You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2021 , filed with theSecurities and Exchange Commission . This discussion contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2021 . These risks and uncertainties could cause actual results to differ significantly from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations. See the section titled "Cautionary Statement Concerning Forward-Looking Statements" that appears at the beginning of this Quarterly Report. These statements, like all statements in this report, speak only as of the date of this Quarterly Report (unless another date is indicated), and, except as required by law, we undertake no obligation to update or revise these statements in light of future developments. Overview We are an industry leader with over 35 years of experience in providing service assurance and cybersecurity solutions that are used by customers worldwide to protect their digital business services against disruption. Service providers and enterprises, including local, state and federal government agencies, rely on our solutions to achieve the visibility necessary to optimize network performance, ensure the delivery of high-quality, mission-critical applications and services, gain timely insight into the end user experience and protect their networks from attack. With our offerings, customers can quickly, efficiently and effectively identify and resolve issues that result in downtime, interruptions to services, poor service quality or compromised data, thereby driving compelling returns on their investments in their networks and broader technology initiatives. Some of the more significant technology trends and catalysts for our business include the evolution of customers' digital transformation initiatives such as the migration to cloud environments, the rapidly expanding cybersecurity threat landscape, business intelligence and analytics advancements, and the 5G evolution in both the service provider and enterprise customer verticals. Our operating results are influenced by a number of factors, including, but not limited to, the mix and quantity of products and services sold, pricing, costs of materials used in our products, growth in employee-related costs, including commissions, and the expansion of our operations. Factors that affect our ability to maximize our operating results include, but are not limited to, our ability to introduce and enhance existing products, the marketplace acceptance of those new or enhanced products, continued expansion into international markets, development of strategic partnerships, competition, successful acquisition integration efforts, and our ability to control costs and make improvements in a highly competitive industry. COVID-19 Impact InMarch 2020 , theWorld Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The pandemic and these containment and mitigation measures have led to adverse impacts on theU.S. and global economies. While we have begun a phased reopening at some of our facilities, we remain focused on protecting the health and well-being of our employees and continue to maintain work from home policies for a vast majority of our employees where feasible. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it has impacted and could continue to impact our customers, employees, supply chain, and distribution network. During fiscal year 2021, the COVID-19 pandemic and resulting challenging macro-economic environment caused elongated purchasing cycles that impacted our revenue. For fiscal year 2022, as people in the world get immunized and return to "normal", we expect that technology and project spending will resume and we will be focused on advancing our products, growing revenue, enhancing earnings per share, and generating solid free cash flow. 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 crisis continues and as a recovery eventually occurs. 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. We continue to take actions to control 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 atJune 30, 2021 , we had, as ofJune 30, 2021 , an incremental$345 million available to us under our revolving credit facility. OnMarch 27, 2020 , the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) was enacted. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security 24 -------------------------------------------------------------------------------- Table of Contents payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. We have elected to defer the employer-paid portion of social security taxes. As ofJune 30, 2021 , we had deferred$8.9 million of employer payroll taxes, of which 50% are required to be deposited byDecember 2021 and the remaining 50% byDecember 2022 . The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on certain developments, including the duration of the pandemic, its impact on our customers and suppliers and the range of governmental and community reactions to the pandemic, which continue to evolve and cannot be fully predicted at this time. We will continue to proactively respond to the situation and may take further actions that could alter our business operations if required by governmental authorities, or that we determine are in the best interests of our stakeholders. Results Overview Total revenue for the three months endedJune 30, 2021 as compared to total revenue for the three months endedJune 30, 2020 increased due to an increase in revenue from the product portion of our service assurance offerings in both the service provider and enterprise verticals, as well as an increase in revenue from our DDoS offerings, partially offset by a decrease in revenue from the service portion of our service assurance offerings. Our gross profit percentage remained flat at 71% during the three months endedJune 30, 2021 as compared with the three months endedJune 30, 2020 . Net loss for the three months endedJune 30, 2021 was$11.3 million , as compared with a net loss for the three months endedJune 30, 2020 of$17.4 million , a decrease of$6.1 million . The decrease in net loss was primarily due to a$6.5 million increase in revenue, a$4.2 million decrease in employee-related expenses associated with a reduction in headcount and a decrease in variable incentive compensation, a$2.8 million decrease in legal-related expenses, a$2.4 million decrease in other expense, and a$1.6 million decrease in amortization of intangible assets. These decreases were partially offset by a$3.1 million increase in commissions expense, a$2.0 million increase in direct material costs, a$1.5 million increase in contractor fees, a$1.2 million increase in obsolescence charges, a$1.0 million increase in travel expenses attributable to the lifting of COVID-19 related restrictions, an$0.8 million increase in advertising expense, and an$0.8 million increase in expenses related to user conferences. AtJune 30, 2021 , we had cash, cash equivalents and marketable securities (current and non-current) of$493.9 million . This represents an increase of$17.4 million from$476.5 million atMarch 31, 2021 . This increase was primarily due to cash provided by operating activities of$24.1 million , partially offset by$4.8 million used for tax withholdings on restricted stock units and$2.6 million used for capital expenditures during the three months endedJune 30, 2021 . Use of Non-GAAP Financial Measures We supplementthe United States generally accepted accounting principles (GAAP) financial measures we report in quarterly and annual earnings announcements, investor presentations and other investor communications by reporting the following non-GAAP measures: non-GAAP revenue, non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income, non-GAAP net income per share (diluted) and non-GAAP earnings before interest and other expense, income taxes, depreciation, amortization, and (EBITDA) from operations. 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 income from operations includes 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. Non-GAAP net income includes the foregoing adjustments related to non-GAAP income from operations, net of related income tax effects. Non-GAAP EBITDA from operations includes the aforementioned items related to non-GAAP income from operations and also removes non-acquisition related depreciation expense. These non-GAAP measures are not in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP (revenue, gross profit, operating margin, net income and diluted net income per share), and may have limitations because they do not reflect all our results of operations as determined in accordance with GAAP. These non-GAAP measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. The presentation of non-GAAP information is not meant to be considered superior to, in isolation from, or as a substitute for results prepared in accordance with GAAP. Management believes these non-GAAP financial measures will enhance the reader's overall understanding of our current financial performance and our prospects for the future by providing a higher degree of transparency for certain financial measures and providing a level of disclosure that helps investors understand how we plan and measure our business. We believe 25 -------------------------------------------------------------------------------- Table of Contents that providing these non-GAAP measures affords investors a view of our operating results that may be more easily compared to peer companies and also enables investors to consider our operating results on both a GAAP and non-GAAP basis during and following the integration period of our acquisitions. Presenting the GAAP measures on their own may not be indicative of our core operating results. Furthermore, management believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures provides useful information to management and investors regarding present and future business trends relating to our financial condition and results of operations. The following table reconciles revenue, gross profit, income (loss) from operations, net income (loss) and net income (loss) per share on a GAAP and non-GAAP basis for the three months endedJune 30, 2021 and 2020 (in thousands, except for per share amounts): Three Months Ended June 30, 2021 2020 GAAP revenue$ 190,272 $ 183,815 Service deferred revenue fair value adjustment - 2 Non-GAAP revenue$ 190,272 $ 183,817 GAAP gross profit$ 135,862 $ 130,835
Service deferred revenue fair value adjustment - 2 Share-based compensation expense 1,887 1,595 Amortization of acquired intangible assets 3,360 4,735 Acquisition related depreciation expense 5 6 Non-GAAP gross profit$ 141,114 $ 137,173 GAAP loss from operations$ (10,667) $
(14,487)
Service deferred revenue fair value adjustment -
2
Share-based compensation expense 13,965
12,096
Amortization of acquired intangible assets 18,366
19,996
Business development and integration expense (5) 16 Compensation for post-combination services 2 64 Restructuring charges - 93 Acquisition related depreciation expense 60 61 Transitional service agreement expense 58 - Legal judgments expense -
2,804
Non-GAAP income from operations$ 21,779 $
20,645 1 26
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Table of Contents Three Months Ended June 30, 2021 2020 GAAP net loss$ (11,341) $ (17,420) Service deferred revenue fair value adjustment - 2 Share-based compensation expense 13,965 12,096 Amortization of acquired intangible assets 18,366 19,996 Business development and integration expense (5) 16 Compensation for post-combination services 2 64 Restructuring charges - 93 Acquisition-related depreciation expense 60 61 Legal judgments expense - 2,804 Income tax adjustments (6,089) (5,496) Non-GAAP net income$ 14,958 $ 12,216 GAAP diluted net loss per share$ (0.15) $ (0.24) Per share impact of non-GAAP adjustments identified above 0.35 0.41 Non-GAAP diluted net income per share $
0.20
GAAP loss from operations $
(10,667)
35,132 Non-GAAP income from operations 21,779 20,645 Depreciation excluding acquisition related 5,811 5,952 Non-GAAP EBITDA from operations$ 27,590 $ 26,597 Critical Accounting Policies Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP consistently applied. The preparation of these consolidated financial statements requires us to make significant estimates and judgments that affect the amounts reported in our consolidated financial statements and the accompanying notes. These items are regularly monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates. While all of our accounting policies impact the consolidated financial statements, certain policies are viewed to be critical. Critical accounting policies are those that are both most important to the portrayal of our financial condition and results of operations and that require management's most subjective or complex judgments and estimates. We consider the following accounting policies to be critical in fully understanding and evaluating our financial results: •revenue recognition; •share-based compensation; •valuation of goodwill, intangible assets and other acquisition accounting items; and •marketable securities. Please refer to the critical accounting policies set forth in our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2021 , filed with theSecurities and Exchange Commission (SEC) onMay 20, 2021 , for a description of all of our critical accounting policies. 27 -------------------------------------------------------------------------------- Table of Contents Three Months EndedJune 30, 2021 and 2020 Revenue Product revenue consists of sales of our hardware products and licensing of our software products. Service revenue consists of customer support agreements, consulting, training and stand-ready software as a service offering. During the three months endedJune 30, 2021 and 2020, no direct customer or indirect channel partner accounted for more than 10% of our total revenue. Three Months Ended June 30, (Dollars in Thousands) 2021 2020 Change % of % of Revenue Revenue $ % Revenue: Product$ 81,950 43 %$ 71,693 39 %$ 10,257 14 % Service 108,322 57 112,122 61 (3,800) (3) % Total revenue$ 190,272 100 %$ 183,815 100 %$ 6,457 4 % Product. The 14%, or$10.3 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 and service provider customers, as well as an increase in revenue from distributed denial of service (DDoS) offerings. Service. The 3%, or$3.8 million , decrease in service revenue compared to the same period last year was primarily driven by non-renewals associated with service provider consolidation, discontinued product lines, and the timing of renewal bookings. Total revenue by geography was as follows: Three Months Ended June 30, (Dollars in Thousands) 2021 2020 Change % of % of Revenue Revenue $ % United States$ 102,893 54 %$ 107,323 58 %$ (4,430) (4) % International: Europe 38,556 20 34,758 19 3,798 11 % Asia 17,316 9 13,696 8 3,620 26 % Rest of the world 31,507 17 28,038 15 3,469 12 % Subtotal international 87,379 46 76,492 42 10,887 14 % Total revenue$ 190,272 100 %$ 183,815 100 %$ 6,457 4 %United States revenue decreased 4%, or$4.4 million , primarily due to a decrease in revenue from network performance management offerings for enterprise and service provider customers, partially offset by an increase in revenue from DDoS offerings. The 14%, or$10.9 million , increase in international revenue compared with the same period last year was primarily driven by higher revenue from network performance management offerings. 28 -------------------------------------------------------------------------------- Table of Contents Cost of Revenue and Gross Profit Cost of product revenue consists primarily of material components, manufacturing personnel expenses, packaging materials, overhead and amortization of capitalized software, acquired developed technology and core technology. Cost of service revenue consists primarily of personnel, material, overhead and support costs. Three Months Ended June 30, (Dollars in Thousands) 2021 2020 Change % of % of Revenue Revenue $ % Cost of revenue Product $ 23,165 12 %$ 21,152 12 %$ 2,013 10 % Service 31,245 16 31,828 17 (583) (2) % Total cost of revenue $ 54,410 28 %$ 52,980 29 %$ 1,430 3 % Gross profit: Product $ $ 58,785 31 %$ 50,541 27 %$ 8,244 16 % Product gross profit % 72 % 70 % Service $ $ 77,077 41 %$ 80,294 44 %$ (3,217) (4) % Service gross profit % 71 % 72 % Total gross profit $ $ 135,862$ 130,835 $ 5,027 4 % Total gross profit % 71 % 71 % Product. The 10%, or$2.0 million , increase in cost of product revenue for the three months endedJune 30, 2021 compared to the same period last year was primarily due to a$2.0 million increase in direct material costs as a result of the increase in product revenue, and a$1.2 million increase in obsolescence charges. These increases were partially offset by a$1.3 million decrease in the amortization of intangible assets. The product gross profit percentage increased by two percentage points to 72% during the three months endedJune 30, 2021 as compared with the three months endedJune 30, 2020 . The 16%, or$8.2 million , increase in product gross profit is attributable to the 14%, or$10.2 million , increase in product revenue, partially offset by the 10%, or$2.0 million , increase in cost of product revenue. Service. The 2%, or$0.6 million , decrease in cost of service revenue for the three months endedJune 30, 2021 compared to the same period last year was primarily due to a$2.1 million decrease in employee-related expenses associated with a decrease in variable incentive compensation as well as a decrease associated with the timing of certain projects. This decrease was partially offset by a$1.1 million increase in contractor fees. The service gross profit percentage decreased by one percentage point to 71% during the three months endedJune 30, 2021 as compared with the three months endedJune 30, 2020 . The 4%, or$3.2 million decrease in service gross profit is attributable to the 3%, or$3.8 million , decrease in service revenue, partially offset by the 2%, or$0.6 million , decrease in cost of service revenue. Gross profit. Our gross profit increased 4%, or$5.0 million , during the three months endedJune 30, 2021 when compared with the three months endedJune 30, 2020 . This increase is attributable to the increase in revenue of 4%, or$6.5 million , partially offset by the 3%, or$1.4 million , increase in cost of revenue. The gross profit percentage remained flat at 71% for the three months endedJune 30, 2021 as compared with the three months endedJune 30, 2020 . 29 --------------------------------------------------------------------------------
Table of Contents Operating Expenses Three Months Ended June 30, (Dollars in Thousands) 2021 2020 Change % of % of Revenue Revenue $ % Research and development$ 42,820 23 %$ 45,381 25 %$ (2,561) (6) % Sales and marketing 65,958 35 59,434 32 6,524 11 General and administrative 22,745 12 25,153 14 (2,408)
(10)
Amortization of acquired intangible assets 15,006 8 15,261 8 (255) (2) Restructuring charges - - 93 - (93) (100) Total operating expenses$ 146,529 78 %$ 145,322 79 %$ 1,207 1 % Research and development. Research and development expenses consist primarily of personnel expenses, fees for outside consultants, overhead and related expenses associated with the development of new products and the enhancement of existing products. The 6%, or$2.6 million , decrease in research and development expenses for the three months endedJune 30, 2021 compared to the same period last year was primarily due to a$2.7 million decrease in employee-related expenses associated with a reduction in headcount and a decrease in variable incentive compensation. 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. The 11%, or$6.5 million , increase in total sales and marketing expenses for the three months endedJune 30, 2021 compared to the same period last year was primarily due to a$3.1 million increase in commissions expense, a$1.0 million increase in travel expense primarily attributable to the lifting of COVID-19 related restrictions, an$0.8 million increase in employee-related expenses largely due to an increase in variable incentive compensation, an$0.8 million increase in expenses related to user conferences, and an$0.8 million increase in advertising and other marketing related expenses. 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. The 10%, or$2.4 million , decrease in general and administrative expenses for the three months endedJune 30, 2021 compared to the same period last year was primarily due to a$2.8 million decrease in legal-related expenses, offset by a$0.5 million increase in allowance for credit losses. Amortization of acquired intangible assets. Amortization of acquired intangible assets consists primarily of amortization of customer relationships, definite-lived trademarks and trade names, and leasehold interests related to our acquisitions of Danaher Corporation's communications business (Comms Transaction),Simena, LLC ,Network General Corporation ,Avvasi Inc. andEfflux Systems, Inc. The 2%, or$0.3 million , decrease in amortization of acquired intangible assets was largely due to a decrease in the amortization of intangible assets related to the Comms Transaction, offset by an increase in the amortization of the definite-lived trade name. Interest and Other Expense, Net. Interest and other expense, net includes interest earned on our cash, cash equivalents and marketable securities, interest expense and other non-operating gains or losses. Three Months Ended June 30, (Dollars in Thousands) 2021 2020 Change % of % of Revenue Revenue $ % Interest and other expense, net$ (2,420) (1) %$ (4,780) (3) %$ 2,360 49 % 30 -------------------------------------------------------------------------------- Table of Contents The 49%, or$2.4 million , decrease in interest and other expense, net was primarily due to a$1.7 million decrease in foreign exchange expense, and a$0.9 million decrease in interest expense due to debt repayments on the credit facility, as well as a decrease in the average interest rate. Income Taxes. Our effective tax rates represented an income tax benefit of 13.3% and an income tax benefit of 9.6% for the three months endedJune 30, 2021 and 2020, respectively. The effective income tax rate for the three months endedJune 30, 2021 differed from the effective income tax rate for the three months endedJune 30, 2020 , primarily due to the impact of research and development tax credits, foreign tax credits and the foreign derived intangible income deduction relative to forecasted profits partially offset by the discrete remeasurement of certain deferred taxes due to a change in enacted tax rate in theUK during the quarter endedJune 30, 2021 . Three Months Ended June 30, (Dollars in Thousands) 2021 2020 Change % of % of Revenue Revenue $ % Income tax benefit$ (1,746) (1) %$ (1,847) (1) %$ 101 5 %
Off-Balance Sheet Arrangements
AtJune 30, 2021 and 2020, we did not have any off-balance sheet arrangements as defined in Regulation S-K, Item 303(a)(4)(ii). Commitments 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. If we determine that it is reasonably possible, but not probable, that an asset has been impaired or a liability has been incurred, or if the amount of a probable loss cannot be reasonably estimated, then, in accordance with the authoritative guidance, we disclose the amount or range of estimated loss if the amount or range of estimated loss is material. Accounting 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. In the opinion of management, the amount of ultimate expense with respect to any current legal proceedings and claims, if determined adversely, will not have a material adverse effect on our financial condition, results of operations or cash flows. As previously disclosed, inMarch 2016 ,Packet Intelligence LLC (Packet Intelligence or Plaintiff) filed a Complaint against NetScout and two subsidiary entities in theUnited States District Court for the Eastern District of Texas asserting infringement of fiveUnited States patents. Plaintiff's Complaint alleged that legacy Tektronix GeoProbe products, including the G10 and GeoBlade products, infringed these patents. NetScout filed an Answer denying Plaintiff's allegations and asserting that Plaintiff's patents were, among other things, invalid, not infringed, and unenforceable due to inequitable conduct. InOctober 2017 , a jury trial was held to address the parties' claims and counterclaims regarding infringement of three patents by the G10 and GeoBlade products, invalidity of these patents, and damages. OnOctober 13, 2017 , 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. InSeptember 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 awards 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 beingJune 2022 . Following the entry of final judgment, onJune 12, 2019 , we filed our Notice of Appeal. OnJuly 14, 2020 , theCourt of Appeals for the 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. OnMarch 15, 2021 , NetScout filed a petition for a writ of certiorari to theUnited States Supreme Court , which was subsequently denied, challenging, among other issues, the basis for enhanced damages and the patentability of the claimed technology. The case is currently on remand at the District court. NetScout continues to avail itself of its legal options. NetScout has concluded that the risk of loss associated with the post-suit damages award is "probable" in accounting terms, regardless of the options NetScout may pursue, and that the risk of loss associated with pre-suit damages is 31 -------------------------------------------------------------------------------- Table of Contents now remote. Accounting rules require us to provide an estimate for the range of potential liability. NetScout currently estimates that the range of liability is the sum of post-suit damages, plus pre- and post-judgment interest amounts and royalties owed on post-trial sales of the accused G10 and GeoBlade products. Any potential enhancement is not reasonably estimable but is likely within the range of$0 to$2,800,000 . Liquidity and Capital Resources Cash, cash equivalents and marketable securities consisted of the following (in thousands):June 30 ,March 31, 2021 2021
Cash and cash equivalents$ 487,168 $
467,176
Short-term marketable securities 6,737
9,277
Cash, cash equivalents and marketable securities
Cash, cash equivalents and marketable securities AtJune 30, 2021 , cash, cash equivalents and marketable securities (current and non-current) totaled$493.9 million , a$17.4 million increase from$476.5 million atMarch 31, 2021 . This increase was primarily due to cash provided by operating activities of$24.1 million , partially offset by$4.8 million used for tax withholdings on restricted stock units, and$2.6 million used for capital expenditures during the three months endedJune 30, 2021 . AtJune 30, 2021 , cash and short-term and long-term investments inthe United States were$321.6 million , while cash held outsidethe United States was approximately$172.3 million . Cash and cash equivalents were impacted by the following: Three Months EndedJune 30 , (in thousands) 2021 2020
Net cash provided by operating activities$ 24,056
Net cash (used in) provided by investing activities
Net cash used in financing activities$ (4,777)
Net cash from operating activities Cash provided by operating activities was$24.1 million during the three months endedJune 30, 2021 , compared with$44.9 million of cash provided by operating activities during the three months endedJune 30, 2020 . The$20.8 million decrease was due in part to a$23.4 million decrease from accounts receivable, a$16.2 million decrease from accrued compensation and other expenses, a$7.2 million decrease from prepaid expenses and other assets, a$1.8 million decrease from depreciation and amortization, and a$1.1 million decrease from income taxes payable. These decreases were partially offset by a$12.1 million increase from deferred revenue, a$6.7 million increase from inventories, a$6.1 million increase from net income, a$1.9 million increase from share-based compensation, and an$0.8 million increase from deferred income taxes during the three months endedJune 30, 2021 as compared with the three months endedJune 30, 2020 . 32 -------------------------------------------------------------------------------- Table of Contents Net cash from investing activities Three Months EndedJune 30 , (in thousands) 2021 2020
Cash (used in) provided by investing activities included the following: Purchase of marketable securities
$ (5,696) $ (5,743) Proceeds from sales and maturity of marketable securities 8,230 33,026 Purchase of fixed assets (2,578) (2,605) Purchase of intangible assets - (4,237) Decrease in deposits 12 102$ (32) $ 20,543 Cash used in investing activities was$32 thousand during the three months endedJune 30, 2021 , compared with$20.5 million of cash provided by investing activities during the three months endedJune 30, 2020 . The$20.5 million decrease in cash (used in) provided by investing activities was due in part to a$24.7 million decrease in cash inflow from marketable securities related to a$24.8 million decrease in proceeds from the sales and maturity of marketable securities during the three months endedJune 30, 2021 when compared with the three months endedJune 30, 2020 . This decrease was partially offset by a$4.2 million cash outflow related to agreements to acquire technology licenses for$4.5 million during the three months endedJune 30, 2020 . 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 through the remainder of fiscal year 2022. Net cash from financing activities Three Months Ended June 30, (in thousands) 2021 2020 Cash used in financing activities included the following: Payment of contingent consideration $ -$ (1,000) Tax withholding on restricted stock units (4,777) (3,103)$ (4,777) $ (4,103) Cash used in financing activities increased by$0.7 million to$4.8 million during the three months endedJune 30, 2021 , compared with$4.1 million of cash used in financing activities during the three months endedJune 30, 2020 . During the three months endedJune 30, 2021 , we paid$1.0 million of contingent purchase consideration related to theEastwind acquisition inApril 2020 . In connection with the delivery of our common stock upon vesting of restricted stock units, we withheld 164,133 and 113,163 shares at a cost of$4.8 million and$3.1 million related to minimum statutory tax withholding requirements on these restricted stock units during the three months endedJune 30, 2021 and 2020, respectively. These withholding transactions do not fall under the repurchase program described above, and therefore do not reduce the number of shares that are available for repurchase under that program. Credit Facility OnJanuary 16, 2018 , we amended and expanded our existing credit agreement (Amended Credit Agreement) with a syndicate of lenders by and among: NetScout;JPMorgan Chase Bank, N.A . (JPMorgan), as administrative agent and collateral agent;J.P. Morgan Securities LLC ,KeyBanc Capital Markets ,Merrill Lynch, Pierce, Fenner & Smith Incorporated ,RBC Capital Markets andWells Fargo Securities, LLC , as joint lead arrangers and joint bookrunners;Fifth Third Bank ,Santander Bank, N.A .,SunTrust Bank, N.A. andU.S. Bank National Association , as co-documentation agents; and the lenders party thereto. 33 -------------------------------------------------------------------------------- Table of Contents The Amended Credit Agreement provides for a five-year$1.0 billion senior secured revolving credit facility, including a letter of credit sub-facility of up to$75.0 million . We may elect to use the credit facility for general corporate purposes or to finance the repurchase of up to twenty-five million shares of our common stock under our common stock repurchase plan. The commitments under the Amended Credit Agreement will expire onJanuary 16, 2023 , and any outstanding loans will be due on that date. During the fiscal year endedMarch 31, 2021 , we repaid$100.0 million of borrowings under the Amended Credit Agreement. AtJune 30, 2021 ,$350 million was outstanding under the Amended Credit Agreement. At our election, revolving loans under the Amended Credit Agreement bear interest at either (a) an Alternate Base Rate per annum equal to the greatest of (1) JPMorgan's prime rate, (2) 0.50% in excess of theNew York Federal Reserve Bank (NYFRB) rate, or (3) an adjusted one month LIBOR rate plus 1%; or (b) such adjusted LIBOR rate (for the interest period selected by us), in each case plus an applicable margin. For the period from the delivery of our financial statements for the quarter endedMarch 31, 2021 , until we have delivered financial statements for the quarter endedJune 30, 2021 , the applicable margin will be 1.25% per annum for LIBOR loans and 0.25% per annum for Alternate Base Rate loans, and thereafter the applicable margin will vary depending on our leverage ratio, ranging from 0.75% per annum for Base Rate loans and 1.75% per annum for LIBOR loans if our consolidated leverage ratio is less than or equal to 3.50 to 1.00, down to 0.00% per annum for Alternate Base Rate loans and 1.00% per annum for LIBOR loans if our consolidated leverage ratio is equal to or less than 1.50 to 1.00. As ofJune 30, 2021 , the Company's maximum allowed consolidated leverage ratio is 3.50 to 1.00. OnJuly 27, 2017 , theU.K. Financial Conduct Authority (FCA) announced that it will no longer require banks to submit rates for the calculation of LIBOR after 2021. OnMarch 5, 2021 , theIntercontinental Exchange Benchmark Administration (IBA), theFCA -regulated and authorized administrator of LIBOR, announced, and theFCA confirmed, that one week and two-month USD LIBOR settings will cease onDecember 31, 2021 , and that the USD LIBOR panel will cease onJune 30, 2023 . IBA notes that any publication of the Overnight and 1, 3, 6 and 12 Months USD LIBOR settings based on panel bank submissions beyondDecember 31, 2021 will need to comply with applicable regulations, including as to representativeness. Based on current information from panel banks, IBA anticipates there being a representative panel for the continuation of these USD LIBOR settings through toJune 30, 2023 . Our Amended Credit Agreement, which matures onJanuary 16, 2023 prior to theJune 30, 2023 cessation of USD LIBOR publications, provides for the Administrative Agent to determine if (i) adequate and reasonable means do not exist for ascertaining the LIBOR rate or (ii) theFCA or Government Authority having jurisdiction over the Administrative Agent has made a public statement identifying a specific date after which the LIBOR rate shall no longer be used for determining interest rates for loans and the Administrative Agent determines that (i) and (ii) above are unlikely to be temporary, then the Administrative Agent and NetScout would agree to transition to an Alternate Base Rate borrowing as described above or amend the Credit Agreement to establish an alternate rate of interest to LIBOR that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans inthe United States at such time. Our consolidated leverage ratio is the ratio of our total funded debt compared to our consolidated adjusted EBITDA. Consolidated adjusted EBITDA includes certain adjustments, including, without limitation, adjustments relating to extraordinary, unusual or non-recurring charges, certain restructuring charges, non-cash charges, certain transaction costs and expenses and certain pro forma adjustments in connection with material acquisitions and dispositions, all as set forth in detail in the definition of consolidated adjusted EBITDA in the Amended Credit Agreement. Commitment fees will accrue on the daily unused amount of the credit facility. For the period from the delivery of our financial statements for the quarter endedMarch 31, 2021 until we have delivered financial statements for the quarter endedJune 30, 2021 , the commitment fee will be 0.20% per annum, and thereafter the commitment fee will vary depending on our consolidated leverage ratio, ranging from 0.30% per annum if our consolidated leverage ratio is greater than 2.75 to 1.00, down to 0.15% per annum if our consolidated leverage ratio is equal to or less than 1.50 to 1.00. Letter of credit participation fees are payable to each lender on the amount of such lender's letter of credit exposure, during the period from the closing date of the Amended 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 LIBOR loans. Additionally, we will pay a fronting fee to each issuing bank in amounts to be agreed to between us and the applicable issuing bank. Interest on Alternate Base Rate loans is payable at the end of each calendar quarter. Interest on LIBOR 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 Amended Credit Agreement at any time, without penalty, subject to certain notice requirements. Debt is recorded at the amount drawn on the revolving credit facility plus interest based on floating rates reflective of changes in the market which approximates fair value. The loans and other obligations under the credit facility are (a) guaranteed by each of our wholly owned material domestic restricted subsidiaries, subject to certain exceptions, and (b) are secured by substantially all of the assets of us and the 34 -------------------------------------------------------------------------------- Table of Contents subsidiary guarantors, including a pledge of all the capital stock of material subsidiaries held directly by us and the subsidiary guarantors (which pledge, in the case of any foreign subsidiary, is limited to 65% of the voting stock), subject to certain customary exceptions and limitations. The Amended Credit Agreement generally prohibits any other liens on the assets of NetScout and its restricted subsidiaries, subject to certain exceptions as described in the Amended Credit Agreement. The Amended Credit Agreement contains certain covenants applicable to us and our restricted subsidiaries, including, without limitation, limitations on additional indebtedness, liens, various fundamental changes, dividends and distributions, investments (including acquisitions), transactions with affiliates, asset sales, including sale-leaseback transactions, speculative hedge agreements, payment of junior financing, changes in business and other limitations customary in senior secured credit facilities. In addition, we are required to maintain certain consolidated leverage and interest coverage ratios. These covenants and limitations are more fully described in the Amended Credit Agreement. AtJune 30, 2021 , we were in compliance with all of these covenants. The Amended 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 Amended Credit Agreement and related documents, defaults under certain other indebtedness, certain insolvency events, certain events arising under ERISA, a change of control and certain other events. Upon an event of default, the administrative agent with the consent of, or at the request of, the holders of more than 50% in principal amount of the loans and commitments may terminate the commitments and accelerate the maturity of the loans and enforce certain other remedies under the Amended Credit Agreement and the other loan documents. We have capitalized debt issuance costs totaling$12.2 million atJune 30, 2021 , which are being amortized over the life of the revolving credit facility. The unamortized balance was$2.7 million as ofJune 30, 2021 . The balance of$1.7 million was included as prepaid expenses and other current assets and a balance of$1.0 million was included as other assets in our consolidated balance sheet. Expectations for Fiscal Year 2022 We are actively managing the business to generate cash flow and believe that we currently have adequate liquidity. We believe that these factors will allow us to meet our currently anticipated funding requirements. 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. 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 Amended Credit Agreement, or to repurchase shares of our common stock through our stock repurchase program. 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. Recent Accounting Pronouncements For information with respect to recent accounting pronouncements on our consolidated financial statements, see Note 1 contained in the "Notes to Consolidated Financial Statements" included in Part I of this Quarterly Report on Form 10-Q. 35
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