10-Q 1 ubnt-20210930.htm 10-Q ubnt-20210930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File No. 001-35300
UBIQUITI INC.
(Exact name of registrant as specified in its charter)
Delaware 32-0097377
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
685 Third Avenue, 27th Floor, New York, NY 10017
(Address of principal executive offices, Zip Code)
(646) 780-7958
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value per shareUINew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer(Do not check if a smaller reporting company)Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  No 
As of November 3, 2021, 62,461,733 shares of Common Stock, par value $0.001, were issued and outstanding.    


UBIQUITI INC.
INDEX TO
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021


2

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements
UBIQUITI INC.
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited) 
September 30, 2021June 30, 2021
Assets
Current assets:
Cash and cash equivalents$265,930 $249,418 
Investments — short-term1,074 1,320 
Accounts receivable, net of allowance for doubtful accounts of $54 and $47 at September 30, 2021 and June 30, 2021, respectively
173,927 172,289 
Inventories261,590 233,767 
Vendor deposits 38,682 20,013 
Prepaid income taxes3,754 51 
Prepaid expenses and other current assets35,377 17,298 
Total current assets780,334 694,156 
Property and equipment, net79,608 79,061 
Operating lease right-of-use assets, net61,657 40,011 
Deferred tax assets — long-term4,752 4,776 
Investments — long-term1,287 1,035 
Other long-term assets71,018 71,946 
Total assets$998,656 $890,985 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$124,643 $112,071 
Taxes payable40,010 14,496 
Debt — short-term23,865 23,865 
Other current liabilities134,415 125,980 
Total current liabilities322,933 276,412 
Income taxes payable — long-term95,911 104,022 
Operating lease liabilities —long-term53,274 32,258 
Debt — long-term460,929 467,030 
Other long-term liabilities7,637 8,564 
Total liabilities940,684 888,286 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock—$0.001 par value; 50,000,000 shares authorized; none issued
  
Common stock—$0.001 par value; 500,000,000 shares authorized:
62,461,356 and 62,582,858 outstanding as of September 30, 2021 and June 30, 2021, respectively
62 63 
Additional paid–in capital  
Accumulated other comprehensive income 1 
Retained earnings equity57,910 2,635 
Total stockholders’ equity57,972 2,699 
Total liabilities and stockholders’ equity$998,656 $890,985 
See notes to consolidated financial statements.

3

UBIQUITI INC.
Consolidated Statements of Operations and Comprehensive Income
(In thousands, except per share amounts)
(Unaudited)

 
Three Months Ended September 30,
20212020
Revenues$458,914 $473,533 
Cost of revenues249,451 245,417 
Gross profit209,463 228,116 
Operating expenses:
Research and development32,051 25,813 
Sales, general and administrative15,714 12,350 
Total operating expenses47,765 38,163 
Income from operations161,698 189,953 
Interest expense and other, net(3,815)(3,917)
Income before income taxes157,883 186,036 
Provision for income taxes25,733 29,527 
Net income$132,150 $156,509 
Net income per share of common stock:
Basic$2.11 $2.46 
Diluted$2.11 $2.46 
Weighted average shares used in computing net income per share of common stock:
Basic62,519 63,612 
Diluted62,561 63,673 
Other comprehensive income:
Unrealized losses on available-for-sale securities$(1)$(1)
Other Comprehensive loss(1)(1)
Comprehensive income$132,149 $156,508 
See notes to consolidated financial statements.


4

UBIQUITI INC.
Consolidated Statements of Stockholders’ Equity (Deficit)
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, 2021
Common StockAdditional Paid-In CapitalRetained Earnings (Deficit)Accumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmountAmountAmountAmountAmount
Balance at June 30, 202162,582,858 $63 $— $2,635 $1 $2,699 
Net Income— — — 132,150  132,150 
Other comprehensive income (loss)— — — (1)(1)
Stock options exercised1,605— 17 — — 17 
Restricted stock units issued, net of tax withholdings7,887 — (952)— — (952)
Repurchases of Common Stock(130,994)(1)125 (39,376)— (39,252)
Stock-based compensation expense— — 810 — — 810 
Dividends Paid on Common Stock ($0.60 per share)
— — — (37,499)— (37,499)
Balances at September 30, 202162,461,356 $62 $— $57,910 $— $57,972 

Three Months Ended September 30, 2020
Common StockAdditional Paid-In CapitalRetained Earnings (Deficit)Accumulated Other Comprehensive Income (Loss)Total Stockholders’ Equity
SharesAmountAmountAmountAmountAmount
Balance at June 30, 202063,687,891 $64 $447 $(295,978)$9 $(295,458)
Net Income— — — 156,509 — 156,509 
Other comprehensive income (loss)— — — — (1)(1)
Stock options exercised2,194 — 21 — — 21 
Restricted stock units issued, net of tax withholdings8,768 — (615)— — (615)
Repurchases of Common Stock(602,003)(1)(593)(96,994)— (97,588)
Stock-based compensation expense— — 740 — — 740 
Dividends Paid on Common Stock ($0.40 per share)
— $— $— $(25,470)$— $(25,470)
Balances at September 30, 202063,096,850 $63 $— $(261,933)$8 $(261,862)















See notes to consolidated financial statements.


5

UBIQUITI INC.
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
Three Months Ended September 30,
20212020
Cash Flows from Operating Activities:
Net income$132,150 $156,509 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization3,244 2,634 
Amortization of debt issuance costs332 464 
Non-cash lease expense609 64 
Premium amortization and (discount accretion), net12 2 
Provision for inventory obsolescence64 180 
Provision for loss on vendor deposits and purchase commitments2,252 2,553 
Stock-based compensation810 740 
Provisions for doubtful accounts7 8 
Deferred taxes23 420 
Other, net104 291 
Changes in operating assets and liabilities:
Accounts receivable(1,645)(53,870)
Inventories(27,588)29,960 
Vendor deposits(20,333)579 
Prepaid income taxes(3,703)1 
Prepaid expenses and other assets(17,696)(3,919)
Accounts payable9,728 (86,562)
Income taxes payable17,404 3,154 
Deferred revenues577 3,069 
Accrued and other liabilities4,587 60,684 
Net cash provided by operating activities$100,938 $116,961 
Cash Flows from Investing Activities:
Purchase of property and equipment and other long-term assets(2,971)(2,836)
Advance of loan to third party (2,497)
Purchase of investments(569) 
Proceeds from maturities of investments550 422 
Net cash provided by (used in) investing activities$(2,990)$(4,911)
Cash Flows from Financing Activities:
Repayment against credit facility- Revolver (10,000)
Repayment against credit facility- Term(6,250)(6,250)
Repurchases of common stock(36,752)(83,926)
Payment of common stock cash dividends(37,499)(25,470)
Proceeds from exercise of stock options 21 
Tax withholdings related to net share settlements of restricted stock units(935)(615)
Net cash (used in) financing activities$(81,436)$(126,240)
Net increase (decrease) in cash and cash equivalents16,512 (14,190)
Cash and cash equivalents at beginning of period249,418 142,617 
Cash and cash equivalents at end of period$265,930 $128,427 
Supplemental Disclosure of Cash Flow Information:
Income taxes paid, net of refunds$11,964 $26,062 
Interest paid$2,501 $3,226 
Non-Cash Investing and Financing Activities:
Right-of-use asset recognized$24,344 $2,533 
Unpaid stock repurchases$2,497 $13,662 
Unpaid property and equipment and other long-term assets$580 $133 
See notes to consolidated financial statements.

6

UBIQUITI INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1—BUSINESS AND BASIS OF PRESENTATION
Business— Ubiquiti Inc. and its wholly owned subsidiaries (collectively, “Ubiquiti” or the “Company”) develop high performance networking technology for service providers, enterprises, and consumers globally.
The Company operates on a fiscal year ending June 30. In this Quarterly Report, the fiscal year ending June 30, 2022 is referred to as “fiscal 2022” and the fiscal year ended June 30, 2021 is referred to as “fiscal 2021”.
Basis of Presentation— The Company’s consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) related to interim financial statements based on applicable Securities and Exchange Commission (“SEC”) rules and regulations. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. These consolidated financial statements reflect all adjustments, which are, in the opinion of the Company, of a normal and recurring nature and those necessary to state fairly the statements of financial position, results of operations and cash flows for the dates and periods presented. The June 30, 2021 balance sheet was derived from the audited financial statements as of that date. All significant intercompany transactions and balances have been eliminated.
These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the fiscal year ended June 30, 2021, included in its Annual Report on Form 10-K, as filed with the SEC on August 27, 2021 (the “Annual Report”). The results of operations for the three months ended September 30, 2021 are not necessarily indicative of the results to be expected for any future periods.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are disclosed in its audited consolidated financial statements for the year ended June 30, 2021, included in the Annual Report on Form 10-K. Except as noted below, there have been no other changes to the Company’s significant accounting policies as discussed in the Annual Report.
Use of Accounting Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Those estimated assumptions include, but are not limited to, revenue recognition and deferred revenue; allowance for doubtful accounts and sales return reserves; inventory valuation and vendor deposits; accounting for income taxes, including the valuation allowance on deferred tax assets and reserves for uncertain tax positions; determinations of fair value for stock-based awards; estimate of incremental borrowing rate for determining the present value of future lease payments; and valuation of warranty accruals. We evaluate our estimates and assumptions based on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.
Recent Accounting Pronouncements
Income Taxes
In December 2019, the FASB issued Accounting Standards Update (ASU) No. 2019-12 Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The ASU is effective for calendar year-end public business entities on January 1, 2021 and other entities on January 1, 2022. Entities may early adopt the ASU in any interim period for which financial statements have not yet been issued (or made available for issuance). The Company has adopted the new guidance effective July 1, 2021 with no impacts upon adoption.
NOTE 3—REVENUES
Revenue is primarily generated from the sale of hardware as well as the related implied post contract services (“PCS”). Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Revenue is recognized when obligations under the terms of a contract with customers are satisfied; generally, this occurs with the transfer of control of the Company’s products and PCS to its customers. Transfer of control to the customer for products generally occurs at the point in time when products have been shipped to customers as this represents the point in time when the customer has a present obligation to pay and physical possession including title and risk of loss have been transferred to the customer. Revenue for PCS is recognized ratably over time over the estimated period for which implied PCS services will be delivered.
Disaggregation of Revenue
See Note 15 of Notes to Consolidated Financial Statements “Segment Information” for disaggregation of revenue by product category

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and geography.
Contract Balances
The timing of revenue recognition, billing and cash collections results in billed accounts receivable, deferred revenue primarily attributable to PCS and customer deposits on the Consolidated Balance Sheets. Accounts receivable are recognized in the period the Company’s right to the consideration is unconditional. Our contract liabilities consist of advance payments (Customer deposits) as well as billing in excess of revenue recognized primarily related to deferred revenue. We classify customer deposits as a current liability, and deferred revenue as a current or non-current liability based on the timing of when we expect to fulfill these remaining performance obligations. The current portion of deferred revenue is included in other current liabilities and the non-current portion is included in other long-term liabilities in our consolidated balance sheets.
As of September 30, 2021 and June 30, 2021, the Company’s customer deposits were $1.4 million and $2.7 million, respectively.
As of September 30, 2021, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $23.1 million and $7.6 million, respectively.
As of June 30, 2021, the Company’s deferred revenue, included in other current liabilities and other long-term liabilities, was $21.6 million and $8.6 million, respectively.
NOTE 4—FAIR VALUE OF FINANCIAL INSTRUMENTS
Pursuant to the accounting guidance for fair value measurements and its subsequent updates, fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The accounting guidance establishes a three-tier fair value hierarchy that requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1—Quoted prices in active markets for identical assets or liabilities;
Level 2—Inputs other than the quoted prices in active markets, that are observable either directly or indirectly;
Level 3—Unobservable inputs based on the Company’s own assumption.
The Company records securities available-for-sale at fair value on a recurring basis. The Company classifies its investments within Level 1 or 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded.
The Company’s fixed income available-for-sale securities consist of high-quality investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of the Company’s marketable securities incorporate bond terms and conditions, current performance data, proprietary pricing models, real time quotes from contributing dealers, trade prices and other market data.
The Company held no Level 3 financial instruments as of September 30, 2021 and June 30, 2021.
The following tables summarize the Company’s financial instruments’ adjusted cost, gross unrealized gains and losses, and fair value by significant investment category as of September 30, 2021 and June 30, 2021 (in thousands):
September 30, 2021
Adjusted CostGross Unrealized GainsGross Unrealized LossesFair ValueCash and Cash Equivalents (1)Short-Term InvestmentsLong-Term Investments
Level 1
Money market funds$80 $ $ $80 $80 $ $ 
Subtotal$80 $ $ $80 $80 $ $ 
Level 2
Corporate securities$2,358 $1 $(1)$2,358 $ $1,074 $1287 
Subtotal$2,358 $1 $(1)$2,358 $ $1,074 $1,287 
Total$2,438 $1 $(1)$2,438 $80 $1,074 $1,287 
(1) Cash and cash equivalents on the consolidated balance sheets includes securities that have a maturity of three months or less at the date of purchase. The carrying amount approximates fair value, primarily due to the short maturity of cash equivalent instruments.

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June 30, 2021
Adjusted CostGross Unrealized GainsGross Unrealized LossesFair ValueCash and Cash Equivalents (1)Short-Term InvestmentsLong-Term Investments
Level 1
Money market funds$83 $ $ $83 $83 $ $ 
Subtotal$83 $ $ $83 $83 $ $ 
Level 2
Corporate securities$2,354 $1 $ $2,355 $ $1320 $1035 
Subtotal$2,354 $1 $ $2,355 $ $1,320 $1,035 
Total$2,437 $1 $ $2,438 $83 $1,320 $1,035 

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

For the three months ended September 30, 2021 the Company did not recognize any material net gains or losses from accumulated other comprehensive income related to unrealized gains or losses.
During the three months ended September 30, 2021, interest income on the Company’s investment securities was immaterial.
During the three months ended September 30, 2020, interest income on our investment securities was immaterial.

The following table represents the Company's marketable securities that had been in continuous unrealized loss position for less than 12 months and for 12 months or greater as of September 30, 2021 (in thousands):
Continuous Unrealized Loss
Less than 12 Months12 Months or GreaterTotal
Fair value of marketable securities$1,121 $ $1,121 
Unrealized loss(1) (1)
The Company had no continuous unrealized loss position from marketable securities as of June 30, 2021.
The following table represents the adjusted costs and fair value of cash equivalents and investments by contractual maturity as of September 30, 2021 (in thousands):
Available-For-Sale
Adjusted CostFair Value
Due within 1 year and money market funds$1,151 $1,151 
Due after 1 year through 5 years1,287 1,287 
Total$2,438 $2,438 
For certain of the Company’s financial instruments, other than those presented in the disclosures above, including cash, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate fair value due to their short maturities.
As of September 30, 2021 and June 30, 2021, the Company had outstanding loans associated with its credit facilities, which are carried at historical cost. The fair value of the Company’s debt disclosed below was estimated based on the current rates offered to the Company for debt with similar terms and remaining maturities and was a Level 2 measurement. As of September 30, 2021 and June 30, 2021, the fair value of the Company’s debt, which is carried at historical cost was $487.5 million and $493.8 million, respectively.
NOTE 5—EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except per share data):

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 Three Months Ended September 30,
 20212020
Numerator:
Net income$132,150 $156,509 
Denominator:
Weighted-average shares used in computing basic earnings per share62,519 63,612 
Add—dilutive potential common shares:
Stock options10 20 
Restricted stock units32 41 
Weighted-average shares used in computing diluted net income per share62,561 63,673 
Net income per share of common stock:
Basic$2.11 $2.46 
Diluted$2.11 $2.46 

The Company excludes potentially dilutive securities from its diluted net income per share calculation when their effect would be anti-dilutive to net income per share amounts.

NOTE 6—BALANCE SHEET COMPONENTS
Inventories
Inventories consisted of the following (in thousands):
September 30, 2021June 30, 2021
Finished goods$256,105 $228,514 
Raw materials5,485 5,253 
Total$261,590 $233,767 
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
September 30, 2021June 30, 2021
Testing equipment$15,546 $15,279 
Tooling equipment16,225 15,490 
Leasehold improvements17,098 15,071 
Computer and other equipment9,066 8,966 
Software8,114 7,842 
Furniture and fixtures2,527 2,529 
Corporate aircraft65,807 65,807 
Property and equipment, gross134,383 130,984 
Less: Accumulated depreciation(54,775)(51,923)
Property and equipment, net$79,608 $79,061 
Other Long-term Assets
Other long-term assets consisted of the following (in thousands):
September 30, 2021June 30, 2021
Hong Kong Tax deposit (1)
57,466 57,423 
Intangible assets, net (2)
8,323 8,684 
Other long-term assets, net5,229 5,839 
Total$71,018 $71,946 
(1) . The Company expects the $57.5 million of deposits made with the IRD to be refunded upon completion of the audit. See Note 14 to the consolidated financial statements for additional details regarding this ongoing tax audit.
(2) Accumulated amortization was $3.2 million and $2.8 million as of September 30, 2021 and June 30, 2021, respectively.

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Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
September 30, 2021June 30, 2021
Deferred revenue — short-term$23,120 21,617 
Accrued expenses21,869 21,702 
Lease liability— current10,388 9,149 
Warranty accrual5,181 4,812 
Accrued compensation and benefits5,491 5,273 
Customer deposits1,364 2,693 
Reserve for sales returns2,432 2,242 
Inventory received not billed58,200 55,548 
Other payables6,370 2,944 
Total$134,415 $125,980 
Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
September 30, 2021June 30, 2021
Deferred Revenue — long-term$7,637 $8,564 
Other long-term liabilities  
Total$7,637 $8,564 

NOTE 7—ACCRUED WARRANTY
The Company offers warranties on certain products, generally a period of one to two years and records a liability for the estimated future costs associated with potential warranty claims. The warranty costs are reflected in the Company’s consolidated statements of operations and comprehensive income within cost of revenues. The warranties are typically in effect for one year for distributors from the date of shipment and two years for direct sales from the date of delivery. The Company assesses the adequacy of its accrued warranty liabilities and adjusts the amounts as necessary based on historical experience factors and changes in future estimates. Historical factors include product failure rates, material usage and service delivery costs incurred in correcting product failures. In certain circumstances, the Company may have recourse from its contract manufacturers for replacement cost of defective products, which it also factors into its warranty liability assessment.
Warranty obligations, included in other current liabilities, were as follows (in thousands):
 Three Months Ended September 30,
 20212020
Beginning balance$4,812 $4,538 
Accruals for warranties issued during the period$2,054 2,142 
Changes in liability for pre-existing warranties during the period$191 (585)
Settlements made during the period$(1,876)(1,611)
Ending balance$5,181 $4,484 

NOTE 8—DEBT
On March 30, 2021, the Company, as borrower and certain domestic subsidiaries entered into an amended and restated credit agreement (the “Third Amended and Restated Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”), the other financial institutions named as lenders therein, and Wells Fargo as administrative agent and collateral agent for the lenders, that extended the $700 million senior secured revolving credit facility (the “Revolving Facility”) and provided a new $500 million senior secured term loan facility (the “Term Facility”, together with the Revolving Facility, the “Facilities”), and extended the maturity of the Facilities to March 30, 2026. In addition, the Facilities include an option to request increases in the amounts of such credit facilities by up to an additional $500 million in the aggregate.
The Third Amended and Restated Credit Agreement replaced the Company's prior $700 million senior secured revolving facility (the “Prior Revolving Facility”) and $500 million senior secured term loan facility (the “Prior Term Facility”, together with the Prior Revolving Facility, the “Prior Facilities”) under the Second Amended & Restated Credit Agreement, dated as of January 17, 2018 (as amended by the First Amendment, dated as of June 29, 2018, the Second Amendment, dated as of March 15, and the Third Amendment, dated as of September 9, 2019, the “Prior Credit Agreement”). The Facilities replace the Company's Prior Facilities

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under the Prior Credit Agreement, which has been terminated in connection with the Third Amended and Restated Credit Agreement.
At the closing of the Third Amended and Restated Credit Agreement, the Term facility was fully drawn, of which $462.5 million and $0.7 million was used to repay the Prior Term Facility under the Prior Credit Agreement for principal and interest, respectively.
Additionally, at closing of the Third Amended and Restated Credit Agreement, $75.0 million and $0.4 million of the Prior Revolving Facility under the Prior Credit Agreement was repaid for principal and interest, respectively. The Company then borrowed $75.0 million under the Revolving Facility under the Third Amended and Restated Credit Agreement.
The Company incurred $3.3 million of debt issuance costs which are capitalized and amortized as interest expense over the life of the facilities.
The Company’s Debt consisted of the following (in thousands):
September 30, 2021June 30, 2021
Term Facility - short term$25,000 $25,000 
Debt issuance costs, net(1,135)(1135)
Total Debt - short term23,865 23,865 
Term Facility - long term462,500 468,750 
Debt issuance costs, net(1,571)(1,720)
Total Debt - long term$460,929 $467,030 
The Revolving Facility includes a sub-limit of $25.0 million for letters of credit and a sub-limit of $25.0 million for swingline loans. The Facilities are available for working capital and general corporate purposes that comply with the terms of the Third Amended and Restated Credit Agreement, including to finance the repurchase of the Company’s common stock or to make dividends to the holders of the Company’s common stock. Under the Third Amended and Restated Credit Agreement, revolving loans and swingline loans may be borrowed, repaid and reborrowed until March 30, 2026, at which time all amounts borrowed must be repaid. The term loan is payable in quarterly installments of 1.25% of the original principal amount of the term loan, commencing with the quarter ending June 30, 2021. Revolving, swingline and term loans may be prepaid at any time without penalty. Revolving and term loans bear interest, at the Company’s option, at either (i) a floating rate per annum equal to the base rate plus a margin of between 0.50% and 1.25%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter or (ii) a floating per annum rate equal to the applicable LIBOR rate (or replacement rate) for a specified period, plus a margin of between 1.50% and 2.25%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter. Swingline loans bear interest at a floating rate per annum equal to the base rate plus a margin of between 0.50% and 1.25%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter. Base rate is defined as the greatest of (A) Wells Fargo’s prime rate, (B) the federal funds rate plus 0.50% or (C) the applicable LIBOR rate (or replacement rate) for a period of one month plus 1.00%. A default interest rate shall apply on all obligations during certain events of default under the Third Amended and Restated Credit Agreement at a rate per annum equal to 2.00% above the applicable interest rate. The Company will pay to each lender a facility fee on a quarterly basis based on the unused amount of each lender’s commitment to make revolving loans, of between 0.20% and 0.35%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter. The Company will also pay to the applicable lenders on a quarterly basis certain fees based on the daily amount available to be drawn under each outstanding letter of credit, including aggregate letter of credit commissions of between 1.50% and 2.25%, depending on the Company’s consolidated total leverage ratio as of the most recently ended fiscal quarter, and issuance fees of 0.125% per annum. The Company is also obligated to pay Wells Fargo, as agent, fees customary for a credit facility of this size and type.
The Third Amended and Restated Credit Agreement requires the Company to maintain during the term of the Facilities a maximum consolidated total leverage ratio of 3.50 to 1.00 and a minimum consolidated interest coverage ratio of 3.5 to 1.00. In addition, the Third Amended and Restated Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the ability of the Company and its subsidiaries to, among other things, grant liens or enter into agreements restricting their ability to grant liens on property, enter into mergers, dispose of assets, change their accounting or reporting policies, change their business and incur indebtedness, in each case subject to customary exceptions for a credit facility of this size and type. The Third Amended and Restated Credit Agreement includes customary events of default that include, among other things, non-payment of principal, interest or fees, inaccuracy of representations and warranties, violation of covenants, cross default to certain other indebtedness, bankruptcy and insolvency events, material judgments, change of control and certain ERISA events. The occurrence of an event of default could result in the acceleration of the obligations under the Third Amended and Restated Credit Agreement.
The Facilities

As of September 30, 2021, $487.5 million was outstanding on the Term Facility and there was no outstanding balance on the Revolving Facility, leaving $700.0 million available on the Revolving Facility.

Term Facility:

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During the three months ended September 30, 2021, the Company made aggregate payments of $8.3 million under the Term Facility, of which $6.3 million was repayment of principal and $2.0 million was payment of interest.
As of September 30, 2021, the interest rate on the term loan was 1.58%. As of October 29, 2021, the most currently available reset date, the Term Facility has an interest rate of 1.58%.
Revolving Facility:
Under the Third Amended and Restated Credit Agreement, during the three months ended September 30, 2021, the Company did not make any aggregate payments under the Revolving Facility.
The following table summarizes the Company’s estimated debt and interest payment obligations as of September 30, 2021, for the remainder of fiscal 2022 and future fiscal years (in thousands):
2022 (remainder)2023202420252026ThereafterTotal
Debt payment obligations$18,750 $25,000 $25,000 $25,000 $393,750 $ $487,500 
Interest and other payments on debt payment obligations (1)
6,845 8,801 8,422 7,997 5,719  37,784 
Total$25,595 $33,801 $33,422 $32,997 $399,469 $ $525,284 
(1) - Interest payments are calculated based on the applicable rates and payment dates as of September 30, 2021. Although the Company’s interest rates on our debt obligations may vary, the Company has assumed the most recent available interest rates for all periods presented.
NOTE 9—LEASES
The Company enters into agreements under which it leases various real estate spaces in North America, Europe and Asia Pacific, under non-cancellable leases that expire on various dates through fiscal 2029. Some of the Company’s leases include options to extend the term of such leases for a period from 12 months to 60 months, and/or have options to early terminate the lease. As of September 30, 2021, the Company included such options in determining the lease terms for certain of the Company’s leases because the Company was reasonably certain that it would exercise the extension options. Most of the Company’s leases require it to pay certain operating expenses in addition to base rent, such as taxes, insurance and maintenance costs.
The following table summarizes the Company’s lease costs for the three months ended September 30, 2021 and 2020 (in thousands):
Financial Statement ClassificationThree Months Ended September 30,
20212020
Operating lease costs:
Fixed lease costsOperating expenses$2,145 $1,801 
Fixed lease costsCost of revenues1,145 509 
Variable lease costsOperating expenses144 203 
Variable lease costsCost of revenues130 100 
Total lease costs$3,564 $2,613 

The operating lease costs in the table above include costs for long-term and short-term leases. Total short-term costs for three months ended September 30, 2021 and 2020 were immaterial. Variable lease costs primarily include maintenance, utilities and operating expenses that are incremental to the fixed base rent payments and are excluded from the calculation of operating lease liabilities and ROU assets. For the three months ended September 30, 2021 and 2020, cash paid for amounts associated with the Company’s operating lease liabilities were approximately $3.0 million and $2.8 million, respectively. Cash paid for amounts associated with the Company’s operating lease liabilities were classified as operating activities in the consolidated statement of cash flows.
The following table shows the Company’s undiscounted future fixed payment obligations under the Company’s recognized operating leases and a reconciliation to the operating lease liabilities as of September 30, 2021:

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Remainder of Fiscal 2022$8,838 
Fiscal 202311,106 
Fiscal 202410,714 
Fiscal 20259,676 
Fiscal 20266,889 
Thereafter21,981 
Total future fixed operating lease payments$69,204 
Less: Imputed interest$5,542 
Total operating lease liabilities$63,662 
Weighted-average remaining lease term - operating leases8 years
Weighted-average discount rate - operating leases2.38 %

NOTE 10—COMMITMENTS AND CONTINGENCIES
Operating Leases
See Note 9- Leases for future minimum lease payments under non-cancelable operating leases as of September 30, 2021.
Purchase Obligations
The Company subcontracts with third parties to manufacture its products and has purchase commitments with key component suppliers. During the normal course of business, the Company’s contract manufacturers procure components and manufacture products based upon orders placed by the Company. If the Company cancels all or part of the orders, the Company may still be liable to the contract manufacturers for the cost of the components purchased by the subcontractors to manufacture the Company's products. The Company periodically reviews the potential liability, and as of September 30, 2021, the Company recorded a purchase obligation liability of $7.8 million related to component purchase commitments. There have been no other significant liabilities for cancellations recorded as of September 30, 2021. The Company’s consolidated financial position and results of operations could be negatively impacted if it were required to compensate the contract manufacturers for any unrecorded liabilities incurred. The Company may be subject to additional purchase obligations for supply agreements and components ordered by its contract manufacturers based on manufacturing forecasts it provides them each month. The Company estimates the amount of these additional purchase obligations to range from $176.9 million to $919.4 million as of September 30, 2021, depending upon the timing of orders placed for these components by its contract manufacturers.
Other Obligations
As of September 30, 2021, the Company has other obligations of $2.7 million which consisted primarily of commitments related to raw materials and research and development projects.
Indemnification Obligations
The Company enters into standard indemnification agreements with many of its business partners in the ordinary course of business. These agreements include provisions for indemnifying the business partner against any claim brought by a third-party to the extent any such claim alleges that a Company product infringes a patent, copyright or trademark, or violates any other proprietary rights of that third-party. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not estimable and the Company has not incurred any material costs to defend lawsuits or settle claims related to these indemnification agreements to date.
Legal Matters
The Company may be involved, from time to time, in a variety of claims, lawsuits, investigations, and proceedings relating to contractual disputes, intellectual property rights, employment matters, regulatory compliance matters and other litigation matters relating to various claims that arise in the normal course of business. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. The Company assesses its potential liability by analyzing specific litigation and regulatory matters using available information. The Company develops its views on estimated losses in consultation with inside and outside counsel, which involves a subjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlement strategies. Taking all of the above factors into account, the Company records an amount where it is probable that the Company will incur a loss and where that loss can be reasonably estimated. However, the Company’s estimates may be incorrect and the Company could ultimately incur more or less than the amounts initially recorded. The Company may also incur significant legal fees, which are expensed as incurred, in

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defending against these claims. The Company is not currently aware of any pending or threatened litigation that would have a material adverse effect on the Company’s financial statements.

Vivato/XR
On April 19, 2017, XR Communications, LLC, d/b/a Vivato Technologies (“Vivato”), filed a complaint against the Company in the United States District Court for the Central District of California, alleging that at least one of the Company’s products infringes United States Patent Numbers 7,062,296 (the “‘296 Patent”), 7,729,728 (the “‘728 Patent”), and 6,611,231 (the “‘231 Patent” and, collectively, the “Patents-in-Suit”).
Vivato has also filed nine other lawsuits asserting the same patents against other defendants in the Central District of California. On October 2, 2017, the ten cases were consolidated into a single action for all purposes except trial (the "Original Action").
According to the operative Second Amended Complaint filed on July 6, 2017, the products accused of infringing the Patents-in-Suit include Wi-Fi access points and routers supporting MU-MIMO, including without limitation access points and routers utilizing the IEEE 802.11ac-2013 standard.

On March 19, 2018, the Company and the remaining defendants in the Original Action moved to stay the case pending completion of certain inter partes review proceedings before the Patent Trial and Appeal Board. On April 11, 2018, the Court stayed the Original Action.
The Patent Trial and Appeal Board, in the aforementioned series of inter partes review proceedings, invalidated two of the three Patents-in-Suit, but it rejected the challenge to the ‘231 Patent. That decision was appealed, and on November 25, 2020, the Federal Circuit Court of Appeals affirmed the Patent Trial and Appeal Board decision. Following the Federal Circuit's affirmance, the District Court lifted the stay on March 1, 2021 to resume proceedings on the '231 Patent in the Original Action.

On June 16, 2021, Vivato filed a new suit against the Company in the Central District of California, alleging that various Company products infringe some of the non-invalidated claims of the ’728 Patent and U.S. Patent No. 10,594,376 (the “New Action”). According to the New Action, the products accused of infringing these patents include Wi-Fi access points and routers supporting MU-MIMO, including without limitation access points and routers utilizing the 802.11ac and 802.11ax protocols. The New Action, as well as four similar new lawsuits filed by Vivato against other defendants in the same jurisdiction, were consolidated into the Original Action. The Company’s response to the New Action was filed on August 11, 2021. Trial is currently scheduled for October 11, 2022.

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.

In re Ubiquiti Inc. Securities Litigation (SDNY)
On May 19, 2021, a purported class action, captioned Nils Molder, Individually and On Behalf of All Others Similarly Situated v. Ubiquiti Inc. et al., No. 1:21-cv-04520 (the “Securities Action”), was filed in the United States District Court for the Southern District of New York against the Company and certain of its officers. The Securities Action complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making false and/or misleading statements, including purported failure to disclose material facts about a data breach experienced by the Company in January 2021.

On July 30, 2021, the Court appointed a lead plaintiff and lead plaintiff’s counsel and ordered the lead plaintiff to file an amended complaint on or before September 24, 2021. The case is now captioned In re Ubiquiti Inc. Securities Litigation, 21 Civ. 4520 (DLC). Plaintiff filed an amended complaint on September 24, 2021. Defendants moved to dismiss the amended complaint on October 22, 2021. On October 29, 2021, Plaintiff informed the Court that she intends to further amend the complaint and plans to do so on or before November 12, 2021.

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.

Flannery v. Ubiquiti Inc.
On October 21, 2021, a purported stockholder of the Company filed an action captioned Flannery v. Ubiquiti Inc., C.A. No. 2021-0913-PAF (the “Books and Records Action”) in the Court of Chancery of the State of Delaware seeking to inspect certain books and records of the Company pursuant to 8 Delaware Code Section 220. The Books and Records Action complaint seeks to inspect, without limitation, books and records concerning the data breach experienced by the Company in January 2021, as well as related statements, disclosures, policies, procedures, and practices. Ubiquiti’s response to the complaint is due on November 12, 2021.



NOTE 11—COMMON STOCK AND TREASURY STOCK
Common Stock Repurchases

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On May 5, 2020, the Company's Board of Directors approved a $500 million stock repurchase program (the “2020 May Program”). Under the 2020 May Program, the Company may repurchase up to $500 million of its common stock. The 2020 May Program expires on March 31, 2022. During the three months ended September 30, 2021, under the 2020 May Program, the Company repurchased and retired 130,994 shares of common stock at an average price per share of $299.64 for an aggregate amount of $39.3 million. As of September 30, 2021, the Company had $278.9 million available for share repurchases under the 2020 May Program.
The following table provides information with respect to the Company’s Share Repurchase programs and the activity under the available share repurchase programs during the three months ended September 30, 2021 (in millions, except share and per share amounts):
Date of Publicly Announced ProgramAmount of Publicly Announced ProgramTotal Number of Shares Purchased as Part of Publicly Announced ProgramsAverage Price Paid per ShareTotal Aggregate Amount PaidPeriod of PurchasesEstimated Remaining Balance Available for Share Repurchases under the ProgramExpiration date of Program
May 8, 2020$500 million130,994$299.64 $221.1 July 7, 2021 - September 30, 2021$278.9 3/31/2022

NOTE 12—ACCUMULATED OTHER COMPREHENSIVE INCOME
Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to unrealized gains and losses that are recorded as an element of stockholders’ equity but are excluded from net income pursuant to GAAP. For the three months ended September 30, 2021 and 2020, the Company’s accumulated other comprehensive income includes net unrealized gains and losses from the Company’s available-for-sale securities, respectively.
NOTE 13—STOCK BASED COMPENSATION
Stock-Based Compensation Plans
The Company’s 2020, 2010 and 2005 Equity Incentive Plan are described in the Company’s Annual Report.
As of September 30, 2021, the Company had 4,986,685 authorized shares available for future issuance under all of its stock incentive plans.
Stock-Based Compensation
The following table shows total stock-based compensation expense included in the Consolidated Statements of Operations and Comprehensive Income for the three months ended September 30, 2021 and 2020 (in thousands):
 Three Months Ended September 30,
 20212020
Cost of revenues$22 $28 
Research and development570 510 
Sales, general and administrative218 202 
$810 $740 
Stock Options
The following is a summary of option activity for the Company’s stock incentive plans for the three months ended September 30, 2021:
 Common Stock Options Outstanding
 Number
of Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
(In thousands)
Balance, June 30, 202110,525 $11.51 1.29$3,165 
Exercised(1,605)$10.83 
Forfeitures and cancellations
Balance, September 30, 20218,920 $11.64 1.02$2,560 
Vested as of September 30, 20218,920 $11.64 1.02$2,560 
Vested and exercisable as of September 30, 20218,920 $11.64 1.02$2,560 
During the three months ended September 30, 2021 and 2020, the aggregate intrinsic value of options exercised under the Company’s stock incentive plans was $0.5 million and $0.3 million, respectively, as determined as of the date of option exercise.

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As of September 30, 2021, the Company had no unrecognized compensation costs related to stock options.
The Company did not grant any employee stock options during the three months ended September 30, 2021 and 2020.
Restricted Stock Units (“RSUs”)
The following table summarizes the activity of the RSUs made by the Company:
Number of SharesWeighted Average Grant Date Fair Value Per Share
Non-vested RSUs, June 30, 202161,533 $143.28 
RSUs granted3,105 $312.55 
RSUs vested(10,950)$93.41 
RSUs canceled(749)$167.99 
Non-vested RSUs, September 30, 202152,939 $163.17 
The intrinsic value of RSUs vested in the three months ended September 30, 2021 and 2020 was $3.4 million and $2.1 million, respectively.
The total intrinsic value of all outstanding RSUs was $15.8 million as of September 30, 2021.
As of September 30, 2021, there were unrecognized compensation costs related to RSUs of $5.9 million which the Company expects to recognize over a weighted average period of 3.0 years.
NOTE 14—INCOME TAXES
The Company recorded tax provisions of $25.7 million for the three months ended September 30, 2021 as compared to $29.5 million for the three months ended September 30, 2020. The decrease is primarily related to a decrease in profit before tax for the three months ended September 30, 2021.
The Company’s estimated fiscal year 2022 effective tax rate, before discrete items, differs from the U.S. statutory rate primarily due to profits earned in jurisdictions where the tax rate is lower than the U.S. tax rate, partially offset by additional US tax related to our non-US operations under Global Intangible Low-Taxes Income (GILTI) provision.
As of September 30, 2021, the Company had approximately $33.3 million of unrecognized tax benefits, substantially all of which would, if recognized, affect its tax expense. During the three months ended September 30, 2021, the Company recorded an increase of its unrecognized tax benefits of $1.2 million. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statement of Operations and Comprehensive Income. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheets. As of September 30, 2021, the Company had $3.8 million accrued interest related to uncertain tax matters.
The Company and one or more of its subsidiaries, files income tax returns in the United States federal jurisdiction, and various state, local, and foreign jurisdictions and is currently undergoing income tax examinations by the U.S. Internal Revenue Service and the Hong Kong IRD. All material consolidated federal, state and local income tax matters have been concluded for years through 2014. The majority of the Company’s foreign jurisdictions have been concluded through 2014, with the exception of Hong Kong which has been reviewed through 2009 and is currently under audit for the 2010-2016 tax years.
During fiscal years 2020, 2019, and 2018, the Company made a total of $15.5 million, $13.4 million, and $6.6 million of deposits with the Hong Kong IRD in connection with extending the statute of limitation for income tax examinations currently under audit for 2010-2015 tax years. On December 30, 2020, the Company received notification that the Hong Kong IRD is seeking an additional $67.8 million deposit covering the 2015 tax year. The Company has filed a formal protest in response to this notice and the Assessor's office agreed to a reduced deposit of $22.0 million which was remitted on March 26, 2021. The refundable deposits are included within other long-term assets on our Consolidated Balance Sheets. The IRD is examining the Company’s claims that its revenue is generated through activities performed wholly outside of the Hong Kong tax jurisdiction and are therefore exempt from Hong Kong tax. The Company is fully cooperating with the examination including submitting documentation in support of its position. The Company continues to believe that its tax positions filed with IRD are more likely than not to be sustained based on their technical merits and therefore no reserve has been provided for this tax uncertainty and we expect the $57.5 million of deposits made with IRD to be refunded upon completion of the audit. However, there can be no assurance that this matter will be resolved in the Company’s favor and therefore it's possible that an adverse outcome of the matter could have a material effect on the Company’s results of operations and financial condition.
In July 2018, the Company received a draft Notice of Proposed Adjustment (“Draft NOPA”) from the Internal Revenue Service (“IRS”) proposing an adjustment to income for the fiscal 2015 and fiscal 2016 tax years based on its interpretation of certain obligations of the non-US entities under the credit facility. This Draft NOPA was superseded by an Acknowledgement of Facts (“AOF”) issued to the Company by the IRS on January 17, 2020. The IRS in its AOF continued to propose an adjustment to the

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Company’s income for its fiscal 2015 and fiscal 2016 tax years based on the IRS’ interpretation of certain obligations of the Company’s foreign subsidiaries under the Company’s credit facilities. On May 12, 2020, the IRS issued a final Notice of Proposed Adjustment to the Company with respect to the 2015/2016 tax years. The Company has formally protested the adjustment and the case is expected to be moved from the Examination Division to the IRS Appeals Division where a formal review of the facts and the applicable law will take place. The timing of when the case will be scheduled to be reviewed by the Appeals Division is uncertain at this time due in large part to an existing backlog of cases awaiting review by the Division. The Company strongly believes the position of the IRS with regard to this matter is without merit. However, there can be no assurance that this matter will be resolved in the Company’s favor. Regardless of whether the matter is resolved in the Company’s favor, the final resolution of this matter could be expensive and time-consuming to defend and/or settle. We estimate the incremental tax liability associated with the income adjustment proposed in the AOF would be approximately $50.0 million, excluding potential interest and penalties, after adjusting for the impact of an adjustment on the amount of transition tax payable in future years by the Company. As the Company believes that the tax originally paid in fiscal 2015 and fiscal 2016 is correct, it has not provided a reserve for this tax uncertainty. However, an adverse outcome may have a material and adverse effect on the Company’s results of operations and financial condition.

NOTE 15—SEGMENT INFORMATION, REVENUES BY GEOGRAPHY AND SIGNIFICANT CUSTOMERS
Management has determined that the Company operates as one reportable and operating segment as it only reports financial information on an aggregate and consolidated basis to its Chief Executive Officer, who is the Company’s Chief Operating Decision Maker. Furthermore, the Company does not organize or report its costs on a segment basis. The Company presents its revenues by product type in