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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File No. 001-35300
UBIQUITI INC.
(Exact name of registrant as specified in its charter)
Delaware   32-0097377
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
685 Third Avenue, 27th Floor, New York, NY 10017
(Address of principal executive offices, Zip Code)
(646) 780-7958
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.001 par value per share UI New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  No 
As of February 3, 2021, 62,809,182 shares of Common Stock, par value $0.001, were issued and outstanding.    


UBIQUITI INC.
INDEX TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2020
 
    Page
PART I – FINANCIAL INFORMATION
Item 1.
3
3
4
5
7
8
Item 2.
Item 3.
Item 4.
PART II – OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements
UBIQUITI INC.
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited) 
December 31, 2020 June 30, 2020
Assets
Current assets:
Cash and cash equivalents $ 189,114  $ 142,617 
Investments — short-term 508  925 
Accounts receivable, net of allowance for doubtful accounts of $49 and $203 at December 31, 2020 and June 30, 2020, respectively
163,696  142,160 
Inventories 233,079  285,943 
Vendor deposits 6,719  5,934 
Prepaid income taxes 49  34 
Prepaid expenses and other current assets 17,065  9,034 
Total current assets 610,230  586,647 
Property and equipment, net 79,114  78,522 
Operating lease right-of-use assets, net 38,772  24,444 
Deferred tax assets — long-term 3,733  4,102 
Investments — long-term —  513 
Other long-term assets 49,303  43,223 
Total assets $ 781,152  $ 737,451 
Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable $ 86,672  $ 155,547 
Taxes payable 13,127  30,961 
Debt — short-term 24,067  24,067 
Other current liabilities 111,697  53,722 
Total current liabilities 235,563  264,297 
Income taxes payable — long-term 105,532  115,330 
Operating lease liabilities —long-term 31,679  18,533 
Debt — long-term 581,422  628,437 
Other long-term liabilities 8,756  6,312 
Total liabilities 962,952  1,032,909 
Commitments and contingencies (Note 10)
Stockholders’ deficit:
Preferred stock—$0.001 par value; 50,000,000 shares authorized; none issued
—  — 
Common stock—$0.001 par value; 500,000,000 shares authorized:
62,798,242 and 63,687,891 outstanding as of December 31, 2020 and June 30, 2020, respectively
63  64 
Additional paid–in capital 55  447 
Accumulated other comprehensive income
Retained earnings (deficit) (181,922) (295,978)
Total stockholders’ deficit (181,800) (295,458)
Total liabilities and stockholders’ deficit $ 781,152  $ 737,451 
See notes to consolidated financial statements.
3

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,
2020 2019 2020 2019
Revenues $ 479,436  $ 308,284  $ 952,969  $ 631,561 
Cost of revenues 248,762  163,198  494,179  335,084 
Gross profit $ 230,674  $ 145,086  $ 458,790  $ 296,477 
Operating expenses:
Research and development 28,912  24,041  54,725  44,293 
Sales, general and administrative 10,951  8,997  23,301  19,447 
Total operating expenses 39,863  33,038  78,026  63,740 
Income from operations 190,811  112,048  380,764  232,737 
Interest expense and other, net (3,613) (12,085) (7,530) (16,738)
Income before income taxes 187,198  99,963  373,234  215,999 
Provision for income taxes 27,530  14,152  57,057  32,042 
Net income $ 159,668  $ 85,811  $ 316,177  $ 183,957 
Net income per share of common stock:
Basic $ 2.54  $ 1.32  $ 5.00  $ 2.76 
Diluted $ 2.54  $ 1.32  $ 5.00  $ 2.75 
Weighted average shares used in computing net income per share of common stock:
Basic 62,823  64,973  63,217  66,682 
Diluted 62,889  65,071  63,282  66,781 
Other comprehensive income:
Unrealized losses on available-for-sale securities $ (4) $ (172) $ (5) $ (325)
Other Comprehensive loss (4) (172) (5) (325)
Comprehensive income $ 159,664  $ 85,639  $ 316,172  $ 183,632 
See notes to consolidated financial statements.

4

UBIQUITI INC.
Consolidated Statements of Stockholders’ Deficit
(In thousands, except per share amounts)
(Unaudited)

Three and Six Months Ended December 31, 2020
Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Deficit
Shares Amount Amount Amount Amount Amount
Balance at June 30, 2020 63,687,891  $ 64  $ 447  $ (295,978) $ $ (295,458)
Net Income —  —  —  156,509  —  156,509 
Other comprehensive income (loss) —  —  —  —  (1) (1)
Stock options exercised 2,194 —  21  —  —  21 
Restricted stock units issued, net of tax withholdings 8,768  —  (615) —  —  (615)
Repurchases of Common Stock (602,003) (1) (593) (96,994) —  (97,588)
Stock-based compensation expense —  —  740  —  —  740 
Dividends Paid on Common Stock ($0.40 per share)
—  —  —  (25,470) —  (25,470)
Balances at September 30, 2020 63,096,850  $ 63  $ —  $ (261,933) $ $ (261,862)
Net Income —  —  159,668  —  159,668 
Other comprehensive income (loss) —  —  —  (4) (4)
Stock options exercised 2,384  —  22  —  —  22 
Restricted stock units issued, net of tax withholdings 8,141  —  (201) —  —  (201)
Repurchases of Common Stock (309,133) —  (516) (54,542) —  (55,058)
Stock-based compensation expense —  750  —  —  750 
Dividends Paid on Common Stock ($0.40 per share)
—  —  (25,115) —  (25,115)
Balances at December 31, 2020 62,798,242  $ 63  $ 55  $ (181,922) $ $ (181,800)


5

Three and Six Months Ended December 31, 2019
Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Deficit
Shares Amount Amount Amount Amount Amount
Balance at June 30, 2019 69,472,568  $ 69  $ —  $ 98,815  $ 393  $ 99,277 
Net Income —  —  —  98,146  —  98,146 
Other comprehensive income (loss) —  —  —  —  (153) (153)
Stock options exercised 678  —  —  — 
Restricted stock units issued, net of tax withholdings 9,743  —  (501) —  —  (501)
Repurchases of Common Stock (3,635,534) (3) (191) (416,025) —  (416,219)
Stock-based compensation expense —  —  689  —  —  689 
Dividends Paid on Common Stock ($0.30 per share)
—  $ —  $ —  $ (20,669) $ —  $ (20,669)
Balances at September 30, 2019 65,847,455  $ 66  $ —  $ (239,733) $ 240  $ (239,427)
Net Income —  —  —  85,811  —  85,811 
Other comprehensive income (loss) —  —  —  —  (172) (172)
Stock options exercised 17,192  —  124  —  —  124 
Restricted stock units issued, net of tax withholdings 7,935  —  (139) —  —  (139)
Repurchases of Common Stock (995,495) (1) (250) (119,321) —  (119,572)
Stock-based compensation expense —  —  730  —  —  730 
Dividends Paid on Common Stock ($0.30per share)
—  $ —  $ —  $ (19,460) $ —  $ (19,460)
Balances at December 31, 2019 64,877,087  $ 65  $ 465  $ (292,703) $ 68  $ (292,105)


























See notes to consolidated financial statements.


6

UBIQUITI INC.
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
Six Months Ended December 31,
2020 2019
Cash Flows from Operating Activities:
Net income $ 316,177  $ 183,957 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 5,266  3,669 
Impairment of cost based investment —  5,000 
Amortization of debt issuance costs 968  809 
Non-cash lease expense 58  952 
Premium amortization and (discount accretion), net (72)
Write off unamortized debt issuance costs —  105 
Provision for inventory obsolescence 133  4,490 
Provision for loss on vendor deposits and purchase commitments 5,639  2,213 
Stock-based compensation 1,490  1,419 
Deferred Taxes 369  (83)
Other, net 346  333 
Changes in operating assets and liabilities:
Accounts receivable (21,545) 8,734 
Inventories 53,001  11,307 
Vendor deposits (1,170) 4,362 
Prepaid income taxes (15) 21 
Prepaid expenses and other assets (8,256) 3,186 
Accounts payable (69,255) 32,238 
Income taxes payable (27,632) (24,407)
Deferred revenues 5,947  958 
Accrued and other liabilities 47,425  4,147 
Net cash provided by operating activities $ 308,949  $ 243,338 
Cash Flows from Investing Activities:
Purchase of property and equipment and other long-term assets (11,870) (20,185)
(1)
Purchase of investments —  (25,034)
Proceeds from sale of investments —  90,280 
Proceeds from maturities of investments 922  10,252 
Net cash provided by (used in) investing activities $ (10,948) $ 55,313 
Cash Flows from Financing Activities:
Proceeds from borrowing under the credit facility - Term —  37,500 
Proceeds from borrowing under the credit facility- Revolver 75,000  240,000 
Repayment against credit facility- Revolver (110,000) (120,000)
Repayment against credit facility- Term (12,500) (12,500)
Debt Issuance Costs —  (3,138)
Repurchases of common stock (152,646) (538,014)
Payment of common stock cash dividends (50,585) (40,129)
Proceeds from exercise of stock options 43  127 
Tax withholdings related to net share settlements of restricted stock units (816) (640)
Net cash (used in) financing activities $ (251,504) $ (436,794)
Net increase (decrease) in cash and cash equivalents 46,497  (138,143)
Cash and cash equivalents at beginning of period 142,617  238,147 
Cash and cash equivalents at end of period $ 189,114  $ 100,004 
Supplemental Disclosure of Cash Flow Information:
Income taxes paid, net of refunds $ 84,429  $ 56,615 
Interest paid $ 6,505  $ 11,527 
Non-Cash Investing and Financing Activities:
Right-of-use asset recognized $ 18,626  $ 4,739 
Unpaid property and equipment and other long-term assets $ 380  $ 466 
Net unsettled investment purchases (sales and maturities) $ —  $ 517 
(1) The Company reclassified $15 million reported in previous period, related to deposits on long term assets to purchase of property and equipment and other long-term assets, to conform to the current period presentation.

See notes to consolidated financial statements.
7

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 this Quarterly Report, the fiscal year ending June 30, 2021 is referred to as “fiscal 2021” and the fiscal year ended June 30, 2020 is referred to as “fiscal 2020”.
Basis of Presentation— The Company’s consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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 U.S. 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, 2020 balance sheet was derived from the audited 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, 2020, included in its Annual Report on Form 10-K, as filed with the SEC on August 21, 2020 (the “Annual Report”). The results of operations for the three and six months ended December 31, 2020 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 year ended June 30, 2020, included in the Annual Report on Form 10-K. Except as noted below, there have been no other changes to the Company’s significant accounting policies as discussed in the Annual Report.
Use of Accounting Estimates
The preparation of financial statements in conformity with 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 estimated assumptions include, but are not limited to, revenue recognition and deferred revenue; allowance for doubtful accounts and sales return reserves; inventory valuation and vendor deposits; accounting for income taxes, including the valuation allowance on deferred tax assets and reserves for uncertain tax positions; determinations of fair value for stock-based awards; estimate of incremental borrowing rate for determining the present value of future lease payments; and valuation of warranty accruals. The Company evaluates its 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.
Recently Adopted Accounting Pronouncements
Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 replaces the existing incurred loss impairment model with a forward-looking expected credit loss model which will result in earlier recognition of credit losses for certain financial instruments and financial assets. For trade receivables, we are required to estimate lifetime expected credit losses. For available-for-sale debt securities, the Company will recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. ASU 2016-13 is effective for the Company’s fiscal year beginning July 1, 2020 on a modified retrospective basis.
As of July 1, 2020, the Company adopted the new standard, including identifying, evaluating and quantifying the impact on its consolidated financial statements. The Company concluded that the expected credit loss impact to the opening balance of fiscal 2021 retained earnings was deemed immaterial, and as a result the adoption did not have a material impact the Company's consolidated financial position, results of operations, or cash flow.
Recent Accounting Pronouncements Not Yet Effective
Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), which amends the existing guidance relating to the accounting for income taxes. ASU 2019-12 is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. ASU 2019-12 is effective for the Company’s fiscal year beginning July 1, 2021. The Company is currently evaluating the impact of this new standard on its consolidated financial statements
8

and related disclosures.
NOTE 3—REVENUES
Revenue is primarily generated from the sale of hardware as well as the related implied post contract services (“PCS”). Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Revenue is recognized when obligations under the terms of a contract with customers are satisfied; generally, this occurs with the transfer of control of the Company’s products and PCS to its customers. Transfer of control to the customer for products generally occurs at the point in time when products have been shipped to customers as this represents the point in time when the customer has a present obligation to pay and physical possession including title and risk of loss have been transferred to the customer. Revenue for PCS is recognized ratably over time over the estimated period for which implied PCS services will be delivered.
Disaggregation of Revenue
See Note 15 of Notes to Consolidated Financial Statements “Segment Information” 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. The Company’s contract liabilities consist of advance payments (Customer deposits) as well as billing in excess of revenue recognized primarily related to deferred revenue. The Company classifies 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 the Company’s consolidated balance sheets.
As of December 31, 2020 and June 30, 2020, the Company’s customer deposits were $4.9 million and $2.1 million, respectively.
As of December 31, 2020, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $20.0 million and $8.7 million, respectively.
As of June 30, 2020, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $16.5 million and $6.3 million, respectively.
NOTE 4—FAIR VALUE OF FINANCIAL INSTRUMENTS
Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The accounting guidance establishes a three-tier fair value hierarchy that requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities;
Level 2—Inputs other than the quoted prices in active markets, that are observable either directly or indirectly;
Level 3—Unobservable inputs based on the Company’s own assumption.
The Company records securities available-for-sale at fair value on a recurring basis. The Company classifies its investments within Level 1 or 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded.
The Company’s fixed income available-for-sale securities consist of high-quality investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of the Company’s marketable securities incorporate bond terms and conditions, current performance data, proprietary pricing models, real time quotes from contributing dealers, trade prices and other market data.
The Company held no Level 3 financial instruments as of December 31, 2020 and June 30, 2020.
The following tables summarize the Company’s financial instruments’ adjusted cost, gross unrealized gains and losses, and fair value by significant investment category as of December 31, 2020 and June 30, 2020 (in thousands):

9

December 31, 2020
Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents (1) Short-Term Investments Long-Term Investments
Level 1
Money market funds $ 1,969  $ —  $ —  $ 1,969  $ 1,969  $ —  $ — 
Subtotal $ 1,969  $ —  $ —  $ 1,969  $ 1,969  $ —  $ — 
Level 2
Corporate securities $ 504  $ $ —  $ 508  $ —  $ 508  $ — 
Subtotal $ 504  $ $ —  $ 508  $ —  $ 508  $ — 
Total $ 2,473  $ $ —  $ 2,477  $ 1,969  $ 508  $ — 
(1) Cash and cash equivalents on the consolidated balance sheets includes securities that have a maturity of three months or less at the date of purchase. The carrying amount approximates fair value, primarily due to the short maturity of cash equivalent instruments.

June 30, 2020
Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents (1) Short-Term Investments Long-Term Investments
Level 1
Money market funds $ 1,055  $ —  $ —  $ 1,055  $ 1,055  $ —  $ — 
Subtotal $ 1,055  $ —  $ —  $ 1,055  $ 1,055  $ —  $ — 
Level 2
Corporate securities $ 1,429  $ $ —  $ 1,438  $ —  $ 925  $ 513 
Subtotal $ 1,429  $ $ —  $ 1,438  $ —  $ 925  $ 513 
Total $ 2,484  $ $ —  $ 2,493  $ 1,055  $ 925  $ 513 

(1) Cash and cash equivalents on the consolidated balance sheets includes securities that have a maturity of three months or less at the date of purchase. The carrying amount approximates fair value, primarily due to the short maturity of cash equivalent instruments.

For the three and six months ended December 31, 2020 the Company did not recognize any net gains or losses from accumulated other comprehensive income related to unrealized gains or losses. For the three and six months ended December 31, 2019, the Company reclassified realized net gain of $0.2 million and $0.4 million to earnings from accumulated other comprehensive income related to unrealized gains or losses.
During the three and six months ended December 31, 2020, and 2019, interest income on the Company’s investment securities was immaterial.
The Company had no continuous unrealized loss position from marketable securities as of December 31, 2020 and June 30, 2020.
The following table represents the adjusted costs and fair value of cash equivalents and investments by contractual maturity as of December 31, 2020 (in thousands):

Available-For-Sale
Adjusted Cost Fair Value
Due within 1 year and money market funds $ 2,473  $ 2,477 
Total $ 2,473  $ 2,477 
For certain of the Company’s financial instruments, other than those presented in the disclosures above, including cash, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate fair value due to their short maturities.
As of December 31, 2020 and June 30, 2020, the Company had outstanding loans associated with its credit facilities, which are carried at historical cost. The fair value of the Company’s debt disclosed below was estimated based on the current rates offered to the Company for debt with similar terms and remaining maturities and was a Level 2 measurement. As of December 31, 2020 and June 30, 2020, the fair value of the Company’s debt, which is carried at historical cost was $607.5 million and $655.0 million,
10

respectively.
NOTE 5—EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data):

  Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019
Numerator:
Net income $ 159,668  $ 85,811  $ 316,177  $ 183,957 
Denominator:
Weighted-average shares used in computing basic earnings per share 62,823  64,973  63,217  66,682 
Add—dilutive potential common shares:
Stock options 18  33  19  37 
Restricted stock units 48  65  46  62 
Weighted-average shares used in computing diluted net income per share 62,889  65,071  63,282  66,781 
Net income per share of common stock:
Basic $ 2.54  $ 1.32  $ 5.00  $ 2.76 
Diluted $ 2.54  $ 1.32  $ 5.00  $ 2.75 

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. 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):

  Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019
Restricted stock units —  —  —  — 

NOTE 6—BALANCE SHEET COMPONENTS
Inventories
Inventories consisted of the following (in thousands):

December 31, 2020 June 30, 2020
Finished goods $ 229,916  $ 282,381 
Raw materials 3,163  3,562 
Total $ 233,079  $ 285,943 
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
11

December 31, 2020 June 30, 2020
Testing equipment $ 14,385  $ 12,476 
Tooling equipment 15,305  13,601 
Leasehold improvements 12,854  12,944 
Computer and other equipment 8,081  7,676 
Software 7,344  7,266 
Furniture and fixtures 2,358  2,147 
Corporate aircraft 65,807  64,659 
Property and Equipment, Gross 126,134  120,769 
Less: Accumulated depreciation (47,020) (42,247)
Property and Equipment, net $ 79,114  $ 78,522 
Other Long-term Assets
Other long-term assets consisted of the following (in thousands):
December 31, 2020 June 30, 2020
Hong Kong Tax deposit (1)
35,495  35,495 
Intangible assets, net (2)
9,401  3,063 
Other long-term assets, net 4,407  4,665 
Total $ 49,303  $ 43,223 
(1) The Company made a total of $35.5 million of deposits with the Hong Kong Inland Revenue Department (“IRD”) in connection with extending the statute of limitation for income tax examinations currently under audit for the 2010-2014 tax years. These deposits were made during fiscal years 2020, 2019, and 2018 in the amounts of $15.5 million, $13.4 million and $6.6 million, respectively. The Company expects the $35.5 million of deposits made with the IRD to be refunded upon completion of the audit. See Note 14 to the consolidated financial statements for additional details regarding this ongoing tax audit.
(2) Accumulated amortization was $2.0 million and $1.8 million as of December 31, 2020 and June 30, 2020, respectively.
Other Current Liabilities
Other current liabilities consisted of the following (in thousands):

December 31, 2020 June 30, 2020
Deferred revenue — short-term $ 19,951  16,464 
Accrued expenses 19,963  12,148 
Lease liability— current 8,297  7,056 
Warranty accrual 4,425  4,538 
Accrued compensation and benefits 3,293  4,084 
Customer deposits 4,944  2,061 
Reserve for sales returns 1,882  1,275 
Other payables 48,942  6,096 
Total $ 111,697  $ 53,722 
Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
December 31, 2020 June 30, 2020
Deferred Revenue — long-term $ 8,714  $ 6,254 
Other long-term liabilities 42  58 
Total $ 8,756  $ 6,312 

NOTE 7—ACCRUED WARRANTY
The Company offers warranties on certain products, generally a period of one to two years and records a liability for the estimated future costs associated with potential warranty claims. The warranty costs are reflected in the Company’s consolidated statements of operations and comprehensive income within cost of revenues. The warranties are typically in effect for one year for distributors from the date of shipment and two years for direct sales from the date of delivery. The Company assesses the adequacy of its accrued warranty liabilities and adjusts the amounts as necessary based on historical experience factors and changes in future estimates.
12

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,
  2020 2019
Beginning balance $ 4,538  $ 4,518 
Accruals for warranties issued during the period 4,286  5,139 
Changes in liability for pre-existing warranties during the period (1,025) 455 
Settlements made during the period (3,374) (4,626)
Ending balance $ 4,425  $ 5,486 

NOTE 8—DEBT
On September 9, 2019, Ubiquiti Inc., as borrower, Ubiquiti International Holding Company Limited (the “Cayman Borrower”), as a released party, and certain subsidiaries entered into the Third Amendment (the “Third Amendment”) to the Second Amended & Restated Credit Agreement, dated January 17, 2018 (as amended by the First Amendment, dated as of June 19, 2018, and the Second Amendment dated as of March 15, 2019, the “Second A&R Credit Agreement”, and as further amended by the Third Amendment, the “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 provides for a $700 million senior secured revolving credit facility (the “Revolving Facility”) and a $500 million senior secured term loan facility (the “Term Facility”, together with the Revolving Facility, the “Facilities”), with an option to request increases in the amounts of such credit facilities by up to an additional $400 million in the aggregate. The maturity date for the Facilities remains at January 17, 2023.
In addition, the Third Amendment (a) released the Cayman Borrower from its obligations as a borrower under the Second A&R Credit Agreement, (b) released all of the foreign subsidiaries that were previously party to the Second A&R Credit Agreement as guarantors of the obligations of the released Cayman Borrower and (c) made conforming amendments to the provisions of the Second A&R Credit Agreement and other loan documents to reflect the release from the Second A&R Credit Agreement. The Third Amendment also modified certain definitions and certain covenants relating to indebtedness and investments.
The Company’s Debt consisted of the following (in thousands):

December 31, 2020 June 30, 2020
Term Loan - short term $ 25,000  $ 25,000 
Debt issuance costs, net (933) (933)
Total Debt - short term 24,067  24,067 
Term Loan - long term 437,500  450,000 
Revolver - long term 145,000  180,000 
Debt issuance costs, net (1,078) (1,563)
Total Debt - long term $ 581,422  $ 628,437 

The Revolving Facility includes a sub-limit of $10.0 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 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 Credit Agreement, revolving loans and swingline loans may be borrowed, repaid and reborrowed until January 17, 2023, at which time all amounts borrowed must be repaid. The term loan is payable in quarterly installments of 1.25% of the original principal amount of the term loan, in each case plus accrued and unpaid interest. Revolving, swingline and term loans may be prepaid at any time without penalty. Revolving and term loans bear interest, at the Company’s option, at either (i) a floating rate per annum equal to the base rate plus a margin of between 0.50% and 1.25%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter or (ii) a floating per annum rate equal to the applicable LIBOR rate (or replacement rate) for a specified period, plus a margin of between 1.50% and 2.25%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter. Swingline loans bear interest at a floating rate per annum equal to the base rate plus a margin of between 0.50% and 1.25%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter. Base rate is defined as the greatest of (A) Wells Fargo’s prime rate, (B) the federal funds rate plus 0.50% or (C) the applicable LIBOR rate (or replacement rate) for a period of one month plus 1.00%. A default interest rate shall apply on all obligations during certain
13

events of default under the 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 Credit Agreement requires the Company to maintain during the term of the Facilities (i) a maximum consolidated total leverage ratio of 3.25 to 1.00 and (ii) a minimum consolidated interest coverage ratio of 3.5 to 1.00. In addition, the 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 Credit Agreement includes customary events of default that include, among other things, non-payment of principal, interest or fees, inaccuracy of representations and warranties, violation of covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments, change of control and certain ERISA events. The occurrence of an event of default could result in the acceleration of the obligations under the Credit Agreement. The obligations of Ubiquiti Inc. and certain domestic subsidiaries, if any, under the Credit Agreement are required to be guaranteed by such domestic subsidiaries (the “Domestic Guarantors”) and are collateralized by substantially all assets (excluding intellectual property) of Ubiquiti Inc. and the Domestic Guarantors.
The Facilities

As of December 31, 2020, $462.5 million was outstanding on the Term Facility and $145.0 million on the Revolving Facility, leaving $555.0 million available on the Revolving Facility.

Term Facility:
Under the Credit Agreement, during the three months ended December 31, 2020, the Company made aggregate payments of $8.5 million under the Term Facility, of which $6.2 million was repayment of principal and $2.3 million was payment of interest. During the six months ended December 31, 2020, the Company made aggregate payments of $17.1 million under the Term Facility, of which $12.5 million was repayment of principal and $4.6 million was payment of interest.
As of December 31, 2020, the interest rate on the term loan was 1.90%. As of January 29, 2021, the most currently available reset date, the Term Facility has an interest rate of 1.87%.
Revolving Facility:
Under the Credit Agreement, during the three months ended December 31, 2020, the Company made aggregate payments of $101.0 million under the Revolving Facility, of which $100.0 million was repayment of principal and $1.0 million was payment of interest. During the six months ended December 31, 2020, the Company made aggregate payments of $111.9 million under the Revolving Facility, of which $110.0 million was repayment of principal and $1.9 million was payment of interest.
The table below shows the respective interest rates as of December 31, 2020, in addition to the interest rate reset dates as available for each revolver draw.

Debt Payment Obligations Interest Rate as of December 31, 2020 Rate Reset Date Reset Rate
$75 Million Revolver
1.90  % January 14, 2021 1.88  %
$70 Million Revolver
1.90  % January 21, 2021 1.88  %
The following table summarizes the Company’s estimated debt and interest payment obligations as of December 31, 2020, for the remainder of fiscal 2021 and future fiscal years (in thousands):

2021 (remainder) 2022 2023 2024 2025 Thereafter Total
Debt payment obligations $ 12,500  $ 25,000  $ 570,000  $ —  $ —  $ —  $ 607,500 
Interest and other payments on debt payment obligations (1)
6,465  12,679  6,774  —  —  —  25,918 
Total $ 18,965  $ 37,679  $ 576,774  $ —  $ —  $ —  $ 633,418 
(1) - Interest payments are calculated based on the applicable rates and payment dates as of December 31, 2020. Although the Company’s interest rates on our debt obligations may vary, the Company has assumed the most recent available interest rates for all periods presented.
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NOTE 9—LEASES
The Company enters into agreements under which it leases various real estate spaces in North America, Europe and Asia Pacific, under non-cancellable leases that expire on various dates through fiscal 2029. Some of the Company’s 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, 2020, the Company included such options in determining the lease terms for certain of the Company’s leases because the Company was reasonably certain that it would exercise those options. Most of the Company’s leases require it to pay certain operating expenses in addition to base rent, such as taxes, insurance and maintenance costs.
The following table summarizes the Company’s lease costs for the three and six months ended December 31, 2020 and 2019 (in thousands):
Financial Statement Classification Three Months Ended December 31, Six Months Ended December 31,
2020 2019 2020 2019
Operating lease costs:
Fixed lease costs Operating expenses $ 1,857  $ 1,273  $ 3,658  $ 2,847 
Fixed lease costs Cost of revenues 509  524  1,018  1,038 
Variable lease costs Operating expenses 192  73  395  175 
Variable lease costs Cost of revenues 114  109  214  202 
Total lease costs $ 2,672  $ 1,979  $ 5,285  $ 4,262 

The operating lease costs in the table above include costs for long-term and short-term leases. Total short-term costs for the six months ended December 31, 2020 and 2019 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 and six months ended December 31, 2020, cash paid for amounts associated with the Company’s operating lease liabilities were approximately $2.6 million and $5.4 million, respectively. For the three and six months ended December 31, 2019, cash paid for amounts associated with the Company’s operating lease liabilities were approximately $2.2 million and $4.4 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, 2020:

Remainder of Fiscal 2021 $ 4,722 
Fiscal 2022 8,897 
Fiscal 2023 7,769 
Fiscal 2024 7,331 
Fiscal 2025 6,776 
Thereafter 7,755 
Total future fixed operating lease payments $ 43,250 
Less: Imputed interest $ 3,274 
Total operating lease liabilities $ 39,976 
Weighted-average remaining lease term - operating leases 5 years
Weighted-average discount rate - operating leases 2.9  %

NOTE 10—COMMITMENTS AND CONTINGENCIES
Operating Leases
See Note 9- Leases for future minimum lease payments under non-cancelable operating leases as of December 31, 2020.
Purchase Obligations
The Company subcontracts with third parties to manufacture its products and have purchase commitments with key component suppliers. During the normal course of business, the Company’s contract manufacturers procure components and manufacture
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products based upon orders placed by the Company. If the Company cancels all or part of the orders, the Company may still be liable to the contract manufacturers for the cost of the components purchased by the subcontractors to manufacture the Company's products. The Company periodically reviews the potential liability, and as of December 31, 2020, the Company recorded a purchase obligation liability of $7.6 million related to component purchase commitments. There have been no other significant liabilities for cancellations recorded as of December 31, 2020. The Company’s consolidated financial position and results of operations could be negatively impacted if it were required to compensate the contract manufacturers for any unrecorded liabilities incurred. The Company may be subject to additional purchase obligations for supply agreements and components ordered by its contract manufacturers based on manufacturing forecasts it provides them each month. The Company estimates the amount of these additional purchase obligations to range from $149.8 million to $617.6 million as of December 31, 2020, depending upon the timing of orders placed for these components by its contract manufacturers.
Other Obligations
As of December 31, 2020, the Company has other obligations of $57.9 million which consisted primarily of commitments related to raw materials and research and development projects.
Indemnification Obligations
The Company enters into standard indemnification agreements with many of its business partners in the ordinary course of business. These agreements include provisions for indemnifying the business partner against any claim brought by a third-party to the extent any such claim alleges that a Company product infringes a patent, copyright or trademark, or violates any other proprietary rights of that third-party. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not estimable and the Company has not incurred any material costs to defend lawsuits or settle claims related to these indemnification agreements to date.
Legal Matters
The Company may be involved, from time to time, in a variety of claims, lawsuits, investigations, and proceedings relating to contractual disputes, intellectual property rights, employment matters, regulatory compliance matters and other litigation matters relating to various claims that arise in the normal course of business. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. The Company assesses its potential liability by analyzing specific litigation and regulatory matters using available information. The Company develops its views on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies. Taking all of the above factors into account, the Company records an amount where it is probable that the Company will incur a loss and where that loss can be reasonably estimated. However, the Company’s estimates may be incorrect and the Company could ultimately incur more or less than the amounts initially recorded. The Company may also incur significant legal fees, which are expensed as incurred, in defending against these claims. The Company is not currently aware of any pending or threatened litigation that would have a material adverse effect on the Company’s financial statements.
Vivato/XR
On April 19, 2017, XR Communications, LLC, d/b/a Vivato Technologies (“Vivato”), filed a complaint against the Company in the United States District Court for the Central District of California, alleging that at least one of the Company’s products infringes United States Patent Numbers 7,062,296 (the “‘296 Patent”), 7,729,728 (the “‘728 Patent”), and 6,611,231 (the “‘231 Patent” and, collectively, the “Patents-in-Suit”). The ‘296 and ‘728 Patents are entitled “Forced Beam Switching in Wireless Communication Systems Having Smart Antennas.” The ‘231 Patent is entitled “Wireless Packet Switched Communications Systems and Networks Using Adaptively Steered Antenna Arrays.” Vivato amended its complaint on June 23, 2017 and again on July 6, 2017. According to the complaint, the products accused of infringing the Patents-in-Suit include Wi-Fi access points and routers supporting MU-MIMO, including without limitation access points and routers utilizing the IEEE 802.11ac-2013 standard. Vivato has also filed nine other lawsuits asserting the same patents against other defendants in the Central District of California. On October 2, 2017, the ten cases were consolidated into a single action for all purposes except trial. On March 19, 2018, the Company and the remaining defendants in the consolidated action moved to stay the case (the “Motion to Stay”) pending completion of certain inter partes review proceedings before the Patent Trial and Appeal Board. On April 9, 2018, the Court held a hearing on the Motion to Stay, and, on April 11, 2018, the Court granted the motion. On February 11, 2019, the Court maintained the stay pending a status conference scheduled for December 2, 2019. The Court maintained the stay in full pending a further status conference, which was originally scheduled for March 17, 2020 and subsequently rescheduled for February 22, 2021.
The Patent Trial and Appeal Board, in the aforementioned series of inter partes review proceedings, invalidated two of the three patents-in-suit, but it rejected the challenge to the ‘231 Patent. The decision was appealed. On November 25, 2020, the Federal Circuit Court of Appeals affirmed the Patent Trial and Appeal Board decision. The Company anticipates the issue of the pending stay will be addressed by the Court at the February 22 status hearing.
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.
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Ubiquiti Inc. v. Cambium Networks (“Cambium”), et. al.
This litigation was initiated in 2018 by the Company and relates to the defendants’ development, marketing and sale of firmware licensed under the trade name “Elevate.” Elevate was designed by Defendant Cambium to be used on Ubiquiti’s M-Series line of devices and to replace Ubiquiti’s AirOS firmware on said devices.
The Company asserted causes of action for breach of contract (Count I), willful violation of the Copyright Act (Count II), violations of the Computer Fraud and Abuse Act (Count III), violations of the Digital Millennium Copyright Act (Count IV), false advertising under § 43(a) of the Lanham Act (Count V), tortious interference with contract (Count VI), unfair competition (Count VII), intentional interference with prospective economic advantage (Count VIII), common law misappropriation claims (Count IX), and RICO violations (Counts X & XI). None of the Defendants asserted any counter-claims against the Company.
The parties reached a confidential settlement of the lawsuit on December 1, 2020. Pursuant to the settlement, the case was dismissed by the Court on January 5, 2021.
NOTE 11—COMMON STOCK AND TREASURY STOCK
Common Stock Repurchases
On November 6, 2019, the Company’s Board of Directors approved a $200 million stock repurchase program (the “2019 November Program”). Under the 2019 November Program, the Company is authorized to repurchase up to $200 million of common stock. The 2019 November Program expires on December 31, 2021. During the three months ended September 30, 2020, the Company repurchased and retired 228,180 shares of common stock at an average price per share of $166.05 for an aggregate amount of $37.9 million. As of September 15, 2020, the Company had no remaining balance available for share repurchase under the 2019 November Program.
On May 5, 2020, the Company's Board of Directors approved a $500 million stock repurchase program (the “2020 May Program”). Under the 2020 May Program, the Company may repurchase up to $500 million of its common stock. The 2020 May Program expires on March 31, 2022. During the three months ended December 31, 2020, the Company repurchased and retired 309,133 shares of common stock at an average price per share of $178.11 for an aggregate amount of $55.1 million. During the six months ended December 31, 2020, the Company repurchased and retired 911,136 shares of common stock at an average price per share of $167.53 for an aggregate amount of $152.6 million. As of December 31, 2020, the Company had $385.2 million available for share repurchases under the 2020 May Program.
The following table provides information with respect to the Company’s Share Repurchase programs and the activity under the available share repurchase programs during the six months ended December 31, 2020 (in millions, except share and per share amounts):
Date of Publicly Announced Program Amount of Publicly Announced Program Total Number of Shares Purchased as Part of Publicly Announced Programs Average Price Paid per Share Total Aggregate Amount Paid Period of Purchases Estimated Remaining Balance Available for Share Repurchases under the Program Expiration date of Program
November 8, 2019 $200 million 228,180 $ 166.05  $ 37.9  August 21, 2020 - September 15, 2020 $ —  12/31/2021
May 8, 2020 $500 million 682,956 $ 168.03  $ 114.8  September 15, 2020 - November 2, 2020 $ 385.2  3/31/2022

NOTE 12—ACCUMULATED OTHER COMPREHENSIVE INCOME
Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to gains and losses that are recorded as an element of stockholders’ equity but are excluded from net income pursuant to GAAP. For the three and six months ended December 31, 2020 and 2019, the Company’s accumulated other comprehensive income includes net unrealized gains (losses) from the Company’s available-for-sale securities, respectively.
NOTE 13—STOCK BASED COMPENSATION
Stock-Based Compensation Plans
The Company’s 2010 Equity Incentive Plan and 2005 Equity Incentive Plan are described in the Company’s Annual Report.
In December 2020, the Company's stockholders approved the Ubiquiti Inc. 2020 Omnibus Incentive Plan (the “2020 Equity Plan”) that will succeed the Company's 2010 Equity Incentive Plan (the “Prior Plan”), and no additional awards will be granted under the Prior Plan following January 31, 2021. 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 Prior Plan remain in effect pursuant to the terms of the Prior Plan.
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As of December 31, 2020, the Company had 14,991,245 authorized shares available for future issuance under all of its stock incentive plans.
Stock-Based Compensation
The following table shows total stock-based compensation expense included in the Consolidated Statements of Operations and Comprehensive Income for the three and six months ended December 31, 2020 and 2019 (in thousands):
  Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019
Cost of revenues $ 29  $ 33  $ 57  $ 65 
Research and development 512  527  1,022  1,008 
Sales, general and administrative 209  170  411  346 
$ 750  $ 730  $ 1,490  $ 1,419 
Stock Options
The following is a summary of option activity for the Company’s stock incentive plans for the six months ended December 31, 2020:
  Common Stock Options Outstanding
  Number
of Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
(In thousands)
Balance, June 30, 2020 22,265  $ 11.07  2.16 $ 3,640 
Exercised (4,578) $ 9.56 
Forfeitures and cancellations (6) $ 2.90 
Balance, December 31, 2020 17,681  $ 11.46  1.72 $ 4,722 
Vested as of December 31, 2020 17,681  $ 11.46  1.72 $ 4,722 
Vested and exercisable as of December 31, 2020 17,681  $ 11.46  1.72 $ 4,722 
During the three months ended December 31, 2020 and 2019, the aggregate intrinsic value of options exercised under the Company’s stock incentive plans was $0.6 million and $3.1 million, respectively, as determined as of the date of option exercise.
During the six months ended December 31, 2020 and 2019, the aggregate intrinsic value of options exercised under the Company’s stock incentive plans was $0.9 million and $3.2 million, respectively, as determined as of the date of options exercise.
As of December 31, 2020, the Company had no unrecognized compensation costs related to stock options.
The Company did not grant any employee stock options during the three and six months ended December 31, 2020 and 2019.
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, 2020 82,571  $ 99.57 
RSUs granted 4,756  $ 175.36 
RSUs vested (21,175) $ 82.12 
RSUs canceled (1,697) $ 110.07 
Non-vested RSUs, December 31, 2020 64,455  $ 110.62 
The intrinsic value of RSUs vested in the three months ended December 31, 2020 and 2019 was $2.4 million and $1.6 million, respectively.
The intrinsic value of RSUs vested in the six months ended December 31, 2020 and 2019 was $4.5 million and $3.4 million, respectively.
The total intrinsic value of all outstanding RSUs was $18.0 million as of December 31, 2020.
As of December 31, 2020, there were unrecognized compensation costs related to RSUs of $4.8 million which the Company expects to recognize over a weighted average period of 2.9 years.
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NOTE 14—INCOME TAXES
The Company recorded tax provisions of $27.5 million and $57.1 million for the three and six months ended December 31, 2020 as compared to $14.2 million and $32.0 million for the three and six months ended December 31, 2019. The increase is primarily related to an increase in profit before tax for the six months ended December 31, 2020 as compared to the six months ended December 31, 2019.
The Company’s estimated fiscal year 2021 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 US tax related to the Company’s non-U.S. operations under Global Intangible Low-Taxes Income (“GILTI”) provision.
As of December 31, 2020, the Company had approximately $32.5 million of unrecognized tax benefits, substantially all of which would, if recognized, affect its tax expense. During the three months ended December 31, 2020, the Company recorded an increase of its unrecognized tax benefits of $1.4 million and released $1.6 million of its unrecognized tax benefits due to the lapse of the application statute of limitations for the quarter ended December 31, 2020. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statement of Operations and Comprehensive Income. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheet. As of December 31, 2020, the Company had $4.4 million accrued interest related to uncertain tax matters.
The Company and one or more of its subsidiaries, files income tax returns in the United States federal jurisdiction, and various state, local, and foreign jurisdictions and is currently undergoing income tax examinations by the U.S. Internal Revenue Service and the Hong Kong IRD. All material consolidated federal, state and local income tax matters have been concluded for years through 2014. The majority of the Company’s foreign jurisdictions have been concluded through 2014, with the exception of Hong Kong which has been reviewed through 2009 and is currently under audit for the 2010-2016 tax years.
During fiscal years 2020, 2019, and 2018, the Company made a total of $15.5 million, $13.4 million, and $6.6 million of deposits with the Hong Kong IRD in connection with extending the statute of limitation for income tax examinations currently under audit for 2010-2015 tax years. On December 30, 2020, the company received notification that the Hong Kong IRD is seeking an additional $67.8 million deposit covering the 2015 tax year. The Company has filed a formal protest in response to this notice and the matter is awaiting a response from the Hong Kong IRD. The refundable deposits are included within other long-term assets on the Company’s 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 $35.5 million of deposits made with IRD to be refunded upon completion of the audit. However, there can be no assurance that this matter will be resolved in the Company’s favor and therefore it's possible that an adverse outcome of the matter could have a material effect on the Company’s results of operations and financial condition.
In July 2018, the Company received a draft Notice of Proposed Adjustment (“Draft NOPA”) from the Internal Revenue Service (“IRS”) proposing an adjustment to income for the fiscal 2015 and fiscal 2016 tax years based on its interpretation of certain obligations of the non-US entities under the credit facility. This Draft NOPA was superseded by an Acknowledgement of Facts (“AOF”) issued to the Company by the IRS on January 17, 2020. The IRS in its AOF continued to propose an adjustment to the Company’s income for its fiscal 2015 and fiscal 2016 tax years based on the IRS’ interpretation of certain obligations of the Company’s foreign subsidiaries under the Company’s credit facilities. On May 12, 2020, the IRS issued a final Notice of Proposed Adjustment to the Company with respect to the 2015/2016 tax years. The Company has formally protested the adjustment and the case is expected to be moved from the Examination Division to the IRS Appeals Division where a formal review of the facts and the applicable law will take place. The timing of when the case will be scheduled to be reviewed by the Appeals Division is uncertain at this time due in large part to an existing backlog of cases awaiting review by the Division. The Company strongly believes the position of the IRS with regard to this matter is without merit. However, there can be no assurance that this matter will be resolved in the Company’s favor. Regardless of whether the matter is resolved in the Company’s favor, the final resolution of this matter could be expensive and time-consuming to defend and/or settle. 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 Coronavirus Aid, Relief, and Economic Security Act (“CARES”) was signed into law on March 25, 2020. The bill was meant to address the economic fallout in response to locally mandated shelter-in-place orders that were executed in an attempt to slow the spread of COVID-19. None of these provisions of CARES are expected to have material impacts to the Company’s fiscal 2020 tax provision. The Company will monitor the updates, both to the Company’s business as well as guidance issued with respect to CARES that could impact the current interpretation of the provisions under CARES, to determine whether any additional considerations need to be made with respect to the Company’s tax provision in future periods. On December 27, 2020, the Consolidations Appropriations Act (“CAA”) 2020 was enacted. The CCA was enacted as a supplement to the CARES legislation providing additional financial relief
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to taxpayers adversely impacted by restrictions put into place in response to the COVID-19 pandemic. In addition, the CCA provides funding for public health initiatives in response to the pandemic. This legislation does not have a material impact on the Company’s tax provision.
NOTE 15—SEGMENT INFORMATION, REVENUES BY GEOGRAPHY AND SIGNIFICANT CUSTOMERS
Management has determined that the Company operates as one reportable and operating segment as it only reports financial information on an aggregate and consolidated basis to its Chief Executive Officer, who is the Company’s Chief Operating Decision Maker. 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.
Service Provider Technology includes the Company’s airMAX, EdgeMAX, UFiber, and airFiber platforms, as well as embedded radio products and other 802.11 standard products including base stations, radios, backhaul equipment and CPE. Additionally, Service Provider Technology includes antennas and other products primarily in the 0.9 to 6.0 GHz spectrum and miscellaneous products such as mounting brackets, cables and power over Ethernet adapters.
Enterprise Technology includes the Company’s UniFi platform, including UniFi enterprise Wi-Fi, UniFi Protect, UniFi Access, UniFi switching and routing solutions and the Company’s AmpliFi platform.
Revenues by product type are as follows (in thousands, except percentages):
  Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019
Service Provider Technology $ 149,875  31  % $ 97,716  32  % $ 307,337  32  % $ 213,642  34  %
Enterprise Technology 329,561  69  % 210,568  68  % 645,632  68  % 417,919  66  %
Total revenues $ 479,436  100  % $ 308,284  100  % $ 952,969  100  % $ 631,561  100  %

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,
  2020 2019 2020 2019
North America (1)
$ 193,440  40  % $ 129,966  42  % $ 414,320  43  % $ 277,917  44  %
Europe, the Middle East and Africa ("EMEA") 218,755  46  % 120,607  39  % 397,934  42  % 246,447  39  %
Asia Pacific 37,374  % 32,804  11  % 79,319  % 62,521  10  %
South America 29,867  % 24,907  % 61,396  % 44,676  %
Total revenues $ 479,436  100  % $ 308,284  100  % $ 952,969  100  % $ 631,561  100  %
 (1) Revenue for the United States was $179.1 million and $121.7 million for the three months ended December 31, 2020 and 2019, respectively. Revenue for the United States was $388.9 million and $263.6 million for the six months ended December 31, 2020 and 2019, 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, Six Months Ended December 31, December 31, June 30,
  2020 2019 2020 2019 2020 2020
Customer A * * * * * *
Customer B * 12% * 13% * 17%

NOTE 16—RELATED PARTY TRANSACTIONS AND CERTAIN OTHER TRANSACTIONS
Aircraft Lease Agreement
On November 13, 2013, the Company entered into an aircraft lease agreement (the “Aircraft Lease Agreement”) with RJP Manageco LLC (the “Lessor”), a limited liability company owned by the Company’s CEO, Robert J. Pera. Pursuant to the Aircraft Lease Agreement, the Company may lease an aircraft owned by the Lessor for Company business purposes. Under the Aircraft Lease Agreement, the aircraft may be leased at a rate of $5,000 per flight hour. This hourly rate does not include the cost of flight crew or on-board services, which the Company purchases from a third-party provider. Pursuant to the Aircraft Lease Agreement, the Company had no expense during the three and six months ended December 31, 2020 and recognized a total of approximately $0.4 million and $0.9 million in expenses during the three and six months ended December 31, 2019, respectively. All expenses pursuant to the Aircraft Lease Agreement have been included in the Company’s sales, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income.
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NOTE 17 - SUBSEQUENT EVENTS
Dividends
On February 5, 2021, the Company announced that its Board of Directors had approved a quarterly cash dividend of $0.40 per share payable on February 22, 2021 to shareholders of record at the close of business on February 16, 2021. Any future dividends will be subject to the approval of the Company’s Board of Directors.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read together with the financial statements and related notes that are included elsewhere in this quarterly report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this quarterly report, particularly in Note 10 “Commitments and Contingencies” to our consolidated financial statements and Part II “Other Information”, Item 1-Legal Proceedings and 1A-Risk Factors, in this report.
Overview
The Company develops technology platforms for high-capacity distributed Internet access, unified information technology, and consumer electronics for professional, home and personal use. We categorize our solutions in to three main categories: high performance networking technology for service providers, enterprises and consumers. We target the service provider and enterprise markets through our highly engaged community of service providers, distributors, value added resellers, webstores, systems integrators and corporate IT professionals, which we refer to as the Ubiquiti Community. We target consumers through digital marketing, retail chains and, to a lesser extent, the Ubiquiti Community.
The majority of our human capital resources consist of entrepreneurial and de-centralized research and development (“R&D”) personnel. We do not employ a traditional direct sales force, but instead drive brand awareness through online reviews and publications, our website, our distributors and the Company’s user community where customers can interface directly with our R&D, marketing, and support teams. Our technology platforms were designed from the ground up with a focus on delivering highly-advanced and easily deployable solutions that appeal to a global customer base market.
We offer a broad and expanding portfolio of networking products and solutions for operator-owners of wireless internet services (“WISPs”), enterprises and smart homes. Our operator-owner service provider-product platforms provide carrier-class network infrastructure for fixed wireless broadband, wireless backhaul systems and routing and the related software for WISPs to easily control, track and bill their customers. Our enterprise product platforms provide wireless LAN (“WLAN”) infrastructure, video surveillance products, switching and routing solutions, security gateways, and other complimentary WLAN products along with a unique software platform, which enables users to control their network from one simple, easy to use software interface. Our consumer products, sold under the Ubiquiti Labs brand name, are targeted to the smart home and highly connected consumers. We believe that our products are highly differentiated due to our proprietary software, firmware expertise, and hardware design capabilities.
We distribute our products through a worldwide network of over 100 distributors and on-line retailers.
COVID-19 Update- The 2019 novel coronavirus (COVID-19), which the World Health Organization (“WHO”) characterized as a pandemic in March 2020, continues to disrupt global economies, and has spread to the major markets in which we operate, including the United States, Asia, Europe and South America. The COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including, among others, restrictions on travel, stay-at-home orders or work remote or from home conditions in many of the locations where we have offices. We have taken and will continue to take precautionary measures intended to help minimize the risk of COVID-19 to our employees. While we have not yet experienced a significant disruption to the productivity of our employees as a result of the COVID-19 pandemic, if the stay-at-home orders or work remote or from home conditions in any of our facilities continue for an extended period of time, or if we have an outbreak in any of our facilities, we may, among other issues, experience delays in product development, a decreased ability to support our customers, disruptions in sales and an overall lack of productivity. We have experienced a disruption in our supply chain as a result of the COVID-19 related restrictions that have impacted our suppliers’ ability to manufacture or provide key components or services, and we have incurred, and continue to incur, additional cost to expedite deliveries of components and services. While our ability to procure components and services has improved since the initial outbreak of the pandemic, the disruptions in our supply chain have not been fully remediated. The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including further disruptions to our supply chain, reductions in demand due to disruptions in the operations of our customers or their end customers, disruptions in local and global economies, volatility in the global financial markets, overall reductions in demand, restrictions on the export or shipment of our products or other COVID-19-related events. This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions. Refer to Risk Factors (Part II, Item 1A of this Form 10-Q) for a discussion of these factors and other risks.
Key Components of Our Results of Operations and Financial Condition
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Revenues
We operate our business as one reportable and operating segment. Further information, regarding Segments can be found in Note 15 to our Consolidated Financial Statements. Our revenues are derived principally from the sale of networking hardware. Because we have historically included implied post-contract customer support (“PCS”) free of charge in many of our arrangements, we attribute a portion of our systems revenues to this implied PCS.
We classify our revenues into two primary product categories: Service Provider Technology and Enterprise Technology.
Service Provider Technology includes the Company’s airMAX, EdgeMAX, UFiber, and airFiber platforms, as well as embedded radio products and other 802.11 standard products including base stations, radios, backhaul equipment and CPE. Additionally, Service Provider Technology includes antennas and other products primarily in the 0.9 to 6.0 GHz spectrum and miscellaneous products such as mounting brackets, cables and power over Ethernet adapters.
Enterprise Technology includes the Company’s UniFi platforms, including UniFi enterprise Wi-Fi, UniFi Protect, UniFi Access, UniFi switching and routing solutions and the Company’s AmpliFi platform.
We sell our products and solutions globally to service providers and enterprises primarily through our extensive network of distributors, and, to a lesser extent, through direct sales. Sales to distributors accounted for 87% of our revenues during the six months ended December 31, 2020. Direct sales accounted for 13% of our revenue during the six months ended December 31, 2020.
Cost of Revenues
Our cost of revenues is comprised primarily of the costs of procuring finished goods from our contract manufacturers and certain key components that we consign to certain of our contract manufacturers. In addition, cost of revenues includes labor and other costs which include salary, benefits and stock-based compensation in addition to costs associated with tooling, testing and quality assurance, warranty costs, logistics costs, tariffs and excess and obsolete inventory write-downs.
We currently operate warehouses located in the U.S. and the Czech Republic. In addition, we outsource other logistics warehousing and order fulfillment functions located in China and to a lesser extent in other countries. We also evaluate and utilize other vendors for various portions of our supply chain from time to time. Our operations organization consists of employees and consultants engaged in the management of our contract manufacturers, new product introduction activities, logistical support and engineering.
Gross Profit
Our gross profit has been, and may in the future be, influenced by several factors including changes in product mix, target end markets for our products, channel inventory levels, tariffs, pricing due to competitive pressure, production costs and global demand for electronic components. Although we procure and sell our products mostly in U.S. dollars, our contract manufacturers incur many costs, including labor costs, in other currencies. To the extent that the exchange rates move unfavorably for our contract manufacturers, they may try to pass these additional costs on to us, which could have a material impact on our future average selling prices and unit costs. In June 2018, the Office of the United States Trade Representative announced new proposed tariffs for certain products imported into the U.S. from China. The vast majority of our products that are imported into the U.S. from China are currently subject to tariffs that range between 7.5% and 25%. On January 22, 2020, the Office of the United States Trade Representative announced it will reduce Section 201 List 4A and additional tariffs from 15% to 7.5% and the List 4B tariffs would not go into effect. These tariffs have already affected our operating results and margins. For so long as such tariffs are in effect, we expect it will continue to affect our operating results and margins. As a result, our historical and current gross profit margins may not be indicative of our gross profit margins for future periods. Refer to “Part II—Item 1A. Risk Factors—Risks Related to Our International Operations—Our business may be negatively affected by political events and foreign policy responses” for additional information.
Operating Expenses
We classify our operating expenses as research and development and, sales, general and administrative expenses. 
Research and development expenses consist primarily of salary and benefit expenses, including stock-based compensation, for employees and costs for contractors engaged in research, design and development activities, as well as costs for prototypes, licensed or purchased intellectual property, facilities and travel. Over time, we expect our research and development costs to increase as we continue making significant investments in developing new products in addition to new versions of our existing products.
Sales, general and administrative expenses include salary and benefit expenses, including stock-based compensation, for employees and costs for contractors engaged in sales, marketing and general and administrative activities, as well as the costs of legal expenses, trade shows, marketing programs, promotional materials, bad debt expense, professional services, facilities, general liability insurance and travel. As our product portfolio and targeted markets expand, we may need to employ different sales models, such as building a traditional direct sales force. These sales models would likely increase our costs. Over time, we expect our sales, general and administrative expenses to increase in absolute dollars due to continued growth in headcount, expansion of our efforts to register and defend trademarks and patents and to support our business and operations.
Provisions for Income Taxes
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We use the asset and liability method to account for income taxes. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. In preparing the consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. The Company must assess such potential exposures and, where necessary, provide a reserve to cover any expected loss. To the extent that the Company establishes a reserve, its provision for income taxes would be increased. If the Company ultimately determines that payment of these amounts is unnecessary, it reverses the liability and recognizes a tax benefit during the period in which it determines that the liability is no longer necessary. The Company records an additional charge in its provision for taxes in the period in which it determines that tax liability is greater than its original estimate. The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations and comprehensive income. Refer to “Part II—Item 1A. Risk Factors—Risks Related to Regulatory, Legal and Tax Matters—Changes in applicable tax regulations could negatively affect our financial results” for additional information.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. In other cases, management’s judgment is required in selecting among available alternative accounting standards that provide for different accounting treatment for similar transactions. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the amounts we report as assets, liabilities, revenues, costs and expenses and affect the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. In many instances, we could reasonably use different accounting estimates, and in some instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, our actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. Our critical accounting policies are discussed in our Annual Report, filed with the SEC on August 21, 2020, and there have been no material changes other than that have been disclosed in Note 2 to our consolidated financial statements herein. Additionally, as the COVID-19 pandemic continues to develop, many of our estimates could require increased judgement and carry a higher degree of variability and volatility. As events continue to evolve our estimates may change materially in future periods. We believe that the accounting policies discussed in our Annual Report, are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Results of Operations
Comparison of Three and Six Months Ended December 31, 2020 and 2019
  Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019
 
(In thousands, except percentages)
Revenues $ 479,436  100  % $ 308,284  100  % $ 952,969  100  % $ 631,561  100  %
Cost of revenues (1)
248,762  52  % 163,198  53  % 494,179  52  % 335,084  53  %
Gross profit 230,674  48  % 145,086  47  % 458,790  48  % 296,477  47  %
Operating expenses:
Research and development (1)
28,912  % 24,041  % 54,725  % 44,293  %
Sales, general and administrative (1)
10,951  % 8,997  % 23,301  % 19,447  %
Total operating expenses 39,863  % 33,038  11  % 78,026  % 63,740  10  %
Income from operations 190,811  40  % 112,048  36  % 380,764  40  % 232,737  37  %
Interest expense and other, net (3,613) (1  %) (12,085) (4  %) (7,530) (1  %) (16,738) (3  %)
Income before income taxes 187,198  39  % 99,963  32  % 373,234  39  % 215,999  34  %
Provisions for income taxes 27,530  % 14,152  % 57,057  % 32,042  %
Net income $ 159,668  33  % $ 85,811  28  % $ 316,177  33  % $ 183,957  29  %
(1)    Includes stock-based compensation as follows:
Cost of revenues 29  33  57  65 
Research and development 512  527  1,022  1,008 
Sales, general and administrative 209  170  411  346 
Total stock-based compensation 750  730  1,490  1,419 
Revenues
Total revenues increased $171.2 million, or 56%, from $308.3 million in the three months ended December 31, 2019 to $479.4 million in the three months ended December 31, 2020.
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Total revenues increased $321.4 million, or 51%, from $631.6 million in the six months ended December 31, 2019 to $953.0 million in the six months ended December 31, 2020.
During the three and six months ended December 31, 2020, there were no material price changes in the Company’s products sold.
However, the Company continues to introduce new products which may have average selling prices and margins different than our legacy products.
Revenues by Product Type
  Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019
(in thousands, except percentages)
Service Provider Technology $ 149,875  31  % $ 97,716  32  % $ 307,337  32  % $ 213,642  34  %
Enterprise Technology 329,561  69  % 210,568  68  % 645,632  68  % 417,919  66  %
Total revenues $ 479,436  100  % $ 308,284  100  % $ 952,969  100  % $ 631,561  100  %

Service Provider Technology revenue increased $52.2 million, or 53%, from $97.7 million in the three months ended December 31, 2019 to $149.9 million in the three months ended December 31, 2020 and increased $93.7 million, or 44%, from $213.6 million in the six months ended December 31, 2019 to $307.3 million in the six months ended December 31, 2020.
The increase in Service Provider Technology revenue during the three and six months ended December 31, 2020 as compared to the same periods in the prior year, was primarily due to increased revenue in all regions across all the platforms.
Enterprise Technology revenue increased $119.0 million, or 57%, from $210.6 million in the three months ended December 31, 2019 to $329.6 million in the three months ended December 31, 2020 and increased $227.7 million, or 54%, from $417.9 million in the six months ended December 31, 2019 to $645.6 million in the six months ended December 31, 2020.
The increase in Enterprise Technology revenue during the three and six months ended December 31, 2020 as compared to the same periods in the prior year, was primarily due to product expansion and further adoption of our UniFi technology platform across all regions except South America.
Revenues by Geography
We have determined the geographical distribution of our product revenues based on our customers’ ship-to destinations. A majority of our sales are to distributors who either sell to resellers or directly to end customers, who may be located in different countries than the initial ship-to destination. The following are our revenues by geography for the three and six months ended December 31, 2020 and 2019 (in thousands, except percentages):  
  Three Months Ended December 31, Six Months Ended December 31,
  2020 2019 2020 2019
(in thousands, except percentages)

North America(1)
$ 193,440  40  % $ 129,966  42  % $ 414,320  43  % $ 277,917  44  %
Europe, the Middle East and Africa ("EMEA") 218,755  46  % 120,607  39  % 397,934  42  % 246,447  39  %
Asia Pacific 37,374  % 32,804  11  % 79,319  % 62,521  10  %
South America 29,867  % 24,907  % 61,396  % 44,676  %
Total revenues $ 479,436  100  % $ 308,284  100  % $ 952,969  100  % $ 631,561  100  %
(1) Revenue for the United States was $179.1 million and $121.7 million for the three months ended December 31, 2020 and 2019, respectively. Revenue for the United States was $388.9 million and $263.6 million for the six months ended December 31, 2020 and 2019, respectively.
North America
Revenues in North America increased $63.5 million, or 49%, from $130.0 million in the three months ended December 31, 2019 to $193.4 million in the three months ended December 31, 2020 and increased $136.4 million, or 49%, from $277.9 million in the six months ended December 31, 2019 to $414.3 million in the six months ended December 31, 2020.
The increase in North America revenues during the three and six months ended December 31, 2020 as compared to the same periods in the prior year, was primarily due to increased revenues from both our Enterprise Technology products and Service Provider Technology products.
Europe, the Middle East, and Africa (EMEA)
Revenues in EMEA increased $98.1 million, or 81%, from $120.6 million in the three months ended December 31, 2019 to $218.8 million in the three months ended December 31, 2020 and increased $151.5 million, or 61% from $246.4 million in the six months ended December 31, 2019 to $397.9 million in the six months ended December 31, 2020.

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The increase in EMEA revenues during the three and six months ended December 31, 2020 as compared to the same periods in the prior year, was primarily due to increased revenues from both our Enterprise Technology products and Service Provider Technology products.
Asia Pacific
Revenues in the Asia Pacific region increased $4.6 million, or 14%, from $32.8 million in the three months ended December 31, 2019 to $37.4 million in the three months ended December 31, 2020 and increased $16.8 million, or 27%, from $62.5 million in the six months ended December 31, 2019 to $79.3 million in the six months ended December 31, 2020.
The increase in Asia Pacific revenues during the three and six months ended December 31, 2020 as compared to the same periods in the prior year was primarily due to increased revenues from both our Enterprise Technology products and Service Provider Technology products.
South America
Revenues in South America increased $5.0 million, or 20%, from $24.9 million in the three months ended December 31, 2019 to $29.9 million in the three months ended December 31, 2020 and increased $16.7 million, or 37%, from $44.7 million in the six months ended December 31, 2019 to $61.4 million in the six months ended December 31, 2020.
The increase in South America revenues during the three and six months ended December 31, 2020 as compared to the same periods in the prior year was primarily due to increased revenues from our Service Provider Technology products, partially offset by decreased revenues from our Enterprise Technology products.
Cost of Revenues and Gross Profit
Cost of revenues increased $85.6 million, or 52%, from $163.2 million in the three months ended December 31, 2019 to $248.8 million in the three months ended December 31, 2020. The increase is primarily due to cost increase associated with an overall increase in revenue and higher shipping costs, partially offset by lower other indirect costs.
Cost of revenues increased $159.1 million, or 47%, from $335.1 million in the six months ended December 31, 2019 to $494.2 million in the six months ended December 31, 2020. The increase is primarily due to cost increases associated with an overall increase in revenue, higher tariff-related costs and shipping costs, partially offset by lower other indirect costs.
Gross profit margin increased to 48.1% in the three months ended December 31, 2020 compared to 47.1% in the three months ended December 31, 2019. Gross profit margin increased to 48.1% in the six months ended December 31, 2020 compared to 46.9% in the six months ended December 31, 2019.
The increase in gross profit margin during the three months ended December 31, 2020 was primarily driven by higher revenue and other indirect cost being lower as a percentage of overall revenue partially offset by higher shipping costs as a percentage of revenue.
The increase in gross profit margin during the six months ended December 31, 2020 was primarily driven by higher revenue and favorable changes in product mix, and other indirect cost being lower as a percentage of overall revenue partially offset by higher shipping costs and higher tariff-related costs as a percentage of revenue.
Operating Expenses
Research and Development
Research and development (“R&D”) expenses increased $4.9 million, or 20%, from $24.0 million in the three months ended December 31, 2019 to $28.9 million in the three months ended December 31, 2020. As a percentage of revenues, R&D expenses decreased from 8% for the three months ended December 31, 2019 to 6% for the three months ended December 31, 2020.
R&D expenses increased $10.4 million, or 24%, from $44.3 million in the six months ended December 31, 2019 to $54.7 million in the six months ended December 31, 2020. As a percentage of revenues, R&D expenses decreased from 7% for the six months ended December 31, 2019 to 6% for the six months ended December 31, 2020.
The increase in R&D expenses in absolute dollars for the both the three and six months ended December 31, 2020 as compared to the same periods in the prior year was primarily due to higher employee related expenses and professional and service related fees.
Sales, General and Administrative
Sales, general and administrative (“SG&A”) expenses increased $2.0 million, or 22%, from $9.0 million in the three months ended December 31, 2019 to $11.0 million in the three months ended December 31, 2020. As a percentage of revenues, SG&A expenses decreased from 3% for the three months ended December 31, 2019 to 2% for the three months ended December 31, 2020.
SG&A expenses increased $3.9 million, or 20%, from $19.4 million in the six months ended December 31, 2019 to $23.3 million for the six months ended December 31, 2020. As a percentage of revenues, SG&A expenses decreased from 3% for the six months ended December 31, 2019 to 2% for the six months ended December 31, 2020.
The increase in SG&A expenses in absolute dollars for three months ended December 31, 2020 as compared to the same period in the prior year was primarily due to higher professional and service fees and higher depreciation expense offset, in part by legal settlement
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received and lower payroll and marketing expense.
The increase in SG&A expenses in absolute dollars for the six months ended December 31, 2020 as compared to the same period in the prior year was primarily due to higher professional and service fees and higher depreciation expense offset, in part by legal settlement received, lower marketing expense and lower bad debt expense.
Provision for Income Taxes
Our provision for income taxes increased $13.4 million, or 94.5%, from $14.2 million for the three months ended December 31, 2019 to $27.5 million for the three months ended December 31, 2020. Our effective tax rate increased to 14.7% for the three months ended December 31, 2020 as compared to 14.2% for the three months ended December 31, 2019.
Our provisions for income taxes increased $25.0 million, or 78%, from $32.0 million for the six months ended December 31, 2019 to $57.1 million for the six months ended December 31, 2020. Our effective tax rate increased to 15.3% for the six months ended December 31, 2020 as compared to 14.8% for the six months ended December 31, 2019.
The change in effective tax rates for the three and six months ended December 31, 2020 as compared to the same periods in the prior year was primarily due to the increase in overall taxable income in jurisdictions with higher tax rates.
Liquidity and Capital Resources
Sources and Uses of Cash
Our principal source of liquidity are cash and cash equivalents, cash generated by operations, the availability of additional funds under the Facilities and short-term and long-term investments. We had cash and cash equivalents of $189.1 million and $142.6 million as of December 31, 2020 and June 30, 2020, respectively.
Consolidated Cash Flow Data
The following table sets forth the major components of our consolidated statements of cash flows data for the periods presented:
  Six Months Ended December 31,
  2020 2019
  (In thousands)
Net cash provided by operating activities $ 308,949  $ 243,338 
Net cash provided by (used in) investing activities (10,948) 55,313 
Net cash (used in) financing activities (251,504) (436,794)
Net increase (decrease) in cash and cash equivalents $ 46,497  $ (138,143)

Cash Flows from Operating Activities
Net cash provided by operating activities in the six months ended December 31, 2020 consisted primarily of net income of $316.2 million partially offset by changes in operating assets and liabilities that resulted in net cash outflows of $21.5 million. This net change consisted primarily of a $53.0 million decrease in inventory offset by $1.2 million increase in vendor deposits, a $21.5 million increase in accounts receivable due to higher revenue for the period, a $21.8 million decrease in net accounts payable and accrued liabilities, a $27.6 million decrease in taxes payable due to the timing of federal tax payments and a $8.3 million increase in prepaid expense and other assets.
Net cash provided by operating activities in the six months ended December 31, 2019 consisted primarily of net income of $184.0 million, in addition to the changes in operating assets and liabilities that resulted in net cash inflows of $40.5 million. This net change consisted primarily of a $11.3 million decrease in inventory and $4.4 million decrease in vendor deposit, $8.7 million decrease in accounts receivable due to increased collections for the period, $36.4 million increase in net accounts payable and accrued liabilities, a $24.4 million decrease in taxes payable due to the timing of federal tax payments and $3.2 million decrease in prepaid expense and other assets.
Cash Flows from Investing Activities
We used $10.9 million of cash in investing activities during the six months ended December 31, 2020. Our investing activities consisted primarily of $11.9 million of capital expenditures and purchase of intangible assets, partially offset by maturities of investment securities of $0.9 million.
Net cash provided by investing activities in the six months ended December 31, 2019 was $55.3 million. Our investing activities consisted primarily of cash inflows of $75.5 million net proceeds from our available-for-sale securities offset, in part by cash outflows of $20.2 million of capital expenditures.
Cash Flows from Financing Activities
The Company used $251.5 million of cash in financing activities during the six months ended December 31, 2020. During the six months ended December 31, 2020, we used $47.5 million of net funds for repayments under the Facilities, used $152.6 million related
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to the repurchase of our common stock, and used $50.6 million related to dividends paid on our common stock. See Note 8- Debt of the Notes to our Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding the Facilities.
The Company used $436.8 million of cash in financing activities during the six months ended December 31, 2019. During the six months ended December 31, 2019, we received $145.0 million of net funds from borrowing and repayments under the Company's credit facilities, used $538.0 million related to the repurchase of our common stock, and used $40.1 million related to dividends paid on our common stock and $3.1 million of debt issuance costs.
Liquidity
We believe our existing cash and cash equivalents, cash provided by operations and the availability of additional fund, under our Facilities will be sufficient to meet our working capital, future stock repurchases, dividends, and capital expenditure needs for the next twelve months. However, this estimate is based on a number of assumptions that may prove to be wrong and we could exhaust our available cash and cash equivalents earlier than presently anticipated or need to rely more heavily on our Facilities or other sources of liquidity to continue to meet our needs. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending to support development efforts, the timing of new product introductions, market acceptance of our products, the availability of additional funds under our Facilities and overall economic conditions. The COVID-19 pandemic and resulting global disruptions have caused significant volatility in financial markets and the domestic and global economy. This disruption can contribute to potential payment delays or defaults in our accounts receivable, affect asset valuations resulting in impairment charges, and affect the availability of financing credit as well as other segments of the credit markets. For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, refer to “Part II-Item 1A. Risk Factors – Risks Related to Our Business and Industry - Our contract manufacturers, logistics centers and certain administrative and research and development operations, as well as our customers and suppliers, are located in areas likely to be subject to natural disasters and public health problems, which could adversely affect our business, results of operations and financial condition” for additional information. We expect to continue to maintain financing flexibility in the current market conditions. However, due to the rapidly evolving global situation, it is not possible to predict whether unanticipated consequences of the pandemic are reasonably likely to materially affect our liquidity and capital resources in the future.
Warranties and Indemnifications
Our products are generally accompanied by a twelve to twenty- four-month warranty from date of purchase, which covers both parts and labor. Generally, the distributor is responsible for the freight costs associated with warranty returns, and we absorb the freight costs of replacing items under warranty. In accordance with the Financial Accounting Standards Board’s (“FASB’s”), Accounting Standards Codification (“ASC”), 450-20, Loss Contingencies, we record an accrual when we believe it is reasonably estimable and probable based upon historical experience. We record a provision for estimated future warranty work in cost of goods sold upon recognition of revenues, and we review the resulting accrual regularly and periodically adjust it to reflect changes in warranty estimates.
We have entered and may in the future enter into standard indemnification agreements with certain distributors as well as other business partners in the ordinary course of business. These agreements may include provisions for indemnifying the distributor, OEM or other business partner against any claim brought by a third-party to the extent any such claim alleges that a Ubiquiti product infringes a patent, copyright or trademark or violates any other proprietary rights of that third-party. The maximum amount of potential future indemnification is unlimited. The maximum potential amount of future payments we could be required to make under these indemnification agreements is not estimable.
We have agreed to indemnify our directors, officers and certain other employees for certain events or occurrences, subject to certain limits, while such persons are or were serving at our request in such capacity. We may terminate the indemnification agreements with these persons upon the termination of their services with us, but termination will not affect claims for indemnification related to events occurring prior to the effective date of termination. The maximum amount of potential future indemnification is unlimited. We have a Directors and Officers insurance policy that limits our potential exposure for our indemnification obligations to our directors, officers and certain other employees. We believe the fair value of these indemnification agreements is minimal. We have not recorded any liabilities for these agreements as of December 31, 2020.
Based upon our historical experience and information known as of the date of this report, we do not believe it is likely that we have a material liability for the above indemnities as of December 31, 2020.
Contractual Obligations and Off-Balance Sheet Arrangements
Our contractual obligations represent material expected or contractually committed future payment obligations. We believe that we will be able to fund these obligations through our existing cash and cash equivalents, cash generated from operations and the availability of additional funds, under the Facilities.
The following table summarizes the Company’s contractual obligations as of December 31, 2020 for the remainder of fiscal 2021 and future fiscal years (in thousands):
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2021 (remainder) 2022 2023 2024 2025 Thereafter Total
Operating Leases 4,722  8,897  7,769  7,331  6,776  7,755  43,250 
Debt payment obligations 12,500  25,000  570,000  —  —  —  607,500 
Interest and other payments on debt payment obligations 6,465  12,679  6,774  —  —  —  25,918 
Transition tax —  9,004  9,004  16,882  22,509  28,136  85,535 
Other obligations 11,247  20,000  20,000  6,667  —  —  57,914 
Total $ 34,934  $ 75,580  $ 613,547  $ 30,880  $ 29,285  $ 35,891  $ 820,117 

Purchase Obligations
We subcontract with third parties to manufacture our products and have purchase commitments with key component suppliers. During the normal course of business, our contract manufacturers procure components and manufacture products based upon orders placed by us. If we cancel all or part of the orders, we may still be liable to the contract manufacturers for the cost of the components purchased by the subcontractors to manufacture our products. We periodically review the potential liability, and as of December 31, 2020, we have recorded a purchase obligation liability of $7.6 million related to component purchase commitments. There have been no other significant liabilities for cancellations recorded as of December 31, 2020. Our consolidated financial position and results of operations could be negatively impacted if we were required to compensate the contract manufacturers for any unrecorded liabilities incurred. We may be subject to additional purchase obligations for supply agreements and components ordered by our contract manufacturers based on manufacturing forecasts we provide them each month. We estimate the amount of these additional purchase obligations to range from $149.8 million to $617.6 million as of December 31, 2020, depending upon the timing of orders placed for these components by our contract manufacturers.
Transition Tax
The Company also had obligations of $85.5 million as of December 31, 2020, related to Transition Tax. These obligations are included within Income taxes payable and Long-term taxes payable on our Consolidated Balance Sheets.
Other Obligations
The Company had other obligations of $57.9 as of December 31, 2020, which consisted primarily of commitments related to raw materials and research and development projects.
Unrecognized Tax Benefits
As of December 31, 2020, we had $32.5 million and an additional $4.4 million for accrued interest, classified as non-current liabilities. At this time, we are unable to make a reasonably reliable estimate of timing of payments in individual years in connection with these tax liabilities; therefore, such amounts are not included in the above contractual obligation table.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, refer to Note 2 to the Consolidated Financial Statements.
Note About Forward-Looking Statements
When used in this Report, the words “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and negatives of those terms are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about our future results, sources of revenue, our dividend, our continued growth, our gross margins, market trends, our product development, our introduction of new products, technological developments, the features, benefits and performance of our current and future products, the ability of our products to address a variety of markets, the anticipated growth of demand for connectivity worldwide, our growth strategies, future price reductions, our competitive status, our dependence on our senior management and our ability to attract and retain key personnel, dependency on and concentration of our distributors, our employee relations, current and potential litigation, current or potential indemnification liabilities, the effects of government regulations, the impact of tariffs, the expected impact of taxes on our liquidity and results of operations, our compliance with laws and regulations, our expected future operating costs and expenses and expenditure levels for research and development, selling, general and administrative expenses, fluctuations in operating results, fluctuations in our stock price, our payment of dividends, our future liquidity and cash needs, and the adequacy of and our reliance on our source of liquidity to meet such needs, our Facilities, future acquisitions of and investments in complimentary businesses and the expected impact of various accounting policies and rules adopted by the Financial Accounting Standards Board and the impact of COVID-19 pandemic on our business. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the impact of U.S. tariffs on results of operations, our ability to manage our growth, our ability to sustain or increase profitability, demand for our products, our ability to compete, our ability to rapidly develop new technology and introduce new products, our ability to safeguard our intellectual property, trends in the networking industry and fluctuations in general economic conditions, the impact of
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COVID-19 pandemic on our business, results and liquidity, volatility in our short-term investments, and the risks set forth throughout this Report, including under Part II: “Other Information”, Item 1, “Legal Proceedings” and under Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof. Except as required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Sensitivity
We had cash and cash equivalents of $189.1 million and $142.6 million as of December 31, 2020 and June 30, 2020, respectively. Cash and cash equivalents include securities that have a maturity of three months or less at the date of purchase. These amounts were held primarily in cash deposit accounts in U.S. dollars. The fair value of our cash and cash equivalents would not be significantly affected by either a 10% increase or decrease in interest rates due mainly to the short-term nature of these instruments.
Debt
We are exposed to interest rates risks primarily through borrowing under our credit facility. Interest on our borrowings is based on variable rates. Based on a sensitivity analysis, as of December 31, 2020, an instantaneous and sustained 200-basis-point increase in interest rates affecting our floating rate debt obligations, and assuming that we take no counteractive measures, would result in an incremental charge to our income before income taxes of approximately $12.2 million over the next twelve months.
Foreign Currency Risk
The vast majority of our sales are denominated in U.S. dollars, and therefore, our revenues are not directly subject to foreign currency risk. Certain of our operating expenses are denominated in the currencies of the countries in which our operations are located, and may be subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Chinese Yuan, Euro, and Taiwan Dollar. A 10% appreciation or depreciation in the value of the U.S. dollar relative to the other currencies in which our expenses are denominated would result in a charge or benefit to our income before income taxes of approximately $2.2 million.
Item 4. 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 December 31, 2020. 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 December 31, 2020, our Chief Executive Officer and Chief Accounting and Finance Officer concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2020, that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Please see Part I, Item 1, Note 10 of the notes to consolidated financial statements for a discussion of our legal proceedings.
Item 1A. Risk Factors
This Report contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the risk factors set forth below. These risks and uncertainties are not the only ones we face. If any event related to these known or unknown risks or uncertainties actually occurs, our business prospects, operating results, and financial condition could be materially adversely affected.

Risk Factors Summary

our limited ability to forecast our results of operations and sales;
volatility and competition in the markets we serve or our inability to compete effectively with our competitors;
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our reliance on a limited number of distributors for our products and the inability of our distributors to manage inventory of our products effectively, timely sell our products or estimate future demand for our products;
our inventory decisions, including, without limitation, for new product introductions, are based on assumptions and forecasts, which, if inaccurate, may result in write-downs of inventory or components;
our inability to keep pace with rapid technological and market changes or to maintain competitive prices for products;
the technological complexity of our products, which may contain undetected hardware defects or software bugs;
our inability to anticipate or mitigate cyberattacks, security vulnerabilities or other fraudulent or illegal activity;
our inability to manage our growth and expand our operations;
our inability to maintain or enhance the strength of our brand;
our reliance on a limited number of contract manufacturers to manufacture our products, and potential quality or product supply problems for our products if we are unable to secure sufficient components for our products or there is a shortage of manufacturing capacity;
our reliance on a limited number of suppliers and our inability to predict shortages in components or other supply disruptions, including, without limitations, as a result of COVID-19, or to identify or qualify alternative suppliers;
disruption to the manufacturing or shipping of our products due to natural disasters, labor shortages or operational reductions from outbreaks of diseases or other public health events, including, without limitation, COVID-19, or similar disruptions in the countries or regions in which our contract manufacturers or logistics contractors are located;
a global economic downturn;
lower than expected returns from our investments in growth areas or our enterprise and service provider technologies;
the ineffective management of product introductions, product transitions and marketing or our inability to remain competitive and stimulate customer demand for our products;
our inability to anticipate consumer preferences and develop desirable consumer products and solutions, or to execute our strategy for our consumer products or develop our sales channels;
general credit, liquidity, market, and interest rate risks to our investment securities;
exposure to increased economic and operational uncertainties from our international operations, including, without limitation, as a result of foreign policy and geopolitical developments, varying legal and regulatory regimes and the effects of foreign currency exchange rates;
the failure of our foreign warehouse and logistics providers to safeguard, manage and properly report our inventory;
exposure to increased operational risks and liability to the extent we develop our own foreign manufacturing capacity;
our inability to manage geographically dispersed research and development teams;
our limited ability to obtain and enforce our intellectual property rights, particularly in China and South America;
the misappropriation of our intellectual property and trade secrets by our contract manufacturers or others to manufacture competitive products or counterfeit products;
our exposure to extensive intellectual property litigation;
the risks of using open source software in our products;
our debt levels and the impact our debt levels may have on our ability to raise capital or otherwise finance our business;
the risks of expanding our product offerings or our operations or increases in our operating expenses;
exposure to increased operational risks associated with our investments in new businesses, products, services, technologies, joint ventures and other strategic transactions;
our reliance on third-party software and services for certain aspects of our operations, including, without limitation, our financial reporting functions;
our inability to integrate future acquisitions;
changes in LIBOR reporting practices and the index used to replace LIBOR;
our reliance on our founder and chief executive officer, who owns a majority of our common stock;
volatility in the price of our common stock due to volatility in our results of operations or our failure to pay cash dividends or to repurchase shares of our common stock pursuant to our repurchase programs;
the reliance of our products on unlicensed radio frequency spectrum, and the increasing reliance of consumer and other products on the same spectrum or from the introduction of regulation of such spectrum;
potential liability under trade protection, anti-corruption, and other laws resulting from our global operations;
changes in laws and regulations relating to the handling of personal data;
the adverse impact from litigation matters;
the adverse impact to our results of operations from successful warranty claims, product losses or recalls;
indemnification claims against us for intellectual property infringement, defective products, and security vulnerabilities;
our inability to maintain an effective system of internal controls; and
changes in tax laws and regulations or reviews or audits of our tax returns.

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Risks Related to Our Business and Industry

We have limited visibility into future sales, which makes it difficult to forecast our future results of operations.
Because of our limited visibility into end customer demand and channel inventory levels, our ability to accurately forecast our future sales is limited. We sell our products and solutions globally to network operators, service providers and consumers, primarily through our network of distributors and resellers. We do not employ a traditional direct sales force. Sales to our distributors have accounted for the majority of our revenues. Our distributors do not make long term purchase commitments to us, and do not typically provide us with information about market demand for our products. We endeavor to obtain information on inventory levels and sales data from our distributors. This information has been generally difficult to obtain in a timely manner, and we cannot always be certain that the information is reliable. If we over forecast demand, we may not be able to decrease our expenses in time to offset any shortfall in revenues, which could harm our ability to achieve or sustain expected results of operations. If we under forecast demand, our ability to fulfill sales orders will be compromised and sales to distributors may be deferred or lost altogether, which would reduce our revenues and could harm our ability to achieve or sustain expected results of operations.
The markets we serve can be especially volatile, and weakness in orders could harm our future results of operations.
Weakness in orders, directly or indirectly, from the markets we serve, including as a result of any slowdown in capital expenditures by the markets we service (which may be more prevalent during a global economic downturn, or periods of economic, political or regulatory uncertainty), could have a material adverse effect on our business, results of operations, liquidity and financial condition. Such slowdowns may continue or recur in future periods. Orders from the markets we serve could decline for many reasons other than the competitiveness of our products and services within their respective markets. These conditions have harmed our business and results of operations in the past, and some of these or other conditions in the markets we serve could affect our business and results of operations, liquidity or financial condition in any future period of such slowdowns.
We are subject to risks associated with our distributors’ inventory management practices.
Our distributors purchase and maintain their own inventories of our products, and we do not control their inventory management. Distributors may manage their inventories in a manner that causes significant fluctuations in their purchases from quarter to quarter, and which may not be in alignment with the actual demand of end customers for our products. If some distributors decide to purchase more of our products than are required to satisfy their customers’ demand in any particular quarter, because they do not accurately forecast demand or otherwise, they may reduce future orders until their inventory levels realign with their customers’ demand. If some distributors decide to purchase less of our products than are required to satisfy their customers’ demand in any particular quarter, because they do not accurately forecast demand or otherwise, sales of our products may be deferred or lost altogether, which could materially adversely affect our results of operations.
If our forecasts of future sales are inaccurate, we may manufacture too many or not enough products.
We may over or under forecast our customers’ actual demand for our products or the actual mix of our products that they will ultimately demand. If we over-forecast demand, we may build excess inventory which could materially adversely affect our operating results. If we under-forecast demand, we may miss opportunities for sales and may impair our customer relationships, which could materially adversely affect our results of operations.
The lead times that we face for the procurement of components and subsequent manufacturing of our products are usually much longer than the lead time from our customers’ orders to the expected delivery date. This increases the risk that we may manufacture too many or not enough products in any given period.
We may need to build inventory for new product announcements and shipments or decide to increase or maintain higher levels of inventory, which may result in inventory write-downs.
The Company must order components for its products and build inventory, both of finished products and components, in advance of new product announcements and shipments. Decisions to build inventory for new products or to increase or maintain higher inventory levels are typically based upon uncertain forecasts or other assumptions and may expose us to a greater risk of carrying excess or obsolete inventory. Because the markets in which the Company compete are volatile, competitive and subject to rapid technology and price changes, if the assumptions on which we base these decisions turn out to be incorrect, our financial performance could suffer and we could be required to write-off the value of excess products or components inventory or not fully utilize firm purchase commitments.
We rely on a limited number of distributors, and changes in our relationships with our distributors or changes within our distributors may disrupt our sales.
Although we have a large number of distributors in numerous countries who sell our products, a limited number of these distributors represent a significant portion of our sales. One or more of our major distributors may suffer from a decline in their financial condition, decrease in demand from their customers, or a decline in other aspects of their business which could impair their ability to purchase and resell our products. Any distributor may also cease doing business with us at any time with little or no notice. The
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termination of a relationship with a major distributor, either by us or by the distributor, could result in a temporary or permanent loss of revenues, slower or impaired collection on accounts receivable and costly and time-consuming litigation or arbitration. We may not be successful in finding other suitable distributors on satisfactory terms, or at all, and this could adversely affect our ability to sell in certain geographic markets or to certain network operators and service providers. We do not generally obtain letters of credit or other security for payment from the distributors, so we are not protected against accounts receivable default by the distributors.
We may not be able to enhance our products to keep pace with technological and market developments while offering competitive prices.
The market for our wireless broadband networking equipment is emerging and is characterized by rapid technological change, evolving industry standards, frequent new product introductions and short product life cycles. The markets for enterprise networking equipment and consumer products possess similar characteristics of rapid technological updates, evolving industry standards, frequent changes in consumer preferences, frequent new product introductions and short and unpredictable product life cycles. Our ability to keep pace in these markets depends upon our ability to enhance our current products, and continue to develop and introduce new products rapidly and at competitive prices. The success of new product introductions or updates on existing products depends on a number of factors including, but not limited to, timely and successful product development, market acceptance, our ability to manage the risks associated with new product production ramp-up, the effective management of our inventory and manufacturing schedule and the risk that new products may have defects or other deficiencies in the early stages of introduction. The development of our products is complex and costly, and we typically have several products in development at the same time. Given the complexity, we occasionally have experienced, and could experience in the future, lower than expected yields on new or enhanced products and delays in completing the development and introduction of new products and enhancements to existing products. In addition, new products may have lower selling prices or higher costs than existing products, which could negatively impact our results of operations. Our ability to compete successfully will depend in large measure on our ability to maintain a technically skilled development and engineering staff, to successfully innovate, and to adapt to technological changes and advances in the industry. Development and delivery schedules for our products are difficult to predict. We may fail to introduce new products or enhancements to existing products in a timely fashion. If new releases of our products are delayed, our distributors may curtail their efforts to market and promote our products and our users may switch to competing products.
The markets in which we compete are highly competitive.
The networking, enterprise WLAN, routing, switching, video surveillance, wireless backhaul, machine-to-machine communications and consumer markets in which we primarily compete are highly competitive and are influenced by competitive factors including:

our ability to rapidly develop and introduce new high-performance integrated solutions;
the price and total cost of ownership and return on investment associated with the solutions;
the simplicity of deployment and use of the solutions;
the reliability and scalability of the solutions;
the market awareness of a particular brand;
our ability to provide secure access to wireless networks;
our ability to offer a suite of products and solutions;
our ability to allow centralized management of the solutions; and
our ability to provide product support.
New entrants seeking to gain market share by introducing new technology and new products may also make it more difficult for us to sell our products, and could create increased pricing pressure. In addition, broadband equipment providers or system integrators may also offer wireless broadband infrastructure equipment for free or as part of a bundled offering, which could force us to reduce our prices or change our selling model to remain competitive.
If there is a shift in the market such that network operators and service providers begin to use closed network solutions that only operate with other equipment from the same vendor, we could experience a significant decline in sales because our products would not be interoperable.
We expect competition to continuously intensify as other established and new companies introduce new products in the same markets that we serve or intend to enter, as these markets consolidate. Our business, results of operations, liquidity and financial condition will suffer if we do not maintain our competitiveness.
A number of our current or potential competitors have longer operating histories, greater brand recognition, larger customer bases and significantly greater resources than we do.
As we move into new markets for different types of products, our brand may not be as well-known as the incumbents’ brands in those markets. Potential customers may prefer to purchase from their existing suppliers or well-known brands rather than a new supplier, regardless of product performance or features. We expect increased competition from other established and emerging companies if our
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market continues to develop and expand. As we enter new markets, we expect to face competition from incumbent and new market participants and there is no assurance that our entry into new markets will be successful.
Many of these companies have significantly greater financial, technical, marketing, distribution and other resources than we do and are better positioned to acquire and offer complementary products and technologies.
Industry consolidation, acquisitions and other arrangements among competitors may adversely affect our competitiveness because it may be more difficult to compete with entities that have access to their combined resources. As a result of such consolidation, acquisition or other arrangements, our current and potential competitors might be able to adapt more quickly to new technologies and consumer preference, devote greater resources to the marketing and promotion of their products, initiate or withstand price competition, and take advantage of acquisitions or other opportunities more readily and develop and expand their products more quickly than we do. These combinations may also affect customers’ perceptions regarding the viability of companies of our size and, consequently, affect their willingness to purchase our products.
The complexity of our products could result in unforeseen delays or expenses caused by undetected defects or bugs.
Our products may contain defects and bugs when they are introduced, or as new versions are released. We have focused, and intend to focus in the future, on getting our new products to market quickly. Due to our rapid product introductions, defects and bugs that may be contained in our products may not yet have manifested. We have in the past experienced, and may in the future experience, defects and bugs. If any of our products contain material defects or bugs, or has reliability, quality or compatibility problems, we may not be able to correct these problems promptly or successfully. The existence of defects or bugs in our products may damage our reputation and disrupt our sales. If any of these problems are not found until after we have commenced commercial production and distribution of a new product, we may be required to incur additional development costs, repair or replacement costs, and other costs relating to regulatory proceedings, product recalls and litigation, which could harm our reputation and results of operations. Undetected defects or bugs may lead to negative online Internet reviews of our products, which are increasingly becoming a significant factor in the success of our new product launches, especially for our consumer products. If we are unable to quickly respond to negative reviews, including end user reviews posted on various prominent online retailers, our ability to sell these products will be harmed. Moreover, we may offer stock rotation rights to our distributors. If we experience greater returns from retailers or end customers, or greater warranty claims, in excess of our reserves, our business, revenue and results of operations could be harmed.
Security vulnerabilities in our products, services and systems could lead to reduced revenues and claims against us.
The quality and performance of some of our products and services may depend upon their ability to withstand cyber-attacks. Third parties may develop and deploy viruses, worms and other malicious software programs, some of which may be designed to attack our products, systems, or networks. Some of our products and services also involve the storage and transmission of users’ and customers’ proprietary information which may be the target of cyber-attacks. Hardware and software that we produce or procure from third parties also may contain defects in manufacture or design, including bugs and other problems, which could compromise their ability to withstand cyber-attacks.
We have experienced cyber-attacks in the past, and may experience cyber-attacks in the future. As a result, unauthorized parties have obtained, and may in the future obtain, access to our systems and data and may have obtained, and may in the future obtain, our users’ or customers’ data. Our security measures may also be breached due to employee error, malfeasance, or otherwise. Third parties may also attempt to induce employees, users, or customers to disclose sensitive information in order to gain access to our data or our users’ or customers’ data. Any such breach or unauthorized access could result in significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of our products and services. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
For example, in January 2021, we became aware that certain of our information technology systems hosted by a third party cloud provider were improperly accessed and certain of our source code and the credentials used to access the information technology systems themselves had been compromised. We received a threat to publicly release these materials unless we made a payment, which we have not done. As a result, it is possible that the source code and other information could be publicly disclosed or made available to our competitors. Due to the nature of the source code and the other information that we believe was improperly accessed, we at this time do not believe that any public disclosure will have a material adverse effect on our business or operations, but it is impossible to gauge the precise impact of any such disclosure. We have taken, and will continue to take, steps to remediate access controls to our information technology systems.
The costs to us to eliminate or alleviate security vulnerabilities can be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions, as well as potential liability to the company. The risk that these types of events could seriously harm our business is likely to increase as we expand the web-based products and services that we offer.
We may be unable to anticipate or fail to adequately mitigate against increasingly sophisticated methods to engage in illegal or fraudulent activities against us.
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Despite any defensive measures we take to manage threats to our business, our risk and exposure to these matters remain heightened because of, among other things, the evolving nature of such threats in light of advances in computer capabilities, new discoveries in the field of cryptography, new and sophisticated methods used by criminals including phishing, social engineering or other illicit acts, or other events or developments that we may be unable to anticipate or fail to adequately mitigate. In June 2015, we determined that we were the victim of criminal fraud known to law enforcement authorities as business e-mail compromise fraud which involved employee impersonation and fraudulent requests targeting our finance department. The fraud resulted in transfers of funds aggregating $46.7 million held by a Company subsidiary incorporated in Hong Kong to other overseas accounts held by third parties. To date, the Company has recovered $16.7 million. The Company recovered $8.1 million in fiscal 2015, resulting in a charge of $39.1 million in the fourth quarter of fiscal 2015, including additional expenses consisting of professional service fees associated with the fraud loss. In fiscal 2016, the Company recorded a net recovery of an additional $8.3 million, comprised of an $8.6 million recovery less $0.3 million of professional service fees associated with the recovery. No additional recoveries were made since fiscal year ended 2016.
The Company is continuing to pursue the recovery of the remaining $30.0 million and is cooperating with numerous overseas law enforcement authorities who are actively pursuing a multi-agency criminal investigation. However, any additional recoveries are likely remote and therefore cannot be assured.
The Company may not be successful in obtaining any insurance coverage for this loss. While we do not expect the fraud to have a material impact on our business, we have borne, and will continue to bear additional expenses in connection with the remediation and investigation of the fraud.
Any future illegal acts such as phishing, social engineering or other fraudulent conduct that go undetected may have significant negative impacts on our reputation, operating results and stock price.
Our business and prospects depend on the strength of our brand.
Maintaining and enhancing our brand is critical to expanding our base of distributors and end customers. Maintaining and enhancing our brand will depend largely on our ability to continue to develop and provide products and solutions that address the price-performance characteristics sought by end customers and the users of our products and services, particularly in developing markets which comprise a significant part of our business. If we fail to promote, maintain and protect our brand successfully, our ability to sustain and expand our business and enter new markets will suffer.
We may fail to effectively manage the challenges associated with our growth.
Over the past several years we have expanded, and continue to expand, our product offerings, the number of customers we sell to, our transaction volumes, the number of our facilities, and the number of contract manufacturers that we utilize to produce our products. Failure to effectively manage the increased complexity associated with this expansion, particularly in light of our lean management structure, would make it difficult to conduct our business, fulfill customer orders, and pursue our strategies. We may also need to increase costs to add personnel, upgrade or replace our existing reporting systems, as well as improve our business processes and controls as a result of these changes. If we fail to effectively manage any of these challenges, we could suffer inefficiencies, errors and disruptions in our business, which in turn would adversely affect our results of operations.
We rely on a limited number of contract manufacturers to produce our products. Supply chain issues or a shortage of adequate component supply or manufacturing capacity could increase our costs or delay our ability to fulfill future orders and could have a material adverse impact on our business and results of operations.
We retain contract manufacturers, located primarily in China and Vietnam, to manufacture our products. Any significant change in our relationship with these manufacturers could have a material adverse effect on our business, results of operations and financial condition. Our reliance on contract manufacturers for manufacturing our products can present significant risks to us because, among other things, we do not have direct control over their activities. If we fail to manage our relationship with our manufacturers effectively, or if they experience operational difficulties, our ability to ship products to our retailers and distributors could be impaired and our competitive position and reputation could be harmed.
We significantly depend upon our contract manufacturers to:
assure the quality of our products;
manage capacity during periods of volatile demand;
qualify appropriate component suppliers;
ensure adequate supplies of components and materials;
deliver finished products at agreed upon prices and schedules; and
safeguard materials and finished goods.
The ability and willingness of our contract manufacturers to perform is largely outside our control.
In the event that we receive shipments of products that fail to comply with our technical specifications or that fail to conform to our quality control standards, and we are not able to obtain replacement products in a timely manner, we risk revenue losses from the inability to sell those products, increased administrative and shipping costs, and lower profitability. Additionally, if defects are not
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discovered until after distributors and/or end users purchase our products, they could lose confidence in the technical attributes of our products and our business and results of operations could be harmed.
We do not control our contract manufacturers or suppliers, including their labor, environmental or other practices. Environmental regulations or changes in the supply, demand or available sources of natural resources may affect the availability and cost of goods and services necessary to run our business. Non-compliance or deliberate violations of labor, environmental or other laws by our contract manufacturer or suppliers, or a failure of these parties to follow ethical business practices, could lead to negative publicity and harm our reputation or brand.
We believe that our orders may not represent a material portion of our contract manufacturers’ total orders and, as a result, fulfilling our orders may not be a priority in the event our contract manufacturers are constrained in their capacity. If any of our contract manufacturers experiences problems in its manufacturing operations, or if we have to change or add additional contract manufacturers, our ability to ship products to our customers would be impaired.