Ubiquiti Inc. 10-K

Item 9A. 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 June 30, 2022. 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 June 30, 2022, our Chief Executive Officer and Chief Accounting and Finance Officer concluded that, as of such date, our disclosure controls and procedures were effective. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). A company’s internal control over financial reporting is a process designed by, or under the supervision of, its Chief Executive Officer and Chief Accounting and Finance Officer, and effected by such company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: 47 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management, with the participation of our Chief Executive Officer and Chief Accounting and Finance Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2022, based on the framework set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that the Company maintained effective internal control over financial reporting as of June 30, 2022. The effectiveness of our internal control over financial reporting as of June 30, 2022 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which appears herein. Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2022, that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information Not applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III Item 10. Directors and Executive Officers and Corporate Governance The information required by this Item 10 is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our June 30, 2022 fiscal year end) under the headings “Election of Directors – Executive Officers and Directors,” “Corporate Governance,” and “Section 16(a) Beneficial Ownership Reporting Compliance.” Item 11. Executive Compensation The information required by this Item 11 is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our June 30, 2022 fiscal year end) under the headings “Executive Compensation”, “CEO Pay Ratio”, “Proposal One Election of Directors – Directors’ Compensation” and “Corporate Governance – Compensation Committee Interlocks and Insider Participation.” Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item 12 with respect to security ownership of certain beneficial owners and management is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our June 30, 2022 fiscal year end) under the headings “Security Ownership of Certain 48 Beneficial Owners and Management Related Stockholder Matters.” Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item 13 is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our June 30, 2022 fiscal year end) under the headings “Certain Relationships and Related Party Transactions” and “Corporate Governance—Committees of the Board of Directors.” Item 14. Principal Accounting Fees and Services The information required by this Item 14 is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our June 30, 2022 fiscal year end) under the headings “Proposal Two Ratification of the Appointment of Independent Registered Public Accounting Firm—Audit and Non-Audit Fees” and “Audit Committee Pre-Approval Policies.” 49 PART IV Item 15. Exhibits, Financial Statement Schedules (a) 1. Financial Statements The financial statements filed as part of this Annual Report on Form 10-K are identified in the Index to Consolidated Financial Statements on page 55 of this Annual Report on Form 10-K. 2. Financial Statement Schedules See Item 15(c) below. 3. Exhibits See Item 15(b) below. (b) Exhibits The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission. Ubiquiti Inc. (the “Registrant”) shall furnish copies of exhibits for a reasonable fee (covering the expense of furnishing copies) upon request. Exhibit Number Description Incorporated by Reference from Form Incorporated by Reference from Exhibit Number Date Filed Filed Herewith 3.1 Third Amended and Restated Certificate of Incorporation of Ubiquiti Inc., as amended 10-K August 21, 2019 3.2 Amended and Restated Bylaws, as amended, as of December 17, 2020 8-K 3.1 December 18, 2020 4.1 Specimen Common Stock Certificate of Ubiquiti Networks, Inc. S-1 4.1 October 3, 2011 4.2 Registration Agreement, dated March 2, 2010, between Ubiquiti Networks, Inc. and certain holders of Ubiquiti Networks, Inc.’s capital stock named therein. S-1 4.2 June 17, 2011 4.3 Investor Rights Agreement, dated as of March 2, 2010, between Ubiquiti Networks, Inc. and certain holders of Ubiquiti Networks, Inc.’s capital stock named therein. S-1 4.3 June 17, 2011 4.4 Descriptions of the Company’s Securities X 10.1 Form of Indemnification Agreement between Ubiquiti Networks, Inc. and its directors and officers. S-1 10.1 October 3, 2011 10.2# Amended and Restated 2010 Equity Incentive Plan and forms of agreement thereunder. S-1 10.2 June 17, 2011 10.3# Ubiquiti Inc. 2020 Omnibus Incentive Plan 8-K 10.1 December 11, 2020 10.4# Employment Agreement, dated as of March 1, 2016, between Ubiquiti Networks, Inc. and Kevin Radigan. 10-K 10.6 August 22, 2016 10.5 Jinyong Ji Investment Taiwan Lease, dated as of March 16, 2010, between Ubiquiti Networks, Inc. and Jinyong Ji Investment Co., Ltd. S-1 10.1 June 17, 2011 10.6 Taiwan Lease, dated as of July 20, 2011, between Jin Yeoung Ji Co., Ltd. and Ubiquiti Networks International Limited, Taiwan Branch. 10-Q 10.15 November 14, 2011 10.7† Amended Technology License Agreement, dated as of September 1, 2010, between Ubiquiti Networks, Inc. and Atheros Communications, Inc. S-1 10.12 June 17, 2011 50 Exhibit Number Description Incorporated by Reference from Form Incorporated by Reference from Exhibit Number Date Filed Filed Herewith 10.8 Second Amended and Restated Credit Agreement, dated as of January 17, 2018, by and among Ubiquiti Networks, Inc. and Ubiquiti International Holding Company Limited, as borrowers, certain subsidiaries of borrowers, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Associations, as administrative agent. 8-K 10.1 January 23, 2018 10.9 First Amendment to Second Amended and Restated Credit Agreement and Joinder Agreement, dated as of June 29, 2018, by and among Ubiquiti Networks, Inc. and Ubiquiti International Holding Company Limited, an exempted company incorporated under the laws of Cayman Islands, certain subsidiaries of the borrower, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Associations, as administrative agent. 10-K 10.1 August 24, 2018 10.10 Second Amendment, dated as of March 15, 2019, to Second Amended and Restated Credit Agreement, dated as of January 17, 2018, by and among Ubiquiti Networks, Inc. and Ubiquiti International Holding Company Limited, as borrowers, certain subsidiaries of the borrowers, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Associations, as administrative agent. 10-Q 10.1 May 10, 2019 10.11 Third Amendment, dated as of September 9, 2019, to Second Amended & Restated Credit Agreement, dated as of January 17, 2018, by Ubiquiti Inc., as borrower, Ubiquiti International Holding Company Limited, as a released party, and certain subsidiaries of the borrower, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Associations, as administrative agent 8-K 10.1 September 12, 2019 10.12 Third Amended and Restated Credit Agreement, dated as of March 30, 2021, by and among Ubiquiti Inc. as borrower, certain domestic subsidiaries of the borrower, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Association, as administrative agent. 8-K 10.1 April 5, 2021 21.1 List of subsidiaries of Ubiquiti Inc. X 23.1 Consent of independent registered public accounting firm X 24.1 Power of Attorney (contained in the signature page to this Form 10-K) X 31.1 Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. X 31.2 Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. X 32.1 Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350. X 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Schema Linkbase Document X 101.CAL XBRL Taxonomy Calculation Linkbase Document X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB XBRL Taxonomy Labels Linkbase Document X 51 Exhibit Number Description Incorporated by Reference from Form Incorporated by Reference from Exhibit Number Date Filed Filed Herewith 101.PRE XBRL Taxonomy Presentation Linkbase Document X 104 Cover Page Interactive Date File - (formatted as Inline XBRL and contained in Exhibit 101) # Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate. † Portions of the exhibit have been omitted pursuant to an order granted by the Securities and Exchange Commission for confidential treatment. ~ In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. (c) Financial Statement Schedules. Schedules not listed above have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. Item 16. Form 10-K Summary Not applicable. 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Ubiquiti Inc. Dated: August 26, 2022 By: /s/ Robert J. Pera Robert J. Pera Chief Executive Officer and Director (Principal Executive Officer) Dated: August 26, 2022 By: /s/ Kevin Radigan Kevin Radigan Chief Accounting and Finance Officer (Principal Financial Officer and Principal Accounting Officer) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert J. Pera and Kevin Radigan and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Robert J. Pera Robert J. Pera Chief Executive Officer and Director (Principal Executive Officer) August 26, 2022 /s/ Kevin Radigan Kevin Radigan Chief Accounting and Finance Officer (Principal Financial Officer and Principal Accounting Officer) August 26, 2022 /s/ Ronald A. Sege Ronald A. Sege Director August 26, 2022 /s/ Rafael Torres Rafael Torres Director August 26, 2022 /s/ Brandon Arrindell Brandon Arrindell Director August 26, 2022 53 UBIQUITI INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 185 ) 55 Consolidated Balance Sheets 58 Consolidated Statements of Operations and Comprehensive Income 59 Consolidated Statements of Stockholders’ Equity (Deficit) 60 Consolidated Statements of Cash Flows 61 Notes to Consolidated Financial Statements 62 54 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Ubiquiti Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Ubiquiti Inc. and subsidiaries (the Company) as of June 30, 2022 and 2021, the related consolidated statements of operations and comprehensive income, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended June 30, 2022, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 55 Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Unrecognized tax benefits As discussed in Notes 2 and 14 to the consolidated financial statements, the Company records a liability for unrecognized tax benefits associated with uncertain tax positions. The Company recognizes tax benefits from uncertain tax positions only if there is more than a 50% likelihood that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. As of June 30, 2022, the Company has recorded a liability for gross unrecognized tax benefits, excluding associated interest and penalties, of $32.7 million. We identified the assessment of certain gross unrecognized tax benefits as a critical audit matter. Complex auditor judgment, including the involvement of tax professionals with specialized skills and knowledge, was required to evaluate the Company’s interpretation and application of tax law in the United States and certain foreign jurisdictions in which it operates. This evaluation included the determination of which tax positions have more than a 50% likelihood of being sustained upon examination. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls over the Company’s gross unrecognized tax benefit process to: • evaluate the Company’s tax structure and interpretation of United States and foreign tax laws, • evaluate the gross unrecognized tax benefits associated with uncertain tax positions. 56 In addition, we involved tax professionals with specialized skills and knowledge, who assisted in performing the following procedures over certain jurisdictions: • obtaining an understanding of the Company’s overall tax structure and assessing the Company’s compliance with tax laws, • inspecting correspondence and assessments from taxing authorities to assess the Company’s determination of its tax positions having more than a 50% likelihood to be sustained upon examination, and • performing an independent analysis of the Company’s uncertain tax positions and comparing our determination of its tax positions having more than a 50% likelihood to be sustained upon examination to the Company’s assessment. /s/ KPMG LLP We have served as the Company’s auditor since 2016. New York, New York August 26, 2022 57 UBIQUITI INC. Consolidated Balance Sheets (In thousands, except share data) June 30, 2022 2021 Assets Current assets: Cash and cash equivalents $ 136,224 $ 249,418 Investments — short-term 427 1,320 Accounts receivable, net of allowance for doubtful accounts of $ 52 and $ 47 at June 30, 2022 and 2021 respectively 119,627 172,289 Inventories 262,441 233,767 Vendor deposits 89,661 20,013 Prepaid expenses and other current assets 13,193 17,349 Total current assets 621,573 694,156 Property and equipment, net 80,232 79,061 Operating lease right-of-use assets, net 64,231 40,011 Deferred tax assets 6,618 4,776 Investments — long-term — 1,035 Other long-term assets 72,058 71,946 Total assets $ 844,712 $ 890,985 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 83,663 $ 112,071 Income taxes payable 14,061 14,496 Debt — short-term 23,865 23,865 Other current liabilities 189,361 125,980 Total current liabilities 310,950 276,412 Income tax payable — long-term 94,169 104,022 Operating lease liabilities — long-term 54,025 32,258 Debt — long-term 762,622 467,030 Other long-term liabilities 5,822 8,564 Total liabilities 1,227,588 888,286 Commitments and contingencies (Note 10) Stockholders’ equity (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: 60,420,525 and 62,582,858 outstanding at June 30, 2022 and 2021, respectively 60 63 Additional paid–in capital 650 — Accumulated other comprehensive (loss) income ( 474 ) 1 Retained earnings (deficit) ( 383,112 ) 2,635 Total stockholders’ equity (deficit) ( 382,876 ) 2,699 Total liabilities and stockholders’ equity $ 844,712 $ 890,985 See notes to consolidated financial statements. 58 UBIQUITI INC. Consolidated Statements of Operations and Comprehensive Income (In thousands, except per share amounts) Years Ended June 30, 2022 2021 2020 Revenues $ 1,691,692 $ 1,898,094 $ 1,284,500 Cost of revenues 1,021,880 985,818 676,328 Gross profit 669,812 912,276 608,172 Operating expenses: Research and development 137,689 116,171 89,405 Sales, general and administrative 69,859 53,513 40,569 Total operating expenses 207,548 169,684 129,974 Income from operations 462,264 742,592 478,198 Interest expense and other, net ( 17,815 ) ( 14,938 ) ( 28,002 ) Income before income taxes 444,449 727,654 450,196 Provision for income taxes 65,792 111,070 69,899 Net income $ 378,657 $ 616,584 $ 380,297 Net income per share of common stock: Basic $ 6.14 $ 9.79 $ 5.81 Diluted $ 6.13 $ 9.78 $ 5.80 Weighted average shares used in computing net income per share of common stock: Basic 61,689 62,991 65,427 Diluted 61,723 63,052 65,514 Other comprehensive income: Unrealized (losses) on available-for-sale securities ( 475 ) ( 8 ) ( 384 ) Other comprehensive (loss) ( 475 ) ( 8 ) ( 384 ) Comprehensive income $ 378,182 $ 616,576 $ 379,913 See notes to consolidated financial statements. 59 UBIQUITI INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) In thousands, except share data Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Income Total Stockholders’ Equity (Deficit) Shares Amount Amount Amount Amount Amount Balances at June 30, 2019 69,472,568 $ 69 $ — $ 98,815 $ 393 $ 99,277 Net Income — — — 380,297 — 380,297 Other comprehensive income (loss) — — — — ( 384 ) ( 384 ) Stock options exercised 22,582 — 179 — — 179 Restricted stock units issued, net of tax withholdings 35,541 — ( 1,132 ) — — ( 1,132 ) Repurchase of Common Stock ( 5,842,800 ) ( 5 ) ( 1,488 ) ( 696,408 ) — ( 697,901 ) Stock-based compensation expense — — 2,888 — — 2,888 Dividends paid on Common Stock ($ 1.20 per share) — — — ( 78,682 ) — ( 78,682 ) Balances at June 30, 2020 63,687,891 $ 64 $ 447 $ ( 295,978 ) $ 9 $ ( 295,458 ) Net Income — — — 616,584 — 616,584 Other comprehensive income (loss) — — — ( 8 ) ( 8 ) Stock options exercised 11,734 — 125 — — 125 Restricted stock units issued, net of tax withholdings 28,421 — ( 998 ) — — ( 998 ) Repurchase of Common Stock ( 1,145,188 ) ( 1 ) ( 2,603 ) ( 217,158 ) — ( 219,762 ) Stock-based compensation expense — — 3,029 — — 3,029 Dividends paid on Common Stock ($ 1.60 per share) — — — ( 100,813 ) — ( 100,813 ) Balances at June 30, 2021 62,582,858 $ 63 $ — $ 2,635 $ 1 $ 2,699 Net Income — — — 378,657 — 378,657 Other comprehensive income (loss) — — — — $ ( 475 ) ( 475 ) Stock options exercised 8,413 — 98 — — 98 Restricted stock units issued, net of tax withholdings 23,107 — ( 1,185 ) — — ( 1,185 ) Repurchase of Common Stock ( 2,193,853 ) ( 3 ) ( 1,779 ) ( 616,349 ) — ( 618,131 ) Stock-based compensation expense — — 3,516 — — 3,516 Dividends paid on Common Stock ($ 2.40 per share) — — — ( 148,055 ) — ( 148,055 ) Balance at June 30, 2022 60,420,525 $ 60 $ 650 $ ( 383,112 ) $ ( 474 ) $ ( 382,876 ) See notes to consolidated financial statements. 60 UBIQUITI INC. Consolidated Statements of Cash Flows (In thousands) Years Ended June 30, 2022 2021 2020 Cash Flows from Operating Activities: Net income $ 378,657 $ 616,584 $ 380,297 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,689 12,100 7,695 Impairment of cost-based investment — — 5,000 Amortization of debt issuance costs 1,319 1,791 1,807 Non-cash lease expense 1,142 251 1,146 Premium amortization and (discount accretion), net 88 16 ( 52 ) Write off unamortized debt issuance costs — 267 105 Provision for inventory obsolescence 2,413 ( 249 ) 6,617 Provision for sales returns 1,004 — — Provisions for loss on vendor deposits and purchase commitments 8,907 10,712 3,327 Stock-based compensation 3,516 3,029 2,888 Deferred taxes ( 1,842 ) ( 674 ) ( 1,194 ) Other, net ( 555 ) 509 265 Changes in operating assets and liabilities: Accounts receivable 52,657 ( 30,136 ) 13,883 Inventories ( 29,565 ) 52,890 ( 28,053 ) Vendor deposits ( 79,034 ) ( 17,092 ) 3,124 Prepaid expenses and other assets 1,841 ( 30,543 ) ( 10,824 ) Accounts payable ( 28,686 ) ( 43,343 ) 116,900 Income taxes payable ( 10,288 ) ( 27,774 ) ( 3,527 ) Deferred revenues ( 3,593 ) 7,463 855 Accrued and other liabilities 58,589 56,221 ( 39,975 ) Net cash provided by operating activities 370,259 612,022 460,284 Cash Flows from Investing Activities: Purchase of property and equipment and other long-term assets ( 13,468 ) ( 18,325 ) ( 30,619 ) Purchase of investments ( 1,479 ) ( 1,863 ) ( 27,538 ) Proceeds from sale of investments 2,457 — 111,909 Proceeds from maturity of investments 1,310 922 15,832 Net cash (used in) provided by investing activities ( 11,180 ) ( 19,266 ) 69,584 Cash Flows from Financing Activities: Proceeds from borrowing under the credit facility - Term — 37,500 37,500 Proceeds from borrowing under the credit facility - Revolver 345,000 75,000 390,000 Repayment against credit facility - Revolver ( 25,000 ) ( 255,000 ) ( 245,000 ) Repayment against credit facility - Term ( 25,000 ) ( 18,750 ) ( 25,000 ) Debt issuance costs — ( 3,257 ) ( 3,138 ) Repurchases of common stock ( 618,131 ) ( 219,762 ) ( 700,125 ) Payment of common stock cash dividends ( 148,055 ) ( 100,813 ) ( 78,682 ) Proceeds from exercise of stock options 98 125 179 Tax withholdings related to net share settlements of restricted stock units ( 1,185 ) ( 998 ) ( 1,132 ) Net cash (used in) financing activities ( 472,273 ) ( 485,955 ) ( 625,398 ) Net (decrease) increase in cash and cash equivalents ( 113,194 ) 106,801 ( 95,530 ) Cash and cash equivalents at beginning of period 249,418 142,617 238,147 Cash and cash equivalents at end of period $ 136,224 $ 249,418 $ 142,617 Supplemental Disclosure of Cash Flow Information: Income taxes paid, net of refunds $ 78,180 $ 139,623 $ 74,918 Interest paid $ 11,561 $ 11,811 $ 21,817 Non-Cash Investing and Financing Activities: Right-of-use asset recognized $ 34,516 $ 24,281 $ 8,610 Unpaid property and equipment and other long-term assets $ 511 $ 233 $ 366 Net unsettled investment purchases (sales, and maturities) $ — $ — $ 522 See notes to consolidated financial statements. 61 UBIQUITI INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 enterprises, service providers and consumers globally. The Company operates on a fiscal year ending June 30. In these notes, Ubiquiti refers to the fiscal years ended June 30, 2022, 2021 and 2020 as fiscal 2022, fiscal 2021 and fiscal 2020, respectively. Basis of Presentation — The Company’s consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principle (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. The Company has reclassified certain amounts reported in the previous period to conform to the current period presentation. NOTE 2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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; allowance for doubtful accounts and 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; determinations of fair value for stock-based awards; estimate of incremental borrowing rate for determining the present value of future lease payments; and valuation of warranty accruals. 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. Segments Management has determined that it 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 disaggregated segment basis. Further information regarding Segments can be found in Note 15, to the consolidated financial statements. Recognition of Revenues Revenue consists of revenue from sales of hardware and the related essential software (“Products”) as well as related implied post-contract customer support (“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. We apply the following five-step revenue recognition model: • Identification of the contract, or contracts with a custome r • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • 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 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. The Company accounts for a contract with a customer when there is an approval and commitment from both parties, the rights of the 62 parties are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration is probable. 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 Company records a provision for returns related to this variable consideration based upon its historical returns experience with these customers. We record amounts billed to distributors and Web based customers for shipping and handling costs as revenues. We classify shipping and handling costs incurred by us as cost of revenue. Deposit payments received from distributors in advance of recognition of revenues are included in current liabilities of our balance sheet and are recognized as revenues when all the criteria for recognition of revenues are met. Transaction price and allocation to performance obligations Transaction prices are typically based on contracted rates. Although payment terms vary, payment is generally due from customers within 60 days of the invoice date and the contracts do not have significant financing components or include extended payment terms. The Company is directly responsible for fulfilling its performance obligations in contracts with customers and does not rely on another party to fulfill its promise. We use observable list prices to determine the stand-alone selling price of our performance obligation related to our products, and we utilize a cost-plus margin approach to estimate the stand-alone selling price of our implied PCS obligation. When our contracts contain multiple performance obligations, we allocate the transaction price based on the estimated standalone selling price s of the promised products or services underlying each performance obligation. The expected costs associated with our base warranties continue to be recognized as an expense when the products are sold and are not considered a separate performance obligation. Costs for research and development and sales and marketing are expensed as incurred. If the estimated life of the hardware product should change, the future rate of amortization of the revenues allocated to PCS could also change. Key factors considered by the Company in developing the estimated cost in the cost plus margin approach for PCS includes reviewing the activities of specific employees engaged in support and software enhancements to determine the amount of time that is allocated to the development of the undelivered elements, determining the cost of the development effort, and then adding an appropriate level of gross profit to these costs. As of June 30, 2022 and 2021, the Company had deferred revenues of $ 26.6 million and $ 30.2 million, respectively, related to PCS obligations. Cash and Cash Equivalents The Company considers investments purchased with a maturity period of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are stated at cost which approximates fair value. The Company deposits cash and cash equivalents with financial institutions that management believes are of high credit quality. The Company’s cash and cash equivalents consist primarily of cash deposited in U.S. dollar denominated interest-bearing deposit accounts and money market funds. Concentration of Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, marketable securities and accounts receivable. The Company limits its exposure by primarily placing its cash in interest-bearing deposit accounts and marketable securities with high credit quality financial institutions. The Company derives its accounts receivable from revenues earned from customers located worldwide. The Company bases credit decisions primarily upon a customer’s past credit history. If upfront deposits or prepayments are not required, customers then may be granted standard credit terms, which range from net 30 to 60 days. The Company subcontracts with third parties to manufacture most of our products. The Company relies on the ability of these contract manufacturers to produce the products sold to its distributors. A significant portion of the Company’s products are manufactured by a few contract manufacturers. Inventory and Inventory Valuation 63 The Company’s inventories are primarily finished goods and, to a lesser extent, raw materials. Inventories are stated at the lower of actual cost, computed using the first-in, first-out method, and net realizable value (“NRV”). NRV is based upon an estimated average selling price reduced by the estimated costs of disposal. The determination of net realizable value involves certain judgments including estimating average selling prices based on recent sales. Should actual market conditions differ from the Company’s estimates, future results of operations could be materially affected. The Company reduces the value of its inventory for estimated obsolescence or lack of marketability by the difference between the cost of the affected inventory and the NRV. Write-downs are not reversed until the related inventory has been subsequently sold or scrapped. The valuation of inventory also requires the Company to estimate excess and obsolete inventory. The determination of excess or obsolete inventory is estimated based on a comparison of the quantity and cost of inventory on hand to the Company’s forecast of customer demand. Customer demand is dependent on various factors and requires the Company to use judgment in forecasting future demand for these products. 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 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 material 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 the future periods based on when the inventory is sold or written-down. Product Warranties The Company offers warranties on certain products, generally for a period of one year , and records a liability for the estimated future costs associated with potential warranty claims. The warranty costs are reflected in the Company’s consolidated statement of operations and comprehensive income within cost of revenues. The warranties are typically in effect for 12 months from the distributor’s purchase date of the product. 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 the replacement cost of defective products, which it also factors into its warranty liability assessment. Allowance for Doubtful Accounts The Company records its allowance for doubtful accounts based on its assessment of various factors, including historical experience, age of the accounts receivable balances, credit quality of the Company’s customers, current economic conditions and other factors that may affect the customers’ abilities to pay. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its obligations to the Company, the Company records a specific allowance against amounts due from the customer, and thereby reduces the net recognized receivable to the amounts it reasonably believes will be collected. The allowance for doubtful accounts activity was as follows (in thousands): Years Ended June 30, 2022 2021 2020 Beginning balance $ 47 $ 203 $ 203 Charged to (released from) expenses 5 7 85 Bad debt write-offs — ( 163 ) ( 85 ) Ending balance $ 52 $ 47 $ 203 Fair Value of Financial Instruments Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market 64 participants would use in pricing an asset or liability. The accounting guidance establishes a three-tier fair value hierarchy that requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value: Level 1 —Quoted prices in active markets for identical assets or liabilities; Level 2 —Inputs other than the quoted prices in active markets, that are observable either directly or indirectly; Level 3 —Unobservable inputs based on the Company’s own assumption. The Company records securities available-for-sale at fair value on a recurring basis. We classify our investments within Level 1 or 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded. Our fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of our marketable securities incorporate bond terms and conditions, current performance data, proprietary pricing models, real time quotes from contributing dealers, trade prices and other market data. Long Lived Assets In accordance with the authoritative guidance for impairment or disposal of long-lived assets (ASC 360), we assess potential impairments to our long-lived assets, including property and equipment, when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable. We recognize an impairment loss when the undiscounted cash flows expected to be generated by an asset or group of assets, are less than the asset’s carrying value. Any required impairment loss would be measured as the amount by which the asset’s carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset and charged to results of operations. The Company did not recognize any material impairment losses for fiscal years 2022, 2021 and 2020. Property and Equipment Furniture, fixtures and equipment are recorded at cost. The Company computes depreciation or amortization using the straight-line method over estimated useful lives, as follows: Estimated Useful Life Testing equipment 3 to 5 years Computer and other equipment 3 to 5 years Furniture and fixtures 3 to 5 years Software up to 3 years Corporate aircraft 15 years Leasehold improvements shorter of lease term or useful life Upon retirement or disposition, the asset cost and related accumulated depreciation are removed with any gain or loss recognized in the consolidated statement of operations. Expenditures for maintenance and repairs are charged to operations as incurred. Intangible Assets The Company’s intangible assets consist primarily of domain name purchase and legal costs associated with application for and registration of the Company’s trademarks, which are all included in other long-term assets. The Company amortizes all definite-lived intangible assets that are subject to amortization over the estimated useful life based on economic benefit. Domain names are amortized over 15 years, while other intangible assets are generally amortized over 5 years. All patent filing and defense costs are expensed as incurred, however, to date these costs have not been significant. Leases The Company enters into agreements under which we lease various real estate spaces, including warehouse facilities and office space, that are generally leased under noncancelable agreements and include various renewal options for additional periods and/or have options to early terminate. At contract inception, the Company determines if an arrangement is a lease, or contains a lease, of 65 an identified asset for which the Company has the right to obtain substantially all of the economic benefits from its use and the right to direct its use. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, while lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. The implicit discount rate in the Company’s leases generally cannot readily be determined and therefore, the Company uses its incremental borrowing rate based on information available at lease commencement date in determining the present value of future payments. ROU assets are determined based upon the calculated lease liability, adjusted by unamortized initial direct costs, unamortized lease incentives received and cumulative deferred or prepaid lease payments. The Company has options to renew or terminate certain leases. These options are included in the determination of lease term when it is reasonably certain that the Company will exercise such options. The Company does not separate lease and non-lease components in determining ROU assets or lease liabilities for operating leases. Additionally, the Company does not recognize ROU assets or lease liabilities for leases with original terms or renewals of one year or less. Lease expense for our operating leases is recognized on a straight-line basis over the term of the lease. Advertising Costs Advertising costs are expensed as incurred and are included in selling, general and administrative expenses. Income Taxes The Company accounts for income taxes in accordance with accounting guidance which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns. Deferred tax assets and liabilities are determined based on the temporary difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company establishes valuation allowances when necessary to reduce deferred tax assets to the amount it expects to realize. The assessment of whether or not a valuation allowance is required often requires significant judgment including current operating results, the forecast of future taxable income and ongoing prudent and feasible tax planning initiatives. In addition, the Company’s calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company may be subject to income tax audits in all of the jurisdictions in which it operates and, as a result, must also assess exposures to any potential issues arising from current or future audits of current and prior years’ tax returns. Accordingly, the Company must assess such potential exposures and, where necessary, provide a reserve to cover any expected loss. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results. We reflect changes in recognition or measurement in the period in which our change in judgment occurs. The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet. Stock-based Compensation The Company measures stock-based compensation cost at the grant date, based on the estimated fair value of the award, and recognizes expense for restricted stock units and stock options on a straight-line basis over the employee’s requisite service period. The Company did no t grant any stock options during fiscal 2022, fiscal 2021, or fiscal 2020. Restricted stock units are valued based on the fair value of the Company’s common stock on the date of grant. Commitments and Contingencies The Company periodically evaluates all pending or threatened contingencies and any commitments, if any, that are reasonably likely to have a material adverse effect on its results of operations, financial position or cash flows. The Company assesses the probability of an adverse outcome and determines if it is remote, reasonably possible or probable. If information available prior to the issuance of the Company’s financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the Company’s financial statements, and the amount of the loss, or the range of probable loss can be reasonably estimated, then such loss is accrued and charged to operating expenses. If no accrual is made for a loss contingency because one or both of the conditions pursuant to the accounting guidance are not met, but the probability of an adverse outcome is at least reasonably possible, the Company discloses the nature of the contingency and provides an estimate of the possible loss or range of loss, or states that such an estimate cannot be made. 66 Foreign Currency Remeasurement The functional currency of the Company and its subsidiaries is the U.S. dollar. For foreign operations, local currency denominated monetary assets and liabilities are remeasured at the period end exchange rates, and revenues, costs and expenses are remeasured at the average exchange rates during the fiscal year. Foreign exchange gains and losses have been immaterial to the Company’s results of operations to date. Research and Development Costs Research and development expenses are expensed as incurred and consist primarily of payroll and payroll-related costs and facilities costs. Research and development expenses associated with software development are typically expensed as incurred as our software is usually released to end customers immediately after technological feasibility has been established. However, the Company capitalizes development costs when material costs are incurred subsequent to technological feasibility but prior to commercial release. Earnings Per Share The Company applies the treasury stock method for calculating and presenting earnings per share (“EPS”). Basic EPS is computed by dividing the net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS available to common stockholders is computed by dividing the amount of net income available to common stockholders by the weighted-average number of common shares outstanding, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and restricted stock units using the treasury stock method. Recently Adopted Accounting Pronouncements Income Taxes In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), which amends the existing guidance relating to the accounting for income taxes. ASU 2019-12 is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. ASU 2019-12 is effective for the Company’s fiscal year beginning July 1, 2021. As of July 1, 2021, the Company adopted the new standard, including identifying, evaluating and quantifying the impact on its consolidated financial statements The Company concluded that the adoption of this standard did not have a material impact on the Company's consolidated financial position, results of operations, or cash flows and related disclosures. NOTE 3— REVENUES Revenue is primarily generated from the sale of hardware as well as the related implied PCS. Revenue is measured as the amount of consideration we expect 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 15 “Segment Information” 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 the Company’s 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. 67 As of June 30, 2022 and 2021, the Company’s customer deposits were $ 1.1 million and $ 2.7 million, respectively. As of June 30, 2022, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $ 20.8 million and $ 5.8 million, respectively. As of June 30, 2021, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $ 21.6 million and $ 8.6 million, respectively. Variable Consideration The Company does provide for rights of return to certain customers on product sales and therefore records a provision for returns related to this variable consideration based upon its historical returns experience with these customers. The Company also provides certain customers with discounts that are recorded as a reduction of revenue in the period the related product revenue is recognized and are reflected as a reduction of outstanding accounts receivable. The Company’s contracts with customers generally do not contain other forms of variable consideration, however when additional variable consideration is included, the Company estimates the amount of variable consideration and determines what portion of that, if any, has a high probability of significant subsequent revenue reversal, and if so, that amount is excluded from the transaction price. NOTE 4— FAIR VALUE OF FINANCIAL INSTRUMENTS The following tables summarize the Company’s financial instruments’ adjusted cost, gross unrealized gains and losses, and fair value by significant investment category as of June 30, 2022 and 2021 (in thousands): June 30, 2022 Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents (1) Short-Term Investments Long-Term Investments Level 1 Corporate Securities 901 — ( 474 ) 427 — 427 — Total $ 901 $ — $ ( 474 ) $ 427 $ — $ 427 $ — (1) Cash and cash equivalents on the consolidated balance sheets includes securities that have a maturity of three months or less at the date of purchase. The carrying amount approximates fair value, primarily due to the short maturity of cash equivalent instruments. June 30, 2021 Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents (1) Short-Term Investments Long-Term Investments Level 1 Money market funds $ 83 $ — $ — $ 83 $ 83 $ — $ — Subtotal $ 83 $ — $ — $ 83 $ 83 $ — $ — Level 2 Corporate securities 2,354 1 — 2,355 — 1,320 1,035 Subtotal $ 2,354 $ 1 $ — $ 2,355 $ — $ 1,320 $ 1,035 Total $ 2,437 $ 1 $ — $ 2,438 $ 83 $ 1,320 $ 1,035 (1) Cash and cash equivalents on the consolidated balance sheets includes securities that have a maturity of three months or less at the date of purchase. The carrying amount approximates fair value, primarily due to the short maturity of cash equivalent instruments. During fiscal year end June 30, 2022, the Company reclassified realized net gains of $ 0.03 million to earnings from accumulated other comprehensive income. During fiscal year end June 30, 2021, the Company did no t recognize any net gains or losses from accumulated other comprehensive income related to realized gains or losses. During fiscal years ended June 30, 2022 and June 30, 2021, interest income on the Company's investments securities was immaterial. 68 The Company had no material continuous unrealized loss position from marketable securities as of June 30, 2022 and 2021. Based on evaluation of securities that have been in a continuous loss position, we did not recognize any other-than-temporary impairment charges during fiscal year end June 30, 2022 and 2021. The following table represents the adjusted costs and fair value of cash equivalents and investments by contractual maturity as of June 30, 2022 (in thousands): Available-For-Sale Adjusted Cost Fair Value Due within 1 year 901 427 Total $ 901 $ 427 For certain of the Company’s financial instruments, other than those presented in the disclosures above, including cash, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate fair value due to their short maturities. As of June 30, 2022 and 2021 the Company had an outstanding loan associated with its credit facilities, which are carried at historical cost. The fair value of the Company’s debt disclosed below was estimated based on the current rates offered to the Company for debt with similar terms and remaining maturities and was a Level 2 measurement. As of June 30, 2022 and 2021, the fair value of the Company’s debt carried at historical cost was $ 788.8 million and $ 493.8 million, respectively. NOTE 5— 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): Years Ended June 30, 2022 2021 2020 Numerator: Net income $ 378,657 $ 616,584 $ 380,297 Denominator: Weighted-average shares used in computing basic net income per share 61,689 62,991 65,427 Add—dilutive potential common shares: Stock options 7 16 30 Restricted stock units 27 45 57 Weighted-average shares used in computing diluted net income per share 61,723 63,052 65,514 Net income per share of common stock: Basic $ 6.14 $ 9.79 $ 5.81 Diluted $ 6.13 $ 9.78 $ 5.80 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. The following table summarizes the total potential shares of common stock that were excluded from the diluted per share calculation, because to include them would have been anti-dilutive for the period (in thousands): Years Ended June 30, 2022 2021 2020 Restricted stock units 8 5 6 NOTE 6— BALANCE SHEET COMPONENTS Inventories Inventories consisted of the following (in thousands): June 30, 2022 2021 Finished goods $ 253,260 $ 228,514 Raw materials 9,181 5,253 Total $ 262,441 $ 233,767 Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): June 30, 2022 2021 Testing equipment $ 16,999 $ 15,279 Tooling equipment 18,398 15,490 Leasehold improvements 18,589 15,071 Computer and other equipment 11,078 8,966 Software 10,509 7,842 Furniture and fixtures 2,668 2,529 Corporate aircraft 65,807 65,807 Property and equipment, gross 144,048 130,984 Less: Accumulated depreciation ( 63,816 ) ( 51,923 ) Property and equipment, net $ 80,232 $ 79,061 The Company recorded depreciation expense of $ 12.1 million, $ 11.2 million and $ 7.6 million in fiscal 2022, 2021 and 2020, respectively. Other Long-term Assets Other long-term assets consisted of the following (in thousands): June 30, 2022 2021 Hong Kong tax deposit (1) $ 59,992 $ 57,423 Intangible assets, net (2) 7,228 8,684 Other long-term assets 4,838 5,839 Total $ 72,058 $ 71,946 (1) The Company expects the deposits made with the IRD to be refunded upon completion of the audit. See Note 14 to the consolidated financial statements for additional details regarding this ongoing tax audit. (2) Accumulated amortization was $ 4.3 million and $ 2.8 million for the periods ending June 30, 2022 and June 30, 2021, respectively. Other Current Liabilities Other current liabilities consisted of the following (in thousands): June 30, 2022 2021 Deferred revenue — short term revenue $ 20,766 $ 21,617 Accrued expenses 42,305 21,702 Lease liability — current 12,744 9,149 Warranty accrual 6,394 4,812 Accrued compensation and benefits 6,168 5,273 Customer deposits 1,059 2,693 Reserves for sales returns 4,297 2,242 Inventory received not billed 86,953 55,548 Other payables 8,675 2,944 Total $ 189,361 $ 125,980 Other Long-Term Liabilities June 30, 2022 2021 Deferred Revenue — long term $ 5,822 $ 8,564 Total $ 5,822 $ 8,564 NOTE 7— ACCRUED WARRANTY Warranty obligations, included in other current liabilities, were as follows (in thousands): June 30, 2022 2021 Beginning balance $ 4,812 $ 4,538 Accruals for warranties issued during the period 8,384 8,754 Changes in liability for pre-existing warranties during the period 790 ( 1,291 ) Settlements made during the period ( 7,592 ) ( 7,189 ) Total $ 6,394 $ 4,812 NOTE 8— DEBT On March 30, 2021, the Company, as borrower and certain domestic subsidiaries 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”) and provided a new $ 500 million senior secured term loan facility (the “Term Facility”, together with the Revolving Facility, the “Facilities”), 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. The Third Amended and Restated Credit Agreement replaced the Company's existing $ 700 million senior secured revolving facility (the “Existing Revolving Facility”) and $ 500 million senior secured term loan facility (the “Existing Term Facility”, together with the Existing Revolving Facility, the “Existing Facilities”) under the Second Amended & Restated Credit Agreement, dated as of January 17, 2018 (as amended by the First Amendment, dated as of June 29, 2018, the Second Amendment, dated as of March 15, 2019 and the Third Amendment, dated as of September 9, 2019, the “Existing Credit Agreement”), which has been terminated in connection with the Third Amended and Restated Credit Agreement. At the closing of the Third Amended and Restated Credit Agreement, the Term Facility was fully drawn, of which $ 462.5 million and $ 0.7 million was used to repay the Existing Term Facility under the Existing Credit Agreement for principal and interest, respectively. Additionally, at closing of the Third Amended and Restated Credit Agreement, $ 75.0 million and $ 0.4 million of the Existing Revolving Facility under the Existing Credit Agreement was repaid for principal and interest, respectively. The Company then borrowed $ 75.0 million under the Revolving Facility under the Third Amended and Restated Credit Agreement. 69 Table of Contents The Company incurred $ 3.3 million of debt issuance costs which are capitalized and amortized as interest expense over the life of the Facilities. Our Debt consisted of the following (in thousands): June 30, 2022 2021 Term Loan - short term $ 25,000 $ 25,000 Debt issuance costs, net ( 1,135 ) ( 1,135 ) Total Debt - short term 23,865 23,865 Term Loan - long term 443,750 468,750 Revolver - long term 320,000 — Debt issuance costs, net ( 1,128 ) ( 1,720 ) Total Debt - long term $ 762,622 $ 467,030 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 Third Amended and Restated 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 Third Amended and Restated 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 term loan is payable in quarterly installments of 1.25 % of the original principal amount of the term loan, commencing with the quarter ending June 30, 2021. Revolving, swingline and term loans may be prepaid at any time without penalty. Revolving and term loans bear interest, at the Company’s option, at either (i) 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 or (ii) a floating per annum rate equal to the applicable LIBOR rate (or replacement rate) for a specified period, plus a margin of between 1.50 % and 2.25 %, depending on the Company’s 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. Base rate is defined as the greatest of (A) Wells Fargo’s prime rate, (B) the federal funds rate plus 0.50 % or (C) the applicable LIBOR rate (or replacement rate) for a period of one month plus 1.00 %. A default interest rate shall apply on all obligations during certain events of default under the Third Amended and Restated 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 Third Amended and Restated 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 3.5 to 1.00. In addition, the Third Amended and Restated 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 Third Amended and Restated 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 Third Amended and Restated Credit Agreement. The Facilities As of June 30, 2022, $ 468.8 million was outstanding on the Term Facility and $ 320 million was outstanding on the Revolving Facility, leaving $ 380 million available on the Revolving Facility. Term Facility: 70 Table of Contents During fiscal year 2022, the Company made aggregate payments of $ 33.7 million under the Term Facility, of which $ 25.0 million was a repayment of principal and $ 8.7 million was a payment of interest. As of June 30, 2022, the interest rate on the term loan was 3.17 %. This interest rate will reset on July 29, 2022. Revolving Facility: Under the Third Amended and Restated Credit Agreement, during fiscal year 2022, the Company made aggregate payments of $ 27.1 million under the Revolving Facility, of which $ 25.0 million was a repayment of principal and $ 2.1 million was a payment of interest. Debt Payment Obligations Interest Rate as of June 30, 2022 Rate Reset Date as of June 30, 2022 $ 60 Million Revolver 3.01 % July 18, 2022 $ 40 Million Revolver 3.12 % July 27, 2022 $ 25 Million Revolver 2.69 % July 11, 2022 $ 175 Million Revolver 2.75 % July 13, 2022 $ 20 Million Revolver 3.10 % July 21, 2022 The following table summarizes our estimated debt and interest payment obligations as of June 30, 2022, for fiscal 2023 and future fiscal years (in thousands): Fiscal Year 2023 2024 2025 2026 2027 Thereafter Total Debt payment obligations $ 25,000 $ 25,000 $ 25,000 $ 393,750 $ — $ — $ 468,750 Interest and other payments on debt payment obligations (1) 15,518 14,756 13,913 9,882 — — 54,069 Total $ 40,518 $ 39,756 $ 38,913 $ 403,632 $ — $ — $ 522,819 (1) - Interest payments are calculated based on the applicable rates and payment dates as of June 30, 2022. Although our interest rates on our debt obligations may vary, we have assumed the most recent available interest rates for all periods presented. NOTE 9— 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 June 30, 2022, we included such options in determining the lease terms for certain of our leases as we were reasonably certain that we would exercise those 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 fiscal year ended June 30, 2022 and 2021 (in thousands): June 30, 2022 2021 Operating lease costs: Financial Statement Classification Fixed lease costs Operating expenses $ 9,447 $ 7,770 Fixed lease costs Cost of revenues 4,352 2,036 Variable lease costs Operating expenses 811 798 Variable lease costs Cost of revenues 905 520 Total lease costs $ 15,515 $ 11,124 The operating lease costs in the table above include costs for long-term and short-term leases. Total short-term costs for fiscal year June 30, 2022, and 2021 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 fiscal year June 30, 2022 and 2021, the cash paid for amounts associated with our operating lease liabilities were approximately $ 14.4 million and $ 11.2 million, respectively. Cash paid for amounts associated with the Company's operating lease liabilities were 71 Table of Contents classified as operating activities in the consolidated statement of cash flows. The following table shows our undiscounted future fixed payment obligations under our recognized operating leases and a reconciliation to the operating lease liabilities as of June 30, 2022: Fiscal 2023 $ 14,066 Fiscal 2024 13,529 Fiscal 2025 12,302 Fiscal 2026 8,475 Fiscal 2027 4,922 Thereafter 18,544 Total future fixed operating lease payments $ 71,838 Less: Imputed interest $ 5,069 Total operating lease liabilities $ 66,769 Weighted-average remaining lease term - operating leases Seven years Weighted-average discount rate - operating leases 2.2 % NOTE 10— COMMITMENTS AND CONTINGENCIES Operating Leases See Note 9 - Leases for future minimum lease payments under non-cancelable operating leases as of June 30, 2022. Purchase Obligations 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, 2022, we have recorded a purchase obligation liability of $ 7.8 million related to component purchase commitments. There have been no other significant liabilities for cancellations recorded as of June 30, 2022 . 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. The Company 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 $ 410.3 million to $ 1,276.6 million as of June 30, 2022, depending upon the timing of orders placed for these components by our manufacturers. Other Obligations As of June 30, 2022, the Company has other obligations of $ 3.4 million which consisted primarily of commitments related to raw materials and 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 72 Table of Contents 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 proceedings before the Patent Trial and Appeal Board (“PTO”). The PTO invalidated asserted claims of two of the three Patents-in-Suit, but it rejected the challenge to the ‘231 Patent. That decision was appealed, and on November 25, 2020, the Federal Circuit Court of Appeals affirmed the Patent Trial and Appeal Board decision. Following the Federal Circuit's affirmance, the District Court lifted the stay on March 1, 2021 to resume proceedings on the '231 Patent in the Original Action. 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”). The New Action, as well as four similar new lawsuits filed by Vivato against other defendants in the same jurisdiction, were consolidated into the Original 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. That ruling is now on appeal. All claims asserted against the Company in the Original Action have been dismissed. A claim construction hearing took place on January 18, 2022 before a court-appointed Special Master and, on January 27, 2022, the Special Master issued his Report and Recommendation. On April 18, 2022, the court adopted the Special Master’s report on claim construction, with some modifications, and also granted in part the motion for judgment on the pleadings dismissing one of the four remaining claims of the ‘728 Patent. On August 1, 2022, Vivato voluntarily dismissed, with prejudice, its remaining claims related to the ‘728 patent, as well as claims 22-31 of the ‘376 Patent. Trial in the New Action is currently scheduled for November 14, 2022. 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 11— COMMON STOCK AND TREASURY STOCK Common Stock Repurchases On May 5, 2020, the Company's Board of Directors approved a $ 500 million stock repurchase program (the “2020 May Program”). Under the 2020 May Program, the Company is authorized to repurchase up to $ 500 million of its common stock. The 2020 May Program expires on March 31, 2022. During the twelve months ended June 30, 2022, under the 2020 May Program, the Company repurchased and retired 1,074,820 shares of common stock at an average price per share of $ 295.98 for an aggregate amount of $ 318.1 million. As of June 30, 2022, the Company had no remaining balance available for share repurchases under the 2020 May Program. 73 Table of Contents On February 1, 2022 the Company's Board of Directors approved a $ 300 million stock repurchase program (the "2022 February Program"). Under the 2022 February Program, the Company is authorized to repurchase up to $ 300 million of its common stock. The 2022 February Program expires on June 30, 2023. During the twelve months ended June 30, 2022, under the 2022 February Program, the Company repurchased and retired 1,119,033 shares of common stock at an average price per share of $ 268.09 for an aggregate amount of $ 300 million. As of June 30, 2022, the Company had no remaining balance available for share repurchases under the 2022 February Program. 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 is authorized to repurchase up to $ 200 million of common stock. The 2022 May Program expires on September 30, 2023. The Company did not make any repurchases under the 2022 May Program during the twelve months ended June 30, 2022. As of June 30, 2022, the Company has $ 200 million available for share purchase under the 2022 May Program. The following table provides information with respect to the Company’s 2020 May Program, 2022 February Program and 2022 May Program and the activity under the available share repurchase program during the fiscal year ended June 30, 2022 (in millions, except share and per share amounts): Date of Approved and Publicly Announced Program Amount of Publicly Announced Program Total Number of Shares Purchased as Part of Publicly Announced Programs Average Price Paid per Share Total Aggregate Amount Paid Period of Purchases Estimated Remaining Balance Available for Share Repurchases under the Programs Expiration date of Program May 8, 2020 $ 500 1,074,820 $ 295.98 $ 318.1 July 7, 2021 - February 3, 2022 $ — 3/31/2022 February 4, 2022 $ 300 1,119,033 $ 268.09 $ 300.0 February 4, 2022- May 3, 2022 $ — 6/30/2023 May 6, 2022 $ 200 — — — — $ 200 9/30/2023 The following table summarizes total activity related to our stock repurchase programs for the fiscal year end as indicated (in millions, except average price per share): June 30, 2022 2021 2020 Number of shares repurchased and retired 2.2 1.1 5.8 Average price per share $ 281.75 $ 191.90 $ 119.45 Aggregate purchase price $ 618.1 $ 219.8 $ 697.9 NOTE 12— ACCUMULATED OTHER COMPREHENSIVE INCOME Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to unrealized gains and losses that are recorded as an element of stockholders’ equity but are excluded from net income pursuant to GAAP. For the fiscal year ended June 30, 2022 and 2021, the Company’s accumulated other comprehensive income includes net unrealized losses from the Company’s available-for-sale securities, respectively. NOTE 13— STOCK BASED COMPENSATION Stock-Based Compensation Plans 2010 Equity Incentive Plan In March 2010, the Company’s Board of Directors and stockholders approved the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan replaced the 2005 Equity Incentive Plan (the “2005 Plan”), and no further awards will be granted pursuant to the 2005 Plan. Under the terms of the 2010 Plan, non-statutory stock options, stock appreciation rights, restricted stock, and restricted stock units (“RSUs”) may be granted to employees or non-employee service providers. Incentive stock options may be granted only to employees. 2020 Equity Incentive Plan In December 2020, the Company's stockholders approved the Ubiquiti Inc. 2020 Omnibus Incentive Plan (the “2020 Equity Plan”) 74 Table of Contents that will succeed the 2010 Plan, and no additional awards will be granted under the 2010 Plan following January 31, 2021. Under the terms of the 2020 Equity Plan, the Company is authorized to grant awards for up to five million shares of common stock over the term of the 2020 Equity Plan. Outstanding awards under the 2010 Plan remain in effect pursuant to the terms of the 2010 Plan. The 2020 Equity Plan and the 2010 Plan are each administered by the Company’s Board of Directors or a committee of the Company’s Board of Directors. Subject to the terms and conditions of the 2020 Equity Plan and the 2010 Plan, the administrator has the authority to select the persons to whom awards are to be made, to determine the number of shares to be subject to awards and the terms and conditions of awards, and to make all other determinations and to take all other actions necessary or advisable for the administration of the 2020 Equity Plan and the 2010 Plan. The administrator is also authorized to adopt, amend or rescind rules relating to administration of the 2020 Equity Plan and the 2010 Plan. Options and RSUs generally vest over a four-year period from the date of grant and generally expire ten years from the date of grant. The terms of the 2020 Equity Plan and the 2010 Plan provide that an option price shall not be less than 100 % of fair market value on the date of grant. As of June 30, 2022, the Company had 4,968,708 authorized shares available for future issuance under all of its stock incentive plans. Stock-based Compensation The following table shows total stock-based compensation expense included in the Consolidated Statements of Operations for fiscal 2022, 2021 and 2020 (in thousands): Years Ended June 30, 2022 2021 2020 Cost of revenues $ 74 $ 102 $ 121 Research and development 2,541 2,114 2,022 Sales, general and administrative 901 813 745 $ 3,516 $ 3,029 $ 2,888 Stock Options The following is a summary of option activity for the Company’s stock incentive plans for fiscal 2022: Common Stock Options Outstanding Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (In thousands) Balance, June 30, 2021 10,525 $ 11.51 1.29 $ 3,165 Exercised ( 8,413 ) $ 11.70 Cancellations — $ — Balance, June 30, 2022 2,112 $ 10.77 0.37 $ 584,982 Vested as of June 30, 2022 2,112 $ 10.77 0.37 $ 584,982 Vested and exercisable as of June 30, 2022 2,112 $ 10.77 0.37 $ 584,982 Additional information regarding options outstanding as of June 30, 2022 is as follows: Options Outstanding & Exercisable Range of Exercise Prices Number of Options Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price $ 10.77 - $ 10.77 2,112 0.37 $ 10.77 2,112 During fiscal 2022, 2021 and 2020, the aggregate intrinsic value of options exercised under the Company’s stock incentive plans was $ 2.3 million, $ 3.1 million, and $ 3.9 million, respectively, as determined as of the date of option exercise. 75 Table of Contents As of June 30, 2022, the Company had no unrecognized compensation cost related to stock options. The Company did no t grant any stock options during fiscal 2022, fiscal 2021, or fiscal 2020. Forfeiture rate The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. The impact from a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual number of future forfeitures differs from that estimated, the Company may be required to record adjustments to stock-based compensation expense in future periods. 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 Non-vested RSUs, June 30, 2021 61,533 $ 143.28 RSUs granted 21,600 $ 307.34 RSUs vested ( 26,934 ) $ 117.18 RSUs forfeited ( 2,825 ) $ 154.69 Non-vested RSUs, June 30, 2022 53,374 $ 222.24 The intrinsic value of RSUs vested in fiscal 2022, 2021 and 2020 was $ 8.2 million, $ 7.7 million and $ 7.0 million, respectively. The total intrinsic value of all outstanding RSUs was $ 15.4 million as of June 30, 2022. As of June 30, 2022, there was unrecognized compensation costs related to RSUs of $ 8.2 million which the Company expects to recognize over a weighted average period of 3.3 years. NOTE 14— INCOME TAXES The components of income before provision for income taxes were as follows (in thousands): Years Ended June 30, 2022 2021 2020 Domestic $ 102,145 $ 225,224 $ 125,060 Foreign 342,304 502,430 325,136 $ 444,449 $ 727,654 $ 450,196 The provision for income taxes consisted of the following (in thousands): Years Ended June 30, 2022 2021 2020 Current Federal $ 55,259 $ 93,639 $ 60,740 State 6,814 14,390 8,569 Foreign 5,561 3,715 1,782 Current tax expense 67,634 111,744 71,091 Deferred Federal ( 882 ) ( 1,465 ) ( 1,602 ) State ( 960 ) 791 410 Deferred tax benefit (expense) ( 1,842 ) ( 674 ) ( 1,192 ) Provision for income taxes $ 65,792 $ 111,070 $ 69,899 The reconciliation of federal statutory income tax to the Company’s provision for income taxes is as follows: 76 Table of Contents Years Ended June 30, 2022 2021 2020 Statutory rate 21.0 % 21.0 % 21.0 % Effect of foreign operations ( 8.0 ) ( 7.6 ) ( 7.6 ) State tax expense 1.0 1.7 1.6 Stock-based compensation ( 0.1 ) — ( 0.1 ) Other permanent items 0.9 0.2 0.6 Effective tax rate 14.8 % 15.3 % 15.5 % The Company’s effective tax rate decreased 0.5 % to 14.8 % in fiscal 2022 from 15.3 % in fiscal 2021. The Company recorded tax provisions of $ 65.8 million for fiscal 2022 as compared to $ 111.1 million for fiscal 2021. Our effective tax rate and resulting provision for income taxes for fiscal 2022 and fiscal 2021 years reflect the full impact of the 2017 Tax Act, which resulted in a reduction in the U.S. statutory rate to 21% which is partially offset by a reduced tax benefit from foreign operations. Significant components of the Company's deferred tax assets and liabilities as of June 30, 2022 are as follows (in thousands): June 30, 2022 2021 Deferred tax assets Reserves and allowances $ 9,396 $ 4,720 Stock-based compensation 329 323 Accrued expenses 738 289 State tax 1,260 2,277 Investments 1,086 1,325 Lease liabilities 5,873 8,772 Other 3,755 1,056 Total deferred tax assets 22,437 18,762 Deferred tax liabilities Property and equipment ( 4,898 ) ( 3,402 ) Right of use assets ( 5,647 ) ( 8,576 ) Other liabilities ( 4,188 ) ( 683 ) Total deferred tax liabilities ( 14,733 ) ( 12,661 ) Valuation allowance ( 1,086 ) ( 1,325 ) Net deferred tax assets $ 6,618 $ 4,776 A reconciliation of the beginning and ending balances of the unrecognized tax benefits during the years ended June 30, 2022, 2021 and 2020 consists of the following (in thousands): Years Ended June 30, 2022 2021 2020 Unrecognized benefit—beginning of year $ 32,092 $ 31,350 $ 30,850 Gross increases—current year tax positions 4,629 6,855 4,169 Gross decreases—prior year tax positions due to statute lapse ( 4,036 ) ( 6,113 ) ( 3,669 ) Unrecognized benefit—end of year $ 32,685 $ 32,092 $ 31,350 As of June 30, 2022, the Company had approximately $ 32.7 million of unrecognized tax benefits, substantially all of which would, if recognized, affect its tax expense. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statements of Operations and Comprehensive Income. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheets. As of June 30, 2022, the Company had $ 3.5 million accrued interest related to uncertain tax matters. The Company, and one or more of its subsidiaries, files income tax returns in the United States federal jurisdiction, and various 77 Table of Contents state, local, and foreign jurisdictions and is currently undergoing income tax examinations by the U.S. Internal Revenue Service (“IRS”) and the Hong Kong Inland Revenue Department ("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 2010-2016 tax years. 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 2, 2022, the Company received notification that the Hong Kong IRD is seeking an additional $ 23.5 million deposit covering the 2016 tax year. The Company filed a formal protest in response to this notice and the Assessor's office agreed to a reduced deposit of $ 3.0 million which was remitted on May, 23, 2022. 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 $ 60.0 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. 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 Company's credit facilities. 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 for $ 12.7 million to the Company with respect to the fiscal 2015 and fiscal 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 ensued. The Appeals process has now been completed and Appeals has allowed the Proposed Adjustment to stand. The Company intends to pursue a dismissal of the IRS Proposed Adjustment in Tax Court. The Company continues to strongly believe 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 associated with taxability of obligations under the credit facility 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. NOTE 15— 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 revenue by product type in two primary categories: Service Provider Technology and Enterprise Technology. Revenue Revenues by product type were as follows (in thousands, except percentages): Years Ended June 30, 2022 2021 2020 Enterprise Technology 1,316,685 78 % 1,274,931 67 % 842,477 66 % Service Provider Technology $ 375,007 22 % $ 623,163 33 % $ 442,023 34 % Total revenues $ 1,691,692 100 % $ 1,898,094 100 % $ 1,284,500 100 % 78 Table of Contents Revenues by geography based on customer’s ship-to destinations were as follows (in thousands, except percentages): Years Ended June 30, 2022 2021 2020 North America (1) $ 790,809 47 % $ 836,032 44 % $ 571,901 45 % Europe, the Middle East and Africa 675,306 40 % 785,288 41 % 517,132 40 % Asia Pacific 134,961 8 % 154,536 8 % 112,121 9 % South America 90,616 5 % 122,238 7 % 83,346 6 % Total revenues $ 1,691,692 100 % $ 1,898,094 100 % $ 1,284,500 100 % (1) Revenue for the United States was $ 734.5 million, $ 774.3 million and $ 539.0 million for fiscal 2022, 2021 and 2020, respectively. Customers with an accounts receivable balance of 10% or greater of total accounts receivable and customers with net revenues of 10% or greater of total revenues are presented below for the periods indicated: Percentage of Revenues Percentage of Accounts Receivable Years Ended June 30, June 30, 2022 2021 2020 2022 2021 Customer A * * * 11 % * Customer B * * 12 % * * * denotes less than 10% NOTE 16 - SUBSEQUENT EVENTS Dividends On August 26, 2022, the Company announced that its Board of Directors had approved a quarterly cash dividend of $ 0.60 per share payable on September 13, 2022 to shareholders of record at the close of business on September 6, 2022. Any future dividends will be subject to the approval of the Company’s Board of Directors. 79 Table of Contents Exhibit Index The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission. Ubiquiti Inc. (the “Registrant”) shall furnish copies of exhibits for a reasonable fee (covering the expense of furnishing copies) upon request. Exhibit Number Description Incorporated by Reference from Form Incorporated by Reference from Exhibit Number Date Filed Filed Herewith 3.1 Third Amended and Restated Certificate of Incorporation of Ubiquiti Inc., as amended 10-K August 21, 2019 3.2 Amended and Restated Bylaws, as amended , as of December 17, 2020 8-K 3.1 December 18, 2020 4.1 Specimen Common Stock Certificate of Ubiquiti Networks, Inc. S-1 4.1 October 3, 2011 4.2 Registration Agreement, dated March 2, 2010, between Ubiquiti Networks, Inc. and certain holders of Ubiquiti Networks, Inc.’s capital stock named therein. S-1 4.2 June 17, 2011 4.3 Investor Rights Agreement, dated as of March 2, 2010, between Ubiquiti Networks, Inc. and certain holders of Ubiquiti Networks, Inc.’s capital stock named therein. S-1 4.3 June 17, 2011 4.4 Descriptions of the Company’s Securitie s X 10.1 Form of Indemnification Agreement between Ubiquiti Networks, Inc. and its directors and officers. S-1 10.1 October 3, 2011 10.2# Amended and Restated 20 10 Equity Incentive Plan and forms of agreement thereunder. S-1 10.2 June 17, 2011 10. 3 # Ubiquiti Inc. 2020 Omnibus Incentive Plan 8-K 10.1 December 11, 2020 10. 4 # Employment Agreement, dated as of March 1, 2016, between Ubiquiti Networks, Inc. and Kevin Radigan. 10-K 10.6 August 22, 2016 10. 5 Jinyong Ji Investment Taiwan Lease, dated as of March 16, 2010, between Ubiquiti Networks, Inc. and Jinyong Ji Investment Co., Ltd. S-1 10.1 June 17, 2011 10.6 Taiwan Lease, dated as of July 20, 2011, between Jin Yeoung Ji Co., Ltd. and Ubiquiti Networks International Limited, Taiwan Branch. 10-Q 10.15 November 14, 2011 10.7 † Amended Technology License Agreement, dated as of September 1, 2010, between Ubiquiti Networks, Inc. and Atheros Communications, Inc. S-1 10.12 June 17, 2011 10.8 Second Amended and Restated Credit Agreement, dated as of January 17, 2018, by and among Ubiquiti Networks, Inc. and Ubiquiti International Holding Company Limited, as borrowers, certain subsidiaries of borrowers, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Associations, as administrative agent. 8-K 10.1 January 23, 2018 80 Table of Contents 10.9 First Amendment to Second Amended and Restated Credit Agreement and Joinder Agreement, dated as of June 29, 2018, by and among Ubiquiti Networks, Inc. and Ubiquiti International Holding Company Limited, an exempted company incorporated under the laws of Cayman Islands, certain subsidiaries of the borrower, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Associations, as administrative agent. 10-K 10.1 August 24, 2018 10.10 Second Amendment, dated as of March 15, 2019, to Second Amended and Restated Credit Agreement, dated as of January 17, 2018, by and among Ubiquiti Networks, Inc. and Ubiquiti International Holding Company Limited, as borrowers, certain subsidiaries of the borrowers, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Associations, as administrative agent. 10-Q 10.1 May 10, 2019 10.11 Third Amendment, dated as of September 9, 2019, to Second Amended & Restated Credit Agreement, dated as of January 17, 2018, by Ubiquiti Inc., as borrower, Ubiquiti International Holding Company Limited, as a released party, and certain subsidiaries of the borrower, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Associations, as administrative agent 8-K 10.1 September 12, 2019 10.12 Third Amended and Restated Credit Agreement, dated as of March 30, 2021, by and among Ubiquiti Inc. as borrower, certain domestic subsidiaries of the borrower, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Association, as administrative agent. 8-K 10.1 April 5, 2021 21.1 List of subsidiaries of Ubiquiti Inc. X 23.1 Consent of independent registered public accounting firm X 24.1 Power of Attorney (contained in the signature page to this Form 10-K) X 31.1 Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. X 31.2 Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. X 32.1 Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350. X 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Schema Linkbase Document X 81 Table of Contents 101.CAL XBRL Taxonomy Calculation Linkbase Document X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB XBRL Taxonomy Labels Linkbase Document X 101.PRE XBRL Taxonomy Presentation Linkbase Document X 104 Cover Page Interactive Date File - (formatted as Inline XBRL and contained in Exhibit 101) # Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate. † Portions of the exhibit have been omitted pursuant to an order granted by the Securities and Exchange Commission for confidential treatment. ~ In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. 82