01—Abstract
Summary
Summary of the 10-K filed August 22, 2016. Cited figures are marked; the original filing is the authoritative source.
Ubiquiti Networks, Inc. reported fiscal 2016 (year ended June 30, 2016) revenues of $666.4 milliona, up from $595.9 million in fiscal 2015, and net income of $213.6 million, compared with $129.7 million in fiscal 2015.
Enterprise Technology revenue rose to $248.0 millionb (37% of revenue) from $177.9 million, while Service Provider Technology was flat at $418.3 million. Gross margin improved to 49% from 44%, and cash and cash equivalents reached $551.0 million, with total debt of $203.5 million outstanding under its Wells Fargo credit facilities. The company disclosed material weaknesses in internal control over financial reporting as of June 30, 2016, concluding it did not maintain effective internal control.
These weaknesses are tied to a business e-mail compromise fraud in which $46.7 millionc was transferred from a Hong Kong subsidiary; the company has recovered $8.1 million in fiscal 2015 and a net $8.3 million in fiscal 2016, and is pursuing the remaining $30.0 million. Management expects remediation to be substantially completed in fiscal 2017. During fiscal 2016 the company repurchased $193.5 million of common stock and approved a new $50 million repurchase program effective August 3, 2016, while stating it has no plans to pay cash dividends.
Robert J. Pera, the founder and CEO, controls a majority of the voting stock, which the filing identifies as a key governance risk.
02—Key points
Key Highlights
- Revenue of $666.4 million in fiscal 2016, up from $595.9 million in fiscal 2015, with Enterprise Technology growing to $248.0 million from $177.9 million.
- Net income of $213.6 million (diluted EPS $2.49) versus $129.7 million (diluted EPS $1.45) in fiscal 2015.
- Gross profit margin of 49% in fiscal 2016 compared with 44% in fiscal 2015.
- Material weaknesses in internal control over financial reporting as of June 30, 2016; management expects remediation to be substantially completed in fiscal 2017.
- Business e-mail compromise fraud involved $46.7 million in transfers; $30.0 million remains under recovery pursuit, with additional recoveries described as likely remote.
- Share repurchases of $193.5 million in fiscal 2016, and a new $50 million repurchase program effective August 3, 2016; no cash dividend currently planned.
- Total debt of $203.5 million at June 30, 2016 under the Amended Credit Agreement, against cash and cash equivalents of $551.0 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Ubiquiti kept $0.32.
- Revenue$666.4M100.0%
- Cost of revenue−$341.6M51.3%
- Gross profit$324.8M48.7%
- Operating costs−$82.7M12.4%
- Operating income$242.1M36.3%
- Interest, other & tax−$28.4M4.3%
- Net income$213.6M32.1%
Where FY2016 revenue went
$666.4M- Cost of revenue: $341.6M, 51% of revenue
- Net income: $213.6M, 32% of revenue
- R&D: $57.8M, 8.7% of revenue
- SG&A: $33.3M, 5.0% of revenue
- Interest, other & tax: $28.4M, 4.3% of revenue
Kept 32% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed August 22, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $666.39M$595.95M | +11.8% |
| Cost of Revenue | $341.60M$333.76M | +2.3% |
| Gross Profit | $324.80M$262.19M | +23.9% |
| R&D Expenses | $57.77M$54.56M | +5.9% |
| SG&A Expenses | $33.27M$21.61M | +54.0% |
| Operating Expenses | $82.74M$115.31M | −28.2% |
| Operating Income | $242.06M$146.88M | +64.8% |
| Net Income | $213.62M$129.66M | +64.7% |
| EPS (Basic) | $2.53$1.47 | +72.1% |
| EPS (Diluted) | $2.49$1.45 | +71.7% |
| Shares Outstanding (Basic) | 84.40M88.01M | −4.1% |
| Shares Outstanding (Diluted) | 85.78M89.57M | −4.2% |
05—Questions
Frequently Asked Questions
How did Ubiquiti's revenue and profitability change in fiscal 2016?
Revenues rose to $666.4 million from $595.9 million, and net income increased to $213.6 million from $129.7 million. Gross profit rose to $324.8 million, with gross margin improving to 49% from 44%, driven by product mix, higher sales volume and less inventory-related obsolescence and purchase commitment charges.
What drove the growth in Ubiquiti's product segments?
Enterprise Technology revenue increased $70.1 million, or 39%, to $248.0 million, primarily due to product expansion and adoption of the UniFi platform. Service Provider Technology revenue was flat at $418.3 million, as gains in North America, EMEA and Asia Pacific were offset by a decline in South America.
Why did the company report material weaknesses in its internal controls?
Management concluded that the company lacked sufficient, competent finance personnel, had ineffective controls over safeguarding funds and detecting improper transactions, and had overly broad general ledger access. These weaknesses allowed the business e-mail compromise fraud to occur. Management says the weaknesses did not cause a material misstatement of the financial statements, and remediation is expected to be substantially completed in fiscal 2017.
How much of the business e-mail compromise fraud loss has been recovered?
The company recovered $8.1 million in fiscal 2015 and recorded a net recovery of $8.3 million in fiscal 2016, comprised of an $8.6 million recovery less $0.3 million of professional service fees. It continues to pursue the remaining $30.0 million, but states that any additional recoveries are likely remote and cannot be assured.
What is Ubiquiti's capital allocation policy?
The company repurchased $193.5 million of common stock in fiscal 2016 and announced a $50 million repurchase program effective August 3, 2016, expiring September 30, 2017. It paid a $0.17 per share dividend in fiscal 2015 but currently has no plans to pay a cash dividend. At June 30, 2016 it held $551.0 million in cash and cash equivalents, of which $524.3 million was held by non-U.S. subsidiaries.
06—Continue