Ubiquiti Networks (UBNT 8.85%) announced mixed fiscal second-quarter 2018 results on Thursday morning, detailing continued strong demand for its UniFi AC and airMAX AC products, but also an underwhelming response to its new FrontRow consumer products during the key holiday season. With shares of the networking products leader down 14% Thursday in response, let's take a closer look at what drove its underlying business over the past few months.
IMAGE SOURCE: UBIQUITI NETWORKS.
Ubiquiti Networks results: The raw numbers
| Metric |
Fiscal Q2 2018 |
Fiscal Q2 2017 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$250.8 million |
$213.5 million |
17.5% |
|
GAAP net income (loss) |
($51.5 million) |
$60.6 million |
N/A |
|
GAAP earnings (loss) per share |
($0.66) |
$0.72 |
N/A |
Data source: Ubiquiti Networks.
What happened with Ubiquiti Networks this quarter?
- Ubiquiti's GAAP loss was driven by a $110.7 million non-cash tax expense related to recent U.S. tax reform.
- On a non-GAAP basis, which adjusts for that expense and other items like stock-based compensation, net income was $59.6 million, or $0.76 per share, up from $0.72 per share in the same year-ago period.
- These adjusted results were mixed relative to Ubiquiti's guidance provided last quarter, which called for lower revenue of $240 million to $250 million, but higher earnings per share of $0.85 to $0.92.
- Service provider technology-segment sales -- including sales of airMAX, airFiber, EdgeMAX, and UFiber products -- grew 3.7% year over year, to $119.9 million.
- Enterprise technology segment revenue -- including the UniFi and mFi lines, as well as the AmpliFi and FrontRow consumer-oriented products -- climbed 33.7%, to $131 million, driven primarily by the continued adoption of the UniFi AC technology platform.
- By geography:
- North American revenue climbed 0.4%, to $95 million.
- South American revenue grew 7.3%, to $20.7 million.
- EMEA revenue climbed 31.8%, to $102 million.
- Asia-Pacific revenue increased 49.1%, to $33.1 million.
- Announced a new $150 million stock-repurchase program.
What management had to say
In a prepared statement, Ubiquiti Networks noted that this marked the company's tenth-consecutive quarter of revenue growth. But trending toward the bottom line, the company also pointed out that gross margin was under pressure this quarter, arriving at 38.6%. But gross margin would have arrived at 46.1% -- representing a modest sequential improvement -- had it not been for $18.6 million in provisions related to obsolete inventory, vendor deposits, and losses on purchase commitments driven by lower-than-expected holiday sales of its recently launched FrontRow wearable-camera product.
Looking forward
Moving on to the current (fiscal-third) quarter, Ubiquiti sees revenue arriving at between $245 million and $260 million, with adjusted earnings per share in the range of $0.92 to $0.99. Though we don't usually pay close attention to Wall Street's demands, consensus estimates predicted earnings near the high end of that range on revenue of $255 million.
For the full fiscal year ending June 30, 2018, Ubiquiti Networks now expects that it will hit the lower ends of its previous guidance. Guidance was initially provided along with the company's fiscal Q4 2017 report in early August, calling for full fiscal-year revenue of $1.0 billion to $1.15 billion and earnings per share of $3.70 to 4.30.
It's encouraging that Ubiquiti was able to beat revenue expectations this quarter, even despite weak sales of its FrontRow cameras -- something that speaks to the continued popularity of Ubiquiti's innovative wireless networking solutions. It also confirms fears, however, that consumers wouldn't be compelled by the value proposition of the seemingly gimmicky FrontRow products.
In the end, after coupling the relative failure of FrontRow with Ubiquiti's tepid full-year outlook, it's no surprise to see shares pulling back hard on Thursday.
