Company Quick10K Filing
NETSCOUT Systems
Price23.72 EPS-0
Shares76 P/E-58
MCap1,814 P/FCF14
Net Debt204 EBIT6
TEV2,018 TEV/EBIT324
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-06
10-K 2020-03-31 Filed 2020-05-20
10-Q 2019-12-31 Filed 2020-02-06
10-Q 2019-09-30 Filed 2019-10-31
10-Q 2019-06-30 Filed 2019-08-08
10-K 2019-03-31 Filed 2019-05-28
10-Q 2018-12-31 Filed 2019-02-07
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-02
10-K 2018-03-31 Filed 2018-05-22
10-Q 2017-12-31 Filed 2018-02-01
10-Q 2017-09-30 Filed 2017-11-06
10-Q 2017-06-30 Filed 2017-08-03
10-K 2017-03-31 Filed 2017-05-24
10-Q 2016-12-31 Filed 2017-02-02
10-Q 2016-09-30 Filed 2016-11-01
10-Q 2016-06-30 Filed 2016-08-02
10-K 2016-03-31 Filed 2016-05-31
10-Q 2015-12-31 Filed 2016-02-02
10-Q 2015-09-30 Filed 2015-11-05
10-Q 2015-06-30 Filed 2015-08-06
10-K 2015-03-31 Filed 2015-05-20
10-Q 2014-12-31 Filed 2015-01-27
10-Q 2014-09-30 Filed 2014-10-28
10-Q 2014-06-30 Filed 2014-07-29
10-K 2014-03-31 Filed 2014-05-20
10-Q 2013-12-31 Filed 2014-01-28
10-Q 2013-09-30 Filed 2013-10-29
10-Q 2013-06-30 Filed 2013-08-02
10-K 2013-03-31 Filed 2013-05-24
10-Q 2012-12-31 Filed 2013-02-01
10-Q 2012-09-30 Filed 2012-11-02
10-Q 2012-06-30 Filed 2012-08-03
10-K 2012-03-31 Filed 2012-05-25
10-Q 2011-12-31 Filed 2012-02-03
10-Q 2011-09-30 Filed 2011-11-04
10-Q 2011-06-30 Filed 2011-08-05
10-K 2011-03-31 Filed 2011-05-27
10-Q 2010-12-31 Filed 2011-02-04
10-Q 2010-09-30 Filed 2010-11-09
10-Q 2010-06-30 Filed 2010-08-06
10-K 2010-03-31 Filed 2010-05-28
10-Q 2009-12-31 Filed 2010-02-05
8-K 2020-10-29 Earnings, Exhibits
8-K 2020-09-10 Officers, Shareholder Vote
8-K 2020-07-30 Earnings, Exhibits
8-K 2020-05-07
8-K 2020-05-05
8-K 2020-04-16
8-K 2020-01-30
8-K 2019-10-31
8-K 2019-09-12
8-K 2019-08-01
8-K 2019-05-02
8-K 2019-04-09
8-K 2019-02-12
8-K 2019-01-30
8-K 2018-11-01
8-K 2018-09-12
8-K 2018-07-26
8-K 2018-05-03
8-K 2018-04-23
8-K 2018-02-01
8-K 2018-01-30
8-K 2018-01-16
8-K 2018-01-10

NTCT 10Q Quarterly Report

Part I: Financial Information
Item 1. Unaudited Financial Statements
Note 1 - Basis of Presentation
Note 2 - Revenue
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 Loss per Share
Note 18 - Income Taxes
Note 19 - Segment and Geographic Information
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-31.1 ntct-ex31120200630.htm
EX-31.2 ntct-ex31220200630.htm
EX-32.1 ntct-ex32120200630.htm
EX-32.2 ntct-ex32220200630.htm

NETSCOUT Systems Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
3.73.02.21.50.70.02012201420172020
Assets, Equity
0.40.30.20.10.0-0.12012201420172020
Rev, G Profit, Net Income
0.10.0-0.0-0.1-0.1-0.22012201420172020
Ops, Inv, Fin

ntct-20200630
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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 June 30, 2020
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 classTrading Symbol(s)Name of each exchange on which registered:
Common Stock, $0.001 par value per shareNTCTNasdaq 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 July 30, 2020 was 72,455,170.


Table of Contents
NETSCOUT SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2020
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.




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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, 2020, 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.

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PART I: FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
NetScout Systems, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
 
June 30,
2020
March 31,
2020
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$403,306  $338,489  
Marketable securities23,202  47,969  
Accounts receivable and unbilled costs, net of allowance for doubtful accounts of $853 and $1,350 at June 30, 2020 and March 31, 2020, respectively
138,793  213,514  
Inventories and deferred costs27,300  22,227  
Prepaid income taxes12,392  13,505  
Prepaid expenses and other current assets 25,782  24,039  
Total current assets630,775  659,743  
Fixed assets, net55,228  57,715  
Operating lease right-of-use assets68,025  68,583  
Goodwill1,721,649  1,725,680  
Intangible assets, net569,477  582,179  
Deferred income taxes6,491  6,220  
Long-term marketable securities  2,613  
Other assets15,882  17,770  
Total assets$3,067,527  $3,120,503  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $17,288  $20,004  
Accrued compensation53,688  75,632  
Accrued other25,875  21,840  
Income taxes payable233  903  
Deferred revenue and customer deposits249,382  270,281  
Current portion of operating lease liabilities11,026  10,337  
Total current liabilities357,492  398,997  
Other long-term liabilities14,449  10,039  
Deferred tax liability111,194  114,394  
Accrued long-term retirement benefits35,120  34,256  
Long-term deferred revenue and customer deposits100,100  104,240  
Operating lease liabilities, net of current portion69,355  70,658  
Long-term debt450,000  450,000  
Total liabilities1,137,710  1,182,584  
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock, $0.001 par value:
5,000,000 shares authorized; no shares issued or outstanding at June 30, 2020 and March 31, 2020
    
Common stock, $0.001 par value:
300,000,000 shares authorized; 122,353,504 and 122,006,077 shares issued and 72,455,170 and 72,220,906 shares outstanding at June 30, 2020 and March 31, 2020, respectively
122  122  
Additional paid-in capital2,903,055  2,891,553  
Accumulated other comprehensive loss(2,241) (3,160) 
Treasury stock at cost, 49,898,334 and 49,785,171 shares at June 30, 2020 and March 31, 2020, respectively
(1,309,038) (1,305,935) 
Retained earnings337,919  355,339  
Total stockholders' equity1,929,817  1,937,919  
Total liabilities and stockholders' equity$3,067,527  $3,120,503  
The accompanying notes are an integral part of these consolidated financial statements.
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NetScout Systems, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
 Three Months Ended
June 30,
 20202019
Revenue:
Product$71,693  $75,719  
Service112,122  110,305  
Total revenue183,815  186,024  
Cost of revenue:
Product 21,152  26,935  
Service31,828  27,808  
Total cost of revenue52,980  54,743  
Gross profit130,835  131,281  
Operating expenses:
Research and development45,381  43,727  
Sales and marketing 59,434  73,525  
General and administrative 25,153  22,211  
Amortization of acquired intangible assets15,261  16,143  
Restructuring charges93  123  
Total operating expenses145,322  155,729  
Loss from operations(14,487) (24,448) 
Interest and other expense, net:
Interest income265  1,658  
Interest expense(3,074) (6,365) 
Other income (expense), net(1,971) 308  
Total interest and other expense, net(4,780) (4,399) 
Loss before income tax (benefit) expense(19,267) (28,847) 
Income tax (benefit) expense(1,847) 496  
Net loss$(17,420) $(29,343) 
  Basic net loss per share$(0.24) $(0.38) 
  Diluted net loss per share$(0.24) $(0.38) 
Weighted average common shares outstanding used in computing:
Net loss per share - basic72,303  77,302  
Net loss per share - diluted72,303  77,302  
The accompanying notes are an integral part of these consolidated financial statements.
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NetScout Systems, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
 
Three Months Ended
 June 30,
 20202019
Net loss$(17,420) $(29,343) 
Other comprehensive income (loss):
Cumulative translation adjustments953  (561) 
Changes in market value of investments:
Changes in unrealized (losses) gains, net of (benefit) taxes of ($23) and $6, respectively
(74) 35  
Total net change in market value of investments(74) 35  
Changes in market value of derivatives:
Changes in market value of derivatives, net of taxes (benefit) of $3 and ($19), respectively
8  (54) 
Reclassification adjustment for net gains included in net loss, net of taxes of $10 and $11, respectively
32  35  
Total net change in market value of derivatives40  (19) 
Other comprehensive income (loss)919  (545) 
Total comprehensive loss$(16,501) $(29,888) 
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 June 30, 2020
 Common Stock
Voting
Additional
Paid In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Treasury StockRetained
Earnings
Total
Stockholders'
Equity
 SharesPar
Value
SharesStated
Value
Balance, March 31, 2020122,006,077  $122  $2,891,553  $(3,160) 49,785,171  $(1,305,935) $355,339  $1,937,919  
Net loss(17,420) (17,420) 
Unrealized net investment losses(74) (74) 
Unrealized net gains on derivative financial instruments40  40  
Cumulative translation adjustments953  953  
Issuance of common stock pursuant to vesting of restricted stock units347,427      
Stock-based compensation expense for restricted stock units granted to employees11,502  11,502  
Repurchase of treasury stock113,163  (3,103) (3,103) 
Balance, June 30, 2020122,353,504  $122  $2,903,055  $(2,241) 49,898,334  $(1,309,038) $337,919  $1,929,817  

Three Months Ended June 30, 2019
 Common Stock VotingAdditional Paid In CapitalAccumulated Other Comprehensive Income (Loss)Treasury StockRetained EarningsTotal Stockholders’ Equity
 SharesPar ValueSharesStated Value
Balance, March 31, 2019119,760,132$120  $2,828,922  $(2,639) 42,149,771$(1,119,063) $358,093  $2,065,433  
Net loss(29,343) (29,343) 
Unrealized net investment gains35  35  
Unrealized net losses on derivative financial instruments(19) (19) 
Cumulative translation adjustments(561) (561) 
Issuance of common stock pursuant to vesting of restricted stock units362,886    
Stock-based compensation expense for restricted stock units granted to employees12,079  12,079  
Repurchase of treasury stock1,418,949(36,189) (36,189) 
Balance, June 30, 2019120,123,018$120  $2,841,001  $(3,184) 43,568,720$(1,155,252) $328,750  $2,011,435  


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)
 Three Months Ended
June 30,
 20202019
Cash flows from operating activities:
Net loss$(17,420) $(29,343) 
Adjustments to reconcile net loss to cash provided by operating activities, net of the effects of acquisitions:
Depreciation and amortization26,009  29,335  
Operating lease right-of-use assets2,576  2,552  
Loss on disposal of fixed assets33    
Share-based compensation expense12,096  12,743  
Net change in fair value of contingent and contractual liabilities  541  
Accretion of contingent consideration  (18) 
Deferred income taxes(3,722) 830  
Other losses (gains)45  (81) 
Changes in assets and liabilities
Accounts receivable and unbilled costs75,152  75,092  
Inventories(5,544) (1,208) 
Prepaid expenses and other assets(167) 4,238  
Accounts payable(2,423) (634) 
Accrued compensation and other expenses(13,221) (16,332) 
Operating lease liabilities(2,634) (3,425) 
Income taxes payable(378) 85  
Deferred revenue(25,471) (24,917) 
                Net cash provided by operating activities44,931  49,458  
Cash flows from investing activities:
Purchase of marketable securities(5,743) (41,039) 
Proceeds from sales and maturity of marketable securities33,026  28,995  
Purchase of fixed assets(2,605) (3,287) 
Purchase of intangible assets(4,237)   
Decrease in deposits102    
Acquisition of businesses  (4,154) 
                Net cash provided by (used in) investing activities20,543  (19,485) 
Cash flows from financing activities:
Payment of contingent consideration(1,000)   
Repayment of long-term debt  (50,000) 
Treasury stock repurchases  (30,708) 
Tax withholding on restricted stock units(3,103) (3,012) 
                Net cash used in financing activities(4,103) (83,720) 
Effect of exchange rate changes on cash and cash equivalents2,446  (1,163) 
Net increase (decrease) in cash and cash equivalents and restricted cash63,817  (54,910) 
Cash and cash equivalents and restricted cash, beginning of period340,237  409,820  
Cash and cash equivalents and restricted cash, end of period$404,054  $354,910  
Supplemental disclosures:
Cash paid for interest$2,298  $5,639  
Cash paid for income taxes$1,474  $3,211  
Non-cash transactions:
Transfers of inventory to fixed assets$491  $862  
Additions to property, plant and equipment included in accounts payable$309  $794  
Contingent consideration related to acquisition, included in accrued other$  $1,000  
Unsettled share repurchases, included in accounts payable$  $2,469  
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, 2020 filed with the Securities and Exchange Commission on May 20, 2020.
COVID-19 Risks and Uncertainties
The Company is closely monitoring the impact of COVID-19 on all aspects of its business. COVID-19 was declared a
global pandemic by the World Health Organization on March 11, 2020 and the President of the United States declared the
COVID-19 outbreak a national emergency. While the COVID-19 pandemic has not had a material adverse impact on the
Company’s operations to date, the future impacts of the pandemic and any resulting economic impact are largely unknown and
rapidly evolving. It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and
the resulting economic impact may materially and adversely affect the Company’s results of operations, cash flows and
financial position as well as its customers.
Under Accounting Standards Update (ASU) 2014-15, Presentation of Financial Statements—Going Concern (Subtopic
205-40), or ASC 205-40, the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial
statements are issued. The Company is taking precautionary actions to reduce costs and spending across the organization. This
includes limiting discretionary spending and reducing hiring activities. The Company has temporarily halted its stock
repurchase program, although the repurchase authorization remains effective, as it preserves capital given the COVID-19 and economic uncertainties at this time. In addition, based on covenant levels at June 30, 2020, the Company has an incremental $304 million available under the $1.0 billion revolving credit facility. The Company expects net cash provided by operating activities combined with cash, cash equivalents, and marketable securities and borrowing availability under the Company's revolving credit facility to provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months.

Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption is not expected to have a material impact on the Company's financial position, results of operations, and disclosures.
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This guidance addresses accounting for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the equity method of accounting, and forward contracts and purchase options on certain types of securities. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted. ASU 2020-01 is effective for NetScout beginning April
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1, 2021. The Company is currently assessing the effect that ASU 2020-01 will have on its financial position, results of operations, and disclosures.
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. The Company adopted the guidance as of April 1, 2020. The adoption has not had a material impact on the Company's consolidated financial statements.
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. The Company adopted the guidance as of April 1, 2020. The adoption has not had a material 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, ASU 2019-11 and ASU 2020-02 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The Company adopted the guidance prospectively as of April 1, 2020. The adoption did not result in a cumulative adjustment to retained earnings and has not had an impact on the Company's consolidated financial statements other than with respect to the updated disclosure requirements.
NOTE 2 – REVENUE
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
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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 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 customer as a reduction of revenue to the extent they have recorded revenue from the customer. 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 three months ended June 30, 2020, the Company recognized revenue of $91.1 million related to the Company's deferred revenue balance reported at March 31, 2020.
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, refunds or warranties at June 30, 2020.
At June 30, 2020, the Company had total deferred revenue of $349.5 million, which represents the aggregate total contract price allocated to undelivered performance obligations. The Company expects to recognize $249.4 million, or 71%, of this revenue during the next 12 months, and expects to recognize the remaining $100.1 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
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transactions because control of the underlying deliverable has not transferred. The aggregate amount of unrecognized accounts receivable and deferred revenue was $10.7 million and $11.1 million at June 30, 2020 and March 31, 2020, 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 three months ended June 30, 2020.
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.
At June 30, 2020, the consolidated balance sheet included $7.7 million in assets related to sales commissions to be expensed in future periods. A balance of $4.4 million was included in prepaid expenses and other current assets, and a balance of $3.3 million was included in other assets in the Company's consolidated balance sheet at June 30, 2020. At March 31, 2020, the consolidated balance sheet included $7.2 million in assets related to sales commissions to be expensed in future periods. A balance of $3.9 million was included in prepaid expenses and other current assets, and a balance of $3.3 million was included in other assets in the Company's consolidated balance sheet at March 31, 2020.
During the three months ended June 30, 2020 and 2019, the Company recognized $1.6 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.
Allowance for Doubtful Accounts
The Company continually monitors collections from its customers. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for doubtful accounts based on a combination of factors, including but not limited to, analysis of the aging schedules, past due balances, historical collection experience and prevailing economic conditions.
The following table summarizes the activity in the allowance for doubtful accounts (in thousands):
Balance at March 31, 2020$1,350  
Provision for allowance for doubtful accounts24  
Recoveries and other adjustments(497) 
Write off charged against the allowance for doubtful accounts(24) 
Balance at June 30, 2020$853  

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 June 30, 2020 and March 31, 2020, the Company had no direct customers or indirect channel partners which accounted for more than 10% of the accounts receivable balance.
During the three months ended June 30, 2020 and 2019, no direct customers or indirect channel partners accounted for more than 10% of the Company's total revenue.
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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 pursuant to the Company's 2007 Equity Incentive Plan, as amended (Amended 2007 Plan), and 2019 Equity Incentive Plan (2019 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):
Three Months Ended
June 30,
 20202019
Cost of product revenue$245  $267  
Cost of service revenue1,350  1,467  
Research and development3,781  3,819  
Sales and marketing3,992  4,135  
General and administrative2,728  3,055  
$12,096  $12,743  
On September 12, 2019, the Company’s stockholders approved the 2019 Plan, which replaced the Company’s Amended 2007 Plan. The 2019 Plan permits the granting of incentive and nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and other stock awards, collectively referred to as "share-based awards." Periodically, the Company grants share-based awards to employees and officers of the Company and its subsidiaries. The Company accounts for these share-based awards in accordance with GAAP, which requires the measurement and recognition of compensation expense based on estimated fair values for all share-based payment awards made to its employees and directors. Share-based award grants are generally measured at fair value on the date of grant based on the number of shares granted and the quoted price of the Company’s common stock. Such value is recognized as a cost of revenue or an operating expense over the corresponding vesting period.
Employee Stock Purchase Plan – The Company maintains the ESPP for all eligible employees as described in the Company's Annual Report on Form 10-K for the year ended March 31, 2020. Under the ESPP, shares of the Company's common stock may be purchased on the last day of each bi-annual offering period at 85% of the fair value on the last day of such offering period. The offering periods run from March 1st through August 31st and from September 1st through the last day of February each year.
NOTE 5 – CASH, CASH EQUIVALENTS, RESTRICTED CASH AND MARKETABLE SECURITIES
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents and those investments with original maturities greater than three months to be marketable securities. Cash and cash equivalents consisted of money market instruments and cash at June 30, 2020 and U.S. government and municipal obligations, commercial paper, money market instruments and cash maintained with various financial institutions at March 31, 2020.
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Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows (in thousands):
June 30,
2020
March 31, 2020June 30,
2019
March 31,
2019
Cash and cash equivalents$403,306  $338,489  $353,721  $409,632  
Restricted cash748  1,748  1,189  188  
     Total cash, cash equivalents and restricted cash$404,054  $340,237  $354,910  $409,820  
The Company's restricted cash includes cash balances which are legally or contractually restricted. The Company's restricted cash is included within prepaid and other current assets and consists of amounts related to holdbacks associated with prior acquisitions.
Marketable Securities
The following is a summary of marketable securities held by NetScout at June 30, 2020, classified as short-term and long-term (in thousands):
Amortized
Cost
Unrealized
Gains
Fair
Value
Type of security:
U.S. government and municipal obligations$10,570  $70  $10,640