01—Abstract
Summary
Summary of the 10-K filed August 21, 2015. Cited figures are marked; the original filing is the authoritative source.
Ubiquiti Networks, Inc. reported fiscal 2015 (year ended June 30, 2015) revenues of $595.9 milliona, up from $572.5 million in fiscal 2014, and net income of $129.7 million, down from $176.9 million.
Revenue growth was driven by Enterprise Technology, which rose to $177.9 millionb from $121.8 million, while Service Provider Technology declined to $418.0 million from $450.7 million, reflecting lower demand from service provider customers outside North America. Income from operations fell to $146.9 million from $195.9 million, largely due to a $39.1 million charge for a business e-mail compromise fraud loss, in which $46.7 million was transferred from a Hong Kong subsidiary to overseas third-party accounts, with $8.1 million recovered to date. The company reported that management concluded internal control over financial reporting was not effective as of June 30, 2015.
Management identified material weaknesses related to the control environment, safeguarding of funds, and user access to the general ledger, and PricewaterhouseCoopers LLP issued an adverse opinion on internal control. The company had cash and cash equivalents of $446.4 millionc at year end, of which $397.0 million was held by foreign subsidiaries, and debt of $97.5 million under its Amended Credit Agreement with Wells Fargo.
The company sells primarily through distributors without a direct sales force, relies on contract manufacturers located primarily in China, and depends on a single-source chipset supplier, Qualcomm Atheros, for a majority of product revenues. In August 2015 the Board approved a new $100 milliond share repurchase program, and it declared a first annual dividend of $0.17 per share in fiscal 2015 with no current plans to pay further cash dividends.
02—Key points
Key Highlights
- Revenues of $595.9 million in fiscal 2015, up from $572.5 million in fiscal 2014 and $320.8 million in fiscal 2013.
- Net income of $129.7 million in fiscal 2015, compared with $176.9 million in fiscal 2014; diluted EPS of $1.45 versus $1.97.
- Business e-mail compromise fraud loss of $39.1 million recorded in the fourth quarter of fiscal 2015; $8.1 million recovered to date out of $46.7 million transferred.
- Enterprise Technology revenues increased to $177.9 million (30% of revenues) from $121.8 million, while Service Provider Technology declined to $418.0 million from $450.7 million.
- Management concluded internal control over financial reporting was not effective as of June 30, 2015, citing three material weaknesses; PricewaterhouseCoopers LLP's opinion reflects the same conclusion.
- Cash and cash equivalents of $446.4 million at June 30, 2015, with $397.0 million held by foreign subsidiaries; total debt of $97.5 million under the Amended Credit Agreement.
- Customer concentration: Flytec Computers Inc. represented 13% of revenues in fiscal 2014 and 2013, and no customer exceeded 10% of revenues in fiscal 2015; the majority of product revenues depend on components from Qualcomm Atheros.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Ubiquiti kept $0.22.
- Revenue$595.9M100.0%
- Cost of revenue−$333.8M56.0%
- Gross profit$262.2M44.0%
- Operating costs−$115.3M19.3%
- Operating income$146.9M24.6%
- Interest, other & tax−$17.2M2.9%
- Net income$129.7M21.8%
Where FY2015 revenue went
$595.9M- Cost of revenue: $333.8M, 56% of revenue
- Net income: $129.7M, 22% of revenue
- R&D: $54.6M, 9.2% of revenue
- SG&A: $21.6M, 3.6% of revenue
- Other operating costs: $39.1M, 6.6% of revenue
- Interest, other & tax: $17.2M, 2.9% of revenue
Kept 22% as net incomeInterest, other & tax $17.2M · 2.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed August 21, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $595.95M$572.46M | +4.1% |
| Cost of Revenue | $333.76M$319.00M | +4.6% |
| Gross Profit | $262.19M$253.47M | +3.4% |
| R&D Expenses | $54.56M$33.96M | +60.7% |
| SG&A Expenses | $21.61M$23.56M | −8.3% |
| Operating Expenses | $115.31M$57.52M | +100.5% |
| Operating Income | $146.88M$195.94M | −25.0% |
| Net Income | $129.66M$176.94M | −26.7% |
| EPS (Basic) | $1.47$2.02 | −27.2% |
| EPS (Diluted) | $1.45$1.97 | −26.4% |
| Shares Outstanding (Basic) | 88.01M87.77M | +0.3% |
| Shares Outstanding (Diluted) | 89.57M89.72M | −0.2% |
05—Questions
Frequently Asked Questions
Why did net income decline in fiscal 2015 despite higher revenues?
Net income fell to $129.7 million from $176.9 million mainly because of a $39.1 million business e-mail compromise fraud loss recorded in the fourth quarter. Research and development expenses also rose to $54.6 million from $34.0 million, and the effective tax rate increased to 11.0% from 9.1%.
What caused the material weaknesses in internal control?
Management attributed the weaknesses to a lack of sufficient, competent personnel for financial reporting, which led to outdated accounting policies and inadequate control over disbursement authorizations and user access to the general ledger. Management stated these weaknesses allowed the business e-mail compromise fraud to occur, and it is taking remediation steps including engaging FTI Consulting for interim accounting leadership and adding finance personnel.
How much of the fraud loss does the company expect to recover?
The company has recovered $8.1 million to date. An additional $6.8 million is subject to a legal injunction and is reasonably expected to be recovered, and the company is pursuing the remaining $31.8 million while cooperating with law enforcement authorities. The filing notes the company may not obtain insurance coverage for the loss.
What are the main risks from the company's dependence on suppliers and distributors?
The company sells almost entirely through distributors, which do not provide long-term purchase commitments, and it has limited visibility into end-customer demand. Its products rely on a single-source supplier, Qualcomm Atheros, for certain components, and its contract manufacturers are located primarily in China and southern China, which exposes operations to supply disruption and natural disaster risk.
What did the company do with its capital in fiscal 2015?
The company repurchased 1,195,497 shares for $34.7 million under a $75.0 million program that was terminated on June 8, 2015, and paid $15.0 million in its first annual dividend of $0.17 per share. In August 2015 the Board approved a new $100 million repurchase program expiring June 30, 2016. The company also entered an amended credit agreement in March 2015 providing a $200.0 million revolving facility and a $100.0 million term loan.
06—Continue