterprise and service provider customers, including the impact from the divested TO business, as well as lower revenue from radio frequency propagation modeling projects.

The 7%, or $18.0 million, increase in revenue from the cybersecurity product line was due to an increase in revenue from enterprise customers, partially offset by a decrease in revenue from service provider customers.

Total revenue by customer vertical was as follows:

Fiscal Year Ended March 31,

(Dollars in Thousands)

2025 2024 Change

Service provider $ 350,968 43 % $ 390,455 47 % $ (39,487) (10) %

Enterprise 471,711 57 439,000 53 32,711 7 %

Total revenue $ 822,679 100 % $ 829,455 100 % $ (6,776) (1) %

The 10%, or $39.5 million, decrease in revenue from the service provider customer vertical was due to a decrease in product and service revenue from both the service assurance and cybersecurity product lines.

The 7%, or $32.7 million, increase in revenue from the enterprise customer vertical was due to an increase in product and service revenue from the cybersecurity product line, partially offset by a decrease in the service assurance product line.

Cost of Revenue and Gross Profit

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Total gross profit % 78 % 77 % 1 %

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 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 10%, or $6.6 million, decrease in cost of product revenue for the fiscal year ended March 31, 2025 compared to the same period last year was primarily due to a $3.1 million decrease in the amortization of intangible assets, a $1.7 million decrease in employee-related costs associated with the timing of certain projects, a $1.3 million decrease in direct material costs, a $0.9 million decrease in inventory obsolescence charges, and a $0.5 million decrease in inventory related expenses.

These decreases were partially offset by a $0.9 million increase in costs related to the delivery of radio frequency propagation modeling projects.

The product gross profit percentage increased by two percentage points to 84% during the fiscal year ended March 31, 2025 as compared to the same period in the prior year.

The 2%, or $6.0 million, increase in product gross profit corresponds with the 10%, or $6.6 million, decrease in cost of product revenue, partially offset by the $0.6 million decrease in product revenue.

The 2%, or $2.1 million, decrease in cost of service revenue for the fiscal year ended March 31, 2025 compared to the same period last year was primarily due to a $1.8 million decrease in employee-related expenses largely driven by a decrease in costs due to a reduction in headcount partially offset by an increase in variable incentive compensation as well as the timing of certain projects, a $1.3 million decrease in the cost of materials used to support customers under service contracts, and a $0.5 million decrease in depreciation expense.

These decreases were partially offset by a $1.1 million increase in contractor fees, and a $1.1 million increase in allocated overhead.

The service gross profit percentage remained flat at 74% during the fiscal year ended March 31, 2025 compared to the same period in the prior year.

The 1%, or $4.1 million,

decrease in service gross profit corresponds with the 1%, or $6.2 million, decrease in service revenue, partially offset by the 2%, or $2.1 million, decrease in cost of services revenue.

Total gross profit.

Our total gross profit increased $1.9 million, for the fiscal year ended March 31, 2025 compared to the same period last year.

This increase is attributable to the 5%, or $8.7 million, decrease in cost of revenue, partially offset by the 1%, or $6.8 million, decrease in revenue.

The gross profit percentage increased by one percentage point to 78% during the fiscal year ended March 31, 2025 compared to the same period in the prior year.

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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 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.

The 5%, or $8.3 million, decrease in re s earch and development expenses for the fiscal year ended March 31, 2025 compared to the same period last year was primarily due to a $6.6 million decrease in employee-related expense largely as a result of a reduction in headcount, a $2.2 million decrease from depreciation expense, and a $0.8 million decrease in contractor fees.

These decreases were partially offset by a $2.0 million increase in allocated overhead.

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 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.

The 1%, or $2.9 million, decrease in sales and marketing expenses for the fiscal year ended March 31, 2025 compared to the same period last year was primarily due to an $11.4 million decrease in employee-related expenses as a result of a decrease in headcount and a decrease in variable incentive compensation, a $1.9 million decrease in advertising expense, a $0.5 million decrease in travel expense, and a $0.5 million decrease in rent expense.

These decreases were partially offset by a $6.7 million increase related to trade shows, user conferences and other events, a $2.5 million increase in commissions expense, a $1.6 million increase in other marketing related costs, and a $0.9 million increase in contractor fees.

General and administrative.

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

The 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.

The 1%, or $0.8 million, increase in general and administrative expenses for the fiscal year ended March 31, 2025 compared to the same period last year was primarily due to a $5.6 million increase in legal-related expenses as a result of a favorable decision related to the Packet Intelligence LLC appeal recorded during the fiscal year ended March 31, 2024.

This increase was partially offset by a $1.7 million decrease in contractor fees, a $0.8 million decrease in depreciation, a $0.7 million decrease in allocated overhead, a $0.6 million decrease in the allowance for credit losses, and a $0.5 million decrease in software maintenance fees.

Amortization of acquired intangible assets.

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.

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 8%, or $3.9 million, decrease in amortization of acquired intangible assets for the fiscal year ended March 31, 2025 compared to the same period last year w as primarily 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.

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

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

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

During the first quarter of fiscal year 2025, we implemented a voluntary separation program (VSP) for employees who met certain age and service requirements to reduce overall headcount.

As a result of the related workforce reduction, during the fiscal year ended March 31, 2025, we recorded restructuring charges totaling $19.6 million related to one-time termination benefits for one hundred forty-two employees who voluntarily terminated their employment with us during that period.

During the third quarter of fiscal year 2025, we also entered into transition agreements that provided termination benefits for certain employees to ensure an orderly transition of responsibilities for continuity purposes.

As a result of these related workforce changes, during the fiscal year ended March 31, 2025, we recorded restructuring charges totaling $0.9 million.

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.

During fisca l year 2024, we recorded $217.3 million in goodwill impairment charges as a result of the sustained decrease in our stock price and overall market capitalization.

During the first quarter of fiscal year 2025, due to the continued decrease in our stock price and overall market capitalization, along with other qualitative considerations including the continued impact from the conditions in the macroeconomic environment, it was determined a Triggering Event occurred, indicating goodwill may be impaired.

Accordingly, we conducted a quantitative impairment test of our goodwill at June 30, 2024.

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

As a result of the quantitative impairment test performed during the first quarter of fiscal year 2025, we determined goodwill was impaired and recorded a goodwill impairment charge of $427.0 million during the three months ended June 30, 2024.

The additional impairment charge recorded in the first quarter of fiscal year 2025 was primarily due to the continued decrease in our stock price from March 31, 2024 to June 30, 2024, an increase in our weighted-average cost of capital, and the refinement to the expected cost synergies that could be realized by a hypothetical buyer as a result of the VSP we implemented in the first quarter of fiscal year 2025, which impacted the company-specific control premium used to determine the fair value of the reporting unit under the market approach.

During fiscal year 2025, our annual impairment test was completed as of January 31, 2025 using the qualitative assessment, which indicated that goodwill was not impaired.

At September 30, 2024, December 31, 2024, and March 31, 2025, we performed a Triggering Event assessment and concluded no event or circumstances occurred that indicated goodwill was further impaired.

The key assumption in the market approach used in the quantitative impairment test performed during the first quarter of fiscal year 2025 was the company-specific control premium, which was estimated using expected synergies that would be realized by a hypothetical buyer.

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

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

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

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

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

An increase or decrease of 1% in the company-specific control premium used in the determination of the fair value of the reporting unit under the market approach would have resulted in an increase or decrease in the goodwill impairment recorded during the fiscal year ended March 31, 2025 of approximately $13.0 million.

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

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Interest and other income (expense), net $ 1,808 — % $ 5,316 1 % $ (3,508) (66) %

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.

The 66%, or $3.5 million, decrease in interest and other income (expense), net was primarily due to a $6.2 million decrease in other income largely due to a decrease in the fair value of the equity investment in Napatech A/S (Napatech), partially offset by a $1.5 million decrease in interest expense due to debt repayments on the credit facility during the fiscal year ended March 31, 2025, and a $1.1 million increase in interest income.

Income Tax Expense

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The annual effective tax rate for the fiscal year ended March 31, 2025 was 0.3%, compared to an annual effective tax rate of 2.2% for the fiscal year ended March 31, 2024.

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.

The effective tax rate for the fiscal year ended March 31, 2025 is lower than the effective rate for the fiscal year ended March 31, 2024, primarily due to a discrete benefit related to the finalization of our tax return filings, a charge related to stock compensation, and a significant nondeductible goodwill impairment charge.

Fiscal Year Ended March 31,

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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.

As a result, during the year ended March 31, 2024, NetScout concluded that the risk of loss associated with damages that may result from this case was remote and recorded a $4.6 million reduction in contingent liabilities and legal fees.

On June 26, 2024, the District Court issued its Order dismissing the case against NetScout.

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

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At March 31, 2025, cash, cash equivalents, marketable securities and investments (current and non-current) totaled $492.5 million.

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

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.

This represents an increase of $68.4 million from $424.1 million at March 31, 2024.

At March 31, 2025, cash, short-term and long-term marketable securities in the United States was approximately $303.2 million, while cash and short-term investments held outside of the United States was approximately $189.3 million.

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Net cash provided by operating activities $ 217,670 $ 58,811

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

Net cash (used in) provided by investing activities $ (6,996) $ 13,358

Net cash used in financing activities $ (142,011) $ (69,352)

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Fiscal year 2025 compared to fiscal year 2024

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 $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.

Net cash provided by operating activities was $217.7 million during the fiscal year ended March 31, 2025, compared to $58.8 million during the fiscal year ended March 31, 2024.

This $158.9 million increase in net cash provided by operating activities was due in part to a $209.7 million increase from goodwill impairment charges recorded during the fiscal year ended March 31, 2025 as compared to the fiscal year ended March 31, 2024, a $77.0 million increase from accounts receivable, a $54.2 million increase from accrued compensation and other expenses, a $24.5 million increase from deferred revenue, an $8.4 million increase from deferred income taxes, a $5.1 million increase from accounts payable, a $5.0 million increase from the change in the fair value of an equity investment, a $3.8 million increase related to the gain recorded in the fiscal year ended March 31, 2024 for the divestiture of a business, a $3.7 million increase from income taxes payable, a $3.6 million increase from prepaid expenses and other assets, and a $1.1 million increase from the loss on extinguishment of debt.

These increases were partially offset by a $219.2 million decrease from the change in net loss, an $11.2 million decrease from depreciation and amortization expense, and a $6.0 million decrease from share-based compensation expense during the fiscal year ended March 31, 2025 as compared with the fiscal year ended March 31, 2024.

Accounts receivable days sales outstanding was 68 days at March 31, 2025 compared to 81 days at March 31, 2024.

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(Dollars in Thousands)

Cash provided by investing activities included the following:

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

Purchase of marketable securities and investments $ (45,061) $ (52,774)

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Proceeds from divestiture of a business — 7,766

(Increase) decrease in deposits (25) 3

$ (6,996) $ 13,358

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.

Net cash (used in) provided by investing activities decreased by $20.4 million to $7.0 million of net cash used in investing activities during the fiscal year ended March 31, 2025, compared to $13.4 million of net cash provided by investing activities during the fiscal year ended March 31, 2024.

The $20.4 million decrease in net cash (used in) provided by investing activities was due in part to a $12.3 million net decrease in cash inflow from the purchase and sale of marketable securities during the fiscal year ended March 31, 2025 when compared with the fiscal year ended March 31, 2024, a $7.8 million decrease in proceeds due to the divestiture of the Test Optimization business during the fiscal year ended March 31, 2024, and $1.3 million in cash used to acquire technology licenses during the fiscal year ended March 31, 2025.

These decreases in cash were partially offset by a $1.0 million decrease in cash used to purchase fixed assets during the fiscal year ended March 31, 2025, compared with 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 $ 3

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

Treasury stock repurchases (25,257) (50,000)

Tax withholding on restricted stock units (13,962) (19,355)

Payment of debt issuance costs (2,795) —

Repayment of long-term debt (175,000) —

Proceeds from issuance of long-term debt 75,000 —

$ (142,011) $ (69,352)

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.

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.

Net cash used in financing activities increased $72.6 million to $142.0 million during the fiscal year ended March 31, 2025, compared to $69.4 million of net cash used in financing activities during the fiscal year ended March 31, 2024.

During the fiscal year ended March 31, 2025, we repurchased a total of 1,362,205 shares of our common stock for $25.3 million in the open market under our 2022 Share Repurchase Program.

During the fiscal year ended March 31, 2024, we repurchased a total of 1,209,153 shares of our common stock 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.

In connection with the delivery of common stock upon vesting of restricted stock units, we have withheld 703,727 shares for $13.9 million, and 653,645 shares for $19.4 million related to minimum statutory tax withholding requirements on these restricted stock units during the fiscal years ended March 31, 2025 and 2024, respectively.

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

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

During the fiscal year ended March 31, 2025, we repaid a net $100.0 million of borrowings under the Third Amended and Restated Credit Agreement, and we paid $2.8 million in debt issuance costs related to the execution of our Third Amended and Restated Credit Agreement.

Sources of Cash and Cash Requirements

Credit Facility

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.

(JPMorgan), as administrative agent and collateral agent;

JPMorgan, 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 party thereto.

The Second Amended and Restated Credit Agreement provides for a five-year, $800.0 million senior secured revolving credit facility, including a letter of credit sub-facility of up to $75.0 million.

We may elect to use the credit facility for general corporate purposes (including to finance the repurchase of shares of our common stock).

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.

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 July 27, 2021, we amended and extended our existing credit facility (as amended, the Second Amended and Restated Credit Agreement), which provided for a five-year, $800.0 million senior secured revolving credit facility, including a letter of credit sub-facility of up to $75.0 million.

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

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.

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

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

The First Amendment provides that U.S.

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

For the period from the delivery of our financial statements for the quarter ended December 31, 2023, until we have delivered financial statements for the quarter ended March 31, 2024, the applicable margin will be 1.00% per annum for Term Benchmark Revolving loans and 0% per annum for Alternate Base Rate loans, and thereafter the applicable margin will vary depending on our consolidated gross leverage ratio, ranging from 1.00% per annum for Alternate Base Rate loans and 2.00% per annum for Term Benchmark Revolving loans if our consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0% per annum for Alternate Base Rate loans and 1.00% per annum for Term Benchmark Revolving loans if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

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

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

On October 4, 2024, we amended and restated the Second Amended and Restated Credit Agreement (as amended and restated, the Third Amended and Restated Credit Agreement) with a syndicate of lenders by and among:

us, as borrower;

certain subsidiaries of NetScout Systems, Inc., as borrower;

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

JPMorgan Chase Bank, N.A., Bank of America, N.A., RBC Capital Markets, PNC Capital Markets LLC and Mizuho Bank, Ltd, as joint lead arrangers and joint bookrunners;

TD Bank, N.A.

and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, as co-documentation agents;

and the lenders and issuing banks party thereto.

The Third Amended and Restated Credit Agreement provides for a five-year, $600.0 million senior secured revolving credit facility, including a letter of credit sub-facility of up to $75.0 million.

We may elect to use the amended credit facility for working capital and other general corporate purposes (including to repurchase shares of our common stock).

The commitments under the Third Amended and Restated Credit Agreement will expire on October 4, 2029, and any outstanding loans will be due on that date.

In connection with the Third Amended and Restated Credit Agreement, we paid off the outstanding balance of $75.0 million under the Second Amended and Restated Credit Agreement on October 4, 2024 by borrowing the same amount under the Third Amended and Restated Credit Agreement.

Additionally, we recorded a loss on the extinguishment of debt of $1.1 million, representing the write off of unamortized deferred financing costs, which was included in interest expense in the consolidated statements of operations for the fiscal year ended March 31, 2025.

On February 3, 2025, we paid the outstanding balance of $75.0 million in full.

At March 31, 2025, there were no amounts outstanding under the Third Amended and Restated Credit Agreement.

At our election, revolving loans under the Third Amended and Restated Credit Agreement bear interest at either (a) a term SOFR rate plus a credit spread adjustment of 0.10% or (b) an Alternate Base Rate (defined in a customary manner), in each case plus an applicable margin.

For the period from the delivery of our financial statements for the quarter ended December 31, 2024, until we have delivered financial statements for the quarter ended March 31, 2025, the applicable margin will be 1.00% per annum for term SOFR loans and 0% per annum for Alternate Base Rate loans, and thereafter the applicable margin will vary depending on our consolidated gross leverage ratio, ranging from 1.00% per annum for Alternate Base Rate loans and 2.00% per annum for term SOFR loans if our consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0% per annum for Alternate Base Rate loans and 1.00% per annum for term SOFR loans if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

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

Consolidated adjusted 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 Third Amended and Restated Credit Agreement.

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

For the period from the delivery of our financial statements for the quarter ended December 31, 2025, until we have delivered financial statements for the quarter ended March 31, 2025, the commitment fee will be 0.15% per annum, and thereafter the commitment fee will vary depending on our consolidated gross leverage ratio, ranging from 0.30% per annum if our consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0.15% per annum if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.

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.

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 Third 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.

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

1 unchanged sentence

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

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

We may also prepay loans under the Third 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 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.

The Second Amended and Restated Credit Agreement contains certain covenants applicable to us and our restricted subsidiaries, including, without limitation, limitations on additional indebtedness, liens, various fundamental changes, dividends and distributions, investments (including acquisitions), transactions with affiliates, asset sales, including sale-leaseback transactions, speculative hedge agreements, payment of junior financing, changes in business and other limitations customary in senior secured credit facilities.

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

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

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

The Third Amended and Restated Credit Agreement contains certain covenants applicable to us and our restricted subsidiaries, including, without limitation, limitations on additional indebtedness, liens, various fundamental changes, dividends and distributions, investments (including acquisitions), transactions with affiliates, asset sales, including sale-leaseback transactions, speculative hedge agreements, payment of junior financing, changes in business and other limitations customary in senior secured credit facilities.

The Third Amended and Restated Credit Agreement provides for certain baskets that are available to us and our restricted subsidiaries to incur additional indebtedness, to repay junior financing, for asset sales and to make investments and restricted payments.

Such baskets are substantially similar to the baskets set forth in our previous amended credit agreement.

The Third Amended and Restated Credit Agreement requires us to maintain a certain consolidated net leverage ratio.

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

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.

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

At March 31, 2025, we were in compliance with all covenants, including the specified total consolidated net leverage ratio range of 4.00 to 1.00.

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

Upon an event of default, the administrative agent with the consent of, or at the request of, the holders of more than 50% in principal amount of the loans and commitments, may terminate the commitments and accelerate the maturity of the loans and enforce certain other remedies under the Second Amended and Restated Credit Agreement and the other loan documents.

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

Upon an event of default, the administrative agent may, or at the request of the holders of more than 50% in principal amount of the loans and commitments shall, terminate the commitments and accelerate the maturity of the loans and enforce certain other remedies under the Third Amended and Restated Credit Agreement and the other loan documents.

We had unamortized capitalized debt issuance costs, net of $3.3 million at March 31, 2025, which are being amortized over the life of the revolving credit facility.

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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, 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 that these factors will allow us to meet our anticipated funding requirements for at least the next twelve months.

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

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

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

However, macroeconomic conditions, including high inflation and interest rates, international trade relations (including trade protection measures, such as tariffs and other trade barriers), and a potential recession, could increase our anticipated funding requirements or make it more difficult for us to access capital.

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 Third Amended and Restated Credit Agreement, or to repurchase shares of our common stock through our stock repurchase programs.

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

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Recent Accounting Standards

For information with respect to recent accounting pronouncements on our consolidated financial statements, See Note 2 contained in the "Notes to Consolidated Financial Statements" included in Part IV of this Annual Report on Form 10-K.

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