Ubiquiti Inc. 10-Q

Item 1. Financial Statements UBIQUITI INC. Consolidated Balance Sheets (In thousands, except share data) (Unaudited) March 31, 2023 June 30, 2022 Assets Current assets: Cash and cash equivalents $ 152,520 $ 136,224 Investments — short-term 121 427 Accounts receivable, net of allowance for doubtful accounts of $ 66 and $ 52 at March 31, 2023 and June 30, 2022, respectively 146,359 119,627 Inventories 743,397 262,441 Vendor deposits 89,321 89,661 Prepaid expenses and other current assets 20,674 13,193 Total current assets 1,152,392 621,573 Property and equipment, net 85,122 80,232 Operating lease right-of-use assets, net 59,562 64,231 Deferred tax assets 6,483 6,618 Other long-term assets 71,638 72,058 Total assets $ 1,375,197 $ 844,712 Liabilities and Stockholders’ Deficit Current liabilities: Accounts payable $ 159,075 $ 83,663 Income taxes payable 1,705 14,061 Debt — short-term 24,410 23,865 Other current liabilities 177,190 189,361 Total current liabilities 362,380 310,950 Income taxes payable — long-term 77,783 94,169 Operating lease liabilities —long-term 48,583 54,025 Debt — long-term 1,063,814 762,622 Other long-term liabilities 7,112 5,822 Total liabilities 1,559,672 1,227,588 Commitments and contingencies (Note 9) 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: 60,441,733 and 60,420,525 issued and outstanding as of March 31, 2023 and June 30, 2022, respectively 60 60 Additional paid–in capital 3,391 650 Accumulated other comprehensive (loss) — ( 474 ) Retained (deficit) ( 187,926 ) ( 383,112 ) Total stockholders’ (deficit) ( 184,475 ) ( 382,876 ) Total liabilities and stockholders’ deficit $ 1,375,197 $ 844,712 See notes to consolidated financial statements (unaudited). 3 Table of Contents UBIQUITI INC. Consolidated Statements of Operations and Comprehensive Income (In thousands, except per share amounts) (Unaudited) Three Months Ended March 31, Nine Months Ended March 31, 2023 2022 2023 2022 Revenues $ 457,773 $ 358,068 $ 1,449,427 $ 1,248,547 Cost of revenues 269,297 242,050 892,023 748,369 Gross profit 188,476 116,018 557,404 500,178 Operating expenses: Research and development 38,210 35,261 104,633 100,181 Sales, general and administrative 16,741 18,151 52,080 50,302 Total operating expenses 54,951 53,412 156,713 150,483 Income from operations 133,525 62,606 400,691 349,695 Interest expense and other, net ( 16,497 ) ( 3,252 ) ( 38,421 ) ( 9,784 ) Income before income taxes 117,028 59,354 362,270 339,911 Provision for income taxes 18,451 9,000 58,306 53,758 Net income $ 98,577 $ 50,354 $ 303,964 $ 286,153 Net income per share of common stock: Basic $ 1.63 $ 0.82 $ 5.03 $ 4.61 Diluted $ 1.63 $ 0.82 $ 5.03 $ 4.61 Weighted average shares used in computing net income per share of common stock: Basic 60,441 61,411 60,432 62,089 Diluted 60,455 61,435 60,451 62,125 Other comprehensive income: Unrealized losses on available-for-sale securities $ — $ ( 439 ) $ — $ ( 433 ) Other comprehensive loss — ( 439 ) — ( 433 ) Comprehensive income $ 98,577 $ 49,915 $ 303,964 $ 285,720 See notes to consolidated financial statements (unaudited). 4 Table of Contents UBIQUITI INC. Consolidated Statements of Stockholders’ Equity (Deficit) (In thousands, except per share amounts) (Unaudited) Three and Nine Months Ended March 31, 2023 Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity (Deficit) 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 ) Net Income — — — 112,205 — 112,205 Reclassification adjustment for loss on investments included in net income — — — — 523 523 Restricted stock units issued, net of tax withholdings 2,147 — ( 50 ) — — ( 50 ) Stock-based compensation expense — — 1,101 — — 1,101 Dividends Paid on Common Stock ($ 0.60 per share) — — — ( 36,257 ) — ( 36,257 ) Balances at December 31, 2022 60,430,958 $ 60 $ 2,228 $ ( 250,238 ) $ — $ ( 247,950 ) Net Income — — — 98,577 — 98,577 Restricted stock units issued, net of tax withholdings 10,775 — ( 83 ) — — ( 83 ) Stock-based compensation expense — — 1,246 — — 1,246 Dividends Paid on Common Stock ($ 0.60 per share) — — — ( 36,265 ) — ( 36,265 ) Balances at March 31, 2023 60,441,733 $ 60 $ 3,391 $ ( 187,926 ) $ — $ ( 184,475 ) 5 Table of Contents Three and Nine Months Ended March 31, 2022 Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity (Deficit) 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 Net Income — — — 103,649 — 103,649 Other comprehensive income (loss) — — — — 7 7 Stock options exercised 2,584 — 36 — — 36 Restricted stock units issued, net of tax withholdings 7,947 — ( 181 ) — — ( 181 ) Repurchases of Common Stock ( 434,271 ) — ( 587 ) ( 128,457 ) — ( 129,044 ) Stock-based compensation expense — — 819 — — 819 Dividends Paid on Common Stock ($ 0.60 per share) — $ — $ — $ ( 37,445 ) $ — $ ( 37,445 ) Balances at December 31, 2021 62,037,616 $ 62 $ 87 $ ( 4,343 ) $ 7 $ ( 4,187 ) Net Income — — — 50,354 — 50,354 Other comprehensive income (loss) — — — — ( 439 ) ( 439 ) Stock options exercised 2,112 — 23 — — 23 Restricted stock units issued, net of tax withholdings 7,225 — ( 52 ) — — ( 52 ) Repurchases of Common Stock ( 1,264,974 ) ( 1 ) ( 932 ) ( 343,777 ) — ( 344,710 ) Stock-based compensation expense — — 874 — — 874 Dividends Paid on Common Stock ($ 0.60 per share) — — — ( 36,860 ) — ( 36,860 ) Balances at March 31, 2022 60,781,979 $ 61 $ — $ ( 334,626 ) $ ( 432 ) $ ( 334,997 ) See notes to consolidated financial statements (unaudited). 6 Table of Contents UBIQUITI INC. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended March 31, 2023 2022 Cash Flows from Operating Activities: Net income $ 303,964 $ 286,153 Adjustments to reconcile net income to net cash (used in)/provided by operating activities: Depreciation and amortization 12,164 10,110 Amortization of debt issuance costs 979 990 Non-cash lease expense 325 1,029 Premium amortization and (discount accretion), net — 35 Provision for inventory obsolescence 8,142 1,437 Provision for loss on vendor deposits and purchase commitments ( 2,419 ) 8,430 Stock-based compensation 3,394 2,503 Provisions for doubtful accounts 14 — Deferred taxes 135 109 Recovery of impaired investment — ( 902 ) Change in unrealized loss on available-for-sale securities 780 ( 407 ) Provision for sales returns 62 83 Other, net 325 — Changes in operating assets and liabilities: Accounts receivable ( 26,746 ) 84,808 Inventories ( 489,463 ) ( 13,520 ) Vendor deposits ( 5,045 ) ( 34,844 ) Prepaid expenses and other assets ( 8,695 ) ( 796 ) Accounts payable 74,827 ( 9,812 ) Income taxes payable ( 28,742 ) ( 12,663 ) Deferred revenues ( 2,561 ) ( 2,721 ) Accrued and other liabilities ( 1,312 ) ( 19,742 ) Net cash (used in) provided by operating activities ( 159,872 ) 300,280 Cash Flows from Investing Activities: Purchase of property and equipment and other long-term assets ( 15,650 ) ( 11,063 ) Purchase of investments — ( 864 ) Proceeds from maturities of investments — 1,209 Net cash (used in) investing activities ( 15,650 ) ( 10,718 ) Cash Flows from Financing Activities: Proceeds from borrowing under the credit facility- Revolver 380,000 250,000 Repayment against credit facility- Revolver ( 60,000 ) — Repayment against credit facility- Term ( 18,750 ) ( 18,750 ) Repurchases of common stock — ( 513,005 ) Payment of common stock cash dividends ( 108,778 ) ( 111,804 ) Proceeds from exercise of stock options 23 76 Tax withholdings related to net share settlements of restricted stock units ( 677 ) ( 1,185 ) Net cash provided by (used in) financing activities 191,818 ( 394,668 ) Net increase (decrease) in cash and cash equivalents 16,296 ( 105,106 ) Cash and cash equivalents at beginning of period 136,224 249,418 Cash and cash equivalents at end of period $ 152,520 $ 144,312 Supplemental Disclosure of Cash Flow Information: Income taxes paid, net of refunds $ 87,315 $ 72,826 Interest paid $ 34,241 $ 7,403 Non-Cash Investing and Financing Activities: Right-of-use asset recognized $ 5,814 $ 27,524 Unpaid stock repurchases $ — $ 10,000 Unpaid property and equipment and other long-term assets $ 1,097 $ 264 See notes to consolidated financial statements (unaudited). 7 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 and nine months ended March 31, 2023 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. There have been no 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 13, "Segment Information, Revenues by Geography and Significant Customers" for disaggregation of revenue by product category and geography. 8 Table of Contents Contract Balances The timing of revenue recognition, billing and cash collections results in billed accounts receivable, deferred revenue primarily attributable to PCS and customer deposits on the consolidated balance sheets. Accounts receivable are recognized in the period 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 March 31, 2023 and June 30, 2022, the Company’s customer deposits were $ 0.8 million and $ 1.1 million, respectively. As of March 31, 2023, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $ 17.2 million and $ 7.1 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— 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 March 31, Nine Months Ended March 31, 2023 2022 2023 2022 Numerator: Net income $ 98,577 $ 50,354 $ 303,964 $ 286,153 Denominator: Weighted-average shares used in computing basic earnings per share 60,441 61,411 60,432 62,089 Add—dilutive potential common shares: Stock options — 5 — 7 Restricted stock units 14 19 19 29 Weighted-average shares used in computing diluted net income per share 60,455 61,435 60,451 62,125 Net income per share of common stock: Basic $ 1.63 $ 0.82 $ 5.03 $ 4.61 Diluted $ 1.63 $ 0.82 $ 5.03 $ 4.61 The Company excludes potentially dilutive securities from its diluted net income per share calculation when their effect would be anti-dilutive to net income per share amounts. NOTE 5— BALANCE SHEET COMPONENTS Inventories Inventories consisted of the following (in thousands): March 31, 2023 June 30, 2022 Finished goods $ 645,520 $ 253,260 Raw materials 97,877 9,181 Total $ 743,397 $ 262,441 9 Table of Contents Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): March 31, 2023 June 30, 2022 Testing equipment $ 19,800 $ 16,999 Tooling equipment 19,918 18,398 Leasehold improvements 23,898 18,589 Computer and other equipment 11,398 11,078 Software 10,346 10,509 Furniture and fixtures 1,961 2,668 Corporate aircraft 65,807 65,807 Property and equipment, gross 153,128 144,048 Less: Accumulated depreciation ( 68,006 ) ( 63,816 ) Property and equipment, net $ 85,122 $ 80,232 Other Long-term Assets Other long-term assets consisted of the following (in thousands): March 31, 2023 June 30, 2022 Hong Kong Tax deposit (1) 59,972 59,992 Intangible assets, net (2) 6,085 7,228 Other long-term assets, net 5,581 4,838 Total $ 71,638 $ 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 12, "Income Taxes" to the consolidated financial statements for additional details regarding this ongoing tax audit. (2) Accumulated amortization was $ 5.5 million and $ 4.3 million as of March 31, 2023, and June 30, 2022, respectively. Other Current Liabilities Other current liabilities consisted of the following (in thousands): March 31, 2023 June 30, 2022 Deferred revenue — short-term $ 17,161 20,766 Accrued expenses 18,349 42,305 Lease liability— current 13,842 12,744 Warranty accrual 7,943 6,394 Accrued compensation and benefits 5,757 6,168 Customer deposits 753 1,059 Reserve for sales returns 3,995 4,297 Inventory received not billed 101,466 86,953 Other payables 7,924 8,675 Total $ 177,190 $ 189,361 Other Long-Term Liabilities Other long-term liabilities consisted of the following (in thousands): March 31, 2023 June 30, 2022 Deferred Revenue — long-term $ 7,112 $ 5,822 10 Table of Contents NOTE 6— 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): Nine Months Ended March 31, 2023 2022 Beginning balance $ 6,394 $ 4,812 Accruals for warranties issued during the period 8,344 6,342 Changes in liability for pre-existing warranties during the period 206 790 Settlements made during the period ( 7,001 ) ( 5,847 ) Ending balance $ 7,943 $ 6,097 NOTE 7— 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 $ 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 $ 1.8 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): March 31, 2023 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 425,000 443,750 Revolving Facility - long term 640,000 320,000 Debt issuance costs, net ( 1,186 ) ( 1,128 ) Total Debt - long term $ 1,063,814 $ 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. The 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 the Secured Overnight Financing Rate ("SOFR") rate for any new or existing loans that reset after April 2, 2023) for a specified period, plus a margin of between 1.50 % and 11 Table of Contents 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 SOFR rate for any new or existing loans that reset after April 2, 2023) 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 3.50 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 March 31, 2023, $ 450.0 million was outstanding on the Term Facility and $ 640 million was outstanding on the Revolving Facility, leaving $ 60 million available on the Revolving Facility. Term Facility During the nine months ended March 31, 2023, the Company made aggregate payments of $ 36.8 million under the Term Facility, of which $ 18.8 million was repayment of principal and $ 18.0 million was payment of interest. As of March 31, 2023, the interest rate on the Term Facility was 6.59 %. This interest rate reset on April 28, 2023. Revolving Facility Under the Third Amended and Restated Credit Agreement, during the nine months ended March 31, 2023, the Company made aggregate payments of $ 76.3 million under the Revolving Facility, of which $ 60 million was repayment of principal and $ 16.3 million was payment of interest. As of March 31, 2023, the interest rates on the Revolving Facility were 6.46 % - 6.53 %. The following table summarizes the Company’s estimated debt and interest payment obligations as of March 31, 2023, for the remainder of fiscal 2023 and future fiscal years (in thousands): 2023 (remainder) 2024 2025 2026 2027 Thereafter Total Debt payment obligations $ 6,250 $ 25,000 $ 25,000 $ 1,033,750 $ — $ — $ 1,090,000 Interest and other payments on debt payment obligations (1) 18,196 72,139 70,272 51,468 — — 212,075 Total $ 24,446 $ 97,139 $ 95,272 $ 1,085,218 $ — $ — $ 1,302,075 (1) Interest payments are calculated based on the applicable rates and payment dates as of March 31, 2023 and assumes the outstanding revolver balance remains at $ 640 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. The Facilities were amended on April 3, 2023. For additional information regarding the Facilities, refer to Note 14 - Subsequent Events. NOTE 8— LEASES 12 Table of Contents 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 March 31, 2023, 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 and nine months ended March 31, 2023 and 2022 (in thousands): Financial Statement Classification Three Months Ended March 31, Nine Months Ended March 31, 2023 2022 2023 2022 Operating lease costs: Fixed lease costs Operating expenses $ 2,761 $ 2,390 $ 8,287 $ 6,861 Fixed lease costs Cost of revenues 1,010 1,051 2,975 3,347 Variable lease costs Operating expenses 234 230 388 549 Variable lease costs Cost of revenues 149 139 305 468 Total lease costs $ 4,154 $ 3,810 $ 11,955 $ 11,225 The operating lease costs in the table above include costs for long-term and short-term leases. Total short-term costs for the three and nine months ended March 31, 2023, were $ 0.2 million and $ 0.4 million, respectively. Total short-term costs for the three and nine months ended March 31, 2022, were $ 0.2 million and $ 0.4 million, respectively. 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 March 31, 2023 and 2022, cash paid for amounts associated with the Company's operating lease liabilities were approximately $ 3.8 million and $ 3.8 million, respectively. For the nine months ended March 31, 2023 and 2022, cash paid for amounts associated with the Company’s operating lease liabilities were approximately $ 11.4 million and $ 10.2 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 March 31, 2023: Remainder of Fiscal 2023 $ 3,805 Fiscal 2024 15,163 Fiscal 2025 13,831 Fiscal 2026 9,683 Fiscal 2027 5,727 Thereafter 18,726 Total future fixed operating lease payments $ 66,935 Less: Imputed interest $ 4,510 Total operating lease liabilities $ 62,425 Weighted-average remaining lease term - operating leases 7 years Weighted-average discount rate - operating leases 2.5 % NOTE 9— COMMITMENTS AND CONTINGENCIES Operating Leases See Note 8, "Leases" for future minimum lease payments under non-cancelable operating leases as of March 31, 2023. Purchase Obligations We subcontract with third parties to manufacture our products and have purchase commitments with key component suppliers. During 13 Table of Contents 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. There have been no significant liabilities for cancellations recorded as of March 31, 2023. 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 $ 1,279.2 million to $ 1,390.5 million as of March 31, 2023, depending upon the timing of orders placed for these components by our contract manufacturers. Other Obligations As of March 31, 2023, the Company has other obligations of $ 5.8 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 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. 14 Table of Contents 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 10— 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 and nine months ended March 31, 2023. As of March 31, 2023, the Company had $ 200 million available for share purchase under the 2022 May Program. NOTE 11— STOCK BASED COMPENSATION Stock-Based Compensation Plans The Company’s 2020, 2010 and 2005 Equity Incentive Plans are described in the Company’s Annual Report. As of March 31, 2023, the Company had 4,939,274 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 and nine months ended March 31, 2023 and 2022 (in thousands): Three Months Ended March 31, Nine Months Ended March 31, 2023 2022 2023 2022 Cost of revenues $ 24 $ 18 $ 47 $ 63 Research and development 942 629 2,524 1,786 Sales, general and administrative 280 227 823 654 1,246 874 $ 3,394 $ 2,503 Stock Options The following is a summary of option activity for the Company’s stock incentive plans for the nine months ended March 31, 2023: 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, March 31, 2023 — $ — — $ — Vested as of March 31, 2023 — $ — — $ — Vested and exercisable as of March 31, 2023 — $ — — $ — During the three months ended March 31, 2023 and 2022, the aggregate intrinsic value of options exercised under the Company’s stock incentive plans was $ 0.0 million and $ 0.5 million, respectively, as determined as of the date of option exercise. 15 Table of Contents During the nine months ended March 31, 2023 and 2022, the aggregate intrinsic value of options exercised under the Company’s stock incentive plans was $ 0.6 million and $ 1.8 million, respectively, as determined as of the date of option exercise. As of March 31, 2023, the Company had no unrecognized compensation costs related to stock options. The Company did no t grant any employee stock options during the three and nine months ended March 31, 2023, and 2022. 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 30,559 $ 271.27 RSUs vested ( 21,783 ) $ 182.18 RSUs canceled ( 801 ) $ 276.53 Non-vested RSUs, March 31, 2023 61,349 $ 260.18 The intrinsic value of RSUs vested in the three months ended March 31, 2023 and 2022 was $ 3.1 million and $ 2.2 million, respectively. The intrinsic value of RSUs vested in the nine months ended March 31, 2023 and 2022 was $ 5.8 million and $ 8.2 million, respectively. The total intrinsic value of all outstanding RSUs was $ 16.7 million as of March 31, 2023. As of March 31, 2023, there were unrecognized compensation costs related to RSUs of $ 12.3 million which the Company expects to recognize over a weighted average period of 3.5 years. NOTE 12— INCOME TAXES The Company recorded tax provisions of $ 18.5 million and $ 58.3 million for the three and nine months ended March 31, 2023 as compared to $ 9.0 million and $ 53.8 million for the three and nine months ended March 31, 2022. The increased provision for the three months ended March 31, 2023 is primarily related to the overall increase in income before income taxes for the period as compared to the three months ended March 31, 2022. The increase to the tax provision for the nine months ended March 31, 2023 is attributable to the overall increase in income before income taxes for the period as well as an increase in taxable income in higher tax jurisdictions as compared to the prior year. 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-Taxed Income ("GILTI") rules. As of March 31, 2023, the Company had approximately $ 34.9 million of unrecognized tax benefits, substantially all of which would, if recognized, affect its tax expense. During the three months ended March 31, 2023, the Company recorded an increase of its unrecognized tax benefits of $ 1.3 million. 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 March 31, 2023, the Company had $ 3.5 million accrued interest related to uncertain tax matters. The Company and one or more of its subsidiaries, file 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. 16 Table of Contents 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 30, 2023, the Company received notification that the Hong Kong IRD is seeking an additional $ 0.3 million deposit covering the 2017 tax year. The Company has filed a formal protest in response to this notice and is awaiting a response from the Assessor's office. The Company does not expect the deposit, with respect to the 2017 tax year, to be material in nature. 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 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 and financial condition. NOTE 13— 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 March 31, Nine Months Ended March 31, 2023 2022 2023 2022 Enterprise technology $ 373,573 82 % $ 295,043 82 % $ 1,217,279 84 % $ 972,173 78 % Service Provider Technology 84,200 18 % 63,025 18 % 232,148 16 % 276,374 22 % Total revenues $ 457,773 100 % $ 358,068 100 % $ 1,449,427 100 % $ 1,248,547 100 % Revenues by geography based on customer’s ship-to destinations were as follows (in thousands, except percentages): 17 Table of Contents Three Months Ended March 31, Nine Months Ended March 31, 2023 2022 2023 2022 North America (1) $ 230,741 50 % $ 183,575 51 % $ 683,907 47 % $ 579,711 47 % Europe, the Middle East and Africa (“EMEA”) 173,262 38 % 135,227 38 % 568,502 39 % 498,836 40 % Asia Pacific 26,880 6 % 26,455 7 % 116,158 8 % 102,152 8 % South America 26,890 6 % 12,811 4 % 80,860 6 % 67,848 5 % Total revenues $ 457,773 100 % $ 358,068 100 % $ 1,449,427 100 % $ 1,248,547 100 % (1) Revenue for the United States was $ 214.3 million and $ 173.9 million for the three months ended March 31, 2023 and 2022, respectively. Revenue for the United States was $ 634.0 million and $ 536.8 million for the nine months ended March 31, 2023 and 2022 , respectively. For the periods presented, there were no customers with net revenues of 10% or greater of total revenues. Customers with an accounts receivable balance of 10% or greater of total accounts receivable are presented below for the periods indicated: Percentage of Accounts Receivable March 31, June 30, 2023 2022 Customer A 12 % * * denotes less than 10% NOTE 14— SUBSEQUENT EVENTS First Amendment to Third Amended & Restated Credit Agreement On April 3, 2023, the Company as borrower and certain domestic subsidiaries, as guarantors (the “Domestic Guarantors”) entered into a first amendment (the “First Amendment”) to the Third Amended and Restated Credit Agreement (as amended, the “Amended Credit Agreement”) with the financial institutions named as lenders therein and Wells Fargo. The First Amendment added a new term loan facility in an aggregate principal amount of $ 250.0 million (the “First Amendment Term Loan”) which is payable in quarterly installments equal to $ 3.125 million, commencing with the quarter ended June 30, 2023, and has a maturity date of March 30, 2026. The First Amendment Term Loan bears interest, at the Company’s option, at either (i) a floating rate per annum equal to Base Rate plus a margin of between 1.00 % and 1.75 %, 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 Adjusted Term SOFR rate for a specified period, plus a margin of between 2.00 % and 2.75 %, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter. The obligations of the Company and certain domestic subsidiaries under the First Amendment Term Loan are required to be guaranteed by the Domestic Guarantors and are collateralized by substantially all assets (excluding intellectual property) of the Company and the Domestic Guarantors. The First Amendment also (a) provided that all loans bearing interest at a LIBOR rate under the Amended Credit Agreement (each, a “LIBOR Rate Loan”) and the applicable interest periods in respect of such LIBOR Rate Loans under the Amended Credit Agreement will not be renewed or extended and, upon the expiration or earlier termination of such interest periods, such LIBOR Rate Loans will be (i) repaid or (ii) converted to loans accruing at Base Rate (as defined in the Amended Credit Agreement) or Adjusted Term SOFR (as defined below), at the Company’s option; (b) implemented “Adjusted Term SOFR” as a reference rate for borrowings under the Amended Credit Agreement, and (c) modified the definition of “Base Rate” to replace the LIBOR rate component with Adjusted Term SOFR. Base Rate is defined as the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50 % and (c) Adjusted Term SOFR for a one-month tenor in effect on such day plus 1 %; each change in the Base Rate shall take effect simultaneously with the corresponding change or changes in the Prime Rate, the Federal Funds Rate or Adjusted Term SOFR, as applicable ( provided that clause (c) shall not be applicable during any period in which Adjusted Term SOFR is unavailable or unascertainable). The Base Rate shall not be less than 1.00 %. Adjusted Term SOFR is Term SOFR (as defined in the Amended Credit Agreement) plus 0.10 % per annum; provided that Adjusted Term SOFR shall in no event be less than 0.00 %. 18 Table of Contents Dividends On May 5, 2023, the Company's Board of Directors had approved a quarterly cash dividend of $ 0.60 per share payable on May 22, 2023 to shareholders of record at the close of business on May 15, 2023. Any future dividends will be subject to the approval of the Company’s Board of Directors.