Ubiquiti (UBNT) Sustains Beat Streak In Q4 Earnings, View Up

Ubiquiti Networks, Inc. (NASDAQ:UBNT) continued its winning streak with another striking earnings beat, as its fourth-quarter fiscal 2016 adjusted earnings came in at 69 cents a share, beating the Zacks Consensus Estimate of 61 cents by 13.1%. The earnings surprise marks Ubiquiti’s fifth consecutive beat.

Encouraged by positive business trends and favorable demand environment, Ubiquiti gave an optimistic guidance for the upcoming quarter.

Investors cheered the company’s solid results, with shares soaring 5.5% in after hours trading following the release.

The earnings figure reflected growth of 9.5% on a year-over-year basis. Successful product launches coupled with notable strength in the Enterprise Technology segment boosted the company’s results.

Inside the Headlines

The company charted robust revenues growth of 27.8% year over year to $185.7 million, surpassing the Zacks Consensus Estimate of $172 million comfortably. Strong performance of UniFi AC access points and other products primarily drove sales growth.

The company’s Enterprise Technology segment continued to fare remarkably well, with revenues rising a whopping 89.4% year over year to $76.7 million. The striking growth was fuelled by products like new UniFi AC access points, UniFi Video and UniFi Switch, coupled with other Enterprise market products.

Even the Service Provider Technology segment turned its performance around and achieved growth of 4% year over year, generating $109 million.

On a geographic basis, revenues in North America continued to be strong, rising a striking 60.5% year over year. Also, Europe, the Middle East and Africa, as well as Asia were up 22.5% and 15.4%, respectively from the comparable period last year. However, South America’s contribution continued to go downhill, as it witnessed a 7.5% revenue decline.

Non-GAAP gross margin for the quarter increased 280 basis points year over year to 48.3%. The continued expansion in gross margin was attributable to an improved product mix, coupled with sustained cost-cutting strategies and steady product pricing.

Product Launches

Keeping its momentum of new offerings alive in the quarter, Ubiquiti launched a new Wi-Fi system solution AmpliFi. This is a breakthrough technology that builds on the company’s industry-leading UniFi Wi-Fi platform to solve the chronic Wi-Fi challenges that modern homes face. Consequently, AmpliFi delivers unparalleled speeds and eliminates dead zones even in the most demanding home environments.

Ubiquiti also announced the opening of its consumer electronics R&D laboratory — Ubiquiti Labs, based in Latvia.

The company recently also released UniFi 8- and 16-Port Gigabit Switches, which can deliver powerful performance with their independent switching ports. The quarter saw the company expand its UniFi Switch line portfolio, which is now available with 16, 24 or 48 RJ45 Gigabit ports.

Liquidity & Share Repurchases

Ubiquiti ended the quarter with cash and cash equivalents of $551 million, compared with $446.4 million as of Jun 30, 2015. Long-term debt was $192.3 million, significantly up from $87.5 million a year back.

Also, at the end of the quarter, the company had exhausted the full $50 million available under its stock repurchase program approved last November. Consequently, Ubiquiti initiated a new stock repurchase program under which it can repurchase up to $50 million of its common stock.

Guidance

Incorporating the strong performance in the reported quarter, as well as favorable business trends and robust demand environment, the company released optimistic guidance for the first quarter of fiscal 2017.

Management expects revenues in the range of $180–$190 million. Non-GAAP earnings are expected within 68–74 cents per share, while GAAP earnings per share are projected to be in the band of 67 to 73 cents.

Our Take

We believe that strong demand of Ubiquiti’s products in end markets will improve its prospects, going forward. Ubiquiti has launched a number of new products in recent times, which has significantly expanded its addressable market. Particularly, strong market traction of Unifi products will continue to drive the company’s growth.

The company’s strong commitment toward research and development activities for cultivating innovative products and state-of-art technologies is impressive and bodes well for the long term.

Ubiquiti currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Clearfield, Inc. (NASDAQ:CLFD) , QUALCOMM Incorporated (NASDAQ:QCOM) and Sonus Networks, Inc. (NASDAQ:SONS) . Each of these stocks holds a Zacks Rank #2 (Buy).