10q10k10q10k.net

What changed in NETSCOUT SYSTEMS INC's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of NETSCOUT SYSTEMS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+365 added−383 removedSource: 10-K (2023-05-16) vs 10-K (2022-05-19)

Top changes in NETSCOUT SYSTEMS INC's 2023 10-K

365 paragraphs added · 383 removed · 289 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

70 edited+11 added−12 removed85 unchanged
Biggest changeAs 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 identify new opportunities to support new network, cybersecurity, and broader technology projects. • Expand our Customer Base - The investments we have made over the past several years to expand our product portfolio and support greater deployment flexibility also positions us to win new customers in established geographic markets where we can leverage our global direct sales organization and an extensive network of value-added resellers and systems integrators. • Increase Market Relevance and Awareness - We plan to continue to implement marketing campaigns aimed at generating high-quality sales opportunities with both current and prospective enterprise and service provider customers, promoting thought leadership and building the NetScout brand. • Extend our Technology Partner Alliance Ecosystem - We plan to continue to develop and fortify alliances with complementary solutions providers that can help us support a larger, more global and more diverse customer base. 8 Table of Contents We also plan to continue to enhance our technology value, product capabilities and customer relevance through the continued integration of our products into technology partner products. • Pursue Strategic Acquisitions - We have completed many acquisitions since our inception that have helped broaden our capabilities, enhance our products and technologies, enable us to expand into adjacent markets and better position us to meet the needs of a larger base of customers and prospects. • Improve Cost Structure and Drive Efficiencies - We plan to balance our investments in key technology, product development, sales and marketing, and other initiatives that will enable us to drive long-term profitable growth with an ongoing focus on managing costs and driving efficiencies.
Biggest changeAs 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 identify new opportunities to support new network, cybersecurity, and broader technology projects. • Expand our Customer Base - The investments we have made over the past several years to expand our product portfolio and support greater deployment flexibility also positions us to win new customers in established geographic markets where we can leverage our global direct sales organization and an extensive network of value-added resellers and systems integrators. 8 Table of Contents • Increase Market Relevance and Awareness - We plan to continue to implement marketing campaigns aimed at generating high-quality sales opportunities with both current and prospective enterprise and service provider customers, promoting thought leadership and building the NetScout brand. • Extend our Technology Partner Alliance Ecosystem - We plan to continue to develop and fortify alliances with complementary solutions providers that can help us support a larger, more global and more diverse customer base.
Mobile operators use our offerings to gain real-time, detailed IP packet-level insight and core-to-access visibility, which enables them to ensure services offered over the network and meet certain pre-defined quality levels for an optimal subscriber experience.
Mobile operators use our offerings to gain real-time, detailed IP packet-level insight and core-to-access visibility, which enables them to ensure services offered over the network meet certain pre-defined quality levels for an optimal subscriber experience.
Furthering our diversity, equity, and inclusion efforts alongside our employee engagement programs. 4. Supporting community digital inclusion programs that improve underserved communities’ participation in the connected world. NetScout's global ESG program encompasses a broad range of areas, including environmental sustainability, responsible management of our supply chain, human capital, ethical business practices, and data privacy and security.
Furthering our diversity, equity, and inclusion efforts alongside our employee engagement programs; and 4. Supporting community digital inclusion programs that improve underserved communities’ participation in the connected world. NetScout's global ESG program encompasses a broad range of areas, including environmental sustainability, responsible management of our supply chain, human capital, ethical business practices, and data privacy and security.
The security features of our products are designed to mitigate data risks, such as loss or unauthorized access, destruction, use, modification, or disclosure. NetScout products allow customers to customize a security strategy in several ways, from the operating system and between system communications to access control of individual modules, role-based data visibility, and packet and data storage configurations.
The security features of our products are designed to mitigate data risks, such as loss or unauthorized access, destruction, use, modification, or disclosure. Our products allow customers to customize a security strategy in several ways, from the operating system and between system communications to access control of individual modules, role-based data visibility, and packet and data storage configurations.
Support Services Customer satisfaction is a key driver of our success. Our support programs offer 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.
Support Services Customer satisfaction is a key driver of our success. Our support programs offer 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 customers.
With representation across all key business functions, the mandate of the ESG Steering Committee is to consider our existing ESG efforts, understand stakeholder perspectives, identify areas for improvement that align with our business, and work collaboratively to support programs designed to accelerate ESG initiatives.
With representation across key business functions, the mandate of the ESG Steering Committee is to consider our existing ESG efforts, understand stakeholder perspectives, identify areas for improvement that align with our business, and work collaboratively to support programs designed to accelerate ESG initiatives.
While we face multiple competitors within the service assurance industry, we believe that we compete favorably on the basis of the following factors: • we provide a comprehensive service delivery management solution that is capable of addressing the needs of both enterprise and service provider customers and can be scaled to meet the challenges of today's dynamic service delivery environments; • we believe that our solutions provide superior data and compete favorably on a broad range of metrics including the ability to recognize and track a large number of applications; • we believe our solutions possess the scalability to support high and increasing levels of data and network traffic; 11 Table of Contents • our solutions look at both data and control plane traffic across an entire network; and • our ASI technology is optimized to provide real-time information about service performance and real-time alerts to emerging service problems whereas traditional solutions are inherently latent, supporting only forensic-trouble shooting after an issue has occurred.
While we face multiple competitors within the service assurance industry, we believe that we compete favorably on the basis of the following factors: • we provide a comprehensive service delivery management solution that is capable of addressing the needs of both enterprise and service provider customers and can be scaled to meet the challenges of today's dynamic service delivery environments; • we believe that our solutions provide superior data and compete favorably on a broad range of metrics including the ability to recognize and track a large number of applications; • we believe our solutions possess the scalability to support high and increasing levels of data and network traffic; • our solutions look at both data and control plane traffic across an entire network; and • our ASI technology is optimized to provide real-time information about service performance and real-time alerts to emerging service problems whereas traditional solutions are inherently latent, supporting only forensic-trouble shooting after an issue has occurred.
We have devoted considerable resources to ensuring compliance with applicable data privacy laws and developing our privacy policy and providing regular security training to employees. We review cybersecurity and data privacy issues regularly with the independent Audit Committee and with the full Board.
We have devoted considerable resources to ensuring compliance with applicable data privacy laws and developing our privacy policy and providing regular security training to employees. We review cybersecurity and data privacy issues regularly with the Audit Committee and with the full Board.
We offer visibility across all virtual desktop infrastructure (VDI) tiers including remote access, client, virtualization, web, front-end application, and related database systems, and help customers gain actionable metrics and insight from monitoring and analyzing the consumption and performance of VDI services. • Cybersecurity: DDoS Protection and Omnis Cyber Intelligence - Computer networks continue to be targeted for cyberattacks that are aimed at disrupting, damaging, or otherwise destroying an enterprise’s ability to conduct its business or gaining unauthorized access to corporate applications and restricting or stealing valuable information.
We offer visibility across all virtual desktop infrastructure (VDI) tiers including remote access, client, virtualization, web, front-end application, and related database systems, and help customers gain actionable metrics and insight from monitoring and analyzing the consumption and performance of VDI services. 5 Table of Contents • Cybersecurity: DDoS Protection and Omnis Cyber Intelligence - Computer networks continue to be targeted for cyberattacks that are aimed at disrupting, damaging, or otherwise destroying an enterprise’s ability to conduct its business or gaining unauthorized access to corporate applications and restricting or stealing valuable information.
In the enterprise market for Network Detection and Response (NDR) solutions that utilize specialized threat analysis, traffic analysis, and packet forensics 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.
In the enterprise market for Network Detection and Response (NDR) solutions that utilize specialized threat analysis, traffic analysis, and packet forensics 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, Cisco, and other specialist providers.
The Audit Committee is comprised entirely of independent directors, some of whom have work experience related to information security issues or oversight. In the last three years, the expenses we have incurred from information security breach incidences, including penalties and settlements, of which there were none, were immaterial. We take our customers' information security and privacy commitments just as seriously.
The Audit Committee is comprised entirely of independent directors, some of whom have work experience related to information security issues or oversight. In the last three years, the expenses we have incurred from information security breach incidences, including penalties and settlements, of which there were none, were immaterial. We take our customers' information security and privacy commitments seriously.
To accomplish this, agencies are turning to IT solutions that will help simplify managing and assuring their IT environments as well as reduce costs. However, governmental markets differ from enterprise markets primarily due to their purchasing cycles being influenced by potential changes in government administrators, budgetary priorities and allocated funding for key projects.
To accomplish this, agencies are turning to IT solutions that will help simplify managing and assuring their IT environments as well as reducing costs. However, governmental markets differ from enterprise markets primarily due to their purchasing cycles being influenced by potential changes in government administrators, budgetary priorities and allocated funding for key projects.
Dozens of service provider customers around the world also resell Arbor's solutions as a managed DDoS service to their enterprise customers. Our portfolio of DDoS solutions offers complete deployment flexibility spanning on-premise offerings and cloud-based capabilities to meet a broad array of customer needs, as well as specialized analytics and comprehensive threat intelligence information.
Certain of our service provider customers around the world also resell Arbor's solutions as a managed DDoS service to their enterprise customers. Our portfolio of DDoS solutions offers complete deployment flexibility spanning on-premise offerings and cloud-based capabilities to meet a broad array of customer needs, as well as specialized analytics and comprehensive threat intelligence information.
During fiscal 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 fiscal year 2023. Research and Development Our continued success depends significantly on our ability to anticipate and create solutions that will meet emerging customer requirements.
During fiscal year 2023, 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 fiscal year 2024. Research and Development Our continued success depends significantly on our ability to anticipate and create solutions that will meet emerging customer requirements.
These vendors include Anritsu, Cisco, Ericsson, Dell Technologies, EXFO, Huawei, IBM, Infovista, Niksun, Elisa Polystar, Radcom, Splunk, Nokia and Viavi. We face additional competitive threats from startups and new entrants that seek to offer innovative solutions in an industry characterized by rapid technological change.
These vendors include Anritsu, Cisco, Ericsson, EXFO, Huawei, IBM, Infovista, Niksun, Elisa Polystar, Radcom, Splunk, Nokia and Viavi. We face additional competitive threats from startups and new entrants that seek to offer innovative solutions in an industry characterized by rapid technological change.
NetScout's analytics deliver timely insights into a service provider's subscribers, services, networks, and applications, as well as easy export capabilities so that this information can be integrated into their data lakes and third-party analytic platforms. • DDoS Protection - Over the past decade, Internet Service Providers (ISPs), including leading telecommunications providers, cable multi-service operators and cloud providers, have seen significant increases in the sophistication, scale and frequency of high-volume and application-specific DDoS attacks on their networks.
NetScout's analytics deliver timely insights into a service provider's subscribers, services, networks, and applications, as well as easy export capabilities so that this information can be integrated into their data lakes and third-party analytic platforms. • DDoS Protection - Internet Service Providers (ISPs), including leading telecommunications providers, cable multi-service operators and cloud providers, have seen significant increases in the sophistication, scale and frequency of high-volume and application-specific DDoS attacks on their networks.
Some of the more significant technology trends and catalysts for our business include the evolution of customers' digital transformation initiatives such as the migration to cloud environments, the rapidly evolving cybersecurity threat landscape, business intelligence and analytics advancements, and the 5G evolution in both the service provider and enterprise customer verticals.
Some of the more significant technology trends and catalysts for our business include the evolution of customers' digital transformation initiatives such as the migration to "edge" environments, like the cloud, the rapidly evolving cybersecurity threat landscape, business intelligence and analytics advancements, and the 5G evolution in both the service provider and enterprise customer verticals.
Our support also includes updates to our software and firmware at no additional charge, if and when such updates are developed and made generally available to our commercial customer base. If ordered, support commences upon shipment or expiration of the standard warranty for software.
Our support also includes updates to our software and firmware at no additional charge, if and when such updates are developed and made generally available to our commercial customer base. If ordered, support commences upon fulfilment or expiration of the standard warranty for software.
For software, which also includes firmware, the standard warranty commences upon shipment and expires 60 to 90 days thereafter. With regard to hardware, the standard warranty commences upon shipment and expires 60 days to 12 months thereafter. We believe our warranties are consistent with commonly accepted industry standards.
For software, which also includes firmware, the standard warranty commences upon fulfilment and expires 60 to 90 days thereafter. With regard to hardware, the standard warranty commences upon fulfilment and expires 60 days to 12 months thereafter. We believe our warranties are consistent with commonly accepted industry standards.
In recent years, to further elevate our value proposition and address the near- and long-term needs of customers and prospects, we have delivered major product upgrades across our product lines by integrating key functionality from acquired product lines, increasing the deployment flexibility of our solutions, and adding new features and capabilities that enable us to address a broader range of use cases.
To further elevate our value proposition and address the near- and long-term needs of customers and prospects, we have delivered major product upgrades across our product lines by integrating key functionality from acquired product lines, increasing the deployment flexibility of our solutions, and adding new features and capabilities that enable us to address a broader range of use cases.
We provide a range of network security solutions under the NetScout Arbor brand that enable enterprises to protect their networks from high-volume and application-specific DDoS attacks, which are aimed at either overwhelming the network with traffic or over-exercising specific functions or features of a website with the intention to disable those 5 Table of Contents functions or features.
We provide a range of network security solutions under the NetScout Arbor brand that enable enterprises to protect their networks from high-volume and application-specific DDoS attacks, which are aimed at either overwhelming the network with traffic or over-exercising specific functions or features of a website with the intention to disable those functions or features.
The contents of these sections of our investor relations website are not intended to be incorporated by reference into this report or in any other report or document we file with the SEC.
The contents of these sections of our investor relations website are not intended to be incorporated by reference into this report or in any other report or document we file with the SEC. 15 Table of Contents
Our proprietary rights are subject to other risks and uncertainties described under Item 1A "Risk Factors." 12 Table of Contents Human Capital Management NetScout strives to remain a team of entrepreneurs, with the agility of a start-up and the heft of a global technology company. We believe that our culture is critical to our success and growth.
Our proprietary rights are subject to other risks and uncertainties described under Item 1A "Risk Factors." Human Capital Management NetScout strives to remain a team of entrepreneurs, with the agility of a start-up and the heft of a global technology company. We believe that our culture is critical to our success and growth.
Enterprise Market Within the enterprise market, NetScout's nGeniusONE, ISNG, and Omnis offerings enable IT organizations to support a growing range of performance management and cybersecurity use cases including: • Network Performance Management - Our nGeniusONE analytics and our ISNG real-time information platform provide the necessary insight to optimize network performance, restore service and understand the quality of the users’ experience.
Enterprise Market Within the enterprise market, NetScout's nGeniusONE, ISNG, Omnis, and Arbor Edge Defense offerings enable IT organizations to support a growing range of performance management and cybersecurity use cases including: • Network Performance Management - Our nGeniusONE analytics and our ISNG real-time information platform provide the necessary insight to optimize network performance, restore service and understand the quality of the users’ experience.
We have also developed new cybersecurity solutions for enterprises with our Omnis suite of products that provide greater deep-dive forensic capabilities as well as analytics that can provide visibility into anomalous behavior on the network that may be indicative of an advanced threat.
We have also recently developed enhanced cybersecurity solutions for enterprises with our Omnis suite of products that provide greater deep-dive forensic capabilities as well as analytics that can provide visibility into anomalous behavior on the network that may be indicative of an advanced threat.
Our ISP also includes annual information security awareness training for employees and audits of our systems and enhanced training for specialized personnel, and we have instituted regular phishing email simulations for all employees and all contractors with access to corporate email systems to enhance awareness and responsiveness to such possible threats.
Our ISP also includes annual information security awareness training for employees and audits of our systems and enhanced training for specialized personnel, and we have instituted regular phishing email 14 Table of Contents simulations for all employees and all contractors with access to corporate email systems to enhance awareness and responsiveness to such possible threats.
We have adopted four ESG pillars that lay out our current top ESG priorities, under pinned by a strong governance focus: 1. Demonstrating product leadership through sustainability by design and helping our customers reduce their environmental footprint, through reducing electricity requirements of our products. 2. Reducing electricity use in our facilities, with emphasis on our engineering labs. 3.
We have adopted four ESG pillars that lay out our current top ESG priorities, underpinned by a strong governance focus: 1. Demonstrating product leadership through sustainability by design and helping our customers reduce their environmental footprint, including through reducing electricity requirements of our products; 2. Reducing electricity use in our facilities, with emphasis on our engineering labs; 3.
Our operating results are influenced by a number of factors, including, but not limited to, the mix and quantity of products and services sold, pricing, costs and availability of materials used in our products, growth in employee-related costs, including commissions, and the expansion of our operations.
Our operating results are influenced by a number of factors, including, but not limited to, the mix and quantity of products and services sold, pricing, costs and availability of materials used in our products, growth in employee-related costs, 4 Table of Contents including commissions, and the expansion of our operations.
Our continued investment in research and development is crucial to our business and our continued success in the market. We have assembled a team of highly skilled engineers with expertise in various technologies associated with our business and the technologies being deployed by our customers.
Our continued investment in research and development is crucial to our business and our continued success in the market. We have assembled a team of highly skilled engineers with expertise in various technologies associated with our business and the 10 Table of Contents technologies being deployed by our customers.
These security analytics enable existing enterprise customers to leverage their historical investments in NetScout's service assurance solutions by using the Adaptive Service Intelligence (ASI) data already being generated to support service assurance as well as cybersecurity use cases.
These security analytics enable existing enterprise customers to leverage their historical investments in NetScout's service assurance solutions by using the Adaptive Service Intelligence (ASI) data already being generated to support service assurance for cybersecurity use cases.
DDoS attacks are aimed at disrupting the online services of an ISP's business customer by overwhelming the network with traffic or by over-exercising specific functions or features of a website with the intention to disable those functions or features.
DDoS attacks are aimed at disrupting the 6 Table of Contents online services of an ISP's business customer by overwhelming the network with traffic or by over-exercising specific functions or features of a website with the intention to disable those functions or features.
Our ISP also includes a data security incident response plan that provides controls and procedures for timely and accurate reporting of any material cybersecurity incident. NetScout is committed to managing its legal and contractual compliance obligations with respect to security and privacy laws, including the EU General Data Privacy Regulation and the California Consumer Privacy Act.
Our ISP also includes a data security incident response plan that provides controls and procedures for timely and accurate reporting of any material cybersecurity incident. We are committed to managing our legal and contractual compliance obligations with respect to security and privacy laws, including the EU General Data Privacy Regulation and the California Consumer Privacy Act.
Our smart DDoS offerings for enterprises include Arbor Edge Defense, a perimeter-based appliance for identifying and blocking incoming DDoS attacks and outbound malicious communications, and Arbor Cloud, a global, cloud-based traffic scrubbing service that quickly removes DDoS attack traffic.
Our smart DDoS offerings for enterprises include Arbor Edge Defense, a perimeter-based appliance for identifying and blocking incoming DDoS attacks and outbound malicious communications, and Arbor Cloud, a global, cloud-based traffic scrubbing service that 7 Table of Contents quickly removes DDoS attack traffic.
During the fiscal yea rs ended March 31, 2022, 2021 and 2020 , no direct customers or indirect channel partners accounted for more than 10% of our total revenue.
During the fiscal years ended March 31, 2022 and 2021, no direct customers or indirect channel partners accounted for more than 10% of our total revenue.
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 focus groups, and follow-on development programs.
Our internal NETSCOUT WITHOUT BORDERS initiative is a key component in our employee engagement program and allows us 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 focus groups, and follow-on development programs.
We have also filed and obtained U.S. patents and international counterparts to protect certain unique NetScout inventions from being unlawfully exploited by other parties.
We have also 12 Table of Contents filed and obtained U.S. patents and international counterparts to protect certain unique NetScout inventions from being unlawfully exploited by other parties.
We take a layered defense approach to protect confidentiality and prevent data compromise and breaches, including, among other 14 Table of Contents steps, technology safeguards, organizational safeguards including training and awareness programs, and physical safeguards. We maintain a robust Information Security Program (ISP) to help ensure the confidentiality, integrity, and availability of corporate data and the systems storing this information.
We take a layered defense approach to protect confidentiality and prevent data compromise and breaches, including technology safeguards, organizational safeguards such as training and awareness programs, and physical safeguards. We maintain a robust Information Security Program (ISP) to help ensure the confidentiality, integrity, and availability of corporate data and the systems storing this information.
We work with industry partners, including third-party recruiting 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 student enrollment to recruit our summer interns.
We work with industry partners, including third-party recruiting 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.
Our solutions are typically deployed by customers as integrated hardware and software, as software only that is then integrated into commercial off-the-shelf hardware, in a virtualized environment as software only, or as a Software as a Service (SaaS) form factor.
Our solutions are deployed by customers in one of four form factors: as integrated hardware and software, as software only that is then integrated into commercial off-the-shelf hardware, in a virtualized environment as software only, or as a Software as a Service (SaaS) solution.
As set out in its Charter, the Nominating and Corporate Governance Committee of NetScout's Board of Directors oversees NetScout's ESG program. The Nominating and Corporate Governance Committee meets regularly and reviews and advises on ESG strategy and apprises the full Board, which also considers NetScout’s ESG program and strategy as well as its alignment with the Company’s mission.
The Nominating and Corporate Governance Committee meets regularly and reviews and advises on ESG strategy and apprises the full Board of Directors, which also considers our ESG program and strategy as well as its alignment with our mission.
The potential impact of the COVID-19 pandemic and potential supply chain disruptions on our business are further described in Item 1A "Risk Factors." Sales and Marketing Sales We sell our products, support and services through a direct sales force and an indirect reseller and distribution channel.
The potential impacts of the global and macroeconomic conditions and potential supply chain disruptions on our business are further described in Item 1A "Risk Factors." 9 Table of Contents Sales and Marketing Sales We sell our products, support and services through a direct sales force and an indirect reseller and distribution channel.
Our cybersecurity solutions are used by enterprises and service providers to identify and mitigate advanced, volumetric, and application-specific distributed denial of service (DDoS) attacks, as well as assist enterprise security teams in rapidly identifying, isolating, investigating, and resolving other advanced network threats.
Our cybersecurity solutions are used by enterprises and service providers to identify and mitigate advanced, volumetric, and application-specific distributed denial of service (DDoS) attacks, as well as assist enterprise security teams in rapidly identifying, isolating, investigating, and resolving other advanced network threats. These combined solutions provide a powerful platform to address both service assurance and cybersecurity challenges for our customers.
In addition, we have embedded NetScout Arbor DDoS mitigation capabilities on a blade within Cisco's market-leading ASR9000 router and will continue to evaluate partnership opportunities to integrate its smart DDoS capabilities within other network equipment platforms.
In addition, we have embedded NetScout Arbor DDoS mitigation capabilities on a blade within Cisco's market-leading ASR9000 router and will continue to evaluate partnership opportunities to support integration of its smart DDoS capabilities into various third-party platforms.
We continue to monitor the impact of the COVID-19 pandemic, the geopolitical environment, and other factors on our supply chain. Although we have been able to manage supply challenges in the past, there is no guarantee that we will be able to continue to manage these challenges without significant impacts to our business if our supply chain becomes increasingly strained.
Although we have been able to manage supply challenges in the past, there is no guarantee that we will be able to continue to manage these challenges without significant impacts to our business if our supply chain becomes increasingly strained.
A radio frequency propagation modeling project order received in the third quarter of fiscal year 2022 allowed NetScout to bill for the entire project based upon partial delivery. At March 31, 2022, deferred revenue and accounts receivable each contained a gross balance of $19.9 million related to this radio frequency propagation modeling project.
Radio frequency propagation modeling project orders received in the third quarter of fiscal year 2022 allowed NetScout to bill for the entire projects based upon partial delivery. At March 31, 2023, deferred revenue related to these radio frequency propagation modeling projects included a gross balance of $8.3 million compared to a gross balance of $19.9 million at March 31, 2022.
The ESG Steering Committee, under the strategic direction of the Chief Executive Officer and chaired by NetScout's General Counsel, is responsible for the development and implementation of the ESG program.
The ESG Steering Committee, under the strategic direction of the Chief Executive Officer and chaired by NetScout's General Counsel, provides guidance and management oversight for the ESG program. The Office of ESG, chaired by our General Counsel in his role as Chief ESG Officer, is responsible for the development and implementation of the ESG program.
Growth Strategy The following are key elements in our growth strategy for fiscal year 2023: • Drive Innovation - In order to support our customers' near-term and longer-term requirements, we plan to continue innovating by enhancing and expanding our product portfolio.
Growth Strategy The following are key elements in our growth strategy for fiscal year 2024: • Drive Platform Innovation - In order to support our customers' near-term and longer-term requirements, we plan to continue innovating by enhancing and expanding our product portfolio as well as developing an integrated platform to serve our customers combined service assurance and cybersecurity requirements.
Culture & Values We believe that our company culture is critical to our success and growth. Our culture complements and acts as a multiplier to our technology, exceptional talent, and forward-thinking innovation.
Our employees are in 35 countries with 64% of our employees located in the United States. Culture & Values We believe that our company culture is critical to our success and growth. Our culture complements and acts as a multiplier to our technology, exceptional talent, and forward-thinking innovation.
Item 1. Business Overview We are an industry leader with over three decades of experience in providing service assurance and cybersecurity solutions that are used by customers worldwide to protect their digital business services against disruption.
Item 1. Business Overview We are an industry leader with over three decades of experience in providing service assurance and cybersecurity solutions that are based on our pioneering deep packet inspection technology at scale, which are used by many Fortune 500 companies to protect their digital business services against disruption.
A majority of revenue for these projects is expected to be recognized into revenue throughout fiscal year 2023. At March 31, 2021 any radio frequency propagation modeling billings ahead of delivery were immaterial. Competition We compete with many companies in the markets we serve.
A majority of the revenue for these projects is expected to be recognized into revenue throughout the fiscal year ending March 31, 2024. Competition We compete with many companies in the markets we serve.
Factors that affect our ability to maximize our operating results include, but are not limited to, our ability to introduce new products and enhance existing products, the marketplace acceptance of those new or enhanced products, continued expansion into international markets, expansion into new or adjacent markets, development of strategic partnerships, competition, successful acquisition integration efforts, and our ability to control costs and make improvements in a highly competitive industry. 4 Table of Contents Markets Our service assurance solutions are used by enterprises (including government agencies) and service providers to optimize network performance, quickly identify and resolve issues impacting application and service quality, and to gain insight into the end user experience.
Factors that affect our ability to maximize our operating results include, but are not limited to, our ability to introduce new products and enhance existing products, the marketplace acceptance of those new or enhanced products, continued expansion into international markets, expansion into new or adjacent markets, development of strategic partnerships, competition, successful acquisition integration efforts, and our ability to control costs and make improvements in a highly competitive industry.
NetScout Arbor smart DDoS solutions are used by a wide range of ISPs around the world to help protect their networks against DDoS attacks, and to resell certain DDoS offerings to their enterprise customers. 6 Table of Contents Products Overview Since our founding in 1984, we have been an industry innovator in using IP-based network traffic to help organizations manage and optimize the delivery of services and applications over their networks, improve the end-user experience and protect networks from unwanted cybersecurity threats.
Products Overview Since our founding in 1984, we have been an industry innovator in using IP-based network traffic to help organizations manage and optimize the delivery of services and applications over their networks, improve the end-user experience and protect networks from unwanted cybersecurity threats.
To promote industry standards and manifest technology leadership, we 10 Table of Contents participate in and support the activities and recommendations of industry standards bodies, and we also engage in close and regular dialogue with our key customers and alliance partners.
We predominantly develop our products internally, with some limited third-party contracting. We have also acquired developed technology through business acquisitions. To promote industry standards and manifest technology leadership, we participate in and support the activities and recommendations of industry standards bodies, and we also engage in close and regular dialogue with our key customers and alliance partners.
This integration allows organizations to receive alarms on impending performance problems and to link into the nGenius Service Assurance solution in order to perform detailed problem analysis and troubleshooting. The third-party solution providers that we have integrated our solutions with include Cisco Systems, Cisco Sourcefire, Citrix Systems, Dell Technologies, Hewlett-Packard Company, IBM Tivoli, and VMWare.
Integration with Third-Party Solutions To have greater operational impact on assuring performance of applications and service delivery, we have integrated our technology with third-party management consoles and business service management systems. This integration allows organizations to receive alarms on impending performance problems and to link into the nGenius Service Assurance solution in order to perform detailed problem analysis and troubleshooting.
NetScout continues to seek opportunities to align ESG with our core business strategy and more thoroughly integrate ESG into our operations. Information Security NetScout is vigilant in protecting personal data and complying with the highest standards of privacy and security.
NetScout continues to seek opportunities to align ESG with our core business strategy and more thoroughly integrate ESG into our operations. Information Security Cybersecurity, data privacy and data protection are critical to our business. As such, we have developed information security designed toward vigilant protection of personal data and maintaining vigorous standards of privacy and security.
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.
In addition to providing a comprehensive solution to meet these needs, we continually provide software 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.
Principal competitive factors in our service assurance market include scalability; ability to address a large number of applications, locations and users; product performance; the ability to easily deploy into existing network environments; the ability to offer virtualized solutions; and the ability to administer and manage the solution.
Additionally, certain competitors, either due to their size and resources or due to their technological strengths, may be able to respond more effectively than we can to new or changing opportunities, technologies, standards and customer requirements. 11 Table of Contents Principal competitive factors in our service assurance market include scalability; ability to address a large number of applications, locations and users; product performance; the ability to easily deploy into existing network environments; the ability to offer virtualized solutions; and the ability to administer and manage the solution.
Our direct sales force generally uses a "high-touch" sales model that consists of face-to-face or virtual meetings with customers to understand and identify their unique business challenges and requirements. In the global pandemic environment, although more difficult, our sales teams have been successful in engaging customers virtually to understand their requirements 9 Table of Contents and effectively design solutions.
Our direct sales force generally uses a "high-touch" sales model that consists of face-to-face or virtual meetings with customers to understand and identify their unique business challenges and requirements. Our sales teams translate our customers' requirements into tailored business solutions that allow the customer to maximize the performance of its infrastructure and service delivery environment.
Our nGeniusONE and Omnis products are based on hardened Linux operating systems and updated software packages to reduce security vulnerabilities, and administrators can further secure the server and appliance hardware through such options as purchasing appliances with self-encrypting drives. NETSCOUT Arbor DDoS virtual and physical solutions provide similar operational protection.
We have features 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 software packages to reduce security vulnerabilities, and administrators can further secure the server and appliance hardware by purchasing appliances with self-encrypting drives.
By collecting network traffic via our probes, we can expand our value proposition by providing specialized analytics for both service assurance and cybersecurity.
By collecting network traffic via our probes, we can expand our value proposition by providing specialized analytics for both service assurance and cybersecurity. We have introduced and will continue to advance solutions such as new packet forensic capabilities, which includes Omnis Cyber Intelligence, designed specifically for security operations teams.
The EHS Council reports to senior executives and its results are reported to the Nominating and Corporate Governance Committee of the Board of Directors as part of the committee's comprehensive review of corporate responsibility and ESG.
Environmental, Health, and Safety Regulatory Compliance NetScout's Environment, Health, and Safety (EHS) Council is responsible for EHS policy, managing and coordinating EHS regulatory compliance, and tracking goals and results. The EHS Council reports to senior executives and its results are reported to the Nominating and Corporate Governance Committee of the Board of Directors.
Corporate Information Our corporate headquarters are located at 310 Littleton Road, Westford, Massachusetts, and our telephone number is (978) 614-4000. We were incorporated in Delaware in 1984. Our internet address is http://www.NetScout.com.
NETSCOUT Arbor DDoS virtual and physical solutions provide similar operational protection. For a discussion of the risks we face related to information security, see Part I, Item 1A. "Risk Factors". Corporate Information Our corporate headquarters are located at 310 Littleton Road, Westford, Massachusetts, and our telephone number is (978) 614-4000. We were incorporated in Delaware in 1984.
Customers generally may reschedule or cancel orders with little or no penalty. We believe that our backlog at any particular time is generally not meaningful because it is not necessarily indicative of future sales levels. Our combined product backlog at March 31, 2022 was $92.8 million compared to $27.9 million at March 31, 2021.
Customers generally may reschedule or cancel unfulfilled orders with little or no penalty. Our total backlog at any particular time is not necessarily indicative of future sales levels. Within total backlog, fulfillable backlog includes what we consider to represent orders that are generally available to be delivered to customers as of the end of the reporting period.
Our compensation package includes market-competitive pay, cash and equity incentive compensation, an Employee Stock Purchase Plan, retirement benefits, health benefits, paid time off and leave benefits. Our Compensation Committee oversees our key human capital management strategies and programs. Environmental Social Governance We believe our commitment to ESG is an important part of creating long-term business value.
Total Rewards We offer a competitive compensation and benefits 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 benefits, health benefits, paid time off and leave benefits.
A majority of the backlog relates to orders that were received late in the quarter and radio frequency propagation modeling projects. In some cases, we have begun these projects but have not yet hit billable milestones.
In some cases, we have begun these projects but have not yet hit billable milestones. At March 31, 2023 and 2022, deferred revenue and accounts receivable each contained a gross balance of $8.3 million and $19.9 million, respectively, related to these radio frequency propagation modeling project orders.
This is a significant investment to stay connected with all employees, and to ensure everyone is equipped with the knowledge and tools so all their efforts can be aligned with our vision, mission and goals. 13 Table of Contents COVID-19 Response NetScout's Environment, Health, and Safety (EHS) Council is responsible for EHS policy, managing and coordinating EHS regulatory compliance, and tracking goals and results.
These meetings allow us to stay connected with all employees and ensure everyone is equipped with the knowledge and tools so all their efforts can be aligned with our vision, mission and goals as part of our ongoing internal efforts.
Our employees are in over 35 countries with 64% of our employees located in the United States. Diversity, Equity & Inclusion Diversity, equity, and inclusion (DEI) are the cornerstones of our organizational excellence and complement our core values of performing with integrity, compassion, collaboration, and innovation.
The Nominating and Corporate Governance Committee oversees these efforts as part of its comprehensive review of environmental, social and governance (ESG) matters. Diversity, Equity & Inclusion Diversity, equity, and inclusion (DEI) are important to our organizational excellence and complement our core values of performing with integrity, compassion, collaboration, and innovation.
We believe our commitment to education, engagement, and communication has motivated our employees around the world and keeps our spirit thriving, and everyone, regardless of role, brings value to the organization. Employees As of March 31, 2022, we had 2,331 employees worldwide – over 99% of whom were full time employees.
We believe our commitment to our culture and values, diversity, equity and inclusion, talent development, and health and safety, and providing for competitive total rewards has motivated our employees around the world and keeps our spirit thriving, and everyone, regardless of role, brings value to the organization.
We build strategic relationships with our customers by continually enhancing our solution to help them address their evolving service delivery management challenges. In addition to providing a comprehensive solution to meet these needs, we continually provide software enhancements to our customers as part of their maintenance contracts with us.
Due to the complexity of the systems and the capital expenditures 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 delivery management challenges.
Talent Development NetScout invests in the ongoing development of its employees across the globe.
We also partner with universities with diverse student enrollment to recruit college hires and summer interns. 13 Table of Contents Talent Development NetScout invests in the ongoing development of its employees across the globe.
Removed
We have introduced and will continue to advance solutions such as new packet forensic 7 Table of Contents capabilities, such as Omnis Cyber Intelligence, designed specifically for security operations teams as well as new anomalous behavior analytics that security teams can use to identify and investigate potential advanced network threats.
Added
Markets Our service assurance solutions are used by enterprises (including government agencies) and service providers to optimize network performance, quickly identify and resolve issues impacting application and service quality, and to gain insight into the end user experience.
Removed
Our Omnis suite of products is focused on addressing cybersecurity use cases. Integration with Third-Party Solutions To have greater operational impact on assuring performance of applications and service delivery, we have integrated our technology with third-party management consoles and business service management systems.
Added
NetScout Arbor smart DDoS solutions are used by a wide range of ISPs around the world to help protect their networks against DDoS attacks, and to resell certain DDoS offerings to their enterprise customers.
Removed
Our inventory management system has thus far enabled us to minimize the effects of the disruption caused by the global COVID-19 pandemic from a supply chain perspective.
Added
This solution also creates anomalous behavior analytics that security teams can use to identify and investigate potential advanced network threats. Our Omnis suite of products is focused on addressing cybersecurity use cases.
Removed
Our sales teams translate our customers' requirements into tailored business solutions that allow the customer to maximize the performance of its infrastructure and service delivery environment. Due to the complexity of the systems and the capital expenditures involved, our sales cycles typically take between three and twelve months.
Added
The third-party solution providers that we have integrated our solutions with include Cisco Systems, Cisco Sourcefire, Citrix Systems, Dell Technologies, Hewlett-Packard Company, IBM Tivoli, and VMWare.
Removed
We predominantly develop our products internally, with some limited third-party contracting. We have also acquired developed technology through business acquisitions.
Added
We also plan to continue to enhance our technology value, product capabilities and customer relevance through the continued integration of our products into technology partner products. • Pursue Strategic Acquisitions - We have completed many acquisitions since our inception that have helped broaden our capabilities, enhance our products and technologies, enable us to expand into adjacent markets and better position us to meet the needs of a larger base of customers and prospects. • Improve Cost Structure and Drive Efficiencies - We plan to balance our investments in key technology, product development, sales and marketing, and other initiatives that will enable us to drive long-term profitable growth with an ongoing focus on managing costs and driving efficiencies.

… 13 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

101 edited+40 added−56 removed100 unchanged
Biggest changeWe expect that on-site and work-from-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.
Biggest changeOn-site and work-from-home requirements and other restrictions on our employees, suppliers, customers, and business partners may change over time, whether becoming more or less restrictive, in light of the COVID-19 pandemic or other epidemics or pandemics and global responses thereto, and we may alter our operations as a result of requirements imposed by federal, state, or local authorities, or by foreign governments in countries in which we operate, or as we otherwise determine is in the best interests of our employees, suppliers, customers, business partners, and stockholders. 21 Table of Contents As part of our existing business continuity planning, we had established infrastructure and protocols to enable our employees to work from home during the pandemic.
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.
Some of our distribution and channel partners also distribute and sell competitive products and services and the reduction in sales of our products 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.
An epidemic or pandemic or other outbreak of communicable diseases, such as the current COVID-19 pandemic, poses the risk that we or our customers, suppliers, and other business partners may be disrupted or prevented from conducting normal business activities for certain periods of time, the durations of which are uncertain, and may otherwise experience significant impairments of business activities.
An epidemic or pandemic or other outbreak of communicable diseases, such as the COVID-19 pandemic, poses the risk that we or our customers, suppliers, and other business partners may be disrupted or prevented from conducting normal business activities for certain periods of time, the durations of which are uncertain, and may otherwise experience significant impairments of business activities.
If we are unable to remain profitable, or if we use more cash than we generate in the future, our level of indebtedness at such time could adversely affect our operations by limiting or prohibiting our ability to obtain financing for additional capital expenditures, acquisitions and general corporate and other purposes.
If we are unable to remain profitable, or if we use more cash than we generate in the future, our level of indebtedness at such time could adversely affect our operations by limiting or prohibiting our ability to obtain financing for additional capital expenditures, acquisitions and general corporate purposes.
During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to heightened risk of these attacks, including cyber-attacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services.
During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to heightened risk of these attacks, including retaliatory cyber-attacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services.
Bribery Act and may be subject to certain anti-corruption laws of other countries in which we do business. In addition to anti-bribery and anti-corruption laws, we are also subject to the export and re-export control laws of the U.S., including the U.S.
Bribery Act and may be subject to anti-corruption laws of other countries in which we do business. In addition to anti-bribery and anti-corruption laws, we are also subject to the export and re-export control laws of the U.S., including the U.S.
In addition, leading network equipment, network security and service assurance and application technology vendors offer their own management solutions, including products which they license from other co mpetitors. Some of our current and potential competitors have greater name recognition and substantially greater financial, management, marketing, service, support, technical, distribution and other resources than we do.
In addition, leading network equipment, network security and service assurance and application technology vendors offer their own management solutions, including products which they license from other competitors. Some of our current and potential competitors have greater name recognition and substantially greater financial, management, marketing, service, support, technical, distribution and other resources than we do.
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, instability, or recovery, generally or how any such event may impact our business.
Furthermore, 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, instability, or recovery, generally or how any such event may impact our business.
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 effects that could affect productivity and disrupt our operations and those of our suppliers, customers, and business partners.
Such orders or restrictions, or the perception that such orders or restrictions could occur, may result in business closures, work stoppages, slowdowns and delays, travel restrictions and cancellation of events, among other effects that could affect productivity and disrupt our operations and those of our suppliers, customers, and business partners.
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 future interest rate risk.
As of the date of this report, we had $100.0 million in outstanding indebtedness under the Second Amended and Restated Credit Agreement. Our debt level can have negative consequences, including exposing us to future interest rate risk.
We consider accounting policies related to revenue recognition, and valuation of goodwill, intangible assets and other acquisition accounting items to be critical in fully understanding and evaluating our financial results. Management makes judgments and creates estimates when applying these policies.
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 acquisition accounting items to be critical in fully understanding and evaluating our financial results. Management makes judgments and creates estimates when applying these policies.
Additionally, laws in all states and U.S. territories require businesses to notify affected individuals, governmental entities, and/or credit reporting agencies of certain security breaches affecting personal information. 26 Table of Contents 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.
Additionally, laws in all states and U.S. territories require businesses to notify affected individuals, governmental entities, and/or credit reporting agencies of certain security breaches affecting personal information. 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.
We believe customers make service management system, network security, cybersecurity and business intelligence purchasing decisions based primarily upon the following factors: 25 Table of Contents • product and service performance, functionality and price; • timeliness of new product and service introductions; • network capacity; • ease of installation, integration, and use; • customer service and technical support; • name and reputation of vendor; • quality and value of the product and services; and • alliances with industry partners.
We believe customers make service management system, network security, cybersecurity and business intelligence purchasing decisions based primarily upon the following factors: • product and service performance, functionality and price; • timeliness of new product and service introductions; • network capacity; • ease of installation, integration, and use; • customer service and technical support; • name and reputation of vendor; • quality and value of the product and services; and • alliances with industry partners.
Our future success depends to a significant degree on the skills, experience and efforts of Anil Singhal, our President, Chief Executive Officer, and co-founder, and our other key executive officers and senior managers to work effectively as a team. Effective succession planning is also important for our 24 Table of Contents long-term success.
Our future success depends to a significant degree on the skills, experience and efforts of Anil Singhal, our President, Chief Executive Officer, and co-founder, and our other key executive officers and senior managers to work effectively as a team. Effective succession planning is also important for our long-term success.
This competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses, and failure to increase, or the loss of market share, any of which would likely have a material and adverse impact on our business, operating results and financial condition.
This competition could result in increased pricing pressure, reduced profit margins, increased sales and 25 Table of Contents marketing expenses, and failure to increase, or the loss of market share, any of which would likely have a material and adverse impact on our business, operating results and financial condition.
We have actively expanded our operations in the past through acquisitions and organic growth and may continue to expand them in the future to gain share in the evolving market in which we operate.
We have actively expanded our operations in the past through acquisitions and organic growth and may continue to expand them in the future to gain share in the evolving markets in which we operate.
Further, if customers demand these services, and we cannot adequately meet their demand, or if we cannot realize revenues in 20 Table of Contents connection with our provision of services related to product support, it could have a material and adverse impact on our financial condition and results of operations.
Further, if customers demand these services, and we cannot adequately meet their demand, or if we cannot realize revenues in connection with our provision of services related to product support, it could have a material and adverse impact on our financial condition and results of operations.
In addition, some of our customers develop their own in-house solutions to meet their technologi cal needs. Further, in recent years some of our competitors have been acquired by larger companies that are seeking to enter or expand in the markets in which we operate.
In addition, some of our customers develop their own in-house solutions to meet their technological needs. Further, in recent years some of our competitors have been acquired by larger companies that are seeking to enter or expand in the markets in which we operate.
Risks Related to ESG Matters The failure to recruit and retain qualified personnel and plan for and manage the succession of key executives could hinder our ability to successfully manage our business, which could have a material adverse effect on our financial position and operating results.
Other Risks Related to Our Business The failure to recruit and retain qualified personnel and plan for and manage the succession of key executives could hinder our ability to successfully manage our business, which could have a material adverse effect on our financial position and operating results.
The unauthorized copying or use of our products or proprietary information could result in reduced sales of our products and eventually harm our operating results. Others may claim that we infringe on their intellectual property rights.
The unauthorized copying or use of our products or proprietary information could result in reduced sales of our products and eventually harm our operating results. 22 Table of Contents Others may claim that we infringe on their intellectual property rights.
Export Administration Regulations (EAR) and the office of Foreign Asset Control (OFAC), as well as 27 Table of Contents to U.S. government contracting laws, rules and regulations, and may be subject to government contracting laws of other countries in which we do business.
Export Administration Regulations (EAR) and the office of Foreign Asset Control (OFAC), as well as to U.S. government contracting laws, rules and regulations, and may be subject to government contracting laws of other countries in which we do business.
Our inability to effectively consummate acquisitions on favorable terms could significantly impact our ability to compete effectively in our targeted markets and could negatively affect our results of operations. Acquisitions that we do complete could adversely impact our business.
Our inability to effectively consummate acquisitions on favorable terms could significantly impact our ability to compete effectively in our targeted markets and could negatively affect our results of operations. 24 Table of Contents Acquisitions that we do complete could adversely impact our business.
If we or our channel partners do not effectively assist our customers in deploying our products, succeed in helping our customers quickly resolve post-deployment issues, and provide effective ongoing support, it would adversely affect our ability to sell our products to existing customers and would harm our reputation with existing and potential customers.
If we or our channel partners do not effectively assist our customers in deploying our products, succeed in 19 Table of Contents helping our customers quickly resolve post-deployment issues, and provide effective ongoing support, it would adversely affect our ability to sell our products to existing customers and would harm our reputation with existing and potential customers.
Unfavorable conditions in the economy both in the United States and abroad, including conditions resulting from financial and credit market fluctuations, elevated or prolonged inflation, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious diseases, warfare and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in business investments, including spending on information technology, and negatively affect the growth of our business and our results of operations.
Unfavorable conditions in the economy both in the United States and abroad, including conditions resulting from financial and credit market fluctuations, increased interest rates, elevated or prolonged inflation, bank failures, international trade relations, political turmoil, natural catastrophes, outbreaks of contagious diseases, warfare, including in Ukraine, and terrorist attacks on the United States, Europe, the Asia Pacific region or elsewhere, could cause a decrease in business investments, including spending on information technology, and negatively affect the growth of our business and our results of operations.
In addition, we may invoice customers in a currency other than the functional currency of our business, and movements in the invoiced currency relative to the functional currency could also result in unfavorable translation effects. We also face exchange rate risk from our investments in subsidiaries owned and operated in foreign countries. If we violate the U.S.
In addition, we may invoice customers in a currency other than the functional currency of our business, and movements in the invoiced currency relative to the functional currency could also result in unfavorable translation effects. We also face exchange rate risk from our investments in subsidiaries owned and operated in foreign countries.
Sales to customers outside the United States accounted for 41%, 42%, and 39% of our total revenue for the fiscal years ended March 31, 2022, 2021 and 2020, respectively. The need to develop such relationships can be particularly acute in areas outside of the U.S.
Sales to customers outside the United States accounted for 36%, 41%, and 42% of our total revenue for the fiscal years ended March 31, 2023, 2022 and 2021, respectively. The need to develop such relationships can be particularly acute in areas outside of the U.S.
These strategies may not be effective in fully protecting us against the effects of fluctuations from movements in foreign exchange rates, including the increased volatility in foreign exchange rates relating to the COVID-19 pandemic, the conflict between Russia and Ukraine and future global pandemics and other events.
These strategies may not be effective in fully protecting us against the effects of fluctuations from movements in foreign exchange rates, including the increased volatility in foreign exchange rates relating to the COVID-19 pandemic, the war in Ukraine and future global pandemics and other events.
As we identify ESG topics for voluntary disclosure, we have expanded and, in the future, may continue to expand our disclosures in these areas.
As we identify environmental, social, and governance (ESG) topics for voluntary disclosure, we have expanded, and, in the future, may continue to expand our disclosures in these areas.
We must, therefore, plan for and manage the succession of key executives due to retirement, illness, or competitive offers elsewhere. Our disclosures, initiatives and goals related to ESG matters expose us to numerous risks, including risks to our reputation, business, financial performance and growth.
We must, therefore, plan for and manage the succession of key executives due to retirement, illness, or competitive offers. Our disclosures, initiatives and goals related to environmental, social, and governance matters expose us to numerous risks, including risks to our reputation, business, financial performance and growth.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect 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 for our critical accounting policies, and the operation of internal controls over such estimates, as well as on our liquidity and on our ability to satisfy our indebtedness obligations, including the compliance with the covenants that apply to our indebtedness.
To the extent the COVID-19 pandemic or other future epidemic or pandemic adversely affects our business and financial results, it may also have the effect 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 for our critical accounting policies, and the operation of internal controls over such estimates, as well as on our liquidity and on our ability to satisfy our indebtedness obligations and debt covenants.
Risks Related to Our Business and Industry Our business and operations, and the operations of our customers, partners, and/or suppliers, may be adversely affected by epidemics and pandemics, such as the COVID-19 pandemic.
Our business and operations, and the operations of our customers, partners, and/or suppliers, may be adversely affected by epidemics and pandemics, such as the COVID-19 pandemic.
Foreign Corrupt Practices Act or applicable anti-bribery laws in other countries, or if we fail 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 from international sales. As a result, we must comply with complex foreign and U.S. laws and regulations, such as the U.S.
If we violate the U.S. Foreign Corrupt Practices Act or applicable anti-bribery laws in other countries, or if we fail to comply with U.S. export controls and government contracting laws, our business could be harmed. A material portion of our revenue is derived from international sales. We must comply with foreign and U.S. laws and regulations, such as the U.S.
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.
We must invest in research and development to remain competitive in our industry. 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.
In addition to the factors discussed in this "Risk Factors" section and elsewhere in this report, factors that could cause fluctuations in the market price of our common stock include the following: • ratings changes by any securities analysts who follow our company; • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • changes in accounting standards, policies, guidelines, interpretations, or principles; • actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally; • developments or disputes concerning our intellectual property or our products and platform capabilities, or third-party proprietary rights; • 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 officers, directors, or other stockholders; and • other events or factors, including those resulting from public health crises, war, incidents of terrorism, or responses to these events.
In addition to the factors discussed in this "Risk Factors" section and elsewhere in this report, factors that could cause fluctuations in the market price of our common stock include the following: • ratings changes by any securities analysts who follow our company; • announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • changes in accounting standards, policies, guidelines, interpretations, or principles; • actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally; • developments or disputes concerning our intellectual property or our products and platform capabilities, or third-party proprietary rights; 29 Table of Contents • 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 officers, directors, or other stockholders; and • other events or factors, including those resulting from global and macroeconomic conditions, including heightened inflation, rising interest rates, bank failures, and a potential recession, and speculation regarding the same, as well as public health crises, the war in Ukraine or other wars and related geopolitical tension, incidents of terrorism, or responses to these events.
Our success depends, in part, on our ability to manage and leverage our distribution channels. Disruptions to, or our failure to effectively develop and manage, these partners and the processes and procedures that support them could adversely affect our ability to generate revenues from the sale of our products and services.
Disruptions to, or our failure to effectively develop and manage, these partners and the processes and procedures that support them could adversely affect our ability to generate revenues from the sale of our products and services.
We generally release guidance regarding our future performance on our quarterly earnings conference calls, quarterly earnings releases, and otherwise. Such guidance, which includes forward-looking statements, reflects our management’s estimates as of the date of release and is based on projections prepared by our management.
General Risk Factors Our actual operating results may differ significantly from our guidance. We generally release guidance regarding our future performance on our quarterly earnings conference calls, quarterly earnings releases, and otherwise. Such guidance, which includes forward-looking statements, reflects our management’s estimates as of the date of release and is based on projections prepared by our management.
Most of our employees are based outside of our headquarters. If we are unable to appropriately increase management depth and enhance succession planning, we may not be able to achieve our financial or operational goals.
Most of our employees are based outside of our headquarters and many of our employees work remotely, entirely or in part. If we are unable to appropriately increase management depth and enhance succession planning, we may not be able to achieve our near- and long-term financial or operational goals.
To protect our employees, contractors, customers, suppliers, and our local communities, and limit the effect of the COVID-19 pandemic on our operations, many of our employees at our locations globally have been working remotely for the past two years, with limited exceptions for site-essential personnel (with protective measures and protocols in place).
To protect our employees, contractors, customers, suppliers, and our local communities, and limit the effect of the COVID-19 pandemic on our operations, for a period of time many of our employees at our locations globally worked remotely, with exceptions for site-essential personnel (with protective measures and protocols in place).
Third parties who hold exclusive rights to technology that we seek to license may include our competitors. If we are unable to obtain any necessary third-party licenses, we would be required to redesign our product or obtain substitute technology, which may not perform as well, be of lower quality or be more costly.
If we are unable to obtain any necessary third-party licenses, we would be required to redesign our product or obtain substitute technology, which may not perform as well, be of lower quality or be more costly.
If our estimates or the assumptions underlying them are not correct, actual results may differ materially from our estimates and we may need to, among other things, accrue additional charges or impair assets that could adversely impact our business.
If our estimates or the assumptions underlying them are not correct, actual results may differ materially from our estimates and we may need to, among other things, accrue additional charges or impair assets that could adversely impact our business. As a result, our operating results and financial condition could be materially and adversely impacted in future periods.
We are developing and are already deploying a number of new products as well as enhancements to our existing products and offerings, including our new Omnis cybersecurity suite as well as software only solutions and products available in multiple form factors for most of our existing solutions. 19 Table of Contents We must invest in research and development to remain competitive in our industry.
We are developing and are already deploying a number of new products as well as enhancements to our existing products and offerings, including our new Omnis cybersecurity suite as well as additional software only solutions and products available in multiple form factors for most of our existing solutions.
Given that cash is typically received over an extended period of time for many of our license agreements and given that a material and increasing portion of our revenue is generated outside of the United States, fluctuations in foreign exchange rates (including the Euro) against the U.S. dollar could result in substantial changes in reported revenues and operating results due to the foreign exchange impact upon translation of these transactions into U.S. dollars.
Given that cash is typically received over an extended period of time for many of our license and support agreements and given that a material portion of our revenue is generated outside of the United States, fluctuations in foreign exchange rates (including the Euro) against the U.S. dollar could result in substantial changes in reported revenues and operating results due to the foreign exchange impact upon translation of these transactions into U.S. dollars. 28 Table of Contents In the normal course of business, we employ various hedging strategies to partially mitigate these risks, including the use of derivative instruments.
Other Risks Related to Our Business We may not successfully 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 complementary businesses, products, or technologies to remain competitive or expand our business.
We may not successfully 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 complementary businesses, products, or technologies to remain competitive or expand our business. We investigate and evaluate potential acquisitions of complementary businesses, products, and technologies in the ordinary course of business.
We investigate and evaluate potential acquisitions of complementary businesses, products, and technologies in the ordinary course of business. We may compete for acquisition opportunities with entities having significantly greater resources than we have. As a result, we may not succeed in acquiring some or all businesses, products, or technologies that we seek to acquire.
We may compete for acquisition opportunities with entities having significantly greater resources than we have. As a result, we may not succeed in acquiring some or all businesses, products, or technologies that we seek to acquire.
If the third parties we rely on for hosted data solutions for our internal network and information systems are subject to a security breach or otherwise suffer disruptions that impact the services we utilize, the integrity and availability of our internal information could be compromised causing the loss of confidential or proprietary information, damage to our reputation and economic loss.
If the third parties we rely on for hosted data solutions for our internal network and information systems are subject to a security breach or otherwise suffer disruptions that impact the services we utilize, the integrity and availability of our internal information could be compromised causing the loss of confidential or proprietary information, damage to our reputation and economic loss. 20 Table of Contents We or our suppliers may be affected by new regulations related to climate change, sustainability, and other environmental issues.
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 manufacturing of products, including costs related to incorporation of substitute materials and other product re-design costs, as well as costs associated with product recalls.
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 design, manufacturing, and support of products, including costs related to incorporation of substitute materials and product re-design costs. Our success depends, in part, on our ability to manage and leverage our distribution channels.
To manage our growth effectively, we may need to implement new or enhanced automated infrastructure technology and systems. Any disruptions or ineffectiveness relating to our systems implementations and enhancements could adversely affect our ability to process customer orders, ship products, provide services and support to our customers, bill and track our customers, fulfill contractual obligations, and otherwise run our business.
Any disruptions or ineffectiveness relating to our systems implementations and enhancements could adversely affect our ability to process customer orders, ship products, provide services and support to our customers, bill and track our customers, fulfill contractual obligations, and otherwise run our business.
We currently and will in the future license technology from third parties that we use to produce or embed in our products. While we have generally been able to license required third-party technology to date, third-party licenses required in the future may not be available to us on commercially reasonable terms or at all.
While we have generally been able to license required third-party technology to date, third-party licenses required in the future may not be available to us on commercially reasonable terms or at all.
Recruiting and retaining qualified 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 significant time and resources throughout the relationship. Risks Related to Our Intellectual Property Our success depends on our ability to protect our intellectual property rights.
Recruiting and retaining qualified 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 significant time and resources throughout the relationship.
Decreased strength of the U.S. dollar could adversely affect 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 for reporting purposes and the strengthening or weakening of the U.S. dollar could result in unfavorable translation effects.
Sales and expenses of our non-U.S. businesses are also translated into U.S. dollars for reporting purposes and the strengthening or weakening of the U.S. dollar could result in unfavorable translation effects.
Unfavorable conditions in our industry or the global economy, or reductions in information technology spending, could limit our ability to grow our business and negatively affect our results of operations. Our results of operations may vary based on the impact of unfavorable changes in our industry or the global economy on us or our customers and potential customers.
Risks Related to Our Business and Industry Unfavorable conditions in our industry or the global economy, or reductions in information technology spending, could limit our ability to grow our business and negatively affect our results of operations.
The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. We are not responsible for any projections or reports published by any such analysts or investors.
The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors.
Increased strength of the U.S. dollar increases the effective price of our products sold in U.S. dollars into other countries, which may require us to lower our prices or adversely affect sales to the extent we do not increase local currency prices.
Increased strength of the U.S. dollar increases the effective price of our products sold in U.S. dollars into other countries, which may require us to lower our prices or adversely affect sales. Decreased strength of the U.S. dollar could adversely affect the cost of materials, products, and services we purchase overseas.
However, failure of supply or failure to execute effectively on any of these programs, including as a result of a public health crisis or geopolitical situation could result in our inability to obtain adequate deliveries or the occurrence of any other circumstance that would require us to seek alternative sources of supply for these components would impact our ability to ship our products on a timely basis.
However, failure of supply, including as a result of a public health crisis or geopolitical situation, or failure to execute effectively on any of these programs could result in our inability to obtain adequate supply or deliveries or to ship our products on a timely basis.
We will also need to continue to improve our financial and management controls, reporting systems, and procedures. If we are unable to manage our growth effectively, our costs, the quality of our products, the effectiveness of our sales organization, attraction and retention of key personnel, our business, our operating results and financial condition could be materially and adversely impacted.
If we are unable to manage our growth effectively, our costs, the quality of our products, the effectiveness of our sales organization, attraction and retention of key personnel, our business, our operating results and financial condition could be materially and adversely impacted. To manage our growth effectively, we may need to implement new or enhanced automated infrastructure technology and systems.
If new laws are enacted, or current laws are modified in countries in which we or our suppliers operate, we could face increased costs to comply with these laws.
We or our suppliers may become subject to new laws enacted with regards to climate change, sustainability, and other environmental issues. If new laws are enacted, or current laws are modified in countries in which we or our suppliers operate, we could face increased costs to comply with these laws.
These practices may include, among other approaches, establishing buffer supply requiring suppliers to maintain adequate stocks of materials, bonding agreements with distributors, and use-based and kanban programs to set supply thresholds. We also enter into escrow arrangements for certain technologies.
These practices may include, among other approaches, establishing buffer supply requiring suppliers to maintain adequate stocks of materials and use-based and kanban programs to set supply thresholds. We also enter into escrow arrangements for certain technologies. Where possible, we use widely available off the shelf hardware and work with large suppliers with multiple factories and other risk management practices.
These claims, whether or not valid, could require us to spend significant sums in litigation, pay damages or royalties, delay product shipments, reengineer our products, rename our products 22 Table of Contents and rebuild name recognition or acquire licenses to such third-party intellectual property.
These claims, whether or not valid, could require us to spend significant sums in litigation, pay damages or royalties, delay product shipments, reengineer our products, rename our products and rebuild name recognition or acquire licenses to such third-party intellectual property. We may not be able to secure any required licenses on commercially reasonable terms or secure them at all.
Our ability to meet our obligations under the Second Amended and Restated Credit Agreement will depend on market conditions and our future performance, which is subject to economic, financial, competitive, and other factors beyond our control.
If we take on additional indebtedness, the risks described above could increase. Any failure to meet our debt obligations could damage our business. Our ability to meet our obligations under the Second Amended and Restated Credit Agreement will depend on market conditions and our future performance, which is subject to economic, financial, competitive, and other factors beyond our control.
In light of the foregoing, investors are urged not to rely upon our guidance in making an investment decision regarding our common stock. 28 Table of Contents Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this "Risk Factors" section in this report could result in the actual operating results being different from our guidance, and the differences may be adverse and material.
Any failure to successfully implement or execute our operating strategy or the occurrence of any of the events or circumstances set forth in this "Risk Factors" section in this report could result in the actual operating results being different from our guidance, and the differences may be adverse and material.
In response to the COVID-19 pandemic, many state, local, and foreign governments have put in place, and others in the future may put in place or continue, quarantines, executive orders, shelter-in-place orders, and similar government orders and restrictions to reduce the rate of infection and control the spread of the disease.
For instance, as has been the case with the COVID-19 pandemic, federal, state, local, and foreign governments may put in place quarantines, executive orders, shelter-in-place orders, and similar government orders and restrictions to reduce the rate of infection and control the spread of the disease.
The unavailability of these licenses or the necessity of agreeing to commercially unreasonable terms for such licenses could materially adversely affect our business, financial condition, operating results, and cash flows. Our reliance on sole source suppliers could adversely impact our business.
The unavailability of these licenses or the necessity of agreeing to commercially unreasonable terms for such licenses could materially adversely affect our business, financial condition, operating results, and cash flows. Our success depends on our ability to protect our intellectual property rights. Our business is heavily dependent on our intellectual property.
We must address demand from our customers for advancements in our products and services applications to support our customers' growing needs and requirements. To meet this challenge and remain competitive in the market, we must introduce new enhancements and additional form factors to our existing product lines and service offerings.
To meet this challenge and remain competitive in the market, we must introduce new enhancements and additional form factors to our existing product lines and service offerings.
We expect that existing cash, cash equivalents, marketable securities, cash provided from operations and our bank credit facilities will be sufficient to meet ongoing cash requirements. However, our failure to generate sufficient cash as our debt becomes due or to renew credit lines prior to their expiration could materially adversely affect our business, financial condition, operating results, and cash flows.
However, our failure to generate sufficient cash as our debt becomes due or to renew credit lines prior to their expiration could materially adversely affect our business, financial condition, operating results, and cash flows.
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 financial condition. 15 Table of Contents Because of the following factors, as well as other variables affecting our results of operations, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
Because of the following factors, as well as other variables affecting our results of operations, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
These errors may result from components supplied by third parties incorporated into our products, which makes us dependent upon the cooperation and expertise of such third parties for the diagnosis and correction of such errors. If errors are discovered, we may not be able to correct them in a timely manner or at all.
These errors may result from components supplied by third parties incorporated into our products, which makes us dependent upon the cooperation and expertise of such third parties for the diagnosis and correction of such errors.
Threat actors, nation-states, and nation-state-supported actors now engage, and are expected to continue to engage, in cyber-attacks, including for geopolitical reasons and in connection with military conflicts and operations.
Some actors now engage, and are expected to continue to engage, in cyber-attacks, including for geopolitical reasons and in conjunction with military conflicts and defense activities.
Any such errors, defects, or security vulnerabilities could also adversely affect the market's perception of our products and business. If we fail to introduce new products and solutions or enhance our existing products and solutions to keep up with rapid technological change, demand for our products and solutions may decline.
If we fail to introduce new products and solutions or enhance our existing products and solutions to keep up with rapid technological change, demand for our products and solutions may decline.
We are subject to numerous domestic and foreign laws and other obligations relating to privacy, data protection, and data security. The regulatory framework for privacy, data protection, and data security issues worldwide is rapidly evolving, and as a result, legal requirements and enforcement practices are likely to continue to evolve.
The regulatory framework for data privacy and security issues worldwide is rapidly evolving, and as a result, legal requirements and enforcement practices are likely to continue to evolve. In many jurisdictions, enforcement activities and consequences for noncompliance are rising.
Furthermore, global travel has been sharply curtailed, and in some cases prohibited. Our sales personnel often meet with customers or prospective customers in person to provide greater personalized service.
Our sales personnel often meet with customers or prospective customers in person to provide greater personalized service.
These may include disruptions from temporary closure of third-party supplier and manufacturer facilities, interruptions in product supply or restrictions on the export or shipment of our products, as well as the import of products into countries in which we operate.
The COVID-19 pandemic has resulted in, and future epidemics or pandemics may result in, the extended shutdown of certain businesses and the closure of international borders throughout the world, which may result in disruptions to our supply chain, including from temporary closure of third-party supplier and manufacturer facilities, interruptions in product supply or restrictions on the export or shipment of our products, as well as the import of products into countries in which we operate.
We face risks related to epidemics, pandemics, and other outbreaks of communicable diseases that adversely affect global commercial activity, economies, financial markets, and companies. The outbreak of COVID-19 was declared a "pandemic" by the World Health Organization on March 11, 2020.
We face risks related to epidemics, pandemics, and other outbreaks of communicable diseases that adversely affect global commercial activity, economies, financial markets, and companies.
Our success is dependent upon our ability to meet our customers' needs, which are driven by changes in technologies, new application technologies, new security risks and the emergence of new industry standards. In addition, new technologies may shorten the life cycle for our products and solutions or could render our existing or planned products and services less competitive or obsolete.
Our success is dependent upon our ability to meet our customers' needs, which are driven by changes in 18 Table of Contents technologies, new application technologies, new security risks and the emergence of new industry standards.
Major developments in tax policy or trade relations, such as the imposition of unilateral tariffs on imported products, could have a material adverse effect on our results of operations, financial condition, and cash flows. Our estimates and judgments related to critical accounting policies could be inaccurate.
Major developments in tax policy or trade relations, such as the imposition of unilateral tariffs or international sanctions on imported products, could have a material adverse effect on our results of operations, financial condition, and cash flows. Foreign currency exchange rates may adversely affect our financial statements. A material portion of our revenue is derived from international operations.
While our employees and customers have adjusted to virtual meetings, the inability of our sales personnel to meet with customers or prospective customers at a customer facility could have an adverse effect on our revenue and operating results. In addition, we rely on third-party suppliers and manufacturers throughout the globe.
While our employees and customers adjusted to virtual meetings and have now resumed traveling at closer to normal levels, the inability of our sales personnel to meet with customers or prospective customers at a customer facility as a result of the COVID-19 pandemic or other epidemics or pandemics could have an adverse effect on our revenue and operating results.
Our central business functions, including administration, human resources, finance services, legal, development, manufacturing and customer support depend on the proper functioning of our computer, telecommunication and other technology systems and operations, some of which are operated or hosted by third parties. 18 Table of Contents While we have business continuity programs in place, a disruption or failure 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 ability to complete sales and provide the highest level of service to our customers.
While we have business continuity programs in place, a disruption or failure of 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 ability to complete sales and provide the highest level of service to our customers.
We depend on our ability to identify, recruit, hire, train, develop and retain qualified and effective professionals and to attract and retain talent needed to execute our business strategy. Our future success depends in large part upon our ability to attract, train, motivate and retain highly skilled employees, particularly executives, sales and marketing personnel, software engineers, and technical support personnel.
Our future success depends in large part upon our ability to attract, train, motivate and retain highly skilled employees, particularly executives, sales and marketing personnel, software engineers, and technical support personnel. The complexity of our products, software systems and services require highly trained professionals.
If we fail to develop and deploy new products and product enhancements on a timely basis, or if we fail to gain market acceptance of our new products, our revenues will likely decline, and we may lose market share to our competitors. Necessary licenses for third-party technology may not be available to us on commercially reasonable terms or at all.
If we fail to develop and deploy new products and product enhancements on a timely basis, or if we fail to gain market acceptance of our new products, our revenues will likely decline, and we may lose market share to our competitors. Our reliance on sole source suppliers could adversely impact our business.
In addition, if our business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, operating results, and financial condition could be adversely impacted. The occurrence or discovery of these types of errors or failures could have a material and adverse impact on our business, operating results, and financial condition.
Defending 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 liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, our business, operating results, and financial condition could be adversely impacted.
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 vulnerable.
In addition, we rely on third-party providers of software and cloud-based services, and we cannot control the rate at which they remedy vulnerabilities. Customers may also not deploy a security release or decide not to upgrade to the latest versions of our products or services leaving them vulnerable.

… 117 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeIn addition, we lease office and/or manufacturing space in other locations globally with some of the more significant locations from a cost or size perspective being in in Allen, Texas; San Jose, California; Ann Arbor, Michigan; Berkeley, California; Colorado Springs, CO; Bangalore, India; Pune, India; and Shanghai, China. Item 3.
Biggest changeIn addition, we lease office and/or manufacturing space in other locations globally with some of the more significant locations from a cost or size perspective being in Allen, Texas; San Jose, California; Ann Arbor, Michigan; Colorado Springs, Colorado; Bangalore, India; Pune, India; and Shanghai, China. Item 3.
Legal Proceedings For information regarding legal proceedings, refer to Note 19, Commitments and contingencies to the Consolidated Financial Statements included in Part IV, Item 15 of this report. Item 4. Mine Safety Disclosures None. 31 Table of Contents PART II
Legal Proceedings For information regarding legal proceedings, refer to Note 18, Commitments and contingencies to the Consolidated Financial Statements included in Part IV, Item 15 of this report. Item 4. Mine Safety Disclosures None. 31 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 4. Mine Safety Disclosures 31 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 32 Item 6. Selected Financial Data 33 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 50
Biggest changeItem 4. Mine Safety Disclosures 31 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 32 Item 6. [Reserved ] 34 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 50

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+2 added−1 removed1 unchanged
Biggest changeCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN Assumes Initial Investment of $100 3/31/2017 3/31/2018 3/31/2019 3/31/2020 3/31/2021 3/31/2022 NetScout Systems, Inc. $ 100.00 $ 69.43 $ 73.97 $ 62.37 $ 74.20 $ 84.53 Nasdaq Composite – Total Returns $ 100.00 $ 120.76 $ 133.60 $ 134.52 $ 233.26 $ 252.05 Nasdaq Computer and Data Processing $ 100.00 $ 122.19 $ 134.55 $ 149.46 $ 249.93 $ 263.41 32 Table of Contents Dividend Policy In fiscal years 2022 and 2021 , we did not declare any cash dividends and do not anticipate declaring cash dividends in the foreseeable future.
Biggest changeCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN Assumes Initial Investment of $100 3/31/2018 3/31/2019 3/31/2020 3/31/2021 3/31/2022 3/31/2023 NetScout Systems, Inc. $ 100.00 $ 106.53 $ 89.83 $ 106.87 $ 121.73 $ 108.70 Nasdaq Composite – Total Returns $ 100.00 $ 110.63 $ 111.40 $ 193.16 $ 208.72 $ 181.00 Nasdaq Computer and Data Processing Index $ 100.00 $ 110.12 $ 122.32 $ 204.54 $ 215.57 N/A Nasdaq US Benchmark Computer Services TR Index $ 100.00 $ 105.66 $ 92.83 $ 145.15 $ 149.52 $ 125.68 Dividend Policy In fiscal years 2023 and 2022 , we did not declare any cash dividends.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information 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 beneficial holders of our common stock exceeds 14,000.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our common stock trades on the Nasdaq Global Select Market, under the symbol NTCT. Stockholders At May 8, 2023, we had 82 stockholders of record. We believe that the number of beneficial holders of our common stock exceeds 15,000.
Such purchases reflected in the table do not reduce the maximum number of shares that may be purchased under our 25 million share repurchase p rogram authorized on October 24, 2017.
Such purchases reflected in the table do not reduce the maximum number of shares that may be purchased under our 25 million share repurchase program authorized on October 24, 2017 (2017 Share Repurchase Program) currently in effect, or the additional 25 million share repurchase program authorized on May 3, 2022 (2022 Share Repurchase Program).
The Stock Performance Graph set forth below compares the yearly change in the cumulative total stockholder return on our common stock during the five-year period from March 31, 2017 through March 31, 2022 with the cumulative total return of the Nasdaq Composite Index and the Nasdaq Computer & Data Processing Index.
The Stock Performance Graph set forth below compares the yearly change in the cumulative total stockholder return on our common stock during the five-year period from March 31, 2018 through March 31, 2023 with the cumulative total return of the Nasdaq Composite Index and the Nasdaq U.S. Benchmark Computer Services TR Index. The Nasdaq U.S.
Purchases of Equity Securities by the Issuer The following table provides information about 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: Total Number of Shares Purchased (1) Average Price Paid per Share 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 1/1/2022 - 1/31/2022 1,321 $ 30.68 — 5,758,482 2/1/2022 - 2/28/2022 11,664 31.14 — 5,758,482 3/1/2022 - 3/31/2022 1,343 31.18 — 5,758,482 Total 14,328 $ 31.10 — 5,758,482 (1) We purchased a n aggregate of 14,328 shares transferred to us from employees in satisfaction of tax withholding obligations associated with the vesting of restri cted stock units during the period.
Recent Sales of Unregistered Securities None. 33 Table of Contents Purchases of Equity Securities by the Issuer The following table provides information about purchases we made during the quarter ended March 31, 2023 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act: Total Number of Shares Purchased (1) Average Price Paid per Share 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 1/1/2023 - 1/31/2023 1,483 $ 32.13 — 1,209,153 2/1/2023 - 2/28/2023 3,522 31.54 — 1,209,153 3/1/2023 - 3/31/2023 1,704 27.97 — 1,209,153 Total 6,709 $ 30.76 — 1,209,153 (1) We purchased an aggregate of 6,709 shares transferred to us from employees in satisfaction of tax withholding obligations associated with the vesting of restricted stock units during the period.
It is our intention to retain all future earnings for reinvestment to fund our expansion and growth, to pay down our debt, and to fund our stock buyback program further described under Item 7 "Liquidity and Capital Resources." Any future cash dividend declaration will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, general financial conditions, capital requirements, existing bank covenants and general business conditions.
Any future cash dividend declaration will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, general financial conditions, capital requirements, existing bank covenants and general business conditions.
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 performance shown on the graph below is not necessarily indicative of future price performance.
Benchmark Computer Services TR Index, or the Nasdaq Computer and Data Processing Index, as applicable, and assumes reinvestment of dividends, if any. 32 Table of Contents The stock price performance shown on the graph below is not necessarily indicative of future price performance. Information used in the graph was obtained from Zacks Investment Research, Inc.
In addition, the terms of our credit facility limit our ability to pay cash dividends on our capital stock.
In addition, the terms of our credit facility limit our ability to pay cash dividends on our capital stock. It is our intention to retain all future earnings for reinvestment to fund our expansion and growth, to pay down our debt, and to fund our stock buyback program further described under "Liquidity and Capital Resources" in Item 7.
Removed
Information used in the graph was obtained from Research Data Group, Inc.
Added
Benchmark Computer Services TR Index replaces the Nasdaq Computer and Data Processing Index in this analysis and going forward, as the Nasdaq Computer and Data Processing Index data is no longer available. The Nasdaq Computer and Data Processing Index has been included with data through March 31, 2022.
Added
The comparison assumes $100 was invested on March 31, 2018 in our common stock or in the Nasdaq Composite Index, the Nasdaq U.S.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

100 edited+21 added−24 removed56 unchanged
Biggest changeFurthermore, management believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures provides useful information to management and investors regarding present and future business trends relating to our financial condition and results of operations. 36 Table of Contents The following table reconciles revenue, gross profit, income from operations, net income (loss) and net income (loss) per share on a GAAP and non-GAAP basis for the fiscal years ended March 31, 2022, 2021 and 2020: Fiscal Year Ended March 31, (Dollars in Thousands, Except per Share Data) 2022 2021 2020 GAAP revenue $ 855,575 $ 831,282 $ 891,820 Service deferred revenue fair value adjustment — 6 192 Non-GAAP revenue $ 855,575 $ 831,288 $ 892,012 GAAP gross profit $ 641,389 $ 609,185 $ 649,628 Service deferred revenue fair value adjustment — 6 192 Share-based compensation expense 7,042 6,861 6,843 Amortization of acquired intangible assets 13,385 19,058 24,974 Acquisition related depreciation expense 24 23 31 Non-GAAP gross profit $ 661,840 $ 635,133 $ 681,668 GAAP income from operations $ 48,634 $ 37,130 $ 17,638 Service deferred revenue fair value adjustment — 6 192 Share-based compensation expense 56,074 51,892 50,861 Amortization of acquired intangible assets 73,126 80,189 89,479 Business development and integration expense (5) 2 373 New standard implementation expense — — 5 Compensation for post-combination services 2 251 578 Restructuring charges — 62 2,674 Acquisition related depreciation expense 254 242 312 Transitional service agreement expense 814 215 1,212 Legal judgments expense 1,100 2,804 — Non-GAAP income from operations $ 179,999 $ 172,793 $ 163,324 GAAP net income (loss) $ 35,874 $ 19,352 $ (2,754) Service deferred revenue fair value adjustment — 6 192 Share-based compensation expense 56,074 51,892 50,861 Amortization of acquired intangible assets 73,126 80,189 89,479 Business development and integration expense (5) 2 373 New standard implementation expense — — 5 Compensation for post-combination services 2 251 578 Restructuring charges — 62 2,674 Acquisition-related depreciation expense 254 242 312 Loss on extinguishment of debt 596 — — Change in fair value of contingent consideration (837) — 762 Legal judgments expense 1,100 2,804 — Income tax adjustments (27,796) (28,977) (23,415) Non-GAAP net income $ 138,388 $ 125,823 $ 119,067 GAAP diluted net income (loss) per share $ 0.48 $ 0.26 $ (0.04) Per share impact of non-GAAP adjustments identified above 1.36 1.44 1.61 37 Table of Contents Non-GAAP diluted net income per share $ 1.84 $ 1.70 $ 1.57 GAAP income from operations $ 48,634 $ 37,130 $ 17,638 Previous adjustments to determine non-GAAP income from operations 131,365 135,663 145,686 Non-GAAP income from operations 179,999 172,793 163,324 Depreciation excluding acquisition related 22,404 25,397 26,313 Non-GAAP EBITDA from operations $ 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 fully understanding and evaluating our financial results.
Biggest changeFurthermore, management believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures provides useful information to management and investors regarding present and future business trends relating to our financial condition and results of operations. 36 Table of Contents The following table reconciles revenue, gross profit, income from operations, net income and net income per share on a GAAP and non-GAAP basis for the fiscal years ended March 31, 2023, 2022 and 2021: Fiscal Year Ended March 31, (Dollars in Thousands, Except per Share Data) 2023 2022 2021 GAAP revenue $ 914,530 $ 855,575 $ 831,282 Service deferred revenue fair value adjustment — — 6 Non-GAAP revenue $ 914,530 $ 855,575 $ 831,288 GAAP gross profit $ 691,432 $ 641,389 $ 609,185 Service deferred revenue fair value adjustment — — 6 Share-based compensation expense 8,415 7,042 6,861 Amortization of acquired intangible assets 9,284 13,385 19,058 Acquisition related depreciation expense 22 24 23 Non-GAAP gross profit $ 709,153 $ 661,840 $ 635,133 GAAP income from operations $ 77,664 $ 48,634 $ 37,130 Service deferred revenue fair value adjustment — — 6 Share-based compensation expense 61,986 56,074 51,892 Amortization of acquired intangible assets 64,674 73,126 80,189 Business development and integration expense — (5) 2 Compensation for post-combination services — 2 251 Restructuring charges 1,782 — 62 Acquisition related depreciation expense 241 254 242 Transitional service agreement expense — 814 215 Legal judgments expense 476 1,100 2,804 Non-GAAP income from operations $ 206,823 $ 179,999 $ 172,793 GAAP net income $ 59,648 $ 35,874 $ 19,352 Service deferred revenue fair value adjustment — — 6 Share-based compensation expense 61,986 56,074 51,892 Amortization of acquired intangible assets 64,674 73,126 80,189 Business development and integration expense — (5) 2 Compensation for post-combination services — 2 251 Restructuring charges 1,782 — 62 Acquisition-related depreciation expense 241 254 242 Loss on extinguishment of debt — 596 — Change in fair value of contingent consideration — (837) — Change in fair value of derivative instrument 1,380 — — Legal judgments expense 476 1,100 2,804 Income tax adjustments (30,626) (27,796) (28,977) Non-GAAP net income $ 159,561 $ 138,388 $ 125,823 37 Table of Contents Fiscal Year Ended March 31, (Dollars in Thousands, Except per Share Data) 2023 2022 2021 GAAP diluted net income per share $ 0.82 $ 0.48 $ 0.26 Per share impact of non-GAAP adjustments identified above 1.36 1.36 1.44 Non-GAAP diluted net income per share $ 2.18 $ 1.84 $ 1.70 GAAP income from operations $ 77,664 $ 48,634 $ 37,130 Previous adjustments to determine non-GAAP income from operations 129,159 131,365 135,663 Non-GAAP income from operations 206,823 179,999 172,793 Depreciation excluding acquisition related 21,003 22,404 25,397 Non-GAAP EBITDA from operations $ 227,826 $ 202,403 $ 198,190 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 fully understanding and evaluating our financial results.
General and administrative. General and administrative expenses consist primarily of personnel expenses for executive, financial, legal, and human resource employees, overhead, and other corporate expenditures.
General and administrative expenses consist primarily of personnel expenses for executive, financial, legal, and human resource employees, overhead, and other corporate expenditures.
We expect net cash provided by operating activities combined with cash, cash equivalents, and marketable securities and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirement over at least the next twelve months.
We expect net cash provided by operating activities combined with cash, cash equivalents, and marketable securities and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirement over at least the next twelve months.
Additionally, a portion of our cash may be used to acquire or invest in complementary businesses or products, to obtain the right to use complementary technologies, to repay borrowings under our Second Amended and Restated Credit Agreement, or to repurchase shares of our common stock through our stock repurchase programs.
A portion of our cash may be used to acquire or invest in complementary businesses or products, to obtain the right to use complementary technologies, to repay borrowings under our Second Amended and Restated Credit Agreement, or to repurchase shares of our common stock through our stock repurchase programs.
Non-GAAP revenue eliminates the GAAP effects of acquisitions by adding back revenue related to deferred revenue revaluation. Non-GAAP gross profit includes the aforementioned revenue adjustments and also removes expenses related to the amortization of acquired intangible assets, share-based compensation, and acquisition-related depreciation.
Non-GAAP revenue eliminates the GAAP effects of acquisitions by adding back revenue related to deferred revenue revaluation. Non-GAAP gross profit removes the aforementioned revenue adjustments and also removes expenses related to the amortization of acquired intangible assets, share-based compensation, and acquisition-related depreciation.
The Second Amended and Restated Credit Agreement provides that events of default will exist in certain circumstances, including failure to make payment of principal or interest on the loans when required, failure to perform certain obligations under the Second Amended and Restated Credit Agreement and related documents including a failure to meet the maximum total secured net leverage ratio covenant, defaults under certain other indebtedness, certain insolvency events, certain events arising under ERISA, a change of control and certain other events.
The Second Amended and Restated Credit Agreement provides that events of default will exist in certain circumstances, including failure to make payment of principal or interest on the loans when required, failure to perform certain obligations under the Second Amended and Restated Credit Agreement and related documents including a failure to meet the maximum total consolidated net leverage ratio covenant, defaults under certain other indebtedness, certain insolvency events, certain events arising under ERISA, a change of control and certain other events.
Our consolidated gross leverage ratio is the ratio of our total funded debt compared to our consolidated EBITDA as defined in the Second Amended and Restated Credit Agreement (adjusted consolidated EBITDA).
Our consolidated gross leverage ratio is the ratio of our consolidated total debt compared to our consolidated EBITDA as defined in the Second Amended and Restated Credit Agreement (adjusted consolidated EBITDA).
The District Court entered an amended final judgment awarding Plaintiff $2.25 million in post-suit damages, $1.1 million in enhanced damages, pre- and post-judgment interest, and a running royalty on the G10 and GeoBlade products until the expiration of the patents at issue, the last expiration date being June 2022.
The District Court entered an amended final judgment awarding Plaintiff $2.3 million in post-suit damages, $1.1 million in enhanced damages, pre- and post-judgment interest, and a running royalty on the G10 and GeoBlade products until the expiration of the patents at issue, the last expiration date being June 2022.
We derive revenues primarily from the sale of network management tools and security solutions for service provider and enterprise customers, which include hardware, software, and service offerings. Our product sales consist of software only offerings and offerings which include hardware appliances with embedded software that are essential to providing customers the intended functionality of the solutions.
We derive revenues primarily from the sale of network management tools and cybersecurity solutions for service provider and enterprise customers, which include hardware, software, and service offerings. Our product sales consist of software only offerings and offerings which include hardware appliances with embedded software that are essential to providing customers the intended functionality of the solutions.
We performed our annual impairment analysis for goodwill at January 31, 2022 using the qualitative (Step 0) assessment, and we concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying value.
We performed our annual impairment analysis for goodwill at January 31, 2023 using the qualitative (Step 0) assessment, and we concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying value.
Product revenue is typically recognized upon shipment, provided a legally enforceable contract exists, control has passed to the customer, and in the case of software products, when the customer has the rights and ability to access the software, and collection of the related receivable is probable.
Product revenue is typically recognized upon fulfillment, provided a legally enforceable contract exists, control has passed to the customer, and in the case of software products, when the customer has the rights and ability to access the software, and collection of the related receivable is probable.
However, when contracts are closely interrelated and dependent on each other, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts. Bundled arrangements are concurrent customer purchases of a combination of our product and service offerings that may be delivered at various points in time.
However, when contracts are closely interrelated and dependent on each other, it may be necessary to account for two or more contracts as one to reflect the substance of the group of contracts. 38 Table of Contents Bundled arrangements are concurrent customer purchases of a combination of our product and service offerings that may be delivered at various points in time.
Interest on Term Benchmark Revolving loans is payable at the end of each interest rate period or at the end of each three-month interval within an interest rate period if the period is longer than three months. We may also prepay loans under the Second Amended and Restated Credit Agreement at any time, without penalty, subject to certain notice requirements.
Interest on term SOFR loans is payable at the end of each interest rate period or at the end of each three-month interval within an interest rate period if the period is longer than three months. We may also prepay loans under the Second Amended and Restated Credit Agreement at any time, without penalty, subject to certain notice requirements.
For the period from the delivery of the Company's financial statements for the quarter ended December 31, 2021, until we have delivered financial statements for the quarter ended March 31, 2022, the applicable margin will be 1.25% per annum for Term Benchmark Revolving loans and 0.25% per annum for Alternate Base Rate loans, and thereafter the applicable margin will vary depending on our consolidated gross leverage ratio, ranging from 1.00% per annum for Alternate Base Rate loans and 2.00% per annum for Term Benchmark Revolving loans if our consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0.00% per annum for Alternate Base Rate loans and 1.00% per annum for Term Benchmark Revolving loans if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.
For the period from the delivery of our financial statements for the quarter ended December 31, 2022, until we have delivered financial statements for the quarter ended March 31, 2023, the applicable margin will be 1.00% per annum for Term Benchmark Revolving loans and 0% per annum for Alternate Base Rate loans, and thereafter the applicable margin will vary depending on our consolidated gross leverage ratio, ranging from 1.00% per annum for Alternate Base Rate loans and 2.00% per annum for Term Benchmark Revolving loans if our consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0% per annum for Alternate Base Rate loans and 1.00% per annum for Term Benchmark Revolving loans if our consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.
For a discussion of (i) our consolidated statement of operations data for the fiscal year ended March 31, 2020 including results as a percentage of revenue for that period, as well as (ii) our liquidity and capital resources for the fiscal year ended March 31, 2020, see "Comparison of Years Ended March 31, 2021 and 2020" and "Liquidity and Capital Resources" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed with the SEC on May 20, 2021 (our 2021 Annual Report).
For a discussion of (i) our consolidated statement of operations data for the fiscal year ended March 31, 2021 including results as a percentage of revenue for that period, as well as (ii) our liquidity and capital resources for the fiscal year ended March 31, 2021, see "Comparison of Years Ended March 31, 2022 and 2021" and "Liquidity and Capital Resources" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2022, filed with the SEC on May 19, 2022 (our 2022 Annual Report).
We expect net cash provided by operations 34 Table of Contents combined with cash, cash equivalents and marketable securities and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months.
We expect net cash provided by operations combined with cash, cash equivalents and marketable securities and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months.
Non-GAAP net income includes the foregoing adjustments related to non-GAAP income from operations, and also removes loss on extinguishment of debt and change in fair value of contingent consideration, net of related income tax effects.
Non-GAAP net income removes the foregoing adjustments related to non-GAAP income from operations, and also removes loss on extinguishment of debt, change in fair value of contingent consideration, and change in the fair value of derivative instrument, net of related income tax effects.
SSP has primarily been 38 Table of Contents established for product performance obligations as the average or median selling price the performance obligation was recently sold for, whether sold alone or sold as part of a bundle transaction.
SSP has primarily been established for product performance obligations as the average or median selling price the performance obligation was recently sold for, whether sold alone or sold as part of a bundle transaction.
Amortization of acquired intangible assets. Amortization of acquired intangible assets consists primarily of amortization of customer relationships, and definite-lived trademark and tradenames related to our acquisition of Danaher Corporation's communication business (Comms Transaction) and the acquisitions of ONPATH Technologies, Inc., Simena, LLC, Psytechnics, Ltd, Network General Corporation, Avvasi Incorporated and Efflux Systems, Inc.
Amortization of acquired intangible assets consists primarily of amortization of customer relationships, and definite-lived trademark and tradenames related to our acquisition of Danaher Corporation's communication business (Comms Transaction) and the acquisitions of Simena, LLC, Network General Corporation, Avvasi Incorporated and Efflux Systems, Inc.
For the period from the delivery of the Company's financial statements for the quarter ended December 31, 2021, until we have delivered financial statements for the quarter ended March 31, 2022, the commitment fee will be 0.20% per annum, and thereafter the commitment fee will vary 47 Table of Contents depending on our consolidated gross leverage ratio, ranging from 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.
For the period from the delivery of the Company's financial statements for the quarter ended December 31, 2022, until we have delivered financial statements for the quarter ended March 31, 2023, the commitment fee will be 0.15% per annum, and thereafter the commitment fee will vary depending on our consolidated gross leverage ratio, ranging from 0.30% per annum if our consolidated gross leverage ratio is greater than 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.
We are unable to make a reliable 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. Expectations for Fiscal Year 2023 We are actively managing the business to generate cash flow and believe that we currently have adequate liquidity.
We are unable to make a reliable 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. 48 Table of Contents Expectations for Fiscal Year 2024 We are actively managing the business to generate cash flow and believe that we currently have adequate liquidity.
The District Court recently denied NetScout’s motion with respect to its request to dismiss the case and enter judgment in its favor, but in response to alternative requests for relief requested by NetScout, vacated $1.7 million of the "enhanced" jury verdict amount of $2.8 million and also lowered the ongoing royalty rate on the G10 and GeoBlade products.
The District Court denied NetScout’s motion with respect to its request to dismiss the case and enter judgment in its favor, but in response to alternative requests for relief requested by NetScout, "enhanced" the jury verdict in the amount of $1.1 million and also lowered the ongoing royalty rate on the G10 and GeoBlade products.
Non-GAAP income from operations includes the aforementioned adjustments and also removes business development and integration expense, new standard implementation expense, compensation for post-combination services, legal expenses related to a civil judgment, restructuring charges, and transitional service agreement expenses.
Non-GAAP income from operations removes the aforementioned adjustments and also removes business development and integration expense, compensation for post-combination services, legal expenses related to a civil judgment, restructuring charges, and transitional service agreement expenses.
We continue to take actions to manage costs and increase productivity throughout our company but will invest in areas that advance our business for the future, as necessary. In addition to our cash equivalents, based on covenant levels, we had as of March 31, 2022 an incremental $450 million available to us under our revolving credit facility.
We continue to take actions to manage costs and increase productivity throughout our company but will invest in areas that advance our business for the future. In addition to our cash equivalents, based on covenant levels at March 31, 2023, we had, as of March 31, 2023, an incremental $700 million available to us under our revolving credit facility.
From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies. If our existing sources of liquidity are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities. The sale of additional equity or debt securities could result in additional dilution to our stockholders.
From time to time, in the ordinary course of business, we evaluate potential acquisitions of such businesses, products or technologies. If our existing sources of liquidity are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities.
The contingent purchase consideration related to the two acquisitions represent amounts deposited into escrow accounts, which were established to cover damages NetScout may have suffered related to any liabilities 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 represents amounts deposited into escrow accounts, which were established to cover damages we may have suffered related to any liabilities that we did not agree to assume or as a result of the breach of representations and warranties of the sellers as described in the acquisition agreements.
Following the entry of final judgment, NetScout appealed, and in July 2020, the Court of Appeals for the Federal Circuit (Federal Circuit) issued a decision vacating the $3,500,000 pre-suit damages award, affirming the $2,250,000 post-suit damages award, and remanding to the district court to determine what, if any, enhancement should be awarded.
Following the entry of final judgment, NetScout appealed, and in July 2020, the Court of Appeals for the Federal Circuit (Federal Circuit) issued a decision vacating the $3.5 million pre-suit damages award, affirming the $2.3 million post-suit damages award, vacating the $2.8 million enhancement award, and remanding to the district court to determine what, if any, enhancement should be awarded.
Contractual Obligations Our contractual 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 inventory as well as commitments for products and services used in the normal course of business (see Commitments and Contingencies, Note 19 to the Consolidated Financial Statements), and (iv) pension benefit plan (see Pension Benefit Plans, Note 16 to the Consolidated Financial Statements).
Contractual Obligations Our contractual obligations at March 31, 2023 consisted mainly of (i) principal and interest related to our long-term debt obligations (see Long-Term Debt, Note 11 to the Consolidated Financial Statements), (ii) operating lease obligations (see Leases, Note 17 to the Consolidated Financial Statements), (iii) unconditional purchase obligations, primarily under purchase orders to purchase inventory as well as commitments for products and services used in the normal course of business (see Commitments and Contingencies, Note 18 to the Consolidated Financial Statements), and (iv) pension benefit plan (see Pension Benefit Plans, Note 15 to the Consolidated Financial Statements).
In view of the 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 appeal NetScout may take, NetScout has concluded that the risk of loss associated with such damages award remains "probable" in accounting terms, and that the risk of loss associated with pre-suit damages is remote.
In view of the current circumstances, and if the post-suit and enhanced damages award along with the associated interest and royalties survive the recent PTAB invalidation decisions and NetScout's appeal, NetScout has concluded that the risk of loss associated with such damages award remains "probable" in accounting terms, and that the risk of loss associated with pre-suit damages is remote.
Fiscal Year Ended March 31, (Dollars in Thousands) Change 2022 2021 % of Revenue % of Revenue $ % Income tax expense $ 7,018 1 % $ 2,952 — % $ 4,066 138 % Commitment and Contingencies We account for claims and contingencies in accordance with authoritative guidance that requires us to record an estimated loss from a claim or loss contingency when information available prior to issuance of our consolidated financial statements indicates that it is probable that a liability has been incurred at the date of the consolidated financial statements and the amount of the loss can be reasonably estimated.
Fiscal Year Ended March 31, (Dollars in Thousands) Change 2023 2022 % of Revenue % of Revenue $ % Income tax expense $ 8,767 1 % $ 7,018 1 % $ 1,749 25 % Commitment and Contingencies We account for claims and contingencies in accordance with authoritative guidance that requires us to record an estimated loss from a claim or loss contingency when information available prior to issuance of our consolidated financial statements indicates that it is probable that a liability has been incurred at the date of the consolidated financial statements and the amount of the loss can be reasonably estimated.
As of March 31, 2022, we were in compliance with these covenants, including the specified total consolidated net leverage ratio range of 4.00 to 1.00.
As of March 31, 2023, we were in compliance with all covenants, including the specified total consolidated net leverage ratio range of 4.00 to 1.00.
The jury rendered a verdict finding in favor of the Plaintiff and that Plaintiff was entitled to $3,500,000 for pre-suit damages and $2,250,000 for post-suit damages. The jury indicated that the awarded damages amounts were intended to reflect a running royalty.
In October 2017, the jury rendered a verdict finding in favor of the Plaintiff and that Plaintiff was entitled to $3.5 million for pre-suit damages and $2.3 million for post-suit damages. The jury indicated that the awarded damages amounts were intended to reflect a running royalty.
In connection with the delivery of common shares upon vesting of restricted stock units, we have withheld 546,053 shares for $15.7 million, and 506,917 shares for $13.3 million related to minimum statutory tax withholding requirements on these restricted stock units during the fiscal years ended March 31, 2022 and 2021, respectively.
In connection with the delivery of common shares upon vesting of restricted stock units, we have withheld 562,360 shares for $19.4 million, and 546,053 shares for $15.7 million related to minimum statutory tax withholding requirements on these restricted stock units during the fiscal years ended March 31, 2023 and 2022, respectively.
The unamortized capitalized 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 in cluded as other assets in our consolidated balance sheet at March 31, 2022.
The unamortized capitalized debt issuance costs balance of $1.1 million was included as prepaid expenses and other current assets and a balance of $2.6 million was included as other assets in our consolidated balance sheet at March 31, 2023.
We had unamortized capitalized debt issuance costs, net of $4.8 million at March 31, 2022, which are being amortized over the life of the revolving credit facility.
We had unamortized capitalized debt issuance costs, net of $3.7 million at March 31, 2023, which are being amortized over the life of the revolving credit facility.
Net cash outflows relating to the purchase and sales of marketable securities increased $98.9 million relating to the amount of investments held at each respective balance sheet date, from an inflow of $41.1 million during the fiscal year ended March 31, 2021 to an outflow of $57.8 million during the fiscal year ended March 31, 2022.
Net cash inflows relating to the purchase and sales of marketable securities increased $83.7 million relating to the amount of investments held at each respective balance sheet date, from an outflow of $57.8 million during the fiscal year ended March 31, 2022 to an inflow of $25.9 million during the fiscal year ended March 31, 2023.
Additionally, we recorded a loss on the extinguishment of debt of $0.6 million, representing the write off of unamortized deferred financing costs, which was included in interest expense in the consolidated statements of operations for the fiscal year ended March 31, 2022. At March 31, 2022, $350 million was outstanding 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 off of unamortized deferred financing costs, which was included in interest expense in the consolidated statements of operations for the fiscal year ended March 31, 2022.
These withholding transactions do not fall under the repurchase program described above, and therefore do not reduce the amount that is available for repurchase under that program. 46 Table of Contents During the fiscal year ended March 31, 2021, we repaid $100.0 million of borrowings under the Amended Credit Agreement, respectively.
These withholding transactions do not fall under the repurchase program described above, and therefore do not reduce the amount that is available for repurchase under that program. During the fiscal year ended March 31, 2023, we repaid $250.0 million of borrowings under the Second Amended and Restated Credit Agreement.
In response to the Russian military operations in Ukraine, we have ceased business operations in Russia, including sales, support on existing contracts and professional services. The United States and other countries have imposed sanctions on Russia that could impact our future revenue streams. These events have not had a material impact on our fiscal year 2022 financial statements.
In response to the Russian military operations in Ukraine, we have ceased business operations in Russia, including sales, support on existing contracts and professional services. The United States and other countries have imposed sanctions on Russia that could impact our future revenue streams.
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 fully described in the Second Amended and Restated Credit Agreement.
The Second Amended and Restated Credit Agreement requires us to maintain a certain consolidated net leverage ratio and removes the previous requirement under our previous amended credit agreement that we maintain a minimum consolidated interest coverage ratio.
Accounting for claims and contingencies requires us to use our judgment. We consult with legal counsel on those issues related to litigation and seek input from other experts and advisors with respect to matters in the ordinary course of business. Legal - From time to time, we are subject to legal proceedings and claims in the ordinary course of business.
We consult with legal counsel on those issues related to litigation and seek input from other experts and advisors with respect to matters in the ordinary course of business. 43 Table of Contents Legal - From time to time, we are subject to legal proceedings and claims in the ordinary course of business.
Letter of credit participation fees are payable to each lender providing the letter of credit sub-facility on the amount of such lender's letter of credit exposure, during the period from the closing date of the Second Amended and Restated Credit Agreement to, but excluding, the date which is the later of (i) the date on which such lender's commitment terminates or (ii) the date on which such lender ceases to have any letter of credit exposure, at the applicable rate that would be used to determine the interest rate applicable to Term Benchmark Revolving loans assuming such loans were outstanding during the period.
Letter of credit 47 Table of Contents participation fees are payable to each lender providing the letter of credit sub-facility on the amount of such lender's letter of credit exposure, during the period from the closing date of the Second Amended and Restated Credit Agreement to, but excluding, the date which is the later of (i) the date on which such lender's commitment terminates or (ii) the date on which such lender ceases to have any letter of credit exposure, at a rate per annum equal to the applicable margin for term SOFR loans assuming such loans were outstanding during the period.
Generally, we have established SSP for a majority of our service performance obligations based on historical standalone sales. In certain instances, we have established SSP for services based upon an estimate of profitability and the underlying cost to fulfill those services.
We also consider our overall pricing objectives and practices across different sales channels and geographies, and market conditions. Generally, we have established SSP for a majority of our service performance obligations based on historical standalone sales. In certain instances, we have established SSP for services based upon an estimate of profitability and the underlying cost to fulfill those services.
The 5%, or $5.2 million, decrease in cost of product revenue for the fiscal 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 delivery of radio frequency propagation modeling projects.
The 5%, or $4.1 million, increase in cost of product revenue for the fiscal year ended March 31, 2023 compared to the same period last year was primarily due to a $16.4 million increase in costs related to the delivery of radio frequency propagation modeling projects, and a $0.8 million increase in overhead costs.
Net cash from financing activities Fiscal Year Ended March 31, (Dollars in Thousands) 2022 2021 Cash used in financing activities included the following: Issuance of common stock under stock plans $ 2 $ 2 Payment of contingent consideration — (1,748) Treasury stock repurchases (35,653) (3,275) Tax withholding on restricted stock units (15,691) (13,286) Payment of debt issuance costs (3,660) — Repayment of long-term debt (350,000) (100,000) Proceeds from issuance of long-term debt 350,000 — Collection of contingent consideration 837 — $ (54,165) $ (118,307) Cash used in financing activities decreased $64.1 million to $54.2 million during the fiscal year ended March 31, 2022, compared to $118.3 million of cash used in financing activities during the fiscal year ended March 31, 2021.
Net cash from financing activities Fiscal Year Ended March 31, (Dollars in Thousands) 2023 2022 Cash used in financing activities included the following: Issuance of common stock under stock plans $ 2 $ 2 Treasury stock repurchases (150,039) (35,653) Tax withholding on restricted stock units (19,393) (15,691) Payment of debt issuance costs — (3,660) Repayment of long-term debt (250,000) (350,000) Proceeds from issuance of long-term debt — 350,000 Collection of contingent consideration — 837 $ (419,430) $ (54,165) Net cash used in financing activities increased $365.3 million to $419.4 million during the fiscal year ended March 31, 2023, compared to $54.2 million of net cash used in financing activities during the fiscal year ended March 31, 2022.
During the fiscal years ended March 31, 2022 and 2021, no direct customer or indirect channel partner accounted for more than 10% of our total revenue.
During the fiscal year ended March 31, 2023, one direct customer, Verizon, accounted for more than 10% of our total revenue, while no indirect channel partners accounted for more than 10% of our total revenue. During the fiscal year ended March 31, 2022, no direct customer or indirect channel partner accounted for more than 10% of our total revenue.
Accounts receivable days sales outstanding was 64 days at March 31, 2022 compared to 75 days at March 31, 2021. 45 Table of Contents Net cash from investing activities Fiscal Year Ended March 31, (Dollars in Thousands) 2022 2021 Cash (used in) provided by investing activities included the following: Purchase of marketable securities $ (78,367) $ (15,673) Proceeds from maturity of marketable securities 20,569 56,806 Purchase of fixed assets (10,350) (11,986) Purchase of intangible assets (50) (4,537) (Increase) decrease in deposits (155) 88 $ (68,353) $ 24,698 Cash used in investing activities increased by $93.1 million to $68.4 million during the fiscal year ended March 31, 2022, compared to $24.7 million of cash provided by investing activities during the fiscal year ended March 31, 2021.
Accounts receivable days sales outstanding was 58 days at March 31, 2023 compared to 64 days at March 31, 2022. 45 Table of Contents Net cash from investing activities Fiscal Year Ended March 31, (Dollars in Thousands) 2023 2022 Cash provided by (used in) investing activities included the following: Purchase of marketable securities $ (114,513) $ (78,367) Proceeds from maturity of marketable securities 140,462 20,569 Purchase of fixed assets (10,487) (10,350) Purchase of intangible assets (161) (50) Decrease (increase) in deposits 3 (155) $ 15,304 $ (68,353) Net cash provided by investing activities increased by $83.7 million to $15.3 million during the fiscal year ended March 31, 2023, compared to $68.4 million of net cash used in investing activities during the fiscal year ended March 31, 2022.
Presenting the GAAP measures on their own, without the supplemental non-GAAP disclosures, might not be indicative of our core operating results.
Presenting the GAAP measures on their own may not be indicative of our core operating results.
The 2%, or $5.4 million, decrease in service gross profit corresponds with the 2%, or $8.1 million, decrease in service revenue, partially offset by the 2%, or $2.7 million, decrease in cost of services revenue. Gross profit. Our gross profit increased 5%, or $32.2 million, for the fiscal year ended March 31, 2022 compared to the same period last year.
The 4%, or $13.5 million, increase in service gross profit corresponds with the 4%, or $18.3 million, increase in service revenue, partially offset by the 4%, or $4.8 million, increase in cost of services revenue. Gross profit. Our gross profit increased 8%, or $50.0 million, for the fiscal year ended March 31, 2023 compared to the same period last year.
Non-GAAP EBITDA from operations includes the aforementioned items related to non-GAAP income from operations and also removes non-acquisition related depreciation expense. 35 Table of Contents These non-GAAP measures are not in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP (revenue, gross profit, operating margin, net income (loss) and diluted net income (loss) per share), and may have limitations because they do not reflect all our results of operations as determined in accordance with GAAP.
These non-GAAP measures are not in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP (revenue, gross profit, operating margin, net income and diluted net income per share), and may have limitations because they do not reflect all our results of operations as determined in accordance with GAAP.
Cash and cash equivalents were impacted by the following: Fiscal Year Ended March 31, (Dollars in Thousands) 2022 2021 Net cash provided by operating activities $ 296,013 $ 213,921 Net cash (used in) provided by investing activities $ (68,353) $ 24,698 Net cash used in financing activities $ (54,165) $ (118,307) Net cash from operating activities Fiscal year 2022 compared to fiscal year 2021 Cash provided by operating activities was $296.0 million during the fiscal year ended March 31, 2022, compared to $213.9 million of cash provided by operating activities during the fiscal year ended March 31, 2021.
Cash and cash equivalents were impacted by the following: Fiscal Year Ended March 31, (Dollars in Thousands) 2023 2022 Net cash provided by operating activities $ 156,650 $ 296,013 Net cash provided by (used in) investing activities $ 15,304 $ (68,353) Net cash used in financing activities $ (419,430) $ (54,165) Net cash from operating activities Fiscal year 2023 compared to fiscal year 2022 Net cash provided by operating activities was $156.7 million during the fiscal year ended March 31, 2023, compared to $296.0 million of net cash provided by operating activities during the fiscal year ended March 31, 2022.
Our gross profit percentage increased by two percentage points to 75% during the fiscal year ended March 31, 2022 as compared with the fiscal year ended March 31, 2021.
Our gross profit percentage increased by one percentage point to 76% during the fiscal year ended March 31, 2023 as compared with the fiscal year ended March 31, 2022.
We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and our revolving credit facility.
We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and our revolving credit facility. However, macroeconomic conditions, including rising inflation and a potential recession, could increase our anticipated funding requirements.
During the fiscal 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 divestiture in September 2018.
During the fiscal 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. 46 Table of Contents During the fiscal 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 divestiture in September 2018.
We may also agree from time to time to provide other forms of indemnification to partners or direct customers, such as indemnification that would obligate us to defend 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 suffered personal injury or tangible property damage legally determined to have been caused by negligently designed or manufactured products.
We may also agree from time to time to provide other forms of indemnification to partners or direct customers, such as indemnification that would obligate us to defend 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 suffered personal injury or tangible property damage legally determined to have been caused by negligently designed or manufactured products. 44 Table of Contents We have agreed to indemnify our directors and officers and our subsidiaries' directors and officers 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 fact that the indemnified are agents of NetScout.
Net income for the fiscal year ended March 31, 2022 was $35.9 million, as compared with income for the fiscal year ended March 31, 2021 of $19.4 million, an increase of $16.5 million.
Net income for the fiscal year ended March 31, 2023 was $59.6 million, as compared with income for the fiscal year ended March 31, 2022 of $35.9 million, an increase of $23.7 million.
In connection with the Second Amended and Restated Credit Agreement, we paid off 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.
In connection with the Second Amended and Restated Credit Agreement, during the fiscal year ended March 31, 2022, we paid off the outstanding balance of $350 million under the previous amended credit agreement by borrowing the same amount under the Second Amended and Restated Credit Agreement.
Fiscal Year Ended March 31, (Dollars in Thousands) Change 2022 2021 % of Revenue % of Revenue $ % Interest and other expense, net $ (5,742) (1) % $ (14,826) (2) % $ 9,084 61 % The 61%, or $9.1 million, dec rease in interest and other expense, net was primarily due to a $5.3 million decrease in foreign exchange expense, a $2.8 million decrease in interest expense due to debt repayments on the credit facility as well as a decrease in the average interest rate partially offset 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 divestiture.
Fiscal Year Ended March 31, (Dollars in Thousands) Change 2023 2022 % of Revenue % of Revenue $ % Interest and other expense, net $ (9,249) (1) % $ (5,742) (1) % $ (3,507) (61) % The 61%, or $3.5 million, change in interest and other expense, net was primarily due to a $2.6 million increase in foreign exchange expense, and a $2.2 million increase in interest expense on the credit facility due to an increase in the average interest rate during the fiscal year ended March 31, 2023 when compared to the fiscal year ended March 31, 2022, partially offset by a loss on the extinguishment of debt recorded during the fiscal year ended March 31, 2022, a $1.4 million decrease from the change in fair value of a derivative instrument, a $0.8 million decrease in transitional services agreement income related to the divestiture of the Company's handheld network test (HNT) tools business in September 2018, and a $0.8 million increase from the change in fair value of contingent consideration.
We allocate the transaction price among the performance obligations in an amount that depicts the relative standalone selling prices (SSP) of each obligation. Judgment is required to determine the SSP for each distinct performance obligation.
We allocate the transaction price among the performance obligations in an amount that depicts the relative standalone selling prices (SSP) of each obligation. Judgment is required to determine the SSP for each distinct performance obligation. We use a range of amounts to estimate SSP for each of the products and services sold, based primarily on the performance obligation's historical pricing.
(Eastwind) acquisition was paid to the seller in April 2020. 39 Table of Contents Comparison of Years Ended March 31, 2022 and 2021 The sections that follow discuss our consolidated statement of operations data for the fiscal years ended March 31, 2022 and March 31, 2021 including results as a percentage of revenue for those periods.
We did not complete any acquisitions during the three years ended March 31, 2023, 2022, and 2021. 39 Table of Contents Comparison of Years Ended March 31, 2023 and 2022 The sections that follow discuss our consolidated statement of operations data for the fiscal years ended March 31, 2023 and March 31, 2022 including results as a percentage of revenue for those periods.
The judgment also awarded pre- and post-judgment interest, and a running royalty on the G10 and GeoBlade products until the expiration of the patents at issue, the last date being June 2022.
In September 2018, the Court entered judgment and "enhanced" the jury verdict in the amount of $2.8 million as a result of a jury finding. The judgment also awarded pre- and post-judgment interest, and a running royalty on the G10 and GeoBlade products until the expiration of the patents at issue, the last date being June 2022.
Overview We are an industry leader with over three decades of experience in providing service assurance and cybersecurity solutions that are used by customers worldwide to protect their digital business services against disruption.
Overview We are an industry leader with over three decades of experience in providing service assurance and cybersecurity solutions that are based on our pioneering deep packet inspection technology at scale, which is used by many fortune 500 companies to protect their digital business services against disruption.
These decreases were partially offset by a $2.9 million increase in contractor fees. The service gross profit percentage remained flat at 72% during the fiscal year ended March 31, 2022 compared to the same period in the prior year.
These increases were partially offset by a $0.6 million decrease i n contractor fees. T he service gross profit percentage remained 41 Table of Contents flat at 72% during the fiscal year ended March 31, 2023 compared to the same period in the prior year.
The 9%, or $21.5 million, increase in total sales and marketing expenses for the fiscal year ended March 31, 2022 compared to the same period last year was prima rily 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 variable incentive compensation, a $4.6 million increase in advertising and other marketing related expenses, a $2.2 million increase in travel expense primarily attributable to the lifting of COVID-19 related restrictions, a $1.4 million increase in contractor fees, and a $0.6 million in recruitment fees, partially offset by a $2.4 million decrease in expenses related to trade shows, user conferences and other events, and a $1.0 million decrease in depreciation.
The 5%, or $12.7 million, increase in total sales and marketing expenses for the fiscal year ended March 31, 2023 compared to the same period last year was prima rily due to a $12.1 million increase in expenses related to trade shows, user conferences and other events, a $6.7 million increase in travel expense primarily attributable to the lifting of COVID-19 related restrictions, a $3.0 million increase in other marketing related expenses, and a $1.3 million increas e in overhead costs.
The effective tax rate for the twelve months ended March 31, 2022 is higher than the effective rate for the twelve months ended March 31, 2021, primarily due to a significant increase in pre-tax income as compared to the prior year.
The effective tax rate for the fiscal year ended March 31, 2023 is lower than the effective rate for the fiscal year ended March 31, 2022, primarily due to a significant increase in the foreign derived intangible income and stock-based compensation deductions as compared to the prior year.
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 from network performance management offerings for enterprise customers. Service.
The 4%, or $18.3 million, increase in service revenue compared with the same period last year was primarily due to an increase in revenue from maintenance contracts.
Sales and marketing. Sales and marketing expenses consist primarily of personnel expenses and commissions, overhead and other expenses associated with selling activities and marketing programs such as trade shows, seminars, advertising, and new product launch activities.
These increases were partially offset by a $0.8 million decrease in depreciation expense, and a $0.6 million decrease in so ftware license expense. Sales and marketing. Sales and marketing expenses consist primarily of personnel expenses and commissions, overhead and other expenses associated with selling activities and marketing programs such as trade shows, seminars, advertising, and new product launch activities.
During the fiscal year ended March 31, 2021, we entered into an agreement to acquire technology licenses for $4.5 million. Our investments in property and equipment consist primarily of computer equipment, demonstration units, office equipment and facility improvements. We plan to continue to invest in capital expenditures to support our infrastructure in our fiscal year 2023.
Our investments in property and equipment consist primarily of computer equipment, demonstration units, office equipment and facility improvements. We plan to continue to invest in capital expenditures to support our infrastructure in our fiscal year 2024.
The 4%, or $8.0 million, decrease in res earch and development expenses for the fiscal 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 variable incentive compensation, and a $1.1 million decrease in depreciation expense.
The 3%, or $5.0 million, increase in res earch and development expenses for the fiscal year ended March 31, 2023 compared to the same period last year was primarily due to a $3.8 million increase in employee-related costs due to an increase in variable incentive compensation, a $1.2 million increase in travel expenses primarily attributable to the lifting of COVID-19 related restrictions, a $0.6 million increase in overhead costs, and a $0.5 million increase in expenses related to other events.
At March 31, 2022, the total accrual of our retirement obligation for our chairman and CEO was $1.4 million.
At March 31, 2023, the total accrual of our retirement obligation for our chairman and CEO was $1.1 million. The payment stream for this retirement obligation is based upon the retirement date which is currently not determinable.
The commitments under the Amended Credit Agreement were set to expire on January 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.
Sources of Cash and Cash Requirements Credit Facility On July 27, 2021, we amended and extended our existing credit facility (Second Amended and Restated Credit Agreement) with a syndicate of lenders by and among: the Company; JPMorgan Chase Bank, N.A.
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. Commitment fees will accrue on the daily unused amount of the credit facility.
Our consolidated net leverage ratio is the ratio of our Consolidated Total Debt minus the lesser of unrestricted cash and 125% of adjusted consolidated EBITDA compared to our adjusted consolidated EBITDA. The Company’s maximum consolidated net leverage ratio is 4.00 to 1.00. These covenants and limitations are more fully described in the Second Amended and Restated Credit Agreement.
We believe our current cash reserves and access to capital through our revolving credit facility leaves us well-positioned to manage our business as the pandemic continues and as a recovery slowly occurs.
Though we continue to monitor these impacts, we believe our current cash reserves and access to capital through our revolving credit facility leave us well-positioned to manage our business in today's environment.
For fiscal year 2022, as people in the world began to get immunized and started to adapt to a "new normal", we observed that technology and project spending resumed and we focused on advancing our products, growing revenue, enhancing earnings per share, and generating free cash flow.
The impacts of these global and macroeconomic conditions remain uncertain. For the fiscal year ended March 31, 2023, we observed that technology and project spending resumed and we focused on advancing our products, growing revenue, enhancing earnings per share, and generating free cash flow.
These increases were partially offset by a $29.6 million decrease from accrued compensation and other expenses, a $24.5 million decrease from prepaid expenses and other assets, a $10.0 million decrease from depreciation and amortization, a $9.8 million decrease from income taxes payable, a $6.0 million decrease from inventories, and a $1.8 million decrease from operating lease liabilities during the fiscal year ended March 31, 2022 as compared with the fiscal year ended March 31, 2021.
These decreases were partially offset by a $23.8 million increase from the change in net income, an $18.0 million increase from prepaid expenses and other assets, a $17.0 million increase from inventories, a $9.7 million increase from accrued compensation and other expenses, a $5.9 million increase from share-based compensation, a $3.3 million increase from income taxes payable, a $1.4 million increase from the change in fair value of a derivative instrument, and a $0.8 million increase from the change in fair value of contingent consideration during the fiscal year ended March 31, 2023 as compared with the fiscal year ended March 31, 2022.
The 2%, or $2.7 million, decrease in cost of service revenue for the fiscal 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.
The 4%, or $4.8 million, increase in cost of service revenue for the fiscal year ended March 31, 2023 compared to the same period last year was primarily due to a $3.6 million increase in employee-related expenses largely due to costs associated with the timing of certain projects as well as an increase in variable incentive compensation, a $0.7 million increase in travel expense primarily attributable to the lifting of COVID-19 restrictions, and a $0.6 million incre ase in overhead costs.
The indemnity is for any and all expenses and liabilities of any type (including but not limited to, judgments, fines and amounts paid in settlement) reasonably incurred by the directors or officers in connection with the investigation, defense, settlement or appeal of such proceeding, provided they acted in good faith. 44 Table of Contents Liquidity and Capital Resources Cash, cash equivalents and marketable securities consist of the following (in thousands): At March 31, (Dollars in Thousands) 2022 2021 Cash and cash equivalents $ 636,161 $ 467,176 Short-term marketable securities 67,037 9,277 Long-term marketable securities — — Cash, cash equivalents and marketable securities $ 703,198 $ 476,453 Cash, cash equivalents and marketable securities At March 31, 2022, cash, cash equivalents and marketable securities (current and non-current) totaled $703.2 million.
The indemnity is for any and all expenses and liabilities of any type (including but not limited to, judgments, fines and amounts paid in settlement) reasonably incurred by the directors or officers in connection with the investigation, defense, settlement or appeal of such proceeding, provided they acted in good faith.
These decreases were partially offset by a $2.4 million increase in obsolescence charges. The product gross profit percentage increased by three percentage points to 78% during the fiscal year ended March 31, 2022 as compared to the same period in the prior year.
The product gross profit percentage increased by one percentage point to 79% during the fiscal year ended March 31, 2023 as compared to the same period in the prior year.
The 10%, or $8.7 million, increase in general and administrative expenses for the fiscal 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 variable incentive compensation, and a $2.4 million increase in the provision for allowance in credit losses.
The 6%, or $5.8 million, increase in general and administrative expenses for the fiscal year ended March 31, 2023 compared to the same period last year was primarily due to a $2.8 million increase in employee-related costs largely due to an increase in variable incentive compensation, a $1.1 million increase in contractor fees, a $1.1 million increase in business taxes, a $0.7 million increase in travel expenses primaril y attributable to the lifting of COVID-19 related restrictions, a $0.6 million increase in rent and other facilities related expenses, and a $0.6 million incre ase in overhead costs .
Total revenue by geography was as follows: Fiscal Year Ended March 31, (Dollars in Thousands) 2022 2021 Change % of Revenue % of Revenue $ % United States $ 501,043 59 % $ 484,129 58 % $ 16,914 3 % International: Europe 165,190 19 160,372 19 4,818 3 % Asia 64,968 8 56,562 7 8,406 15 % Rest of the world 124,374 14 130,219 16 (5,845) (4) % Subtotal international 354,532 41 347,153 42 7,379 2 % Total revenue $ 855,575 100 % $ 831,282 100 % $ 24,293 3 % United States revenue increased 3%, or $16.9 million, primarily due to an increase in revenue from network performance management offerings for enterprise and service provider customers, as well as an increase in revenue from DDoS enterprise customers.
Total revenue by geography was as follows: Fiscal Year Ended March 31, (Dollars in Thousands) 2023 2022 Change % of Revenue % of Revenue $ % United States $ 583,482 64 % $ 501,043 59 % $ 82,439 16 % International: Europe 145,678 16 165,190 19 (19,512) (12) % Asia 61,685 7 64,968 8 (3,283) (5) % Rest of the world 123,685 13 124,374 14 (689) (1) % Subtotal international 331,048 36 354,532 41 (23,484) (7) % Total revenue $ 914,530 100 % $ 855,575 100 % $ 58,955 7 % United States revenue increased 16%, or $82.4 million, compared with the same period last year primarily due to an increase in revenue from service assurance offerings, including radio frequency propagation modeling projects.

… 65 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+2 added−1 removed6 unchanged
Biggest changeAs a result of our foreign operations, we face exposure to movements in foreign currency exchange rates, primarily the Euro, British Pound, Canadian Dollar and Indian Rupee. The current exposures arise primarily from expenses denominated in foreign currencies. We currently engage in foreign currency hedging activities in order to limit these exposures.
Biggest changeWe limit the amount of credit exposure with any one financial institution by evaluating the creditworthiness of the financial institutions with which we invest. Foreign Currency Exchange Risk . As a result of our foreign operations, we face exposure to movements in foreign currency exchange rates, primarily the Euro, British Pound, Canadian Dollar and Indian Rupee.
The valuation of outstanding foreign currency forward contracts at March 31, 2022 resulted in a liability balance of $78 thousand, reflecting unfavorable contract rates in comparison to current market rates at this date and an asset balance of $20 thousand, reflecting favorable rates in comparison to current market rates.
The valuation of outstanding foreign currency forward contracts at March 31, 2022 resulted in a liability balance of $78 thousand, reflecting unfavorable contract rates in comparison to current market rates and an asset balance of $20 thousand, reflecting favorable rates in comparison to current market rates at this date.
The valuation of outstanding foreign currency forward contracts (both designated and not designated as hedging instruments) at March 31, 2021 resulted in a liability balance of $191 thousand, reflecting unfavorable contract rates in comparison to current market rates and an asset balance of $57 thousand, reflecting favorable rates in comparison to current market rates at this date.
The valuation of outstanding foreign currency forward contracts (both designated and not designated as hedging instruments) at March 31, 2023 resulted in a liability balance of $49 thousand, reflecting unfavorable contract rates in comparison to current market rates at this date and an asset balance of $59 thousand, reflecting favorable rates in comparison to current market rates.
At March 31, 2021, we had foreign currency forward contracts designated as hedging instruments with notional amounts totaling $11.0 million and foreign currency forward contracts not designated as hedging instruments with a notional amount of $6.4 million.
At March 31, 2023, we had foreign currency forward contracts designated as hedging instruments with notional amounts totaling $10.3 million and foreign currency forward contracts not designated as hedging instruments with a notional amount of $6.0 million.
At March 31, 2022, we owed $350 million on this loan with an interest rate of 1.71%. A sensitivity analysis was performed on the outstanding portion of our debt obligation as of March 31, 2022.
At March 31, 2023, we owed $100 million on this loan with an interest rate of 5.91%. A sensitivity analysis was performed on the outstanding portion of our debt obligation as of March 31, 2023.
We do not use derivative financial instruments for speculative trading purposes. At March 31, 2022, we had foreign currency forward contracts designated as hedging instruments with notional amounts totaling $5.6 million.
At March 31, 2022, we had foreign currency forward contracts designated as hedging instruments with notional amounts totaling $5.6 million.
Should the current weighted average interest rate increase or decrease by 10%, the resulting annual increase or decrease to interest expense would be approximately $599 thousand as of March 31, 2022. Credit Risk . Our cash equivalents and marketable securities consist primarily of money market instruments, U.S. Treasury bills, certificates of deposit, commercial paper, corporate bonds and municipal obligations.
Should the current weighted average interest rate increase or decrease by 10%, the resulting annual increase or decrease to interest expense would be approximately $591 thousand as of March 31, 2023. Credit Risk .
Removed
At March 31, 2022 and periodically throughout the year, we have maintained cash balances in various operating accounts in excess of federally insured limits. We limit the amount of credit exposure with any one financial institution by evaluating the creditworthiness of the financial institutions with which we invest. Foreign Currency Exchange Risk .
Added
Our cash equivalents and marketable securities consist primarily of U.S government and municipal obligations, commercial pap er, corporate bonds, certificate o f deposits, and money market instruments. At March 31, 2023 and periodically throughout the year, we have maintained cash balances in various operating accounts in excess of federally insured limits.
Added
The current exposures arise primarily from expenses denominated in foreign currencies. We currently engage in foreign currency hedging activities in order to limit these exposures. We do not use derivative financial instruments for speculative trading purposes.

Other NTCT 10-K year-over-year comparisons