~Record Revenues of $307.3 million~
Ubiquiti Networks, Inc. (NASDAQ: UBNT) (“Ubiquiti" or the
"Company”) today announced results for the second quarter fiscal
2019, ended December 31, 2018.
Second Quarter Fiscal 2019 Financial
Highlights
- Revenues of $307.3 million, increasing
22.5% year-over-year
- GAAP diluted EPS of $1.09
- Non-GAAP diluted EPS of $1.33,
increasing 75.0% year-over-year
Additional Highlights
- The Company repurchased and retired
356,576 shares of common stock for $34.7 million at an average
price of $97.31 per share between November 8, 2018 and February 7,
2019.
- The Company has $178.2 million of
availability remaining under the $200 million share repurchase
program announced on November 9, 2018.
- The Company's Board of Directors
declared a $0.25 per share cash dividend payable on February 25,
2019 to shareholders of record at the close of business on February
18, 2019.
Financial Highlights ($, in millions, except per share
data)
Income statement highlights F2Q19 F1Q19
F2Q18 Revenues 307.3 282.9 250.8 Service Provider Technology
113.2 105.0 119.9 Enterprise Technology 194.1 177.9 131.0 Gross
profit 140.2 131.6 96.9
Gross Profit (%) 45.6%
46.5% 38.6% Total Operating Expenses 48.6 32.0 30.8
Income from Operations 91.7 99.6 66.1 GAAP Net Income 77.8 85.7
(51.5) GAAP EPS (diluted) 1.09 1.16 (0.66) Non-GAAP Net Income 95.1
86.2 59.6 Non-GAAP EPS (diluted) 1.33 1.17 0.76
Ubiquiti Networks, Inc.Revenues by Product Type (In
thousands)(Unaudited)
Three
Months Ended December 31, Six Months Ended December 31,
2018 2017 2018 2017
Service Provider Technology $ 113,222 $ 119,852 $ 218,179 $ 239,767
Enterprise Technology 194,054 130,959 372,002 256,912 Total
revenues $ 307,276 $ 250,811 $ 590,181 $ 496,679
Ubiquiti Networks, Inc.Revenues by Geographical
Area(In thousands)(Unaudited)
Three Months Ended
December 31, Six Months Ended December 31, 2018
2017 2018 2017
North America $ 121,234 $ 94,957 $ 240,605 $ 191,127 South America
20,907 20,746 35,083 51,799 Europe, the Middle East and Africa
134,392 102,026 259,323 195,340 Asia Pacific 30,743 33,082 55,170
58,413 Total revenues $ 307,276 $ 250,811 $ 590,181 $ 496,679
Income Statement Items
Gross Margins
During the second quarter fiscal 2019, GAAP gross profit was
$140.2 million. GAAP gross margin of 45.6% increased versus the
comparable prior year period GAAP gross margin of 38.6% and
decreased versus the prior quarter GAAP gross margin of 46.5%.
Second quarter fiscal 2018 GAAP gross margin included $18.6 million
in provisions for obsolete inventory, vendor deposits and loss on
purchase commitments. On a sequential basis, margins were
negatively impacted by higher tariffs on products sold in the
U.S.
We incur tariff costs on certain products imported into the U.S.
from China and we expect our costs to increase if additional
tariffs are imposed on such imports. We therefore anticipate
near-term gross margins to range between 42% and 45%. However, we
anticipate mitigating the effect of the tariffs in the long-term
and therefore our long-term gross margins are expected to remain
between 45% to 50%.
Research and Development
During the second quarter fiscal 2019, research and development
(R&D) expenses were $20.0 million. This reflects a decrease
versus the R&D expenses of $20.5 million in the comparable
prior year period and an increase sequentially versus the prior
quarter R&D expenses of $18.2 million.
Increased costs in second quarter fiscal 2019 versus the prior
quarter were primarily driven by higher staffing levels. R&D
expenses represented 6.5% of revenues in the second fiscal quarter
2019, which is in line with the Company's target model range of 6%
to 8%.
Sales, General and Administrative
The Company’s selling, general and administrative (“SG&A”)
expenses for the second quarter were $10.6 million versus the
SG&A expenses of $10.4 million in the comparable prior year
period and the prior quarter SG&A expenses of $13.8 million.
The decrease in SG&A costs versus the prior quarter are
primarily related to lower professional fees. SG&A expenses
represented 3.4% of revenues in the second quarter fiscal 2019,
which is in line with the Company’s target model range of 3% to
5%.
Litigation Settlement
On February 3, 2017, Synopsys, Inc. (“Synopsys”) filed a
complaint against the Company, one of our subsidiaries and an
employee in the United States District Court for the Northern
District of California, alleging claims under the Digital
Millennium Copyright Act. On January 17, 2019, the Company and
Synopsys entered into a settlement pursuant to which the Company
paid $18 million to Synopsys and agreed to a permanent injunction
to prevent any unlicensed use of Synopsys’s software. As a result
of the settlement, the litigation with Synopsys was dismissed. The
settlement does not contain any admission of liability, wrongdoing,
or responsibility by any of the parties.
Taxes
The GAAP effective tax rate was 12.0% for the second quarter
fiscal 2019. For long-term planning purposes, we assume a target
effective tax rate of 11% to 14%.
Net Income
During the second quarter fiscal 2019, GAAP net income was $77.8
million and GAAP income per diluted share was $1.09. Non-GAAP net
income during the quarter was $95.1 million and non-GAAP income per
diluted share was $1.33. Comparing the second quarter fiscal 2019
with second quarter fiscal 2018, the 59.6% increase in non-GAAP net
income and 75% increase in non-GAAP diluted EPS was primarily
driven by a 22.5% increase in revenues, lower inventory
obsolescence charges, as well as a 7.4 million reduction in
non-GAAP diluted share count.
Balance Sheet Items
Cash and Investments
Total cash and cash equivalents were $293.3 million as of
December 31, 2018 compared with $666.7 million as of June 30,
2018. In addition, as of December 31, 2018, we held
$145.8 million in available-for-sale securities. During the
second quarter fiscal 2019, the Company repurchased 2,287,975
shares of common stock for $206.3 million at an average price of
$90.17 per share.
DSOs
This quarter the Company experienced a decline in days sales
outstanding in accounts receivable (“DSO”) to 52 days, compared
with 54 days in the first quarter fiscal 2019. The Company expects
DSO’s to fluctuate as the mix of the Company’s distributors
evolves.
Inventory
Finished goods inventory at the end of the quarter increased by
$155.0 million to $251.7 million on a year-over-year basis and
increased $116.8 million from the prior quarter. Finished goods
inventory increased versus the prior year and prior quarter
primarily due to the timing of production delivery and expected
growth in demand. We will continue to manage inventory levels to
reduce lead times, secure supply and meet demand.
Cash Flow Statement
Items
The Company’s net cash flow from operations for the six months
ended December 31, 2018 was $144.6 million, compared with a net
cash flow from operations of $165.7 million for the same period
last year. The $21.1 million decrease in operating cash flow for
the six months ended December 31, 2018 as compared with the same
period last year was primarily driven by the net impact of
increased inventory and the corresponding payables. For the six
months ended December 31, 2018, the Company used $361.8 million of
cash related to financing activities, which was driven by $313.1
million in stock repurchases, $36.1 million in cash dividend
payments and $12.5 million in debt repayments.
Outlook
Based on recent business trends, the Company expects to achieve
results within the guidance range previously provided for the full
fiscal year ending June 30, 2019.
About Ubiquiti Networks
Ubiquiti Networks is focused on democratizing network technology
on a global scale — aggregate shipments of nearly 85 million
devices play a key role in creating networking infrastructure in
over 200 countries and territories around the world. Our
professional networking products are powered by our UNMS and UniFi
software platforms to provide high-capacity distributed Internet
access and unified information technology management,
respectively.
Ubiquiti and the U logo are trademarks or registered trademarks
of Ubiquiti and/or its affiliates in the United States and other
countries. For more information, please visit www.ubnt.com.
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 full fiscal year 2019,
and statements regarding expectations of the impact of tariffs,
expected impact of taxes on our liquidity and results of
operations, our cash position, expenses, DSOs, number of
distributors and resellers, shipments, 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 full fiscal year 2019, 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,
the impact of U.S. tariffs on results, 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, 2018, 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
Statements of Operations and Comprehensive Income (Loss)(In
thousands, except per share data)(Unaudited)
Three Months Ended December 31,
Six Months Ended December 31,
2018 2017 2018
2017 Revenues $ 307,276 $ 250,811 $ 590,181 $ 496,679 Cost
of revenues 167,045 153,911 318,344 288,123 Gross profit $ 140,231
$ 96,900 $ 271,837 $ 208,556 Operating expenses: Research and
development 19,977 20,468 38,199 37,396 Sales, general and
administrative 10,597 10,352 24,363 18,017 Litigation settlement
18,000 — 18,000 — Total operating expenses 48,574 30,820 80,562
55,413 Income from operations 91,657 66,080 191,275 153,143
Interest expense and other, net (3,212) (2,492) (5,739) (3,853)
Income before income taxes 88,445 63,588 185,536 149,290 Provisions
for income taxes 10,649 115,047 22,037 125,824 Net income (loss) $
77,796 $ (51,459) $ 163,499 $ 23,466
Net income (loss) per share of common
stock:
Basic $ 1.09 $ (0.66) $ 2.26 $ 0.30 Diluted $ 1.09 $ (0.66) $ 2.25
$ 0.29
Weighted average shares used incomputing
net income (loss) per share ofcommon stock:
Basic 71,225 77,654 72,499 78,895 Diluted 71,406 77,654 72,686
80,494 Other comprehensive income (loss): Unrealized (loss)
on available-for-sale securities (2) — (148) — Comprehensive income
$ 77,794 $ (51,459) $ 163,351 $ 23,466
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 Ended December 31,
December 31,2018
September 30,2018
December 31,2017
2018 2017 Net Income $ 77,796 $ 85,703 $ (51,459) $
163,499 $ 23,466 Stock-based compensation: Cost of revenues 261 33
40 294 285 Research and development 497 467 370 964 826 Sales,
general and administrative 21 275 370 296 581 Net Tax Benefits
related to Equity Awards Exercises and Vesting — — (194) — (769)
Tax Reform Transition Tax 2,765 — 110,708 2,765 112,798 Litigation
settlement 18,000 — — 18,000 — Tax effect of Non-GAAP adjustments
(4,200) (240) (242) (4,440) (607) Non-GAAP net income $ 95,140 $
86,238 $ 59,593 $ 181,378 $ 136,580 Non-GAAP diluted EPS $ 1.33 $
1.17 $ 0.76 $ 2.50 $ 1.71 Shares outstanding (Diluted)
71,406 73,963 79,235 72,686 80,494 Share adjustment (ASU 2016-09
Adoption) — — (471) — (474) Weighted-average shares used in
Non-GAAP diluted EPS 71,406 73,963 78,764 72,686 80,020
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, net tax benefits
related to equity awards exercises and vesting, unusual litigation
settlements, Tax Reform Transition Tax and the tax effects of these
non-GAAP adjustments.
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 the paragraphs below.
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.
About our Non-GAAP Net Income and
Non-GAAP Earnings per Diluted Share
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 earnings per diluted
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
- Net Tax Benefits related to Equity
Awards Exercises and Vesting
- Litigation settlement
- Tax Reform Transition Tax
- 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.
Ubiquiti Networks, Inc.Condensed Consolidated Balance
Sheets(In thousands, except share
amounts)(Unaudited)
December 31, 2018
June 30, 2018 (1) Assets Current assets: Cash
and cash equivalents $ 293,334 $ 666,681 Investments — short-term
103,489 — Accounts receivable, net 174,327 174,521 Inventories
255,778 102,220 Vendor deposits 24,753 39,029 Prepaid expenses and
other current assets 14,236 18,901
Total current assets
865,917 1,001,352 Property and equipment, net 13,243 14,328
Deferred tax assets — long-term 3,106 3,106 Investments — long-term
42,296 — Other long-term assets 11,750 3,791 Total assets $ 936,312
$ 1,022,577
Liabilities and Stockholders’ Equity Current
liabilities: Accounts payable $ 136,454 $ 14,098 Income taxes
payable 6,524 5,780 Debt — short-term 24,425 24,425 Other current
liabilities 64,694 68,613 Total current liabilities 232,097
112,916 Income taxes payable — long-term 122,344 127,719 Debt —
long-term 448,154 460,352 Other long-term liabilities 8,381 5,842
Total liabilities 810,976 706,829 Stockholders’ equity: Common
Stock 71 74 Additional paid–in capital — 393 Accumulated other
comprehensive income (loss) (148) — Retained earnings 125,413
315,281 Total stockholders’ equity 125,336 315,748 Total
liabilities and stockholders’ equity $ 936,312 $ 1,022,577
(1) Derived from audited consolidated financial statements as of
and for the year ended June 30, 2018.
Ubiquiti Networks, Inc.Condensed Consolidated Cash
Flows(In thousands)(Unaudited)
Six Months Ended
December 31, 2018 2017 Cash Flows from
Operating Activities: Net income $ 163,499 $ 23,466 Adjustments
to reconcile net income to net cash provided by operating
activities: Depreciation and amortization 3,550 3,286 Amortization
of debt issuance costs 562 129 Premium amortization and (discount
accretion), net (356) — Provision for inventory obsolescence 936
3,151 Provision/(recovery) for loss on vendor deposits (431) 16,187
Stock-based compensation 1,554 1,692 Deferred Taxes — 2,253 Other,
net (142) 410 Changes in operating assets and liabilities: Accounts
receivable 258 (18,613) Inventories (154,470) 39,533 Vendor
deposits 15,356 (11,153) Prepaid income taxes — 2,419 Prepaid
expenses and other assets 4,361 (2,147) Accounts payable 122,465
(36,888) Income taxes payable (4,631) 113,166 Deferred revenues
6,265 1,207 Accrued and other liabilities (14,193) 27,568 Net cash
provided by operating activities 144,583 165,666
Cash Flows from
Investing Activities: Purchase of property and equipment and
other long-term assets (5,610) (6,195) Private equity investment
(5,000) — Purchase of investments (167,822) — Proceeds from sale of
investments 7,598 — Proceeds from maturities of investments 14,721
— Net cash (used in) investing activities (156,113) (6,195)
Cash
Flows from Financing Activities: Proceeds from borrowing under
the Amended Credit Facility- Revolver — 218,500 Repayment against
Credit Facility (12,500) (7,500) Repurchases of common stock
(313,079) (151,255) Payment of common stock cash dividends (36,139)
— Proceeds from exercise of stock options 380 849 Tax withholdings
related to net share settlements of restricted stock units (479)
(487) Net cash (used in) provided by financing activities (361,817)
60,107 Net (decrease) increase in cash and cash equivalents
(373,347) 219,578 Cash and cash equivalents at beginning of period
666,681 604,198 Cash and cash equivalents at end of period $
293,334 $ 823,776
Supplemental Disclosure of Cash Flow
Information: Income taxes paid, net of refunds $ 26,437 $ 7,850
Interest paid $ 13,287 $ 4,843
Non-Cash Investing and Financing
Activities: Unpaid stock repurchases $ 6,000 $ — Unpaid
property and equipment and other long-term assets $ 36 $ 288 Net
unsettled investment purchases, sales and maturities $ 74 $ —
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version on businesswire.com: https://www.businesswire.com/news/home/20190208005096/en/
Investor RelationsLaura
KiernanSVP, Investor RelationsUbiquiti Networks, Inc.laura.kiernan@ubnt.comPh. 1-914-598-7733
Ubiquiti Networks (NASDAQ:UBNT)
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