FinanceLooker

Excrept from filing document 2024-06-30

The aggregate market value of the registrant s common stock held by non affiliates of the registrant was approximately 583 781 006 based upon the closing price of 139 56 of such common stock on the New York Stock Exchange on December 29 2023 the last business day of the registrant s most recently completed second quarter Shares of common stock held as of December 31 2023 by each director and executive officer of the registrant as well as shares held by each holder of 5 of the common stock known to the registrant have been excluded for purposes of the foregoing calculation This determination of affiliate status is not a conclusive determination for other purposes
Portions of the registrant s Definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the registrant s 2024 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10 K to the extent stated herein
When used in this Annual Report on Form 10 K 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 our growth strategies future prices our competitive status our efforts to mitigate shortages of components used to manufacture our products 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 the Facilities as defined herein future acquisitions of and investments in complimentary businesses the expected impact of various accounting policies and rules adopted by the Financial Accounting Standards Board the military conflict between Russia and Ukraine and the escalating tensions between China and Taiwan on our business and results of operations Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected These risks and uncertainties include but are not limited to the impact of the global shortage of components and pricing inflation associated therewith the impact of U S tariffs on results of operations our ability to procure products 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 markets that we compete and fluctuations in general economic conditions the military conflict between Russia and Ukraine and the escalating tensions between China and Taiwan on our business results and liquidity and the risks set forth throughout this Annual Report on Form 10 K including under Item 1 Business 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
This Annual Report on Form 10 K also contains estimates and other information concerning our industry including market size and growth rates which are based on industry publications surveys and forecasts This information involves a number of assumptions and limitations and you are cautioned not to give undue weight to these estimates These industry publications surveys and forecasts generally indicate that their information has been obtained from sources believed to be reliable While we believe these industry publications surveys and forecasts are reliable we have not independently verified such data The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors including those described under Item 1A Risk Factors
The Company was founded by Robert Pera in 2005 We sell equipment and provide the related software platforms worldwide through a network of over 100 distributors on line retailers and direct to customers through our webstores Ubiquiti Inc is focused on democratizing network technology on a global scale Our devices play a role in creating networking infrastructure in over 200 countries and territories around the world Our professional networking products are powered by our UISP and UniFi OS software platforms to provide high capacity distributed Internet access and unified information technology management respectively
We develop technology platforms for high capacity distributed Internet access unified information technology and consumer electronics for professional home and personal use We categorize our solutions into three main categories high performance networking technology for enterprises service providers and consumers We target the enterprise and service provider 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 including
In addition to Mr Pera our founder Chairman of the Board and Chief Executive Officer who is central to our business the majority of our human capital resources consist of entrepreneurial and de centralized research and development R D personnel 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
We offer a broad and expanding portfolio of networking products and solutions for operator owners of wireless internet services WISP s 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 WISP s 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 door access systems 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 are targeted to the smart home and highly connected consumers We believe that our products are differentiated due to our proprietary software firmware expertise and hardware design capabilities
We operate our business as one reportable and operating segment Further information regarding Segments can be found in Note 13 to our Consolidated Financial Statements Our revenues were 1 9 billion 1 9 billion and 1 7 billion in the fiscal years ended June 30 2024 2023 and 2022 respectively We reported net income of 350 0 million 407 6 million and 378 7 million in the fiscal years ended June 30 2024 2023 and 2022 respectively Refer to our Consolidated Financial Statements included under Part IV Item 15 of this Annual Report on Form 10 K for more financial information
Internet traffic worldwide has grown rapidly in recent years driven by an increase in the number of users increasing mobility of those users and high bandwidth applications such as video audio cloud based applications online gaming and social networking Wired networking solutions have traditionally been used to address increasing consumer and enterprise bandwidth needs However the high initial capital requirements and ongoing operating costs and long market lead times associated with building and installing infrastructure for wired networks has severely limited the widespread deployment of these networks in underserved and underpenetrated markets Wireless networks have emerged as an attractive alternative for addressing the broadband access needs of underserved and underpenetrated markets in both emerging and developed countries
We offer products and solutions based on our proprietary technology across multiple markets Utilizing low cost hardware and innovative software and firmware we seek to build price performance solutions to address both enterprises and service providers
airMAX platform includes proprietary protocols developed by us that contain advanced technologies for minimizing signal noise Devices on the airMAX platform such as customer premise equipment CPE base station and backhaul are able to support a wireless network that can scale to hundreds of clients per base station over long distances while maintaining low latency and high throughput
our airFiber platform is a wireless backhaul point to point radio system a wireless method of transmitting data to and from network backbone Components of the airFiber products were designed to provide low latency with high throughput Our airFiber product uses an integrated split antenna and a global positioning system to simultaneously send data packets from each side of the link
UFiber GPON platform a plug and play fiber network technology that allows users to build passive optical network deployment with minimal effort and cost It is designed to enable internet providers ISPs to quickly build high speed fiber internet networks for many users and over long distance
Our research and development organization is responsible for the design development and testing of our products Our geographically distributed engineering team has deep expertise and experience in networking and antenna design and we have a number of personnel with longstanding experience with network architecture and operation We have developed and intend to continue to develop our technology in part by operating with a relatively flat reporting structure that relies on individual contributors or small development teams to develop test and obtain feedback for our products
As of June 30 2024 our research and development team consisted of 1 134 full time equivalent employees including contractors located in the United States Taiwan China Latvia the Czech Republic Lithuania Ukraine Sweden and elsewhere Our research and development operations work on product development of new products and new versions of existing products Our research and development expenses were 159 8 million 145 2 million and 137 7 million for fiscal 2024 fiscal 2023 and fiscal 2022 respectively We expect that the number of our research and development personnel will increase over time and that our research and development expenses will also increase For a further discussion of the uncertainties and business risks associated with our international workforce and operations refer to risk factors under Part I Item 1A Risk Factors Risks Related to Our International Operations
We use contract manufacturers primarily located in Vietnam and China to manufacture our products Over the long term our contract manufacturers are not required to manufacture our products for any specific period or in any specific quantity If necessary we expect that it would take approximately three to six months to transition manufacturing quality assurance and shipping services to new providers For a further discussion of the uncertainties and risks associated with our contract manufacturers see Part I Item 1A Risk Factors Risks Related to Our Business and Industry We rely on a limited number of contract manufacturers to produce our products Shortages of components 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 rely on third party components and technology to build and operate our products and we rely on our contract manufacturers to obtain the components subassemblies and products necessary for the manufacture of our products While components and supplies in the past have been generally available from a variety of sources we and our contract manufacturers currently depend on a single or limited number of suppliers for several components for our products We and our contract manufacturers rely on purchase orders rather than long term contracts with these suppliers The majority of our product revenues are dependent upon the sale of products that incorporate components from a small number of suppliers We are party to non exclusive license agreements with some of these suppliers whereby we license certain technology that we incorporate into our products These agreements generally automatically renew for successive one year periods unless the agreements are terminated by written notice of nonrenewal with advance notice prior to the end of their then current term The Company has not received any termination notice as of the date of this Annual Report on Form 10 K We depend on these license agreements to modify and replace firmware on certain chipsets with our proprietary firmware While our agreements with suppliers remains effective the terms of these agreements allow either party to terminate the agreements without cause at the end of the annual contract term
We have experienced in the past particularly from 2020 to 2023 and may experience in the future periodic volatility in the supply of components used to manufacture our products This has resulted in supply constraints and corresponding increases in component delivery lead times and costs to obtain components and resulted in delays in product production
We do not stockpile sufficient components to cover the time it would take to re engineer our products to replace the components used to manufacture our products and we generally do not have any guaranteed supply arrangements with our suppliers for these components including the chipsets While we have attempted to mitigate supply shortages through our contract manufacturers and exploring open market avenues to procure the necessary components there is no assurance that we will be able to obtain sufficient supply of such components on suitable terms including the pricing terms If we need to seek a suitable second source for these components for our products there can be no assurance that we would be able to successfully source our chipsets on suitable terms if at all In any event our use of chipsets from multiple sources may require us to significantly modify our designs and manufacturing processes to accommodate these different chipsets We believe any shortage or delay in the supply of these components would harm our ability to continue to manufacture and supply our products which would adversely affect our product offerings and revenues For a further discussion of the uncertainties and business risks associated with the shortages of components see Part I Item 1A Risk Factors Risks Related to Our Business and Industry We rely upon a limited number of suppliers If these sources fail to satisfy our supply requirements or we are unable to manage our supply requirements through other sources it could disrupt our business or have a material adverse effect on our results of operations and financial condition
We have experienced significant supply constraints caused in part by the COVID 19 pandemic Our efforts to mitigate these supply constraints have included for example increasing our inventory build in an attempt to secure supply and meet customer demand paying higher component and shipping costs to secure supply and modifying our product designs to leverage alternate suppliers Although these mitigation efforts are intended to optimize our access to the components required to meet customer demand for our products we have limited visibility into future sales which makes it difficult to forecast our future results of operations These mitigation efforts have caused our inventory and vendor deposit balances to increase in the past and they may cause such increases in the future These mitigation efforts therefore significantly increase the risks of future material excess obsolete inventory and related losses We believe that we have taken the right actions to mitigate these supply constraints however we recognize the associated risks For a further discussion of the uncertainties and business risks associated with the supply constraints refer to Part I 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 public health problems military conflicts and geopolitical tensions which could adversely affect our business results of operations and financial condition
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 United States of Trade Representative announced it will reduce Section 301 List 4A additional tariffs from 15 to 7 5 and the List 4B tariffs would not go into effect These tariffs have 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 I 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
We sell our products and solutions globally to enterprises and service providers primarily through our extensive network of distributors and to a lesser extent direct customers During fiscal 2024 we sold our products to over 100 distributors and direct to customers through our webstores collectively customers in over 75 countries In fiscal 2024 2023 and 2022 there were no customers that represented 10 or more of our revenue Refer to Note 13 in our Notes to Consolidated Financial Statements for more information regarding financial data by geographic areas
A majority of our sales are made outside the United States and we anticipate that non U S sales will continue to be a significant portion of our revenues We do not have any visibility on the location or extent of purchases of our products by individual network operators and service providers from our distributors For further discussion of the risks associated with foreign operations see Part I Item 1A Risk Factors Risks Related to Our International Operations
Our sales are primarily made through standard sale orders for delivery of products Our inability to procure sufficient product due to COVID 19 and the worldwide chip shortage had led to a significant increase in our backlog of unfulfilled orders in fiscal 2022 However with the abatement of supply constraints we were able to reduce our backlog of unfulfilled orders in 2023 and 2024 However we do not believe our backlog information is a reliable indicator of our ability to achieve any particular level of revenue or financial performance
The markets for networking solutions for service providers enterprise WLAN video surveillance microwave backhaul and machine to machine communications technology are highly competitive and are influenced by the following competitive factors among others
We believe we compete favorably with respect to these factors We have been successful in rapidly developing high performance integrated solutions because we use individual contributors and small experienced development teams that focus on the key needs of the markets Our products and solutions are designed to meet the price performance characteristics demanded by our customers to achieve a strong overall return on their investment Our products are designed to operate in growing networks without degradation in performance or operational complexity
In the backhaul market our competitors include Cambium Networks Ceragon Networks MikroTîkls Airspan and Trango In the CPE market our competitors include Cambium Networks MikroTîkls Ruckus Wireless CommScope TP Link Technologies and Tarana Wireless In the antenna market we primarily compete with PCTEL ARC ITELITE and Radio Waves In the enterprise WLAN market we primarily compete with Aerohive Networks Aruba Networks HPE Cisco Meraki and Cisco and Ruckus Wireless CommScope In the video surveillance market we primarily compete with Axis Communications HIKVISION Hanwha Vision and Vivotek We expect increased competition from other established and emerging companies if our market continues to develop and expand As we enter new markets we expect to face competition from incumbent and new market participants
We rely on a combination of patent copyright trademark and trade secret laws as well as confidentiality procedures and contractual restrictions to establish and protect our proprietary rights These laws procedures and restrictions provide only limited protection and the legal standards relating to the validity enforceability and scope of protection of intellectual property rights are uncertain and still evolving Furthermore effective patent trademark copyright and trade secret protection may not be available in every country in which our services and products are available We seek patent protection for certain of our key concepts components protocols processes and other inventions
We have obtained a number of patents and trademarks in the United States and other countries We have also filed and will continue to file patent applications and trademark applications in the United States and other countries where we believe there to be a strategic technological or business reason to do so Any patents or trademarks issued to us now or in the future may be challenged invalidated or circumvented and may not provide sufficiently broad protection or may not prove to be enforceable in actions against alleged infringers There can be no assurance that others will not assert intellectual property rights to technologies that are relevant to us or that our intellectual property rights will give us competitive advantage
We endeavor to enter into agreements with our employees and contractors and with parties with whom we do business in order to limit access to and disclosure of our proprietary information We cannot be certain that the steps we have taken will prevent unauthorized use or reverse engineering of our technology Moreover others may independently develop technologies that are competitive with ours or that infringe on our intellectual property The enforcement of our intellectual property rights also depends on the success of our legal actions against infringers and counterfeiters but these actions may not be successful even when our rights have been infringed For further discussion of the risks associated with intellectual property see Part I Item 1A Risk Factors Risks Related to Intellectual Property
We are subject to various environmental regulations governing materials usage packaging and other environmental impacts in the United States and in various countries where our products are manufactured and sold We are also subject to regulatory developments including SEC disclosure regulations relating to conflict minerals relating to ethically responsible sourcing of the
components and materials used in our products To date compliance with federal state local and foreign laws enacted for the protection of the environment has had no material effect on our capital expenditures earnings or competitive position
Our employees are at the center of everything we do at Ubiquiti and are the driving force for our innovation and success Ubiquiti seeks to provide a safe inclusive and positive employee experience for all its employees It is our policy to make employment decisions and opportunities based on merit qualifications potential and competency As of June 30 2024 we employed and or contracted with 1 515 full time equivalent employees of which 1 134 were in research and development 264 in operations and 117 in sales general and administrative Our workforce is diversified across multiple locations with 64 23 and 13 located in i Asia Pacific ii Europe the Middle East and Africa EMEA and iii the Americas respectively The Company believes that its entrepreneurial decentralized and diversified work environment has contributed to its success We seek to maintain a culture of accountability and performance that enables us to deliver highly advanced and easily deployable solutions that appeal to a global market
We believe that human capital management is key to our continued growth and success and is critical to our ability to attract retain and develop talented and skilled employees We hire and compensate our talent based on their role experiences contributions and performance regardless of their gender race or ethnic background or other personal characteristics
Our human capital is governed by employment regulations in each country in which we operate We monitor key employment activities such as hiring termination and pay practices to comply with established regulations across the world
Our incentive plans are designed to increase stockholder value by attracting retaining and motivating high value personnel through the granting of equity and non equity based compensation awards The principal purpose of our incentive plans is to motivate individuals to perform to the best of their abilities to achieve our short and long term objectives
The Company s Annual Report on Form 10 K Quarterly Reports on Form 10 Q Current Reports on Form 8 K and amendments to reports filed or furnished pursuant to Sections 13 a and 15 d of the Securities Exchange Act of 1934 as amended Exchange Act are filed or furnished with the U S Securities and Exchange Commission the SEC Such reports and other information filed or furnished by the Company with the SEC are available free of charge on the Company s website at
Reports of beneficial ownership filed pursuant to Section 16 a of the Exchange Act are also available on our website Also posted on our website on the Corporate Governance page is the Company s Code of Ethics for Principal Executive and Senior Financial Officers and Section 16 Officers
We will if required disclose future amendments to our Code of Ethics that apply to our principal executive officer principal financial officer principal accounting officer or persons performing similar functions or certain waivers of such provisions granted to such persons on our website identified above
Our executive office is located at 685 Third Avenue 27th Floor New York New York 10017 Our website address is www ui com From time to time we may use our website and its subdomains as a channel of distribution of material information The information on or that can be assessed through any websites cited herein are not part of this Annual Report on Form 10 K Further the Company s references to any URLs for any websites cited herein are intended to be inactive textual references only
This Annual Report on Form 10 K 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
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 and increases of vendor deposits
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 as a result of including without limitation the military conflict between Russia and Ukraine the escalating tensions between China and Taiwan or our failure 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 the military conflict between Russia and Ukraine the escalating tensions between China and Taiwan or similar disruptions in the countries or regions in which our contract manufacturers or logistics contractors are located
exposure to increased economic and operational uncertainties from our international operations including without limitation as a result of foreign policy and geopolitical developments particularly those involving China and Russia varying legal and regulatory regimes and the effects of foreign currency exchange rates
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
We have limited visibility into future sales as a result of our reliance on distributors which may increase volatility in our results and 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 build excess inventory increase vendor deposits and we may not be able to decrease our expenses in time to offset any shortfall in revenues and we may be required to record write downs for excess or obsolete inventory 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 may impair our distributor relationships would reduce our revenues and could harm our ability to achieve or sustain expected results of operations
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
In addition 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 This risk may be further exacerbated by
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 serve 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 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 and or increased vendor deposits
The Company must order components for its products build inventory both of finished products and components and in certain cases pay vendor deposits in advance of new product announcements and shipments Decisions to build inventory for new products or to increase or maintain higher inventory levels and vendor deposit 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 competes are volatile competitive and subject to rapid technology changes price changes shortages and other disruptions 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 increase vendor deposits or not fully utilize firm purchase commitments
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 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
The market for our wireless broadband networking equipment 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 to 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 development of sales channels our ability to manage the risks associated with new product forecast 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 including the maintenance of compatibility between older and newer versions of our products In addition new products may have lower selling prices or higher costs than existing products and may be more prone to technical problems 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 networking enterprise WLAN routing switching video surveillance door access VoIP wireless backhaul machine to machine communications and consumer markets in which we primarily compete are highly competitive and are influenced by competitive factors including
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
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 as our 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
Our products may contain defects and bugs when they are introduced or as new versions are released 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 have 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 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
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 Because we use our products in our own operations any security vulnerabilities in our products could be disruptive to our business and harm our reputation 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 In addition customers not deploying security updates in a timely manner or deciding not to upgrade products services or solutions could result in claims of liability against us damage our reputation or otherwise materially harm our business
Additionally our sales to end customers through our webstores have increased which may expose us to liabilities associated with the online collection of customer data including credit card information and the costs we may incur to mitigate such risks Our sales to end customers through our webstores require the transmission of confidential information including credit card information securely over public networks Third parties may have the technology or knowledge to breach the security of customer transaction data Although we and our service providers have security measures related to our systems and the privacy of our end customers we cannot guarantee these measures will effectively prevent others from obtaining unauthorized access to our information and our customers information Any person who circumvents our security measures could destroy or steal valuable information and or disrupt our operations Any security breach could also expose us and our service providers to risks of data loss litigation and liability and could seriously disrupt operations and harm our reputation any of which could adversely affect our financial condition and results of operations In addition state and federal laws and regulations are increasingly enacted to protect consumers against identity theft These laws and regulations will likely increase the costs of doing business and if we or our service providers fail to implement appropriate security measures or to detect and provide prompt notice of unauthorized access as required by some of these laws and
regulations we could be subject to potential claims for damages and other remedies which could adversely affect our business and results of operations For additional information regarding the impact of privacy regulations applicable to our business see Risks Related to Regulatory Legal and Tax Matters Our failure to comply with U S and foreign laws related to privacy data security cybersecurity and data protection such as the E U Data Protection Directive and China Cybersecurity Law could adversely affect our financial condition results of operations and our brand
We and certain of our vendors have experienced cyber attacks in the past and we our vendors suppliers and distributors may experience cyber attacks in the future As a result unauthorized parties have obtained and may in the future obtain access to our systems our confidential business information and data and may have obtained and may in the future obtain our users or customers data Our security measures have in the past and may in the future be breached due to human error malfeasance or otherwise Third parties may also attempt to induce employees users or customers or those of our vendors 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 costly and time intensive notice requirements or other remediation efforts 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 did not do and the party responsible was ultimately prosecuted 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 in our products services and system 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 products and services that we offer
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 and artificial intelligence new discoveries in the field of cryptography new and sophisticated methods used by criminals including phishing social engineering or other illicit acts the increasing use of our webstores by customers 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
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
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 and type 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 upon a limited number of contract manufacturers to produce our products Shortages of components 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 Vietnam and China 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
Additionally from time to time unexpected events such as health crises or pandemics have had and may have in the future adverse effects on the ability of our contract manufacturers to fulfill their obligations to us due to among other things work stoppages or slowdowns due to facility closures or other social distancing mitigation efforts and the inability of our contract manufacturers to procure adequate supplies of the components to manufacture our products A shortage of adequate component supply or manufacturing capacity could increase our costs by requiring us to use alternative contract manufacturers or component suppliers which may not be available to us on acceptable terms if at all Moreover our use of chipsets from different or multiple sources may require us to significantly modify our designs and manufacturing processes to accommodate these different chipsets which would also increase our manufacturing costs and could delay our ability to manufacture products and result in decreased sales of our products These increases in manufacturing costs or delays in manufacturing could have a material adverse impact on our business and results of operations For additional discussion of the risks associated with supply chain issues or supplies of components see the risk factor below captioned We rely upon a limited number of suppliers If these sources fail to satisfy our supply requirements or we are unable to manage our supply requirements through other sources it could disrupt our business or have a material adverse effect on our results of operations and financial condition
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 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
We rely upon a limited number of suppliers If these sources fail to satisfy our supply requirements or we are unable to manage our supply requirements through other sources it could disrupt our business or have a material adverse effect on our results of operations and financial condition
We use components that are subject to price fluctuations shortages or interruptions of supply The cost quality and availability of these components are essential to the production and sale of all of our products and disruptions in our supply of these components could delay or disrupt the supply of our products and affect our business results of operations and financial condition In 2020 and through most of 2023 we experienced reduced availability of components used to manufacture our products especially the chipsets which impacted our ability and costs to manufacture our products These supply shortages have resulted in increased component delivery lead times and increased costs to obtain components particularly chipsets and resulted in delays in product production We do not stockpile sufficient components particularly the chipsets to cover the time it would take to re engineer our products to replace the components used to manufacture our products If there are shortages of chipsets or other components used to manufacture our products while we expect to work closely with our suppliers and contract manufacturers to minimize the potential adverse impacts of such supply shortage there are many companies seeking to purchase the same components many of which have greater resources and larger market share than we have which may limit the effectiveness of our efforts There is also no assurance that we will be able to obtain sufficient chipsets or other components on acceptable terms if at all which could delay or disrupt the supply of our products and affect our business results of operations and financial condition
We purchase components directly or through our contract manufacturers from third parties that are necessary for the manufacture of our products Shortages in the supply of components or other supply disruptions including without limitation due to increasing demand for electronics and reductions in supply as a result of unforeseen events such as health crises or pandemics geopolitical conditions including China Taiwan relations or commercial disputes with the suppliers may not be predicted in time to design in different components or qualify other suppliers Shortages or supply disruptions may also increase the prices of components due to market conditions and reduce our gross margin and profitability if we are unable to pass these price increases through to our customers While many components are generally available from a variety of sources we and our contract manufacturers currently depend on a single or limited number of suppliers for several components for our products For example we currently rely upon some chipset suppliers such as Qualcomm and Broadcom as single source suppliers of certain components for some of our products and a disruption in the supply of those components would significantly disrupt our business
We and our contract manufacturers generally rely on short term purchase orders rather than long term contracts with the suppliers of components for our products particularly chipsets As a result even if the components for our products including chipsets are available we and our contract manufacturers may not be able to procure sufficient components at reasonable prices to build our products in a timely manner Further in order to minimize their inventory risk our manufacturers might not order components from third party suppliers with adequate lead time thereby impacting our ability to meet our demand forecast We may therefore be unable to meet customer demand for our products which would have a material adverse effect on our business results of operations and financial condition
Our products especially new products sometimes utilize custom components available from only one or limited number of sources When a component or product uses new technologies capacity constraints may exist until the suppliers yields have matured or manufacturing capacity has increased Many factors may affect the continued availability of these components at acceptable prices including if those suppliers decide to concentrate on the production of common components instead of components customized to meet our requirements There is no assurance that the supply of such components will not be delayed or constrained
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 public health problems military conflicts and geopolitical tensions which could adversely affect our business results of operations and financial condition
The manufacturing or shipping of our products at one or more facilities may be disrupted because our manufacturing and logistics contractors are primarily located in Vietnam and China Our principal executive offices are located in New York New York and we
have operations in Ukraine Taiwan and their surrounding countries The risks of earthquakes extreme storms and other natural disasters including as a result of climate change military conflicts or geopolitical tensions in these geographic areas are significant In addition global climate change may result in significant natural disasters occurring more frequently or with greater intensity such as drought wildfires storm sea level rise changing precipitation and flooding Any disruption resulting from these events could cause significant delays in product development or shipments of our products until we are able to shift our development manufacturing or logistics centers from the affected contractor to another vendor or shift the affected administrative or research and development activities to another location Our business may be materially adversely affected by public health problems particularly in China For example in the last decade China has suffered health crises related to the outbreak of avian influenza severe acute respiratory syndrome and COVID 19 The COVID 19 pandemic the military conflict between Russia and Ukraine the escalating tensions between China and Taiwan 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 Public health problems may also result in quarantines business closures unavailability of key personnel domestic and international transportation restrictions import and export complications and otherwise cause shortages in the supply of components or cause other disruptions within our supply chain Public health problems have caused and along with the military conflict between Russia and Ukraine and the escalating tensions between China and Taiwan may cause in the future disruptions delays shortages and increased costs within our supply chain and distribution channels In addition public health problems may require us to take precautionary measures to minimize the risk to our employees including requiring our employees to work remotely and suspending non essential travel which could negatively affect our business Additionally when our suppliers ability to manufacture or provide key components or services is impacted by supply chain disruptions we have incurred and may incur in the future additional costs to expedite deliveries of components and services As a result of the transition to a remote working environment we may experience disruptions or inefficiencies in our ability to operate our business The continuation of these remote working measures also introduces additional operational risk including increased cybersecurity risk These cybersecurity risks include greater phishing social engineering malware and other cybersecurity attacks greater risk of a security breach resulting in the unauthorized release destruction or misuse of valuable information and potential impairment of our ability to perform critical functions all of which could expose us to risks of data or financial loss litigation and liability and could seriously disrupt our operations which could materially and adversely affect our business financial condition or results of operations Public health problems may expose us to unanticipated liability or require us to change our business practices in a manner materially adverse to our business results of operations and financial condition In addition the outbreak of communicable diseases could result in a widespread health crisis that could adversely affect general commercial activity and the economies and financial markets of many countries which may affect the demand for our products and services and our ability to obtain financing for our business The extent to which public health problems may impact our business results of operations and financial conditions will depend on developments that are highly uncertain and cannot be predicted Such developments may include the geographic spread of the public health problems the severity of the public health problems the duration of the outbreak and the type and duration of actions that may be taken by various governmental authorities in response to the outbreak and the impact on the U S and the global economy An outbreak of public health problems or the perception that such an outbreak could occur and the measures taken by the government of countries affected could adversely affect our business results of operations liquidity and financial condition
Additionally the extent to which the military conflict between Russia and Ukraine or the escalating tensions between China and Taiwan may impact our business or results of operations in future periods will depend on future developments including the severity and duration of the conflicts their impact on regional and global economic conditions as well as their impact on surrounding countries including their impact on our employees and contractors in Ukraine Taiwan China and their surrounding countries and its impact on global supply chains A worsening of the conflict between Russia and Ukraine or the tensions between China and Taiwan or the spread of either conflict to surrounding countries could adversely affect our business results of operations liquidity and financial condition
General global economic downturns and macroeconomic trends including inflation or slowed economic growth may negatively affect our customers and their ability to purchase our products A downturn or such other trends may decrease our revenues and increase our costs and may increase credit risk with our customers and impact our ability to collect account receivable and recognize revenue
The global macroeconomic environment has been challenging and inconsistent caused by inflation instability in the global credit markets the impact of uncertainty regarding global central bank monetary policy and the instability in the geopolitical environment in many parts of the world
Inflation in the United States and the other countries that we operate has decreased from its previous elevated level however it is uncertain whether inflation will continue to decrease or whether it may rise again Rising inflation could have an adverse impact on our expenses Our costs are subject to fluctuations including due to the costs of raw materials labor transportation and energy Therefore our business results depend in part on our continued ability to manage these fluctuations through pricing actions cost
saving projects and sourcing decisions while maintaining and improving margins and market share Failure to manage these fluctuations could adversely impact our results of operations or financial conditions
Unfavorable macroeconomic conditions such as a recession or continued slowed economic growth may negatively affect demand for our products and exacerbate some of the other risks that affect our business results of operations and financial condition Factors affecting the level of consumer spending include general market conditions macroeconomic conditions fluctuations in foreign exchange rates and interest rates and other factors such as consumer confidence the availability and cost of consumer credit levels of unemployment and tax rates A tighter credit market for consumer business and service provider spending may have several adverse effects including reduced demand for our products increased price competition or deferment of purchases and orders by our customers If global economic conditions are volatile or if economic conditions deteriorate the consumer demand for our products may not reach our sales targets Additional effects of unfavorable macroeconomic conditions may include increased demand for customer finance difficulties in collection of accounts receivable higher overhead costs as a percentage of revenue and higher interest expense risk of supply constraints risk of excess and obsolete inventories risk of excess facilities and manufacturing capacity and increased risk of counterparty failures Our sensitivity to economic cycles and any related fluctuation in consumer demand could adversely affect our business financial condition and results of operations
We have been investing and expect to continue to invest in growth areas in our enterprise and service provider technologies and if the return on these investments is lower or develops more slowly than we expect our results of operations may be harmed
We have and we may continue to invest and dedicate resources into new growth areas such as expansion in our enterprise and service provider technologies and subscription services However the return on our investments may be lower or may develop more slowly than we expect If we do not achieve the benefits anticipated from these investments including if our selection of areas for investment does not play out as we expect or if the achievement of these benefits is delayed our results of operations may be adversely affected Additionally as we invest and dedicate resources into new growth areas there is no assurance that we may succeed at maintaining our competitive position in existing enterprise and service provider technologies
We believe that we must continually develop and introduce new products enhance our existing products effectively stimulate customer demand for new and upgraded products and successfully manage the transition to these new and upgraded products to maintain or increase our revenue The success of new product introductions depends on a number of factors including but not limited to timely and successful research and development pricing market and consumer acceptance the effective forecasting and management of product demand purchase commitments inventory levels and vendor deposit levels the availability of products in appropriate quantities to meet anticipated demand the management of manufacturing and supply costs the management of risks associated with new product production ramp up issues and the risk that new products may have quality issues or other defects or bugs in the early stages of introduction Therefore we may not correctly determine in advance the ultimate effect of new product introductions and transitions Additionally if the assumptions on which we based our forecasts and management of product demand purchase commitments inventory levels or vendor deposit levels 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 increase the vendor deposit levels or not fully utilize firm purchase commitments
In addition the introduction or announcement of new products or product enhancements may shorten the life cycle of our existing products or reduce demand for our current products thereby offsetting any benefits of successful product introductions and potentially lead to challenges in managing inventory of existing products Failure to complete product transitions effectively or in a timely manner could harm our brand and lead to among other things lower revenue excess prior generation product inventory or a deficit of new product inventory and reduced profitability
In connection with introduction of new products we may spend significant amount on advertising and other marketing campaigns such as television print advertising social media and others as well as increased promotional activities to build brand awareness and acquire new users While we seek to structure our advertising campaigns in the manner that we believe is most likely to encourage people to use our products and services we may fail to identify advertising opportunities that satisfy our anticipated return on advertising spend accurately predict customer acquisition or fully understand or estimate the conditions and behaviors that drive cust
We depend upon effective sales channels to reach the customers who are the ultimate purchasers of our products We sell our products through a mix of retail channels including our webstores distributors e commerce big box mid market and specialty retailers
With some of our products we depend on third party retailers to provide adequate and attractive placement for our products in their stores both physical and online We further depend on these retailers to employ educate and motivate their sales personnel to
effectively sell our products If our retailers do not adequately display our products choose to reduce the space for our products in their stores or locate them in less than premium positioning choose not to carry some or all of our products or promote competitors products over ours or do not effectively explain to customers the advantages of our products our sales could decrease and our business could be harmed Similarly our business could be adversely affected if any of our distributors and other retail partners were to experience financial difficulties or change the focus of their businesses in a way that de emphasized the sale of our products
Our distributors generally offer products from several different manufacturers Accordingly we are at risk that these distributors may give higher priority to selling other companies products We have limited number of distributors in certain regions and if we were to lose the services of a distributor we might need to find another distributor in that area and there can be no assurance of our ability to do so in a timely manner or on favorable terms Further our distributors build inventory in anticipation of future sales and if such sales do not occur as rapidly as they anticipate our distributors will decrease the size of their future product orders We are also subject to the risks of our distributors encountering financial difficulties which could impede their effectiveness and also expose us to financial risk if they are unable to pay for the products they purchase from us Additionally our international distributors buy from us in U S dollars and generally sell to retailers in local currency so significant currency fluctuations could impact their profitability and in turn affect their ability to buy future products from us
Any reduction in sales by our current distributors loss of key distributors or decrease in revenue from our distributors could adversely affect our revenue results of operations and financial condition
From time to time we may maintain a portfolio of marketable securities in a variety of instruments which may include but not be limited to money market funds corporate bonds U S agency bonds and commercial papers These investments are subject to general credit liquidity market and interest rate risks As a result we may experience a reduction in value or loss of liquidity of our investments These market risks associated with our investment portfolio may have a negative adverse effect on our business results of operations and financial condition
We maintain cash deposits in excess of federally insured limits Adverse developments affecting financial institutions including bank failures could adversely affect our liquidity and financial performance
We maintain domestic cash deposits in Federal Deposit Insurance Corporation FDIC insured banks that exceed the FDIC insurance limits We also maintain cash deposits in foreign banks where we operate some of which are not insured or are only partially insured by the FDIC or similar agencies Bank failures events involving limited liquidity defaults non performance or other adverse developments that affect financial institutions or concerns or rumors about such events may lead to liquidity constraints For example on March 10 2023 Silicon Valley Bank in which we did not have deposits at the time failed and was taken into receivership by the FDIC The failure of a bank or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances could adversely impact our liquidity and financial performance There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U S or applicable foreign government or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks government institutions or by acquisition in the event of a failure or liquidity crisis
There is an increasing focus from regulators certain investors and other stakeholders concerning environmental social and governance ESG matters both in the United States and internationally ESG related initiatives goals and or commitments such as those regarding environmental matters diversity responsible sourcing and social investments and other matters could be difficult to achieve and costly to implement The achievement of any goals that we may announce may rely on the accuracy of our estimates and assumptions supporting those goals We could fail to achieve or be perceived to fail to achieve ESG related initiatives goals or commitments that we might set and the timing scope or nature of these initiatives goals or commitments or for any revisions to them may not be acceptable to the Securities and Exchange Commission or other regulators or stakeholders including our shareholders
Our success depends on our ability to identify and originate product trends as well as to anticipate gauge and react to changing customer demands in a timely manner All of our products are subject to changing preferences that cannot be predicted with certainty and lead times for our products may make it more difficult for us to respond rapidly to new or changing product or consumer preferences If we are unable to introduce appealing new consumer products or novel technologies in a timely manner or our new products or technologies are not accepted or adopted by customers our competitors may increase their market share which could hurt our competitive position It is also possible that competitors could introduce new products and services that negatively impact
customer preference in the type of products that we supply which could result in decreased sales of our product and a loss in market share We may not be able to achieve an acceptable return if any on our research and development efforts and our business results of operations liquidity and financial condition may be adversely affected As we continually seek to enhance our products we will incur additional costs to incorporate new or revised features We might not be able to or determine that it is not in our interests to raise prices to compensate for any additional costs
We have operations in China the Czech Republic Lithuania Poland Latvia Ukraine India Taiwan Vietnam and elsewhere with our operations in Taiwan and Vietnam in particular increasingly important to our overall business We also sell to distributors in numerous countries throughout the world Our operations outside of the United States subject us to risks that we generally do not face in the United States These include
the burdens of complying with a wide variety of foreign laws and regulations and the risks of non compliance including the increased burden of complying with anti bribery regulations such as the Foreign Corrupt Practices Act FCPA of the United States and the risk associated with non compliance with such laws
political social and economic instability in some jurisdictions including impacts of the military conflict between Russia and Ukraine the escalating tensions between China and Taiwan and the responses by governments worldwide to such conflicts
Additionally changes in the local political social and economic environment in the countries in which we operate including Taiwan and Ukraine and its surrounding countries could adversely affect our operations outside of the United States as well as our business results of operations and financial condition
If any of these risks were to come to fruition it could negatively affect our business outside the United States and consequently our results of operations Additionally operating in markets outside the United States requires significant management attention and financial resources We cannot be certain that the investment and additional resources required to establish acquire or integrate operations in other countries will produce anticipated levels of revenues or profitability
We use third party logistics and warehousing providers located in Vietnam China and other countries to fulfill a portion of our worldwide sales We also rely on our third party logistics and warehousing providers to safeguard and manage and report on the status of our products at their warehouse and in transit These service providers may fail to safeguard our products fail to accurately segregate and report our inventory or fail to manage and track the delivery of our products which could have a material adverse effect on our business results of operations and financial condition
We face significant political risks associated with doing business in mainland China and Taiwan particularly due to the tense relationship between mainland China and Taiwan that could negatively affect our business
We conduct a portion of our business in mainland China and Taiwan and our operations in mainland China and Taiwan are critical to our business For example we currently operate significant R D activities and a warehousing facility in Taiwan Accordingly our product development supply chain operation and overall business financial condition and results of operations and the market price of our shares may be affected by changes in governmental policies taxation inflation or interest rates in mainland China and Taiwan and by social instability and diplomatic developments in or affecting mainland China and Taiwan which are outside of our control Relations between mainland China and Taiwan and other factors affecting military political or economic conditions in mainland China and Taiwan including responses by governments worldwide to the geopolitical tension or conflict between mainland China and Taiwan could materially and adversely affect our business financial condition and results of operations
Taiwan are leading manufacturers of the world s semiconductor supply Conflict between China and Taiwan might lead to trade sanctions technology disputes or supply chain disruptions which could in particular affect the semiconductor industry which might result in reduced availability of components used to manufacture our products especially chipsets which may impact our ability and costs to manufacture our products
We invested in developing our own manufacturing capacity to support our product development and prototyping To the extent that we may invest in and expand or relocate these manufacturing capabilities and increasingly rely upon such activities we will face increased risks associated with
Since these activities are currently conducted in Vietnam Taiwan and China and could be expanded to other foreign countries some of these risks may be more significant due to the less predictable legal and political environment Additionally changes in the local political social and economic environment could adversely affect our ability and plans to develop our own manufacturing capacity
Geopolitical uncertainties and events could cause damage or disruption to international commerce and the global economy and thus could have a material adverse effect on us our suppliers logistics providers manufacturing vendors and customers including our distributors and other channel partners Changes in commodity prices may also cause political uncertainty and increase currency volatility that can affect economic activity For example escalating tensions between the U S China and other countries may result in changes in laws or regulations that will affect our ability to manufacture and sell our products 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 These tariffs have affected our operating results and margins Additionally the imposition of tariffs is dependent upon the classification of items under the Harmonized Tariff System HTS the value determination of the item and the country of origin of the item
Accordingly although we believe our valuation determinations and classifications of HTS and origin are appropriate there is no certainty that government agencies will agree with us If these agencies do not agree with our determinations we could be subject to investigation and could be required to pay additional amounts including potential penalties
The progress and continuation of trade negotiations between the U S and China continues to be uncertain and a further escalation of the trade war remains a possibility These tariffs have and will continue to have an adverse effect on our results of operations and margins We can provide no assurance regarding the magnitude scope or duration of the imposed tariffs or the magnitude scope or duration from any relief in increases to such tariffs as well as the potential for additional tariffs or trade barriers by the U S China or other countries nor that any strategies we may implement to mitigate the impact of such tariffs or other trade actions will be successful
Changes in U S social political regulatory and economic conditions or in laws and policies governing foreign trade manufacturing development and investment in the territories and countries where we currently develop and sell products and any negative sentiments towards the U S as a result of such changes could also adversely affect our business For example if the U S government withdraws or materially modifies existing or proposed trade agreements places greater restriction on free trade generally or imposes increases on tariffs on goods imported into the U S particularly from China our business financial condition and results of operations could be adversely affected In addition negative sentiments towards the U S among non U S customers and among non U S employees or prospective employees could adversely affect sales or hiring and retention respectively
The foreign policies of governments may be volatile and may result in rapid changes to import and export requirements customs classifications tariffs trade sanctions and embargoes or other retaliatory trade measures that may cause us to raise prices prevent us from offering products or providing services to particular entities or markets may cause us to make changes to our operations or create delays and inefficiencies in our supply chain For example political unrest and uncertainties in the Middle East Eastern Europe and Asia Pacific including the military conflict between Russia and Ukraine and the escalating tensions between China and Taiwan
may lead to disruptions in commerce in those regions which would in turn impact our sales to those regions Furthermore if the U S government imposes new sanctions against certain countries or entities such sanctions could sufficiently restrict our ability to market and sell our products and may materially adversely affect our results of operations
In addition reports of certain intelligence gathering methods of the U S government could affect customers perception of the products of companies based in the United States Trust and confidence in us as an equipment supplier is critical to the development and growth of our markets Impairment of that trust or foreign regulatory actions taken in response to reports of certain intelligence gathering methods of the U S government could affect the demand for our products from customers outside of the United States and could have an adverse effect on our results of operations
Significant parts of our research and development operations are conducted in geographically dispersed localities Our success depends on the effectiveness of our research and development activities We must successfully manage these geographically dispersed teams in order to meet our objectives for new product introduction product quality and product support It can be difficult to effectively manage geographically dispersed research and development teams If we fail to do so we could incur unexpected costs or delays in product development
Our success can depend significantly upon our intellectual property rights We rely on a combination of patent copyright trademark trade secret laws and contractual rights to establish maintain and protect these intellectual property rights all of which afford only limited protection Our patent rights and the prospective rights sought in our pending patent applications may not be meaningful or provide us with any commercial advantage and they could be opposed contested circumvented or designed around by our competitors or be declared invalid or unenforceable in legal proceedings In addition patents may not be issued from any of our current or future patent applications Any failure of our patents or other intellectual property rights to adequately protect our technology might make it easier for our competitors to offer similar products or technologies
We may fail to apply for patents on important products services technologies or designs in a timely fashion or at all We may not have sufficient intellectual property rights in all countries where unauthorized third party copying or use of our proprietary technology occurs and the scope of our intellectual property might be more limited in certain countries Our existing and future patents may not be sufficient to protect our products services technologies or designs and or may not prevent others from developing competing products services technologies or designs We cannot predict the validity and enforceability of our patents and other intellectual property with certainty
We have registered and applied to register certain of our trademarks in several jurisdictions worldwide In some of those jurisdictions third party filings exist for the same similar or otherwise related products or services which could block the registration of our marks Even if we are able to register our marks competitors may adopt or file similar marks to ours register domain names that mimic or incorporate our marks or otherwise infringe upon our trademark rights Although we police our trademark rights carefully there can be no assurance that we are aware of all third party uses or that we will prevail in enforcing our rights in all such instances Any of these negative outcomes could impact the strength value and effectiveness of our brand as well as our ability to market our products We have also registered domain names for websites or URLs that we use in our business such as www ui com If we are unable to protect our domain names our brand business and results of operations could be adversely affected Domain names similar to ours have already been registered in the United States and elsewhere and we may be unable to prevent third parties from acquiring and using domain names that infringe are similar to or otherwise decrease the value of our brand or our trademarks In addition although we own www ui com and various other global top level domains we might not be able to or may choose not to acquire or maintain other country specific URLs in which we currently conduct or intend to conduct business
Confidentiality agreements with our employees licensees independent contractors and others may not effectively prevent disclosure of our trade secrets and may not provide an adequate remedy in the event of unauthorized use or disclosure of our trade secrets We may also fail or have failed to obtain such agreements from such persons due to administrative oversights or other reasons Monitoring unauthorized use of our intellectual property is difficult and costly Unauthorized use of our intellectual property such as the production of counterfeits of our products and unauthorized registration and use of our trademarks by third parties is a matter of ongoing concern The steps we have taken may not prevent unauthorized use of our intellectual property We may fail to detect infringements of or take appropriate steps to enforce our intellectual property rights Our competitors might independently develop similar technology without infringing our intellectual property rights Our inability or failure to effectively protect our intellectual property could reduce the value of our technology and could impair our ability to compete Any inability or failure by us to
We have initiated and may continue to initiate legal proceedings to enforce our intellectual property rights Litigation whether we are a plaintiff or a defendant can be expensive and time consuming may place our intellectual property at risk of being invalidated or narrowed in scope and may divert the efforts of our technical staff and managerial personnel
The intellectual property protection and enforcement regimes in certain countries outside the United States are generally not as comprehensive as in the United States and may not adequately protect our intellectual property The legal regimes relating to the recognition and enforcement of intellectual property rights in China Russia and South America are particularly limited Legal proceedings to enforce our intellectual property in these jurisdictions may progress slowly during which time infringement may continue largely unimpeded Countries that have relatively inefficient intellectual property protection and enforcement regimes represent a significant portion of the demand for our products These factors may make it more challenging for us to enforce our intellectual property rights against infringement The infringement of our intellectual property rights particularly in these jurisdictions may materially harm our business in these markets and elsewhere by reducing our sales and adversely affecting our results of operations and diluting our brand or reputation
Our contract manufacturers operate primarily in Vietnam and China where the prosecution of intellectual property infringement and trade secret theft is more difficult than in the United States In the past our contract manufacturers their affiliates their other customers or their suppliers have attempted to participate in efforts to misappropriate our intellectual property and trade secrets to manufacture our products for themselves or others without our knowledge
Even if the agreements with our contract manufacturers and applicable laws prohibit them from misusing our intellectual property and trade secrets we may be unsuccessful in monitoring and enforcing our intellectual property rights against them We have in the past and may continue to discover counterfeit goods being sold as our products or as other brands
Our commercial success depends in part upon us and our component suppliers not infringing intellectual property rights owned by others and being able to resolve intellectual property claims without major financial expenditures Our key component suppliers are often targets of intellectual property claims and we are subject to claims as well
There are numerous patents and patent applications in the United States and other countries relating to communications technologies It can be difficult or impossible to conduct meaningful searches for patents relating to our technologies or to approach third parties to seek a license to their patents Even extensive searches for patents that may be relevant to our products may not uncover all relevant patents and patent applications Because of the existence of a large number of patents in the networking field the secrecy of some pending patents and the rapid rate of issuance of new patents it is not economically practical or even possible to determine in advance whether a product or any of its components infringes or will infringe on the patent rights of others The asserted claims and or initiated litigation can include claims against us or our manufacturers suppliers or customers alleging infringement of their proprietary rights with respect to our existing or future products or components of those products Regardless of the merit of these claims they can be time consuming result in costly litigation and diversion of technical and management personnel or require us to develop a non infringing technology or enter into license agreements Where claims are made by customers resistance even to unmeritorious claims could damage customer relationships
We cannot determine with certainty whether any existing or future third party intellectual property rights would require us to alter our technologies obtain licenses or cease certain activities There can be no assurance that licenses will be available on acceptable terms and conditions if at all or that our suppliers will indemnify us or that any indemnification will be adequate to cover our costs if a claim were brought directly against us or our customers Furthermore because of the potential for high court awards that are not necessarily predictable it is not unusual to find even arguably unmeritorious claims settled for significant amounts
We have received and may in the future receive claims from third parties including competitors and non practicing entities asserting intellectual property infringement and other related claims We expect to continue to receive such intellectual property claims in the future As our revenues grow and our profile increases the frequency and significance of these claims may increase
Some of our competitors may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could In addition patent holding companies and other third party non practicing entities that focus on extracting royalties and settlements by enforcing patent rights may target our component suppliers manufacturers us our distributors members of our sales channels our network operators and service providers or other purchasers of our products These companies typically have little or no product revenues and therefore our patents may provide little or no deterrence against such companies filing patent infringement lawsuits against our component suppliers manufacturers us our distributors members of our sales channels network operators and service providers or other purchasers of our products
In addition to liability for monetary damages against us or in certain circumstances against end users of our products we may be prohibited from developing commercializing or continuing to provide certain of our products unless we obtain licenses from the holders of the patents or other intellectual property rights We cannot assure you that we will be able to obtain any such licenses on commercially reasonable terms or at all If we do not obtain licenses our business results of operations and financial condition could be materially affected and we could for example be required to cease offering our products or be required to materially alter our products which could involve substantial costs and time to develop
We have in the past and continue to discover counterfeit versions of our products Although we have taken steps to combat counterfeiting it is difficult or impossible to detect or prevent all instances of counterfeiting Particularly if the quality of counterfeit products is poor damage could be done to our brand Counterfeit sales to the extent they replace otherwise legitimate sales could also adversely affect our operating results Combating counterfeiting is difficult and expensive and may not be successful especially in countries that have a relatively weak legal regime for the protection of intellectual property
We use open source software in certain of our products and may use more open source software in the future There have been claims challenging the ownership of software and claims of copyright infringement against companies that use open source software in the development of their products We could become subject to claims regarding the ownership of what we believe to be our proprietary software and claims of copyright infringement
Usage of open source software can also lead to greater risks than the use of third party commercial software because open source licensors generally do not provide warranties or controls on origin of the software
Some open source licenses contain requirements that users make available and license the source code for the modifications or derivative works that they create based upon the open source software If we combine our proprietary software with open source software we could in some circumstances be required to release our proprietary source code publicly or license such source code on unfavorable terms or at no cost That could significantly diminish the value of some of our products and negatively affect our business
Recent technological advances in artificial intelligence AI and machine learning technology both present opportunities and pose risks to us If we fail to keep pace with rapidly evolving technological developments in AI our competitive position and business results may suffer At the same time use of AI has recently become the source of significant media attention and political debate The introduction of these technologies particularly generative AI into internal processes new and existing offerings may result in new or expanded risks and liabilities including due to enhanced governmental or regulatory scrutiny litigation compliance issues ethical concerns confidentiality or security risks as well as other factors that could adversely affect our business reputation and financial results
The use of artificial intelligence can lead to unintended consequences including generating content that appears correct but is factually inaccurate misleading or otherwise flawed or that results in unintended biases and discriminatory outcomes which could harm our reputation and business and expose us to risks related to inaccuracies or errors in the output of such
Our success and future growth depend on the skills working relationships and continued services of our founder Chairman and Chief Executive Officer Robert J Pera as well as the other members of our management team We do not maintain any significant key person insurance with regard to any of our personnel Mr Pera in particular is central to our product development efforts and overall strategic direction The departure or loss of Mr Pera or any of the other members of our management team and the inability to identify and hire a qualified replacement timely would adversely affect our business results of operations and financial condition Our business model relies in part on leanly staffed independent and efficient research and development teams Our research and development teams are organized around small groups or individual contributors for a given platform and there is little overlap in knowledge and responsibilities In the event that we are unable to retain the services of any key contributors or are unable to identify and attract additional contributors we may be unable to bring our products or product improvements to market in a timely manner if at all due to disruption in our development activities
Our future success also depends on our ability to attract retain and motivate our management and skilled personnel Competition for personnel exists in the industries in which we participate particularly for persons with specialized experience in areas such as antenna design and radio frequency equipment If we are unable to attract and retain the necessary personnel our business results of operations and financial condition could be materially adversely affected
We have substantially expanded our business and operations in recent periods including increases in the number of our distributors contract manufacturers headcount locations and facilities This rapid expansion places a significant strain on our managerial administrative and operational resources Our business model reflects our decision to operate with streamlined infrastructure with lower support and administrative headcount This may increase the risks associated with managing our growth and we may not have sufficient internal resources to adapt or respond to unexpected challenges and compliance requirements
We receive a substantial majority of our revenues from the sale of outdoor wireless networking equipment and enterprise WLAN As we expand into other products and services such as video surveillance equipment voice communication equipment security access equipment wireless backhaul consumer electronics and Software as a Services we may not be able to compete effectively with existing market participants and may not be able to realize a positive return on the investment we have made in these products or services Entering these markets may result in increased product development costs and our new products may have extended time to market relative to our current products If our introduction of a new product is not successful or if we are not able to achieve the revenues or margins that we expect our results of operations may be harmed and we may not recover our product development and marketing expenditures
We may also be required to add a traditional direct sales force and customer support personnel to market and support new or existing products which would cause us to experience substantially lower product margins or increase our operating expenses Adding a traditional direct sales force or customer support personnel would reduce our operating income and may not be successful
Over the past several years we have increased our expenditure on infrastructure to support our anticipated growth We are continuing to make significant investments in information systems hiring more administrative personnel using more professional services and expanding our operations outside the United States We intend to make additional investments in systems and personnel and continue to expand our operations to support anticipated growth in our business As a result we expect our operating expenses to increase
In addition we may need in the future to build a traditional direct sales force to market and sell our products or provide additional resources or cooperative funds to our distributors Such changes to our existing sales model would likely result in higher selling general and administrative expenses as a percentage of our revenues
We rely on third party software and services to conduct our enterprise resource planning financial planning and analysis and financial reporting We also rely on third party software and service for our computing storage bandwidth and other services Any disruption of or interference with these services would negatively affect our operations and seriously harm our business
We currently use NetSuite and other software and services to conduct our order management and financial processes The availability of this service is essential to the management of our business As we expand our operations we expect to utilize additional systems
and service providers that may also be essential to managing our business Although the systems and services that we require are typically available from a number of providers it is time consuming and costly to qualify and implement these relationships
We rely on third party service providers such as G Suite Google Cloud and Amazon Web Services to provide distributed computing infrastructure platforms for business operations or what is commonly referred to as a cloud computing service Any transition of the cloud services currently provided by these service providers to another cloud provider would be difficult to implement and will cause us to incur significant time and expense If our existing cloud service providers experience interruptions in service regularly or for a prolonged basis or other similar issues our business would be seriously harmed Additionally our existing cloud service providers have broad discretion to change and interpret its terms of service and other policies with respect to us and they may take actions beyond our control that could harm our business
Our ability to manage our business would suffer if one or more of our providers suffer an interruption in their business or experience delays disruptions or quality control problems in their operations or we have to change or add additional systems and services We may not be able to control the quality of the systems and services we receive from third party service providers which could impair our financial reporting and may negatively impact our business results of operations and financial condition
Our debt levels could adversely affect our ability to raise additional capital to pay dividends repurchase our shares of common stock and fund our operations or limit our ability to react to changes in our industry or the economy
As of June 30 2024 our balance outstanding under the Amended Credit Agreement for our Term Facilities and Revolving Facility each as defined herein was 533 1 million and 175 0 million respectively In the future we may need to raise additional capital to finance our payment of dividends or repurchase shares of our common stock and fund our growth and operational goals If additional financing is not available when required or on acceptable terms we may not be able to pay dividends repurchase shares of common stock expand our business develop or enhance our products take advantage of business opportunities or respond to competitive pressures which could result in lower revenues and reduce the competitiveness of our products
requiring a substantial portion of cash flows from operations to be dedicated to the payment of principal and interest on our indebtedness thereby reducing our ability to use our cash flows to fund our operations and capital expenditures pay dividends repurchase shares of our common stock and pursue business opportunities
We may make acquisitions to improve or expand our product offerings Our future acquisition strategy will depend on our ability to identify negotiate complete and integrate acquisitions These transactions involve numerous risks including
We may be unable to secure the equity or debt funding necessary to finance future acquisitions on terms that are acceptable to us Completing acquisitions could consume significant amounts of cash If we finance acquisitions by issuing equity or convertible debt securities our existing stockholders will likely experience dilution and if we finance future acquisitions with debt funding we will incur interest expense and may have to comply with covenants and secure that debt obligation with our assets
We have invested and expect to continue to invest in new businesses products services technologies joint ventures and other strategic initiatives These investments may involve significant risks and uncertainties including insufficient revenues from such investments to offset any new liabilities assumed and expenses incurred in connection with these new investments inadequate return of or loss of our investments distraction of management from current operations and unidentified issues not discovered in our due diligence of such investments that could cause us to fail to realize the anticipated benefits of such investments and incur unanticipated costs expenses and liabilities Because these investments are inherently risky no assurance can be given that such investments will be successful and will not adversely affect our reputation business prospects results of operation and financial condition
Pursuant to Section 1502 of the Dodd Frank Act United States publicly traded companies are required to disclose use or potential use of certain minerals and their derivatives including tantalum tin gold and tungsten that are mined from the Democratic Republic of Congo and adjoining countries and deemed conflict minerals
These requirements necessitate due diligence efforts to assess whether such minerals are used in our products in order to make the relevant required annual disclosures There are and will be ongoing costs associated with complying with these disclosure requirements including diligence to determine the sources of those minerals that may be used or necessary to the production of our products Accordingly our ability to determine with certainty the origin and chain of custody of these raw materials is limited We may face reputational challenges that could impact future sales if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to verify with sufficient accuracy the origins of all conflict minerals used in our products
Robert J Pera our founder Chairman and Chief Executive Officer is able to exercise voting rights with respect to a majority of the voting power of our outstanding stock and therefore has the ability to control the outcome of matters submitted to our stockholders for approval including the election of directors and any merger consolidation or sale of all or substantially all of our assets This concentrated control could delay defer or prevent a change of control merger consolidation or sale of all or substantially all of our assets that our other stockholders support or conversely this concentrated control could result in the consummation of such a transaction that our other stockholders do not support This concentrated control could also discourage certain potential investors from acquiring our common stock and might harm the trading price of our stock In addition Mr Pera has the ability to control the management and major strategic investments of our company as a result of his position as our Chief Executive Officer and his ability to control the election or replacement of our directors In the event of his death the shares of our stock that Mr Pera owns will be transferred to his successors who may desire or be required to sell a significant portion of such shares As a board member and officer Mr Pera owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders As a stockholder even a controlling stockholder Mr Pera is entitled to vote his shares in his own interests which may not always be in the interests of our stockholders generally
As of August 23 2024 Mr Pera beneficially owned 56 278 181 shares of our common stock These shares are eligible for resale into the public market within the restrictions imposed by Rule 144 under the Securities Act of 1933 Sales of a significant amount of Mr Pera s shares could adversely affect the market price for our common stock Mr Pera has indicated to us that he may in the future from time to time pledge shares of common stock as collateral for margin or other loans enter into derivative transactions based on the value of our common stock dispose of shares of common stock otherwise monetize shares of his common stock and or engage in other transactions relating to shares of our common stock and or other securities of the company In the event Mr Pera pledges shares of common stock as collateral for margin or other loans Mr Pera may need to sell shares of our common stock to meet applicable repayment requirements Upon a default under such loans the lender could sell the pledged shares into the market without limitation on volume or manner of sale Any of these activities by Mr Pera may adversely affect the price of our common stock However Mr Pera has also indicated that he intends to continue to own at least a majority of our outstanding shares of common stock
Our payment of cash dividends is subject to among other things declaration by the Board of Directors of the Company our financial position and results of operations available cash and cash flow capital requirements our obligations contingent liabilities applicable corporate legal requirements and other factors If the Company fails to meet expectations related to dividends its stock price may decline which could have a material adverse impact on investor confidence and employee retention These and other factors may also
affect our ability to repurchase shares of our common stock Failure to pay cash dividends could cause the market price of our common stock to decline Failure to repurchase shares of our common stock could also result in a lower market price of our common stock
Our quarterly results of operations fluctuate significantly due to a variety of factors many of which are outside of our control and are difficult or impossible to predict We expect our results of operations will continue to fluctuate You should not rely on our past results as an indication of our future performance If our revenues or results of operations fall below the expectations of investors or securities analysts or below any estimates we may provide to the market the price of our common stock would likely decline substantially which could have a material adverse impact on investor confidence and employee retention Our common stock has experienced substantial price volatility since our initial public offering In addition the stock market as a whole has experienced major price and volume fluctuations that have affected the stock price of many technology companies in ways that may have been unrelated to these companies operating performance
In addition our business may be subject to seasonality although our recent growth rates and timing of product introductions may have historically masked our seasonal changes in demand For example our products may be subject to general seasonal spending trends associated with holidays
We are subject to export control and economic sanctions laws in the United States and elsewhere which could impair our ability to compete in international markets and subject us to liability if we do not comply with applicable laws
A substantial majority of our sales are into countries outside of the United States Sales of our products into certain countries are restricted or prohibited under U S export control and economic sanctions laws In addition certain of our products incorporate encryption components that are subject to export control regulations
In May 2011 we filed a self disclosure statement with the U S Commerce Department Bureau of Industry and Security s BIS Office of Export Enforcement OEE relating a review conducted by us regarding certain export transactions from 2008 through March 2011 in which products may have been later sold into Iran by third parties In June 2011 we also filed a self disclosure statement with the U S Department of the Treasury s Office of Foreign Asset Control OFAC regarding these compliance issues We resolved the matters described in our self disclosures with the BIS and OFAC and have taken significant steps towards ensuring our compliance with export control regulations and embargoes It is however possible that violations may occur in the future If violations should occur in the future the response of regulators may be more severe in light of prior compliance concerns
In addition to U S export regulations various other countries regulate the import of certain encryption technology and products and these laws could limit our ability to distribute our products or our customers ability to implement our products in those countries Changes in our products or changes in export and import regulations may create delays in the introduction of our products in other countries prevent our customers with international operations from deploying our products or in some cases prevent the transfer of our products to certain countries altogether Any change in export or import regulations or related legislation shift in approach to the enforcement or scope of existing regulations or change in the countries persons or technologies targeted by such regulations could negatively impact our ability to sell our products to existing customers or the ability of our current and potential distributors network operators and service providers outside the United States
Even though we take precautions to prevent our products from being provided to targets of U S sanctions our products including our firmware updates could be provided by our distributors resellers and or end users despite such precautions Any such provision could
have negative consequences including government investigations penalties and reputational harm Our failure or inability to obtain required import or export approval for our products could harm our international and domestic sales and adversely affect our revenue
Existing and new regulations changes in existing regulations or the enforcement of any regulations related to our products may result in unanticipated burdens reduced demand costs and liabilities and could materially and adversely affect our financial condition results of operations and our brand
Our products are subject to governmental regulations in a variety of jurisdictions In order to achieve and maintain market acceptance our products must continue to comply with these regulations as well as a significant number of industry standards For example our wireless communication products operate through the transmission of radio signals and radio emissions are subject to regulation in the United States and in other countries in which we do business In the United States various federal agencies including the Center for Devices and Radiological Health of the Food and Drug Administration the Federal Communications Commission the Occupational Safety and Health Administration and various state agencies have promulgated regulations that concern the use of radio electromagnetic emissions standards Member countries of the European Union and other countries have enacted similar standards concerning electrical safety and electromagnetic compatibility and emissions and chemical substances and use standards
As these regulations and standards evolve and if new regulations or standards are implemented we will be required to modify our products or develop and support new versions of our products and our compliance with these regulations and standards may become more burdensome The failure of our products to comply or delays in compliance with the various existing and evolving industry regulations and standards could prevent or delay introduction of our products which could harm our business End customer uncertainty regarding future policies may also affect demand for communications products including our products For example changes in government regulations providing funding for capital investment in new industries products or services such as any government funding of products supporting wireline connectivity rather than wireless connectivity could adversely impact products that are purchased by our end customers and adversely impact our business results of operations and financial condition
Further government requirements around the world requiring or providing preference to domestically produced goods may limit our ability to sell our products to customers in such jurisdictions impacting our ability to grow our sales in such jurisdictions adversely impacting our revenues operations and financial condition
If existing laws or regulations regarding the use of our products or services are enforced in a manner not previously contemplated by us our channel partners or our end customers it could expose us or them to liability and could have a material adverse effect on our financial condition results of operations and our brand Moreover channel partners or end customers may require us or we may otherwise deem it necessary or advisable to alter our products to address actual or anticipated changes in the regulatory environment Our inability to alter our products to address these requirements and any regulatory changes may have a material adverse effect on our financial condition results of operations and our brand Further the enforcement of laws and regulations may force us to withdraw one or more of our products from sale in certain jurisdictions or to recall one or more of our products in certain jurisdictions We may incur costs and expenses relating to a withdrawal from a particular market or a recall of one or more of our products The process of identifying products that have been widely distributed for withdrawals and recalls may be lengthy and require significant resources and we may incur significant replacement costs damage claims and harm to our reputation We are and expect to continue to be the subject of investigations inquiries data requests actions orders and audits by government authorities and regulators in the United States the European Union and around the world Orders issued by or inquiries or enforcement actions initiated by government or regulatory authorities could cause us to incur substantial costs expose us to unanticipated liability or penalties or require us to change our business practices in a manner materially adverse to our financial condition results of operations and our brand
Our failure to comply with U S and foreign laws related to privacy data security cybersecurity and data protection such as the E U Data Protection Directive and China Cybersecurity Law could adversely affect our financial condition results of operations and our brand
We are or may become subject to a variety of laws and regulations in the United States and abroad regarding privacy data security cybersecurity and data protection These laws and regulations are continuously evolving and developing The scope and interpretation of the laws that are or may be applicable to us and our business including our webstore sales are often uncertain and may be conflicting particularly with respect to foreign laws
In particular there are numerous U S federal state and local laws and regulations and foreign laws and regulations regarding privacy and the collection sharing use processing disclosure and protection of personal information and other user data Such laws and regulations often have changes in scope may be subject to differing interpretations and may be inconsistent among different jurisdictions The costs of compliance with and other burdens imposed by these regulations may limit the use and adoption of our products and services and could have an adverse impact on our business results of operations and financial condition
For example in April 2016 the E U Parliament approved a new data protection regulation known as the General Data Protection Regulation GDPR which came into force on May 25 2018 The GDPR includes operational requirements for companies that receive or process personal data of residents of the European Union that are different than those previously in place in the European Union and that include significant penalties for non compliance Another example in November 2016 the Standing Committee of
China s National People s Congress passed China s first Cybersecurity Law CSL which took effect in June 2017 The CSL is the first Chinese law that systematically lays out the regulatory requirements on cybersecurity and data protection subjecting many previously under regulated or unregulated activities in cyberspace to government scrutiny More recently the Personal Information Security Specification went into effect in October 2020 which has broad but uncertain applications and imposes a number of new privacy and data security obligations China is also implementing new legislation on the protection of privacy and personal data including a Personal Information Protection Law and a Data Security Law each of which went into effect in September 2021 and may impose new obligations on us
Additionally California enacted the California Consumer Privacy Act as amended the CCPA that among other things requires covered companies to provide new disclosures to California consumers and afford such consumers new abilities to opt out of certain sales of personal information The CCPA took effect on January 1 2020 with the privacy provisions enforceable by the California Attorney General as of July 1 2020 and the regulations becoming enforceable as of August 1 2020 The CCPA was significantly expanded on January 1 2023 when the California Privacy Rights Act CPRA became effective The CPRA amendments among other things give California residents the ability to limit use of certain sensitive personal information further restrict the use of cross contextual advertising establish restrictions on the retention of personal information expand the types of data breaches subject to the CCPA s private right of action provide for increased penalties for CCPA violations concerning California residents under the age of 16 and establish a new California Privacy Protection Agency to implement and enforce the new law In addition data privacy and security laws have been proposed at the federal state and local levels in recent years which could further complicate compliance efforts For example states such as Colorado Connecticut Delaware Indiana Iowa Kentucky Maryland Minnesota Montana Nebraska New Hampshire New Jersey Oregon Tennessee Texas Virginia and Utah have enacted their own data privacy laws
We strive to comply with all applicable laws policies and legal obligations relating to privacy data security cybersecurity and data protection However given that the scope interpretation and application of these laws and regulations are often uncertain and may be conflicting it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices Any failure or perceived failure by us or third party service providers to comply with our privacy or security policies or privacy related legal obligations or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data may result in governmental enforcement actions litigation or negative publicity and could have an adverse effect on our brand results of operations and financial condition
Governments are continuing to focus on privacy cybersecurity data protection and data security and it is possible that new privacy or data security laws will be passed or existing laws will be amended in a way that is material to our business Any significant change to applicable laws regulations or industry practices regarding our employees and users data could require us to modify our business services and products features possibly in a material manner and may limit our ability to develop new products services and features Although we have made efforts to design our policies procedures and systems to comply with the current requirements of applicable state federal and foreign laws changes to applicable laws and regulations in this area could subject us to additional regulation and oversight any of which could significantly increase our operating costs
Our products may transmit and store personal information The handling of such information is increasingly subject to regulations in numerous jurisdictions around the world These regulations are typically intended to protect the privacy and security of personal information that is collected stored and transmitted in or from the governing jurisdiction In addition because various foreign jurisdictions have different regulations concerning the storage and transmission of personal information we may face unknown requirements that pose compliance challenges in new geographic markets that we seek to enter Our efforts to protect the privacy of information may also fail if our encryption and security technology is inadequate or fails to operate as expected The difficulties in complying with privacy and data protection regulations could subject us to costs delayed product launches liabilities or negative publicity that could impair our ability to maintain or expand our operations into some countries and therefore limit our future growth
The vast majority of our products operate in unlicensed radio frequency RF spectrum which is used by a wide range of devices such as cordless phones baby monitors and microwave ovens and is becoming increasingly crowded If such spectrum usage continues to increase through the proliferation of consumer electronics and products competitive with ours and others the resultant higher levels of clutter and interference in the frequency bands used by our products could decrease the usage of our products Our business could be further harmed if currently unlicensed RF spectrum becomes subject to licensing in the United States or elsewhere Network operators and service providers that use our products may be unable to obtain licenses for RF spectrum at reasonable prices or at all Even if the unlicensed spectrum remains unlicensed existing and new government regulations may require we make changes in our products For example to provide products for network operators and service providers who utilize unlicensed RF spectrum we may be required to limit their ability to use our products in licensed RF spectrum The operation of our products by network operators
or service providers in the United States or elsewhere in a manner not in compliance with local law could result in fines operational disruption or harm to our reputation In addition if new spectrums either licensed or unlicensed are made available by government regulatory agencies for broadband wireless communication that may disrupt the competitive landscape of our industry and impact our business
We 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 consumer or securities class actions and other litigation matters relating to various claims that arise in the normal course of business and otherwise It can be difficult or impossible to predict the outcome of legal proceedings with any degree of certainty particularly given that laws may be ambiguous and factual findings can often be the result of incomplete evidence opinions varying standards or proof and extraneous factors Any such proceedings or matters may adversely affect how we operate the business divert the attention of management from the operation of the business have an adverse effect on our reputation result in additional costs and adversely affect our results of operations If one or more of the legal proceedings to which we may be or become a party are resolved against us our results of operations and financial condition could be adversely affected
We have received and may in the future receive warranty or product liability claims that may require us to make significant expenditures to defend these claims or pay damage awards In the event of a successful warranty claim we may also incur costs if we compensate the affected network operator or service provider Such claims may require a significant amount of time and expense to resolve and defend against and could also harm our reputation by calling into question the quality of our products We also may incur costs and expenses relating to a recall of one or more of our products The process of identifying recalled products that have been widely distributed may be lengthy and require significant resources and we may incur significant replacement costs contract damage claims and harm to our reputation
Our customers users and other parties may expect us to indemnify them for losses incurred in connection with our products including as a result of intellectual property infringement defective products and security vulnerabilities even if our agreements with them do not require us to provide this indemnification In some instances we may decide to defend and indemnify them irrespective of whether we believe that we have an obligation to do so The expenses associated with providing indemnification can be substantial We may also reject demands for indemnification which may lead to disputes with a customer or other party and may negatively impact our relationships with them
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and together with other controls and procedures are designed to prevent fraud Any failure to implement required new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations and prevent us from producing accurate and timely financial statements to manage our business If we fail to do so our business could be negatively affected and our independent registered public accounting firm may be unable to attest to the fair presentation of our consolidated financial statements included elsewhere in this Annual Report on Form 10 K in accordance with accounting principles generally accepted in the United States of America GAAP and the effectiveness of our internal control over financial reporting as required by Section 404 of the Sarbanes Oxley Act If we cannot provide reliable financial reports and effectively prevent fraud our reputation and results of operations could be harmed Even effective internal controls have inherent limitations including the possibility of human error the circumvention or overriding of controls or fraud Therefore even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements The preparation of consolidated financial statements also requires us to make estimates and assumptions We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances 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 As events continue to evolve our estimates may change materially in future periods In addition projections of any evaluation of effectiveness of internal control over financial reporting in future periods are subject to the risk that the control may become inadequate because of changes in conditions or a deterioration in the degree of compliance with the policies or procedures We have in the past and may in the future fail to maintain adequate internal controls For example as reported in the Annual Reports on Form 10 K for the years ended June 30 2015 and 2016 management of the Company determined that the Company did not maintain an effective control environment which contributed to three material weaknesses in internal control over financial reporting As described in more detail in the Annual Report on Form 10 K for the fiscal year ended June 30 2017 under Item 9A Controls and Procedures the Company completed the remediation efforts of such material weakness completed testing of the controls to address such material weaknesses and concluded that the previously reported material weaknesses in internal controls over financial reporting have been satisfactorily remediated as of
June 30 2017 Any such failure including any failure to implement new or improved controls difficulties in the execution of such implementation or deterioration of our current control practices may result in an inability to prevent fraud or cause us to fail to meet our reporting obligations Any such failures may cause a material adverse effect on our business and financial results and investor confidence and the market price of our stock may be adversely affected
We face significant risks if we fail to comply with the FCPA and other laws such as the U K Bribery Act of 2010 that prohibit improper payments or offers of payment to foreign governments and their officials and political parties by us and other business entities acting on our behalf for the purpose of obtaining or retaining business particularly as our foreign operations such as in Taiwan become increasingly important to our business
In many foreign countries particularly in countries with developing economies which represent our principal markets it may be a local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA or other laws and regulations Although we have implemented a company policy requiring our employees and consultants to comply with the FCPA and similar laws there can be no assurance that all of our employees and agents as well as those companies to which we outsource certain of our business operations will not take actions in violation of our policies for which we may be ultimately held responsible Any violation of FCPA or similar laws could result in severe criminal or civil sanctions and suspension or debarment from U S government contracting which could have a material and adverse effect on our reputation business results of operations and financial condition
We are subject to periodic audits or other reviews by tax authorities in the jurisdictions in which we conduct our activities Tax authorities could challenge our assertions with respect to how we have conducted our business operations which might result in a claim for larger tax payments from us including but not limited to income and withholding taxes and potential fines or penalties The expense of defending and resolving such audits may be significant
The amount of time to resolve such audits is also unpredictable and may divert management s attention from our business operations We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these audits or other reviews to determine the adequacy of our provision for income taxes Although we believe our interpretation of tax laws and tax estimates are reasonable there can be no assurance that any final determination by taxing authorities will not be materially different from the treatment reflected in our historical income tax provisions and accruals which could materially and adversely affect our business results of operations and financial condition
In the ordinary course of our business there are many instances where the determination of tax implications is uncertain We record a liability for unrecognized tax benefits associated with uncertain tax positions which often involves significant management judgment as to the interpretations of applicable tax laws in the jurisdictions in which we file The final determination of our income tax liabilities by taxing authorities may be materially different than what is reflected in our income tax provisions and accruals which could materially affect our tax obligations and effective tax rate
The legislative bodies in many jurisdictions regularly consider proposed legislation that if adopted could affect our tax rate in such jurisdictions and the carrying value of our deferred tax assets or our tax liabilities Multi jurisdictional changes enacted in response to the guidelines provided by the Organization for Economic Cooperation and Development OECD to address base erosion and profit shifting BEPS and additional amendments or guidance regarding comprehensive U S tax reform among other things may change certain U S tax rules impacting the way U S multinationals are taxed increase tax uncertainty and adversely impact our provision for income taxes
As a global company we conduct operations in multiple jurisdictions and therefore our effective tax rate is influenced by the amounts of income and expense attributed to each such jurisdiction and the amount and type of presence in each such jurisdiction If such amounts were to change so as to increase the amounts of our net income subject to taxation in higher tax jurisdictions or if we were to increase our operations in jurisdictions assessing relatively higher tax rates our effective tax rate could be adversely affected Additionally withholding taxes vary by jurisdiction and any changes to our operations in each jurisdiction could result in greater taxation to the company A number of factors may affect our future effective tax rates including but not limited to
From time to time the United States foreign and state governments make substantive changes to tax laws and regulations For example in 2017 the U S government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act which made a number of changes including changing the taxation of certain foreign earnings and the requirement to capitalize and amortize research and development expenditures
Further in 2022 the U S government enacted the Inflation Reduction Act which made a number of changes including adding a 1 excise tax on stock buybacks by publicly traded corporations and a 15 corporate minimum tax for companies with higher than 1 billion of certain adjusted financial statement income As a result of the 1 excise tax the cost to us of making repurchases will increase
Changes in tax laws and regulations and interpretations of such laws and regulations including taxation of earnings outside of the U S may materially and adversely affect our business results of operations and financial condition
As part of our overall enterprise risk management function we have implemented and currently maintain various information security processes designed to assess identify and manage material risks from cybersecurity threats to our critical computer network third party hosted services and our critical data collectively our Information Systems
We have engaged an outside consultant that assists our efforts to prevent threats toward our Information Systems This consultant monitors data feeds from certain of our key Information Systems The consultant notifies and works with the Company to investigate and resolve any potential cybersecurity threats identified
Internally to help manage risk from potential cybersecurity threats we require our employees to participate in mandatory cybersecurity trainings provided by a third party specialist which focuses on building awareness of common tactics by threat actors such as phishing This training is provided on an annual basis
All of our offices use our own gateway consoles which have intrusion detection features built in Additionally access to our key Information Systems requires an in office network or VPN with multi factor authentication and we employ additional protective measures including the use of our proprietary identity management tool We also use third party tools to protect our employee laptops and self hosted servers and have implemented a public bug bounty program that helps to identify vulnerabilities in our products
We and certain of our vendors have experienced cyber attacks in the past and may experience cyber attacks in the future For example as previously disclosed we became aware in January 2021 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
Except as described above to date risks from cybersecurity threats have not previously materially affected us and we currently do not expect that the risks from cybersecurity threats are reasonably likely to materially affect us including our business strategy results of operations or financial condition For additional information about cybersecurity risks see Item 1A Risk Factors
Our Board of Directors the Board has the responsibility for the oversight of risk management including those risks related to cybersecurity Our Board holds strategic planning sessions with senior management to discuss strategies key challenges risks and opportunities for us This involvement of our Board in setting our business strategy is a key part of its oversight of risk management its assessment of management s appetite for risk and its determination of what constitutes an appropriate level of risk for us Our senior management attends meetings of our Board and its committees on a quarterly basis and as otherwise needed and are available to address any questions or concerns raised by our Board on risk management and any other matters
Our senior management with the oversight of the Board is responsible for the day to day management of the material risks we face including those related to cybersecurity We believe it is important to work cross functionally within the Company to manage cybersecurity risks and threats Therefore our cybersecurity team is made up of individuals from multiple different departments throughout the Company including but not limited to our security IT R D and legal teams The cybersecurity team as a whole has academic degrees related to cybersecurity technical know how and real world experience managing cybersecurity incidents and risks Material issues identified by our cybersecurity team are brought to the attention of our Chief Executive Officer and or our Executive Vice President of Operations and Legal Affairs who in turn will update the Board as necessary
Our headquarters are located in New York NY which we lease through September 30 2027 In addition we also lease office and building space around the world and within the facilities of certain suppliers for use as research and development facilities business development and support offices warehouses and logistics centers and test facilities The size and location of these properties change from time to time based on business requirements For our research and development and business development and support personnel we have leased offices in Taiwan Lithuania Latvia Poland India Ukraine the Czech Republic the Netherlands and elsewhere including various locations within China and the United States of America We believe that our existing properties are in good condition and suitable for the conduct of our business
As of August 22 2024 the number of record holders of our common stock which is listed on the New York Stock Exchange under the ticker symbol UI was 6 Because most of our shares are held by brokers and other institutions on behalf of stockholders we are unable to estimate the total number of beneficial stockholders represented by these record holders
The following graph compares the cumulative total stockholder return for our common stock from July 1 2019 to June 30 2024 with the comparable cumulative return the NYSE Composite Index and the S P Computer Retail Index The graph assumes that 100 was invested on July 1 2019 in our common stock the NYSE Composite Index and the S P Computer Retail Index and assumes reinvestment of any dividends The stock price performance on the following graph is not necessarily indicative of future stock price performance This performance graph shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 as amended the Exchange Act or incorporated by reference into any of our filings under the Securities Act of 1933 as amended or the Exchange Act except as shall be expressly set forth by specific reference in such filing
On August 23 2024 the Company announced that its Board of Directors declared a cash dividend of 0 60 per share payable on September 9 2024 to shareholders of record at the close of business on September 3 2024 The Company intends to pay regular quarterly cash dividends of at least 0 60 per share during each remaining quarter of fiscal 2025 however any future dividends will be subject to the approval of the Company s Board of Directors In determining whether to approve future dividends the Company s Board of Directors will take into account such matters as our financial position and results of operations available cash and cash flow capital requirements growth opportunities applicable corporate legal requirements and other factors deemed relevant
We develop technology platforms for high capacity distributed Internet access unified information technology and consumer electronics for professional home and personal use We categorize our solutions into three main categories high performance networking technology for enterprises service providers and consumers We target the enterprise and service provider 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 including through our webstores retail chains and to a lesser extent the Ubiquiti Community
In addition to Mr Pera our founder Chairman of the Board and Chief Executive Officer who is central to our business the majority of our human capital resources consist of entrepreneurial and de centralized research and development R D personnel We do not employ a traditional direct sales force but instead drive brand awareness through online reviews and publications our website our distributors and our user community where customers can interface directly with our R D marketing and support teams Our technology platforms were designed from the ground up with a focus on delivering highly advanced and easily deployable solutions that appeal to a global customer base
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 door access systems 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 are targeted to the smart home and highly connected consumers We believe that our products are differentiated due to our proprietary software firmware expertise and hardware design capabilities
We have experienced significant supply constraints in the past especially during the COVID 19 pandemic Our efforts to mitigate these supply constraints have included for example increasing our inventory build in an attempt to secure supply and meet customer demand paying higher component and shipping costs to secure supply and modifying our product designs to leverage alternate suppliers Although these mitigation efforts are intended to optimize our access to the components required to meet customer demand for our products we have limited visibility into future sales which makes it difficult to forecast our future results of operations These mitigation efforts have caused our inventory and vendor deposit balances to increase in the past and they may cause such increases in the future These mitigation efforts therefore significantly increase the risks of future material excess obsolete inventory and related losses We believe that we have taken the right actions to mitigate these supply constraints however we recognize the associated risks
We are monitoring the military conflict between Russia and Ukraine escalating tensions in surrounding countries and associated economic sanctions While the impact on our operations in Ukraine and its surrounding countries has not been material to our business or results of operations as of the date hereof the full impact of the military conflict on our business and results of operations remains uncertain The extent to which the conflict may impact our business or results of
operations in future periods will depend on future developments including the severity and duration of the conflict its impact on regional and global economic conditions as well as its impact on surrounding countries including its impact on our operations in Ukraine and its surrounding countries and its impact on global supply chains Refer to Part I Item IA Risk Factors for a discussion of these factors and other risks
We are monitoring the escalating tensions between China and Taiwan and associated tensions between the U S and China While the impact on our operations in Taiwan has not been material to our business or results of operations as of the date hereof the full impact of the escalating tensions and potential military conflict on our business and results of operations remains uncertain The extent to which the conflict may impact our business or results of operations in future periods will depend on future developments including the severity and duration of the conflict its impact on regional and global economic conditions as well as its impact on China U S relations including its impact on our operations in Taiwan and its impact on global supply chains Refer to Part I Item IA Risk Factors for a discussion of these factors and other risks
We operate our business as one reportable and operating segment Further information regarding Segments can be found in Note 13 Segment Information Revenues by Geography and Significant Customers to our Consolidated Financial Statements Our revenues are derived principally from the sale of networking hardware 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 sell our products and solutions globally to enterprises and service providers primarily through our extensive network of distributors and to a lesser extent through sales through our webstores Sales to distributors accounted for 62 and 64 of our revenues during the years ended June 30 2024 and 2023 respectively Webstore sales accounted for 38 and 36 of our revenues during the years ended June 30 2024 and 2023 respectively
hich include salary benefits and share 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 Europe and Asia Pacific In addition we outsource other logistics warehousing and order fulfillment functions located in Vietnam 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
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 These tariffs have 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 I 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
consist primarily of salary and benefit expenses including share 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
include salary and benefit expenses including share based compensation for employees and costs for contractors engaged in sales marketing and general and administrative activities as well as the costs associated with credit card processing fees 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
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 We must assess potential exposures and where necessary provide a reserve to cover any expected loss To the extent that we establish a reserve the provision for income taxes would be increased If we ultimately determine that payment of these amounts is unnecessary we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary We record an additional charge in our provision for taxes in the period in which we determine that tax liability is greater than our original estimate We recognize 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 I 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
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 As events continue to evolve our estimates may change materially in future periods We believe that the accounting policies discussed below are critical to understanding our historical and future performance as these policies relate to the more significant areas involving management s judgments and estimates
Revenue consists of revenue from sales of hardware and the related essential software Products as well as related implied PCS We recognize revenue when obligations under the terms of a contract with our customers are satisfied generally upon transfer of control of promised goods or services to customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services We apply the following five step revenue recognition model
Transfer of control to the customer for products generally occurs at the point in time when products have been shipped to our customer as this represents the point in time when the customer has a present obligation to pay and physical possession including title and risk of loss have been transferred to the customer Revenue for PCS is recognized ratably over time over the estimated period for which implied PCS services will be delivered
We account for a contract with a customer when there is an approval and commitment from both parties the rights of the parties are identified payment terms are identified the contract has commercial substance and collectability of the consideration is probable Our distinct performance obligations consist mainly of transferring control of our products identified in the contracts purchase orders or invoices and implied PCS services
d revenue Internet or Web based sales include regulatory provisions which allow customers to return the goods generally within 30 days We record a provision for returns related to this variable consideration based upon its historical returns experience with these customers
We record amounts billed for shipping and handling costs as revenues We classify shipping and handling costs incurred by us as cost of revenue Deposits payments received from distributors in advance of recognition of revenues are included in current liabilities of our balance sheet and are recognized as revenues when all the criteria for recognition of revenues are met
Transaction prices are typically based on contracted rates Although payment terms vary payment is generally due from distribution customers within 60 days of the invoice date and the contracts do not have significant financing components or include extended payment terms We are directly responsible for fulfilling the performance obligations in contracts with customers and do not rely on another party to fulfill our promise
We use observable list prices to determine the stand alone selling price of our performance obligation related to our products and we utilize a cost plus margin approach to estimate the stand alone selling price of our implied PCS obligation When our contracts contain multiple performance obligations we allocate the transaction price based on the estimated standalone selling price
Costs for research and development and sales and marketing are expensed as incurred If the estimated life of the hardware product should change the future rate of amortization of the revenues allocated to PCS could also change
Key factors considered by the Company in developing the estimated cost in the cost plus margin approach for PCS include reviewing the activities of specific employees engaged in support and software enhancements to determine the amount of time that is allocated to the development of the undelivered elements determining the cost of the development effort and then adding an appropriate level of gross profit to these costs
Our inventories are comprised of finished goods and raw materials Inventories are stated at the lower of actual cost computed using the first in first out method or net realizable value NRV NRV is based upon an estimated average selling price reduced by the estimated costs of disposal The determination of NRV involves numerous judgments including estimating average selling prices based upon recent sales Should actual market conditions differ from our estimates future results of operations could be materially affected We reduce the value of our inventory for estimated obsolescence or lack of marketability by the difference between the cost of the affected inventory and the NRV Write downs are not reversed until the related inventory has been subsequently sold or scrapped
The valuation of inventory also requires us to estimate excess and obsolete inventory The determination of excess or obsolete inventory is estimated based on a comparison of the quantity and cost of inventory on hand to our forecast of customer demand which is dependent on various factors and requires us to use judgment in forecasting future demand for its products We also consider the rate at which new products will be accepted in the marketplace and how quickly customers will transition from older products to newer products If actual market conditions are less favorable than those projected by us additional inventory write downs may be required which would have a negative impact on our gross margin If we ultimately sell inventory that has been previously written down our gross margins in future periods would be positively impacted
We capitalize manufacturing overhead expenditures as part of inventory costs Capitalized costs primarily include management s best estimate of the indirect labor tariffs shipping and logistics costs incurred related to inventory acquired or produced but not sold during the respective period Manufacturing overhead costs are capitalized to inventory and are recognized as cost of revenues in future periods based on when the inventory is sold or written down
We account for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns Deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled We establish valuation allowances when necessary to reduce deferred tax assets to the amount we expect to realize The assessment of whether or not a valuation allowance is required often requires significant judgment including current operating results the forecast of future taxable income and ongoing prudent and feasible tax planning initiatives
In addition our calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws We may be subject to income tax audits in each of the jurisdictions in which we operate and as a result must also assess exposures to any potential issues arising from current or future audits of current and prior years tax returns Accordingly we must assess such potential exposures and where necessary provide a reserve to cover any expected loss We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 likelihood of being realized upon ultimate settlement
The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws Resolution of these uncertainties in a manner inconsistent with management s expectations could have a material impact on our financial condition and operating results We reflect changes in recognition or measurement in the period in which our change in judgment occurs
We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the consolidated statement of operations and comprehensive income Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet
Total revenues decreased 12 0 million or 0 6 from 1 940 5 million in fiscal 2023 to 1 928 5 million in fiscal 2024 The decrease in revenue was driven by a decrease in revenue from both our Enterprise Technology platform and our Service Provider Technology platform During fiscal year ended June 30 2024 we experienced an increase in direct sales through our webstores compared to fiscal 2023 and a corresponding decline in sales through distributors
Enterprise Technology revenues decreased 3 8 million or 0 2 from 1 621 4 million in fiscal 2023 to 1 617 7 million in fiscal 2024 primarily due to decline in revenue from our Enterprise Technology platform in the Europe the Middle East and Africa EMEA and Asia Pacific regions
Service Provider Technology revenues decreased 8 3 million or 2 6 from 319 1 million in fiscal 2023 to 310 8 million in fiscal 2024 primarily due to decline in revenue in our Service Provider Technology platform in South America and Asia Pacific regions
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 fiscal 2024 and fiscal 2023
Revenues in North America increased 24 2 million or 2 6 from 922 2 million in fiscal 2023 to 946 4 million in fiscal 2024 The year over year increase was due to increased revenue from both our Enterprise Technology products and Service Provider Technology products
Revenues in EMEA decreased 19 3 million or 2 5 from 759 4 million in fiscal 2023 to 740 1 million in fiscal 2024 The year over year decrease was due to a decline in revenues from our Enterprise Technology products partially offset by an increase in revenue from our Service Provider Technology products
Revenues in the Asia Pacific region decreased 20 6 million or 13 9 from 148 5 million in fiscal 2023 to 127 9 million in fiscal 2024 The year over year decrease was due to a decline in revenues from both our Enterprise Technology products and Service Provider Technology products
Revenues in South America increased 3 7 million or 3 3 from 110 4 million in fiscal 2023 to 114 0 million in fiscal 2024 The year over year increase was due to increased revenues from Enterprise Technology products partially offset by decreased revenue from Service Provider Technology products
Gross profit margin decreased to 38 4 in fiscal 2024 from 39 2 in fiscal 2023 The decline in gross profit margin for fiscal 2024 as compared to fiscal 2023 was primarily driven by incremental excess and obsolete inventory charges and warehouse related operating expenses partially offset by lower shipping costs and lower tariffs
R D expenses increased 14 6 million or 10 1 from 145 2 million in fiscal 2023 to 159 8 million in fiscal 2024 As a percentage of revenues R D expenses increased from 7 in fiscal 2023 to 8 in fiscal 2024 The increase in R D expense for fiscal 2024 versus fiscal 2023 was primarily driven by higher prototype related expenses and employee related expenses
Sales general and administrative SG A expenses increased 10 0 million or 14 1 from 71 0 million in fiscal 2023 to 81 0 million in fiscal 2024 As a percentage of revenues SG A expenses remained consistent at 4 for both fiscal 2023 and 2024 The increase in fiscal 2024 SG A expenses as compared to fiscal 2023 was primarily driven by higher fees associated with webstore credit card processing marketing expenses employee related expenses and professional fees
Interest expense and other net I O expenses increased 16 9 million or 29 1 from 58 2 million in fiscal 2023 to 75 2 million in fiscal 2024 As a percentage of Revenue I O expense increased from 3 in fiscal 2023 to 4 in fiscal 2024 The increase in I O expense for fiscal 2024 as compared to fiscal 2023 was primarily driven by higher interest expense due to increased levels of average debt outstanding and higher interest rates
Our provision for income taxes decreased 6 1 from 78 7 million for fiscal 2023 to 73 9 million for fiscal 2024 Our effective tax rate increased to 17 4 in fiscal 2024 as compared to 16 2 for fiscal 2023 The change in effective tax rates for fiscal 2024 as compared to fiscal 2023 was primarily driven by changes in the mix of income earned in various tax jurisdictions
During 2021 the Organization for Economic Co operation and Development OECD announced an agreed upon framework for its members to implement a global minimum corporate tax of 15 for multinational enterprises commonly referred to as Pillar Two Many countries have already proposed or enacted legislation to implement elements of the framework which will apply to Ubiquiti beginning in fiscal year 2025 While we are monitoring developments and evaluating the potential impact on future periods we do not expect Pillar Two to have a significant impact on our fiscal year 2025 financial results As additional jurisdictions enact Pillar Two legislation transactional rules lapse and other provisions of the minimum tax legislation become effective in our fiscal year 2026 we anticipate that our effective tax rate and cash tax payments may increase in future years
Pursuant to Regulation S K item 303 a detailed review of our fiscal 2023 performance compared to our fiscal 2022 performance is incorporated by reference from Part II Item 7 of our Annual Report on Form 10 K for the fiscal year ended June 30 2023 under the caption
Our principal sources of liquidity are cash and cash equivalents cash generated by operations and the availability of additional funds under the Facilities as defined herein We had cash and cash equivalents of 126 3 million and 114 8 million at June 30 2024 and 2023 respectively
For fiscal 2024 the net cash provided by operating activities was 541 5 million primarily due to net income of 350 0 million and the benefit of decreasing inventories by 250 7 million and non cash adjustments of 59 5 million These cash inflows were partially offset by other changes in operating assets and liabilities that resulted in net cash outflows of 118 6 million This net change in operating assets and liabilities consisted primarily of a 70 5 million decrease in accounts payable and accrued liabilities a 17 1 million decrease in income taxes payable a 18 3 million increase in vendor deposits a 17 6 million increase in prepaid expenses and other assets partially offset by a 6 6 million increase in deferred revenues
For fiscal 2023 the net cash used in operating activities was 145 4 million primarily due to a significant increase in inventory and to a lesser extent increases in vendor deposits and accounts receivable The key uses of cash resulting in the net cash outflow from operations was a 487 9 million increase in inventory a 39 5 million increase in vendor deposits and a 48 2 million increase in accounts receivable partially offset by 407 6 million of net income The increase in inventories is a result of the strategic decision to secure inventory while components were available in an effort to increase product availability The increase in account receivable is a result of higher sales
We had cash outflows of 518 0 million from financing activities during fiscal 2024 which primarily consisted of repayments of debt and payment of common stock dividends During fiscal 2024 we repaid 215 0 million on our Revolving Facility 157 5 million on our Term Loan Facilities and paid 145 1 million for dividends on our common stock See
We had cash inflows of 145 0 million from financing activities during fiscal 2023 During fiscal 2023 in order to support the increase in inventories we borrowed a net of 291 9 million under our facilities We also paid 145 0 million for dividends on our common stock and debt issuance costs of 1 2 million During fiscal 2023 we increased the size of our facility to include an additional 250 0 million term loan The proceeds from this new term loan were used to repay a portion of the outstanding revolver loans under the revolving facility See
We believe our existing cash and cash equivalents in addition to the ability to draw cash under the Revolving Facility if needed will be sufficient to meet our near term working capital requirements dividends and capital expenditure needs for the next twelve months as well as long term liquidity requirements in the event that the cash from operations is not adequate to meet our cash needs 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 the 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 management of inventory and vendor deposits the availability of additional funds under the Facilities and overall economic conditions Inflation and the current geopolitical environment have caused and may continue to cause significant volatility in financial markets and the domestic and global economy This volatility 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 See Part I 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 public health problems military conflicts and geopolitical tensions which could adversely affect our business results of operations and financial condition and Part I Item 1A Risk Factors Risks Related to Our Business and Industry General global economic downturns and macroeconomic trends including inflation or slowed economic growth may negatively affect our customers and their ability to purchase our products A downturn or such other trends may decrease our revenues and increase our costs and may increase credit risk with our customers and impact our ability to collect account receivable and recognize revenue 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 global economic downturns and macroeconomic trends are reasonably likely to materially affect our liquidity and capital resources in the future
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 June 30 2024 or 2023
Based upon our historical experience and information known as of the date of this Annual Report on Form 10 K we do not believe it is likely that we will have material liability for the above indemnities as of June 30 2024
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
We subcontract with third parties to manufacture our products and supply key components As of June 30 2024 we had 981 7 million of purchase commitments with these third parties If we cancel all or part of the orders we may still be liable to the contract manufacturers for the cost of the components purchased by the subcontractors to manufacture our products There have been no significant liabilities for current or anticipated cancellations recorded as of June 30 2024 Our consolidated financial position and results of operations could be negatively impacted if we were required to compensate these third parties In addition we may be subject to additional purchase obligations to our contract manufacturers for supply agreements and components ordered by them based on manufacturing forecasts we provide them each month
We have obligations of 50 6 million as of June 30 2024 related to the mandatory transition tax on accumulated foreign earnings from the 2017 Tax Cuts and Jobs Act Payment of these obligations are expected to be 22 5 million for fiscal 2025 and 28 1 million for fiscal 2026 These obligations are included within Income tax payable and Long term taxes payable on our consolidated balance sheets
As of June 30 2024 we had 33 0 million of unrecognized tax benefits and an additional 4 8 million of 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
Cash and cash equivalents includes 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
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
Certain of our sales labor and other costs included in costs of revenue and 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 revenue and expenses are denominated would result in a charge or benefit to our income before income taxes of approximately 1 9 million for fiscal year June 30 2024
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 bank accounts as at June 30 2024 are denominated would result in a charge or benefit to our income before income taxes of approximately 4 7 million for fiscal year June 30 2024
Management with the participation of the Company s Chief Executive Officer and Chief Accounting and Finance Officer evaluated the effectiveness of our disclosure controls and procedures as of June 30 2024 The term disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Securities Exchange Act of 1934 as amended the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded processed summarized and reported within the time periods specified in the SEC s rules and forms Disclosure controls and procedures include without limitation controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company s management including its principal executive and principal financial officers as appropriate to allow timely decisions regarding required disclosure Management recognizes that any controls and procedures no matter how well designed and operated can provide only reasonable assurance of achieving their objectives Based on the evaluation of our disclosure controls and procedures as of June 30 2024 our Chief Executive Officer and Chief Accounting and Finance Officer concluded that as of such date our disclosure controls and procedures were effective
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a 15 f and 15d 15 f A company s internal control over financial reporting is a process designed by or under the supervision of its Chief Executive Officer and Chief Accounting and Finance Officer and effected by such company s board of directors management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
Management with the participation of our Chief Executive Officer and Chief Accounting and Finance Officer has conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30 2024 based on the framework set forth in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO Based on this assessment management has concluded that the Company maintained effective internal control over financial reporting as of June 30 2024
The effectiveness of our internal control over financial reporting as of June 30 2024 has been audited by KPMG LLP an independent registered public accounting firm as stated in their report which appears herein
There were no changes in the Company s internal control over financial reporting that occurred during the quarter ended June 30 2024 that materially affected or that are reasonably likely to materially affect our internal control over financial reporting
The information required by this Item 10 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of our June 30 2024 fiscal year end under the headings Executive Officers Proposal One Election of Directors Information Regarding Nominees Proposal One Election of Directors Information Regarding Continuing Directors and Corporate Governance
The information required by this Item 11 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of our June 30 2024 fiscal year end under the headings Executive Compensation Proposal One Election of Directors Directors Compensation and Corporate
The information required by this Item 12 with respect to security ownership of certain beneficial owners and management is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of our June 30 2024 fiscal year end under the headings Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters and Equity Compensation Plan Information
The information required by this Item 13 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of our June 30 2024 fiscal year end under the headings Certain Relationships and Related Party Transactions and Corporate Governance Committees of the Board of Directors
The information required by this Item 14 is incorporated by reference to our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of our June 30 2024 fiscal year end under the headings Proposal Two Ratification of the Appointment of Independent Registered Public Accounting Firm Audit and Non Audit Fees and Audit Committee Pre Approval Policies
The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission Ubiquiti Inc the Registrant shall furnish copies of exhibits for a reasonable fee covering the expense of furnishing copies upon request
Third Amended and Restated Credit Agreement dated as of March 30 2021 by and among Ubiquiti Inc as borrower certain domestic subsidiaries of the borrower as guarantors the lenders and other financial institutions party thereto and Wells Fargo Bank National Association as administrative agent
First Amendment to Third Amended and Restated Credit Agreement dated as of April 3 2023 by and among Ubiquiti Inc as borrower certain domestic subsidiaries of the borrower as guarantors the lenders and other financial institutions party thereto and Wells Fargo Bank National Association as administrative and collateral agent
In accordance with Item 601 b 32 ii of Regulation S K and SEC Release No 33 8238 and 34 47986 Final Rule Management s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports the certifications furnished in Exhibit 32 1 hereto are deemed to accompany this Form 10 K and will not be deemed filed for purposes of Section 18 of the Exchange Act Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act except to the extent that the registrant specifically incorporates it by reference
Schedules not listed above have been omitted because they are not applicable or required or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated
We have audited the accompanying consolidated balance sheets of Ubiquiti Inc and subsidiaries the Company as of June 30 2024 and June 30 2023 the related consolidated statements of operations and comprehensive income stockholders equity deficit and cash flows for each of the years in the three year period ended June 30 2024 and the related notes collectively the consolidated financial statements We also have audited the Company s internal control over financial reporting as of June 30 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission
In our opinion the consolidated financial statements referred to above present fairly in all material respects the financial position of the Company as of June 30 2024 and June 30 2023 and the results of its operations and its cash flows for each of the years in the three year period ended June 30 2024 in conformity with U S generally accepted accounting principles Also in our opinion the Company maintained in all material respects effective internal control over financial reporting as of June 30 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission
The Company s management is responsible for these consolidated financial statements for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control over Financial Reporting Our responsibility is to express an opinion on the Company s consolidated financial statements and an opinion on the Company s internal control over financial reporting based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects
Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audit also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances We believe that our audits provide a reasonable basis for our opinions
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and
procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the consolidated financial statements and 2 involved our especially challenging subjective or complex judgments The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As discussed in Note 2 to the consolidated financial statements the Company s inventories are stated at the lower of actual cost computed using the first in first out method and net realizable value NRV The Company reduces the value of its inventory for estimated obsolescence or lack of marketability by the difference between the cost of the affected inventory and the NRV The Company s determination of the valuation of excess or obsolete inventory is based on a comparison of the quantity and cost of inventory on hand to anticipated demand alternative uses and other factors As of June 30 2024 the Company s inventories totaled 462 0 million
We identified the assessment of the valuation of certain excess or obsolete finished goods inventory as a critical audit matter Subjective auditor judgement was required to evaluate the Company s estimates of anticipated demand alternative uses and other factors which can be affected by market and economic conditions outside the Company s control
The following are the primary procedures we performed to address this critical audit matter We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company s finished goods inventory valuation process This included controls related to the development of estimates of anticipated demand of inventory We evaluated current year estimates of anticipated demand used to determine the value of excess or obsolete inventory when they differed significantly from historical sales volumes We selected certain inventory items and compared the Company s prior year estimate of anticipated demand to actual sales results to assess the Company s ability to accurately forecast
The Company s consolidated financial statements and accompanying notes are prepared in accordance with U S generally accepted accounting principle GAAP and include the accounts of the Company and its wholly owned subsidiaries All intercompany transactions and balances have been eliminated The Company has reclassified certain amounts reported in the previous period to conform to the current period presentation
The preparation of financial statements in conformity with U S GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes Those estimates and assumptions include but are not limited to revenue recognition and deferred revenue sales return reserves inventory valuation and vendor deposits accounting for income taxes including the valuation allowance on deferred tax assets and reserves for uncertain tax positions We evaluate our estimates and assumptions based on historical experience and other assumptions that are believed to be reasonable under the circumstances Actual results could differ materially from those estimates
Management has determined that it operates as one reportable and operating segment as the Company s Chief Executive Officer who is the Company s chief operating decision maker CODM does not make decisions about resources to be allocated or assess performance on a disaggregated segment basis Further information regarding Segments can be found in Note 13 to the consolidated financial statements
Revenue consists of revenue from sales of hardware and the related essential software Products as well as related implied post contract customer support PCS We recognize revenue when obligations under the terms of a contract with our customers are satisfied generally upon transfer of control of promised goods or services to customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services We apply the following five step revenue recognition model
Transfer of control to the customer for products generally occurs at the point in time when products have been shipped to our customer as this represents the point in time when the customer has a present obligation to pay and physical possession including title and risk of loss have been transferred to the customer Revenue for PCS is recognized ratably over time over the estimated period for which implied PCS services will be delivered
The Company accounts for a contract with a customer when there is an approval and commitment from both parties the rights of the parties are identified payment terms are identified the contract has commercial substance and collectability of the consideration is probable The Company s distinct performance obligations consist mainly of transferring control of its products identified in the
Our contracts with the majority of our distribution customers do not include provisions for cancellations returns inventory swaps or refunds that materially impact recognized revenue Internet or Web based sales include regulatory provisions which allow customers to return the goods generally within 30 days
We record amounts billed for shipping and handling costs as revenues We classify shipping and handling costs incurred by us as cost of revenue Deposit payments received from distributors in advance of recognition of revenues are included in current liabilities of our balance sheet and are recognized as revenues when all the criteria for recognition of revenues are met
Transaction prices are typically based on contracted rates Although payment terms vary payment is generally due from distribution customers within 60 days of the invoice date and the contracts do not have significant financing components or include extended payment terms The Company is directly responsible for fulfilling its performance obligations in contracts with customers and does not rely on another party to fulfill its promise
We use observable list prices to determine the stand alone selling price of our performance obligation related to our products and we utilize a cost plus margin approach to estimate the stand alone selling price of our implied PCS obligation When our contracts contain multiple performance obligations we allocate the transaction price based on the estimated standalone selling price
Costs for research and development and sales and marketing are expensed as incurred If the estimated life of the hardware product should change the future rate of amortization of the revenues allocated to PCS could also change
Key factors considered by the Company in developing the estimated cost in the cost plus margin approach for PCS includes reviewing the activities of specific employees engaged in support and software enhancements to determine the amount of time that is allocated to the development of the undelivered elements determining the cost of the development effort and then adding an appropriate level of gross profit to these costs
The Company considers investments purchased with a maturity period of three months or less at the date of purchase to be cash equivalents Cash and cash equivalents are stated at cost which approximates fair value The Company deposits cash and cash equivalents with financial institutions that management believes are of high credit quality The Company s cash and cash equivalents consist primarily of cash deposited in U S dollar denominated interest bearing deposit accounts and money market funds We maintain domestic cash deposits in Federal Deposit Insurance Corporation FDIC insured banks that exceed the FDIC insurance limits We also maintain cash deposits in foreign banks where we operate some of which are not insured or are only partially insured by the FDIC or similar agencies An immaterial portion of our cash balances are covered by FDIC insurance
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents marketable securities and accounts receivable The Company limits its exposure by primarily placing its cash in interest bearing deposit accounts and marketable securities with high credit quality financial institutions
The Company derives its accounts receivable from revenues earned from customers located worldwide The Company bases credit decisions primarily upon a customer s past credit history If upfront deposits or prepayments are not required customers then may be granted standard credit terms which range from net 30 to 60 days
The Company subcontracts with third parties to manufacture most of our products The Company relies on the ability of these contract manufacturers to produce the products sold to its distributors A significant portion of the Company s products are manufactured by a few contract manufacturers
The Company s inventories are finished goods and raw materials Inventories are stated at the lower of actual cost computed using the first in first out method and net realizable value NRV NRV is based upon an estimated average selling price reduced by the estimated costs of disposal The determination of net realizable value involves certain judgments including estimating average selling prices based on recent sales Should actual market conditions differ from the Company s estimates future results of operations could be materially affected The Company reduces the value of its inventory for estimated obsolescence or lack of marketability by the difference between the cost of the affected inventory and the NRV Write downs are not reversed until the related inventory has been subsequently sold or scrapped
The valuation of inventory also requires the Company to estimate excess and obsolete inventory The determination of excess or obsolete inventory is estimated based on a comparison of the quantity and cost of inventory on hand to the Company s forecast of customer demand which is dependent on various factors and requires the Company to use judgment in forecasting future demand for its products The Company also considers the rate at which new products will be accepted in the marketplace and how quickly customers will transition from older products to newer products If actual market conditions are less favorable than those projected by management additional inventory write downs may be required which would have a negative impact on the Company s gross margin If the Company ultimately sells inventory that has been previously written down the Company s gross margins in future periods would be positively impacted
The Company capitalizes manufacturing overhead expenditures as part of inventory costs Capitalized costs primarily include management s best estimate of the indirect labor tariffs shipping and logistics costs incurred related to inventory acquired or produced but not sold during the respective period Manufacturing overhead costs are capitalized to inventory and are recognized as cost of revenues in the future periods based on when the inventory is sold or written down
The Company offers warranties on certain products generally for a period of one to two years and records a liability for the estimated future costs associated with potential warranty claims The warranty costs are reflected in the Company s consolidated statement of operations and comprehensive income within cost of revenues The warranties are typically in effect for 12 to 24 months from the distributor s and webstore customer s purchase date of the product The Company assesses the adequacy of its accrued warranty liabilities and adjusts the amounts as necessary based on historical experience factors and changes in future estimates Historical factors include product failure rates material usage and service delivery costs incurred in correcting product failures In certain circumstances the Company may have recourse from its contract manufacturers for the replacement cost of defective products which it also factors into its warranty liability assessment
The Company records an allowance for its estimate of expected credit losses on its trade receivables based on its assessment of various factors including historical experience age of the accounts receivable balances credit quality of the Company s customers current economic conditions and other factors that may affect the customers abilities to pay
In cases where the Company is aware of circumstances that may impair a specific customer s ability to meet its obligations to the Company the Company records a specific allowance against amounts due from the customer and thereby reduces the net recognized receivable to the amounts it reasonably believes will be collected
In accordance with the authoritative guidance for impairment or disposal of long lived assets ASC 360 we assess potential impairments to our long lived assets including property and equipment when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable We recognize an impairment loss when the undiscounted cash flows expected to be generated by an asset or group of assets are less than the asset s carrying value Any required impairment
loss would be measured as the amount by which the asset s carrying value exceeds its fair value and would be recorded as a reduction in the carrying value of the related asset and charged to results of operations The Company did not recognize any material impairment losses for fiscal years 2024 2023 and 2022
Upon retirement or disposition the asset cost and related accumulated depreciation are removed with any gain or loss recognized in the consolidated statement of operations Expenditures for maintenance and repairs are charged to operations as incurred
The Company s intangible assets consist primarily of domain name purchase and legal costs associated with application for and registration of the Company s trademarks which are all included in other long term assets The Company amortizes all definite lived intangible assets that are subject to amortization over the estimated useful life based on economic benefit Domain names are amortized over 15 years while other intangible assets are generally amortized over 5 years All patent filing and defense costs are expensed as incurred however to date these costs have not been significant
The Company enters into agreements under which we lease various real estate spaces including warehouse facilities and office space that are generally leased under noncancelable agreements and include various renewal options for additional periods and or have options to early terminate At contract inception the Company determines if an arrangement is a lease or contains a lease of an identified asset for which the Company has the right to obtain substantially all of the economic benefits from its use and the right to direct its use Right of use ROU assets represent the Company s right to use an underlying asset for the lease term while lease liabilities represent the Company s obligation to make lease payments arising from the lease Operating lease ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term The implicit discount rate in the Company s leases generally cannot readily be determined and therefore the Company uses its incremental borrowing rate based on information available at lease commencement date in determining the present value of future payments ROU assets are determined based upon the calculated lease liability adjusted by unamortized initial direct costs unamortized lease incentives received and cumulative deferred or prepaid lease payments The Company has options to renew or terminate certain leases These options are included in the determination of lease term when it is reasonably certain that the Company will exercise such options The Company does not separate lease and non lease components in determining ROU assets or lease liabilities for operating leases Additionally the Company does not recognize ROU assets or lease liabilities for leases with original terms or renewals of one year or less Lease expense for our operating leases is recognized on a straight line basis over the term of the lease
The Company accounts for income taxes in accordance with accounting guidance which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in its financial statements or tax returns Deferred tax assets and liabilities are determined based on the temporary difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled The Company establishes valuation allowances when necessary to reduce deferred tax assets to the amount it expects to realize The assessment of whether or not a valuation allowance is required often requires significant judgment including current operating results the forecast of future taxable income and ongoing prudent and feasible tax planning initiatives The Company s calculation of its tax liabilities involves dealing with uncertainties in the application of complex tax regulations The Company may be subject to income tax audits in all of the jurisdictions in which it operates and as a result must also assess exposures to any potential issues arising from current or future audits of current and prior years tax returns Accordingly the Company must assess such potential exposures and where necessary provide a reserve to cover any expected loss The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 likelihood of being realized upon ultimate settlement The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws Resolution of these uncertainties in a manner inconsistent with management s expectations could have a material impact on the Company s financial condition and operating results We reflect changes in recognition or measurement in the period in which our change in judgment occurs The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet
The Company measures share based compensation cost at the grant date based on the estimated fair value of the award and recognizes expense for restricted stock units and stock options on a straight line basis over the employee s requisite service period The Company did not grant any stock options during fiscal 2024 fiscal 2023 or fiscal 2022 Restricted stock units are valued based on the fair value of the Company s common stock on the date of grant
The Company periodically evaluates all pending or threatened contingencies and any commitments if any that are reasonably likely to have a material adverse effect on its results of operations financial position or cash flows The Company assesses the probability of an adverse outcome and determines if it is remote reasonably possible or probable If information available prior to the issuance of the Company s financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the Company s financial statements and the amount of the loss or the range of probable loss can be reasonably estimated then such loss is accrued and charged to operating expenses If no accrual is made for a loss contingency because one or both of the conditions pursuant to the accounting guidance are not met but the probability of an adverse outcome is at least reasonably possible the Company discloses the nature of the contingency and provides an estimate of the possible loss or range of loss or states that such an estimate cannot be made
The functional currency of the Company and its subsidiaries is the U S dollar For foreign operations local currency denominated monetary assets and liabilities are remeasured at the period end exchange rates and revenues costs and expenses are remeasured at the average exchange rates during the fiscal year Foreign exchange gains and losses have been immaterial to the Company s results of operations to date
Research and development expenses are expensed as incurred and consist primarily of payroll and payroll related costs and facilities costs Research and development expenses associated with software development are typically expensed as incurred as our software is usually released to end customers immediately after technological feasibility has been established However the Company capitalizes development costs when material costs are incurred subsequent to technological feasibility but prior to commercial release
The Company applies the treasury stock method for calculating and presenting earnings per share EPS Basic EPS is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding during the period Diluted EPS available to common stockholders is computed by dividing the amount of net income available to common stockholders by the weighted average number of common shares outstanding including potential dilutive common shares assuming the dilutive effect of outstanding stock options and restricted stock units using the treasury stock method
ASU 2023 07 which enhances the segment disclosure requirements for public entities on an annual and interim basis Under this proposal public entities will be required to disclose significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss Additionally current annual disclosures about a reportable segment s profit or loss and assets will be required on an interim basis Entities will also be required to disclose information about the CODM s title and position at the Company along with an explanation of how the CODM uses the reported measures of segment profit or loss in their assessment of segment performance and deciding whether how to allocate resources Finally ASU 2023 07 requires all segment disclosures for public entities even those with a single reportable segment The amendments in ASU 2023 07 will become effective on a retrospective basis for annual disclosures in the Company s fiscal year beginning July 1 2024 with interim period disclosures required effective with the Company s fiscal year beginning July 1 2025 Early adoption of ASU 2023 07 is permitted We do not expect this ASU to have a significant impact on our disclosures or results of operations cash flows and financial condition
ASU 2023 09 which amends the existing guidance relating to the annual disclosures for accounting for income taxes ASU 2023 09 requires a public business entity to disclose a tabular rate reconciliation using specified categories and providing additional information for reconciling items that exceed a quantitative threshold In addition ASU 2023 09 requires the disaggregation of federal state and foreign income taxes paid net of funds received with further disaggregation required for individual jurisdictions in which the income taxes paid exceed five percent of the Company s total income taxes paid The provision for income taxes in the Company s statement of operations will also be required to be disaggregated by federal state and foreign jurisdictions The amendments in ASU 2023 09 will become effective for annual disclosures in the Company s fiscal year beginning July 1 2025 with early adoption permitted The FASB indicated ASU 2023 09 should be applied on a prospective basis but retrospective application is permitted We expect this ASU to only impact our disclosures with no impact to our results of operations cash flows and financial condition
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services Revenue is recognized when obligations under the terms of a contract with our customers are satisfied generally this occurs with the transfer of control of our products and PCS to our customers Transfer of control to the customer for products generally occurs at the point in time when products have been shipped to our customer as this represents the point in time when the customer has a present obligation to pay and physical possession including title and risk of loss have been transferred to the customer Revenue for PCS is recognized ratably over time over the estimated period for which implied PCS services will be delivered
The timing of revenue recognition billing and cash collections results in billed accounts receivable deferred revenue primarily attributable to PCS and customer deposits on the Consolidated Balance Sheets Accounts receivable are recognized in the period the Company s right to the consideration is unconditional Our contract liabilities consist of advance payments customer deposits as well as billing in excess of revenue recognized primarily related to deferred revenue We classify customer deposits as a current liability and deferred revenue as a current or non current liability based on the timing of when we expect to fulfill these remaining performance obligations The current portion of deferred revenue is included in other current liabilities and the non current portion is included in other long term liabilities in our consolidated balance sheets
We expect the majority of our deferred revenue to convert to revenue in two years For fiscal years 2024 and 2023 we recognized revenues amounting to 17 9 million and 20 8 million respectively from previous years deferred revenue balances
The Company provides for rights of return to certain customers on product sales and therefore records a provision for returns related to this variable consideration based upon its historical returns experience with these customers The Company also provides certain customers with discounts that are recorded as a reduction of revenue in the period the related product revenue is recognized and are reflected as a reduction of outstanding accounts receivable The Company s contracts with customers generally do not contain other forms of variable consideration however when additional variable consideration is included the Company estimates the amount of variable consideration and determines what portion of that if any has a high probability of significant subsequent revenue reversal and if so that amount is excluded from the transaction price
The Company excludes potentially dilutive securities from its diluted earnings per share calculation when their effect would be anti dilutive to earnings per share amounts The following table summarizes the total potential shares of common stock that were excluded from the diluted per share calculation because to include them would have been anti dilutive for the period in thousands
1 The Company expects the deposits made with Hong Kong Inland Revenue Department IRD to be refunded upon completion of the audit See Note 12 to the consolidated financial statements for additional details regarding this ongoing tax audit
On March 30 2021 the Company as borrower and certain domestic subsidiaries as guarantors the Domestic Guarantors entered into an amended and restated credit agreement the Third Amended and Restated Credit Agreement with Wells Fargo Bank National Association Wells Fargo the other financial institutions named as lenders therein and Wells Fargo as administrative agent and collateral agent for the lenders that extended the 700 million senior secured revolving credit facility the Revolving Facility together with the Term Loan Facilities as defined below the Facilities and provided a 500 million senior secured term loan facility the Initial Term Loan Facility and extended the maturity of the Facilities to March 30 2026 In addition the Facilities include an option to request increases in the amounts of such credit facilities by up to an additional 500 million in the aggregate The loans under the Initial Term Loan Facility are payable in quarterly installments of 6 25 million per quarter commencing with the quarter ending June 30 2021
On April 3 2023 the Company as borrower and the Domestic Guarantors entered into a first amendment the First Amendment to the Third Amended and Restated Credit Agreement as amended the Amended Credit Agreement with the financial institutions named as lenders therein and Wells Fargo The First Amendment added a new term loan facility in an aggregate principal amount of 250 million the First Amendment Term Loan Facility together with the Initial Term Loan Facility the Term Loan Facilities which is payable in quarterly installments equal to 3 125 million commencing with the quarter ended June 30 2023 and has a maturity date of March 30 2026 The obligations of the Company and certain domestic subsidiaries under the Amended Credit Agreement are required to be guaranteed by the Domestic Guarantors and are collateralized by substantially all assets excluding intellectual property of the Company and the Domestic Guarantors
The Revolving Facility includes a sub limit of 25 0 million for letters of credit and a sub limit of 25 0 million for swingline loans The Facilities are available for working capital and general corporate purposes that comply with the terms of the Amended Credit Agreement including to finance the repurchase of the Company s common stock or to make dividends to the holders of the Company s common stock Under the Amended Credit Agreement revolving loans and swingline loans may be borrowed repaid and reborrowed until March 30 2026 at which time all amounts borrowed must be repaid Loans under the Facilities may be prepaid at any time without penalty
The revolving loans and term loans under the Initial Term Loan Facility bear interest at the Company s option at either i a floating rate per annum equal to the Base Rate as defined below plus a margin of between 0 50 and 1 25 depending on the Company s consolidated total leverage ratio as of the most recently ended fiscal quarter or ii a floating per annum rate equal to the Adjusted Term SOFR as defined below for a specified period plus a margin of between 1 50 and 2 25 depending on the Company s consolidated total leverage ratio as of the most recently ended fiscal quarter
The loans under the First Amendment Term Loan Facility bear interest at the Company s option at either i a floating rate per annum equal to Base Rate plus a margin of between 1 00 and 1 75 depending on the Company s consolidated total leverage ratio as of the most recently ended fiscal quarter or ii a floating per annum rate equal to the applicable Adjusted Term SOFR rate for a specified period plus a margin between 2 00 and 2 75 depending on the Company s consolidated total leverage ratio as of the most recently ended fiscal quarter Base Rate is defined in the Amended Credit Agreement as the highest of a the Prime Rate as defined in the Amended Credit Agreement b the Federal Funds Rate as defined in the Amended Credit Agreement plus 0 50 and c Adjusted Term SOFR for a one month tenor in effect on such day plus 1 00 each change in the Base Rate shall take effect simultaneously with the corresponding change or changes in the Prime Rate the Federal Funds Rate or Adjusted Term SOFR as applicable provided that clause c shall not be applicable during any period in which Adjusted Term SOFR is unavailable or unascertainable The Base Rate shall not be less than 1 00 Adjusted Term SOFR is Term SOFR as defined in the Amended Credit Agreement plus 0 10 per annum provided that Adjusted Term SOFR shall in no event be less than 0 00
A default interest rate shall apply on all obligations during certain events of default under the Amended Credit Agreement at a rate per annum equal to 2 00 above the applicable interest rate The Company will pay to each lender a facility fee on a quarterly basis based on the unused amount of each lender s commitment to make revolving loans of between 0 20 and 0 35 depending on the Company s consolidated total leverage ratio as of the most recently ended fiscal quarter The Company will also pay to the applicable lenders on a quarterly basis certain fees based on the daily amount available to be drawn under each outstanding letter of credit including aggregate letter of credit commissions of between 1 50 and 2 25 depending on the Company s consolidated total leverage ratio as of the most recently ended fiscal quarter and issuance fees of 0 125 per annum The Company is also obligated to pay Wells Fargo as agent fees customary for a credit facility of this size and type
The Amended Credit Agreement requires the Company to maintain during the term of the Facilities a maximum consolidated total leverage ratio of 3 50 to 1 00 and a minimum consolidated interest coverage ratio of 3 50 to 1 00 In addition the Amended Credit Agreement contains customary affirmative and negative covenants including covenants that limit or restrict the ability of the Company and its subsidiaries to among other things grant liens or enter into agreements restricting their ability to grant liens on property enter into mergers dispose of assets change their accounting or reporting policies change their business and incur indebtedness in each case subject to customary exceptions for a credit facility of this size and type The Amended Credit Agreement includes customary events of default that include among other things non payment of principal interest or fees inaccuracy of representations and warranties violation of covenants cross default to certain other indebtedness bankruptcy and insolvency events material judgments change of control and certain ERISA events The occurrence of an event of default could result in the
As of June 30 2024 418 8 million was outstanding on the Initial Term Loan Facility 114 4 million was outstanding on the First Amendment Term Loan Facility and 175 0 million was outstanding on the Revolving Facility leaving 525 0 million available on the Revolving Facility
During fiscal year 2024 the Company made aggregate payments of 209 2 million under the Term Loan Facilities of which 157 5 million was a repayment of principal and 51 7 million was a payment of interest
1 Interest payments are calculated based on the applicable rates and payment dates as of June 30 2024 Although our interest rates on our debt obligations may vary we have assumed the most recent available interest rates for all periods presented
The Company has entered into agreements under which we lease various real estate spaces in North America Europe and Asia Pacific under non cancellable leases that expire on various dates through fiscal 2036 Some of our leases include options to extend the term of such leases for a period from 12 months to 60 months and or have options to early terminate the lease As of June 30 2024 we included such options in determining the lease terms for certain of our leases as we were reasonably certain that we would exercise those options Most of our leases require us to pay certain operating expenses in addition to base rent such as taxes insurance and maintenance costs
The operating lease costs in the table above include costs for long term and short term leases Total short term costs for fiscal years June 30 2024 and 2023 were 0 2 million and 0 6 million respectively Variable lease costs primarily include maintenance utilities and operating expenses that are incremental to the fixed base rent payments and are excluded from the calculation of operating lease liabilities and ROU assets For fiscal years June 30 2024 and 2023 the cash paid for amounts associated with our operating lease liabilities were approximately 17 3 million and 16 1 million respectively Cash paid for amounts associated with the Company s operating lease liabilities were classified as operating activities in the consolidated statement of cash flows
We subcontract with third parties to manufacture our products and supply key components As of June 30 2024 we had 981 7 million of purchase commitments with these third parties If we cancel all or part of the orders we may still be liable to the contract manufacturers for the cost of the components purchased by the subcontractors to manufacture our products There have been no significant liabilities for current or anticipated cancellations recorded as of June 30 2024 Our consolidated financial position and results of operations could be negatively impacted if we were required to compensate these third parties In addition we may be subject to additional purchase obligations to our contract manufacturers for supply agreements and components ordered by them based on manufacturing forecasts we provide them each month
We have an obligation of 50 6 million as of June 30 2024 related to the mandatory transition tax on accumulated foreign earnings from the 2017 Tax Cuts and Jobs Act We expect to make payments of 22 5 million and 28 1 million in the first quarter of fiscal 2025 and 2026 respectively in relation to this obligation This obligation is included within Income tax payable and Long term taxes payable on our consolidated balance sheets
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
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
On April 19 2017 XR Communications LLC d b a Vivato Technologies Vivato filed a complaint against the Company in the United States District Court for the Central District of California alleging that at least one of the Company s products infringes United States Patent Numbers 7 062 29
6 the 296 Patent 7 729 728 the 728 Patent and 6 611 231 the 231 Patent and collectively the Patents in Suit the Original Action On April 11 2018 the Court stayed the Original Action pending completion of certain inter partes review IPR proce
On June 16 2021 Vivato filed a new suit against the Company in the Central District of California alleging that various Company products infringe some of the non invalidated claims of the 728 Patent and U S Patent No 10 594 376 the New Action
On November 24 2021 the Company and the remaining defendants in the Original Action filed a motion for judgment on the pleadings regarding the 231 Patent On January 4 2022 the Court granted defendants motion and dismissed Vivato s claims based on the 231 Patent The Federal Circuit Court of Appeals affirmed the invalidity of the 231 Patent on May 18 2023 All claims asserted against the Company in the Original Action have been dismissed
On July 28 2022 Vivato voluntarily dismissed with prejudice its remaining claims related to the 728 patent as well as claims 22 31 of the 376 Patent On October 20 2022 an IPR was instituted with respect to the asserted claims of the 376 Patent On October 26 2022 the court stayed the case pending completion of the IPR On October 3 2023 the IPR with respect to the 376 Patent was terminated after the petitioners entered into a settlement agreement with Vivato On December 4 2023 the court lifted the stay
On May 16 2024 the court entered a stipulated 30 day stay pending settlement discussions On June 18 2024 and July 19 2024 the court issued further stipulated 30 day stays pending settlement discussions Those discussions are ongoing
The Company plans to vigorously defend itself against these claims however there can be no assurance that the Company will prevail in the lawsuit The Company cannot currently estimate the possible loss or range of losses if any that it may experience in connection with this litigation
On October 5 2022 Network 1 Technologies Inc Network 1 filed a patent infringement lawsuit against the Company in the District of Delaware alleging that various Company products infringe United States Patent Number 6 218 930 which relates to 802 3af and 802 3at
standards Network 1 seeks compensatory and enhanced damages attorneys fees and costs and pre and post judgment interest The Company plans to vigorously defend itself against these claims however there can be no assurance that the Company will prevail in the lawsuit The Company cannot currently estimate the possible loss or range of losses if any that it may experience in connection with this litigation
On August 8 2023 Intellectual Ventures I LLC IV filed a patent infringement lawsuit against the Company in the District of Delaware alleging that various Company products infringe United States Patent Number 8 594 122 which relates to 802 11ac
standards IV seeks compensatory and enhanced damages attorneys fees and costs and pre and post judgment interest The Company plans to vigorously defend itself against these claims however there can be no assurance that the Company will prevail in the lawsuit The Company cannot currently estimate the possible loss or range of losses if any that it may experience in connection with this litigation
On May 3 2022 the Board of Directors of the Company approved a 200 million stock repurchase program the 2022 May Program Under the 2022 May Program the Company was authorized to repurchase up to 200 million of common stock The 2022 May Program expired on September 30 2023 and the Company did not make any repurchases under the 2022 May Program
In March 2010 the Company s Board of Directors and stockholders approved the 2010 Equity Incentive Plan the 2010 Plan Under the terms of the 2010 Plan non statutory stock options stock appreciation rights restricted stock and restricted stock units RSUs may be granted to employees or non employee service providers Incentive stock options may be granted only to employees
In December 2020 the Company s stockholders approved the Ubiquiti Inc 2020 Omnibus Incentive Plan the 2020 Equity Plan that replaced the 2010 Plan and no additional awards will be granted under the 2010 Plan Under the terms of the 2020 Equity Plan the Company is authorized to grant awards for up to five million shares of common stock over the term of the 2020 Equity Plan Outstanding awards under the 2010 Plan remain in effect pursuant to the terms of the 2010 Plan
The 2020 Equity Plan and the 2010 Plan are each administered by the Company s Board of Directors or a committee of the Company s Board of Directors Subject to the terms and conditions of the 2020 Equity Plan and the 2010 Plan the administrator has the authority to select the persons to whom awards are to be made to determine the number of shares to be subject to awards and the terms and conditions of awards and to make all other determinations and to take all other actions necessary or advisable for the administration of the 2020 Equity Plan and the 2010 Plan The administrator is also authorized to adopt amend or rescind rules relating to administration of the 2020 Equity Plan and the 2010 Plan Options and RSUs generally vest over a four year period from the date of grant and generally expire 10 years from the date of grant The terms of the 2020 Equity Plan and the 2010 Plan provide that an option price shall not be less than 100 of fair market value on the date of grant
During fiscal 2024 2023 and 2022 the aggregate intrinsic value of options exercised under the Company s stock incentive plans was 0 0 million 0 6 million and 2 3 million respectively as determined as of the date of option exercise
The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience analysis of employee turnover behavior and other factors The impact from a forfeiture rate adjustment will be recognized in full in the period of adjustment and if the actual number of future forfeitures differs from that estimated the Company may be required to record adjustments to share based compensation expense in future periods
The intrinsic value of RSUs vested in fiscal 2024 2023 and 2022 was 3 5 million 5 8 million and 8 2 million respectively The total intrinsic value of all outstanding RSUs was 14 9 million as of June 30 2024
For tax years beginning after December 31 2021 the Tax Cuts and Jobs Act of 2017 TCJA eliminates the right to deduct research and development expenditures for tax purposes in the period the expenses were incurred and instead requires all U S and foreign research and development expenditures to be amortized over five and fifteen tax years respectively Congress has considered legislation that would defer the amortization requirement to later years but as of June 30 2024 the requirement has not been modified Accordingly the Company has capitalized research and development expenses for tax purposes resulting in higher cash paid for taxes as compared to prior years
As of June 30 2024 the Company had approximately 33 0 million of unrecognized tax benefits substantially all of which would if recognized affect its tax expense The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statements of Operations and Comprehensive Income Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheets As of June 30 2024 and 2023 the Company had 4 8 million and 2 9 million accrued interest related to uncertain tax matters respectively
The Company and one or more of its subsidiaries file income tax returns in the United States federal jurisdiction and various state local and foreign jurisdictions and is currently undergoing income tax examinations by the U S Internal Revenue Service IRS and the Hong Kong Inland Revenue Department IRD All material consolidated federal state and local income tax matters have been concluded for years through 2014 The majority of the Company s foreign jurisdictions have been concluded through 2014 with the exception of Hong Kong which has been reviewed through 2009 and is currently under audit for the 2010 2018 statutory tax years
In July 2018 the Company received a draft Notice of Proposed Adjustment Draft NOPA from the IRS proposing an adjustment to income for the fiscal 2015 and fiscal 2016 tax years based on its interpretation of certain obligations of the non US entities under the credit facility This Draft NOPA was superseded by an Acknowledgement of Facts AOF issued to the Company by the IRS on January 17 2020 The IRS in its AOF continued to propose an adjustment to the Company s income for its fiscal 2015 and fiscal 2016 tax years based on the IRS interpretation of certain obligations of the Company s foreign subsidiaries under the Company s credit facilities On May 12 2020 the IRS issued a final NOPA to the Company with respect to the 2015 2016 tax years The Company formally protested the adjustment and the case was moved from the Examination Division to the IRS Appeals Division where a formal review of the facts and the applicable law took place on May 9 2022 The Appeals Officer issued a Notice of
Deficiency on August 3 2022 which upheld the position of the Examination Division The Company filed a petition with the United States Tax Court seeking to have the Notice of Deficiency reversed On November 8 2023 the Company filed a Motion for Summary Judgement The IRS responded to the Company s Motion on December 26 2023 and filed a Cross Motion for Summary Judgement On January 22 2024 the judge assigned to this case rejected both Motions for Summary Judgement As such the Company is awaiting a trial date to be set which it currently expects to receive by the end of December 2024 The Company continues to believe that its tax position filed with the IRS with regard to this matter is more likely than not to be sustained based on technical merits However there can be no assurance that this matter will be resolved in the Company s favor Regardless of whether the matter is resolved in the Company s favor the final resolution of this matter could be expensive and time consuming to defend and or settle The Company estimates the incremental tax liability associated with the income adjustment proposed in the AOF would be approximately 50 0 million excluding potential interest and penalties after adjusting for the impact of an adjustment on the amount of transition tax payable in future years by the Company As the Company believes that the tax originally paid in fiscal 2015 and fiscal 2016 is correct it has not provided a reserve for this tax uncertainty However an adverse outcome may have a material and adverse effect on the Company s results of operations and financial condition
Between fiscal years 2018 and 2023 the Company made payments totaling a combined amount of 60 4 million as deposits with the Hong Kong IRD in connection with extending the statute of limitation for income tax examinations currently under audit for 2010 2017 statutory tax years On March 27 2024 the Company received notification that the Hong Kong IRD is seeking an additional 0 8 million deposit covering the 2018 statutory tax year The Company filed a formal protest in response to this notice and the Assessor s office agreed to a reduced deposit of under 0 1 million covering the 2018 statutory tax year The refundable deposits are included within other long term assets on the Consolidated Balance Sheets The IRD is examining the Company s claims that its revenue is generated through activities performed wholly outside of the Hong Kong tax jurisdiction and are therefore exempt from Hong Kong tax The Company is fully cooperating with the examination including submitting documentation in support of its position The Company continues to believe that its tax positions filed with IRD are more likely than not to be sustained based on their technical merits and therefore no reserve has been provided for this tax uncertainty and the Company expects the 60 4 million net of foreign currency impact of deposits made with IRD to be refunded upon completion of the audit However there can be no assurance that this matter will be resolved in the Company s favor and therefore it s possible that an adverse outcome of the matter could have a material effect on the Company s results of operations and financial condition
Management has determined that the Company operates as one reportable and operating segment as the Company s Chief Executive Officer who is the Company s CODM does not make decisions about resources to be allocated or assess performance on a segment basis Furthermore the Company does not organize or report its costs on a segment basis The Company presents its revenue by product type in two primary categories Service Provider Technology and Enterprise Technology
On August 23 2024 the Company announced that its Board of Directors had approved a quarterly cash dividend of 0 60 per share payable on September 9 2024 to shareholders of record at the close of business on September 3 2024 Any future dividends will be subject to the approval of the Company s Board of Directors

Company Name	Ubiquiti Inc. Vist SEC web-site
Category	RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT
Trading Symbol	UI