Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2026
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-26251
NETSCOUT SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
04-2837575
(State or Other Jurisdiction of
Incorporation or Organization)
(IRS Employer
Identification No.)
310 Littleton Road, Westford, MA 01886
(978) 614-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered:
Common Stock, $0.001 par value per share
NTCT
Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant's common stock, par value $0.001 per share, as of July 28, 2026 was 72,707,312.
FOR THE QUARTER ENDED JUNE 30, 2026
TABLE OF CONTENTS
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
1
PART I: FINANCIAL INFORMATION
Item 1.
Unaudited Financial Statements:
Consolidated Balance Sheets: At June 30, 2026 and March 31, 2026
2
Consolidated Statements of Operations: For the three months ended June 30, 2026 and 2025
3
Consolidated Statements of Comprehensive Income (Loss): For the three months ended June 30, 2026 and 2025
4
Consolidated Statements of Stockholders' Equity: For the three months ended June 30, 2026 and 2025
5
Consolidated Statements of Cash Flows: For the three months ended June 30, 2026 and 2025
6
Notes to Consolidated Financial Statements
7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
19
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
29
Item 4.
Controls and Procedures
PART II: OTHER INFORMATION
Legal Proceedings
30
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
31
Item 6.
Exhibits
32
SIGNATURES
33
Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q, or Quarterly Report, to "NetScout," the "Company," "we," "us," and "our" refer to NetScout Systems, Inc. and, where appropriate, our consolidated subsidiaries.
NetScout, the NetScout logo, Adaptive Service Intelligence and other trademarks or service marks of NetScout appearing in this Quarterly Report are the property of NetScout Systems, Inc. and/or its subsidiaries and/or affiliates in the United States and/or other countries. Any third-party trade names, trademarks and service marks appearing in this Quarterly Report are the property of their respective holders.
Cautionary Statement Concerning Forward-Looking Statements
The following discussion and other parts of this Quarterly Report contain forward-looking statements under Section 21E of the Securities Exchange Act of 1934, as amended, and other federal securities laws. These forward-looking statements involve risks and uncertainties. Examples of forward-looking statements include statements that relate to future events or our future financial performance or liquidity, and other statements that are not historical facts. You can identify forward-looking statements by their use of forward-looking words such as "may," "will," "could," "should," "expects," "plans," "intends," "seeks," "anticipates," "believes," "estimates," "potential," or "continue," or the negative of such terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on these forward-looking statements. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for our fiscal year ended March 31, 2026, filed with the Securities and Exchange Commission (SEC) on May 14, 2026, and elsewhere in this Quarterly Report. These factors may cause our actual results to differ materially from any forward-looking statement. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.
Item 1. Unaudited Financial Statements
NetScout Systems, Inc.
Consolidated Balance Sheets
(In thousands, except for share data)
(Unaudited)
June 30,2026
March 31,2026
Assets
Current assets:
Cash and cash equivalents
$
552,828
586,499
Marketable securities
76,583
81,458
Accounts receivable and unbilled costs, net of allowance for doubtful accounts of $80 and $129 at June 30, 2026 and March 31, 2026, respectively
79,966
151,473
Inventories and deferred costs
20,909
13,321
Prepaid income taxes
16,095
6,159
Prepaid expenses and other current assets
25,877
28,972
Total current assets
772,258
867,882
Fixed assets, net
26,158
23,558
Operating lease right-of-use assets
36,026
35,553
Goodwill
1,096,593
1,070,592
Intangible assets, net
226,733
214,295
Deferred income taxes
99,219
93,735
Long-term marketable securities
39,062
37,188
Other assets
14,789
11,714
Total assets
2,310,838
2,354,517
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
23,536
23,492
Accrued compensation
61,162
84,515
Accrued other
13,451
20,012
Income taxes payable
805
1,655
Deferred revenue and customer deposits
313,327
330,601
Current portion of operating lease liabilities
10,836
9,874
Total current liabilities
423,117
470,149
Other long-term liabilities
6,430
6,568
Deferred tax liability
2,189
2,225
Accrued long-term retirement benefits
27,938
28,336
Long-term deferred revenue and customer deposits
158,996
168,261
Operating lease liabilities, net of current portion
29,144
29,718
Total liabilities
647,814
705,257
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.001 par value: 5,000,000 authorized; none issued or outstanding
—
Common stock, $0.001 par value: 300,000,000 authorized; 138,474,142 and 136,628,693 issued and 72,700,450 and 71,464,664 outstanding
138
136
Additional paid-in capital
3,342,802
3,325,400
Accumulated other comprehensive income
3,893
4,032
Treasury stock at cost, 65,773,692 and 65,164,029
(1,756,732
)
(1,731,396
Retained earnings
72,923
51,088
Total stockholders’ equity
1,663,024
1,649,260
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Operations
(In thousands, except for per share data)
Three Months Ended
June 30,
2026
2025
Revenue:
Product
86,006
72,993
Service
124,417
113,754
Total revenue
210,423
186,747
Cost of revenue:
9,672
11,925
34,818
31,497
Total cost of revenue
44,490
43,422
Gross profit
165,933
143,325
Operating expenses:
Research and development
42,354
39,789
Sales and marketing
72,751
70,595
General and administrative
25,716
27,857
Amortization of acquired intangible assets
10,610
11,119
Restructuring charges
25
529
Total operating expenses
151,456
149,889
Income (loss) from operations
14,477
(6,564
Interest and other income, net:
Interest income
4,329
3,211
Interest expense
(431
(415
Other income, net
583
940
Total interest and other income, net
4,481
3,736
Income (loss) before income tax (benefit) expense
18,958
(2,828
Income tax (benefit) expense
(2,877
851
Net income (loss)
21,835
(3,679
Basic net income (loss) per share
0.30
(0.05
Diluted net income (loss) per share
0.29
Weighted average common shares outstanding used in computing:
Net income (loss) per share - basic
71,812
71,729
Net income (loss) per share - diluted
74,597
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Other comprehensive income (loss):
Cumulative translation adjustments
45
143
Changes in market value of investments:
Changes in unrealized losses, net of related tax effects
(129
(1
Total net change in market value of investments
Changes in market value of derivatives:
Changes in market value of derivatives, net of related tax effects
(116
252
Reclassification adjustment for net gains (losses) included in net income (loss), net of related tax effects
61
(130
Total net change in market value of derivatives
(55
122
Other comprehensive income (loss)
(139
264
Comprehensive income (loss)
21,696
(3,415
Consolidated Statements of Stockholders' Equity
Three Months Ended June 30, 2026
Common stock
Additional Paid
Accumulated Other Comprehensive
Treasury stock
Retained
Total Stockholders’
Shares
Par Value
In Capital
Income
Stated Value
Earnings
Equity
Balance, March 31, 2026
136,628,693
65,164,029
Net income
Unrealized net investment losses
Unrealized net losses on derivative financial instruments
Issuance of common stock pursuant to vesting of restricted stock units
1,845,449
Stock-based compensation expense for restricted stock units granted to employees
17,402
Shares withheld for employee taxes related to equity awards
609,663
(25,336
Balance, June 30, 2026
138,474,142
65,773,692
Three Months Ended June 30, 2025
Accumulated
Deficit
Balance, March 31, 2025
134,038,262
134
3,255,333
4,073
61,978,025
(1,654,702
(44,443
1,560,395
Net loss
Unrealized net gains on derivative financial instruments
1,818,829
19,349
597,115
(13,765
Repurchase of treasury stock
761,249
(15,014
Balance, June 30, 2025
135,857,091
135
3,274,682
4,337
63,336,389
(1,683,481
(48,122
1,547,551
The accompanying notes are an integral part of these consolidated financial statements
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization
14,438
14,457
Operating lease right-of-use asset
2,422
2,497
Loss on disposal of fixed assets
Accretion of discounts on marketable securities
(515
Share-based compensation expense
17,965
19,959
(4,221
(6,432
Gain on equity investment
(2,501
Unrealized foreign exchange losses
367
Realized (gains) losses on derivatives
(21
11
Changes in assets and liabilities
Accounts receivable and unbilled costs
79,016
71,804
(7,614
(1,053
Prepaid expenses and other assets
(6,500
(1,183
301
(3,752
Accrued compensation and other expenses
(31,705
(10,116
Operating lease liabilities
(2,507
(2,974
(932
492
Deferred revenue
(31,563
(3,983
Net cash provided by operating activities
50,770
73,552
Cash flows from investing activities:
Purchase of marketable securities and investments
(20,161
(29,031
Proceeds from sales and maturities of marketable securities
23,750
13,618
Purchase of fixed assets
(3,491
(1,878
Acquisition of business
(55,000
Capitalized software development costs
(2,948
Net cash used in investing activities
(57,850
(17,291
Cash flows from financing activities:
Issuance of common stock under stock plans
Treasury stock repurchases
Tax withholdings on restricted stock units
Net cash used in financing activities
(25,334
(28,778
Effect of exchange rate changes on cash and cash equivalents
(1,257
4,674
Net (decrease) increase in cash and cash equivalents
(33,671
32,157
Cash and cash equivalents, beginning of period
457,415
Cash and cash equivalents, end of period
489,572
Supplemental disclosures:
Cash paid for income taxes
12,215
8,530
Non-cash transactions:
Transfers of inventory to fixed assets
476
Additions to property, plant and equipment included in accounts payable
203
457
Stock-based compensation included in fixed assets and other assets
490
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been prepared by NetScout Systems, Inc. (NetScout or the Company). Certain information and footnote disclosures normally included in financial statements prepared under United States generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). In the opinion of management, the unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the Company's financial position and stockholders' equity, results of operations and cash flows. The year-end consolidated balance sheet data and statement of stockholders' equity were derived from the Company's audited financial statements, but do not include all disclosures required by GAAP. The results reported in these unaudited interim consolidated financial statements are not necessarily indicative of results that may be expected for the entire year. All significant intercompany accounts and transactions are eliminated in consolidation.
These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2026 filed with the SEC on May 14, 2026.
Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies disclosed in Note 2 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2026.
Recently Adopted Accounting Standard
The Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, during the first quarter of fiscal year ended March 31, 2027. This ASU allows companies to elect a practical expedient to simplify the measurement of credit losses for certain receivables and contract assets. The Company elected to apply the practical expedient prospectively. The adoption of this ASU had no impact on the Company’s consolidated financial statements.
Accounting Standards Issued and Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU 2024-03). Additionally, in January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03. ASU 2024-03 provides guidance to expand disclosures related to the disaggregation of income statement expenses. The standard requires, in the notes to the financial statements, disclosure of specified information about certain costs and expenses which include purchases of inventory, employee compensation, depreciation, and intangible asset amortization that are included on the face of the statements of income. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. ASU 2024-03 is effective for the Company beginning with its fiscal year ending March 31, 2028. The Company is in the process of evaluating the impact that the adoption of ASU 2024-03 will have on its disclosures.
In September 2025, the FASB issued ASU 2025-06, Intangibles (Subtopic 350-40): Update to modernize the accounting for internal-use software costs. ASU 2025-06 removes all references to software project development stages and clarifies the recognition threshold that entities must meet to begin capitalizing costs. ASU 2025-06 is effective for the Company beginning with its fiscal year ending March 31, 2029. The Company is currently evaluating the impact of this standard and does not expect the adoption of ASU 2025-06 to have a material impact on its consolidated financial statements and disclosures.
NOTE 2 – BUSINESS COMBINATION
DigiCert DDoS Protection Business Acquisition
On May 1, 2026, the Company acquired the assets and certain liabilities comprising DigiCert, Inc.'s distributed denial-of-service ("DDoS") protection business pursuant to an Asset Purchase Agreement (the "Acquisition").
The aggregate purchase price was $55.0 million, which consisted of $55.0 million cash consideration paid at closing, pending the final determination of any post-closing net working capital adjustment. The results of operations of the acquired business have been included in the Company's consolidated financial statements from May 1, 2026.
The acquisition has been accounted for as a business combination under Accounting Standards Codification 805, Business Combinations. Goodwill and intangible assets recorded as part of the acquisition are deductible for tax purposes. The Company determined that the results of operations related to the DDoS business are not material. As such, the pro forma information is not required for the period ended June 30, 2026. The following table summarizes the preliminary allocation of the purchase price to the identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date (in thousands):
Accounts receivable
7,539
484
Deferred tax assets
1,200
2,730
Property and equipment
3,115
Customer relationships intangible asset
24,300
Total assets acquired
39,368
(512
(4,988
(1,057
Other current liabilities
(681
Long-term deferred revenue
(135
(1,673
Total liabilities assumed
(9,046
Net identifiable assets acquired
30,322
24,678
Total purchase price
55,000
The fair value of the intangible asset was based on a valuation using an income approach. The underlying assumptions include the estimated cash flows to be generated by the existing customer relationships. This fair value measurement was based on significant inputs not observable in the market and thus represents Level 3 fair value measurement. Customer relationship intangible assets are subject to amortization and will be amortized on a straight-line basis over an estimated useful life of 15 years, representing the period over which the Company expects to benefit from the acquired customer relationships.
From the acquisition date through June 30, 2026, the acquired assets did not contribute material revenue or net income to the Company’s consolidated results of operations.
The purchase price allocation is preliminary because the Company is continuing to evaluate the fair values of certain acquired assets and assumed liabilities and working capital balances. For changes in the valuation of intangible assets between the preliminary and final purchase price allocation, the related amortization is adjusted in the period it occurs. Measurement-period adjustments will be recorded in the period identified, with a corresponding adjustment to goodwill. The Company expects to finalize the acquisition accounting during the measurement period, which may extend up to one year from the acquisition date. Subsequent to the
8
measurement period, any adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is identified.
NOTE 3 – REVENUE
Deferred Revenue
During the three months ended June 30, 2026, the Company recognized revenue of $107.5 million related to the Company's deferred revenue balance reported at March 31, 2026.
Performance Obligations
The Company did not have any material variable consideration such as obligations for returns, refunds or warranties at June 30, 2026.
At June 30, 2026, the Company had total deferred revenue and customer deposits of $472.3 million, which represents the aggregate total contract price allocated to undelivered performance obligations. The Company expects to recognize $313.3 million, or 66 %, of this revenue during the next 12 months, and expects to recognize the remaining $159.0 million, or 34 %, of this revenue thereafter.
The Company did not have material significant financing components, or variable consideration or performance obligations satisfied in a prior period recognized during the three months ended June 30, 2026.
Costs to Obtain Contracts
At June 30, 2026, the consolidated balance sheet included $12.2 million in assets related to sales commissions to be expensed in future periods. A balance of $6.6 million was included in prepaid expenses and other current assets, and a balance of $5.6 million was included in other assets in the Company's consolidated balance sheet at June 30, 2026. At March 31, 2026, the consolidated balance sheet included $10.9 million in assets related to sales commissions to be expensed in future periods. A balance of $6.0 million was included in prepaid expenses and other current assets, and a balance of $4.9 million was included in other assets in the Company's consolidated balance sheet at March 31, 2026.
During the three months ended June 30, 2026 and 2025, the Company recognized $2.2 million and $1.9 million of amortization related to this sales commission asset, which is included in the sales and marketing expense line in the Company's consolidated statements of operations.
Allowance for Credit Losses
The Company continually monitors collections from its customers. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for credit losses based on a combination of factors, including but not limited to, analysis of the aging schedules, past due balances, historical collection experience and prevailing economic conditions.
The following table summarizes the activity in the allowance for credit losses (in thousands):
Balance at March 31, 2026
129
Additions resulting in charges to operations
Recoveries to other accounts
(52
Balance at June 30, 2026
80
NOTE 4 – CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of marketable securities and investments, trade accounts receivable and accounts payable. The Company's cash, cash equivalents, marketable securities and investments are placed with financial institutions with high credit standings.
9
At June 30, 2026, no channel partners and no direct customers accounted for 10% or more of the accounts receivable balance. At March 31, 2026, one channel partner and no direct customers accounted for more than 10% of the accounts receivable balance.
During the three months ended June 30, 2026, and June 30, 2025, no channel partners and no direct customers accounted for 10% or more of the Company's total revenue.
Historically, the Company has not experienced any significant failure of its customers' ability to meet their payment obligations, nor does the Company anticipate material non-performance by its customers in the future; accordingly, the Company does not require collateral from its customers. However, if the Company's assumptions are incorrect, there could be an adverse impact on its allowance for credit losses.
NOTE 5 – SHARE-BASED COMPENSATION
On September 10, 2025, the Company's stockholders approved an amendment and restatement of the 2019 Equity Incentive Plan (Amended 2019 Plan) to further increase the number of shares reserved for issuance by 3,500,000 from 27,794,651 shares to 31,294,651 shares. As of June 30, 2026, an aggregate of 6,063,690 shares remained available for grant under the Amended 2019 Plan.
Employee Stock Purchase Plan (ESPP) – During the three months ended June 30, 2026, no shares were purchased under the ESPP.
The following is a summary of share-based compensation expense including restricted stock units and performance-based restricted stock units granted pursuant to the Company's Amended 2019 Plan, and employee stock purchases made under the ESPP, based on estimated fair values within the applicable cost and expense lines identified below (in thousands):
Cost of product revenue
403
413
Cost of service revenue
2,714
2,747
5,310
5,532
6,242
6,889
3,296
4,378
NOTE 6 – CASH, CASH EQUIVALENTS, MARKETABLE SECURITIES AND INVESTMENTS
Cash and cash equivalents mainly consisted of U.S. government and municipal obligations, commercial paper, agency bonds, money market instruments and cash maintained with various financial institutions at June 30, 2026 and March 31, 2026.
Marketable Securities
The following is a summary of marketable securities held by the Company at June 30, 2026, classified as short-term and long-term (in thousands):
10
AmortizedCost
Unrealized (Losses)
FairValue
Type of security:
Commercial paper
41,028
U.S. government and municipal obligations
13,061
(28
13,033
Agency bonds
8,488
(9
8,479
Certificates of deposit
7,836
Corporate bonds
6,226
(19
6,207
Total short-term marketable securities
76,639
(56
33,405
(226
33,179
5,895
(12
5,883
Total long-term marketable securities
39,300
(238
Total marketable securities
115,939
(294
115,645
The following is a summary of marketable securities held by the Company at March 31, 2026, classified as short-term and long-term (in thousands):
48,793
12,050
(3
12,047
8,413
(2
8,411
6,169
(10
6,048
81,473
(15
33,254
(101
33,153
4,045
4,035
37,299
(111
118,772
(126
118,646
Contractual maturities of the Company's marketable securities held at June 30, 2026 and March 31, 2026 were as follows (in thousands):
Available-for-sale securities:
Due in 1 year or less
Due after 1 year through 5 years
Investments
On August 4, 2025, the Company sold its entire equity investment in Napatech, receiving cash proceeds of $11.8 million. During the three months ended June 30, 2025, the Company recognized a $2.5 million gain, on the Napatech equity investment in other (expense) income, net. For the three months ended June 30, 2025, the unrealized gain related to foreign currency translation on the equity investment in Napatech was $1.0 million.
NOTE 7 – FAIR VALUE MEASUREMENTS
The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant unobservable inputs. The following tables present
the Company's financial assets and liabilities measured on a recurring basis using the fair value hierarchy at June 30, 2026 and March 31, 2026 (in thousands):
Fair Value Measurements at
June 30, 2026
Level 1
Level 2
Level 3
Total
ASSETS:
483,776
69,052
41,658
18,916
Derivative financial instruments
18
550,557
117,934
668,491
LIABILITIES:
(306
March 31, 2026
531,929
54,570
41,564
16,082
22
595,734
109,433
705,167
(258
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including marketable securities and derivative financial instruments.
The Company's Level 1 investments are classified as such because they are valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency.
The Company's Level 2 investments are classified as such because they are valued using observable inputs other than Level 1 quoted prices that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets in markets that are not active.
12
NOTE 8 – INVENTORIES AND DEFERRED COSTS
Inventories consist of the following (in thousands):
Raw materials
13,408
7,516
Work in process
Finished goods
5,727
Deferred costs
1,713
1,770
NOTE 9 – GOODWILL AND INTANGIBLE ASSETS
At June 30, 2026 and March 31, 2026, the carrying amounts of goodwill were $1.1 billion.
The change in the carrying amount of goodwill for the three months ended June 30, 2026 is primarily due to the May 1, 2026 DigiCert DDoS protection business acquisition.
The following table summarizes the changes in the carrying amount of goodwill for the three months ended June 30, 2026 as follows (in thousands):
Goodwill acquired during the period
Foreign currency translation impact
1,323
Intangible Assets
The net carrying amounts of intangible assets were $226.7 million and $214.3 million at June 30, 2026 and March 31, 2026, respectively.
Intangible assets include the following amortizable intangible assets at June 30, 2026 (in thousands):
Cost
Accumulated Amortization
Net
Developed technology
249,632
(246,265
3,367
Customer relationships
792,683
(574,181
218,502
Distributor relationships
5,183
(4,511
672
Definite lived trade name
57,894
(53,843
4,051
Core technology
7,192
(7,192
Capitalized software
3,317
(3,317
Other
1,208
(1,067
141
1,117,109
(890,376
13
Intangible assets include the following amortizable intangible assets at March 31, 2026 (in thousands):
250,068
(246,330
3,738
769,934
(564,880
205,054
5,209
(4,457
752
Definite lived trademark and trade name
57,962
(53,356
4,606
(1,063
145
1,094,890
(880,595
Amortization included as cost of product revenue consists of amortization of developed technology, distributor relationships and technology licenses. Amortization included as cost of service revenue consists of customer relationships. Amortization included as operating expense consists of all other intangible assets. The following table provides a summary of amortization expense for the three months ended June 30, 2026 and 2025 (in thousands):
Amortization of intangible assets included as:
451
630
270
Operating expense
11,124
11,331
11,754
The following is the expected future amortization expense at June 30, 2026 for the fiscal years ending March 31 (in thousands):
2027 (remaining nine months)
34,322
2028
42,797
2029
33,371
2030
30,474
2031
24,872
Thereafter
60,897
NOTE 10 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The notional amounts and fair values of derivative instruments used to manage foreign cash flow exposures in the consolidated balance sheets at June 30, 2026 and March 31, 2026 were as follows (in thousands):
Notional Amounts (a)
Prepaid Expenses and Other Current Assets
Accrued Other
Derivatives designated as hedging instruments:
Forward contracts
11,387
11,023
306
258
(a) Notional amounts represent the gross contract/notional amount of the derivatives outstanding.
14
The following table provides the effect foreign exchange forward contracts had on other comprehensive income (loss), and results of operations for the three months ended June 30, 2026 and 2025 (in thousands):
Gain (Loss) Recognized in OCI on Derivative (a)
Gain (Loss) Reclassified from Accumulated OCI into Income (b)
June 30, 2025
Location
(153
330
49
(168
(170
The Company had no forward exchange contracts not designated as hedging instruments during the three months ended June 30, 2026 and 2025.
NOTE 11 – LONG-TERM DEBT
On October 4, 2024, the Company entered into the Third Amended and Restated Credit Agreement, which provides for a $600.0 million senior secured revolving credit facility maturing on October 4, 2029. At June 30, 2026 and March 31, 2026, there were no amounts outstanding under the Third Amended and Restated Credit Agreement.
The Third Amended and Restated Credit Agreement requires the Company to maintain a certain consolidated net leverage ratio. The Company's consolidated net leverage ratio is the ratio of its Consolidated Total Debt minus the lesser of unrestricted cash and 125% of adjusted consolidated EBITDA compared to its adjusted consolidated EBITDA. The Company's maximum consolidated net leverage ratio is 4.00 to 1.00. These covenants and limitations are more fully described in the Third Amended and Restated Credit Agreement. At June 30, 2026, the Company was in compliance with all covenants, including the specified total consolidated net leverage ratio range of 4.00 to 1.00.
The Company had unamortized capitalized debt issuance costs, net of $2.4 million at June 30, 2026, which are being amortized over the life of the revolving credit facility. The unamortized capitalized debt issuance costs balance of $0.7 million was included as prepaid expenses and other current assets and a balance of $1.7 million was included as other assets in the Company's consolidated balance sheet at June 30, 2026.
NOTE 12 – RESTRUCTURING CHARGES
During the fiscal year 2025, the Company implemented a voluntary separation program (VSP) for employees who met certain age and service requirements to reduce overall headcount. As a result of the related workforce reduction, the Company recorded restructuring charges of $19.6 million to one-time termination benefits for one hundred forty-two employees who voluntarily terminated their employment with the Company during the fiscal year ended March 31, 2025. All one-time termination benefits were paid in full during the first quarter of the fiscal year ending March 31, 2026.
In addition to the VSP, during the third quarter of fiscal year 2025, the Company entered into transition agreements that provided termination benefits for certain employees to ensure an orderly transition of responsibilities for continuity purposes. As a result of the related workforce changes, during the fiscal year ended March 31, 2026, the Company recorded restructuring charges totaling $0.9 million. During the three months ended June 30, 2026, the Company recorded restructuring charges of less than $0.1 million. The Company estimates approximately $0.1 million in remaining additional restructuring charges that will be recorded through the fiscal year ending March 31, 2027.
15
The following table provides a summary of the activity related to the restructuring plan and the related restructuring liability (in thousands):
VSP
Employee-Related
140
Restructuring charges to operations
165
NOTE 13 – LEASES
The components of operating lease cost for the three months ended June 30, 2026 and 2025, respectively, were as follows (in thousands):
Lease cost:
Lease cost under long-term operating leases
2,630
2,853
Lease cost under short-term operating leases
467
336
Variable lease cost under short-term and long-term operating leases
1,019
962
Total operating lease cost
4,116
4,151
The table below presents supplemental cash flow information related to leases during the three months ended June 30, 2026 and 2025 (in thousands):
Right-of-use assets obtained in exchange for new operating lease liabilities
123
767
At June 30, 2026 and March 31, 2026, the weighted average remaining lease term in years and weighted average discount rate were as follows:
Weighted average remaining lease term in years - operating leases
3.96
4.18
Weighted average discount rate - operating leases
4.4
%
Future minimum payments under non-cancellable leases at June 30, 2026 are as follows (in thousands):
Year ending March 31:
8,611
11,371
10,143
8,222
4,479
646
Total lease payments
43,472
Less imputed interest
(3,492
Present value of lease liabilities
39,980
16
NOTE 14 – COMMITMENTS AND CONTINGENCIES
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, none of the Company’s current legal proceedings and claims, if determined adversely and based on the information known to the management as of the date of this Quarterly Report, is expected to have a material adverse effect on our financial condition, results of operations or cash flows.
NOTE 15 – TREASURY STOCK
There was no share repurchase during the three months ended June 30, 2026. At June 30, 2026, approximately 20.5 million shares of common stock remained available to be purchased under the current share repurchase program.
In connection with the delivery of shares of the Company's common stock upon vesting of restricted stock units, the Company withheld 0.6 million shares and 0.6 million shares at a cost of $25.3 million and $13.8 million, respectively, related to minimum statutory tax withholding requirements during the three months ended June 30, 2026 and 2025, respectively. These withholding transactions do not fall under the share repurchase programs described above, and therefore do not reduce the number of shares that are available for repurchase under those programs.
NOTE 16 – NET INCOME (LOSS) PER SHARE
Calculations of the basic and diluted net income (loss) per share and potential common shares are as follows (in thousands, except for per share data):
Numerator:
Denominator:
Denominator for basic net income (loss) per share - weighted average shares outstanding
Dilutive common equivalent shares:
Weighted average restricted stock units and performance-based restricted stock units
2,785
-
Denominator for diluted net income (loss) per share- weighted average shares outstanding
Net income (loss) per share:
The following table sets forth restricted stock units excluded from the calculation of diluted net income (loss) per share, since their inclusion would be anti-dilutive (in thousands):
Restricted stock units
268
1,647
As the Company incurred a net loss during the three months ended June 30, 2025, all outstanding restricted stock units (including performance-based restricted stock units) have an anti-dilutive effect and are therefore excluded from the computation of diluted weighted average shares outstanding.
17
NOTE 17 – INCOME TAXES
Generally, the Company's effective tax rate differs from the U.S. federal statutory income tax rate primarily due to foreign withholding taxes and U.S. taxation on foreign earnings, which are partially offset by research and development tax credits and the foreign derived intangible income deduction.
The Company's effective tax rates were (15.2)% and 30.1% for the three months ended June 30, 2026 and 2025, respectively. The effective tax rate for the three months ended June 30, 2026 differed from the effective tax rate for the three months ended June 30, 2025, primarily related to an increase in the forecasted benefit of the foreign derived intangible income deduction, a significant benefit related to stock compensation and a decrease in foreign withholding taxes.
NOTE 18 – SEGMENT AND GEOGRAPHIC INFORMATION
The Company's operating segments are determined based on the units that constitute a business for which discrete financial information is available and for which operating results are regularly reviewed by the chief operating decision-maker (CODM). The Company's President and CEO is the CODM. Operating results are reviewed by the CODM at the consolidated entity level for the purpose of making resource allocation decisions and for evaluating financial performance, primarily by monitoring actual results compared to forecasted results as well as by reviewing year-over-year results. The Company's CODM evaluates company-wide performance and determines allocation of resources based on multiple performance measures, including but not limited to net income (loss).
The Company has determined it operates as a single operating segment and has one reportable segment which includes product and service revenue related to the sale of enterprise observability, carrier service assurance, cybersecurity, and DDoS protection solutions. The Company's results for the one reportable segment are the same as presented in the Company's consolidated statements of operations and there is no expense information that is supplemental to those disclosed in these consolidated financial statements, which are regularly provided to the CODM. The measure of segment assets is reported on the Company's consolidated balance sheet as total assets. Segment asset information is not used by the CODM to allocate resources.
The Company manages its business in the following geographic areas: United States, Europe, Asia and the rest of the world. The Company's policies mandate compliance with economic sanctions and export controls.
Total revenue by geography is as follows (in thousands):
United States
124,754
100,504
Europe
35,980
30,714
Asia
13,576
15,050
Rest of the world
36,113
40,479
The United States revenue includes sales to resellers in the United States. These resellers fulfill customer orders and may subsequently ship the Company's products to international locations. Further, the Company determines the geography of its sales after considering where the contract originated. A majority of revenue attributable to locations outside of the United States is a result of export sales. Substantially all of the Company's identifiable assets are located in the United States.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2026, filed with the Securities and Exchange Commission (SEC) on May 14, 2026 (Annual Report). 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. 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 four decades of experience in providing enterprise network observability, carrier service assurance, AIOps, cybersecurity, and DDoS, protection solutions. Our unique visibility platform and solutions are powered by our pioneering DPI, technology at scale, which is used by many Fortune 500 companies to protect their digital business services against disruption. Service providers and enterprises, including local, state and federal government agencies, rely on our solutions to achieve the visibility and protection necessary to optimize network performance, ensure the delivery of high-quality, mission-critical applications and services, gain timely insight into the end-user experience, and protect their networks from attack. The majority of our solutions are designed to provide Smart Data, a high-fidelity, decision-grade data foundation derived from real-time network activity across legacy, hybrid, and cloud-native environments. This data is designed to enable a unified view of performance, availability, and security, support faster root-cause analysis and operational decision-making, and is increasingly used to inform broader observability platforms and automated and AI-driven workflows. With our offerings, customers can quickly, efficiently and effectively identify and resolve issues that result in downtime, service interruptions, poor service quality, or compromised data, thereby reducing mean time to resolution of issues and driving compelling returns on their investments in their networks and broader technology initiatives. Significant technology trends and catalysts for our business include the evolution of customers' digital transformation initiatives, such as migration to cloud environments and to the edges of their networks; the rapidly evolving cybersecurity threat landscape; advancements in artificial intelligence and business analytics that can enhance observability and are increasing the need for high-quality, real-time data to support automated and AI-driven operations; and the continued evolution and potential opportunities related to 5G technology across both the service provider and enterprise customer verticals.
Our operating results are affected by a variety of factors, including customer demand, product and services mix, pricing, operating costs, competition, and our ability to successfully execute our growth and strategic initiatives. See Part I, Item 1A, “Risk Factors” in our Annual Report for additional information regarding factors that may affect our business and operating results.
On May 1, 2026, the Company acquired the assets and certain liabilities comprising DigiCert, Inc.'s DDoS protection business pursuant to an Asset Purchase Agreement (the "Acquisition"). The Digicert DDoS protection business acquisition enhances the Company’s cybersecurity offerings and enables the integration of certain infrastructure of the Company’s Arbor Cloud network, while expanding its DDoS protection capabilities. The DigiCert DDoS protection business acquisition is expected to contribute approximately $20 million in annualized revenue from the acquisition date, while providing the Company with greater control of the Arbor Cloud network and a clearer path to scaling cloud-based services over time.
Global and Macroeconomic Conditions
We continue to closely monitor current global and macroeconomic conditions, including the impacts of armed conflicts or warfare, global geopolitical tension, stock market volatility, industry-specific capital spending trends, exchange rate fluctuations, inflation, interest rates, international trade relations (including trade protection measures, such as tariffs and other trade barriers), and the risk of a recession, including the manner and extent to which they have impacted and could continue to impact our business, customers, employees, supply chain, and distribution network. In addition, our industry is experiencing AI-related supply-chain dynamics which could influence the timing and size of certain customer orders. The full extent of the impacts of these global and macroeconomic conditions remains dynamic. We remain optimistic but cognizant of ongoing macroeconomic dynamics and
constrained customer spending in the service provider market and firmly focused on driving product innovation, sustaining annual revenue growth, and enhancing margins through continued disciplined cost management as we navigate the current macroeconomic landscape. As a result, we have continued our efforts to manage discretionary costs and align spending with the current environment while we continue to execute on our long-term strategic plans.
Though we continue to monitor the impacts of evolving global and macroeconomic conditions on our business, we believe our current cash reserves and access to capital through our revolving credit facility leave us well-positioned to manage our business in today's environment. We expect net cash provided by operations combined with cash, cash equivalents, marketable securities and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund current obligations, capital spending, and working capital requirements over at least the next twelve months. We continue to take actions to manage costs and increase productivity throughout our company, including managing discretionary spending and hiring activities, but are continuing to invest in areas that advance our business for the future. In addition to our cash equivalents, we had $600 million available under a revolving credit facility based on covenant levels at June 30, 2026.
Results Overview
Total revenue increased $23.7 million, or 13%, for the three months ended June 30, 2026, as compared to total revenue for the three months ended June 30, 2025, driven by increases in both product and service revenue. Growth was primarily driven by demand for service assurance offerings from enterprise customer channels. U.S. revenue increased 24% while international revenue decreased 1%.
Our gross profit percentage increased 2 percentage points to 79 % during the three months ended June 30, 2026, as compared with the three months ended June 30, 2025, primarily due to increased product revenue growth and a more favorable product mix associated with increased licensing of our software products.
Net income for the three months ended June 30, 2026 was $21.8 million, as compared with a net loss for the three months ended June 30, 2025 of $3.7 million. The increase of $25.5 million in net income was primarily due to a $23.7 million increase in revenue, $3.7 million increase in tax benefit, $3.4 million increase in capitalized software, $1.1 million increase in interest income, partially offset by $11.8 million increase in employee-related expenses primarily due to an increase in variable incentive compensation.
At June 30, 2026, we had cash, cash equivalents, marketable securities and investments (current and non-current) of $668.5 million. This represents a decrease of $36.7 million from $705.1 million at March 31, 2026. This decrease was primarily due to $55.0 million used in the acquisition of the DDoS Protection Business of DigiCert, $25.3 million used for tax withholdings on restricted stock units, $20.2 million in purchases of marketable securities, and $3.5 million used for capital expenditures, partially offset by $50.8 million of net cash provided by operations, and $23.8 million in proceeds from the maturity of marketable securities during the three months ended June 30, 2026.
Use of Non-GAAP Financial Measures
We supplement the United States GAAP financial measures we report in quarterly and annual earnings announcements, investor presentations and other investor communications by reporting the following non-GAAP measures: non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income, non-GAAP diluted net income per share, and adjusted EBITDA. Non-GAAP gross profit removes expenses related to the amortization of acquired intangible assets, share-based compensation expense, and acquisition-related depreciation expense from gross profit (GAAP). Non-GAAP income from operations includes the aforementioned adjustments related to non-GAAP gross profit and also removes executive transition costs, and restructuring charges from income (loss) from operations (GAAP). Non-GAAP net income includes the foregoing adjustments related to non-GAAP income from operations, and also removes the income tax effects of such adjustments from net income (loss) (GAAP). Non-GAAP diluted net income per share is non-GAAP net income divided by total outstanding shares on a diluted basis. Adjusted EBITDA includes the aforementioned adjustments related to non-GAAP net income and also removes interest and other expense, income tax expense, and non-acquisition related depreciation from net income (GAAP). Beginning in the third quarter of fiscal year 2026, we have renamed non-GAAP EBITDA from operations to adjusted EBITDA. We now reconcile this metric to GAAP net income; however, the adjustments included, and the resulting amounts are unchanged from prior periods. This change is intended to align terminology with common market practice.
These non-GAAP measures are not prepared in accordance with GAAP, should not be considered an alternative for measures
20
prepared in accordance with GAAP (gross profit, income (loss) from operations, 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. These non-GAAP measures should not be used to evaluate our results of operations against those of our peers or other companies, as the definitions and calculations of our non-GAAP measures may not be the same as those used by other companies, even if the measures share the same name.
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 management plans and measures our business. We believe that providing these non-GAAP measures to investors provides them with 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.
21
The following table reconciles gross profit, income (loss) from operations, net income (loss) and net income (loss) per share on a GAAP and non-GAAP basis for the three months ended June 30, 2026 and 2025, respectively (dollars in thousands, except for per share data):
Three months ended
Revenue
GAAP gross profit
3,117
3,160
642
550
Acquisition related depreciation expense
Non-GAAP gross profit
169,692
147,037
GAAP income (loss) from operations
11,252
11,669
Executive transition costs
959
Non-GAAP income from operations
43,719
26,564
GAAP net income (loss)
Acquisition-related depreciation expense
Income tax adjustments
(12,517
(4,712
Non-GAAP net income
38,560
24,737
GAAP diluted net income (loss) per share
Per share impact of non-GAAP adjustments identified above
0.23
0.39
Non-GAAP diluted net income per share
0.52
0.34
Previous adjustments to determine non-GAAP net income
16,725
28,416
Interest and other (income) expense, net non-GAAP
(4,481
(3,736
Depreciation excluding acquisition related depreciation expense
3,186
2,776
Income tax expense non-GAAP
9,640
5,563
Adjusted EBITDA
46,905
29,340
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.
Our accounting policies for revenue recognition and the valuation of goodwill are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. There have been no significant changes to the above critical accounting policies or in the underlying accounting assumptions and estimates used in such policies from those disclosed in our annual consolidated financial statements and accompanying notes included in our Annual Report.
Three Months Ended June 30, 2026 and 2025
Total revenue increased $23.7 million, or 13% for the three months ended June 30, 2026, compared to the three months ended June 30, 2025, driven by increases in both product and service revenue. Product revenue increased 18%, driven by increased enterprise demand for service assurance offerings, which included revenue related to U.S. Government agencies. Service revenue increased 9%, primarily due to the timing and composition of maintenance and contract renewals and to a lesser extent incremental revenue from the DigiCert DDoS protection business acquisition on May 1, 2026. U.S. revenue increased 24%, benefiting from increased enterprise and service provider demand while international revenue decreased 1%. By product line, service assurance revenue increased 20% due to an increase in revenue from enterprise and service provider customers that included the benefit in part from government-related orders, some of which were received earlier than anticipated. Cybersecurity revenue increased 1% due to incremental revenue from the DigiCert DDoS protection business acquisition partially offset by a decrease in product revenue from enterprise customers. From a customer-vertical perspective, enterprise revenue increased 19%, driven by an increase in both product and service revenue and service provider revenue increased 3%.
(Dollars in Thousands)
Change
% ofRevenue
41
39
13,013
59
10,663
100
23,676
Total revenue by geography was as follows:
54
24,250
24
International:
5,266
(1,474
)%
(4,366
(11
Subtotal international
85,669
86,243
46
(574
Total revenue by product line was as follows:
Service assurance
141,628
67
118,330
63
23,298
Cybersecurity
68,795
68,417
37
378
23
Total revenue by customer vertical was as follows:
Service provider
78,443
75,969
2,474
Enterprise
131,980
110,778
21,202
Cost of Revenue and Gross Profit
Cost of product revenue consists primarily of material components, personnel expenses, packaging materials, overhead and amortization of acquired developed technology. Cost of service revenue consists primarily of personnel, material, overhead and support costs.
Cost of revenue
(2,253
3,321
1,068
Gross profit:
Product $
76,334
36
61,068
15,266
Product gross profit %
89
84
Service $
89,599
43
82,257
44
7,342
Service gross profit %
72
Total gross profit $
22,608
Total gross profit %
79
77
Product. The 19%, or $2.3 million, decrease in cost of product revenue for the three months ended June 30, 2026 compared to the same period last year was primarily due to a more favorable product mix associated with increased licensing of our software products.
Service. The 11%, or $3.3 million, increase in cost of service revenue for the three months ended June 30, 2026 compared to the same period last year was primarily driven by an increase in employee-related variable incentive compensation, and a $1.4 million increase in personnel costs driven by increased headcount from our DigiCert DDoS protection business acquisition. Our service gross profit percentage was consistent at 72% during the three months ended June 30, 2026 as compared with the three months ended June 30, 2025.
Operating Expenses
2,565
35
38
2,156
(2,141
(8
(509
(5
Restructuring
(504
(95
1,567
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, increase in research and development expenses for the three months ended June 30, 2026 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation and an increase of $1.4 million in personnel costs driven by increased headcount from our DigiCert DDoS protection business acquisition, partially offset by an increase in capitalized software development costs.
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 3%, or $2.2 million, increase in total sales and marketing expenses for the three months ended June 30, 2026 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation.
General and administrative. General and administrative expenses consist primarily of personnel expenses for executive, finance, legal and human resource employees, overhead and other corporate expenditures.
The 8%, or $2.1 million, decrease in general and administrative expenses for the three months ended June 30, 2026 compared to the same period last year was primarily due to a $1.1 million decrease in stock based compensation driven by the retirement of our former Chief Financial Officer and Chief Operating Officer, a $1.0 million decrease associated with the elimination of the costs associated with the previous one-year senior advisor roles of our former Chief Financial Officer and Chief Operating Officer, a $0.5 million decrease in professional service costs, a $0.5 million decrease in legal expenses, and a $0.4 million increase in software capitalization, partially offset by an increase in employee-related variable incentive compensation.
Interest and Other Income, Net. Interest and other income, net includes interest earned on our cash, cash equivalents and marketable securities, interest expense and other non-operating gains or losses.
Interest and other income, net
745
The 20 %, or $0.7 million, increase in interest and other income (expense), net, for the three months ended June 30, 2026 compared to the same period last year was primarily due to a $1.8 million decrease in foreign exchange expense and a $1.1 million increase in interest, offset by a $2.5 million decrease in the change in fair value of our prior equity investment in Napatech that was sold in August 2025.
Income Tax Expense
(1)%
— %
(3,728
(438
The effective tax rates were (15.2)% and 30.1% for the three months ended June 30, 2026 and 2025, respectively. The effective tax rate for the three months ended June 30, 2026 differed from the effective tax rate for the three months ended June 30, 2025, primarily related to an increase in the forecasted benefit of the foreign derived intangible income deduction, a significant benefit related to stock compensation and a decrease in foreign withholding taxes.
Backlog
We produce our products on the basis of our forecast of near-term demand and maintain inventory in advance of receipt of firm orders from customers. We configure our products to customer specifications and generally deliver products shortly after receipt of the purchase order. Service engagements are also included in certain orders. 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. Delivery of our fulfillable backlog typically occurs early in the subsequent quarter. However, delivery may be delayed or accelerated due to various other reasons, including but not limited to, changes in timing of customer projects and product delivery schedules, which may not be within our control. Our total combined product backlog at June 30, 2026 was $32.9 million compared to $50.8 million at March 31, 2026. Combined product backlog included fulfillable backlog of $27.9 million and $45.8 million at June 30, 2026 and March 31, 2026, respectively.
Liquidity and Capital Resources
Cash, cash equivalents, marketable securities and investments consisted of the following (in thousands):
Short-term marketable securities
Cash, cash equivalents and marketable securities
668,473
705,145
Cash, cash equivalents, marketable securities and investments
Cash and short-term investments held outside of the United States was approximately $250.8 million.
Cash and cash equivalents were impacted by the following:
(in thousands)
Net cash from operating activities
Net cash provided by operating activities of $50.8 million for three months ended June 30, 2026, was primarily attributable to a $25.5 million increase in net income, as adjusted for share-based compensation expense, depreciation and amortization, deferred
26
income taxes, operating lease right-of-use asset, and a $1.5 million working capital outflow. The working capital outflow was primarily driven by a $31.7 million decrease in accrued compensation, a $31.6 million decrease in deferred revenue, a $7.6 million increase in inventories and deferred costs, a $6.5 million increase in prepaid expenses and other assets, and a $2.5 million decrease in operating lease liabilities, partially offset by a $79.0 million decrease in accounts receivable and unbilled costs, primarily impacted by the timing of customer fulfillment.
Net cash from investing activities
Cash used in investing activities included the following:
Proceeds from sales and maturity of marketable securities
Net cash used in investing activities increased by $40.6 million to $57.9 million during the three months ended June 30, 2026, compared with $17.3 million of net cash used in investing activities during the three months ended June 30, 2025. The increase in net cash used in investing activities was due to $55.0 million used in the Digicert DDoS protection business acquisition, $1.6 million increase in purchase of fixed assets, and $2.9 million used for capitalized software development costs. Partially offsetting the increase was a $10.1 million increase in proceeds from the maturity of marketable securities, and a $8.9 million decrease in purchase of marketable securities and investments.
Net cash from financing activities
Net cash used in financing activities included the following:
Tax withholding on restricted stock units
Net cash used in financing activities decreased by $3.4 million to $25.3 million during the three months ended June 30, 2026, compared with $28.8 million of cash used in financing activities during the three months ended June 30, 2025.
During the three months ended June 30, 2026, we did not repurchase shares under the 2022 Share Repurchase Program. During the three months ended June 30, 2025, we repurchased a total of 0.8 million shares for $15.0 million in the open market under the 2022 Share Repurchase Program.
In connection with the delivery of our common stock upon vesting of restricted stock units, we withheld approximately 0.6 million shares and 0.6 million shares at a cost of $25.3 million and $13.8 million during the three months ended June 30, 2026 and 2025, respectively, in each case related to minimum statutory tax withholding requirements on these restricted stock units. 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.
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Sources of Cash and Cash Requirements
Credit Facility
We have a five-year, $600 million senior secured revolving credit facility under our Third Amended and Restated Credit Agreement, which matures on October 4, 2029. The facility includes a $75 million letter-of-credit sub-facility and may be used for working capital and other general corporate purposes.
We had no outstanding borrowings under the facility at June 30, 2026 or March 31, 2026, and the full commitment was available. Borrowings under the facility bear interest at variable rates based on term SOFR or an alternate base rate, plus an applicable margin. We also pay commitment fees on the unused portion of the facility.
The credit agreement contains customary covenants, including a consolidated net leverage ratio requirement and certain limitations on additional indebtedness, liens, investments, dividends, and other matters. We were in compliance with all covenants as of June 30, 2026.
Cash Requirements
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 anticipated funding requirements for at least the next twelve months and the foreseeable future.
We have contractual obligations for operating leases, unconditional purchase obligations, pension benefits plans and certain other long-term liabilities. We expect net cash provided by operating activities combined with cash, cash equivalents, marketable securities and borrowing availability under our revolving credit facility will provide sufficient liquidity to fund current obligations, capital spending, and working capital requirements over at least the next twelve months and the foreseeable future. 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 high inflation and interest rates, and international trade relations (including trade protections measures, such as tariffs and other trade barriers), could increase our anticipated funding requirements or make it more difficult for us to access capital.
Consistent with our $55 million acquisition of the DigiCert DDoS protection business on May 1, 2026, 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, or to continue to repurchase shares of our common stock through our stock repurchase programs. 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. Macroeconomic conditions, including high interest rates and volatility in the capital markets, may make it difficult for us to secure additional financing on favorable terms or at all. Any 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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to our quantitative and qualitative disclosures about market risk during the three months ended June 30, 2026. Refer to “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended March 31, 2026 for a discussion of our interest rate and foreign currency exchange risks.
Item 4. Controls and Procedures
At June 30, 2026, NetScout, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, at June 30, 2026, our disclosure controls and procedures were effective at the reasonable assurance level in ensuring that material information relating to NetScout, including its consolidated subsidiaries, required to be disclosed by NetScout in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report. The risks discussed in our Annual Report could materially affect our business, financial condition and future results. There have been no material changes to those risk factors since we filed our Annual Report. The risks described in our Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer
The following table provides information about purchases we made during the quarter ended June 30, 2026 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:
Period
Total Numberof SharesPurchased (1)
Average PricePaid per Share
Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs
Maximum Number of Shares That MayYet be PurchasedUnder the Program
4/1/2026-4/30/2026
5/1/2026-5/31/2026
6/1/2026-6/30/2026
(1) On May 3, 2022, the Company's board of directors approved a share repurchase program that enables the Company to repurchase up to twenty-five million shares of its common stock (2022 Share Repurchase Program). The 2022 Share Repurchase Program became effective in the third quarter of fiscal year 2024. The Company is not obligated to acquire any specific amount of common stock within any particular timeframe as a result of the 2022 Share Repurchase Program. During the quarter ended June 30, 2026, the Company did not repurchase any shares of its common stock.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Insider Adoption or Termination of Trading Arrangements:
During the fiscal quarter ended June 30, 2026, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408, except as described in the table below:
Name & Title
Date Adopted
Character of Trading Arrangement(1)
Aggregate Number of Shares of Common Stock to be Purchased or Sold Pursuant to Trading Arrangement
Duration(2)
Date Terminated
Joseph G. Hadzima Jr., Director
May 14, 2026
Rule 10b5-1 Trading Arrangement
Up to 7,961 shares to be sold
May 18, 2027
N/A
Christopher Perretta, Director
May 28, 2026
Up to 7,000 shares to be sold
June 15, 2027
Item 6. Exhibits
3.1
Composite conformed copy of Third Amended and Restated Certificate of Incorporation of NetScout (as amended) (filed as Exhibit 3.2 to NetScout's current report on Form 8-K, SEC File No. 000-26251, filed on September 21, 2016, and incorporated herein by reference).
3.2
Amended and Restated By-laws of NetScout (filed as Exhibit 3.1 to NetScout's current report on Form 8-K, SEC File No. 000-26251, filed on May 11, 2020 and incorporated herein by reference).
10.1
+
Amendment to the Transition and Separation Agreement, dated May 29, 2026, by and between NetScout and Michael Szabados, amending the Transition and Separation Agreement dated May 7, 2025 (filed herewith).
10.2
Form of Performance-Based Restricted Stock Unit Award with respect to the NetScout Systems, Inc. 2019 Equity Incentive Plan (filed herewith).
31.1
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1
++
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents.
104
The cover page from the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2026 has been formatted in Inline XBRL and contained in Exhibit 101.
Filed herewith.
Exhibit has been furnished, is not deemed filed and is not to be incorporated by reference into any of the Company's filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 6, 2026
/s/ Anil K. Singhal
Anil K. Singhal
President, Chief Executive Officer and Chairman
(Principal Executive Officer)
/s/ Anthony Piazza
Anthony Piazza
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Eric Watt
Eric Watt
Chief Accounting Officer
(Principal Accounting Officer)