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UBIQUITI INC. filed this 10-Q on 02/09/24

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UBIQUITI INC. - 10-Q - 20240209 - PART_I

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

UBIQUITI INC.

Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)


	December 31, 2023		June 30, 2023
Assets
Current assets:
Cash and cash equivalents	$	97,601	$	114,826
Investments — short-term	61		109
Accounts receivable, net of allowance for doubtful accounts of $225 and $92 at December 31, 2023 and June 30, 2023, respectively	171,417		167,787
Inventories	683,593		737,121
Vendor deposits	134,496		125,227


Prepaid expenses and other current assets	18,565		21,974
Total current assets	1,105,733		1,167,044
Property and equipment, net	84,486		86,845
Operating lease right-of-use assets, net	50,953		57,485
Deferred tax assets	23,459		23,701

Other long-term assets	70,282		71,324
Total assets	$	1,334,913	$	1,406,399
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	92,297	$	154,157
Income taxes payable	9,765		19,309
Debt — short-term	36,508		36,508
Other current liabilities	149,217		141,845
Total current liabilities	287,787		351,819
Income taxes payable — long-term	55,091		74,880
Operating lease liabilities — long-term	39,657		46,052
Debt — long-term	958,132		1,041,381
Deferred tax liability — long-term	226		226
Other long-term liabilities	9,742		7,774
Total liabilities	1,350,635		1,522,132
Commitments and contingencies (Note 9)
Stockholders’ deficit:
Preferred stock—$0.001 par value; 50,000,000 shares authorized; none issued	—		—
Common stock—$0.001 par value; 500,000,000 shares authorized:
60,448,287 and 60,441,896 issued and outstanding as of December 31, 2023 and June 30, 2023, respectively	60		60
Additional paid–in capital	7,403		4,721

Accumulated deficit	(23,185)		(120,514)
Total stockholders’ (deficit)	(15,722)		(115,733)
Total liabilities and stockholders’ deficit	$	1,334,913	$	1,406,399

See accompanying notes to consolidated financial statements (unaudited).

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UBIQUITI INC.

Consolidated Statements of Operations and Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended December 31,				Six Months Ended December 31,
	2023		2022		2023		2022
Revenues	$	464,954	$	493,571	$	928,032	$	991,654
Cost of revenues	287,307		296,010		566,510		622,725
Gross profit	177,647		197,561		361,522		368,929
Operating expenses:
Research and development	36,911		33,765		73,194		66,424
Sales, general and administrative	19,634		18,643		38,923		35,339

Total operating expenses	56,545		52,408		112,117		101,763
Income from operations	121,102		145,153		249,405		267,166
Interest expense and other, net	18,262		11,272		39,486		21,923
Income before income taxes	102,840		133,881		209,919		245,243
Provision for income taxes	20,724		21,676		40,053		39,856
Net income and comprehensive income	$	82,116	$	112,205	$	169,866	$	205,387
Net income per share of common stock:
Basic	$	1.36	$	1.86	$	2.81	$	3.40
Diluted	$	1.36	$	1.86	$	2.81	$	3.40
Weighted average shares used in computing net income per share of common stock:
Basic	60,448		60,429		60,447		60,428
Diluted	60,451		60,448		60,451		60,448

See accompanying notes to consolidated financial statements (unaudited).

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UBIQUITI INC.

Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands, except share data)

(Unaudited)


	Three and Six Months Ended December 31, 2023
	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Amount		Amount		Amount
Balance at June 30, 2023	60,441,896	$	60	$	4,721	$	(120,514)	$	(115,733)
Net Income	—	—		—		87,750		87,750


Restricted stock units issued, net of tax withholdings	5,660	—		(313)		—		(313)

Share-based compensation expense	—	—		1,500		—		1,500
Dividends paid on Common Stock ($0.60 per share)	—	—		—		(36,268)		(36,268)
Balance at September 30, 2023	60,447,556	$	60	$	5,908	$	(69,032)	$	(63,064)
Net Income	—	—		—		82,116		82,116


Restricted stock units issued, net of tax withholdings	731	—		(11)		—		(11)

Share-based compensation expense	—	—		1,506		—		1,506
Dividends paid on Common Stock ($0.60 per share)	—	—		—		(36,269)		(36,269)
Balances at December 31, 2023	60,448,287	$	60	$	7,403	$	(23,185)	$	(15,722)


	Three and Six Months Ended December 31, 2022
	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Amount		Amount		Amount		Amount
Balance at June 30, 2022	60,420,525	$	60	$	650	$	(383,112)	$	(474)	$	(382,876)
Net Income	—	—		—		93,182		—		93,182
Other comprehensive (loss)	—	—				—		(49)		(49)
Stock options exercised	2,112	—		23		—		—		23
Restricted stock units issued, net of tax withholdings	6,174	—		(544)		—		—		(544)

Share-based compensation expense	—	—		1,048		—		—		1,048
Dividends paid on Common Stock ($0.60 per share)	—	—		—		(36,256)		—		(36,256)
Balance at September 30, 2022	60,428,811	$	60	$	1,177	$	(326,186)	$	(523)	$	(325,472)
Net Income	—	—		—		112,205		—		112,205

Reclassification adjustment for loss on investments included in net income	—	—		—		—		523		523
Restricted stock units issued, net of tax withholdings	2,147	—		(50)		—		—		(50)

Share-based compensation expense	—	—		1,101		—		—		1,101
Dividends paid on Common Stock ($0.60 per share)	—	$	—	$	—	$	(36,257)	$	—	$	(36,257)
Balances at December 31, 2022	60,430,958	$	60	$	2,228	$	(250,238)	$	—	$	(247,950)

See accompanying notes to consolidated financial statements (unaudited).

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UBIQUITI INC.

Consolidated Statements of Cash Flows

(In thousands) (Unaudited)


	Six Months Ended December 31,
	2023		2022
Cash Flows from Operating Activities:
Net income	$	169,866	$	205,387
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,641		7,636
Amortization of debt issuance costs	867		654
Non-cash lease expense	220		342

Provision for inventory obsolescence	3,283		5,619
Provision for loss on vendor deposits	7,750		(1,165)
Share-based compensation	3,006		2,148

Deferred taxes	242		131


Other, net	(31)		636
Changes in operating assets and liabilities:
Accounts receivable	(3,763)		(32,315)
Inventories	50,138		(388,144)
Vendor deposits	(17,019)		15,027

Prepaid expenses and other assets	3,333		(8,946)
Accounts payable	(61,511)		161,186
Income taxes payable	(29,333)		(24,353)
Deferred revenues	1,631		(1,843)
Accrued and other liabilities	7,943		60,333
Net cash provided by operating activities	146,263		2,333
Cash Flows from Investing Activities:
Purchase of property and equipment and other long-term assets	(6,877)		(13,468)


Net cash used in investing activities	(6,877)		(13,468)
Cash Flows from Financing Activities:
Proceeds from borrowing under the credit facility- Revolver	—		180,000
Repayment against credit facility- Revolver	(65,000)		(60,000)
Repayment against credit facility- Term	(18,750)		(12,500)

Payment of common stock cash dividends	(72,537)		(72,513)
Proceeds from exercise of stock options	—		23
Tax withholdings related to net share settlements of restricted stock units	(324)		(594)
Net cash (used in) provided by financing activities	(156,611)		34,416
Net (decrease) increase in cash and cash equivalents	(17,225)		23,281
Cash and cash equivalents at beginning of period	114,826		136,224
Cash and cash equivalents at end of period	$	97,601	$	159,505
Supplemental Disclosure of Cash Flow Information:
Income taxes paid, net of refunds	$	68,211	$	64,285
Interest paid	$	41,099	$	18,482
Non-Cash Investing and Financing Activities:
Right-of-use asset recognized	$	1,067	$	1,826
Unpaid property and equipment and other long-term assets	$	927	$	357

See accompanying notes to consolidated financial statements (unaudited).

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UBIQUITI INC.

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1—BUSINESS AND BASIS OF PRESENTATION

Business— Ubiquiti Inc. and its wholly owned subsidiaries (collectively, “Ubiquiti” or the “Company”) develop high performance networking technology for service providers, enterprises, and consumers globally.

The Company operates on a fiscal year ending June 30. In these notes, Ubiquiti refers to the fiscal years ending June 30, 2024 and 2023, as fiscal 2024 and fiscal 2023, respectively.

Basis of Presentation— The Company’s consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) related to interim financial statements based on applicable Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. These consolidated financial statements reflect all adjustments, which are, in the opinion of the Company, of a normal and recurring nature and those necessary to state fairly the statements of financial position, results of operations and cash flows for the dates and periods presented. The June 30, 2023 balance sheet was derived from the audited consolidated financial statements as of that date. All significant intercompany transactions and balances have been eliminated.

These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2023, included in its Annual Report on Form 10-K, as filed with the SEC on August 25, 2023 (the “Annual Report”). The results of operations for the three and six months ended December 31, 2023 are not necessarily indicative of the results to be expected for any future periods.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are disclosed in its audited consolidated financial statements for the fiscal year ended June 30, 2023, included in the Annual Report on Form 10-K. There have been no changes to the Company’s significant accounting policies as discussed in the Annual Report.

Use of Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Those estimates and assumptions include, but are not limited to, revenue recognition and deferred revenue; sales return reserves; inventory valuation and vendor deposits; accounting for income taxes, including the valuation allowance on deferred tax assets and reserves for uncertain tax positions. We evaluate our estimates and assumptions based on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.

Recent Accounting Pronouncements Not Yet Effective

Segment Reporting

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) (“ASU 2023-07”), which enhances the segment disclosure requirements for public entities on an annual and interim basis. Under this proposal, public entities will be required to disclose significant segment expenses that are regularly provided to the chief operating decision maker (the “CODM”) and included within each reported measure of segment profit or loss. Additionally, current annual disclosures about a reportable segment’s profit or loss and assets will be required on an interim basis. Entities will also be required to disclose information about the CODM’s title and position at the Company along with an explanation of how the CODM uses the reported measures of segment profit or loss in their assessment of segment performance and deciding whether how to allocate resources. Finally, ASU 2023-07 requires all segment disclosures for public entities, even those with a single reportable segment. The amendments in ASU 2023-07 will become effective on a retrospective basis for annual disclosures in the Company's fiscal year beginning July 1, 2024, with interim period disclosures required effective with the Company's fiscal year beginning July 1, 2025. Early adoption of ASU 2023-07 is permitted. We do not expect this ASU to have a significant impact on our disclosures or results of operations, cash flows, and financial condition.

Income Taxes

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) ("ASU 2023-09"), which amends the existing guidance relating to the annual disclosures for accounting for income taxes. ASU 2023-09 requires a public business entity to disclose a tabular rate reconciliation using specified categories and providing additional information for reconciling items that exceed a quantitative threshold. In addition, ASU 2023-09 requires the disaggregation of federal, state and foreign income taxes paid (net of

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funds received), with further disaggregation required for individual jurisdictions in which the income taxes paid exceed five percent of the Company's total income taxes paid. The provision for income taxes in the Company's statement of operations will also be required to be disaggregated by federal, state and foreign. The amendments in ASU 2023-09 will become effective for annual disclosures in the Company's fiscal year beginning July 1, 2025, with early adoption permitted. The FASB indicated ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We expect this ASU to only impact our disclosures with no impact to our results of operations, cash flows, and financial condition.

NOTE 3—REVENUES

Revenue is primarily generated from the sale of hardware as well as the related implied post contract services ("PCS").

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our products and PCS to our customers. Transfer of control to the customer for products generally occurs at the point in time when products have been shipped to our customer as this represents the point in time when the customer has a present obligation to pay and physical possession including title and risk of loss have been transferred to the customer. Revenue for PCS is recognized ratably over time over the estimated period for which implied PCS services will be delivered.

Disaggregation of Revenue

See Note 13, "Segment Information, Revenues by Geography and Significant Customers" for disaggregation of revenue by product category and geography.

Contract Balances

The timing of revenue recognition, billing and cash collections results in billed accounts receivable, deferred revenue primarily attributable to PCS and customer deposits on the consolidated balance sheets. Accounts receivable are recognized in the period our right to the consideration is unconditional. Our contract liabilities consist of advance payments (Customer deposits) as well as billing in excess of revenue recognized primarily related to deferred revenue. We classify customer deposits as a current liability, and deferred revenue as a current or non-current liability based on the timing of when we expect to fulfill these remaining performance obligations. The current portion of deferred revenue is included in other current liabilities and the non-current portion is included in other long-term liabilities in our consolidated balance sheets.

As of December 31, 2023 and June 30, 2023, the Company’s customer deposits were $2.6 million and $1.2 million, respectively.

As of December 31, 2023, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $18.2 million and $9.7 million, respectively.

As of June 30, 2023, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $17.9 million and $7.8 million, respectively.

We expect the majority of our deferred revenue to convert to revenue in two years. For the three and six months ended December 31, 2023 we recognized revenues amounting to $4.3 million and $11.0 million respectively from the deferred revenue balance as of June 30, 2023. For the three and six ended December 31, 2022, we recognized revenues amounting to $5.0 million and $13.6 million respectively from the deferred revenue balance as of June 30, 2022.

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NOTE 4—EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data):


	Three Months Ended December 31,				Six Months Ended December 31,
	2023		2022		2023		2022
Numerator:
Net income	$	82,116	$	112,205	$	169,866	$	205,387
Denominator:
Weighted-average shares used in computing basic earnings per share	60,448		60,429		60,447		60,428
Add—dilutive potential common shares:
Stock options	—		—		—		1
Restricted stock units	3		19		4		19
Weighted-average shares used in computing diluted net income per share	60,451		60,448		60,451		60,448
Net income per share of common stock:
Basic	$	1.36	$	1.86	$	2.81	$	3.40
Diluted	$	1.36	$	1.86	$	2.81	$	3.40

The Company excludes potentially dilutive securities from its diluted net income per share calculation when their effect would be anti-dilutive to net income per share amounts.

NOTE 5—BALANCE SHEET COMPONENTS

Inventories

Inventories consisted of the following (in thousands):


	December 31, 2023		June 30, 2023
Finished goods	$	587,134	$	643,499
Raw materials	96,459		93,622

Total	$	683,593	$	737,121

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


	December 31, 2023		June 30, 2023
Testing equipment	$	18,546	$	18,265
Tooling equipment	25,488		22,687
Leasehold improvements	25,749		24,968
Computer and other equipment	10,588		10,860
Software	9,582		9,421
Furniture and fixtures	1,843		1,716
Corporate aircraft	65,807		65,807
Property and equipment, gross	157,603		153,724
Less: Accumulated depreciation and amortization	(73,117)		(66,879)
Property and equipment, net	$	84,486	$	86,845

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Other Long-term Assets

Other long-term assets consisted of the following (in thousands):


	December 31, 2023		June 30, 2023
Hong Kong Tax deposit (1)	$	60,321	$	60,106
Intangible assets, net (2)	4,945		5,695
Other long-term assets, net	5,016		5,523
Total	$	70,282	$	71,324

(1) The Company expects the deposits made with the Hong Kong Inland Revenue Department (“IRD”) to be refunded upon completion of the audit. See Note 12, "Income Taxes" to the consolidated financial statements for additional details regarding this ongoing tax audit.

(2) Accumulated amortization was $6.7 million and $5.9 million as of December 31, 2023, and June 30, 2023, respectively.

Other Current Liabilities

Other current liabilities consisted of the following (in thousands):


	December 31, 2023		June 30, 2023
Deferred revenue — short-term	$	18,207	17,911
Accrued expenses	22,492		23,426
Lease liability— current	14,417		14,333
Warranty accrual	9,907		8,745
Accrued compensation and benefits	9,985		7,330
Customer deposits	2,626		1,211
Reserve for sales returns	4,680		4,999
Inventory received not billed	57,413		56,862
Other payables	9,490		7,028
Total	$	149,217	$	141,845

Other Long-Term Liabilities

Other long-term liabilities consisted of the following (in thousands):


	December 31, 2023		June 30, 2023
Deferred revenue — long-term	$	9,742	$	7,774

NOTE 6—ACCRUED WARRANTY

The Company offers warranties on certain products, generally a period of one to two years and records a liability for the estimated future costs associated with potential warranty claims. The warranty costs are reflected in the Company’s consolidated statements of operations and comprehensive income within cost of revenues. The warranties are typically in effect for one year for distributors from the date of shipment and two years for direct sales from the date of delivery. The Company assesses the adequacy of its accrued warranty liabilities and adjusts the amounts as necessary based on historical experience factors and changes in future estimates. Historical factors include product failure rates, material usage and service delivery costs incurred in correcting product failures. In certain circumstances, the Company may have recourse from its contract manufacturers for replacement cost of defective products, which it also factors into its warranty liability assessment.

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Warranty obligations, included in other current liabilities, were as follows (in thousands):


	Six Months Ended December 31,
	2023		2022
Beginning balance	$	8,745	$	6,394
Accruals for warranties issued during the period	6,232		5,822
Changes in liability for pre-existing warranties during the period	687		222
Settlements made during the period	(5,757)		(4,586)
Ending balance	$	9,907	$	7,852

NOTE 7—DEBT

On March 30, 2021, the Company, as borrower and certain domestic subsidiaries, as guarantors (the "Domestic Guarantors"), entered into an amended and restated credit agreement (the “Third Amended and Restated Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), the other financial institutions named as lenders therein, and Wells Fargo as administrative agent and collateral agent for the lenders, that extended the $700 million senior secured revolving credit facility (the “Revolving Facility,” together with the Term Loan Facilities, as defined below, the "Facilities") and provided a $500 million senior secured term loan facility (the “Initial Term Loan Facility”), and extended the maturity of the Facilities to March 30, 2026. In addition, the Facilities include an option to request increases in the amounts of such credit facilities by up to an additional $500 million in the aggregate.

On April 3, 2023, the Company as borrower and the Domestic Guarantors entered into a first amendment (the “First Amendment”) to the Third Amended and Restated Credit Agreement (as amended, the “Amended Credit Agreement”) with the financial institutions named as lenders therein and Wells Fargo. The First Amendment added a new term loan facility in an aggregate principal amount of $250 million (the “First Amendment Term Loan Facility,” together with the Initial Term Loan Facility, the "Term Loan Facilities") which is payable in quarterly installments equal to $3.125 million, commencing with the quarter ended June 30, 2023, and has a maturity date of March 30, 2026. The obligations of the Company and certain domestic subsidiaries under the Amended Credit Agreement are required to be guaranteed by the Domestic Guarantors and are collateralized by substantially all assets (excluding intellectual property) of the Company and the Domestic Guarantors.

The Company's unamortized balance of debt issuance costs are $2.2 million as of December 31, 2023, which are amortized as interest expense over the life of the Facilities.

The Company's debt consisted of the following (in thousands):


	December 31, 2023		June 30, 2023
Initial Term Loan Facility - short term	$	25,000	$	25,000
First Amendment Term Loan Facility - short-term	12,500		12,500
Debt issuance costs, net	(992)		(992)
Total Debt - short term	36,508		36,508
Initial Term Loan Facility - long term	406,250		418,750
First Amendment Term Loan Facility - long-term	228,125		234,375
Revolving Facility - long term	325,000		390,000
Debt issuance costs, net	(1,243)		(1,744)
Total Debt - long term	$	958,132	$	1,041,381

The Revolving Facility includes a sub-limit of $25.0 million for letters of credit and a sub-limit of $25.0 million for swingline loans. The Facilities are available for working capital and general corporate purposes that comply with the terms of the Amended Credit Agreement, including to finance the repurchase of the Company’s common stock or to make dividends to the holders of the Company's common stock. Under the Amended Credit Agreement, revolving loans and swingline loans may be borrowed, repaid and reborrowed until March 30, 2026, at which time all amounts borrowed must be repaid. The loans under the Initial Term Loan Facility are payable in quarterly installments of $6.25 million per quarter, commencing with the quarter ending June 30, 2021. Loans under the Facilities may be prepaid at any time without penalty.

The revolving loans and term loans under the Initial Term Loan Facility bear interest, at the Company’s option, at either (i) a floating rate per annum equal to the Base Rate (as defined below) plus a margin of between 0.50% and 1.25%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter or (ii) a floating per annum rate equal to the Adjusted Term SOFR (as defined below) for a specified period, plus a margin of between 1.50% and 2.25%, depending on the Company’s

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consolidated total leverage ratio as of the most recently ended fiscal quarter. Swingline loans bear interest at a floating rate per annum equal to the Base Rate plus a margin of between 0.50% and 1.25%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter. The loans under the First Amendment Term Loan Facility bear interest, at the Company's option, at either (i) a floating rate per annum equal to Base Rate plus a margin of between 1.00% and 1.75%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter or (ii) a floating per annum rate equal to the applicable Adjusted Term SOFR rate for a specified period, plus a margin between 2.00% and 2.75%, depending on the Company's consolidated total leverage ratio as of the most recently ended fiscal quarter. Base Rate is defined in the Amended Credit Agreement as the highest of (a) the Prime Rate (as defined in the Amended Credit Agreement), (b) the Federal Funds Rate (as defined in the Amended Credit Agreement) plus 0.50% and (c) Adjusted Term SOFR for a one-month tenor in effect on such day plus 1.00%; each change in the Base Rate shall take effect simultaneously with the corresponding change or changes in the Prime Rate, the Federal Funds Rate or Adjusted Term SOFR, as applicable (provided that clause (c) shall not be applicable during any period in which Adjusted Term SOFR is unavailable or unascertainable). The Base Rate shall not be less than 1.00%. Adjusted Term SOFR is Term SOFR (as defined in the Amended Credit Agreement) plus 0.10% per annum; provided that Adjusted Term SOFR shall in no event be less than 0.00%.

A default interest rate shall apply on all obligations during certain events of default under the Amended Credit Agreement at a rate per annum equal to 2.00% above the applicable interest rate. The Company will pay to each lender a facility fee on a quarterly basis based on the unused amount of each lender’s commitment to make revolving loans, of between 0.20% and 0.35%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter. The Company will also pay to the applicable lenders on a quarterly basis certain fees based on the daily amount available to be drawn under each outstanding letter of credit, including aggregate letter of credit commissions of between 1.50% and 2.25%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter, and issuance fees of 0.125% per annum. The Company is also obligated to pay Wells Fargo, as agent, fees customary for a credit facility of this size and type.

The Amended Credit Agreement requires the Company to maintain during the term of the Facilities a maximum consolidated total leverage ratio of 3.50 to 1.00 and a minimum consolidated interest coverage ratio of 3.50 to 1.00. In addition, the Amended Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the ability of the Company and its subsidiaries to, among other things, grant liens or enter into agreements restricting their ability to grant liens on property, enter into mergers, dispose of assets, change their accounting or reporting policies, change their business and incur indebtedness, in each case subject to customary exceptions for a credit facility of this size and type. The Amended Credit Agreement includes customary events of default that include, among other things, non-payment of principal, interest or fees, inaccuracy of representations and warranties, violation of covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments, change of control and certain ERISA events. The occurrence of an event of default could result in the acceleration of the obligations under the Amended Credit Agreement.

The Facilities

As of December 31, 2023, $431.3 million was outstanding on the Initial Term Loan Facility, $240.6 million was outstanding on the First Amendment Term Loan Facility, and $325 million was outstanding on the Revolving Facility, leaving $375 million available on the Revolving Facility.

Term Loan Facilities

During the six months ended December 31, 2023, the Company made aggregate payments of $45.9 million under the Term Loan Facilities, of which $18.8 million was repayment of principal and $27.1 million was payment of interest.

Revolving Facility

Under the Amended Credit Agreement, during the six months ended December 31, 2023, the Company made aggregate payments of $79.0 million under the Revolving Facility, of which $65 million was repayment of principal and $14.0 million was payment of interest.

The following table summarizes the Company’s estimated debt and interest payment obligations as of December 31, 2023, for the remainder of fiscal 2024 and future fiscal years (in thousands):

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	2024 (remainder)		2025		2026		2027		2028		Thereafter		Total
Debt payment obligations	$	18,750	$	37,500	$	940,625	$	—	$	—	$	—	$	996,875
Interest and other payments on debt payment obligations (1)	36,619		71,390		51,605		—		—		—		159,614
Total	$	55,369	$	108,890	$	992,230	$	—	$	—	$	—	$	1,156,489

(1) Interest payments are calculated based on the applicable rates and payment dates as of December 31, 2023. Although our interest rates on our debt obligations may vary, we have assumed the most recent available interest rates for all periods presented.

NOTE 8—LEASES

The Company has entered into agreements under which we lease various real estate spaces in North America, Europe and Asia Pacific, under non-cancellable leases that expire on various dates through fiscal 2036. Some of our leases include options to extend the term of such leases for a period from 12 months to 60 months, and/or have options to early terminate the lease. As of December 31, 2023, we included such options in determining the lease terms for certain of our leases because we were reasonably certain that we would exercise the extension options. Most of our leases require us to pay certain operating expenses in addition to base rent, such as taxes, insurance and maintenance costs.

The following table summarizes our lease costs for the three and six months ended December 31, 2023 and 2022 (in thousands):


	Financial Statement Classification	Three Months Ended December 31,				Six Months Ended December 31,
		2023		2022		2023		2022
Operating lease costs:
Fixed lease costs	Operating expenses	$	2,927	$	2,722	$	5,863	$	5,526
Fixed lease costs	Cost of revenues	1,073		962		1,754		1,965
Variable lease costs	Operating expenses	128		153		326		154
Variable lease costs	Cost of revenues	187		142		468		157
Total lease costs		$	4,315	$	3,979	$	8,411	$	7,802

The operating lease costs in the table above include costs for long-term and short-term leases. Total short-term costs for the three and six months ended December 31, 2023 and 2022, were immaterial. Variable lease costs primarily include maintenance, utilities and operating expenses that are incremental to the fixed base rent payments and are excluded from the calculation of operating lease liabilities and ROU assets. For the three months ended December 31, 2023 and 2022, cash paid for amounts associated with the Company's operating lease liabilities were approximately $4.3 million and $4.0 million, respectively. For the six months ended December 31, 2023 and 2022, cash paid for amounts associated with the Company's operating lease liabilities were approximately $8.6 million and $7.6 million, respectively. Cash paid for amounts associated with the Company’s operating lease liabilities were classified as operating activities in the consolidated statement of cash flows.

The following table shows the Company’s undiscounted future fixed payment obligations under the Company’s recognized operating leases and a reconciliation to the operating lease liabilities as of December 31, 2023:


Remainder of Fiscal 2024	$	8,095
Fiscal 2025	14,482
Fiscal 2026	10,092
Fiscal 2027	6,000
Fiscal 2028	4,606
Thereafter	15,231
Total future fixed operating lease payments	$	58,506

Less: Imputed interest	$	4,432
Total operating lease liabilities	$	54,074

Weighted-average remaining lease term - operating leases	6 years
Weighted-average discount rate - operating leases	3.2		%

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NOTE 9—COMMITMENTS AND CONTINGENCIES

Operating Leases

See Note 8, "Leases" for future minimum lease payments under non-cancelable operating leases as of December 31, 2023.

Purchase Obligations

We subcontract with third parties to manufacture our products and supply key components. As of December 31, 2023, we had $1,045.0 million of purchase commitments with these third parties. If we cancel all or part of the orders, we may still be liable to the contract manufacturers for the cost of the components purchased by the subcontractors to manufacture our products. There have been no significant liabilities for current or anticipated cancellations recorded as of December 31, 2023. Our consolidated financial position and results of operations could be negatively impacted if we were required to compensate these third parties. In addition, we may be subject to additional purchase obligations to our contract manufacturers for supply agreements and components ordered by them based on manufacturing forecasts we provide them each month.

Transition Tax

We have obligations of $50.6 million as of December 31, 2023, related to the mandatory transition tax on accumulated foreign earnings from the 2017 Tax Cuts and Jobs Act. Payment of these obligations are expected to be $22.5 million for fiscal 2025 and $28.1 million for fiscal 2026. These obligations are included within Income tax payable and Long-term taxes payable on our consolidated balance sheets.

Other Obligations

As of December 31, 2023, the Company has other obligations of $5.5 million which consisted primarily of commitments related to research and development projects.

Indemnification Obligations

The Company enters into standard indemnification agreements with many of its business partners in the ordinary course of business. These agreements include provisions for indemnifying the business partner against any claim brought by a third-party to the extent any such claim alleges that a Company product infringes a patent, copyright or trademark, or violates any other proprietary rights of that third-party. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not estimable and the Company has not incurred any material costs to defend lawsuits or settle claims related to these indemnification agreements to date.

Legal Matters

The Company may be involved, from time to time, in a variety of claims, lawsuits, investigations, and proceedings relating to contractual disputes, intellectual property rights, employment matters, regulatory compliance matters and other litigation matters relating to various claims that arise in the normal course of business. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. The Company assesses its potential liability by analyzing specific litigation and regulatory matters using available information. The Company develops its views on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies. Taking all of the above factors into account, the Company records an amount where it is probable that the Company will incur a loss and where that loss can be reasonably estimated. However, the Company’s estimates may be incorrect and the Company could ultimately incur more or less than the amounts initially recorded. The Company may also incur significant legal fees, which are expensed as incurred, in defending against these claims. The Company is not currently aware of any pending or threatened litigation that would have a material adverse effect on the Company’s financial statements.

Vivato/XR

On April 19, 2017, XR Communications, LLC, d/b/a Vivato Technologies (“Vivato”), filed a complaint against the Company in the United States District Court for the Central District of California, alleging that at least one of the Company’s products infringes United States Patent Numbers 7,062,296 (the “'296 Patent”), 7,729,728 (the “'728 Patent”), and 6,611,231 (the “'231 Patent” and, collectively, the “Patents-in-Suit”) (the “Original Action”). On April 11, 2018, the Court stayed the Original Action pending completion of certain inter partes review (“IPR”) proceedings before the Patent Trial and Appeal Board (“PTO”). The PTO invalidated asserted claims of

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two of the three Patents-in-Suit.

On June 16, 2021, Vivato filed a new suit against the Company in the Central District of California, alleging that various Company products infringe some of the non-invalidated claims of the ’728 Patent and U.S. Patent No. 10,594,376 (the “New Action”). On November 24, 2021, the Company and the remaining defendants in the Original Action filed a motion for judgment on the pleadings regarding the '231 Patent. On January 4, 2022, the Court granted defendants’ motion and dismissed Vivato’s claims based on the '231 Patent. The Federal Circuit Court of Appeals affirmed the invalidity of the '231 Patent on May 18, 2023. All claims asserted against the Company in the Original Action have been dismissed.

On July 28, 2022, Vivato voluntarily dismissed, with prejudice, its remaining claims related to the '728 patent, as well as claims 22-31 of the '376 Patent. On October 20, 2022, an IPR was instituted with respect to the asserted claims of the '376 Patent. On October 26, 2022, the court stayed the case pending completion of the IPR. On October 3, 2023, the IPR with respect to the '376 Patent was terminated after the petitioners entered into a settlement agreement with Vivato. On November 10, 2023, the Company filed a new IPR petition with respect to the '376 Patent and a motion to reopen the prior IPR proceeding, which remains pending. On December 4, 2023, the court lifted the stay. Trial is currently scheduled for June 25, 2024.

The Company plans to vigorously defend itself against these claims; however, there can be no assurance that the Company will prevail in the lawsuit. The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with this litigation.

Network-1 Technologies, Inc.

On October 5, 2022, Network-1 Technologies, Inc. ("Network-1") filed a patent infringement lawsuit against the Company in the District of Delaware, alleging that various Company products infringe United States Patent Number 6,218,930, which relates to 802.3af and 802.3at “Power over Ethernet” standards. Network-1 seeks compensatory and enhanced damages, attorneys' fees and costs, and pre- and post-judgment interest. The Company plans to vigorously defend itself against these claims; however, there can be no assurance that the Company will prevail in the lawsuit. The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with this litigation.

Intellectual Ventures I LLC v. Ubiquiti Inc.

On August 8, 2023, Intellectual Ventures I LLC ("IV") filed a patent infringement lawsuit against the Company in the District of Delaware, alleging that various Company products infringe United States Patent Number 8,594,122, which relates to 802.11ac “Beamforming” standards. IV seeks compensatory and enhanced damages, attorneys' fees and costs, and pre- and post-judgment interest. The Company plans to vigorously defend itself against these claims; however, there can be no assurance that the Company will prevail in the lawsuit. The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with this litigation.

NOTE 10—COMMON STOCK AND TREASURY STOCK

Common Stock Repurchases

On May 3, 2022, the Board of Directors of the Company approved a $200 million stock repurchase program (the “2022 May Program”). Under the 2022 May Program, the Company was authorized to repurchase up to $200 million of common stock. The 2022 May Program expired on September 30, 2023, and the Company did not make any repurchases under the 2022 May Program.

NOTE 11—SHARE-BASED COMPENSATION

Share-Based Compensation Plans

The Company’s 2020 and 2010 Equity Incentive Plans are described in the Company’s Annual Report.

As of December 31, 2023, the Company had 4,921,319 authorized shares available for future issuance under all of its stock incentive plans.

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Share-Based Compensation

The following table shows total share-based compensation expense included in the consolidated statements of operations and comprehensive income for the three and six months ended December 31, 2023 and 2022 (in thousands):


	Three Months Ended December 31,				Six Months Ended December 31,
	2023		2022		2023		2022
Cost of revenues	$	35	$	13	$	69	$	24
Research and development	1,161		813		2,295		1,581
Sales, general and administrative	310		275		642		543
	1,506		1,101		$	3,006	$	2,148

Stock Options

There were no options exercised under the Company’s stock incentive plans during the three months ended December 31, 2023 and 2022.

During the six months ended December 31, 2023 and 2022, the aggregate intrinsic value of options exercised under the Company’s stock incentive plans was $0.0 million and $0.6 million, respectively, as determined as of the date of option exercise.

As of December 31, 2023, the Company had no unrecognized compensation costs related to stock options, and the Company did not grant any employee stock options during the three and six months ended December 31, 2023, and 2022.

Restricted Stock Units (“RSUs”)

The following table summarizes the activity of the RSUs made by the Company:


	Number of Shares	Weighted Average Grant Date Fair Value Per Share
Non-vested RSUs, June 30, 2023	62,948	$	256.78
RSUs granted	17,678	$	174.92
RSUs vested	(8,264)	$	182.19
RSUs canceled	(630)	$	290.47
Non-vested RSUs, December 31, 2023	71,732	$	244.90

The intrinsic value of RSUs vested in the three months ended December 31, 2023 and 2022 was $0.1 million and $0.6 million, respectively.

The intrinsic value of RSUs vested in the six months ended December 31, 2023 and 2022 was $1.4 million and $2.7 million, respectively.

The total intrinsic value of all outstanding RSUs was $10.0 million as of December 31, 2023.

As of December 31, 2023, there were unrecognized compensation costs related to RSUs of $11.4 million which the Company expects to recognize over a weighted average period of 3.0 years.

NOTE 12—INCOME TAXES

The Company recorded tax provisions of $20.7 million and $40.1 million for the three and six months ended December 31, 2023 as compared to $21.7 million and $39.9 million for the three and six months ended December 31, 2022. Our effective tax rate increased to 20.2% for the three months ended December 31, 2023 as compared to 16.2% for the three months ended December 31, 2022. Our effective tax rate increased from 16.3% for the six months ended December 31, 2022 to 19.1% for the six months ended December 31, 2023.

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The change in effective tax rates for the three and six months ended December 31, 2023, as compared to the same period in the prior year, was primarily driven by a combination of changes in the mix of the income earned in various tax jurisdictions and a one-time release of a reserve for unrecognized tax benefit due to statute of limitation during the three and six months ended December 31, 2022.

The Company’s estimated fiscal year 2024 effective tax rate, before discrete items, differs from the U.S. statutory rate primarily due to profits earned in jurisdictions where the tax rate is lower than the U.S. tax rate, partially offset by additional U.S. tax related to our non-U.S. operations under the Global Intangible Low-Taxes Income ("GILTI") rules.

As of December 31, 2023, the Company had approximately $34.7 million of unrecognized tax benefits, substantially all of which would, if recognized, affect its tax expense. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. As of December 31, 2023, the Company had $4.3 million accrued interest related to uncertain tax matters.

The Company and one or more of its subsidiaries, file income tax returns in the United States federal jurisdiction, and various state, local, and foreign jurisdictions and is currently undergoing income tax examinations by the U.S. Internal Revenue Service ("IRS") and the Hong Kong IRD. All material consolidated federal, state and local income tax matters have been concluded for years through 2014. The majority of the Company's foreign jurisdictions have been concluded through 2014, with the exception of Hong Kong which has been reviewed through 2009 and is currently under audit for the 2010-2017 tax years.

In July 2018, the Company received a draft Notice of Proposed Adjustment (“Draft NOPA”) from the IRS proposing an adjustment to income for the fiscal 2015 and fiscal 2016 tax years based on its interpretation of certain obligations of the non-US entities under the credit facility. This Draft NOPA was superseded by an Acknowledgement of Facts (“AOF”) issued to the Company by the IRS on January 17, 2020. The IRS in its AOF continued to propose an adjustment to the Company’s income for its fiscal 2015 and fiscal 2016 tax years based on the IRS’ interpretation of certain obligations of the Company’s foreign subsidiaries under the Company’s credit facilities. On May 12, 2020, the IRS issued a final Notice of Proposed Adjustment to the Company with respect to the 2015/2016 tax years. The Company formally protested the adjustment and the case was moved from the Examination Division to the IRS Appeals Division where a formal review of the facts and the applicable law took place on May 9, 2022. The Appeals Officer issued a Notice of Deficiency on August 3, 2022, which upheld the position of the Examination Division. The Company filed a petition with the United States Tax Court seeking to have the Notice of Deficiency reversed. On November 8, 2023, the Company filed a Motion for Summary Judgment. The IRS responded to our Motion on December 26, 2023 and filed a Cross-Motion for Summary Judgment. On January 22, 2024, the judge assigned to this case rejected both Motions for Summary Judgment. As such, the Company is awaiting a trial date to be set which it currently expects to receive by the end of December 2024. The Company strongly believes the position of the IRS with regard to this matter is without merit. However, there can be no assurance that this matter will be resolved in the Company’s favor. Regardless of whether the matter is resolved in the Company’s favor, the final resolution of this matter could be expensive and time-consuming to defend and/or settle. We estimate the incremental tax liability associated with the income adjustment proposed in the AOF would be approximately $50.0 million, excluding potential interest and penalties, after adjusting for the impact of an adjustment on the amount of transition tax payable in future years by the Company. As the Company believes that the tax originally paid in fiscal 2015 and fiscal 2016 is correct, it has not provided a reserve for this tax uncertainty. However, an adverse outcome may have a material and adverse effect on the Company’s results of operations and financial condition.

During fiscal years 2022, 2021, 2020, 2019, and 2018, the Company made a total of $3.0 million, $21.9 million, $15.5 million, $13.4 million, and $6.6 million, respectively, of deposits with the Hong Kong IRD in connection with extending the statute of limitation for income tax examinations currently under audit for 2010-2016 tax years. On March 30, 2023, the Company received notification that the Hong Kong IRD is seeking an additional $0.3 million deposit covering the 2017 tax year. The Company filed a formal protest in response to this notice and the Assessor's office agreed to a reduced deposit of under $0.1 million, which was remitted on May 18, 2023. The refundable deposits are included within other long-term assets on our Consolidated Balance Sheets. The IRD is examining the Company’s claims that its revenue is generated through activities performed wholly outside of the Hong Kong tax jurisdiction and are therefore exempt from Hong Kong tax. The Company is fully cooperating with the examination including submitting documentation in support of its position. The Company continues to believe that its tax positions filed with IRD are more likely than not to be sustained based on their technical merits and therefore no reserve has been provided for this tax uncertainty and we expect the $60.3 million (net of foreign currency impact) of deposits made with IRD to be refunded upon completion of the audit. However, there can be no assurance that this matter will be resolved in the Company’s favor and therefore it's possible that an adverse outcome of the matter could have a material effect on the Company’s results of operations and financial condition.

NOTE 13—SEGMENT INFORMATION, REVENUES BY GEOGRAPHY AND SIGNIFICANT CUSTOMERS

Management has determined that the Company operates as one reportable and operating segment as the Company’s Chief Executive Officer, who is the Company’s chief operating decision maker, does not make decisions about resources to be allocated or assess performance on a segment basis. Furthermore, the Company does not organize or report its costs on a segment basis. The Company presents its revenues by product type in two primary categories: Service Provider Technology and Enterprise Technology.

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Revenues by product type are as follows (in thousands, except percentages):


	Three Months Ended December 31,								Six Months Ended December 31,
	2023				2022				2023				2022
Enterprise technology	$	391,492	84	%	$	417,408	85	%	$	771,586	83	%	$	843,706	85	%
Service provider technology	73,462		16	%	76,163		15	%	156,446		17	%	147,948		15	%
Total revenues	$	464,954	100	%	$	493,571	100	%	$	928,032	100	%	$	991,654	100	%

Revenues by geography based on customer’s ship-to destinations were as follows (in thousands, except percentages):


	Three Months Ended December 31,								Six Months Ended December 31,
	2023				2022				2023				2022
North America (1)	$	225,858	49	%	$	227,452	46	%	$	450,642	49	%	$	453,165	46	%
Europe, the Middle East and Africa (“EMEA”)	172,951		37	%	195,098		40	%	345,345		37	%	395,241		40	%
Asia Pacific	33,270		7	%	43,946		9	%	69,356		7	%	89,278		9	%
South America	32,875		7	%	27,075		5	%	62,689		7	%	53,970		5	%
Total revenues	$	464,954	100	%	$	493,571	100	%	$	928,032	100	%	$	991,654	100	%

(1) Revenue for the United States was $210.4 million and $209.4 million for the three months ended December 31, 2023 and 2022, respectively. Revenue for the United States was $419.6 million and $419.7 million for the six months ended December 31, 2023 and 2022, respectively.

For the periods presented, there were no customers with an accounts receivable balance of 10% or greater of total accounts receivable or customers with net revenues of 10% or greater of total revenues.

NOTE 14—SUBSEQUENT EVENTS

Dividends

On February 5, 2024, the Company's Board of Directors approved a quarterly cash dividend of $0.60 per share payable on February 26, 2024 to shareholders of record at the close of business on February 20, 2024. Any future dividends will be subject to the approval of the Company’s Board of Directors.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read together with the financial statements and related notes that are included elsewhere in this quarterly report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this quarterly report, particularly in Note 9, “Commitments and Contingencies” to our consolidated financial statements and Part II “Other Information”, Item 1-Legal Proceedings and 1A-Risk Factors, in this report.

Overview

We develop technology platforms for high-capacity distributed Internet access, unified information technology, and consumer electronics for professional, home and personal use. We categorize our solutions into three main categories: high performance networking technology for enterprises, service providers and consumers. We target the enterprise and service provider markets through our highly engaged community of service providers, distributors, value added resellers, webstores, systems integrators and corporate IT professionals, which we refer to as the Ubiquiti Community. We target consumers through digital marketing, including through our webstores, retail chains and, to a lesser extent, the Ubiquiti Community.

In addition to Mr. Pera, our founder, Chairman of the Board and Chief Executive Officer, who is central to our business, the majority of our human capital resources consist of entrepreneurial and de-centralized research and development (“R&D”) personnel. We do not employ a traditional direct sales force, but instead drive brand awareness through online reviews and publications, our website, our distributors and our user community where customers can interface directly with our R&D, marketing, and support teams. Our technology platforms were designed from the ground up with a focus on delivering highly-advanced and easily-deployable solutions that appeal to a global customer base.

We offer a broad and expanding portfolio of networking products and solutions for operator-owners of wireless internet services (“WISPs”), enterprises and smart homes. Our operator-owner service-provider-product platforms provide carrier-class network infrastructure for fixed wireless broadband, wireless backhaul systems and routing and the related software for WISPs to easily

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control, track and bill their customers. Our enterprise product platforms provide wireless LAN (“WLAN”) infrastructure, video surveillance products, switching and routing solutions, security gateways, door access systems, and other complimentary WLAN products along with a unique software platform, which enables users to control their network from one simple, easy to use software interface. Our consumer products are targeted to the smart home and highly connected consumers. We believe that our products are differentiated due to our proprietary software, firmware expertise, and hardware design capabilities.

We distribute our products through a worldwide network of over 100 distributors and online retailers and direct to customers through our webstores.

Supply Constraints and Risks – We have experienced significant supply constraints since the COVID-19 pandemic. Our efforts to mitigate these supply constraints have included, for example, increasing our inventory build in an attempt to secure supply and meet customer demand, paying higher component and shipping costs to secure supply and modifying our product designs to leverage alternate suppliers. Although these mitigation efforts are intended to optimize our access to the components required to meet customer demand for our products, we have limited visibility into future sales, which makes it difficult to forecast our future results of operations. These mitigation efforts have caused our inventory and vendor deposit balances to increase in the past, and they may cause such increases in the future. These mitigation efforts therefore significantly increase the risks of future material excess, obsolete inventory and related losses. We believe that we are taking the right actions to mitigate these continuing supply constraints, however, we recognize the associated risks.

Russia-Ukraine Military Conflict – We are monitoring the military conflict between Russia and Ukraine, escalating tensions in surrounding countries, and associated economic sanctions. While the impact on our operations in Ukraine and its surrounding countries has not been material to our business or results of operations as of the date hereof, the full impact of the military conflict on our business and results of operations remains uncertain. The extent to which the conflict may impact our business or results of operations in future periods will depend on future developments, including the severity and duration of the conflict, its impact on regional and global economic conditions, as well as its impact on surrounding countries, including its impact on our operations in Ukraine and its surrounding countries, and its impact on global supply chains. Refer to “Part II – Item IA. Risk Factors” for a discussion of these factors and other risks.

China-Taiwan Tensions – We are monitoring the escalating tensions between China and Taiwan, and associated tensions between the U.S. and China. While the impact on our operations in Taiwan has not been material to our business or results of operations as of the date hereof, the full impact of the escalating tensions and potential military conflict on our business and results of operations remains uncertain. The extent to which the conflict may impact our business or results of operations in future periods will depend on future developments, including the severity and duration of the conflict, its impact on regional and global economic conditions, as well as its impact on China-U.S. relations, including its impact on our operations in Taiwan, and its impact on global supply chains. Refer to “Part II – Item IA. Risk Factors” for a discussion of these factors and other risks.

Key Components of Our Results of Operations and Financial Condition

Revenues

We operate our business as one reportable and operating segment. Further information regarding the segment can be found in Note 13, "Segment Information, Revenues by Geography and Significant Customers" to our Consolidated Financial Statements (unaudited). Our revenues are derived principally from the sale of networking hardware. Because we have historically included implied post-contract customer support (“PCS”) free of charge in many of our arrangements, we attribute a portion of our systems revenues to this implied PCS.

We classify our revenues into two primary product categories: Enterprise Technology and Service Provider Technology.

•Enterprise Technology includes our UniFi platforms, including UniFi Cloud Gateways, UniFi WiFi, UniFi Switches, UniFi Protect, UniFi Access, UniFi Talk, UniFi Connect and our AmpliFi platform.

•Service Provider Technology includes our airMAX, EdgeMAX, UFiber, Wave, GPON and airFiber platforms, as well as embedded radio products and other 802.11 standard products including base stations, radios, backhaul equipment and CPE.

We sell our products and solutions globally to enterprises and service providers primarily through our extensive network of distributors, and, to a lesser extent, through direct sales through our webstores. Sales to distributors accounted for 64% of our revenues during the six months ended December 31, 2023. Direct sales accounted for 36% of our revenue during the six months ended December 31, 2023.

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Cost of Revenues

Our cost of revenues is comprised primarily of the costs of procuring finished goods from our contract manufacturers and certain key components that we consign to certain of our contract manufacturers. In addition, cost of revenues includes labor and other costs which include salary, benefits and share-based compensation, in addition to costs associated with tooling, testing and quality assurance, warranty costs, logistics costs, tariffs and excess and obsolete inventory write-downs.

We currently operate warehouses located in the U.S., Europe and Asia Pacific. In addition, we outsource other logistics warehousing and order fulfillment functions located in Vietnam and to a lesser extent in other countries. We also evaluate and utilize other vendors for various portions of our supply chain from time to time. Our operations organization consists of employees and consultants engaged in the management of our contract manufacturers, new product introduction activities, logistical support and engineering.

Gross Profit

Our gross profit has been, and may in the future be, influenced by several factors including changes in product mix, target end markets for our products, channel inventory levels, tariffs, pricing due to competitive pressure, production costs and global demand for electronic components. Although we procure and sell our products mostly in U.S. dollars, our contract manufacturers incur many costs, including labor costs, in other currencies. To the extent that the exchange rates move unfavorably for our contract manufacturers, they may try to pass these additional costs on to us, which could have a material impact on our future average selling prices and unit costs. In June 2018, the Office of the United States Trade Representative announced new proposed tariffs for certain products imported into the U.S. from China. The vast majority of our products that are imported into the U.S. from China are currently subject to tariffs that range between 7.5% and 25%. These tariffs have affected our operating results and margins. For so long as such tariffs are in effect, we expect it will continue to affect our operating results and margins. As a result, our historical and current gross profit margins may not be indicative of our gross profit margins for future periods. Refer to “Part II—Item 1A. Risk Factors—Risks Related to Our International Operations—Our business may be negatively affected by political events and foreign policy responses” for additional information.

Operating Expenses

We classify our operating expenses as research and development and sales, general and administrative expenses.

•Research and development expenses consist primarily of salary and benefit expenses, including share-based compensation, for employees and costs for contractors engaged in research, design and development activities, as well as costs for prototypes, licensed or purchased intellectual property, facilities and travel. Over time, we expect our research and development costs to increase as we continue making significant investments in developing new products in addition to new versions of our existing products.

•Sales, general and administrative expenses include salary and benefit expenses, including share-based compensation, for employees and costs for contractors engaged in sales, marketing and general and administrative activities, as well as the costs of legal expenses, trade shows, marketing programs, promotional materials, bad debt expense, professional services, facilities, general liability insurance and travel. As our product portfolio and targeted markets expand, we may need to employ different sales models, such as building a traditional direct sales force. These sales models would likely increase our costs. Over time, we expect our sales, general and administrative expenses to increase in absolute dollars due to continued growth in headcount, expansion of our efforts to register and defend trademarks and patents and to support our business and operations.

Provisions for Income Taxes

We use the asset and liability method to account for income taxes. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. In preparing the consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. We must assess potential exposures and, where necessary, provide a reserve to cover any expected loss. To the extent that we establish a reserve, the provision for income taxes would be increased. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that tax liability is greater than our original estimate. We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations and comprehensive income. Refer to “Part II—Item 1A. Risk Factors—Risks Related to Regulatory, Legal and Tax Matters—Changes in applicable tax regulations could negatively affect our financial results” for additional information.

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Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. In other cases, management’s judgment is required in selecting among available alternative accounting standards that provide for different accounting treatment for similar transactions. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the amounts we report as assets, liabilities, revenues, costs and expenses and affect the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. In many instances, we could reasonably use different accounting estimates, and in some instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, our actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. Our critical accounting policies are discussed in our Annual Report, filed with the SEC on August 25, 2023, and there have been no material changes other than that have been disclosed in Note 2, "Summary of Significant Accounting Policies" to our consolidated financial statements herein. As events continue to evolve our estimates may change materially in future periods. We believe that the accounting policies discussed in our Annual Report, are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

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Results of Operations

Comparison of Three and Six Months Ended December 31, 2023 and 2022

The following table summarizes our consolidated results of operations for the periods indicated, expressed in dollars and as a percentage of total revenues (in thousands, except percentages):


	Three Months Ended December 31,								Six Months Ended December 31,
	2023				2022				2023				2022
			% of Revenues				% of Revenues				% of Revenues				% of Revenues
Revenues	$	464,954	100	%	$	493,571	100	%	$	928,032	100	%	$	991,654	100	%
Cost of revenues (1)	287,307		62	%	296,010		60	%	566,510		61	%	622,725		63	%
Gross profit	177,647		38	%	197,561		40	%	361,522		39	%	368,929		37	%
Operating expenses:
Research and development (1)	36,911		8	%	33,765		7	%	73,194		8	%	66,424		7	%
Sales, general and administrative (1)	19,634		4	%	18,643		4	%	38,923		4	%	35,339		4	%

Total operating expenses	56,545		12	%	52,408		11	%	112,117		12	%	101,763		11	%
Income from operations	121,102		26	%	145,153		29	%	249,405		27	%	267,166		26	%
Interest expense and other, net	18,262		4	%	11,272		2	%	39,486		4	%	21,923		2	%
Income before income taxes	102,840		22	%	133,881		27	%	209,919		23	%	245,243		24	%
Provisions for income taxes	20,724		4	%	21,676		4	%	40,053		4	%	39,856		4	%
Net income	$	82,116	18	%	$	112,205	23	%	$	169,866	19	%	$	205,387	20	%
(1) Includes share-based compensation as follows:
Cost of revenues	35				13				69				24
Research and development	1,161				813				2,295				1,581
Sales, general and administrative	310				275				642				543
Total share-based compensation	$	1,506			$	1,101			$	3,006			$	2,148

Revenues

Total revenues decreased $28.6 million, or 6%, from $493.6 million in the three months ended December 31, 2022 to $465.0 million in the three months ended December 31, 2023.

Total revenues decreased $63.6 million, or 6%, from $991.7 million in the six months ended December 31, 2022 to $928.0 million in the six months ended December 31, 2023.

The decline in revenues for the three months ended December 31, 2023 as compared to the same period in the prior year was primarily driven by a decrease in revenue from both our Enterprise Technology platform and Service Provider Technology platform. The decline in revenue for the six months ended December 31, 2023 as compared to the same period in the prior year was primarily driven by a decrease in revenue from our Enterprise Technology platform, partially offset by an increase in revenue from our Service Provider Technology platform.

Revenues by Product Type


	Three Months Ended December 31,								Six Months Ended December 31,
	2023				2022				2023				2022
	(in thousands, except percentages)								(in thousands, except percentages)
Enterprise technology	$	391,492	84	%	$	417,408	85	%	$	771,586	83	%	$	843,706	85	%
Service provider technology	73,462		16	%	76,163		15	%	156,446		17	%	147,948		15	%
Total revenues	$	464,954	100	%	$	493,571	100	%	$	928,032	100	%	$	991,654	100	%

Enterprise Technology revenue decreased $25.9 million, or 6%, from $417.4 million in the three months ended December 31, 2022 to

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$391.5 million in the three months ended December 31, 2023. Enterprise Technology revenue decreased $72.1 million, or 9%, from $843.7 million in the six months ended December 31, 2022 to $771.6 million in the six months ended December 31, 2023.

The decrease in Enterprise Technology revenue during the three months ended December 31, 2023, as compared to the same period in the prior year, was primarily due to decline in revenue from our Enterprise Technology platform in the EMEA and Asia Pacific regions. The decrease in Enterprise Technology revenue during the six months ended December 31, 2023 as compared to the same period in the prior year, was primarily due to decline in revenue across all regions except South America.

Service Provider Technology revenue decreased $2.7 million, or 4%, from $76.2 million in the three months ended December 31, 2022 to $73.5 million in the three months ended December 31, 2023. Service Provider Technology revenue increased $8.5 million, or 6%, from $147.9 million in the six months ended December 31, 2022 to $156.4 million in the six months ended December 31, 2023.

The decrease in Service Provider Technology in the three months ended December 31, 2023 as compared to the same period in the prior year was primarily due to decline in revenues in North and South America. The increase in Service Provider Technology revenue during the six months ended December 31, 2023 as compared to the same period in the prior year, was primarily due to increased revenue in all regions except South America.

Revenues by Geography

We have determined the geographical distribution of our product revenues based on our customers’ ship-to destinations. A majority of our sales are to distributors who either sell to resellers or directly to end customers, who may be located in different countries than the initial ship-to destination. The following are our revenues by geography for the three and six months ended December 31, 2023 and 2022 (in thousands, except percentages):


	Three Months Ended December 31,								Six Months Ended December 31,
	2023				2022				2023				2022
	(in thousands, except percentages)								(in thousands, except percentages)
North America(1)	$	225,858	49	%	$	227,452	46	%	$	450,642	49	%	$	453,165	46	%
Europe, the Middle East and Africa (“EMEA”)	172,951		37	%	195,098		40	%	345,345		37	%	395,241		40	%
Asia Pacific	33,270		7	%	43,946		9	%	69,356		7	%	89,278		9	%
South America	32,875		7	%	27,075		5	%	62,689		7	%	53,970		5	%
Total revenues	$	464,954	100	%	$	493,571	100	%	$	928,032	100	%	$	991,654	100	%

North America

Revenues in North America decreased $1.6 million, or 1%, from $227.5 million in the three months ended December 31, 2022 to $225.9 million in the three months ended December 31, 2023 and decreased $2.5 million, or 1%, from $453.2 million in the six months ended December 31, 2022 to $450.6 million in the six months ended December 31, 2023.

The decrease in North America revenues during the three months ended December 31, 2023 as compared to the same period in the prior year, was primarily due to decreased revenue from our Service Provider Technology products, offset in part by increased revenue from our Enterprise Technology products. The decrease in North America revenues during the six months ended December 31, 2023, as compared to the same period in the prior year, was primarily due to decreased revenue from our Enterprise Technology products partially offset by increased revenue from our Service Provider Technology products.

Europe, the Middle East, and Africa (EMEA)

Revenues in EMEA decreased $22.1 million, or 11%, from $195.1 million in the three months ended December 31, 2022 to $173.0 million in the three months ended December 31, 2023 and decreased $49.9 million, or 13%, from $395.2 million in the six months ended December 31, 2022 to $345.3 million in the six months ended December 31, 2023.

The decrease in EMEA revenues during the three and six months ended December 31, 2023 as compared to the same periods in the prior year, was primarily due to decreased revenue from our Enterprise Technology products, offset in part by increased revenue from our Service Provider Technology products.

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Asia Pacific

Revenues in the Asia Pacific region decreased $10.7 million, or 24%, from $43.9 million in the three months ended December 31, 2022 to $33.3 million in the three months ended December 31, 2023 and decreased $19.9 million, or 22%, from $89.3 million in the six months ended December 31, 2022 to $69.4 million in the six months ended December 31, 2023.

The decrease in Asia Pacific revenues during the three and six months ended December 31, 2023 as compared to the same periods in the prior year was primarily due to decreased revenue from our Enterprise Technology products, offset in part by increased revenue from our Service Provider Technology products.

South America

Revenues in South America increased $5.8 million, or 21%, from $27.1 million in the three months ended December 31, 2022 to $32.9 million in the three months ended December 31, 2023 and increased $8.7 million, or 16%, from $54.0 million in the six months ended December 31, 2022 to $62.7 million in the six months ended December 31, 2023.

The increase in South America revenues during the three and six months ended December 31, 2023 as compared to the same periods in the prior year was due to increased revenue from our Enterprise Technology products, partially offset by a decrease in revenue from our Service Provider Technology products.

Gross Profit

Gross profit margin decreased to 38.2% in the three months ended December 31, 2023, compared to 40.0% in the three months ended December 31, 2022 and increased to 39.0% in the six months ended December 31, 2023, compared to 37.2% in the six months ended December 31, 2022. The decrease in gross profit margin for the three months ended December 31, 2023, as compared to the comparable prior year period was driven by product mix and product-related costs, offset in part by lower shipping costs. The increase in gross profit margin for the six months ended December 31, 2023, as compared to the comparable prior year period was driven by lower shipping costs, offset in part by product mix.

Operating Expenses

Research and Development

Research and development (“R&D”) expenses increased by $3.1 million, or 9%, from $33.8 million in the three months ended December 31, 2022 to $36.9 million in the three months ended December 31, 2023. As a percentage of revenues, R&D expenses increased from 7% for the three months ended December 31, 2022 to 8% for the three months ended December 31, 2023.

R&D expenses increased by $6.8 million, or 10%, from $66.4 million in the six months ended December 31, 2022 to $73.2 million in the six months ended December 31, 2023. As a percentage of revenues, R&D expenses increased from 7.0% for the six months ended December 31, 2022 to 8.0% for the six months ended December 31, 2023

The increase in R&D expenses during the three and six months ended December 31, 2023 as compared to the comparable prior year periods was primarily driven by higher employee-related expenses and prototype-related expenses.

Sales, General and Administrative

Sales, general and administrative (“SG&A”) expenses increased $1.0 million, or 5%, from $18.6 million in the three months ended December 31, 2022 to $19.6 million in the three months ended December 31, 2023. As a percentage of revenues, SG&A expenses remained flat at 4% for the three months ended December 31, 2022 compared to the three months ended December 31, 2023.

SG&A expenses increased $3.6 million, or 10%, from $35.3 million in the six months ended December 31, 2022 to $38.9 million in the six months ended December 31, 2023. As a percentage of revenues, SG&A expenses remained flat at 4% for the six months ended December 31, 2022 compared to the six months ended December 31, 2023.

The increase in SG&A costs as compared to the comparable prior year periods was primarily due to higher employee-related expenses, marketing expenses and professional fees.

Interest Expense and Other, net

Interest expense and other, net ("I&O") expenses increased $7.0 million, or 62% from $11.3 million in the three months ended December 31, 2022 to $18.3 million in the three months ended December 31, 2023. As a percentage of revenue, I&O increased from

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2% for the three months ended December 31, 2022 to 4% for the three months ended December 31, 2023.

I&O expenses increased $17.6 million, or 80%, from $21.9 million in the six months ended December 31, 2022 to $39.5 million in the six months ended December 31, 2023. As a percentage of revenues, I&O expenses increased from 2% for the six months ended December 31, 2022 to 4% for the six months ended December 31, 2023.

The increase in I&O expenses during the three and six months ended December 31, 2023 as compared to the same periods in the prior year, was primarily due to higher interest expense due to incremental borrowings and increased interest rates.

Provision for Income Taxes

Our provision for income taxes decreased $1.0 million, or 4%, from $21.7 million for the three months ended December 31, 2022 to $20.7 million for the three months ended December 31, 2023. Our effective tax rate increased to 20.2% for the three months ended December 31, 2023 as compared to 16.2% for the three months ended December 31, 2022.

Our provision for income taxes increased $0.2 million, or 0.5%, from $39.9 million in the six months ended December 31, 2022 to $40.1 million in the six months ended December 31, 2023. Our effective tax rate increased from 16.3% for the six months ended December 31, 2022 to 19.1% for the six months ended December 31, 2023.

Liquidity and Capital Resources

Sources and Uses of Cash

Our principal source of liquidity are cash and cash equivalents, cash generated by operations, the availability of additional funds under the Facilities and short-term investments. We had cash and cash equivalents of $97.6 million and $114.8 million as of December 31, 2023 and June 30, 2023, respectively.

Consolidated Cash Flow Data

The following table sets forth the major components of our consolidated statements of cash flows data for the periods presented:


	Six Months Ended December 31,
	2023		2022
	(In thousands)
Net cash provided by operating activities	$	146,263	$	2,333
Net cash used in investing activities	(6,877)		(13,468)
Net cash (used in) provided by financing activities	(156,611)		34,416
Net (decrease) increase in cash and cash equivalents	$	(17,225)	$	23,281

Cash Flows from Operating Activities

Net cash provided by operating activities in the six months ended December 31, 2023 consisted primarily of net income of $169.9 million, a $50.1 million decrease in inventory, partially offset by other changes in operating assets and liabilities that resulted in net cash outflows of $48.6 million. This net change consisted primarily of a $53.6 million decrease in net accounts payable and accrued liabilities, a $29.3 million decrease in taxes payable, and a $17.0 million increase in vendor deposits.

Net cash provided by operating activities in the six months ended December 31, 2022 consisted primarily of net income of $205.4 million, partially offset by changes in operating assets and liabilities that resulted in net cash outflows of $219.1 million. This net change consisted primarily of a $388.1 million increase in inventory, a $32.3 million increase in accounts receivable, a $8.9 million increase in prepaid expense and other assets, a $221.5 million increase in net accounts payable and accrued liabilities, a $24.4 million decrease in taxes payable due to the timing of federal tax payments and a $15.0 million decrease in vendor deposits.

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Cash Flows from Investing Activities

We used $6.9 million of cash in investing activities during the six months ended December 31, 2023. Our investing activities consisted primarily of $6.9 million of capital expenditures.

We used $13.5 million of cash in investing activities during the six months ended December 31, 2022. Our investing activities consisted primarily of $13.5 million of capital expenditures.

Cash Flows from Financing Activities

We used $156.6 million of cash in financing activities during the six months ended December 31, 2023. During the six months ended December 31, 2023, we repaid $83.8 million under the Company's credit Facilities and used $72.5 million related to dividends paid on our common stock.

We used $34.4 million of cash in financing activities during the six months ended December 31, 2022. During the six months ended December 31, 2022, we used $72.5 million related to dividends paid on our common stock and received $107.5 million (net) of funds under the Company’s credit Facilities.

Liquidity

We believe our existing cash and cash equivalents, in addition to the ability to draw cash under the Revolving Facility, if needed, will be sufficient to meet our near-term working capital requirements, dividends, and capital expenditure needs for the next twelve months, as well as long-term liquidity requirements in the event that the cash from operations is not adequate to meet our cash needs. However, this estimate is based on a number of assumptions that may prove to be wrong and we could exhaust our available cash and cash equivalents earlier than presently anticipated or need to rely more heavily on the Facilities or other sources of liquidity to continue to meet our needs. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending to support development efforts, the timing of new product introductions, market acceptance of our products, management of inventory and vendor deposits, the availability of additional funds under the Facilities and overall economic conditions. The COVID-19 pandemic and resulting global disruptions and inflation have caused and may continue to cause significant volatility in financial markets and the domestic and global economy. This volatility can contribute to potential payment delays or defaults in our accounts receivable, affect asset valuations resulting in impairment charges, and affect the availability of financing credit as well as other segments of the credit markets. For a further discussion of the uncertainties and business risks, refer to "Part II-Item 1A. Risk Factors – Risks Related to Our Business and Industry – Our contract manufacturers, logistics centers and certain administrative and research and development operations, as well as our customers and suppliers, are located in areas likely to be subject to natural disasters, public health problems, military conflicts and geopolitical tensions, which could adversely affect our business, results of operations and financial condition" and "Part II-Item 1A. Risk Factors – Risks Related to Our Business and Industry – General global economic downturns and macroeconomic trends, including inflation or slowed economic growth, may negatively affect our customers and their ability to purchase our products. A downturn or such other trends may decrease our revenues and increase our costs and may increase credit risk with our customers and impact our ability to collect account receivable and recognize revenue," for additional information. We expect to continue to maintain financing flexibility in the current market conditions. However, due to the rapidly evolving global situation, it is not possible to predict whether unanticipated consequences of the pandemic, global economic downturns and macroeconomic trends are reasonably likely to materially affect our liquidity and capital resources in the future.

Warranties and Indemnifications

Our products are generally accompanied by a twelve to twenty-four month warranty from date of purchase, which covers both parts and labor. Generally, the distributor is responsible for the freight costs associated with warranty returns, and we absorb the freight costs of replacing items under warranty. In accordance with the Financial Accounting Standards Board’s ("FASB's"), Accounting Standards Codification ("ASC"), 450-20, Loss Contingencies, we record an accrual when we believe it is reasonably estimable and probable based upon historical experience. We record a provision for estimated future warranty work in cost of goods sold upon recognition of revenues, and we review the resulting accrual regularly and periodically adjust it to reflect changes in warranty estimates.

We have entered and may in the future enter into standard indemnification agreements with certain distributors as well as other business partners in the ordinary course of business. These agreements may include provisions for indemnifying the distributor, OEM or other business partner against any claim brought by a third-party to the extent any such claim alleges that a Ubiquiti product infringes a patent, copyright or trademark or violates any other proprietary rights of that third-party. The maximum amount of potential future indemnification is unlimited. The maximum potential amount of future payments we could be required to make under these indemnification agreements is not estimable.

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We have agreed to indemnify our directors, officers and certain other employees for certain events or occurrences, subject to certain limits, while such persons are or were serving at our request in such capacity. We may terminate the indemnification agreements with these persons upon the termination of their services with us, but termination will not affect claims for indemnification related to events occurring prior to the effective date of termination. The maximum amount of potential future indemnification is unlimited. We have a Directors and Officers insurance policy that limits our potential exposure for our indemnification obligations to our directors, officers and certain other employees. We believe the fair value of these indemnification agreements is minimal. We have not recorded any liabilities for these agreements as of December 31, 2023.

Based upon our historical experience and information known as of the date of this Quarterly Report on Form 10-Q, we do not believe it is likely that we will have material liability for the above indemnities as of December 31, 2023.

Contractual Obligations and Off-Balance Sheet Arrangements

Our contractual obligations represent material expected or contractually committed future payment obligations. We believe that we will be able to fund these obligations through our existing cash and cash equivalents, cash generated from operations and the availability of additional funds under the Facilities.

Purchase Obligations

Transition Tax

We have obligations of $50.6 million as of December 31, 2023, related to transition tax. Payment of these obligations are expected to be $22.5 million for fiscal 2025 and $28.1 million for fiscal 2026. These obligations are included within Income tax payable and Long-term taxes payable on our consolidated balance sheets.

Other Obligations

We had other obligations of $5.5 million as of December 31, 2023, which consisted primarily of commitments related to research and development projects.

Unrecognized Tax Benefits

As of December 31, 2023, we had $34.7 million of unrecognized tax benefits and an additional $4.3 million for accrued interest classified as non-current liabilities. At this time, we are unable to make a reasonably reliable estimate of timing of payments in individual years in connection with these tax liabilities.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, refer to Note 2 to the Consolidated Financial Statements.

Note About Forward-Looking Statements

When used in this Report, the words “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and negatives of those terms are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about our future results, sources of revenue, our dividend, our continued growth, our gross margins, market trends, our product development, our introduction of new products, technological developments, the features, benefits and performance of our current and future products, the ability of our products to address a variety of markets, the anticipated growth of demand for connectivity worldwide, our growth strategies, future prices, our competitive status, our efforts to mitigate shortages of components (including chipsets) used to manufacture our products, our dependence on our senior management and our ability to attract and retain key personnel, dependency on and concentration of our distributors, our employee relations, current and potential litigation, current or potential indemnification

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liabilities, the effects of government regulations, the impact of tariffs, the expected impact of taxes on our liquidity and results of operations, our compliance with laws and regulations, our expected future operating costs and expenses and expenditure levels for research and development, selling, general and administrative expenses, fluctuations in operating results, fluctuations in our stock price, our payment of dividends, our future liquidity and cash needs, and the adequacy of and our reliance on our source of liquidity to meet such needs, the Facilities (as defined herein), future acquisitions of and investments in complimentary businesses, the expected impact of various accounting policies and rules adopted by the Financial Accounting Standards Board ,the military conflict between Russia and Ukraine and the escalating tensions between China and Taiwan on our business and results of operations. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the impact of the global shortage of components (including chipsets) and pricing inflation associated therewith, the impact of U.S. tariffs on results of operations, our ability to procure products, our ability to manage our growth, our ability to sustain or increase profitability, demand for our products, our ability to compete, our ability to rapidly develop new technology and introduce new products, our ability to safeguard our intellectual property, trends in the markets that we compete and fluctuations in general economic conditions, the military conflict between Russia and Ukraine and the escalating tensions between China and Taiwan on our business, results and liquidity, and the risks set forth throughout this Report, including under Part II: “Other Information”, Item 1, “Legal Proceedings” and under Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof. Except as required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity

We had cash and cash equivalents of $97.6 million and $114.8 million as of December 31, 2023 and June 30, 2023, respectively. Cash and cash equivalents includes securities that have a maturity of three months or less at the date of purchase. These amounts were held primarily in cash deposit accounts in U.S. dollars. The fair value of our cash and cash equivalents would not be significantly affected by either a 10% increase or decrease in interest rates due mainly to the short-term nature of these instruments.

Debt

We are exposed to interest rates risks primarily through borrowing under our credit facility. Interest on our borrowings is based on variable rates. Based on a sensitivity analysis, as of December 31, 2023, an instantaneous and sustained 200-basis-point increase in interest rates affecting our floating rate debt obligations, and assuming that we take no counteractive measures, would result in an incremental charge to our income before income taxes of approximately $19.9 million over the next twelve months.

Foreign Currency Risk

Certain of our sales, labor and other costs included in costs of revenue and operating expenses are denominated in the currencies of the countries in which our operations are located and may be subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Chinese Yuan, Euro, and Taiwan Dollar. A 10% appreciation or depreciation in the value of the U.S. dollar relative to the other currencies in which our revenue and expenses are denominated would result in a charge or benefit to our income before income taxes of approximately $1.0 million for the three months ended December 31, 2023.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management, with the participation of the Company’s Chief Executive Officer and Chief Accounting and Finance Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company 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. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of December 31, 2023, our Chief Executive Officer and Chief Accounting and Finance Officer concluded that, as of such date, our disclosure controls and procedures were effective.

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Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2023, that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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