After a rare miss in the last reported quarter, Ubiquiti Networks, Inc. (NASDAQ:UBNT) returned to its earnings streak with a beat in the recently reported third-quarter fiscal 2017. The company reported earnings per share of 77 cents, which trumped the Zacks Consensus Estimate of 68 cents by 13.2%.
On a non-GAAP basis, the company’s earnings per share were 78 cents, reflecting 23.8% growth year over year. Ubiquiti’s overarching business model and impressive top-line growth drove the stellar performance during the quarter.
Inside the Headlines
Total revenue of $218.3 million steered past the company’s projected range of $210–$220 million. Also, it grew 30.4% on a year-over-year basis and topped the Zacks Consensus Estimate of $211 million comfortably. Solid demand of all product lines across each end market proved conducive to top-line growth. This is also the first time in the company’s history when Enterprise Technology revenues surpassed the Service Provider revenues.
The company’s Enterprise Technology segment continued to fare remarkably well, with revenues soaring a whopping 59.6% year over year to $113.6 million. The striking growth was fueled by the entire UniFi product family. Disruptive pricing and higher average selling prices of recently launched products proved conducive to growth. Also, high demand for switches, security gateways, cameras and other complementary products in the international market also helped drive top-line growth.
Even the Service Provider Technology segment achieved growth of 8.8% year over year, generating $104.7 million. Higher sales of new offerings to the Ubiquiti community of service providers drove sales growth of this segment.
On a geographic basis, North America charted strongest growth, as revenues surged 78.6% compared to the prior-year quarter figure. South American sales rose an impressive 80.5% year over year. In addition, the Europe, Middle East and Africa, and the Asia Pacific regions witnessed 19.8% and 15.8% growth, respectively, on a year-over-year basis.
Gross margin for the quarter shrunk 390 basis points year over year to 45.4%, largely on account of unfavorable product mix.
Product Launches
During the reported quarter, Ubiquiti commenced the shipment of UniFi AC HD access points. This brings the industry's highest performance 802.11ac Wave 2 technology to the consumers at a disruptive price of $349. Also, it began the distribution of AmpliFi products in the consumer retail channel. Going forward, the company has plans to roll out hundreds of stores in the U.S., starting from the fiscal fourth quarter.
Further, Ubiquiti introduced UniFi AC In-Wall access point, which can convert an Ethernet wall connection into a dual-band 802.11ac Wi-Fi access point. The company believes that this will have applications across a gamut of products ranging from healthcare to education. Moreover, in a bid to bolster its stronghold in dense urban environments, Ubiquiti launched airMAX AC GEN2.
Moreover, the company made significant updates to the UniFi Mobile App which will eventually help service-provider customers to install airMAX devices.
Liquidity & Share Repurchases
Ubiquiti ended the fiscal third quarter with cash and cash equivalents of $533.9 million compared with $612.7 million as of December 31, 2016. At the end of Mar 31, 2017, the company’s long-term debt was $210.5 million, up from $191.6 million recorded at the end of Dec 31, 2016.
Also, during the fiscal third quarter, the company repurchased 1,932,411 shares for $96.3 million at an average price of $49.82 per share.
Guidance
Incorporating the solid performance in the reported quarter, favorable business trends and sturdy demand environment, the company released optimistic guidance for fourth-quarter fiscal 2017.
Management projects revenues in the range of $215–$225 million. Non-GAAP earnings are expected within 70–75 cents per share, while GAAP earnings per share are anticipated in the band of 69–74 cents.
Our Take
Ubiquiti Networks reported another solid quarter, marked with both top- and bottom-line beats and an optimistic guidance for its upcoming quarter. In the past few quarters, top-line growth was largely driven by growing adoption of UniFi AC access points, UniFi Switch, UniFi Video and other industry-leading products. The company’s strategic product launches at disruptive prices have helped it trump rivals to a great extent.
The interesting lineup of products rolled out during the reported quarter as well as positive industry trends bode well for long-term growth of the company. In addition, the company’s excellent global business model, which is adaptable to any kind of change in markets, adds to its strength. Despite these positives, growing surge in the demand for spectrum utilization can adversely impact the Zacks Rank #3 (Hold) company’s band usage capacity, thus marring profitability.
Stocks to Consider
Better-ranked stocks in the broader sector include Motorola Solutions, Inc. (NYSE:MSI) , CDK Global, Inc. (NASDAQ:CDK) and NCR Corporation (NYSE:NCR) . All three stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Motorola has a striking earnings surprise history for the last four quarters, having beaten estimates all through, with an impressive average beat of 16.4%.
CDK Global has an impressive earnings surprise history for the trailing four quarters, beating estimates all through for an average of 11.4%.
NCR also has an excellent earnings surprise history, with an average beat of 11.0% for the trailing four quarters, beating estimates all through.
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