Ubiquiti Inc. Reports Second Quarter Fiscal 2020 Financial Results

~ Revenues of $308.3 million ~

~ GAAP diluted Earnings Per Share of $1.32 ~

~ Non-GAAP diluted Earnings Per Share of $1.40 ~

Ubiquiti Inc. (NYSE: UI) (“Ubiquiti” or the “Company”) today announced results for the second quarter fiscal 2020, ended December 31, 2019.

Second Quarter Fiscal 2020 Financial Summary

• Revenues of $308.3 million, increasing 0.3% year-over-year
• GAAP diluted EPS of $1.32, increasing 21.1% year-over-year
• Non-GAAP diluted EPS of $1.40, increasing 5.3% year-over-year
• Repurchased 995,495 shares of common stock at an average price of $120.11 per share during the quarter.

Additional Financial Highlights

• The Company's Board of Directors declared a $0.30 per share cash dividend payable on February 25, 2020 to shareholders of record at the close of business on February 18, 2020.

Financial Highlights ($, in millions, except per share data)

Income statement highlights

 

F2Q20

 

F1Q20

 

F2Q19

Revenues

 

308.3

 

323.3

 

307.3

Service Provider Technology

 

97.7

 

115.9

 

113.2

Enterprise Technology

 

210.6

 

207.4

 

194.1

Gross profit

 

145.1

 

151.4

 

140.2

Gross Profit (%)

 

47.1%

 

46.8%

 

45.6%

Total Operating Expenses

 

33.0

 

30.7

 

48.6

Income from Operations

 

112.0

 

120.7

 

91.7

GAAP Net Income

 

85.8

 

98.1

 

77.8

GAAP EPS (diluted)

 

1.32

 

1.43

 

1.09

Non-GAAP Net Income

 

91.4

 

98.7

 

95.1

Non-GAAP EPS (diluted)

 

1.40

 

1.44

 

1.33

Ubiquiti Inc. Revenues by Product Type (In thousands) (Unaudited)

 

 

 

 

 

 

Three Months Ended December 31,

 

Six Months Ended December 31,

 

 

2019

 

2018

 

2019

2018

Service Provider Technology

 

$

97,716

 

 

$

113,222

 

 

$

213,642

 

 

$

218,179

 

Enterprise Technology

 

210,568

 

 

194,054

 

 

417,919

 

 

372,002

 

Total revenues

 

$

308,284

 

 

$

307,276

 

 

$

631,561

 

 

$

590,181

 

Ubiquiti Inc. Revenues by Geographical Area In thousands) (Unaudited)

 

 

 

 

 

 

Three Months Ended December 31,

 

Six Months Ended December 31,

 

 

2019

 

2018

 

2019

 

2018

North America

 

$

129,966

 

 

$

121,234

 

 

$

277,917

 

 

$

240,605

 

Europe, the Middle East and Africa

 

120,607

 

 

134,392

 

 

246,447

 

 

259,323

 

Asia Pacific

 

32,804

 

 

30,743

 

 

62,521

 

 

55,170

 

South America

 

24,907

 

 

20,907

 

 

44,676

 

 

35,083

 

Total revenues

 

$

308,284

 

 

$

307,276

 

 

$

631,561

 

 

$

590,181

 

Income Statement Items

Revenues

Revenues for the second quarter fiscal 2020 were $308.3 million, representing a decrease from the prior quarter of 4.6% and an increase from the comparable prior year period of 0.3%. Revenues for the first six months of fiscal 2020 were $631.6 million, representing an increase of 7.0% from the first six months of fiscal 2019. The fiscal second quarter sequential decrease in revenue was primarily due to distributor ordering patterns related to our Service Provider Technology products.

Gross Margins

During the second quarter fiscal 2020, GAAP gross profit was $145.1 million. GAAP gross margin of 47.1% increased 1.5% versus the comparable prior year period GAAP gross margin of 45.6% and increased 0.3% versus the prior quarter GAAP gross margin of 46.8%. The increase in gross profit percentage for the second quarter fiscal 2020 as compared to the comparable prior-year period and the prior quarter was primarily driven by favorable changes in product mix, partially offset by higher tariffs, increased inventory reserves and higher indirect costs.

Research and Development

During the second quarter fiscal 2020, research and development ("R&D") expenses were $24.0 million. This reflects an increase as compared to the R&D expenses of $20.0 million in the comparable prior year period and an increase as compared to R&D expenses of $20.3 million in the prior quarter. Increased costs in second quarter fiscal 2020 as compared to the comparable prior year period and prior quarter is primarily driven by higher employee-related expenses and other development activities.

Sales, General and Administrative

The Company’s sales, general and administrative (“SG&A”) expenses for the second quarter fiscal 2020 were $9.0 million. This reflects a decrease as compared to the SG&A expenses of $10.6 million in the comparable prior year period and a decrease as compared to the SG&A expenses of $10.5 million in the prior quarter. The decrease in SG&A costs as compared to the comparable prior year period was primarily due to lower professional fees offset, in part by higher marketing expense. The decrease in SG&A expenses as compared to the prior quarter was primarily due to a decrease in both professional fees and bad debt expense.

Other Expenses

The second quarter fiscal 2020 included a $5.0 million impairment charge related to an unrealized loss on a cost-based investment. The second quarter fiscal 2019 included an $18 million expense arising from the settlement of a lawsuit.

Net Income and Earnings Per Share

During the second quarter fiscal 2020, GAAP net income was $85.8 million and non-GAAP net income was $91.4 million. GAAP earnings per diluted share was $1.32 and non-GAAP earnings per diluted share was $1.40.

Comparing the second quarter fiscal 2020 with the second quarter fiscal 2019, the 21.1% increase in GAAP earnings per diluted share was primarily driven by the absence of the $18 million litigation settlement made in fiscal 2019 and decreased shares outstanding, partially offset by increased operating costs and interest expense, as well as an impairment charge to a cost-based investment. Comparing the second quarter fiscal 2020 with the second quarter fiscal 2019, the 5.3% increase in non-GAAP earnings per diluted share was primarily driven by an increase in gross margin and a decrease in shares outstanding, partially offset by increased operating costs and interest expense.

About Ubiquiti Inc.

Ubiquiti Inc. is focused on democratizing network technology on a global scale — aggregate shipments over 101 million devices play a key role in creating networking infrastructure in over 200 countries and territories around the world. Our professional networking products are powered by our UNMS and UniFi software platforms to provide high-capacity distributed Internet access and unified information technology management, respectively.

Ubiquiti and the U logo are trademarks or registered trademarks of Ubiquiti and/or its affiliates in the United States and other countries. For more information, please visit www.ui.com.

Safe Harbor for Forward Looking Statements

Certain statements in this press release are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements other than statements of historical fact including words such as “look”, “will”, “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “consider” and “plan” and statements in the future tense are forward looking statements. The statements in this press release that could be deemed forward-looking statements include statements regarding our intentions to pay quarterly cash dividends and any statements or assumptions underlying any of the foregoing.

Forward-looking statements are subject to certain risks and uncertainties that could cause our actual future results to differ materially or cause a material adverse impact on our results. Potential risks and uncertainties include, but are not limited to, the impact of U.S. tariffs on results; fluctuations in our operating results; varying demand for our products due to the financial and operating condition of our distributors and their customers, and our distributors' inventory management practices; political and economic conditions and volatility affecting the stability of business environments, economic growth, currency values, commodity prices and other factors that may influence the ultimate demand for our products in particular geographies or globally; impact of counterfeiting and our ability to contain such impact; our reliance on a limited number of distributors; inability of our contract manufacturers and suppliers to meet our demand; our dependence on chipset suppliers for chipsets without a short-term alternative; as we move into new markets competition from certain of our current or potential competitors who may be more established in such markets; our ability to keep pace with technological and market developments; success and timing of new product introductions by us and the performance of our products generally; our ability to effectively manage the significant increase in our transactional sales volumes; we may become subject to warranty claims, product liability and product recalls; that a substantial majority of our sales are into countries outside the United States and we are subject to numerous U.S. export control and economic sanctions laws; costs related to responding to government inquiries related to regulatory compliance; our reliance on certain key members of our management team, including our founder and chief executive officer, Robert J. Pera; adverse tax-related matters such as tax audits, changes in our effective tax rate or new tax legislative proposals; whether the final determination of our income tax liability may be materially different from our income tax provisions; the impact of any intellectual property litigation and claims for indemnification; litigation related to U.S. Securities laws; and economic and political conditions in the United States and abroad. We discuss these risks in greater detail under the heading “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended June 30, 2019, and subsequent filings filed with the U.S. Securities and Exchange Commission (the “SEC”), which are available at the SEC's website at www.sec.gov. Copies may also be obtained by contacting the Ubiquiti Inc. Investor Relations Department, by email at [e-mail] or by visiting the Investor Relations section of the Ubiquiti Inc. website, http://ir.ui.com.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's beliefs and assumptions only as of the date made. Except as required by law, Ubiquiti Inc. undertakes no obligation to update information contained herein. You should review our SEC filings carefully and with the understanding that our actual future results may be materially different from what we expect.

Ubiquiti Inc. Condensed Consolidated Statements of Operations and Comprehensive Income (In thousands, except per share data) (Unaudited)

 

 

 

 

 

 

Three Months Ended December 31,

 

Six Months Ended December 31,

 

 

2019

 

2018

 

2019

 

2018

Revenues

 

$

308,284

 

 

$

307,276

 

 

$

631,561

 

 

$

590,181

 

Cost of revenues

 

163,198

 

 

167,045

 

 

335,084

 

 

318,344

 

Gross profit

 

$

145,086

 

 

$

140,231

 

 

$

296,477

 

 

$

271,837

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

24,041

 

 

19,977

 

 

44,293

 

 

38,199

 

Sales, general and administrative

 

8,997

 

 

10,597

 

 

19,447

 

 

24,363

 

Litigation settlement

 

—

 

 

18,000

 

 

—

 

 

18,000

 

Total operating expenses

 

33,038

 

 

48,574

 

 

63,740

 

 

80,562

 

Income from operations

 

112,048

 

 

91,657

 

 

232,737

 

 

191,275

 

Interest expense and other, net

 

(12,085)

 

 

(3,212)

 

 

(16,738)

 

 

(5,739)

 

Income before income taxes

 

99,963

 

 

88,445

 

 

215,999

 

 

185,536

 

Provisions for income taxes

 

14,152

 

 

10,649

 

 

32,042

 

 

22,037

 

Net income

 

$

85,811

 

 

$

77,796

 

 

$

183,957

 

 

$

163,499

 

Net income per share of common stock:

 

 

 

 

 

 

 

 

Basic

 

$

1.32

 

 

$

1.09

 

 

$

2.76

 

 

$

2.26

 

Diluted

 

$

1.32

 

 

$

1.09

 

 

$

2.75

 

 

$

2.25

 

Weighted average shares used in computing net income per share of common stock:

 

 

 

 

 

 

 

 

Basic

 

64,973

 

 

71,225

 

 

66,682

 

 

72,499

 

Diluted

 

65,071

 

 

71,406

 

 

66,781

 

 

72,686

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized (losses) on available-for-sale securities

 

(172)

 

 

(2)

 

 

$

(325)

 

 

$

(148)

 

Comprehensive income

 

$

85,639

 

 

$

77,794

 

 

$

183,632

 

 

$

163,351

 

Ubiquiti Inc. Reconciliation of GAAP Net Income to Non-GAAP Net Income (In thousands, except per share data) (Unaudited)

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended December 31,

 

 

December 31, 2019

 

September 30, 2019

 

December 31, 2018

 

2019

 

2018

Net Income

 

$

85,811

 

 

$

98,146

 

 

$

77,796

 

 

$

183,957

 

 

$

163,499

 

Stock-based compensation:

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

33

 

 

32

 

 

261

 

 

65

 

 

294

 

Research and development

 

527

 

 

481

 

 

497

 

 

1,008

 

 

964

 

Sales, general and administrative

 

170

 

 

176

 

 

21

 

 

346

 

 

296

 

Tax Regulation changes

 

—

 

 

—

 

 

2,765

 

 

—

 

 

2,765

 

Litigation settlement

 

—

 

 

—

 

 

18,000

 

 

—

 

 

18,000

 

Impairment of cost-based investment

 

5,000

 

 

—

 

 

—

 

 

5,000

 

 

—

 

Tax effect of Non-GAAP adjustments

 

(172)

 

 

(162)

 

 

(4,200)

 

 

(334)

 

 

(4,440)

 

Non-GAAP net income

 

$

91,369

 

 

$

98,673

 

 

$

95,140

 

 

$

190,042

 

 

$

181,378

 

Non-GAAP diluted EPS

 

$

1.40

 

 

$

1.44

 

 

$

1.33

 

 

$

2.85

 

 

$

2.50

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used in Non-GAAP diluted EPS

 

65,071

 

 

68,484

 

 

71,406

 

 

66,781

 

 

72,686

 

Use of Non-GAAP Financial Information

To supplement our condensed consolidated financial results prepared under generally accepted accounting principles, or GAAP, we use non-GAAP measures of net income and earnings per diluted share that are adjusted to exclude certain costs, expenses and gains such as stock-based compensation expense, Tax Regulation changes, Litigation settlement, impairment of cost-based investment and the tax effects of these non-GAAP adjustments.

Reconciliations of the adjustments to GAAP results for the periods presented are provided above. In addition, an explanation of the ways in which management uses non-GAAP financial information to evaluate its business, the substance behind management's decision to use this non-GAAP financial information, material limitations associated with the use of non-GAAP financial information, the manner in which management compensates for those limitations, and the substantive reasons management believes that this non-GAAP financial information provides useful information to investors is included under the paragraphs below.

Usefulness of Non-GAAP Financial Information to Investors

We believe that the presentation of non-GAAP net income and non-GAAP earnings per diluted share provides important supplemental information regarding non-cash expenses, significant items that we believe are important to understanding our financial, and business trends relating to our financial condition and results of operations. Non-GAAP net income and non-GAAP earnings per diluted share are among the primary indicators used by management as a basis for planning and forecasting future periods and by management and our board of directors to determine whether our operating performance has met specified targets and thresholds. Management uses non-GAAP net income and non-GAAP earnings per diluted share when evaluating operating performance because it believes that the exclusion of the items described below, for which the amounts or timing may vary significantly depending upon the Company's activities and other factors, facilitates comparability of the Company's operating performance from period to period. We have chosen to provide this information to investors so they can analyze our operating results in the same way that management does and use this information in their assessment of our business and the valuation of our Company.

About our Non-GAAP Net Income and Non-GAAP Earnings per Diluted Share

We compute non-GAAP net income and non-GAAP earnings per diluted share by adjusting GAAP net income and GAAP earnings per diluted share to remove the impact of certain adjustments and the tax effect of those adjustments. Items excluded from net income are:

• Stock-based compensation expense

• Tax Regulation changes

• Litigation Settlement

• Impairment of cost-based investment

• Tax effect of non-GAAP adjustments, applying the principles of ASC 740

These non-GAAP measures are not in accordance with, or an alternative to, GAAP and may be materially different from other non-GAAP measures, including similarly titled non-GAAP measures used by other companies. The presentation of this additional information should not be considered in isolation from, as a substitute for, or superior to, net income or earnings per diluted share prepared in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results.

For more information on the non-GAAP adjustments, please see the table captioned “Reconciliation of GAAP Net Income to non-GAAP Net Income” included in this press release.

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Investor Relations Laura Kiernan High Touch Investor Relations [e-mail] Ph. 1-914-598-7733