01—Abstract
Summary
Summary of the 10-Q filed May 10, 2024. Cited figures are marked; the original filing is the authoritative source.
Ubiquiti Inc. (UI) reported results for the three and nine months ended March 31, 2024.
Revenues were $493.0 milliona for the quarter, up $35.2 million, or 8%, from $457.8 million a year earlier, while nine-month revenues were $1,421.0 million, down $28.4 million, or 2%. Gross profit margin fell to 35.3% in the quarter from 41.2%, driven by excess and obsolete inventory charges and unfavorable product mix. Net income was $76.3 million for the quarter ($1.26 per diluted share) versus $98.6 million a year earlier, and $246.2 million for the nine months ($4.07 per diluted share) versus $304.0 million.
The balance sheet improved meaningfully. Inventories declined to $533.5 millionb from $737.1 million at June 30, 2023, and operating cash flow for the nine months was $310.1 million, compared with an outflow of $159.9 million a year earlier. The company used the cash to repay $203.1 million of credit facility borrowings and paid $108.8 million in dividends.
Total debt, including the current portion, fell to $875.5 millionc from $1,077.9 million, and total stockholders' equity turned positive at $25.9 million from a deficit of $115.7 million. Investors should weigh the improved cash generation against higher interest expense, which rose to $58.4 million for the nine months from $38.4 million on higher interest rates, and against a pending Hong Kong tax deposit of $60.2 million and a potential $50.0 million incremental U.S. tax liability tied to an IRS dispute.
Several patent lawsuits are also pending, and the company cannot estimate possible losses. The Board approved a $0.60d per share quarterly dividend on May 7, 2024.
02—Key points
Key Highlights
- Q3 FY2024 revenues of $493.0 million rose 8% year over year, driven by Enterprise Technology, which grew $40.8 million, or 11%; Service Provider Technology declined 7%.
- Nine-month revenues of $1,421.0 million decreased 2%, with Enterprise Technology down 3% and Service Provider Technology up 1%.
- Gross profit margin decreased to 35.3% in the quarter from 41.2%, and to 37.7% for the nine months from 38.5%, due to excess and obsolete inventory charges and unfavorable product mix.
- Net income was $76.3 million in the quarter ($1.26 per diluted share) and $246.2 million for the nine months ($4.07 per diluted share), both down from the prior-year periods.
- Operating cash flow of $310.1 million for the nine months contrasted with a $159.9 million outflow a year earlier, reflecting a $181.7 million decrease in inventories.
- Total stockholders' equity was $25.9 million at March 31, 2024, up from a deficit of $115.7 million at June 30, 2023, and debt fell to $875.5 million from $1,077.9 million.
- Interest expense and other, net rose to $58.4 million for the nine months from $38.4 million, primarily due to higher interest rates.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2024, Ubiquiti kept $0.15.
- Revenue$493.0M100.0%
- Cost of revenue−$318.9M64.7%
- Gross profit$174.1M35.3%
- Operating costs−$62.9M12.8%
- Operating income$111.2M22.6%
- Interest, other & tax−$34.9M7.1%
- Net income$76.3M15.5%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed May 10, 2024Financial Statements
Q3 FY2024 against Q3 FY2023
| Line item | Q3 FY2024Q3 FY2023 | Change |
|---|---|---|
| Revenue | $493.00M$457.77M | +7.7% |
| Cost of Revenue | $318.90M$269.30M | +18.4% |
| Gross Profit | $174.10M$188.48M | −7.6% |
| R&D Expenses | $42.50M$38.21M | +11.2% |
| SG&A Expenses | $20.38M$16.74M | +21.7% |
| Operating Expenses | $62.88M$54.95M | +14.4% |
| Operating Income | $111.22M$133.53M | −16.7% |
| Net Income | $76.29M$98.58M | −22.6% |
| EPS (Basic) | $1.26$1.63 | −22.7% |
| EPS (Diluted) | $1.26$1.63 | −22.7% |
| Shares Outstanding (Basic) | 60.46M60.44M | 0.0% |
| Shares Outstanding (Diluted) | 60.46M60.45M | 0.0% |
05—Questions
Frequently Asked Questions
How did Ubiquiti's revenue and profitability trend in the quarter ended March 31, 2024?
Revenue rose 8% to $493.0 million, but gross margin fell to 35.3% from 41.2%, and net income declined to $76.3 million from $98.6 million. The margin decline was attributed to excess and obsolete inventory charges, unfavorable product mix, and higher shipping costs, partly offset by lower tariffs.
Why did operating cash flow improve so significantly?
Net cash provided by operating activities was $310.1 million for the nine months, compared with a $159.9 million outflow a year earlier. The main driver was a $181.7 million decrease in inventories, along with a $41.7 million increase in vendor deposits that partly offset it.
What are the main tax-related risks disclosed?
The company is in a U.S. Tax Court dispute with the IRS over fiscal 2015 and 2016, where it estimates incremental tax liability of about $50.0 million excluding interest and penalties, and has recorded no reserve. It also has $60.2 million of deposits with the Hong Kong Inland Revenue Department that it expects to be refunded, though an adverse outcome could be material.
How is the company's debt position changing?
Total debt fell to $875.5 million from $1,077.9 million through repayments of $203.1 million under its credit facilities during the nine months. As of March 31, 2024, $215.0 million was outstanding on the revolver, with $485.0 million available. The Amended Credit Agreement matures March 30, 2026 and requires a maximum leverage ratio of 3.50 to 1.00.
What pending legal matters could affect the company?
The company faces patent infringement suits from Vivato/XR, Network-1 Technologies, and Intellectual Ventures I LLC. Trial in the Vivato matter is scheduled for June 25, 2024. The company states it cannot currently estimate the possible loss or range of losses in these cases.
06—Continue