Ubiquiti Inc. 10-Q

Item 1. Financial Statements UBIQUITI INC. Consolidated Balance Sheets (In thousands, except share data) (Unaudited) September 30, 2022 June 30, 2022 Assets Current assets: Cash and cash equivalents $ 136,519 $ 136,224 Investments — short-term 378 427 Accounts receivable, net of allowance for doubtful accounts of $ 55 and $ 52 at September 30, 2022 and June 30, 2022, respectively 147,567 119,627 Inventories 354,662 262,441 Vendor deposits 58,369 89,661 Prepaid expenses and other current assets 14,067 13,193 Total current assets 711,562 621,573 Property and equipment, net 85,170 80,232 Operating lease right-of-use assets, net 61,626 64,231 Deferred tax assets 6,483 6,618 Other long-term assets 72,398 72,058 Total assets $ 937,239 $ 844,712 Liabilities and Stockholders’ Deficit Current liabilities: Accounts payable $ 93,987 $ 83,663 Income taxes payable 35,133 14,061 Debt — short-term 24,410 23,865 Other current liabilities 207,964 189,361 Total current liabilities 361,494 310,950 Income taxes payable — long-term 77,547 94,169 Operating lease liabilities —long-term 51,649 54,025 Debt — long-term 766,019 762,622 Other long-term liabilities 6,002 5,822 Total liabilities 1,262,711 1,227,588 Commitments and contingencies (Note 10) Stockholders’ deficit: Preferred stock—$ 0.001 par value; 50,000,000 shares authorized; none issued — — Common stock—$ 0.001 par value; 500,000,000 shares authorized: 60,428,811 and 60,420,525 outstanding as of September 30, 2022 and June 30, 2022, respectively 60 60 Additional paid–in capital 1,177 650 Accumulated other comprehensive (loss) ( 523 ) ( 474 ) Retained (deficit) ( 326,186 ) ( 383,112 ) Total stockholders’ (deficit) ( 325,472 ) ( 382,876 ) Total liabilities and stockholders’ deficit $ 937,239 $ 844,712 See notes to consolidated financial statements. 3 Table of Contents UBIQUITI INC. Consolidated Statements of Operations and Comprehensive Income (In thousands, except per share amounts) (Unaudited) Three Months Ended September 30, 2022 2021 Revenues $ 498,083 $ 458,914 Cost of revenues 326,715 249,451 Gross profit 171,368 209,463 Operating expenses: Research and development 32,659 32,051 Sales, general and administrative 16,696 15,714 Total operating expenses 49,355 47,765 Income from operations 122,013 161,698 Interest expense and other, net ( 10,651 ) ( 3,815 ) Income before income taxes 111,362 157,883 Provision for income taxes 18,180 25,733 Net income $ 93,182 $ 132,150 Net income per share of common stock: Basic $ 1.54 $ 2.11 Diluted $ 1.54 $ 2.11 Weighted average shares used in computing net income per share of common stock: Basic 60,427 62,519 Diluted 60,446 62,561 Other comprehensive income: Unrealized losses on available-for-sale securities $ ( 49 ) $ ( 1 ) Other comprehensive loss ( 49 ) ( 1 ) Comprehensive income $ 93,133 $ 132,149 See notes to consolidated financial statements. 4 Table of Contents UBIQUITI INC. Consolidated Statements of Stockholders’ Equity (Deficit) (In thousands, except per share amounts) (Unaudited) Three Months Ended September 30, 2022 Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Amount Amount Amount Amount Balance at June 30, 2022 60,420,525 $ 60 $ 650 $ ( 383,112 ) $ ( 474 ) $ ( 382,876 ) Net Income — — — 93,182 — 93,182 Other comprehensive income (loss) — — — ( 49 ) ( 49 ) Stock options exercised 2,112 — 23 — — 23 Restricted stock units issued, net of tax withholdings 6,174 — ( 544 ) — — ( 544 ) Stock-based compensation expense — — 1,048 — — 1,048 Dividends Paid on Common Stock ($ 0.60 per share) — — — ( 36,256 ) — ( 36,256 ) Balance at September 30, 2022 60,428,811 $ 60 $ 1,177 $ ( 326,186 ) $ ( 523 ) $ ( 325,472 ) Three Months Ended September 30, 2021 Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Amount Amount Amount Amount Balance at June 30, 2021 62,582,858 $ 63 $ — $ 2,635 $ 1 $ 2,699 Net Income — — — 132,150 — 132,150 Other comprehensive (loss) — — — — ( 1 ) ( 1 ) Stock options exercised 1,605 — 17 — — 17 Restricted stock units issued, net of tax withholdings 7,887 — ( 952 ) — — ( 952 ) Repurchases of Common Stock ( 130,994 ) ( 1 ) 125 ( 39,376 ) — ( 39,252 ) Stock-based compensation expense — — 810 — — 810 Dividends Paid on Common Stock ($ 0.60 per share) — $ — $ — $ ( 37,499 ) $ — $ ( 37,499 ) Balance at September 30, 2021 62,461,356 $ 62 $ — $ 57,910 $ — $ 57,972 See notes to consolidated financial statements. 5 Table of Contents UBIQUITI INC. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended September 30, 2022 2021 Cash Flows from Operating Activities: Net income $ 93,182 $ 132,150 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,686 3,244 Amortization of debt issuance costs 321 332 Non-cash lease expense 172 609 Provision for inventory obsolescence 1,576 64 Provision for loss on vendor deposits and purchase commitments ( 2,090 ) 2,252 Stock-based compensation 1,048 810 Deferred taxes 135 23 Other, net 564 123 Changes in operating assets and liabilities: Accounts receivable ( 27,937 ) ( 1,645 ) Inventories ( 94,244 ) ( 27,588 ) Vendor deposits 30,393 ( 20,333 ) Prepaid income taxes ( 36 ) ( 3,703 ) Prepaid expenses and other assets ( 1,672 ) ( 17,696 ) Accounts payable 10,414 9,728 Income taxes payable 4,450 17,404 Deferred revenues ( 1,744 ) 577 Accrued and other liabilities 23,766 4,587 Net cash provided by operating activities 41,984 100,938 Cash Flows from Investing Activities: Purchase of property and equipment and other long-term assets ( 8,662 ) ( 2,971 ) Purchase of investments — ( 569 ) Proceeds from maturities of investments — 550 Net cash (used in) investing activities ( 8,662 ) ( 2,990 ) Cash Flows from Financing Activities: Proceeds from borrowing under the credit facility- Revolver 50,000 — Repayment against credit facility- Revolver ( 40,000 ) — Repayment against credit facility- Term ( 6,250 ) ( 6,250 ) Repurchases of common stock — ( 36,752 ) Payment of common stock cash dividends ( 36,256 ) ( 37,499 ) Proceeds from exercise of stock options 23 — Tax withholdings related to net share settlements of restricted stock units ( 544 ) ( 935 ) Net cash (used in) financing activities ( 33,027 ) ( 81,436 ) Net increase in cash and cash equivalents 295 16,512 Cash and cash equivalents at beginning of period 136,224 249,418 Cash and cash equivalents at end of period $ 136,519 $ 265,930 Supplemental Disclosure of Cash Flow Information: Income taxes paid, net of refunds $ 13,780 $ 11,964 Interest paid $ 6,738 $ 2,501 Non-Cash Investing and Financing Activities: Right-of-use asset recognized $ 236 $ 24,344 Unpaid stock repurchases $ — $ 2,497 Unpaid property and equipment and other long-term assets $ 421 $ 580 See notes to consolidated financial statements. 6 Table of Contents UBIQUITI INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1— BUSINESS AND BASIS OF PRESENTATION Business — Ubiquiti Inc. and its wholly owned subsidiaries (collectively, “Ubiquiti” or the “Company”) develop high performance networking technology for service providers, enterprises, and consumers globally. The Company operates on a fiscal year ending June 30. In these notes, Ubiquiti refers to the fiscal years ending June 30, 2023 and 2022, as fiscal 2023 and fiscal 2022 respectively. Basis of Presentation — The Company’s consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) related to interim financial statements based on applicable Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. These consolidated financial statements reflect all adjustments, which are, in the opinion of the Company, of a normal and recurring nature and those necessary to state fairly the statements of financial position, results of operations and cash flows for the dates and periods presented. The June 30, 2022 balance sheet was derived from the audited consolidated financial statements as of that date. All significant intercompany transactions and balances have been eliminated. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2022, included in its Annual Report on Form 10-K, as filed with the SEC on August 26, 2022 (the “Annual Report”). The results of operations for the three months ended September 30, 2022 are not necessarily indicative of the results to be expected for any future periods. NOTE 2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies are disclosed in its audited consolidated financial statements for the fiscal year ended June 30, 2022, included in the Annual Report on Form 10-K. Except as noted below, there have been no other changes to the Company’s significant accounting policies as discussed in the Annual Report. Use of Accounting Estimates The preparation of financial statements in conformity with 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 estimated 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 based on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ materially from those estimates. NOTE 3— REVENUES Revenue is primarily generated from the sale of hardware as well as the related implied post contract services (“PCS”). Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our products and PCS to our customers. Transfer of control to the customer for products generally occurs at the point in time when products have been shipped to our customer as this represents the point in time when the customer has a present obligation to pay and physical possession including title and risk of loss have been transferred to the customer. Revenue for PCS is recognized ratably over time over the estimated period for which implied PCS services will be delivered. Disaggregation of Revenue See Note 15 “Segment Information” for disaggregation of revenue by product category and geography. Contract Balances 7 Table of Contents The timing of revenue recognition, billing and cash collections results in billed accounts receivable, deferred revenue primarily attributable to PCS and customer deposits on the consolidated balance sheets. Accounts receivable are recognized in the period our right to the consideration is unconditional. Our contract liabilities consist of advance payments (Customer deposits) as well as billing in excess of revenue recognized primarily related to deferred revenue. We classify customer deposits as a current liability, and deferred revenue as a current or non-current liability based on the timing of when we expect to fulfill these remaining performance obligations. The current portion of deferred revenue is included in other current liabilities and the non-current portion is included in other long-term liabilities in our consolidated balance sheets. As of September 30, 2022 and June 30, 2022, the Company’s customer deposits were $ 1.8 million and $ 1.1 million, respectively. As of September 30, 2022, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $ 18.9 million and $ 6.0 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. NOTE 4— 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 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. The Company classifies its 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. The Company’s 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 the Company’s 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. The Company held no Level 3 financial instruments as of September 30, 2022 and June 30, 2022. 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 September 30, 2022 and June 30, 2022 (in thousands): September 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 $ — $ ( 523 ) $ 378 $ — $ 378 $ — Total $ 901 $ — $ ( 523 ) $ 378 $ — $ 378 $ — (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. 8 Table of Contents 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. For the three months ended September 30, 2022, the Company did no t recognize any material net gains or losses from accumulated other comprehensive income related to realized gains or losses. During the three months ended September 30, 2022 and 2021, interest income on the Company’s investment securities was immaterial. The Company had no continuous unrealized loss position from corporate securities as of September 30, 2022 . The following table represents the adjusted costs and fair value of cash equivalents and investments by contractual maturity as of September 30, 2022 (in thousands): Available-For-Sale Adjusted Cost Fair Value Due within 1 year and money market funds $ 901 $ 378 Total $ 901 $ 378 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 September 30, 2022 and June 30, 2022, the Company had outstanding loans 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 September 30, 2022 and June 30, 2022, the fair value of the Company’s debt, which is carried at historical cost was $ 792.5 million and $ 788.8 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): Three Months Ended September 30, 2022 2021 Numerator: Net income $ 93,182 $ 132,150 Denominator: Weighted-average shares used in computing basic earnings per share 60,427 62,519 Add—dilutive potential common shares: Stock options 2 10 Restricted stock units 17 32 Weighted-average shares used in computing diluted net income per share 60,446 62,561 Net income per share of common stock: Basic $ 1.54 $ 2.11 Diluted $ 1.54 $ 2.11 The Company excludes potentially dilutive securities from its diluted net income per share calculation when their effect would be anti- 9 Table of Contents dilutive to net income per share amounts. NOTE 6— BALANCE SHEET COMPONENTS Inventories Inventories consisted of the following (in thousands): September 30, 2022 June 30, 2022 Finished goods $ 344,349 $ 253,260 Raw materials 10,313 9,181 Total $ 354,662 $ 262,441 Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): September 30, 2022 June 30, 2022 Testing equipment $ 19,260 $ 16,999 Tooling equipment 18,562 18,398 Leasehold improvements 20,391 18,589 Computer and other equipment 10,970 11,078 Software 10,540 10,509 Furniture and fixtures 1,818 2,668 Corporate aircraft 65,807 65,807 Property and equipment, gross 147,348 144,048 Less: Accumulated depreciation ( 62,178 ) ( 63,816 ) Property and equipment, net $ 85,170 $ 80,232 Other Long-term Assets Other long-term assets consisted of the following (in thousands): September 30, 2022 June 30, 2022 Hong Kong Tax deposit (1) 59,972 59,992 Intangible assets, net (2) 6,864 7,228 Other long-term assets, net 5,562 4,838 Total $ 72,398 $ 72,058 (1) The Company expects the deposits made with the Hong Kong Inland Revenue Department (“IRD”) to be refunded upon completion of the audit. See Note 14 to the consolidated financial statements for additional details regarding this ongoing tax audit. (2) Accumulated amortization was $ 4.7 million and $ 4.3 million as of September 30, 2022, and June 30, 2022, respectively. Other Current Liabilities Other current liabilities consisted of the following (in thousands): 10 Table of Contents September 30, 2022 June 30, 2022 Deferred revenue — short-term $ 18,938 20,766 Accrued expenses 27,318 42,305 Lease liability— current 12,688 12,744 Warranty accrual 7,159 6,394 Accrued compensation and benefits 6,544 6,168 Customer deposits 1,821 1,059 Reserve for sales returns 4,104 4,297 Inventory received not billed 116,493 86,953 Other payables 12,899 8,675 Total $ 207,964 $ 189,361 Other Long-Term Liabilities Other long-term liabilities consisted of the following (in thousands): September 30, 2022 June 30, 2022 Deferred Revenue — long-term $ 6,002 $ 5,822 NOTE 7— ACCRUED WARRANTY The Company offers warranties on certain products, generally a period of one to two years and records a liability for the estimated future costs associated with potential warranty claims. The warranty costs are reflected in the Company’s consolidated statements of operations and comprehensive income within cost of revenues. The warranties are typically in effect for one year for distributors from the date of shipment and two years for direct sales from the date of delivery. The Company assesses the adequacy of its accrued warranty liabilities and adjusts the amounts as necessary based on historical experience factors and changes in future estimates. Historical factors include product failure rates, material usage and service delivery costs incurred in correcting product failures. In certain circumstances, the Company may have recourse from its contract manufacturers for replacement cost of defective products, which it also factors into its warranty liability assessment. Warranty obligations, included in other current liabilities, were as follows (in thousands): Three Months Ended September 30, 2022 2021 Beginning balance $ 6,394 $ 4,812 Accruals for warranties issued during the period $ 2,824 2,054 Changes in liability for pre-existing warranties during the period $ 71 191 Settlements made during the period $ ( 2,130 ) ( 1,876 ) Ending balance $ 7,159 $ 5,181 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 Company has $ 2.1 million of debt issuance costs which are capitalized and are being amortized as interest expense over the remaining life of the facilities. The Company’s Debt consisted of the following (in thousands): 11 Table of Contents September 30, 2022 June 30, 2022 Term Facility - short term $ 25,000 $ 25,000 Debt issuance costs, net ( 590 ) ( 1,135 ) Total Debt - short term 24,410 23,865 Term Facility - long term 437,500 443,750 Revolving Facility - long term 330,000 320,000 Debt issuance costs, net ( 1,481 ) ( 1,128 ) Total Debt - long term $ 766,019 $ 762,622 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 Facility is payable in quarterly installments of 1.25 % of the original principal amount of the Term Facility, commencing with the quarter ending June 30, 2021. The Facilities may be prepaid at any time without penalty. Revolving and Term facilities 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 September 30, 2022, $ 462.5 million was outstanding on the Term Facility and $ 330 million outstanding on the Revolving Facility, leaving $ 370 million available on the Revolving Facility. Term Facility: During the three months ended September 30, 2022, the Company made aggregate payments of $ 10.7 million under the Term Facility, of which $ 6.3 million was repayment of principal and $ 4.4 million was payment of interest. As of September 30, 2022, the interest rate on the Term Facility was 4.87 %. This interest rate will reset on October 31, 2022. 12 Table of Contents Revolving Facility: Under the Third Amended and Restated Credit Agreement, during the three months ended September 30, 2022, the Company made aggregate payments of $ 42.8 million under the Revolving Facility, of which $ 40 million was a repayment of principal and $ 2.8 million was a payment of interest. As at September 30, 2022 , the interest rates on the Revolving Facility were 4.45 % - 4.87 %. The following table summarizes the Company’s estimated debt and interest payment obligations as of September 30, 2022, for the remainder of fiscal 2023 and future fiscal years (in thousands): 2023 (remainder) 2024 2025 2026 2027 Thereafter Total Debt payment obligations $ 18,750 $ 25,000 $ 25,000 $ 723,750 $ — $ — $ 792,500 Interest and other payments on debt payment obligations (1) 29,711 38,751 37,412 27,176 — — 133,050 Total $ 48,461 $ 63,751 $ 62,412 $ 750,926 $ — $ — $ 925,550 (1) - Interest payments are calculated based on the applicable rates and payment dates as of September 30, 2022 and assumes the outstanding revolver balance remains at $ 330 million. Although the Company’s interest rates on debt obligations may vary, the Company has assumed the most recent available interest rates for all periods presented. NOTE 9— LEASES The Company enters 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 September 30, 2022, we included such options in determining the lease terms for certain of our leases because we were reasonably certain that we would exercise the extension options. Most of our leases require us to pay certain operating expenses in addition to base rent, such as taxes, insurance and maintenance costs. The following table summarizes our lease costs for the three months ended September 30, 2022 and 2021 (in thousands): Financial Statement Classification Three Months Ended September 30, 2022 2021 Operating lease costs: Fixed lease costs Operating expenses $ 2,804 $ 2,145 Fixed lease costs Cost of revenues 1,003 1,145 Variable lease costs Operating expenses — 144 Variable lease costs Cost of revenues 14 130 Total lease costs $ 3,821 $ 3,564 The operating lease costs in the table above include costs for long-term and short-term leases. Total short-term costs for three months ended September 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 the three months ended September 30, 2022 and 2021, cash paid for amounts associated with the Company’s operating lease liabilities were approximately $ 3.6 million and $ 3.0 million, respectively. Cash paid for amounts associated with the Company’s operating lease liabilities were classified as operating activities in the consolidated statement of cash flows. The following table shows the Company’s undiscounted future fixed payment obligations under the Company’s recognized operating leases and a reconciliation to the operating lease liabilities as of September 30, 2022: 13 Table of Contents Remainder of Fiscal 2023 $ 10,591 Fiscal 2024 13,845 Fiscal 2025 12,625 Fiscal 2026 8,612 Fiscal 2027 4,922 Thereafter 18,544 Total future fixed operating lease payments $ 69,139 Less: Imputed interest $ 4,802 Total operating lease liabilities $ 64,337 Weighted-average remaining lease term - operating leases 7 years Weighted-average discount rate - operating leases 2.3 % NOTE 10— COMMITMENTS AND CONTINGENCIES Operating Leases See Note 9 - Leases for future minimum lease payments under non-cancelable operating leases as of September 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, the Company’s 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 products. We periodically review the potential liability, and as of September 30, 2022, we have recorded a purchase obligation liability of $ 7.7 million related to component purchase commitments. There have been no other significant liabilities for cancellations recorded as of September 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. We may be subject to additional purchase obligations for supply agreements and components ordered by our contract manufacturers based on manufacturing forecasts we provide them each month. We estimate the amount of these additional purchase obligations to range from $ 1,697.7 million to $ 2,362.8 million as of September 30, 2022, depending upon the timing of orders placed for these components by our contract manufacturers. Other Obligations As of September 30, 2022, the Company has other obligations of $ 6.7 million which consisted primarily of commitments related to research and development projects. Indemnification Obligations The Company enters into standard indemnification agreements with many of its business partners in the ordinary course of business. These agreements include provisions for indemnifying the business partner against any claim brought by a third-party to the extent any such claim alleges that a Company product infringes a patent, copyright or trademark, or violates any other proprietary rights of that third-party. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not estimable and the Company has not incurred any material costs to defend lawsuits or settle claims related to these indemnification agreements to date. Legal Matters The Company may be involved, from time to time, in a variety of claims, lawsuits, investigations, and proceedings relating to contractual disputes, intellectual property rights, employment matters, regulatory compliance matters and other litigation matters relating to various claims that arise in the normal course of business. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. The Company assesses its potential liability by analyzing specific litigation and regulatory matters using available information. The Company 14 Table of Contents 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 7,062,29 6 (the “’296 Patent”), 7,729,728 (the “’728 Patent”), and 6,611,231 (the “’231 Patent” and, collectively, the “Patents-in-Suit”), (the “Original Action”). On April 11, 2018, the Court stayed the Original Action pending completion of certain inter partes review (“IPR”) proce edings before the Patent Trial and Appeal Board (“PTO”). The PTO invalidated asserted claims of two of the three Patents-in-Suit. 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. On April 18, 2022, the court granted in part the motion for judgment on the pleadings with respect to the ’728 patent, dismissing one of the four remaining claims. On July 28, 2022, Vivato voluntarily dismissed, with prejudice, its remaining claims related to the ’728 patent, as well as claims 22-31 of the ‘376 Patent. On October 20, 2022, an IPR was instituted with respect to the asserted claims of the ’376 Patent. On October 26, 2022, the court stayed the case pending completion of the IPR. 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 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 three months ended September 30, 2022. As of September 30, 2022 , the Company had $ 200 million available for share purchase under the 2022 May Program. 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 three months ended September 30, 2022 and 2021, the Company’s accumulated other comprehensive income includes net unrealized gains and losses from the Company’s available-for-sale securities, respectively. NOTE 13— STOCK BASED COMPENSATION Stock-Based Compensation Plans The Company’s 2020, 2010 and 2005 Equity Incentive Plan are described in the Company’s Annual Report. 15 Table of Contents As of September 30, 2022, the Company had 4,959,923 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 and comprehensive income for the three months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, 2022 2021 Cost of revenues $ 11 $ 22 Research and development 769 570 Sales, general and administrative 268 218 1,048 810 Stock Options The following is a summary of option activity for the Company’s stock incentive plans for the three months ended September 30, 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, 2022 2,112 $ 10.77 0.37 $ 584,982 Exercised ( 2,112 ) $ 10.77 Forfeitures and cancellations Balance, September 30, 2022 — $ — — $ — Vested as of September 30, 2022 — $ — — $ — Vested and exercisable as of September 30, 2022 — $ — — $ — During the three months ended September 30, 2022 and 2021, the aggregate intrinsic value of options exercised under the Company’s stock incentive plans was $ 0.6 million and $ 0.5 million, respectively, as determined as of the date of option exercise. As of September 30, 2022, the Company had no unrecognized compensation costs related to stock options. The Company did no t grant any employee stock options during the three months ended September 30, 2022, and 2021. Restricted Stock Units (“RSUs”) The following table summarizes the activity of the RSUs made by the Company: Number of Shares Weighted Average Grant Date Fair Value Per Share Non-vested RSUs, June 30, 2022 53,374 $ 222.24 RSUs granted 9,091 $ 265.87 RSUs vested ( 8,381 ) $ 123.06 RSUs canceled ( 230 ) $ 206.58 Non-vested RSUs, September 30, 2022 53,854 $ 245.11 The intrinsic value of RSUs vested in the three months ended September 30, 2022 and 2021 was $ 2.1 million and $ 3.4 million, respectively. The total intrinsic value of all outstanding RSUs was $ 15.8 million as of September 30, 2022. 16 Table of Contents As of September 30, 2022, there were unrecognized compensation costs related to RSUs of $ 9.4 million which the Company expects to recognize over a weighted average period of 3.4 years. NOTE 14— INCOME TAXES The Company recorded tax provisions of $ 18.2 million for the three months ended September 30, 2022 as compared to $ 25.7 million for the three months ended September 30, 2021. The decrease is primarily related to the reduction in profit before tax and changes in the mix of profit before tax for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. The Company’s estimated fiscal year 2023 effective tax rate, before discrete items, differs from the U.S. statutory rate primarily due to profits earned in jurisdictions where the tax rate is lower than the U.S. tax rate, partially offset by additional U.S. tax related to our non-U.S. operations under Global Intangible Low-Taxes Income (GILTI) rules. As of September 30, 2022, the Company had approximately $ 33.4 million of unrecognized tax benefits, substantially all of which would, if recognized, affect its tax expense. During the three months ended September 30, 2022, the Company recorded an increase of its unrecognized tax benefits of $ 1.1 million and a release of $( 0.4 ) million of its unrecognized tax benefits due to the lapse of the application statute of limitations for the quarter ended September 30, 2022 . The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statement of operations and comprehensive income. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. As of September 30, 2022, the Company had $ 3.6 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 state, local, and foreign jurisdictions and is currently undergoing income tax examinations by the U.S. Internal Revenue Service 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 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 Internal Revenue Service (“IRS”) proposing an adjustment to income for the fiscal 2015 and fiscal 2016 tax years based on its interpretation of certain obligations of the non-US entities under the credit facility. This Draft NOPA was superseded by an Acknowledgement of Facts (“AOF”) issued to the Company by the IRS on January 17, 2020. The IRS in its AOF continued to propose an adjustment to the Company’s income for its fiscal 2015 and fiscal 2016 tax years based on the IRS’ interpretation of certain obligations of the Company’s foreign subsidiaries under the Company’s credit facilities. On May 12, 2020, the IRS issued a final Notice of Proposed Adjustment to the Company with respect to the 2015/2016 tax years. The Company formally protested the adjustment and the case was moved from the Examination Division to the IRS Appeals Division where a formal review of the facts and the applicable law took place on May 9, 2022. The Appeals Officer issued a Notice of Deficiency on August 3, 2022, which upheld the position of the Examination Division. The Company has filed a petition with the United States Tax Court seeking to have the Notice of Deficiency reversed. The Company strongly believes the position of the IRS with regard to this matter is without merit. However, there can be no assurance that this matter will be resolved in the Company’s favor. Regardless of whether the matter is resolved in the Company’s favor, the final resolution of this matter could be expensive and time-consuming to defend and/or settle. We estimate the incremental tax liability associated with the income adjustment proposed in the AOF would be approximately $ 50.0 million, excluding potential interest and penalties, after adjusting for the impact of an adjustment on the amount of transition tax payable in future years by the Company. As the Company believes that the tax originally paid in fiscal 2015 and fiscal 2016 is correct, it has not provided a reserve for this tax uncertainty. However, an adverse outcome may have a material and adverse effect on the Company’s results of operations 17 Table of Contents 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 revenues by product type in two primary categories: Service Provider Technology and Enterprise Technology. Revenues by product type are as follows (in thousands, except percentages): Three Months Ended September 30, 2022 2021 Enterprise technology $ 426,298 86 % $ 346,773 76 % Service Provider Technology 71,785 14 % 112,141 24 % Total revenues $ 498,083 100 % $ 458,914 100 % Revenues by geography based on customer’s ship-to destinations were as follows (in thousands, except percentages): Three Months Ended September 30, 2022 2021 North America (1) $ 225,713 45 % $ 209,073 46 % Europe, the Middle East and Africa (“EMEA”) 200,143 40 % 172,643 38 % Asia Pacific 45,332 9 % 42,939 9 % South America 26,895 6 % 34,259 7 % Total revenues $ 498,083 100 % $ 458,914 100 % (1) Revenue for the United States was $ 210.3 million and $ 190.6 million for the three months ended September 30, 2022 and 2021, respectively. For the periods presented, there were no customers with an accounts receivable balance of 10% or greater of total accounts receivable or customers with net revenues of 10% or greater of total revenues. NOTE 16 - SUBSEQUENT EVENTS Dividends On November 4, 2022, the Company's Board of Directors had approved a quarterly cash dividend of $ 0.60 per share payable on November 21, 2022 to shareholders of record at the close of business on November 14, 2022. Any future dividends will be subject to the approval of the Company’s Board of Directors.