Ubiquiti (UBNT) Misses on Q2 Earnings; Revenues Up Y/Y
Putting an end to the six-quarter earnings beat streak, Ubiquiti Networks, Inc. 's UBNT second-quarter fiscal 2017 earnings fell short of estimates. The company's adjusted earnings came in at 71 cents, which missed the Zacks Consensus Estimate of 75 cents by 5.3%.
On a non-GAAP basis, the company's earnings per share were 72 cents, reflecting 24.1% growth year over year. However, the figure came below the projected range of 73-79 cents. Ubiquiti's overarching business model and impressive top-line growth drove the stellar performance during the quarter.
Inside the Headlines
Total revenue of $213.5 million steered past the company's projected range of $200-$210 million. Also, it grew 31.9% on a year-over-year basis and topped the Zacks Consensus Estimate of $205 million comfortably. Solid demand of all product lines across each end market proved conducive to top-line growth.
The company's Enterprise Technology segment continued to fare remarkably well, with revenues soaring a whopping 87.4% year over year to $98.0 million. The striking growth was fueled by the entire UniFi product family, particularly in the U.S. market. Especially, growing adoption of UniFi AC access points, UniFi Switch, UniFi Video and other industry-leading products drove sales. Also, robust market traction of new consumer products, including the AmpliFi HD Mesh Router and AmpliFi HD MeshPoints, supplemented the top-line performance.
Even the Service Provider Technology segment achieved growth of 5.5% year over year, generating $115.6 million. Higher sales of new offerings for the Ubiquiti community of service providers drove sales growth of this segment.
On a geographic basis, North America charted the strongest growth, as revenues surged 64.8% compared to the prior-year quarter figure. In addition, the Europe, Middle East and Africa, and the Asia Pacific regions witnessed 26.9% and 11.5% growth, on a year-over-year basis, respectively. However, after an impressive rebound in the last reported quarter, South America sales dipped again in the fiscal second quarter by 17.9% compared to the year-earlier tally.
Gross margin for the quarter shrunk 420 basis points year over year to 44.6% largely on account of unfavorable product mix. Furthermore, expedited shipping charges, incurred in relation to the availability of AmpliFi products in the U.S., marred the gross margin performance in the quarter.
Keeping its momentum of new offerings alive in the quarter, Ubiquiti rolled out a high performance access point, UniFi AC HD and released a new operating system - AirOS 8.0 - which offers complete compatibility between airMAX ac and airMAX devices. The company also introduced free software for Ubiquiti's service provider customers, called UCRM that will aid in streamlining billing and customer management.
In addition, it expanded its AmpliFi and UniFi Switch product lines by launching a number of fresh offerings. Under the AmpliFi product family, it launched AmpliFi HD MeshPoint from Ubiquiti Labs and also introduced US-16-XG, US-8-60W and US-8 switches for the UniFi Switch portfolio.
Ubiquiti Networks, Inc. Price, Consensus and EPS Surprise
Liquidity & Share Repurchases
Ubiquiti ended the fiscal second quarter with cash and cash equivalents of $612.7 million, compared with $573.6 million as of Sep 30, 2016. At the end of Dec 31, 2016, the company's long-term debt was $184.2 million, down from $187.9 million recorded at the end of Sep 30, 2016.
Incorporating the solid performance in the reported quarter, as well as favorable business trends and sturdy demand environment, the company released optimistic guidance for third-quarter fiscal 2017.
Management projects revenues in the range of $210-220 million. Non-GAAP earnings are expected within 73-79 cents per share, while GAAP earnings per share are anticipated in the band of 72-78 cents.
Though the end of the earnings beat streak may not go well with few investors, the robust year-over-year top- and bottom-line growth of Ubiquiti is a major positive in trying times. The company has plans to make big investments in R&D, inventory and operations to help it expand the addressable market. We believe the company's excellent global business model, which is adaptable to any kind of change in markets, is one of its key strengths that will continue to stoke demand for its products.
However, on the flip side, a stringent competitive environment and foreign currency headwinds have been acting as dampeners, thwarting Ubiquiti's growth drive. Also, a 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
Some better-ranked stocks in the same space include Barracuda Networks, Inc. CUDA , Science Applications International Corporation SAIC , and CDK Global, Inc. CDK . All three stocks carry a Zacks Rank #2 (Buy).
Barracuda Networks company has a striking earnings surprise history. It surpassed estimates in each of the trailing four quarters, with a remarkable average positive surprise of 475%.
Science Applications International has a striking earnings surprise history for the trailing four quarters, having beaten estimates in each of them, for an average positive surprise of 9.2%. You can see the complete list of today's Zacks #1 Rank stocks here .
CDK Global has an impressive earnings surprise history for the trailing four quarters, beating estimates all through for an average of 8.0%.
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