Company Quick10K Filing
NETSCOUT Systems
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 77 $1,854
10-Q 2020-02-06 Quarter: 2019-12-31
10-Q 2019-10-31 Quarter: 2019-09-30
10-Q 2019-08-08 Quarter: 2019-06-30
10-K 2019-05-28 Annual: 2019-03-31
10-Q 2019-02-07 Quarter: 2018-12-31
10-Q 2018-11-08 Quarter: 2018-09-30
10-Q 2018-08-02 Quarter: 2018-06-30
10-K 2018-05-22 Annual: 2018-03-31
10-Q 2018-02-01 Quarter: 2017-12-31
10-Q 2017-11-06 Quarter: 2017-09-30
10-Q 2017-08-03 Quarter: 2017-06-30
10-K 2017-05-24 Annual: 2017-03-31
10-Q 2017-02-02 Quarter: 2016-12-31
10-Q 2016-11-01 Quarter: 2016-09-30
10-Q 2016-08-02 Quarter: 2016-06-30
10-K 2016-05-31 Annual: 2016-03-31
10-Q 2016-02-02 Quarter: 2015-12-31
10-Q 2015-11-05 Quarter: 2015-09-30
10-Q 2015-08-06 Quarter: 2015-06-30
10-K 2015-05-20 Annual: 2015-03-31
10-Q 2015-01-27 Quarter: 2014-12-31
10-Q 2014-10-28 Quarter: 2014-09-30
10-Q 2014-07-29 Quarter: 2014-06-30
10-K 2014-05-20 Annual: 2014-03-31
10-Q 2014-01-28 Quarter: 2013-12-31
10-Q 2013-10-29 Quarter: 2013-09-30
10-Q 2013-08-02 Quarter: 2013-06-30
10-K 2013-05-24 Annual: 2013-03-31
10-Q 2013-02-01 Quarter: 2012-12-31
10-Q 2012-11-02 Quarter: 2012-09-30
10-Q 2012-08-03 Quarter: 2012-06-30
10-K 2012-05-25 Annual: 2012-03-31
10-Q 2012-02-03 Quarter: 2011-12-31
10-Q 2011-11-04 Quarter: 2011-09-30
10-Q 2011-08-05 Quarter: 2011-06-30
10-K 2011-05-27 Annual: 2011-03-31
10-Q 2011-02-04 Quarter: 2010-12-31
10-Q 2010-11-09 Quarter: 2010-09-30
10-Q 2010-08-06 Quarter: 2010-06-30
10-K 2010-05-28 Annual: 2010-03-31
10-Q 2010-02-05 Quarter: 2009-12-31
8-K 2020-01-30 Earnings, Exhibits
8-K 2019-10-31 Earnings, Exhibits
8-K 2019-09-12 Officers, Shareholder Vote
8-K 2019-08-01 Earnings, Exhibits
8-K 2019-05-02 Earnings, Exhibits
8-K 2019-04-09 Earnings, Exhibits
8-K 2019-02-12 Officers
8-K 2019-01-30 Earnings, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-09-12 Officers, Shareholder Vote, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-05-03 Earnings, Officers, Exhibits
8-K 2018-04-23 Officers
8-K 2018-02-01 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-01-30 Earnings, Exhibits
8-K 2018-01-16 Enter Agreement, Exhibits
8-K 2018-01-10 Earnings, Exhibits
NTCT 2019-12-31
Part I: Financial Information
Item 1. Unaudited Financial Statements
Note 1 - Basis of Presentation
Note 2 - Revenue Recognition
Note 3 - Concentration of Credit Risk and Significant Customers
Note 4 - Share-Based Compensation
Note 5 - Cash, Cash Equivalents, Restricted Cash and Marketable Securities
Note 6 - Fair Value Measurements
Note 7 - Inventories
Note 8 - Acquisitions & Divestitures
Note 9 - Goodwill and Intangible Assets
Note 10 - Derivative Instruments and Hedging Activities
Note 11 - Long-Term Debt
Note 12 - Restructuring Charges
Note 13 - Leases
Note 14 - Commitments and Contingencies
Note 15 - Pension Benefit Plans
Note 16 - Treasury Stock
Note 17 - Net Income (Loss) per Share
Note 18 - Income Taxes
Note 19 - Segment and Geographic Information
Note 20 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii: Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 ntct-ex10120191231.htm
EX-31.1 ntct-ex31120191231.htm
EX-31.2 ntct-ex31220191231.htm
EX-32.1 ntct-ex32120191231.htm
EX-32.2 ntct-ex32220191231.htm

NETSCOUT Systems Earnings 2019-12-31

NTCT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
INOV 2,439 1,943 1,269 469 348 3 132 3,255 74% 24.7 0%
GLOB 1,994 437 99 0 0 0 0 1,994 0%
TRVG 1,989 1,096 242 0 0 0 0 1,825 0%
MB 1,912 571 290 229 160 -39 -17 1,758 70% -103.9 -7%
MDRX 1,783 3,230 1,949 1,763 722 222 415 2,575 41% 6.2 7%
NTCT 1,814 3,069 1,129 883 641 -31 96 2,018 73% 21.0 -1%
SGMS 1,993 7,907 10,032 3,423 2,136 126 813 10,458 62% 12.9 2%
UPWK 1,539 430 167 222 157 -10 -4 1,488 71% -345.4 -2%
BITA 1,652 59,744 39,436 0 0 0 0 -3,089 0%
CSGS 1,699 1,207 825 989 466 60 128 1,884 47% 14.7 5%

Document
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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                     
         
Commission file number 000-26251
 
NETSCOUT SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
04-2837575
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer
Identification No.)
310 Littleton Road, Westford, MA 01886
(978) 614-4000
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered:
Common Stock, $0.001 par value per share
NTCT
Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer              Accelerated filer                 
Non-accelerated filer                Smaller reporting company    
Emerging growth company    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  
The number of shares outstanding of the registrant's common stock, par value $0.001 per share, as of January 30, 2020 was 73,855,221.



Table of Contents

NETSCOUT SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2019
TABLE OF CONTENTS
 
 
 
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 

Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q, or Quarterly Report, to "NetScout," the "Company," "we," "us," and "our" refer to NetScout Systems, Inc. and, where appropriate, our consolidated subsidiaries.

NetScout, the NetScout logo, Adaptive Service Intelligence and other trademarks or service marks of NetScout appearing in this Quarterly Report are the property of NetScout Systems, Inc. and/or its subsidiaries and/or affiliates in the United States and/or other countries. Any third-party trade names, trademarks and service marks appearing in this Quarterly Report are the property of their respective holders.





Table of Contents



Cautionary Statement Concerning Forward-Looking Statements

In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking statements under Section 21E of the Securities Exchange Act of 1934, as amended, and other federal securities laws. These forward-looking statements involve risks and uncertainties. These statements relate to future events or our future financial performance and are identified by terminology such as "may," "will," "could," "should," "expects," "plans," "intends," "seeks," "anticipates," "believes," "estimates," "potential" or "continue," or the negative of such terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on these forward-looking statements. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for our fiscal year ended March 31, 2019, filed with the Securities and Exchange Commission, and elsewhere in this Quarterly Report. These factors may cause our actual results to differ materially from any forward-looking statement. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.


1

Table of Contents


PART I: FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
NetScout Systems, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
 
 
December 31,
2019
 
March 31,
2019
 
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
287,660

 
$
409,632

Marketable securities
56,274

 
76,344

Accounts receivable and unbilled costs, net of allowance for doubtful accounts of $1,728 and $1,583 at December 31, 2019 and March 31, 2019, respectively
244,877

 
235,318

Inventories and deferred costs
24,977

 
26,270

Prepaid income taxes
14,454

 
18,000

Prepaid expenses and other current assets
25,807

 
35,658

Total current assets
654,049

 
801,222

Fixed assets, net
58,700

 
58,951

Operating lease right-of-use assets
65,738

 

Goodwill
1,718,496

 
1,715,485

Intangible assets, net
602,856

 
669,118

Deferred income taxes
7,034

 
7,218

Long-term marketable securities
2,561

 
1,012

Other assets
17,905

 
16,988

Total assets
$
3,127,339

 
$
3,269,994

Liabilities and Stockholders' Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
19,756

 
$
24,582

Accrued compensation
70,430

 
58,501

Accrued other
20,159

 
23,027

Income taxes payable
1,517

 
1,318

Deferred revenue and customer deposits
261,151

 
272,508

Current portion of operating lease liabilities
11,091

 

Total current liabilities
384,104

 
379,936

Other long-term liabilities
6,997

 
19,493

Deferred tax liability
115,470

 
124,229

Accrued long-term retirement benefits
35,808

 
36,284

Long-term deferred revenue and customer deposits
104,339

 
94,619

Operating lease liabilities, net of current portion
67,814

 

Long-term debt
450,000

 
550,000

Total liabilities
1,164,532

 
1,204,561

Commitments and contingencies (Note 14)

 

Stockholders' equity:
 
 
 
Preferred stock, $0.001 par value:
 
 
 
5,000,000 shares authorized; no shares issued or outstanding at December 31, 2019 and March 31, 2019

 

Common stock, $0.001 par value:
 
 
 
300,000,000 shares authorized; 121,679,117 and 119,760,132 shares issued and 73,855,221 and 77,610,361 shares outstanding at December 31, 2019 and March 31, 2019, respectively
122

 
120

Additional paid-in capital
2,873,702

 
2,828,922

Accumulated other comprehensive loss
(3,345
)
 
(2,639
)
Treasury stock at cost, 47,823,896 and 42,149,771 shares at December 31, 2019 and March 31, 2019, respectively
(1,255,675
)
 
(1,119,063
)
Retained earnings
348,003

 
358,093

Total stockholders' equity
1,962,807

 
2,065,433

Total liabilities and stockholders' equity
$
3,127,339

 
$
3,269,994

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

2

Table of Contents

NetScout Systems, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
December 31,
 
December 31,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Product
$
143,309

 
$
134,135

 
$
321,803

 
$
341,815

Service
116,715

 
111,873

 
340,666

 
333,101

Total revenue
260,024

 
246,008

 
662,469

 
674,916

Cost of revenue:
 
 
 
 
 
 
 
Product
34,197

 
40,517

 
90,500

 
107,974

Service
31,388

 
29,067

 
88,960

 
87,617

Total cost of revenue
65,585

 
69,584

 
179,460

 
195,591

Gross profit
194,439

 
176,424

 
483,009

 
479,325

Operating expenses:
 
 
 
 
 
 
 
Research and development
48,606

 
49,925

 
142,391

 
161,347

Sales and marketing
67,653

 
74,024

 
214,245

 
224,207

General and administrative
25,048

 
22,788

 
72,436

 
74,141

Amortization of acquired intangible assets
16,120

 
16,433

 
48,395

 
57,879

Restructuring charges
193

 
13,895

 
466

 
17,514

Impairment of intangible assets

 

 

 
35,871

Loss on divestiture of business

 

 

 
9,177

Total operating expenses
157,620

 
177,065

 
477,933

 
580,136

Income (loss) from operations
36,819

 
(641
)
 
5,076

 
(100,811
)
Interest and other expense, net:
 
 
 
 
 
 
 
Interest income
826

 
1,455

 
3,699

 
3,688

Interest expense
(4,629
)
 
(7,005
)
 
(16,167
)
 
(19,320
)
Other income (expense), net
(112
)
 
986

 
538

 
429

Total interest and other expense, net
(3,915
)
 
(4,564
)
 
(11,930
)
 
(15,203
)
Income (loss) before income tax expense (benefit)
32,904

 
(5,205
)
 
(6,854
)
 
(116,014
)
Income tax expense (benefit)
(3,821
)
 
(1,602
)
 
3,236

 
(23,479
)
Net income (loss)
$
36,725

 
$
(3,603
)
 
$
(10,090
)
 
$
(92,535
)
  Basic net income (loss) per share
$
0.49

 
$
(0.05
)
 
$
(0.13
)
 
$
(1.17
)
  Diluted net income (loss) per share
$
0.49

 
$
(0.05
)
 
$
(0.13
)
 
$
(1.17
)
Weighted average common shares outstanding used in computing:
 
 
 
 
 
 
 
Net income (loss) per share - basic
74,367

 
77,774

 
75,780

 
78,916

Net income (loss) per share - diluted
74,700

 
77,774

 
75,780

 
78,916

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

3

Table of Contents

NetScout Systems, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
December 31,
 
December 31,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
36,725

 
$
(3,603
)
 
$
(10,090
)
 
$
(92,535
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Cumulative translation adjustments
297

 
(1,170
)
 
(789
)
 
(3,319
)
Changes in market value of investments:
 
 
 
 
 
 
 
Changes in unrealized gains, net of taxes of $1, $12, $12 and $21, respectively
3

 
12

 
40

 
35

Total net change in market value of investments
3

 
12

 
40

 
35

Changes in market value of derivatives:
 
 
 
 
 
 
 
Changes in market value of derivatives, net of taxes (benefit) of $40, ($53), $6 and ($193), respectively
84

 
(162
)
 
18

 
(601
)
Reclassification adjustment for net (losses) gains included in net income (loss), net of (benefit) taxes of ($7), $51, $8 and $122, respectively
(30
)

157


25


382

Total net change in market value of derivatives
54

 
(5
)
 
43

 
(219
)
Other comprehensive income (loss)
354

 
(1,163
)
 
(706
)
 
(3,503
)
Total comprehensive income (loss)
$
37,079

 
$
(4,766
)
 
$
(10,796
)
 
$
(96,038
)
The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents

NetScout Systems, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
(Unaudited)

 
 
Three Months Ended December 31, 2019
 
 
Common Stock
Voting
 
Additional
Paid In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury Stock
 
Retained
Earnings
 
Total
Stockholders'
Equity
 
 
 
 
Shares
 
Par
Value
 
Shares
 
Stated
Value
 
 
Balance, September 30, 2019
121,648,747

 
$
122

 
$
2,863,003

 
$
(3,699
)
 
46,810,700

 
$
(1,230,440
)
 
$
311,278

 
$
1,940,264

 
Net income
 
 
 
 
 
 
 
 
 
 
 
 
36,725

 
36,725

 
Unrealized net investment gains
 
 
 
 
 
 
3

 
 
 
 
 
 
 
3

 
Unrealized net gains on derivative financial instruments
 
 
 
 
 
 
54

 
 
 
 
 
 
 
54

 
Cumulative translation adjustments
 
 
 
 
 
 
297

 
 
 
 
 
 
 
297

 
Issuance of common stock pursuant to vesting of restricted stock units
30,370

 

 
 
 
 
 
 
 
 
 
 
 

 
Stock-based compensation expense for restricted stock units granted to employees
 
 
 
 
10,699

 
 
 
 
 
 
 
 
 
10,699

 
Repurchase of treasury stock
 
 
 
 


 
 
 
1,013,196

 
(25,235
)
 
 
 
(25,235
)
 
Balance, December 31, 2019
121,679,117

 
$
122

 
$
2,873,702

 
$
(3,345
)
 
47,823,896

 
$
(1,255,675
)
 
$
348,003

 
$
1,962,807

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended December 31, 2019
 
 
Common Stock
Voting
 
Additional
Paid In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury Stock
 
Retained
Earnings
 
Total
Stockholders'
Equity
 
 
 
Shares
 
Par
Value
 
Shares
 
Stated
Value
 
 
Balance, March 31, 2019
119,760,132

 
$
120

 
$
2,828,922

 
$
(2,639
)
 
42,149,771

 
$
(1,119,063
)
 
$
358,093

 
$
2,065,433

 
Net loss
 
 
 
 
 
 
 
 
 
 
 
 
(10,090
)
 
(10,090
)
 
Unrealized net investment gains
 
 
 
 
 
 
40

 
 
 
 
 
 
 
40

 
Unrealized net gains on derivative financial instruments
 
 
 
 
 
 
43

 
 
 
 
 
 
 
43

 
Cumulative translation adjustments
 
 
 
 
 
 
(789
)
 
 
 
 
 
 
 
(789
)
 
Issuance of common stock pursuant to vesting of restricted stock units
1,621,350

 
2

 
 
 
 
 
 
 
 
 
 
 
2

 
Stock-based compensation expense for restricted stock units granted to employees
 
 
 
 
38,187

 
 
 
 
 
 
 
 
 
38,187

 
Issuance of common stock under employee stock purchase plan
297,635

 
 
 
6,593

 
 
 
 
 
 
 
 
 
6,593

 
Repurchase of treasury stock
 
 
 
 
 
 
 
 
5,674,125

 
(136,612
)
 
 
 
(136,612
)
 
Balance, December 31, 2019
121,679,117

 
$
122

 
$
2,873,702

 
$
(3,345
)
 
47,823,896

 
$
(1,255,675
)
 
$
348,003

 
$
1,962,807

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













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NetScout Systems, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
(Unaudited)
 
Three Months Ended December 31, 2018
 
Common Stock Voting
 
Additional Paid In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury Stock
 
Retained Earnings
 
Total Stockholders’ Equity
 
 
 
 
 
 
Shares
 
Par Value
 
 
 
Shares
 
Stated Value
 
 
Balance, September 30, 2018
119,231,287
 
$
119

 
$
2,796,695

 
$
555

 
41,526,563
 
$
(1,102,481
)
 
$
341,710

 
$
2,036,598

Net loss
 
 
 
 
 
 
 
 
 
 
 
 
(3,603
)
 
(3,603
)
Unrealized net investment gains
 
 
 
 
 
 
12

 
 
 
 
 
 
 
12

Unrealized net losses on derivative financial instruments
 
 
 
 
 
 
(5
)
 
 
 
 
 
 
 
(5
)
Cumulative translation adjustments
 
 
 
 
 
 
(1,170
)
 
 
 
 
 
 
 
(1,170
)
Issuance of common stock pursuant to vesting of restricted stock units
185,742
 

 
 
 
 
 
 
 
 
 
 
 

Stock-based compensation expense for restricted stock units granted to employees
 
 
 
 
13,206

 
 
 
 
 
 
 
 
 
13,206

Repurchase of treasury stock
 
 
 
 

 
 
 
58,680
 
(1,561
)
 
 
 
(1,561
)
Balance, December 31, 2018
119,417,029
 
$
119

 
$
2,809,901

 
$
(608
)
 
41,585,243
 
$
(1,104,042
)
 
$
338,107

 
$
2,043,477

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended December 31, 2018
 
Common Stock Voting
 
Additional Paid In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury Stock
 
Retained Earnings
 
Total Stockholders’ Equity
 
 
 
 
 
 
Shares
 
Par Value
 
 
 
Shares
 
Stated Value
 
 
Balance, March 31, 2018
117,744,913
 
$
117

 
$
2,665,120

 
$
2,895

 
37,474,890
 
$
(995,843
)
 
$
396,493

 
$
2,068,782

Net loss
 
 
 
 
 
 
 
 
 
 
 
 
(92,535
)
 
(92,535
)
Unrealized net investment gains
 
 
 
 
 
 
35

 
 
 
 
 
 
 
35

Unrealized net losses on derivative financial instruments
 
 
 
 
 
 
(219
)
 
 
 
 
 
 
 
(219
)
Cumulative translation adjustments
 
 
 
 
 
 
(3,319
)
 
 
 
 
 
 
 
(3,319
)
Issuance of common stock pursuant to vesting of restricted stock units
1,369,122
 
2

 
 
 
 
 
 
 
 
 
 
 
2

Stock-based compensation expense for restricted stock units granted to employees
 
 
 
 
40,423

 
 
 
 
 
 
 
 
 
40,423

Issuance of common stock under employee stock purchase plan
302,994
 
 
 
7,575

 
 
 
 
 
 
 
 
 
7,575

Repurchase of treasury stock
 
 
 
 
96,783

 
 
 
4,110,353
 
(108,199
)
 
 
 
(11,416
)
Cumulative effect of adoption of ASU 2014-09
 
 
 
 
 
 
 
 
 
 
 
 
34,149

 
34,149

Balance, December 31, 2018
119,417,029
 
$
119

 
$
2,809,901

 
$
(608
)
 
41,585,243
 
$
(1,104,042
)
 
$
338,107

 
$
2,043,477


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

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NetScout Systems, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Nine Months Ended
 
December 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net loss
$
(10,090
)
 
$
(92,535
)
Adjustments to reconcile net loss to cash provided by operating activities, net of the effects of acquisitions:
 
 
 
Depreciation and amortization
87,397

 
106,509

Operating lease right-of-use assets
7,872

 

Loss on divestiture of business

 
7,390

Loss on disposal of fixed assets
16

 
181

Deal-related compensation expense and accretion charges

 
102

Share-based compensation expense
39,961

 
44,142

Net change in fair value of contingent and contractual liabilities
541

 

Accretion of contingent consideration
(24
)
 
(64
)
Impairment of intangible assets

 
35,871

Deferred income taxes
(8,480
)
 
(27,667
)
Other losses (gains)
35

 
(206
)
Changes in assets and liabilities
 
 
 
Accounts receivable and unbilled costs
(9,554
)
 
(33,928
)
Due from related party

 
171

Inventories
(1,233
)
 
2,683

Prepaid expenses and other assets
10,957

 
5,582

Accounts payable
(4,647
)
 
582

Accrued compensation and other expenses
16,009

 
28,385

Operating lease liabilities
(9,690
)
 

Due to related party

 
232

Income taxes payable
24

 
(1,754
)
Deferred revenue
(1,304
)
 
(6,162
)
                Net cash provided by operating activities
117,790

 
69,514

Cash flows from investing activities:
 
 
 
Purchase of marketable securities
(89,840
)
 
(184,104
)
Proceeds from sales and maturity of marketable securities
108,413

 
155,346

Purchase of fixed assets
(15,207
)
 
(19,462
)
Payments related to the divestiture of business

 
(2,911
)
Increase in deposits
(29
)
 
(97
)
Acquisition of businesses
(4,154
)
 

Capitalized software development costs

 
(132
)
                Net cash used in investing activities
(817
)
 
(51,360
)
Cash flows from financing activities:
 
 
 
Issuance of common stock under stock plans
2

 
2

Payment of contingent consideration

 
(2,851
)
Repayment of long-term debt
(100,000
)
 

Treasury stock repurchases
(125,000
)
 

Tax withholding on restricted stock units
(11,612
)
 
(11,415
)
                Net cash used in financing activities
(236,610
)
 
(14,264
)
Effect of exchange rate changes on cash and cash equivalents
(1,523
)
 
(5,380
)
Net decrease in cash and cash equivalents and restricted cash
(121,160
)
 
(1,490
)
Cash and cash equivalents and restricted cash, beginning of period
409,820

 
370,731

Cash and cash equivalents and restricted cash, end of period
$
288,660

 
$
369,241

Supplemental disclosures:
 
 
 
Cash paid for interest
$
14,019

 
$
17,410

Cash paid for income taxes
$
10,494

 
$
9,150

Non-cash transactions:
 
 
 
Transfers of inventory to fixed assets
$
2,290

 
$
2,152

Additions to property, plant and equipment included in accounts payable
$
119

 
$
1,190

Tenant improvement allowance
$

 
$
10,171

Issuance of common stock under employee stock plans
$
6,593

 
$
7,575

Contingent consideration related to acquisition, included in accrued other
$
1,000

 
$

Fair value of contingent consideration received as partial consideration for divestiture of business
$

 
$
2,257

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

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NetScout Systems, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been prepared by NetScout Systems, Inc. (NetScout or the Company). Certain information and footnote disclosures normally included in financial statements prepared under United States generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, the unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the Company's financial position and stockholders' equity, results of operations and cash flows. The year-end consolidated balance sheet data and statement of stockholders' equity were derived from the Company's audited financial statements, but do not include all disclosures required by GAAP. The results reported in these unaudited interim consolidated financial statements are not necessarily indicative of results that may be expected for the entire year. All significant intercompany accounts and transactions are eliminated in consolidation.
These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019 filed with the Securities and Exchange Commission on May 28, 2019.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021. ASU 2019-12 is effective for NetScout beginning April 1, 2022. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is currently assessing the effect that ASU 2019-12 will have on its financial position, results of operations, and disclosures.
In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU adds, modifies and clarifies several disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This guidance is effective for fiscal years ending after December 15, 2020. ASU 2018-14 is effective for NetScout beginning April 1, 2021. Early adoption is permitted. The Company is currently assessing the effect that ASU 2018-14 will have on its financial position, results of operations, and disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 adds, modifies and removes several disclosure requirements relative to the three levels of inputs used to measure fair value in accordance with Topic 820, Fair Value Measurement. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. ASU 2018-13 is effective for NetScout beginning April 1, 2020. Early adoption is permitted. The Company is currently assessing the effect that ASU 2018-13 will have on its financial position, results of operations, and disclosures.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). ASU 2017-12 provides guidance to better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for both non-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This standard is effective for financial statements issued for fiscal years beginning after December 15, 2018. The Company adopted ASU 2017-12 effective April 1, 2019. The adoption has had an immaterial impact on the Company's consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-11 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 is effective for annual periods beginning after December 15, 2019, and interim periods therein. Topic 326 is effective for NetScout beginning April 1, 2020, and earlier adoption is permitted. The Company is currently assessing the effect that Topic 326 will have on its financial position, results of operations, and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) Section A - Leases: Amendments to the FASB Accounting Standards Codification (ASU 2016-02) and issued subsequent amendments to initial guidance in July 2018 within

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ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements (collectively, ASC 842). ASC 842 aims to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The Company adopted the guidance as of April 1, 2019 using the modified retrospective method. Please refer to Note 13, "Leases" for further details.
NOTE 2 – REVENUE RECOGNITION
Revenue Recognition Policy
The Company exercises judgment and uses estimates in connection with determining the amounts of product and service revenues to be recognized in each accounting period.
The Company derives revenues primarily from the sale of network management tools and security solutions for service provider and enterprise customers, which include hardware, software and service offerings. The majority of the Company's product sales consist of hardware products with embedded software that are essential to providing customers the intended functionality of the solutions. The Company also sells software offerings decoupled from the underlying hardware and software solutions to provide customers with enhanced functionality.
The Company accounts for revenue once a legally enforceable contract with a customer has been approved by the parties and the related promises to transfer products or services have been identified. A contract is defined by the Company as an arrangement with commercial substance identifying payment terms, each party’s rights and obligations regarding the products or services to be transferred and the amount the Company deems probable of collection. Customer contracts may include promises to transfer multiple products and services to a customer. Determining whether the products and services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation may require significant judgment. Revenue is recognized when control of the products or services are transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for products and services.
Product revenue is typically recognized upon shipment, provided a legally enforceable contract exists, control has passed to the customer, and in the case of software products, when the customer has the rights and ability to access the software; and collection of the related receivable is probable. If any significant obligations to the customer remain post-delivery, typically involving obligations relating to installation and acceptance by the customer, revenue recognition is deferred until such obligations have been fulfilled. The Company's service offerings include installation, integration, extended warranty and maintenance services, post-contract customer support, stand-ready software-as-a-service (SAAS) and other professional services including consulting and training. The Company generally provides software and/or hardware support as part of product sales. Revenue related to the initial bundled software and hardware support is recognized ratably over the support period. In addition, customers can elect to purchase extended support agreements for periods after the initial software/hardware warranty expiration. Support services generally include rights to unspecified upgrades (when and if available), telephone and internet-based support, updates, bug fixes and hardware repair and replacement. Consulting services are recognized upon delivery or completion of performance depending on the terms of the underlying contract. Reimbursements of out-of-pocket expenditures incurred in connection with providing consulting services are included in services revenue, with the offsetting expense recorded in cost of service revenue. Training services include on-site and classroom training. Training revenues are recognized upon delivery of the training.
Generally, the Company's contracts are accounted for individually. However, when contracts are closely interrelated and dependent on each other, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts.
Bundled arrangements are concurrent customer purchases of a combination of the Company's product and service offerings that may be delivered at various points in time. The Company allocates the transaction price among the performance obligations in an amount that depicts the relative standalone selling prices (SSP) of each obligation. Judgment is required to determine the SSP for each distinct performance obligation. The Company uses a range of amounts to estimate SSP when it sells each of the products and services separately based on the element’s historical pricing. The Company also considers its overall pricing objectives and practices across different sales channels and geographies, and market conditions. Generally, the Company has established SSP for a majority of its service elements based on historical standalone sales. In certain instances, the Company has established SSP for services based upon an estimate of profitability and the underlying cost to fulfill those services. Further, for certain service engagements, the Company considers quoted prices as part of multi-element arrangements of those engagements as a basis for establishing SSP. SSP has been established for product elements as the average or median selling price the element was recently sold for, whether sold alone or sold as part of a multiple element transaction. The Company reviews sales of the product elements on a quarterly basis and updates, when appropriate, its SSP for such elements to ensure that it reflects recent pricing experience. The Company's products are distributed through its direct sales force and

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indirect distribution channels through alliances with resellers and distributors. Revenue arrangements with resellers and distributors are recognized on a sell-in basis; that is, when control of the product transfers to the reseller or distributor. The Company records consideration given to a reseller or distributor as a reduction of revenue to the extent they have recorded revenue from the reseller or distributor. With limited exceptions, the Company's return policy does not allow product returns for a refund. Returns have been insignificant to date. In addition, the Company has a history of successfully collecting receivables from its resellers and distributors.
During the nine months ended December 31, 2019, the Company recognized revenue of $240.5 million related to the Company's deferred revenue balance reported at March 31, 2019.
Performance Obligations
Customer contracts may include promises to transfer multiple products and services to a customer. Determining whether the products and services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation may require significant judgment. The transaction price is allocated among performance obligations in bundled contracts in an amount that depicts the relative standalone selling prices of each obligation.
For contracts involving distinct hardware and software licenses, the performance obligations are satisfied at a point in time when control is transferred to the customer. For standalone maintenance and post-contract support (PCS) the performance obligation is satisfied ratably over the contract term as a stand-ready obligation. For consulting and training services, the performance obligation may be satisfied over the contract term as a stand-ready obligation, satisfied over a period of time as those services are delivered, or satisfied at the completion of the service when control has transferred, or the services have expired unused.
Payments for hardware, software licenses, one-year maintenance, PCS and consulting services, are typically due up front with payment terms of 30 to 90 days. However, the Company does have contracts pursuant to which billings occur ratably over a period of years following the transfer of control for the contracted performance obligations. Payments on multi-year maintenance, PCS and consulting services are typically due in annual installments over the contract term. The Company did not have any material variable consideration such as obligations for returns or refunds at December 31, 2019.
At December 31, 2019, the Company had total deferred revenue of $365.5 million, which represents the aggregate total contract price allocated to undelivered performance obligations. The Company expects to recognize $261.2 million, or 71%, of this revenue during the next 12 months, and expects to recognize the remaining $104.3 million, or 29%, of this revenue thereafter.
Because of NetScout's revenue recognition policies, there are circumstances for which the Company does not recognize revenue relating to sales transactions that have been billed, and the related account receivable has not been collected. While the receivable represents an enforceable obligation, for balance sheet presentation purposes, the Company has not recognized the deferred revenue, or the related account receivable and no amounts appear in the consolidated balance sheets for such transactions because control of the underlying deliverable has not transferred. The aggregate amount of unrecognized accounts receivable and deferred revenue was $4.9 million and $23.3 million at December 31, 2019 and March 31, 2019, respectively.
NetScout expects that the amount of billed and unbilled deferred revenue will change from quarter to quarter for several reasons, including the specific timing, duration and size of large customer support and service agreements, varying billing cycles of such agreements, the specific timing of customer renewals, and foreign currency fluctuations. The Company did not have any significant financing components, or variable consideration or performance obligations satisfied in a prior period recognized during the nine months ended December 31, 2019.
Contract Balances
The Company may receive payments from customers based on a billing schedule as established by the Company’s contracts. Contract assets relate to performance obligations where control has transferred to the customer in advance of scheduled billings. The Company records unbilled accounts receivable representing the right to consideration in exchange for goods or services that have been transferred to a customer conditional on the passage of time. Deferred revenue relates to payments received in advance of performance under the contract.
Costs to Obtain Contracts
The Company has determined that the only significant incremental costs incurred to obtain contracts with customers within the scope of Topic 606 are sales commissions paid to its employees. Sales commissions are recorded as an asset and amortized to expense ratably over the remaining performance periods of the related contracts with remaining performance obligations. The Company expenses costs as incurred for sales commissions when the amortization period would have been one year or less.

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At December 31, 2019, the consolidated balance sheet included $6.8 million in assets related to sales commissions to be expensed in future periods. A balance of $3.8 million was included in prepaid expenses and other current assets, and a balance of $3.0 million was included in other assets in the Company's consolidated balance sheet at December 31, 2019. At March 31, 2019, the consolidated balance sheet included $6.4 million in assets related to sales commissions to be expensed in future periods. A balance of $3.8 million was included in prepaid expenses and other current assets, and a balance of $2.6 million was included in other assets in the Company's consolidated balance sheet at March 31, 2019.
During the three and nine months ended December 31, 2019 and 2018, respectively, the Company recognized $1.6 million, $1.5 million, $4.8 million, and $4.8 million of amortization related to this sales commission asset, which is included in the sales and marketing expense line in the Company's consolidated statements of operations.
NOTE 3 – CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of investments, trade accounts receivable and accounts payable. The Company's cash, cash equivalents, and marketable securities are placed with financial institutions with high credit standings.
At December 31, 2019 and March 31, 2019, the Company had no direct customers or indirect channel partners which accounted for more than 10% of the accounts receivable balance.
During the three and nine months ended December 31, 2019, no direct customers or indirect channel partners accounted for more than 10% of the Company's total revenue. During the three months ended December 31, 2018, one direct customer, Verizon, accounted for more than 10% of the Company's total revenue, while no indirect channel partners accounted for more than 10% of total revenue. During the nine months ended December 31, 2018, no direct customers or indirect channel partners accounted for more than 10% of total revenue.
Historically, the Company has not experienced any significant failure of its customers' ability to meet their payment obligations nor does the Company anticipate material non-performance by its customers in the future; accordingly, the Company does not require collateral from its customers. However, if the Company's assumptions are incorrect, there could be an adverse impact on its allowance for doubtful accounts.
NOTE 4 – SHARE-BASED COMPENSATION
The following is a summary of share-based compensation expense including restricted stock units granted pursuant to the Company's 2007 Equity Incentive Plan, as amended (Amended 2007 Plan), and employee stock purchases made under the Company's 2011 Employee Stock Purchase Plan, as amended, (ESPP), based on estimated fair values within the applicable cost and expense lines identified below (in thousands):