01—Abstract
Summary
Summary of the 10-K filed August 24, 2018. Cited figures are marked; the original filing is the authoritative source.
Ubiquiti Networks, Inc. reported fiscal 2018 (year ended June 30, 2018) revenues of $1,016.9 milliona, up from $865.3 million in fiscal 2017, and net income of $196.3 million, down from $257.5 million.
Growth was driven by Enterprise Technology, which rose to $570.3 millionb from $409.7 million on expansion of the UniFi platform, while Service Provider Technology declined to $446.6 million from $455.6 million. Gross margin fell to 44% from 46%, reflecting product mix, indirect costs, and charges tied to the FrontRow consumer product, and the effective tax rate rose to 37.5% from 9.7% because of $116.6 million in net charges under the 2017 Tax Act, including a $114.3 million deemed repatriation tax. Cash flow from operations was $332.0 million, and the company used $445.0 million to repurchase common stock during the year.
Cash and cash equivalents were $666.7 millionc at year end, while total debt rose to about $487.5 million under the Second Amended & Restated Credit Agreement, which was entered into in January 2018. The company also announced a quarterly dividend of $0.25 per share, payable September 10, 2018.
The filing discloses several material legal and regulatory matters: an SEC subpoena issued in February 2018, shareholder class actions and derivative suits filed in 2018, the Synopsys and Vivato/XR patent litigation, and a draft IRS Notice of Proposed Adjustment proposing roughly $50 milliond in additional tax, excluding interest and penalties. The company states it cannot currently estimate possible losses for the Synopsys, Vivato and class action matters.
02—Key points
Key Highlights
- Revenues rose to $1,016.9 million in fiscal 2018 from $865.3 million in fiscal 2017, with Enterprise Technology revenue up to $570.3 million from $409.7 million.
- Net income fell to $196.3 million from $257.5 million, driven by $116.6 million in net 2017 Tax Act charges and an effective tax rate of 37.5% versus 9.7% in fiscal 2017.
- Gross profit margin decreased to 44% from 46%, citing product mix, indirect costs, and charges for obsolete inventory, vendor deposits and purchase commitments tied to the FrontRow product.
- Cash flow from operations was $332.0 million, and the company returned capital through $445.0 million of share repurchases during fiscal 2018.
- Total debt increased to $487.5 million under a $400 million revolving facility and $500 million term loan entered into in January 2018, with no revolver borrowings outstanding at June 30, 2018.
- Pending legal and regulatory matters include an ongoing SEC investigation, shareholder class actions and derivative suits, and a draft IRS adjustment of about $50 million excluding interest and penalties.
- The company declared a $0.25 per share quarterly cash dividend payable September 10, 2018, and $306.2 million remained available under its repurchase programs as of June 30, 2018.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Ubiquiti kept $0.19.
- Revenue$1.02B100.0%
- Cost of revenue−$573.3M56.4%
- Gross profit$443.6M43.6%
- Operating costs−$117.4M11.5%
- Operating income$326.1M32.1%
- Interest, other & tax−$129.8M12.8%
- Net income$196.3M19.3%
Where FY2018 revenue went
$1.02B- Cost of revenue: $573.3M, 56% of revenue
- Net income: $196.3M, 19% of revenue
- Interest, other & tax: $129.8M, 13% of revenue
- R&D: $74.3M, 7.3% of revenue
- SG&A: $43.1M, 4.2% of revenue
Kept 19% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed August 24, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $1.02B$865.27M | +17.5% |
| Cost of Revenue | $573.29M$469.56M | +22.1% |
| Gross Profit | $443.57M$395.71M | +12.1% |
| R&D Expenses | $74.32M$69.09M | +7.6% |
| SG&A Expenses | $43.12M$36.85M | +17.0% |
| Operating Expenses | $117.44M$105.95M | +10.9% |
| Operating Income | $326.13M$289.76M | +12.6% |
| Net Income | $196.29M$257.51M | −23.8% |
| EPS (Basic) | $2.54$3.16 | −19.6% |
| EPS (Diluted) | $2.51$3.09 | −18.8% |
| Shares Outstanding (Basic) | 77.18M81.48M | −5.3% |
| Shares Outstanding (Diluted) | 78.33M83.25M | −5.9% |
05—Questions
Frequently Asked Questions
How did Ubiquiti's revenue and profitability change in fiscal 2018?
Revenues grew to $1,016.9 million from $865.3 million, but net income declined to $196.3 million from $257.5 million. The decline in net income reflects $116.6 million in net charges associated with the 2017 Tax Act, which raised the effective tax rate to 37.5% from 9.7%.
Which product category drove growth?
Enterprise Technology revenue rose to $570.3 million from $409.7 million, which the filing attributes to product expansion and further adoption of the UniFi platform across all regions. Service Provider Technology revenue declined slightly to $446.6 million from $455.6 million.
What is the company's exposure to the 2017 Tax Act?
The company recorded $116.6 million of net charges, comprising $114.3 million in deemed repatriation tax and $2.3 million for remeasurement of deferred taxes. The Transition Tax can be paid in eight annual interest-free installments beginning October 2018, and the filing says the final impacts may differ from these estimates.
What risks are highlighted in the legal disclosures?
The filing discloses an SEC subpoena issued in February 2018, shareholder class actions and derivative suits alleging misleading statements, and the Synopsys and Vivato/XR patent cases. The company states it cannot currently estimate the possible loss for the Synopsys, Vivato and class action matters. A draft IRS Notice of Proposed Adjustment proposes about $50 million in additional tax, excluding interest and penalties, and the company has not provided an additional reserve for it.
How is the company returning capital and managing its balance sheet?
During fiscal 2018 the company repurchased $445.0 million of common stock and declared a $0.25 per share quarterly dividend. Cash and cash equivalents were $666.7 million at June 30, 2018, and the company stated that its existing cash, operating cash flow and facilities should be sufficient to meet needs for the next twelve months.
06—Continue