I had previously posted this within a longer thread which I will link just below this paragraph, but it might not have been noticed there so I’ll re-post it as a stand-alone thread since this SEC inquiry disclosure has been made. It begins below with the bolded heading “Ubiquiti Networks”.
Also, subsequent to my review below, Bert had put out a UBNT article over on Seeking Alpha that should still be freely available as it hasn’t yet been up for 10 days.
My initial assessment of this SEC inquiry is that it is directly tied to the Citron “report” and will ultimately come out with a similar result of fading into oblivion. This is based primarily on the inclusion of the asking questions about metrics relating to the Ubiquiti Community. From the many attention units I devoted to trying to follow the after-math of that attack, the main conclusion was that quoting some bad numbers about how many folks use the Ubiquiti forums was the only contention that had merit. wouter28 (if I remember correctly) did a number of good run-downs about Ubiquiti’s external auditors and regarding how tough it would be to fake foreign cash.
Upon visiting the UBNT community page this morning, it now possesses a ticker in the top right corner that includes numbers for users online, posts today, and total posts. I don’t recall this ticker being present back in September. I think it was likely added as a direct result of the Citron attack.
Link to Ubiquiti Community:
The majority of their business is to sell wireless networking components. Presumably, the name Ubiquiti is in reference to making wireless connectivity ubiquitous all over the world. Their business results are broken down between service providers and enterprise. For the service providers segment, there are entities called WISPs (wireless internet service providers). These seem to mostly be “mom and pop” groups that set up networks using Ubiquiti products. Having looked at these a bit, they present interesting small businesses, in my opinion.
Ubiquiti was founded by Robert Pera, who had been working for Apple. He was part of their team that worked on the Airport wireless routers, and noted that the performance of those could be enhanced with a higher power radio. In the evenings he tinkered on his own until he ultimately left Apple and started Ubiquiti. His company has a bit of an unusual corporate structure, with distributed R&D teams located in lower-cost-of-living areas. They have relatively minimal sales and marketing spend. Their board consists of only 4 people if I recall correctly and they have no CFO (only a Chief Accounting Officer). These unusual aspect of Ubiquiti’s corporate structure were part of what Citron Research attacked back in September 2017, but in large part they seem to be a big part of what allows Ubiquiti to maintain margins that far exceed their competitors. They released a wearable camera called the Front Row back in the fall, which was apparently not a big success.
Friday, I noted that the AmpliFi is now available at Sam’s Club (and that the Front Row is available, but looks to be in low stock at my local location). https://twitter.com/riddlejT4/status/962092188485279744
Quarterly Result Summary Points
Adjusted/Non-GAAP net income of $59.6 million and non-GAAP diluted EPS of $0.76.
This miss is being reported as 13 cents and it appears the hit caused by Front Row is 23 cents. Assuming that is one time, earnings would have been 99 cents.
7.5% gross margin hit due to the Front Row being a flop (38.6% rather than 46.1%).
Guiding for $0.92-0.99 EPS for next quarter (non-GAAP)
Total revenue was up 17.5% Y-o-Y; Enterprise revenues were up 33.7% Y-o-Y and is now up to 52% of total revenue
Trending towards right around an even $4.00 of EPS annually…might even top that fairly easily for 2018.
In October 2017, 602,192 shares were repurchased at an average of $57.28/share. No shares purchased in Nov. or Dec. $50,000,000 remaining from the authorization granted on Nov. 8th, 2017. As of Feb. 6, 2018, $150M was authorized for re-purchased (I think this is in addition to the remaining $50M rather than in place of, but it isn’t absolutely clear from the remarks).
At Friday’s closing price of $70.55/share, Ubiquiti has a market cap of just under $5.5 billion. There are 77.69 million shares outstanding per Google Finance, and Robert Pera owns 56,278,181 of those for 72.4% ownership and leaving a float of approximately 21.4 million shares. Ubiquiti has been buying back shares pretty consistently, and seems to be continuing that with the new $150M authorization (which could retire another 2.1 million shares at the Friday closing price……which would raise Pera’s stake to just a hair under 75%). I have a suspicion that part of the idea with the strategy of this latest quarterly announcement and with forward guidance is conservative partially to have the effect of not having the share price rise too much too quickly, so that Robert can reduce more of the float for a smaller cash outlay. Ubiquiti had a bunch of overseas cash that can now be re-patriated with lower taxes and has exercised a loan facility such that they now have over $800M of cash available.
This company is profitable and continues to grow. Their structure gives them a competitive advantage and allowed them to try out the development of the Front Row device. While this quarter has taken a bit of a hit due to the Front Row seemingly being a flop, I don’t think that flop will have a long-term negative impact on Ubiquiti’s business. Using their last 4 quarter’s earnings from Google (GAAP for the first 3 and non-GAAP for the most recent, since those are more readily available for me), I see EPS of $0.77, $0.74, $0.92, and $0.76 (which would have been $0.99 if not for the Front Row charges). That would give a TTM EPS of $3.19 (or $3.42 if not for Front Row).
With earnings trending upward and the share count trending downward, I still like Ubiquiti as an investment moving forward and own the same shares I owned back in August prior to the Citron attack. During the day Thursday, I added a Jan 2020 $85 strike Call position in Ubiquiti. The 4.5% rise on Friday in Ubiquiti’s share price after Thursday’s drop makes it seem that my initial feeling of the market reaction on Thursday being overdone may have very well been correct.
Writing out these summaries is taking longer than I had planned (partially due to the UBNT summary being a bit longer), so I will not get to them all tonight.