Ubiquiti Networks Sustains Its Positive Momentum

Ubiquiti Networks continued to enjoy strong demand for its scalable UniFi platform in the third quarter. Image source: Ubiquiti Networks.

Ubiquiti Networks (UI 1.28%) released fiscal first-quarter 2017 results Thursday after the market close. And for the third consecutive quarter, shares of the network communications platform company are up more than 10% in after-hours trading as of this writing. Let's take a look at how Ubiquiti kicked off its latest fiscal year.

Ubiquiti Networks results: The raw numbers

YOY = year over year. Data source: Ubiquiti Networks. 

What happened with Ubiquiti Networks this quarter?

• On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation, net income increased 44% year over year, to $65.5 million, and rose 54.9% on a per-share basis, to $0.79.
• By comparison, Ubiquiti Networks' guidance provided in August called for lower 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. 
• Service provider technology revenue grew 16.7% year over year, to $120.6 million, driven by strong demand for Ubiquiti's airMAX and EdgeMAX products.
• Enterprise technology revenue rose 75.2% year over year, to $84.1 million, driven by continued strong demand for Ubiquiti's UniFi family of products, as well as other products targeting the Enterprise market.
• By geography:
• North American revenue increased 39.3% year over year, to $74.2 million.
• South American revenue grew 9.2% year over year, to $24.2 million.
• EMEA revenue rose 34.5% year over year, to $81.4 million.
• Asia-Pacific revenue grew 61.2% year over year, to just over $25 million.
• Adjusted gross margin improved 10 basis points year over year, to 48.1%, remaining steady due to product mix, cost-reduction initiatives, and stable product pricing.
• Ended the quarter with cash of $573.6 million, up 32% from the end of last year's fiscal Q1. Of that, $530.2 million is held outside the United States.
• Ended the quarter with just over $12.2 million in short-term debt and just under $187.9 million in long-term debt.
• Announced a new retail partnership with Amazon.com, which will focus on Ubiquiti's AmpliFi HD router and AmpliFi Mesh Points.
• Expanded the UniFi Switch product line -- which enjoyed strong demand during the quarter -- to include new 24- and 48-port models.
• Saw similarly strong demand for UniFi Video products.
• Launched UniFi Mesh, a multi-hop, self-healing mesh product line that expands UniFi's software-defined-networking platform into wide-area Wi-Fi deployments.

What management had to say

During the subsequent call, Ubiquiti Networks CEO Robert Pera reiterated that the UniFi line represents the company's largest growth driver over the next year or two. And Ubiquiti has been successful to that end so far thanks to a combination of improving UniFi's user experience and effective execution of UniFi AC wireless access points with disruptive pricing to drive volume and brand visibility.

Pera also elaborated on Ubiquiti's more novel goals for AmpliFi under its new partnership with Amazon, saying:

So the AmpliFi was a totally new venture for us. We have a unique business model, where we focus on R&D and we target maybe markets people don't see, and we grow these markets from the ground up. AmpliFi was a big change for us, because we're entering a consumer market, where there is established players. But if you look at Ubiquiti's history, the markets we have entered, we usually dominate.

What's more, Pera stated AmpliFi was developed with a "very lean team" and that execution on the PR and marketing side has proven effective so far. And the only piece of this consumer-centric puzzle with which Pera admitted he was "frustrated" was that of production, where Ubiquiti had demand for "tens of thousands of units out of the gate, and we've just been slow to get these out." 

Looking forward

That's fair enough, especially considering Pera expressed similar frustration two quarters ago over the initially slow research and development process that went into the now-booming UniFi business. If Ubiquiti can replicate that success with AmpliFi, and keeping in mind UniFi is still in its early stages, investors have much more growth to look forward to.

In the meantime, for the current fiscal second-quarter 2017, Ubiquiti expects revenue between $200 million and $210 million, GAAP diluted earnings per share of $0.72 to $0.78, and adjusted earnings per diluted share of $0.73 to $0.79. While we don't typically pay close attention to Wall Street's near-term expectations, analysts' consensus estimates predicted Ubiquiti would call for lower fiscal second-quarter revenue of $187.7 million and adjusted earnings of $0.69 per share.

In the end, there's little not to like about Ubiquiti's latest quarterly beat. And it's no surprise to see the market bidding up Ubiquiti Networks stock as a result.