Ubnt Page Post 3

UBNT (Ubiquiti Networks)

Thanks to SeekingAlpha.com for the use of their transcripts.

Subject: Ubiquiti Networks (UBNT)
Author: Buynholdisdead
Date: 11/11/2014
Sector: Technology
Industry: Communication Equipment


Ubiquiti Networks (UBNT) Closing Price $28.78 on November 7th, They reported on November 6th 5:00pm ET and the stock dropped $5.84

Price: $29.00
Dow:17,612.20
Nasdaq:4,675.13
SP500:2,038.25
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Nat Gas: $4.18
Gold: $1159.10
Silver: $15.62
Copper: $3.02
Corn: $377.75
Lean Hogs: $90.68
Feeder Cattle: $233.38
Coffee: $188.75
Cotton: $61.94
Lumber: $322.6

Today the Price is $29.00: The P/E ratio is 14.95

**November 10th,2011 1q:2012 earnings highlights:
**Revenues were $79.2 million
**Cost of Revenues 46.2 million
**1Q Earnings per share were ($.1.30)
**Diluted share count were 62,717,000
**Cash Flow for the quarter was $15.5 million
**Cash $52.6 million
**Debt $7 million
** Gross Profit were $33 million
** Gross Profit Margin 41%
**Inventory for the quarter was 8,374,000 million
**IPO’d

**January 31st, 2012 2Q:2012 earnings highlights:
**Revenues were $87.8 million
**Cost of Revenues $50.5 million
**2Q Earnings per share were $.16
**Diluted share count were 90,056,000 up 44% from 62,717,000 Quarter over Quarter
**Cash Flow for the quarter was $3.3 million
**Cash $64.8 million
**Debt $7 million
** Gross Profit were $37.3 million
** Gross Profit Margin 42%
**Inventory for the quarter was 8,980,000 up 7% from 8,374,000 QoQ.
**Trading range between $17.33 to $25.30
** P/E range NA
** P/S range na

**May 1st, 2012 3Q:2012 earnings highlights:
**Revenues were $91.7 million
**Cost of Revenues $52 million
**3Q Earnings per share were $.30
**Diluted share count were 94,177,000 up 5% from 90,056,000 QoQ
**Cash Flow for the quarter was $31.2 million
**Cash $94.2 million
**Debt $7 million
** Gross Profit were $39.7 million
** Gross Profit Margin 43%
** Net Income were $27.9 million
**Inventory for the quarter was 9,111,000 up 1% from 8,980,000 QoQ
**Trading range between $22.60 to $35.99
** P/E range NA

**August 9th, 2012 4Q:2012 earnings highlights:
**Revenues were $94.9 million
**TTM Revenues were $353.5 million
**Cost of Revenues $53.8 million
**4Q Earnings per share were $.30
**Diluted share count were 94,168,000 down from 94,177,00 QoQ
**Cash Flow for the quarter was $28.4 million
**TTM cash flow was $78.5 million
**Cash $122.1 million
**Debt $7 million
** Gross Profit were $41 million
** Gross Profit Margin 43%
** Net Income were $28.5 million
**Inventory for the quarter was 7,734,000 down 15% from 9,111,000 QoQ
**Trading range between $9.37 to $27.90
** P/E range NA
** P/S range 2.50 to 7.43
**Gross Profit to asset ratio = 19%
**YOY Inventory turnover ratio = 23.82
**Inventory Holding Period = 2.18 weeks
**Ceo states Counterfeit problem will impact revenue growth going forward

**November 8th, 2012 1Q:2013 earnings highlights:
**Revenues were $61.5 million
**TTM Revenues were 335.8 million
**Cost of Revenues $36.5
**1Q Earnings per share were $.14 up from $(1.30)
**TTM Earnings per share $.90
**Diluted share count were 92,925,000 down 1% from 94,168,000 Quarter over Quarter
**Cash Flow for the quarter was $21.3 million
**TTM cash flow was $84.2 million
**Cash $132.5 million
**Debt $5 million
** Gross Profit were $25 million
** Gross Profit Margin 41%
** Net Income were $13.2 million
**Inventory for the quarter was 7,632,000 up 1% from 7,734,000
**Trading range between $7.80 to $13.39
** P/E range 8.6 to 14.88
** P/S range 2.16 to 3.71
**Gross Profit to asset ratio = 12%
**YOY Inventory turnover ratio = 23.05
**Inventory Holding Period = 2.26 weeks
**Counterfeit problem impacting Revenue growth which they have taken significant legal action against.

**February 7th, 2013 2Q:2013 earnings highlights:
**Revenues were $74.9 million
**TTM Revenues were 323 million
**Cost of Revenues $44.4 million
** Gross Profit were $30.5 million
** Gross Profit Margin 41%
** Net Income were $17.8 million
**2Q Earnings per share were $.20 up from $.16
**TTM Earnings per share $.94
**Diluted share count were 90,056,000 down 3% from 92,925,000 Quarter over Quarter
**Cash Flow for the quarter was $25.7 million
**TTM cash flow was $106.6 million
**Cash $148.3 million
**Debt $5 million
**Inventory for the quarter was 14,623,000 up 92% from 7,632,000
**Trading range between $9.97 to $15.28
** P/E range 10.61 to 16.26
** P/S range 2.96 to 4.26
**Gross Profit to asset ratio = 13%
**YOY Inventory turnover ratio = 12.77
**Inventory Holding Period = 4.07 weeks
**Paid an $.18 dividend on Dec 20th 2012
**Set up a third party logistics hub in China which caused an increase in inventory
**As of December 31st they have repurchased 5.2 million shares for approximately $54.4 million dollars

**May 9th, 2013 3Q:2013 earnings highlights:
**Revenues were $83.2 million
**TTM Revenues were 314.5 million
**Cost of Revenues $47.7 million
** Gross Profit were $35.5 million
** Gross Profit Margin 43%
** Net Income were $20.7 million
**3Q Earnings per share were $.23 down from $.30
**TTM Earnings per share $.87
**Diluted share count were 88,953,000 down 1% from 90,056,000 Quarter over Quarter
**Cash Flow for the quarter was $34.2 million
**TTM cash flow was $109.6 million
**Cash $181.7 million
**Debt $5 million
**Inventory for the quarter was 19,381,000 up 33% from 14,623,000
**Trading range between $12.76 to $16.72
** P/E range 14.67 to 19.22
** P/S range 3.61 to 4.73
**Gross Profit to asset ratio = 14%
**YOY Inventory turnover ratio = 9.4
**Inventory Holding Period = 5.53 weeks
**Implemented sophisticated anti-theft technology
**Craig Foster new CFO

**August 8th, 2013 4Q:2013 earnings highlights:
**Revenues were $101.2 million
**TTM Revenues were 320.8 million
**Cost of Revenues $56.9 million
** Gross Profit were $44.4 million
** Gross Profit Margin 44%
** Net Income were $28.8 million
**4Q Earnings per share were $.32 up from $.30
**TTM Earnings per share $.89
**Diluted share count were 89,064,000 up from 88,953,000 Quarter over Quarter
**Cash Flow for the quarter was $45.3 million
**TTM cash flow was $237.5 million up from
**Cash $227.8 million
**Debt $5 million
**Inventory for the quarter was 15,880,000 down 18% from 19,382,000
**Trading range between $15.01 to $21.96
** P/E range 16.87 to 24.67
** P/S range 4.68 to 7.00
**Gross Profit to asset ratio = 15%
**YOY Inventory turnover ratio = 12.90
**Inventory Holding Period = 4.03 weeks
**They believe they will be the #1 volume enterprise managed AP shipment vendor by fourth quarter. Currently they are the fourth.
**CEO Robert J. Pera says the counterfeit issues are behind them and that he is taking back control of the company. He also stated that he is going to kick butt and he is out for growth.
** CEO says DSO’s are at a record low of 32 DSO’s, they have legally confined the counterfeiters.
**The CEO states that when they go into a market they have never had to drop prices. That prices have continually stayed the same.

**November 7th, 2013 1Q:2014 earnings highlights:
**Revenues were $129.7 million up from $61.5 million
**TTM Revenues were 389 million up from $335.8 million
**Cost of Revenues $71.7 million up from $36.5 million
** Gross Profit were $58 million up from $25 million
** Gross Profit Margin 45%
** Net Income were $40.5 million up from 13.2 million
**1Q Earnings per share were $.45 up from $.14
**TTM Earnings per share $.1.20
**Diluted share count were 89,473,000 up from 89,064,000 Quarter over Quarter
**Cash Flow for the quarter was $51.4 million up from $21.3 million
**TTM cash flow was $126.5 million up from $84.2 million
**Cash $279.7 million up from 227.8 million QoQ
**Debt $5 million
**Inventory for the quarter was 16,375,000 up 3% from 15,880,000
**Trading range between $25.06 to $43.99
** P/E range 20.9 to 36.7
** P/S range 5.76 to 9.91
**Gross Profit to asset ratio = 17%
**YOY Inventory turnover ratio = 13.44
**Inventory Holding Period = 3.87 weeks
**They are now using wifi 802.11n for AirMax but they are going to start producing 802.11ac sometime next year which will give approximately 30% boost in speed.
** Announced the industry first 802.11ac outdoor AP.

**February 6th, 2014 2Q:2014 earnings highlights:
**Revenues were $138.4 million up from 74.9 million
**TTM Revenues were 452.5 million up from $323 million
**Cost of Revenues $77.5 million up from $44.4 million
** Gross Profit were $61 million up from $30.5 million
** Gross Profit Margin 44%
** Net Income were $41.8 million up from 17.8 million
**2Q Earnings per share were $.47 up from $.20
**TTM Earnings per share $.1.47 up from $.94
**Diluted share count were 89,653,000 up from 89,473,000 Quarter over Quarter
**Cash Flow for the quarter was $77.5 million up from $25.7 million
**TTM cash flow was $178.3 million up from $106.6 million
**Cash $305.6 million up from 279.7 million QoQ
**Debt $5.6 million
**Inventory for the quarter was 32,323,000 up 97% from 16,375,000
**Trading range between $36.30 to $48.00
** P/E range 24.70 to 32.65
** P/S range 7.19 to 9.51
**Gross Profit to asset ratio = 16%
**YOY Inventory turnover ratio = 7.85
**Inventory Holding Period = 6.62 weeks
**They are now using wifi 802.11n for AirMax but they are going to start producing 802.11ac sometime next year which will give approximately 30% boost in speed.
** Announced the industry first 802.11ac outdoor AP.
**AirPRISM new technology improves the selectivity of base station radios and perform significantly better in high noise environment.

**May 8th, 2014 3Q:2014 earnings highlights:
**Revenues were $148.3 million up 78% from 83.2 million
**TTM Revenues were 517.6 million up 65% from $314.5 million
**Cost of Revenues $82.7 million up 73% from $47.7 million
** Gross Profit were $65.6 million up 85% from $35.5 million
** Gross Profit Margin 44%
** Net Income were $45.2 million up 118% from 20.7 million
**3Q Earnings per share were $.50 up 117% from $.23
**TTM Earnings per share $.1.74 up 100% from $.87
**Diluted share count were 89,775,000 up from 89,653,000 Quarter over Quarter
**Cash Flow for the quarter was ($73.9 million) down from $81.3 million
**TTM cash flow was $159.3 million up from $156.7 million
**Cash $291.7 million down from $305.6 million QoQ
**Debt $6.3 million up from $5.6 million
**Inventory for the quarter was 66,004,000 up 104% from 32,323,000 QoQ
**Trading range between $30.50 to $56.85
** P/E range 17.53 to 32.67
** P/S range 3.04 to 5.67
**Gross Profit to asset ratio = 15%
**YOY Inventory turnover ratio = 4.38
**Inventory Holding Period = 11.87 weeks
**DSO’s = 30 days
**Signed new Distribution agreements with Ingram Micro and ScanSource Security, Leading Technology distributors.
**Launched Ubiquiti World Network, an alliance of independent Internet Service Providers and supporting U.S. advertising and marketing campaign.
**Refinanced outstanding credit facility, lowering their cost of capital. They are now with Wells fargo.

**August 7th, 2014 4Q:2014 earnings highlights:
**Revenues were $156 million up 54% from 101.2 million
**TTM Revenues were 572.5 million up 78% from $320.8 million
**Cost of Revenues $87.1 million up 53% from $56.9 million
** Gross Profit were $68.9 million up 55% from $44.4 million
** Gross Profit Margin 44%
** Net Income were $49.4 million up 72% from 28.8 million
**4Q Earnings per share were $.55 up 72% from $.32
**TTM Earnings per share $.1.97 up 121% from $.89
**Diluted share count were 89,821,000 up from 89,064,000 Quarter over Quarter
**Cash Flow for the quarter was ($149 million) down from ($1.8 million)
**TTM cash flow was $117.3 million down from $126.5 million
**Cash $347.1 million up from $291.7 million QoQ
**Debt $0 down from $6.3 million
**Inventory for the quarter was 46,349,000 down from 66,004,000 QoQ
**Trading range between $30.60 to $47.78
** P/E range 15.53 to 24.25
** P/S range 4.80 to 7.50
**Gross Profit to asset ratio = 15%
**YOY Inventory turnover ratio = 6.88
**Inventory Holding Period = 7.56 weeks
**Average days sales outstanding (“DSO”) of 32 days
**Launched EdgeSwitch, the first switch of its price/performance class, designed to offer superior performance and capability for a fraction of the cost of a traditional enterprise switch.
**Launched UniFi Video, a new line of video surveillance camera control software and a new generation of cameras - the UVC, UVC-Dome, and UVC-Pro models - to join the UniFi family of products
**Launched UniFi VoIP, a new scalable VoIP enterprise smart phone technology to provide price/performance disruptive telephony solutions for business, schools, hotels, and more.

**November 06, 2014 1Q:2015 earnings highlights:
**Revenues were $150.1 million up 16% from $129.7 million
**TTM Revenues were 592.9 million up 52% from $389 million
**Cost of Revenues $89 million up 24% from $71.7 million
** Gross Profit were $61.1 million up 5% from $58 million
** Gross Profit Margin 41%
** Net Income were $37.7 million down 7% from 40.5 million
**1Q Earnings per share were $.42 down 7% from $.45
**TTM Earnings per share $1.94 up 62% from $1.20
**Diluted share count were 89,913,000 up from 89,821,000 Quarter over Quarter
**Cash Flow for the quarter was $43.5 million down 15% from $51.4 million
**TTM cash flow was $109.4 million down 30% from $156.6 million
**Cash $391 million up from $347.1 million QoQ
**Debt $0 down
**Inventory for the quarter was 38,747,000 down from 46,349,000 QoQ
**Trading range between $38.00 to $50.00
** P/E range 19.59 to 25.77
** P/S range 5.76 to 7.58
**Gross Profit to asset ratio = 11%
**YOY Inventory turnover ratio = 8.68
**Inventory Holding Period = 6 weeks
**Average days sales outstanding (“DSO”) of 40 days
** November 17th paid an annual dividend of $.17 to be determined by the board each year
**Signed new distribution agreements with ECS and Redington, leading technology distributors in China and India, respectively, who we expect to accelerate our expansion into established and emerging markets.

Balance Sheet
Cash was up and inventory was down. This is the second Quarter that inventory has been coming down. If you remember in the 3rd quarter of 2014 everyone was fretting about the inventory. In the fourth quarter it came down 30% and in the 1Q of 2015 it came down another 16%. On the conference call one of the analyst mentioned the inventory and I think he was talking about how come there wasn’t more revenue with the decrease in inventory. I think Pera misunderstood him and said that inventory would fluctuate as they saw the need. Revenue in the fourth quarter was up 54% with a decrease of 30% in inventory but now with a decrease of 16% in inventory they only had a revenue increase of 16%. They came out with a new chipset for their hardware so they took a hit when the terminated the purchase commitment on the old chips of 5.5 million dollars. I think this was smart because why have old inventory laying around. They said the hit of 5.5 million was less than what it would have cost them to take the whole inventory and make the old product to sell. Ubnt’s inventory holding rate is coming down nicely and now sits at 6 weeks. This is something that is nice to watch especially when analyst start getting nervous about inventory levels. Maybe we will see a trend develop that can help us determine better times to buy the stock. The balance sheet looks strong with Cash going up, inventory down and 0 debt.

Income Statement
As I stated before Revenue was up 16% and Cost of Revenues was up 24%. As a percentage of revenue COR was 59% this quarter. A year ago it was 55% if you back out the 5.5 million they paid to terminate the purchase agreement the percentage for this quarter drops down to 56%. Gross profits were up 5% and Gross profit margins were down 3% sequentially. SG&A stayed flat or trending down a slight bit. R & D is up 86% YoY. This has caused a drop in Net Income and EPS. The diluted shares have remained flat or slightly trending up. The Income statement looks mediocre. For most companies to grow revenue at 16% would be great but analyst expect more from UBNT. With net income and EPS going down this is something that needs to be watched. I am not worried because it is one bad quarter but something to watch.

Cashflow Statement
Cash flow was down yoy but so was the starting point of net income. One thing that is nice to see is that they only give out a stock based compensation of 1%. Actually it is south of 1% sitting at .09%. For a technology company that is amazing and something that should give investors a smile. The cash flow statement was weaker this quarter but I expect this to fluctuate as they go forward. This is a small company that is investing in emerging markets so we should see wide swings.

This was an interesting quarter. Listening to the conference call I had the feeling that Pera was a little shaken. But he is a young CEO and he seems to have a good head on his shoulders. On September 30th, 2014 the company approved a new annual dividend policy. This year it was $.17 cents. I was completely against it until we discussed it on the boards. I can’t remember exactly who said that he didn’t have a problem with Pera paying himself. The more I thought about it the more I had to agree. Not only was Pera paying himself but he was paying all of us who invest with him. How many CEO’s do we see only pay themselves by giving themselves options and nothing for the shareholders? I have a new found respect for this CEO and thanks to the boards for helping me see this correctly.

I know alot of us already know how UBNT is split up in terms of revenue but I think it is helpful to remind us all every now and then. They split their company in two parts.
Service Provider Technology which includes airMAX, EdgeMAX and airFiber platfors as well as embedded radio product, base stations, radios and back haul equipment and CPE equipment. It also includes antennas and other miscellaneous products such as mounting brackets.

And also

Enterprise Technology which includes the companies Unifi, mFi and UniFI Video platforms. This is the space that Ruckus just entered. On the conference call Pera stated that he wasn’t worried because UBNT has such a disruptive price point that Ruckus and Cisco can not compete. With Ubnt you could buy a Unifi Ap as low ast $60 to $70 dollars and then you have a scalable Wi-fi system. Most vendors will chage $500 dollars when you go to AP and hundreds of dollars a year in licensing and servicing fees. It makes it very hard for a company to come in and compete with UBNT.

The Service Provider Technology is 71% of Ubnt revenue and the enterprise technology is 29% at this time. Europe, the Middle East and Africa was down 7% from last year and asia was down 4%. With all of the volatility over in Russia, the Middle East and Africa we can expect these regions to stay down. But UBNT did land two new distributors which should allow them to start selling more into India and China. This could be a hard slog due to political problems but it is something to watch.

Some of the reasons that UBNT can keep costs down is because they have scalable sales and marketing model. They don’t have, nor plan to have a direct sales force. They rely on their unique community to drive their product growth. Also on the call an analyst asked why they do not have a training regiment going for their new products yet. They kept pushing this which surprised me very much. Because UBNT uses their community to educate people on their products. You can get on their community boards, ask questions and get answers from others in the community and engineers. I am pretty sure that everyone uses these boards to educate themselves. One thing that Pera did state on the conference call was that he had to build local communities in all the countries he operates in. This sounded like something he was committed to. Also Craig Foster (CFO) stated that in the near future they would have training for the distributors. This was stated after much badgering by an analyst.

On the conference call Pera stated you can’t judge this company on a quarter by quarter basis but that you must judge it on 3 year increments. He stated the company has tripled in the last three years and he expects the service provider business to do it again in the next three years. He also stated that he believe the next few years ahead will be the most impressive yet.

Pera also stated a couple of times on the call that 2/3 of the internet users come from emerging market. There’s only 10% overall global fixed broadband coverage and that we will have to deal with the quarterly ebbs and flows of competing in emerging markets.
Finally he stated that UniFi is doing great in the educational vertical and that they were putting specific features into those products for the educational market.

Conclusion:
I like how this CEO thinks. He is looking at the long term and not the short term. He pays his shareholders like he wants to be paid and he keeps down share compensation. We have just had a small hic up this quarter and I am willing to over look it. Look back and the preceding quarters and the growth has been amazing. I would want to see a few more bad quarters before I would start doubting Mr. Pera. Although I thought this conference call was a little shaky I do think he tried to paint a picture of the direction they are headed in and we have a bench mark to judge him by in three years. I am willing to give him a chance. I hope Ruckus and Cisco do come into this space because I doubt they can compete with his business model especially in the emerging markets. A cheap, stable product will win out in this space I believe.

Andy
Long UBNT and overweight.

Analyst Estimates
Dec. 2014              $.48
Mar. 2015              $.51 
Jun. 2015              $2.03 Current year
Next year Jun 16      $2.37 

http://boards.fool.com/ubnt-page-post-2-31246036.aspx

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