01—Abstract
Summary
Summary of the 10-Q filed February 9, 2024. Cited figures are marked; the original filing is the authoritative source.
Ubiquiti Inc. reported results for the three and six months ended December 31, 2023 in this Form 10-Q.
Revenues were $464.95 milliona for the quarter, down from $493.57 million a year earlier, and $928.03 million for the six months, down from $991.65 million. Net income was $82.12 million for the quarter versus $112.21 million a year earlier, and diluted EPS was $1.36 compared with $1.86. Income from operations fell to $121.10 million from $145.15 million, while interest expense and other, net rose to $18.26 million from $11.27 million, reflecting incremental borrowings and higher interest rates.
Gross margin was 38.2% for the quarter versus 40.0% a year earlier. The balance sheet shows total debt of roughly $994.6 millionb, comprising $36.5 million short-term and $958.1 million long-term, and a stockholders' deficit of $15.72 million. Cash and cash equivalents were $97.6 million, down from $114.8 million at June 30, 2023.
Operating cash flow for the six months was $146.26 millionc, versus $2.33 million a year earlier, driven largely by a $50.1 million inventory decrease. The company paid $0.60 per share quarterly dividends, and the Board approved another $0.60 dividend payable February 26, 2024. The filing highlights significant legal and tax exposures.
The IRS has proposed an incremental tax liability of approximately $50.0 milliond, excluding interest and penalties, related to fiscal 2015 and 2016, and the company is awaiting a trial date. Hong Kong IRD deposits of $60.3 million are pending refund upon audit completion.
Several patent infringement lawsuits remain pending, and the company cannot currently estimate possible losses. Revenue declines were concentrated in Enterprise Technology and EMEA and Asia Pacific, partly offset by growth in Service Provider Technology and South America.
02—Key points
Key Highlights
- Quarterly revenues of $464.95 million, down from $493.57 million in the prior-year quarter; six-month revenues of $928.03 million, down from $991.65 million.
- Net income of $82.12 million for the quarter versus $112.21 million a year earlier; diluted EPS of $1.36 versus $1.86.
- Interest expense and other, net increased to $18.26 million for the quarter from $11.27 million, due to incremental borrowings and increased interest rates.
- Operating cash flow of $146.26 million for the six months, compared with $2.33 million a year earlier, aided by a $50.1 million inventory decrease.
- Total debt was about $994.6 million at December 31, 2023, with $325.0 million outstanding on the Revolving Facility and $375 million available; the stockholders' deficit was $15.72 million.
- The IRS proposed an incremental tax liability of approximately $50.0 million (excluding interest and penalties) for fiscal 2015 and 2016; the company strongly believes the IRS position is without merit.
- Quarterly dividend of $0.60 per share was approved on February 5, 2024, payable February 26, 2024.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Ubiquiti kept $0.18.
- Revenue$465.0M100.0%
- Cost of revenue−$287.3M61.8%
- Gross profit$177.6M38.2%
- Operating costs−$56.5M12.2%
- Operating income$121.1M26.0%
- Interest, other & tax−$39.0M8.4%
- Net income$82.1M17.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed February 9, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $464.95M$493.57M | −5.8% |
| Cost of Revenue | $287.31M$296.01M | −2.9% |
| Gross Profit | $177.65M$197.56M | −10.1% |
| R&D Expenses | $36.91M$33.77M | +9.3% |
| SG&A Expenses | $19.63M$18.64M | +5.3% |
| Operating Expenses | $56.55M$52.41M | +7.9% |
| Operating Income | $121.10M$145.15M | −16.6% |
| Net Income | $82.12M$112.20M | −26.8% |
| EPS (Basic) | $1.36$1.86 | −26.9% |
| EPS (Diluted) | $1.36$1.86 | −26.9% |
| Shares Outstanding (Basic) | 60.45M60.43M | 0.0% |
| Shares Outstanding (Diluted) | 60.45M60.45M | 0.0% |
05—Questions
Frequently Asked Questions
Why did net income decline in the quarter ended December 31, 2023?
Revenues fell to $464.95 million from $493.57 million, gross profit dropped to $177.65 million from $197.56 million, and interest expense and other, net increased to $18.26 million from $11.27 million. Research and development and SG&A expenses also rose, and the effective tax rate increased to 20.2% from 16.2%.
How much debt does Ubiquiti carry and when does it mature?
As of December 31, 2023, total debt was $36.5 million short-term and $958.1 million long-term. The Facilities mature March 30, 2026, and the company has estimated debt payment obligations of $18.75 million for the remainder of fiscal 2024, $37.5 million in fiscal 2025, and $940.6 million in fiscal 2026.
What is the main tax risk disclosed in the filing?
The IRS issued a final Notice of Proposed Adjustment for fiscal 2015 and 2016 and rejected both parties' summary judgment motions on January 22, 2024. The company estimates the incremental tax liability at about $50.0 million, excluding interest and penalties, and has not recorded a reserve. It expects a trial date by the end of December 2024.
Are the Hong Kong tax deposits at risk?
The company has $60.3 million (net of foreign currency impact) of deposits with the Hong Kong Inland Revenue Department and expects them to be refunded upon completion of the audit. The filing notes there can be no assurance of a favorable resolution, and an adverse outcome could have a material effect on results.
Which regions and product lines drove the revenue decline?
For the three months, Enterprise Technology revenue fell 6% to $391.49 million, and Service Provider Technology fell 4% to $73.46 million. EMEA revenue decreased 11% and Asia Pacific decreased 24%, while South America increased 21%.
06—Continue