REPORT OF THE AUDIT COMMITTEE
The following report of the audit committee does not constitute soliciting material and shall not be deemed filed or incorporated by reference into any other filing by Ubiquiti under the Securities Act of 1933 or the Securities Exchange Act of 1934.
The audit committee assists our Board in fulfilling its responsibility to oversee management’s implementation of our financial reporting process. It is not the duty of the audit committee to plan or conduct audits or to determine that the financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Management is responsible for the financial statements and the reporting process, including the system of internal controls and disclosure controls. The independent registered public accounting firm is responsible for expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States.
In discharging its oversight role, the audit committee reviewed and discussed with our management and independent registered public accounting firm the audited financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024, as well as management’s assessment of internal control over financial reporting.
The audit committee has also discussed with the independent registered public accounting firm the matters required to be discussed by applicable requirements of the Public Company Accounting Oversight Board (PCAOB) and the SEC. The independent registered public accounting firm has provided to the audit committee the written disclosures and the PCAOB-required letter regarding its communications with the audit committee concerning independence.
In addition, the audit committee discussed with the independent registered public accounting firm its independence from us and our management and considered whether the provision of non-audit services was compatible with maintaining the registered public accounting firm’s independence.
Based upon these reviews and discussions, the audit committee recommended to our Board that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 for filing with the SEC.
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| Respectfully submitted by the members of the audit committee of our Board: |
| | Brandon Arrindell |
| | Ronald A. Sege |
| | Rafael Torres (Chairman) |
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EXECUTIVE OFFICERS
The following table sets forth the names, ages, as of October 28, 2024, and positions of our executive officers:
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Name | | Age | | | Position |
Robert J. Pera | | | 46 | | | Chief Executive Officer |
Kevin Radigan | | | 66 | | | Chief Accounting and Finance Officer |
Robert J. Pera. Mr. Pera founded our company in October 2003 and our company began current operations in 2005. Mr. Pera has served as our Chief Executive Officer since our inception. From January 2003 to February 2005, Mr. Pera was a wireless engineer with Apple, Inc., a consumer technology products company. Mr. Pera holds a B.A. in Japanese Language, a B.S. in Electrical Engineering and an M.S. degree in Electrical Engineering (emphasis in Digital Communications / RF Circuit Design) from the University of California, San Diego.
Kevin Radigan. Mr. Radigan has served as our Chief Accounting Officer since May 2016. Subsequently, Mr. Radigan’s title changed to Chief Accounting and Finance Officer in fiscal 2019. From January 2012 to March 2016, Mr. Radigan served as Chief Financial Officer at American Medical Alert Corp. (dba Tunstall Americas), a supplier of connected healthcare products and services, where he was responsible for the finance and accounting department. Previously, Mr. Radigan served in various finance and accounting positions in the pharmaceutical and electronics industries. Mr. Radigan has a Bachelor of Science in Accountancy degree from Long Island University.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following discussion and analysis of compensation arrangements of our named executive officers for fiscal 2024 should be read together with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current plans, considerations, expectations, and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation programs that we adopt may differ materially from currently planned programs as summarized in this discussion.
Overview
The compensation committee of our Board is responsible for establishing, implementing and monitoring our executive compensation program. Our Board or the compensation committee, as the case may be, seeks to ensure that the total compensation paid to our executive officers is fair and reasonable. Currently, we have two executive officers-our Chief Executive Officer and Chief Accounting and Finance Officer, whom we refer to as the named executive officers. Details of our fiscal 2024 compensation can be found in the Summary Compensation Table included in this proxy statement. We provide the types of compensation and benefits (e.g., health care, life insurance, 401(k) plan) to our named executive officers similar to those we provide to our senior managers.
This section describes our compensation program for our named executive officers. The discussion focuses on our executive compensation policies and decisions and the most important factors relevant to an analysis of these policies and decisions. We address why we believe our compensation program is appropriate for us and our stockholders and explain how executive compensation is determined.
Compensation philosophy and objectives
Generally, our compensation packages include competitive cash salaries with a significant percentage of total cash compensation tied to a discretionary cash bonus given at the end of the year based on our performance. The level of the executive officers' ownership of our Company may be revisited from time to time to ensure it aligns with our executive compensation philosophy. As our organizational priorities continue to evolve, our compensation committee may re-evaluate each component of our executive compensation program on a quantitative and qualitative basis to determine if the program is achieving our objectives.
Our executive compensation program is designed to attract talented, qualified executives to manage, grow and lead our Company and to motivate them to pursue and achieve our corporate objectives. Our existing compensation program includes short-term and long-term components, at-risk cash and equity elements in proportions that we believe will provide appropriate incentives to reward and retain our executives.
Our philosophy towards executive compensation reflects the following principles:
•Total compensation opportunities should be competitive with market leaders. We believe that our total compensation programs should be competitive with market leaders so that we can attract, retain and motivate talented executive officers who will help us to perform better than our competitors. We expect our executive officers to run a high-performance, efficient organization that rewards individual contributors for their ownership of various aspects of our business. We compensate our executive officers using the same philosophy.
•Total compensation should be related to our performance. We believe that a significant portion of our executive officers’ total compensation should be linked to achieving business objectives that we believe will create stockholder value and provide incentives to our officers to work as a team.
•Equity awards align the interests of our executive officers with those of our stockholders. We believe that in certain circumstances, an executive officer’s total compensation should have an equity component because stock-based equity awards help reinforce the executive officer’s long-term interest in our overall performance and thereby align the interests of the executive officer with those of our stockholders. We may, in certain circumstances provide refresher grants to our executive officers. To recognize the changes in our capital structure and management, we anticipate that the compensation committee will assess vested and unvested equity holdings regularly.
Based on these philosophies, we seek to reward our executive officers as and when we achieve our goals and objectives and to generate stockholder returns by providing equity-based compensation.
Our executives’ total compensation may vary from year to year based on our financial results and individual performance.
Weighting of compensation components. We do not use predefined ratios in determining the allocation of compensation between base salary, bonus and equity components. Rather, we set each executive’s total compensation based on our experience regarding market conditions, geographic considerations, our experience regarding market norms and other factors. Our compensation policies related to executive compensation apply equally to all of our executive officers.
Role of the compensation committee and executive officers in setting executive compensation.
The initial compensation arrangements with our executive officers, including the named executive officers, have been the result of arm’s-length negotiations with each individual executive. Individual compensation arrangements with executives have been influenced by a number of factors, including the following:
•our need to fill a particular position;
•our financial position and growth strategy at the time of hiring;
•the individual’s expertise and experience and prior compensation history; and
•the competitive nature of the position.
Fiscal 2024
Components of executive compensation. In fiscal 2024, our executive compensation program consisted of the following components: base salary; short-term incentive compensation, consisting of cash bonuses; and, in some cases, long-term equity-based incentive awards. We believe that each individual component is useful in achieving one or more of the objectives of our program. Together, we believe these components have been effective in achieving our overall objectives to date.
•We use base salary to attract and retain executives; base salary levels reflect differences in job scope and responsibilities.
•We provide cash bonuses to encourage executives to deliver on short-term operating goals and individual objectives; a significant portion of our executives’ cash compensation is linked to the achievement of short-term objectives.
•We in some cases use equity awards to encourage longer term perspective, reward innovation, provide alignment with stockholder interests, and attract and retain key talent.
Chief Executive Officer. Mr. Pera, our Chief Executive Officer, holds a majority of our outstanding common stock. In July 2013, Mr. Pera determined to reduce his base salary to $0.00 per fiscal year. We did not grant Mr. Pera any equity awards in fiscal 2011 through fiscal 2024 as he was a majority stockholder of our company throughout those fiscal years. We bear 100% of the costs associated with Mr. Pera’s general health and welfare benefits, as we do for all of our U.S.-based employees, and Mr. Pera's personal use of the Company airplane.
Chief Accounting and Finance Officer. Mr. Radigan has served as our Chief Accounting Officer since May 2016. In fiscal 2019, Mr. Radigan’s title changed to Chief Accounting and Finance Officer. For fiscal 2024, Mr. Radigan earned a base salary of $475,000, and was eligible for an annual target bonus equal to $100,000, based on the discretion of our Board. For fiscal 2025, Mr. Radigan's base salary was increased to $500,000, and he will be eligible for an annual target bonus equal to $100,000. On August 6, 2024, we granted Mr Radigan 1,358 RSUs with a grant date fair value of $200,000. These RSUs vest as follows: 340 RSUs vest on July 1, 2025; 340 RSUs vest on July 1, 2026; 339 RSUs vest on July 1, 2027; and the remaining 339 RSUs vest on July 1, 2028. On August 7, 2023, we granted Mr. Radigan 1,138 RSUs with a grant date fair value of $194,063. These RSUs vest as follows: 285 RSUs vested on July 1, 2024; 285 RSUs vest on July 1, 2025; 284 RSUs vest on July 1, 2026; and the remaining 284 RSUs vest on July 1, 2027. We also pay 100% of the costs associated with Mr. Radigan’s general health and welfare benefits, as we do for all of our U.S.-based employees.
Benefits. Our executives participate in our standard benefit plans for U.S. full-time salaried employees, which are offered to all U.S.-based employees and include our 401(k) plan. We maintain a 401(k) retirement plan which is intended to be a tax qualified defined contribution plan under Section 401(k) of the Internal Revenue Code. In general, all of our U.S. employees are eligible to participate in the 401(k) plan following the start date of their employment, at the beginning of each calendar month. The 401(k) plan provides a salary deferral program pursuant to which participants may elect to reduce their current compensation by up to the statutorily prescribed limit, equal to $23,000 in 2024, and contribute the withheld amount to the 401(k) plan. We may, in our sole discretion, make discretionary profit sharing and/or matching contributions to the 401(k) plan on behalf of our employees who are eligible to participate in the 401(k) plan. It has been our practice to match up to 1% of an employee’s annual salary, provided the employee contributes at least 4% of his or her salary. We offer this benefit to our named executive officers.
Our executives have the opportunity to participate in our health and welfare benefit programs which include a group medical program, a group dental program, a vision program, life insurance, and disability insurance. These benefits are the same as those offered to all of our U.S.-based employees. Through our benefit programs, each of our named executive officers receives group term life insurance in an amount equal to the lessor of twice their annual base salary or $500,000.
In fiscal 2020, as a result of an independent security study, the Company’s independent directors approved the purchase of an airplane, which Mr. Pera is now expected to use for all business and personal air travel. During the third quarter of fiscal 2020, the Company received the title to the airplane. In May 2020, the compensation committee and the Board approved a corporate aircraft utilization policy that sets forth the guidelines and procedures for use of the aircraft by Mr. Pera. Pursuant to the corporate aircraft utilization policy, Mr. Pera is required to utilize the corporate airplane (or other private aircraft where the corporate airplane is unavailable) for all business and personal travel due to a bone-fide business-oriented security concern. The policy also permits Mr. Pera’s immediate family members and/or his or their respective guests to travel aboard the corporate aircraft. Pursuant to the policy, Mr. Pera will not be required to reimburse the Company for any personal use of corporate aircraft by him, his immediate family members and/or his or their respective guests. In addition, while the compensation committee has approved reimbursing Mr. Pera for FICA taxes associated with personal use of the corporate aircraft, the Company will not reimburse Mr. Pera for any federal, state or local taxes arising from imputed income relating to any such personal use.
Although we consider Mr. Pera’s use of corporate aircraft for personal travel to be a security measure for the Company’s benefit, and not a perquisite for Mr. Pera’s benefit, the aggregate incremental costs to the Company related to any use of the corporate aircraft for personal travel (and any related FICA tax reimbursement) is reported as compensation to Mr. Pera in the “All Other Compensation” column in the Company’s Summary Compensation Table.
Stock ownership guidelines. We do not currently have stock ownership guidelines.
Consideration of Say-on-Pay Vote Results. The Company currently provides its stockholders with the opportunity to cast an advisory vote on executive compensation once every two years (a “say-on-pay proposal”). Stockholders are being asked to approve the frequency of future stockholder votes on executive compensation at the Annual Meeting. Our Board has recommended a vote for "Two Years" as the frequency with which stockholders are provided a non-binding advisory stockholder vote on executive compensation. Assuming stockholders approve a frequency of “two years,” it is expected that the next “say-on-pay” advisory vote will occur at our 2026 Annual Meeting. The compensation committee will continue to consider the results of the Company’s say-on-pay votes when making future compensation decisions for the named executive officers.
Compensation Approaches
Compensation Committee. The compensation committee of our Board has overall responsibility for recommending to our Board the compensation of our Chief Executive Officer and approving the compensation of our other executive officers. Members of the committee are appointed by our Board. Currently, the committee consists of three members of our Board, Messrs. Arrindell, Sege and Torres. Our Board determined that each member of our compensation committee was and remains a “nonemployee” director for
purposes of Rule 16b-3 under the Securities Act of 1934, as amended, or the Exchange Act and an “independent director” as that term is defined under the rules of the NYSE.
The fundamental responsibilities of our compensation committee are:
•to provide oversight of our compensation policies, plans and benefit programs including reviewing and making recommendations to our Board regarding compensation plans, as well as general compensation goals and guidelines for our executive officers and our Board;
•to review and determine all compensation arrangements for our executive officers (including our Chief Executive Officer) and to allocate total compensation among the various components of executive pay;
•to review and approve all equity compensation awards to our executive officers (including our Chief Executive Officer); and
•to oversee and direct our equity compensation plans, as applicable to our employees, including executive officers.
The compensation committee has the authority to engage the services of outside consultants pursuant to the committee’s charter.
In determining each executive officer’s compensation, our compensation committee will review our business performance and financial condition and assess the performance of the individual executive officer. The evaluation of individual performance is conducted by the compensation committee in the case of the Chief Executive Officer, and by the Chief Executive Officer in the case of other executives. The Chief Executive Officer meets with the compensation committee to discuss executive compensation matters and to make recommendations to the compensation committee with respect to other executives. The compensation committee may modify individual compensation components for executives other than the Chief Executive Officer after reviewing the Chief Executive Officer’s recommendations. The compensation committee is not bound to, and may not always accept, the Chief Executive Officer’s recommendations. The compensation committee also reviews the Chief Executive Officer’s performance and confers with the full board of directors (excluding the Chief Executive Officer). The compensation committee then makes all final compensation decisions for executive officers and approves any equity incentive awards for all of our executive officers. In addition, it is the committee’s practice to consult with the independent members of our Board prior to making material changes to our compensation policies.
Although we may make many compensation decisions in the first quarter of the fiscal year, the compensation evaluation process is ongoing. Compensation discussions and decisions are designed to promote our fundamental business objectives and strategy. Evaluation of management performance and rewards are performed annually or more often as needed. The compensation committee has the discretion to adjust a component of compensation during the year in the event that it determines that circumstances warrant.
Generally, we have granted equity awards to executive officers. However, this practice may vary depending on the specific facts and circumstances of each officer. The grants to each executive officer were principally based on the prevailing range of grants to our other executives with consideration given to the nature of the job and the individual’s experience, as well as the current market conditions relating to equity ownership of officers in similar positions at similarly situated companies. Our compensation committee does not have any specific policy regarding the timing of equity awards and, under certain circumstances, such awards may be made following an executive officer's start date and regularly on an annual basis.
Policies and Practices Related to the Grant of Certain Equity Awards Close in Time to the Release of Material Nonpublic Information
We do not grant stock options, stock appreciation rights, or similar option-like instruments and, as such, do not have any policy or practice in place on the timing of awards of options, stock appreciation rights, or similar option-like instruments in relation to the disclosure of material non-public information. If in the future we anticipate granting stock options, stock appreciation rights, or similar option-like instruments, we may determine to establish a policy regarding how the Board determines when to grant such awards and how the Board or compensation committee will take material nonpublic information into account when determining the timing and terms of such awards.
Severance Compensation and Termination Protection
See the sections entitled “-Employment Agreements” or “-Potential Payments upon Termination or Change of Control” for a description of agreements with, and the tables setting forth, the potential severance to be made to each named executive officer and definitions of key terms under these agreements.
Accounting and Tax Considerations
Section 162(m) of the Internal Revenue Code generally limits the Company's federal income tax deduction for any compensation in excess of one million dollars paid to named executive officers. While the compensation committee takes the deductibility limitations of Section 162(m) into account in its compensation decisions, the compensation committee may authorize compensation payments that are not exempt under Section 162(m) when the committee believes that such payments are appropriate to attract or retain talent.
