Market Overview

Ubiquiti Networks Reports First Quarter Fiscal 2018 Financial Results

Share:

~ Achieves Record Revenue and Ninth Consecutive Quarter of Revenue
Growth ~

~ Diluted EPS of $0.92 Per Share ~

Ubiquiti Networks, Inc. (NASDAQ:UBNT) ("Ubiquiti" or the "Company")
today announced results for the first fiscal quarter of 2018, ended
September 30, 2017.

First Quarter Fiscal 2018 Financial Summary

  • Revenues of $245.9 million, increased 20.1% year-over-year
  • GAAP gross profit of $111.7 million, representing 45.4% of revenues
  • GAAP and non-GAAP net income of $74.9 million
  • GAAP and non-GAAP diluted EPS of $0.92

First Quarter Financial Highlights

  • Revenues increased 20.1% year-over-year and 7.6% sequentially.
    Year-over-year growth was primarily driven by the UniFi-AC,
    UniFi-Switch, airMAX-AC, airFiber and AmpliFi platforms.
  • Enterprise Technology revenues increased over 49.8% year-over-year
    and 11% sequentially
    . Year-over-year growth was driven by the
    evolution toward AC technology products, growth in switching and
    higher average selling prices.
  • GAAP gross margin was 45.4%, consistent with the prior quarter
    but down versus the prior year primarily due to product mix.
  • Days sales outstanding in accounts receivable ("DSO") decreased by
    7 days to 48 days
    , compared with 55 days in the prior quarter
    driven by higher collections.
  • Repurchased 2,751,024 shares of common stock at an average price
    per share of $54.98
    , between July 1 and October 6, 2017.
  • Increased the maximum amount of availability under our revolving
    loan facility to $425 million from $300 million
    , representing an
    increase of $125 million, as disclosed in the Form 8-K filed on
    November 1, 2017.
  • Initiated a new stock repurchase program, authorizing the
    Company to repurchase up to $50 million of its common stock, as
    disclosed in the Form 8-K filed on November 9, 2017.

Recent Product Highlights

  • Launched UniFi AC SHD access points, an 802.11AC Wave 2 MU-MIMO
    access point with a dedicated security radio
    , providing persistent
    threat management combined with the latest Wave 2 technology.
  • Released GPS Sync for airMAX AC, providing for GPS
    synchronization between airMAX AC and airMAX M series equipment.
  • Launched the airCube, a Wi-Fi access points for use by wireless
    internet service providers in residential customer deployments
    ,
    featuring a sleek design, a mobile app and 24V PoE passthrough.
  • Introduced FrontRow, featuring a new camera technology that
    enables effortless capture and sharing of life's experiences. The
    product was launched in mid-August and is available through on-line
    retail including FrontRow.com, Amazon.com, BestBuy.com and through
    traditional retail channels such as BestBuy and Sam's Club.
  • Announced significant updates to Ubiquiti's proprietary UCRM
    software
    , a customer management platform for wireless internet
    service providers, including enhanced billing features and
    multi-language support.
 

Financial Highlights ($, in millions, except per share data)

 
Income statement highlights     F1Q18     F4Q17     F1Q17
Revenues 245.9 228.6 204.8
Service Provider Technology 119.9 114.7 120.6
Enterprise Technology 126.0 114.0 84.1
Gross profit 111.7 103.2 98.3
Gross Profit (%) 45.4% 45.1% 48.0%
Total Operating Expenses 24.6 31.5 23.4
Income from Operations 87.1 71.7 74.9
GAAP Net Income 74.9 60.7 71.8
GAAP EPS (diluted) 0.92 0.74 0.86
Non-GAAP Net Income 74.9 61.0 65.5
Non-GAAP EPS (diluted) 0.92 0.75 0.79
 

Balance Sheet Highlights

Total cash and cash equivalents as of September 30, 2017 were $631.8
million, compared with $604.2 million as of June 30, 2017. The Company
held $597 million of cash and cash equivalents in accounts of the
Company's subsidiaries outside of the United States. Cash and cash
equivalents, less debt (net cash) of $333.9 million decreased $13.7
million sequentially. The sequential decrease in net cash during the
first quarter of fiscal 2018 was primarily driven by the repurchase of
common stock, partially offset by operating earnings.

First quarter fiscal 2018 days sales outstanding in accounts receivable
("DSO") were 48 days, compared with 55 days in the prior quarter, and 43
days in the first quarter of fiscal 2017. DSO's in the current period
declined approximately one week versus the prior quarter, driven
primarily by higher collections.

Ubiquiti continues to invest in inventory to reduce lead times, meet
increasing demand and support the commensurate growth of the Company's
customers. At the same time, the Company is committed to optimizing
inventory to correspond with end-market demand. Inventory at the end of
the quarter decreased $19.8 million to $122.2 million. Consequently,
inventory weeks on hand decreased on a sequential basis to 13 weeks in
the current quarter versus 14 weeks the prior quarter. The Company
expects to hold 8 to 12 weeks of previously introduced product inventory
in warehouses going forward, in addition to new product inventory and
selected raw materials.

Business Outlook

Based on recent business trends, Ubiquiti currently believes the demand
environment in its end markets supports the following forecast for the
Company's second fiscal quarter ending December 31, 2017:

  • Revenues of between $240 million and $250 million;
  • GAAP diluted EPS of $0.85 - $0.92;
  • Gross margins are expected to remain consistent on a sequential basis;
    and
  • An effective tax rate of 13.5%.

Conference Call Information

Ubiquiti Networks will host a Q&A-only call to discuss the Company's
financial results at 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time)
today. Management's prepared remarks can be found on the Investor
Relations section of the Ubiquiti Networks website, http://ir.ubnt.com/financial/quarterly-results.

To listen to the Q&A call via telephone, dial (866) 807-9684 (U.S.
toll-free) or (412) 317-5415 (International) to be connected to the call
by an operator. Participants should dial in at least 10 minutes prior to
the start of the call. Investors may also listen to a live webcast of
the Q&A conference call by visiting the Investor Relations section
of the Ubiquiti Networks website at http://ir.ubnt.com.
A recording of the Q&A call will be available for replay at http://ir.ubnt.com.

A recording of the Q&A call will be available approximately two hours
after the call concludes and will be accessible on the Investor
Relations section of the Ubiquiti Networks website, http://ir.ubnt.com.

About Ubiquiti Networks

Ubiquiti Networks, Inc. currently focuses on 3 main technologies:
high-capacity distributed Internet access, unified information
technology, and next-gen consumer electronics for home and personal use.
The majority of the company's resources consist of entrepreneurial and
de-centralized R&D teams. Ubiquiti does not employ a traditional direct
sales force, but instead drives brand awareness largely through the
company's user community where customers can interface directly with
R&D, marketing, and support. With over 70 million devices shipped in
over 200 countries and territories in the world, Ubiquiti aims to
connect everyone to everything, everywhere. Ubiquiti was founded by
former Apple engineer Robert Pera in 2005. More insight about the
company management can be found at www.rjpblog.com.

Ubiquiti, Ubiquiti Networks, the U logo, UBNT, airMAX, airFiber, mFi,
EdgeMAX, UniFi, AmpliFi and UFiber are registered trademarks or
trademarks of Ubiquiti Networks, Inc. in the United States and other
countries.

Safe Harbor for Forward Looking Statements

Certain statements in this press release are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Statements other than statements of historical fact including
words such as "look", "will", "anticipate", "believe", "estimate",
"expect", "forecast", "consider" and "plan" and statements in the future
tense are forward looking statements. The statements in this press
release that could be deemed forward-looking statements include
statements regarding expectations for the second fiscal quarter of 2018
and full fiscal year 2018 and statements regarding expectations related
to our cash position, expenses, DSO, number of distributors and
resellers, shipments, the roll-out of our consumer retail channel, the
introduction of new consumer products, Gross Margins, R&D, SG&A, tax
rates, inventory turns, growth opportunities, demand and long term
global environment for our products, new products, and financial
performance estimates including revenues and GAAP diluted EPS for the
Company's second fiscal quarter of 2018 and full fiscal year 2018, and
any statements or assumptions underlying any of the foregoing.

Forward-looking statements are subject to certain risks and
uncertainties that could cause our actual future results to differ
materially, or cause a material adverse impact on our results. Potential
risks and uncertainties include, but are not limited to, fluctuations in
our operating results; varying demand for our products due to the
financial and operating condition of our distributors and their
customers, and distributors' inventory management practices; political
and economic conditions and volatility affecting the stability of
business environments, economic growth, currency values, commodity
prices and other factors that may influence the ultimate demand for our
products in particular geographies or globally; impact of counterfeiting
and our ability to contain such impact; our reliance on a limited number
of distributors; inability of our contract manufacturers and suppliers
to meet our demand; our dependence on Qualcomm Atheros for chipsets
without a short-term alternative; as we move into new markets
competition from certain of our current or potential competitors who may
be more established in such markets; our ability to keep pace with
technological and market developments; success and timing of new product
introductions by us and the performance of our products generally; our
ability to effectively manage the significant increase in our
transactional sales volumes; we may become subject to warranty claims,
product liability and product recalls; that a substantial majority of
our sales are into countries outside the United States and we are
subject to numerous U.S. export control and economic sanctions laws;
costs related to responding to government inquiries related to
regulatory compliance; our reliance on the Ubiquiti Community; our
reliance on certain key members of our management team, including our
founder and chief executive officer, Robert J. Pera; adverse tax-related
matters such as tax audits, changes in our effective tax rate or new tax
legislative proposals; whether the final determination of our income tax
liability may be materially different from our income tax provisions;
the impact of any intellectual property litigation and claims for
indemnification; litigation related to U.S. Securities laws; and
economic and political conditions in the United States and abroad. We
discuss these risks in greater detail under the heading "Risk Factors"
and elsewhere in our Annual Report on Form 10-K for the year ended
June 30, 2017, and subsequent filings filed with the U.S. Securities and
Exchange Commission (the "SEC"), which are available at the SEC's
website at www.sec.gov.
Copies may also be obtained by contacting the Ubiquiti Networks Investor
Relations Department, by email at IR@ubnt.com
or by visiting the Investor Relations section of the Ubiquiti Networks
website, http://ir.ubnt.com.

Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Also, forward-looking statements represent
our management's beliefs and assumptions only as of the date made.
Except as required by law, Ubiquiti Networks undertakes no obligation to
update information contained herein. You should review our SEC filings
carefully and with the understanding that our actual future results may
be materially different from what we expect.

 
Ubiquiti Networks, Inc.
Condensed Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)
  Three Months Ended September 30,
2017   2016
Revenues $ 245,868 $ 204,757
Cost of revenues 134,212   106,453  
Gross profit 111,656   98,304  
Operating expenses:
Research and development 16,928 14,539
Sales, general and administrative 7,665   8,863  
Total operating expenses 24,593   23,402  
Income from operations 87,063 74,902
Interest expense and other, net (1,361 ) (1,099 )
Income before provision for income taxes 85,702 73,803
Provision for income taxes 10,777   2,015  
Net income and comprehensive income $ 74,925   $ 71,788  
Net income per share of common stock:
Basic $ 0.93   $ 0.88  
Diluted $ 0.92   $ 0.86  
Weighted average shares used in computing net income per share of
common stock:
Basic 80,135   81,812  
Diluted 81,748   83,854  
 
 
Ubiquiti Networks, Inc.
Reconciliation of GAAP Net Income to Non-GAAP Net Income
(In thousands, except per share data)
(Unaudited)
  Three Months Ended September 30,
2017   2016
Net income and comprehensive income $ 74,925 $ 71,788
Stock-based compensation:
Cost of revenues 245 144
Research and development 456 560
Sales, general and administrative 211 223
Excess tax benefits resulting from the adoption of ASU 2016-09 Stock
Compensation
(575 ) (6,820 )
Tax effect of Non-GAAP adjustments (365 ) (371 )
Non-GAAP net income $ 74,897   $ 65,524  
Non-GAAP diluted EPS $ 0.92   $ 0.79  
 
Shares outstanding (Diluted) 81,748 83,854
Share adjustment (ASU 2016-09 Adoption) (616 ) (774 )
Weighted-average shares used in Non-GAAP diluted EPS 81,132   83,080  
 

Use of Non-GAAP Financial Information

To supplement our condensed consolidated financial results prepared
under generally accepted accounting principles, or GAAP, we use non-GAAP
measures of net income and earnings per diluted share that are adjusted
to exclude certain costs, expenses and gains such as stock based
compensation expense, the adoption of ASU 2016-09 Improvements to
Employee Share-Based Payments Accounting, and the tax effects of these
non-GAAP adjustments. Reconciliations of the adjustments to GAAP results
for the three months ended September 30, 2017 and 2016 are provided
above. In addition, an explanation of the ways in which management uses
non-GAAP financial information to evaluate its business, the substance
behind management's decision to use this non-GAAP financial information,
material limitations associated with the use of non-GAAP financial
information, the manner in which management compensates for those
limitations, and the substantive reasons management believes that this
non-GAAP financial information provides useful information to investors
is included under "About our Non-GAAP Net Income and Adjustments" after
the tables below.

 
Ubiquiti Networks, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)
  September 30, 2017   June 30, 2017 (1)
Assets
Current assets:
Cash and cash equivalents $ 631,810 $ 604,198
Accounts receivable, net 128,589 140,561
Inventories 122,263 142,048
Vendor Deposits 69,542 54,082
Prepaid income taxes 2,415 2,419
Prepaid expenses and other current assets 8,039 9,026
Total current assets 962,658 952,334
Property and equipment, net 13,946 12,916
Long-term deferred tax assets 5,133 5,133
Other long-term assets 2,006 2,328
Total assets $ 983,743 $ 972,711
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 26,319 $ 49,008
Income taxes payable 7,008 1,707
Debt - short-term 14,743 14,743
Other current liabilities 58,857 33,030
Total current liabilities 106,927 98,488
Long-term taxes payable 29,783 28,023
Debt - long-term 283,135 241,821
Deferred revenues - long-term 2,687 2,615
Total liabilities 422,532 370,947
Stockholders' equity:
Common stock 78 80
Additional paid–in capital 525
Retained earnings 561,133 601,159
Total stockholders' equity 561,211 601,764
Total liabilities and stockholders' equity $ 983,743 $ 972,711
(1)   Derived from audited consolidated financial statements as of and for
the year ended June 30, 2017.
 
 
Ubiquiti Networks, Inc.
Revenues by Product Type
(In thousands)
(Unaudited)
  Three Months Ended September 30,
2017   2016
Service Provider Technology $ 119,915 $ 120,632
Enterprise Technology 125,953 84,125
Total revenues $ 245,868 $ 204,757
 
 
Ubiquiti Networks, Inc.
Revenues by Geographical Area
(In thousands)
(Unaudited)
  Three Months Ended September 30,
2017   2016
North America $ 96,170 $ 74,165
South America 31,053 24,184
Europe, the Middle East and Africa ("EMEA") 93,314 81,375
Asia Pacific 25,331 25,033
Total revenues $ 245,868 $ 204,757
 
 
Ubiquiti Networks, Inc.
Condensed Consolidated Cash Flows
(In thousands)
(Unaudited)
  Three Months Ended September 30,
2017   2016
Cash Flows from Operating Activities:
Net income $ 74,925 $ 71,788
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,655 1,541
Provision for inventory obsolescence 324 80
(Recovery)/Provision for loss on vendor deposits 376 (676 )
Stock-based compensation 912 927
Other, net 103 135
Changes in operating assets and liabilities:
Accounts receivable 12,017 (12,925 )
Inventories 19,421 (22,442 )
Vendor deposits (15,836 ) 843
Prepaid income taxes 4 (15 )
Prepaid expenses and other assets 1,288 807
Accounts payable (22,408 ) (9,026 )
Income taxes payable 7,061 1,842
Deferred revenues 1,376 466
Accrued liabilities and other current liabilities 15,702   (576 )
Net cash provided by operating activities 96,920   32,769  
Cash Flows from Investing Activities:
Purchase of property and equipment and other long-term assets (2,932 ) (1,064 )
Net cash (used in) investing activities (2,932 ) (1,064 )
Cash Flows from Financing Activities:
Proceeds from revolver loan 45,000
Repayments of term loan (3,750 ) (2,500 )
Repurchases of common stock (107,997 ) (6,483 )
Proceeds from exercise of stock options 722 682
Tax withholdings related to net share settlements of restricted
stock units
(351 ) (791 )
Net cash (used in) provided by financing activities (66,376 ) (9,092 )
Net increase in cash and cash equivalents 27,612 22,613
Cash and cash equivalents at beginning of period 604,198   551,031  
Cash and cash equivalents at end of period $ 631,810   $ 573,644  
Non-Cash Investing and Financing Activities:
Unpaid stock repurchases $ 8,765 $
Unpaid property and equipment and other long-term assets $ 178 $ 413
 

About our Non-GAAP Net Income and Adjustments

Use of Non-GAAP Financial Information

To supplement our condensed consolidated financial results prepared
under generally accepted accounting principles, or GAAP, we use non-GAAP
measures of net income and earnings per diluted share that are GAAP net
income and GAAP earnings per diluted share adjusted to exclude certain
costs, expenses and gains/losses.

We believe that the presentation of non-GAAP net income and non-GAAP
earnings per diluted share provides important supplemental information
regarding non-cash expenses, significant items that we believe are
important to understanding our financial, and business trends relating
to our financial condition and results of operations. Non-GAAP net
income and non-GAAP earnings per diluted share are among the primary
indicators used by management as a basis for planning and forecasting
future periods and by management and our board of directors to determine
whether our operating performance has met specified targets and
thresholds. Management uses non-GAAP net income and non-GAAP earnings
per diluted share when evaluating operating performance because it
believes that the exclusion of the items described below, for which the
amounts or timing may vary significantly depending upon the Company's
activities and other factors, facilitates comparability of the Company's
operating performance from period to period. We have chosen to provide
this information to investors so they can analyze our operating results
in the same way that management does and use this information in their
assessment of our business and the valuation of our Company.

Use and Economic Substance of Non-GAAP Financial Measures used by
Ubiquiti Networks

We compute non-GAAP net income and non-GAAP diluted earnings per share
by adjusting GAAP net income and GAAP earnings per diluted share to
remove the impact of certain adjustments and the tax effect of those
adjustments. Items excluded from net income are:

  • Stock-based compensation expense
  • Adoption of ASU 2016-09 Improvements to Employee Share-Based Payment
    Accounting
  • Tax effect of non-GAAP adjustments, applying the principles of ASC 740

Usefulness of Non-GAAP Financial Information to Investors

These non-GAAP measures are not in accordance with, or an alternative
to, GAAP and may be materially different from other non-GAAP measures,
including similarly titled non-GAAP measures used by other companies.
The presentation of this additional information should not be considered
in isolation from, as a substitute for, or superior to, net income or
earnings per diluted share prepared in accordance with GAAP. Non-GAAP
financial measures have limitations in that they do not reflect certain
items that may have a material impact upon our reported financial
results.

For more information on the non-GAAP adjustments, please see the table
captioned "Reconciliation of GAAP Net Income to Non-GAAP Net Income"
included in this press release.

View Comments and Join the Discussion!