01—Abstract
Summary
Summary of the 10-K filed September 28, 2012. Cited figures are marked; the original filing is the authoritative source.
Ubiquiti Networks, Inc. reported fiscal 2012 (year ended June 30, 2012) revenues of $353.5 milliona, up from $197.9 million in fiscal 2011, and net income of $102.6 million, compared with $49.7 million in fiscal 2011 and a net loss of $5.5 million in fiscal 2010.
Revenue growth was driven mainly by the airMAX platform, which accounted for $223.7 millionb of revenue, and systems products overall made up 86% of revenue. Gross margin rose to 43% from 41%. Sales to distributors were 98% of revenue, and Flytec Computers Inc. (16%) and Streakwave Wireless Inc. (10%) were the largest customers.
The company relies on contract manufacturers in China and on a non-exclusive license with Qualcomm Atheros, whose chipsets are used in substantially all products; that agreement runs through September 1, 2013. The filing also highlights material risks. The company disclosed export-control issues involving Iranian sales by two distributors, and a voluntary self-disclosure to OFAC remains pending, with penalties of up to $250,000c or twice the transaction value per violation.
A $1.6 milliond expense was recorded in fiscal 2010 for this matter. Two shareholder class action complaints were filed on September 7, 2012 concerning the IPO period, and the company cannot currently estimate possible losses. Cash and cash equivalents were $122.1 million at June 30, 2012, and the company subsequently entered into a $50.0 million revolving credit facility and a $50.0 million term loan facility, with $20.8 million of term loans drawn in August 2012.
The board authorized a $100 million share repurchase program, and by September 21, 2012 the company had repurchased 3,101,214 shares for $30.4 million. For investors, the filing shows strong top-line and earnings growth alongside concentration in a few distributors and one chipset supplier, unresolved export and shareholder litigation exposure, and rising leverage from the post-IPO debt and buyback plans.
02—Key points
Key Highlights
- Revenue rose to $353.5 million in fiscal 2012 from $197.9 million in fiscal 2011; airMAX platform revenue was $223.7 million, or 63% of total revenue.
- Net income was $102.6 million in fiscal 2012, compared with $49.7 million in fiscal 2011 and a net loss of $5.5 million in fiscal 2010.
- Gross margin increased to 43% in fiscal 2012 from 41% in fiscal 2011.
- Sales to distributors accounted for 98% of revenue; Flytec Computers Inc. (16%) and Streakwave Wireless Inc. (10%) were the only customers above 10%.
- Substantially all products use Qualcomm Atheros chipsets with no second source; the license agreement term ends September 1, 2013 and can be terminated on 90 days' notice.
- An OFAC voluntary self-disclosure over Iran-related sales by distributors is still pending, with possible penalties of up to $250,000 or twice the transaction value per violation; $1.6 million was accrued in fiscal 2010.
- The company repurchased 3,101,214 shares for $30.4 million under a $100 million buyback authorized in August 2012, and it expanded its debt facilities to $100 million of combined credit lines.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Ubiquiti kept $0.29.
- Revenue$353.5M100.0%
- Cost of revenue−$202.5M57.3%
- Gross profit$151.0M42.7%
- Operating costs−$25.7M7.3%
- Operating income$125.3M35.4%
- Interest, other & tax−$22.7M6.4%
- Net income$102.6M29.0%
Where FY2012 revenue went
$353.5M- Cost of revenue: $202.5M, 57% of revenue
- Net income: $102.6M, 29% of revenue
- R&D: $16.7M, 4.7% of revenue
- SG&A: $9.0M, 2.5% of revenue
- Interest, other & tax: $22.7M, 6.4% of revenue
Kept 29% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed September 28, 2012Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $353.52M$197.87M | +78.7% |
| Cost of Revenue | $202.51M$117.06M | +73.0% |
| Gross Profit | $151.00M$80.81M | +86.9% |
| R&D Expenses | $16.70M$11.37M | +46.8% |
| SG&A Expenses | $9.01M$7.36M | +22.5% |
| Operating Expenses | $25.71M$18.73M | +37.3% |
| Operating Income | $125.29M$62.08M | +101.8% |
| Net Income | $102.59M$49.73M | +106.3% |
| EPS (Basic) | $-0.12$0.08 | −250.0% |
| EPS (Diluted) | $-0.12$0.07 | −271.4% |
| Shares Outstanding (Basic) | 83.46M63.09M | +32.3% |
| Shares Outstanding (Diluted) | 83.46M66.91M | +24.7% |
05—Questions
Frequently Asked Questions
How much did Ubiquiti grow in fiscal 2012?
Revenue increased $155.6 million, or 79%, to $353.5 million in fiscal 2012 from $197.9 million in fiscal 2011. The filing attributes the growth mainly to higher unit volumes of systems products, especially the airMAX platform.
What are the main risks from the export compliance matter?
The company sold products into Iran through two distributors, and the U.S. Office of Export Enforcement closed its investigation with a warning letter and no penalty. OFAC's review is still pending and may result in fines, loss of export privileges or criminal referral. The company cannot predict the timing or amount of any penalty, and its failure to amend distributor agreements promptly may be treated as an aggravating factor.
How dependent is the company on suppliers and distributors?
Substantially all products include Qualcomm Atheros chipsets, with no second source and no stockpile sufficient to cover a redesign. Contract manufacturers, mainly in China, operate without long-term contracts. Distributors accounted for 98% of revenue in fiscal 2012.
What capital actions did the company take after fiscal year-end?
In August 2012 it entered into a Loan Agreement providing a $50.0 million revolving credit facility and a $50.0 million term loan facility, and it borrowed an additional $20.8 million of term loans. It also authorized a $100 million share repurchase program, under which it had bought back 3,101,214 shares for $30.4 million through September 21, 2012.
What litigation is the company facing?
Two purported shareholder class action complaints were filed on September 7, 2012 against the company, certain officers and directors, and the IPO underwriters. They cover purchasers from October 14, 2011 through August 9, 2012 and seek compensatory damages, rescission and fees. The company believes the claims lack merit but cannot estimate a range of possible losses.
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