01—Abstract
Summary
Summary of the 10-K filed August 22, 2014. Cited figures are marked; the original filing is the authoritative source.
Ubiquiti Networks, Inc. reported fiscal 2014 (year ended June 30, 2014) revenues of $572.5 milliona, up from $320.8 million in fiscal 2013, and net income of $176.9 million, compared with $80.5 million in fiscal 2013.
Revenue growth was driven mainly by Service Provider Technology ($450.7 millionb, up from $285.4 million) and Enterprise Technology ($121.8 million, up from $35.4 million), which the company attributes to increased adoption of its airMAX, EdgeMAX, airFiber and UniFi platforms. Gross margin rose to 44% from 42%, and income from operations reached $195.9 million. Cash and cash equivalents were $347.1 million at June 30, 2014.
The company sells through distributors, without a direct sales force, and Flytec Computers Inc. accounted for 13% of revenues. The company's balance sheet and liquidity changed during the year. In May 2014 it entered a $150 millionc senior secured revolving credit facility with Wells Fargo and borrowed $72.3 million to repay its East West Bank loan.
The board authorized a $75 milliond share repurchase program in May 2014, under which no shares had been repurchased as of June 30, 2014. Management stated that $307.6 million of the $347.1 million in cash was held by foreign subsidiaries. The company also reported a 12-month supply concern: it depends on Qualcomm Atheros as a single-source chipset supplier, and its license agreement with that supplier expires September 1, 2014 and renews automatically unless terminated.
Risk disclosures highlight concentrated control, with founder and CEO Robert J. Pera controlling a majority of the voting power.
The company also relies heavily on the Ubiquiti Community for product feedback and demand generation, and it relies on contract manufacturers located primarily in China. A shareholder class action was dismissed in April 2014, and plaintiffs filed an appeal in May 2014.
02—Key points
Key Highlights
- Revenue rose to $572.5 million in fiscal 2014 from $320.8 million in fiscal 2013, and net income rose to $176.9 million from $80.5 million.
- Service Provider Technology revenue was $450.7 million (79% of revenue) and Enterprise Technology revenue was $121.8 million (21% of revenue) in fiscal 2014.
- Gross profit was $253.5 million, or 44% of revenue, compared with 42% in fiscal 2013; income from operations was $195.9 million.
- Cash and cash equivalents were $347.1 million at June 30, 2014, of which $307.6 million was held by foreign subsidiaries.
- In May 2014 the company entered a $150 million Wells Fargo revolving credit facility, initially borrowing $72.3 million, and the board authorized a $75 million share repurchase program with no repurchases made as of June 30, 2014.
- Flytec Computers Inc. represented 13% of revenue in fiscal 2014, and sales to distributors accounted for 99% of revenue.
- Robert J. Pera, founder and CEO, controls a majority of the voting power, and the company depends on a single-source chipset supplier, Qualcomm Atheros, under a license expiring September 1, 2014 that renews automatically.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Ubiquiti kept $0.31.
- Revenue$572.5M100.0%
- Cost of revenue−$319.0M55.7%
- Gross profit$253.5M44.3%
- Operating costs−$57.5M10.0%
- Operating income$195.9M34.2%
- Interest, other & tax−$19.0M3.3%
- Net income$176.9M30.9%
Where FY2014 revenue went
$572.5M- Cost of revenue: $319.0M, 56% of revenue
- Net income: $176.9M, 31% of revenue
- R&D: $34.0M, 5.9% of revenue
- SG&A: $23.6M, 4.1% of revenue
- Interest, other & tax: $19.0M, 3.3% of revenue
Kept 31% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed August 22, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $572.46M$320.82M | +78.4% |
| Cost of Revenue | $319.00M$185.49M | +72.0% |
| Gross Profit | $253.47M$135.33M | +87.3% |
| R&D Expenses | $33.96M$20.95M | +62.1% |
| SG&A Expenses | $23.56M$21.77M | +8.2% |
| Operating Expenses | $57.52M$42.73M | +34.6% |
| Operating Income | $195.94M$92.60M | +111.6% |
| Net Income | $176.94M$80.49M | +119.8% |
| EPS (Basic) | $2.02$0.91 | +122.0% |
| EPS (Diluted) | $1.97$0.89 | +121.3% |
| Shares Outstanding (Basic) | 87.77M88.31M | −0.6% |
| Shares Outstanding (Diluted) | 89.72M90.26M | −0.6% |
05—Questions
Frequently Asked Questions
How did Ubiquiti's revenue and profitability change in fiscal 2014?
Revenue increased to $572.5 million from $320.8 million, and net income increased to $176.9 million from $80.5 million. Gross profit as a percentage of revenue rose to 44% from 42%, and income from operations was $195.9 million compared with $92.6 million in fiscal 2013.
Which product areas drove growth?
Service Provider Technology revenue rose to $450.7 million from $285.4 million, which the company attributed to continued expansion of core infrastructure build-outs in wireless markets. Enterprise Technology revenue rose to $121.8 million from $35.4 million, attributed to product expansion and further adoption of the UniFi platform.
What changed in the company's capital structure and capital return plans?
In May 2014 the company entered a $150 million senior secured revolving credit facility with Wells Fargo and borrowed $72.3 million, which it used to repay its East West Bank loan. The board authorized a $75 million share repurchase program in May 2014, under which no shares had been repurchased as of June 30, 2014. The company did not pay a dividend in fiscal 2014.
What are the main concentration risks investors should note?
Sales depend heavily on distributors, and Flytec Computers Inc. represented 13% of revenue. Most components are sourced from a single or limited number of suppliers, and the majority of product revenue depends on components from Qualcomm Atheros, whose license agreement expires September 1, 2014 and renews automatically unless terminated. Manufacturing is concentrated among contract manufacturers located primarily in China.
Who controls the company and what governance considerations apply?
Robert J. Pera, the founder, Chairman and CEO, is able to exercise voting rights over a majority of the voting power of the outstanding stock. The filing states that this concentrated control could delay or prevent a change of control and that his interests may not always align with those of other stockholders.
06—Continue