01—Abstract
Summary
Summary of the 10-K filed September 13, 2013. Cited figures are marked; the original filing is the authoritative source.
Ubiquiti Networks, Inc. reported fiscal 2013 (year ended June 30, 2013) revenues of $320.8 milliona, down from $353.5 million in fiscal 2012, and net income of $80.5 million, compared with $102.6 million in fiscal 2012.
The filing attributes the revenue decline primarily to lost sales from the proliferation of counterfeit versions of its products, which also contributed to a buildup of channel inventory at distributors. Systems revenue, led by the airMAX platform, fell to $274.7 millionb from $305.3 million, while new platforms such as UniFi, airVision, airFiber, mFi and EdgeMAX grew to $53.9 million from $29.5 million. Sales to distributors accounted for 98% of revenues, and sales outside the United States were 75%.
The company's balance sheet shows cash and cash equivalents of $227.8 millionc at June 30, 2013, of which $210.4 million was held by foreign subsidiaries, and total debt of $76.3 million under a Loan Agreement with East West Bank and U.S. Bank. During fiscal 2013 the company repurchased 5,159,050 shares for $54.4 million and paid a special dividend of $0.18 per share totaling $15.7 million. Gross margin was 42% versus 43% a year earlier, and operating expenses rose to $42.7 million from $25.7 million, driven largely by $4.3 million in higher legal expenses tied to anti-counterfeiting litigation.
The filing also discloses significant risk items: an ongoing U.S. Office of Foreign Assets Control review of past sales of products into Iran, with penalties that could be material, for which the company recorded a $1.6 milliond expense in fiscal 2010; and shareholder class action lawsuits filed in September 2012 that the company is contesting, with the court holding a hearing on the motion to dismiss on August 27, 2013. The company relies on Qualcomm Atheros for chipsets in substantially all of its products, with no second source, and on contract manufacturers located primarily in China.
02—Key points
Key Highlights
- Revenue of $320.8 million in fiscal 2013 versus $353.5 million in fiscal 2012; net income of $80.5 million versus $102.6 million.
- The filing attributes the revenue decline mainly to lost sales from counterfeit products and a channel inventory buildup at distributors, with airMAX revenue down $21.1 million.
- New platforms (UniFi, airVision, airFiber, mFi, EdgeMAX) grew to $53.9 million from $29.5 million.
- Cash and cash equivalents of $227.8 million at June 30, 2013, with $210.4 million held outside the United States; debt of $76.3 million.
- Repurchased 5,159,050 shares for $54.4 million and paid a special dividend of $15.7 million ($0.18 per share) in fiscal 2013.
- Operating expenses rose to $42.7 million from $25.7 million, largely due to higher legal costs for anti-counterfeiting litigation and professional fees.
- Open risks include an OFAC review of past Iran-related sales that could result in material penalties, and shareholder class action lawsuits the company is contesting.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Ubiquiti kept $0.25.
- Revenue$320.8M100.0%
- Cost of revenue−$185.5M57.8%
- Gross profit$135.3M42.2%
- Operating costs−$42.7M13.3%
- Operating income$92.6M28.9%
- Interest, other & tax−$12.1M3.8%
- Net income$80.5M25.1%
Where FY2013 revenue went
$320.8M- Cost of revenue: $185.5M, 58% of revenue
- Net income: $80.5M, 25% of revenue
- R&D: $21.0M, 6.5% of revenue
- SG&A: $21.8M, 6.8% of revenue
- Interest, other & tax: $12.1M, 3.8% of revenue
Kept 25% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed September 13, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $320.82M$353.52M | −9.2% |
| Cost of Revenue | $185.49M$202.51M | −8.4% |
| Gross Profit | $135.33M$151.00M | −10.4% |
| R&D Expenses | $20.95M$16.70M | +25.5% |
| SG&A Expenses | $21.77M$9.01M | +141.6% |
| Operating Expenses | $42.73M$25.71M | +66.2% |
| Operating Income | $92.60M$125.29M | −26.1% |
| Net Income | $80.49M$102.59M | −21.5% |
| EPS (Basic) | $0.91$-0.12 | +858.3% |
| EPS (Diluted) | $0.89$-0.12 | +841.7% |
| Shares Outstanding (Basic) | 88.31M83.46M | +5.8% |
| Shares Outstanding (Diluted) | 90.26M83.46M | +8.1% |
05—Questions
Frequently Asked Questions
Why did revenue decline in fiscal 2013?
The filing states that the decrease of $32.7 million, or 9%, was primarily driven by lost sales due to the proliferation of counterfeit versions of Ubiquiti products, which also created customer uncertainty about authenticity. The company believes this contributed to a buildup of channel inventory at distributors that further affected revenue in the first nine months of fiscal 2013. The airMAX platform was most affected, declining $21.1 million.
How concentrated is the customer base?
Sales to distributors accounted for 98% of revenues in fiscal 2013, and Flytec Computers Inc. represented 13% of revenues, down from 16% in fiscal 2012. Sales outside the United States were 75% of revenues. The company states that it has no direct sales force and does not know the location or extent of purchases by individual network operators.
What is the status of the export control matter?
The company disclosed that the U.S. Office of Export Enforcement closed its investigation in August 2011 with a warning letter and no penalty. The Office of Foreign Assets Control was still reviewing the company's voluntary self-disclosure regarding sales that may have reached Iran, and the filing states that penalties could include fines, termination of export privileges, or criminal referral, with a maximum civil penalty of up to $250,000 or twice the transaction value per violation. The company recorded a $1.6 million expense for this matter in fiscal 2010 as its estimated exposure.
How is the company's cash position and capital structure?
Cash and cash equivalents were $227.8 million at June 30, 2013, up from $122.1 million a year earlier, with $210.4 million held in foreign subsidiary accounts. Total debt was $76.3 million under the Loan Agreement with East West Bank and U.S. Bank, which includes a $50.0 million term loan and a $50.0 million revolving credit facility. The company stated it was in compliance with its financial covenants as of June 30, 2013.
What are the main dependencies in the supply chain?
Substantially all of the company's products include chipsets from Qualcomm Atheros, for which the company has no second source. The license agreement's annual term ends September 1, 2014, and either party may terminate it with 90 days' notice. The company also relies on contract manufacturers located primarily in China, with no long-term supply contracts, and on a third-party logistics provider in China for most worldwide shipments.
06—Continue