01—Abstract
Summary
Summary of the 10-K filed August 26, 2022. Cited figures are marked; the original filing is the authoritative source.
Ubiquiti Inc. (NYSE: UI) reported its Form 10-K for the fiscal year ended June 30, 2022.
Revenue was $1.69 billiona, down from $1.90 billion in fiscal 2021, and net income was $378.7 million, down from $616.6 million. The decline was driven by a 39.8% drop in Service Provider Technology revenue, which fell to $375.0 million, while Enterprise Technology revenue rose 3.3% to $1.32 billion. Gross profit margin fell to 39.6% from 48.1%, citing higher shipping costs, increased component costs and higher general operating expenses.
The company attributes its supply constraints, particularly for chipsets, to limiting its ability to meet demand and to a growing backlog of orders. The company returned substantial capital to shareholders in fiscal 2022, repurchasing $618.1 millionb of common stock and paying $148.1 million in dividends, funded in part by $295.0 million of net borrowings. Total debt rose to $786.5 million (including the current portion), and stockholders' equity moved to a deficit of $382.9 million from positive $2.7 million a year earlier.
Cash and cash equivalents fell to $136.2 millionc from $249.4 million. The company declared a $0.60 quarterly dividend on August 26, 2022, and states it intends to pay at least $0.60 per share in each remaining quarter of fiscal 2023. The filing also highlights concentrated ownership and legal exposure.
Founder and CEO Robert J. Pera beneficially owns 56,278,181 shares, a majority of voting power, and has pledged up to 25%d of his shares.
The company disclosed a $46.7 million business e-mail compromise fraud from 2015, with $28.1 million still being pursued, and a pending Vivato patent case with trial scheduled for November 14, 2022. It also disclosed a potential $50.0 million incremental tax liability from an IRS proposed adjustment and $60.0 million of Hong Kong tax deposits pending audit resolution.
02—Key points
Key Highlights
- Revenue declined to $1,691.7 million in fiscal 2022 from $1,898.1 million in fiscal 2021, with Service Provider Technology revenue down 39.8% to $375.0 million.
- Net income fell to $378.7 million from $616.6 million; diluted EPS was $6.13 versus $9.78 a year earlier.
- Gross profit margin decreased to 39.6% from 48.1%, driven by higher shipping costs, increased component costs and higher general operating expenses.
- The company returned $618.1 million through share repurchases and $148.1 million through dividends in fiscal 2022, while net borrowings of $295.0 million were drawn.
- Total stockholders' equity moved to a deficit of $382.9 million from $2.7 million a year earlier; long-term debt rose to $762.6 million from $467.0 million.
- Chipset and component shortages continued to limit production and meet demand, and the company expects these constraints to persist into fiscal 2023.
- Founder and CEO Robert J. Pera beneficially owns 56,278,181 shares and controls a majority of voting power; he has pledged up to 25% of his shares as loan collateral.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Ubiquiti kept $0.22.
- Revenue$1.69B100.0%
- Cost of revenue−$1.02B60.4%
- Gross profit$669.8M39.6%
- Operating costs−$207.5M12.3%
- Operating income$462.3M27.3%
- Interest, other & tax−$83.6M4.9%
- Net income$378.7M22.4%
Where FY2022 revenue went
$1.69B- Cost of revenue: $1.02B, 60% of revenue
- Net income: $378.7M, 22% of revenue
- R&D: $137.7M, 8.1% of revenue
- SG&A: $69.9M, 4.1% of revenue
- Interest, other & tax: $83.6M, 4.9% of revenue
Kept 22% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed August 26, 2022Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $1.69B$1.90B | −10.9% |
| Cost of Revenue | $1.02B$985.82M | +3.7% |
| Gross Profit | $669.81M$912.28M | −26.6% |
| R&D Expenses | $137.69M$116.17M | +18.5% |
| SG&A Expenses | $69.86M$53.51M | +30.5% |
| Operating Expenses | $207.55M$169.68M | +22.3% |
| Operating Income | $462.26M$742.59M | −37.7% |
| Net Income | $378.66M$616.58M | −38.6% |
| EPS (Basic) | $6.14$9.79 | −37.3% |
| EPS (Diluted) | $6.13$9.78 | −37.3% |
| Shares Outstanding (Basic) | 61.69M62.99M | −2.1% |
| Shares Outstanding (Diluted) | 61.72M63.05M | −2.1% |
05—Questions
Frequently Asked Questions
Why did Ubiquiti's revenue and net income decline in fiscal 2022?
Revenue fell 10.9% to $1.69 billion, primarily because Service Provider Technology revenue decreased $248.2 million, or 39.8%. The company cites its inability to fulfill demand due to the global component supply shortage and COVID-19 outbreaks. Net income fell to $378.7 million from $616.6 million, also reflecting higher cost of revenues and operating expenses.
How did Ubiquiti return capital to shareholders in fiscal 2022?
During fiscal 2022, the company repurchased $618.1 million of common stock and paid $148.1 million in cash dividends at $0.60 per quarter. Its revolving facility was drawn to fund these activities, with $320.0 million outstanding at June 30, 2022. The Board declared another $0.60 dividend on August 26, 2022, and the company intends to pay at least $0.60 per quarter in fiscal 2023.
What are the main risks to Ubiquiti's supply chain and operations?
The company relies on a limited number of contract manufacturers, located primarily in China and Vietnam, and on a limited number of suppliers, including single-source chipset suppliers such as Qualcomm Atheros and Broadcom. It does not stockpile sufficient chipsets and expects shortages to continue. Operations in China, Taiwan and Ukraine are exposed to geopolitical tensions, and tariffs of 7.5% to 25% apply to most products imported into the U.S. from China.
What legal and tax matters could affect investors?
The company is pursuing recovery of $28.1 million from a 2015 business e-mail compromise fraud. A patent case brought by Vivato has trial scheduled for November 14, 2022, and the company cannot estimate possible losses. The IRS has issued a final Notice of Proposed Adjustment for $12.7 million, and the company estimates an incremental tax liability of approximately $50.0 million if the adjustment prevails. The company has $60.0 million of Hong Kong tax deposits expected to be refunded upon audit completion, though this is not assured.
How much debt does Ubiquiti carry and what are the key terms?
At June 30, 2022, the term facility had $468.8 million outstanding and the revolving facility had $320.0 million outstanding, leaving $380.0 million available on the revolver. Facilities mature March 30, 2026. The credit agreement requires a maximum consolidated total leverage ratio of 3.50 to 1.00 and a minimum interest coverage ratio of 3.5 to 1.00. A 200-basis-point rate increase would add approximately $15.8 million to pre-tax expense over twelve months.
06—Continue