Quotes from below pulled from Seeking Alpha so special thanks to them.
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$185.7M in Revenue up 27% and exceeding guidance.
EPS of 69 cents up 38% and exceeding guidance.
Cash of $551M up 23%.
Enterprise segment up 87% and 8% sequentially.
Gross Margin up 2.8% to 48.3% on product mix and cost reductions.
Completed $50M buyback and began another one.
$180 - $190M
$0.68 - $0.74 EPS
Another poster wrote about Pera’s confidence and enthusiasm on this call. Indeed, he sounded upbeat and that is because he has his house in order now and their business model is paying off. Keep in mind it isn’t exactly like the company was hurting. While stagnating for around two years, they have generated plenty of cash, have no debt and have been buying back shares in spades.
Below I want to provide some direct quotes from the Q&A that are notable. Before that, I’ll mention some general themes I gathered from the call.
Their product and execution problems as a company, but more specifically around UniFi and AirMax are behind them. Their “new team” was mentioned several times and they are back to their core focus of “Just R&D.” UniFi specifically is going to be a monster and from prior calls they will exceed Cisco in access points shortly. That is pretty incredible.
They now have three business segments, one of which is brand new - Ubiquity Labs. This is their entrée into the consumer market. They developed AmpliFi, a home wireless routing system. I personally can use a system like that and am greatly interested in this new area for them. The other two biz segments are their traditional Enterprise and Service Provider segments.
They are continuing to work on a bunch of new things. I’ll provide some quotes below, but this is seeming like the tip of the iceberg hiding a wealth of opportunity below the surface. Ubiquiti Labs produced AmpliFi in under a year and that is just the first of many products coming out of that group. Remember they do these things at an extraordinarily low cost and can afford to fail. No sales force really helps that cause.
Lastly a general theme was: Wait until ASP begin to increase. They have secured the low end market and will keep benefitting from that, but they won’t stop there. They will continue to innovate and some of that will be higher end products demanding a higher price.
On Service Provider Catalysts:
First, airMAX ac, it looks like we finally solved a lot of the fundamental interoperability issues with the previous generation of equipment. And you’ll see over the next several months, I hope we get it completely polished, and you’ll see airMAX ac take off.
another catalyst, we’re going to get into more services for the operators. You saw that with sunMAX, which I know I get a lot of flak for solar, but if I had to do it again I would have done it again a 100 times over. It’s eventually going to be a good place to play for us. It’s a little ahead of its time. But we’re going to introduce more services for these operators, and a couple of them, well, I’ll just say it, we’ve had tens of millions of dollars in R&D investment for a couple of these things, and nobody sees it. And you’re going to – when it’s introduced in the next couple quarters I think it’ll surprise a lot of people. They’re going to be immediately impactful materially to operator revenue, and Service Provider revenue, and I think you’re going to see some growth in the Service Provider next year.
On the UniFi Portfolio:
So UniFi is going to be a monster. Right now I think it’s early innings. We’re trying to – we shipped several hundred thousand devices now a month all total, and I want to expand that number. But once we get a larger and larger footprint, and once our quality and feature set starts going up, then look out, because we can take those ASPs, which are sub $100 right now, and we could bring them up several hundred dollars. And people want higher-end equipment. We just haven’t gotten there yet. So you’ll see over the next year UniFi volumes, I think they’re going to expand rapidly. But then what’s really exciting is looking beyond that in the next couple years, once we get to 10-gigabit security gateways, or UniFi threat management, multiuser MIMO Wave 2 APs with 802.11b 60-gigahertz, which the next generation of phones will come out with 10-gigabit switches. And it’s exciting. I think that’s going to be a great business for us.
On getting their financial house in order:
We didn’t hire a Chief Financial Officer, because I didn’t feel our weak point was somebody that needs to go to investors. We’ve never needed funding. We’ve always been profitable. And what we needed is somebody to mind the fort and be defensive, and have his eyes completely on accounting and plugging any areas of exposure as it comes to processes, or systems in place to avoid things like the fraud incident from happening in the future. And I think that’s what we did, and that’s the culture we have right now. And I think it’s finally in a very stable and healthy state.
Excellent part of the Q&A. The question started about margin, but the answer goes into their business model and is a key reason I invest in UBNT.
I don’t know. What did we grow, 6% year over year? So overall our gross margin expansion is due to efficiencies. So we’ve never dropped the price of any product ever. So that kind of is kind of, you know, a good point of our strategy and our brand. We never discount, or we never have to get rid of inventory. We don’t have sales people calling big guys up to take products. We make stuff people want. And in the background that gives us time to cost reduce. So in the future I might – to kind of jumpstart new markets, we might get disruptive, because we can. And we might take a hit in the short term to buy market share, but we know in the back end, in the background we can constantly leverage on materials and pricing and eventually get good margins. So I think we might have dips here and there depending on how aggressive we want to be with new product introductions, but overall I think you will see margins expand. For sure they will expand in Enterprise, Service Provider, probably at least the same, Consumer might be a little lower margin, but I think with time it’s also going to be a very nice business.
And even better, more confident remarks from the CEO about entering the consumer market. This is the stuff that makes me tingle. Reminds me of my football coach giving a pep talk before the game. Love the competitiveness:
But then people tell us, oh, yeah, Ubiquiti, they probably just got lucky. And that is also very frustrating. So now we’re going to the consumer with Ubiquiti Labs, and we’re going to do the same thing we’ve done to the service provider market, to the enterprise market. Now we’re doing it to the consumer market. When so many people would say, oh, Ubiquiti doesn’t have any sales people, they don’t know how to distribute, they don’t know how to create channels, they’ll never be successful in consumer. And we want to stick it to these guys. We’re going to come out very, very aggressively in consumer market. We feel wireless is our game. We’ve done WiFi, and we’ve shipped tens of millions of radios using WiFi, and all kinds of applications from proprietary, multi-hundred kilometer links to these managed WiFi networks. The consumer WiFi market should be ours. That should belong to us.
And one more final comments on the consumer wireless router market. Again, its nice to see UBNT making a product that I will buy. Too many wireless dead spots in my house.
Now fast forward today, something interesting is happening where you have fiber connections doing gigabit per second. You have homes, connected homes with the net thermostats there, and door locks, and doorbells, and all kinds of IoT devices, and Netflix boxes, and tablets, and laptops and phones. So these connected homes are having 10 devices, 20 devices, sometimes 30 devices. And so people are seeing the difference now in a good router and a bad router. And so what you’re seeing now is the router is becoming a really important piece of technology to these homes. And people are looking to pay more and more money. And you see some of these startups have, rightfully so, saw an opportunity to get into this problem and these high priced ASPs on the routers. And with AmpliFi, we’re gunning for that market first. But we also have a larger vision around it.
And yeah, we will be aggressive, but if you look at what we did with AmpliFi, that product is beautiful. We didn’t take any compromise on the hardware. So the hardware is super high end. The look, feel, finish is super high end, and the price for what you’re getting I think is incredible. And the reviews have been great. So we’re going to push that aggressively, and we want to prove a lot of people wrong.
If there are folks that have reasons to believe I shouldn’t be bullish on UBNT, please feel free to chime in.
If there were others on the fence about UBNT, this seems to be a very good time to invest. I believe they are at an inflection point. Their business model is beginning to truly serve them well.
Pera has been pounded for his idiosyncratic behavior and distractions outside of UBNT. He has taken the blame their poor execution. He, in my humble opinion, has already turned it around, but that really remains to be seen.