UBIQUITI INC. The following discussion of our financial condition and results of operations should be read together with the financial statements and related notes that are included elsewhere in this quarterly report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this quarterly report, particularly in Note 10 "Commitments and Contingencies" to our consolidated financial statements and Part II "Other Information", Item 1-Legal Proceedings and 1A-Risk Factors, in this report.
Overview
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 service providers, enterprises and consumers. We target the service provider and enterprise markets through our highly engaged community of service providers, distributors, value added resellers, webstores, systems integrators and corporate IT professionals, which we refer to as theUbiquiti Community . We target consumers through digital marketing, retail chains and, to a lesser extent, theUbiquiti Community . In addition toMr. 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. 21
-------------------------------------------------------------------------------- We distribute our products through a worldwide network of over 100 distributors and online retailers and direct to customers through our webstores. COVID-19 Update- The 2019 novel coronavirus (COVID-19), which theWorld Health Organization ("WHO") characterized as a pandemic inMarch 2020 , continues to disrupt global economies, and has spread to the major markets in which we operate, includingthe United States ,Asia ,Europe andSouth America . The COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including, among others, restrictions on travel, stay-at-home orders or work remote or from home conditions in many of the locations where we have offices. We have taken and will continue to take precautionary measures intended to help minimize the risk of COVID-19 to our employees. While we have not yet experienced a significant disruption to the productivity of our employees as a result of the COVID-19 pandemic, if the stay-at-home orders or work remote or from home conditions in any of our facilities continue for an extended period of time, or an outbreak in any of our facilities, we may, among other issues, experience delays in product development, a decreased ability to support our customers, disruptions in sales and an overall lack of productivity. We have experienced a disruption in our supply chain and production as a result of the COVID-19 related restrictions and the global shortage of components. The current environment has impacted our suppliers' ability to manufacture or provide key components or services, and we have incurred, and continue to incur, additional cost to expedite deliveries of components and services. For example, during fiscal 2022, we experienced reduced availability of components (including the chipsets) used to manufacture our products, which has impacted, and we expect will continue to impact 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 the chipsets, and may result in delays in product production, which shortages may be further exacerbated by increasing global shipping lead times and delays. We do not stockpile sufficient components to cover the time it would take to re-engineer our products to replace the chipsets used to manufacture our products. While we are continuing to work closely with our suppliers and contract manufacturers to minimize the potential adverse impacts of the supply shortage, there are many companies seeking to purchase the limited supply of chipsets and other components, many of which have greater resources and larger market share than we have, which may limit the effectiveness of our efforts. We expect that shortages of chipsets and other components will continue and may have an adverse impact on our ability to manufacture our products and meet demand for our products. The extent to which the COVID-19 pandemic and the global availability of components impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including further disruptions to our supply chain, reductions in demand due to disruptions in the operations of our customers or their end customers, disruptions in local and global economies, volatility in the global financial markets, overall reductions in demand, restrictions on the export or shipment of our products or other COVID-19-related events. This uncertainty also affects management's accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions. Refer to Risk Factors (Part II, Item 1A of this Form 10-Q) for a discussion of these factors and other risks.
Recent Developments
Russia-Ukraine Military Conflict- We are monitoring the military conflict betweenRussia andUkraine , escalating tensions in surrounding countries, and associated economic sanctions. While the impact to our operations inUkraine 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 inUkraine and its surrounding countries, and its impact on global supply chains. Refer to Risk Factors (Part II, Item 1A of this Form 10-Q) for a discussion of these factors and other risks.
Key Components of Our Results of Operations and Financial Condition
Revenues
We operate our business as one reportable and operating segment. Further
information regarding Segments can be found in Note 15
to our Consolidated Financial Statements. Our revenues are derived principally
from the sale of networking hardware. Because we
have historically included implied post-contract customer support ("PCS") free
of charge in many of our arrangements, we attribute
a portion of our systems revenues to this implied PCS.
We classify our revenues into two primary product categories: Enterprise
Technology and Service Provider Technology.
•Enterprise Technology includes our UniFi platforms, including UniFi Network
Wi-Fi, switching and routing solutions, UniFi Protect, UniFi Access, UniFi-Talk
and our AmpliFi platform.
•Service Provider Technology includes our airMAX, EdgeMAX, UFiber, and airFiber
platforms, as well as embedded radio products and other 802.11 standard products
including base stations, radios, backhaul equipment and CPE. Additionally,
Service Provider Technology includes antennas and other products primarily in
the 0.9 to 6.0 GHz spectrum and miscellaneous products such as mounting
brackets, cables and power over Ethernet adapters.
We sell our products and solutions globally to enterprises and service providers primarily through our extensive network of
22
--------------------------------------------------------------------------------
distributors, and, to a lesser extent, through direct sales through our
webstores. Sales to distributors accounted for 67% of our revenues during the
nine months ended March 31, 2022 . Direct sales accounted for 33% of our revenue
during the nine months ended March 31, 2022 .
Cost of Revenues
Our cost of revenues is comprised primarily of the costs of procuring finished goods from our contract manufacturers and certain key components that we consign to certain of our contract manufacturers. In addition, cost of revenues includes labor and other costs which include salary, benefits and stock-based compensation, in addition to costs associated with tooling, testing and quality assurance, warranty costs, logistics costs, tariffs and excess and obsolete inventory write-downs. We currently operate warehouses located in theU.S. andEurope . In addition, we outsource other logistics warehousing and order fulfillment functions located inChina and to a lesser extent in other countries. We also evaluate and utilize other vendors for various portions of our supply chain from time to time. Our operations organization consists of employees and consultants engaged in the management of our contract manufacturers, new product introduction activities, logistical support and engineering.
Gross Profit
Our gross profit has been, and may in the future be, influenced by several factors including changes in product mix, target end markets for our products, channel inventory levels, tariffs, pricing due to competitive pressure, production costs and global demand for electronic components. Although we procure and sell our products mostly inU.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. InJune 2018 , theOffice of the United States Trade Representative announced new proposed tariffs for certain products imported into theU.S. fromChina . The vast majority of our products that are imported into theU.S. fromChina are currently subject to tariffs that range between 7.5% and 25%. These tariffs have already affected our operating results and margins. For so long as such tariffs are in effect, we expect it will continue to affect our operating results and margins. As a result, our historical and current gross profit margins may not be indicative of our gross profit margins for future periods. Refer to "Part II- Item 1A. Risk Factors-Risks Related to Our International Operations-Our business may be negatively affected by political events and foreign policy responses" for additional information.
Operating Expenses
We classify our operating expenses as research and development and, sales, general and administrative expenses.
•Research and development expenses consist primarily of salary and benefit expenses, including stock-based compensation, for employees and costs for contractors engaged in research, design and development activities, as well as costs for prototypes, licensed or purchased intellectual property, facilities and travel. Over time, we expect our research and development costs to increase as we continue making significant investments in developing new products in addition to new versions of our existing products. •Sales, general and administrative expenses include salary and benefit expenses, including stock-based compensation, for employees and costs for contractors engaged in sales, marketing and general and administrative activities, as well as the costs of legal expenses, trade shows, marketing programs, promotional materials, bad debt expense, professional services, facilities, general liability insurance and travel. As our product portfolio and targeted markets expand, we may need to employ different sales models, such as building a traditional direct sales force. These sales models would likely increase our costs. Over time, we expect our sales, general and administrative expenses to increase in absolute dollars due to continued growth in headcount, expansion of our efforts to register and defend trademarks and patents and to support our business and operations Provisions for Income Taxes 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 such 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 II- Item 1A. Risk Factors-Risks Related to Regulatory, Legal and Tax Matters-Changes in applicable tax regulations could negatively affect our financial results" for additional information
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not 23 -------------------------------------------------------------------------------- require management's judgment in its application. In other cases, management's judgment is required in selecting among available alternative accounting standards that provide for different accounting treatment for similar transactions. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the amounts we report as assets, liabilities, revenues, costs and expenses and affect the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. In many instances, we could reasonably use different accounting estimates, and in some instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, our actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. Our critical accounting policies are discussed in our Annual Report, filed with theSEC onAugust 27, 2021 , and there have been no material changes other than that have been disclosed in Note 2 to our consolidated financial statements herein. Additionally, as the COVID-19 pandemic continues to develop and supply chain constraints on the global supply of components, particularly the chipsets, we use to manufacture our products persists, many of our estimates could require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve our estimates may change materially in future periods. We believe that the accounting policies discussed in our Annual Report, are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
Results of Operations
Comparison of Three and Nine Months Ended
Three Months Ended March 31, Nine Months Ended March 31,
2022 2021 2022 2021
(In thousands, except percentages)
Revenues $ 358,068 100 % $ 467,237 100 % $ 1,248,547 100 % $ 1,420,206 100 %
Cost of revenues (1) 242,050 68 % 244,499 52 % 748,369 60 % 738,678 52 %
Gross profit 116,018 32 % 222,738 48 % 500,178 40 % 681,528 48 %
Operating expenses:
Research and development (1) 35,261 10 % 30,483 7 % 100,181 8 % 85,208 6 %
Sales, general and administrative 18,151 5 % 13,255 3 % 50,302 4 % 36,556 3 %
(1)
Total operating expenses 53,412 15 % 43,738 10 % 150,483 12 % 121,764 9 %
Income from operations 62,606 17 % 179,000 38 % 349,695 28 % 559,764 39 %
Interest expense and other, net (3,252) (1 %) (4,890) (1 %) (9,784) (1 %) (12,420) (1 %)
Income before income taxes 59,354 16 % 174,110 37 % 339,911 27 % 547,344 38 %
Provisions for income taxes 9,000 3 % 28,035 6 % 53,758 4 % 85,092 6 %
Net income $ 50,354 13 % $ 146,075 31 % $ 286,153 23 % $ 462,252 32 %
(1) Includes stock-based
compensation as follows:
Cost of revenues 18 23 63 80
Research and development 629 538 1,786 1,560
Sales, general and administrative 227 214 654 625
Total stock-based compensation 874 775 2,503 2,265 Revenues
Total revenues decreased
Total revenues decreased$171.7 million , or 12%, from$1420.2 million in the nine months endedMarch 31, 2021 to$1248.5 million in the nine months endedMarch 31, 2022 . The decline in revenue for the quarter endedMarch 31, 2022 , as compared to the comparable prior year period, was primarily driven by decreases in revenue in both the Enterprise Technology and Service Provider Technology platforms. The decline in revenue for the nine months endedMarch 31, 2022 , as compared to the comparable prior year period, was primarily driven by a decrease in revenue in the Service Provider Technology platform. Overall, revenues were significantly negatively impacted by our inability to fulfill demand due to the global component supply shortage and the continued outbreaks of COVID around the world. 24
--------------------------------------------------------------------------------
Revenues by Product Type
Three Months Ended March 31, Nine Months Ended March 31,
2022 2021 2022 2021
(in thousands, except percentages)
Enterprise technology $ 295,043 82 % $ 314,875 67 % $ 972,173 78 % $ 960,507 68 %
Service Provider Technology 63,025 18 % 152,362 33 % 276,374 22 % 459,699 32 %
Total revenues $ 358,068 100 % $ 467,237 100 % $ 1,248,547 100 % $ 1,420,206 100 %
Enterprise Technology revenue decreased $19.9 million , or 6.3%, from $314.9
million in the three months ended March 31, 2021 to $295.0 million in the three
months ended March 31, 2022 and increased $11.7 million , or 1%, from $960.5
million in the nine months ended March 31, 2021 to $972.2 million in the nine
months ended March 31, 2022 .
The decrease in Enterprise Technology revenue during the three months ended
March 31, 2022 , as compared to the same period in the prior year, was primarily
due to decreased revenue in our UniFi technology platform across all geographic
regions other than North America .
The increase in Enterprise Technology revenue during the nine months ended
Service Provider Technology revenue decreased$89.4 million , or 59%, from$152.4 million in the three months endedMarch 31, 2021 to$63.0 million in the three months endedMarch 31, 2022 and decreased$183.3 million , or 40%, from$459.7 million in the nine months endedMarch 31, 2021 to$276.4 million in the nine months endedMarch 31, 2022 . The decrease in Service Provider Technology revenue during the three and nine months endedMarch 31, 2022 , as compared to the same periods in the prior year, was primarily due to decreased revenue in all of our product platforms across all geographic regions. Revenues by Geography We have determined the geographical distribution of our product revenues based on our customers' ship-to destinations. A majority of our sales are to distributorswho either sell to resellers or directly to end customers,who may be located in different countries than the initial ship-to destination. The following are our revenues by geography for the three and nine months endedMarch 31, 2022 and 2021 (in thousands, except percentages): Three Months Ended March 31, Nine Months Ended March 31, 2022 2021 2022 2021 (in thousands, except percentages) North America(1)$ 183,575 51 %$ 209,515 45 %$ 579,711 47 %$ 623,835 44 % Europe, the Middle East and 135,227 38 % 189,573 41 % 498,836 40 % 587,507 41 %Africa ("EMEA") Asia Pacific 26,455 7 % 36,145 8 % 102,152 8 % 115,464 8 % South America 12,811 4 % 32,004 7 % 67,848 5 % 93,400 7 % Total revenues$ 358,068 100 %$ 467,237 100 %$ 1,248,547 100 %$ 1,420,206 100 % (1) Revenue forthe United States was$173.9 million and$193.2 million for the three months endedMarch 31, 2022 and 2021, respectively. Revenue forthe United States was$536.8 million and$582.1 million for the nine months endedMarch 31, 2022 and 2021, respectively.
Revenues inNorth America decreased$25.9 million , or 12%, from$209.5 million in the three months endedMarch 31, 2021 to$183.6 million in the three months endedMarch 31, 2022 and decreased$44.1 million , or 7%, from$623.8 million in the nine months endedMarch 31, 2021 to$579.7 million in the nine months endedMarch 31, 2022 . The decrease inNorth America revenues during the three and nine months endedMarch 31, 2022 as compared to the same periods in the prior year, was primarily due to decreased revenue from our Service Provider Technology products offset, in part, by increased revenue from Enterprise Technology products. 25 --------------------------------------------------------------------------------
Revenues in EMEA decreased$54.4 million , or 29%, from$189.6 million in the three months endedMarch 31, 2021 to$135.2 million in the three months endedMarch 31, 2022 and decreased$88.7 million , or 15%, from$587.5 million in the nine months endedMarch 31, 2021 to$498.8 million in the nine months endedMarch 31, 2022 . The decrease in EMEA revenues during the three and nine months endedMarch 31, 2022 as compared to the same periods in the prior year, was primarily due to decreased revenue from both our Service Provider Technology and Enterprise Technology products.
Revenues in theAsia Pacific region decreased$9.6 million , or 27%, from$36.1 million in the three months endedMarch 31, 2021 to$26.5 million in the three months endedMarch 31, 2022 and decreased$13.3 million , or 12%, from$115.5 million in the nine months endedMarch 31, 2021 to$102.2 million in the nine months endedMarch 31, 2022 . The decrease inAsia Pacific revenues during the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 was due to decreased revenue from both our Service Provider Technology and Enterprise Technology products. The decrease inAsia Pacific revenues during the nine months endedMarch 31, 2022 as compared to the nine months endedMarch 31, 2021 was primarily due to decreased revenue from our Service Provider products offset, in part, by increased revenue from our Enterprise Technology products.
Revenues inSouth America decreased$19.2 million , or 60%, from$32.0 million in the three months endedMarch 31, 2021 to$12.8 million in the three months endedMarch 31, 2022 and decreased$25.6 million , or 27%, from$93.4 million in the nine months endedMarch 31, 2021 to$67.8 million in the nine months endedMarch 31, 2022 .
The decrease in
The decrease inSouth America revenues during the nine months endedMarch 31, 2022 as compared to the same periods in the prior year, was primarily due to decreased revenue from our Service Provider Technology products offset, in part, by increased revenue from our Enterprise Technology products. Cost of Revenues and Gross Profit Cost of revenues decreased$2.4 million , or 1%, from$244.5 million in the three months endedMarch 31, 2021 to$242.1 million in the three months endedMarch 31, 2022 . The decrease is mainly due to lower sales, offset by a change in mix of products, and higher shipping costs. Cost of revenues increased$9.7 million , or 1%, from$738.7 million in the nine months endedMarch 31, 2021 to$748.4 million in the nine months endedMarch 31, 2022 . The increase is primarily due to a change in the mix of products sold and higher component costs, shipping costs and indirect overhead expenses. Gross profit margin decreased to 32.4% in the three months endedMarch 31, 2022 compared to 47.7% in the three months endedMarch 31, 2021 , and decreased to 40.1% in the nine months endedMarch 31, 2022 compared to 48.0% in the nine months endedMarch 31, 2021 , primarily driven by a change in mix of products sold and higher component costs, shipping costs and indirect overhead expenses.General transportation costs have increased materially and we continue to incur additional costs on top of these general costs to expedite shipments. Operating Expenses Research and Development Research and development ("R&D") expenses increased$4.8 million , or 16%, from$30.5 million in the three months endedMarch 31, 2021 to$35.3 million in the three months endedMarch 31, 2022 . As a percentage of revenues, R&D expenses increased from 7% for the three months endedMarch 31, 2021 to 10% for the three months endedMarch 31, 2022 . R&D expenses increased$15.0 million , or 18%, from$85.2 million in the nine months endedMarch 31, 2021 to$100.2 million in the nine months endedMarch 31, 2022 . As a percentage of revenues, R&D expenses increased from 6% for the nine months endedMarch 31, 2021 to 8% for the nine months endedMarch 31, 2022 . The increase in R&D expenses in the three and nine months endedMarch 31, 2022 , as compared to both comparable prior periods, was primarily driven by higher employee related costs, depreciation and amortization and prototype testing expenses.
Sales, General and Administrative
Sales, general and administrative ("SG&A") expenses increased $4.9 million , or
37%, from $13.3 million in the three months ended March 31, 2021 to $18.2
million in the three months ended March 31, 2022 . As a percentage of revenues,
SG&A expenses increased from 2.8% for the three months ended March 31, 2021 to
5.1% for the three months ended March 31, 2022 .
SG&A expenses increased $13.7 million , or 38%, from $36.6 million in the nine
months ended March 31, 2021 to $50.3 million in the nine months ended March 31,
2022 . As a percentage of revenues, SG&A expenses increased from 3% for the nine
months ended
26
--------------------------------------------------------------------------------The increase in SG&A expenses in the three months and nine months endedMarch 31, 2022 , as compared to both comparable prior periods, was primarily driven by increased marketing expenses, increased credit card processing fees and donations to humanitarian relief organizations addressing the military conflict betweenRussia andUkraine , offset by lower professional and service fees and the benefit of the Business e-mail compromise ('BEC') recovery recognized in the quarter endingMarch 31, 2021 .
Provision for Income Taxes
Our provision for income taxes decreased$19.0 million , or 68%, from$28.0 million for the three months endedMarch 31, 2021 to$9.0 million for the three months endedMarch 31, 2022 . Our effective tax rate decreased to 15.2% for the three months endedMarch 31, 2022 as compared to 16.1% for the three months endedMarch 31, 2021 . Our provision for income taxes decreased$31.3 million , or 37%, from$85.1 million for the nine months endedMarch 31, 2021 to$53.8 million for the nine months endedMarch 31, 2022 . Our effective tax rate increased to 15.8% for the nine months endedMarch 31, 2022 as compared to 15.5% for the nine months endedMarch 31, 2021 . The change in effective tax rates for the three and nine months endedMarch 31, 2022 as compared to the same periods in the prior year was primarily driven by changes in the mix of the income earned in various tax jurisdictions.
Liquidity and Capital Resources
Sources and Uses of Cash Our principal source of liquidity are cash and cash equivalents, cash generated by operations, the availability of additional funds under the Facilities and short-term and long-term investments. Our principal uses for liquidity are to fund normal operations, to fund payments of the Company's debt, dividends and stock repurchases, and to fund research and development expenses. We had cash and cash equivalents of$144.3 million and$249.4 million as ofMarch 31, 2022 andJune 30, 2021 , respectively.
Consolidated Cash Flow Data
The following table sets forth the major components of our consolidated statements of cash flows data for the periods presented:
Nine Months Ended
2022 2021
(In thousands)
Net cash provided by operating activities $ 300,280 $ 447,773
Net cash provided by (used in) investing activities (10,718) (15,080)
Net cash (used in) financing activities (394,668) (312,519)
Net increase (decrease) in cash and cash equivalents $
(105,106)
Cash Flows from Operating Activities
Net cash provided by operating activities in the nine months endedMarch 31, 2022 consisted primarily of net income of$286.2 million partially offset by changes in operating assets and liabilities that resulted in net cash outflows of$9.3 million . This net change consisted primarily of a$13.5 million increase in inventory,$34.8 million increase in vendor deposits, a$84.8 million decrease in accounts receivable, a$29.6 million decrease in net accounts payable and accrued liabilities, a$12.7 million decrease in taxes payable due to the timing of federal tax payments and a$5.9 million decrease in prepaid expense and other assets. Net cash provided by operating activities in the nine months endedMarch 31, 2021 consisted primarily of net income of$462.3 million , partially offset by changes in operating assets and liabilities that resulted in net cash outflows of$36.2 million . This net change consisted primarily of a$60.8 million decrease in inventory offset by$3.6 million increase in vendor deposit,$3.8 million decrease in net accounts payable and accrued liabilities, a$45.2 million increase in accounts receivable due to higher revenue for the period, a$26.2 million decrease in taxes payable due to the timing of federal tax payments and a$27.1 million increase in prepaid expense and other assets.
Cash Flows from Investing Activities
We used
We used$15.1 million of cash in investing activities during the nine months endedMarch 31, 2021 . Our investing activities consisted of$16.0 million of capital expenditures and purchase of intangible assets, partially offset by maturities of investment securities of$0.9 million .
Cash Flows from Financing Activities
We used
27
--------------------------------------------------------------------------------
March 31, 2022 , we used $231.3 million of net funds for repayments under the
Company's credit facilities, $513.0 million related to the repurchase of our
common stock and $111.8 million related to dividends paid on our common stock.
We used $312.5 million of cash in financing activities during the nine months
ended March 31, 2021 . During the nine months ended March 31, 2021 , we used $80.0
million of net funds for repayments under the facilities, used $152.6 million
related to the repurchase of our common stock and used $75.7 million related to
dividends paid on our common stock.
Liquidity
We believe our existing cash and cash equivalents, cash provided by operations and the availability of additional funds, under our Facilities will be sufficient to meet our working capital, future stock repurchases, dividends, and capital expenditure needs for the next twelve months, as well as long-term liquidity requirements. However, this estimate is based on a number of assumptions that may prove to be wrong and we could exhaust our available cash and cash equivalents earlier than presently anticipated or need to rely more heavily on our Facilities or other sources of liquidity to continue to meet our needs. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending to support development efforts, the timing of new product introductions, market acceptance of our products, the availability of additional funds under our Facilities and overall economic conditions. The COVID-19 pandemic and resulting global disruptions have caused significant volatility in financial markets and the domestic and global economy. This disruption can contribute to potential payment delays or defaults in our accounts receivable, affect asset valuations resulting in impairment charges, and affect the availability of financing credit as well as other segments of the credit markets. For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, refer to "Part II-Item 1A. Risk Factors - Risks Related to Our Business and Industry - Our contract manufacturers, logistics centers and certain administrative and research and development operations, as well as our customers and suppliers, are located in areas likely to be subject to natural disasters and public health problems, which could adversely affect our business, results of operations and financial condition" for additional information. We expect to continue to maintain financing flexibility in the current market conditions. However, due to the rapidly evolving global situation, it is not possible to predict whether unanticipated consequences of the pandemic are reasonably likely to materially affect our liquidity and capital resources in the future.
Warranties and Indemnifications
Our products are generally accompanied by a twelve to twenty-four month warranty from date of purchase, which covers both parts and labor. Generally, the distributor is responsible for the freight costs associated with warranty returns, and we absorb the freight costs of replacing items under warranty. In accordance with theFinancial 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 ofMarch 31, 2022 . Based upon our historical experience and information known as of the date of this report, we do not believe it is likely that we have a material liability for the above indemnities as ofMarch 31, 2022 .
Contractual Obligations and Off-Balance Sheet Arrangements
Our contractual obligations represent material expected or contractually committed future payment obligations. We believe that we will be able to fund these obligations through our existing cash and cash equivalents, cash generated from operations and the availability of additional funds under the Facilities.
Purchase Obligations
We subcontract with third parties to manufacture our products and have purchase
commitments with key component suppliers. During the normal course of business,
our contract manufacturers procure components and manufacture products based
upon orders placed by us. If we cancel all or part of the orders, we may still
be liable to the contract manufacturers for the cost of the components purchased
28
--------------------------------------------------------------------------------
by the subcontractors to manufacture our products. We periodically review the
potential liability, and as of March 31, 2022 , we have 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 March 31, 2022 . Our consolidated financial position and results of operations
could be negatively impacted if we were required to compensate the contract
manufacturers for any unrecorded liabilities incurred. We may be subject to
additional purchase obligations for supply agreements and components ordered by
our contract manufacturers based on manufacturing forecasts we provide them each
month. We estimate the amount of these additional purchase obligations to range
from $185.6 million to $1,294.2 million as of March 31, 2022 , depending upon the
timing of orders placed for these components by our contract manufacturers.
Transition Tax
The Company also had obligations of$76.4 million as ofMarch 31, 2022 , related to transition tax, which represent future cash tax payments associated with the one-timeU.S. transition tax on accumulated earnings of foreign subsidiaries as a result of the Tax Cuts and Jobs Act ("the Tax Act"). These obligations are included within Income taxes payable and Long-term taxes payable on our Consolidated Balance Sheets.
Other Obligations
The Company had other obligations of$3.1 million as ofMarch 31, 2022 , which consisted primarily of commitments related to raw materials and research and development projects. Unrecognized Tax Benefits As ofMarch 31, 2022 , we had$35.4 million of unrecognized tax benefits and an additional$4.2 million for accrued interest, classified as non-current liabilities. At this time, we are unable to make a reasonably reliable estimate of timing of payments in individual years in connection with these tax liabilities.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, refer to Note 2 to the Consolidated Financial Statements.
Note About Forward-Looking Statements
When used in this Report, the words "anticipates," "believes," "could," "seeks," "estimates," "expects," "intends," "may," "plans" "potential," "predicts," "projects," "should," "will," "would" or similar expressions and negatives of those terms are intended to identify forward-looking statements. These are statements that relate to future periods and include statements about our future results, sources of revenue, our dividend, our continued growth, our gross margins, market trends, our product development, our introduction of new products, technological developments, the features, benefits and performance of our current and future products, the ability of our products to address a variety of markets, the anticipated growth of demand for connectivity worldwide, our growth strategies, future price reductions, our competitive status, our dependence on our senior management and our ability to attract and retain key personnel, dependency on and concentration of our distributors, our employee relations, current and potential litigation, current or potential indemnification liabilities, the effects of government regulations, the impact of tariffs, the expected impact of taxes on our liquidity and results of operations, our compliance with laws and regulations, our expected future operating costs and expenses and expenditure levels for research and development, selling, general and administrative expenses, fluctuations in operating results, fluctuations in our stock price, our payment of dividends, our future liquidity and cash needs, and the adequacy of and our reliance on our source of liquidity to meet such needs, our Facilities, future acquisitions of and investments in complimentary businesses, the expected impact of various accounting policies and rules adopted by theFinancial Accounting Standards Board and the impact of COVID-19 pandemic and the military conflict betweenRussia andUkraine 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 ofU.S. tariffs on results of operations, our ability to manage our growth, our ability to sustain or increase profitability, demand for our products, our ability to compete, our ability to rapidly develop new technology and introduce new products, our ability to safeguard our intellectual property, trends in the networking industry and fluctuations in general economic conditions, the impact of COVID-19 pandemic and the military conflict betweenRussia andUkraine on our business, results and liquidity, volatility in our short-term investments, and the risks set forth throughout this Report, including under Part II: "Other Information", Item 1, "Legal Proceedings" and under Item 1A, "Risk Factors." These forward-looking statements speak only as of the date hereof. Except as required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
© Edgar Online, source
