What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-02-03 compared with 2022-11-04 · 100 added, 94 removed, 186 unchanged (51% of the section changed)

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Pera, our founder, Chairman of the Board and Chief Executive Officer, who is central to our business, the majority of our human capital resources consist of entrepreneurial and de-centralized research and development (“R&D”) personnel.

employ a traditional direct sales force, but instead drive brand awareness through online reviews and publications, our website, our distributors and our user community where customers can interface directly with our R&D, marketing, and support teams.

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

Our technology platforms were designed from the ground up with a focus on delivering highly-advanced and easily deployable solutions that appeal to a global customer base.

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

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

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

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

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

We have experienced a disruption in our supply chain and production as a result of the COVID-19 related restrictions and the global shortage of components.

The current environment has impacted our suppliers’ ability to manufacture or provide key components or services, and we have incurred, and continue to incur, additional cost to expedite deliveries of components and services.

For example, in fiscal 2022, and the first quarter of fiscal 2023, we experienced reduced availability for certain components (including the chipsets) used to manufacture our products, which has impacted, and we expect will continue to impact our ability and costs to manufacture our products.

These supply shortages have resulted in increased component delivery lead times and increased costs to obtain components, particularly the chipsets, and may result in delays in product production, which shortages may be further exacerbated by increasing global shipping lead times and delays.

We do not stockpile sufficient components, particularly the chipsets, to cover the time it would take to re-engineer our products to replace the chipsets used to manufacture our products.

While we are continuing to work closely with our suppliers and contract manufacturers to minimize the potential adverse impacts of the supply shortage, there are many companies seeking to purchase the limited supply of chipsets and other components, many of which have greater resources and larger market share than we have, which may limit the effectiveness of our efforts.

We expect that shortages of chipsets and other components will continue and may have an adverse impact on our ability to manufacture our products and meet demand for our products.

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

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

Refer to “Part II – Item IA.

Risk Factors” for a discussion of these factors and other risks.

Supply Constraints and Risks – We continue to experience significant supply constraints caused, in part, by the COVID-19 pandemic.

The continued duration of these supply constraints remains uncertain.

Our efforts to mitigate these supply constraints have included, for example, increasing our inventory build in an attempt to secure supply and meet customer demand, paying higher component and shipping costs to secure supply and modifying our product designs to leverage alternate suppliers.

Although these mitigation efforts are intended to optimize our access to the components required to meet customer demand for our products, they have increased, and are expected to continue to increase, our balances of finished goods and raw material inventories.

The increasing balance of finished goods and raw material inventory significantly increases the risks of future material excess, obsolete inventory and related losses.

We believe that we are taking the right actions to mitigate these continuing supply constraints, however, we recognize the associated risks.

Recent Developments

Russia-Ukraine Military Conflict - We are monitoring the military conflict between Russia and Ukraine, escalating tensions in surrounding countries, and associated economic sanctions.

While the impact on our operations in Ukraine and its surrounding countries has not been material to our business or results of operations as of the date hereof, the full impact of the military conflict on our business and results of operations remains uncertain.

While the impact on our operations in Ukraine and its surrounding

countries has not been material to our business or results of operations as of the date hereof, the full impact of the military conflict on our business and results of operations remains uncertain.

The extent to which the conflict may impact our business or results of operations in future periods will depend on future developments, including the severity and duration of the conflict, its impact on regional and global economic conditions, as well as its impact on surrounding countries, including its impact on our operations in Ukraine and its surrounding countries, and its impact on global supply chains.

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While the impact on our operations in Taiwan has not been material to our business or results of operations as of the date hereof, the full impact of the escalating tensions and potential military conflict on our business and results of operations remains uncertain.

The extent to which the conflict may impact our business or results of operations in future periods will depend on future

developments, including the severity and duration of the conflict, its impact on regional and global economic conditions, as well as its impact on China-U.S.

relations, including its impact on our operations in Taiwan, and its impact on global supply chains.

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We operate our business as one reportable and operating segment.

Further information regarding Segments can be found in Note 15 to our consolidated financial statements.

Further information regarding the segment can be found in Note 13, "Segment Information, Revenues by Geography and Significant Customers" to our consolidated financial statements.

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

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

Sales to distributors accounted for 61% of our revenues during the three months ended September 30, 2022.

Direct sales accounted for 39% of our revenue during the three months ended September 30, 2022.

Sales to distributors accounted for 63% of our revenues during the six months ended December 31, 2022.

Direct sales accounted for 37% of our revenue during the six months ended December 31, 2022.

Cost of Revenues

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The vast majority of our products that are imported into the U.S.

from China are currently subject to tariffs that range between 7.5% and 25%.

from China are currently

subject to tariffs that range between 7.5% and 25%.

These tariffs have already affected our operating results and margins.

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

• Research and development expenses consist primarily of salary and benefit expenses, including stock-based compensation, for

employees and costs for contractors engaged in research, design and development activities, as well as costs for prototypes, licensed or purchased intellectual property, facilities and travel.

• Research and development expenses consist primarily of salary and benefit expenses, including stock-based compensation, for employees and costs for contractors engaged in research, design and development activities, as well as costs for prototypes, licensed or purchased intellectual property, facilities and travel.

Over time, we expect our research and development costs to increase as we continue making significant investments in developing new products in addition to new versions of our existing products.

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Risk Factors—Risks Related to Regulatory, Legal and Tax Matters—Changes in applicable tax regulations could negatively affect our financial results” for additional information.

Critical Accounting Policies

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

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To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

Our critical accounting policies are discussed in our Annual Report, filed with the SEC on August 26, 2022, and there have been no material changes other than that have been disclosed in Note 2 to our consolidated financial statements herein.

Additionally, as the COVID-19 pandemic continues to develop and supply chain constraints on the global supply of components, particularly the chipsets, we use to manufacture our products persists, many of our estimates could require increased judgment and carry a higher degree of variability and volatility.

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Results of Operations

Comparison of Three Months Ended September 30, 2022 and 2021

Three Months Ended September 30,

(In thousands, except percentages)

Comparison of Three and Six Months Ended December 31, 2022 and 2021

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

Three Months Ended December 31, Six Months Ended December 31,

2022 2021 2022 2021

% of Revenues % of Revenues % of Revenues % of Revenues

Revenues $ 493,571 100 % $ 431,565 100 % $ 991,654 100 % $ 890,479 100 %

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Total stock-based compensation $ 1,101 $ 819 2,148 1,629

Total revenues increased $39.2 million, or 9%, from $458.9 million in the three months ended September 30, 2021 to $498.1 million in the three months ended September 30, 2022.

Total revenues increased $62.0 million, or 14%, from $431.6 million in the three months ended December 31, 2021 to $493.6 million in the three months ended December 31, 2022.

Total revenues increased $101.2 million, or 11%, from $890.5 million in the six months ended December 31, 2021 to $991.7 million in the six months ended December 31, 2022.

The increase in revenues was primarily driven by our Enterprise Technology platform.

The revenue from the Service Provider Technology platform declined when compared to the comparable prior year period.

While revenues increased, our revenues continue to be negatively impacted by our inability to fulfill demand due to the global component supply shortage.

Revenues also continue to be impacted by our ability to build products across all platforms as we are allocated available components to certain products.

Revenues by Product Type

Three Months Ended September 30,

(in thousands, except percentages)

Three Months Ended December 31, Six Months Ended December 31,

2022 2021 2022 2021

(in thousands, except percentages) (in thousands, except percentages)

Enterprise technology $ 417,408 85 % $ 330,358 77 % $ 843,706 85 % $ 677,131 76 %

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Total revenues $ 493,571 100 % $ 431,565 100 % $ 991,654 100 % $ 890,479 100 %

Enterprise Technology revenue increased $79.5 million, or 23%, from $346.8 million in the three months ended September 30, 2021 to $426.3 million in the three months ended September 30, 2022.

The increase in Enterprise Technology revenue during the three months ended September 30, 2022 as compared to the same period in the prior year, was primarily due to product expansion and further adoption of our UniFi technology platform across all regions.

Service Provider Technology revenue decreased $40.3 million, or 36%, from $112.1 million in the three months ended September 30, 2021 to $71.8 million in the three months ended September 30, 2022.

The decrease in Service Provider Technology revenue during the three months ended September 30, 2022 as compared to the same period in the prior year, was primarily due to decreased revenue in all regions across all the platforms.

Enterprise Technology revenue increased $87.1 million, or 26%, from $330.4 million in the three months ended December 31, 2021 to $417.4 million in the three months ended December 31, 2022.

Enterprise Technology revenue increased $166.6 million, or 25%, from $677.1 million in the six months ended December 31, 2021 to $843.7 million in the six months ended December 31, 2022.

The increase in Enterprise Technology revenue during the three and six months ended December 31, 2022 as compared to the same period in the prior year, was primarily due to product expansion and further adoption of our UniFi technology platform across all regions.

Service Provider Technology revenue decreased $25.0 million, or 25%, from $101.2 million in the three months ended December 31, 2021 to $76.2 million in the three months ended December 31, 2022.

Service Provider Technology revenue decreased $65.4 million, or 31%, from $213.3 million in the six months ended December 31, 2021 to $147.9 million in the six months ended December 31, 2022.

The decrease in Service Provider Technology revenue during the three and six months ended December 31, 2022 as compared to the same periods in the prior year, was primarily due to decreased revenue in all regions across all the platforms.

Revenues by Geography

We have determined the geographical distribution of our product revenues based on our customers’ ship-to destinations.

A majority of our sales are to distributors who either sell to resellers or directly to end customers, who may be located in different countries than the

initial ship-to destination.

The following are our revenues by geography for the three months ended September 30, 2022 and 2021 (in thousands, except percentages):

Three Months Ended September 30,

A majority of our sales are to distributors who either sell to resellers or directly to end customers, who may be located in different countries than the initial ship-to destination.

The following are our revenues by geography for the three and six months ended December 31, 2022 and 2021 (in thousands, except percentages):

Three Months Ended December 31, Six Months Ended December 31,

2022 2021 2022 2021

(in thousands, except percentages)

North America (1)

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Total revenues $ 493,571 100 % $ 431,565 100 % $ 991,654 100 % $ 890,479 100 %

(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.

(1) Revenue for the United States was $209.4 million and $172.3 million for the three months ended December 31, 2022 and 2021, respectively.

Revenue for the United States was $419.7 million and $362.8 million for the six months ended December 31, 2022 and 2021 , respectively.

North America

Revenues in North America increased $16.6 million, or 8%, from $209.1 million in the three months ended September 30, 2021 to $225.7 million in the three months ended September 30, 2022.

The increase in North America revenues during the three months ended September 30, 2022 as compared to the same period in the prior year, was primarily due to increased revenue from Enterprise Technology products offset in part, by decreased revenue from our Service Provider Technology products.

Revenues in North America increased $40.4 million, or 22%, from $187.1 million in the three months ended December 31, 2021 to $227.5 million in the three months ended December 31, 2022 and increased $57.0 million, or 14%, from $396.1 million in the six months ended December 31, 2021 to $453.2 million in the six months ended December 31, 2022.

The increase in North America revenues during the three and six months ended December 31, 2022 as compared to the same period in the prior year, was primarily due to increased revenue from Enterprise Technology products offset in part, by decreased revenue from our Service Provider Technology products.

Europe, the Middle East, and Africa (EMEA)

Revenues in EMEA increased $27.5 million, or 16%, from $172.6 million in the three months ended September 30, 2021 to $200.1 million in the three months ended September 30, 2022.

The increase in EMEA revenues during the three months ended September 30, 2022 as compared to the same period in the prior year, was primarily due to increased revenue from Enterprise Technology products offset in part, by decreased revenue from our Service Provider Technology products.

Revenues in the Asia Pacific region increased $2.4 million, or 6%, from $42.9 million in the three months ended September 30, 2021 to $45.3 million in the three months ended September 30, 2022.

The increase in Asia Pacific revenues during the three months ended September 30, 2022 as compared to the same period in the prior year was primarily due to increased revenue from Enterprise Technology products offset in part, by decreased revenue from our Service Provider Technology products.

Revenues in EMEA increased $4.1 million, or 2%, from $191.0 million in the three months ended December 31, 2021 to $195.1 million in the three months ended December 31, 2022 and increased $31.6 million, or 9%, from $363.6 million in the six months ended December 31, 2021 to $395.2 million in the six months ended December 31, 2022.

The increase in EMEA revenues during the three and six months ended December 31, 2022 as compared to the same period in the prior year, was primarily due to increased revenue from Enterprise Technology products offset in part, by decreased revenue from our Service Provider Technology products.

Revenues in the Asia Pacific region increased $11.2 million, or 34%, from $32.8 million in the three months ended December 31, 2021 to $43.9 million in the three months ended December 31, 2022 and increased $13.6 million, or 18%, from $75.7 million in the six months ended December 31, 2021 to $89.3 million in the six months ended December 31, 2022.

The increase in Asia Pacific revenues during the three and six months ended December 31, 2022 as compared to the same period in the prior year was primarily due to increased revenue from Enterprise Technology products offset in part, by decreased revenue from our Service Provider Technology products.

South America

Revenues in South America decreased $7.4 million, or 22%, from $34.3 million in the three months ended September 30, 2021 to $26.9 million in the three months ended September 30, 2022.

The decrease in South America revenues during the three months ended September 30, 2022 as compared to the same period in the prior year was primarily due to decreased revenue from Service Provider Technology products offset in part by increased revenue from Enterprise Technology products.

Revenues in South America increased $6.3 million, or 30%, from $20.8 million in the three months ended December 31, 2021 to $27.1 million in the three months ended December 31, 2022 and decreased $1.1 million, or 2%, from $55.0 million in the six months ended December 31, 2021 to $54.0 million in the six months ended December 31, 2022.

The increase in South America revenues during the three months ended December 31, 2022 as compared to the same period in the prior year was primarily due to increased revenue from Enterprise Technology products offset in part by decreased revenue from Service Provider Technology products.

The decrease in South America revenues during the six months ended December 31, 2022 as compared to the same period in the prior year was primarily due to decreased revenue from Service Provider Technology products offset in part by increased revenue from Enterprise Technology products.

Cost of Revenues and Gross Profit

Cost of revenues increased $77.2 million, or 31%, from $249.5 million in the three months ended September 30, 2021 to $326.7 million in the three months ended September 30, 2022.

The increase is primarily due to higher component costs and shipping costs.

Gross profit margin decreased to 34.4% in the three months ended September 30, 2022 compared to 45.6% in the three months ended September 30, 2021, primarily driven by changes in product mix, higher component costs and shipping costs.

Cost of revenues increased $39.1 million, or 15%, from $256.9 million in the three months ended December 31, 2021 to $296.0 million in the three months ended December 31, 2022.

The increase is primarily due to increased revenues and higher component and shipping costs.

Cost of revenues increased $116.4 million, or 23%, from $506.3 million in the six months ended December 31, 2021 to $622.7 million in the six months ended December 31, 2022.

The increase is primarily due to due to increased revenues and higher component and shipping costs.

Gross profit margin decreased to 40.0% in the three months ended December 31, 2022 compared to 40.5% in the three months ended December 31, 2021 and decreased to 37.2% in the six months ended December 31, 2022 compared to 43.1% in the six months ended December 31, 2021, primarily driven by changes in product mix and increased component and shipping costs.

Operating Expenses

Research and Development

Research and development (“R&D”) expenses increased marginally by $0.6 million, or 2%, from $32.1 million in the three months ended September 30, 2021 to $32.7 million in the three months ended September 30, 2022.

Research and development (“R&D”) expenses increased by $0.9 million, or 3%, from $32.9 million in the three months ended December 31, 2021 to $33.8 million in the three months ended December 31, 2022.

As a percentage of revenues, R&D expenses remained consistent at 7% for the three months ended December 31, 2022 compared to 8% in the three months ended December 31, 2021.

Research and development (“R&D”) expenses increased marginally by $1.5 million, or 2%, from $64.9 million in the six months ended December 31, 2021 to $66.4 million in the six months ended December 31, 2022.

As a percentage of revenues, R&D expenses remained consistent at 7% for both periods.

The increase in R&D expenses as compared to the comparable prior year periods was primarily due to higher employee related expenses.

Sales, General and Administrative

Sales, general and administrative (“SG&A”) expenses increased $1.0 million, or 6%, from $15.7 million in the three months ended September 30, 2021 to $16.7 million in the three months ended September 30, 2022.

Sales, general and administrative (“SG&A”) expenses increased $2.2 million, or 13%, from $16.4 million in the three months ended December 31, 2021 to $18.6 million in the three months ended December 31, 2022.

As a percentage of revenues, SG&A expenses remained consistent at 4% for both periods.

The increase in SG&A costs as compared to the comparable prior year period was primarily due to higher webstore credit card processing fees and professional fees, offset in part by lower marketing expenses.

Sales, general and administrative (“SG&A”) expenses increased $3.2 million, or 10%, from $32.2 million in the six months ended December 31, 2021 to $35.3 million in the six months ended December 31, 2022.

As a percentage of revenues, SG&A expenses remained consistent at 4% for both periods.

The increase in SG&A costs as compared to the comparable prior year period was primarily due to higher credit card processing fees, offset in part by lower professional fees.

Provision for Income Taxes

Our provision for income taxes decreased $7.5 million, or 29%, from $25.7 million for the three months ended September 30, 2021 to $18.2 million for the three months ended September 30, 2022.

Our effective tax rates were 16.3% for both periods.

Our effective tax rates for the three months ended September 30, 2022 as compared to the same period in the prior year was primarily driven by changes in the mix of the income earned in various tax jurisdictions negated by an increase in the Global Intangible Low-Taxed Income (GILTI) inclusion for the U.S.

taxable income.

The increase in GILTI is primarily attributable to the mandatory research and development capitalization rules under the 2017 Tax Cuts and Jobs Act that went into effect for the Company's period ending September 30, 2022.

Our provision for income taxes increased $2.7 million, or 14%, from $19.0 million for the three months ended December 31, 2021 to $21.7 million for the three months ended December 31, 2022.

Our effective tax rate increased to 16.2% for the three months ended December 31, 2022 as compared to 15.5% for the three months ended December 31, 2021.

Our provision for income taxes decreased $4.9 million, or 11%, from $44.8 million for the six months ended December 31, 2021 to $39.9 million for the six months ended December 31, 2022.

Our effective tax rate increased to 16.3% for the six months ended

December 31, 2022 as compared to 16.0% for the six months ended December 31, 2021.

The change in effective tax rates for the three and six months ended December 31, 2022, as compared to the same periods in the prior year was primarily driven by changes in the mix of the income earned in various tax jurisdictions as well as an increase in current U.S taxes as a result of mandatory capitalization and amortization of research and development expenditures incurred in fiscal year 2023, as required by the 2017 Tax Cuts and Jobs Act (“TCJA”), and its interplay with GILTI.

There is no offsetting deferred benefit due to our election to treat GILTI as a period cost.

Liquidity and Capital Resources

Sources and Uses of Cash

Our principal source of liquidity are cash and cash equivalents, cash generated by operations, the availability of additional funds under the Facilities and short-term and long-term investments.

We had cash and cash equivalents of $136.5 million and $136.2 million as of September 30, 2022 and June 30, 2022, respectively.

Our principal source of liquidity are cash and cash equivalents, cash generated by operations, the availability of additional funds under the Facilities and short-term investments.

We had cash and cash equivalents of $159.5 million and $136.2 million as of December 31, 2022 and June 30, 2022, respectively.

Consolidated Cash Flow Data

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

Three Months Ended September 30,

Six Months Ended

(In thousands)

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Net cash (used in) investing activities (13,468) (6,544)

Net cash (used in) financing activities (33,027) (81,436)

Net increase in cash and cash equivalents $ 295 $ 16,512

Net cash provided by (used in) financing activities 34,416 (226,820)

Net increase (decrease) in cash and cash equivalents $ 23,281 $ (37,239)

Cash Flows from Operating Activities

Net cash provided by operating activities in the three months ended September 30, 2022 consisted primarily of net income of $93.2 million partially offset by changes in operating assets and liabilities that resulted in net cash outflows of $56.6 million.

This net change consisted primarily of a $94.2 million increase in inventory, a $27.9 million increase in accounts receivable, a $1.7 million increase prepaid expense and other assets, a $34.2 million increase in net accounts payable and accrued liabilities, a $4.5 million increase in taxes payable due to the timing of federal tax payments and a $30.4 million decrease in vendor deposits.

Net cash provided by operating activities in the three months ended September 30, 2021 consisted primarily of net income of $132.2 million, partially offset by changes in operating assets and liabilities that resulted in net cash outflows of $38.7 million.

This net change consisted primarily of a $27.6 million increase in inventory, $20.3 million increase in vendor deposit, $14.3 million increase in net accounts payable and accrued liabilities, a $1.6 million increase in accounts receivable, a $17.4 million increase in taxes payable due to the timing of federal tax payments and a $17.7 million increase in prepaid expense and other assets.

Net cash provided by operating activities in the six months ended December 31, 2022 consisted primarily of net income of $205.4 million partially offset by changes in operating assets and liabilities that resulted in net cash outflows of $219.1 million.

This net change consisted primarily of a $388.1 million increase in inventory, a $32.3 million increase in accounts receivable, a $8.9 million increase in prepaid expense and other assets, a $221.5 million increase in net accounts payable and accrued liabilities, a $24.4 million decrease in taxes payable due to the timing of federal tax payments and a $15.0 million decrease in vendor deposits.

Net cash provided by operating activities in the six months ended December 31, 2021 consisted primarily of net income of $235.8 million, partially offset by changes in operating assets and liabilities that resulted in net cash outflows of $55.6 million.

This net change consisted primarily of a $44.7 million increase in inventory, $19.2 million increase in vendor deposit, a $46.8 million decrease in accounts receivable, a $21.5 million decrease in net accounts payable and accrued liabilities, a $13.3 million decrease in taxes payable due to the timing of federal tax payments and a $3.0 million increase in prepaid expense and other assets.

Cash Flows from Investing Activities

We used $8.7 million of cash in investing activities during the three months ended September 30, 2022.

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

Our investing activities consisted primarily of $13.5 million of capital expenditures.

We used $3.0 million of cash in investing activities during the three months ended September 30, 2021.

Our investing activities consisted of $3.0 million of capital expenditures, and $0.6 million purchase of investments partially offset by maturities of investment securities of $0.6 million.

We used $6.5 million of cash in investing activities during the six months ended December 31, 2021.

Our investing activities consisted primarily of $6.5 million of capital expenditures and $0.8 million purchase of investments, partially offset by maturities of investment securities of $0.8 million.

Cash Flows from Financing Activities

We used $33.0 million of cash in financing activities during the three months ended September 30, 2022.

During the three months ended September 30, 2022, we used $36.3 million related to dividends paid on our common stock and received $3.8 million (net) of funds under the Company's credit facilities.

We used $81.4 million of cash in financing activities during the three months ended September 30, 2021.

During the three months ended September 30, 2021, we used $6.3 million of funds for repayments under the Company’s credit facilities, $36.8 million related to the repurchase of our common stock and $37.5 million related to dividends paid on our common stock.

We used $34.4 million of cash in financing activities during the six months ended December 31, 2022.

During the six months ended December 31, 2022, we used $72.5 million related to dividends paid on our common stock and received $107.5 million (net) of funds under the Company's credit facilities.

We used $226.8 million of cash in financing activities during the six months ended December 31, 2021.

During the six months ended

December 31, 2021, we used $17.5 million of net funds for repayments under the Company’s credit facilities, $168.3 million related to the repurchase of our common stock and $74.9 million related to dividends paid on our common stock.

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

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The maximum amount of potential future indemnification is unlimited.

We have a Directors and Officers insurance policy that limits our potential exposure for our indemnification obligations to our directors, officers

and certain other employees.

We have a Directors and Officers insurance policy that limits our potential exposure for our indemnification obligations to our directors, officers and certain other employees.

We believe the fair value of these indemnification agreements is minimal.

We have not recorded any liabilities for these agreements as of September 30, 2022.

Based upon our historical experience and information known as of the date of this Quarterly Report on Form 10-Q, we do not believe it is likely that we will have material liability for the above indemnities as of September 30, 2022.

We have not recorded any liabilities for these agreements as of December 31, 2022.

Contractual Obligations and Off-Balance Sheet Arrangements

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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.

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.

We periodically review the potential liability.

There have been no significant liabilities for cancellations recorded as of December 31, 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.

We estimate the amount of these additional purchase obligations to range from $440.6 million to $916.5 million as of December 31, 2022, depending upon the timing of orders placed for these components by our contract manufacturers.

Transition Tax

We have obligations of $67.4 million as of September 30, 2022, related to transition tax.

We have obligations of $67.4 million as of December 31, 2022, related to transition tax.

Payment of these obligations are expected to be $16.9 million for fiscal 2024, $22.5 million for fiscal 2025 and $28.0 million for fiscal 2026.

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Other Obligations

We had other obligations of $6.7 million as of September 30, 2022, which consisted primarily of commitments related to raw materials and research and development projects.

We had other obligations of $5.4 million as of December 31, 2022, which consisted primarily of commitments related to research and development projects.

Unrecognized Tax Benefits

As of September 30, 2022, we had $33.4 million of unrecognized tax benefits and an additional $3.6 million for accrued interest, classified as non-current liabilities.

As of December 31, 2022, we had $33.5 million of unrecognized tax benefits and an additional $3.3 million for accrued interest, classified as non-current liabilities.

At this time, we are unable to make a reasonably reliable estimate of timing of payments in individual years in connection with these tax liabilities.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, refer to Note 2 to the consolidated financial statements.

For a discussion of recent accounting pronouncements, refer to Note 2, "Summary of Significant Accounting Policies" to the consolidated financial statements.

Note About Forward-Looking Statements

When used in this Report, the words “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and negatives of those terms are intended to identify forward-looking statements.

operating results, fluctuations in our stock price, our payment of dividends, our future liquidity and cash needs, and the adequacy of and our reliance on our source of liquidity to meet such needs, our Facilities, future acquisitions of and investments in complimentary businesses, the expected impact of various accounting policies and rules adopted by the Financial Accounting Standards Board and the impact of COVID-19 pandemic and the military conflict between Russia and Ukraine on our business and results of operations.

These are statements that relate to future periods and include statements about our future results, sources of revenue, our dividend, our continued growth, our gross margins, market trends, our product development, our introduction of new products, technological developments, the features, benefits and performance of our current and future products, the ability of our products to address a variety of markets, the anticipated growth of demand for connectivity worldwide, our growth strategies, future price reductions, our competitive status, our interest rate and foreign currency risks, our dependence on our senior management and our ability to attract and retain key personnel, dependency on and concentration of our distributors, our employee relations, current and potential litigation, current or potential indemnification liabilities, the effects of government regulations, the impact of tariffs, the expected impact of taxes on our liquidity and results of operations, our compliance with laws and regulations, our expected future operating costs and expenses and expenditure levels for research and development, selling, general and administrative expenses, fluctuations in operating results, fluctuations in our stock price, our payment of dividends, our future liquidity and cash needs, and the adequacy of and our reliance on our source of liquidity to meet such needs, our Facilities, future acquisitions of and investments in complimentary businesses, the expected impact of various accounting policies and rules adopted by the Financial Accounting Standards Board and the impact of COVID-19 pandemic and the military conflict between Russia and Ukraine on our business and results of operations.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

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“Other Information”, Item 1, “Legal Proceedings” and under Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof.

Except as required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis