UBNT Proxy filed

UBNT just filed their annual Proxy. Two things stood out to me.

  1. The 2017 audit fee went down to $1.4M from $1.8M in 2016. Last year, they also had other fees (audit related and tax) paid to their auditor, so they ended up paying PriceWaterhouseCoopers (PWC) $2M for the 2016 audit. We can now see that they switched to KPMG because they got a much lower fee. Pera still got an audit by a Big 4 firm (not much of a difference between them) and got it at a big discount from PWC. Last year PWC charged an extra $200K because of the material weaknesses, which caused the total fee related to audit to total about $2M (tax fees were only $70K). By switching auditors (but still getting a Big 4 signoff) and cleaning up the controls, the company saved almost $600K on their audit fee. They would not have been able to do this without cleaning up their financial controls.

  2. The Proxy stated that there were 77,841,308 shares outstanding as of October 16, 2017. That means they likely used up their $150M buyback authorization and took full advantage of the cheap price to put a big dent in the outstanding shares. Pera still owns 56.3M, so his ownership is now up the 72.3%. In terms of ownership percentage, the buyback offset the 1M shares he sold. Looking at the float of outstanding shares minus Pera’s shares, you get 21.5M shares. This does not even consider institutional ownership. We know that as of 10/13, there were 11M shares short, which means the shares short represent 51% of the float.

For me there are 2 takeaways: 1) Pera has made improvements to the financial controls as evidenced by a clean SOX report from KPMG and a lower audit fee and 2) Pera continues to be an effective capital allocator taking full advantage of the cheap price to retire shares and meaningfully bring down the shares outstanding, which will help increase EPS. Pera continues to get better as a CEO, so we should continue to see a positive impact on how UBNT is run.

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Here it is:

https://seekingalpha.com/filing/3740707

Price target for 2020:
In the range of $120+/share ?

For 2018, EPS should be around $4.00 - 4.20/share
Throw on 20%, would put it around $4.80+/share for 2019
Throw on another 20%, and you have about $5.75/share for 2019
Throw a P/E of 20 on that $5.75 and you would have $115/share

For reference, UBNT had about 90 million shares outstanding in 2013 and is now down to about 77.8 million, per this latest proxy. From observing very simply math, fewer shares, with total earnings remaining the same, equals higher EPS with # of shares being that denominator.

I think my biggest concern with UBNT is the very far out-there fear that Robert Pera colluded with Andrew Left in manufacturing the short attack, which is probably a completely absurd thought…although I maintain a suspicion that Left closed out his short position the morning he announced his “report” and may have subsequently played the upside as well (although I’d be shocked if he ever disclosed such). I gladly played the upside with pretty decent confidence (realized gains of approximately 2% of my total portfolio value so far on UBNT calls subsequent to the Citron attack, with some calls still out there with unrealized gains), based on the flimsy nature of the Citron Research claims of suspected fraud (which contained no real smoking guns to speak of).

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For me there are 2 takeaways: 1) Pera has made improvements to the financial controls as evidenced by a clean SOX report from KPMG and a lower audit fee and 2) Pera continues to be an effective capital allocator taking full advantage of the cheap price

Well, stock is down 5% so maybe the takeaways are more numerous than that.

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Well, stock is down 5% so maybe the takeaways are more numerous than that.
Relatively low volume today, definitely not high volume for UBNT. Looks like it could be a little bit of profit taking to me.

I am thinking that upwards of $70/share after UBNT announces earnings is quite possible. They appear to have used up the full amount of the repurchase authority, which makes me think they will be announcing some positive results.

Well, stock is down 5% so maybe the takeaways are more numerous than that.

Dammit! It lost all the gains it had made since Thursday!

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*For me there are 2 takeaways: 1) Pera has made improvements to the financial controls as evidenced by a clean SOX report from KPMG and a lower audit fee and 2) Pera continues to be an effective capital allocator taking full advantage of the cheap price*

Well, stock is down 5% so maybe the takeaways are more numerous than that.

Now the SEC has serious questions about the acc’tg as well, so calling it a ‘short attack’ and ‘flimsy suspicions’ no longer holds water. Perhaps this will serve as a good wake-up call for some holders, perhaps not.

UBNT has under-performed the Nasdaq by 25%/QQQ by 28% since the proxy was filed.

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Well, stock is down 5% so maybe the takeaways are more numerous than that.

Now the SEC has serious questions about the acc’tg as well, so calling it a ‘short attack’ and ‘flimsy suspicions’ no longer holds water. Perhaps this will serve as a good wake-up call for some holders, perhaps not.

UBNT has under-performed the Nasdaq by 25%/QQQ by 28% since the proxy was filed.

Najdorf,

I appreciate the potential value-added by a genuine devil’s advocate.

With this post, my confidence that you are being genuine in your role is coming into question…and if you’re merely trying to score points based on a short term price movement, I don’t know that you’re providing the value that a genuinely concerned devil’s advocate could be capable of. Also, I’m guessing you meant for that to be 25% down rather than 5% down.

-volfan84
still long UBNT…with 2020 $70 calls added this morning

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Perhaps this will serve as a good wake-up call for some holders, perhaps not.

This certainly had awakened me, but not for the reasons you imply.

I’ve been following Ubiquiti for a couple of years now and have determined that it is a good company. It has had its problems (the camera and getting bilked out of $30 million to name a couple), but there has been absolutely nothing to suggest that Pera is doing anything illegal.

So I got the wake-up call to see if there is something I can do to take advantage of the situation.

Perhaps they are doing something wrong. Naturally, I cannot tell for sure. But I’m willing to take that bet. At least we can surmise that they aren’t stuffing the channel. They wouldn’t have had the Front Row inventory to write off had they been recognizing the revenue on these things prior to them selling to end customers.

To me, this is similar to the BOFI situation in 2015 (up almost 150% on these positions), except that this should be cleared up a lot quicker. It’s not comfortable and my stomach grumbles a bit. But I intend to buy some leaps today as well. They’re selling for more than half-off.

DJ

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Well, stock is down 5% (was supposed to say 25%, I think) so maybe the takeaways are more numerous than that.

Now the SEC has serious questions about the acc’tg as well, so calling it a ‘short attack’ and ‘flimsy suspicions’ no longer holds water. Perhaps this will serve as a good wake-up call for some holders, perhaps not.

UBNT has under-performed the Nasdaq by 25%/QQQ by 28% since the proxy was filed.

Najdorf,

Do you know of any decent way to estimate how much of the recovery from being right around $50/share for most of the day on 2/20/18 (low of $48.something if I recall right) to being above $67/share here on 3/1/18 is attributable to Ubiquiti buybacks as opposed to the rest of the market as a whole?

It kinda seems that the market has lost all concern for the SEC inquiry over the past 9 days.

Thanks,
volfan84

Well, stock is down 5% (was supposed to say 25%, I think) so maybe the takeaways are more numerous than that.

Now the SEC has serious questions about the acc’tg as well, so calling it a ‘short attack’ and ‘flimsy suspicions’ no longer holds water. Perhaps this will serve as a good wake-up call for some holders, perhaps not.

UBNT has under-performed the Nasdaq by 25%/QQQ by 28% since the proxy was filed.

Najdorf,

Do you know of any decent way to estimate how much of the recovery from being right around $50/share for most of the day on 2/20/18 (low of $48.something if I recall right) to being above $67/share here on 3/1/18 is attributable to Ubiquiti buybacks as opposed to the rest of the market as a whole?

It kinda seems that the market has lost all concern for the SEC inquiry over the past 9 days.

Thanks,
volfan84

Do you know of any decent way to estimate how much of the recovery from being right around $50/share for most of the day on 2/20/18 (low of $48.something if I recall right) to being above $67/share here on 3/1/18 is attributable to Ubiquiti buybacks as opposed to the rest of the market as a whole?- volfan84

I don’t really know what’s happening with UBNT. Several posters on StockTwits have noted that no shares are available for borrowing (for shorting purposes). That suggests that the float has grown smaller and supports the notion that Pera has bought back more stock. That’s conjecture on my part. I will note that if the float has shrunk considerably, then I expect volatility to increase.

UBNT has been very good to me financially, but I’ve closed my position. It’s become too difficult to assess what’s happening.

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According to TDameritrade the UBNT short interest is down to 29%. This us down from well over 40% a month ago.

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