10-Q 1 ntct-20240630.htm 10-Q ntct-20240630
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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, 2024
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 25, 2024 was 71,317,824.


NETSCOUT SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2024
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.






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, 2024, 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


PART I: FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
NetScout Systems, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
 
June 30,
2024
March 31,
2024
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$362,213 $389,674 
Marketable securities and investments43,954 33,459 
Accounts receivable and unbilled costs, net of allowance for credit allowances of $116 and $479 at June 30, 2024 and March 31, 2024, respectively
129,270 192,096 
Inventories and deferred costs14,994 14,095 
Prepaid income taxes13,352 11,076 
Prepaid expenses and other current assets 26,267 32,094 
Total current assets590,050 672,494 
Fixed assets, net24,903 26,487 
Operating lease right-of-use assets39,911 42,486 
Goodwill1,076,715 1,502,820 
Intangible assets, net295,290 308,659 
Deferred income taxes47,855 30,767 
Long-term marketable securities1,003 994 
Other assets9,689 10,595 
Total assets$2,085,416 $2,595,302 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $15,938 $14,506 
Accrued compensation63,059 51,362 
Accrued other12,399 14,665 
Income taxes payable764 764 
Deferred revenue and customer deposits279,185 301,806 
Current portion of operating lease liabilities11,859 11,979 
Total current liabilities383,204 395,082 
Other long-term liabilities6,897 7,055 
Deferred tax liability4,326 4,374 
Accrued long-term retirement benefits28,124 28,413 
Long-term deferred revenue and customer deposits120,638 130,212 
Operating lease liabilities, net of current portion35,231 38,101 
Long-term debt75,000 100,000 
Total liabilities653,420 703,237 
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, 2024 and March 31, 2024
  
Common stock, $0.001 par value:
300,000,000 shares authorized; 133,189,228 and 131,316,309 shares issued and 71,311,409 and 71,404,216 shares outstanding at June 30, 2024 and March 31, 2024, respectively
133 131 
Additional paid-in capital3,201,998 3,181,366 
Accumulated other comprehensive income3,404 3,572 
Treasury stock at cost, 61,877,819 and 59,912,093 shares at June 30, 2024 and March 31, 2024, respectively
(1,652,642)(1,615,483)
(Accumulated deficit) retained earnings(120,897)322,479 
Total stockholders' equity1,431,996 1,892,065 
Total liabilities and stockholders' equity$2,085,416 $2,595,302 
The accompanying notes are an integral part of these consolidated financial statements.
2

NetScout Systems, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
 Three Months Ended
June 30,
 20242023
Revenue:
Product$61,169 $94,661 
Service113,396 116,477 
Total revenue174,565 211,138 
Cost of revenue:
Product 12,004 16,662 
Service32,365 33,734 
Total cost of revenue44,369 50,396 
Gross profit130,196 160,742 
Operating expenses:
Research and development42,465 45,520 
Sales and marketing 70,330 78,996 
General and administrative 25,581 28,214 
Amortization of acquired intangible assets11,614 12,707 
Restructuring charges16,563  
Goodwill impairment426,967  
Total operating expenses593,520 165,437 
Loss from operations(463,324)(4,695)
Interest and other income (expense), net:
Interest income3,098 2,288 
Interest expense(1,945)(2,093)
Other income (expense), net8,475 (834)
Total interest and other income (expense), net9,628 (639)
Loss before income tax benefit(453,696)(5,334)
Income tax benefit(10,320)(1,134)
Net loss$(443,376)$(4,200)
     Basic net loss per share$(6.20)$(0.06)
     Diluted net loss per share$(6.20)$(0.06)
Weighted average common shares outstanding used in computing:
     Net loss per share - basic71,467 71,540 
     Net loss per share - diluted71,467 71,540 
The accompanying notes are an integral part of these consolidated financial statements.
3

NetScout Systems, Inc.
Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
 
Three Months Ended
 June 30,
 20242023
Net loss$(443,376)$(4,200)
Other comprehensive income (loss):
Cumulative translation adjustments(131)68 
Changes in market value of investments:
Changes in unrealized gains (losses), net of taxes (benefit) of $2, and ($35), respectively
7 (106)
Total net change in market value of investments7 (106)
Changes in market value of derivatives:
Changes in market value of derivatives, net of (benefit) taxes of ($27), and $51, respectively
(90)159 
Reclassification adjustment for net gains (losses) included in net loss, net of taxes (benefit) of $14, and ($18), respectively
46 (56)
Total net change in market value of derivatives(44)103 
Other comprehensive (loss) income(168)65 
Total comprehensive loss$(443,544)$(4,135)
The accompanying notes are an integral part of these consolidated financial statements.
4

NetScout Systems, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
(Unaudited)
Three Months Ended June 30, 2024
 Common Stock
Voting
Additional
Paid In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock(Accumulated Deficit) Retained EarningsTotal
Stockholders'
Equity
 SharesPar
Value
SharesStated
Value
Balance, March 31, 2024131,316,309 $131 $3,181,366 $3,572 59,912,093 $(1,615,483)$322,479 $1,892,065 
Net loss(443,376)(443,376)
Unrealized net investment gains7 7 
Unrealized net losses on derivative financial instruments(44)(44)
Cumulative translation adjustments(131)(131)
Issuance of common stock pursuant to vesting of restricted stock units1,872,919 2 2 
Stock-based compensation expense for restricted stock units granted to employees20,632 20,632 
Repurchase of treasury stock1,965,726 (37,159)(37,159)
Balance, June 30, 2024133,189,228$133 $3,201,998 $3,404 61,877,819$(1,652,642)$(120,897)$1,431,996 
Three Months Ended June 30, 2023
 Common Stock
Voting
Additional
Paid In
Capital
Accumulated
Other
Comprehensive
Income (loss)
Treasury StockRetained EarningsTotal
Stockholders'
Equity
 SharesPar
Value
SharesStated
Value
Balance, March 31, 2023128,683,824 $128 $3,099,698 $5,738 57,434,779 $(1,546,128)$470,213 $2,029,649 
Net loss(4,200)(4,200)
Unrealized net investment losses(106)(106)
Unrealized net gains on derivative financial instruments103 103 
Cumulative translation adjustments68 68 
Issuance of common stock pursuant to vesting of restricted stock units1,332,217 2 2 
Stock-based compensation expense for restricted stock units granted to employees19,100 19,100 
Repurchase of treasury stock435,172 (13,406)(13,406)
Balance, June 30, 2023130,016,041$130 $3,118,798 $5,803 57,869,951$(1,559,534)$466,013 $2,031,210 


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


5

NetScout Systems, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Three Months Ended
June 30,
 20242023
Cash flows from operating activities:
Net loss$(443,376)$(4,200)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization16,405 19,436 
Operating lease right-of-use asset amortization2,606 2,592 
Loss on disposal of fixed assets 38 
Share-based compensation expense21,198 19,844 
Change in fair value of derivative investment (206)
Goodwill impairment426,967  
Deferred income taxes(17,077)(11,456)
                Other (gains) losses(8,839)363 
Changes in assets and liabilities
Accounts receivable and unbilled costs62,715 35,565 
Inventories and deferred costs(1,567)(1,604)
Prepaid expenses and other assets4,152 (1,157)
Accounts payable1,686 (2,031)
Accrued compensation and other expenses8,740 (37,677)
Operating lease liabilities(3,022)(2,907)
Income taxes payable(65)(2,717)
Deferred revenue(32,095)(36,251)
                Net cash provided by (used in) operating activities38,428 (22,368)
Cash flows from investing activities:
Purchase of marketable securities and investments(12,151)(25,905)
Proceeds from sales and maturity of marketable securities10,325 8,733 
Purchase of fixed assets(1,268)(1,957)
                Net cash used in investing activities(3,094)(19,129)
Cash flows from financing activities:
Issuance of common stock under stock plans2 2 
Treasury stock repurchases(25,000) 
Tax withholding on restricted stock units(12,159)(13,406)
Repayment of long-term debt(25,000) 
                Net cash used in financing activities(62,157)(13,404)
Effect of exchange rate changes on cash and cash equivalents(638)823 
Net decrease in cash and cash equivalents(27,461)(54,078)
Cash and cash equivalents, beginning of period389,674 386,794 
Cash and cash equivalents, end of period$362,213 $332,716 
Supplemental disclosures:
Cash paid for interest$1,437 $1,587 
Cash paid for income taxes$9,143 $21,831 
Non-cash transactions:
Transfers of inventory to fixed assets$645 $1,114 
Additions to property, plant and equipment included in accounts payable$253 $46 
The accompanying notes are an integral part of these consolidated financial statements.
6

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, 2024 filed with the Securities and Exchange Commission on May 16, 2024.
Global and Macroeconomic Conditions
The Company continues to closely monitor the 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 its business, customers, employees, supply chain, and distribution network. The full extent of the impacts of these global and macroeconomic trends remain uncertain. It is possible that the measures taken by the governments of countries affected and the resulting economic impacts may materially and adversely affect the Company's future results of operations, cash flows and financial position as well as its customers.
The Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. The macroeconomic environment remains challenging with constrained customer spending and the Company expects this to persist into the remainder of fiscal year 2025. The Company has taken and continues to take precautionary actions to manage costs and increase productivity across the organization. This includes managing discretionary spending and hiring activities. In addition, based on covenant levels, the Company had as of June 30, 2024 an incremental $725 million available under the revolving credit facility.
The Company expects net cash provided by operations combined with cash, cash equivalents, marketable securities and investments and borrowing availability under the revolving credit facility to provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. The amendments are effective retrospectively for fiscal years beginning after December 15, 2024. The amendments should be applied prospectively; however, retrospective application is also permitted. ASU 2023-09 is effective for NetScout beginning April 1, 2025. Early adoption is permitted. The Company is in the process of evaluating the impact that the adoption ASU 2023-09 will have to the financial statements and related disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which provides updates to qualitative and quantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expenses and increased interim disclosure requirements, among others. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and the amendments should be applied retrospectively. The Company plans to adopt ASU 2023-07 beginning with its fiscal year ending March 31, 2025. The Company is in the process of evaluating the impact that the adoption ASU 2023-07 will have to the financial statements and related disclosures.

7

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 cybersecurity solutions for service provider and enterprise customers, which include hardware, software, and service offerings. The Company's product sales consist of software only offerings and offerings which include hardware appliances with embedded software that are essential to providing customers the intended functionality of the solutions.
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 fulfillment, provided a legally enforceable contract exists, control has passed to the customer, and in the case of software products, when the customer has the rights and ability to access the software, and collection of the related receivable is probable. 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 for each of the products and services sold, based primarily on the performance obligation's historical pricing. The Company also considers its overall pricing objectives and practices across different sales channels and geographies, and market conditions. Generally, the Company has established SSP for a majority of its service performance obligations 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. SSP has primarily been established for product performance obligations as the average or median selling price the performance obligation was recently sold for, whether sold alone or sold as part of a bundle transaction. The Company reviews sales of the product performance obligations on a quarterly basis and updates, when appropriate, its SSP for such performance obligations 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, 2024, the Company recognized revenue of $100.3 million related to the Company's deferred revenue balance reported at March 31, 2024.
8

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, 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, 2024.
At June 30, 2024, the Company had total deferred revenue of $399.8 million, which represents the aggregate total contract price allocated to undelivered performance obligations. The Company expects to recognize $279.2 million, or 70%, of this revenue during the next 12 months, and expects to recognize the remaining $120.6 million, or 30%, 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, but the related account receivable has not been collected. While the receivable represents an enforceable obligation, the Company does not believe its right to payment is unconditional, therefore for balance sheet presentation purposes, the Company has not recognized the deferred revenue or the related account receivable and no amounts appear in the consolidated balance sheets for such transactions because control of the underlying deliverable has not transferred. The aggregate amount of unrecognized accounts receivable and deferred revenue was $9.7 million and $5.9 million at June 30, 2024 and March 31, 2024, 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 material significant financing components, or variable consideration or performance obligations satisfied in a prior period recognized during the three months ended June 30, 2024.
Contract Balances
The Company may receive payments from customers based on billing schedules 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 scenarios where billings with an unconditional right to payment occur before all performance obligations are delivered or payments are 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, 2024, the consolidated balance sheet included $9.3 million in assets related to sales commissions to be expensed in future periods. A balance of $5.0 million was included in prepaid expenses and other current assets, and a balance of $4.3 million was included in other assets in the Company's consolidated balance sheet at June 30, 2024. At March 31, 2024, the consolidated balance sheet included $9.3 million in assets related to sales commissions to be expensed in future periods. A balance of $4.8 million was included in prepaid expenses and other current assets, and a balance of $4.5 million was included in other assets in the Company's consolidated balance sheet at March 31, 2024.
9

During each of the three months ended June 30, 2024 and 2023, the Company recognized $1.7 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 Credit Losses
The Company continually monitors collections from its customers. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for credit losses 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 credit losses (in thousands):
Balance at March 31, 2024
$479 
     Additions resulting in charges to operations27 
     Recoveries of previously reserved balances(381)
     Deductions due to write-offs(9)
Balance at June 30, 2024
$116 

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, 2024, one direct customer accounted for more than 10% of the Company's accounts receivable balance, while no channel partners accounted for more than 10% of the Company's accounts receivable balance. At March 31, 2024, the Company had no direct customers or channel partners which accounted for more than 10% of the accounts receivable balance.
During the three months ended June 30, 2024, and 2023, no direct customers or 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
On September 12, 2019, the Company's stockholders approved the 2019 Equity Incentive Plan (2019 Plan), which replaced the Company's 2007 Equity Incentive Plan, as amended (Amended 2007 Plan). The 2019 Plan permits the granting of incentive and nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and other stock awards, collectively referred to as "share-based awards."
On September 10, 2020, the Company's stockholders approved an amendment and restatement of the 2019 Equity Incentive Plan (2019 First Amended Plan) to increase the number of shares reserved for issuance by 4,700,000 shares, establish a one-year minimum vesting requirement for awards granted on or after September 10, 2020, and change the "fungible share counting ratio" used to calculate the increase or reduction in the number of shares available for issuance under the 2019 First Amended Plan.
On August 24, 2022, the Company's stockholders approved an amendment and restatement of the 2019 Equity Incentive Plan (2019 Second Amended Plan) to increase the number of shares reserved for issuance by 7,000,000 shares, and change the "fungible share counting ratio" used to calculate the increase or reduction in the number of shares available for issuance under the 2019 Second Amended Plan.
On September 14, 2023, the Company's stockholders approved an amendment and restatement to the 2019 First Amended Plan (2019 Third Amended Plan) to further increase the number of shares reserved for issuance by 5,900,000 shares and changed the "fungible share counting ratio" used to calculate the increase or reduction in the number of shares available for issuance under the 2019 Third Amended Plan. At September 14, 2023, there was a total of 8,263,547 shares reserved for issuance under the 2019 Third Amended Plan, which consisted of 5,900,000 new shares plus 2,363,547 shares that remained available for grant under the 2019 Second Amended Plan as of September 14, 2023, the effective date of the 2019 Third Amended Plan. The Company refers to the 2019 Plan, 2019 First Amended Plan, 2019 Second Amended Plan and 2019 Third
10

Amended Plan collectively as the "Amended 2019 Plan". At June 30, 2024, an aggregate of 4,391,209 shares remained available for grant under the Amended 2019 Plan.
Periodically, the Company grants share-based awards to employees, officers, and directors of the Company and its subsidiaries. Additionally, the Company periodically grants performance-based restricted stock units to certain executive officers that vest based upon the Company's total shareholder return as compared to the Russell 2000 Index over a three-year period. The performance-based restricted stock units were valued using the Monte Carlo Simulation model. The measurement and recognition of compensation expense is based on estimated fair values for all share-based payment awards made to its employees and directors. Share-based award grants are generally measured at fair value on the date of grant based on the number of shares granted and the quoted price of the Company's common stock. Such value is recognized as a cost of revenue or an operating expense over the corresponding vesting period.
The following is a summary of share-based compensation expense including restricted stock units and performance-based restricted stock units granted pursuant to the Company's Amended 2007 Plan and the Amended 2019 Plan, and employee stock purchases made under the Company's 2011 Amended and Restated Employee Stock Purchase Plan (ESPP), based on estimated fair values within the applicable cost and expense lines identified below (in thousands):
Three Months Ended
June 30,
 20242023
Cost of product revenue$431 $372 
Cost of service revenue2,889 2,539 
Research and development5,886 5,386 
Sales and marketing7,504 7,284 
General and administrative4,488 4,263 
$21,198 $19,844 
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, 2024. 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, MARKETABLE SECURITIES AND INVESTMENTS
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 mainly consisted of U.S. government and municipal obligations, commercial paper, money market instruments and cash maintained with various financial institutions at June 30, 2024 and March 31, 2024.
Marketable Securities
The following is a summary of marketable securities held by NetScout at June 30, 2024, classified as short-term and long-term (in thousands):
Amortized
Cost
Unrealized
Losses
Fair
Value
Type of security:
U.S. government and municipal obligations$8,879 $(16)$8,863 
Commercial paper12,086  12,086 
Certificates of deposit2,829  2,829 
Total short-term marketable securities23,794 (16)23,778 
U.S. government and municipal obligations1,014 (11)1,003 
Total long-term marketable securities1,014 (11)1,003 
Total marketable securities$24,808 $(27)$24,781 
11

The following is a summary of marketable securities held by NetScout at March 31, 2024, classified as short-term and long-term (in thousands):
Amortized
Cost
Unrealized
Losses
Fair
Value
Type of security:
U.S. government and municipal obligations$10,523 $(26)$10,497 
Commercial paper8,648  8,648 
Certificates of deposit2,807  2,807 
Total short-term marketable securities21,978 (26)21,952 
U.S. government and municipal obligations1,004 (10)994 
Total long-term marketable securities1,004 (10)994 
Total marketable securities$22,982 $(36)$22,946 
Contractual maturities of the Company's marketable securities held at June 30, 2024 and March 31, 2024 were as follows (in thousands):
June 30,
2024
March 31,
2024
Available-for-sale securities:
Due in 1 year or less$23,778 $21,952 
Due after 1 year through 5 years1,003 994 
$24,781 $22,946 
Investments
In February 2023, the Company entered into a forward share purchase agreement with Napatech A/S (Napatech), a publicly traded Danish company registered on the Oslo stock exchange, to purchase approximately 6.2 million shares of Napatech's common stock for $7.5 million. In April 2023, the Company settled the forward share purchase contract with Napatech in exchange for approximately 6.2 million shares of Napatech's common stock and recorded a $0.2 million change in the fair value of the derivative instrument in other income (expense), net within the Company's consolidated statement of operations during the three months ended June 30, 2023. As part of the agreement, the Company received the right to designate a representative to be nominated for election to the Napatech Board of Directors, which was approved by Napatech's Nomination Committee in April 2023. The Company accounts for this investment under the equity method and has elected to apply the fair value option to the investment. The Company records the investment at fair value at the end of each period based on the closing price of Napatech's stock and any change in fair value during the period is recorded in other income (expense), net within the Company's consolidated statement of operations. At June 30, 2024 and March 31, 2024, the fair value of the investment in Napatech was $20.2 million and $11.5 million, respectively, and was included in marketable securities and investments in the Company's consolidated balance sheet. During the three months ended June 30, 2024 and 2023, the Company recognized an $8.8 million increase and a $0.4 million decrease, respectively, in the fair value of the equity investment in Napatech in other income (expense), net within the Company's consolidated statement of operations. For the three months ended June 30, 2024 and 2023, the unrealized losses related to foreign currency translation on the equity investment in Napatech were immaterial.
12

NOTE 6 – FAIR VALUE MEASUREMENTS
The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs. The following tables present the Company's financial assets and liabilities measured on a recurring basis using the fair value hierarchy at June 30, 2024 and March 31, 2024 (in thousands):
Fair Value Measurements at
 June 30, 2024
 Level 1Level 2Level 3Total
ASSETS:
Cash and cash equivalents$346,200 $16,013 $ $362,213 
U.S. government and municipal obligations5,991 3,875  9,866 
Commercial paper 12,086  12,086 
Certificates of deposit 2,829  2,829 
Equity investment in Napatech20,176   20,176 
Derivative financial instruments 9  9 
$372,367 $34,812 $ $407,179 
LIABILITIES:
Derivative financial instruments$ $(123)$ $(123)
$ $(123)$ $(123)
Fair Value Measurements at
 March 31, 2024
 Level 1Level 2Level 3Total
ASSETS:
Cash and cash equivalents$381,829 $7,845 $ $389,674 
U.S. government and municipal obligations8,985 2,506  11,491 
Commercial paper 8,648  8,648 
Certificates of deposit 2,807  2,807 
Equity investment in Napatech11,507   11,507 
Derivative financial instruments 11  11 
$402,321 $21,817 $ $424,138 
LIABILITIES:
Derivative financial instruments$ $(74)$ $(74)
$ $(74)$ $(74)
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including marketable securities and derivative financial instruments.
The Company's Level 1 investments are classified as such because they are valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency.
The Company's Level 2 investments are classified as such because they are valued using observable inputs other than Level 1 quoted prices that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets in markets that are not active.

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NOTE 7 – INVENTORIES AND DEFERRED COSTS
Inventories are stated at the lower of actual cost or net realizable value. Cost is determined by using the first in, first out (FIFO) method. Inventories consist of the following (in thousands):
June 30,
2024
March 31,
2024
Raw materials$7,950 $8,175 
Work in process426 545 
Finished goods3,764 4,160 
Deferred costs2,854 1,215 
$14,994 $14,095 
NOTE 8 - DIVESTITURES
Business Divestiture
On September 8, 2023, the Company entered into an Asset Purchase Agreement to divest its Test Optimization business (TO business) for a purchase price of $7.8 million, inclusive of a working capital adjustment. The Company recorded a gain of $3.8 million on the divestiture for the fiscal year ended March 31, 2024.
The Company determined that the sale of the TO business did not represent a strategic shift and will not have a major effect on its consolidated results of operations, financial position or cash flow. Accordingly, the Company has not presented the sale as a discontinued operation in the consolidated financial statements.
NOTE 9 – GOODWILL AND INTANGIBLE ASSETS
Goodwill
The Company has one reporting unit. Goodwill is tested for impairment at a reporting unit level at least annually, as of January 31, or on an interim basis if an event occurs or circumstances change (a "triggering event") that would, more likely than not, reduce the fair value of the reporting unit below its carrying value.
During fiscal year 2024, the Company recorded $217.3 million in goodwill impairment charges as a result of the sustained decline in the Company's stock price and overall market capitalization. During the first quarter of fiscal year 2025, due to the continued decrease in the Company's 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, the Company conducted a quantitative impairment test of its goodwill at June 30, 2024. The Company estimated the implied fair value of its goodwill using a market approach. As a result of the quantitative impairment test performed during the first quarter of fiscal year 2025, the Company 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 the Company's stock price from March 31, 2024 to June 30, 2024, an increase in the Company's 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 voluntary separation program (VSP) implemented by the Company 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.
Throughout the remainder of the fiscal year 2025, the Company will continue to monitor relevant facts and circumstances, including future changes in its stock price. The Company may be required to record additional goodwill impairment charges. While management cannot predict if or when additional goodwill impairments may occur, future goodwill impairments could have material adverse effects on the Company's results of operations and financial condition.
At June 30, 2024 and March 31, 2024, the carrying amounts of goodwill were $1.1 billion and $1.5 billion, respectively. The change in the carrying amount of goodwill for the three months ended June 30, 2024 was due to the impairment of goodwill, and the impact of foreign currency translation adjustments related to asset balances that are recorded in currencies other than the U.S. Dollar.
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The following table summarizes the changes in the carrying amount of goodwill for the three months ended June 30, 2024 as follows (in thousands):
Balance at March 31, 2024
$1,502,820 
     Goodwill impairment(426,967)
     Foreign currency translation impact862 
Balance at June 30, 2024
$1,076,715 
Intangible Assets
The net carrying amounts of intangible assets were $295.3 million and $308.7 million at June 30, 2024 and March 31, 2024, respectively. Intangible assets acquired in a business combination are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. The Company amortizes acquired intangible assets over their estimated useful lives.
The Company reviews definite-lived intangible assets for impairment when an event occurs that may indicate potential impairment. In connection with the goodwill impairment analysis performed at June 30, 2024, the Company conducted an impairment test of its definite-lived intangible assets at June 30, 2024. Based on this assessment, the Company concluded that the carrying values of the Company's definite-lived intangible assets were recoverable. However, if future events occur or if business conditions deteriorate, the Company may be required to record an impairment loss, and or accelerate the amortization of definite-live intangible assets in the future, which could be material to its results of operations and financial condition.
Intangible assets include the following amortizable intangible assets at June 30, 2024 (in thousands):
CostAccumulated
Amortization
Net
Developed technology$248,098 $(239,182)$8,916 
Customer relationships762,921 (485,971)276,950 
Distributor relationships and technology licenses7,768 (7,717)51 
Definite-lived trademark and trade name57,654 (48,462)9,192 
Core technology7,192 (7,192) 
Capitalized software 3,317 (3,317) 
Other1,208 (1,027)181 
$1,088,158 $(792,868)$295,290 

Intangible assets include the following amortizable intangible assets at March 31, 2024 (in thousands):
CostAccumulated
Amortization
Net
Developed technology$248,385 $(238,470)$9,915 
Customer relationships763,943 (475,592)288,351 
Distributor relationships and technology licenses7,785 (7,463)322 
Definite-lived trademark and trade name57,699 (47,814)9,885 
Core technology7,192 (7,192) 
Capitalized software 3,317 (3,317) 
Other1,208 (1,022)186 
$1,089,529 $(780,870)$308,659 

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Amortization included as cost of product revenue consists of amortization of developed technology, and distributor relationships and technology licenses. Amortization included as operating expense consists of all other intangible assets. The following table provides a summary of amortization expense for the three months ended June 30, 2024 and 2023, respectively (in thousands):
Three Months Ended
June 30,
20242023
Amortization of intangible assets included as:
    Cost of product revenue$1,266 $1,917 
    Operating expense11,619 12,712 
$12,885 $14,629 
The following is the expected future amortization expense at June 30, 2024 for the fiscal years ending March 31 (in thousands):
2025 (remaining nine months)$37,874 
202646,394 
202743,515 
202840,559 
202931,356 
Thereafter95,592 
$295,290 

NOTE 10 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
NetScout operates internationally and, in the normal course of business, is exposed to fluctuations in foreign currency exchange rates. The exposures result from costs that are denominated in currencies other than the U.S. Dollar, primarily the Euro, British Pound, Canadian Dollar, and Indian Rupee. The Company manages its foreign cash flow risk by hedging forecasted cash flows for operating expenses denominated in foreign currencies for up to twelve months, within specified guidelines through the use of forward contracts. The Company enters into foreign currency exchange contracts to hedge cash flow exposures from costs that are denominated in currencies other than the U.S. Dollar. These hedges are designated as cash flow hedges at inception.
NetScout also periodically enters into forward contracts to manage exchange rate risks associated with certain third-party transactions and for which the Company does not elect hedge accounting treatment as there is no difference in the timing of gain or loss recognition on the hedging instrument and the hedged item.
All of the Company's derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes. These contracts will mature over the next twelve months and are expected to impact earnings on or before maturity.
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The notional amounts and fair values of derivative instruments in the consolidated balance sheets at June 30, 2024 and March 31, 2024 were as follows (in thousands):
 Notional Amounts (a)Prepaid Expenses and Other Current AssetsAccrued Other
 June 30,
2024
March 31,
2024
June 30,
2024
March 31,
2024
June 30,
2024
March 31,
2024
Derivatives Designated as Hedging Instruments:
     Forward contracts$10,937 $11,676 $9 $11 $123 $74 
Derivatives Not Designated as Hedging Instruments:
     Forward contracts    
$9 $11 $123 $74 
(a) Notional amounts represent the gross contract/notional amount of the derivatives outstanding.
The following table provides the effect that foreign exchange forward contracts designated as hedging instruments had on other comprehensive income (OCI) and results of operations for the three months ended June 30, 2024 and 2023 (in thousands):
Gain (Loss) Recognized in
OCI on Derivative
(a)
Gain (Loss) Reclassified from
Accumulated OCI into Income
(b)
June 30,
2024
June 30,
2023
LocationJune 30,
2024
June 30,
2023
Forward contracts$(117)$210 Research and development$1 $ 
Sales and marketing59 (74)
$(117)$210 $60 $(74)

(a)The amount represents the change in fair value of derivative contracts due to changes in spot rates.
(b)The amount represents reclassification from other comprehensive income to earnings that occurs when the hedged item affects earnings.
The following table provides the effect that foreign exchange forward contracts not designated as hedging instruments had on the Company's results of operations for the three months ended June 30, 2024 and 2023 (in thousands):
Gain Recognized in Income
(a)
LocationJune 30,
2024
June 30,
2023
Forward contractsGeneral and administrative$ $60 
$ $60 
(a)The amount represents the change in fair value of derivative contracts due to changes in spot rates.
NOTE 11 – LONG-TERM DEBT
On July 27, 2021, the Company amended and extended its existing credit facility (as amended, the Second Amended and Restated Credit Agreement) with a syndicate of lenders by and among: the Company; 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. The Company may elect to use the credit facility for general corporate purposes (including to finance the repurchase of shares of the Company's 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 three months ended June 30, 2024, the Company repaid $25.0 million of borrowings
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under the Second Amended and Restated Credit Agreement. At June 30, 2024, $75.0 million was outstanding under the Second Amended and Restated Credit Agreement.
On February 22, 2023, the Company entered into a First Amendment Agreement (First Amendment) of its Second Amended and Restated Credit Agreement with its syndicate of lenders. The Company entered into the First Amendment in order to remove and replace the LIBOR-based interest rate benchmark provisions for U.S. dollar-denominated loans with interest rate benchmark provisions for U.S. dollar-denominated loans based on a term secured overnight financing rate (SOFR).
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 the Company, plus a margin that ranges from 1.00% per annum for Alternate Base Rate loans and 2.00% per annum for term SOFR loans if the Company's consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0% per annum for Alternate Base Rate loans and 1.00% per annum for term SOFR loans if the Company's consolidated gross leverage ratio is equal to or less than 1.50 to 1.00. For the period from the delivery of the Company's financial statements for the quarter ended March 31, 2024, until the Company has delivered financial statements for the quarter ended June 30, 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 the Company's consolidated gross leverage ratio, ranging from 1.00% per annum for Alternate Base Rate loans and 2.00% per annum for Term Benchmark Revolving loans if the Company's consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0% per annum for Alternate Base Rate loans and 1.00% per annum for Term Benchmark Revolving loans if the Company's consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.
The Company's consolidated gross leverage ratio is the ratio of its consolidated total debt compared to its consolidated EBITDA as defined in the Second Amended and Restated Credit Agreement (adjusted consolidated EBITDA). Adjusted consolidated EBITDA includes certain adjustments, including, without limitation, adjustments relating to extraordinary, unusual or non-recurring charges, certain restructuring charges, non-cash charges, certain transaction costs and expenses and certain pro forma adjustments in connection with material acquisitions and dispositions, all as set forth in detail in the Second Amended and Restated Credit Agreement.
Commitment fees will accrue on the daily unused amount of the credit facility. For the period from the delivery of the Company's financial statements for the quarter ended March 31, 2024, until the Company has delivered financial statements for the quarter ended June 30, 2024, the commitment fee will be 0.15% per annum, and thereafter the commitment fee will vary depending on the Company's consolidated gross leverage ratio, ranging from 0.30% per annum if the Company's consolidated gross leverage ratio is greater than 2.75 to 1.00, down to 0.15% per annum if the Company's consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.
Letter of credit participation fees are payable to each lender providing the letter of credit sub-facility on the amount of such lender's letter of credit exposure, during the period from the closing date of the Second Amended and Restated Credit Agreement to, but excluding, the date which is the later of (i) the date on which such lender's commitment terminates or (ii) the date on which such lender ceases to have any letter of credit exposure, at a rate per annum equal to the applicable margin for term SOFR loans assuming such loans were outstanding during the period. Additionally, the Company will pay a fronting fee to each issuing bank in amounts to be agreed to between the Company and the applicable issuing bank.
Interest on Alternate Base Rate loans is payable at the end of each calendar quarter. Interest on term SOFR loans is payable at the end of each interest rate period or at the end of each three-month interval within an interest rate period if the period is longer than three months. The Company may also prepay loans under the Second Amended and Restated Credit Agreement at any time, without penalty, subject to certain notice requirements.
The loans and other obligations under the credit facility are (a) guaranteed by each of the Company's wholly-owned material domestic restricted subsidiaries, subject to certain exceptions, and (b) are secured by substantially all of the assets of the Company and the subsidiary guarantors, including a pledge of all the capital stock of material subsidiaries held directly by the Company 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 the Company and its 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 the Company and its restricted subsidiaries, including, without limitation, limitations on additional indebtedness, liens, various fundamental changes, dividends and distributions, investments (including acquisitions), transactions with affiliates, asset sales, including sale-leaseback transactions, speculative hedge agreements, payment of junior financing, changes in business and other limitations customary in senior secured credit facilities. The Second Amended and Restated Credit Agreement requires the Company to maintain a certain consolidated net leverage ratio and removes the previous requirement under the Company's previous amended credit agreement that the Company maintain a minimum consolidated interest coverage ratio. The Company's
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consolidated net leverage ratio is the ratio of its Consolidated Total Debt minus the lesser of unrestricted cash and 125% of adjusted consolidated EBITDA compared to its adjusted consolidated EBITDA. The Company's maximum consolidated net leverage ratio is 4.00 to 1.00. These covenants and limitations are more fully described in the Second Amended and Restated Credit Agreement. At June 30, 2024, the Company was in compliance with all covenants, including the specified total consolidated net leverage ratio range of 4.00 to 1.00.
The Second Amended and Restated Credit Agreement provides that events of default will exist in certain circumstances, including failure to make payment of principal or interest on the loans when required, failure to perform certain obligations under the Second Amended and Restated Credit Agreement and related documents including a failure to meet the maximum total 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 Company had unamortized capitalized debt issuance costs, net of $2.3 million at June 30, 2024, which are being amortized over the life of the revolving credit facility. The unamortized capitalized debt issuance costs balance of $1.1 million was included as prepaid expenses and other current assets and a balance of $1.2 million was included as other assets in the Company's consolidated balance sheet at June 30, 2024.
NOTE 12 – RESTRUCTURING CHARGES
During the first quarter of fiscal year 2025, the Company 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 three months ended June 30, 2024, the Company recorded restructuring charges totaling $16.6 million related to one-time termination benefits for one hundred sixteen employees who voluntarily terminated their employment with the Company during the three months ended June 30, 2024. The Company estimates that restructuring charges will be recorded in the second quarter of fiscal year 2025 in the range of $3.0 million to $5.0 million related to one-time termination benefits for thirty-four employees who are expected to voluntarily terminate their employment with the Company during the three months ending September 30, 2024. All one-time termination benefits are expected to be paid in full by the end of the third quarter of the fiscal year ending March 31, 2025.
The following table provides a summary of the activity related to the restructuring plan and the related restructuring liability (in thousands):
VSP
Employee-related
Balance at March 31, 2024$ 
    Restructuring charges to operations16,561 
    Payments(263)
Balance at June 30, 2024$16,298 

NOTE 13 – LEASES
The Company determines if an arrangement is a lease at inception. Right-of-use (ROU) assets represent the Company's right to use an underlying asset for the duration of the lease term. Lease liabilities represent the Company's contractual obligation to make lease payments over the lease term. The Company's policy is to combine lease and non-lease components and to not recognize ROU assets and lease liabilities for short-term leases. Leases with an initial term of twelve months or less are classified as short-term leases. ROU assets are recorded and recognized at commencement for the lease liability amount, plus initial direct costs incurred less lease incentives received. Lease liabilities are recorded at the present value of future lease payments over the lease term at commencement. The discount rate used is generally the Company's estimated incremental borrowing rate unless the lessor's implicit rate is readily determinable. Incremental borrowing rates are calculated periodically to estimate the rate the Company would pay to borrow the funds necessary to obtain an asset of similar value over a similar term. Lease expenses relating to operating leases are recognized on a straight-line basis over the lease term.
The Company has operating leases for administrative, research and development, sales and marketing and manufacturing facilities and equipment under various non-cancelable lease agreements. The Company's leases have remaining lease terms ranging from 1 year to 7 years. The Company's lease terms may include options to extend or terminate the lease where it is reasonably certain that the Company will exercise those options. The Company considers several economic factors when
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making this determination, including but not limited to, the significance of leasehold improvements incurred in the office space, the difficulty in replacing the asset, underlying contractual obligations, or specific characteristics unique to a particular lease. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company has asset retirement obligations (ARO) to return certain leased facilities to their original condition at the end of the respective lease term. The estimated fair value of these ARO liabilities is recognized in the period in which the liability is generated and a corresponding increase to the carrying value of the related asset is recorded and depreciated over the useful life of the asset. The Company's estimates of its ultimate AROs could change because of changes in regulations, the extent of environmental remediations required, the means of reclamation, cost estimates, exit or disposal activities or time period estimates. ARO liabilities totaled $2.2 million and $2.3 million at June 30, 2024 and March 31, 2024, respectively. There was a balance of $0.1 million included in accrued other and a balance of $2.1 million included in other long-term liabilities in the consolidated balance sheets at June 30, 2024, and a balance of $0.1 million included in accrued other and a balance of $2.2 million included in other long-term liabilities in the consolidated balance sheets for the fiscal year ended March 31, 2024. Accretion expense related to these liabilities was not material for any periods presented.
Most of the Company's lease agreements contain variable payments, primarily for common area maintenance (CAM), which are expensed as incurred and not included in the measurement of the ROU assets and lease liabilities.
The components of operating lease cost for the three months ended June 30, 2024 and 2023, respectively, were as follows (in thousands):
Three Months Ended
June 30,
20242023
Lease cost under long-term operating leases$2,961 $3,039 
Lease cost under short-term operating leases326 404 
Variable lease cost under short-term and long-term operating leases1,316 1,015 
      Total operating lease cost$4,603 $4,458 

The table below presents supplemental cash flow information related to leases during the three months ended June 30, 2024 and 2023 (in thousands):
Three Months Ended
June 30,
20242023
Right-of-use assets obtained in exchange for new operating lease liabilities$50 $554 

At June 30, 2024 and March 31, 2024, the weighted average remaining lease term in years and weighted average discount rate were as follows:
June 30, 2024March 31, 2024
Weighted average remaining lease term in years - operating leases5.165.32
Weighted average discount rate - operating leases4.2 %4.2 %
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Future minimum payments under non-cancellable leases at June 30, 2024 are as follows (in thousands):
Year ending March 31:
2025 (remaining nine months)$9,338 
202611,455 
20278,396 
20287,277 
20296,463 
Thereafter9,300 
     Total lease payments$52,229 
     Less imputed interest(5,139)
     Present value of lease liabilities$47,090 
NOTE 14 – COMMITMENTS AND CONTINGENCIES
As previously disclosed, in March 2016, Packet Intelligence LLC (Packet Intelligence or Plaintiff) filed a Complaint against NetScout and two subsidiary entities in the United States District Court for the Eastern District of Texas asserting infringement of five United States patents. Plaintiff's Complaint alleged that legacy Tektronix GeoProbe products, including the G10 and GeoBlade products, infringed these patents. NetScout filed an Answer denying Plaintiff's allegations and asserting that Plaintiff's patents were, among other things, invalid, not infringed, and unenforceable due to inequitable conduct. In October 2017, a jury rendered a verdict finding in favor of the Plaintiff and that Plaintiff was entitled to $3.5 million for pre-suit damages and $2.3 million for post-suit damages. In September 2018, the Court entered judgment and "enhanced" the jury verdict in the amount of $2.8 million as a result of a jury finding. The judgment also awarded pre- and post-judgment interest, and a running royalty on the G10 and GeoBlade products until the expiration of the patents at issue, the last date being June 2022. Following the entry of final judgment, NetScout appealed, and in July 2020, the Court of Appeals for the Federal Circuit (Federal Circuit) issued a decision vacating the $3.5 million pre-suit damages award, affirming the $2.3 million post-suit damages award, vacating the $2.8 million enhancement award, and remanding to the district court to determine what, if any, enhancement should be awarded. In March 2021, NetScout filed a petition for a writ of certiorari to the United States Supreme Court, which was denied, challenging, among other issues, the basis for enhanced damages and the patentability of the claimed technology. On September 8 and 9, 2021, in proceedings initiated by third parties that did not involve NetScout, the Patent Trial and Appeal Board (PTAB) invalidated all the patent claims that were also asserted against NetScout in this case. After the PTAB decisions were issued, NetScout moved, among other things, to dismiss the case and enter judgment in its favor on the grounds that the PTAB decisions invalidating the asserted claims precluded Plaintiff from continuing to assert its patent infringement causes of action and from seeking damages from NetScout. The District Court denied NetScout’s motion with respect to its request to dismiss the case and enter judgment in its favor. The District Court entered an amended final judgment awarding Plaintiff $2.3 million in post-suit damages, $1.1 million in enhanced damages, pre- and post-judgment interest, and a running royalty on the G10 and GeoBlade products until the expiration of the patents at issue, the last expiration date being June 2022. On July 20, 2022, NetScout filed a notice of appeal to the Federal Circuit from, among other things, the amended final judgment. On May 2, 2024, in a separate action the Federal Circuit affirmed the PTAB decisions, which as a result found that all of the patent claims asserted by Packet Intelligence against NetScout were invalid. Also on May 2, 2024, the Federal Circuit ruled in NetScout's favor in its appeal, vacating the District Court's final judgment and remanding the case to the District Court to dismiss the case against NetScout as moot. 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.
NOTE 15 – PENSION BENEFIT PLANS
Certain of the Company's non-U.S. employees participate in noncontributory defined benefit pension plans. None of the Company's employees in the U.S. participate in any noncontributory defined benefit pension plans. In general, these plans are funded based on considerations relating to legal requirements, underlying asset returns, the plan's funded status, the anticipated deductibility of the contribution, local practices, market conditions, interest rates and other factors.
The following sets forth the components of the Company's net periodic pension cost of the noncontributory defined benefit pension plans recorded in operating expenses in the consolidated statements of operations for the three months ended
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June 30, 2024 and 2023, respectively, (in thousands):
Three Months Ended
June 30,
20242023
Service cost$47 $52 
Interest cost245 252 
Amortization of net gain(116)(234)
    Net periodic pension cost$176 $70 

Expected Contributions
During the three months ended June 30, 2024, the Company made contributions of $0.2 million to its defined benefit pension plans. During the fiscal year ending March 31, 2025, the Company's cash contribution requirements for its defined benefit pension plans are expected to be less than $1.0 million. As a majority of the participants within the Company's plans are all active employees, the benefit payments are not expected to be material in the foreseeable future.
NOTE 16 – TREASURY STOCK
On October 24, 2017, the Company's Board of Directors approved a share repurchase program that enabled the Company to repurchase up to twenty-five million shares of its common stock (2017 Share Repurchase Program). Through March 31, 2024, the Company repurchased all of the authorized 25,000,000 shares for $694.1 million in the open market under the 2017 Share Repurchase Program. The Company did not repurchase any shares during the three months ended June 30, 2023.
On May 3, 2022, the Company's Board of Directors approved an additional share repurchase program that enables the Company to repurchase up to twenty-five million shares of its common stock (2022 Share Repurchase Program). The 2022 Share Repurchase Program became effective in the third quarter of fiscal year 2024 when the 2017 Share Repurchase Program was completed. The Company is not obligated to acquire any specific amount of common stock within any particular timeframe as a result of the 2022 Share Repurchase Program. Through March 31, 2024, the Company repurchased 614,516 shares for $16.4 million under the 2022 Share Repurchase Program. The Company repurchased 1,347,900 shares for $25.0 million under this share repurchase program during the three months ended June 30, 2024. At June 30, 2024, 23,037,584 shares of common stock remained available to be purchased under the current program.
In connection with the delivery of shares of the Company's common stock upon vesting of restricted stock units, the Company withheld 617,826 shares and 435,172 shares at a cost of $12.2 million and $13.4 million, respectively, related to minimum statutory tax withholding requirements on these restricted stock units during the three months ended June 30, 2024 and 2023, respectively. These withholding transactions do not fall under the share repurchase programs described above, and therefore do not reduce the number of shares that are available for repurchase under those programs.
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NOTE 17 – NET LOSS PER SHARE
Calculations of the basic and diluted net loss per share and potential common shares are as follows (in thousands, except for per share data):
Three Months Ended
 June 30,
 20242023
Numerator:
Net loss$(443,376)$(4,200)
Denominator:
Denominator for basic net loss per share - weighted average common shares outstanding71,467 71,540 
Dilutive common equivalent shares:
Weighted average restricted stock units and performance-based restricted stock units  
Denominator for diluted net loss per share - weighted average shares outstanding71,467 71,540 
Net loss per share:
Basic net loss per share$(6.20)$(0.06)
Diluted net loss per share$(6.20)$(0.06)
The following table sets forth restricted stock units excluded from the calculation of diluted net loss per share, since their inclusion would be anti-dilutive (in thousands):
Three Months Ended
 June 30,
 20242023
Restricted stock units1,326 1,455 
Basic net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic earnings per share. Diluted net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding stock options, restricted shares and restricted stock units using the treasury stock method. The calculation of the dilutive effect of outstanding equity awards under the treasury stock method includes consideration of proceeds from the assumed exercise of stock options and unrecognized compensation expense as additional proceeds. As the Company incurred a net loss during the three months ended June 30, 2024 and 2023, all outstanding restricted stock units and performance-based restricted stock units have an anti-dilutive effect and are therefore excluded from the computation of diluted weighted average shares outstanding.
NOTE 18 – INCOME TAXES
Generally, the Company's effective tax rate differs from the U.S. federal statutory income tax rate primarily due to foreign withholding taxes and U.S. taxation on foreign earnings, which are partially offset by research and development tax credits and the foreign derived intangible income deduction.
The Company's effective tax rates were 2.3% and 21.3% for the three months ended June 30, 2024 and 2023, respectively. The effective tax rate for the three months ended June 30, 2024 differed from the effective tax rate for the three months ended June 30, 2023 primarily related to the goodwill impairment incurred during the three months ended June 30, 2024, a majority of which was not deductible for tax purposes.
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NOTE 19 – SEGMENT AND GEOGRAPHIC INFORMATION
The Company reports revenues and income under one reportable segment.
The Company manages its business in the following geographic areas: United States, Europe, Asia and the rest of the world. The Company's policies mandate compliance with economic sanctions and the export controls.
Total revenue by geography is as follows (in thousands):
Three Months Ended
 June 30,
 20242023
United States$99,949 $127,902 
Europe31,394 33,971 
Asia11,890 16,014 
Rest of the world31,332 33,251 
$174,565 $211,138 
The United States revenue includes sales to resellers in the United States. These resellers fulfill customer orders and may subsequently ship the Company's products to international locations. Further, the Company determines the geography of its sales after considering where the contract originated. A majority of revenue attributable to locations outside of the United States is a result of export sales. Substantially all of the Company's identifiable assets are located in the United States.
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Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities and Exchange Commission. This discussion contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024. These risks and uncertainties could cause actual results to differ significantly from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations. See the section titled "Cautionary Statement Concerning Forward-Looking Statements" that appears at the beginning of this Quarterly Report. These statements, like all statements in this report, speak only as of the date of this Quarterly Report (unless another date is indicated), and, except as required by law, we undertake no obligation to update or revise these statements in light of future developments.
Overview
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. 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 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. The full extent of the impacts of these global and macroeconomic conditions remain uncertain. 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. As a result, we have continued our efforts to manage discretionary costs and align spending with the current environment while we continue to execute on our long-term strategic plans.
Though we continue to monitor the impacts of evolving global and macroeconomic conditions on our business, we believe our current cash reserves and access to capital through our revolving credit facility leave us well-positioned to manage our business in today's environment. We expect net cash provided by operations combined with cash, cash equivalents, marketable securities and investments and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months. We continue to take actions to manage costs and increase productivity throughout our company, including managing discretionary spending and hiring activities, but are continuing to invest in areas that advance our business for the future. In addition to our cash equivalents, based on covenant levels at June 30, 2024, we had an incremental $725 million available to us under our revolving credit facility.
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Results Overview
Total revenue decreased $36.6 million, or 17%, for the three months ended June 30, 2024 as compared to total revenue for the three months ended June 30, 2023, which benefited from approximately $37 million of backlog-related revenue. Excluding this factor, revenue would have been consistent on a year over year basis. The decrease in total revenue for the three months ended June 30, 2024 as compared to total revenue for the three months ended June 30, 2023 was a result of lower revenue from both service provider and enterprise customers from service assurance offerings, including radio frequency propagation modeling projects, as a result of industry-specific capital spending constraints, as well as a decrease in revenue from service provider customers from cybersecurity offerings.
Our gross profit percentage decreased by one percentage point to 75% during the three months ended June 30, 2024, as compared with the three months ended June 30, 2023 primarily due to lower sales volume of higher margin products and services.
Net loss for the three months ended June 30, 2024 was $443.4 million, as compared with net loss for the three months ended June 30, 2023 of $4.2 million, an increase in net loss of $439.2 million. The increase in net loss was primarily due to a $427.0 million goodwill impairment charge, a $36.6 million decrease in revenue, and a $16.6 million increase from restructuring charges due to the voluntary separation program. These increases to net loss were partially offset by a $9.2 million increase in income tax benefit, an $8.3 million increase in other income from the change in fair value of a foreign equity investment, a $6.7 million decrease in employee related expenses associated with a decrease in salaries as a result of a decrease in headcount, and a decrease in variable incentive compensation, a $3.0 million decrease in commissions expense, a $2.5 million decrease in direct material costs, a $1.8 million decrease in amortization expense, a $1.7 million decrease in contractor fees, a $1.1 million decrease from depreciation expense, a $1.1 million decrease in foreign exchange expense, and a $1.0 million decrease in expenses related to trade shows, user conferences and other events.
At June 30, 2024, we had cash, cash equivalents, marketable securities and investments (current and non-current) of $407.2 million. This represents a decrease of $16.9 million from $424.1 million at March 31, 2024. This decrease was primarily due to $25.0 million used to repurchase shares of our common stock, $25.0 million used to repay long-term debt, $12.2 million used for tax withholdings on restricted stock units, and $1.3 million used for capital expenditures, partially offset by $38.4 million of net cash provided by operations, and an $8.7 million increase from the change in fair value of an equity instrument during the three months ended June 30, 2024.
Use of Non-GAAP Financial Measures
We supplement the United States generally accepted accounting principles (GAAP) financial measures we report in quarterly and annual earnings announcements, investor presentations and other investor communications by reporting the following non-GAAP measures: non-GAAP 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 to non-GAAP gross profit and also removes legal expenses related to civil judgments, goodwill impairment charges, and restructuring charges. Non-GAAP net income removes the foregoing adjustments related to non-GAAP income from operations, and also removes 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. 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.
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. 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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The following table reconciles gross profit, income (loss) from operations, net income (loss) and net income (loss) per share on a GAAP and non-GAAP basis for the three months ended June 30, 2024 and 2023, respectively (dollars in thousands, except for per share data):
 Three Months Ended
June 30,
20242023
Revenue (GAAP and non-GAAP)$174,565 $211,138 
GAAP gross profit$130,196 $160,742 
Share-based compensation expense
3,320 2,911 
Amortization of acquired intangible assets
995 1,638 
Acquisition related depreciation expense
Non-GAAP gross profit$134,513 $165,296 
GAAP loss from operations$(463,324)$(4,695)
Share-based compensation expense
21,198 19,844 
Amortization of acquired intangible assets
12,609 14,345 
Restructuring charges
16,563 — 
Goodwill impairment426,967 — 
Acquisition related depreciation expense
12 59 
Legal expenses related to civil judgments
— 41 
Non-GAAP income from operations$14,025 $29,594 
GAAP net loss$(443,376)$(4,200)
Share-based compensation expense
21,198 19,844 
Amortization of acquired intangible assets
12,609 14,345 
Restructuring charges
16,563 — 
Goodwill impairment426,967 — 
Acquisition-related depreciation expense
12 59 
Legal expenses related to civil judgments
— 41 
Change in fair value of derivative instrument
— (206)
Income tax adjustments
(13,395)(7,171)
Non-GAAP net income$20,578 $22,712 
GAAP diluted net loss per share$(6.20)$(0.06)
Per share impact of non-GAAP adjustments identified above6.48 0.37 
Non-GAAP diluted net income per share$0.28 $0.31 
GAAP loss from operations$(463,324)$(4,695)
Previous adjustments to determine non-GAAP income from operations477,349 34,289 
Non-GAAP income from operations14,025 29,594 
Depreciation excluding acquisition-related depreciation expense3,784 5,032 
Non-GAAP EBITDA from operations$17,809 $34,626 

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Critical Accounting Policies and Estimates
 Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP consistently applied. The preparation of these consolidated financial statements requires us to make significant estimates and judgments that affect the amounts reported in our consolidated financial statements and the accompanying notes. These items are regularly monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates.
While all of our accounting policies impact the consolidated financial statements, certain policies are viewed to be critical. Critical accounting policies are those that are both most important to the portrayal of our financial condition and results of operations and that require management's most subjective or complex judgments and estimates. We consider the following accounting policies to be critical in fully understanding and evaluating our financial results:
revenue recognition; and
valuation of goodwill, intangible assets and other acquisition accounting items.
Please refer to the critical accounting policies set forth in our Annual Report on Form 10-K for the fiscal year ended March 31, 2024, filed with the Securities and Exchange Commission (SEC) on May 16, 2024, for a description of all of our critical accounting policies and estimates.
Three Months Ended June 30, 2024 and 2023
Revenue
Product revenue consists of sales of our hardware products and licensing of our software products. Service revenue consists of customer support agreements, consulting, training and stand-ready software as a service offerings. During the three months ended June 30, 2024 and 2023, no direct customers or channel partners accounted for more than 10% of our total revenue.
Three Months EndedChange
 June 30,
(Dollars in Thousands)
 20242023
  % of
Revenue
 % of
Revenue
$%
Revenue:
Product$61,169 35 %$94,661 45 %$(33,492)(35)%
Service113,396 65 116,477 55 (3,081)(3)%
Total revenue$174,565 100 %$211,138 100 %$(36,573)(17)%
Product. The 35%, or $33.5 million, decrease in product revenue compared with the same period last year was primarily due to a decrease in revenue from both service provider and enterprise customers from service assurance offerings, including radio frequency propagation modeling projects, as a result of industry-specific capital spending constraints, as well as a decrease in revenue from service provider customers from cybersecurity offerings. The results for the three months ended June 30, 2023 benefited from approximately $37 million of backlog-related revenue. Excluding backlog-related revenue, total revenue for the three months ended June 30, 2024 compared with the same period last year would have been relatively consistent year over year.
Service. The 3%, or $3.1 million, decrease in service revenue compared with the same period last year was primarily due to a decrease in revenue from maintenance contracts.
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Total revenue by geography was as follows:
Three Months EndedChange
 June 30,
(Dollars in Thousands)
 20242023
  % of
Revenue
 % of
Revenue
$%
United States$99,949 57 %$127,902 61 %$(27,953)(22)%
International:
Europe31,394 18 33,971 16 (2,577)(8)%
Asia11,890