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 enterprises, service providers and consumers. We target the enterprise and service provider markets through our highly engaged community of service providers, distributors, value added resellers, webstores, systems integrators and corporate IT professionals, which we refer to as theUbiquiti Community . We target consumers through digital marketing, including through our webstores, 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 18 -------------------------------------------------------------------------------- Table of Contents employ a traditional direct sales force, but instead drive brand awareness through online reviews and publications, our website, our distributors and our user community where customers can interface directly with our R&D, marketing, and support teams. Our technology platforms were designed from the ground up with a focus on delivering highly-advanced and easily deployable solutions that appeal to a global customer base. We offer a broad and expanding portfolio of networking products and solutions for operator-owners of wireless internet services ("WISPs"), enterprises and smart homes. Our operator-owner service-provider-product platforms provide carrier-class network infrastructure for fixed wireless broadband, wireless backhaul systems and routing and the related software for WISPs to easily control, track and bill their customers. Our enterprise product platforms provide wireless LAN ("WLAN") infrastructure, video surveillance products, switching and routing solutions, security gateways, door access systems, and other complimentary WLAN products along with a unique software platform, which enables users to control their network from one simple, easy to use software interface. Our consumer products are targeted to the smart home and highly connected consumers. We believe that our products are differentiated due to our proprietary software, firmware expertise, and hardware design capabilities.
We 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 if an outbreak occurs 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, in fiscal 2022, and the first quarter of fiscal 2023, we experienced reduced availability for certain 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, particularly the chipsets, 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 "Part II - Item IA. Risk Factors" 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 on 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 "Part II - Item IA. Risk Factors" for a discussion of these factors and other risks. China-Taiwan Tensions - We are monitoring the escalating tensions betweenChina andTaiwan , and associated tensions between theU.S. andChina . While the impact on our operations inTaiwan has not been material to our business or results of operations as of the date hereof, the full impact of the escalating tensions and potential military conflict on our business and results of operations remains uncertain. The extent to which the conflict may impact our business or results of operations in future periods will depend on future 19 -------------------------------------------------------------------------------- Table of Contents developments, including the severity and duration of the conflict, its impact on regional and global economic conditions, as well as its impact onChina -U.S. relations, including its impact on our operations inTaiwan , and its impact on global supply chains. Refer to "Part II - Item IA. Risk Factors" 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 distributors, and, to a lesser extent, through direct sales through our webstores. Sales to distributors accounted for 61% of our revenues during the three months endedSeptember 30, 2022 . Direct sales accounted for 39% of our revenue during the three months endedSeptember 30, 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. ,Europe andAsia Pacific . 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
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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 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 26, 2022 , 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 Months Ended
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Three Months Ended
2022 2021
(In thousands, except percentages)
Revenues $ 498,083 100 % $ 458,914 100 %
Cost of revenues (1) 326,715 66 % 249,451 54 %
Gross profit 171,368 34 % 209,463 46 %
Operating expenses:
Research and development (1) 32,659 7 % 32,051 7 %
Sales, general and administrative (1) 16,696 3 % 15,714 3 %
Total operating expenses 49,355 10 % 47,765 10 %
Income from operations 122,013 24 % 161,698 35 %
Interest expense and other, net (10,651) (2 %) (3,815) (1 %)
Income before income taxes 111,362 22 % 157,883 34 %
Provisions for income taxes 18,180 4 % 25,733 6 %
Net income $ 93,182 18 % $ 132,150 29 %
(1) Includes stock-based compensation as
follows:
Cost of revenues 11 22
Research and development 769 570
Sales, general and administrative 268 218
Total stock-based compensation $ 1,048 $ 810
Revenues
Total revenues increased
The increase in revenues was primarily driven by our Enterprise Technology
platform. The revenue from the Service Provider Technology platform declined
when compared to the comparable prior year period. While revenues increased, our
revenues continue to be negatively impacted by our inability to fulfill demand
due to the global component supply shortage. Revenues also continue to be
impacted by our ability to build products across all platforms as we are
allocated available components to certain products.
Revenues by Product Type
Three Months Ended September 30,
2022 2021
(in thousands, except percentages)
Enterprise technology 426,298 86 % 346,773 76 %
Service Provider Technology $ 71,785 14 % $ 112,141 24 %
Total revenues $ 498,083 100 % $ 458,914 100 %
Enterprise Technology revenue increased
The increase in Enterprise Technology revenue during the three months ended
Service Provider Technology revenue decreased$40.3 million , or 36%, from$112.1 million in the three months endedSeptember 30, 2021 to$71.8 million in the three months endedSeptember 30, 2022 .
The decrease in Service Provider Technology revenue during the three months
ended
Revenues by Geography
We have determined the geographical distribution of our product revenues based on our customers' ship-to destinations. A majority of our sales are to distributorswho either sell to resellers or directly to end customers,who may be located in different countries than the 22 -------------------------------------------------------------------------------- Table of Contents initial ship-to destination. The following are our revenues by geography for the three months endedSeptember 30, 2022 and 2021 (in thousands, except percentages): Three Months Ended September 30, 2022 2021 (in thousands, except percentages) North America(1)$ 225,713 45 %$ 209,073 46 % Europe, the Middle East and Africa ("EMEA") 200,143 40 % 172,643 38 % Asia Pacific 45,332 9 % 42,939 9 % South America 26,895 6 % 34,259 7 % Total revenues$ 498,083 100 %$ 458,914 100 %
(1) Revenue for
Revenues inNorth America increased$16.6 million , or 8%, from$209.1 million in the three months endedSeptember 30, 2021 to$225.7 million in the three months endedSeptember 30, 2022 .
The increase in
Revenues in EMEA increased
The increase in EMEA revenues during the three months endedSeptember 30, 2022 as compared to the same period in the prior year, was primarily due to increased revenue from Enterprise Technology products offset in part, by decreased revenue from our Service Provider Technology products.
Revenues in theAsia Pacific region increased$2.4 million , or 6%, from$42.9 million in the three months endedSeptember 30, 2021 to$45.3 million in the three months endedSeptember 30, 2022 .
The increase in
Revenues inSouth America decreased$7.4 million , or 22%, from$34.3 million in the three months endedSeptember 30, 2021 to$26.9 million in the three months endedSeptember 30, 2022 .
The decrease in
Cost of Revenues and Gross Profit
Cost of revenues increased
Gross profit margin decreased to 34.4% in the three months endedSeptember 30, 2022 compared to 45.6% in the three months endedSeptember 30, 2021 , primarily driven by changes in product mix, higher component costs and shipping costs. Operating Expenses Research and Development 23
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Research and development ("R&D") expenses increased marginally by $0.6 million ,
or 2%, from $32.1 million in the three months ended September 30, 2021 to $32.7
million in the three months ended September 30, 2022 . As a percentage of
revenues, R&D expenses remained consistent at 7% for both periods.
Sales, General and Administrative
Sales, general and administrative ("SG&A") expenses increased $1.0 million , or
6%, from $15.7 million in the three months ended September 30, 2021 to $16.7
million in the three months ended September 30, 2022 . As a percentage of
revenues, SG&A expenses remained consistent at 3% for both periods. The increase
in SG&A costs as compared to the comparable prior year period was primarily due
to higher webstore credit card processing fees and professional fees, offset in
part by lower marketing expenses.
Provision for Income Taxes
Our provision for income taxes decreased$7.5 million , or 29%, from$25.7 million for the three months endedSeptember 30, 2021 to$18.2 million for the three months endedSeptember 30, 2022 . Our effective tax rates were 16.3% for both periods. Our effective tax rates for the three months endedSeptember 30, 2022 as compared to the same period in the prior year was primarily driven by changes in the mix of the income earned in various tax jurisdictions negated by an increase in the Global Intangible Low-Taxed Income (GILTI) inclusion for theU.S. taxable income. The increase in GILTI is primarily attributable to the mandatory research and development capitalization rules under the 2017 Tax Cuts and Jobs Act that went into effect for the Company's period endingSeptember 30, 2022 .
Liquidity and Capital Resources
Sources and Uses of Cash
Our principal source of liquidity are cash and cash equivalents, cash generated by operations, the availability of additional funds under the Facilities and short-term and long-term investments. We had cash and cash equivalents of$136.5 million and$136.2 million as ofSeptember 30, 2022 andJune 30, 2022 , 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:
Three Months Ended September 30,
2022 2021
(In thousands)
Net cash provided by operating activities $ 41,984 $ 100,938
Net cash (used in) investing activities (8,662) (2,990)
Net cash (used in) financing activities (33,027) (81,436)
Net increase in cash and cash equivalents $
295
Cash Flows from Operating Activities
Net cash provided by operating activities in the three months endedSeptember 30, 2022 consisted primarily of net income of$93.2 million partially offset by changes in operating assets and liabilities that resulted in net cash outflows of$56.6 million . This net change consisted primarily of a$94.2 million increase in inventory, a$27.9 million increase in accounts receivable, a$1.7 million increase prepaid expense and other assets, a$34.2 million increase in net accounts payable and accrued liabilities, a$4.5 million increase in taxes payable due to the timing of federal tax payments and a$30.4 million decrease in vendor deposits. Net cash provided by operating activities in the three months endedSeptember 30, 2021 consisted primarily of net income of$132.2 million , partially offset by changes in operating assets and liabilities that resulted in net cash outflows of$38.7 million . This net change consisted primarily of a$27.6 million increase in inventory,$20.3 million increase in vendor deposit,$14.3 million increase in net accounts payable and accrued liabilities, a$1.6 million increase in accounts receivable, a$17.4 million increase in taxes payable due to the timing of federal tax payments and a$17.7 million increase in prepaid expense and other assets.
Cash Flows from Investing Activities
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We used $8.7 million of cash in investing activities during the three months
ended September 30, 2022 . Our investing activities consisted primarily of $8.7
million of capital expenditures.
We used $3.0 million of cash in investing activities during the three months
ended September 30, 2021 . Our investing activities consisted of $3.0 million of
capital expenditures, and $0.6 million purchase of investments partially offset
by maturities of investment securities of $0.6 million .
Cash Flows from Financing Activities
We used$33.0 million of cash in financing activities during the three months endedSeptember 30, 2022 . During the three months endedSeptember 30, 2022 , we used$36.3 million related to dividends paid on our common stock and received$3.8 million (net) of funds under the Company's credit facilities. We used$81.4 million of cash in financing activities during the three months endedSeptember 30, 2021 . During the three months endedSeptember 30, 2021 , we used$6.3 million of funds for repayments under the Company's credit facilities,$36.8 million related to the repurchase of our common stock and$37.5 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 the 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 the Facilities or other sources of liquidity to continue to meet our needs. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth, the timing and extent of spending to support development efforts, the timing of new product introductions, market acceptance of our products, the availability of additional funds under the Facilities and overall economic conditions. The COVID-19 pandemic and resulting global disruptions have caused and may continue to cause 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, public health problems, military conflicts and geopolitical tensions, 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 25 -------------------------------------------------------------------------------- Table of Contents 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 ofSeptember 30, 2022 . Based upon our historical experience and information known as of the date of this Quarterly Report on Form 10-Q, we do not believe it is likely that we will have material liability for the above indemnities as ofSeptember 30, 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 by the subcontractors to manufacture our products. We periodically review the potential liability, and as ofSeptember 30, 2022 , we have recorded a purchase obligation liability of$7.7 million related to component purchase commitments. There have been no other significant liabilities for cancellations recorded as ofSeptember 30, 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$1,697.7 million to$2,362.8 million as ofSeptember 30, 2022 , depending upon the timing of orders placed for these components by our contract manufacturers.
Transition Tax
We have obligations of$67.4 million as ofSeptember 30, 2022 , related to transition tax. Payment of these obligations are expected to be$16.9 million for fiscal 2024,$22.5 million for fiscal 2025 and$28.0 million for fiscal 2026. These obligations are included within Income tax payable and Long-term taxes payable on our consolidated balance sheets.
Other Obligations
We had other obligations of
Unrecognized Tax Benefits As ofSeptember 30, 2022 , we had$33.4 million of unrecognized tax benefits and an additional$3.6 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
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Table of Contents 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.
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