~ Achieves Record Revenue and Tenth
Consecutive Quarter of Revenue Growth ~
~ Cash of over $823 million, an increase of
more than 34% Year-over-Year~
Ubiquiti Networks, Inc. (NASDAQ:UBNT) (“Ubiquiti" or the
"Company”) today announced results for the second fiscal quarter of
2018, ended December 31, 2017.
Second Quarter Fiscal 2018 Financial Summary
- Revenues of $250.8 million, increasing
17.5% year-over-year
- GAAP net loss of $51.5 million and GAAP
loss per share of $0.66
- Net loss due to the Tax Cuts and Jobs
Act, which resulted in a $110.7 million tax expense
- Non-GAAP net income of $59.6 million
and non-GAAP diluted EPS of $0.76
Second Quarter Financial and Product Highlights
- Revenues increased 17.5%
year-over-year and 2% sequentially, primarily driven by demand
for our UniFi AC and airMAX AC product families.
- Enterprise Technology revenues
increased 33.7% year-over-year and 4% sequentially, reflecting
the continued adoption of our UniFi AC technology platform.
- Initiated a new stock repurchase
program, authorizing the Company to repurchase up to $150
million of its common stock, as disclosed in the Form 8-K filed on
February 8, 2018.
- Entered into a new credit
facility, providing for a $500 million term loan and $400
million revolving credit facility, as disclosed in the Form 8-K
filed on January 23, 2018.
- Cash of over $823 million, up
over 34% year-over-year and over 30% sequentially.
- Announced UNMS (Ubiquiti Network
Management System), proprietary software providing for the
centralized control of Ubiquiti devices across multiple sites
worldwide.
Financial Highlights ($, in millions,
except per share data)
Income statement highlights F2Q18 F1Q18
F2Q17 Revenues 250.8 245.9 213.5 Service Provider Technology
119.9 119.9 115.6 Enterprise Technology 131.0 126.0 98.0 Gross
profit 96.9 111.7 95.1 Gross Profit (%) 38.6% 45.4% 44.6% Total
Operating Expenses 30.8 24.6 25.3 Income from Operations 66.1 87.1
69.8
GAAP Net (Loss)/Income
(51.5) 74.9 60.6 GAAP EPS (diluted) (0.66) 0.92 0.72 Non-GAAP Net
Income 59.6 74.9 60.1 Non-GAAP EPS (diluted) 0.76 0.92 0.72
Gross Margins
During this quarter, GAAP and non-GAAP gross profit was $96.9
million, representing 38.6% of revenues. Gross margin includes
$18.6 million of charges primarily related to provisions for
obsolete inventory, vendor deposits and loss on purchase
commitments associated primarily with the Company’s FrontRow
consumer-oriented product launched in August 2017. Due to the lower
than expected sales performance of FrontRow during the December
2017 holiday season, the Company was forced to assess the economic
recovery of inventory and other related commitments. Excluding this
$18.6 million charge, gross profit would have been $115.5 million,
or 46.1%, representing a sequential improvement over the
previous quarter.
Balance Sheet Highlights
Cash. Total cash and cash
equivalents as of December 31, 2017 were $823.8 million,
compared with $604.2 million as of June 30, 2017. Cash and
cash equivalents, less debt (net cash) of $356.1 million increased
$22.2 million sequentially. The sequential increase in net cash
during the second quarter of fiscal 2018 was primarily driven by
operating earnings partially offset by the repurchase of common
stock.
Borrowing Availability. The Company
fortified its balance sheet by securing additional liquidity
through its amended and restated credit agreement, as filed on Form
8-K on January 23, 2018. The amended and restated credit agreement
provides credit facilities of $900 million, consisting of a $500
million term loan which was entirely drawn at closing and a $400
million revolving credit facility.
Tax Reform. In addition to the
increased liquidity provided by its credit facilities, the Company
will have additional flexibility to repatriate foreign earnings as
a result of the most recent federal tax reform.
DSOs. Second quarter fiscal 2018
days sales outstanding in accounts receivable ("DSO") were 58 days,
compared with 48 days in the prior quarter, and 50 days in the
second quarter of fiscal 2017. DSO's in the current period
increased versus the prior quarter and prior year quarter primarily
due to the timing of sales within the current quarter, which were
more heavily weighted toward the back of the quarter.
Inventory. Inventory at the end of
the quarter decreased $23.4 million to $98.9 million. This amount
includes $2.8 million of the $18.6 million charge associated
primarily with the Company’s FrontRow consumer-oriented product, as
discussed above. Consequently, inventory weeks on hand decreased on
a sequential basis to 9 weeks in the current quarter versus 13
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 third fiscal quarter ending
March 31, 2018:
- Revenues of between $245 million and
$260 million; and
- Non-GAAP diluted EPS of $0.92 -
$0.99.
The Company is currently optimistic that it will achieve the
lower-end of the revenue and non-GAAP diluted earnings-per-share
guidance previously provided for the full fiscal year ending June
30, 2018.
A material number of non-qualified stock options issued under
our 2005 Equity Incentive Plan will expire on April 8,
2018 and we expect these options to be exercised during the
fiscal third or fourth quarter of 2018. The impact of any exercise
of such non-qualified stock options upon our financial results is
not included in the foregoing business outlook for the fiscal third
and fourth quarters of 2018.
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 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 (800) 289-0438 (U.S. toll-free) or
(323) 794-2423 (International). 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.
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 financial results for the third fiscal quarter of
2018 and full fiscal year 2018, the repatriation of foreign
earnings under recent federal tax reform, 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 third
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 December 31,
Six Months Ended December 31, 2017 2016
2017 2016 Revenues $ 250,811 $ 213,536 $
496,679 $ 418,293 Cost of revenues 153,911 118,397
288,123 224,850 Gross profit 96,900 95,139
208,556 193,443 Operating expenses: Research
and development 20,468 16,338 37,396 30,877 Sales, general and
administrative 10,352 9,001 18,017 17,864
Total operating expenses 30,820 25,339 55,413
48,741 Income from operations 66,080 69,800 153,143
144,702 Interest expense and other, net (2,492 ) (1,170 ) (3,853 )
(2,269 ) Income before provision for income taxes 63,588 68,630
149,290 142,433 Provision for income taxes 115,047 8,022
125,824 10,037 Net (loss) income and
comprehensive (loss) income $ (51,459 ) $ 60,608 $ 23,466
$ 132,396 Net (loss) income per share of common
stock: Basic $ (0.66 ) $ 0.74 $ 0.30 $ 1.61
Diluted $ (0.66 ) $ 0.72 $ 0.29 $ 1.58
Weighted average shares used in computing net (loss) income per
share of common stock: Basic 77,654 82,169 78,895
81,990
Diluted1
77,654 83,888 80,494 83,875 1
The diluted net income per share includes additional dilution from
potential issuance of common stock, except when such issuances
would be anti-dilutive. The Company incurred a net loss in the
second quarter of fiscal 2018 causing inclusion of any potentially
dilutive securities to have an anti-dilutive effect, resulting in
the weighted average shares outstanding for basic and dilutive
earnings per share being equivalent during the quarter.
Ubiquiti Networks,
Inc.Reconciliation of GAAP Net Income to Non-GAAP Net
Income(In thousands, except per share
data)(Unaudited)
Three Months Ended
Six Months EndedDecember
31,
December 31,2017
September 30,2017
December 31,2016
2017 2016 Net (loss) income and comprehensive (loss)
income $ (51,459 ) $ 74,925 $ 60,608 $ 23,466 $ 132,396 Stock-based
compensation: Cost of revenues 40 245 30 285 174 Research and
development 370 456 381 826 941 Sales, general and administrative
370 211 155 581 378 Excess tax benefits resulting from the adoption
of ASU 2016-09 Stock Compensation (194 ) (575 ) (860 ) (769 )
(7,680 ) Tax Reform Transition Tax1 110,708 — — 112,798 — Tax
effect of Non-GAAP adjustments (242 ) (365 ) (227 ) (607 ) (598 )
Non-GAAP net income $ 59,593 $ 74,897 $ 60,087
$ 136,580 $ 125,611
Non-GAAP diluted EPS
$ 0.76 $ 0.92 $ 0.72 $ 1.71 $ 1.51
Shares outstanding (Diluted) 79,235 81,748 83,888
80,494 83,875 Share adjustment (ASU 2016-09 Adoption) (471 ) (616 )
(654 ) (474 ) (715 )
Weighted-average shares used in Non-GAAP
diluted EPS
78,764 81,132 83,234 80,020 83,160
About our Non-GAAP Net Income and Adjustments
1 Both periods reflect a provisional estimate of the mandatory
repatriation tax expense of $110.7 million and $2.3 million of tax
expense related to the remeasurement of deferred taxes at the lower
tax rate. Included in the Company’s second quarter transition tax
calculation is an approximate $2.1 million benefit recorded in the
second quarter related to the reduced domestic rate to 28% on the
first quarter 2018 earnings which were previously provided for at
the 35% rate. As the year to date provision reflects the impact of
the reduced 28% rate for the six-month results, this $2.1 million
benefit was not removed from the non-GAAP results for the six-month
period ending December 31, 2017. As a result, the Company’s
non-GAAP Tax Reform Transition Tax adjustment for the six months
will differ from the three months period by the $2.1 million
benefit made during the second quarter fiscal 2018 related to first
quarter 2018 earnings.
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,
the tax effects of these non-GAAP adjustments, and Tax Reform
Transition Tax.
Reconciliations of the adjustments to GAAP results for the
periods presented 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" above.
A reconciliation of non-GAAP guidance measures to corresponding
GAAP measures is not available on a forward-looking basis due to
the high variability and low visibility with respect to the charges
which are excluded from these non-GAAP measures. For example,
share-based compensation expense is impacted by the Company’s
future price at which the Company’s stock will trade in those
future periods. The items that are being excluded are difficult to
predict and a reconciliation could result in disclosure that would
be imprecise or potentially misleading. Material changes to any one
of these items could have a significant effect on our guidance and
future GAAP results. Certain exclusions, such as share-based
compensation expenses, are generally incurred each quarter, but the
amounts have historically and may continue to vary significantly
from quarter to quarter.
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
- Tax Reform Transition Tax
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.
Ubiquiti Networks, Inc.Condensed
Consolidated Balance Sheets(In thousands, except share
amounts)(Unaudited)
December 31, 2017 June 30,
2017 (1) Assets Current assets: Cash and cash
equivalents $ 823,776 $ 604,198 Accounts receivable, net 159,153
140,561 Inventories 98,893 142,048 Vendor Deposits 54,523 54,082
Prepaid income taxes — 2,419 Prepaid expenses and other current
assets 11,295 9,026
Total current assets
1,147,640 952,334 Property and equipment, net 15,657 12,916
Long-term deferred tax assets 2,880 5,133 Other long-term assets
2,151 2,328 Total assets $ 1,168,328 $ 972,711
Liabilities and
Stockholders’ Equity Current liabilities: Accounts payable $
11,947 $ 49,008 Income taxes payable 12,588 1,707 Debt - short-term
14,743 14,743 Other current liabilities 65,600 33,030 Total current
liabilities 104,878 98,488 Long-term taxes payable 130,308 28,023
Debt - long-term 452,950 241,821 Other long-term liabilities 4,162
2,615 Total liabilities 692,298 370,947 Stockholders’ equity:
Common stock 78 80 Additional paid–in capital 771 525 Retained
earnings 475,181 601,159 Total stockholders’ equity 476,030 601,764
Total liabilities and stockholders’ equity $ 1,168,328 $ 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 December 31, 2017
2016 Service Provider Technology $ 119,852 $ 115,580
Enterprise Technology 130,959 97,956 Total revenues $ 250,811 $
213,536
Ubiquiti Networks, Inc.Revenues
by Geographical Area(In thousands)(Unaudited)
Three Months Ended December 31, 2017
2016 North America $ 94,957 $ 94,609 South America
20,746 19,285
Europe, the Middle East and Africa
102,026 77,381 Asia Pacific 33,082 22,261 Total revenues $ 250,811
$ 213,536
Ubiquiti Networks, Inc.
Condensed Consolidated Cash
Flows
(In thousands)
(Unaudited)
Six Months Ended December 31, 2017
2016 Cash Flows from Operating Activities: Net
income $ 23,466 $ 132,396 Adjustments to reconcile net income to
net cash provided by operating activities: Depreciation and
amortization 3,415 3,363 Provision for inventory obsolescence 3,151
1,484 Provision/(Recovery) for loss on vendor deposits &
purchase commitments 16,187 (1,053 ) Stock-based compensation 1,691
1,492 Other, net 411 1,034 Changes in operating assets and
liabilities: Accounts receivable (18,613 ) (33,333 ) Inventories
39,533 (48,189 ) Vendor deposits (11,153 ) (5,759 ) Prepaid income
taxes 2,419 (5,079 ) Prepaid expenses and other assets (2,147 )
(4,820 ) Accounts payable (36,888 ) 25,989 Income taxes payable
113,166 2,175 Deferred revenues 1,207 1,787 Accrued liabilities and
other current liabilities 27,568 4,184 Net cash
provided by operating activities 165,666 75,671
Cash Flows from Investing Activities: Purchase of property
and equipment and other long-term assets (6,195 ) (2,836 ) Net cash
(used in) investing activities (6,195 ) (2,836 )
Cash Flows from
Financing Activities: Proceeds from revolver loan 218,500 —
Repayments of term loan (7,500 ) (5,000 ) Repurchases of common
stock (151,255 ) (6,483 ) Proceeds from exercise of stock options
849 1,287 Tax withholdings related to net share settlements of
restricted stock units (487 ) (945 ) Net cash (used in) provided by
financing activities 60,107 (11,141 ) Net increase in cash
and cash equivalents 219,578 61,694 Cash and cash equivalents at
beginning of period 604,198 551,031 Cash and cash
equivalents at end of period $ 823,776 $ 612,725
Non-Cash Investing Activities: Unpaid property and equipment
and other long-term assets $ 288 $ 379
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180208005396/en/
Investor RelationsUbiquiti Networks, Inc.Laura Kiernan,
1-914-598-7733SVP, Investor Relationslaura.kiernan@ubnt.com
Ubiquiti Networks (NASDAQ:UBNT)
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