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 September 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 October 27, 2026 was 71,067,586.
FOR THE QUARTER ENDED SEPTEMBER 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 September 30, 2026 and March 31, 2026
2
Consolidated Statements of Operations: For the three and six months ended September 30, 2026 and 2025
3
Consolidated Statements of Comprehensive Income: For the three and six months ended September 30, 2026 and 2025
4
Consolidated Statements of Stockholders' Equity: For the three and six months ended September 30, 2026 and 2025
5
Consolidated Statements of Cash Flows: For the six months ended September 30, 2026 and 2025
7
Notes to Consolidated Financial Statements
8
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
20
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
33
Item 4.
Controls and Procedures
PART II: OTHER INFORMATION
Legal Proceedings
34
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
35
Item 6.
Exhibits
36
SIGNATURES
37
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)
September 30,2026
March 31,2026
Assets
Current assets:
Cash and cash equivalents
$
438,356
586,499
Marketable securities
78,367
81,458
Accounts receivable and unbilled costs, net of allowance for doubtful accounts of $70 and $129 at September 30, 2026 and March 31, 2026, respectively
137,314
151,473
Inventories and deferred costs
30,004
13,321
Prepaid income taxes
17,454
6,159
Prepaid expenses and other current assets
28,312
28,972
Total current assets
729,807
867,882
Fixed assets, net
27,269
23,558
Operating lease right-of-use assets
32,263
35,553
Goodwill
1,096,394
1,070,592
Intangible assets, net
215,362
214,295
Deferred income taxes
103,920
93,735
Long-term marketable securities
54,549
37,188
Other assets
16,364
11,714
Total assets
2,275,928
2,354,517
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
23,515
23,492
Accrued compensation
66,240
84,515
Accrued other
15,301
20,012
Income taxes payable
805
1,655
Deferred revenue and customer deposits
306,108
330,601
Current portion of operating lease liabilities
10,764
9,874
Total current liabilities
422,733
470,149
Other long-term liabilities
6,302
6,568
Deferred tax liability
2,194
2,225
Accrued long-term retirement benefits
27,865
28,336
Long-term deferred revenue and customer deposits
154,568
168,261
Operating lease liabilities, net of current portion
25,277
29,718
Total liabilities
638,939
705,257
Commitments and contingencies (Note 13)
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; 138,875,427 and 136,628,693 issued and 71,040,964 and 71,464,664 outstanding
139
136
Additional paid-in capital
3,362,375
3,325,400
Accumulated other comprehensive income
3,193
4,032
Treasury stock at cost, 67,834,463 and 65,164,029
(1,836,023
)
(1,731,396
Retained earnings
107,305
51,088
Total stockholders’ equity
1,636,989
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
Six Months Ended
September 30,
2026
2025
Revenue:
Product
89,875
94,712
175,881
167,705
Service
132,310
124,305
256,727
238,059
Total revenue
222,185
219,017
432,608
405,764
Cost of revenue:
11,137
11,597
20,809
23,522
34,398
32,013
69,216
63,510
Total cost of revenue
45,535
43,610
90,025
87,032
Gross profit
176,650
175,407
342,583
318,732
Operating expenses:
Research and development
38,968
40,269
81,322
80,058
Sales and marketing
64,776
64,925
137,526
135,520
General and administrative
24,692
26,261
50,408
54,118
Amortization of acquired intangible assets
10,596
11,162
21,206
22,281
Restructuring charges
26
304
51
833
Total operating expenses
139,058
142,921
290,513
292,810
Income from operations
37,592
32,486
52,070
25,922
Interest and other income, net:
Interest income
4,138
3,530
8,466
6,741
Interest expense
(422
(421
(853
(836
Other expense, net
(632
(4,213
(49
(3,273
Total interest and other income (expense), net
3,084
(1,104
7,564
2,632
Income before income tax expense
40,676
31,382
59,634
28,554
Income tax expense
6,294
5,554
3,417
6,405
Net income
34,382
25,828
56,217
22,149
Basic net income per share
0.48
0.36
0.78
0.31
Diluted net income per share
0.47
0.35
0.76
0.30
Weighted average common shares outstanding used in computing:
Net income per share - basic
72,096
72,077
71,955
71,904
Net income per share - diluted
73,937
72,917
74,234
73,130
Consolidated Statements of Comprehensive Income
(In thousands)
Other comprehensive income (loss):
Cumulative translation adjustments
(147
80
(4
Changes in market value of investments:
Changes in unrealized (losses) gains, net of related tax effects
(479
14
(608
13
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
(319
(139
(435
114
Reclassification adjustment for net gains (losses) included in net income, net of related tax effects
63
(111
124
(242
Total net change in market value of derivatives
(256
(250
(311
(128
Other comprehensive loss
(700
(383
(839
(119
Comprehensive income
33,682
25,445
55,378
22,030
Consolidated Statements of Stockholders' Equity
Three Months Ended September 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, June 30, 2026
138,474,142
138
3,342,802
3,893
65,773,692
(1,756,732
72,923
1,663,024
Unrealized net investment losses
Unrealized net losses on derivative financial instruments
Issuance of common stock pursuant to vesting of restricted stock units
243,065
Stock-based compensation expense for restricted stock units granted to employees
13,430
Issuance of common stock under employee stock purchase plan
158,220
6,143
6,144
Shares withheld for employee taxes related to equity awards
60,771
(2,317
Repurchase of treasury stock
2,000,000
(76,974
Balance, September 30, 2026
138,875,427
67,834,463
Six Months Ended September 30, 2026
Balance, March 31, 2026
136,628,693
65,164,029
2,088,514
30,832
670,434
(27,653
Three Months Ended September 30, 2025
Accumulated
Deficit
Balance, June 30, 2025
135,857,091
135
3,274,682
4,337
63,336,389
(1,683,481
(48,122
1,547,551
Unrealized net investment gains
250,801
13,150
216,457
5,388
60,927
(1,431
740,981
(16,552
Balance, September 30, 2025
136,324,349
3,293,220
3,954
64,138,297
(1,701,464
(22,294
1,573,552
Six Months Ended September 30, 2025
Common stock Voting
Balance, March 31, 2025
134,038,262
134
3,255,333
4,073
61,978,025
(1,654,702
(44,443
1,560,395
2,069,630
32,499
658,042
(15,197
1,502,230
(31,565
6
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization
29,466
28,811
Operating lease right-of-use asset
5,155
5,004
Loss on disposal of fixed assets
27
Accretion of discounts on marketable securities
(978
Share-based compensation expense
31,830
33,516
(8,698
(12,514
Gain on equity investment
1,008
Unrealized foreign exchange losses
182
Realized losses on derivatives
15
Changes in assets and liabilities
Accounts receivable and unbilled costs
21,657
33,838
(13,634
32
Prepaid expenses and other assets
(9,484
(3,505
(6,378
(3,455
Accrued compensation and other expenses
(20,176
2,084
Operating lease liabilities
(5,415
(5,626
(927
558
Deferred revenue
(43,230
(21,699
Net cash provided by operating activities
35,629
80,206
Cash flows from investing activities:
Purchase of marketable securities and investments
(60,310
(50,589
Proceeds from sales and maturities of marketable securities
46,250
30,362
Purchase of fixed assets
(4,133
(4,111
Proceeds from sale of equity investment
11,772
Acquisition of business
(55,000
Capitalized software development costs
(4,964
Net cash used in investing activities
(78,157
(12,566
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
(104,624
(46,760
Effect of exchange rate changes on cash and cash equivalents
(991
5,085
Net (decrease) increase in cash and cash equivalents
(148,143
25,965
Cash and cash equivalents, beginning of period
457,415
Cash and cash equivalents, end of period
483,380
Supplemental disclosures:
Cash paid for income taxes
24,302
20,047
Non-cash transactions:
Transfers of inventory to fixed assets
1,366
613
Additions to property, plant and equipment included in accounts payable
1,260
68
Additions to inventory in accounts payable
4,438
Stock-based compensation included in fixed assets and other assets
1,011
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 the fiscal year ending 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. 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 September 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
1,461
Property and equipment
3,115
Customer relationships intangible asset
24,300
Total assets acquired
38,099
(512
(4,988
(1,181
Other current liabilities
(681
Long-term deferred revenue
(135
(280
Total liabilities assumed
(7,777
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 a 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 September 30, 2026, the acquired assets did not contribute material revenue or net income to the Company's consolidated results of operations.
NOTE 3 – REVENUE
Deferred Revenue
During the six months ended September 30, 2026, the Company recognized revenue of $199.1 million related to the Company's deferred revenue balance reported at March 31, 2026.
9
Performance Obligations
The Company did not have any material variable consideration such as obligations for returns, refunds or warranties at September 30, 2026.
At September 30, 2026, the Company had total deferred revenue and customer deposits of $460.7 million, which represents the aggregate total contract price allocated to undelivered performance obligations. The Company expects to recognize $306.1 million, or 66%, of this revenue during the next 12 months, and expects to recognize the remaining $154.6 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 six months ended September 30, 2026.
Costs to Obtain Contracts
At September 30, 2026, the consolidated balance sheet included $11.6 million in assets related to sales commissions to be expensed in future periods. A balance of $6.3 million was included in prepaid expenses and other current assets, and a balance of $5.3 million was included in other assets in the Company's consolidated balance sheet at September 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 each of the three and six months ended September 30, 2026 and 2025, the Company recognized $2.1 million, $1.8 million, $4.3 million, and $3.7 million of amortization related to this sales commission asset, respectively, 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
(62
Balance at September 30, 2026
70
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 standing.
At September 30, 2026, one direct customer and no channel partners 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 and six months ended September 30, 2026, no direct customers and no channel partners accounted for 10% or more of the Company's total revenue.
10
During the three months ended September 30, 2025, one channel partner who primarily serves U.S. Government agencies accounted for more than 10% of the Company's total revenue, while no direct customers accounted for more than 10% of total revenue. During the six months ended September 30, 2025, the Company had no direct customers or channel partners that accounted for more than 10% of total revenue.
Historically, the Company has not experienced any significant failure of its customers' ability to meet their payment obligations, nor does the Company anticipate material non-performance by its customers in the future; accordingly, the Company does not require collateral from its customers. However, if the Company's assumptions are incorrect, there could be an adverse impact on its allowance for credit losses.
NOTE 5 – SHARE-BASED COMPENSATION
On September 9, 2026, the Company's stockholders approved an amendment of the NetScout Systems, Inc. 2019 Equity Incentive Plan (the “Amended 2019 Plan”) to further increase the number of shares reserved for issuance by 3,500,000 from 31,294,651 shares to 34,794,651 shares. As of September 30, 2026, an aggregate of 9,628,261 shares remained available for grant under the Amended 2019 Plan.
On September 9, 2026, the Company's stockholders also approved an amendment of the NetScout Systems, Inc. Amended and Restated 2011 Employee Stock Purchase Plan (the “ESPP”) to increase the maximum number of shares of our common stock that may be issued under the ESPP by 4,000,000 from 7,500,000 shares to 11,500,000 shares. During the six months ended September 30, 2026, 158,220 shares were purchased under the ESPP and the fair market value per share was $38.83.
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
290
297
693
710
Cost of service revenue
2,009
1,930
4,723
4,677
3,863
3,990
9,173
9,522
4,715
4,672
10,953
11,562
2,992
2,668
6,288
7,045
13,869
13,557
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 September 30, 2026 and March 31, 2026.
Marketable Securities
The following is a summary of marketable securities held by the Company at September 30, 2026, classified as short-term and long-term (in thousands):
11
AmortizedCost
Unrealized (Losses)
FairValue
Type of security:
Commercial paper
28,023
U.S. government and municipal obligations
31,944
(91
31,853
Agency bonds
6,496
(17
6,479
Certificates of deposit
5,846
Corporate bonds
6,181
(15
6,166
Total short-term marketable securities
78,490
(123
32,256
(664
31,592
23,095
(138
22,957
Total long-term marketable securities
55,351
(802
Total marketable securities
133,841
(925
132,916
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
33,254
(101
33,153
4,045
4,035
37,299
118,772
(126
118,646
Contractual maturities of the Company's marketable securities held at September 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 six months ended September 30, 2025, the Company recognized a $1.0 million loss on the Napatech equity investment, in other (expense) income, net.
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 September 30, 2026 and March 31, 2026 (in thousands):
12
Fair Value Measurements at
September 30, 2026
Level 1
Level 2
Level 3
Total
ASSETS:
435,853
2,503
38,071
54,810
534,900
36,372
571,272
LIABILITIES:
Derivative financial instruments
(659
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.
NOTE 8 – INVENTORIES AND DEFERRED COSTS
Inventories consist of the following (in thousands):
Raw materials
22,679
7,516
Work in process
203
Finished goods
5,427
Deferred costs
1,695
1,770
NOTE 9 – GOODWILL AND INTANGIBLE ASSETS
At September 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 six months ended September 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 six months ended September 30, 2026 as follows (in thousands):
Goodwill acquired during the period
Foreign currency translation impact
1,124
Intangible Assets
The net carrying amounts of intangible assets were $215.4 million and $214.3 million at September 30, 2026 and March 31, 2026, respectively.
Intangible assets include the following amortizable intangible assets at September 30, 2026 (in thousands):
Cost
Accumulated Amortization
Net
Developed technology
249,692
(246,695
2,997
Customer relationships
792,894
(584,751
208,143
Distributor relationships
5,186
(4,595
591
Definite lived trade name
57,903
(54,408
3,495
Core technology
7,192
(7,192
Capitalized software
3,317
(3,317
Other
1,208
(1,072
1,117,392
(902,030
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 and six months ended September 30, 2026 and 2025 (in thousands):
Amortization of intangible assets included as:
452
632
903
1,262
405
675
Operating expense
11,165
22,289
11,453
11,797
22,784
23,551
The following is the expected future amortization expense at September 30, 2026 for the fiscal years ending March 31 (in thousands):
2027 (remaining six months)
22,887
2028
42,809
2029
33,382
2030
30,485
2031
24,883
Thereafter
60,916
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 September 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
6,748
11,023
659
258
(a) Notional amounts represent the gross contract/notional amount of the derivatives outstanding.
The following table provides the effect foreign exchange forward contracts had on other comprehensive income and results of operations for the three months ended September 30, 2026 and 2025 (in thousands):
Loss Recognized in OCI on Derivative (a)
Gain (Loss) Reclassified from Accumulated OCI into Income (b)
September 30, 2025
Location
(418
(182
(32
(50
(157
(82
(146
The following table provides the effect that foreign exchange forward contracts designated as hedging instruments had on other comprehensive income and results of operations for the six months ended September 30, 2026 and 2025 (in thousands):
Derivatives in Cash Flow Hedging Relationships
Gain (Loss) Recognized in OCI on Derivative (a)
(571
148
(81
(325
(162
(317
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 September 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 September 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 $2.2 million at September 30, 2026, which are being amortized over the life of the revolving credit facility. The unamortized capitalized debt issuance costs balance consisted of $0.7 million that was included in prepaid expenses and other current assets and $1.5 million that was included in other assets in the Company's consolidated balance sheet at September 30, 2026.
NOTE 12 – LEASES
The components of operating lease cost for the three and six months ended September 30, 2026 and 2025, respectively, were as follows (in thousands):
Lease cost:
Lease cost under long-term operating leases
3,077
2,875
5,707
5,728
Lease cost under short-term operating leases
451
400
918
737
Variable lease cost under short-term and long-term operating leases
1,025
1,091
2,044
2,052
Total operating lease cost
4,553
4,366
8,669
8,517
The table below presents supplemental cash flow information related to leases during the six months ended September 30, 2026 and 2025 (in thousands):
Right-of-use assets obtained in exchange for new operating lease liabilities
1,940
5,449
16
At September 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
3.66
4.18
Weighted average discount rate - operating leases
4.4
%
Future minimum payments under non-cancellable leases at September 30, 2026 are as follows (in thousands):
Year ending March 31:
5,443
11,021
9,357
8,014
4,478
647
Total lease payments
38,960
Less imputed interest
(2,919
Present value of lease liabilities
36,041
NOTE 13 – 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 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 14 – TREASURY STOCK
During the six months ended September 30, 2026 and 2025, the Company repurchased 2.0 million shares and approximately 1.5 million shares for $77.0 million and $31.6 million, respectively, under the 2022 Share Repurchase Program. At September 30, 2026, approximately 18.5 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 0.7 million shares and 0.7 million shares at a cost of $27.7 million and $15.2 million, respectively, related to minimum statutory tax withholding requirements during the six months ended September 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.
17
NOTE 15 – NET INCOME PER SHARE
Calculations of the basic and diluted net income per share and potential common shares are as follows (in thousands, except for per share data):
Numerator:
Denominator:
Denominator for basic net income per share - weighted average shares outstanding
Dilutive common equivalent shares:
Weighted average restricted stock units and performance-based restricted stock units
1,841
840
2,279
1,225
Denominator for diluted net income per share- weighted average shares outstanding
Net income per share:
The following table sets forth restricted stock units excluded from the calculation of diluted net income per share, since their inclusion would be anti-dilutive (in thousands):
Restricted stock units
156
1,558
931
2,844
NOTE 16 – 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 15.5% and 17.7% for the three months ended September 30, 2026 and 2025, respectively. The effective tax rate for the three months ended September 30, 2026 differed from the effective tax rate for the three months ended September 30, 2025, primarily related to an increase in the forecasted benefit of the foreign derived intangible income deduction, partially offset by an increase in state tax expense.
The Company's effective tax rates were 5.7% and 22.4% for the six months ended September 30, 2026 and 2025, respectively. The effective tax rate for the six months ended September 30, 2026 differed from the effective tax rate for the six months ended September 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 expense, partially offset by an increase in state tax expense.
NOTE 17 – 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
18
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 that 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
123,637
131,164
248,392
231,668
Europe
38,652
33,629
74,631
64,343
Asia
20,915
15,281
34,491
30,331
Rest of the world
38,981
38,943
75,094
79,422
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.
19
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, AI Ops, cybersecurity, and DDoS protection solutions. Our unique visibility platform and solutions are powered by our pioneering deep packet inspection, or 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 AI 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 service 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 incremental 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 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 September 30, 2026.
Results Overview
Total revenue increased $26.8 million, or 7%, for the six months ended September 30, 2026, as compared to total revenue for the six months ended September 30, 2025, driven by an increase in service revenue and to a lesser extent product revenue. Growth was primarily driven by demand for service assurance offerings from enterprise customer channels. U.S. revenue increased 7% while international revenue increased 6%.
Our total gross profit percentage remained at 79% during the six months ended September 30, 2026, as compared with the six months ended September 30, 2025. Our total gross profit percentage benefited from product revenue growth and a more favorable product mix associated with increased licensing of our software products, offset primarily by increased service costs associated with our DigiCert DDoS protection business acquisition.
Net income for the six months ended September 30, 2026 was $56.2 million, as compared with net income for the six months ended September 30, 2025 of $22.1 million. The increase of $34.1 million in net income was primarily due to a $23.9 million increase in total gross profit, $6.3 million increase in capitalized software, $4.9 million increase in interest and other income, $3.2 million decrease in costs associated with trade shows and other events due to timing, $3.0 million decrease in income tax expenses, $2.8 million decrease in professional service costs, $1.2 million decrease in legal expenses, $1.0 million decrease in amortization of acquired intangibles, and $0.8 million decrease in restructuring charges, partially offset by $16.9 million increase in employee-related expenses primarily due to an increase in variable incentive compensation.
At September 30, 2026, we had cash, cash equivalents, marketable securities and investments (current and non-current) of $571.3 million. This represents a decrease of $133.9 million from $705.1 million at March 31, 2026. This decrease was primarily due to $77.0 million used for treasury stock repurchases, $60.3 million in purchases of marketable securities, $55.0 million used in the acquisition of the DDoS Protection Business of DigiCert, $27.7 million used for tax withholdings on restricted stock units, and $9.1 million used for fixed assets and capitalized software, partially offset by $35.6 million of net cash provided by operations, and $46.3 million in proceeds from the maturity of marketable securities during the six months ended September 30, 2026.
Use of Non-GAAP Financial Measures
To 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 operating margin, non-GAAP net income, non-GAAP net income per diluted share, and adjusted EBITDA. Non-GAAP gross profit removes expenses related to the amortization of acquired intangible assets and share-based compensation 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 from operations (GAAP). Non-GAAP operating margin is non-GAAP income from operations expressed as a percentage of revenue. 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 as well as any loss on extinguishment of debt from net income (GAAP). Non-GAAP net income per diluted 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 depreciation and amortization from net income (GAAP). Beginning in the third quarter of fiscal year 2026, we have renamed non-GAAP EBITDA
21
from operations to adjusted EBITDA. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures included in the attached tables within this Quarterly Report.
Beginning with the three months ended September 30, 2026, we revised our definitions of non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income, and adjusted EBITDA to no longer adjust for acquisition-related depreciation expense, as such amounts are not currently material. We may adjust for acquisition-related depreciation expense in future periods if such amounts become material. The change does not impact our financial position, cash flows, or GAAP consolidated results of operations. Prior-period non-GAAP financial measures presented have been recast to conform to the current presentation.
These non-GAAP measures are not prepared in accordance with GAAP, should not be considered an alternative for measures prepared in accordance with GAAP (gross profit, income from operations, operating margin, net income, and net income per diluted share), and may have limitations because they do not reflect all of 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. We believe 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 the Company plans and measures its own business. We believe that providing these non-GAAP measures affords investors a view of our operating results that may be more easily compared to peer companies and also enables investors to consider our operating results on both a GAAP and non-GAAP basis during and following the integration period of our acquisitions. Presenting the GAAP measures on their own, without the supplemental non-GAAP disclosures, might not be indicative of our core operating results. Furthermore, we believe 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 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 and six months ended September 30, 2026 and 2025, respectively (dollars in thousands, except for per share data):
Three months ended
Revenue
GAAP gross profit
2,297
2,227
5,416
5,387
777
551
1,419
1,101
Non-GAAP gross profit
179,724
178,185
349,418
325,220
GAAP income from operations
13,865
11,373
11,713
22,625
23,382
Executive transition costs
959
Non-GAAP income from operations
62,856
58,060
106,576
84,612
GAAP net income
Income tax adjustments
(6,894
(6,336
(19,411
(11,048
Non-GAAP net income
52,752
45,066
91,312
69,791
GAAP net income per share - diluted
Per share impact of non-GAAP adjustments identified above
0.24
0.27
0.65
Non-GAAP net income per share - diluted
0.71
0.62
1.23
0.95
Previous adjustments to determine non-GAAP net income
18,370
19,238
35,095
47,642
Interest and other (income) expense, net non-GAAP
(3,084
1,104
(7,564
(2,632
Depreciation and amortization excluding amortization of acquired intangible assets
3,655
2,641
6,841
5,429
Income tax expense non-GAAP
13,188
11,890
22,828
17,453
Adjusted EBITDA
66,511
60,701
113,417
90,041
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.
23
Three Months Ended September 30, 2026 and 2025
Total revenue for the three months ended September 30, 2026 increased 1% compared to the prior-year period, as growth in service revenue was largely offset by lower product revenue. Service revenue increased 6%, driven by continued expansion of cloud services, including the acquired assets of the DigiCert DDoS protection business, and to a lesser extent, the timing and composition of maintenance and contract renewals. Product revenue decreased 5%, primarily due to the timing of U.S. Federal Government orders. U.S. revenue decreased 6%, driven by lower product revenue, partially offset by growth in U.S. service revenue. International revenue increased 12%, benefiting from increased service provider demand. By product line, service assurance revenue decreased 1%, reflecting lower product revenue, while cybersecurity revenue increased 7%. From a customer-vertical perspective, service provider revenue increased 2%, with growth driven by product revenue. Enterprise revenue increased 1%, as growth in service revenue was largely offset by a decline in product revenue.
(Dollars in Thousands)
Change
% ofRevenue
40
43
(4,837
(5
)%
60
57
8,005
100
3,168
Total revenue by geography was as follows:
56
(7,527
(6
International:
5,023
5,634
38
Subtotal international
98,548
44
87,853
10,695
Total revenue by product line was as follows:
Service assurance
142,160
64
144,043
66
(1,883
(1
Cybersecurity
80,025
74,974
5,051
24
Total revenue by customer vertical was as follows:
Service provider
86,458
39
84,514
1,944
Enterprise
135,727
61
134,503
1,224
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
(460
2,385
1,925
Gross profit:
Product $
78,738
83,115
(4,377
Product gross profit %
88
Service $
97,912
92,292
42
5,620
Service gross profit %
74
Total gross profit $
1,243
Total gross profit %
Product. The 4%, or $0.5 million, decrease in cost of product revenue for the three months ended September 30, 2026 compared to the same period last year was primarily driven by the decrease in product revenue. Our product gross profit percentage was consistent at 88% during the three months ended September 30, 2026 as compared with the three months ended September 30, 2025.
Service. The 7%, or $2.4 million, increase in cost of service revenue for the three months ended September 30, 2026 compared to the same period last year was driven by a $1.8 million increase in personnel costs primarily from increased headcount from our DigiCert DDoS protection business acquisition. Our service gross profit percentage was consistent at 74% during the three months ended September 30, 2026 as compared with the three months ended September 30, 2025.
25
Operating Expenses
(1,301
29
30
(149
(1,569
(566
(278
65
(3,863
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 3%, or $1.3 million, decrease in research and development expenses for the three months ended September 30, 2026 compared to the same period last year was primarily due to a $2.4 million increase in capitalized software development costs and a decrease in employee-related variable incentive compensation, partially offset by an increase of $2.0 million in personnel costs driven by increased headcount from our DigiCert DDoS protection business acquisition.
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 0%, or $0.1 million, decrease in total sales and marketing expenses for the three months ended September 30, 2026 compared to the same period last year was primarily due to a $3.0 million decrease in costs associated with trade shows and other events due to timing, partially offset by an increase of $0.9 million in personnel costs and 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 6%, or $1.6 million, decrease in general and administrative expenses for the three months ended September 30, 2026 compared to the same period last year was primarily due to a $0.7 million decrease in legal expenses, $0.6 million decrease in professional service costs, and a decrease in employee-related variable incentive compensation, partially offset by a $1.2 million increase in software license costs.
Interest and Other Income (Expense), 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 (expense), net
4,188
379
The $4.2 million, increase in interest and other income (expense), net, for the three months ended September 30, 2026 compared to the same period last year was primarily due to a $3.5 million decrease in the change in fair value of our prior equity investment in Napatech that was sold in August 2025.
Income Tax Expense
3%
740
The effective tax rates were 15.5% and 17.7% for the three months ended September 30, 2026 and 2025, respectively. The effective tax rate for the three months ended September 30, 2026 differed from the effective tax rate for the three months ended September 30, 2025, primarily related to an increase in the forecasted benefit of the foreign derived intangible income deduction , partially offset by an increase in state tax expense.
Six Months Ended September 30, 2026 and 2025
Total revenue increased $26.8 million, or 7% for the six months ended September 30, 2026 compared to the six months ended September 30, 2025 driven by an increase in service revenue and to a lesser extent product revenue. Service revenue increased 8%, primarily due to the timing and composition of maintenance and contract renewals and continued expansion of cloud services. Product revenue increased by 5%, driven by improved enterprise demand for service assurance offerings, including increased orders from U.S. Government agencies. U.S. revenue grew 7%, benefiting from stronger enterprise demand, while international revenue increased 6%, benefiting from stronger service provider demand. By product line, service assurance revenue increased 8% driven by both product and service revenue and cybersecurity revenue increased 4%, as growth in cybersecurity service revenue more than offset lower cybersecurity product revenue. From a customer-vertical perspective, enterprise revenue increased 9%, driven by an increase in both product and service revenue, and service provider revenue increased 3%.
41
8,176
59
18,668
26,844
16,724
10,288
4,160
(4,328
184,216
174,096
10,120
283,787
262,373
21,414
148,821
143,391
5,430
164,901
160,483
4,418
267,707
62
245,281
22,426
(2,713
(12
5,706
2,993
155,072
144,183
10,889
86
187,511
174,549
12,962
73
23,851
79
Product. The 12%, or 2.7 million, decrease in cost of product revenue for the six months ended September 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. Our product gross profit percentage increased two percentage points during the six months ended September 30, 2026 as compared with the six months ended September 30, 2025.
Service. The 9%, or $5.7 million, increase in cost of service revenue for the six months ended September 30, 2026 compared to the same period last year was driven by a $3.3 million increase in personnel costs primarily from increased headcount from our DigiCert DDoS protection business acquisition and an increase in employee-related variable incentive compensation. Our service
28
gross profit percentage was consistent at 73% during the six months ended September 30, 2026 as compared with the six months ended September 30, 2025.
1,264
2,006
(3,710
(7
(1,075
(782
(94
71
(2,297
Research and development. The 2%, or $1.3 million, increase in research and development expenses for the six months ended September 30, 2026 compared to the same period last year was primarily due to an increase of $3.4 million in personnel costs driven by increased headcount from our DigiCert DDoS protection business acquisition and an increase in employee-related variable incentive compensation, partially offset by a $5.8 million increase in capitalized software development costs.
Sales and marketing. The 1%, or $2.0 million, increase in sales and marketing expenses for the six months ended September 30, 2026 compared to the same period last year was primarily due to an increase in employee-related variable incentive compensation and a $1.6 million increase in personnel costs partially offset by a $3.2 million decrease associated with the timing of trade shows and other events.
General and administrative. The 7%, or $3.7 million, decrease in general and administrative expenses for the six months ended September 30, 2026 compared to the same period last year was primarily due to a $0.8 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 $1.2 million decrease in legal expenses, a $1.1 million decrease in professional service costs, a $0.7 million decrease in audit fees, partially offset by a $1.6 million increase in software license costs and an increase in employee-related variable incentive compensation.
Interest and Other Income, Net
4,932
187
The 187%, or $4.9 million, increase in interest and other income (expense), net, for the six months ended September 30, 2026 compared to the same period last year was primarily due to a $2.2 million decrease in foreign exchange expense, a $1.7 million increase in interest income, and a $1.0 million increase due to the absence of a loss recorded in the prior year period on our equity investment in Napatech, which was sold in August 2025.
(2,988
(47
Our effective tax rates were 5.7% and 22.4% for the six months ended September 30, 2026 and 2025, respectively. The effective tax rate for the six months ended September 30, 2026 differed from the effective tax rate for the six months ended September 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 expense, partially offset by an increase in state tax expense.
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 September 30, 2026 was $20.9 million compared to $50.8 million at March 31, 2026. Combined product backlog included fulfillable backlog of $15.4 million and $45.8 million at September 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
705,145
Cash, cash equivalents, marketable securities and investments
Cash and short-term investments held outside of the United States were approximately $199.6 million.
Cash and cash equivalents were impacted by the following:
(in thousands)
Net cash from operating activities
Net cash provided by operating activities of $35.6 million for the six months ended September 30, 2026, was primarily attributable to net income, as adjusted for share-based compensation expense, depreciation and amortization, deferred income taxes, operating lease right-of-use asset, accretion of discounts on marketable securities, and unrealized foreign exchange losses, partially offset by a $77.6 million net working capital outflow. The working capital outflow was primarily driven by a $43.2 million decrease in deferred revenue, a $20.2 million decrease in accrued compensation and other expenses, a $13.6 million increase in inventories and deferred costs, a $6.4 million decrease in accounts payable, a $9.5 million increase in prepaid expenses and other asset, a $5.4 million decrease in operating lease liabilities, offset by a $21.7 million decrease in accounts receivable and unbilled costs. Inventories and deferred costs increased primarily due to strategic purchases of components and raw materials intended to mitigate potential supply-chain constraints and cost increases and to support anticipated customer demand.
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 $65.6 million to $78.2 million during the six months ended September 30, 2026, compared with $12.6 million of net cash used in investing activities during the six months ended September 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, a $9.7 million increase in purchase of marketable securities and investments, and $5.0 million increase in capitalized software development costs. Partially offsetting the increase was a $15.9 million increase in proceeds from the maturity of marketable securities.
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 increased by $57.9 million to $104.6 million during the six months ended September 30, 2026, compared with $46.8 million of cash used in financing activities during the six months ended September 30, 2025.
During the six months ended September 30, 2026, we repurchased a total of 2.0 million shares for $77.0 million in the open market under the 2022 Share Repurchase Program. During the six months ended September 30, 2025, we repurchased a total of approximately 1.5 million shares for $31.6 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 0.7 million shares and 0.7 million shares at a cost of $27.7 million and $15.2 million during the six months ended September 30, 2026 and 2025, respectively, in each case related to minimum statutory tax withholding requirements on these restricted stock units. These
31
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.
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 September 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 September 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 benefit 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 protection 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.
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 September 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 September 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 September 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
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.
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 September 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
7/1/2026-7/31/2026
20,521,049
8/1/2026-8/31/2026
1,177,879
38.80
19,343,170
9/1/2026-9/30/2026
822,121
37.74
18,521,049
38.36
(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.
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 September 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
Sanjay Munshi, Former Chief Operating Officer
August 20, 2026
Rule 10b5-1 Trading Arrangement
Up to 7,863 shares to be sold
September 15, 2027
N/A
John Downing, Executive Vice President, Worldwide Sales Operations
September 10, 2026(3)
Up to 40,000 shares to be sold
February 25, 2028
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
NetScout Systems, Inc. 2019 Equity Incentive Plan, as amended (filed as Exhibit 99.1 to NetScout's Registration Statement on Form S-8, SEC File No. 333-298889, filed on September 11, 2026 and incorporated herein by reference).
10.2
NetScout Systems, Inc. Amended and Restated 2011 Employee Stock Purchase Plan, as amended (filed as Exhibit 99.2 to NetScout's Registration Statement on Form S-8, SEC File No. 333-298889, filed on September 11, 2026 and incorporated herein by reference).
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 September 30, 2026 has been formatted in Inline XBRL and is 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: November 5, 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)