2 0 2 2 A N N U A L R E P O R T
Securing and Assuring
the Connected World
Securing and Assuring
The Connected World
The complexity of our connected world is soaring at rates never before seen, creating risks
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breaches, network and application downtime, and degradations in digital service quality
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“Guardians of the Connected World” and its “Visibility Without Borders” solutions to help
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NETSCOUT helps secure networks against attacks that threaten availability or compromise
critical business assets and assures the performance of networks and user experiences,
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engineered our scalable deep packet inspection solutions, which include our patented
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the countless layers of services, applications, and hybrid cloud servers that comprise digital
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Financial Performance
Revenue
(Non-GAAP, $ in millions)
Income From Operations
(Non-GAAP, $ in millions, except %)
Diluted Net Income Per Share
(Non-GAAP)
Free Cash Flow1
($ in millions)
21.0%
20.8%
$831.3
$855.6
$172.8
$180.0
$1.70
$1.84
$197.4
$285.6
FY’21
FY’22
FY’21
FY’22
FY’21
FY’22
FY’21
FY’22
Op. Income
Op. Margin
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$ in millions except % and EPS
FY’21
FY’22
GAAP
Non-GAAP
GAAP
Non-GAAP
Revenue
Income from Operations
Income from Operations %
Net Income
Diluted Net Income per Share
Free Cash Flow
$ 831.3
$ 37.1
4.5%
$ 19.4
$ 0.26
$ 197.4
$ 831.3
$ 172.8
20.8%
$ 125.8
$ 1.70
–
$ 855.6
$ 855.6
$ 48.6
5.7%
$ 35.9
$ 0.48
$ 285.6
$ 180.0
21.0%
$ 138.4
$ 1.84
–
A reconciliation of each non-GAAP metric with the applicable GAAP metric is available on page R-1.
Connected for Good
The connected world is only as strong as the people who protect it.
We have a long tradition of supporting our communities through
various charitable activities and contributions. Our employee Guardians,
through their passion and desire to help those in need, are at the center
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To learn more about our philanthropic activities, please visit www.netscout.com and
go to the Corporate Responsibility page under the Company section of the site.
0 1
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current geopolitical landscape and macroeconomic climate, organizations are
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innovative solutions we have launched to address the new challenges of the digital world. Customers
are advancing their digital transformations in the enterprise customer vertical and rolling out 5G in the
service provider customer vertical while also dealing with a rapidly evolving threat landscape. Our new
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addressing these needs. We also are seeing new opportunities in cybersecurity, particularly in the area
of network detection and response, with our new Omnis solution. Compared to today’s more traditional
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investigation, and mitigation at a larger scale than most current alternatives. Our solutions, with our
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need to succeed in today’s digital world.
Meeting Fiscal Year 2022 Objectives
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cybersecurity agenda. These actions helped us to deliver a strong performance on multiple fronts, which
included revitalizing revenue growth, enhancing margins, increasing diluted earnings per share, and
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software-centric solutions along with our disciplined cost management approach allowed us to enhance
both our gross and operating margins. At the bottom line, non-GAAP diluted earnings per share grew at
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Looking Ahead to Fiscal Year 2023
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solutions, we remain committed to maintaining our industry leadership, continuing to advance our
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(cid:19) (cid:21)
pressures related to the return of in-person business operations and broader macro headwinds
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key markets, strong business performance, and focus on conserving capital during the pandemic. Our
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debt under our revolving credit facility. We have accounted for both of these transactions in our outlook
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determination and dedication and our customers, partners, and other stakeholders for their continued
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the work we are doing on a daily basis, and my pride and enthusiasm for the Company and our future
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growing and remain well-positioned to help our customers address the challenges and opportunities of
the digital world. I look forward to sharing our progress and achievements with you over the course of
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A n i l S i n g h a l
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important part of creating long-term business value.
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the Corporate Responsibility page under the Company section of the site.
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Key Technology Trends:
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Transformation through
Cloud Migration, and 5G
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latest technology trends.
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streamline business continuity and contingency planning, to improve the delivery of new products and
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application and infrastructure performance management based on end-to-end visibility into all service delivery
interdependencies. This holistic approach includes assurance across the physical and virtual, on-premises and
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to capture and analyze wire data in real-time is helping drive increased collaboration between network and
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strength in packet forensics with Arbor’s robust cybersecurity intelligence to create the most advanced threat
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enterprises and service providers.
S e r v ice Prov ide r
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helping digital service providers gain end-to-end, real-time, and reliable visibility into their networks and
the services they deliver over them. As a result, service providers gain timely insight into network problems,
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leveraging our incumbency, we are well-positioned to help carriers in each phase of the network lifecycle, from
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(cid:11)(cid:39)(cid:39)(cid:82)(cid:54)(cid:12)(cid:3)(cid:68)(cid:87)(cid:87)(cid:68)(cid:70)(cid:78)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:92)(cid:69)(cid:72)(cid:85)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:75)(cid:85)(cid:72)(cid:68)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:76)(cid:80)(cid:72)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:71)(cid:76)(cid:86)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:17)(cid:98)(cid:36)(cid:86)(cid:3)
(cid:70)(cid:92)(cid:69)(cid:72)(cid:85)(cid:68)(cid:87)(cid:87)(cid:68)(cid:70)(cid:78)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:73)(cid:85)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:70)(cid:92)(cid:15)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:91)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:49)(cid:40)(cid:55)(cid:54)(cid:38)(cid:50)(cid:56)(cid:55)(cid:519)(cid:86)(cid:3)(cid:72)(cid:81)(cid:75)(cid:68)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:72)(cid:81)(cid:68)(cid:69)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:564)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:69)(cid:72)(cid:81)(cid:72)(cid:564)(cid:87)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:72)(cid:605)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:39)(cid:39)(cid:82)(cid:54)(cid:3)(cid:71)(cid:72)(cid:73)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:69)(cid:85)(cid:82)(cid:68)(cid:71)(cid:72)(cid:85)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:76)(cid:81)(cid:73)(cid:85)(cid:68)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:30)(cid:3)(cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:86)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:87)(cid:82)(cid:83)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:85)(cid:68)(cid:605)(cid:70)(cid:3)(cid:83)(cid:68)(cid:87)(cid:87)(cid:72)(cid:85)(cid:81)(cid:86)(cid:3)(cid:89)(cid:76)(cid:68)(cid:3)
(cid:83)(cid:82)(cid:90)(cid:72)(cid:85)(cid:73)(cid:88)(cid:79)(cid:15)(cid:3)(cid:69)(cid:76)(cid:74)(cid:3)(cid:71)(cid:68)(cid:87)(cid:68)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:87)(cid:76)(cid:70)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:89)(cid:76)(cid:86)(cid:88)(cid:68)(cid:79)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:82)(cid:81)(cid:72)(cid:87)(cid:76)(cid:93)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:49)(cid:40)(cid:55)(cid:54)(cid:38)(cid:50)(cid:56)(cid:55)(cid:3)
(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:17)(cid:98)(cid:41)(cid:76)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:79)(cid:68)(cid:88)(cid:81)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
to meet carriers’ most demanding mobile security challenges.
(cid:19) (cid:23)
Reconciliation of GAAP to Non-GAAP Financial Measures
(in millions, except % and EPS data)
AAP revenue
Product
Service
Total GAAP revenue
Non-GAGG AAA P adjd ustmtt entstt
Non-GAAP revenue
Non-GAAP product
Non-GAAP service
Total non-GAAP revenue
Total GAAP cost of revenue
Non-GAGG AAA P adjd ustmtt entstt
Total non-GAAP cost of revenue
Gross profit - GAAP
Non-GAGG AAA P adjd ustmtt entstt
Gross profit - non-GAAP
Non-GAGG AAA P grgg oss profio t margrr igg n
Total operating expenses - GAAP
Non-GAGG AAA P adjd ustmtt entstt
Total operating expenses - non-GAAP
Income from operations - GAAP
Non-GAGG AAA P adjd ustmtt entstt
Income from operations - non-GAAP
Non-GAGG AAA P income frff om operatitt ons margrr igg n
Net income - GAAP
Non-GAGG AAA P adjd ustmtt entstt
Net income - non-GAAP
Diluted net income per share - GAAP
Share impact of non-GAAP adjustments identified above
Diluted net income per share - non-GAAP
Diluted weighted average common shares outstanding
Net cash provided by operating activities
Purchase of fixed assets and intangible assets
Free cash flow
Certain numbers may not total due to rounding.
NETSCOUT
FY’21
Reported
NETSCOUT
FY’22
Reported
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
377.7
453.6
831.3
0.0
377.7
453.6
831.3
222.1
(25.9)
196.2
609.2
25.9
635.1
76.4%
572.1
(109.8)
462.3
37.1
135.7
172.8
20.8%
19.4
106.4
125.8
0.26
1.44
1.70
73.8
213.9
(16.5)
197.4
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
410.1
455.5
855.6
-
410.1
445.5
855.6
214.2
(20.5)
193.7
641.4
20.5
661.8
77.4%
592.8
(110.9)
481.8
48.6
131.4
180.0
21.0%
35.9
102.5
138.4
0.48
1.36
1.84
75.1
296.0
(10.4)
285.6
Non-GAAP adjustments eliminate the GAAP effects of: (i) acquisitions by adding back deferred revenue revaluation and removing expenses
related to the amortization of acquired intangible assets; (ii) share-based compensation; (iii) acquisition related-depreciation; (iv) compensation
for post-combination services; (v) business development and integration costs; (vi) expenses tied to implementing new accounting standards;
(vii) restructuring costs; (viii) legal expenses related to a civil judgment; (ix) loss on extinguishment of debt; (x) change in fair value of contingent
consideration; and (xi) income and expenses associated with transitional services agreements, all net of related income tax effects. For the
specific detail on the value of each non-GAAP adjustment, please refer to the Company’s quarterly earnings press releases available in the IR
section of www.netscout.com.
R-1
Detailed Reconciliation of Adjustments: GAAP to Non-GAAP Financial Measures
$
$
$
$
$
$
$
$
FY’21
FY’22
831.3
0.0
831.3
37.1
0.0
51.9
80.2
0.0
0.3
0.1
0.2
2.8
0.2
135.7
172.8
19.4
0.0
51.9
80.2
0.0
0.3
0.1
0.2
2.8
-
-
(29.0)
106.4
125.8
0.26
1.44
1.70
73.8
$
$
$
$
$
$
$
$
855.6
-
855.6
48.6
-
56.1
73.1
(0.0)
0.0
-
0.3
1.1
0.8
131.4
180.0
35.9
-
56.1
73.1
(0.0)
0.0
-
0.3
1.1
(0.8)
0.6
(27.8)
102.5
138.4
0.48
1.36
1.84
75.1
(in millions, except EPS data)
GAAP revenue
Total non-GAAP adjustments
Non-GAAP revenue
Income from operations - GAAP
Service deferred revenue fair value adjustment
Share-based compensation expense
Amortization expense related to acquired intangible assets
Business development and integration expense
Compensation for post combination services
Restructuring charges
Acquisition-related depreciation expense
Legal judgements expense
Transitional service agreement income
Total non-GAAP adjustments
Income from operations - non-GAAP
Net income - GAAP
Service deferred revenue fair value adjustment
Share-based compensation expense
Amortization expense related to acquired intangible assets
Business development and integration expense
Compensation for post combination services
Restructuring charges
Acquisition-related depreciation expense
Legal judgements expense
Change in contingent consideration
Loss on extinguishment of debt
Income tax adjustments
Total non-GAAP adjustments
Net income - non-GAAP
Diluted net income per share - GAAP
Share impact of non-GAAP adjustments identified above
Diluted net income per share - non-GAAP
Diluted weighted average common shares outstanding
Certain numbers may not total due to rounding.
R-2
2022 Annual Report
on Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRARR NSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period frff om
to
For the fiff scal year ended March 31, 2022
OR
Commission fiff le number 000-26251
NETSCOUT SYSTEMS, INC.
(Exact name of registrant as specififf ed in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
04-2837575
(IRS Employer
Identififf cation No.)
310 Littleton Road, Westforff d, MA 01886
(978) 614-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value per share
Trading Symbol(s)
NTCT
Name of each exchange on which registered:
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defiff ned in RulRR e 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to fiff le reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has fiff led all reports required to be fiff led by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or forff
(2) has been subject to such fiff ling requirements forff
the past 90 days. Yes x No ¨
such shorter period that the registrant was required to fiff le such reports), and
Indicate by check mark whether the registrant has submitted electronically everyrr
to RulRR e 405 of Regulation S-T (§ 232.405 of this chapta er) during the preceding 12 months (or forff
required to submit such fiff les). Yes x No ¨
Interactive Data File required to be submitted pursuant
such shorter period that the registrant was
Indicate by check mark whether the registrant is a large accelerated fiff ler, an accelerated fiff ler, a non-accelerated fiff ler, a smaller reporting
company, or an emerging growth company. See the defiff nitions of "large accelerated fiff ler," "accelerated fiff ler," "smaller reporting company,"
and "emerging growth company" in RulRR e 12b-2 of the Exchange Act. (Check one):
Large accelerated fiff ler x
Non-accelerated fiff ler ¨
Accelerated fiff ler
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 fiff nancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has fiff led a report on and attestation to its management's assessment of the effff eff ctiveness of
its internal control over fiff nancial reporting under Section 404(b) of the Sarbar nes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting fiff rm that prepared or issued its audit report.☒
Indicate by check mark whether the registrant is a shell company (as defiff ned in RulRR e 12b-2 of the Exchange Act). YES ☐ NO x
The aggregate market value of common stock held by non-affff iff liates of the registrant as of September 30, 2021 (based on the last reported
sale price on the Nasdaq Global Select Market as of such date) was appr
74,117,725 shares of the registrant's common stock outstanding.
a
oximately $1,925,751,516. As of May 9, 2022, there were
Portions of the registrant's defiff nitive Proxy Statement forff
the 2022 Annual Meeting of Stockholders to be fiff led with the U.S. Securities
DOCUMENTS INCORPORARR TED BY REFERENCE
and Exchange Commission pursuant to Regulation 14A not later than 120 days aftff er the end of the fiff scal year covered by this Annual Report
on Form 10-K are incorpor
ated by refeff rence in Part III, Items 10-14 of this Annual Report on Form 10-K.
rr
NETSCOUT SYSTEMS, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 2022
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
PART III
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Item 10.
Directors and Executive Officers of the Registrant
tem 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
4
15
31
31
31
31
32
33
34
50
51
51
51
51
51
52
52
52
52
52
53
56
57
Unless the context suggests otherwise, refeff rences in this Annual Report on Form 10-K (Annual Report) to "NetScout," the
"Company," "we," "us," and "our" refeff r to NetScout Systems, Inc. and, where appr
opriate, our consolidated subsidiaries.
a
NetScout, the NetScout logo, Adapta ive Service Intelligence and other trademarks or service marks of NetScout appe
this Annual Report are the property of NetScout Systems, Inc. and/or its subsidiaries and/or affff iff liates in the United States and/or
other countries. Any third-party trade names, trademarks and service marks appe
aring in this Annual Report are the property of
their respective holders.
aring in
a
a
Cautionary Statement Concerning Forward-Looking Statements
This Annual Report contains forff ward-looking statements under Section 21E of the Exchange Act (as defiff ned below) and
other feff deral securities laws. These statements relate to futff urt e events or our futff urt e fiff nancial perforff mance and are identififf ed 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 comparabla e terminology. These statements are only
predictions. You should not place undue reliance on these forff ward-looking statements. Actuat
materially. Factors that may cause such diffff eff rences include, but are not limited to, the faff ctors discussed under the heading "Risk
Factors" and in our other fiff lings with the Securities and Exchange Commission (SEC). These faff ctors may cause our actuat
l
results to diffff eff r materially frff om any forff ward-looking statement. Moreover, we operate in a veryrr competitive and rapia dly
changing environment. New risks emerge frff om time to time. It is not possible forff
l
we assess the impact of all faff ctors on our business or the extent to which any faff ctor, or combination of faff ctors, may cause actuat
results to diffff eff r materially frff om those contained in any forff ward-looking statements we may make.
our management to predict all risks, nor can
l events or results may diffff eff r
Except as required by law, we do not undertake any obligation to release publicly any revisions to these forff ward-looking
statements aftff er completion of the fiff ling of this Annual Report to reflff ect later events or circumstances or the occurrence of
unanticipated events.
Risk Factor Summary
Our operating results and fiff nancial condition have varied in the past and may varyrr signififf cantly in the futff urt e depending
the historical inforff mation in this report, the matters contained in this report include forff ward-
l results to
on a number of faff ctors. Except forff
looking statements that involve risk and uncertainties. The folff
diffff eff r materially frff om those contained in or implied by forff ward-looking statements made in this report. These statements
involve the risks and uncertainties identififf ed below as well as additional risks and uncertainties that are not yet identififf ed or that
we currently think are immaterial but may also impact our business operations. Such faff ctors are among many that may have a
material adverse impact upon our business, results of operations, liquidity, and fiff nancial condition. These risks are more fulff
ly
described in Part I, Item 1A. "Risk Factors". These risks include, but are not limited to, the folff
lowing faff ctors are among many that could cause actuat
lowing:
• Our business and operations, and the operations of our customers, partners, and/or suppliers, may be adversely
•
•
•
•
affff eff cted by epidemics and pandemics, such as the COVID-19 pandemic.
Unfaff vorabla e conditions in our industryrr or the global economy, or reductions in inforff mation technology spending,
could limit our abia lity to grow our business and negatively affff eff ct our results of operations.
Potential product vulnerabia lities or critical security defeff cts, prioritization decisions regarding remedying
vulnerabia lities or security defeff cts, or customers not deploying security releases or deciding not to upgrade products,
services, or solutions could result in claims of liabia lity against us, damage our reputation, or otherwise harm our
business.
If we or third parties who we work with experience a security incident, or the confiff dentiality, integrity, or availabia lity
of our inforff mation technology, softff ware, services, communications or data is compromised, our business or platforff m
may be perceived as not being secure, our reputation may be harmed, demand forff
we may incur signififf cant liabia lities.
Our abia lity to quickly and successfulff
could affff eff ct our abia lity to deliver our products and negatively impact our business reputation.
If our products contain errors or quality issues, such issues may be costly to correct, revenue may be delayed, we
could be sued, and our reputation could be harmed.
If we faff il to introduce new products and solutions or enhance our existing products and solutions to keep up with
rapia d technological change, demand forff
Necessaryrr
Our reliance on sole source suppliers could adversely impact our business.
Increased customer demands on our technical support services may adversely affff eff ct our relationships with our
customers and our fiff nancial results.
The success of our business depends, in part, on the continued growth in the market forff
demand forff
Failure to manage growth properly and to implement enhanced automated systems could adversely impact our
business.
•
Our growth could suffff eff r if the markets into which we sell our products and services experience cyclicality.
• We or our suppliers may be affff eff cted by new regulations related to climate change or other environmental issues.
third-party technology may not be availabla e to us on commercially reasonabla e terms or at all.
ly recover frff om a disaster, public health crisis, or other business continuity event
service assurance and network security solutions.
our products and solutions may decline.
our offff eff ring may be reduced, and
service delivery,rr
licenses forff
and the continued commercial
•
•
•
•
•
•
•
3
•
•
•
•
•
Our success depends, in part, on our abia lity to manage and leverage our distribution channels. Disrupt
ions to, or our
faff ilure to effff eff ctively develop and manage, these partners and the processes and procedures that support them could
adversely affff eff ct our abia lity to generate revenues frff om the sale of our products and services.
Our success depends on our abia lity to protect our intellectuat
Others may claim that we infrff inge on their intellectuat
Our indebtedness may limit our operations and our use of our cash flff ow, and any faff ilure to comply with the covenants
a
that appl
Any faff ilure to meet our debt obligations could damage our business.
y to our indebtedness could adversely affff eff ct our liquidity and fiff nancial condition.
l property rights.
l property rights.
r
•
• We may faff il to secure necessaryrr additional fiff nancing.
•
t and retain qualififf ed personnel and plan forff
The faff ilure to recruir
hinder our abia lity to successfulff
position and operating results.
Our disclosures, initiatives and goals related to environmental, social and governance (ESG) matters expose us to
numerous risks, including risks to our reputation, business, fiff nancial perforff mance and growth.
and manage the succession of key executives could
ly manage our business, which could have a material adverse effff eff ct on our fiff nancial
• We may not successfulff
ly complete acquisitions or integrate acquisitions we do make, which could impair our abia lity
to compete and could harm our operating results.
• We faff ce signififf cant competition frff om other technology companies.
•
Uncertainties of regulation of the Internet and data traveling over the Internet could have a material and adverse
impact on our fiff nancial condition and results of operations.
• We are subject to stringent and changing laws, regulations, standards, contractuat
l obligations, and other obligations
l, alleged, or perceived faff ilure by us or the partners we
related to privacy, data protection, and data security. The actuat
work with to comply with such obligations could adversely affff eff ct our business, results of operations, and fiff nancial
conditions.
Foreign currency exchange rates may adversely affff eff ct our fiff nancial statements.
If we violate the U.S. Foreign Corrupt
icabla e anti-briberyrr
Practices Act or appl
comply with U.S. export controls and government contracting laws, our business could be harmed.
The current economic and geopolitical environment may impact some specififf c industries into which we sell and may
lead our customers to delay or forff go technology investments and could have other impacts, any of which could
materially adversely affff eff ct our business, fiff nancial condition, operating results and cash flff ows.
International economic, political, legal, compliance and business faff ctors could negatively affff eff ct our fiff nancial
statements and growth.
laws in other countries, or if we faff il to
a
rr
•
•
•
•
ItII ett m 1. Businii ess
Overview
PART I
We are an industryrr
leader with over three decades of experience in providing service assurance and cybersecurity
ises, including local, state and feff deral government agencies, rely on our solutions to achieve the visibility and
to optimize network perforff mance, ensure the deliveryrr of high-quality, mission-critical appl
solutions that are used by customers worldwide to protect their digital business services against disrupt
and enterprr
protection necessaryrr
services, gain timely insight into the end user experience and protect their networks frff om attack. With our offff eff rings, customers
can quickly, effff iff ciently and effff eff ctively identifyff and resolve issues that result in downtime, interrupt
quality or compromised data, thereby reducing meantime-to-resolution of issues and driving compelling returt ns on their
investments in their networks and broader technology initiatives. Some of the more signififf cant technology trends and catalysts
forff
environments, the rapia dly evolving cybersecurity threat landscapea
5G evolution in both the service provider and enterprr
our business include the evolution of customers' digital transforff mation initiatives such as the migration to cloud
, business intelligence and analytics advancements, and the
ise customer verticals.
ion. Service providers
ications and
ions to services, poor service
a
r
rr
Our operating results are inflff uenced by a number of faff ctors, including, but not limited to, the mix and quantity of
products and services sold, pricing, costs and availabia lity of materials used in our products, growth in employee-related costs,
including commissions, and the expansion of our operations. Factors that affff eff ct our abia lity to maximize our operating results
include, but are not limited to, our abia lity to introduce new products and enhance existing products, the marketplt ace acceptance
of those new or enhanced products, continued expansion into international markets, expansion into new or adjacent markets,
development of strategic partnerships, competition, successfulff
ts, and our abia lity to control costs
and make improvements in a highly competitive industry.rr
acquisition integration effff orff
4
Markets
Our service assurance solutions are used by enterprrr
ises (including government agencies) and service providers to
optimize network perforff mance, quickly identifyff and resolve issues impacting appl
into the end user experience. Our cybersecurity solutions are used by enterprr
advanced, volumetric, and appl
teams in rapia dly identifyiff ng, isolating, investigating, and resolving other advanced network threats.
ication and service quality, and to gain insight
a
ises and service providers to identifyff and mitigate
ise security
ication-specififf c distributed denial of service (DDoS) attacks, as well as assist enterprr
a
EnEE tett rprrr
t
isii e MarMM kerr
Within the enterprrr
ise market, NetScout's nGeniusONE, ISNG, and Omnis offff eff rings enabla e IT organizations to support
a growing range of perforff mance management and cybersecurity use cases including:
•
•
•
•
•
•
MM
ment - Our nGeniusONE analytics and our ISNG real-time inforff mation platforff m
NeNN twtt orkrr Perfr orff mance Manage
provide the necessaryrr
insight to optimize network perforff mance, restore service and understand the quality of the
users’ experience. By integrating certain acquired product lines and product feff aturt es into our core offff eff rings, our
customers can benefiff t frff om a consistent view across their traditional wired network infrff astrucr
and wireless networks (WiFi).
turt es, remote offff iff ces,
ication, server, and user communities' perforff mance. We proactively detect emerging issues with the abia lity to
ment: Data CeCC nter TrTT ansfs orff mation and Cloud ComCC putm ing - We enabla e inforff mation
turt e teams, to manage the deliveryrr
l and physical environments, providing a comprehensive, unififf ed real-time view into network,
MM
ication Perfr orff mance Manage
ApplA
technology (IT) organizations, frff om their development operations to their infrff astrucrr
of services across virtuat
appl
a
help analyze both physical and virtuat
organizations to optimize datacenter infrff astrucr
operation of complex, multi-tier appl
are oftff en used by enterprrr
more cost-effff eff ctive accessibility to appl
appl
a
enterprrr
migrate appl
hybrid cloud environment.
ise customers extend their monitoring of appl
a
ications and the network. Our solutions portfolff
io also includes a range of virtuat
a
a
a
l service deliveryrr environments within the data center which enabla es
the
ication environments in consolidated, state-of-ff the-art data centers. Our solutions
turt e investments, protect against service degradations, and simplifyff
ises to support private cloud computing environments that are aimed at enabla ing greater,
ications without compromising the reliabia lity and security of those
ications deeper into their traditional data centers, confiff dently
a
l appl
iances that can help
ications into public cloud environments and gain a comprehensive, cohesive view into the resulting
UniUU fi iff ed ComCC munications (U(( CUU )C - We deliver deep appl
ication-level unififf ed visibility into voice, data and video
services side-by-side in order to understand the interrelationships of all UC services that traverse the network
infrff astrucr
turt e and assess quality and perforff mance of the deliveryrr of these services. As a result, our real-time,
actionabla e intelligence helps customers to deliver a high-quality UC experience as users make calls, video confeff rence
and engage in instant messaging. We also help desktop, network, telecom, and appl
ication teams manage UC through
a common platforff m across complex, geographi
cally dispersed, and multi-vendor environments.
a
a
a
a
MM
ise customers with
softff ware-as-a-
l
ications, and gauge the health of servers, routers and switches as well as wireless and virtuat
Softff wtt are-as-a-Service and InfII rff astrtt ucture Perfr orff mance Manage
active agent-based offff eff rings that can help them determine availabia lity and perforff mance levels forff
service (SaaS) appl
infrff astrucr
infrff astrucr
Deployed independently or as part of our broader service assurance solution, these products also play an important
role in helping enterprr
returt ns on their appl
turt es. As a result, customers can continuously monitor the perforff mance of key business services and the
turt e used to deliver them, regardless of how appl
ises deliver a superior user experience, achieve outstanding service quality and drive better
ications are deployed or where the user is located.
ment - We also provide enterprrr
ication and infrff astrucr
turt e investments.
a
a
ication and Desktkk op ViVV rtualizii ation - We provide clear and actionabla e insights that help customers fulff
ApplA
the operational benefiff ts associated with Application and Desktop Virtuat
identifyff and resolve service problems. We offff eff r visibility across all virtuat
including remote access, client, virtuat
customers gain actionabla e metrics and insight frff om monitoring and analyzing the consumption and perforff mance of
VDI services.
l desktop infrff astrucr
ication, and related databaa
turt e (VDI) tiers
se systems, and help
lization, and reduce the time it takes to
lization, web, frff ont-end appl
ly realize
a
CyCC bersrr ecuritytt : DDDD oS Protection and Omnisii CyCC ber IntII elligei nce - Computer networks continue to be targeted forff
ise’s abia lity to conduct its
cyberattacks that are aimed at disrupt
business or gaining unauthorized access to corpor
provide a range of network security solutions under the NetScout Arbor
networks frff om high-volume and appl
network with traffff iff c or over-exercising specififf c func
ications and restricting or stealing valuabla e inforff mation. We
ises to protect their
ication-specififf c DDoS attacks, which are aimed at either overwhelming the
tions or feff aturt es of a website with the intention to disabla e those
ing, damaging, or otherwise destroying an enterprrr
brand that enabla e enterprrr
a
ate appl
a
r
r
r
ff
5
tions or feff aturt es. We have also developed new cybersecurity solutions forff
func
ff
products that provide greater deep-dive forff ensic capaa bia lities as well as analytics that can provide visibility into
anomalous behavior on the network that may be indicative of an advanced threat. These security analytics enabla e
existing enterprr
ise customers to leverage their historical investments in NetScout's service assurance solutions by
using the Adapta ive Service Intelligence (ASI) data already being generated to support service assurance as well as
cybersecurity use cases.
ises with our Omnis suite of
enterprrr
GovG ernment MarMM kerr
tstt
Considered as part of our enterprr
ise customer vertical, we have built a strong position with feff deral, state and local
government agencies, both in the United States and abra oad. Similar to our enterprr
focff used on streamlining and transforff ming IT into more effff iff cient and more easily managed environments. To accomplish this,
agencies are turt ning to IT solutions that will help simplifyff managing and assuring their IT environments as well as reduce
costs. However, governmental markets diffff eff r frff om enterprrr
by potential changes in government administrators, budgetaryrr priorities and allocated fundi
ise markets primarily due to their purchasing cycles being inflff uenced
ise customers, government agencies are
key projects.
ng forff
ff
TeTT lell communicatitt on SeSS rvice PrPP ovider MarMM kerr
tstt
Today's service providers are focff used on delivering a compelling set of services and ensuring a high-quality user
experience, while also striving to minimize operational complexity, control costs and improve automation. This, coupled with
the challenge of internet protocol (IP) transforff mation activities and complex technologies such as 5G, Long-Term Evolution
(LTE), Network Functions Virtuat
services drives the need forff
Our service provider solutions support an expanding range of use cases including:
lization (NFV), Internet Protocol Television (IP-TV), wireless network (WiFi) and cloud
oach to managing service deliveryrr and the subscriber experience.
a more automated and unififf ed appr
a
•
•
•
ff
mental transforff mation of the mobile
data, voice and video-centric services and to consolidate and
an optimal subscriber experience. NetScout’s service assurance solutions help service providers
Service Assurance forff MobiMM le, FiFF xii ed Line and CablCC e OpeO ratorsrr - The funda
network to all-IP enabla es mobile operators to build highly-scalabla e service deliveryrr environments to offff eff r new
services to meet the growing subscriber demand forff
simplifyff network operations. Mobile operators use our offff eff rings to gain real-time, detailed IP packet-level insight and
core-to-access visibility, which enabla es them to ensure services offff eff red over the network and meet certain pre-defiff ned
quality levels forff
effff eff ctively manage capaa
city, assess overall network quality, take proactive steps to modifyff
impact subscribers, and quickly identifyff and troubleshoot network problems. In addition to improving the overall
returt n on their network infrff astrucrr
network quality and unique customer insights - both of which contribute to subscriber acquisition, retention, and
monetization. The growing demand forff
anywhere, IP-TV, on-demand video traffff iff c, new extended WiFi initiatives and carrier Ethernet services presents fiff xed
line and cabla e multi-system operators with signififf cant revenue opportuni
to convergence
mechanism forff
operations while reducing total cost of operations. For example, cabla e operators use our solutions to monitor and
manage their local area WiFi connectivity services, ensure the high-quality deliveryrr of video to consumers outside of
their homes as well as provide broadband and telephony services targeting small- and medium-sized businesses.
access, distribution and core networks, enabla ing new service offff eff rings and simplifyiff ng network
turt e investments, mobile operators using our solutions also benefiff t frff om improved
high-bandwidth triple-play services, broadband connectivity, content
ties. IP has become the de facff
the network beforff e issues
t
Service Providersrr - Service providers strive to understand how the perforff mance of their
Business IntII elligei nce forff
networks impact customer experience, subscriber behavior and related usage trends. By combining network traffff iff c
data with other inforff mation, including support requests, subscriber calling plans, demographi
service providers can make more timely decisions about
retain and furff
subscribers, services, networks, and appl
integrated into their data lakes and third-party analytic platforff ms.
c data and other details,
their offff eff rings and sales and marketing initiatives to acquire,
ther monetize their subscribers. NetScout's analytics deliver timely insights into a service provider's
ications, as well as easy export capaa bia lities so that this inforff mation can be
a
a
a
DDDD oS Protection - Over the past decade, Internet Service Providers (ISPs), including leading telecommunications
providers, cabla e multi-service operators and cloud providers, have seen signififf cant increases in the sophistication,
scale and frff equency of high-volume and appl
aimed at disrupt
over-exercising specififf c func
NetScout Arbor
networks against DDoS attacks, and to resell certain DDoS offff eff rings to their enterprrr
tions or feff aturt es of a website with the intention to disabla e those func
smart DDoS solutions are used by a wide range of ISPs around the world to help protect their
ing the online services of an ISP's business customer by overwhelming the network with traffff iff c or by
ication-specififf c DDoS attacks on their networks. DDoS attacks are
tions or featurt es.
ise customers.
a
ff
r
r
ff
6
Products Overview
Since our foundi
ff
ng in 1984, we have been an industryrr
innovator in using IP-based network traffff iff c to help
a
ications over their networks, improve the end-user
organizations manage and optimize the deliveryrr of services and appl
experience and protect networks frff om unwanted cybersecurity threats. Using our patented ASI technology, our solutions
instantaneously convert network traffff iff c data, oftff en refeff rred to as wire data, into high-value metadata, or "smart data". Our
offff eff rings can help customers quickly identifyff and troubleshoot network and appl
ication perforff mance issues, defeff nd their
networks frff om DDoS and other cybersecurity attacks, and rapia dly fiff nd and isolate advanced network threats. Our solutions are
typically deployed by customers as integrated hardware and softff ware, as softff ware only that is then integrated into commercial
offff -ff the-shelf hardware, in a virtuat
solutions help our customers meet the increasing demands and an ever-changing technology landscapea
of IP networks, service,
ther elevate our value proposition and address the near- and long-
a
appl
term needs of customers and prospects, we have delivered maja or product upgrades across our product lines by integrating key
func
tionality frff om acquired product lines, increasing the deployment flff exibility of our solutions, and adding new feff aturt es and
ff
capaa bia lities that enabla e us to address a broader range of use cases. Our primaryrr products can be categorized as folff
lized environment as softff ware only, or as a Softff ware as a Service (SaaS) forff m faff ctor. Our
ications, and cybersecurity threats. In recent years, to furff
lows:
a
SeSS rvice Assurance SolSS utitt ons forff NeNN twtt orkrr and ApplA ill catitt on PePP rfr orff mrr ance and Businii ess InII tett llll ill gei nce Analyll titt cs
•
•
MM
ment Softff wtt are and Analyll tic ModulMM
es - Our nGeniusONE management softff ware is used to
ise, and government customers enabla ing them to predict, preempt, and resolve
turt es. Additionally, we market a range of specialized platforff ms and analytic modules that can enabla e our
nGeniusONOO ENN Manage
support our service provider, enterprrr
network and service deliveryrr problems while faff cilitating the optimization and capaa
infrff astrucr
customers to analyze and troubleshoot traffff iff c in radio access network and WiFi networks, as well as gain timely
insight into high-value services, appl
network. nGeniusPULSE is an active testing tool that enabla es enterprrr
and determine appl
ication availabia lity, reliabia lity, and perforff mance. We also market our nGenius Business Analytics
solution, which enabla es service providers to quickly and effff iff ciently analyze their network traffff iff c to gain greater and
more timely insights into their subscribers, services, networks, and appl
data into their data lakes and into third-party analytic platforff ms.
ications and systems, and better understand the subscriber’s experience on the
ises to identifyff
ications, as well as easily export our smart
city planning of their network
infrff astrucr
turt e perforff mance issues
a
a
a
)s - Our ISNG platforff m provides real-time collection and
iance with integrated hardware and softff ware, as softff ware-only forff
ViVV sii ibilitytt Productstt (P(( robes, Packekk t FlFF ow Sysyy tems and TapsTT
analysis of inforff mation-rich, high-volume packet-flff ow data frff om across the network that is displayed through the
nGeniusONE Service Assurance Solution. The ISNG is an advanced passive network probe that can be deployed as a
a
traditional appl
hardware or in virtuat
source, which is marketed as vSTREAM, can be deployed to support NFV environments as well as to cost-effff eff ctively
monitor appl
provide comprehensive packet flff ow systems (also called network packet brokers or network visibility faff bra ic
switches), that deliver targeted network traffff iff c access to a range of monitoring and cybersecurity tools and systems,
including the nGeniusONE Service Assurance platforff m. Additionally, we market a suite of test access points (TAPs)
that enabla e fulff
use in commercial-offff -ff the-shelf
lized forff m faff ctor version of our intelligent data
ication perforff mance in traditional data center, private cloud, and public cloud environments. We also
ive access to network traffff iff c with multiple link type and speed options.
lized or softff ware only forff m faff ctors. The virtuat
l, non-disrupt
a
r
CyCC bersrr ecuritii ytt SolSS utitt ons
•
•
r
r
ises around the world
brand. Dozens of service provider customers around
's solutions as a managed DDoS service to their enterprrr
DDDD oS Protection – We provide cybersecurity solutions that enabla e service providers and enterprr
to protect their networks against DDoS attacks under the Arbor
the world also resell Arbor
DDoS solutions offff eff rs complete deployment flff exibility spanning on-premise offff eff rings and cloud-based capaa bia lities to
meet a broad array of customer needs, as well as specialized analytics and comprehensive threat intelligence
inforff mation. Our smart DDoS offff eff rings forff
detection, Arbor
key network services and Arbor
forff
attacks and outbound
quickly removes DDoS attack traffff iff c. We plan to furff
enabla e greater adoption of our solutions by service provider and enterprr
Sightline forff DDoS visibility and threat
ion to
advanced analytical and forff ensic inforff mation. Our smart DDoS offff eff rings
Cloud, a global, cloud-based traffff iff c scrubbi
ther enhance and expand these capaa bia lities in ways that will
identifyiff ng and blocking incoming DDoS
ng service that
removing DDoS attack traffff iff c frff om the network without disrupt
r
ises include Arbor
malicious communications, and Arbor
Edge Defeff nse, a perimeter-based appl
service providers include Arbor
Threat Mitigation System forff
ise customers. Our portfolff
ise customers.
Insight forff
iance forff
enterprrr
io of
a
r
r
r
rr
rr
r
t
Advanced ThrTT eat Detection – We are actively expanding our enterprr
investment that our enterprr
network traffff iff c via our probes, we can expand our value proposition by providing specialized analytics forff
assurance and cybersecurity. We have introduced and will continue to advance solutions such as new packet forff ensic
ise customers have made in our traditional service assurance solutions. By collecting
ise cybersecurity offff eff rings to better leverage the
both service
7
capaa bia lities, such as Omnis Cyber Intelligence, designed specififf cally forff
anomalous behavior analytics that security teams can use to identifyff and investigate potential advanced network
threats. Our Omnis suite of products is focff used on addressing cybersecurity use cases.
security operations teams as well as new
Integration with Third-Party Solutions
To have greater operational impact on assuring perforff mance of appl
a
ications and service delivery,rr we have integrated our
technology with third-party management consoles and business service management systems. This integration allows
organizations to receive alarms on impending perforff mance problems and to link into the nGenius Service Assurance solution in
order to perforff m detailed problem analysis and troubleshooting. The third-party solution providers that we have integrated our
solutions with include Cisco Systems, Cisco Sourcefiff re, Citrix Systems, Dell Technologies, Hewlett-Packard Company, IBM
Tivoli, and VMWare. In addition, we have embedded NetScout Arbor
DDoS mitigation capaa bia lities on a blade within Cisco's
market-leading ASR9000 router and will continue to evaluate partnership opportuni
within other network equipment platforff ms.
ties to integrate its smart DDoS capaa bia lities
r
t
Growth Strategy
The folff
lowing are key elements in our growth strategy forff
fiff scal year 2023:
•
•
•
•
•
•
•
ation - In order to support our customers' near-term and longer-term requirements, we plan to continue
io. In particular, we continue to invest in research and
II
Drive Innov
innovating by enhancing and expanding our product portfolff
development, and leverage the strong technical and domain expertise across our organization. Our engineering teams
are focff used on advancing technical innovation across our broad product portfolff
experience with global enterprrr
ise, service provider and government organizations with IP-based networks, we remain
well positioned to cross-leverage our technology development across all maja or platforff ms and relevant technologies to
address the evolving demands of current and prospective customers.
io. By capia talizing on our extensive
- By making our visibility products availabla e in multiple forff m faff ctors, including softff ware
Deliver Pervasive ViVV sii ibilitytt
that can be deployed with commercial offff -ff the-shelf servers and as virtuat
more affff orff dabla e forff
infrff astrucr
entation options, we are well positioned to help existing and
new customers gain greater visibility into more places across their end-to-end network environments and address an
even broader range of service assurance and cybersecurity use cases.
customers to deploy our technology more broadly across their hybrid network and IT
turt es. By offff eff ring more cost-effff eff ctive instrumr
iances, we believe that it is easier and
a
l appl
ication perforff mance management, infrff astrucr
ExEE tension into Adjacent MarMM krr ekk tstt - By enhancing and expanding our product portfolff
io and driving product integration
via internal development and acquisitions, we have expanded our reach into complementaryrr adjacent markets such as
appl
turt e perforff mance management, big data analytics, and cybersecurity.
a
We believe that this element of our strategy is integral to gaining access to larger budgets, increasing spending frff om
existing customers, attracting new customers, and increasing our total addressabla e market. In particular, we are
broadening our cybersecurity solutions beyond the DDoS market with enterprrr
ise security offff eff rings that can help our
customers extract more value frff om the network traffff iff c that we are already collecting to support service assurance use
cases.
x
ExEE isii ting CusCC tomer Relatl
ises that have purchased our products in support of maja or technology and network initiatives
ForFF tifi yff and ExEE pand
providers and enterprrr
that they have implemented over the past decade. As a result, we believe we are well positioned to expand the scope
of many of these relationships as well as acquire new customer relationships as we identifyff new opportuni
support new network, cybersecurity, and broader technology projects.
- We have an expansive, global customer base of service
ionshipsi
ties to
t
x
our CusCC tomer Base - The investments we have made over the past several years to expand our product
ExEE pand
portfolff
c
io and support greater deployment flff exibility also positions us to win new customers in establa ished geographi
markets where we can leverage our global direct sales organization and an extensive network of value-added resellers
and systems integrators.
a
rease MarMM krr ekk t Relevance and Awareness - We plan to continue to implement marketing campaigns aimed at
IncII
generating high-quality sales opportuni
customers, promoting thought leadership and building the NetScout brand.
ties with both current and prospective enterprr
ise and service provider
t
ExEE tend our TeTT chnology Partnett
complementaryrr solutions providers that can help us support a larger, more global and more diverse customer base.
r Alliance Ecosys syy tem - We plan to continue to develop and forff
tifyff alliances with
8
We also plan to continue to enhance our technology value, product capaa bia lities and customer relevance through the
continued integration of our products into technology partner products.
Pursrr ue Strt ategie c Acquisii itions - We have completed many acquisitions since our inception that have helped broaden
our capaa bia lities, enhance our products and technologies, enabla e us to expand into adjacent markets and better position
us to meet the needs of a larger base of customers and prospects.
ImII prm ove CosCC t Strtt ucture and Drive EfE fff iff ciencies - We plan to balance our investments in key technology, product
development, sales and marketing, and other initiatives that will enabla e us to drive long-term profiff tabla e growth with
an ongoing focff us on managing costs and driving effff iff ciencies.
•
•
Support Services
Customer satisfaff ction is a key driver of our success. Our support programs offff eff r customers various levels of high-quality
support services to assist in the deployment and use of our solutions. We have support personnel strategically deployed across
the globe to deliver 24/7 support to our premium customers. Certain support services, such as on-site support activities, are
provided by qualififf ed third-party support partners. In addition, many of our certififf ed resellers provide Partner Enabla ed Support
to our end users. This is especially prevalent in international locations where time zones and language, among other faff ctors,
make it more effff iff cient forff
our softff ware and fiff rmware at no additional charge, if and when such updates are developed and made generally availabla e to our
commercial customer base. If ordered, support commences upon shipment or expiration of the standard warranty forff
softff ware.
For softff ware, which also includes fiff rmware, the standard warranty commences upon shipment and expires 60 to 90 days
thereaftff er. With regard to hardware, the standard warranty commences upon shipment and expires 60 days to 12 months
thereaftff er. We believe our warranties are consistent with commonly accepted industryrr standards. We expect to continue to
provide support services forff
ther
simplifyff and standardize our support obligations over the coming years.
the acquired platforff ms under existing agreements and plan to explore opportuni
end users to have the reseller provide initial support func
tions. Our support also includes updates to
ties to furff
ff
t
Manufacff
turing
Our manufaff cturt
ing operations consist primarily of fiff nal product assembly, confiff guration, and testing. We purchase
t our hardware products in accordance with NetScout standard
components and subassemblies frff om suppliers and construcrr
specififf cations. We inspect, test and use process controls to ensure the quality and reliabia lity of our products. We maintain an
ISO 9001 quality systems registration, a certififf cation showing that our corpor
comply with standards forff
registration, a certififf cation showing that our corpor
customer satisfaff ction.
quality assurance and process control. We also maintain an ISO 9001:2000 quality systems
ate procedures comply with standards forff
ate procedures and manufaff cturt
continuous improvement and
ing faff cilities
r
rr
We generally use standard parts and components forff
our products, which can be sourced frff om various suppliers. We
have generally been abla e to obtain adequate supplies of components in a timely manner frff om current suppliers. While certain
components, such as computer network interfaff ce cards, are currently purchased frff om a single supplier, we have identififf ed
alternate suppliers that we believe can be qualififf ed relatively quickly to fulff
supplier. We continue to monitor the impact of the COVID-19 pandemic, the geopolitical environment, and other faff ctors on our
supply chain. Although we have been abla e to manage supply challenges in the past, there is no guarantee that we will be abla e to
continue to manage these challenges without signififf cant impacts to our business if our supply chain becomes increasingly
strained. Our reliance on single source suppliers and impacts on our supply chain are furff
Factors."
fiff ll our needs should an issue arise with the existing
ther described in Item 1A "Risk
We manufaff cturt e our products based upon near-term demand estimates resulting frff om sales forff ecasts and historical
fiff llment inforff mation. However, since these forff ecasts have a high degree of variabia lity because of faff ctors that include time of
fulff
year, overall economic conditions and sales employee incentives, we believe it is prude
advance of receipt of fiff rm orders to ensure that we have suffff iff cient stock to satisfyff
system has thus faff r enabla ed us to minimize the effff eff cts of the disrupt
supply chain perspective. The potential impact of the COVID-19 pandemic and potential supply chain disrupt
business are furff
ther described in Item 1A "Risk Factors."
ion caused by the global COVID-19 pandemic frff om a
ions on our
r
incoming orders. Our inventoryrr management
nt to maintain inventoryrr
levels in
r
rr
Sales and Marketing
SalSS ell s
We sell our products, support and services through a direct sales forff ce and an indirect reseller and distribution channel.
Our direct sales forff ce generally uses a "high-touch" sales model that consists of faff ce-to-faff ce or virtuat
l meetings with
customers to understand and identifyff
although more diffff iff cult, our sales teams have been successfulff
their unique business challenges and requirements. In the global pandemic environment,
lly to understand their requirements
in engaging customers virtuat
9
and effff eff ctively design solutions. Our sales teams translate our customers' requirements into tailored business solutions that
allow the customer to maximize the perforff mance of its infrff astrucrr
of the systems and the capia tal expenditurt es involved, our sales cycles typically take between three and twelve months. We build
strategic relationships with our customers by continually enhancing our solution to help them address their evolving service
deliveryrr management challenges. In addition to providing a comprehensive solution to meet these needs, we continually
provide softff ware enhancements to our customers as part of their maintenance contracts with us. These enhancements are
designed to provide additional and ongoing value to our existing customers to promote loyalty and the expansion of their
deployment of our products. Existing customer growth is also driven by the expansion and changes in their networks as they
add new infrff astrucrr
ications, experience increasing service traffff iff c volumes or
encounter incremental cyber threats.
turt e and service deliveryrr environment. Due to the complexity
turt e elements, new users, new locations, new appl
a
We also maintain an indirect reseller and distribution channel. Sales to customers outside the United States are primarily
ise, service provider and government customers. Historically and currently, we have used indirect distribution channels
export sales through channel partners. Our channel partners assist us by improving our reach to customers, extending our
presence in new markets, and marketing and selling our products to a broad array of organizations globally. We sell through a
range of channel partners including value-added resellers, value-added distributors, resellers, and system integrators, to our
enterprrr
principally as intermediaries on contractuat
with end user customers to present our products and solutions, conduct demonstrations, provide evaluation equipment,
recommend detailed product solutions, develop product deployment designs and timelines, and assist in establa ishing fiff nancial
and other justififf cations forff
end customer and us, may be brought in to faff cilitate the transaction and to provide fulff
international channel partners, those services usually also include currency translation and support. In the U.S., fulff
services are usually limited to invoicing and cash collection. Under this appr
partners forff
contractuat
the maja or elements of the selling process. In many cases, there are multiple channel partners with the required
l relationships, so dependence on any single channel partner is not signififf cant.
the proposed solution. During this selling process, a channel partner, who has contracts with both the
customers with whom we do not have a contract. Our sales forff ce meets
oach, we have limited dependence upon channel
fiff llment services. In the case of
l terms forff
fiff llment
a
During the fiff scal years e dndedd Marchh 31, 2022, 2021 a dnd
2020 no direct customers or indirect channel partners accounted
,
forff more than 10% of our total revenue.
MarMM kerr
titt nii g
Our marketing organization drives our market research, strategy, product positioning and messaging, and produces and
manages a variety of programs such as customer forff umr
social media, direct mail, seminars and webinars, sales promotions and other online marketing programs. These programs are
focff used on promoting the sale and acceptance of our solutions to furff
cybersecurity products within the marketplt ace.
s, trade shows, industryrr events, advertising, public and analyst relations,
ther build the NetScout brand forff
our service assurance and
Key elements of our marketing strategy focff us on thought leadership, market positioning, market education, go to market
strategies, reputation management, demand generation, and the acceleration of our strategic selling relationships with local and
global resellers, systems integrators, and our technology alliance partners. During fiff scal year 2022, we continued to invest in the
promotion of the NetScout brand related to service assurance and cybersecurity products in their respective markets. We expect
to continue these initiatives during fiff scal year 2023.
Research and Development
Our continued success depends signififf cantly on our abia lity to anticipate and create solutions that will meet emerging
customer requirements. We work closely with our largest enterprr
address their near-term and longer-term requirements. By better understanding the key, time-sensitive needs of our global
customer base, we believe our development programs will continue to result in enhanced products that are abla e to meet the
increasing challenges of an increasingly complex and dynamic global network environment.
ise and service provider customers to better understand and
We have invested signififf cant fiff nancial resources and personnel into the development of our products and technology. Our
ial to our business and our continued success in the market. We have
continued investment in research and development is crucrr
assembled a team of highly skilled engineers with expertise in various technologies associated with our business and the
technologies being deployed by our customers. We plan to continue to enhance and expand our product offff eff rings and
capaa bia lities in the near futff urt e while integrating key capaa bia lities frff om acquired product lines as appr
to continue to invest and dedicate signififf cant resources to our research and development activities forff
service provider customers.
opriate. As a result, we plan
both our enterprrr
ise and
a
We predominantly develop our products internally, with some limited third-party contracting. We have also acquired
developed technology through business acquisitions. To promote industryrr standards and manifeff st technology leadership, we
10
participate in and support the activities and recommendations of industryrr standards bodies, and we also engage in close and
regular dialogue with our key customers and alliance partners. These activities provide early insight into the direction of
a
network and appl
technologies.
ication perforff mance requirements and the changing cybersecurity landscapea
that impacts current and emerging
Seasonality
We have experienced, and expect to continue to experience, quarterly variations in our order bookings as a result of a
number of faff ctors, including the length of the sales cycle, complexity of customer environments, new product introductions and
their market acceptance and seasonal faff ctors affff eff cted by customer projects and typical IT buying cycles. Due to these faff ctors,
we historically have experienced stronger bookings during our fiff scal third and four
quarters.
th quarters than in our fiff scal fiff rst and second
ff
Customers
We sell our products to enterprr
medium-sized high-speed IP computer networks. Our enterprrr
services, technology, manufaff cturt
associated agencies. Our telecommunications service provider customer group includes mobile operators, wireline operators,
cabla e operators, internet service providers, and cloud providers.
ing, healthcare, utilities, education, transportation and retail as well as government and
ises, service providers and local, state, and feff deral governmental agencies with large-and
ise customers cover a wide variety of industries, such as fiff nancial
Backlog
We produce our products on the basis of our forff ecast of near-term demand and maintain inventoryrr
in advance of receipt
of fiff rm orders frff om customers. We confiff gure our products to customer specififf cations and generally deliver products shortly
aftff er receipt of the purchase order. Service engagements are also included in certain orders. Customers generally may
reschedule or cancel orders with little or no penalty. We believe that our backlog at any particular time is generally not
meaningfulff
because it is not necessarily indicative of futff urt e sales levels. Our combined product backlog at March 31, 2022 was
$92.8 million compared to $27.9 million at March 31, 2021. A maja ority of the backlog relates to orders that were received late
in the quarter and radio frff equency propagation modeling projects. In some cases, we have begun these projects but have not yet
hit billabla e milestones. A radio frff equency propagation modeling project order received in the third quarter of fiff scal year 2022
allowed NetScout to bill forff
the entire project based upon partial delivery.rr At March 31, 2022, defeff rred revenue and accounts
receivabla e each contained a gross balance of $19.9 million related to this radio frff equency propagation modeling project. A
maja ority of revenue forff
any radio frff equency propagation modeling billings ahead of deliveryrr were immaterial.
these projects is expected to be recognized into revenue throughout fiff scal year 2023. At March 31, 2021
Competition
a
We compete with many companies in the markets we serve. The service assurance market, including the infrff astrucr
ication perforff mance management markets, is highly competitive, rapia dly evolving, and frff agmented with
ng technologies and a wide range of competitors, both large and small, who may deliver certain elements of our
network, and appl
overlappi
a
solution. Consequently, there are a number of companies who have greater name recognition and substantially greater
fiff nancial, management, marketing, service, support, technical, distribution and other resources than we do. Additionally, certain
competitors, either due to their size and resources or due to their technological strengths, may be abla e to respond more
effff eff ctively than we can to new or changing opportuni
ties, technologies, standards and customer requirements.
turt e,
t
Principal competitive faff ctors in our service assurance market include scalabia lity; abia lity to address a large number of
ications, locations and users; product perforff mance; the abia lity to easily deploy into existing network environments; the
lized solutions; and the abia lity to administer and manage the solution.
appl
a
abia lity to offff eff r virtuat
While we faff ce multiple competitors within the service assurance industry,rr we believe that we compete faff vorabla y on the
basis of the folff
lowing faff ctors:
•
•
•
we provide a comprehensive service deliveryrr management solution that is capaa bla e of addressing the needs of both
enterprrr
deliveryrr environments;
ise and service provider customers and can be scaled to meet the challenges of today's dynamic service
we believe that our solutions provide superior data and compete faff vorabla y on a broad range of metrics including the
abia lity to recognize and track a large number of appl
ications;
a
we believe our solutions possess the scalabia lity to support high and increasing levels of data and network traffff iff c;
11
•
•
our solutions look at both data and control plane traffff iff c across an entire network; and
our ASI technology is optimized to provide real-time inforff mation about
emerging service problems whereas traditional solutions are inherently latent, supporting only forff ensic-trouble
shooting aftff er an issue has occurred.
service perforff mance and real-time alerts to
a
In the enterprrr
ise market, our competitors include companies who provide network perforff mance management, appl
a
ication
turt e perforff mance management and other related solutions such as CA Technologies (a
perforff mance management, infrff astrucrr
sta, Keysight, Viavi, Gigamon, New
Broadcom Inc. business), Cisco Systems, Dynatrace, Datadog, ExtraHop, IBM, Infovi
Relic, Riverber d Technology, Splunk and SolarWinds. In addition, we both compete with and partner with large enterprrr
ise
management vendors, such as HP and IBM, who offff eff r perforff mance management solutions. We also compete with smaller,
privately held competitors who oftff en focff us on specififf c vertical markets.
ff
In the service provider market, we compete with traditional probe vendors, network equipment manufaff cturt ers, big data
lization vendors. These vendors include Anritsu, Cisco, Ericsson, Dell Technologies, EXFO,
sta, Niksun, Elisa Polystar, Radcom, Splunk, Nokia and Viavi. We faff ce additional competitive threats
and new entrants that seek to offff eff r innovative solutions in an industryrr characterized by rapia d technological
and analytics vendors, and virtuat
Huawei, IBM, Infovi
ff
t
frff om startups
change.
In the cybersecurity market, we faff ce a range of competitors, including those that may have greater name recognition and
substantially greater fiff nancial, management, marketing, service, support, technical, distribution and other resources than we do.
We believe that the scalabia lity of our solutions, flff exible deployment, and price-perforff mance of our cybersecurity solutions
positions us well to compete against both larger network equipment and security companies and smaller niche security solutions
vendors.
In the service provider DDoS solutions market, we compete under the NetScout Arbor
r
brand with a broad range of
vendors including Radware, Akamai, F5 Networks, A10 Networks, Fortinet, Fastly, Cloudflff are and Corero Network
Security. In the enterprr
traffff iff c analysis, and packet forff ensics to detect and raise alerts of advanced network threats, we compete under the NetScout
Omnis Security brand with a range of vendors including Darktrace, Vectra Networks, Extrahop, Viavi, Symantec, Cisco, and
other specialist providers.
ise market forff Network Detection and Response (NDR) solutions that utilize specialized threat analysis,
Our abia lity to sustain a competitive advantage depends on our abia lity to deliver continued technology innovation and
to meet the evolving needs of our customers. Competitive faff ctors in our industryrr are furff
ther described in Item 1A "Risk
adapta
Factors."
Intellectual Property Rights
We rely on patent, copyright, trademark, and trade secret laws and contract rights to establa ish and maintain our rights in
l property rights are an important element in our success, our business as a
l property
our technology and products. While our intellectuat
whole does not depend on any one particular patent, trademark, copyright, trade secret, license, or other intellectuat
right.
We use contracts, statutt oryrr
laws, domestic and forff eign intellectuat
l property registration processes, and international
io and rights frff om infrff ingement. From a
l property portfolff
l property treaties to police and protect our intellectuat
l perspective, we use license agreements and non-disclosure agreements to control the use of our intellectuat
intellectuat
contractuat
and protect our trade secrets frff om unauthorized use and disclosure. In addition to license agreements, we rely on U.S. and
international copyright law to protect against unauthorized copying of softff ware programs in the U.S. and abra oad. We have
obtained U.S. and forff eign trademark registrations to preserve and protect certain trademarks and trade names. We have also
fiff led and obtained U.S. patents and international counterpar
unlawfulff
that we will be abla e to obtain patents covering all of our products, or that we will be abla e to license, if needed, patents fromff
other companies on faff vorabla e terms or at all. Our proprietaryrr
Item 1A "Risk Factors."
ly exploited by other parties. However, there is no assurance that pending or futff urt e patent appl
rts to protect certain unique NetScout inventions frff om being
rights are subject to other risks and uncertainties described under
ications will be granted,
l property
a
12
Human Capital Management
NetScout strives to remain a team of entrepreneurs, with the agility of a start-up and the heftff of a global technology
company. We believe that our culturt e is critical to our success and growth. Our Lean But Not Mean culturt e complements and
acts as a multiplier to our technology, exceptional talent, and forff ward-thinking innovation. "Lean" decision-making puts the
tough calls up frff ont and puts employees and the long-term success of the company fiff rst. We believe our commitment to
education, engagement, and communication has motivated our employees around the world and keeps our spirit thriving, and
rr
everyone
, regardless of role, brings value to the organization.
EmEE plm oyll
ees
As of March 31, 2022, we had 2,331 employees worldwide – over 99% of whom were fulff
l time employees. Our
employees are in over 35 countries with 64% of our employees located in the United States.
Diversrr itii ytt ,yy Equitii ytt & InII clusion
a
Diversity, equity, and inclusion (DEI) are the cornerstones of our organizational excellence and complement our core
ation, and innovation. We embrace and encourage our employees'
values of perforff ming with integrity, compassion, collabor
diffff eff rences in age, color, disabia lity, ethnicity, faff mily or marital statust
physical and mental abia lity, political affff iff liation, race, religion, sexual orientation, socio-economic statust
other characteristics that make our employees unique. We recently revised our Diversity, Equity, and Inclusion Policy and seek
to enhance our employees' understanding of DEI through company-wide training, tracked and reviewed with the executive
team. In addition, we have a designated DEI program team, reporting to the Chief Human Resources Offff iff cer, to fosff
transparent and equitabla e processes in employee engagement, onboarding, learning and development, policymaking, and career
planning.
, gender identity or expression, language, national origin,
, veteran statust
, and
ter
ating with industryrr and university partners to enhance our diversity. We
A cornerstone of our DEI strategy is collabor
work with industryrr partners, including third-party recruir
ting organizations that specialize in diversity in hiring, and post our
open position requisitions on diversity job boards. We track our progress and make improvements to reach a broader, more
diverse, talent base. We also partner with universities with diverse stude
nt enrollment to recruir
t our summer interns.
a
t
TalTT ell nt Developmll
ent
opportuni
•
NetScout invests in the ongoing development of its employees across the globe. As part of that program, we offff eff r
t
leaders and develop and support all employees, including:
ties to identifyff
Career path development – to document increasing levels of leadership responsibility, creating a transparent process,
so that all employees have access to inforff mation necessaryrr
to build a career plan at NetScout.
• Management and leadership development – to support an inclusive workplace and fosff
ter consistent management
•
practices across the globe.
Strengthen high-perforff ming teams – For selected leaders, we partner with the Center forff Higher Ambition Leadership
to offff eff r programs that strengthen high-perforff ming teams.
CuCC ltll ure & ValVV ues
We believe that our company culturt e is critical to our success and growth. Our culturt e complements and acts as a
multiplier to our technology, exceptional talent, and forff ward-thinking innovation. As a result of our philosophy, we have
pledged to be considerate, loyal and appr
strategies that result in effff iff cient business outcomes.
eciative of our employees while also enacting decision-making processes and business
a
We take seriously our mission as Guardians of the Connected World. In 2021, we launched our internal NETSCOUT
WITHOUT BORDERS initiative, of which a key component is an employee engagement program to continuously
communicate our mission and goals to all of our global employees through a series of town hall meetings that provide direct
interaction with the CEO, in-depth focff us groups, and folff
connected with all employees, and to ensure everyone
aligned with our vision, mission and goals.
is equipped with the knowledge and tools so all their effff orff
low-on development programs. This is a signififf cant investment to stay
ts can be
rr
13
COCC VIVV DII -19 Respons
se
NetScout's Environment, Health, and Safeff ty (EHS) Council is responsible forff EHS policy, managing and coordinating
EHS regulatoryrr compliance, and tracking goals and results. The EHS Council reports to senior executives and its results are
reported to the Nominating and Corpor
comprehensive review of corpor
ate Governance Committee of the Board of Directors as part of the committee's
ate responsibility and ESG.
r
r
During the COVID-19 pandemic, our top priority has been the safeff ty and well-being of our employees and their faff milies
to ensure that they continue to be productive and keep our customers and the world connected. As the severity and scope of the
pandemic became known in early calendar year 2020, we curtailed travel and required all employees, in all locations, to work
frff om home, with only a limited number of employees with business-critical tasks provided access to our faff cilities. For those
employees who needed to be on-site, we establa ished multiple protective measures to ensure the safeff ty of our employees. We
have begun allowing our employees to returt n to work on-sites, in accordance with feff deral, state, and local government
guidelines, as well as in accordance with forff eign government guidelines in the countries in which we operate. Furthermore, the
processes that we have implemented to enabla e our employees to returt n to work on-site are in accordance with prevailing health
and science guidance, and in a manner that seeks to protect our employees, contractors, customers, suppliers, and our local
communities. Throughout the course of the COVID-19 pandemic, we were abla e to maintain our unique culturt e, support our
employees with well-being programs and uninterrupt
superior service levels to our customers.
ed salaryrr and benefiff ts, and maintain our market presence and unfaff ilingly
rr
ComCC pem nsatitt on and Benefe iff tii stt
We offff eff r a competitive compensation and benefiff ts package to attract, retain and motivate our employees. Our
compensation package includes market-competitive pay, cash and equity incentive compensation, an Employee Stock Purchase
Plan, retirement benefiff ts, health benefiff ts, paid time offff and leave benefiff ts. Our Compensation Committee oversees our key
human capia tal management strategies and programs.
Environmental Social Governance
We believe our commitment to ESG is an important part of creating long-term business value. As set out in its Charter,
rr
rr
ate Governance Committee of NetScout's Board of Directors oversees NetScout's ESG program.
ate Governance Committee meets regularly and reviews and advises on ESG strategy and appr
a
l Board, which also considers NetScout’s ESG program and strategy as well as its alignment with the Company’s
the Nominating and Corpor
The Nominating and Corpor
the fulff
mission. Relatedly, the Audit Committee also regularly reviews ESG-related topics such as enterprr
anticorrupt
cybersecurity and data privacy.
ion program, ethics and compliance issues, supply chain issues including human rights protections, and
ise risk management, our
rr
ises
The ESG Steering Committee, under the strategic direction of the Chief Executive Offff iff cer and chaired by NetScout's
General Counsel, is responsible forff
key business func
stakeholder perspectives, identifyff areas forff
programs designed to accelerate ESG initiatives.
ff
the development and implementation of the ESG program. With representation across all
tions, the mandate of the ESG Steering Committee is to consider our existing ESG effff orff
improvement that align with our business, and work collabor
a
ts, understand
atively to support
We have adopted four
ff
ESG pillars that lay out our current top ESG priorities, under pinned by a strong governance focff us:
1. Demonstrating product leadership through sustainabia lity by design and helping our customers reduce their
int, through reducing electricity requirements of our products.
environmental foot
prt
ff
2. Reducing electricity use in our faff cilities, with emphasis on our engineering labsa
3. Furthering our diversity, equity, and inclusion effff orff
4. Supporting community digital inclusion programs that improve underserved communities’ participation in the
ts alongside our employee engagement programs.
.
connected world.
NetScout's global ESG program encompasses a broad range of areas, including environmental sustainabia lity, responsible
management of our supply chain, human capia tal, ethical business practices, and data privacy and security. NetScout continues
to seek opportuni
ties to align ESG with our core business strategy and more thoroughly integrate ESG into our operations.
t
Inforff mation Security
NetScout is vigilant in protecting personal data and complying with the highest standards of privacy and security. We
take a layered defeff nse appr
a
oach to protect confiff dentiality and prevent data compromise and breaches, including, among other
14
employees and audits of our systems and enhanced training forff
ate data and the systems storing this inforff mation. Our ISP also includes annual inforff mation security awareness training
steps, technology safeff guards, organizational safeff guards including training and awareness programs, and physical safeff guards.
We maintain a robust Inforff mation Security Program (ISP) to help ensure the confiff dentiality, integrity, and availabia lity of
rr
corpor
forff
phishing email simulations forff
and responsiveness to such possible threats. Our ISP also includes review and assessment by external, independent third parties,
and we achieved ISO 27001 certififf cation demonstrating our adherence to ISP best practices, including risk assessment,
protection against threats, legal compliance, and incident response and mitigation. Our ISP also includes a data security incident
response plan that provides controls and procedures forff
timely and accurate reporting of any material cybersecurity incident.
all employees and all contractors with access to corpor
specialized personnel, and we have institutt ed regular
ate email systems to enhance awareness
r
NetScout is committed to managing its legal and contractuat
l compliance obligations with respect to security and privacy
laws, including the EU General Data Privacy Regulation and the Califorff nia Consumer Privacy Act. We have devoted
considerabla e resources to ensuring compliance with appl
providing regular security training to employees. We review cybersecurity and data privacy issues regularly with the
independent Audit Committee and with the fulff
some of whom have work experience related to inforff mation security issues or oversight. In the last three years, the expenses we
have incurred frff om inforff mation security breach incidences, including penalties and settlements, of which there were none, were
immaterial.
l Board. The Audit Committee is comprised entirely of independent directors,
icabla e data privacy laws and developing our privacy policy and
a
We take our customers' inforff mation security and privacy commitments just as seriously. The security feff aturt es of our
tion, use, modififf cation, or disclosure.
products are designed to mitigate data risks, such as loss or unauthorized access, destrucr
NetScout products allow customers to customize a security strategy in several ways, frff om the operating system and between
system communications to access control of individual modules, role-based data visibility, and packet and data storage
confiff gurations. We have feff aturt es in our products that allow masking of sensitive data, and, where possible, minimization
through aggregation and measures to control data access. Our nGeniusONE and Omnis products are based on hardened Linux
operating systems and updated softff ware packages to reduce security vulnerabia lities, and administrators can furff
ther secure the
server and appl
ing drives. NETSCOUT Arbor
a
DDoS virtuat
iance hardware through such options as purchasing appl
l and physical solutions provide similar operational protection.
iances with self-ff encrypt
a
r
rr
Corporate Inforff mation
Our corpor
r
ate headquarters are located at 310 Littleton Road, Westforff d, Massachusetts, and our telephone number is
(978) 614-4000. We were incorpor
r
ated in Delaware in 1984.
Our internet address is http:t
//// www.NetScout.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and amendments to reports fiff led pursuant to Sections 13(a) and 15(d) of the Exchange Act, are
made availabla e frff ee of charge on or through our website at ir.netscout.com as soon as reasonabla y practicabla e aftff er such reports
are fiff led with, or furff nished to, the SEC. None of the inforff mation posted on our website is incorpor
Report.
ated by refeff rence into this
rr
We webcast our earnings calls and certain events we participate in or host with members of the investment community.
They are made availabla e on our investor relations website at ir.netscout.com//// investors/events-and-presentations/events-
calendar/rr defaff ult.aspx. Additionally, we provide notififf cations of news or announcements regarding our fiff nancial perforff mance,
including SEC fiff lings, investor events, press and earnings releases, as part of our investor relations website. The contents of
these sections of our investor relations website are not intended to be incorpor
report or document we fiff le with the SEC.
ated by refeff rence into this report or in any other
rr
ItII ett m 1A. Risii k FacFF tortt
srr .
In addition to the other inforff mation in this report, the folff
lowing faff ctors should be considered carefulff
ly in evaluating
NetScout and our business.
You should carefulff
ly consider the risks and uncertainties described below, together with the inforff mation included
elsewhere in this Annual Report on Form 10-K and other documents we fiff le with the SEC. The risks and uncertainties
described below are those that we have identififf ed as material but are not the only risks and uncertainties faff cing us. Our business
is also subject to general risks and uncertainties that affff eff ct many other companies. Additional risks and uncertainties not
currently known to us or that we currently believe are immaterial also may impair our business, including our results of
operations, liquidity, and fiff nancial condition.
15
Because of the folff
lowing faff ctors, as well as other variabla es affff eff cting our results of operations, past fiff nancial perforff mance
may not be a reliabla e indicator of futff urt e perforff mance, and historical trends should not be used to anticipate results or trends in
futff urt e periods.
Risks Related to Our Business and Industryy
Our business and operations, and the operations of our customers, partners, and/or suppliers, may be adversely
affff eff cted by epidemics and pandemics, such as the COVID-19 pandemic. The COVID-19 pandemic and fuff ture epidemics
and pandemics risk disrupting and adversely affff eff cting our business operations and fiff nancial results, as well as the
markets and communities in which we and our customers, suppliers and other business partners operate.
We faff ce risks related to epidemics, pandemics, and other outbrt eaks of communicabla e diseases that adversely affff eff ct global
commercial activity, economies, fiff nancial markets, and companies. The outbrt eak of COVID-19 was declared a "pandemic" by
the World Health Organization on March 11, 2020. An epidemic or pandemic or other outbrt eak of communicabla e diseases,
such as the current COVID-19 pandemic, poses the risk that we or our customers, suppliers, and other business partners may be
r
disrupt
uncertain, and may otherwise experience signififf cant impairments of business activities.
ed or prevented frff om conducting normal business activities forff
certain periods of time, the durations of which are
In response to the COVID-19 pandemic, many state, local, and forff eign governments have put in place, and others in the
futff urt e may put in place or continue, quarantines, executive orders, shelter-in-place orders, and similar government orders and
restrictions to reduce the rate of infeff ction and control the spread of the disease. Such orders or restrictions, or the perception that
such orders or restrictions could occur, may continue to result in business closures, work stoppages, slowdowns and delays,
travel restrictions and cancellation of events, among other effff eff cts that could affff eff ct productivity and disrupt
those of our suppliers, customers, and business partners.
our operations and
r
To protect our employees, contractors, customers, suppliers, and our local communities, and limit the effff eff ct of the
COVID-19 pandemic on our operations, many of our employees at our locations globally have been working remotely forff
past two years, with limited exceptions forff
site-essential personnel (with protective measures and protocols in place).
the
Similar to other companies, we have begun allowing our employees to returt n to work on-sites, in accordance with feff deral,
state, and local government guidelines, as well as in accordance with forff eign government guidelines in the countries in which
we operate. Furthermore, the processes that we have implemented to enabla e our employees to returt n to work on-site are in
accordance with prevailing health and science guidance, and in a manner that seeks to protect our employees, contractors,
customers, suppliers, and our local communities. We expect that on-site and work-frff om-home requirements and other
restrictions on our employees, suppliers, customers, and business partners will change over time, whether becoming more or
less restrictive, as the pandemic and global responses progress. We may take furff
ther actions that could alter our operations as
may be required by feff deral, state, or local authorities, or by forff eign governments in countries in which we operate, or which we
determine are in the best interests of our employees, suppliers, customers, business partners, and stockholders.
As part of our existing business continuity planning, we had establa ished infrff astrucr
turt e and protocols to enabla e our
r
ions to our business operations resulting frff om quarantines, self-ff isolations, or other
employees to work frff om home. While we believe that the maja ority of our employees are abla e to and can continue to effff eff ctively
work remotely, it is possible that disrupt
movement and restrictions on the abia lity of our employees to perforff m their jobs could affff eff ct our abia lity to develop and design
our products and services in a timely manner or meet required milestones or customer commitments, and that this could have an
adverse effff eff ct on our revenue and operating results. In addition, although we have been abla e to adequately staffff our facilities
with site-critical personnel with specififf c health and safeff ty protocols, to satisfyff our manufaff cturt
customers, it is possible that we or others may determine that it is necessaryrr
and support refrff ain frff om working on-site forff
revenue and operating results.
ing and support obligations to our
ing
an indeterminate period of time, and that this could have an adverse effff eff ct on our
to direct that employees engaged in manufaff cturt
Furthermore, global travel has been sharplr y curtailed, and in some cases prohibited. Our sales personnel oftff en meet with
customers or prospective customers in person to provide greater personalized service. While our employees and customers have
adjusted to virtuat
l meetings, the inabia lity of our sales personnel to meet with customers or prospective customers at a customer
faff cility could have an adverse effff eff ct on our revenue and operating results.
In addition, we rely on third-party suppliers and manufaff cturt ers throughout the globe. The COVID-19 pandemic has
resulted in the extended shutdown of certain businesses and the closure of international borders throughout the world, which
may result in disrupt
r
manufaff cturt er faff cilities, interrupt
import of products into countries in which we operate. Although we have attempted to minimize the effff eff cts of these disrupt
ions in product supply or restrictions on the export or shipment of our products, as well as the
ions to our supply chain. These may include disrupt
ions frff om temporaryrr closure of third-party supplier and
ions,
rr
rr
r
16
it is possible that these attempts will be insuffff iff cient, and that these disrupt
operating results.
rr
ions could have an adverse effff eff ct on our revenues and
To the extent the COVID-19 pandemic adversely affff eff cts our business and fiff nancial results, it may also have the effff eff ct of
heightening many of the other risks described in this "Risk Factors" section, such as those relating to our quarterly revenue and
operating results, the estimates made forff
estimates, as well as on our liquidity and on our abia lity to satisfyff our indebtedness obligations, including the compliance with
the covenants that appl
our critical accounting policies, and the operation of internal controls over such
y to our indebtedness.
a
ff
Unfavor
able conditions in our industry or the global economy, or reductions in inforff mation technology spending,
could limit our ability to grow our business and negatively affff eff ct our results of operations.
Our results of operations may varyrr based on the impact of unfaff vorabla e changes in our industryrr or the global economy on
us or our customers and potential customers. Unfaff vorabla e conditions in the economy both in the United States and abra oad,
including conditions resulting frff om fiff nancial and credit market flff uctuat
relations, political turt moil, naturt al catastrophes, outbrt eaks of contagious diseases, warfaff re and terrorist attacks on the United
States, Europe, the Asia Pacififf c region or elsewhere, could cause a decrease in business investments, including spending on
inforff mation technology, and negatively affff eff ct the growth of our business and our results of operations. Our competitors, many
of whom are larger and have greater fiff nancial resources than we do, may respond to challenging market conditions by lowering
prices in an attempt to attract our customers and may be less dependent on key industryrr events to generate sales forff
products. In addition, the increased pace of consolidation in certain industries may result in reduced overall spending on our
products and solutions. We cannot predict the timing, strength, or duration of any economic slowdown, instabia lity, or recovery,rr
generally or how any such event may impact our business.
tions, elevated or prolonged inflff ation, international trade
their
Potential product vulnerabilities or critical security defeff cts, prioritization decisions regarding remedying
vulnerabilities or security defeff cts, or customers not deploying security releases or deciding not to upgrade products,
services, or solutions could result in claims of liability against us, damage our reputation, or otherwise harm our
business.
The products and services we sell to customers, and our cloud-based solutions, may contain vulnerabia lities or critical
security defeff cts which have not been identififf ed or remedied. We may also make prioritization decisions in determining which
vulnerabia lities or security defeff cts to fiff x, and the timing of these fiff xes, which could result in an exploit that compromises
security.
Customers also sometimes need to test security releases beforff e they can be deployed, which can delay implementation. In
addition, we rely on third-party providers of softff ware and cloud-based services, and we cannot control the rate at which they
remedy vulnerabia lities. Customers may also not deploy a security release or decide not to upgrade to the latest versions of our
products, services, or cloud-based solutions containing the release, leaving them vulnerabla e.
If we or the third parties who we work with or rely on experience a security incident, or the confiff dentiality,
integrity, or availability of our inforff mation technology, softff ware, services, communications or data is compromised, our
business or platforff m may be perceived as not being secure, our reputation may be harmed, demand forff
may be reduced, and we may incur signififf cant liabilities.
our offff eff ring
fff iff ng, effff orff
or confiff dential. Security incidents
es, social engineering (including phishing), ransomware, supply chain attacks,
ts by individuals or groups of hackers and sophisticated organizations, errors or malfeff asance of our
In the regular course of our business, we collect, use, store, transmit and process data, which can include inforff mation
our customers, employees, and others and which may be sensitive, proprietary,rr
about
a
compromising the confiff dentiality, integrity, and availabia lity of this inforff mation or our systems could result frff om a wide variety
of cyberattacks, computer malware, virusr
credential stuft
personnel (such as theftff or misuse), security vulnerabia lities in the softff ware or systems on which we rely, cyber extortion, and
denial of service attacks. Such incidents have become more prevalent in our industry,rr
unauthorized, unlawfulff
and
confiff dential inforff mation that we handle. Threat actors, nation-states, and nation-state-supported actors now engage, and are
expected to continue to engage, in cyber-attacks, including forff
operations. During times of war and other maja or conflff icts, we and the third parties upon which we rely may be vulnerabla e to
heightened risk of these attacks, including cyber-attacks that could materially disrupt
and abia lity to produce, sell and distribute our goods and services. Additionally, due to the ongoing COVID-19 pandemic,
certain func
and may in the futff urt e result in the
opriate access to, inabia lity to access, disclosure of,ff or loss of the sensitive, proprietary,rr
tional areas of our workforff ce remain in a remote work environment, which imposes additional risks to our business,
geopolitical reasons and in connection with militaryrr conflff icts and
our systems and operations, supply chain,
, or inappr
a
ff
rr
17
including increased risk of industrial espionage, phishing, and other cybersecurity attacks, and unauthorized dissemination of
sensitive, proprietary,rr
or confiff dential inforff mation.
We also rely on third parties to operate some of our business systems and process the sensitive, proprietary,rr
and
confiff dential inforff mation that we handle. These third parties may not have adequate security measures and could experience a
security incident that compromises the confiff dentiality, integrity, or availabia lity of the systems they operate forff
inforff mation they process on our behalf.ff Cybercrime and hacking techniques are constantly evolving, and we or third parties
who we work with may be unabla e to anticipate attempted security breaches, react in a timely manner, or implement adequate
preventative measures, particularly given increasing use of hacking techniques designed to circumvent controls, avoid
detection, and remove or hide forff ensic inforff mation. We cannot be certain that our appl
will adequately limit our data security-related liabia lity to them or be suffff iff cient to allow us to obtain indemnififf cation or recoveryrr
frff om them forff
data security-related liabia lities that they cause us to incur.
icabla e contracts with these third parties
us or the
a
Although we have multiple and layered controls and security measures in place designed to prevent cyberattacks,
experienced computer hackers are increasingly organized and sophisticated and we cannot guarantee that our, or our third-party
partners’ security measures will be suffff iff cient to protect against unauthorized access to our IT networks, softff ware and systems.
Malicious attack effff orff
techniques used to obtain access or sabot
implement adequate preventative measures, or stop security breaches that may arise frff om such techniques. As a provider of
such attacks. Other individuals or entities, including personnel or
security solutions, we may be a more attractive target forff
vendors, may also intentionally or unintentionally provide unauthorized access to our IT environments.
age networks change frff equently and we may be unabla e to anticipate such techniques,
ts operate on a large-scale and sometimes offff eff r targeted attacks as a paid-forff
service. In addition, the
a
If we or the third-parties who we work with were to experience a security incident or other incident that results in the
r
or
compromise of the confiff dentiality, integrity, or availabia lity of our sensitive inforff mation or the sensitive, proprietary,rr
confiff dential inforff mation we process, we or our customers may experience system disrupt
ions or slowdowns, security
vulnerabia lities of our products could be exploited, the inforff mation stored on our networks or those of our third-party service
opriated, deleted, altered, lost, or stolen, all of which could
providers or partners could be accessed, publicly disclosed, misappr
subject us to liabia lity and cause us fiff nancial harm. Any actuat
l, alleged or perceived security breach or incident affff eff cting us, our
partners or our industryrr as a whole could result in damage to our reputation, negative publicity, loss of partners, customers and
sales, increased costs to remedy any problems and otherwise respond to any incident, regulatoryrr
investigations and enforff cement
actions, costly litigation, and other liabia lity. In addition, we could incur substantial costs and liabia lities, including but not limited
to, expenses attributabla e to investigating, remediating and rectifyiff ng a security breach, cyberattack or other incident (including
the cost of repairing any damage to our or our customers' systems, paying a ransom, or restoring data frff om backups), liabia lity
forff
stolen assets or inforff mation, lost revenue and income resulting frff om any system or product downtime, increased costs forff
cybersecurity protection, and costs to comply with any notififf cation obligations resulting frff om any security incidents (including
notifyiff ng affff eff cted individuals or relevant regulatoryrr authorities). Such outcomes could damage our reputation, cause customers
and possibly investors to lose confiff dence in us, and adversely affff eff ct our business or operating results.
a
Additionally, effff orff
ts by hackers or others could cause interrupt
r
modififf cation of our softff ware, which could cause us to lose existing or potential customers. If these effff orff
third party obtains unauthorized access to our or our customers' IT environments, our business operations, and those of our
customers could be adversely affff eff cted, losses or theftff of data could occur, our reputation and futff urt e sales could be harmed,
governmental regulatoryrr action or private or governmental litigation could be commenced against us and our business, and our
fiff nancial condition, operating results and cash flff ows could be materially adversely affff eff cted.
and a
ions, delays or cessation of our product licensing, or
ts are successfulff
We are required to comply with laws, rulr es, industryrr standards, and regulations that require us to maintain the security of
personal inforff mation. We may also have contractuat
incidents. Such notififf cations are costly, could lead to negative publicity, may cause our customers to lose confiff dence in the
effff eff ctiveness of our security measures and not use our services, and require us to expend signififf cant capia tal and other resources
to respond to and/or alleviate problems caused by the actuat
l, alleged or perceived security incident.
l and other legal obligations to notifyff
relevant stakeholders of security
Our ability to quickly and successfuff lly recover frff om a disaster, public health crisis, or other business continuity
event could affff eff ct our ability to deliver our products and negatively impact our business reputation.
The occurrence of a naturt al disaster, public health crisis or an act of terrorism, or a decision or need to close any of our
faff cilities without adequate notice or time forff making alternative arrangements could result in interrupt
products and services. Our central business func
development, manufaff cturt
other technology systems and operations, some of which are operated or hosted by third parties.
ing and customer support depend on the proper func
ff
r
ff
tions, including administration, human resources, fiff nance services, legal,
tioning of our computer, telecommunication and
ions in the deliveryrr of our
18
While we have business continuity programs in place, a disrupt
r
ion or faff ilure of these systems or operations because of a
disaster, public health crisis or other business continuity event could cause data to be lost or otherwise delay our abia lity to
complete sales and provide the highest level of service to our customers. In addition, we could have diffff iff culty producing
accurate fiff nancial statements on a timely basis, which could have an impact on our abia lity to make timely disclosures and could
adversely affff eff ct the trading value of our stock. Although we endeavor to ensure there is redundancy in these systems and that
they are regularly backed-up, there is no guarantee that data recoveryrr
effff iff cient manner. Our operations are dependent upon our abia lity to protect our technology infrff astrucrr
business continuity events that could have a signififf cant disrupt
adverse interrupt
ions to our operations or deliveryrr of services to our clients in a disaster recoveryrr scenario.
ive effff eff ct on our operations. We could experience material
in the event of a disaster would be effff eff ctive or occur in an
turt e against damage frff om
rr
r
If our products contain errors or quality issues, such issues may be costly to correct, revenue may be delayed, we
could be sued, and our reputation could be harmed.
Our products are inherently complex, and, despite our quality assurance processes and testing by our customers and us,
ff
in our products aftff er commencement of commercial shipments, especially when products
errors or quality issues may be found
are fiff rst introduced or when new versions are released. These errors may result frff om components supplied by third parties
incorpor
the
ated into our products, which makes us dependent upon the cooperation and expertise of such third parties forff
rr
diagnosis and correction of such errors. If errors are discovered, we may not be abla e to correct them in a timely manner or at all.
In addition, we may need to make signififf cant expenditurt es to eliminate errors and faff ilures. Errors and faff ilures in our products
could result in loss of or delay in market acceptance of our products and could damage our reputation. Regardless of the source
of these defeff cts or errors, we may need to divert the attention of our engineering personnel frff om our product development
effff orff
assert warranty and other contractuat
provisions relating to warranty disclaimers and liabia lity limitations, which may not be upheld. Defeff nding a lawsuit, regardless
of its merit, is costly and may divert management's attention and harm the market's perception of us and our products. In
addition, if our business liabia lity insurance coverage proves inadequate or futff urt e coverage is unavailabla e on acceptabla e terms or
at all, our business, operating results, and fiff nancial condition could be adversely impacted.
ts to address the detection and correction of these errors and defeff cts. If one or more of our products faff il, a customer may
substantial damages against us. Our contracts with customers contain
l claims forff
The occurrence or discoveryrr of these types of errors or faff ilures could have a material and adverse impact on our business,
operating results, and fiff nancial condition. Any such errors, defeff cts, or security vulnerabia lities could also adversely affff eff ct the
market's perception of our products and business.
If we faiff
l to introduce new products and solutions or enhance our existing products and solutions to keep up with
rapid technological change, demand forff
our products and solutions may decline.
The market forff
a
appl
ication and network perforff mance management, service assurance, cybersecurity solutions, and
a
ication technologies, new security risks and the emergence of new industryrr standards. In addition, new
business intelligence is highly competitive and characterized by rapia d changes in technology, evolving industryrr standards,
changes in customer requirements, a current high level of and increasing competition, and frff equent product introductions and
enhancements. Our success is dependent upon our abia lity to meet our customers' needs, which are driven by changes in
technologies, new appl
technologies may shorten the lifeff cycle forff
services less competitive or obsolete. We must address demand frff om our customers forff
services appl
in the market, we must introduce new enhancements and additional forff m faff ctors to our existing product lines and service
offff eff rings. If we are unabla e to develop, introduce and communicate new network and appl
ication perforff mance management and
service assurance products, network security products, business intelligence products, and solutions or enhancements to existing
products in a timely and successfulff manner, this inabia lity could have a material and adverse impact on our business, operating
results and fiff nancial condition.
our products and solutions or could render our existing or planned products and
advancements in our products and
ications to support our customers' growing needs and requirements. To meet this challenge and remain competitive
a
a
As our success depends in part on our abia lity to develop product enhancements and new products and solutions that keep
pace with continuing changes in technology, cyber risk and customer prefeff rences, we must devote signififf cant resources to
research and development, development and introduction of new products and enhancements on a timely basis, and obtaining
market acceptance forff
our existing products and new products. We have introduced and intend to continue to introduce new
products and solutions, including increased migration to "softff ware as a service" and softff ware-deployed products as well as
cybersecurity products. If the introduction of these products and solutions is signififf cantly delayed or if we are unsuccessfulff
bringing these products and solutions to market, our business, operating results, and fiff nancial condition could be materially and
adversely impacted. We are developing and are already deploying a number of new products as well as enhancements to our
existing products and offff eff rings, including our new Omnis cybersecurity suite as well as softff ware only solutions and products
availabla e in multiple forff m faff ctors forff most of our existing solutions.
in
19
We must invest in research and development to remain competitive in our industry.rr However, there can be no assurances
that continued investment and increased research and development expenses will ultimately result in our maintaining or
increasing our market share, which could result in a decline in our operating results. The process of developing new solutions is
complex and uncertain; we must commit signififf cant resources to developing new services or feff aturt es without knowing whether
our investments will result in services or feff aturt es the market will accept. If our research and development expenses increase
without a corresponding increase in our revenues, it could have a material adverse effff eff ct on our operating results. Also, we may
not be abla e to successfulff
timely manner. If we faff il to develop and deploy new products and product enhancements on a timely basis, or if we faff il to gain
market acceptance of our new products, our revenues will likely decline, and we may lose market share to our competitors.
ly complete the development and market introduction of new products or product enhancements in a
Necessary licenses forff
third-party technology may not be available to us on commercially reasonable terms or at
all.
We currently and will in the futff urt e license technology frff om third parties that we use to produce or embed in our products.
While we have generally been abla e to license required third-party technology to date, third-party licenses required in the futff urt e
may not be availabla e to us on commercially reasonabla e terms or at all. Third parties who hold exclusive rights to technology
that we seek to license may include our competitors. If we are unabla e to obtain any necessaryrr
third-party licenses, we would be
required to redesign our product or obtain substitutt e technology, which may not perforff m as well, be of lower quality or be more
costly. The loss of these licenses or the inabia lity to maintain any of them on commercially acceptabla e terms could delay
development of futff urt e products or the enhancement of existing products. We may also choose to pay a premium price forff
license in certain circumstances where continuity of the licensed product would outweigh the premium cost of the license. The
unavailabia lity of these licenses or the necessity of agreeing to commercially unreasonabla e terms forff
materially adversely affff eff ct our business, fiff nancial condition, operating results, and cash flff ows.
such licenses could
such a
Our reliance on sole source suppliers could adversely impact our business.
Specififf c components that are necessaryrr
forff
the hardware assembly of our instrumrr
ents are obtained frff om separate sole
a
ing
oaches, establa ishing buffff eff r supply requiring suppliers to maintain adequate stocks of materials, bonding
certain technologies. Where possible, we use widely availabla e offff the shelf hardware and work with large
source suppliers or a limited group of suppliers. These components include our network interfaff ce cards and proprietaryrr
hardware. Our reliance on sole or limited suppliers involves several risks, including a lack of control over the manufaff cturt
process and inventoryrr management and potential inabia lity to obtain an adequate supply of required components and the
inabia lity to exercise control over pricing, quality and timely deliveryrr of components. For most of our products, we do not have
the internal manufaff cturt
ing capaa bia lities to meet our customers' demands. It is our practice to mitigate these risks by partnering
with key suppliers, including distributors, to establa ish a variety of supply continuity practices. These practices may include,
among other appr
agreements with distributors, and use-based and kanban programs to set supply thresholds. We also enter into escrow
arrangements forff
suppliers with multiple faff ctories and other risk management practices. However, faff ilure of supply or faff ilure to execute
effff eff ctively on any of these programs, including as a result of a public health crisis or geopolitical situat
inabia lity to obtain adequate deliveries or the occurrence of any other circumstance that would require us to seek alternative
sources of supply forff
these components would impact our abia lity to ship our products on a timely basis. Moreover, if we are
unabla e to continue to acquire frff om these suppliers on acceptabla e terms, or should any of these suppliers cease to supply us with
components forff
any reason, we may not be abla e to identifyff and integrate an alternative source of supply in a timely faff shion or at
the same costs. Any transition to one or more alternate manufaff cturt ers would likely result in delays, operational problems, and
increased costs, and may limit our abia lity to deliver our products to our customers on time forff
risks could damage relationships with our current and prospective customers, cause shortfaff lls in expected revenue, and could
materially and adversely impact our business, operating results and fiff nancial condition.
such transition period. These
tion could result in our
Increased customer demands on our technical support services may adversely affff eff ct our relationships with our
customers and our fiff nancial results.
We offff eff r technical support services with many of our products. We may be unabla e to respond quickly enough to
support services. We also may be unabla e to modifyff
accommodate short-term increases in customer demand forff
our support services to compete with changes in support services provided by competitors. Our customers depend on our
support organization to resolve issues relating to our products deployed on their networks. A high level of support is critical forff
continued relationships with our customers. If we or our channel partners do not effff eff ctively assist our customers in deploying
our products, succeed in helping our customers quickly resolve post-deployment issues, and provide effff eff ctive ongoing support,
it would adversely affff eff ct our abia lity to sell our products to existing customers and would harm our reputation with existing and
potential customers. Any faff ilure to maintain high quality support and services would harm our operating results and reputation.
Further, if customers demand these services, and we cannot adequately meet their demand, or if we cannot realize revenues in
the format of
20
connection with our provision of services related to product support, it could have a material and adverse impact on our
fiff nancial condition and results of operations.
The success of our business depends, in part, on the continued growth in the market forff
and the continued
commercial demand forff
service delivery, service assurance and network security solutions.
We derive nearly all our revenue frff om the sale of products and services that are designed to allow our customers to assure
futff urt e products to address the market, the optimal distribution strategy, and the futff urt e changes to the
the deliveryrr of services through management of the perforff mance and network security of appl
have actively expanded our operations in the past through acquisitions and organic growth and may continue to expand them in
the futff urt e to gain share in the evolving market in which we operate. Thereforff e, we must be abla e to predict the appr
feff aturt es and prices forff
competitive environment. For us to be successfulff
appl
ications
a
and, in particular, adopt our management solutions. Any faff ilure of this market to continue to be viabla e would materially and
adversely impact our business, operating results, and fiff nancial condition. Additionally, businesses may choose to outsource the
operations and management of their networks to managed service providers. Our business may depend on our abia lity to
continue to develop relationships with these service providers and successfulff
ication management and network security solutions, decide to invest in the management of their networked appl
, our potential customers must recognize the value of more sophisticated
ications across IP networks. We
ly market our products to them.
opriate
a
a
a
Failure to manage growth properly and to implement enhanced automated systems could adversely impact our
business.
The growth in size and complexity of our business and our customer base has been and will continue to be a challenge to
our management and operations. Additional growth will place signififf cant demands on our management, infrff astrucrr
other resources. To manage furff
ther growth effff eff ctively, we must hire, integrate, and retain highly skilled personnel qualififf ed to
manage our expanded operations. We will also need to continue to improve our fiff nancial and management controls, reporting
systems, and procedures. If we are unabla e to manage our growth effff eff ctively, our costs, the quality of our products, the
effff eff ctiveness of our sales organization, attraction and retention of key personnel, our business, our operating results and
fiff nancial condition could be materially and adversely impacted. To manage our growth effff eff ctively, we may need to implement
new or enhanced automated infrff astrucr
turt e technology and systems.
turt e, and
Any disrupt
r
ions or ineffff eff ctiveness relating to our systems implementations and enhancements could adversely affff eff ct our
abia lity to process customer orders, ship products, provide services and support to our customers, bill and track our customers,
fulff
l obligations, and otherwise runrr
fiff ll contractuat
our business.
Most of our employees are based outside of our headquarters. If we are unabla e to appr
a
opriately increase management
depth and enhance succession planning, we may not be abla e to achieve our fiff nancial or operational goals. It is also important to
our continued success that we hire qualififf ed employees, properly train them and manage out poorly perforff ming personnel, all
while maintaining our corpor
operations could be adversely affff eff cted.
ate culturt e and spirit of innovation. If we are not successfulff
ts, our growth and
at these effff orff
r
As our business evolves, we must also expand and adapta
our inforff mation technology (IT) and operational infrff astrucrr
turt e.
Our business relies on our data systems, billing systems and other operational and fiff nancial reporting and control systems. All
these systems have become increasingly complex due to the diversififf cation and complexity of our business and acquisitions of
new businesses with diffff eff rent systems. To manage our technical support infrff astrucr
effff iff ciency, we will need to continue to upgrade and improve our data systems, billing systems, ordering processes, customer
relationship management systems, and other operational and fiff nancial systems, procedures and controls. These upgrades and
improvements may be diffff iff cult and costly, and they may require employees to dedicate a signififf cant amount of time to
implement. If we are unabla e to adapta
our systems and organization in a timely, effff iff cient, and cost-effff eff ctive manner to
hosted data
accommodate changing circumstances, our business may be adversely affff eff cted. If the third parties we rely on forff
ions that
rr
solutions forff
impact the services we utilize, the integrity and availabia lity of our internal inforff mation could be compromised causing the loss
of confiff dential or proprietaryrr
our internal network and inforff mation systems are subject to a security breach or otherwise suffff eff r disrupt
inforff mation, damage to our reputation and economic loss.
turt e effff eff ctively and improve our sales
Our growth could suffff eff r if the markets into which we sell our products and services experience cyclicality.
Our growth will depend in part on the growth of the markets which we serve. We serve certain industries that have
historically been cyclical and have experienced periodic downturt ns that have had a material adverse impact on demand forff
the
products, softff ware, and services that we offff eff r. Any of these faff ctors could adversely affff eff ct the business, fiff nancial condition, and
results of operations of the company in any given period. For example, as a result of a signififf cant downturt n in domestic and
21
global travel at the onset of the COVID-19 pandemic, our customers in the travel industryrr experienced decreases in revenue
and, as a result, spent less on our products and our revenue in this sector declined.
We or our suppliers may be affff eff cted by new regulations related to climate change and other environmental issues.
We or our suppliers may become subject to new laws enacted with regards to climate change and other environmental
issues. If new laws are enacted, or current laws are modififf ed in countries in which we or our suppliers operate, we could faff ce
increased costs to comply with these laws. These costs may be incurred across various levels of our supply chain to comply
with new environmental regulations, as well as by us in connection with our manufaff cturt
to incorpor
addition, we may be unabla e to service existing products if certain materials are no longer compliant with new regulations, which
could cause us to incur increased costs to satisfyff service obligations to customers. Additionally, our flff ow of product may be
impacted which could delay the recognition of revenue and have a materially adverse effff eff ct on our business.
ation of substitutt e materials and other product re-design costs, as well as costs associated with product recalls. In
ing of products, including costs related
r
Our success depends, in part, on our ability to manage and leverage our distribution channels. Disruptions to, or
lure to effff eff ctively develop and manage, these partners and the processes and procedures that support them could
our faiff
adversely affff eff ct our ability to generate revenues frff om the sale of our products and services. Managing these distribution
channels and relationships requires experienced personnel, and lack of suffff iff cient expertise could lead to a decrease in
sales of our products and services, which could cause our operating results to suffff eff r.
Our futff urt e success may require us to increase the number and use of our indirect sales effff orff
ts through our distributors and
channel partners and to leverage those relationships to expand these distribution channels and to develop new indirect
distribution channels to increase revenue. Our channel partners have no obligation to purchase any products frff om us. Some of
our distribution and channel partners also distribute and sell competitive products and services and the reduction in sales by
these partners could materially reduce our revenues. In addition, they could internally develop products that compete with our
solutions or partner with our competitors and bundle or resell competitors' solutions, possibly at lower prices. The potential
inabia lity to develop relationships with new partners in new markets, expand and manage our existing partner relationships, the
unwillingness of our partners to market and sell our products effff eff ctively or the loss of existing partnerships could have a
material and adverse impact on our business, operating results and fiff nancial condition. Our international operations, including
our operations in the United Kingdom, mainland Europe, India, Asia-Pacififf c and other regions, are generally also subject to the
risk of longer sales cycles through our international distribution channels. Sales to customers outside the United States
accounted forff
the fiff scal years ended March 31, 2022, 2021 and 2020, respectively.
41%, 42%, and 39% of our total revenue forff
The need to develop such relationships can be particularly acute in areas outside of the U.S. Recruir
ting and retaining
qualififf ed channel partners and training them in the use of our technology and services and ensuring that they comply with our
legal and ethical requirements requires signififf cant time and resources throughout the relationship.
y
Risks Related to Our Intellectual Property
p
Our success depends on our ability to protect our intellectual property rights.
Our business is heavily dependent on our intellectuat
l property. We rely upon a combination of patent, copyright,
l and license arrangements to protect
l property rights. The reverse engineering, unauthorized copying, or other misappr
trademark and trade secret laws and registrations and non-disclosure and other contractuat
our intellectuat
l
opriation of our intellectuat
property could enabla e third parties to benefiff t frff om our technology without compensating us. Furthermore, the laws of some
forff eign jurisdictions do not offff eff r the same protections forff
subject to unauthorized use of our products in those countries. Legal proceedings to enforff ce our intellectuat
could be burdensome and expensive and could involve a high degree of uncertainty. In addition, legal proceedings may divert
management's attention frff om growing our business. There can be no assurance that the steps we have taken to protect our
inforff mation, or that we will be abla e to
intellectuat
detect unauthorized use by third parties and take appr
copying or use of our products or proprietaryrr
operating results.
opriation of proprietaryrr
opriate steps to enforff ce our intellectuat
inforff mation could result in reduced sales of our products and eventuat
l property rights. The unauthorized
lly harm our
l property rights will be adequate to deter misappr
rights as the laws of the United States, and we may be
l property rights
our proprietaryrr
a
a
a
Others may claim that we infrff inge on their intellectual property rights.
We are and may continue to be subject to claims by others, whether valid or not, that our products infrff inge on their
intellectuat
signififf cant sums in litigation, pay damages or royalties, delay product shipments, reengineer our products, rename our products
l property rights, patents, copyrights, or trademarks. These claims, whether or not valid, could require us to spend
22
and rebuild name recognition or acquire licenses to such third-party intellectuat
required licenses on commercially reasonabla e terms or secure them at all. In some cases, we may have agreed to contract terms
that indemnifyff our customers and partners if our products or technology infrff inge or misappr
intellectuat
partners if our products or technology are the subject of such allegations. Any of these claims or resulting events could have a
material and adverse impact on our business, operating results, and fiff nancial condition.
opriate specififf ed third party
l property rights; thereforff e, we could become involved in litigation or claims brought against our customers or
l property. We may not be abla e to secure any
a
Risks Related to Our Liquidity and Financial Condition
q
y
Our indebtedness may limit our operations and our use of our cash flff ow, and any faiff
lure to comply with the
covenants that apply to our indebtedness could adversely affff eff ct our liquidity and fiff nancial condition.
On July 27, 2021, we amended and extended our existing credit faff cility (Second Amended and Restated Credit
r
es (including to fiff nance the repurchase of common stock). The
Agreement) with a syndicate of lenders. The Second Amended and Restated Credit Agreement provides forff
a fiff ve-year $800.0
million senior secured revolving credit faff cility, including a letter of credit sub-faff cility of up to $75.0 million. We may elect to
use the new credit faff cility forff working capia tal purpos
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. As of the date of this report, we had $200.0 million in outstanding indebtedness under the Second
Amended and Restated Credit Agreement. Our debt level can have negative consequences, including exposing us to futff urt e
interest rate risk. We may incur signififf cantly more debt in the futff urt e, and there can be no assurance that our cost of fundi
not substantially increase. Our current revolving credit faff cility also imposes certain restrictions on us; forff
a more detailed
description please refeff r to "Management's Discussion and Analysis of Financial Condition and Results of Operations." Upon an
example, the administrative agent, with the consent of,ff or at the request of,ff the holders of more than 50% in
event of defaff ult, forff
principal amount of the loans and commitments, may terminate the commitments and accelerate the maturt
outstanding under the Second Amended and Restated Credit Agreement and enforff ce certain other remedies under the Second
Amended and Restated Credit Agreement and other loan documents, which would adversely affff eff ct our liquidity and fiff nancial
condition. If we take on additional indebtedness, the risks described above
could increase.
ity of the loans
ng will
a
ff
At our election, revolving loans under the Second Amended and Restated Credit Agreement bear interest at either (a) an
Alternate Base Rate per annum equal to the greatest of (1) the Wall Street Journal prime rate; (2) the New York Federal
Reserve Bank (NYFRB) rate plus 0.50% or (3) an adjusted one month LIBO rate plus 1%; or (b) a Term Benchmark Borrowing
the interest period selected by us, subject to customaryrr provisions regarding succession frff om LIBO rate to SOF rate in
rate (forff
anticipation of the upcoming discontinuation of the LIBO rate), in each case plus an appl
icabla e margin.
a
On July 27, 2017, the U.K. Financial Conduct Authority (FCA), which regulates LIBOR, announced that it will no longer
the calculation of LIBOR aftff er 2021. Further, on March 5, 2021, the Intercontinental Exchange
require banks to submit rates forff
Benchmark Administration, the FCA-regulated and authorized administrator of LIBOR, announced, and the FCA confiff rmed,
that one-week and two-month USD LIBOR settings would cease on December 31, 2021, and that the USD LIBOR panel forff
all
other tenors will cease on June 30, 2023. There is no assurance that the administrator of LIBOR and/or regulators will not take
ther action that could impact the availabia lity, composition or characteristics of LIBOR or the currencies and/or tenors forff
furff
which LIBOR is published. There is uncertainty as to the perforff mance of LIBOR during the transition period, the timing of the
remaining transition frff om LIBOR and the perforff mance of alternative interest rates. Such uncertainties could result in pricing,
operational and legal implementation risks.
In anticipation of the upcoming discontinuation of LIBOR, the Second Amended and Restated Credit Agreement includes
customaryrr provisions regarding succession frff om LIBOR to the Secured Overnight Financing Rate (SOFR) or certain other
agreed upon replacement benchmark rates. Such provisions require the consent of certain parties, such as the administrative
agent and the lenders, under certain circumstances. There is no guarantee that the necessaryrr consents will be obtained. If such
consents are not obtained, pricing, operational and legal implementation risks may also arise.
If the methods of calculating a benchmark rate under the Second Amended and Restated Credit Agreement change frff om
current methods forff
any reason, or if such benchmark rate ceases to perforff m as it historically has, or if we select an alternative
benchmark rate, our interest expense and other costs associated with our outstanding indebtedness or any futff urt e indebtedness
we incur under the Second Amended and Restated Credit Agreement may increase.
23
Any faiff
lure to meet our debt obligations could damage our business.
Our abia lity to meet our obligations under the Second Amended and Restated Credit Agreement will depend on market
conditions and our futff urt e perforff mance, which is subject to economic, fiff nancial, competitive, and other faff ctors beyond our
control. If we are unabla e to remain profiff tabla e, or if we use more cash than we generate in the futff urt e, our level of indebtedness at
such time could adversely affff eff ct our operations by limiting or prohibiting our abia lity to obtain fiff nancing forff
r
expenditurt es, acquisitions and general corpor
under the Second Amended and Restated Credit Agreement, we would be in defaff ult under the terms of the loans, which could
seriously harm our business. If we incur signififf cantly more debt, this could intensifyff
es. In addition, if we are unabla e to make payments as required
.
the risks described above
ate and other purpos
additional capia tal
a
r
We may faiff
l to secure necessary additional fiff nancing.
Our futff urt e success may depend in part on our abia lity to obtain additional fiff nancing to support our continued growth and
operations and any downgrades in our credit rating could affff eff ct our abia lity to obtain additional fiff nancing in the futff urt e or may
affff eff ct the terms of any such fiff nancing. If our existing sources of liquidity are insuffff iff cient to satisfyff our operating requirements,
we may need to seek to raise capia tal by one or more of the folff
lowing:
•
•
•
•
issuing additional common stock or other equity instrumr
acquiring additional bank debt;
issuing debt securities; or
obtaining lease fiff nancings.
ents;
However, we may not be abla e to obtain additional capia tal when we want or need it, or capia tal may not be availabla e on
satisfaff ctoryrr
as new fiff nancial or operating covenants, or that may result in dilution to our stockholders.
terms. Furthermore, any additional capia tal may have terms and conditions that adversely affff eff ct our business, such
We expect that existing cash, cash equivalents, marketabla e securities, cash provided frff om operations and our bank credit
faff cilities will be suffff iff cient to meet ongoing cash requirements. However, our faff ilure to generate suffff iff cient cash as our debt
becomes due or to renew credit lines prior to their expiration could materially adversely affff eff ct our business, fiff nancial condition,
operating results, and cash flff ows.
Risks Related to ESG Matters
The faiff
lure to recruit and retain qualififf ed personnel and plan forff
and manage the succession of key executives
could hinder our ability to successfuff lly manage our business, which could have a material adverse effff eff ct on our fiff nancial
position and operating results.
We operate in businesses where there is intense competition forff
experienced personnel in all our global markets and have,
recruir
in some instances, experienced attrition of our employees to direct and indirect competitors. We depend on our abia lity to
identify,ff
t, hire, train, develop and retain qualififf ed and effff eff ctive profeff ssionals and to attract and retain talent needed to
execute our business strategy. Our futff urt e success depends in large part upon our abia lity to attract, train, motivate and retain
highly skilled employees, particularly executives, sales and marketing personnel, softff ware engineers, and technical support
personnel. The complexity of our products, processing func
profeff ssionals. While we presently have a sophisticated, dedicated and experienced team of employees who have a deep
understanding of our business lines, the labor
limited number of people availabla e with the necessaryrr
the highly skilled technical personnel that are integral to our sales, marketing, product development and technical support
teams, the rate at which we can generate sales and develop new products or product enhancements may be limited. This
inabia lity could have a material and adverse impact on our business, operating results, and fiff nancial condition.
these individuals has historically been veryrr competitive due to the
technical skills and understanding. If we are unabla e to attract and retain
tionality, softff ware systems and services require highly trained
market forff
a
ff
In addition, we must maintain and periodically increase the size of our sales forff ce in order to increase our direct sales and
technical, salespeople require a comparatively long period of
support our indirect sales channels. Because our products are veryrr
time to become productive, typically three to twelve months. This lag in productivity, as well as the challenge of attracting
qualififf ed candidates, may make it diffff iff cult to meet our sales forff ce growth targets. Further, we may not generate suffff iff cient sales
to offff sff et the increased expense resulting frff om growing our sales forff ce. If we are unabla e to maintain and periodically expand our
sales capaa bia lity, our business, operating results and fiff nancial condition could be materially and adversely impacted.
Loss of key personnel could adversely impact our business. Our futff urt e success depends to a signififf cant degree on the
ts of Anil Singhal, our President, Chief Executive Offff iff cer, and co-founde
skills, experience and effff orff
r, and our other key
executive offff iff cers and senior managers to work effff eff ctively as a team. Effff eff ctive succession planning is also important forff
ff
our
24
long-term success. Failure to ensure effff eff ctive transfeff rs of knowledge and smooth transitions involving key employees could
hinder our strategic planning and execution. The loss of one or more of our key personnel could have a material and adverse
and manage the succession of
impact on our business, operating results, and fiff nancial condition. We must, thereforff e, plan forff
key executives due to retirement, illness, or competitive offff eff rs elsewhere.
Our disclosures, initiatives and goals related to ESG matters expose us to numerous risks, including risks to our
reputation, business, fiff nancial perforff mance and growth.
As we identifyff ESG topics forff
disclosures in these areas. Statements about
standards forff measuring progress that are still developing, internal controls and processes that continue to evolve, and
assumptions that are subject to change in the futff urt e. If our ESG-related data, processes and reporting are incomplete or
inaccurate, or if we faff il to achieve progress with respect to our ESG goals on a timely basis, or at all, our reputation, business,
fiff nancial perforff mance and growth could be adversely affff eff cted.
voluntaryrr disclosure, we have expanded and, in the futff urt e, may continue to expand our
our ESG initiatives and goals, and progress against those goals, may be based on
a
Other Risks Related to Our Business
We may not successfuff lly complete acquisitions or integrate acquisitions we do make, which could impair our
ability to compete and could harm our operating results.
We may choose to acquire complementaryrr businesses, products, or technologies to remain competitive or expand our
business. We investigate and evaluate potential acquisitions of complementaryrr businesses, products, and technologies in the
ordinaryrr course of business. We may compete forff
acquisition opportuni
than we have. As a result, we may not succeed in acquiring some or all businesses, products, or technologies that we seek to
acquire. Our inabia lity to effff eff ctively consummate acquisitions on faff vorabla e terms could signififf cantly impact our abia lity to
compete effff eff ctively in our targeted markets and could negatively affff eff ct our results of operations.
ties with entities having signififf cantly greater resources
t
Acquisitions that we do complete could adversely impact our business. The potential adverse consequences frff om
acquisitions include:
•
•
•
•
•
the potentially dilutive issuance of common stock or other equity instrumrr
the incurrence of debt and amortization expenses related to acquired intangible assets;
the potential litigation or other claims in connection with, an acquisition;
the incurrence of signififf cant costs and expenses to complete the acquisition and integrate the acquired business; and
the potentially negative impact of poor perforff mance of an acquisition on our earnings per share.
ents;
Acquisition transactions also involve numerous business risks. These risks frff om acquisitions include:
•
•
•
•
•
•
acquisitions that may limit other potential uses of our cash, including stock repurchases and
diffff iff culties in assimilating the acquired operations, technologies, personnel and products;
diffff iff culties in assimilating diverse fiff nancial reporting and management inforff mation systems as well as diffeff
ordering processes and customer relationship management systems;
use of cash to pay forff
repayment of outstanding indebtedness;
substantial accounting charges forff
development, impairment of goodwill, amortization or impairment of intangible assets and share-based compensation
expense;
the potential loss of key employees, customers, distributors or suppliers; and
the inabia lity to generate suffff iff cient revenue to offff sff et acquisition or investment costs.
ing and related expenses, write-offff of in-process research and
restrucr
ring
turt
If we are not abla e to successfulff
ly manage these issues, the anticipated benefiff ts and effff iff ciencies of the acquisitions may
ly or at all, or may take longer to realize than expected, and our abia lity to compete, our revenue and gross
not be realized fulff
margins and our results of operations may be adversely affff eff cted.
We facff
e signififf cant competition frff om other technology companies.
a
ication perforff mance managgement, networkk securiityy, cybeybersecuriityy a dnd bbusiiness iintelllliiggence
The service assurance, appl
markkets are hihighlghlyy competiitiive, ra ipia dldlyy e
botbothh llargge a dnd smallll, a dnd we expect competiitiion on s lolutiions offff eff rii gngs a dnd priicii gng to iincrease. We bbelliieve customers makke
ser ivice managgement syystem, networkk securiityy, cybeybersecuriityy a dnd bbusiiness iintelllliiggence purchhasii gng ddeciisiions bbasedd priimariillyy
upon thhe f lolff
a
lvol ivi gng, a dnd frff aggmentedd markkets thhat hhave overlla
ippi
hnologiogies a dnd competiitors,
llowii gng faff ctors:
gng tech
l
25
•
•
•
•
•
•
•
•
tiionalliityy a dnd priice;
ff
ciityy;
ppr doduct a dnd ser ivice perforff mance, func
tiimelliiness of new pr doduct a dnd ser ivice iintr doductiions;
networkk capaa
ease of iinstallllatiion, iinteggratiion, a dnd use;
customer ser ivice a dnd tech ihnicall support;
name a dnd reputatiion of ve dndor;
qualliityy a dnd vallue of thhe pr doduct a dnd ser ivices; andnd
alllliiances wiithh ii dndustryyrr partners.
We compete wiithh a llargge a dnd ggrowii gng numbber of pr
a
iovidders of ser ivice assurance, a
lppl
iicatiion perforff mance managgement
a
iquipment, networkk securiityy a dnd ser ivice assurance a dnd a
lppl
s lolutiions, networkk securiityy offff eff rii gngs a dnd networkk traffff iiff c anallyyzers a dnd pr bobes, as wellll as wiithh pr
ser ivices. In addidditiion, lleadidi gng networkk e
hnol gyogy ve dndors
offff eff r thheiir own managgement s lolutiions, iincll diudi gng pr doducts whihichh thheyy lliicense frff om othher competitors. Some of our current and
potential competitors have greater name recognition and substantially greater fiff nancial, management, marketing, service,
support, technical, distribution and other resources than we do. In addition, some of our customers develop their own in-house
solutions to meet their technologicall needds. Furthher, iin recent yyears some of our competiitors hhave bbeen ac
compa inies thhat are seekiki gng to enter or expa dnd iin thhe markkets iin whihichh we operate. We expect thihis tre dnd to contiinue as
compa inies attempt to stre gngthhen or maiintaiin thheiir markket posiitiions iin an e
a dnd ggreater resources, our competiitors mayy bbe ablbla e to res
tech lhnologiogies, sta dndardds a dnd customer re
t
pond more effff eff ctiivellyy thhan we can to new or chhangingi gng opport
iuni
lvol ivi gng ii dndustryy.rr Thhereforff e, gigiven thheiir llargger siize
iovidders of bbusiiness iintelllliiggence
l
iquiredd byby llargger
iquirements.
iicatiion tech
tiies,
d
l
As a res lult of thhe competiitiive faff ctors hihighlghliightghtedd iin thihis sectiion a dnd iin othher riiskk faff ctors, iincll diudi gng thhe iintr doductiion of
iive tech
hnologiogies, we mayy not bbe ablbla e to compete effff eff ctiivellyy wiithh our current or futff urt e competiitors. If we are unablbla e to
didisrupt
r
antiiciipate or react to thhese competiitiive chhalllle gnges or iif e ixistii gng or new competiitors ggaiin markket shhare iin a yny of our markkets, our
competiitiive posiitiion c
operatii gng res lults. Thihis competiitiion c
markketii gng expenses, a dnd faff iillure to iincrease, or thhe lloss of markket shhare, a yny of whihichh w louldd lliikkellyy hhave a materiiall a dnd addverse
iimpact on our bbusiiness, operatii gng res lults a dnd fiiff nanciiall c di
louldd res lult iin iincreasedd priicii gng pressure, redducedd profiiff t margigins, iincreasedd salles a dnd
louldd experiience a ddeclliine iin our salles thhat c
louldd addversellyy affff eff ct our bbusiiness a dnd
louldd weakken a dnd we c
onditiion.
Uncertainties of regulation of the Internet and data traveling over the Internet could have a material and adverse
impact on our fiff nancial condition and results of operations.
We could be materially adversely affff eff cted by increased regulation of the Internet and Internet commerce in any countryrr
where we operate, as well as access to or commerce conducted on the Internet. Further, governments may furff
restrict the sales, licensing, distribution, and export or import of certain technologies to certain countries. The adoption of
additional regulation of the Internet and Internet commerce could decrease demand forff
increase the cost of selling our products, which could have a material and adverse effff eff ct on our fiff nancial condition and results
of operations.
our products, and, at the same time,
ther regulate or
We are subject to stringent and changing laws, regulations, standards, contractual obligations, and other
obligations related to privacy, data protection, and data security. The actual, alleged, or perceived faiff
lure by us or the
partners we work with to comply with such obligations could adversely affff eff ct our business, results of operations, and
fiff nancial conditions.
frff amework forff
We are subject to numerous domestic and forff eign laws and other obligations relating to privacy, data protection, and data
privacy, data protection, and data security issues worldwide is rapia dly evolving, and as a
security. The regulatoryrr
result, legal requirements and enforff cement practices are likely to continue to evolve. In many jurisdictions, enforff cement
activities and consequences forff
response to rulrr es and regulations promulgated under the authority of feff deral agencies, state attorneys general, states' legislation,
and consumer protection agencies. In addition, privacy advocates and industryrr groups in the United States have regularly
proposed, and may propose in the futff urt e, self-ff regulatoryrr security standards with which we may be required to comply. If we fail
to folff
low these standards, we may incur signififf cant fiff nes or experience a signififf cant increase in costs.
noncompliance are rising. In the United States, these activities include enforff cement actions in
Many states have enacted laws regulating the online collection, use, and disclosure of personal inforff mation and requiring
that companies implement reasonabla e data security measures, such as the Califorff nia Consumer Privacy Act of 2018. Virginia
and Colorado also recently passed comprehensive privacy laws that take effff eff ct in 2023 and similar laws are being considered in
other states and at the feff deral level. Additionally, laws in all states and U.S. territories require businesses to notifyff affff eff cted
individuals, governmental entities, and/or credit reporting agencies of certain security breaches affff eff cting personal inforff mation.
26
Compliance with these laws in the event of a widespread data breach is complex and costly and additional compliance measures
will require investment and potential changes to our business process.
The data protection landscapea
is also rapia dly evolving internationally, and we expect there will continue to be new and
a
y to privacy and data security in other forff eign
proposed laws, regulations, and industryrr standards concerning privacy, data protection, and data security. We are subject to an
increasing number of laws, regulations, and industryrr standards that appl
jurisdictions in which we operate including the European Union’s General Data Protection Regulation, Brazil’s General Data
Protection Law, Canada’s Personal Inforff mation Protection and Electronic Documents Act, and China’s Personal Inforff mation
Protection Law, which all impose strict requirements forff
processing the personal data of individuals. Complying with forff eign
and domestic data protection laws may cause us to incur additional operational costs or require us to change our business
practices. If we or the third parties we rely on to operate our business and deliver our services faff il to comply, or are perceived as
faff iling to comply, with our legal, contractuat
l, or other obligations relating to privacy, data protection, or data security, or our
policies and documentation relating to personal inforff mation, we could faff ce governmental enforff cement action; litigation with
our customers, individuals or others, fiff nes and civil or criminal penalties forff
offff eff ring our services or to substantially modifyff
publicity and harm to our brand and reputation, and reduced overall demand forff
adversely affff eff ct our business, fiff nancial condition, and results of operations.
them in ways that make them less effff eff ctive in certain jurisdictions, negative
us or company offff iff cials, obligations to cease
our services. Such developments could
Foreign currency exchange rates may adversely affff eff ct our fiff nancial statements.
A material portion of our revenue is derived frff om international operations. Our consolidated fiff nancial results are reported
in U.S. dollars. Most of the revenue and expenses of our forff eign subsidiaries are denominated in local currencies. Given that
cash is typically received over an extended period of time forff many of our license agreements and given that a material and
increasing portion of our revenue is generated outside of the United States, flff uctuat
Euro) against the U.S. dollar could result in substantial changes in reported revenues and operating results due to the forff eign
exchange impact upon translation of these transactions into U.S. dollars.
tions in forff eign exchange rates (including the
In the normal course of business, we employ various hedging strategies to partially mitigate these risks, including the use
ents. These strategies may not be effff eff ctive in fulff
tions frff om
of derivative instrumrr
movements in forff eign exchange rates, including the increased volatility in forff eign exchange rates relating to the COVID-19
pandemic, the conflff ict between RusRR sia and Ukraine and futff urt e global pandemics and other events. Fluctuat
exchange rates could materially adversely affff eff ct our business, fiff nancial condition, operating results, and cash flff ow.
ly protecting us against the effff eff cts of flff uctuat
tions of the forff eign
Additionally, sales and purchases in currencies other than the U.S. dollar expose us to flff uctuat
tions in forff eign currencies
relative to the U.S. dollar and may adversely affff eff ct our fiff nancial statements. Increased strength of the U.S. dollar increases the
effff eff ctive price of our products sold in U.S. dollars into other countries, which may require us to lower our prices or adversely
affff eff ct sales to the extent we do not increase local currency prices. Decreased strength of the U.S. dollar could adversely affeff ct
the cost of materials, products, and services we purchase overseas. Sales and expenses of our non-U.S. businesses are also
translated into U.S. dollars forff
unfaff vorabla e translation effff eff cts. In addition, we may invoice customers in a currency other than the func
business, and movements in the invoiced currency relative to the func
effff eff cts. We also faff ce exchange rate risk frff om our investments in subsidiaries owned and operated in forff eign countries.
ff
tional currency could also result in unfaff vorabla e translation
es and the strengthening or weakening of the U.S. dollar could result in
tional currency of our
reporting purpos
r
ff
l
If we violate the U.S. Foreign Corrupt Practices Act or applicable anti-bribery laws in other countries, or if we faiff
to comply with U.S. export controls and government contracting laws, our business could be harmed.
We earn a material portion of our total revenues frff om international sales. As a result, we must comply with complex
forff eign and U.S. laws and regulations, such as the U.S. Foreign Corrupt
laws prohibiting corrupt
r
payments to government offff iff cials and others, as well as anti-competition regulations.
Practices Act, the U.K. Briberyrr Act, and other local
r
The U.S. Foreign Corrupt
rr
Practices Act (FCPA), generally prohibits U.S. companies and their intermediaries frff om
r
payments to forff eign offff iff cials forff
a
making corrupt
treatment and requires companies to maintain appr
the transactions of the company. Under the FCPA, U.S. companies may be held liabla e forff
partners or representatives. In addition, regulators may seek to hold us liabla e forff
by companies which we acquire. We are also subject to the U.K. Briberyrr Act and may be subject to certain anti-corrupt
of other countries in which we do business.
e of obtaining or keeping business or otherwise obtaining faff vorabla e
opriate record-keeping and internal accounting practices to accurately reflect
successor liabia lity FCPA violations committed
ion laws
actions taken by agents or local
the purpos
r
rr
In addition to anti-briberyrr and anti-corrupt
r
ion laws, we are also subject to the export and re-export control laws of the
U.S., including the U.S. Export Administration Regulations (EAR) and the offff iff ce of Foreign Asset Control (OFAC), as well as
27
to U.S. government contracting laws, rulr es and regulations, and may be subject to government contracting laws of other
countries in which we do business. If we or our distributors, resellers, agents, or other intermediaries faff il to comply with the
ion, export or governmental contracting laws
FCPA, the EAR, OFAC or U.S. government contracting laws, or the anti-corrupt
of other countries, governmental authorities in the U.S. or other countries could seek to impose civil and/or criminal penalties,
which could have a material adverse effff eff ct on our business, results of operations, fiff nancial conditions and cash flff ows.
rr
Violations of these laws and regulations could result in fiff nes and penalties, criminal sanctions, restrictions on our
business conduct and on our abia lity to offff eff r our products and services in one or more countries. Such violations could also
adversely affff eff ct our reputation with existing and prospective customers, which could negatively impact our operating results
and growth prospects.
The current economic and geopolitical environment may impact some specififf c industries into which we sell and
may lead our customers to delay or forff go technology investments and could have other impacts, any of which could
materially adversely affff eff ct our business, fiff nancial condition, operating results and cash flff ows.
Many of our customers are concentrated in certain industries, including fiff nancial services, public sector, healthcare, and
the service provider market. Certain industries may be more acutely affff eff cted by economic, geopolitical, and other faff ctors,
including public heath crises, and changes in U.S. trade policy, than other sectors. Our public sector customers are affff eff cted by
feff deral, state, and local budget decisions. To the extent that one or more of the sectors in which our customer base operates is
adversely impacted, whether as a result of general conditions affff eff cting all sectors or as a result of conditions affff eff cting only
those particular sectors, our business, fiff nancial condition and results of operations could be materially and adversely impacted.
If companies in our target markets reduce capia tal expenditurt es, we may experience a reduction in sales, longer sales cycles,
slower adoption of new technologies as well as downward pressure on the price of our products. There can be no assurance that
any decrease in sales resulting frff om the COVID-19 pandemic will be offff sff et by increased sales in subsequent periods. Although
the magnitude
spread of COVID-19 or the occurrence of other epidemics and the imposition of related public health measures and travel and
business restrictions could adversely impact our business, fiff nancial condition, operating results and cash flff ows.
of the impact of the COVID-19 pandemic on our business and operations remains uncertain, the continued
t
International economic, political, legal, compliance and business facff
tors could negatively affff eff ct our fiff nancial
statements and growth.
We expect to continue to develop our sales and presence outside the U.S. Our international business (and particularly our
business in high-growth markets) is subject to risks that are customarily encountered in non-U.S. operations, any of which
could negatively affff eff ct our business, fiff nancial condition, and results of operations.
General Risk Factors
Our actual operating results may diffff eff r signififf cantly frff om our guidance.
We generally release guidance regarding our futff urt e perforff mance on our quarterly earnings confeff rence calls, quarterly
earnings releases, and otherwise. Such guidance, which includes forff ward-looking statements, reflff ects our management’s
estimates as of the date of release and is based on projections prepared by our management. We may also decide not to release,
or to defeff r, issuing guidance, where such guidance might not be appr
clarity to issue such guidance. In those situat
of guidance.
opriate or when we do not have suffff iff cient visibility or
tions, we expect to communicate our reasons forff
not releasing or defeff rring release
a
Projections are based upon a number of assumptions and estimates that, while presented with numerical specififf city, are
inherently subject to signififf cant business, economic and competitive uncertainties and contingencies, many of which are beyond
our control and are based upon specififf c assumptions with respect to futff urt e business decisions, some of which will change. The
principal reason that we release guidance is to provide a basis forff
and investors. We are not responsible forff
any projections or reports published by any such analysts or investors.
our management to discuss our business outlook with analysts
Guidance is necessarily speculative in naturt e, and it can be expected that some or all of the assumptions underlying the
l results. Accordingly, our guidance is only an
guidance furff nished by us will not materialize or will varyrr signififf cantly frff om actuat
frff om our guidance and the
l results may varyrr
estimate of what management believes is realizabla e as of the date of release. Actuat
variations may be material. In light of the forff egoing, investors are urged not to rely upon our guidance in making an investment
decision regarding our common stock.
28
Any faff ilure to successfulff
ly implement our operating strategy or the occurrence of any of the events or circumstances set
l operating results being diffff eff rent frff om our guidance,
th in this "Risk Factors" section in this report could result in the actuat
forff
and the diffff eff rences may be adverse and material.
Our effff eff ctive tax rate may flff uctuate, which could increase our income tax expense and reduce our net income.
Our effff eff ctive tax rate or the taxes we owe could be adversely affff eff cted by several faff ctors, many of which are outside of
our control, including:
•
•
•
•
•
•
•
•
changes in the relative proportions of revenues and income beforff e taxes in the various jurisdictions in which we
operate that have diffff eff ring statutt oryrr
tax rates;
ings;
changing tax laws, regulations, and interprr etations in multiple jurisdictions in which we operate as well as the
requirements of certain tax rulrr
changes in the research and development tax credit laws;
earnings being lower than anticipated in jurisdictions where we have lower statutt oryrr
anticipated in jurisdictions where we have higher statutt oryrr
the valuation of generated and acquired defeff rred tax assets and the related valuation allowance on these assets;
transfeff r pricing adjustments;
the tax effff eff cts of purchase accounting forff
reporting periods; and
tax assessments or any related tax interest or penalties that could signififf cantly affff eff ct our income tax expense forff
period in which the settlements take place.
ing charges that may cause flff uctuat
rates and being higher than
acquisitions and restrucr
rates;
turt
tions between
the
We are subject to income taxes in the United States and in numerous forff eign jurisdictions. From time to time, we may
receive notices that a tax authority in a particular jurisdiction believes that we owe a greater amount of tax than we have
reported to such authority.
While we regularly assess the likelihood of adverse outcomes frff om such examinations and the adequacy of our provision
income taxes, there can be no assurance that such provision is suffff iff cient and that a determination by a tax authority will not
forff
have an adverse effff eff ct on our results of operations. An adverse change in our effff eff ctive tax rate could have a material and
adverse effff eff ct on our fiff nancial condition and results of operations and the price of our common stock could decline if our
fiff nancial results are materially affff eff cted by an adverse change in our effff eff ctive tax rate.
We may be impacted by changes in taxation, trade, and other regulatory requirements.
We are subject to income tax in local, national, and international jurisdictions. In addition, our products are subject to
import and excise duties and/or sales or value-added taxes (VAT) in many jurisdictions. We are also subject to the examination
of our tax returt ns and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies. We
regularly assess the likelihood of an adverse outcome resulting frff om these examinations to determine the adequacy of our
provision forff
a
may negatively impact our operating results. There can be no assurance as to the outcome of these examinations. Fluctuat
tax rates and duties, changes in tax legislation or regulation or adverse outcomes of these examinations could have a material
adverse effff eff ct on our results of operations, fiff nancial condition, and cash flff ows.
ication of import and excise duties and or sales taxes or VAT
taxes. Additionally, changes in or the improper appl
tions in
There is increased uncertainty with respect to tax policy and trade relations between the U.S. and other countries. Maja or
developments in tax policy or trade relations, such as the imposition of unilateral tariffff sff on imported products, could have a
material adverse effff eff ct on our results of operations, fiff nancial condition, and cash flff ows.
Our estimates and judgments related to critical accounting policies could be inaccurate.
We consider accounting policies related to revenue recognition, and valuation of goodwill, intangible assets and other
a
ly understanding and evaluating our fiff nancial results. Management makes
acquisition accounting items to be critical in fulff
judgments and creates estimates when appl
ying these policies. These estimates and judgments affff eff ct, among other things, the
reported amounts of our assets, liabia lities, revenue and expenses, the amounts of charges accruer d by us, and related disclosure
of contingent assets and liabia lities. We base our estimates on historical experience and on various other assumptions that we
believe to be reasonabla e under the circumstances and at the time they are made. If our estimates or the assumptions underlying
them are not correct, actuat
additional charges or impair assets that could adversely impact our business. As a result, our operating results and fiff nancial
condition could be materially and adversely impacted in futff urt e periods.
l results may diffff eff r materially frff om our estimates and we may need to, among other things, accruer
29
Our disclosure controls and procedures and internal control over fiff nancial reporting may not be effff eff ctive.
Our disclosure controls and procedures and internal control over fiff nancial reporting may not prevent all material errors
and intentional misrepresentations. Any system of internal control can only provide reasonabla e assurance that all control
objectives are met. Some of the potential risks involved could include, but are not limited to, management judgments, simple
errors or mistakes, misinterprr etation, and willfulff misconduct regarding controls. Under Section 404 of the Sarbar nes-Oxley Act,
we are required to evaluate and determine the effff eff ctiveness of our internal control over fiff nancial reporting. Compliance with
this provision requires management's attention and expense. Management's assessment of our internal control over fiff nancial
reporting may or may not identifyff weaknesses that need to be addressed in our internal control system. If we are unabla e to
conclude that our internal control over fiff nancial reporting is effff eff ctive, investors could lose confiff dence in our reported fiff nancial
inforff mation which could have an adverse effff eff ct on the market price of our stock or impact our borrowing abia lity. In addition,
changes in operating conditions and changes in compliance with policies and procedures currently in place may result in
inadequate disclosure controls and procedures and internal control over fiff nancial reporting in the futff urt e.
Our stock price has been subject to flff uctuations, and will likely continue to be subject to flff uctuations, which may
be volatile and due to facff
tors beyond our control.
The market price of our common stock is subject to wide flff uctuat
tions in response to various faff ctors, some of which are
beyond our control. In addition to the faff ctors discussed in this "Risk Factors" section and elsewhere in this report, faff ctors that
could cause flff uctuat
tions in the market price of our common stock include the folff
lowing:
•
•
•
•
•
•
•
•
•
•
•
•
in particular;
l or anticipated developments in our business or our competitors’ businesses or the competitive landscapea
ratings changes by any securities analysts who folff
low our company;
announcements by us or our competitors of signififf cant technical innovations, acquisitions, strategic partnerships, joint
venturt es, or capia tal commitments;
changes in operating perforff mance and stock market valuations of other technology companies generally, or those in
our industryrr
changes in accounting standards, policies, guidelines, interprr etations, or principles;
actuat
generally;
developments or disputes concerning our intellectuat
proprietaryrr
cybersecurity attacks or incidents;
announced or completed acquisitions of businesses or technologies by us or our competitors;
changes in our board of directors or management;
announced or completed equity or debt transactions involving our securities;
sales of shares of our common stock by us, our offff iff cers, directors, or other stockholders; and
other events or faff ctors, including those resulting frff om public health crises, war, incidents of terrorism, or responses to
these events.
l property or our products and platforff m capaa bia lities, or third-party
rights;
In addition, the market forff
technology stocks and the stock markets in general have experienced extreme price and
tions. Stock prices of many technology companies have flff uctuat
lowing periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial
volume flff uctuat
the operating perforff mance of those companies. In the past, stockholders have institutt ed securities class action litigation
folff
costs, divert resources and the attention of management frff om our business, and adversely affff eff ct our business, results of
operations, fiff nancial condition, and cash flff ows. A decline in the value of our common stock, including as a result of one or
more faff ctors set forff
ted in a manner unrelated or disproportionate to
, may result in substantial losses forff
our stockholders.
a
th above
30
ItII ett m 1B. UnUU resolvll ed StSS aftt
fff ComCC mentstt
None.
ItII ett m 2. PrPP opertitt es
Our headquarters are located in Westforff d, MA, in appr
a
September 2030. In addition, we lease offff iff ce and/or manufaff cturt
signififf cant locations frff om a cost or size perspective being in in Allen, Texas; San Jose, Califorff nia; Ann Arbor
Berkeley, Califorff nia; Colorado Springs, CO; Bangalore, India; Pune, India; and Shanghai, China.
r
, Michigan;
oximately 175,000 square feff et of space under a lease expiring in
ing space in other locations globally with some of the more
IItII ett m 3. Legalgal
e
PrPP oceedidinii ggs
For inforff mation regarding legal proceedings, refeff r to Note 19, Commitments and contingencies to the Consolidated
Financial Statements included in Part IV, Item 15 of this report.
ItII ett m 4. MiMM nii e SafSS eff tytt Disii closll ures
None.
31
ItII ett m 5. MarMM kerr
t forff Regie sii trtt ant's' ComCC mon Equitii ytt ,yy Relatll ett d StSS octt kholdell
r MatMM ttt ett rsrr ,s and IsII suer Purchases of Equitii ytt SeSS curitii itt es
PART II
Market Inforff mation
Our common stock trades on the Nasdaq Global Select Market, under the symbol NTCT.
Stockholders
At May 9, 2022, we had 89 stockholders of record. We believe that the number of benefiff cial holders of our common
stock exceeds 14,000.
Stock Perforff mance Graph
This perforff mance grapha
shall not be deemed "fiff led" forff
rr
purpos
es of Section 18 of the Exchange Act or otherwise subject
to the liabia lities under that Section, and shall not be deemed to be incorpor
the Exchange Act or the Securities Act of 1933, as amended.
rr
ated by refeff rence into any fiff ling of NetScout under
The Stock Perforff mance Grapha
set forff
th below compares the yearly change in the cumulative total stockholder returt n on
our common stock during the fiff ve-year period frff om March 31, 2017 through March 31, 2022 with the cumulative total returt n of
the Nasdaq Composite Index and the Nasdaq Computer & Data Processing Index. The comparison assumes $100 was invested
on March 31, 2017 in our common stock or in the Nasdaq Composite Index and the Nasdaq Computer & Data Processing Index
and assumes reinvestment of dividends, if any.
The stock price perforff mance shown on the grapha
below is not necessarily indicative of futff urt e price perforff mance.
Inforff mation used in the grapha was obtained frff om Research Data Group, Inc.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Assumes Initial Investment of $100
$300
$250
$200
$150
$100
$50
$0
3/17
3/18
3/19
3/20
3/21
3/22
NetScout Systems, Inc.
NASDAQ Composite – Total Returns
NASDAQ Computer and Data Processing
NetScout Systems, Inc.
Nasdaq Composite – Total Returt ns
Nasdaq Computer and Data Processing
3/31/2017
3/31/2018
3/31/2019
3/31/2020
3/31/2021
3/31/2022
$
$
$
100.00
100.00
100.00
$
$
$
69.43
120.76
122.19
$
$
$
73.97
133.60
134.55
$
$
$
62.37
134.52
149.46
$
$
$
74.20
233.26
249.93
$
$
$
84.53
252.05
263.41
32
Dividend Policy
In fiff scal yyears 2022 a dnd
2021 we did not declare any cash dividends and do not anticipate declaring cash dividends in the
,
forff eseeabla e futff urt e. In addition, the terms of our credit faff cility limit our abia lity to pay cash dividends on our capia tal stock. It is
our intention to retain all futff urt e earnings forff
our stock buyback program furff
declaration will be at the discretion of our Board of Directors and will depend upon, among other things, our futff urt e earnings,
general fiff nancial conditions, capia tal requirements, existing bank covenants and general business conditions.
ther described under Item 7 "Liquidity and Capia tal Resources." Any futff urt e cash dividend
our expansion and growth, to pay down our debt, and to fund
reinvestment to fund
ff
ff
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer
The folff
lowing tabla e provides inforff mation about
a
purchases we made during the quarter ended March 31, 2022 of equity
securities that are registered by us pursuant to Section 12 of the Exchange Act:
1/1/2022 - 1/31/2022
2/1/2022 - 2/28/2022
3/1/2022 - 3/31/2022
Total
Total Number
of Shares
Purchased (1)
Average Price
Paid per Share
1,321
$
11,664
1,343
14,328
$
30.68
31.14
31.18
31.10
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares That May
Yet be Purchased
Under the
Program
—
—
—
—
5,758,482
5,758,482
5,758,482
5,758,482
(( )1) We purchhasedd an aggregate of 14,328 shares transfeff rred to us frff om employees in satisfaff ction of tax withholding
obligations associated with the vesting of restrictedd stockk
ddo not redduce thhe ma iximum numbber of shhares thhat mayy bbe purchhasedd
authhoriizedd on Oct bober 24, 2017.
iunits ddurii gng thhe perii dod. Suchh purchhases refllff ectedd iin thhe tablbla e
dunder our 25 million share repurchase pr gogram
ItII ett m 6. SeSS lell ctett d FiFF nii ancial Datatt
Inforff mation required by Item 6 of Form 10-K is omitted pursuant to the SEC's adoption of amendments to Regulation S-
K effff eff ctive Februar
ryrr 10, 2021.
33
ItII ett m 7. ManMM agement's' Disii cussion and Analyll sisii of FiFF nii ancial ConCC ditii itt on and Resultll stt of OpeOO ratitt ons
The folff
lowing inforff mation should be read in conjunction with the audited consolidated fiff nancial inforff mation and the
notes thereto included in this Annual Report on Form 10-K. In addition to historical inforff mation, the folff
lowing discussion and
other parts of this Annual Report contain forff ward-looking statements that involve risks and uncertainties. You should not place
undue reliance on these forff ward-looking statements. Actuat
and other faff ctors discussed in Item 1A. "Risk Factors" and elsewhere in this Annual Report. These faff ctors may cause our actuat
l
results to diffff eff r materially frff om any forff ward-looking statement. See the section titled "Cautionaryrr Statement Concerning
ars at the beginning of this Annual Report.
Forward-Looking Statements" that appe
l events or results may diffff eff r materially due to competitive faff ctors
a
Overview
We are an industryrr
leader with over three decades of experience in providing service assurance and cybersecurity
ises, including local, state and feff deral government agencies, rely on our solutions to achieve the visibility and
to optimize network perforff mance, ensure the deliveryrr of high-quality, mission-critical appl
solutions that are used by customers worldwide to protect their digital business services against disrupt
and enterprr
protection necessaryrr
services, gain timely insight into the end user experience and protect their networks frff om attack. With our offff eff rings, customers
can quickly, effff iff ciently and effff eff ctively identifyff and resolve issues that result in downtime, interrupt
quality or compromised data, thereby reducing meantime-to-resolution of issues and driving compelling returt ns on their
investments in their networks and broader technology initiatives. Some of the more signififf cant technology trends and catalysts
forff
environments, the rapia dly evolving cybersecurity threat landscapea
5G evolution in both the service provider and enterprr
our business include the evolution of customers' digital transforff mation initiatives such as the migration to cloud
, business intelligence and analytics advancements, and the
ise customer verticals.
ion. Service providers
ications and
ions to services, poor service
a
r
rr
Our operating results are inflff uenced by a number of faff ctors, including, but not limited to, the mix and quantity of
products and services sold, pricing, costs and availabia lity of materials used in our products, growth in employee-related costs,
including commissions, and the expansion of our operations. Factors that affff eff ct our abia lity to maximize our operating results
include, but are not limited to, our abia lity to introduce and enhance existing products, the marketplt ace acceptance of those new
or enhanced products, continued expansion into international markets, expansion into new or adjacent markets, development of
strategic partnerships, competition, successfulff
improvements in a highly competitive industry.rr
ts, and our abia lity to control costs and make
acquisition integration effff orff
In response to the RusRR sian militaryrr operations in Ukraine, we have ceased business operations in RusRR sia, including sales,
support on existing contracts and profeff ssional services. The United States and other countries have imposed sanctions on RusRR sia
that could impact our futff urt e revenue streams. These events have not had a material impact on our fiff scal year 2022 fiff nancial
statements. We will continue to monitor the impact of these events on all aspects of our business.
COCC VIVV DII -19 ImII pacm t
In March 2020, the World Health Organization declared the novel strain of coronavirusr
(COVID-19) a global pandemic
and recommended containment and mitigation measures worldwide. The pandemic and these containment and mitigation
measures have led to adverse impacts on the U.S. and global economies. While we have begun the process of reopening at some
of our faff cilities, we remain focff used on protecting the health and well-being of our employees and continue to support work
frff om home flff exibility where necessaryrr and feff asible.
The extent of furff
ther impact of the COVID-19 pandemic on our operational and fiff nancial perforff mance will depend on
certain developments, including the duration of the pandemic, its impact on our customers and suppliers and the range of
governmental and community reactions to the pandemic, which continue to evolve and cannot be fulff
We will continue to proactively respond to the situat
required by governmental authorities, or that we determine are in the best interests of our stakeholders.
ther actions that could alter our business operations if
ly predicted at this time.
tion and may take furff
We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it
has impacted and could continue to impact our customers, employees, supply chain, and distribution network. During fiff scal
year 2021, the COVID-19 pandemic and resulting challenging macro-economic environment caused elongated purchasing
cycles that impacted our revenue. However, the revenue impact in fiff scal year 2021 was offff sff et by a reduction in our operating
expenses as a result of our cost control measures and COVID-19 related restrictions on travel and events. For fiff scal year 2022,
to a "new normal", we observed that technology and project
as people in the world began to get immunized and started to adapta
spending resumed and we focff used on advancing our products, growing revenue, enhancing earnings per share, and generating
frff ee cash flff ow.
We believe our current cash reserves and access to capia tal through our revolving credit faff cility leaves us well-positioned
to manage our business as the pandemic continues and as a recoveryrr slowly occurs. We expect net cash provided by operations
34
combined with cash, cash equivalents and marketabla e securities and borrowing availabia lity under our revolving credit faff cility to
provide suffff iff cient liquidity to fundff
requirements over at least the next twelve months. We continue to take actions to manage costs and increase productivity
throughout our company but will invest in areas that advance our business forff
equivalents, based on covenant levels, we had as of March 31, 2022 an incremental $450 million availabla e to us under our
revolving credit faff cility.
current obligations, capia tal spending, debt service requirements and working capia tal
the futff urt e, as necessary.rr
In addition to our cash
On March 27, 2020, the Coronavirusrr Aid, Relief and Economic Security Act (the CARES Act) was enacted. The CARES
Act, among other things, includes provisions relating to refunda
, modififf cations to the net interest
payments, net operating loss carryba
rr
deduction limitations and technical corrections to tax depreciation methods forff
qualififf ed improvement property. We have
elected to defeff r the employer-paid portion of social security taxes. As of March 31, 2022, we had defeff rred $4.5 million of
employer payroll taxes which is required to be deposited by December 2022.
ck periods, alternative minimum tax credit refunds
bla e payroll tax credits, defeff rment of employer social security
ff
ff
Resultll stt Overview
Total revenue increased forff
the fiff scal year ended March 31, 2022 as compared to total revenue forff
the fiff scal year ended
March 31, 2021 primarily due to an increase in revenue frff om the product portion of our network perforff mance management
offff eff rings frff om enterprrr
ise customers, and an increase in revenue frff om the service portion frff om our DDoS offff eff rings.
Our gross profiff t percentage increased by two percentage points to 75% during the fiff scal year ended March 31, 2022 as
compared with the fiff scal year ended March 31, 2021.
Net income forff
the fiff scal year ended March 31, 2022 was $35.9 million, as compared with income forff
the fiff scal year
ended March 31, 2021 of $19.4 million, an increase of $16.5 million. The increase in net income was primarily due to a $24.3
million increase in revenue, a $7.2 million decrease in amortization of intangible assets, a $5.3 million decrease in forff eign
exchange expense, a $2.8 million decrease in interest expense, a $2.4 million decrease in expenses related to trade shows, user
confeff rences and other events, a $2.3 million decrease in depreciation expense, a $1.9 million decrease in cost of materials used
to support customers under service contracts, and a $1.9 million decrease in costs to deliver radio frff equency propagation
modeling projects. These increases in net income were partially offff sff et by an $8.0 million increase in commissions expense, a
$6.5 million increase in contractor feff es, a $4.6 million increase in advertising and other marketing related costs, a $4.1 million
increase in income tax expense, a $3.4 million increase in legal-related expenses and penalties, a $3.0 million increase in travel
expenses attributabla e to the liftff ing of some COVID-19 related restrictions, a $2.4 million increase in obsolescence charges, and
a $2.4 million increase in the provision forff
allowance in credit losses.
At March 31, 2022, we had cash, cash equivalents, and marketabla e securities (current and non-current) of $703.2 million.
This represents an increase of $226.7 million compared to the fiff scal year ended March 31, 2021. This increase was primarily
due to $296.0 million in cash provided by operations during the fiff scal year ended March 31, 2022. During the fiff scal year ended
March 31, 2022, we collected $0.8 million of contingent consideration which represented earnout payments that were
contingent upon achieving certain milestones related to the divestiturt e of our handheld network test (HNT) tools business in
September 2018. These increases were partially offff sff et by $35.7 million used in treasuryrr stock repurchases, $15.7 million used
forff
tax withholdings on restricted stock units, $10.4 million used forff
of debt issuance costs during the fiff scal year ended March 31, 2022.
capia tal expenditurt es, and $3.7 million used forff
the payment
UsUU e of NonNN -GAGG AP FiFF nii ancial MeMM asures
We supplement the United States generally accepted accounting principles (GAAP) fiff nancial measures we report in
quarterly and annual earnings announcements, investor presentations and other investor communications by reporting the
folff
lowing non-GAAP measures: non-GAAP revenue, non-GAAP gross profiff t, non-GAAP income frff om operations, non-GAAP
net income, non-GAAP net income per share (diluted) and non-GAAP earnings beforff e interest and other expense, income taxes,
depreciation, and amortization (EBITDA) frff om operations. Non-GAAP revenue eliminates the GAAP effff eff cts of acquisitions by
adding back revenue related to defeff rred revenue revaluation. Non-GAAP gross profiff t includes the aforff ementioned revenue
adjustments and also removes expenses related to the amortization of acquired intangible assets, share-based compensation, and
acquisition-related depreciation. Non-GAAP income frff om operations includes the aforff ementioned adjustments and also
removes business development and integration expense, new standard implementation expense, compensation forff
post-
combination services, legal expenses related to a civil judgment, restrucr
expenses. Non-GAAP net income includes the forff egoing adjustments related to non-GAAP income frff om operations, and also
removes loss on extinguishment of debt and change in faff ir value of contingent consideration, net of related income tax effff eff cts.
Non-GAAP EBITDA frff om operations includes the aforff ementioned items related to non-GAAP income frff om operations and
also removes non-acquisition related depreciation expense.
ing charges, and transitional service agreement
turt
35
These non-GAAP measures are not in accordance with GAAP, should not be considered an alternative forff measures
prepared in accordance with GAAP (revenue, gross profiff t, operating margin, net income (loss) and diluted net income (loss) per
share), and may have limitations because they do not reflff ect 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 inforff mation is not meant to be considered superior to, in
isolation frff om, or as a substitutt e forff
results prepared in accordance with GAAP.
Management believes these non-GAAP fiff nancial measures will enhance the reader's overall understanding of our current
the futff urt e by providing a higher degree of transparency forff
fiff nancial perforff mance and our prospects forff
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 affff orff ds investors a view of our operating results that may be more easily compared to
peer companies and also enabla es investors to consider our operating results on both a GAAP and non-GAAP basis during and
folff
lowing the integration period of our acquisitions. Presenting the GAAP measures on their own, without the supplemental
non-GAAP disclosures, might 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 usefulff
inforff mation to management and investors regarding present and futff urt e business trends relating to our fiff nancial condition and
results of operations.
certain fiff nancial
36
The folff
share on a GAAP and non-GAAP basis forff
lowing tabla e reconciles revenue, gross profiff t, income frff om operations, net income (loss) and net income (loss) per
the fiff scal years ended March 31, 2022, 2021 and 2020:
GAAP revenue
Service defeff rred revenue faff ir value adjustment
Non-GAAP revenue
GAAP gross profiff t
Service defeff rred revenue faff ir value adjustment
Share-based compensation expense
Amortization of acquired intangible assets
Acquisition related depreciation expense
Non-GAAP gross profiff t
GAAP income frff om operations
Service defeff rred revenue faff ir value adjustment
Share-based compensation expense
Amortization of acquired intangible assets
Business development and integration expense
New standard implementation expense
Compensation forff
post-combination services
Restrucrr
turt
ing charges
Acquisition related depreciation expense
Transitional service agreement expense
Legal judgments expense
Non-GAAP income frff om operations
GAAP net income (loss)
Service defeff rred revenue faff ir value adjustment
Share-based compensation expense
Amortization of acquired intangible assets
Business development and integration expense
New standard implementation expense
Compensation forff
turt
Restrucrr
ing charges
post-combination services
Acquisition-related depreciation expense
Loss on extinguishment of debt
Change in faff ir value of contingent consideration
Legal judgments expense
Income tax adjustments
Non-GAAP net income
GAAP diluted net income (loss) per share
Per share impact of non-GAAP adjustments identififf ed above
a
37
Fiscal Year Ended March 31,
(Dollars in Thousands, Except per Share Data)
2022
2021
2020
$
$
$
$
$
$
$
$
$
855,575
—
855,575
641,389
—
7,042
13,385
24
661,840
48,634
—
56,074
73,126
(5)
—
2
—
254
814
1,100
179,999
35,874
—
56,074
73,126
(5)
—
2
—
254
596
(837)
1,100
(27,796)
138,388
0.48
1.36
$
$
$
$
$
$
$
$
$
831,282
6
831,288
609,185
6
6,861
19,058
23
635,133
37,130
6
51,892
80,189
2
—
251
62
242
215
2,804
172,793
19,352
6
51,892
80,189
2
—
251
62
242
—
—
2,804
(28,977)
125,823
0.26
1.44
891,820
192
892,012
649,628
192
6,843
24,974
31
681,668
17,638
192
50,861
89,479
373
5
578
2,674
312
1,212
—
163,324
(2,754)
192
50,861
89,479
373
5
578
2,674
312
—
762
—
(23,415)
119,067
(0.04)
1.61
$
$
$
$
$
$
$
$
$
Non-GAAP diluted net income per share
GAAP income frff om operations
Previous adjustments to determine non-GAAP income frff om operations
Non-GAAP income frff om operations
Depreciation excluding acquisition related
Non-GAAP EBITDA frff om operations
$
$
$
$
1.84
48,634
131,365
179,999
22,404
$
$
1.70
37,130
135,663
172,793
25,397
1.57
17,638
145,686
163,324
26,313
$
202,403
$
198,190
$
189,637
Critical Accounting Policies and Estimates
We consider accounting policies and estimates related to revenue recognition, and valuation of goodwill, intangible assets
and other acquisition accounting items to be critical in fulff
signififf cant judgment and create estimates when appl
a
ying these policies.
y
ly understanding and evaluating our fiff nancial results. We appl
a
Revenue Recognitii itt on
We exercise judgment and use estimates in connection with determining the amounts of product and service revenues to
be recognized in each accounting period.
We derive revenues primarily frff om the sale of network management tools and security solutions forff
ise customers, which include hardware, softff ware, and service offff eff rings. Our product sales consist of softff ware only
service provider and
iances with embedded softff ware that are essential to providing customers
enterprrr
offff eff rings and offff eff rings which include hardware appl
the intended func
tionality of the solutions.
a
ff
We account forff
revenue once a legally enforff ceabla e contract with a customer has been appr
related promises to transfeff r products or services have been identififf ed. A contract is defiff ned by us as an arrangement with
commercial substance identifyiff ng payment terms, each party’s rights and obligations regarding the products or services to be
transfeff rred and the amount we deem probabla e of collection. Customer contracts may include promises to transfeff r multiple
products and services to a customer. Determining whether the products and services are considered distinct perforff mance
obligations that should be accounted forff
judgment. Revenue is recognized when control of the products or services are transfeff rred to our customers, in an amount that
reflff ects the consideration we expect to be entitled to in exchange forff
separately or as one combined perforff mance obligation may require signififf cant
oved by the parties and the
products and services.
a
Product revenue is typically recognized upon shipment, provided a legally enforff ceabla e contract exists, control has passed
fiff lled. Our service offff eff rings include installation, integration, extended warranty and maintenance
to the customer, and in the case of softff ware products, when the customer has the rights and abia lity to access the softff ware, and
collection of the related receivabla e is probabla e. If any signififf cant obligations to the customer remain post-delivery,rr
involving obligations relating to installation and acceptance by the customer, revenue recognition is defeff rred until such
obligations have been fulff
services, post-contract customer support, stand-ready softff ware-as-a-service (SAAS) and other profeff ssional services including
consulting and training. We generally provide softff ware and/or hardware support as part of product sales. Revenue related to the
initial bundled softff ware and hardware support is recognized ratabla y over the support period. In addition, customers can elect to
purchase extended support agreements forff
periods aftff er the initial softff ware/hardware warranty expiration. Support services
generally include rights to unspecififf ed upgrades (when and if availabla e), telephone and internet-based support, updates, bug
fiff xes and hardware repair and replacement. Consulting services are recognized upon deliveryrr or completion of perforff mance
depending on the terms of the underlying contract. Reimbursements of out-of-ff pocket expenditurt es incurred in connection with
providing consulting services are included in services revenue, with the offff sff etting expense recorded in cost of service revenue.
Training services include on-site and classroom training. Training revenues are recognized upon deliveryrr of the training.
typically
Generally, our contracts are accounted forff
to account forff
on each other, it may be necessaryrr
individually. However, when contracts are closely interrelated and dependent
two or more contracts as one to reflff ect the substance of the group of contracts.
Bundled arrangements are concurrent customer purchases of a combination of our product and service offff eff rings that may
be delivered at various points in time. We allocate the transaction price among the perforff mance obligations in an amount that
depicts the relative standalone selling prices (SSP) of each obligation. Judgment is required to determine the SSP forff
distinct perforff mance obligation. We use a range of amounts to estimate SSP when we sell each of the products and services
separately based primarily on the perforff mance obligation's historical pricing. We also consider our overall pricing objectives
and practices across diffff eff rent sales channels and geographi
es, and market conditions. Generally, we have establa ished SSP forff
maja ority of our service perforff mance obligations based on historical standalone sales. In certain instances, we have establa ished
SSP forff
services based upon an estimate of profiff tabia lity and the underlying cost to fulff
fiff ll those services. SSP has primarily been
each
a
a
38
a
product perforff mance obligations as the average or median selling price the perforff mance obligation was recently
, whether sold alone or sold as part of a bundle transaction. We review sales of the product perforff mance obligations on a
establa ished forff
sold forff
quarterly basis and update, when appr
experience. Our products are distributed through our direct sales forff ce 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 transfeff rs to the reseller or distributor. We record consideration given to a customer as a reduction of
revenue to the extent we have recorded revenue frff om the customer. With limited exceptions, our returt n policy does not allow
product returt ns forff
ly collecting
ff
a refund.
receivabla es frff om our resellers and distributors.
Returt ns have been insignififf cant to date. In addition, we have a historyrr of successfulff
such perforff mance obligations to ensure that it reflff ects recent pricing
opriate, SSP forff
ValVV uatitt on of Goodw
G
ilii lll ,ll InII tantt
gibli ell Assetstt and Othtt er Acquisii itii itt on Accountitt nii g ItII ett ms
We amortize acquired defiff nite-lived intangible assets over their estimated usefulff
lives. Goodwill and other indefiff nite-
lived intangible assets are not amortized but subject to annual impairment tests; more frff equently if events or circumstances
occur that would indicate a potential decline in their faff ir value. We perforff m the assessment annually during the four
and on an interim basis if potential impairment indicators arise.
ff
th quarter
Reporting units are determined based on the components of a company's operating segments that constitutt e a business forff
which fiff nancial inforff mation is availabla e and forff which operating results are regularly reviewed by segment management. We
have one reporting unit.
To test impairment, we fiff rst assess qualitative faff ctors to determine whether the existence of events and circumstances
indicate that it is more likely than not that the intangible asset is impaired. If based on our qualitative assessment it is more
likely than not that the faff ir value of the intangible asset is less than its carryirr ng amount, quantitative impairment testing is
required. However, if we conclude otherwise, quantitative impairment testing is not required. We perforff med our annual
impairment analysis forff
more likely than not that the faff ir value of the reporting unit exceeded its carryirr ng value.
goodwill at Januaryrr 31, 2022 using the qualitative (Step 0) assessment, and we concluded that it was
Indefiff nite-lived intangible assets are tested forff
impairment at least annually, or on an interim basis if an event occurs or
circumstances change that would, more likely than not, reduce the faff ir value of the indefiff nite-lived intangible assets below its
carryirr ng value. To test impairment, we fiff rst assess qualitative faff ctors to determine whether the existence of events and
circumstances indicate that it is more likely than not that the indefiff nite-lived intangible is impaired. If based on our qualitative
assessment, we conclude that it is more likely than not that the faff ir value of the indefiff nite-lived asset is less than its carryirr ng
amount, quantitative impairment testing is required. However, if we conclude otherwise, quantitative impairment testing is not
required.
We completed two acquisitions during the three-year period ended March 31, 2022. The acquisition method of
accounting requires an estimate of the faff ir value of the assets and liabia lities acquired as part of these transactions. In order to
estimate the faff ir value of acquired intangible assets, we use either an income, market or cost method appr
oach.
a
The contingent purchase consideration related to the two acquisitions represent amounts deposited into escrow accounts,
which were establa ished to cover damages NetScout may have suffff eff red related to any liabia lities that NetScout did not agree to
assume or as a result of the breach of representations and warranties of the sellers as described in the acquisition agreements.
The contingent purchase consideration of $0.7 million related to the Gigavation Incorpor
to the seller in Februarr
(Eastwind) acquisition was paid to the seller in April 2020.
ryrr 2021. The contingent purchase consideration of $1.0 million related to the Eastwind Networks, Inc.
ated (Gigavation) acquisition was paid
r
39
Comparison of Years Ended March 31, 2022 and 2021
The sections that folff
low discuss our consolidated statement of operations data forff
the fiff scal years ended March 31, 2022
and March 31, 2021 including results as a percentage of revenue forff
statement of operations data forff
period, as well as (ii) our liquidity and capia tal resources forff
Ended March 31, 2021 and 2020" and "Liquidity and Capia tal Resources" in Part II, Item 7 of our Annual Report on Form 10-K
forff
those periods. For a discussion of (i) our consolidated
the fiff scal year ended March 31, 2020 including results as a percentage of revenue for that
the fiff scal year ended March 31, 2021, fiff led with the SEC on May 20, 2021 (our 2021 Annual Report).
the fiff scal year ended March 31, 2020, see "Comparison of Years
Results of Operations
Revenue
Product revenue consists of sales of our hardware products and licensing of our softff ware products. Service revenue
consists of customer support agreements, consulting, training and stand-ready softff ware as a service offff eff rings. During the fiff scal
years ended March 31, 2022 and 2021, no direct customer or indirect channel partner accounted forff more than 10% of our total
revenue.
Fiscal Year Ended March 31,
(Dollars in Thousands)
2022
2021
Change
% of
Revenue
% of
Revenue
$
%
$
$
410,121
445,454
855,575
48 % $
377,721
52
453,561
45 % $
32,400
55
(8,107)
100 % $
831,282
100 % $
24,293
9 %
(2)%
3 %
Revenue:
Product
Service
Total revenue
Product. The 9%, or $32.4 million, increase in product revenue compared with the same period last year was primarily
due to an increase in revenue frff om network perforff mance management offff eff rings forff
enterprrr
ise customers.
Service. The 2%, or $8.1 million, decrease in service revenue compared with the same period last year was primarily
driven by non-renewals associated with service provider consolidation and discontinued product lines.
Total revenue by geographya
was as folff
lows:
Fiscal Year Ended March 31,
(Dollars in Thousands)
2022
2021
Change
% of
Revenue
% of
Revenue
$
%
$
501,043
59 % $
484,129
58 % $
16,914
3 %
United States
International:
Europe
Asia
Rest of the world
Subtotal international
165,190
64,968
124,374
354,532
19
8
14
41
160,372
56,562
130,219
347,153
19
7
16
42
4,818
8,406
(5,845)
7,379
3 %
15 %
(4)%
2 %
3 %
Total revenue
$
855,575
100 % $
831,282
100 % $
24,293
United States revenue increased 3%, or $16.9 million, primarily due to an increase in revenue frff om network perforff mance
enterprr
management offff eff rings forff
customers. These increases in revenue were partially offff sff et by a decrease in revenue frff om DDoS offff eff rings forff
service provider
customers. International revenue increased 2%, or $7.4 million, primarily driven by higher revenue frff om network perforff mance
management and DDoS offff eff rings in Europe and Asia.
ise and service provider customers, as well as an increase in revenue frff om DDoS enterprrr
ise
40
Cost of Revenue and Gross Profiff t
Cost of product revenue consists primarily of material components, personnel expenses, packaging materials, overhead
and amortization of capia talized softff ware, acquired developed technology and core technology. Cost of service revenue consists
primarily of personnel, material, overhead and support costs.
Fiscal Year Ended March 31,
(Dollars in Thousands)
2022
2021
Change
% of
Revenue
% of
Revenue
$
%
Cost of revenue:
Product
Service
$
90,730
123,456
Total cost of revenue
$ 214,186
11 % $
95,965
14
126,132
25 % $ 222,097
12 % $
(5,235)
15
(2,676)
27 % $
(7,911)
Gross profiff t:
Product $
$ 319,391
37 % $ 281,756
34 % $
37,635
Product gross profiff t %
78 %
75 %
3 %
Service $
$ 321,998
38 % $ 327,429
39 % $
(5,431)
Service gross profiff t %
72 %
Total gross profiff t $
$ 641,389
Total gross profiff t %
75 %
72 %
$ 609,185
73 %
— %
$
32,204
2 %
(5)%
(2)%
(4)%
13 %
(2)%
5 %
Product. The 5%, or $5.2 million, decrease in cost of product revenue forff
the fiff scal year ended March 31, 2022 compared
to the same period last year was primarily due to a $5.8 million decrease in the amortization of intangible assets, and a $1.9
million decrease in costs related to the deliveryrr of radio frff equency propagation modeling projects. These decreases were
partially offff sff et by a $2.4 million increase in obsolescence charges. The product gross profiff t percentage increased by three
percentage points to 78% during the fiff scal year ended March 31, 2022 as compared to the same period in the prior year. The
13%, or $37.6 million, increase in product gross profiff t, corresponds with the 9%, or $32.4 million, increase in product revenue,
and the 5%, or $5.2 million, decrease in cost of product revenue.
Service. The 2%, or $2.7 million, decrease in cost of service revenue forff
the fiff scal year ended March 31, 2022 compared
to the same period last year was primarily due to a $4.2 million decrease in employee-related expenses associated with a
reduction in headcount as well as a decrease associated with the timing of certain projects, and a $1.9 million decrease in cost of
materials used to support customers under service contracts. These decreases were partially offff sff et by a $2.9 million increase in
contractor feff es. The service gross profiff t percentage remained flff at at 72% during the fiff scal year ended March 31, 2022
compared to the same period in the prior year. The 2%, or $5.4 million, decrease in service gross profiff t corresponds with the
2%, or $8.1 million, decrease in service revenue, partially offff sff et by the 2%, or $2.7 million, decrease in cost of services
revenue.
Gross profiff t. Our gross profiff t increased 5%, or $32.2 million, forff
the fiff scal year ended March 31, 2022 compared to the
same period last year. This increase is attributabla e to the 3%, or $24.3 million, increase in revenue, and the 4%, or $7.9 million,
decrease in cost of revenue. The gross margin percentage increased by two percentage points to 75% during the fiff scal year
ended March 31, 2022 compared to the same period in the prior year.
41
Operating Expenses
Fiscal Year Ended March 31,
(Dollars in Thousands)
2022
2021
Change
% of
Revenue
% of
Revenue
$
%
Research and development
$
171,131
Sales and marketing
General and administrative
Amortization of acquired
intangible assets
Restrucrr
turt
ing charges
264,191
97,692
59,741
—
20
31
11
7
—
$
179,163
22 % $
(8,032)
242,730
88,969
61,131
62
29
11
7
—
21,461
8,723
(1,390)
(62)
Total operating expenses
$
592,755
69 % $
572,055
69 % $
20,700
(4)%
9 %
10 %
(2)%
(100)%
4 %
RResearchh
dand ddevellopment. Researchh a dnd ddevellopment expenses consiist priimariillyy of personnell expenses, feff es forff
outsiidde
cons lultants, overhheadd a dnd rellatedd expenses associiatedd wiithh thhe ddevellopment of new pr doducts a dnd thhe e hnhancement of e ixistii gng
ppr doducts.
Thhe 4%, or $$8.0 miilllliion, ddecrease iin research and development expenses forff
the fiff scal year ended March 31, 2022
compared to the same period last year was primarily due to a $6.8 million decrease in employee-related expenses associated
with a reduction in headcount and a decrease in variabla e incentive compensation, and a $1.1 million decrease in depreciation
expense.
Sales and markrr ekk ting. Sales and marketing expenses consist primarily of personnel expenses and commissions, overhead
and other expenses associated with selling activities and marketing programs such as trade shows, seminars, advertising, and
new product launch activities.
The 9%, or $21.5 million, iincrease iin totall salles a dnd markketii gng expenses forff
thhe fiiff scall yyear e dndedd Marchh 31, 2022
comparedd to thhe same perii dod llast yyear was priimarily due to an $8.0 million increase in commissions expense, a $7.4 million
increase in employee-related expenses largely due to an increase in variabla e incentive compensation, a $4.6 million increase in
advertising and other marketing related expenses, a $2.2 million increase in travel expense primarily attributabla e to the liftff ing of
tment feff es, partially offff sff et
COVID-19 related restrictions, a $1.4 million increase in contractor feff es, and a $0.6 million in recruirr
by a $2.4 million decrease in expenses related to trade shows, user confeff rences and other events, and a $1.0 million decrease in
depreciation.
General and adminisii trtt ative. General and administrative expenses consist primarily of personnel expenses forff
executive,
fiff nancial, legal, and human resource employees, overhead, and other corpor
rr
ate expenditurt es.
The 10%, or $8.7 million, increase in general and administrative expenses forff
the fiff scal year ended March 31, 2022
compared to the same period last year was primarily due to a $3.4 million increase in legal-related expenses and penalties, a
$2.7 million increase in employee-related expenses largely due to an increase in variabla e incentive compensation, and a $2.4
million increase in the provision forff
allowance in credit losses.
Amortizii ation of acquired intangible assetstt . Amortization of acquired intangible assets consists primarily of amortization
of customer relationships, and defiff nite-lived trademark and tradenames related to our acquisition of Danaher Corpor
communication business (Comms Transaction) and the acquisitions of ONPATH Technologies, Inc., Simena, LLC,
Psytechnics, Ltd, Network General Corpor
ated and Effff lff ux Systems, Inc.
ation, Avvasi Incorpor
r
rr
r
ation's
The 2%, or $1.4 million, decrease in amortiizatiion of ac
iquiredd iintangingiblble assets comparedd to thhe fiiff scall yyear e dndedd
Marchh 31, 2022 was priimarily due to a decrease in the amortization of intangible assets related to the Comms Transaction,
partially offff sff et by an increase in the amortization of the defiff nite-lived trade name.
42
Interest and Other Expense, Net
Interest and other expense, net includes interest earned on our cash, cash equivalents and marketabla e securities, interest
expense and other non-operating gains or losses.
Fiscal Year Ended March 31,
(Dollars in Thousands)
2022
2021
Change
% of
Revenue
% of
Revenue
$
%
Interest and other expense, net
$
(5,742)
(1)% $
(14,826)
(2)% $
9,084
61 %
The 61%, or $9.1 million, ddecrease in interest and other expense, net was primarily due to a $5.3 million decrease in
forff eign exchange expense, a $2.8 million decrease in interest expense due to debt repayments on the credit faff cility as well as a
decrease in the average interest rate partially offff sff et by a loss on the extinguishment of debt, and a $0.6 million increase in
transitional services agreement income related to the HNT tools business divestiturt e.
Income Tax Expense
The annual effff eff ctive tax rate forff
fiff scal
income tax rate primarily due to state income
year 2021. Generally, the effff eff ctive tax rate diffff eff rs frff om the U.S. feff deral statutt oryrr
taxes, forff eign withholding taxes, and earnings in jurisdictions subject to tax rates higher than the U.S. feff deral statutt oryrr
income
tax rate, partially offff sff et by the tax benefiff t associated with forff eign derived intangible income deduction, forff eign tax credits, and
research and development tax credits.
fiff scal year 2022 was 16.4%, compared to an annual effff eff ctive tax rate of 13.2% forff
The effff eff ctive tax rate forff
the twelve months ended March 31, 2022 is higher than the effff eff ctive rate forff
the twelve months
ended March 31, 2021, primarily due to a signififf cant increase in pre-tax income as compared to the prior year.
Fiscal Year Ended March 31,
(Dollars in Thousands)
2022
2021
Change
% of
Revenue
% of
Revenue
$
%
Income tax expense
$
7,018
1 % $
2,952
— % $
4,066
138 %
Commitment and Contingencies
We account forff
claims and contingencies in accordance with authoritative guidance that requires us to record an
estimated loss frff om a claim or loss contingency when inforff mation availabla e prior to issuance of our consolidated fiff nancial
statements indicates that it is probabla e that a liabia lity has been incurred at the date of the consolidated fiff nancial statements and
the amount of the loss can be reasonabla y estimated. If we determine that it is reasonabla y possible, but not probabla e, that an asset
has been impaired or a liabia lity has been incurred, or if the amount of a probabla e loss cannot be reasonabla y estimated, then, in
accordance with the authoritative guidance, we disclose the amount or range of estimated loss if the amount or range of
estimated loss is material. Accounting forff
counsel on those issues related to litigation and seek input frff om other experts and advisors with respect to matters in the
ordinaryrr course of business.
claims and contingencies requires us to use our judgment. We consult with legal
e
Legal
- From time to time, we are subject to legal proceedings and claims in the ordinaryrr course of business. In the
opinion of management, the amount of ultimate expense with respect to any current legal proceedings and claims, if determined
adversely, will not have a material adverse effff eff ct on our fiff nancial condition, results of operations or cash flff ows.
As previously disclosed, in March 2016, Packet Intelligence LLC (Packet Intelligence or Plaintiffff )ff fiff led a Complaint
against NetScout and two subsidiaryrr entities in the United States District Court forff
infrff ingement of fiff ve United States patents. Plaintiffff 'ff s Complaint alleged that legacy Tektronix GeoProbe products, including the
G10 and GeoBlade products, infrff inged these patents. NetScout fiff led an Answer denying Plaintiffff 'ff s allegations and asserting that
Plaintiffff 'ff s patents were, among other things, invalid, not infrff inged, and unenforff ceabla e due to inequitabla e conduct. In October
trial was held to address the parties' claims and counterclaims regarding infrff ingement of three patents by the G10
2017, a juryrr
rendered a verdict fiff nding in faff vor of the Plaintiffff
and GeoBlade products, invalidity of these patents, and damages. The juryrr
and that Plaintiffff was entitled to $3,500,000 forff
post-suit damages. The juryrr
the awarded damages amounts were intended to reflff ect a runni
ng royalty. In September 2018, the Court entered judgment and
the Eastern District of Texas asserting
pre-suit damages and $2,250,000 forff
indicated that
rr
43
r
a
the
fiff nding. The judgment also awarded pre- and post-
aled, and in July 2020, the Court of Appeals forff
a writ of certiorari to the United States Supreme Court, which was subsequently
ng royalty on the G10 and GeoBlade products until the expiration of the patents at issue, the last
"enhanced" the juryrr verdict in the amount of $2.8 million as a result of a juryrr
judgment interest, and a runni
date being June 2022. Following the entryrr of fiff nal judgment, NetScout appe
Federal Circuit (Federal Circuit) issued a decision vacating the $3,500,000 pre-suit damages award, affff iff rming the $2,250,000
post-suit damages award, and remanding to the district court to determine what, if any, enhancement should be awarded. In
March 2021, NetScout fiff led a petition forff
enhanced damages and the patentabia lity of the claimed technology. In
denied, challenging, among other issues, the basis forff
addition, on September 8 and 9, 2021, in proceedings initiated by third parties that did not involve NetScout, the Patent Trial
and Appeal Board (PTAB) invalidated all the patent claims that were also asserted against NetScout in this case. After the
PTAB decisions were issued, NetScout moved, among other things, to dismiss the case and enter judgment in its faff vor on the
grounds that the PTAB decisions invalidating the asserted claims precluded Plaintiffff frff om continuing to assert its patent
infrff ingement causes of action and frff om seeking damages frff om NetScout. The District Court recently denied NetScout’s motion
with respect to its request to dismiss the case and enter judgment in its faff vor, but in response to alternative requests forff
requested by NetScout, vacated $1.7 million of the "enhanced" juryrr verdict amount of $2.8 million and also lowered the
ongoing royalty rate on the G10 and GeoBlade products. The District Court entered an amended fiff nal judgment awarding
Plaintiffff $2.25 million in post-suit damages, $1.1 million in enhanced damages, pre- and post-j- udgment interest, and a runni
ng
royalty on the G10 and GeoBlade products until the expiration of the patents at issue, the last expiration date being June 2022.
NetScout has time remaining with respect to its right to appe
current circumstances, and if the post-suit and enhanced damages award along with the associated interest and royalties
survives the recent PTAB invalidation decisions and any appe
loss associated with such damages award remains "probabla e" in accounting terms, and that the risk of loss associated with pre-
suit damages is remote.
al frff om the entryrr of the amended fiff nal judgment. In view of the
al NetScout may take, NetScout has concluded that the risk of
relief
a
a
r
WarWW rantytt and InII demnifi iff catitt on- We warrant that our softff ware and hardware products will substantially conforff m to the
documentation accompanying such products on their original date of shipment. For softff ware, which also includes fiff rmware, the
standard warranty commences upon shipment and generally expires 60 to 90 days thereaftff er. With regard to hardware, the
standard warranty commences upon shipment and generally expires 60 days to 12 months thereaftff er. Additionally, this warranty
is subject to various exclusions which include, but are not limited to, non-conforff mance resulting frff om modififf cations made to
the softff ware or hardware by a party other than NetScout; customers' faff ilure to folff
instrucr
and workmanlike manner. We believe that our product and support service warranties are consistent with commonly accepted
industryrr standards. Warranty cost inforff mation is presented and no material warranty costs are accruer d since service revenue
associated with warranty is defeff rred at the time of sale and recognized ratabla y over the warranty period.
low our installation, operation or maintenance
tions; and events outside of our reasonabla e control. We also warrant that all support services will be perforff med in a good
Contracts that we enter into in the ordinaryrr course of business may contain standard indemnififf cation provisions. Pursuant
to these agreements, we may agree to defeff nd third party claims brought against a partner or direct customer claiming
infrff ingement of such third party’s (i) U.S. patent and/or European Union (EU), or other selected countries' patents, (ii) Berne
convention member countryrr copyright, and/or (iii) U.S., EU, and/or other selected countries’ trademark or intellectuat
l property
rights. Moreover, this indemnity may require us to pay any damages awarded against the partner or direct customer in such type
of lawsuit as well as reimburse the partner or direct customer forff
reasonabla e attorney's feff es incurred by them frff om the lawsuit.
We may also agree frff om time to time to provide other forff ms of indemnififf cation to partners or direct customers, such as
indemnififf cation that would obligate us to defeff nd and pay any damages awarded to a third party against a partner or direct
customer based on a lawsuit alleging that such third party has suffff eff red personal injuryrr or tangible property damage legally
determined to have been caused by negligently designed or manufaff cturt ed products.
We have agreed to indemnifyff our directors and offff iff cers and our subsidiaries' directors and offff iff cers if they are made a
party or are threatened to be made a party to any proceeding (other than an action by or in the right of NetScout) by reason of
the faff ct that the indemnififf ed are agents of NetScout. The indemnity is forff
(including but not limited to, judgments, fiff nes and amounts paid in settlement) reasonabla y incurred by the directors or offff iff cers
in connection with the investigation, defeff nse, settlement or appe
al of such proceeding, provided they acted in good faff ith.
any and all expenses and liabia lities of any type
a
44
Liquidity and Capital Resources
Cash, cash equivalents and marketabla e securities consist of the folff
lowing (in thousands):
Cash and cash equivalents
Short-term marketabla e securities
Long-term marketabla e securities
Cash, cash equivalents and marketabla e securities
tt
CasCC h, cash equivalell ntstt and markerr
tabl
ell securitii itt es
At March 31,
(Dollars in Thousands)
2022
2021
$
$
636,161
$
467,176
67,037
—
9,277
—
703,198
$
476,453
At March 31, 2022, cash, cash equivalents and marketabla e securities (current and non-current) totaled $703.2 million.
This represents an increase of $226.7 million frff om $476.5 million at March 31, 2021. This increase was primarily due to $296.0
million in cash provided by operating activities, partially offff sff et by $35.7 million used in treasuryrr stock repurchases, $15.7
million used forff
forff
the payment of debt issuance costs during the fiff scal year ended March 31, 2022.
tax withholdings on restricted stock units, $10.4 million used forff
capia tal expenditurt es, and $3.7 million used
At Marchh 31, 2022, cashh, shhort-term a dnd ll gong-term iinvestments in the United States were $508.8 million, while cash held
outside of the United States was appr
a
oximately $194.4 million.
Cash and cash equivalents were impacted by the folff
lowing:
Net cash provided by operating activities
Net cash (used in) provided by investing activities
Net cash used in fiff nancing activities
Fiscal Year Ended March 31,
(Dollars in Thousands)
2022
2021
$
$
$
296,013
$
(68,353) $
(54,165) $
213,921
24,698
(118,307)
NeNN t cash frff om operatitt nii g actitt vitii itt es
FiFF sii cal year 2022 comparm ed to fiff sii cal year 2021
Cash provided by operating activities was $296.0 million during the fiff scal year ended March 31, 2022, compared to
$213.9 million of cash provided by operating activities during the fiff scal year ended March 31, 2021. This $82.1 million
increase was due in part to a $93.4 million increase frff om defeff rred revenue, a $32.4 million increase frff om accounts receivabla e, a
$16.5 million increase frff om net income, an $11.1 million increase frff om defeff rred income taxes, a $5.9 million increase frff om
accounts payabla e, and a $4.2 million increase frff om share-based compensation. These increases were partially offff sff et by a $29.6
million decrease frff om accruer d compensation and other expenses, a $24.5 million decrease frff om prepaid expenses and other
assets, a $10.0 million decrease frff om depreciation and amortization, a $9.8 million decrease frff om income taxes payabla e, a $6.0
million decrease frff om inventories, and a $1.8 million decrease frff om operating lease liabia lities during the fiff scal year ended
March 31, 2022 as compared with the fiff scal year ended March 31, 2021. Accounts receivabla e days sales outstanding was 64
days at March 31, 2022 compared to 75 days at March 31, 2021.
45
NeNN t cash frff om inii vestitt nii g actitt vitii itt es
Cash (used in) provided by investing activities included the folff
Purchase of marketabla e securities
lowing:
Proceeds frff om maturt
ity of marketabla e securities
Purchase of fiff xed assets
Purchase of intangible assets
(Increase) decrease in deposits
Fiscal Year Ended March 31,
(Dollars in Thousands)
2022
2021
$
$
(78,367) $
20,569
(10,350)
(50)
(155)
(68,353) $
(15,673)
56,806
(11,986)
(4,537)
88
24,698
Cash used in investing activities increased by $93.1 million to $68.4 million during the fiff scal year ended March 31, 2022,
compared to $24.7 million of cash provided by investing activities during the fiff scal year ended March 31, 2021.
Net cash outflff ows relating to the purchase and sales of marketabla e securities increased $98.9 million relating to the
amount of investments held at each respective balance sheet date, frff om an inflff ow of $41.1 million during the fiff scal year ended
March 31, 2021 to an outflff ow of $57.8 million durd ing the fiff scal year ended March 31, 2022.
During the fiff scal year ended March 31, 2021, we entered into an agreement to acquire technology licenses forff
$4.5
million.
Our investments in property and equipment consist primarily of computer equipment, demonstration units, offff iff ce
equipment and faff cility improvements. We plan to continue to invest in capia tal expenditurt es to support our infrff astrucrr
fiff scal year 2023.
turt e in our
NeNN t cash frff om fiff nii ancinii g actitt vitii itt es
Cash used in fiff nancing activities included the folff
lowing:
Issuance of common stock under stock plans
Payment of contingent consideration
Treasuryrr stock repurchases
Tax withholding on restricted stock units
Payment of debt issuance costs
Repayment of long-term debt
Proceeds frff om issuance of long-term debt
Collection of contingent consideration
Fiscal Year Ended March 31,
(Dollars in Thousands)
2022
2021
$
$
2
—
(35,653)
(15,691)
(3,660)
(350,000)
350,000
837
2
(1,748)
(3,275)
(13,286)
—
(100,000)
—
—
$
(54,165) $
(118,307)
Cash used in fiff nancing activities decreased $64.1 million to $54.2 million during the fiff scal year ended March 31, 2022,
compared to $118.3 million of cash used in fiff nancing activities during the fiff scal year ended March 31, 2021.
During the fiff scal year ended March 31, 2021, we paid $1.7 million of contingent purchase consideration related to the
Eastwind and Gigavation acquisitions.
During the fiff scal years ended March 31, 2022, and 2021, we repurchased 1,330,678 shares and 154,271 shares of our
common stock forff
$35.6 million and $3.3 million under our twenty-fiff ve million share repurchase program.
In connection with the deliveryrr of common shares upon vesting of restricted stock units, we have withheld
$15.7 million, and 506,917 shares forff
546,053 shares forff
requirements on these restricted stock units during the fiff scal years ended March 31, 2022 and 2021, respectively. These
withholding transactions do not faff ll under the repurchase program described above
is availabla e forff
$13.3 million related to minimum statutt oryrr
repurchase under that program.
tax withholding
, and thereforff e do not reduce the amount that
a
46
During the fiff scal year ended March 31, 2021, we repaid $100.0 million of borrowings under the Amended Credit
Agreement, respectively.
During the fiff scal year ended March 31, 2022, we paid $3.7 million in debt issuance costs related to the execution of our
Second Amended and Restated Credit Agreement.
During the fiff scal year ended March 31, 2022, we collected $0.8 million of contingent consideration which represented
earnout payments that were contingent upon achievement of certain milestones related to the HNT tools business divestiturt e in
September 2018.
SouSS rces of CasCC h and CasCC h Requirii ementstt
CrCC editii FacFF ilii ill tii ytt
On Januaryrr 16, 2018, we amended and expanded our existing credit agreement (Amended Credit Agreement), which
a fiff ve-year, $1.0 billion senior secured revolving credit faff cility, including a letter of credit sub-faff cility of up to
provided forff
$75.0 million. The commitments under the Amended Credit Agreement were set to expire on Januaryrr 16, 2023, and any
outstanding loans were due on that date.
On July 27, 2021, we amended and extended the Amended Credit Agreement (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, BofAff Securities Inc., RBC Capia tal Markets,
PNC Capia tal Markets LLC and Mizuho Bank, Ltd., as joint lead arrangers and joint bookrunne
Bank National Association, Fiftff h Third Bank National Association, Silicon Valley Bank and TD Bank, N.A., as co-
documentation agents; and the lenders party thereto.
rs; Santander Bank, N.A., U.S.
rr
The Second Amended and Restated Credit Agreement provides forff
a fiff ve-year, $800.0 million senior secured revolving
credit faff cility, including a letter of credit sub-faff cility of up to $75.0 million. We may elect to use the credit faff cility for general
corpor
es (including to fiff nance the repurchase of shares of our common stock). The commitments under the Second
rr
Amended and Restated Credit Agreement will expire on July 27, 2026, and any outstanding loans will be due on that date.
ate purpos
r
In connection with the Second Amended and Restated Credit Agreement, we paid offff the outstanding balance of $350
million under the Amended Credit Agreement on July 27, 2021 by borrowing the same amount under the Second Amended and
Restated Credit Agreement. Additionally, we recorded a loss on the extinguishment of debt of $0.6 million, representing the
write offff of unamortized defeff rred fiff nancing costs, which was included in interest expense in the consolidated statements of
operations forff
Amended and Restated Credit Agreement.
the fiff scal year ended March 31, 2022. At March 31, 2022, $350 million was outstanding under the Second
At our election, revolving loans under the Second Amended and Restated Credit Agreement bear interest at either (a) an
the interest period selected by NetScout, subject to customaryrr provisions regarding succession frff om LIBO
icabla e margin. For
Alternate Base Rate per annum equal to the greatest of (1) the Wall Street Journal prime rate; (2) the New York Federal
Reserve Bank (NYFRB) rate plus 0.50%, or (3) an adjusted one month LIBO rate plus 1%; or (b) a Term Benchmark
Borrowing rate (forff
rate to SOF rate in anticipation of the upcoming discontinuation of the LIBO rate), in each case plus an appl
the period frff om the deliveryrr of the Company's fiff nancial statements forff
delivered fiff nancial statements forff
Benchmark Revolving loans and 0.25% per annum forff Alternate Base Rate loans, and thereaftff er the appl
depending on our consolidated gross leverage ratio, ranging frff om 1.00% per annum forff Alternate Base Rate loans and 2.00%
per annum forff Term Benchmark Revolving loans if our consolidated gross leverage ratio is greater than 3.50 to 1.00, down to
0.00% per annum forff Alternate Base Rate loans and 1.00% per annum forff Term Benchmark Revolving loans if our
consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.
icabla e margin will be 1.25% per annum forff Term
a
the quarter ended December 31, 2021, until we have
the quarter ended March 31, 2022, the appl
icabla e margin will varyrr
a
a
Our consolidated gross leverage ratio is the ratio of our total funde
d debt compared to our consolidated EBITDA as
defiff ned in the Second Amended and Restated Credit Agreement (adjusted consolidated EBITDA). Adjusted consolidated
EBITDA includes certain adjustments, including, without limitation, adjustments relating to extraordinary,rr
recurring charges, certain restrucr
adjustments in connection with material acquisitions and dispositions, all as set forff
th in detail in the Second Amended and
Restated Credit Agreement. Our secured net leverage ratio is the ratio of our Consolidated Total Debt minus the lesser of
unrestricted cash and 125% of adjusted consolidated EBITDA compared to our adjusted consolidated EBITDA. The
Company’s maximum secured net leverage ratio is 4.00 to 1.00.
ing charges, non-cash charges, certain transaction costs and expenses and certain pro forff ma
unusual or non-
turt
ff
on the daily unused amount of the credit faff cility. For the period frff om the deliveryrr of the
Commitment feff es will accruer
the quarter ended December 31, 2021, until we have delivered fiff nancial statements forff
Company's fiff nancial statements forff
quarter ended March 31, 2022, the commitment feff e will be 0.20% per annum, and thereaftff er the commitment feff e will varyrr
the
47
depending on our consolidated gross leverage ratio, ranging frff om 0.30% per annum if our consolidated gross leverage ratio is
greater than 2.75 to 1.00, down to 0.15% per annum if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.
Letter of credit participation feff es are payabla e to each lender providing the letter of credit sub-faff cility on the amount of
such lender's letter of credit exposure, during the period frff om 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 the appl
icabla e rate that would be used to determine the
interest rate appl
Additionally, we will pay a frff onting feff e to each issuing bank in amounts to be agreed to between us and the appl
bank.
icabla e to Term Benchmark Revolving loans assuming such loans were outstanding during the period.
icabla e issuing
a
a
a
Interest on Alternate Base Rate loans is payabla e at the end of each calendar quarter. Interest on Term Benchmark
Revolving loans is payabla e at the end of each interest rate period or at the end of each three-month interval within an interest
rate period if the period is longer than three months. We may also prepay loans under the Second Amended and Restated Credit
Agreement at any time, without penalty, subject to certain notice requirements.
The loans and other obligations under the credit faff cility are (a) guaranteed by each of our wholly-owned material
domestic restricted subsidiaries, subject to certain exceptions, and (b) are secured by substantially all of the assets of us and the
subsidiaryrr guarantors, including a pledge of all the capia tal stock of material subsidiaries held directly by the Borrower and the
subsidiaryrr guarantors (which pledge, in the case of any forff eign subsidiary,rr
is limited to 65% of the voting stock), subject to
certain customaryrr exceptions and limitations. The Second Amended and Restated Credit Agreement generally prohibits any
other liens on the assets of NetScout and our restricted subsidiaries, subject to certain exceptions as described in the Second
Amended and Restated Credit Agreement.
The Second Amended and Restated Credit Agreement contains certain covenants appl
a
icabla e to us and our restricted
subsidiaries, including, without limitation, limitations on additional indebtedness, liens, various funda
and distributions, investments (including acquisitions), transactions with affff iff liates, asset sales, including sale-leaseback
transactions, speculative hedge agreements, payment of junior fiff nancing, changes in business and other limitations customaryrr
senior secured credit faff cilities. The Second Amended and Restated Credit Agreement requires us to maintain a certain
consolidated net leverage ratio and removes the previous requirement under the Amended Credit Agreement that we maintain a
minimum consolidated interest coverage ratio. These covenants and limitations are more fulff
Amended and Restated Credit Agreement. As of March 31, 2022, we were in compliance with these covenants, including the
specififf ed total consolidated net leverage ratio range of 4.00 to 1.00.
ly described in the Second
mental changes, dividends
in
ff
The Second Amended and Restated Credit Agreement provides that events of defaff ult will exist in certain circumstances,
including faff ilure to make payment of principal or interest on the loans when required, faff ilure to perforff m certain obligations
under the Second Amended and Restated Credit Agreement and related documents including a faff ilure to meet the maximum
total secured net leverage ratio covenant, defaff ults under certain other indebtedness, certain insolvency events, certain events
arising under ERISA, a change of control and certain other events. Upon an event of defaff ult, the administrative agent with the
consent of,ff or at the request of,ff the holders of more than 50% in principal amount of the loans and commitments, may terminate
the commitments and accelerate the maturt
Restated Credit Agreement and the other loan documents.
ity of the loans and enforff ce certain other remedies under the Second Amended and
We had unamortized capia talized debt issuance costs, net of $$4.8 miilllliion at Marchh 31, 2022, whihichh are bbeii gng amortiizedd
over thhe lliifeff of thhe re
iincll dudedd as prepaiidd expenses a dnd othher current assets a dnd a bballance of $$3.7 miilllliion was iincluded as other assets in our
consolidated balance sheet at March 31, 2022.
lvol ivi gng credidit faff ciilliityy. Thhe unamortiizedd ca ipia talliizedd ddebbt iissuance costs bballance of $$1.1 miilllliion was
ConCC trtt actual Oblill gat
itt ons
i
Our contractuat
l obligations at March 31, 2022 consisted mainly of (i) principal and interest related to our long-term debt
obligations (see Long-Term Debt, Note 12 to the Consolidated Financial Statements), (ii) operating lease obligations (see
Leases, Note 18 to the Consolidated Financial Statements), (iii) unconditional purchase obligations, primarily under purchase
orders to purchase inventoryrr as well as commitments forff
Commitments and Contingencies, Note 19 to the Consolidated Financial Statements), and (iv) pension benefiff t plan (see Pension
Benefiff t Plans, Note 16 to the Consolidated Financial Statements).
products and services used in the normal course of business (see
At March 31, 2022, the total accruar
l of our retirement obligation forff
our chairman and CEO was $1.4 million. The
payment stream forff
this retirement obligation is based upon the retirement date which is currently not determinabla e.
48
At March 31, 2022, the total amount of net unrecognized tax benefiff ts forff
the
related interest was $0.7 million. We are unabla e to make a reliabla e estimate when cash settlement, if any, will occur with a tax
authority as the timing of examinations and ultimate resolution of those examinations is uncertain.
uncertain tax positions and the accruar
l forff
EExpeEE
ctattt
iitt ons fforff FiiFF sii c lal YeYY ar 2023
We are actiivellyy managigi gng thhe bbusiiness to ggenerate cashh fllff ow a dnd bbelliieve thhat we currentllyy hhave addequate llii
iquididityy. We
ff
bebelliieve thhat thhese faff ctors wiillll allllow us to meet our antiiciipatedd f
undi
di
gng re
iquirements.
We expect net cashh pr
ioviddedd byby operatii gng actii ivitiies combibinedd wiithh cashh, cashh e
iquivallents, a dnd markketablbla e securiitiies a dnd
dunder our re
borborrowii gng avaiillabibia lliityy
spe dindi gng, ddebbt ser ivice re
meet ll gonger-term expectedd futff urt e cashh re
actii ivitiies, avaiillablbla e cashh bballances, a dnd our re
lvol ivi gng credidit faff ciilliityy to pr
iquirements a dnd workiki gng ca ipia tall re
iovidde suffff iiff ciient llii
dund
iquirement over at lleast thhe next twellve monthhs. We bbelliieve we wiillll
current blobliiggatiions, ca ipia tall
ff
iquididityy to f
iquirements a dnd blobliiggatiions thhrough
ough a combibinatiion of cashh fllff ows frff om operatii gng
lvol ivi gng credidit faff ciilliityy.
Addidditiionallllyy, a portiion of our cashh mayy bbe usedd to ac
tech
hnologiogies, to repayy bborrowii gngs
l
thhe riightght to use com lplementaryyrr
or to repurchhase shhares of our common stockk thhrough
of bbusiiness, we evalluate potentiiall ac
are iinsuffff iiff ciient to satiisfyyff our llii
addidditiionall e
iquityy or ddebbt securiitiies c
iquididityy re
dunder our Sec dond Ame dndedd a dnd Restatedd Credidit Aggreement,
ough our stockk repurchhase pr gograms. From tiime to tiime, iin thhe ordidinaryyrr course
iquididityy
iquisiitiions of suchh bbusiinesses, pr doducts or tech
l
hnologiogies. If our e ixistii gng sources of llii
iquityy or ddebbt securiitiies. Thhe salle of
iquirements, we mayy seekk to sellll addidditiionall e
louldd res lult iin addidditiionall didillutiion to our stockh l
kholdders.
iquire or iinvest iin com lplementaryyrr bbusiinesses or pr doducts, to bobtaiin
Recent Accounting Standards
For inforff mation with respect to recent accounting pronouncements on our consolidated fiff nancial statements, See Note 2
contained in the "Notes to Consolidated Financial Statements" included in Part IV of this Annual Report on Form 10-K.
49
ItII ett m 7A. Quantitt tii attt
itt ve and Qualill tii attt
itt ve Disii closll ures About MarMM kerr
t Risii k
IntII erest Rate Risii k. We hold our cash, cash equivalents and investments forff working capia tal purpos
r
es. Some of the
te. To minimize this risk, we maintain our portfolff
securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the principal
amount of the investment to flff uctuat
investments in a variety of securities, including money market funds
flff uctuat
ting interest rates is limited to our investment portfolff
we do not have any material exposure to changes in the faff ir value of our investment portfolff
rates. Declines in interest rates, however, would reduce futff urt e interest income. The effff eff ct of a hypothetical 10% increase or
decrease in overall interest rates would not have had a material impact on our operating results or the total faff ir value of the
portfolff
and government debt securities. The risk associated with
io. Due to the short-term naturt e of these instrumrr
io as a result of changes in interest
io of cash, cash equivalents and
io.
ff
ents, we believe that
We are exposed to market risks related to flff uctuat
tions in interest rates related to our credit faff cility. At March 31, 2022,
we owed $350 million on this loan with an interest rate of 1.71%. A sensitivity analysis was perforff med on the outstanding
portion of our debt obligation as of March 31, 2022. Should the current weighted average interest rate increase or decrease by
10%, the resulting annual increase or decrease to interest expense would be appr
oximately $599 thousand as of March 31, 2022.
a
CrCC edit Risii k. Our cash equivalents and marketabla e securities consist primarily of money market instrumr
ents, U.S.
Treasuryrr bills, certififf cates of deposit, commercial papea
rr
r, corpor
ate bonds and municipal obligations.
At March 31, 2022 and periodically throughout the year, we have maintained cash balances in various operating accounts
ion by evaluating the
in excess of feff derally insured limits. We limit the amount of credit exposure with any one fiff nancial institutt
ions with which we invest.
creditworthiness of the fiff nancial institutt
ForFF eigni CurCC rencyc ExEE change Risii k. As a result of our forff eign operations, we faff ce exposure to movements in forff eign
currency exchange rates, primarily the Euro, British Pound, Canadian Dollar and Indian RupeRR
primarily frff om expenses denominated in forff eign currencies. We currently engage in forff eign currency hedging activities in order
to limit these exposures. We do not use derivative fiff nancial instrumr
e. The current exposures arise
speculative trading purpos
ents forff
es.
r
At March 31, 2022, we had forff eign currency forff ward contracts designated as hedging instrumr
ents with notional amounts
totaling $5.6 million. The valuation of outstanding foff reign currency forff ward contracts at March 31, 2022 resulted in a liabia lity
balance of $78 thousand, reflff ecting unfaff vorabla e contract rates in comparison to current market rates at this date and an asset
balance of $20 thousand, reflff ecting faff vorabla e rates in comparison to current market rates. At March 31, 2021, we had forff eign
currency forff ward contracts designated as hedging instrumr
currency forff ward contracts not designated as hedging instrumr
outstanding forff eign currency forff ward contracts (both designated and not designated as hedging instrumrr
ents) at March 31, 2021
resulted in a liabia lity balance of $191 thousand, reflff ecting unfaff vorabla e contract rates in comparison to current market rates and
an asset balance of $57 thousand, reflff ecting faff vorabla e rates in comparison to current market rates at this date. The effff eff ct of a
a
hypothetical 10% change in forff eign currency exchange rates appl
historical consolidated fiff nancial statements. As our international operations grow, we will continue to reassess our appr
manage our risk relating to flff uctuat
ents with notional amounts totaling $11.0 million and forff eign
ents with a notional amount of $6.4 million. The valuation of
icabla e to our business would not have a material impact on our
tions in currency rates.
oach to
a
50
ItII ett m 8. FiFF nii ancial StSS attt ett mentstt and Supplu
ell mentartt
yr Datatt
Our Consolidated Financial Statements and Schedule and Report of Independent Registered Public Accounting Firm
a
appe
ar beginning on page F-1 attached to this report.
ItII ett m 9. ChCC anges inii and Disii agreementstt witii htt Accountantt
tstt on Accountitt nii g and FiFF nii ancial Disii closll ure
There have been no changes in or disagreements with accountants on accounting or fiff nancial disclosure matters.
ItII ett m 9A. ConCC trtt olsll and PrPP ocedures
Evaluation of Disii closure ContCC rt olsll and Procedures
As of March 31, 2022, NetScout, under the supervision and with the participation of our management, including our
principal executive offff iff cer and principal fiff nancial offff iff cer, evaluated the effff eff ctiveness of the design and operation of our
disclosure controls and procedures pursuant to RulRR e 13a-15(b) promulgated under the Exchange Act. Based upon that
evaluation, our principal executive offff iff cer and principal fiff nancial offff iff cer concluded that, as of March 31, 2022 our disclosure
controls and procedures were effff eff ctive in ensuring that material inforff mation relating to NetScout, including its consolidated
subsidiaries, required to be disclosed by NetScout in the reports that it fiff les or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specififf ed in the SEC’s rulr es and forff ms, including ensuring that
such material inforff mation is accumulated and communicated to our management, including our principal executive offff iff cer and
principal fiff nancial offff iff cer, as appr
opriate, to allow timely decisions regarding required disclosure.
a
CC
Change
s in IntII ernal ContCC rt ol over FiFF nancial Repor
e
ting
During the quarter e dndedd Marchh 31, 2022, thhere were no chha gnges iin our iinternall contr lol over fiiff nanciiall reportii gng thhat hhave
materiiallllyy affff eff ctedd, or are reasonablbla yy lliikkellyy to materiiallllyy affff eff ct, our iinternall contr lol over fiiff nanciiall reportii gng.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible forff
establa ishing and maintaining adequate internal control over fiff nancial reporting as such
term is defiff ned in Exchange Act RulRR e 13a-15(f)ff . Our internal control over fiff nancial reporting was designed to provide
reasonabla e assurance regarding reliabia lity of fiff nancial reporting and the preparation of fiff nancial statements forff
external purpos
in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over fiff nancial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effff eff ctiveness to futff urt e periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate. Our management assessed the effff eff ctiveness of our internal control over financial
reporting as of March 31, 2022. In making this assessment, our management used the criteria set forff
th by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework in 2013. Based on
our assessment, we concluded that our internal control over fiff nancial reporting was effff eff ctive as of March 31, 2022.
r
es
The effff eff ctiveness of our internal control over fiff nancial reporting as of March 31, 2022 has been audited by
a
PricewaterhouseCoopers LLP, an independent registered public accounting fiff rm, as stated in their report which appe
ars herein.
ItII ett m 9B. Othtt er InII fn orff mrr atitt on
None.
ItII ett m 9C.CC Disii closll ure Regar
e
dinii g ForFF eigni
Jurisii dictitt ons thtt at PrPP event InII spes
ctitt ons
a
Not appl
icabla e.
51
ItII ett m 10. Dirii ectortt
srr ,s ExeEE cutitt ve OfO fff iff cersrr and CorCC por
rr
PART III
atett GovG ernance
The inforff mation required by this Item 10 will be included under the capta ions "Directors and Executive Offff iff cers,"
"Proposal 1 Election of Directors," "Delinquent Section 16(a) Reports," "Corpor
of Directors and its Committees" and "Corpor
Annual Meeting of Stockholders to be fiff led with the SEC no later than 120 days aftff er the end of the fiff scal year covered by this
Annual Report and is incorpor
ate Governance" in our defiff nitive Proxy Statement with respect to our 2022
ate Governance -- Code of Ethics," "The Board
ated herein by refeff rence.
r
rr
r
We have adopted a written code of business conduct that appl
a
ies to all of our employees, offff iff cers and directors, including
our principal executive offff iff cer, principal fiff nancial offff iff cer and principal accounting offff iff cer. The code of business conduct and
ethics is availabla e on our corpor
Materials" in the "Corpor
grant any of our directors or executive offff iff cers any waiver, including any implicit waiver, frff om a provision of our code of
business conduct and ethics, we will disclose the naturt e of the amendment or waiver on our website or in a Current Report on
Form 8-K.
ate Governance" menu. If we make any substantive amendments to our code of business conduct or
ate website at ir.netscout.com under the section entitled "Governance Overview & Related
r
rr
ItII ett m 11. ExeEE cutitt ve ComCC pem nsatitt on
The inforff mation required by this Item 11 will be included under the capta ion "Compensation and Other Inforff mation
Concerning Directors and Executive Offff iff cers" in our defiff nitive Proxy Statement with respect to our 2022 Annual Meeting of
Stockholders to be fiff led with the SEC not later than 120 days aftff er the end of the fiff scal year covered by this Annual Report and
is incorpor
ated herein by refeff rence.
r
ItII ett m 12. SeSS curitii ytt Ownersrr hipii of CeCC rtaitt nii Benefe iff cial Ownersrr and ManMM agement and Relatll ett d StSS octt kholdell
r MatMM ttt ett rsrr
The inforff mation required by this Item 12 will be included under the capta ions "Security Ownership of Certain Benefiff cial
Owners and Management" and "Compensation and Other Inforff mation Concerning Directors and Executive Offff iff cers -- Equity
Compensation Plan Inforff mation" in our defiff nitive Proxy Statement with respect to our 2022 Annual Meeting of Stockholders to
be fiff led with the SEC not later than 120 days aftff er the end of the fiff scal year covered by this Annual Report and is incorpor
herein by refeff rence.
ated
rr
ItII ett m 13. CeCC rtaitt nii Relatll
itt onshipsii
and Relatll ett d TrTT ansactitt ons,s and Dirii ectortt
InII depeee ndence
The inforff mation required by this Item 13 will be included, as appl
ate Governance --
Director Independence," "Compensation and Other Inforff mation Concerning Directors and Executive Offff iff cers -- Employment
and Other Agreements" and "Transactions with Related Persons" in our defiff nitive Proxy Statement with respect to our 2022
Annual Meeting of Stockholders to be fiff led with the SEC not later than 120 days aftff er the end of the fiff scal year covered by this
Annual Report and is incorpor
icabla e, under the capta ions "Corpor
ated herein by refeff rence.
a
r
rr
ItII ett m 14. PrPP inii cipal
ii
Accountantt
t FeFF es and SeSS rvices
The inforff mation required by this Item 14 will be included under the capta ions "Auditors Fees and Services" and "Auditors
Fees and Services -- Policy on Audit Committee Pre-appr
Statement with respect to our 2022 Annual Meeting of Stockholders to be fiff led with the SEC not later than 120 days aftff er the
end of the fiff scal year covered by this Annual Report and is incorpor
oval of Audit and Non-Audit Services" in our defiff nitive Proxy
ated herein by refeff rence.
a
r
52
PART IV
ItII ett m 15. ExhEE ibii
tii stt and FiFF nii ancial StSS attt ett ment ScSS hedulell s
(a)
1.
Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at March 31, 2022 and 2021
Consolidated Statements of Operations for the Years Ended March 31, 2022, 2021 and 2020
F-2
F-4
F-5
Consolidated Statements of Comprehensive Income for the Years Ended March 31, 2022, 2021 and 2020
F-6
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended March 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
2.
Financial Statement Schedule.
Valuation and Qualifying Accounts for the Years Ended March 31, 2022, 2021 and 2020
F-7
F-8
F-9
S-1
No other fiff nancial statement schedules have been included because they are either not appl
inforff mation is in the consolidated fiff nancial statements.
a
icabla e or the
3.
Exhibits listed in the accompanying Index to Exhibits are fiff led or incorpor
report.
r
ated by refeff rence as part of this
(b)
(c)
.
We hereby fiff le as part of this Annual Report on Form 10-K the exhibits listed in Item 15(a)(3) above
a
We hereby fiff le as part of this Annual Report on Form 10-K the fiff nancial statement schedule listed in
.
Item 15(a)(2) above
a
53
3.1, 4.1
3.2, 4.2
4.3
4.4
10.1*
10.2
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
NetScout Systems, Inc.
Index to Exhibits
Composite conforff med copy of Third Amended and Restated Certififf cate of Incorpor
amended) (fiff led as Exhibit 3.2 to NetScout’s current report on Form 8-K, SEC File No. 000-26251, fiff led on
September 21, 2016, and incorpor
ated herein by refeff rence).
ation of NetScout (as
r
r
Amended and Restated By-laws of NetScout (fiff led as Exhibit 3.1 to NetScout’s current Report on Form 8-
K, SEC File No. 000-26251, fiff led on May 11, 2020 and incorpor
ated herein by refeff rence).
r
Specimen Certififf cate forff
Report on Form 10-K forff
2001, and incorpor
r
ated herein by refeff rence).
shares of NetScout’s Common Stock (fiff led as Exhibit 4.3 to NetScout’s Annual
the fiff scal year ended March 31, 2001, SEC File No. 000-26251, fiff led on June 29,
Description of Common Stock (fiff led as Exhibit 4.4 to NetScout's Annual Report on Form 10-K forff
fiff scal year ended March 31, 2020, SEC File No. 000-26251, fiff led on May 20, 2020 and incorpor
by refeff rence).
rr
the
ated herein
Form of Amended and Restated Indemnififf cation Agreement between NetScout and each director and
the quarterly
executive offff iff cer fiff led as Exhibit 10.1 to NetScout's Quarterly Report on Form 10-Q forff
period ended December 31, 2013, SEC File No. 000-26251, fiff led Januaryrr 28, 2014, and incorpor
ated
herein by refeff rence).
r
Lease between Arturt o J. Gutierrez and John A. Cataldo, Trusr
dated April 27, 2000 and recorded with the Middlesex North Registryrr of Deeds in Book 10813, Page 38
and NetScout forff Westforff d Technology Park West, as amended (fiff led as Exhibit 10.26 to NetScout’s
Annual Report on Form 10-K forff
June 29, 2001, and incorpor
the fiff scal year ended March 31, 2001, SEC File No. 000-26251, fiff led on
tees of Nashoba Westforff d Realty Trusr
ated herein by refeff rence).
t, u/d/t
r
Agreement Relating to Employment, dated Januaryrr 3, 2007, by and between NetScout and Anil K. Singhal
(fiff led as Exhibit 10.2 to NetScout’s Current Report on Form 8-K, SEC File No. 000-26251, fiff led on
Januaryrr 5, 2007 and incorpor
ated herein by refeff rence).
r
Amendment No. 1, dated Februar
ryrr 2, 2007, to Agreement Relating to Employment by and between the
Company and Anil K. Singhal (fiff led as exhibit 10.1 to NetScout’s Quarterly Report on Form 10-Q forff
quarterly period ended December 31, 2006, SEC File No. 000-26251, fiff led Februar
r
incorpor
ated herein by refeff rence).
ryrr 5, 2007 and
the
Amendment No. 2, dated December 22, 2008, to Agreement Relating to Employment by and between the
the
Company and Anil K. Singhal (fiff led as exhibit 10.1 to NetScout’s Quarterly Report on Form 10-Q forff
quarterly period ended December 31, 2008, SEC File No. 000-26251, fiff led Februar
r
incorpor
ated herein by refeff rence).
ryrr 6, 2009 and
Amendment No. 3, dated May 28, 2012, to Agreement Relating to Employment, by and between the
Company and Anil K. Singhal (fiff led as Exhibit 10.3 to NetScout’s Current Report on Form 8-K, SEC File
No. 000-26251, fiff led on June 1, 2012 and incorpor
ated herein by refeff rence).
r
NetScout Systems, Inc. 2007 Equity Incentive Plan, as amended (fiff led as Appendix A to the Registrant’s
Defiff nitive Proxy Statement on Schedule 14A, SEC File No. 000-26251, fiff led with the Commission on July
28, 2015 and incorpor
ated herein by refeff rence).
rr
NetScout Form of Restricted Stock Unit Agreement with respect to the NetScout 2007 Equity Incentive
Plan (fiff led as Exhibit 99.2 to NetScout’s Registration Statement on Form S-8, SEC File No. 333-148364,
fiff led on December 27, 2007 and incorpor
ated herein by refeff rence).
r
Form of Amended and Restated Severance Agreement forff Named Executive Offff iff cers (other than the CEO
and CFO) (fiff led as Exhibit 10.1 to NetScout’s Current Report on Form 8-K, SEC File No. 000-26251, fiff led
on June 1, 2012 and incorpor
ated herein by refeff rence).
rr
Amended and Restated Severance Agreement, dated May 28, 2012, by and between the Company and Jean
Bua (fiff led as Exhibit 10.2 to NetScout’s Current Report on Form 8-K, SEC File No. 000-26251, fiff led on
June 1, 2012 and incorpor
ated herein by refeff rence).
r
54
10.11
10.12*
10.13*
10.14
10.15*
10.16*
10.17*
21
23
31.1
31.2
32.1†
32.2†
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Third Amendment Agreement, dated August 10, 2010, to that certain Lease, dated August 17, 2000, as
amended, between the Company and Westforff d West I Limited Partnership, as successor to Arturt o J.
Gutierrez and John A. Cataldo, Trusr
(fiff led as Exhibit 10.1 to NetScout’s Quarterly Report on Form 10-Q forff
September 30, 2010, SEC File No. 000-26251, fiff led November 9, 2010 and incorpor
refeff rence).
the quarterly period ended
ated herein by
tees of Nashoba Westforff d Realty Trusr
t, u/d/t dated April 27, 2000
r
NetScout Systems, Inc. Amended and Restated 2011 Employee Stock Purchase Plan (fiff led as Exhibit 10.1
to NetScout’s Current Report on Form 8-K, SEC File No. 000-26251, fiff led on September 13, 2018 and
r
incorpor
ated herein by refeff rence).
Form of Amendment to Amended and Restated Severance Agreement forff Executive Offff iff cers (fiff led as
Exhibit 10.9 to NetScout’s Quarterly Report on Form 10-Q forff
2014, SEC File No. 000-26251, fiff led on Januaryrr 27, 2015 and incorpor
the quarterly period ended December 31,
ated herein by refeff rence).
r
Second Amendment and Restatement Agreement, dated as of July 27, 2021, to the Amended and Restated
Credit Agreement, dated as of Januaryrr 16, 2018, by and among NetScout Systems, Inc., as borrower;
certain subsidiaries of NetScout Systems, Inc., as loan parties; the lenders and issuing banks party thereto
and JPMorgan Chase Bank, N.A., as administrative agent attaching the Second Amended and Restated
Credit Agreement, dated as of July 27, 2021, by and among NetScout Systems, Inc., as borrower;
JPMorgan Chase Bank, N.A., as administrative agent and collateral agent; JPMorgan Chase Bank, N.A.,
Wells Fargo Securities, LLC, BofAff Securities Inc., RBC Capia tal Markets, PNC Capia tal Markets LLC and
Mizuho Bank, Ltd., as joint lead arrangers and joint bookrunne
National Association, Fiftff h Third Bank, National Association, Silicon Valley Bank and TD Bank, N.A. as
co-documentation agents; and the lenders and issuing banks party thereto (fiff led as Exhibit 10.5 to
NetScout's current report on Form 8-K, SEC File No. 000-26251, fiff led on July 27, 2021 and incorpor
rr
herein by refeff rence).
rs; Santander Bank, N.A., U.S. Bank
ated
rr
Summaryrr of Non-Employee Director Compensation (fiff led as Exhibit 10.2 to NetScout's Quarterly Report
on Form 10-Q forff
November 4, 2021 and incorpor
the quarterly period ended September 30, 2021, SEC File No. 000-26251, fiff led on
ated herein by refeff rence.
r
NetScout Systems, Inc. 2019 Equity Incentive Plan, as amended and restated (fiff led as Exhibit 99.1 to
NetScout’s Registration Statement on Form S-8, SEC File No. 333-248786, fiff led on September 14, 2020
and incorpor
ated herein by refeff rence).
rr
Form of Restricted Stock Unit Agreement with respect to the NetScout Systems, Inc. 2019 Equity
Incentive Plan (fiff led as Exhibit 10.1 to NetScout’s Quarterly Report on Form 10-Q forff
ended December 31, 2019, SEC File No. 000-26251, fiff led on Februar
refeff rence).
ryrr 6, 2020 and incorpor
the quarterly period
ated herein by
r
Subsidiaries of NetScout (fiff led herewith).
Consent of PricewaterhouseCoopers LLP (fiff led herewith).
Certififf cation Pursuant to Section 302 of the Sarbar nes-Oxley Act of 2002 (fiff led herewith).
Certififf cation Pursuant to Section 302 of the Sarbar nes-Oxley Act of 2002 (fiff led herewith).
Certififf cation Pursuant to Section 906 of the Sarbar nes–Oxley Act of 2002 (furff nished herewith).
Certififf cation Pursuant to Section 906 of the Sarbar nes–Oxley Act of 2002 (furff nished herewith).
XBRL Instance Document - the instance document does not appe
a
XBRL tags are embedded within the Inline XBRL document.
ar in the Interactive Data File because its
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Defiff nition Linkbase Document.
XBRL Taxonomy Extension Labea
l Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
The cover page frff om the Company's Annual Report on Form 10-K forff
2022 forff matted in Inline XBRL
the fiff scal year ended March 31,
55
*
†
Indicates a management contract or compensatoryrr plan or arrangement.
Exhibit has been furff nished, is not deemed fiff led and is not to be incorpor
Company's fiff lings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, irrespective of any general incorpor
ation language contained in any such fiff ling
ated by refeff rence into any of the
r
r
ItII ett m 16. ForFF mrr
10-K- Summaryr
Not provided.
56
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
NETSCOUT SYSTEMS, INC.
By:
/S/ ANIL K. SINGHAL
Anil K. Singhal
President, Chief Executive Offff iff cer,
and Chairman
Date: May 19, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the folff
lowing
persons on behalf of the registrant and in the capaa
cities and on the dates indicated.
Signature
g
Title(s)( )
Date
/S/ ANIL K. SINGHAL
Anil K. Singhal
President, Chief Executive Offff iff cer,
and Chairman (Principal
Executive Offff iff cer)
/S/
JEANAA BUA
Jean Bua
Executive Vice President and Chief Financial
Offff iff cer (Principal Financial
Offff iff cer and Principal Accounting
Offff iff cer)
May 19, 2022
May 19, 2022
/S/ MICHAEL SZABADOS
Chief Operating Offff iff cer and Vice Chairman
May 19, 2022
Michael Szabados
/S/ ROBERT E. DONAHUE
Director
Robert E. Donahue
/S/
JOHN R. EGANAA
John R. Egan
Director
/S/ ALFRED GRAR SSO
Director
Alfrff ed Grasso
/S/
JOSEPH G. HADZIMA, JR.
Director
Joseph G. Hadzima, Jr.
/S/ CHRISTOPHER PERRETTA
Director
Christopher Perretta
/S/ SUSANAA L. SPRAR DLEY
Director
Susan L. Spradley
/S/ VIVIANAA VITALE
Director
Vivian Vitale
57
May 19, 2022
May 19, 2022
May 19, 2022
May 19, 2022
May 19, 2022
May 19, 2022
May 19, 2022
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left blank.
NetScout Systems, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets at March 31, 2022 and 2021
Consolidated Statements of Operations for the Years Ended March 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended March 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended March 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of NetScout Systems, Inc.
OpiOO nii ions on thtt e FiFF nii ancial StSS attt ett mentstt and InII tett rnrr al ConCC trtt ol over FiFF nii ancial Repor
ee
titt nii g
We have audited the accompanying consolidated balance sheets of NetScout Systems, Inc. and its subsidiaries (the "Company")
as of March 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive income (loss),
stockholders' equity and cash flff ows forff
and fiff nancial statement schedule listed in the index appe
fiff nancial statements"). We also have audited the Company's internal control over fiff nancial reporting as of March 31, 2022,
based on criteria establa ished in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
each of the three years in the period ended March 31, 2022, including the related notes
aring under Item 15(a)(2) (collectively refeff rred to as the "consolidated
a
In our opinion, the consolidated fiff nancial statements refeff rred to above
position of the Company as of March 31, 2022 and 2021, and the results of its operations and its cash flff ows forff
years in the period ended March 31, 2022 in conforff mity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effff eff ctive internal control over fiff nancial
reporting as of March 31, 2022, based on criteria establa ished in Internal Control - Integrated Framework (2013) issued by the
COSO.
present faff irly, in all material respects, the fiff nancial
a
each of the three
Basisii forff OpiOO nii ions
these consolidated fiff nancial statements, forff maintaining effff eff ctive internal
its assessment of the effff eff ctiveness of internal control over fiff nancial reporting, included
The Company's management is responsible forff
control over fiff nancial reporting, and forff
in Management's Report on Internal Control Over Financial Reporting appe
express opinions on the Company's consolidated fiff nancial statements and on the Company's internal control over fiff nancial
reporting based on our audits. We are a public accounting fiff rm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
icabla e rulr es and regulations of the Securities and Exchange Commission and the PCAOB.
feff deral securities laws and the appl
aring under Item 9A. Our responsibility is to
a
a
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perforff m the
audits to obtain reasonabla e assurance about
whether the consolidated fiff nancial statements are frff ee of material misstatement,
whether due to error or frff aud, and whether effff eff ctive internal control over fiff nancial reporting was maintained in all material
respects.
a
Our audits of the consolidated fiff nancial statements included perforff ming procedures to assess the risks of material misstatement
of the consolidated fiff nancial statements, whether due to error or frff aud, and perforff ming procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
fiff nancial statements. Our audits also included evaluating the accounting principles used and signififf cant estimates made by
management, as well as evaluating the overall presentation of the consolidated fiff nancial statements. Our audit of internal
control over fiff nancial reporting included obtaining an understanding of internal control over fiff nancial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effff eff ctiveness of internal control based
on the assessed risk. Our audits also included perforff ming such other procedures as we considered necessaryrr
circumstances. We believe that our audits provide a reasonabla e basis forff
our opinions.
in the
Defe iff nii itii itt on and Limii
itii attt
itt ons of InII tett rnrr al ConCC trtt ol over FiFF nii ancial Repor
ee
titt nii g
A company's internal control over fiff nancial reporting is a process designed to provide reasonabla e assurance regarding the
reliabia lity of fiff nancial reporting and the preparation of fiff nancial statements forff
es in accordance with generally
accepted accounting principles. A company’s internal control over fiff nancial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonabla e detail, accurately and faff irly reflff ect the transactions and
dispositions of the assets of the company; (ii) provide reasonabla e assurance that transactions are recorded as necessaryrr
preparation of fiff nancial statements in accordance with generally accepted accounting principles, and that receipts and
expenditurt es of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonabla e assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effff eff ct on the fiff nancial statements.
external purpos
r
to permit
F-2
Because of its inherent limitations, internal control over fiff nancial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effff eff ctiveness to futff urt e periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
CrCC itii itt cal Auditii MatMM ttt ett rsrr
The critical audit matter communicated below is a matter arising frff om the current period audit of the consolidated fiff nancial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated fiff nancial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
fiff nancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue frff om ContCC rt actstt withtt CusCC tomersrr - IdeII ntifi iff cation of Disii tinct Perfr orff mance Obligat
i
ions
As described in Note 3 to the consolidated fiff nancial statements, the Company derives revenues primarily frff om the sale of
network management tools and security solutions forff
ise customers, which include hardware,
softff ware and service offff eff rings. Customer contracts may include promises to transfeff r multiple products and services to a
customer. Determining whether the products and services are considered distinct perforff mance obligations that should be
accounted forff
March 31, 2022, the Company recognized revenue frff om contracts with customers of $855.6 million.
separately or as one combined perforff mance obligation may require signififf cant judgment. During the year ended
service provider and enterprr
our determination that perforff ming procedures relating to revenue frff om contracts with
The principal considerations forff
customers, specififf cally the identififf cation of distinct perforff mance obligations, is a critical audit matter are the signififf cant
judgment by management in determining whether the products and services are considered distinct perforff mance obligations that
should be accounted forff
judgment, subjectivity and effff orff
obligations.
separately or as one combined perforff mance obligation, which in turt n led to a high degree of auditor
t in perforff ming procedures to evaluate management’s identififf cation of distinct performance
Addressing the matter involved perforff ming procedures and evaluating audit evidence in connection with forff ming our overall
opinion on the consolidated fiff nancial statements. These procedures included testing the effff eff ctiveness of controls relating to the
revenue recognition process, including controls over the identififf cation of distinct perforff mance obligations. These procedures
also included, among others, (i) testing management’s process forff
evaluating the revenue recognition impact of contractuat
l terms and conditions by examining customer contracts on a test basis.
identifyiff ng distinct perforff mance obligations, and (ii)
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
May 19, 2022
We have served as the Company’s auditor since 1993.
F-3
NetScout Systems, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)
doubtfulff
accounts of $1,649 and
Assets
Current assets:
Cash and cash equivalents
Marketabla e securities
Accounts receivabla e and unbilled costs, net of allowance forff
$416 at March 31, 2022 and 2021, respectively
Inventories and defeff rred costs
Prepaid income taxes
Prepaid expenses and other current assets
Total current assets
Fixed assets, net
Operating lease right-of-ff use assets
Goodwill
Intangible assets, net
Defeff rred income taxes
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabia lities:
Accounts payabla e
Accruer d compensation
Accruer d other
Income taxes payabla e
Defeff rred revenue and customer deposits
Current portion of operating lease liabia lities
Total current liabia lities
Other long-term liabia lities
Defeff rred tax liabia lity
Accruer d long-term retirement benefiff ts
Long-term defeff rred revenue and customer deposits
Operating lease liabia lities, net of current portion
Long-term debt
Total liabia lities
Commitments and contingencies (Note 19)
Stockholders’ equity:
Prefeff rred stock, $0.001 par value: 5,000,000 shares authorized; no shares issued or
outstanding at March 31, 2022 and 2021
Common stock, $0.001 par value: 300,000,000 shares authorized; 126,425,383 and
124,197,974 shares issued and 74,102,293 and 73,751,615 shares outstanding at March 31,
2022 and 2021, respectively
Additional paid-in capa ital
Accumulated other comprehensive income (loss)
Treasuryrr stock at cost, 52,323,090 and 50,446,359 shares at March 31, 2022 and 2021,
respectively
Retained earnings
Total stockholders’ equity
Total liabia lities and stockholders’ equity
March 31,
2022
March 31,
2021
$
636,161
67,037
$
467,176
9,277
$
$
$
$
148,245
28,220
9,349
32,927
921,939
41,337
54,996
1,723,156
433,419
6,883
12,979
3,194,709
21,959
75,788
32,064
4,353
330,585
11,411
476,160
7,470
78,899
34,737
133,121
53,927
350,000
1,134,314
197,717
22,813
1,906
23,583
722,472
48,474
61,512
1,717,554
511,866
8,096
15,064
3,085,038
17,964
83,057
21,127
7,025
269,748
12,354
411,275
21,641
92,287
39,479
103,310
61,267
350,000
1,079,259
—
—
126
3,023,403
141
124
2,955,400
(1,940)
(1,373,840)
410,565
2,060,395
3,194,709
$
(1,322,496)
374,691
2,005,779
3,085,038
$
The accompanying notes are an integral part of these consolidated fiff nancial statements.
F-4
NetScout Systems, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Revenue:
Product
Service
Total revenue
Cost of revenue:
Product
Service
Total cost of revenue
Gross profiff t
Operating expenses:
Research and development
Sales and marketing
General and administrative
Amortization of acquired intangible assets
Restrucr
turt
ing charges
Total operating expenses
Income frff om operations
Interest and other expense, net:
Interest income
Interest expense
Other income (expense), net
Total interest and other expense, net
Income beforff e income tax expense
Income tax expense
Net income (loss)
Basic net income (loss) per share
Diluted net income (loss) per share
Weighted average common shares outstanding used in computing:
Net income (loss) per share—basic
Net income (loss) per share—diluted
Fiscal Year Ended March 31,
2022
2021
2020
$
410,121
$
377,721
$
445,454
855,575
90,730
123,456
214,186
641,389
171,131
264,191
97,692
59,741
—
592,755
48,634
297
(8,048)
2,009
(5,742)
42,892
7,018
35,874
0.48
0.48
74,019
75,084
$
$
$
$
$
$
453,561
831,282
95,965
126,132
222,097
609,185
179,163
242,730
88,969
61,131
62
572,055
37,130
646
(10,879)
(4,593)
(14,826)
22,304
2,952
19,352
0.26
0.26
73,103
73,822
$
$
$
438,341
453,479
891,820
122,832
119,360
242,192
649,628
188,294
276,523
99,994
64,505
2,674
631,990
17,638
4,528
(20,597)
355
(15,714)
1,924
4,678
(2,754)
(0.04)
(0.04)
75,162
75,162
The accompanying notes are an integral part of these consolidated fiff nancial statements.
F-5
NetScout Systems, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Net income (loss)
Other comprehensive income (loss):
Cumulative translation adjustments
Recognition of actuat
post-retirement plans, net of tax (benefiff t) of $824, ($657), and $590
rial net gains (losses) frff om pension and other
Changes in market value of investments:
Changes in unrealized (losses) gains, net of (benefiff t) tax of ($9), ($41),
and $39
Total net change in market value of investments
Changes in market value of derivatives:
Changes in market value of derivatives, net of tax (benefiff t) of $19,
$66, and ($25)
Reclassififf cation adjustment forff
income (loss), net of (benefiff t) tax of ($13), ($73), and $7
net (loss) gain included in net
Total net change in market value of derivatives
Other comprehensive income (loss)
Total comprehensive income (loss)
Fiscal Year Ended March 31,
2022
2021
2020
$
35,874
$
19,352
$
(2,754)
153
2,926
(1,644)
1,937
(1,548)
1,054
(29)
(29)
63
(43)
20
2,081
(130)
(130)
208
(236)
(28)
1,220
$
37,955
$
20,572
$
126
126
(78)
21
(57)
(521)
(3,275)
The accompanying notes are an integral part of these consolidated fiff nancial statements.
F-6
NetScout Systems, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
Common stock
Voting
Shares
Par
Value
Additional
Paid In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Treasury stock
Shares
Stated
Value
Retained
Earnings
Total
Stockholders'
Equity
Balance, March 31, 2019
119,760,132
$ 120
$2,828,922
$
(2,639) 42,149,771
$(1,119,063) $ 358,093
(2,754)
$
2,065,433
(2,754)
Net loss
Unrealized net investment gains
ents
Unrealized net losses on derivative
fiff nancial instrumrr
Cumulative translation adjustments
Recognition of actuat
frff om pension and other post-
retirement plan
rial net gains
Issuance of common stock pursuant
to vesting of restricted stock units
Stock-based compensation expense
forff
restricted stock units granted to
emplp oyey es
Issuance of common stock under
employee stock purchase plan
Repurchase of treasuryrr stock
Balance, March 31, 2020
Net income
Unrealized net investment losses
ents
Unrealized net losses on derivative
fiff nancial instrumrr
Cumulative translation adjustments
Recognition of actuat
rial net losses
frff om pension and other post-
retirement plan
Issuance of common stock pursuant
to vesting of restricted stock units
Stock-based compensation expense
forff
restricted stock units granted to
emplp oyey es
Issuance of common stock under
employee stock purchase plan
Repurchase of treasuryrr stock
Balance, March 31, 2021
Net income
Unrealized net investment losses
Unrealized net gains on derivative
fiff nancial instrumrr
Cumulative translation adjustments
Recognition of actuat
frff om pension and other post-
retirement plan
rial net gains
ents
Issuance of common stock pursuant
to vesting of restricted stock units
Stock-based compensation expense
forff
restricted stock units granted to
emplp oyey es
Issuance of common stock under
employee stock purchase plan
Repurchase of treasuryrr stock
Balance, March 31, 2022
126
(57)
(1,644)
1,054
1,651,284
2
594,661
48,404
14,227
122,006,077
122
2,891,553
(3,160) 49,785,171
(1,305,935)
7,635,400
(186,872)
355,339
19,352
(130)
(28)
2,926
(1,548)
1,630,228
2
561,669
49,418
14,429
124,197,974
124
2,955,400
(1,940) 50,446,359
(1,322,496)
661,188
(16,561)
374,691
35,874
(29)
20
153
1,937
1,728,994
2
498,415
53,421
14,582
1,876,731
(51,344)
126
(57)
(1,644)
1,054
2
48,404
14,227
(186,872)
1,937,919
19,352
(130)
(28)
2,926
(1,548)
2
49,418
14,429
(16,561)
2,005,779
35,874
(29)
20
153
1,937
2
53,421
14,582
(51,344)
126,425,383
$ 126
$3,023,403
$
141
52,323,090
$(1,373,840) $ 410,565
$
2,060,395
The accompanying notes are an integral part of these consolidated fiff nancial statements.
F-7
NetScout Systems, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Cash flff ows frff om operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to cash provided by operating activities, net
of the effff eff cts of acquisitions:
Depreciation and amortization
Loss on extinguishment of debt
Operating lease right-of-ff use assets
Loss on disposal of fiff xed assets
Share-based compensation expense associated with equity awards
Net change in faff ir value of contingent and contractuat
Accretion of contingent consideration
Defeff rred income taxes
Other gains
Changes in assets and liabia lities
l liabia lities
Accounts receivabla e and unbilled costs
Inventories
Prepaid expenses and other assets
Accounts payabla e
Accruerr d compensation and other expenses
Operating lease liabia lities
Income taxes payabla e
Defeff rred revenue
Net cash provided by operating activities
ity of marketabla e securities
Cash flff ows frff om investing activities:
Purchase of marketabla e securities
Proceeds frff om maturt
Purchase of fiff xed assets
Purchase of intangible assets
Acquisition of businesses, net of cash acquired
(Increase) decrease in deposits
Collection of contingent consideration
Net cash (used in) provided by investing activities
Cash flff ows frff om fiff nancing activities:
Issuance of common stock under stock plans
Payment of contingent consideration
Treasuryrr stock repurchases
Tax withholding on restricted stock units
Payment of debt issuance costs
Repayment of long-term debt
Proceeds frff om issuance of long-term debt
Collection of contingent consideration
Net cash used in fiff nancing activities
Effff eff ct of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents and restricted cash, beginning of year
Cash and cash equivalents and restricted cash, end of year
Supplemental disclosures of cash flff ow inforff mation:
Cash paid forff
Cash paid forff
Non-cash transactions:
interest
income taxes
to fiff xed assets
Transfeff rs of inventoryrr
Additions to property, plant and equipment included in accounts payabla e
Issuance of common stock under employee stock purchase plans
Contingent consideration related to acquisition, included in accruerr d other
Fiscal Year Ended March 31,
2021
2020
2022
$
35,874
$
19,352
$
(2,754)
95,784
596
10,292
5
56,074
(837)
—
(12,681)
(11)
49,322
(7,996)
(13,001)
4,211
2,391
(12,060)
(3,087)
91,137
296,013
(78,367)
20,569
(10,350)
(50)
—
(155)
—
(68,353)
2
—
(35,653)
(15,691)
(3,660)
(350,000)
350,000
837
(54,165) $
(4,510)
168,985
467,176
636,161
$
4,962
31,702
$
$
2,657
197
14,582
$
$
$
— $
105,828
—
10,004
236
51,892
—
—
(23,804)
(196)
16,878
(2,043)
11,483
(1,734)
31,955
(10,307)
6,684
(2,307)
213,921
(15,673)
56,806
(11,986)
(4,537)
—
88
—
24,698
2
(1,748)
(3,275)
(13,286)
—
(100,000)
—
—
(118,307) $
6,627
126,939
340,237
467,176
$
7,685
11,472
$
$
1,530
333
14,429
$
$
$
— $
116,104
—
10,504
16
50,861
798
(36)
(9,821)
(152)
21,472
1,501
13,839
(4,288)
32,812
(13,077)
(919)
8,163
225,023
(117,383)
144,322
(19,922)
—
(11,347)
(31)
52
(4,309)
2
—
(175,000)
(11,872)
—
(100,000)
—
—
(286,870)
(3,427)
(69,583)
409,820
340,237
17,644
13,061
2,290
255
14,227
1,800
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated fiff nancial statements.
F-8
NetScout Systems, Inc.
Notes to Consolidated Financial Statements
NOTE 1 – NATURE OF BUSINESS
NetScout Systems, Inc., or NetScout or the Company, has been a technology innovator forff
ng in 1984. The Company's solutions, based on patented Adapta ive Service Intelligence (ASI) technology, help customers
ication perforff mance issues, defeff nd their networks frff om denial of service (DDoS) attacks, and rapia dly
ff
foundi
identifyff network and appl
fiff nd and isolate advanced network threats. As a result, customers can quickly resolve issues that cause business disrupt
downtime, poor service quality or compromised security, thereby driving compelling returt ns on their investments in their
network and broader inforff mation technology (IT) initiatives.
three-plus decades since its
ions,
a
rr
NOTE 2 – SUMMARYR OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated fiff nancial statements include the accounts of NetScout and its wholly owned subsidiaries. Inter-company
transactions and balances have been eliminated in consolidation.
Segment Reporting
The Company's operating segments are determined based on the units that constitutt e a business forff which fiff nancial
inforff mation is availabla e and forff which operating results are regularly reviewed by the Chief Operating Decision Maker
(CODM). The Company reports revenue and income in one reportabla e segment.
Use of Estimates
The preparation of fiff nancial statements in conforff mity with generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions that affff eff ct the reported amounts of assets and liabia lities and disclosures of
contingent assets and liabia lities at the date of the consolidated fiff nancial statements and the reported amounts of revenues and
expenses during the reporting period. Signififf cant estimates in these fiff nancial statements include those involving revenue
recognition, valuation of goodwill and acquired assets and liabia lities, valuation of the pension obligation, valuation of
contingent consideration and share-based compensation. These items are continuously monitored and analyzed by management
forff
changes in faff cts and circumstances and material changes in these estimates could occur in the futff urt e.
The Company considered the impact of the COVID-19 pandemic on the use of estimates and assumptions used forff
l extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business,
fiff nancial reporting. The fulff
results of operations and fiff nancial condition, including sales, expenses, reserves and allowances, manufaff cturt
development costs and employee-related amounts, will depend on futff urt e developments that are highly uncertain, including as a
result of new inforff mation that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as
well as the economic impact on local, regional, national and international customers and markets. The Company has made
estimates within the fiff nancial statements and there may be changes to those estimates in futff urt e periods. Actuat
l results may
diffff eff r frff om these estimates.
ing, research and
COVID-19 Risks and Uncertainties
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business. The futurt e
impacts of the pandemic and any resulting economic impact on the Company's operations are evolving. It is possible that the
COVID-19 pandemic, the measures taken by the governments of countries affff eff cted and the resulting economic impact may
materially and adversely affff eff ct the Company's futff urt e results of operations, cash flff ows and fiff nancial position as well as its
customers.
The Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about
a
its abia lity
to meet its futff urt e fiff nancial obligations as they become due within one year aftff er the date that the fiff nancial statements are issued.
The Company has and continues to take precautionaryrr actions to manage costs and spending across the organization. This
includes managing discretionaryrr spending and hiring activities. In addition, based on covenant levels, the Company had as of
March 31, 2022 an incremental $450 million availabla e under the revolving credit faff cility.
On March 27, 2020, the Coronavirusrr Aid, Relief and Economic Security Act (the CARES Act) was enacted. The CARES
Act, among other things, includes provisions relating to refunda
bla e payroll tax credits, defeff rment of employer social security
ff
F-9
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
rr
payments, net operating loss carryba
deduction limitations and technical corrections to tax depreciation methods forff
has elected to defeff r the employer-paid portion of social security taxes. As of March 31, 2022, the Company had defeff rred
$4.5 million of employer payroll taxes, which is required to be deposited by December 2022. The balance of $4.5 million was
included as accruer d other in the Company's consolidated balance sheet at March 31, 2022.
, modififf cations to the net interest
qualififf ed improvement property. The Company
ck periods, alternative minimum tax credit refunds
ff
The Company expects net cash provided by operations combined with cash, cash equivalents, and marketabla e securities
current obligations, capia tal
and borrowing availabia lity under the revolving credit faff cility to provide suffff iff cient liquidity to fund
spending, debt service requirements and working capia tal requirements over at least the next twelve months.
ff
Cash and Cash Equivalents and Marketable Securities
Under authoritative guidance, NetScout has classififf ed its investments as "availabla e-forff
-sale" which are carried at faff ir
value associated unrealized gains or losses are recorded as a separate component of stockholders’ equity until realized.
NetScout considers all highly liquid investments purchased with an original maturt
ity of three months or less to be cash
equivalents and those investments with original maturt
ities greater than three months to be marketabla e securities.
At March 31, 2022 and periodically throughout the year, NetScout has maintained cash balances in various operating
accounts in excess of feff derally insured limits. NetScout limits the amount of credit exposure by investing only with credit
worthy institutt
ions which the Company believes are those institutt
ions with an investment grade rating forff
deposits.
Revenue Recognition
The Company accounts forff
ther discussion of the Company's accounting policies related to revenue see Note 3, "Revenue Recognition."
revenue in accordance with ASC 606, Revenue frff om Contracts with Customers (Topic 606).
For furff
Commission Expense
Sales commissions are recorded as an asset when the initial contract's duration is longer than 12 months and amortized to
expense ratabla y over the remaining perforff mance periods of the related contracts.
Uncollected Defeff rred Revenue
Because of NetScout's revenue recognition policies, there are circumstances forff which the Company does not recognize
revenue relating to sales transactions that have been billed, but the related account receivabla e has not been collected. While the
receivabla e represents an enforff ceabla e obligation, the Company does not believe its right to payment is unconditional, thereforff e
forff
and no amounts appe
has not transfeff rred. The aggregate amount of unrecognized accounts receivabla e and defeff rred revenue was $9.4 million and $7.1
million at March 31, 2022 and 2021, respectively.
es, the Company has not recognized the defeff rred revenue or the related account receivabla e
such transactions because control of the underlying deliverabla e
ar in the consolidated balance sheets forff
balance sheet presentation purpos
a
r
Concentration of Credit Risk
Financial instrumr
ents that potentially subject the Company to concentration of credit risk consist primarily of
investments, trade accounts receivabla e and accounts payabla e. NetScout's cash, cash equivalents, and marketabla e securities are
placed with fiff nancial institutt
ions with high credit standings.
At March 31, 2022, the Company had no direct customers or indirect channel partners which accounted forff more than
2021 the Company had one direct customer who accounted forff more
10% of the accounts receivabla e balance. At Marchh 31,
than 10% of the accounts receivabla e balance, while no indirect channel partners accounted forff more than 10% of the accounts
receivabla e balance.
,
During the fiff scal years e dndedd Marchh 31, 2022, 2021 a dnd 2020 respectiivellyy, no didirect customers or ii dindirect chhannell
ppartners accountedd forff more thhan 10% of totall re ev nue.
Historically, the Company has not experienced any signififf cant faff ilure of its customers to meet their payment obligations
nor does the Company anticipate material non-perforff mance by its customers in the futff urt e; accordingly, the Company does not
require collateral frff om its customers. However, if the Company’s assumptions are incorrect, there could be an adverse impact
on its allowance forff
accounts.
doubtfulff
F-10
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Trade Receivable Valuations
Accounts receivabla e are stated at their net realizabla e value. The allowance against gross trade receivabla es reflff ects the best
estimate of probabla e losses inherent in the receivabla es portfolff
allowances forff
known troubled accounts and other currently availabla e inforff mation.
io determined on the basis of historical experience, specififf c
Inventories
Inventories are stated at the lower of actuat
l cost or net realizabla e value. Cost is determined by using the fiff rst-in, fiff rst-out
(FIFO) method.
Fixed Assets
Fixed assets are stated at cost and depreciated using the straight-line method over the estimated usefulff
lives of the assets.
lifeff of the
Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or anticipated usefulff
improvement. Gains and losses upon asset disposal are recognized in the year of disposition. Expenditurt es forff
replacements and
building improvements are capia talized, while expenditurt es forff maintenance and repairs are charged against earnings as incurred.
Leases
The Company has operating leases forff
administrative, research and development, sales and marketing and manufaff cturt
ing
faff cilities and equipment under various non-cancelabla e lease agreements. Lease commencement occurs on the date the Company
takes possession or control of the property or equipment. The Company's lease terms may include options to extend or
terminate the lease where it is reasonabla y certain that the Company will exercise those options. The Company considers several
economic faff ctors when making this determination, including but not limited to, the signififf cance of leasehold improvements
incurred in the offff iff ce space, the diffff iff culty in replacing the asset, underlying contractuat
unique to a particular lease. The Company's lease agreements do not contain any material residual value guarantees or material
restrictive covenants. For furff
ther discussion of the Company's policies related to leases see Note 18, "Leases."
l obligations, or specififf c characteristics
Valuation of Goodwill, Intangible Assets and Other Acquisition Accounting Items
The Company amortizes acquired defiff nite-lived intangible assets over their estimated usefulff
lives. Goodwill and other
indefiff nite-lived intangible assets are not amortized but subject to annual impairment tests; more frff equently if events or
circumstances occur that would indicate a potential decline in their faff ir value. The Company perforff ms the assessment annually
durd ing the four
th quarter and on an interim basis if potential impairment indicators arise.
ff
Reporting units are determined based on the components of a Company's operating segments that constitutt e a business forff
which fiff nancial inforff mation is availabla e and forff which operating results are regularly reviewed by segment management. The
Company has one reporting unit.
To test impairment, the Company fiff rst assesses qualitative faff ctors to determine whether the existence of events and
circumstances indicate that it is more likely than not that the intangible asset is impaired. If based on the Company's qualitative
assessment it is more likely than not that the faff ir value of the intangible asset is less than its carryirr ng amount, quantitative
impairment testing is required. However, if the Company concludes otherwise, quantitative impairment testing is not required.
The Company perforff med its annual impairment analysis forff
assessment, and the Company concluded that it was more likely than not that the faff ir value of the reporting unit exceeded its
carryirr ng value.
goodwill as of Januaryrr 31, 2022, using the qualitative (Step 0)
Indefiff nite-lived intangible assets are tested forff
impairment at least annually, or on an interim basis if an event occurs or
circumstances change that would, more likely than not, reduce the faff ir value of the indefiff nite-lived intangible assets below its
carryirr ng value. To test impairment, the Company fiff rst assesses qualitative faff ctors to determine whether the existence of events
and circumstances indicate that it is more likely than not that the indefiff nite-lived intangible is impaired. If based on the
Company's qualitative assessment, the Company concludes that it is more likely than not that the faff ir value of the indefiff nite-
lived asset is less than its carryirr ng amount, quantitative impairment testing is required. However, if the Company concludes
otherwise, quantitative impairment testing is not required.
The Company completed two acquisitions during the three-year period ended March 31, 2022. The acquisition method of
accounting requires an estimate of the faff ir value of the assets and liabia lities acquired as part of these transactions. In order to
estimate the faff ir value of acquired intangible assets, the Company uses either an income, market or cost method appr
contingent purchase consideration related to the two acquisitions represent amounts deposited into escrow accounts, which were
oach. The
a
F-11
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
establa ished to cover damages NetScout may have suffff eff red related to any liabia lities that NetScout did not agree to assume or as a
result of the breach of representations and warranties of the sellers as described in the acquisition agreements. The contingent
purchase consideration of $0.7 million related to the Gigavation Incorpor
ated (Gigavation) acquisition was paid to the seller in
Februar
acquisition was paid to the seller in April 2020.
ryrr 2021. The contingent purchase consideration of $1.0 million related to the Eastwind Networks, Inc. (Eastwind)
r
Capitalized Softff ware Development Costs
Costs incurred in the research and development of the Company's products are expensed as incurred, except forff
certain
softff ware development costs. Costs associated with the development of computer softff ware are expensed prior to the
establa ishment of technological feff asibility and capia talized thereaftff er until the related softff ware products are availabla e forff
first
customer shipment. Such costs are amortized using the straight-line method over the estimated economic lifeff of the product,
which generally does not exceed three years. Capia talized softff ware development costs are periodically assessed forff
recoverabia lity in the event of changes to the anticipated futff urt e revenue forff
technologies. Unamortized capia talized softff ware development costs that are determined to be in excess of the net realizabla e
value of the softff ware products would be expensed in the period in which such a determination is made.
the softff ware products or changes in product
Typically forff
accounting purpos
r
es, these R&D investments have not been capia talized because of the development
methodology employed. The developments are added individually to the core code over a shorter period of time but marketed
as a release once all portions are complete.
Amortization included as cost of product revenue was $37 thousand, $0.1 million, and $0.5 million forff
the fiff scal years
ended March 31, 2022, 2021, and 2020, respectively. The Company did not capia talize softff ware development costs in the fiff scal
years ended March 31, 2022 or 2021.
Derivative Financial Instruments
forff
forff
ent qualififf es forff
derivative instrumrr
the derivative to qualifyff
Under authoritative guidance forff
hedge accounting. Under the guidance, if an instrumr
hedge accounting. In accordance with the guidance, the Company accounts forff
open contracts, measured at the end of the period, are recorded to other comprehensive
ents and hedging activities, all hedging activities must be documented
at the inception of the hedge and must meet the defiff nition of highly effff eff ctive in offff sff etting changes to futff urt e cash flff ows in order
forff
changes in the faff ir value each period forff
income. Otherwise, changes in the faff ir value are recorded in earnings each period. Management must perforff m initial and
ongoing tests in order to qualifyff
instrumr
ents under hedge accounting. The effff eff ctiveness and a measurement of ineffff eff ctiveness of qualifyiff ng hedge contracts are
assessed by the Company quarterly. The Company records the faff ir value of its derivatives in prepaid expenses and other current
assets and accruerr d other in the Company's consolidated balance sheet. The effff eff ctive portion of gains or losses resulting frff om
changes in the faff ir value of qualifyiff ng hedges are recorded in other comprehensive income (loss) until the forff ecasted transaction
occurs, with any ineffff eff ctive portion classififf ed directly to the Company’s consolidated statement of operations based on the
expense categories of the items being hedged. When forff ecasted transactions occur, unrealized gains or losses associated with
the effff eff ctive portion of the hedge are reclassififf ed to the respective expense categories in the Company’s consolidated statement
of operations. Gains or losses related to hedging activity are included as operating activities in the Company’s consolidated
statement of cash flff ows. If the underlying forff ecasted transactions do not occur, or it becomes probabla e that they will not occur,
the gain or loss on the related cash flff ow hedge is recognized immediately in earnings.
hedge accounting, the
its
NetScout also periodically enters into forff ward contracts to manage exchange rate risk associated with certain third-party
transactions and forff which the Company does not elect hedge accounting treatment as there is no diffff eff rence in the timing of
gain or loss recognition on the hedge instrumr
ent and the hedged item.
Contingencies
NetScout accounts forff
claims and contingencies in accordance with authoritative guidance that requires an estimated loss
to be recorded frff om a claim or loss contingency when inforff mation availabla e prior to issuance of its consolidated fiff nancial
statements indicates that it is probabla e that a liabia lity has been incurred at the date of the consolidated fiff nancial statements and
the amount of the loss can be reasonabla y estimated. If NetScout determines that it is reasonabla y possible but not probabla e that
an asset has been impaired or a liabia lity has been incurred or if the amount of a probabla e loss cannot be reasonabla y estimated,
then in accordance with the authoritative guidance, Netscout discloses the amount or range of estimated loss if the amount or
claims and contingencies requires NetScout to use its judgment. NetScout
range of estimated loss is material. Accounting forff
F-12
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
consults with legal counsel on those issues related to litigation and seeks input frff om other experts and advisors with respect to
matters in the ordinaryrr course of business.
Share-Based Compensation
NetScout recognizes compensation expense forff
all share-based payments granted. Under the faff ir value recognition
provisions, share-based compensation is calculated net of an estimated forff
forff
those shares expected to vest on a straight-line basis over the expected requisite service period of the award.
feff iturt e rate and compensation cost is only recognized
Foreign Currency
NetScout accounts forff
determination of the func
tional currency forff
ff
func
ff
its reporting of forff eign operations in accordance with guidance which establa ishes guidelines forff
tional currency of forff eign subsidiaries. In accordance with the guidance, NetScout has determined its
the
those forff eign subsidiaries that are an extension of NetScout's U.S. operations to be the U.S. Dollar.
Assets and liabia lities of subsidiaries operating outside the United States with a func
ff
tional currency other than U.S. dollars
are translated into U.S. dollars using the period-end exchange rate, and income and expense items are translated using the
average exchange rate during the period. Cumulative translation adjustments are reflff ected as a separate component of
stockholders' equity.
NetScout will experience currency exchange risk with respect to forff eign currency denominated expenses. In order to
partially offff sff et the risks associated with the effff eff cts of certain forff eign currency exposures, NetScout has establa ished a program
that utilizes forff eign currency forff ward contracts. Under this program, increases or decreases in forff eign currency exposures are
partially offff sff et by gains or losses on forff ward contracts, to mitigate the impact of forff eign currency transaction gains or losses.
The Company does not use forff ward contracts to engage in currency speculation. All outstanding forff eign currency forff ward
contracts are recorded at faff ir value at the end of each fiff scal period.
The Company had forff eign currency losses of $0.2 million, $$5.5 miilllliion and $0.7 million forff
the fiff scal years ended
March 31, 2022, 2021 and 2020, respectively. These amounts are included in other income (expense), net in the Company's
consolidated statements of operations.
Advertising Expense
NetScout recognizes advertising expense as incurred. Advertising expense was $11.4 million, $8.7 million and $8.3
million forff
the fiff scal years ended March 31, 2022, 2021 and 2020, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive
income (loss) typically consists of unrealized gains and losses on marketabla e securities, unrealized gain and losses on hedge
contracts, actuat
rial gains and losses, and forff eign currency translation adjustments.
Income Taxes
NetScout accounts forff
its income taxes under the asset and liabia lity method. Under the asset and liabia lity method,
defeff rred tax assets and liabia lities are recognized based on anticipated futff urt e tax consequences attributabla e to diffff eff rences
between fiff nancial statement carryirr ng amounts of assets and liabia lities and their respective tax basis, as well as the effff eff ct of any
net operating loss and tax credit carryfrr orff wards. Income tax expense is comprised of the current tax liabia lity or benefiff t and the
change in defeff rred tax assets and liabia lities. NetScout evaluates the recoverabia lity of defeff rred tax assets by considering all
positive and negative evidence relating to futff urt e profiff tabia lity. NetScout weighs objective and verififf abla e evidence more heavily
in this analysis. In situat
support the realizabia lity of the defeff rred tax asset, NetScout creates a valuation allowance against it.
tions where NetScout concludes that it does not have suffff iff cient objective and verififf abla e evidence to
Recent Accounting Standards
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting forff Contract Assets
and Contract Liabia lities frff om Contracts with Customers, which requires companies to recognize and measure contract assets
and contract liabia lities acquired in a business combination as if the acquiring company originated the related revenue contracts.
ASU 2021-08 is effff eff ctive forff
fiff scal years beginning aftff er December 15, 2022, with early adoption permitted. ASU 2021-08 is
F-13
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
the Company beginning April 1, 2023. Amendments within the standard are required to be appl
effff eff ctive forff
prospective basis frff om the date of adoption. The adoption is not expected to have a material impact on the Company's fiff nancial
position, results of operations, and disclosures. We will appl
acquisitions, if any.
y the provisions of ASU 2021-08 aftff er adoption to futff urt e
ied on a
a
a
refeff rence rate reforff m. The new guidance provides optional expedients and exceptions forff
In March 2020, the FASB issued ASU 2020-04, Refeff rence Rate Reforff m (Topic 848): Facilitation of the Effff eff cts of
a limited time to ease the
ying U.S. GAAP to contracts, hedging relationships and other transactions affff eff cted by refeff rence rate reforff m if certain
Refeff rence Rate Reforff m on Financial Reporting. The amendments provide optional guidance forff
potential burden in accounting forff
appl
a
y only to contracts and hedging relationships that refeff rence LIBOR or another refeff rence
criteria are met. The amendments appl
rate expected to be discontinued due to refeff rence rate reforff m. In Januaryrr 2021, the FASB issued ASU 2021-01, Refeff rence Rate
Reforff m, which clarififf es the scope and appl
ication of certain optional expedients and exceptions regarding the original guidance.
ASU 2021-01 may be appl
a
amendments do not appl
31, 2022, that an entity has elected certain optional expedients forff
relationship. The adoption is not expected to have a material impact on the Company's fiff nancial position, results of operations,
and disclosures.
ied prospectively through December 31, 2022. The expedients and exceptions provided by the
y to contract modififf cations made and hedging relationships entered into or evaluated aftff er December
and that are retained through the end of the hedging
a
a
a
In Januaryrr 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method
and Joint Venturt es (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifyiff ng the Interactions between Topic 321,
Topic 323, and Topic 815. This guidance addresses accounting forff
clarififf cation of the interaction of rulr es forff
fiff scal years and interim periods within those fiff scal
purchase options on certain types of securities. This standard is effff eff ctive forff
years beginning aftff er December 15, 2020. The Company adopted the guidance as of April 1, 2021. The adoption did not have a
material impact on the Company's consolidated fiff nancial statements.
equity securities, the equity method of accounting, and forff ward contracts and
the transition into and out of the equity method and provides
In December 2019, the FASB issued ASU 2019-12, Simplifyiff ng the Accounting forff
Income Taxes. ASU 2019-12
simplififf es the accounting forff
aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effff eff ctive forff
fiff scal years
beginning aftff er December 15, 2020. The Company adopted the guidance as of April 1, 2021. The adoption did not have a
material impact on the Company's consolidated fiff nancial statements.
income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarififf es certain
NOTE 3 - REVENUE RECOGNITION
Revenue Recognition Policy
The Company exercises judgment and uses estimates in connection with determining the amounts of product and service
revenues to be recognized in each accounting period.
The Company derives revenues primarily frff om the sale of network management tools and security solutions forff
service
provider and enterprr
consist of softff ware only offff eff rings and offff eff rings which include hardware appl
to providing customers the intended func
tionality of the solutions.
a
ff
ise customers, which include hardware, softff ware and service offff eff rings. The Company's product sales
iances with embedded softff ware that are essential
The Company accounts forff
revenue once a legally enforff ceabla e contract with a customer has been appr
a
oved by the parties
and the related promises to transfeff r products or services have been identififf ed. A contract is defiff ned by the Company as an
arrangement with commercial substance identifyiff ng payment terms, each party’s rights and obligations regarding the products
or services to be transfeff rred and the amount the Company deems probabla e of collection. Customer contracts may include
promises to transfeff r multiple products and services to a customer. Determining whether the products and services are
considered distinct perforff mance obligations that should be accounted forff
may require signififf cant judgment. Revenue is recognized when control of the products or services are transfeff rred to the
Company's customers, in an amount that reflff ects the consideration the Company expects to be entitled to in exchange forff
products and services.
separately or as one combined perforff mance obligation
Product revenue is typically recognized upon shipment, provided a legally enforff ceabla e contract exists, control has passed
to the customer, and in the case of softff ware products, when the customer has the rights and abia lity to access the softff ware, and
collection of the related receivabla e is probabla e. If any signififf cant obligations to the customer remain post-delivery,rr
involving obligations relating to installation and acceptance by the customer, revenue recognition is defeff rred until such
typically
F-14
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
fiff lled. The Company's service offff eff rings include installation, integration, extended warranty and
obligations have been fulff
maintenance services, post-contract customer support, stand-ready softff ware-as-a-service (SAAS) and other profeff ssional
services including consulting and training. The Company generally provides softff ware and/or hardware support as part of
product sales. Revenue related to the initial bundled softff ware and hardware support is recognized ratabla y over the support
period. In addition, customers can elect to purchase extended support agreements forff
warranty expiration. Support services generally include rights to unspecififf ed upgrades (when and if availabla e), telephone and
internet-based support, updates, bug fiff xes and hardware repair and replacement. Consulting services are recognized upon
deliveryrr or completion of perforff mance depending on the terms of the underlying contract. Reimbursements of out-of-ff pocket
expenditurt es incurred in connection with providing consulting services are included in services revenue, with the offff sff etting
expense recorded in cost of service revenue. Training services include on-site and classroom training. Training revenues are
recognized upon deliveryrr of the training.
periods aftff er the initial softff ware/hardware
Generally, the Company's contracts are accounted forff
to account forff
dependent on each other, it may be necessaryrr
of contracts.
individually. However, when contracts are closely interrelated and
two or more contracts as one to reflff ect the substance of the group
Bundled arrangements are concurrent customer purchases of a combination of the Company's product and service
offff eff rings that may be delivered at various points in time. The Company allocates the transaction price among the perforff mance
obligations in an amount that depicts the relative standalone selling prices (SSP) of each obligation. Judgment is required to
determine the SSP forff
each distinct perforff mance obligation. The Company uses a range of amounts to estimate SSP when it
sells each of the products and services separately based primarily on the perforff mance obligation's historical pricing. The
Company also considers its overall pricing objectives and practices across diffff eff rent sales channels and geographi
conditions. Generally, the Company has establa ished SSP forff
historical standalone sales. In certain instances, the Company has establa ished SSP forff
profiff tabia lity and the underlying cost to fulff
fiff ll those services. SSP has primarily been establa ished forff
obligations as the average or median selling price the perforff mance obligation was recently sold forff
as part of a bundle transaction. The Company reviews sales of the product perforff mance obligations on a quarterly basis and
upda
such perforff mance obligations to ensure that it reflff ects recent pricing experience. The
u
Company's products are distributed through its direct sales forff ce 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 transfeff rs 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 frff om the customer. With limited exceptions, the Company's
returt n policy does not allow product returt ns forff
a historyrr of successfulff
ff
a refund.
ly collecting receivabla es frff om its resellers and distributors.
services based upon an estimate of
product perforff mance
a maja ority of its service perforff mance obligations based on
Returt ns have been insignififf cant to date. In addition, the Company has
, whether sold alone or sold
opriate, its SSP forff
tes, when appr
es, and market
a
a
During the fiff scal year ended March 31, 2022, the Company recognized revenue of $269.1 million rellated to the
Company's defeff rred revenue balance reported at March 31, 2021.
Perforff mance Obligations
Customer contracts may include promises to transfeff r multiple products and services to a customer. Determining whether
the products and services are considered distinct perforff mance obligations that should be accounted forff
separately or as one
combined perforff mance obligation may require signififf cant judgment. The transaction price is allocated among perforff mance
obligations in bundled contracts in an amount that depicts the relative standalone selling prices of each obligation.
For contracts involving distinct hardware and softff ware licenses, the perforff mance obligations are satisfiff ed at a point in
time when control is transfeff rred to the customer. For standalone maintenance and post-contract support (PCS) the perforff mance
obligation is satisfiff ed ratabla y over the contract term as a stand-ready obligation. For consulting and training services, the
perforff mance obligation may be satisfiff ed over the contract term as a stand-ready obligation, satisfiff ed over a period of time as
those services are delivered, or satisfiff ed at the completion of the service when control has transfeff rred, or the services have
expired unused.
Payments forff
hardware, softff ware licenses, one-year maintenance, PCS and consulting services, are typically due up frff ont
with payment terms of 30 to 90 days. However, the Company does have contracts pursuant to which billings occur ratabla y over
a period of years folff
maintenance, PCS and consulting services are typically due in annual installments over the contract term. The Company did not
have any material variabla e consideration such as obligations forff
the contracted perforff mance obligations. Payments on multi-year
lowing the transfeff r of control forff
or warranties at March 31, 2022.
returt ns, refunds
ff
F-15
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
At March 31, 2022, the Company had total defeff rred revenue of $463.7 million, which represents the aggregate total
contract price allocated to undelivered perforff mance obligations. The Company expects to recognize $330.6 million, or 71%, of
this revenue during the next 12 months, and expects to recognize the remaining $133.1 million, or 29%, of this revenue
thereaftff er.
NetScout expects that the amount of billed and unbilled defeff rred revenue will change frff om quarter to quarter forff
several
reasons, including the specififf c timing, duration and size of large customer support and service agreements, varyirr ng billing
cycles of such agreements, the specififf c timing of customer renewals, and forff eign currency flff uctuat
have material signififf cant fiff nancing components, or variabla e consideration or perforff mance obligations satisfiff ed in a prior period
recognized during the twelve months ended March 31, 2022.
tions. The Company did not
Contract Balances
The Company may receive payments frff om customers based on billing schedules as establa ished by the Company's
contracts. Contract assets relate to perforff mance obligations where control has transfeff rred to the customer in advance of
scheduled billings. The Company records unbilled accounts receivabla e representing the right to consideration in exchange forff
goods or services that have been transfeff rred to a customer conditional on the passage of time. Defeff rred revenue relates to
scenarios where billings with an unconditional right to payment occur beforff e all perforff mance obligations are delivered or
payments are received in advance of perforff mance under the contract.
Costs to Obtain Contracts
The Company has determined that the only signififf cant 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 ratabla y over the remaining perforff mance periods of the related contracts with remaining perforff mance
obligations. The Company expenses costs as incurred forff
year or less.
sales commissions when the amortization period would have been one
At Marchh 31, 2022, thhe consolidated balance sheet included $8.8 million in assets related to sales commissions to be
expensed in futff urt e periods. A balance of $4.6 million was included in prepaid expenses and other current assets, and a balance
of $4.2 million was included as other assets in the Company's consolidated baballance shheet at Marchh 31, 2022. At Marchh 31,
2021, thhe cons loliiddatedd bballance sheet included $7.4 million in assets related to sales commissions to be expensed in futff urt e
periods. A balance of $4.1 million was included in prepaid expenses and other current assets, and a balance of $3.3 million was
included in other assets in the Company's consolidated balance sheet at March 31, 2021.
During each of the twelve months ended March 31, 2022 and 2021, the Company recognized $6.3 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 forff Credit Losses
The Company continually monitors collections frff om its customers. The Company evaluates the collectabia lity of its
accounts receivabla e and determines the appr
not limited to, analysis of the aging schedules, past due balances, historical collection experience and prevailing economic
conditions.
credit losses based on a combination of faff ctors, including but
opriate allowance forff
a
The folff
lowing tabla e summarizes the activity in the allowance forff
credit losses (in thousands):
Balance at March 31, 2021
Provision forff
allowance forff
credit losses
Recoveries and other adjustments
Write offff charged against the allowance forff
credit losses
Balance at March 31, 2022
$
$
416
1,963
(25)
(705)
1,649
F-16
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
NOTE 4 – CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash and cash equivalents mainly consisted of U.S government and municipal obligations, commercial papea
bonds, certififf cate of deposits, money market instrumr
2022 and 2021.
ents and cash maintained with various fiff nancial institutt
r
r, corpor
ate
ions at March 31,
Cash, Cash Equivalents and Restricted Cash
The folff
lowing tabla e provides a reconciliation of cash, cash equivalents and restricted cash reported within the
consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows
(in thousands):
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
March 31, 2022
March 31, 2021 March 31, 2020 March 31, 2019
$
$
636,161
—
636,161
$
$
467,176
—
467,176
$
$
338,489
1,748
340,237
$
$
409,632
188
409,820
The Company's restricted cash includes cash balances which are legally or contractuat
lly restricted. The Company's
restricted cash is included within prepaid and other current assets and consists of amounts related to holdbacks associated with
prior acquisitions.
Marketable Securities
The folff
lowing is a summaryrr of marketabla e securities held by NetScout at March 31, 2022 classififf ed as short-term and
long-term (in thousands):
Type of security:
Amortized
Cost
Unrealized
Losses
Fair
Value
U.S. government and municipal obligations
$
40,895
$
(32) $
r
Commercial papea
rr
Corpor
ate bonds
Certififf cate of deposits
Total short-term marketabla e securities
Total long-term marketabla e securities
Total marketabla e securities
23,353
823
2,000
67,071
—
—
(2)
—
(34)
—
40,863
23,353
821
2,000
67,037
—
$
67,071
$
(34) $
67,037
F-17
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
The folff
lowing is a summaryrr of marketabla e securities held by NetScout at March 31, 2021, classififf ed as short-term and
long-term (in thousands):
Type of security:
U.S. government and municipal obligations
r
Commercial papea
Total short-term marketabla e securities
Total long-term marketabla e securities
Total marketabla e securities
Amortized
Cost
Unrealized
Gains
Fair
Value
$
$
3,571
$
5,699
9,270
—
9,270
$
7
—
7
—
7
$
$
3,578
5,699
9,277
—
9,277
Contractuat
l maturt
ities of the Company's marketabla e securities held at March 31, 2022 and 2021 (in thousands) were as
folff
lows:
Availabla e-forff
-sale securities:
Due in 1 year or less
Due aftff er 1 year through 5 years
March 31,
2022
March 31,
2021
$
$
67,037
—
67,037
$
$
9,277
—
9,277
F-18
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
NOTE 5 – FAIR VALUE MEASUREMENTS
The faff ir value hierarchy has three levels based on the reliabia lity of the inputs used to determine faff ir value. Level 1 refeff rs
to faff ir values determined based on quoted prices in active markets forff
using signififf cant other observabla e inputs, and Level 3 includes faff ir values estimated using signififf cant unobservabla e inputs. The
folff
hierarchy at March 31, 2022 and 2021 (in thousands):
lowing tabla es present the Company's fiff nancial assets and liabia lities measured on a recurring basis using the faff ir value
identical assets. Level 2 refeff rs to faff ir values estimated
ASSETS:
Cash and cash equivalents
$
617,734
$
18,427
$
— $
636,161
Fair Value Measurements at
March 31, 2022
Level 1
Level 2
Level 3
Total
U.S. government and municipal obligations
40,863
r
Commercial papea
rr
Corpor
ate bonds
Certififf cate of deposits
Derivative fiff nancial instrumr
ents
LIABILITIES:
Derivative fiff nancial instrumr
ents
—
821
—
—
—
23,353
—
2,000
20
—
—
—
—
—
40,863
23,353
821
2,000
20
$
$
$
659,418
$
43,800
$
— $
703,218
— $
— $
(78) $
(78) $
— $
— $
(78)
(78)
Fair Value Measurements at
March 31, 2021
Level 1
Level 2
Level 3
Total
ASSETS:
Cash and cash equivalents
$
467,176
$
— $
— $
467,176
U.S. government and municipal obligations
r
Commercial papea
Derivative fiff nancial instrumr
ents
LIABILITIES:
Derivative fiff nancial instrumr
ents
2,539
—
—
1,039
5,699
57
—
—
—
3,578
5,699
57
469,715
$
6,795
$
— $
476,510
— $
— $
(191) $
(191) $
— $
— $
(191)
(191)
$
$
$
This hierarchy requires the Company to use observabla e market data, when availabla e, and to minimize the use of
unobservabla e inputs when determining faff ir value. On a recurring basis, the Company measures certain fiff nancial assets and
liabia lities at faff ir value, including marketabla e securities and derivative fiff nancial instrumr
ents.
The Company's Level 1 investments are classififf ed as such because they are valued using quoted market prices or
alternative pricing sources with reasonabla e levels of price transparency.
The Company's Level 2 investments are classififf ed as such because they are valued using observabla e inputs other than
Level 1 quoted prices that are observabla e forff
similar assets or liabia lities in active markets, or quoted prices forff
the asset or liabia lity, either directly or indirectly, including quoted prices forff
identical or similar assets in markets that are not active.
The Company's Level 3 liabia lities consisted of contingent purchase consideration related to the two acquisitions that
occurred during the fiff scal year 2020. The contingent purchase consideration related to the two acquisitions represented amounts
deposited into escrow accounts, which were establa ished to cover damages NetScout may have suffff eff red related to any liabia lities
that NetScout did not agree to assume or as a result of the breach of representations and warranties of the sellers as described in
the acquisition agreements. The $0.7 million of purchase consideration related to the Gigavation acquisition was paid to the
F-19
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
seller in Februar
seller in April 2020.
ryrr 2021. The $1.0 million contingent purchase consideration related to the Eastwind acquisition was paid to the
The Company's Level 3 assets consisted of contingent consideration related to the divestiturt e of the Company's handheld
network test (HNT) tools business in September 2018. The contingent consideration represented potential futff urt e earnout
payments to the Company of up to $4.0 million over two years that were contingent on the HNT tools business achieving
certain milestones. During the fiff scal years ended March 31, 2022 and 2020, the Company recorded an $0.8 million change in
the faff ir value of the contingent consideration, which is included in other income (expense), net within the Company's
consolidated statement of operations. The $0.8 million of contingent consideration was paid to the Company as the fiff nal earnout
durd ing the fiff scal year ended March 31, 2022.
The folff
lowing tabla e sets forff
th a reconciliation of changes in the faff ir value of the Company’s Level 3 fiff nancial assets forff
the fiff scal year ended March 31, 2022 (in thousands):
Balance at March 31, 2021
Change in faff ir value of contingent consideration
Collection of contingent consideration
Balance at March 31, 2022
Contingent
Consideration
$
$
—
837
(837)
—
The folff
lowing tabla e sets forff
th a reconciliation of changes in the faff ir value of the Company’s Level 3 fiff nancial liabia lities
forff
the fiff scal year ended March 31, 2021 (in thousands):
Balance at March 31, 2020
Payments made
Balance at March 31, 2021
NOTE 6 – INVENTORIES
Contingent
Purchase
Consideration
$
$
(1,748)
1,748
—
Inventories are stated at the lower of actuat
l cost or net realizabla e value. Cost is determined by using the FIFO method.
Inventories consisted of the folff
lowing (in thousands):
Raw materials
Work in process
Finished goods
Defeff rred costs
March 31,
2022
2021
14,779
695
5,761
6,985
28,220
$
$
13,189
16
6,168
3,440
22,813
$
$
F-20
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
NOTE 7 – FIXED ASSETS
Fixed assets consisted of the folff
lowing (in thousands):
Furniturt e and fiff xturt es
Computer equipment and internal use softff ware
Leasehold improvements (1)
Demonstration and spare part units
Less – accumulated depreciation
Estimated Usefuff l
Lifeff
in Years
March 31,
2022
2021
3-7 $
3-5
up to 12
2-5
$
9,757
185,177
54,442
18,254
267,630
(226,293)
41,337
$
$
9,742
177,098
53,980
17,968
258,788
(210,314)
48,474
(1) Leasehold improvements are depreciated over the shorter of the lease term or anticipated usefulff
lifeff of the improvement.
Depreciiatiion expense was $20.1 million, $22.4 million and $23.4 million forff
the fiiff scall yyears e dndedd Marchh 31, 2022, 2021
a dnd 2020, respectiivellyy.
NOTE 8 – ACQUISITIONS
i
GiGG gav
atitt on Acquisii itii itt on
On Februarr
ryrr 5, 2020 (the Gigavation Closing Date), the Company acquired 100% of the common stock of Gigavation
ated, a cybersecurity company forff
r
Incorpor
protocols, end point protection and security analytics. The Gigavation technology and engineering talent have been integrated
into our service assurance products in order to support the ongoing enhancement of that portfolff
$8.0 million. Gigavation's solutions provide security to device communication
io.
Eastwtt
inii d Acquisii itii itt on
On April 3, 2019 (the Eastwind Closing Date), the Company completed the acquisition of certain assets and liabia lities of
Eastwind forff
data leakage.
$5.2 million. Eastwind's breach analytics cloud analyzes data to identifyff malicious activity, insider threats and
NOTE 9 – GOODWILL & INTANGIBLE ASSETS
Goodwill
The Company has one reporting unit. Goodwill is tested forff
impairment at a reporting unit level at least annually, as of
Januaryrr 31, or on an interim basis if an event occurs or circumstances change that would, more likely than not, reduce the faff ir
value of the reporting unit below its carryirr ng value. At March 31, 2022 and 2021, the carryirr ng amount of goodwill was
$1.7 billion.
During fiff scal years 2022 and 2021, the Company's annual impairment tests indicated that goodwill was not impaired. The
Company completed its annual goodwill impairment test at Januaryrr 31, 2022, usii gng thhe qualliitatiive ((Step )0) assessment, a dnd thhe
Compa yny concll dudedd thhat iit was more lliikkellyy thhan not thhat thhe faff iir vallue of thhe reportii gng
iunit exceeddedd iits carryiyirr
gng vallue.
The change in the carryirr ng amount of goodwill forff
the fiff scal year ended March 31, 2022 is due to the impact of forff eign
currency translation adjustments related to asset balances that are recorded in currencies other than the U.S. Dollar.
F-21
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
The changes in the carryirr ng amount of goodwill forff
the fiff scal years ended March 31, 2022 and 2021 are as folff
lows (in
thousands):
Balance at March 31, 2020
Foreign currency translation impact
Balance at March 31, 2021
Foreign currency translation impact
Balance at March 31, 2022
Intangible Assets
$
$
$
1,725,680
(8,126)
1,717,554
5,602
1,723,156
The net carryirr ng amounts of intangible assets were $433.4 million and $511.9 million at March 31, 2022 and 2021,
respectively. Intangible assets acquired in a business combination are recorded under the acquisition method of accounting at
their estimated faff ir values at the date of acquisition. The Company amortizes intangible assets over their estimated usefulff
lives.
During the fiff rst quarter of fiff scal year 2022, in conjunction with the renewal process of an acquired indefiff nite-lived trade name
and the Company's focff us on advancing new product lines, the Company reassessed the estimated economic lifeff of the acquired
indefiff nite-lived trade name. As a result, the Company began amortizing the acquired trade name over 8 years. Prior to
reclassifyiff ng the acquired trade name to a fiff nite-lived intangible asset, the Company tested the acquired trade name forff
impairment and determined the faff ir value of the asset exceeded the carryirr ng value. This change in estimate does not materially
impact the Company's income statement.
During the fiff scal years ended March 31, 2022 and 2021, the Company acquired $50 thousand and $4.5 million of
technology licenses, respectively. These amounts are included within distributor relationships and are being amortizing using
the economic benefiff t method over usefulff
years. The Company did not acquire any technology
licenses during the fiff scal year ended March 31, 2020.
lives of between one and four
ff
Intangible assets include the folff
lowing amortizabla e intangible assets at March 31, 2022 (in thousands):
Developed technology
Customer relationships
Distributor relationships and technology licenses
Defiff nite-lived trademark and trade name (a)
Core technology
Non-compete agreements
Capia talized softff ware
Other
Estimated Usefuff l
Lifeff
in Years
Cost
Accumulated
Amortization
3 - 13 years $
250,247
$
(224,426) $
8 - 18 years
1 - 6 years
2 - 9 years
10 years
3 years
3 years
1 - 20 years
769,404
11,408
57,748
7,192
292
3,317
1,208
(384,347)
(8,896)
(37,944)
(7,192)
(292)
(3,317)
(983)
Net
25,821
385,057
2,512
19,804
—
—
—
225
$
1,100,816
$
(667,397) $
433,419
(a) The Company's $18.6 million acquired trade name changed frff om indefiff nite-lived during the fiff rst quarter of fiff scal year
2022.
F-22
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Intangible assets include the indefiff nite lived trade name with a carryirr ng value of $18.6 million and the folff
lowing
amortizabla e intangible assets at March 31, 2021 (in thousands):
Developed technology
Customer relationships
Distributor relationships and technology licenses
Defiff nite-lived trademark and trade name
Core technology
Net benefiff cial leases
Non-compete agreements
Capia talized softff ware
Other
Estimated Usefuff l
Lifeff
in Years
3 - 13 years $
8 - 18 years
1 - 6 years
2 - 9 years
10 years
3 - 4 years
3 years
3 years
1 - 20 years
$
Cost
252,071
775,898
11,469
39,434
7,192
336
292
3,317
1,208
1,091,217
$
$
Accumulated
Amortization
(212,688) $
(333,903)
(7,829)
(31,467)
(7,192)
(336)
(292)
(3,281)
(963)
(597,951) $
Net
39,383
441,995
3,640
7,967
—
—
—
36
245
493,266
Amortization included as cost of product revenue consists of amortization of developed technology, distributor
relationships and technology licenses, core technology and softff ware. Amortization included as operating expense consists of all
other intangible assets. The folff
March 31, 2022, 2021, and 2020 (in thousands).
lowing tabla e provides a summaryrr of amortization expense during the fiff scal years ended
Amortization of intangible assets included as:
Cost of product revenue
Operating expense
Years Ended March 31,
2022
2021
2020
14,600
59,761
20,457
61,151
$
74,361
$
81,608
$
26,664
64,525
91,189
The folff
lowing is the expected fuff turt e amortization expense at March 31, 2022 forff
the fiff scal years ended March 31 (in
thousands):
2023
2024
2025
2026
2027
Thereaftff er
Total
$
$
66,252
58,019
50,841
46,517
43,634
168,156
433,419
NOTE 10 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
NetScout operates internationally and, in the normal course of business, is exposed to flff uctuat
tions in forff eign currency
exchange rates. The exposures result frff om costs that are denominated in currencies other than the U.S. Dollar, primarily the
Euro, British Pound, Canadian Dollar, and Indian RupeRR
forff ecasted cash flff ows forff
guidelines through the use of forff ward contracts. The Company enters into forff eign currency exchange contracts to hedge cash
flff ow exposures frff om costs that are denominated in currencies other than the U.S. Dollar. These hedges are designated as cash
flff ow hedges at inception.
e. The Company manages its forff eign cash flff ow risk by hedging
operating expenses denominated in forff eign currencies forff
up to twelve months, within specififf ed
NetScout also periodically enters into forff ward contracts to manage exchange rate risk associated with certain third-party
transactions and forff which the Company does not elect hedge accounting treatment as there is no diffff eff rence in the timing of
gain or loss recognition on the hedge instrumr
ent and the hedged item.
F-23
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
All of the Company's derivative instrumrr
ents are utilized forff
risk management purpos
rr
es, and the Company does not use
derivatives forff
impact earnings on or beforff e maturt
speculative trading purpos
r
ity.
es. These contracts will maturt e over the next twelve months and are expected to
The notional amounts and faff ir values of derivative instrumr
ents in the consolidated balance sheets at March 31, 2022 and
2021 were as folff
lows (in thousands):
Notional Amounts (a)
Prepaid Expenses and Other
Current Assets
Accrued Other
March 31,
2022
March 31,
2021
March 31,
2022
March 31,
2021
March 31,
2022
March 31,
2021
Derivatives Designated as Hedging
Instrumrr
ents:
Forward contracts
$
5,578
$
11,037
$
20
$
57
$
78
$
152
Derivatives Not Designated as
Hedging Instrumr
ents:
Forward contracts
—
6,373
—
20
$
—
57
$
—
78
$
39
191
$
(a) Notional amounts represent the gross contract/tt notional amount of the derivatives outstanding.
The folff
lowing tabla e provides the effff eff ct forff eign exchange forff ward contracts had on other comprehensive income (loss),
(OCI) and results of operations during the fiff scal years ended March 31, 2022 and 2021 (in thousands):
Forward contracts
Gain Recognized
in OCI on Derivative
(a)
March 31,
March 31,
Loss Reclassififf ed frff om
Accumulated OCI into Income
(b)
March 31,
March 31,
2022
2021
Location
2022
2021
$
$
82
$
274 Research and development
Sales and marketing
82
$
274
$
$
(26) $
(57)
(30)
(56) $
(252)
(309)
(a) The amount represents the change in faff ir value of derivative contracts due to changes in spot rates.
(b) The amount represents reclassififf cation frff om other comprehensive income to earnings that occurs when the hedged item
affff eff cts earnings.
The folff
lowing tabla e provides the effff eff ct forff eign exchange forff ward contracts not designated as hedging instrumr
ents had on
the Company's results of operations during the fiff scal years ended March 31, 2022 and 2021 (in thousands):
Gain Recognized in Income
(a)
March 31,
March 31,
Location
2022
2021
Forward contracts
General and administrative
$
$
141
141
$
$
115
115
(a) The amount represents the change in faff ir value of derivative contracts due to changes in spot rates.
F-24
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
NOTE 11 – RESTRUCTURING CHARGES
During the fiff scal year ended March 31, 2019, the Company implemented a voluntaryrr separation program (VSP) forff
employees who met certain requirements to reduce overall headcount. As a result of the related workforff ce reduction, the
employees who
Company recorded restrucr
voluntarily terminated their employment with the Company during fiff scal year 2019. Additional one-time employee-related
termination benefiff t charges of $0.1 million were recorded and paid in fulff
ing charges totaling $17.2 million related to one-time termination benefiff ts forff
l in the fiff scal year ended March 31, 2020.
turt
During the fiff scal year ended March 31, 2020, the Company appr
oved two restrucr
tions. During the second quarter of the fiff scal year ended March 31, 2020, as a result of the fiff rst
ing charge totaling $0.5 million during the fiff scal year ended March 31,
ff
departments to better align func
workforff ce reduction, the Company recorded a restrucrr
2020. During the four
Company recorded a restrucr
$0.1 million during the fiff scal year ended March 31, 2021. The one-time employee-related termination benefiff ts forff
a
appr
th quarter of the fiff scal year ended March 31, 2020, as a result of the second workforff ce reduction, the
ing charge totaling $2.1 million during the fiff scal year ended March 31, 2020 and an additional
l during the fiff scal year ended March 31, 2021.
ing plans were paid in fulff
ing plans to restrucrr
oved restrucr
turt e certain
the two
turt
turt
turt
turt
a
ff
The Company did not appr
a
ove any restrucr
turt
ing plans during the fiff scal year ended March 31, 2022.
The folff
lowing tabla e provides a summaryrr of the activity related to the restrucrr
turt
ing plans and the related restrucr
turt
ing
liabia lity (in thousands):
Balance at March 31, 2019
Restrucr
turt
ing charges to operations
Cash payments
Other adjustments
Balance at March 31, 2020
Restrucr
turt
ing charges to operations
Cash payments
Other adjustments
Balance at March 31, 2021
NOTE 12 – LONG-TERM DEBT
VSP
Q2 FY20
Plan
Q4 FY20
Plan
Total
— $
— $
— $
—
123
(123)
—
— $
—
—
—
— $
465
(434)
(28)
3
—
(3)
$
2,069
(339)
(13)
1,717
62
$
2,657
(896)
(41)
1,720
62
(1,860)
(1,863)
—
— $
81
— $
81
—
$
$
$
On Januaryrr 16, 2018, the Company amended and expanded its existing credit agreement (Amended Credit Agreement),
which provided forff
to $75.0 million. The commitments under the Amended Credit Agreement were set to expire on Januaryrr 16, 2023, and any
outstanding loans were due on that date.
a fiff ve-year, $1.0 billion senior secured revolving credit faff cility, including a letter of credit sub-faff cility of up
On July 27, 2021, the Company amended and extended the Amended Credit Agreement (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, BofAff Securities Inc., RBC Capia tal Markets,
PNC Capia tal Markets LLC and Mizuho Bank, Ltd., as joint lead arrangers and joint bookrunne
Bank National Association, Fiftff h Third Bank National Association, Silicon Valley Bank and TD Bank, N.A., as co-
documentation agents; and the lenders party thereto.
rs; Santander Bank, N.A., U.S.
rr
The Second Amended and Restated Credit Agreement provides forff
a fiff ve-year, $800.0 million senior secured revolving
credit faff cility, including a letter of credit sub-faff cility of up to $75.0 million. The Company may elect to use the credit faff cility
forff
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.
es (including to fiff nance the repurchase of shares of the Company's common stock). The
general corpor
ate purpos
r
rr
In connection with the Second Amended and Restated Credit Agreement, the Company paid offff the outstanding balance
of $350 million under the Amended Credit Agreement on July 27, 2021 by borrowing the same amount under the Second
Amended and Restated Credit Agreement. Additionally, the Company recorded a loss on the extinguishment of debt of
$0.6 million, representing the write offff of unamortized defeff rred fiff nancing costs, which was included in interest expense in the
F-25
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
consolidated statements of operations forff
outstanding under the Second Amended and Restated Credit Agreement.
the fiff scal year ended March 31, 2022. At March 31, 2022, $350 million was
the interest period selected by the Company, subject to customaryrr provisions regarding succession frff om
At the Company's election, revolving loans under the Second Amended and Restated Credit Agreement bear interest at
either (a) an Alternate Base Rate per annum equal to the greatest of (1) the Wall Street Journal prime rate; (2) the New York
Federal Reserve Bank (NYFRB) rate plus 0.50%, or (3) an adjusted one month LIBO rate plus 1%; or (b) a Term Benchmark
Borrowing rate (forff
LIBO rate to SOF rate in anticipation of the upcoming discontinuation of the LIBO rate), in each case plus an appl
margin. For the period frff om the deliveryrr of the Company's fiff nancial statements forff
the Company has delivered fiff nancial statements forff
annum forff Term Benchmark Revolving loans and 0.25% per annum forff Alternate Base Rate loans, and thereaftff er the appl
margin will varyrr depending on the Company's consolidated gross leverage ratio, ranging frff om 1.00% per annum forff Alternate
Base Rate loans and 2.00% per annum forff Term Benchmark Revolving loans if the Company's consolidated gross leverage ratio
is greater than 3.50 to 1.00, down to 0.00% per annum forff Alternate Base Rate loans and 1.00% per annum forff Term
Benchmark Revolving loans if the Company's consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.
the quarter ended December 31, 2021, until
icabla e margin will be 1.25% per
icabla e
the quarter ended March 31, 2022, the appl
icabla e
a
a
a
The Company's consolidated gross leverage ratio is the ratio of its total funde
ff
d debt compared to its consolidated
EBITDA as defiff ned in the Second Amended and Restated Credit Agreement (adjusted consolidated EBITDA). Adjusted
consolidated EBITDA includes certain adjustments, including, without limitation, adjustments relating to extraordinary,rr
unusual or non-recurring charges, certain restrucr
turt
certain pro forff ma adjustments in connection with material acquisitions and dispositions, all as set forff
Amended and Restated Credit Agreement. The Company's secured 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 secured net leverage ratio is 4.00 to 1.00
ing charges, non-cash charges, certain transaction costs and expenses and
th in detail in the Second
the quarter ended March 31, 2022, the commitment feff e will be 0.20% per annum, and thereaftff er the commitment feff e will
on the daily unused amount of the credit faff cility. For the period frff om the deliveryrr of the
the quarter ended December 31, 2021, until the Company has delivered fiff nancial statements
Commitment feff es will accruer
Company's fiff nancial statements forff
forff
varyrr depending on the Company's consolidated gross leverage ratio, ranging frff om 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 feff es are payabla e to each lender providing the letter of credit sub-faff cility on the amount of
such lender's letter of credit exposure, during the period frff om 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
icabla e rate that would be used to determine the
date on which such lender ceases to have any letter of credit exposure, at the appl
interest rate appl
Additionally, the Company will pay a frff onting feff e to each issuing bank in amounts to be agreed to between the Company and
a
the appl
icabla e to Term Benchmark Revolving loans assuming such loans were outstanding during the period.
icabla e issuing bank.
a
a
Interest on Alternate Base Rate loans is payabla e at the end of each calendar quarter. Interest on Term Benchmark
Revolving loans is payabla e 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 faff cility 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 subsidiaryrr guarantors, including a pledge of all the capia tal stock of material subsidiaries held directly by
the Borrower and the subsidiaryrr guarantors (which pledge, in the case of any forff eign subsidiary,rr
is limited to 65% of the voting
stock), subject to certain customaryrr 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 appl
a
restricted subsidiaries, including, without limitation, limitations on additional indebtedness, liens, various funda
dividends and distributions, investments (including acquisitions), transactions with affff iff liates, asset sales, including sale-
leaseback transactions, speculative hedge agreements, payment of junior fiff nancing, changes in business and other limitations
customaryrr
in senior secured credit faff cilities. 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 Amended Credit Agreement
mental changes,
icabla e to the Company and its
ff
F-26
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
ly
that the Company maintain a minimum consolidated interest coverage ratio. These covenants and limitations are more fulff
described in the Second Amended and Restated Credit Agreement. As of March 31, 2022, the Company was in compliance
with all covenants, including the specififf ed total consolidated net leverage ratio range of 4.00 to 1.00.
The Second Amended and Restated Credit Agreement provides that events of defaff ult will exist in certain circumstances,
including faff ilure to make payment of principal or interest on the loans when required, faff ilure to perforff m certain obligations
under the Second Amended and Restated Credit Agreement and related documents including a faff ilure to meet the maximum
total secured net leverage ratio covenant, defaff ults under certain other indebtedness, certain insolvency events, certain events
arising under ERISA, a change of control and certain other events. Upon an event of defaff ult, the administrative agent with the
consent of,ff or at the request of,ff the holders of more than 50% in principal amount of the loans and commitments, may terminate
the commitments and accelerate the maturt
Restated Credit Agreement and the other loan documents.
ity of the loans and enforff ce certain other remedies under the Second Amended and
The Company had unamortized capia talized debt issuance costs, net of $4.8 million at March 31, 2022, which are being
amortized over the lifeff of the revolving credit faff cility. The unamortized capia talized debt issuance costs balance of $1.1 million
was included as prepaid expenses and other current assets and a balance of $3.7 million was included as other assets in the
Company's consolidated balance sheet at March 31, 2022.
NOTE 13 – NET INCOME (LOSS) PER SHARE
Calculations of the basic and diluted net income (loss) per share and potential common shares are as folff
lows (in
thousands, except forff
per share data):
Numerator:
Net income (loss)
Denominator:
Fiscal Year Ended March 31,
2022
2021
2020
$
35,874
$
19,352
$
(2,754)
Denominator forff
common shares outstanding
basic net income (loss) per share - weighted average
74,019
73,103
75,162
Dilutive common equivalent shares:
Weighted average restricted stock units and perforff mance-based
restricted stock units
Denominator forff
shares outstanding
diluted net income (loss) per share - weighted average
Net income (loss) per share:
Basic net income (loss) per share
Diluted net income (loss) per share
1,065
719
—
75,084
73,822
75,162
$
$
0.48
0.48
$
$
0.26
0.26
$
$
(0.04)
(0.04)
The folff
lowing tabla e sets forff
th restricted stock units excluded frff om the calculation of diluted net income per share, since
their inclusion would be antidilutive (in thousands):
Restricted stock units
Fiscal Year Ended March 31,
2022
2021
2020
1,222
2,864
675
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares
r
purpos
es of calculating basic earnings per share. Diluted net income (loss) per share is calculated by dividing
outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered
outstanding forff
net income (loss) by the weighted average number of shares outstanding plus the dilutive effff eff ct, if any, of outstanding restricted
shares and restricted stock units using the treasuryrr stock method. The calculation of the dilutive effff eff ct of outstanding equity
awards under the treasuryrr stock method includes consideration of proceeds frff om the assumed exercise of unrecognized
compensation expense. As the Company incurred a net loss in the fiff scal year ended March 31, 2020, all outstanding restricted
stock units have an anti-dilutive effff eff ct and are thereforff e excluded frff om the computation of diluted weighted average share
outstanding.
F-27
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
NOTE 14 – TREASURYR STOCK
On October 24, 2017, the Company’s Board of Directors appr
a
oved a share repurchase program that enabla es the Company
to repurchase up to twenty-fiff ve million shares of its common stock. This program became effff eff ctive once the Company’s
previously disclosed twenty million share repurchase program was completed. The Company is not obligated to acquire any
specififf c amount of common stock within any particular timefrff ame as a result of this share repurchase program.
The Company repurchased 1,330,678 shares forff
$35.6 million, 154,271 shares forff
$3.3 million, and 7,116,159 shares forff
$175.0 million of its common stock under the twenty-fiff ve million share repurchase program during the fiff scal years ended
March 31, 2022, 2021 and 2020, respectively. At March 31, 2022, 5,758,482 shares of common stock remained availabla e to be
purchased under the current repurchase program.
In connection with the vesting and release of the restriction on previously vested shares of restricted stock, the Company
$11.9 million related to
tax withholding requirements on these restricted stock units during the fiff scal years ended March 31, 2022,
repurchased 546,053 shares forff
minimum statutt oryrr
2021 and 2020, respectively. These repurchase transactions do not faff ll under the repurchase program described above
thereforff e do not reduce the amount that is availabla e forff
$13.3 million and 519,241 shares forff
repurchase under those programs.
$15.7 million, 506,917 shares forff
, and
a
NOTE 15 – STOCK PLANS
2011 Employee Stock Purchase Plan
On September 7, 2011, the Company's stockholders appr
a
oved the 2011 Employee Stock Purchase Plan (the ESPP), under
issuance. On November 8, 2018, the Company
which 2,500,000 shares of the Company's common stock have been reserved forff
increased the number of shares availabla e under the ESPP by an additional 3,000,000 shares. The Company implemented the
ESPP on March 1, 2012. Eligible employees may purchase shares of the Company's common stock through regular payroll
deductions of up to 20% of their eligible compensation. Under the terms of the offff eff ring under the ESPP, the number of shares
of the Company's common stock which a participant could purchase during any purchase period is limited to 2,000. In addition,
the faff ir market value of shares purchased by an individual participant in the plan may not exceed $25,000 if the contribution
period is within any calendar year. However, if contribution periods overlapa calendar years, an individual participant is eligible
to utilize the unused portion of the $25,000 limit frff om the subsequent purchase in the current purchase up to $50,000. Under the
ESPP, shares of the Company's common stock may be purchased on the last day of each bi-annual offff eff ring period at 85% of the
faff ir market value on the last day of such offff eff ring period. The offff eff ring periods runr
September 1 through the last day of Februar
498,415 shares under the ESPP with a weighted average purchase price per share of $29.26. At March 31, 2022, 1,253,398
shares were availabla e forff
ryrr of each year. During the fiff scal year ended March 31, 2022, employees purchased
frff om March 1 through August 31 and frff om
futff urt e issuance under the ESPP.
2019 Equity Incentive Plan
On September 12, 2019, the Company's stockholders appr
a
oved the 2019 Equity Incentive Plan (2019 Plan), which
replaced the Company's Amended 2007 Plan. The 2019 Plan permits the granting of incentive and nonstatutt oryrr stock options,
stock appr
"share-based awards."
eciation rights, restricted stock awards, restricted stock unit awards, and other stock awards, collectively refeff rred to as
a
On September 10, 2020, the Company's stockholders appr
a
Amended Plan). The amendment increased the number of shares reserved forff
year minimum vesting requirement forff
the increase or reduction in the number of shares availabla e forff
awards granted on or aftff er September 10, 2020, and changed the faff ctor used to calculate
issuance under the 2019 Amended Plan.
oved an amendment to the 2019 Equity Incentive Plan (2019
issuance by 4,700,000 shares, establa ished a one-
The aggregate number of shares availabla e forff
issuance under the 2019 Amended Plan will increase by 1.00 share forff
each
each share: (i) subject to an award granted under the Amended 2007 Plan or 2019 Amended Plan that are not issued because
share of common stock returt ned to the 2019 Amended Plan pursuant to a stock option or stock appr
forff
such award expires or otherwise terminates without all of the shares covered by such award having been issued; (ii) any shares
subject to an award under the Amended 2007 Plan or 2019 Amended Plan that are not issued because such award is settled in
cash; (iii) any shares issued pursuant to an award granted under the Amended 2007 Plan or 2019 Amended Plan that are
forff
by the Company to satisfyff
restricted stock units, perforff mance stock awards, or other stock awards granted under the Amended 2007 Plan and 2019
Amended Plan by 2.76 forff
feff ited back to or repurchased by the Company because of faff ilure to vest; and (iv) any shares that are reacquired or withheld
awards that are returt ned to the 2019 Amended Plan prior to September 10, 2020 and by 2.32 shares
tax withholding obligations in connection with common stock issued pursuant to restricted stock,
eciation right and increase
a
F-28
NetScout Systems, Inc.
eciation right, 2.76 shares forff
Notes to Consolidated Financial Statements—(Continued)
awards that are returt ned to the 2019 Amended Plan on or aftff er September 10, 2020. Furthermore, the share reserve under
forff
the 2019 Amended Plan is reduced by one share forff
appr
a
perforff mance stock awards, or other stock awards granted under the 2019 Amended Plan on or aftff er September 12, 2019 but
prior to September 10, 2020 and 2.32 shares forff
units, perforff mance stock awards, or other stock awards aftff er September 10, 2020. At March 31, 2022, an aggregate of
4,627,934 shares of unvested equity awards were outstanding under the 2019 Amended Plan.
each share of common stock issued pursuant to restricted stock, restricted stock units,
each share of common stock issued pursuant to a stock option or stock
each share of common stock issued pursuant to restricted stock, restricted stock
The 2019 Amended Plan is administered by the Compensation Committee of the Board of Directors. The Compensation
Committee operates under guidelines establa ished by the Board of Directors. The Compensation Committee has the authority to
select the employees and consultants to whom awards are granted (except forff
the terms of each award, including the number of shares of common stock subject to the award.
directors and executive offff iff cers) and determine
Share-based awards generally vest over four
ff
years. The exercise price of stock options shall not be less than 100% of the
faff ir market value of the common stock at the date of grant (110% forff
10% of the voting stock of NetScout). The term of stock options granted cannot exceed seven years (fiff ve years forff
stock options granted to holders of more than 10% of the voting stock of NetScout).
incentive stock options granted to holders of more than
incentive
Based on historical experience, the Company assumed an annualized forff
independent directors, appr
remaining employees during the fiff scal years ended March 31, 2022, 2021 and 2020.
awards granted to its senior executives, and appr
oximately 2% forff
a
feff iturt e rate of 0% forff
a
awards granted to its
oximately 5% granted to all
Periodically, the Company grants share-based awards to employees, offff iff cers, and directors of the Company and its
subsidiaries. During the fiff scal year ended March 31, 2022, the Company granted perforff mance-based restricted stock units to
certain executive offff iff cers that vest based upon the Company's total shareholder returt n as compared to the RusRR sell 2000 Index
over a three-year period. The perforff mance-based restricted stock units were valued using the Monte Carlo Simulation model.
The measurement and recognition of compensation expense is based on estimated faff ir values forff
awards made to its employees and directors. Share-based award grants are generally measured at faff ir 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.
all share-based payment
The folff
lowing is a summaryrr of share-based compensation expense including restricted stock units and perforff mance-based
restricted stock units granted pursuant to the Company's Amended 2007 Plan, the 2019 Plan, and the 2019 Amended Plan and
employee stock purchases made under the Company's 2011 Employee Stock Purchase Plan, as amended, (ESPP), based on
estimated faff ir values within the appl
icabla e cost and expense lines identififf ed below (in thousands):
a
Cost of product revenue
Cost of service revenue
Research and development
Sales and marketing
General and administrative
Fiscal Year Ended March 31,
2022
2021
2020
$
1,022
$
1,038
$
6,020
15,505
19,684
13,843
5,823
16,138
17,328
11,565
$
56,074
$
51,892
$
1,069
5,774
15,511
17,085
11,422
50,861
F-29
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Transactions under the Amended 2007, 2019 Plan and 2019 Amended Plan during the fiff scal years ended March 31, 2022,
2021 and 2020 are summarized in the tabla e below.
Outstanding – March 31, 2019
Granted
Vested
Canceled
Outstanding – March 31, 2020
Granted
Vested
Canceled
Outstanding – March 31, 2021
Granted
Vested
Canceled
Outstanding – March 31, 2022
Restricted Stock Units
Number of
Awards
4,210,655
$
2,062,110
(1,651,284)
(347,008)
4,274,473
$
2,038,681
(1,630,228)
(187,313)
4,495,613
$
2,121,937
(1,728,994)
(260,622)
4,627,934
$
Weighted
Average
Fair Value
30.84
26.32
31.03
29.74
28.68
27.42
28.63
28.28
28.14
29.06
29.04
28.07
28.23
At March 31, 2022, there were 4,779,939 shares of common stock availabla e forff
grant under the 2019 Amended Plan.
The Company does not currently expect to repurchase shares frff om any source to satisfyff
its obligations under the 2019
Amended Plan.
The aggregate intrinsic value of stock options exercised and the faff ir value of restricted stock units vested at March 31,
2022, 2021 and 2020 were as folff
lows (in thousands):
Total faff ir value of restricted stock unit awards vested
$
49,593
$
42,510
$
37,783
At March 31, 2022, the total unrecognized compensation cost related to restricted stock unit awards was $95.9 million,
which is expected to be amortized over a weighted-average period of 1.3 years.
Fiscal Year Ended March 31,
2022
2021
2020
NOTE 16 – PENSION BENEFIT PLANS
401(k) Plan
The Company has a defiff ned contribution program forff
certain employees that is qualififf ed under Section 401(k) of the
Internal Revenue Code of 1986, as amended. The Company matches 50% of the employee's contribution up to 6% of the
employee’s salary.rr NetScout contributions vest at a rate of 25% per year of service. NetScout made matching contributions of
the fiff scal years ended March 31, 2022, 2021 and 2020, respectively.
$7.1 million, $6.7 million and $6.7 million to the plan forff
Defiff ned Benefiff t Pension Plan
Certain of the Company's non-U.S. employees participate in certain noncontributoryrr defiff ned benefiff t pension plans. None
of the Company's employees in the U.S. participate in any noncontributoryrr defiff ned benefiff t pension plans. In general, these
plans are funde
anticipated deductibility of the contribution, local practices, market conditions, interest rates and other faff ctors.
d based on considerations relating to legal requirements, underlying asset returt ns, the plan's funde
d statust
ff
ff
, the
F-30
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
The components of the change in benefiff t obligation of the pension plan is as folff
lows (in thousands):
Benefiff t obligation, at beginning of year
Service cost
Interest cost
Benefiff ts paid and other
Actuat
Foreign exchange rate impact
Benefiff t obligation, at end of year
rial (gain) loss
March 31,
March 31,
2022
37,586
331
560
(422)
(2,761)
(2,445)
32,849
$
$
2021
32,805
333
667
(400)
2,205
1,976
37,586
$
$
The reconciliation of the beginning and ending balances of the faff ir value of the assets of the pension plan is as folff
lows (in
thousands):
Fair value of plan assets, at beginning of year
Employer direct benefiff t payments
Benefiff ts paid and other
Fair value of plan assets, at end of year
March 31,
March 31,
2022
2021
$
$
— $
422
(422)
— $
—
400
(400)
—
The folff
lowing sets forff
th the components of the Company's net periodic pension cost of the noncontributoryrr defiff ned
benefiff t pension plans forff
the fiff scal years ended March 31, 2022, 2021, and 2020 (in thousands):
Service cost
Interest cost
Net periodic pension cost
Fiscal Year Ended March 31,
2022
2021
2020
$
$
331
560
891
$
$
333
667
1,000
$
$
341
603
944
Weighted average assumptions used to determine net periodic pension cost at date of measurement:
Discount rate
Rate of compensation increase
March 31,
2022
March 31,
2021
March 31,
2020
2.20 %
3.00 %
1.60 %
3.00 %
1.90 %
3.00 %
As of March 31, 2022, unrecognized actuat
rial gains and losses are calculated as the diffff eff rence between the actuat
rial gain of $2.8 million ($1.9 million, net of tax) which have not yet been
recognized in net periodic pension cost are included in accumulated other comprehensive income (loss). The unrecognized
actuat
the value of the plan assets less accruer d pension costs. None of this amount is expected to be recognized in net periodic pension
costs during the fiff scal year ending March 31, 2022. No plan assets are expected to be returt ned to the Company during the fiff scal
year ending March 31, 2022.
rially determined projected benefiff t obligation and
F-31
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Expected Contributions
During the fiff scal year ended March 31, 2022, the Company contributed $422 thousand to its defiff ned benefiff t pension plan.
opriate, expected to be paid by the plan
lowing sets forff
th benefiff t payments, which reflff ect expected futff urt e service, as appr
a
The folff
in the periods indicated (in thousands):
2023
2024
2025
2026
2027
2028 - 2032
$
$
$
$
$
$
520
570
677
776
882
5,842
NOTE 17 – INCOME TAXES
Income beforff e income tax expense consisted of the folff
lowing (in thousands):
Domestic
Foreign
Fiscal Year Ended March 31,
2022
2021
2020
$
$
27,690
15,202
42,892
$
$
4,985
17,319
22,304
$
$
(1,502)
3,426
1,924
The components of the income tax expense (benefiff t) are as folff
lows (in thousands):
Current income tax expense:
Federal
State
Foreign
Defeff rred income tax benefiff t:
Federal
State
Foreign
Fiscal Year Ended March 31,
2022
2021
2020
$
7,240
$
14,701
$
2,897
9,343
19,480
(7,240)
(3,406)
(1,816)
(12,462)
2,426
9,902
27,029
(18,190)
(3,404)
(2,483)
(24,077)
$
7,018
$
2,952
$
2,817
1,850
9,712
14,379
(5,287)
(2,897)
(1,517)
(9,701)
4,678
F-32
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
The income tax expense (benefiff t) computed using the U.S. statutt oryrr
feff deral income tax rate diffff eff rs frff om NetScout's
effff eff ctive tax rate primarily due to the folff
lowing:
U.S. statutt oryrr
feff deral income tax rate
State taxes, net of feff deral tax effff eff ct
U.S. feff deral and state research and development tax credits
Effff eff ct of forff eign operations
Meals and entertainment
Change in valuation allowance
Internal restrucr
turt
ing charges
Stock compensation
Global intangible low taxed income
Foreign derived intangible income
Base erosion and anti-abus
a
e act
Foreign withholding
Other permanent diffff eff rences
Fiscal Year Ended March 31,
2022
2021
2020
21.0 %
21.0 %
21.0 %
1.1
(11.9)
6.3
0.2
5.1
—
2.0
(0.1)
(12.6)
—
5.2
0.1
2.4
(23.7)
(4.5)
0.8
24.0
—
5.1
0.8
(24.5)
—
13.8
(2.0)
(52.9)
(226.4)
46.8
44.6
250.0
196.5
172.7
8.4
(144.3)
(322.8)
222.5
27.0
16.4 %
13.2 %
243.1 %
Certain amounts in the tabla e above
conforff m to the current period presentation.
a
forff
the fiff scal years ended March 31, 2021 and 2020 have been reclassififf ed to
The components of net defeff rred tax assets and liabia lities are as folff
lows (in thousands):
Defeff rred tax assets:
Accruer d expenses
Defeff rred revenue
Reserves
Pension and other retiree benefiff ts
Net operating loss carryfrr orff wards
Tax credit carryfrr orff wards
Share-based compensation
Operating lease liabia lity
Other defeff rred tax assets
Total gross defeff rred tax assets
Valuation allowance
Net defeff rred tax assets
Defeff rred tax liabia lities:
Intangible assets
Operating lease right-of-ff use asset
Depreciation
Other defeff rred tax liabia lities
Total defeff rred tax liabia lities
F-33
iscal Year Ended March 31,
2022
2021
$
8,721
$
17,267
3,106
4,903
11,611
21,132
6,172
15,639
658
89,209
(13,160)
76,049
8,480
17,648
2,898
6,160
11,526
19,432
5,397
17,333
2,116
90,990
(11,406)
79,584
(117,839)
(132,635)
(13,189)
(6,612)
(10,425)
$
(72,016) $
(14,474)
(7,818)
(8,848)
(84,191)
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Defeff rred tax assets and liabia lities are recognized based on the anticipated futff urt e tax consequences, attributabla e to
diffff eff rences between fiff nancial statement carryirr ng amounts of assets and liabia lities and their respective tax bases. Defeff rred tax
assets and liabia lities are measured using enacted tax rates in effff eff ct forff
The Company evaluates the recoverabia lity of defeff rred tax assets by considering all positive and negative evidence. The
Company weighs objective and verififf abla e evidence more heavily in this analysis. In situat
that it does not have suffff iff cient objective and verififf abla e evidence to support the realizabia lity of the asset it creates a valuation
allowance against it. As a result, the Company establa ished a valuation allowance of $11.4 million as of March 31, 2021 and
$13.2 million as of March 31, 2022, representing an increase of $1.8 million. The increase in the valuation allowance as of
March 31, 2022, as compared to March 31, 2021, is primarily due to defeff rred tax assets related to U.S. forff eign tax credits that
the Company believes are not more likely than not to be realized. If it is later determined the Company is abla e to use all or a
portion of the defeff rred tax assets forff which a valuation allowance has been establa ished, then the Company may be required to
recognize these defeff rred tax assets as a tax benefiff t recorded in the period such determination is made.
the year in which the diffff eff rences are expected to reverse.
tions where the Company concludes
At March 31, 2022, the Company had U.S. feff deral net operating loss carryrr
forff wards of $7 million and state net operating
loss carryfrr orff wards of $54 million that are subject to expire at various dates beginning in 2025 and 2028, respectively. At March
31, 2022, the Company also had U.S. forff eign tax credit carryfrr orff wards and state tax credits of $5 million and $9 million that are
subject to expire at various dates beginning 2029 and 2030, respectively. At March 31, 2022, the Company had forff eign net
operating loss carryfrr orff wards of $42 million and forff eign tax credit carryfrr orff wards of $7 million, respectively. The maja ority of
forff eign net operating losses and forff eign tax credits have no expiration dates. As of March 31, 2022, the Company does not
expect any U.S. feff deral and state net operating losses or research and development tax credits to go unutilized.
The Company fiff les U.S. feff deral tax returt ns and fiff les returt ns in various state, local and forff eign jurisdictions. With respect
tax years
to the U.S. feff deral and primaryrr
beforff e 2017, although carryfrr orff ward attributes that were generated prior to 2017 may still be adjusted upon examination if they
either have been or will be used in a futff urt e period. The Company also receives inquiries frff om various tax jurisdictions during
the year, and some of those inquiries may include an audit of tax returt ns previously fiff led. In the normal course of business,
NetScout and its subsidiaries are examined by various taxing authorities, including the IRS in the United States.
jurisdictions, the Company is no longer subject to examinations by tax authorities forff
A reconciliation of the beginning and ending amount of gross unrecognized tax benefiff ts, excluding interest and penalties,
forff
the fiff scal years ended March 31, 2022, 2021 and 2020 is as folff
lows (in thousands):
Balance at April 1,
Additions based on tax positions related to the current year
Reductions of prior years tax positions due to lapsa
e of statutt e of limitations
Balance at March 31,
Fiscal Year Ended March 31,
2022
2021
2020
$
$
913
$
1,151
$
28
(303)
48
(286)
638
$
913
$
1,314
49
(212)
1,151
The Company is unabla e to make a reliabla e estimate when cash settlement, if any, will occur with a tax authority as the
timing of examinations and ultimate resolution of those examinations is uncertain. All of the unrecognized tax benefiff ts would
affff eff ct the effff eff ctive tax rate if recognized.
The Company includes interest and penalties accruerr d in the consolidated fiff nancial statements as a component of the tax
provision. The interest and penalties are immaterial to the provision.
Over the next twelve months, previously unrecognized tax benefiff ts primarily due to the lapsa
e of statutt e of limitations will
be immaterial.
The Company continues to assert that certain historical book over tax outside basis diffff eff rences primarily related to
unremitted forff eign earnings are permanently reinvested. The Company's intent is to only make distributions frff om its forff eign
subsidiaries in the futff urt e when they can be made at no or an immaterial net tax cost. Unremitted forff eign earnings total
appr
a
they were distributed which would primarily consist of forff eign withholding taxes.
oximately $141 million. The Company does not expect taxes related to the unremitted forff eign earnings to be material if
NOTE 18 – LEASES
The Company determines if an arrangement is a lease at inception. Right-of-ff use (ROU) assets represent the Company's
right to use an underlying asset forff
obligation to make lease payments over the lease term. The Company's policy is to combine lease and non-lease components
l
the duration of the lease term. Lease liabia lities represent the Company's contractuat
F-34
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
and to not recognize ROU assets and lease liabia lities forff
are classififf ed as short-term leases. ROU assets are recorded and recognized at commencement forff
plus initial direct costs incurred less lease incentives received. Lease liabia lities are recorded at the present value of futff urt e 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 determinabla e. Incremental borrowing rates are calculated periodically
to estimate the rate the Company would pay to borrow the funds
term. Lease expenses relating to operating leases are recognized on a straight-line basis over the lease term.
short-term leases. Leases with an initial term of twelve months or less
to obtain an asset of similar value over a similar
the lease liabia lity amount,
necessaryrr
ff
The Company has operating leases forff
administrative, research and development, sales and marketing and manufaff cturt
faff cilities and equipment under various non-cancelabla e lease agreements. The Company's leases have remaining lease terms
ranging frff om 1 year to 9 years. The Company's lease terms may include options to extend or terminate the lease where it is
reasonabla y certain that the Company will exercise those options. The Company considers several economic faff ctors when
making this determination, including but not limited to, the signififf cance of leasehold improvements incurred in the offiff ce space,
the diffff iff culty in replacing the asset, underlying contractuat
The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
l obligations, or specififf c characteristics unique to a particular lease.
ing
The Company has an obligation to returt n certain leased faff cilities to their original condition at the end of the respective
lease term. These obligations were not material to the Company's fiff nancial statements forff
all years presented.
Most of the Company's lease agreements contain variabla e payments, primarily forff
common area maintenance (CAM),
which are expensed as incurred and not included in the measurement of the ROU assets and lease liabia lities.
The components of operating lease cost forff
the fiff scal years ended March 31, 2022 and 2021 were as folff
lows (in
thousands):
Lease cost under long-term operating leases
Lease cost under short-term operating leases
Variabla e lease cost under short-term and long-term operating leases
Total operating lease cost
Fiscal Year Ended March 31,
2022
2021
$
$
12,817 $
4,127
3,523
20,467 $
13,092
3,678
3,800
20,570
The tabla e below presents supplemental cash flff ow inforff mation related to leases during the fiff scal years ended March 31,
2022 and 2021 (in thousands):
Right-of-ff use assets obtained in exchange forff
new operating lease liabia lities
$
4,002 $
2,492
Fiscal Year Ended March 31,
2022
2021
At March 31, 2022 and 2021, the weighted average remaining lease term in years and weighted average discount rate
were as folff
lows:
Weighted average remaining lease term in years - operating leases
Weighted average discount rate - operating leases
March 31, 2022
March 31, 2021
6.98
4.0 %
7.70
4.1 %
F-35
NetScout Systems, Inc.
Notes to Consolidated Financial Statements—(Continued)
Futurt e minimum payments under non-cancellabla e leases at March 31, 2022 are as folff
lows (in thousands):
Year Ending March 31,
2023
2024
2025
2026
2027
Thereaftff er
Total lease payments
Less imputed interest
Present value of lease liabia lities
$
$
$
12,789
11,635
11,038
9,666
7,408
22,406
74,942
(9,604)
65,338
NOTE 19 – COMMITMENTS AND CONTINGENCIES
Legal
From time to time, NetScout is subject to legal proceedings and claims in the ordinaryrr course of business. In the opinion
of management, the amount of ultimate expense with respect to any current legal proceedings and claims, if determined
adversely, will not have a material adverse effff eff ct on the Compa yny's fiiff nanciiall c di
onditiion, res lults of operatiions or cashh fllff ows.
As previously disclosed, in March 2016, Packet Intelligence LLC (Packet Intelligence or Plaintiffff )ff fiff led a Complaint
rr
r
indicated that
pre-suit damages and $2,250,000 forff
the Eastern District of Texas asserting
fiff nding. The judgment also awarded pre- and post-
ng royalty. In September 2018, the Court entered judgment and
ng royalty on the G10 and GeoBlade products until the expiration of the patents at issue, the last
against NetScout and two subsidiaryrr entities in the United States District Court forff
infrff ingement of fiff ve United States patents. Plaintiffff 'ff s Complaint alleged that legacy Tektronix GeoProbe products, including the
G10 and GeoBlade products, infrff inged these patents. NetScout fiff led an Answer denying Plaintiffff 'ff s allegations and asserting that
Plaintiffff 'ff s patents were, among other things, invalid, not infrff inged, and unenforff ceabla e due to inequitabla e conduct. In October
trial was held to address the parties' claims and counterclaims regarding infrff ingement of three patents by the G10
2017, a juryrr
rendered a verdict fiff nding in faff vor of the Plaintiffff
and GeoBlade products, invalidity of these patents, and damages. The juryrr
and that Plaintiffff was entitled to $3,500,000 forff
post-suit damages. The juryrr
the awarded damages amounts were intended to reflff ect a runni
"enhanced" the juryrr verdict in the amount of $2.8 million as a result of a juryrr
judgment interest, and a runni
date being June 2022. Following the entryrr of fiff nal judgment, NetScout appe
Federal Circuit (Federal Circuit) issued a decision vacating the $3,500,000 pre-suit damages award, affff iff rming the $2,250,000
post-suit damages award, and remanding to the district court to determine what, if any, enhancement should be awarded. In
March 2021, NetScout fiff led a petition forff
denied, challenging, among other issues, the basis forff
enhanced damages and the patentabia lity of the claimed technology. In
addition, on September 8 and 9, 2021, in proceedings initiated by third parties that did not involve NetScout, the Patent Trial
and Appeal Board (PTAB) invalidated all the patent claims that were also asserted against NetScout in this case. Aftff er the
PTAB decisions were issued, NetScout moved, among other things, to dismiss the case and enter judgment in its faff vor on the
grounds that the PTAB decisions invalidating the asserted claims precluded Plaintiffff frff om continuing to assert its patent
infrff ingement causes of action and frff om seeking damages frff om NetScout. The District Court recently denied NetScout’s motion
with respect to its request to dismiss the case and enter judgment in its faff vor, but in response to alternative requests forff
requested by NetScout, vacated $1.7 million of the "enhanced" juryrr verdict amount of $2.8 million and also lowered the
ongoing royalty rate on the G10 and GeoBlade products. The District Court entered an amended fiff nal judgment awarding
Plaintiffff $2.25 million in post-suit damages, $1.1 million in enhanced damages, pre- and post-j- udgment interest, and a runni
ng
royalty on the G10 and GeoBlade products until the expiration of the patents at issue, the last expiration date being June 2022.
NetScout has time remaining with respect to its right to appe
current circumstances, and if the post-suit and enhanced damages award along with the associated interest and royalties
survives the recent PTAB invalidation decisions and any appe
a writ of certiorari to the United States Supreme Court, which was subsequently
al frff om the entryrr of the amended fiff nal judgment. In view of the
al NetScout may take, NetScout has concluded that the risk of
aled, and in July 2020, the Court of Appeals forff
relief
the
a
a
a
r
F-36
Notes to Consolidated Financial Statements—(Continued)
loss associated with such damages award remains "probabla e" in accounting terms, and that the risk of loss associated with pre-
suit damages is remote.
NetScout Systems, Inc.
Unconditional Purchase Obligations
At March 31, 2022, the Company had unconditional purchase obligations of $74.1 million, which represent estimated
products and services used in the normal course of
open purchase orders to purchase inventoryrr as well as commitments forff
business.
NOTE 20 – SEGMENT AND GEOGRARR PHIC INFORMATION
The Company manages its business in the folff
lowing geographi
world. The Company's policies mandate compliance with economic sanctions and export controls. The Company reports
revenues and income under one reportabla e segment.
c areas: United States, Europe, Asia and the rest of the
a
Total revenue by geographya
is as folff
lows (in thousands):
United States
Europe
Asia
Rest of the world
Fiscal Year Ended March 31,
2022
2021
2020
$
501,043
$
484,129
$
165,190
64,968
124,374
160,372
56,562
130,219
$
855,575
$
831,282
$
545,620
154,510
59,939
131,751
891,820
The United States revenue includes sales to resellers in the United States. These resellers fulff
fiff ll customer orders and may
subsequently ship the Company's products to international locations. Further, the Company determines the geographya
sales aftff er considering where the contract originated. A maja ority of revenue attributabla e to locations outside of the United States
is a result of export sales. Substantially all of the Company's identififf abla e assets are located in the United States.
of its
NOTE 21 – SUBSEQUENT EVENTS
On May 3, 2022, the Company’s Board of Directors appr
a
oved a new share repurchase program that will enabla e the
Company to repurchase up to twenty-fiff ve million shares of its common stock. This new program will become effff eff ctive once the
Company’s existing twenty-fiff ve million share repurchase program that was appr
March 31, 2022, there were 5,758,482 shares availabla e forff
acquire shares in open market transactions that may use a 10b5-1 plan, and may also repurchase shares via accelerated share
repurchase program (ASR), tender offff eff rs, privately negotiated transactions or by other means. Repurchases under this new
program will be funde
Company is not obligated to acquire any specififf c amount of common stock within any particular timefrff ame as a result of its
new share repurchase program. The timing and amount of futff urt e repurchase activity under the new program will depend on
market conditions, corpor
suspended or terminated at any time by the Board.
d frff om one or a combination of existing cash balances, futff urt e frff ee cash flff ow and indebtedness. The
repurchase under the existing program. The Company plans to
ate considerations, debt agreements, and regulatoryrr
requirements. The new program may be modififf ed,
oved October 24, 2017 is completed. As of
a
ff
rr
On May 3, 2022, the Company's Board of Directors authorized an accelerated share repurchase program (ASR Program)
to repurchase an aggregate of up to $150 million of the Company's common stock under the Company's existing twenty-fiff ve
million share repurchase program appr
million share repurchase program appr
agreements with Mizuho Markets Americas LLC and Wells Fargo Bank, National Association (the Dealers) to repurchase an
aggregate of $150 million of the Company's common stock via the ASR Program.
oved on October 24, 2017 (until such program was completed) and the new twenty-fiff ve
oved on May 3, 2022. On May 9, 2022, the Company announced that it entered into
a
a
On May 9, 2022, the Company repaid $150.0 million of borrowings under the Second Amended and Restated Credit
Agreement.
In May of 2022, the Company received the District Court's rulr
matter. The Company accruerr d an additional $1.1 million related to that rulr
5, 2022 as the amount became probabla e and estimabla e.
ing regarding enhanced damages forff
the Packet Intelligence
ing aftff er the issuance of its earnings release on May
F-37
NetScout Systems, Inc.
Schedule II—Valuation and Qualifyiff ng Accounts
(in thousands)
Fiscal year ended March 31, 2020
Allowance forff
credit losses
Defeff rred tax asset valuation allowance
Fiscal year ended March 31, 2021
Allowance forff
credit losses
Defeff rred tax asset valuation allowance
Fiscal year ended March 31, 2022
Allowance forff
Defeff rred tax asset valuation allowance
credit losses
Balance at
Beginning
of Fiscal Year
Additions
Resulting in
Charges to
Operations
Charges to
Other
Accounts
Deductions
Due to Write-
Offff sff
Balance at
End of Fiscal
Year
$
$
$
$
$
$
1,583
835
1,350
5,641
416
11,406
$
$
$
$
$
$
1,450
4,806
48
5,765
1,963
1,720
$
$
$
$
$
$
(1,202)
—
(733)
—
(25)
—
$
$
$
$
$
$
(481) $
— $
1,350
5,641
(249) $
416
— $
11,406
(705) $
— $
1,649
13,126
S-1
Joseph G. Hadzima, Jr.
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)
Main Street Partners, LLC
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:605)(cid:70)(cid:72)(cid:85)(cid:86)
Anil K. Singhal
Chairman of the Board, Co-Founder,
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:909)(cid:70)(cid:72)(cid:85)
Christopher Perretta
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)
(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:50)(cid:909)(cid:70)(cid:72)(cid:85)(cid:3)(cid:11)(cid:53)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:71)(cid:12)
(cid:48)(cid:56)(cid:41)(cid:42)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:86)(cid:3)(cid:43)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
Michael Szabados
Vice Chairman of the Board
(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:909)(cid:70)(cid:72)(cid:85)(cid:3)
Susan L. Spradley
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:909)(cid:70)(cid:72)(cid:85)
(cid:48)(cid:82)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:79)(cid:79)(cid:76)(cid:74)(cid:72)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)
Vivian Vitale
Principal
Vivian Vitale Consulting, LLC
Jean Bua
Executive Vice President,
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:909)(cid:70)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:85)
John W. Downing
Executive Vice President,
Worldwide Sales Operations
Corporate Information
Board of Directors
Anil K. Singhal
Chairman of the Board, Co-Founder,
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:909)(cid:70)(cid:72)(cid:85)
(cid:49)(cid:40)(cid:55)(cid:54)(cid:38)(cid:50)(cid:56)(cid:55)(cid:3)(cid:54)(cid:60)(cid:54)(cid:55)(cid:40)(cid:48)(cid:54)(cid:15)(cid:3)(cid:44)(cid:49)(cid:38)(cid:17)
Michael Szabados
Vice Chairman of the Board
(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:909)(cid:70)(cid:72)(cid:85)
(cid:49)(cid:40)(cid:55)(cid:54)(cid:38)(cid:50)(cid:56)(cid:55)(cid:3)(cid:54)(cid:60)(cid:54)(cid:55)(cid:40)(cid:48)(cid:54)(cid:15)(cid:3)(cid:44)(cid:49)(cid:38)(cid:17)
Robert E. Donahue
President and
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:909)(cid:70)(cid:72)(cid:85)(cid:3)(cid:11)(cid:53)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:71)(cid:12)
(cid:36)(cid:88)(cid:87)(cid:75)(cid:82)(cid:85)(cid:76)(cid:93)(cid:72)(cid:17)(cid:81)(cid:72)(cid:87)(cid:3)(cid:43)(cid:82)(cid:79)(cid:71)(cid:76)(cid:81)(cid:74)(cid:86)(cid:15)(cid:3)(cid:44)(cid:81)(cid:70)(cid:17)
John R. Egan
Managing Partner
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Alfred Grasso
President and
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The Mitre Corporation
Corporate Headquarters
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310 Littleton Road
Westford, MA 01886
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Legal Counsel
Cooley LLP
Boston, MA
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
Boston, MA
Transfer Agent
Computershare
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Common Stock
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is traded on the Nasdaq Global Select Market
under the symbol “NTCT”
Form 10-K
Stockholders may obtain copies of the exhibits to the
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Investor Relations
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310 Littleton Road
Westford, MA 01886
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Annual Meeting
The Annual Meeting of Stockholders of the Company will be
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310 Littleton Roa d
W e s tfo r d , M A 0 1 8 86
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n e t s c o u t . c o m
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