01—Abstract
Summary
Summary of the 10-Q filed November 3, 2023. Cited figures are marked; the original filing is the authoritative source.
Ubiquiti Inc. reported results for the three months ended September 30, 2023 (fiscal 2024 first quarter).
Revenues were $463.1 milliona, down $35.0 million, or 7%, from $498.1 million a year earlier. The decline was driven by Enterprise Technology, which fell $46.2 million, or 11%, to $380.1 million, partially offset by Service Provider Technology, which rose $11.2 million, or 16%, to $83.0 million. Gross profit margin improved to 39.7% from 34.4%, attributed to lower shipping and component costs and product mix.
Income from operations was $128.3 millionb versus $122.0 million, while net income was $87.8 million, or $1.45 per diluted share, compared with $93.2 million, or $1.54 per diluted share, a year earlier. Interest expense and other, net rose to $21.2 million from $10.7 million due to incremental borrowings and higher interest rates. Cash flow from operations was $67.7 million, compared with $42.0 million a year earlier, driven by a $28.6 million decrease in inventories.
Cash and cash equivalents ended the quarter at $108.5 millionc. The company paid $36.3 million in common stock dividends and repaid $34.4 million under its credit facilities during the quarter. Total debt was $1.04 billion, including $365.0 million outstanding on the Revolving Facility, with $335 million available.
Stockholders' deficit narrowed to $(63.1) million from $(115.7) million at June 30, 2023. Management stated that existing cash and borrowing capacity should be sufficient for the next twelve months. The filing also highlights legal and tax exposures.
Several patent infringement suits are pending, and the company cannot currently estimate possible losses. An IRS matter related to fiscal 2015 and 2016 could imply an incremental tax liability of approximately $50.0 milliond, excluding interest and penalties, and the company has no reserve for it.
Hong Kong Inland Revenue Department deposits of $60.1 million are expected to be refunded upon audit completion, though the outcome is uncertain. On November 2, 2023, the board approved a quarterly dividend of $0.60 per share.
02—Key points
Key Highlights
- Revenue fell 7% year over year to $463.1 million, led by an 11% decline in Enterprise Technology to $380.1 million, partly offset by a 16% increase in Service Provider Technology to $83.0 million.
- Gross profit margin rose to 39.7% from 34.4%, driven by lower shipping and component costs and product mix.
- Net income declined to $87.8 million ($1.45 per diluted share) from $93.2 million ($1.54 per diluted share), as interest expense and other, net more than doubled to $21.2 million.
- Operating cash flow increased to $67.7 million from $42.0 million, largely due to a $28.6 million decrease in inventories.
- Total debt was $1.04 billion, with $365.0 million drawn on the $700 million Revolving Facility and $335 million available; the Amended Credit Agreement requires a maximum leverage ratio of 3.50 to 1.00.
- The company paid $36.3 million in dividends, and the board approved a $0.60 per share quarterly dividend on November 2, 2023.
- A potential IRS tax adjustment for fiscal 2015 and 2016 could imply an incremental liability of approximately $50.0 million, excluding interest and penalties, for which no reserve has been recorded.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, Ubiquiti kept $0.19.
- Revenue$463.1M100.0%
- Cost of revenue−$279.2M60.3%
- Gross profit$183.9M39.7%
- Operating costs−$55.6M12.0%
- Operating income$128.3M27.7%
- Interest, other & tax−$40.6M8.8%
- Net income$87.8M18.9%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed November 3, 2023Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $463.08M$498.08M | −7.0% |
| Cost of Revenue | $279.20M$326.71M | −14.5% |
| Gross Profit | $183.88M$171.37M | +7.3% |
| R&D Expenses | $36.28M$32.66M | +11.1% |
| SG&A Expenses | $19.29M$16.70M | +15.5% |
| Operating Expenses | $55.57M$49.35M | +12.6% |
| Operating Income | $128.30M$122.01M | +5.2% |
| Net Income | $87.75M$93.18M | −5.8% |
| EPS (Basic) | $1.45$1.54 | −5.8% |
| EPS (Diluted) | $1.45$1.54 | −5.8% |
| Shares Outstanding (Basic) | 60.45M60.43M | 0.0% |
| Shares Outstanding (Diluted) | 60.45M60.45M | 0.0% |
05—Questions
Frequently Asked Questions
Why did revenue decline this quarter?
Revenue decreased $35.0 million, or 7%, to $463.1 million. The filing attributes the decline primarily to lower Enterprise Technology revenue, especially from the UniFi platform across all regions except South America, partially offset by growth in Service Provider Technology.
Why did net income fall even though gross margin improved?
Gross profit rose to $183.9 million, but interest expense and other, net increased to $21.2 million from $10.7 million due to incremental borrowings and higher interest rates. Operating expenses also rose to $55.6 million from $49.4 million, and the effective tax rate increased to 18.1% from 16.3%.
How is the company funding its dividends and debt obligations?
Management said existing cash and cash equivalents of $108.5 million, operating cash flow, and availability under the Revolving Facility should be sufficient for working capital, dividends and capital expenditures for the next twelve months. The company generated $67.7 million of operating cash flow this quarter, while it paid $36.3 million in dividends and repaid $34.4 million under its credit facilities.
What are the main legal and tax risks disclosed?
The company faces several patent infringement lawsuits, including suits by Vivato, Network-1 Technologies and Intellectual Ventures, and cannot currently estimate possible losses. A potential IRS adjustment for fiscal 2015 and 2016 could result in an incremental tax liability of approximately $50.0 million, excluding interest and penalties, and the company has not recorded a reserve. Hong Kong tax deposits of $60.1 million are expected to be refunded upon audit completion, but the outcome is uncertain.
What is the stockholders' deficit and how did it change?
Total stockholders' deficit improved to $(63.1) million at September 30, 2023, from $(115.7) million at June 30, 2023. The change reflects net income of $87.8 million, partly offset by dividends of $36.3 million, along with smaller share-based compensation and tax withholding items.
06—Continue