Ubiquiti Networks Prepares for "Monster" Growth From UniFi

Ubiquiti Networks' scalable UniFi platform is enjoying strong global demand. Image source: Ubiquiti Networks.

Ubiquiti Networks (UI -1.04%) released fiscal fourth-quarter 2016 results Thursday after the market close. And in keeping with its last two quarterly earnings beats, shares of the network communications platform company jumped an impressive 10% on Friday as a result. So with shares trading at fresh 52-week high as of this writing, let's dig deeper to understand exactly how Ubiquiti was able to sustain its momentum as it closed its solid fiscal year.

Ubiquiti Networks results: The raw numbers

Data source: Ubiquiti Networks.

What happened with Ubiquiti Networks this quarter?

• Note last year's fiscal Q4 GAAP net income reflected a business email compromise fraud loss of $39.1 million.
• On an adjusted (non-GAAP) basis, which adds perspective by excluding one-time items and things like stock-based compensation, net income grew 32% year over year, to $58.2 million, and grew 38% on a per-share basis, to $0.69.
• For perspective, Ubiquiti Networks' guidance called in May for lower revenue between $170 million and $180 million, GAAP earnings per diluted share of $0.60 to $0.66, and adjusted earnings per diluted share of $0.61 to $0.67.
• Service provider technology revenue increased 4% year over year, to $109 million.
• Enterprise technology revenue increased 89.4% year over year, to $76.7 million, driven by continued strong global demand for Ubiquiti's UniFi family of products.
• By geography:
• North American revenue grew 60.5% year over year, to $71.1 million.
• South American revenue declined 7.5% year over year, to $23.9 million.
• EMEA revenue grew 22.4% year over year, to $69.7 million.
• Asia Pacific revenue increased 15.5% year over year, to $21 million.
• Adjusted gross margin increased 2.8 percentage points year over year, to 48.3%, driven again by favorable shifts in product mix, cost-reduction initiatives, and stable pricing.
• On June 30, 2016, Ubiquity extinguished the entire $50 million available under its stock repurchase program approved by the company's board of directors on May 4, 2016.
• Initiated a new $50 million stock repurchase program in early August.
• Ended the quarter with cash of $551 million, up 23.4% year over year. Of that, $524.3 million is held outside the U.S.
• Ended the quarter with $11.25 million in short-term debt, and $192.25 million in long-term debt.
• Through Ubiquiti Labs, the new Consumer Division of Ubiquiti Networks, introduced AmpliFi, which uses multiple self-configuring radios and advanced antenna technology to "bring ubiquitous Wi-Fi coverage to any home."
• Began shipping UniFi Video products in volume, including plug and play IP surveillance devices that scale easily across multiple locations.
• Shipped airFiber AF 4X, a licensed spectrum backhaul radio.
• Expanded the UniFi Switch line to make available 16, 24, or 48 RJ45 Gigabit ports.

What management had to say 

Recall last quarter Ubiquiti Networks CEO Robert Pera called the success of UnifFi "both frustrating an encouraging," as he believed the scalable platform's growth could have been much further along without some notable R&D hiccups early on. During this quarter's subsequent conference call, Pera elaborated on the current exciting state for the UniFi business:

So UniFi is going to be a monster. Right now I think it's early innings. [W]e 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, multi-user 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.

Looking forward 

In the meantime, for the current fiscal 2017 first quarter, Ubiquiti anticipates revenue between $180 million and $190 million, GAAP diluted earnings per share of $0.67 to $0.73, and adjusted earnings per share of $0.68 to $0.74. With the caveat that we don't pay much attention to Wall Street's short-term demands, note analysts' consensus estimates called for lower fiscal Q1 revenue of $171.31 million, and adjusted earnings of only $0.61 per share.

Once again, it's hard to find anything not to like about this impressive showing from Ubiquiti, especially as the company's thriving UniFi platform appears to remain in its earliest stages of growth. With the stock still trading at a modest 20 times trailing 12-month earnings even after its latest pop, I can't blame investors for continuing to bid up Ubiquiti Networks shares.