Ubiquiti Inc. 10-Q

Item 1. Financial Statements (Unaudited) UBIQUITI INC. Consolidated Balance Sheets (In thousands, except share and per share data) (Unaudited) December 31, 2024 June 30, 2024 Assets Current assets: Cash and cash equivalents $ 133,088 $ 126,342 Accounts receivable, net of allowance for doubtful accounts of $ 6,024 and $ 498 at December 31, 2024 and June 30, 2024, respectively 167,883 169,147 Inventories 537,344 462,032 Vendor deposits 73,707 123,461 Prepaid expenses and other current assets 49,639 35,031 Total current assets 961,661 916,013 Property and equipment, net 75,217 81,126 Operating lease right-of-use assets, net 42,727 47,768 Deferred tax assets 35,985 35,934 Other long-term assets 68,128 73,571 Total assets $ 1,183,718 $ 1,154,412 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 122,001 $ 51,095 Income taxes payable 32,019 23,475 Debt — short-term 24,410 36,508 Other current liabilities 253,864 173,713 Total current liabilities 432,294 284,791 Income taxes payable — long-term 28,355 53,599 Operating lease liabilities — long-term 32,721 37,176 Debt — long-term 381,104 669,878 Deferred tax liability — long-term — 492 Other long-term liabilities 18,799 13,416 Total liabilities 893,273 1,059,352 Commitments and contingencies (Note 9) Stockholders’ equity: Preferred stock—$ 0.001 par value; 50,000,000 shares authorized; none issued — — Common stock—$ 0.001 par value; 500,000,000 shares authorized: 60,470,517 and 60,462,539 issued and outstanding as of December 31, 2024 and June 30, 2024, respectively 60 60 Additional paid–in capital 13,811 10,645 Retained earnings 276,574 84,355 Total stockholders’ equity 290,445 95,060 Total liabilities and stockholders’ equity $ 1,183,718 $ 1,154,412 See accompanying notes to consolidated financial statements (unaudited). 4 Table of Contents UBIQUITI INC. Consolidated Statements of Operations and Comprehensive Income (In thousands, except per share amounts) (Unaudited) Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Revenues $ 599,879 $ 464,954 $ 1,150,223 $ 928,032 Cost of revenues 352,649 287,307 671,375 566,510 Gross profit 247,230 177,647 478,848 361,522 Operating expenses: Research and development 39,958 36,911 77,955 73,194 Sales, general and administrative 28,460 19,634 52,875 38,923 Total operating expenses 68,418 56,545 130,830 112,117 Income from operations 178,812 121,102 348,018 249,405 Interest expense and other, net 11,440 18,262 22,018 39,486 Income before income taxes 167,372 102,840 326,000 209,919 Provision for income taxes 30,577 20,724 61,217 40,053 Net income $ 136,795 $ 82,116 $ 264,783 $ 169,866 Net income per share of common stock: Basic $ 2.26 $ 1.36 $ 4.38 $ 2.81 Diluted $ 2.26 $ 1.36 $ 4.38 $ 2.81 Weighted average shares used in computing net income per share of common stock: Basic 60,470 60,448 60,470 60,447 Diluted 60,527 60,451 60,514 60,451 See accompanying notes to consolidated financial statements (unaudited). 5 Table of Contents UBIQUITI INC. Consolidated Statements of Stockholders’ Equity (Deficit) (In thousands, except share data) (Unaudited) Three and Six Months Ended December 31, 2024 Common Stock Additional Paid-In Capital Retained Earnings Total Stockholders’ Equity Shares Amount Amount Amount Amount Balance at June 30, 2024 60,462,539 $ 60 $ 10,645 $ 84,355 $ 95,060 Net Income — — — 127,988 127,988 Restricted stock units issued, net of tax withholdings 7,669 — ( 323 ) — ( 323 ) Share-based compensation expense — — 1,696 — 1,696 Dividends paid on Common Stock ($ 0.60 per share) — — — ( 36,282 ) ( 36,282 ) Balance at September 30, 2024 60,470,208 $ 60 $ 12,018 $ 176,061 $ 188,139 Net Income — — — 136,795 136,795 Restricted stock units issued, net of tax withholdings 309 — — — — Share-based compensation expense — — 1,793 — 1,793 Dividends Paid on Common Stock ($ 0.60 per share) — — — ( 36,282 ) ( 36,282 ) Balances at December 31, 2024 60,470,517 $ 60 $ 13,811 $ 276,574 $ 290,445 Three and Six Months Ended December 31, 2023 Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Total Stockholders’ Equity (Deficit) Shares Amount Amount Amount Amount Balance at June 30, 2023 60,441,896 $ 60 $ 4,721 $ ( 120,514 ) $ ( 115,733 ) Net Income — — — 87,750 87,750 Restricted stock units issued, net of tax withholdings 5,660 — ( 313 ) — ( 313 ) Share-based compensation expense — — 1,500 — 1,500 Dividends paid on Common Stock ($ 0.60 per share) — — — ( 36,268 ) ( 36,268 ) Balance at September 30, 2023 60,447,556 $ 60 $ 5,908 $ ( 69,032 ) $ ( 63,064 ) Net Income — — — 82,116 82,116 Restricted stock units issued, net of tax withholdings 731 — ( 11 ) — ( 11 ) Share-based compensation expense — — 1,506 — 1,506 Dividends Paid on Common Stock ($ 0.60 per share) — — — ( 36,269 ) ( 36,269 ) Balances at December 31, 2023 60,448,287 $ 60 $ 7,403 $ ( 23,185 ) $ ( 15,722 ) See accompanying notes to consolidated financial statements (unaudited). 6 Table of Contents UBIQUITI INC. Consolidated Statements of Cash Flows (In thousands) (Unaudited) Six Months Ended December 31, 2024 2023 Cash Flows from Operating Activities: Net income $ 264,783 $ 169,866 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,710 9,641 Amortization of debt issuance costs 1,369 867 Non-cash lease expense ( 108 ) 220 Provision for excess and obsolete inventory 2,949 3,283 Provision for loss on vendor deposits 6,874 7,750 Share-based compensation 3,489 3,006 Deferred taxes ( 543 ) 242 Provision for bad debts 5,527 133 Other, net ( 214 ) ( 164 ) Changes in operating assets and liabilities: Accounts receivable ( 4,263 ) ( 3,763 ) Inventories ( 78,603 ) 50,138 Vendor deposits 42,880 ( 17,019 ) Prepaid expenses and other assets ( 10,300 ) 3,333 Accounts payable 71,466 ( 61,511 ) Income taxes payable ( 16,700 ) ( 29,333 ) Deferred revenues 8,985 1,631 Accrued and other liabilities 77,797 7,943 Net cash provided by operating activities 386,098 146,263 Cash Flows from Investing Activities: Purchase of property and equipment and other long-term assets ( 4,590 ) ( 6,877 ) Net cash used in investing activities ( 4,590 ) ( 6,877 ) Cash Flows from Financing Activities: Repayment against credit facility- Revolver ( 175,000 ) ( 65,000 ) Repayment against credit facility- Term ( 126,875 ) ( 18,750 ) Payment of common stock cash dividends ( 72,564 ) ( 72,537 ) Tax withholdings related to net share settlements of restricted stock units ( 323 ) ( 324 ) Net cash used in financing activities ( 374,762 ) ( 156,611 ) Net increase (decrease) in cash and cash equivalents 6,746 ( 17,225 ) Cash and cash equivalents at beginning of period 126,342 114,826 Cash and cash equivalents at end of period $ 133,088 $ 97,601 Supplemental Disclosure of Cash Flow Information: Income taxes paid, net of refunds $ 78,779 $ 68,211 Interest paid $ 20,281 $ 41,099 Non-Cash Investing and Financing Activities: Right-of-use asset recognized $ 2,495 $ 1,067 Unpaid property and equipment and other long-term assets $ 742 $ 927 See accompanying notes to consolidated financial statements (unaudited). 7 Table of Contents UBIQUITI INC. Notes to Consolidated Financial Statements (Unaudited) NOTE 1— BUSINESS AND BASIS OF PRESENTATION Business — Ubiquiti Inc. and its wholly owned subsidiaries (collectively, “Ubiquiti” or the “Company”) develop high performance networking technology for service providers, enterprises, and consumers globally. The Company operates on a fiscal year ending June 30. In these notes, Ubiquiti refers to the fiscal years ending June 30, 2025 and 2024, as fiscal 2025 and fiscal 2024, respectively. Basis of Presentation — The Company’s consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) related to interim financial statements based on applicable Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. These consolidated financial statements reflect all adjustments, which are, in the opinion of the Company, of a normal and recurring nature and those necessary to state fairly the statements of financial position, results of operations and cash flows for the dates and periods presented. The June 30, 2024 balance sheet was derived from the audited consolidated financial statements as of that date. All significant intercompany transactions and balances have been eliminated. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2024, included in its Annual Report on Form 10-K, as filed with the SEC on August 23, 2024 (the “Annual Report”). The results of operations for the three and six months ended December 31, 2024 are not necessarily indicative of the results to be expected for any future periods. NOTE 2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies are disclosed in its audited consolidated financial statements for the fiscal year ended June 30, 2024, included in the Annual Report on Form 10-K. There have been no changes to the Company’s significant accounting policies as discussed in the Annual Report. Use of Accounting Estimates The preparation of financial statements in conformity with 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. Recent Accounting Pronouncements Not Yet Effective Segment Reporting In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 chief operating decision maker (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 8 Table of Contents 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. 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. Disaggregation of Expenses In November 2024, the FASB issued ASU No. 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), Disaggregation of Income Statement Expenses ("ASU 2024-03") which requires public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory; employee compensation; and depreciation, amortization and depletion expenses for each caption on the income statement where such expenses are included. The amendments in ASU 2024-03 will become effective for annual disclosures in the Company's fiscal year beginning July 1, 2027, with interim period disclosures required effective with the Company's fiscal year beginning July 1, 2028. Early adoption is permitted, and the amendments may be applied prospectively to reporting periods after the effective date or retrospectively to all periods presented in the financial statements. 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 post contract services (“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 12, "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 December 31, 2024 and June 30, 2024, the Company’s customer deposits were $ 1.2 million and $ 1.3 million, respectively. As of December 31, 2024, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $ 26.8 million and $ 18.8 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 million and $ 13.4 million, respectively. We expect the majority of our deferred revenue to convert to revenue in two years . For the three and six months ended December 31, 2024 we recognized revenues amounting to $ 4.9 million and $ 12.3 million from the deferred revenue balance as of June 30, 2024. For the three and six months ended December 31, 2023, we recognized revenues amounting to $ 4.3 million and $ 11.0 million from the deferred revenue balance as of June 30, 2023. 9 Table of Contents NOTE 4— EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data): Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Numerator: Net income $ 136,795 $ 82,116 $ 264,783 $ 169,866 Denominator: Weighted-average shares used in computing basic earnings per share 60,470 60,448 60,470 60,447 Add—dilutive potential common shares: Restricted stock units 57 3 44 4 Weighted-average shares used in computing diluted net income per share 60,527 60,451 60,514 60,451 Net income per share of common stock: Basic $ 2.26 $ 1.36 $ 4.38 $ 2.81 Diluted $ 2.26 $ 1.36 $ 4.38 $ 2.81 The Company excludes potentially dilutive securities from its diluted net income per share calculation when their effect would be anti-dilutive to net income per share amounts. NOTE 5— BALANCE SHEET COMPONENTS Inventories Inventories consisted of the following (in thousands): December 31, 2024 June 30, 2024 Finished goods $ 476,130 $ 387,447 Raw materials 61,214 74,585 Total $ 537,344 $ 462,032 Prepaid expenses and other current assets Prepaid expenses and other current assets consisted of the following (in thousands): December 31, 2024 June 30, 2024 Prepaid income taxes $ 7,102 $ 6,766 Prepaid expenses and other assets 36,028 23,702 Other taxes 6,509 4,563 Total $ 49,639 $ 35,031 10 Table of Contents Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2024 June 30, 2024 Testing equipment $ 19,616 $ 18,964 Tooling equipment 26,461 26,892 Leasehold improvements 26,199 26,264 Computer and other equipment 7,699 10,482 Software 9,032 9,375 Furniture and fixtures 2,142 1,913 Corporate aircraft 65,807 65,807 Property and equipment, gross 156,956 159,697 Less: Accumulated depreciation and amortization ( 81,739 ) ( 78,571 ) Property and equipment, net $ 75,217 $ 81,126 Other Long-term Assets Other long-term assets consisted of the following (in thousands): December 31, 2024 June 30, 2024 Hong Kong Tax deposit (1) $ 60,713 $ 60,402 Intangible assets, net (2) 3,395 4,164 Other long-term assets, net 4,020 9,005 Total $ 68,128 $ 73,571 (1) The Company expects the deposits made with the Hong Kong Inland Revenue Department (“IRD”) to be refunded upon completion of the audit. See Note 11, "Income Taxes" to the consolidated financial statements for additional details regarding this ongoing tax audit. (2) Accumulated amortization was $ 8.2 million and $ 7.5 million as of December 31, 2024, and June 30, 2024, respectively. Other Current Liabilities Other current liabilities consisted of the following (in thousands): December 31, 2024 June 30, 2024 Deferred revenue — short-term $ 26,763 20,332 Accrued expenses 27,965 26,600 Lease liability— current 13,030 13,724 Warranty accrual 11,811 10,825 Accrued compensation and benefits 10,804 8,453 Customer deposits 1,189 1,283 Reserve for sales returns 3,352 3,906 Inventory received not billed 135,424 72,560 Other payables 23,526 16,030 Total $ 253,864 $ 173,713 Other Long-Term Liabilities Other long-term liabilities consisted of the following (in thousands): December 31, 2024 June 30, 2024 Deferred revenue — long-term $ 18,799 $ 13,416 11 Table of Contents NOTE 6— ACCRUED WARRANTY The Company offers warranties on certain products, generally a period of one to two years and records a liability for the estimated future costs associated with potential warranty claims. The warranty costs are reflected in the Company’s consolidated statements of operations and comprehensive income within cost of revenues. The warranties are typically in effect for one year for distributors from the date of shipment and two years for direct sales from the date of delivery. The Company assesses the adequacy of its accrued warranty liabilities and adjusts the amounts as necessary based on historical experience factors and changes in future estimates. Historical factors include product failure rates, material usage and service delivery costs incurred in correcting product failures. In certain circumstances, the Company may have recourse from its contract manufacturers for replacement cost of defective products, which it also factors into its warranty liability assessment. Warranty obligations, included in other current liabilities, were as follows (in thousands): Six Months Ended December 31, 2024 2023 Beginning balance $ 10,825 $ 8,745 Accruals for warranties issued during the period 7,929 6,232 Changes in liability for pre-existing warranties during the period ( 331 ) 687 Settlements made during the period ( 6,612 ) ( 5,757 ) Ending balance $ 11,811 $ 9,907 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 was payable in quarterly installments equal to $ 3.125 million, commencing with the quarter ended June 30, 2023, and had 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. As of September 30, 2024 the Company had repaid all of the First Amendment Term Loan Facility and as a result there are no future payments due. The Company's unamortized balance of debt issuance costs is $ 0.7 million as of December 31, 2024, which are amortized as interest expense over the life of the Facilities. Amortization of debt issuance costs included in interest expense for the three months ended December 31, 2024 and December 31, 2023 were $ 0.3 million and $ 0.4 million, respectively. Amortization of debt issuance costs included in interest expense for the six months ended December 31, 2024 and December 31, 2023 were $ 1.4 million and $ 0.9 million, respectively. 12 Table of Contents The Company's debt consisted of the following (in thousands): December 31, 2024 June 30, 2024 Initial Term Loan Facility - short term $ 25,000 $ 25,000 First Amendment Term Loan Facility - short-term — 12,500 Debt issuance costs, net ( 590 ) ( 992 ) Total Debt - short term 24,410 36,508 Initial Term Loan Facility - long term 381,250 393,750 First Amendment Term Loan Facility - long-term — 101,875 Revolving Facility - long term — 175,000 Debt issuance costs, net ( 146 ) ( 747 ) Total Debt - long term $ 381,104 $ 669,878 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 acceleration 13 Table of Contents of the obligations under the Amended Credit Agreement. The Facilities As of December 31, 2024, $ 406.3 million was outstanding on the Initial Term Loan Facility. There was no outstanding balance on the Revolving Facility as of December 31, 2024, resulting in $ 700.0 million being available on the Revolving Facility. The First Amendment Term Loan Facility was fully repaid during the three months ended September 30, 2024 and there is no balance outstanding as of December 31, 2024. Term Loan Facilities During the six months ended December 31, 2024, the Company made aggregate payments of $ 142.3 million under the Term Loan Facilities, of which $ 126.9 million was repayment of principal and $ 15.4 million was payment of interest. Revolving Facility Under the Amended Credit Agreement, during the six months ended December 31, 2024, the Company made aggregate payments of $ 179.9 million under the Revolving Facility, of which $ 175.0 million was repayment of principal and $ 4.9 million was payment of interest. The following table summarizes the Company’s estimated debt and interest payment obligations as of December 31, 2024, for the remainder of fiscal 2025 and future fiscal years (in thousands): 2025 (remainder) 2026 2027 2028 2029 Thereafter Total Debt payment obligations $ 12,500 $ 393,750 $ — $ — $ — $ — $ 406,250 Interest and other payments on debt payment obligations (1) 12,777 18,570 — — — — 31,347 Total $ 25,277 $ 412,320 $ — $ — $ — $ — $ 437,597 (1) Interest payments are calculated based on the applicable rates and payment dates as of December 31, 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 December 31, 2024, we included such options in determining the lease terms for certain of our leases because we were reasonably certain that we would exercise the extension options. Most of our leases require us to pay certain operating expenses in addition to base rent, such as taxes, insurance and maintenance costs. The following table summarizes our lease costs for the three and six months ended December 31, 2024 and 2023 (in thousands): Financial Statement Classification Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Operating lease costs: Fixed lease costs Operating expenses $ 2,928 $ 2,927 $ 5,845 $ 5,863 Fixed lease costs Cost of revenues 1,159 1,073 2,318 1,754 Variable lease costs Operating expenses 140 128 253 326 Variable lease costs Cost of revenues 190 187 386 468 Total lease costs $ 4,417 $ 4,315 $ 8,802 $ 8,411 The operating lease costs in the table above include costs for long-term and short-term leases. Total short-term costs for the three and six months ended December 31, 2024 and 2023 were immaterial. Variable lease costs primarily include maintenance, utilities and operating expenses that are incremental to the fixed base rent payments and are excluded from the calculation of operating lease liabilities and ROU assets. For the three months ended December 31, 2024 and 2023, cash paid for amounts associated with the Company's operating lease liabilities were approximately $ 4.5 million and $ 4.3 million, respectively. For the six months ended December 31, 2024 and 2023, cash paid for amounts associated with the Company's operating lease liabilities were approximately 14 Table of Contents $ 8.9 million and $ 8.6 million, respectively. Cash paid for amounts associated with the Company’s operating lease liabilities were classified as operating activities in the consolidated statement of cash flows. The following table shows the Company’s undiscounted future fixed payment obligations under the Company’s recognized operating leases and a reconciliation to the operating lease liabilities as of December 31, 2024: Remainder of Fiscal 2025 $ 7,689 Fiscal 2026 11,647 Fiscal 2027 7,367 Fiscal 2028 5,687 Fiscal 2029 3,735 Thereafter 13,848 Total future fixed operating lease payments $ 49,973 Less: Imputed interest $ 4,222 Total operating lease liabilities $ 45,751 Weighted-average remaining lease term - operating leases 6 years Weighted-average discount rate - operating leases 3.7 % NOTE 9— COMMITMENTS AND CONTINGENCIES Purchase Obligations We subcontract with third parties to manufacture our products and supply key components. As of December 31, 2024, we had $ 1,150.2 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 December 31, 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 $ 28.1 million as of December 31, 2024, related to the mandatory transition tax on accumulated foreign earnings from the 2017 Tax Cuts and Jobs Act. We expect to make a payment to fully settle this obligation in the first quarter of fiscal 2026. This obligation is included within income tax payable on our consolidated balance sheets. Other Obligations As of December 31, 2024, the Company has other obligations of $ 6.9 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 15 Table of Contents relating to various claims that arise in the normal course of business. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. The Company assesses its potential liability by analyzing specific litigation and regulatory matters using available information. The Company develops its views on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies. Taking all of the above factors into account, the Company records an amount where it is probable that the Company will incur a loss and where that loss can be reasonably estimated. However, the Company’s estimates may be incorrect and the Company could ultimately incur more or less than the amounts initially recorded. The Company may also incur significant legal fees, which are expensed as incurred, in defending against these claims. The Company is not currently aware of any pending or threatened litigation that would have a material adverse effect on the Company’s financial statements. Vivato/XR On April 19, 2017, XR Communications, LLC, d/b/a Vivato Technologies (“Vivato”), filed a complaint against the Company in the United States District Court for the Central District of California. On October 16, 2024, the Company and Vivato entered into a settlement agreement and the complaint was dismissed with prejudice by the court on October 24,2024. 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. NOTE 10— SHARE-BASED COMPENSATION Share-Based Compensation Plans The Company’s 2020 and 2010 Equity Incentive Plans are described in the Company’s Annual Report. As of December 31, 2024, the Company had 4,864,099 authorized shares available for future issuance under all of its stock incentive plans. Share-Based Compensation The following table shows total share-based compensation expense included in the consolidated statements of operations and comprehensive income for the three and six months ended December 31, 2024 and 2023 (in thousands): Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Cost of revenues $ 57 $ 35 $ 111 $ 69 Research and development 1,318 1,161 2,556 2,295 Sales, general and administrative 418 310 822 642 $ 1,793 $ 1,506 $ 3,489 $ 3,006 16 Table of Contents Stock Options There were no options exercised under the Company’s stock incentive plans during the three and six months ended December 31, 2024 and 2023. As of December 31, 2024, the Company had no unrecognized compensation costs related to stock options, and the Company did no t grant any employee stock options during the three and six months ended December 31, 2024, and 2023. Restricted Stock Units (“RSUs”) The following table summarizes the activity of the RSUs made by the Company: Number of Shares Weighted Average Grant Date Fair Value Per Share Non-vested RSUs, June 30, 2024 101,966 $ 191.04 RSUs granted 16,714 $ 147.42 RSUs vested ( 10,158 ) $ 185.60 RSUs canceled ( 2,217 ) $ 186.97 Non-vested RSUs, December 31, 2024 106,305 $ 184.79 The intrinsic value of RSUs vested in both the three months ended December 31, 2024 and 2023 was $ 0.1 million. The intrinsic value of RSUs vested in the six months ended December 31, 2024 and 2023 was $ 1.6 million and $ 1.4 million, respectively. The total intrinsic value of all outstanding RSUs was $ 35.3 million as of December 31, 2024. As of December 31, 2024, there were unrecognized compensation costs related to RSUs of $ 12.4 million which the Company expects to recognize over a weighted average period of 2.9 years. NOTE 11— INCOME TAXES The Company recorded tax provisions of $ 30.6 million and $ 61.2 million for the three and six months ended December 31, 2024 as compared to $ 20.7 million and $ 40.1 million for the three and six months ended December 31, 2023. Our effective tax rate decreased to 18.3 % for the three months ended December 31, 2024 as compared to 20.2 % for the three months ended December 31, 2023. Our effective tax rate decreased from 19.1 % for the six months ended December 31, 2023 to 18.8 % for the six months ended December 31, 2024. The change in effective tax rates for the three and six months ended December 31, 2024, as compared to the same periods in the prior year, was primarily driven by changes in the mix of the income earned in various tax jurisdictions as well as a U.S. state adjustment recorded in the three months ended December 31, 2023. The Company’s estimated fiscal year 2025 effective tax rate, before discrete items, differs from the U.S. statutory rate primarily due to profits earned in jurisdictions where the tax rate is lower than the U.S. tax rate, partially offset by additional U.S. tax related to our non-U.S. operations under the Global Intangible Low-Taxes Income ("GILTI") rules. As of December 31, 2024, the Company had approximately $ 36.1 million of unrecognized tax benefits, substantially all of which would, if recognized, affect its tax expense. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. As of December 31, 2024, the Company had $ 5.9 million accrued interest related to uncertain tax matters. The Company and one or more of its subsidiaries, file income tax returns in the United States federal jurisdiction, and various state, local, and foreign jurisdictions and is currently undergoing income tax examinations by the U.S. Internal Revenue Service ( “ 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 2018, 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 17 Table of Contents 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 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 Judgment. The IRS responded to the Company’s Motion on December 26, 2023 and filed a Cross-Motion for Summary Judgment. On January 22, 2024, the judge assigned to this case rejected both Motions for Summary Judgment. As such, the Company is awaiting a trial date to be set which it currently expects to receive by the end of June 2025. 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 the 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. 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. 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 the 2010-2017 income tax audits. 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 our consolidated balance sheets. The Company expects the $ 60.7 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. The Organization for Economic Co-operation and Development Inclusive Framework on Base Erosion and Profit Shifting released Pillar Two Model Rules (“Pillar Two”) for a global minimum tax. Many countries have enacted certain aspects of the Pillar Two framework with effective dates prior to the conclusion of the Company’s fiscal year 2025. Entities operating in countries where Pillar Two has been enacted are required to estimate Pillar Two top-up tax obligations beginning in the first quarter of fiscal year 2025. For the three and six months ended December 31, 2024, the Company did not have material Pillar Two top-up tax obligations impacting the Company’s estimated annual effective tax rate. The Company will continue to evaluate the impact of proposed and enacted legislation as new guidance becomes available. NOTE 12— SEGMENT INFORMATION, REVENUES BY GEOGRAPHY AND SIGNIFICANT CUSTOMERS Management has determined that the Company operates as one reportable and operating segment as the Company’s Chief Executive Officer, who is the Company’s chief operating decision maker, does not make decisions about resources to be allocated or assess performance on a segment basis. Furthermore, the Company does not organize or report its costs on a segment basis. The Company presents its revenues by product type in two primary categories: Service Provider Technology and Enterprise Technology. Revenues by product type are as follows (in thousands, except percentages): Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Enterprise technology $ 518,202 86 % $ 391,492 84 % $ 988,385 86 % $ 771,586 83 % Service provider technology 81,677 14 % 73,462 16 % 161,838 14 % 156,446 17 % Total revenues $ 599,879 100 % $ 464,954 100 % $ 1,150,223 100 % $ 928,032 100 % 18 Table of Contents Revenues by geography based on customer’s ship-to destinations were as follows (in thousands, except percentages): Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 North America (1) $ 321,644 54 % $ 225,858 49 % $ 592,890 52 % $ 450,642 49 % Europe, the Middle East and Africa (“EMEA”) 208,579 35 % 172,951 37 % 413,467 36 % 345,345 37 % Asia Pacific 43,081 7 % 33,270 7 % 84,019 7 % 69,356 7 % South America 26,575 4 % 32,875 7 % 59,847 5 % 62,689 7 % Total revenues $ 599,879 100 % $ 464,954 100 % $ 1,150,223 100 % $ 928,032 100 % (1) Revenue for the United States was $ 296.1 million and $ 210.4 million for the three months ended December 31, 2024 and 2023, respectively. Revenue for the United States was $ 544.8 million and $ 419.6 million for the six months ended December 31, 2024 and 2023, respectively. Customers with an accounts receivable balance of 10% or greater of total accounts receivable and customers with net revenues of 10% or greater of total revenues are presented below for the periods indicated: Percentage of Revenues Percentage of Accounts Receivable Three months ended December 31, December 31, June 30, 2024 2023 2024 2024 Customer A * * 11 % * * Denotes less than 10% NOTE 13— SUBSEQUENT EVENTS Dividends On February 4, 2025, the Company's Board of Directors approved a quarterly cash dividend of $ 0.60 per share payable on February 24, 2025 to shareholders of record at the close of business on February 18, 2025. Any future dividends will be subject to the approval of the Company’s Board of Directors.