Ubiquiti Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Management, with the participation of the Company’s Chief Executive Officer and Chief Accounting and Finance Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of June 30, 2024, our Chief Executive Officer and Chief Accounting and Finance Officer concluded that, as of such date, our disclosure controls and procedures were effective. 47 Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). A company’s internal control over financial reporting is a process designed by, or under the supervision of, its Chief Executive Officer and Chief Accounting and Finance Officer, and effected by such company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management, with the participation of our Chief Executive Officer and Chief Accounting and Finance Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2024, based on the framework set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that the Company maintained effective internal control over financial reporting as of June 30, 2024. The effectiveness of our internal control over financial reporting as of June 30, 2024 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which appears herein. Changes in Internal Control Over Financial Reporting There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2024, that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III Item 10. Directors and Executive Officers and Corporate Governance The information required by this Item 10 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our June 30, 2024 fiscal year end) under the headings "Executive Officers," "Proposal One Election of Directors – Information Regarding Nominees,” "Proposal One Election of Directors - Information Regarding Continuing Directors," and “Corporate Governance.” Item 11. Executive Compensation The information required by this Item 11 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our June 30, 2024 fiscal year end) under the headings “Executive Compensation”, “Proposal One Election of Directors – Directors’ Compensation” and “Corporate 48 Governance – Compensation Committee Interlocks and Insider Participation.” Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item 12 with respect to security ownership of certain beneficial owners and management is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our June 30, 2024 fiscal year end) under the headings “Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters,” and "Equity Compensation Plan Information." Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item 13 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our June 30, 2024 fiscal year end) under the headings “Certain Relationships and Related Party Transactions” and “Corporate Governance—Committees of the Board of Directors.” Item 14. Principal Accounting Fees and Services The information required by this Item 14 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission within 120 days of our June 30, 2024 fiscal year end) under the headings “Proposal Two Ratification of the Appointment of Independent Registered Public Accounting Firm—Audit and Non-Audit Fees” and “Audit Committee Pre-Approval Policies.” 49 PART IV Item 15. Exhibits and Financial Statement Schedules (a) 1. Financial Statements The financial statements filed as part of this Annual Report on Form 10-K are identified in the Index to Consolidated Financial Statements on page 54 of this Annual Report on Form 10-K. 2. Financial Statement Schedules See Item 15(c) below. 3. Exhibits See Item 15(b) below. (b) Exhibits The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission. Ubiquiti Inc. (the “Registrant”) shall furnish copies of exhibits for a reasonable fee (covering the expense of furnishing copies) upon request. Exhibit Number Description Incorporated by Reference from Form Incorporated by Reference from Exhibit Number Date Filed Filed Herewith 3.1 Third Amended and Restated Certificate of Incorporation of Ubiquiti Inc., as amended 10-K August 21, 2019 3.2 Amended and Restated Bylaws, as amended, as of December 17, 2020 8-K 3.1 December 18, 2020 4.1 Specimen Common Stock Certificate of Ubiquiti Networks, Inc. S-1 4.1 October 3, 2011 4.2 Registration Agreement, dated March 2, 2010, between Ubiquiti Networks, Inc. and certain holders of Ubiquiti Networks, Inc.’s capital stock named therein. S-1 4.2 June 17, 2011 4.3 Investor Rights Agreement, dated as of March 2, 2010, between Ubiquiti Networks, Inc. and certain holders of Ubiquiti Networks, Inc.’s capital stock named therein. S-1 4.3 June 17, 2011 4.4 Descriptions of the Company’s Securitie s X 10.1 Form of Indemnification Agreement between Ubiquiti Networks, Inc. and its directors and officers. S-1 10.1 October 3, 2011 10.2# Amended and Restated 2010 Equity Incentive Plan and forms of agreement thereunder. S-1 10.2 June 17, 2011 10.3# Ubiquiti Inc. 2020 Omnibus Incentive Plan 8-K 10.1 December 11, 2020 10.4# Employment Agreement, dated as of March 1, 2016, between Ubiquiti Networks, Inc. and Kevin Radigan. 10-K 10.6 August 22, 2016 10. 5 Jinyong Ji Investment Taiwan Lease, dated as of March 16, 2010, between Ubiquiti Networks, Inc. and Jinyong Ji Investment Co., Ltd. S-1 10.1 June 17, 2011 10.6 Taiwan Lease, dated as of July 20, 2011, between Jin Yeoung Ji Co., Ltd. and Ubiquiti Networks International Limited, Taiwan Branch. 10-Q 10.15 November 14, 2011 50 10.7 Third Amended and Restated Credit Agreement, dated as of March 30, 2021, by and among Ubiquiti Inc. as borrower, certain domestic subsidiaries of the borrower, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Association, as administrative agent. 8-K 10.1 April 5, 2021 10.8 First Amendment to Third Amended and Restated Credit Agreement, dated as of April 3, 2023, by and among Ubiquiti Inc., as borrower, certain domestic subsidiaries of the borrower, as guarantors, the lenders and other financial institutions party thereto and Wells Fargo Bank, National Association, as administrative and collateral agent. 8-K 10.1 April 7, 2023 19 Insider Trading Policy X 21.1 List of subsidiaries of Ubiquiti Inc. X 23.1 Consent of independent registered public accounting firm X 31.1 Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. X 31.2 Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. X 32.1 Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350. X 97 Ubiquiti Inc. Incentive Compensation Clawback Policy X 101.INS Inline XBRL Instance Document X 101.SCH Inline XBRL Taxonomy Schema Linkbase Document X 101.CAL Inline XBRL Taxonomy Calculation Linkbase Document X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB Inline XBRL Taxonomy Labels Linkbase Document X 101.PRE Inline XBRL Taxonomy Presentation Linkbase Document X 104 Cover Page Interactive Date File - (formatted as Inline XBRL and contained in Exhibit 101) # Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate. 51 ~ In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. (c) Financial Statement Schedules. Schedules not listed above have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. Item 16. Form 10-K Summary Not applicable. 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Ubiquiti Inc. Dated: August 23, 2024 By: /s/ Robert J. Pera Robert J. Pera Chief Executive Officer and Director (Principal Executive Officer) Dated: August 23, 2024 By: /s/ Kevin Radigan Kevin Radigan Chief Accounting and Finance Officer (Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Robert J. Pera Robert J. Pera Chief Executive Officer and Director (Principal Executive Officer) August 23, 2024 /s/ Kevin Radigan Kevin Radigan Chief Accounting and Finance Officer (Principal Financial Officer and Principal Accounting Officer) August 23, 2024 /s/ Ronald A. Sege Ronald A. Sege Director August 23, 2024 /s/ Rafael Torres Rafael Torres Director August 23, 2024 /s/ Brandon Arrindell Brandon Arrindell Director August 23, 2024 53 UBIQUITI INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 185 ) 55 Consolidated Balance Sheets 57 Consolidated Statements of Operations and Comprehensive Income 58 Consolidated Statements of Stockholders’ Equity (Deficit) 59 Consolidated Statements of Cash Flows 60 Notes to Consolidated Financial Statements 61 54 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Ubiquiti Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Ubiquiti Inc. and subsidiaries (the Company) as of June 30, 2024 and June 30, 2023, the related consolidated statements of operations and comprehensive income, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended June 30, 2024, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and June 30, 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2024, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and 55 procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of excess or obsolete inventory As discussed in Note 2 to the consolidated financial statements, the Company’s inventories are stated at the lower of actual cost, computed using the first-in, first-out method, and net realizable value (NRV). The Company reduces the value of its inventory for estimated obsolescence or lack of marketability by the difference between the cost of the affected inventory and the NRV. The Company’s determination of the valuation of excess or obsolete inventory is based on a comparison of the quantity and cost of inventory on hand to anticipated demand, alternative uses, and other factors. As of June 30, 2024, the Company’s inventories totaled $462.0 million. We identified the assessment of the valuation of certain excess or obsolete finished goods inventory as a critical audit matter. Subjective auditor judgement was required to evaluate the Company’s estimates of anticipated demand, alternative uses, and other factors, which can be affected by market and economic conditions outside the Company’s control. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s finished goods inventory valuation process. This included controls related to the development of estimates of anticipated demand of inventory. We evaluated current year estimates of anticipated demand used to determine the value of excess or obsolete inventory when they differed significantly from historical sales volumes. We selected certain inventory items and compared the Company’s prior year estimate of anticipated demand to actual sales results to assess the Company’s ability to accurately forecast. /s/ KPMG LLP We have served as the Company’s auditor since 2016. New York, New York August 23, 2024 56 UBIQUITI INC. Consolidated Balance Sheets (In thousands, except share and per share data) June 30, 2024 2023 Assets Current assets: Cash and cash equivalents $ 126,342 $ 114,826 Investments — short-term — 109 Accounts receivable, net of allowance for doubtful accounts of $ 498 and $ 92 at June 30, 2024 and 2023 respectively 169,147 167,787 Inventories 462,032 737,121 Vendor deposits 123,461 125,227 Prepaid expenses and other current assets 35,031 21,974 Total current assets 916,013 1,167,044 Property and equipment, net 81,126 86,845 Operating lease right-of-use assets, net 47,768 57,485 Deferred tax assets 35,934 23,701 Other long-term assets 73,571 71,324 Total assets $ 1,154,412 $ 1,406,399 Liabilities and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable $ 51,095 $ 154,157 Income taxes payable 23,475 19,309 Debt — short-term 36,508 36,508 Other current liabilities 173,713 141,845 Total current liabilities 284,791 351,819 Income taxes payable — long-term 53,599 74,880 Operating lease liabilities — long-term 37,176 46,052 Debt — long-term 669,878 1,041,381 Deferred tax liability — long-term 492 226 Other long-term liabilities 13,416 7,774 Total liabilities 1,059,352 1,522,132 Commitments and contingencies (Note 9) Stockholders’ equity (deficit): Preferred stock—$ 0.001 par value; 50,000,000 shares authorized; none issued — — Common stock—$ 0.001 par value; 500,000,000 shares authorized: 60,462,539 and 60,441,896 issued and outstanding at June 30, 2024 and 2023, respectively 60 60 Additional paid–in capital 10,645 4,721 Retained earnings (deficit) 84,355 ( 120,514 ) Total stockholders’ equity (deficit) 95,060 ( 115,733 ) Total liabilities and stockholders’ equity (deficit) $ 1,154,412 $ 1,406,399 See accompanying notes to consolidated financial statements. 57 UBIQUITI INC. Consolidated Statements of Operations and Comprehensive Income (In thousands, except per share amounts) Year ended June 30, 2024 2023 2022 Revenues $ 1,928,490 $ 1,940,512 $ 1,691,692 Cost of revenues 1,188,728 1,179,781 1,021,880 Gross profit 739,762 760,731 669,812 Operating expenses: Research and development 159,768 145,172 137,689 Sales, general and administrative 80,997 70,993 69,859 Total operating expenses 240,765 216,165 207,548 Income from operations 498,997 544,566 462,264 Interest expense and other, net 75,169 58,224 17,815 Income before income taxes 423,828 486,342 444,449 Provision for income taxes 73,868 78,701 65,792 Net income $ 349,960 $ 407,641 $ 378,657 Net income per share of common stock: Basic $ 5.79 $ 6.75 $ 6.14 Diluted $ 5.79 $ 6.74 $ 6.13 Weighted average shares used in computing net income per share of common stock: Basic 60,454 60,435 61,689 Diluted 60,458 60,451 61,723 Other comprehensive income: Unrealized losses on available-for-sale securities — — ( 475 ) Other comprehensive loss — — ( 475 ) Comprehensive income $ 349,960 $ 407,641 $ 378,182 See accompanying notes to consolidated financial statements. 58 UBIQUITI INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) In thousands, except share data Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive 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 — — — 378,657 — 378,657 Other comprehensive income (loss) — — — — ( 475 ) ( 475 ) Stock options exercised 8,413 — 98 — — 98 Restricted stock units issued, net of tax withholdings 23,107 — ( 1,185 ) — — ( 1,185 ) Repurchase of Common Stock ( 2,193,853 ) ( 3 ) ( 1,779 ) ( 616,349 ) — ( 618,131 ) Share-based compensation expense — — 3,516 — — 3,516 Dividends paid on Common Stock ($ 2.40 per share) — — — ( 148,055 ) — ( 148,055 ) Balance at June 30, 2022 60,420,525 $ 60 $ 650 $ ( 383,112 ) $ ( 474 ) $ ( 382,876 ) Net Income — — — 407,641 — 407,641 Reclassification adjustment for loss on investments included in net income — — — — 474 474 Stock options exercised 2,112 — 23 — — 23 Restricted stock units issued, net of tax withholdings 19,259 — ( 686 ) — — ( 686 ) Share-based compensation expense — — 4,734 — — 4,734 Dividends paid on Common Stock ($ 2.40 per share) — — — ( 145,043 ) — ( 145,043 ) Balance at June 30, 2023 60,441,896 $ 60 $ 4,721 $ ( 120,514 ) $ — $ ( 115,733 ) Net Income — — — 349,960 — 349,960 Restricted stock units issued, net of tax withholdings 20,643 — ( 434 ) — — ( 434 ) Share-based compensation expense — — 6,358 — — 6,358 Dividends paid on Common Stock ($ 2.40 per share) — — — ( 145,091 ) — ( 145,091 ) Balance at June 30, 2024 60,462,539 $ 60 $ 10,645 $ 84,355 $ — $ 95,060 See accompanying notes to consolidated financial statements. 59 UBIQUITI INC. Consolidated Statements of Cash Flows (In thousands) Years Ended June 30, 2024 2023 2022 Cash Flows from Operating Activities: Net income $ 349,960 $ 407,641 $ 378,657 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,251 16,292 13,689 Amortization of debt issuance costs 1,725 1,405 1,319 Non-cash lease expense 231 362 1,142 Premium amortization and (discount accretion), net — — 88 Provision for excess and obsolete inventory 23,905 13,391 2,413 Provision for loss on vendor deposits 20,019 ( 3,913 ) 8,907 Share-based compensation 6,358 4,734 3,516 Deferred taxes ( 11,967 ) ( 16,857 ) ( 1,842 ) Change in unrealized loss on available-for-sale securities 109 792 — Provision for sales returns ( 574 ) 553 1,004 Other, net 405 365 ( 555 ) Changes in operating assets and liabilities: Accounts receivable ( 1,765 ) ( 48,200 ) 52,657 Inventories 250,665 ( 487,922 ) ( 29,565 ) Vendor deposits ( 18,253 ) ( 39,457 ) ( 79,034 ) Prepaid expenses and other assets ( 17,564 ) ( 10,252 ) 1,841 Accounts payable ( 103,086 ) 69,730 ( 28,686 ) Income taxes payable ( 17,115 ) ( 14,041 ) ( 10,288 ) Deferred revenues 6,595 ( 1,321 ) ( 3,593 ) Accrued and other liabilities 32,617 ( 38,730 ) 58,589 Net cash provided by (used in) operating activities 541,516 ( 145,428 ) 370,259 Cash Flows from Investing Activities: Purchase of property and equipment and other long-term assets ( 11,975 ) ( 20,934 ) ( 13,468 ) Purchase of investments — — ( 1,479 ) Proceeds from sale of investments — — 2,457 Proceeds from maturities of investments — — 1,310 Net cash used in investing activities ( 11,975 ) ( 20,934 ) ( 11,180 ) Cash Flows from Financing Activities: Proceeds from borrowing under the credit facility - Term — 250,000 — Proceeds from borrowing under the credit facility- Revolver — 415,000 345,000 Repayment against credit facility- Revolver ( 215,000 ) ( 345,000 ) ( 25,000 ) Repayment against credit facility- Term ( 157,500 ) ( 28,125 ) ( 25,000 ) Debt issuance costs — ( 1,205 ) — Repurchases of common stock — — ( 618,131 ) Payment of common stock cash dividends ( 145,091 ) ( 145,043 ) ( 148,055 ) Proceeds from exercise of stock options — 23 98 Tax withholdings related to net share settlements of restricted stock units ( 434 ) ( 686 ) ( 1,185 ) Net cash (used in) provided by financing activities ( 518,025 ) 144,964 ( 472,273 ) Net increase (decrease) in cash and cash equivalents 11,516 ( 21,398 ) ( 113,194 ) Cash and cash equivalents at beginning of period 114,826 136,224 249,418 Cash and cash equivalents at end of period $ 126,342 $ 114,826 $ 136,224 Supplemental Disclosure of Cash Flow Information: Income taxes paid, net of refunds $ 108,572 $ 109,685 $ 78,180 Interest paid $ 75,094 $ 53,870 $ 11,561 Non-Cash Investing and Financing Activities: Right-of-use asset recognized $ 4,393 $ 7,201 $ 34,516 Unpaid property and equipment and other long-term assets $ 1,300 $ 1,274 $ 511 See accompanying notes to consolidated financial statements. 60 UBIQUITI INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1— BUSINESS AND BASIS OF PRESENTATION Business — Ubiquiti Inc. and its wholly owned subsidiaries (collectively, “Ubiquiti” or the “Company”) develop high performance networking technology for 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 ended June 30, 2024, 2023 and 2022 as fiscal 2024, 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 principle (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. The Company has reclassified certain amounts reported in the previous period to conform to the current period presentation. NOTE 2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Accounting Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Those estimates and assumptions include, but are not limited to, revenue recognition and deferred revenue; 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. We evaluate our estimates and assumptions based on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ materially from those estimates. Segments Management has determined that it operates as one reportable and operating segment as the Company’s Chief Executive Officer, who is the Company’s chief operating decision maker ("CODM"), does not make decisions about resources to be allocated or assess performance on a disaggregated segment basis. Further information regarding Segments can be found in Note 13, to the consolidated financial statements. Recognition of Revenues Revenue consists of revenue from sales of hardware and the related essential software (“Products”) as well as related implied post-contract customer support (“PCS”). We recognize revenue when obligations under the terms of a contract with our customers are satisfied, generally, upon transfer of control of promised goods or services to customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. We apply the following five-step revenue recognition model: • Identification of the contract, or contracts with a custome r • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • Recognition of revenue when, or as, we satisfy the performance obligation Transfer of control to the customer for products generally occurs at the point in time when products have been shipped to our customer as this represents the point in time when the customer has a present obligation to pay and physical possession including title and risk of loss have been transferred to the customer. Revenue for PCS is recognized ratably over time over the estimated period for which implied PCS services will be delivered. PCS is the right to receive, on a when-and-if available basis, future unspecified software upgrades and features relating to the product’s essential software as well as technical support and bug fixes. The Company accounts for a contract with a customer when there is an approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration is probable. The Company’s distinct performance obligations consist mainly of transferring control of its products identified in the 61 contracts, purchase orders or invoices and implied PCS services. Our contracts with the majority of our distribution customers do not include provisions for cancellations, returns, inventory swaps, or refunds that materially impact recognized revenue. Internet or Web based sales include regulatory provisions which allow customers to return the goods, generally within 30 days. The Company records a provision for returns related to this variable consideration based upon its historical returns experience with these customers. We record amounts billed for shipping and handling costs as revenues. We classify shipping and handling costs incurred by us as cost of revenue. Deposit payments received from distributors in advance of recognition of revenues are included in current liabilities of our balance sheet and are recognized as revenues when all the criteria for recognition of revenues are met. Transaction price and allocation to performance obligations Transaction prices are typically based on contracted rates. Although payment terms vary, payment is generally due from distribution customers within 60 days of the invoice date and the contracts do not have significant financing components or include extended payment terms. The Company is directly responsible for fulfilling its performance obligations in contracts with customers and does not rely on another party to fulfill its promise. We use observable list prices to determine the stand-alone selling price of our performance obligation related to our products, and we utilize a cost-plus margin approach to estimate the stand-alone selling price of our implied PCS obligation. When our contracts contain multiple performance obligations, we allocate the transaction price based on the estimated standalone selling price s of the promised products or services underlying each performance obligation. The expected costs associated with our base warranties continue to be recognized as an expense when the products are sold and are not considered a separate performance obligation. Costs for research and development and sales and marketing are expensed as incurred. If the estimated life of the hardware product should change, the future rate of amortization of the revenues allocated to PCS could also change. Key factors considered by the Company in developing the estimated cost in the cost plus margin approach for PCS includes reviewing the activities of specific employees engaged in support and software enhancements to determine the amount of time that is allocated to the development of the undelivered elements, determining the cost of the development effort, and then adding an appropriate level of gross profit to these costs. As of June 30, 2024 and 2023, the Company had deferred revenues of $ 33.7 million and $ 25.7 million, respectively. Cash and Cash Equivalents The Company considers investments purchased with a maturity period of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are stated at cost which approximates fair value. The Company deposits cash and cash equivalents with financial institutions that management believes are of high credit quality. The Company’s cash and cash equivalents consist primarily of cash deposited in U.S. dollar denominated interest-bearing deposit accounts and money market funds. We maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks that exceed the FDIC insurance limits. We also maintain cash deposits in foreign banks where we operate, some of which are not insured or are only partially insured by the FDIC or similar agencies. An immaterial portion of our cash balances are covered by FDIC insurance. Concentration of Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, marketable securities and accounts receivable. The Company limits its exposure by primarily placing its cash in interest-bearing deposit accounts and marketable securities with high credit quality financial institutions. The Company derives its accounts receivable from revenues earned from customers located worldwide. The Company bases credit decisions primarily upon a customer’s past credit history. If upfront deposits or prepayments are not required, customers then may be granted standard credit terms, which range from net 30 to 60 days. The Company subcontracts with third parties to manufacture most of our products. The Company relies on the ability of these contract manufacturers to produce the products sold to its distributors. A significant portion of the Company’s products are manufactured by a few contract manufacturers. 62 Inventory and Inventory Valuation The Company’s inventories are finished goods and raw materials. Inventories are stated at the lower of actual cost, computed using the first-in, first-out method, and net realizable value (“NRV”). NRV is based upon an estimated average selling price reduced by the estimated costs of disposal. The determination of net realizable value involves certain judgments including estimating average selling prices based on recent sales. Should actual market conditions differ from the Company’s estimates, future results of operations could be materially affected. The Company reduces the value of its inventory for estimated obsolescence or lack of marketability by the difference between the cost of the affected inventory and the NRV. Write-downs are not reversed until the related inventory has been subsequently sold or scrapped. The valuation of inventory also requires the Company to estimate excess and obsolete inventory. The determination of excess or obsolete inventory is estimated based on a comparison of the quantity and cost of inventory on hand to the Company’s forecast of customer demand, which is dependent on various factors and requires the Company to use judgment in forecasting future demand for its products. The Company also considers the rate at which new products will be accepted in the marketplace and how quickly customers will transition from older products to newer products. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required, which would have a negative impact on the Company’s gross margin. If the Company ultimately sells inventory that has been previously written down, the Company’s gross margins in future periods would be positively impacted. The Company capitalizes manufacturing overhead expenditures as part of inventory costs. Capitalized costs primarily include management’s best estimate of the indirect labor, tariffs, shipping and logistics costs incurred related to inventory acquired or produced but not sold during the respective period. Manufacturing overhead costs are capitalized to inventory and are recognized as cost of revenues in the future periods based on when the inventory is sold or written-down. Product Warranties The Company offers warranties on certain products, generally for a period of one 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 statement of operations and comprehensive income within cost of revenues. The warranties are typically in effect for 12 to 24 months from the distributor’s and webstore customer's purchase date of the product. The Company assesses the adequacy of its accrued warranty liabilities and adjusts the amounts as necessary based on historical experience factors and changes in future estimates. Historical factors include product failure rates, material usage and service delivery costs incurred in correcting product failures. In certain circumstances, the Company may have recourse from its contract manufacturers for the replacement cost of defective products, which it also factors into its warranty liability assessment. Allowance for Credit Losses The Company records an allowance for its estimate of expected credit losses on its trade receivables based on its assessment of various factors, including historical experience, age of the accounts receivable balances, credit quality of the Company’s customers, current economic conditions and other factors that may affect the customers’ abilities to pay. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its obligations to the Company, the Company records a specific allowance against amounts due from the customer, and thereby reduces the net recognized receivable to the amounts it reasonably believes will be collected. The changes in the estimate of expected credit losses for the Company's trade receivables were as follows (in thousands): Year ended June 30, 2024 2023 2022 Beginning balance $ 92 $ 52 $ 47 Charged to expenses 406 40 5 Ending balance $ 498 $ 92 $ 52 Long Lived Assets In accordance with the authoritative guidance for impairment or disposal of long-lived assets (ASC 360), we assess potential impairments to our long-lived assets, including property and equipment, when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable. We recognize an impairment loss when the undiscounted cash flows expected to be generated by an asset or group of assets, are less than the asset’s carrying value. Any required impairment 63 loss would be measured as the amount by which the asset’s carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset and charged to results of operations. The Company did not recognize any material impairment losses for fiscal years 2024, 2023 and 2022. Property and Equipment Furniture, fixtures and equipment are recorded at cost. The Company computes depreciation or amortization using the straight-line method over estimated useful lives, as follows: Estimated Useful Life Testing equipment 3 to 5 years Computer and other equipment 3 to 5 years Furniture and fixtures 3 to 5 years Software up to 3 years Corporate aircraft 15 years Leasehold improvements shorter of lease term or useful life Upon retirement or disposition, the asset cost and related accumulated depreciation are removed with any gain or loss recognized in the consolidated statement of operations. Expenditures for maintenance and repairs are charged to operations as incurred. Intangible Assets The Company’s intangible assets consist primarily of domain name purchase and legal costs associated with application for and registration of the Company’s trademarks, which are all included in other long-term assets. The Company amortizes all definite-lived intangible assets that are subject to amortization over the estimated useful life based on economic benefit. Domain names are amortized over 15 years, while other intangible assets are generally amortized over 5 years. All patent filing and defense costs are expensed as incurred, however, to date these costs have not been significant. Leases The Company enters into agreements under which we lease various real estate spaces, including warehouse facilities and office space, that are generally leased under noncancelable agreements and include various renewal options for additional periods and/or have options to early terminate. At contract inception, the Company determines if an arrangement is a lease, or contains a lease, of an identified asset for which the Company has the right to obtain substantially all of the economic benefits from its use and the right to direct its use. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, while lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. The implicit discount rate in the Company’s leases generally cannot readily be determined and therefore, the Company uses its incremental borrowing rate based on information available at lease commencement date in determining the present value of future payments. ROU assets are determined based upon the calculated lease liability, adjusted by unamortized initial direct costs, unamortized lease incentives received and cumulative deferred or prepaid lease payments. The Company has options to renew or terminate certain leases. These options are included in the determination of lease term when it is reasonably certain that the Company will exercise such options. The Company does not separate lease and non-lease components in determining ROU assets or lease liabilities for operating leases. Additionally, the Company does not recognize ROU assets or lease liabilities for leases with original terms or renewals of one year or less. Lease expense for our operating leases is recognized on a straight-line basis over the term of the lease. Advertising Costs Advertising costs are expensed as incurred and are included in selling, general and administrative expenses. Income Taxes The Company accounts for income taxes in accordance with accounting guidance which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns. Deferred tax assets and liabilities are determined based on the temporary difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or 64 settled. The Company establishes valuation allowances when necessary to reduce deferred tax assets to the amount it expects to realize. The assessment of whether or not a valuation allowance is required often requires significant judgment including current operating results, the forecast of future taxable income and ongoing prudent and feasible tax planning initiatives. The Company’s calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax regulations. The Company may be subject to income tax audits in all of the jurisdictions in which it operates and, as a result, must also assess exposures to any potential issues arising from current or future audits of current and prior years’ tax returns. Accordingly, the Company must assess such potential exposures and, where necessary, provide a reserve to cover any expected loss. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results. We reflect changes in recognition or measurement in the period in which our change in judgment occurs. The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet. Share-based Compensation The Company measures share-based compensation cost at the grant date, based on the estimated fair value of the award, and recognizes expense for restricted stock units and stock options on a straight-line basis over the employee’s requisite service period. The Company did no t grant any stock options during fiscal 2024, fiscal 2023 or fiscal 2022. Restricted stock units are valued based on the fair value of the Company’s common stock on the date of grant. Commitments and Contingencies The Company periodically evaluates all pending or threatened contingencies and any commitments, if any, that are reasonably likely to have a material adverse effect on its results of operations, financial position or cash flows. The Company assesses the probability of an adverse outcome and determines if it is remote, reasonably possible or probable. If information available prior to the issuance of the Company’s financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the Company’s financial statements, and the amount of the loss, or the range of probable loss can be reasonably estimated, then such loss is accrued and charged to operating expenses. If no accrual is made for a loss contingency because one or both of the conditions pursuant to the accounting guidance are not met, but the probability of an adverse outcome is at least reasonably possible, the Company discloses the nature of the contingency and provides an estimate of the possible loss or range of loss, or states that such an estimate cannot be made. Foreign Currency Remeasurement The functional currency of the Company and its subsidiaries is the U.S. dollar. For foreign operations, local currency denominated monetary assets and liabilities are remeasured at the period end exchange rates, and revenues, costs and expenses are remeasured at the average exchange rates during the fiscal year. Foreign exchange gains and losses have been immaterial to the Company’s results of operations to date. Research and Development Costs Research and development expenses are expensed as incurred and consist primarily of payroll and payroll-related costs and facilities costs. Research and development expenses associated with software development are typically expensed as incurred as our software is usually released to end customers immediately after technological feasibility has been established. However, the Company capitalizes development costs when material costs are incurred subsequent to technological feasibility but prior to commercial release. Earnings Per Share The Company applies the treasury stock method for calculating and presenting earnings per share (“EPS”). Basic EPS is computed by dividing the net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS available to common stockholders is computed by dividing the amount of net income available to common stockholders by the weighted-average number of common shares outstanding, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and restricted stock units using the treasury stock method. 65 Newly Adopted Accounting Standards The Company did not adopt any new accounting standards in fiscal 2024 that were significant to the Company. Recent Accounting Pronouncements Not Yet Effective Segment Reporting In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting ( Topic 280 ) (“ASU 2023-07”), which enhances the segment disclosure requirements for public entities on an annual and interim basis. Under this proposal, public entities will be required to disclose significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss. Additionally, current annual disclosures about a reportable segment’s profit or loss and assets will be required on an interim basis. Entities will also be required to disclose information about the CODM’s title and position at the Company along with an explanation of how the CODM uses the reported measures of segment profit or loss in their assessment of segment performance and deciding whether how to allocate resources. Finally, ASU 2023-07 requires all segment disclosures for public entities, even those with a single reportable segment. The amendments in ASU 2023-07 will become effective on a retrospective basis for annual disclosures in the Company's fiscal year beginning July 1, 2024, with interim period disclosures required effective with the Company's fiscal year beginning July 1, 2025. Early adoption of ASU 2023-07 is permitted. We do not expect this ASU to have a significant impact on our disclosures or results of operations, cash flows, and financial condition. Income Taxes In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) ("ASU 2023-09"), which amends the existing guidance relating to the annual disclosures for accounting for income taxes. ASU 2023-09 requires a public business entity to disclose a tabular rate reconciliation using specified categories and providing additional information for reconciling items that exceed a quantitative threshold. In addition, ASU 2023-09 requires the disaggregation of federal, state and foreign income taxes paid (net of funds received), with further disaggregation required for individual jurisdictions in which the income taxes paid exceed five percent of the Company's total income taxes paid. The provision for income taxes in the Company's statement of operations will also be required to be disaggregated by federal, state and foreign jurisdictions. The amendments in ASU 2023-09 will become effective for annual disclosures in the Company's fiscal year beginning July 1, 2025, with early adoption permitted. The FASB indicated ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We expect this ASU to only impact our disclosures with no impact to our results of operations, cash flows, and financial condition. NOTE 3— REVENUES Revenue is primarily generated from the sale of hardware as well as the related implied PCS. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our products and PCS to our customers. Transfer of control to the customer for products generally occurs at the point in time when products have been shipped to our customer as this represents the point in time when the customer has a present obligation to pay and physical possession including title and risk of loss have been transferred to the customer. Revenue for PCS is recognized ratably over time over the estimated period for which implied PCS services will be delivered. Disaggregation of Revenue See Note 13 “Segment Information, Revenues by Geography and Significant Customers” for disaggregation of revenue by product category and geography. Contract Balances The timing of revenue recognition, billing and cash collections results in billed accounts receivable, deferred revenue primarily attributable to PCS and customer deposits on the Consolidated Balance Sheets. Accounts receivable are recognized in the period the Company’s right to the consideration is unconditional. Our contract liabilities consist of advance payments (customer deposits) as well as billing in excess of revenue recognized primarily related to deferred revenue. We classify customer deposits as a current liability, and deferred revenue as a current or non-current liability based on the timing of when we expect to fulfill these remaining performance obligations. The current portion of deferred revenue is included in other current liabilities and the non-current portion is included in other long-term liabilities in our consolidated balance sheets. As of June 30, 2024 and 2023, the Company’s customer deposits were $ 1.3 million and $ 1.2 million, respectively. As of June 30, 2024, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $ 20.3 66 million and $ 13.4 million, respectively. As of June 30, 2023, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $ 17.9 million and $ 7.8 million, respectively. We expect the majority of our deferred revenue to convert to revenue in two years . For fiscal years 2024 and 2023 we recognized revenues amounting to $ 17.9 million and $ 20.8 million, respectively from previous years' deferred revenue balances. Variable Consideration The Company provides for rights of return to certain customers on product sales and therefore records a provision for returns related to this variable consideration based upon its historical returns experience with these customers. The Company also provides certain customers with discounts that are recorded as a reduction of revenue in the period the related product revenue is recognized and are reflected as a reduction of outstanding accounts receivable. The Company’s contracts with customers generally do not contain other forms of variable consideration, however when additional variable consideration is included, the Company estimates the amount of variable consideration and determines what portion of that, if any, has a high probability of significant subsequent revenue reversal, and if so, that amount is excluded from the transaction price. NOTE 4— 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): Year ended June 30, 2024 2023 2022 Numerator: Net income $ 349,960 $ 407,641 $ 378,657 Denominator: Weighted-average shares used in computing basic earnings per share 60,454 60,435 61,689 Add—dilutive potential common shares: Stock options — — 7 Restricted stock units 4 16 27 Weighted-average shares used in computing diluted earnings per share 60,458 60,451 61,723 Net income per share of common stock: Basic $ 5.79 $ 6.75 $ 6.14 Diluted $ 5.79 $ 6.74 $ 6.13 The Company excludes potentially dilutive securities from its diluted earnings per share calculation when their effect would be anti-dilutive to earnings per share amounts. The following table summarizes the total potential shares of common stock that were excluded from the diluted per share calculation, because to include them would have been anti-dilutive for the period (in thousands): Year ended June 30, 2024 2023 2022 Restricted stock units 80 2 8 NOTE 5— BALANCE SHEET COMPONENTS Inventories Inventories consisted of the following (in thousands): June 30, 2024 2023 Finished goods $ 387,447 $ 643,499 Raw materials 74,585 93,622 Total $ 462,032 $ 737,121 Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): June 30, 2024 2023 Testing equipment $ 18,964 $ 18,265 Tooling equipment 26,892 22,687 Leasehold improvements 26,264 24,968 Computer and other equipment 10,482 10,860 Software 9,375 9,421 Furniture and fixtures 1,913 1,716 Corporate aircraft 65,807 65,807 Property and equipment, gross 159,697 153,724 Less: Accumulated depreciation and amortization ( 78,571 ) ( 66,879 ) Property and equipment, net $ 81,126 $ 86,845 The Company recorded depreciation and amortization expense of $ 17.7 million, $ 14.7 million and $ 12.1 million in fiscal 2024, 2023 and 2022, respectively. Other Long-term Assets Other long-term assets consisted of the following (in thousands): June 30, 2024 2023 Hong Kong tax deposit (1) $ 60,402 $ 60,106 Intangible assets, net (2) 4,164 5,695 Other long-term assets 9,005 5,523 Total $ 73,571 $ 71,324 (1) The Company expects the deposits made with Hong Kong Inland Revenue Department ("IRD") to be refunded upon completion of the audit. See Note 12 to the consolidated financial statements for additional details regarding this ongoing tax audit. (2) Accumulated amortization was $ 7.5 million and $ 5.9 million for the periods ending June 30, 2024 and June 30, 2023, respectively. Other Current Liabilities Other current liabilities consisted of the following (in thousands): June 30, 2024 2023 Deferred revenue — short term $ 20,332 $ 17,911 Accrued expenses 26,600 23,426 Lease liability — current 13,724 14,333 Warranty accrual 10,825 8,745 Accrued compensation and benefits 8,453 7,330 Customer deposits 1,283 1,211 Reserves for sales returns 3,906 4,999 Inventory received not billed 72,560 56,862 Other payables 16,030 7,028 Total $ 173,713 $ 141,845 Other Long-Term Liabilities Other long-term liabilities consisted of the following (in thousands): June 30, 2024 2023 Deferred revenue — long-term $ 13,416 $ 7,774 Total $ 13,416 $ 7,774 NOTE 6— ACCRUED WARRANTY Warranty obligations, included in other current liabilities, were as follows (in thousands): June 30, 2024 2023 Beginning balance $ 8,745 $ 6,394 Accruals for warranties issued during the period 12,823 11,325 Changes in liability for pre-existing warranties during the period 1,043 606 Settlements made during the period ( 11,786 ) ( 9,580 ) Total $ 10,825 $ 8,745 NOTE 7— DEBT On March 30, 2021, the Company, as borrower and certain domestic subsidiaries, as guarantors (the "Domestic Guarantors"), 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,” together with the Term Loan Facilities, as defined below, the "Facilities") and provided a $ 500 million senior secured term loan facility (the “Initial Term Loan Facility”), 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 loans under the Initial Term Loan Facility are payable in quarterly installments of $ 6.25 million per quarter, commencing with the quarter ending June 30, 2021. On April 3, 2023, the Company as borrower and 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 million (the “First Amendment Term Loan Facility,” together with the Initial Term Loan Facility, the "Term Loan Facilities") 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 obligations of the Company and certain domestic subsidiaries under the Amended Credit Agreement 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 Company's unamortized balance of debt issuance costs are $ 1.7 million as of June 30, 2024, which are amortized as interest expense over the life of the Facilities. 67 Table of Contents Our debt consisted of the following (in thousands): June 30, 2024 2023 Initial Term Loan - short term $ 25,000 $ 25,000 First Amendment Term Loan - short-term 12,500 12,500 Debt issuance costs, net ( 992 ) ( 992 ) Total Debt - short term 36,508 36,508 Initial Term Loan - long term 393,750 418,750 First Amendment Term Loan - long-term 101,875 234,375 Revolver - long term 175,000 390,000 Debt issuance costs, net ( 747 ) ( 1,744 ) Total Debt - long term $ 669,878 $ 1,041,381 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 Amended 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 Amended 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. Loans under the Facilities may be prepaid at any time without penalty. The revolving loans and term loans under the Initial Term Loan Facility bear interest, at the Company’s option, at either (i) a floating rate per annum equal to the Base Rate (as defined below) 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 Adjusted Term SOFR (as defined below) for a specified period, plus a margin of between 1.50 % and 2.25 %, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter. Swingline loans bear interest at a floating rate per annum equal to the Base Rate plus a margin of be tween 0.50 % and 1.25 %, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter. The loans under the First Amendment Term Loan Facility bear 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 between 2.00 % and 2.75 %, depending on the Company's consolidated total leverage ratio as of the most recently ended fiscal quarter. Base Rate is defined in the Amended Credit Agreement as the highest of (a) the Prime Rate (as defined in the Amended Credit Agreement), (b) the Federal Funds Rate (as defined in the Amended Credit Agreement) plus 0.50 % and (c) Adjusted Term SOFR for a one-month tenor in effect on such day plus 1.00 %; 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 %. A default interest rate shall apply on all obligations during certain events of default under the Amended 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 Amended 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 Amended 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 Amended 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 68 Table of Contents acceleration of the obligations under the Amended Credit Agreement. The Facilities As of June 30, 2024, $ 418.8 million was outstanding on the Initial Term Loan Facility, $ 114.4 million was outstanding on the First Amendment Term Loan Facility, and $ 175.0 million was outstanding on the Revolving Facility, leaving $ 525.0 million available on the Revolving Facility. Term Facility: During fiscal year 2024, the Company made aggregate payments of $ 209.2 million under the Term Loan Facilities, of which $ 157.5 million was a repayment of principal and $ 51.7 million was a payment of interest. Revolving Facility: During fiscal year 2024, the Company made aggregate payments of $ 238.4 million under the Revolving Facility, of which $ 215.0 million was a repayment of principal and $ 23.4 million was a payment of interest. The following table summarizes our estimated debt and interest payment obligations as of June 30, 2024, for fiscal 2025 and future fiscal years (in thousands): Fiscal Year 2025 2026 2027 2028 2029 Thereafter Total Debt payment obligations $ 37,500 $ 670,625 $ — $ — $ — $ — $ 708,125 Interest and other payments on debt payment obligations (1) 51,959 37,075 — — — — 89,034 Total $ 89,459 $ 707,700 $ — $ — $ — $ — $ 797,159 (1) - Interest payments are calculated based on the applicable rates and payment dates as of June 30, 2024. Although our interest rates on our debt obligations may vary, we have assumed the most recent available interest rates for all periods presented. NOTE 8— LEASES The Company has entered into agreements under which we lease various real estate spaces in North America, Europe and Asia Pacific, under non-cancellable leases that expire on various dates through fiscal 2036. Some of our leases include options to extend the term of such leases for a period from 12 months to 60 months, and/or have options to early terminate the lease. As of June 30, 2024, we included such options in determining the lease terms for certain of our leases as we were reasonably certain that we would exercise those options. Most of our leases require us to pay certain operating expenses in addition to base rent, such as taxes, insurance and maintenance costs. The following table summarizes our lease costs for fiscal years ended June 30, 2024 and 2023 (in thousands): June 30, 2024 2023 Operating lease costs: Financial Statement Classification Fixed lease costs Operating expenses $ 11,671 $ 11,199 Fixed lease costs Cost of revenues 4,038 4,030 Variable lease costs Operating expenses 655 548 Variable lease costs Cost of revenues 807 555 Total lease costs $ 17,171 $ 16,332 The operating lease costs in the table above include costs for long-term and short-term leases. Total short-term costs for fiscal years June 30, 2024 and 2023 were $ 0.2 million and $ 0.6 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 fiscal years June 30, 2024 and 2023, the cash paid for amounts associated with our operating lease liabilities were approximately $ 17.3 million and $ 16.1 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. 69 Table of Contents The following table shows our undiscounted future fixed payment obligations under our recognized operating leases and a reconciliation to the operating lease liabilities as of June 30, 2024: Fiscal 2025 $ 15,193 Fiscal 2026 10,787 Fiscal 2027 6,806 Fiscal 2028 5,435 Fiscal 2029 3,663 Thereafter 13,848 Total future fixed operating lease payments $ 55,732 Less: Imputed interest $ 4,832 Total operating lease liabilities $ 50,900 Weighted-average remaining lease term - operating leases Six years Weighted-average discount rate - operating leases 3.5 % NOTE 9— COMMITMENTS AND CONTINGENCIES Purchase Obligations We subcontract with third parties to manufacture our products and supply key components. As of June 30, 2024 we had $ 981.7 million of purchase commitments with these third parties. 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. There have been no significant liabilities for current or anticipated cancellations recorded as of June 30, 2024. Our consolidated financial position and results of operations could be negatively impacted if we were required to compensate these third parties. In addition, we may be subject to additional purchase obligations to our contract manufacturers for supply agreements and components ordered by them based on manufacturing forecasts we provide them each month. Transition Tax We have an obligation of $ 50.6 million as of June 30, 2024, related to the mandatory transition tax on accumulated foreign earnings from the 2017 Tax Cuts and Jobs Act. We expect to make payments of $ 22.5 million and $ 28.1 million in the first quarter of fiscal 2025 and 2026, respectively, in relation to this obligation. This obligation is included within Income tax payable and Long-term taxes payable on our consolidated balance sheets. Other Obligations As of June 30, 2024, the Company has other obligations of $ 6.1 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 70 Table of Contents 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. 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”). 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. The Federal Circuit Court of Appeals affirmed the invalidity of the '231 Patent on May 18, 2023. All claims asserted against the Company in the Original Action have been dismissed. 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. On October 3, 2023, the IPR with respect to the '376 Patent was terminated after the petitioners entered into a settlement agreement with Vivato. On December 4, 2023, the court lifted the stay. On May 16, 2024, the court entered a stipulated 30 -day stay pending settlement discussions. On June 18, 2024 and July 19, 2024, the court issued further stipulated 30 -day stays pending settlement discussions. Those discussions are ongoing. 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. Network-1 Technologies, Inc. On October 5, 2022, Network-1 Technologies, Inc. ("Network-1") filed a patent infringement lawsuit against the Company in the District of Delaware, alleging that various Company products infringe United States Patent Number 6,218,930, which relates to 802.3af and 802.3at “ Power over Ethernet ” standards. Network-1 seeks compensatory and enhanced damages, attorneys' fees and costs, and pre- and post-judgment interest. 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. Intellectual Ventures I LLC v. Ubiquiti Inc. On August 8, 2023, Intellectual Ventures I LLC ("IV") filed a patent infringement lawsuit against the Company in the District of Delaware, alleging that various Company products infringe United States Patent Number 8,594,122, which relates to 802.11ac “ Beamforming ” standards. IV seeks compensatory and enhanced damages, attorneys' fees and costs, and pre- and post-judgment interest. 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. 71 Table of Contents 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 was authorized to repurchase up to $ 200 million of common stock. The 2022 May Program expired on September 30, 2023, and the Company did not make any repurchases under the 2022 May Program. The following table summarizes total activity related to our stock repurchase programs for the fiscal year end as indicated (in millions, except average price per share): June 30, 2024 2023 2022 Number of shares repurchased and retired — — 2.2 Average price per share N/A N/A $ 281.75 Aggregate purchase price N/A N/A $ 618.1 NOTE 11— SHARE-BASED COMPENSATION Share-Based Compensation Plans 2010 Equity Incentive Plan In March 2010, the Company’s Board of Directors and stockholders approved the 2010 Equity Incentive Plan (the “2010 Plan”). Under the terms of the 2010 Plan, non-statutory stock options, stock appreciation rights, restricted stock, and restricted stock units (“RSUs”) may be granted to employees or non-employee service providers. Incentive stock options may be granted only to employees. 2020 Equity Incentive Plan In December 2020, the Company's stockholders approved the Ubiquiti Inc. 2020 Omnibus Incentive Plan (the “2020 Equity Plan”) that replaced the 2010 Plan, and no additional awards will be granted under the 2010 Plan. Under the terms of the 2020 Equity Plan, the Company is authorized to grant awards for up to five million shares of common stock over the term of the 2020 Equity Plan. Outstanding awards under the 2010 Plan remain in effect pursuant to the terms of the 2010 Plan. The 2020 Equity Plan and the 2010 Plan are each administered by the Company’s Board of Directors or a committee of the Company’s Board of Directors. Subject to the terms and conditions of the 2020 Equity Plan and the 2010 Plan, the administrator has the authority to select the persons to whom awards are to be made, to determine the number of shares to be subject to awards and the terms and conditions of awards, and to make all other determinations and to take all other actions necessary or advisable for the administration of the 2020 Equity Plan and the 2010 Plan. The administrator is also authorized to adopt, amend or rescind rules relating to administration of the 2020 Equity Plan and the 2010 Plan. Options and RSUs generally vest over a four-year period from the date of grant and generally expire 10 years from the date of grant. The terms of the 2020 Equity Plan and the 2010 Plan provide that an option price shall not be less than 100 % of fair market value on the date of grant. As of June 30, 2024, the Company had 4,876,805 authorized shares available for future issuance under all of its stock incentive plans. 72 Table of Contents Share-based Compensation The following table shows total share-based compensation expense included in the Consolidated Statements of Operations for fiscal 2024, 2023 and 2022 (in thousands): Year ended June 30, 2024 2023 2022 Cost of revenues $ 159 $ 73 $ 74 Research and development 4,831 3,541 2,541 Sales, general and administrative 1,368 1,120 901 $ 6,358 $ 4,734 $ 3,516 Stock Options During fiscal 2024, 2023 and 2022, the aggregate intrinsic value of options exercised under the Company’s stock incentive plans was $ 0.0 million, $ 0.6 million, and $ 2.3 million, respectively, as determined as of the date of option exercise. As of June 30, 2024, the Company had no unrecognized compensation cost related to stock options. The Company did no t grant any stock options during fiscal 2024, fiscal 2023, or fiscal 2022. Forfeiture rate The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. The impact from a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual number of future forfeitures differs from that estimated, the Company may be required to record adjustments to share-based compensation expense in future periods. Restricted Stock Units (“RSUs”) The following table summarizes the activity of the RSUs made by the Company: Number of Shares Weighted Average Grant Date Fair Value Non-vested RSUs, June 30, 2023 62,948 $ 256.78 RSUs granted 65,143 $ 147.53 RSUs vested ( 23,311 ) $ 237.72 RSUs forfeited ( 2,814 ) $ 267.64 Non-vested RSUs, June 30, 2024 101,966 $ 191.04 The intrinsic value of RSUs vested in fiscal 2024, 2023, and 2022 was $ 3.5 million, $ 5.8 million and $ 8.2 million, respectively. The total intrinsic value of all outstanding RSUs was $ 14.9 million as of June 30, 2024. As of June 30, 2024, there was unrecognized compensation costs related to RSUs of $ 13.6 million which the Company expects to recognize over a weighted average period of 3.1 years. 73 Table of Contents NOTE 12— INCOME TAXES The components of income before provision for income taxes were as follows (in thousands): Year ended June 30, 2024 2023 2022 Domestic $ 149,523 $ 102,930 $ 102,145 Foreign 274,305 383,412 342,304 $ 423,828 $ 486,342 $ 444,449 The provision for income taxes consisted of the following (in thousands): Year ended June 30, 2024 2023 2022 Current Federal $ 67,870 $ 78,774 $ 55,259 State 8,019 9,443 6,814 Foreign 9,946 7,341 5,561 Current tax expense 85,835 95,558 67,634 Deferred Federal ( 7,110 ) ( 15,338 ) ( 882 ) State ( 627 ) ( 1,745 ) ( 960 ) Foreign ( 4,230 ) 226 — Deferred tax benefit (expense) ( 11,967 ) ( 16,857 ) ( 1,842 ) Provision for income taxes $ 73,868 $ 78,701 $ 65,792 For tax years beginning after December 31, 2021, the Tax Cuts and Jobs Act of 2017 ("TCJA") eliminates the right to deduct research and development expenditures for tax purposes in the period the expenses were incurred and instead requires all U.S. and foreign research and development expenditures to be amortized over five and fifteen tax years, respectively. Congress has considered legislation that would defer the amortization requirement to later years, but as of June 30, 2024, the requirement has not been modified. Accordingly, the Company has capitalized research and development expenses for tax purposes, resulting in higher cash paid for taxes as compared to prior years. The reconciliation of federal statutory income tax to the Company’s provision for income taxes is as follows: Year ended June 30, 2024 2023 2022 Statutory rate 21.0 % 21.0 % 21.0 % Effect of foreign operations ( 5.7 ) ( 6.8 ) ( 8.0 ) State tax expense 1.3 1.3 1.0 Share-based compensation 0.3 0.1 ( 0.1 ) Subpart F income 0.4 1.1 1.0 Other permanent items 0.1 ( 0.5 ) ( 0.1 ) Effective tax rate 17.4 % 16.2 % 14.8 % 74 Table of Contents Significant components of the Company's deferred tax assets and liabilities as of June 30, 2024 are as follows (in thousands): June 30, 2024 2023 Deferred tax assets Reserves and allowances $ 5,631 $ 11,041 Share-based compensation 452 380 Accrued expenses 824 703 Capitalized research expenditures 30,296 15,617 State tax 721 1,504 Investments 1,325 1,296 Lease liabilities 5,286 5,581 Other 14,974 11,945 Total deferred tax assets 59,509 48,067 Deferred tax liabilities Property and equipment ( 8,046 ) ( 6,558 ) Right of use assets ( 4,929 ) ( 5,304 ) Other liabilities ( 9,767 ) ( 11,434 ) Total deferred tax liabilities ( 22,742 ) ( 23,296 ) Valuation allowance ( 1,325 ) ( 1,296 ) Net deferred tax assets $ 35,442 $ 23,475 A reconciliation of the beginning and ending balances of the unrecognized tax benefits during the years ended June 30, 2024, 2023, and 2022 consists of the following (in thousands): Year ended June 30, 2024 2023 2022 Unrecognized benefit—beginning of year $ 32,382 $ 32,685 $ 32,092 Gross increases—current year tax positions 5,347 5,361 4,629 Gross decreases—prior year tax positions due to statute lapse ( 4,680 ) ( 5,664 ) ( 4,036 ) Unrecognized benefit—end of year $ 33,049 $ 32,382 $ 32,685 As of June 30, 2024, the Company had approximately $ 33.0 million of unrecognized tax benefits, substantially all of which would, if recognized, affect its tax expense. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statements of Operations and Comprehensive Income. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheets. As of June 30, 2024 and 2023, the Company had $ 4.8 million and $ 2.9 million accrued interest related to uncertain tax matters, respectively. 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 (“IRS”) and the Hong Kong Inland Revenue Department ("IRD"). All material consolidated federal, state and local income tax matters have been concluded for years through 2014. The majority of the Company's foreign jurisdictions have been concluded through 2014, with the exception of Hong Kong which has been reviewed through 2009 and is currently under audit for the 2010-2018 statutory tax years. In July 2018, the Company received a draft Notice of Proposed Adjustment (“Draft NOPA”) from the IRS proposing an adjustment to income for the fiscal 2015 and fiscal 2016 tax years based on its interpretation of certain obligations of the non-US entities under the 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 NOPA 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 75 Table of Contents 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. On November 8, 2023, the Company filed a Motion for Summary Judgement. The IRS responded to the Company's Motion on December 26, 2023 and filed a Cross-Motion for Summary Judgement. On January 22, 2024, the judge assigned to this case rejected both Motions for Summary Judgement. As such, the Company is awaiting a trial date to be set which it currently expects to receive by the end of December 2024. The Company continues to believe that its tax position filed with the IRS with regard to this matter is more likely than not to be sustained based on technical merits. 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. The Company estimates 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. Between fiscal years 2018 and 2023, the Company made payments totaling a combined amount of $ 60.4 million as deposits, with the Hong Kong IRD in connection with extending the statute of limitation for income tax examinations currently under audit for 2010-2017 statutory tax years. On March 27, 2024, the Company received notification that the Hong Kong IRD is seeking an additional $ 0.8 million deposit covering the 2018 statutory tax year. The Company filed a formal protest in response to this notice and the Assessor's office agreed to a reduced deposit of under $ 0.1 million covering the 2018 statutory tax year. The refundable deposits are included within other long-term assets on the 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 the Company expects the $ 60.4 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. 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 CODM, does not make decisions about resources to be allocated or assess performance on a segment basis. Furthermore, the Company does not organize or report its costs on a segment basis. The Company presents its revenue by product type in two primary categories: Service Provider Technology and Enterprise Technology. Revenue Revenues by product type were as follows (in thousands, except percentages): Year ended June 30, 2024 2023 2022 Enterprise Technology $ 1,617,665 84 % $ 1,621,426 84 % $ 1,316,685 78 % Service Provider Technology 310,825 16 % 319,086 16 % 375,007 22 % Total revenues $ 1,928,490 100 % $ 1,940,512 100 % $ 1,691,692 100 % Revenues by geography based on customer’s ship-to destinations were as follows (in thousands, except percentages): Year ended June 30, 2024 2023 2022 North America (1) $ 946,428 49 % $ 922,230 48 % $ 790,809 47 % Europe, the Middle East and Africa 740,113 38 % 759,405 39 % 675,306 40 % Asia Pacific 127,901 7 % 148,502 8 % 134,961 8 % South America 114,048 6 % 110,375 5 % 90,616 5 % Total revenues $ 1,928,490 100 % $ 1,940,512 100 % $ 1,691,692 100 % (1) Revenue for the United States was $ 881.0 million, $ 855.3 million and $ 734.5 million for fiscal 2024, 2023, and 2022, respectively. 76 Table of Contents For the periods presented, there were no customers with an accounts receivable balance of 10% or greater or customers with net revenues of 10% or greater of total revenues. NOTE 14 — SUBSEQUENT EVENTS Dividends On August 23, 2024, the Company announced that its Board of Directors had approved a quarterly cash dividend of $ 0.60 per share payable on September 9, 2024 to shareholders of record at the close of business on September 3, 2024. Any future dividends will be subject to the approval of the Company’s Board of Directors. 77