What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-08-21 compared with 2019-08-21 · 114 added, 124 removed, 224 unchanged (52% of the section changed)

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high performance networking technology for service providers, enterprises and consumers.

The majority of our resources consist of entrepreneurial and de-centralized research and development ("R&D").

We do not employ a traditional direct sales force, but instead drives brand awareness through online reviews and publications, our website, its distributors and the company’s user community where customers can interface directly with R&D, marketing, and support.

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 markets.

We target the service provider and enterprise markets through our highly engaged community of service providers, distributors, value added resellers, systems integrators and corporate IT professionals, which we refer to as the Ubiquiti Community.

We target consumers through digital marketing, retail chains and, to a lesser extent, the Ubiquiti Community.

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 the Company’s 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 market.

We offer a broad and expanding portfolio of networking products and solutions for operator-owners of wireless internet services (“WISP’s”), enterprises and smart homes.

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We believe that our products are highly differentiated due to our proprietary software, firmware expertise, and hardware design capabilities.

As a core part of our strategy, we have developed a differentiated business model for marketing and selling high volumes of carrier and enterprise-class communications platforms.

Our business model is driven by a large, growing and highly engaged community of service providers, distributors, value added resellers, systems integrators and corporate IT professionals, which we refer to as the Ubiquiti Community.

The Ubiquiti Community is a one element of our business strategy as it enables us to drive:

• Rapid customer and community driven product development.

We have an active, loyal community built from our customers that we believe is a sustainable competitive advantage.

Our solutions benefit from the active engagement between the Ubiquiti Community and our development engineers throughout the product development cycle, which eliminates long and expensive multistep internal processes and results in rapid introduction and adoption of our products.

This approach significantly reduces our development costs and time to market.

• Scalable sales and marketing model.

We do not maintain the traditional direct sales force as compared to some of our competitors, but instead utilize our distribution partners, digital marketing and the Ubiquiti Community to drive market awareness and demand for our products and solutions.

We believe this community-propagated viral marketing enables us to reach markets far more efficiently and cost-effectively than is possible through traditional sales models.

Leveraging the information transparency of the Internet allows customers to research, evaluate and validate our solutions with the Ubiquiti Community and via third party web sites.

By reducing the cost of development, sales, marketing and support we are able to offer innovative solutions with disruptive price performance characteristics to our customers.

We distribute our products through a worldwide network of over 100 distributors and on-line retailers.

The Company has a very broad installed base with over 101 million devices sold in over 200 countries and territories around the world, since inception.

COVID-19 Update - The 2019 novel coronavirus (COVID-19), which the World Health Organization (“WHO”) characterized as a pandemic in March 2020, continues to disrupt global economies, and has spread to the major markets in which we operate, including the United States, Asia, Europe and South America.

The COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including, among others, restrictions on travel, stay-at-home orders or work remote or from home conditions in many of the locations where we have offices.

We have taken and will continue to take precautionary measures intended to help minimize the risk of COVID-19 to our employees.

While we have not yet experienced a significant disruption to the productivity of our employees as a result of the COVID-19 pandemic, if the stay-at-home orders or work remote or from home conditions in any of our facilities continue for an extended period of time, or if we have an outbreak in any of our facilities, we may, among other issues, experience delays in product development, a decreased ability to support our customers, disruptions in sales and an overall lack of productivity.

We have experienced a disruption in our supply chain as a result of the COVID-19 related restrictions that have impacted our suppliers’ ability to manufacture or provide key components or services, and we have incurred, and continue to incur, additional cost to expedite deliveries of components and services.

While our ability to procure components and services has improved, the disruptions in our supply chain have not been fully remediated.

The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including further disruptions to our supply chain, reductions in demand due to disruptions in the operations of our customers or their end customers, disruptions in local and global economies, volatility in the global financial markets, overall reductions in demand, restrictions on the export or shipment of our products or other COVID-19-related events.

This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that

depend on these estimates and assumptions.

Refer to Risk Factors (Part I, Item 1A of this Form 10-K) for a discussion of these factors and other risks.

Key Components of Our Results of Operations and Financial Condition

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Further information regarding Segments can be found in Note 15 to our Consolidated Financial Statements.

Our revenues are derived principally from the sale of networking hardware and management tools.

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.

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Additionally, Service Provider Technology includes antennas and other products primarily in the 0.9 to 6.0 GHz spectrum and miscellaneous products such as mounting brackets, cables and power over Ethernet adapters.

• Enterprise Technology includes our UniFi enterprise Wi-Fi, UniFi Protect Products, UniFi switching and routing solutions, including AmpliFi.

• Enterprise Technology includes our UniFi platforms, including UniFi enterprise Wi-Fi, UniFi Protect, UniFi switching and routing solutions and our AmpliFi platform

We sell our products and solutions globally to service providers and enterprises primarily through our extensive network of distributors, and, to a lesser extent, direct customers.

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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 include labor and other costs w hich includes salary, benefits and stock-based compensation, in addition to costs associated with tooling, testing and quality assurance, warranty costs, logistics costs, tariffs and excess and obsolete inventory reserves.

In addition, cost of revenues includes labor and other costs w hich include salary, benefits and stock-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 U.S.

and the Czech Republic.

In addition, we outsource other logistics warehousing and order fulfillment functions located in China.

In addition, we outsource other logistics warehousing and order fulfillment functions located in China 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.

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In June 2018, the Office of the United States Trade Representative announced new proposed tariffs for certain products imported into the U.S.

As of September 24, 2018, these tariffs were implemented with an initial rate of 10% impacting a portion of our products.

On May 10, 2019, the Office of the U.S.

Trade Representative increased tariffs on certain imported goods from China to 25%.

On May 13, 2019, the U.S.

Trade Representative released a list of Chinese-origin products with an annual trade value of approximately $ 300 billion on which the U.S.

proposed to impose Section 301 tariffs of up to 25%, which covered almost all remaining imports from China that are not already subject to Section 301 tariffs.

On June 29, 2019 President Trump announced that trade negotiations with China are resuming and the proposed Section 301 tariffs on $300 billion worth of Chinese goods, first announced on May 13, 2019, were place on hold.

On August 13, 2019, it was announced the Section 301 tariffs on $300 billion would go into effect in two parts.

"List 4A" on September 1, 2019 at 10% and "List 4B" on December 15, 2019 at 10%.

The progress and continuation of the negotiations continues to be uncertain and an escalation of the trade war remains a possibility.

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%.

On January 22, 2020, the United States of Trade Representative announced it will reduce Section 301 List 4A additional tariffs from 15% to 7.5% and the List 4B tariffs would not go into effect.

These tariffs have already affected our operating results and margins.

As a result, current gross profit margins may not be indicative of future periods.

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 I—Item 1A.

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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.

The Company must assess such potential exposures and, where necessary, provide a reserve to cover any expected loss.

To the extent that the Company establishes a reserve, its provision for income taxes would be increased.

If the Company ultimately determines that payment of these amounts is unnecessary, it reverses the liability and recognizes a tax benefit during the period in which it determines that the liability is no longer necessary.

The Company records an additional charge in its provision for taxes in the period in which it determines that tax liability is greater than its original estimate.

The Company recognizes 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 I—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.

Critical Accounting Policies

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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.

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.

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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.

Additionally, as the COVID-19 pandemic continues to develop, many of our estimates could require increased judgement and carry a higher degree of variability and volatility.

As events continue to evolve our estimates may change materially in future periods.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Recognition of Revenues

Prior to fiscal year 2019, our revenue recognition policy was based on ASC 605 - Revenue Recognition ("ASC 605") and is described in the section entitled Critical Accounting Policies under Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, filed with the SEC on August 24, 2018.

Effective July 1, 2018, we adopted the new revenue recognition guidance under ASC 606 as discussed in the section titled Recently Adopted Accounting Pronouncement s in Note 2 of our consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K.

We primarily generate revenue from sales of hardware and the related essential software ("Products") as well as related implied post contract customer services ("PCS").

Revenue consists of revenue from sales of hardware and the related essential software (“Products”) as well as related implied PCS.

We recognize revenue when obligations under the terms of a contract with our customers are satisfied, generally, upon transfer of control of promised goods or services to customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services.

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• Recognition of revenue when, or as, we satisfy the performance obligation

Transfer of control to the customer for products generally occurs at the point in time when products have been picked up at our logistics centers by our distribution partners or in the case of web based sales when the customer has received the products 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 deferred and recognized ratably over time over the estimated period for which implied PCS services will be delivered.

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.

PCS is the right to receive, on a when-and-if available basis, future unspecified software upgrades and features relating to the product’s essential software as well as technical support and bug fixes.

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The Company’s distinct performance obligations consist mainly of transferring control of its products identified in the contracts, purchase orders or invoices and implied PCS services.

Our contracts with the majority of our distribution customers do not include provisions for cancellations, returns, inventory swaps, or refunds that materially impact recognized revenue.

Internet or Web based sales include regulatory provisions which allow customers to return the goods, generally within 30 days.

The Web based sales have not been material to the Company results and potential refund would not materially impact recognized revenue.

Our contracts with the majority of our distribution customers do not include provisions for cancellations, returns, inventory swaps, or refunds that materially impact recognize d revenue.

Internet or Web based sales include regulatory provisions which allow customers to return the goods, generally within 30 days and did not materially impact recognized revenue.

We record amounts billed to distributors for shipping and handling costs as revenues.

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The Company also considers the rate at which new products will be accepted in the marketplace and how quickly customers will transition from older products to newer products.

If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required, which would have a negative impact on the Company's gross margin.

If actual market conditions are less favorable than

those projected by management, additional inventory write-downs may be required, which would have a negative impact on the Company’s gross margin.

If the Company ultimately sells inventory that has been previously written down, the Company’s gross margins in future periods would be positively impacted.

The Company capitalizes manufacturing overhead expenditures as part of inventory costs.

Capitalized costs primarily include management’s best estimate of the direct labor and materials costs incurred related to inventory acquired or produced but not sold during the respective period.

Capitalized costs primarily include management’s best estimate of the direct labor, tariffs and materials costs incurred related to inventory acquired or produced but not sold during the respective period.

Manufacturing overhead costs are capitalized to inventory and are recognized as cost of revenues in future periods based on the Company’s rate of inventory turnover.

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Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet.

On December 22, 2017, the U.S.

government enacted a comprehensive tax legislation, commonly referred to as the U.S.

Tax Cuts and Jobs Act (the “2017 Tax Act”).

The 2017 Tax Act reduced the U.S.

federal corporate income tax rate to 21% from 35%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and

created new taxes on certain foreign-sourced earnings.

In fiscal year 2018 we recorded provisional amounts for certain enactment-date effects of the 2017 Tax Act by applying the guidance in Staff Accounting Bulletin No.

118 ("SAB 118"), because we had not yet completed our enactment-date accounting for these effects.

In the second quarter of fiscal year 2019, we completed our enactment-date accounting for these effects.

As a result during fiscal 2018 and 2019, the Company recorded tax expense related to the enactment-date effects of the 2017 Tax Act that included recording the one-time transition tax liability related to undistributed earnings of certain foreign subsidiaries that were not previously taxed, and adjusting deferred tax assets and liabilities to reflect the new corporate tax rate.

Refer to “Part I-Item 1A.

Risk Factors-Risks Related to our Business and Industry- Changes in applicabl e ta x regulations could negatively affect our financial results.”

Results of Operations

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Total stock-based compensation $ 2,888 $ 2,890

(2) Includes the excess tax benefits resulting from the adoption of ASU 2016-09 Stock Compensation $ — $ (29,091)

(3) Includes Tax Reform

$ 2,765 $ 116,572

Revenues increased $122.8 million, or 11%, from $1.2 billion in fiscal 2019 to $1.3 billion in fiscal 2020.

During fiscal year ended June 30, 2020, there were no material price changes in the Company’s products sold.

However, the Company continues to introduce new products which have average selling price and margins different than our legacy products.

However, the Company continues to introduce new products which may have average selling prices and margins different than our legacy products.

Revenues by Product Type

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Total revenues $ 1,284,500 100 % $ 1,161,733 100 %

Service Provider Technology revenues decreased $18.1 million, or 4.1%, from $446.6 million in fiscal 2018, to $428.5 million in fiscal 2019, primarily due to decreased revenue in South America, Asia Pacific and North America, partially offset by an increase in EMEA.

Service Provider Technology revenues increased $13.5 million, or 3.2%, from $428.5 million in fiscal 2019, to $442.0 million in fiscal 2020, primarily due to increased revenue in North America and EMEA, partially offset by a decrease in Asia Pacific and South America.

Enterprise Technology revenues increased $109.2 million, or 14.9%, from $733.2 million in fiscal 2019, to $842.5 million in fiscal 2020 primarily due to product expansion and further adoption of our UniFi technology platform across all regions.

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$ 571,901 45 % $ 497,218 43 %

South America 78,723 7 % 92,251 9 %

Europe, the Middle East and Africa ("EMEA") 477,332 41 % 411,388 41 %

Europe, the Middle East and Africa 517,132 40 % 477,332 41 %

Asia Pacific 112,121 9 % 108,460 9 %

South America 83,346 6 % 78,723 7 %

Total revenues $ 1,284,500 100 % $ 1,161,733 100 %

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Revenues in North America increased $74.7 million, or 15.0%, from $497.2 million in fiscal 2019 to $571.9 million in fiscal 2020.

The year-over-year increase was primarily due to increased revenue from Enterprise Technology products, partially offset by a decrease in Service Provider Technology products.

The year-over-year increase was primarily due to increased revenues from both our Enterprise Technology and Service Provider Technology products.

South America

Revenues in South America decreased $13.5 million, or 14.7%, from $92.3 million in fiscal 2018 to $78.7 million in fiscal 2019.

The year-over-year decrease was primarily due to decreased revenue from our Service Provider Technology products, partially offset by increased revenue in our Enterprise Technology products.

Revenues in South America increased $4.6 million, or 5.9%, from $78.7 million in fiscal 2019 to $83.3 million in fiscal 2020.

The year-over-year increase was primarily due to increased revenue from our Enterprise Technology products, partially offset by decreased revenue in our Service Provider Technology products.

Europe, the Middle East, and Africa (“EMEA”)

Revenues in EMEA increased $39.8 million, or 8.3%, from $477.3 million in fiscal 2019 to $517.1 million in fiscal 2020.

The year-over-year increase was due to increased revenue from both our Enterprise Technology products and Service Provider Technology products.

The year-over-year increase was due to increased revenues from both our Enterprise Technology products and Service Provider Technology products.

Revenues in the Asia Pacific region increased $3.7 million, or 3.4%, from $108.5 million in fiscal 2019 to $112.1 million in fiscal 2020.

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Cost of revenues increased $52.2 million, or 8.4%, from $624.1 million in fiscal 2019 to $676.3 million in fiscal 2020.

The increase in fiscal 2019 was primarily due to cost increase associated with an overall increase in revenue, higher indirect costs, higher tariffs partially offset by lower costs associated with obsolete inventory.

The increase in fiscal 2020 was primarily due to cost increase associated with an overall increase in revenue, higher indirect costs, higher tariffs and expedited shipping costs.

Gross profit margin increased to 47.3% in fiscal 2020 from 46.3% in fiscal 2019.

The increase was primarily driven by favorable mix of products sold, lower inventory write-offs, partially offset by higher indirect costs and tariff related costs.

The increase was primarily driven by favorable changes in product mix, partially offset by higher tariffs and expedited shipping costs.

Operating Expenses

Research and Development

Research and development expenses increased $7.7 million, or 10.4%, from $74.3 million in fiscal 2018 to $82.1 million in fiscal 2019.

As a percentage of revenues, research and development expenses remained relatively flat at 7.1% in fiscal 2019 and fiscal 2018.

The increase in R&D expense in absolute dollars was driven by higher employee related expenses and other development activities.

Research and development (“R&D”) expenses increased $7.3 million, or 8.9%, from $82.1 million in fiscal 2019 to $89.4 million in fiscal 2020.

As a percentage of revenues, research and development expenses decreased from 7.1% in fiscal 2019 to 7.0% in fiscal 2020.

The increase in R&D expense in absolute dollars was primarily driven by higher-employee related expenses and general development activities.

Sales, General and Administrative

Sales, general and administrative expenses increased $0.1 million, or 0.3%, from $43.1 million in fiscal 2018 to $43.2 million in fiscal 2019.

Sales, general and administrative (“SG&A”) expenses decreased $2.7 million, or 6.2%, from $43.2 million in fiscal 2019 to $40.6 million in fiscal 2020.

As a percentage of revenues, sales, general and administrative expenses decreased from 3.7% in fiscal 2019 to 3.2% in fiscal 2020.

Fiscal 2019 expenses were consistent with fiscal 2018 primarily due to higher employee related costs and web store operating costs offset, in part by lower professional fees, marketing expense and stock based compensation .

Litigation Settlement

On February 3, 2017, Synopsys, Inc.

(“Synopsys”) filed a complaint against the Company, one of our subsidiaries and an employee in the United States District Court for the Northern District of California, alleging claims under the Digital Millennium Copyright Act.

On January 17, 2019, the Company and Synopsys entered into a settlement pursuant to which the Company paid $18 million to Synopsys and agreed to a permanent injunction to prevent any unlicensed use of Synopsys’s software.

As a result of the settlement, the litigation with Synopsys was dismissed.

The settlement does not contain any admission of liability, wrongdoing, or responsibility by any of the parties.

The decrease in SG&A in absolute dollars was primarily due to lower professional fees and employee related costs offset, in part by higher marketing expenses, increased service fees and higher depreciation.

Provision for Income Taxes

Our provision for income taxes decreased 50% from $117.9 million for fiscal 2018 to $58.8 million for fiscal 2019.

Our effective tax rate decreased to 15.4% in fiscal 2019 as compared to 37.5% for fiscal 2018.

The lower effective tax rate in fiscal 2019 is primarily related to the one time repatriation tax recognized in fiscal 2018 due to Tax Reform.

Prior to the changes in Tax Reform the company had experienced an effective tax rate between 9.6% and 11.0% for during 2015 to 2017.

Fiscal 2018 increased to 37.5% due to the estimated one-time transition taxes.

For fiscal 2019 we recorded final true up to the one-transition tax liability and recognized additional taxes due to Internal Revenue Service issuing final rules in June 2019, TD 9866 (the "Final GILTI Regulations").

As a result of the Final GILTI Regulations, the Company will have and continue to have a higher portion of its foreign subsidiaries profits being included in U.S.

taxable income.

The combined impact of these changes resulted in the Company effective tax rate increasing to 15.4%.

Our provision for income taxes increased 18.9% from $58.8 million for fiscal 2019 to $69.9 million for fiscal 2020.

Our effective tax rate increased to 15.5% in fiscal 2020 as compared to 15.4% for fiscal 2019.

The slight increase in the effective tax rate in fiscal 2020 is primarily due to the mix of earnings earned in various jurisdictions.

Comparison of Year Ended June 30, 2019 and 2018

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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 Credit Facilities and short and long term investments.

We had cash and cash equivalents of $238.1 million and $666.7 million at June 30, 2019 and 2018.

During the first quarter of fiscal year 2019, the Company began investing cash in various fixed income available-for-sale securities.

As of June 30, 2019, we held $103.3 million in total investments of which $1.9 million is recorded in cash and cash equivalents.

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 and long-term investments.

We had cash and cash equivalents of $142.6 million and $238.1 million at June 30, 2020 and 2019, respectively.

In fiscal year 2019 the Company began investing cash in various fixed income available-for-sale securities.

As of June 30, 2020 and 2019 we held $2.5 million and $103.3 million respectively, in available-for-sale securities.

Our securities investment portfolio consists of high quality, investment grade securities from diverse issuers.

Refer to “Part I—Item 1A.

Risk Factors—Risks Related to Our Business and Operations—We may experience risks in our investments due to changes in the market, which could adversely affect the value or liquidity of our investments.” for additional information.

Consolidated Cash Flow Data

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Net cash provided by operating activities $ 460,284 $ 259,258

Net cash (used in) investing activities (157,567) (9,115)

Net cash provided by (used in) investing activities 69,584 (157,567)

Net cash (used in) financing activities (625,398) (530,225)

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Cash Flows from Operating Activities

Net cash provided by operating activities in fiscal 2019 consisted primarily of net income of $322.7 million, partially offset by the changes in operating assets and liabilities that resulted in net cash outflow of $78.3 million.

This net change was primarily driven by outflows arising from $163.7 million increase in inventory, partially offset by $27.7 million decrease in vendor deposits, a $16.3 million increase in taxes payable due to the timing of federal tax payments and a $29.3 million increase in accounts payable and accrued liabilities.

Net cash provided by operating activities in fiscal 2020 consisted primarily of net income of $380.3 million, in addition to the changes in operating assets and liabilities that resulted in net cash inflows of $52.4 million.

This net change was primarily driven by inflows arising from a $103.8 million increase in taxes payable primarily due to charges associated with the recent enactment of tax legislation, a $36.0 million decrease in inventory and $4.8 million decrease in vendor deposit, offset in part by $34.0 million

increase in accounts receivable due to overall higher revenues.

Overall, cash inflows from operating activities were driven by our net income for the period, which included non-cash adjustments primarily due to stock-based compensation, depreciation and amortization, increases to our provision for inventory obsolescence, increases to our provision for loss on vendor deposits and purchase commitments, and decreases to our deferred taxes.

This net change consisted primarily of $28.1 million increase in inventory, $10.8 million increase in prepaid and other assets, and a $3.5 million decrease in taxes payable due to the timing of federal tax payments, partially offset by $3.1 million decrease in vendor deposits and a $76.9 million increase in accounts payable and accrued liabilities.

This net change was primarily driven by outflows arising from $163.7 million increase in inventory and $15.8 million increase in prepaid and other assets, partially offset by $27.7 million decrease in vendor deposits, a $16.3 million increase in taxes payable due to the timing of federal tax payments and a $29.3 million increase in accounts payable and accrued liabilities.

Cash Flows from Investing Activities

We used $157.6 million of cash in investing activities during fiscal 2019.

Our investing activities consist of net purchases of available-for-sale securities of $100.9 million, $42.0 million of deposits on a long term asset, $9.7 million of capital expenditures and purchase of intangible assets, and a $5.0 million purchase of a private equity investment.

Fiscal 2018 investing activities consisted of capital expenditures of $9.1 million.

Net cash provided by investing activities during fiscal 2020 was $69.6 million.

Our investing activities consisted primarily of cash inflows of $100.2 million net proceeds from our available-for-sale securities offset, in part by $30.6 million of capital expenditures.

We used $157.6 million of cash investing during fiscal 2019.

During fiscal 2019 our investing activities consisted of net purchases of available-for-sale securities of $100.9 million, $51.7 million of capital expenditures and purchase of intangible assets, and a $5.0 million purchase of a private equity investment.

Cash Flows from Financing Activities

We used $625.4 million of cash in financing activities during fiscal 2020.

During fiscal 2020, we generated $157.5 million of net funds from borrowing and repayments under the Facilities, which were more than offset by financing cash outflows of $700.1 million related to repurchase of common stock, $78.7 million related to dividends paid on our common stock and $3.1 million of debt issuance costs related to the Third Amendment.

See Note 8- Debt of the Notes to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K for additional information regarding the Facilities.

We used $530.2 million of cash in financing activities during fiscal 2019.

During fiscal 2019, we had financing cash outflow of $468.2 million related to the repurchase of our common stock, $71.4 million related to dividends paid on our common stock and $25.0 million repayment on our term loan under our credit facility.

These outflows were partially offset with $35.0 million draws on our revolving facility.

We used $260.4 million of cash in financing activities during fiscal 2018.

During fiscal 2018, we generated $230.3 million of net funds from borrowing and repayments under the Company's credit facilities throughout the year (including net borrowing and repayments under our Second Amended & Restated Credit Agreement), offset in part by financing cash outflows of $445.0 million related to the repurchase of our common stock and $40.6 million of cash outflows associated with tax withholding related to net share settlement of equity awards.

We believe our existing cash and cash equivalents, cash provided by operations and the availability of additional funds, under the Facilities and short and long term investments will be sufficient to meet our working capital, future stock repurchases, dividends, and capital expenditure needs for the next twelve months.

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.

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 and overall economic conditions.

We believe our existing cash and cash equivalents, cash provided by operations and the availability of additional funds under our Facilities will be sufficient to meet our working capital, future stock repurchases, dividends, and capital expenditure needs for the next twelve months.

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 our Facilities or other sources of liquidity to continue to meet our needs.

The COVID-19 pandemic and resulting global disruptions have caused significant volatility in financial markets and the domestic and global economy.

This disruption 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 associated with the COVID-19 pandemic, refer to “Part I-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 and public health problems, which could adversely affect our business, results of operations and financial condition” 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 are reasonably likely to materially affect our liquidity and capital resources in the future.

Contractual Obligations and Off-Balance Sheet Arrangements

The following table summarizes our contractual obligations as of June 30, 2019:

Payments Due by Period

Year 1 1-3 Years 3-5 years Over 5 years Total

(In thousands)

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.

The following table summarizes our contractual obligations as of June 30, 2020 (in thousands):

Payments Date by Period

Year 1 1-3 Years 3-5 Years More than 5 Years Total

Operating Leases 7,856 8,318 6,753 5,476 28,403

Debt payment obligations 31,250 93,750 372,500 — 497,500

Debt Payments 25,000 630,000 — — 655,000

Interest and other payments on debt payment obligations (1)

13,953 20,669 — — 34,622

Transition tax 9,004 18,007 39,391 28,137 94,539

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Total $ 76,890 $ 716,994 $ 52,811 $ 33,613 $ 880,308

(1) - Interest payments are calculated based on the applicable rates and payment dates as of June 30, 2020.

Although our interest rates on our debt obligations may vary, we have assumed the most recent available interest rates for all periods presented.

Operating Leases

The Company leases all of its locations throughout the world under non-cancelable operating leases that expire at various dates through 2026.

See Note 9 - Leases of the Notes to our Consolidated Financial Statements, included in Part IV, Item 15, of this Annual Report on Form 10-K for future payment commitments under leases as of June 30, 2020.

Debt and Interest Payment Obligations

The amount of long term debt and interest payments in the preceding table represents the estimated debt and interest payment obligations under the Second Amended & Restated Credit Agreement.

We have calculated estimated interest payments for our debt based on the applicable rates and payments dates.

Although our interest rates on our debt obligations may vary, we have assumed the most recent available interest rates for all years presented.

See Note 8 to the Consolidated Financial Statements for more information.

See Note 8 - Debt of the Notes to our Consolidated Financial Statements, included in Part IV, Item 15, of this Annual Report on Form 10-K for future payment commitments under debt as of June 30, 2020.

Purchase Obligations

We subcontract with third parties to manufacture our products.

During the normal course of business, our contract manufacturers procure components and manufacture product based upon orders placed by us.

We subcontract with third parties to manufacture our products and have purchase commitments with key component suppliers.

During the normal course of business, our contract manufacturers procure components and manufacture products based upon orders placed by us.

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 pr oducts.

We periodically review the potential liability, and as of June 30, 2019, we have recorded purchase obligation liability of $4.9 million related to component purchase commitments.

We periodically review the potential liability, and as of June 30, 2020, we have recorded a purchase obligation liability of $3.3 million related to component purchase commitments.

There have been no other significant liabilities for cancellations recorded as of June 30, 2020 .

Our consolidated financial position and results of operations could be negatively impacted if we were required to compensate the contract manufacturers for any unrecorded liabilities incurred.

We may be subject to additional purchase obligations for components ordered by our contract manufacturers based on manufacturing forecasts we provide them each month.

We may be subject to additional purchase obligations for supply agreements and components ordered by our contract manufacturers based on manufacturing forecasts we provide them each month.

We estimate the amount of these additional purchase obligation to rang e from $146.3 million to $303.3 million as of June 30, 2020, depending upon the timing of orders placed for these components by our manufacturers.

See Note 10 - Commitments and Contingencies of the Notes to our Consolidated Financial Statements, included in Part IV, Item 15, of this Annual Report on Form 10-K for future payment commitments under purchase commitments as of June 30, 2020.

Transition Tax

The Company also had obligations of $103.5 million as of June 30, 2019, related to Transition Tax.

The Company has obligations of $94.5 million as of June 30, 2020, related to Transition Tax.

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 $10.1 million as of June 30, 2019, which consisted primarily of commitments related to research and development agreements.

As of June 30, 2019, the Company made $42.0 million deposit on a long-term asset, with an outstanding purchase commitment of $22.5 million.

As of June 30, 2020.

the Company has other obligations of $3.9 million which consisted primarily of commitments related to raw materials and research and development projects.

Unrecognized Tax Benefits

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Generally, the distributor is responsible for the freight costs associated with warranty returns, and we absorb the freight costs of replacing items under warranty.

The Company records an accrual when we believe it is reasonably estimable and probable based upon historical experience.

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.

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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.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis