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Why Is Ubiquiti (UI) Down 17.3% Since Last Earnings Report?

Zacks Equity Research
·4 mins read

A month has gone by since the last earnings report for Ubiquiti Inc. (UI). Shares have lost about 17.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ubiquiti due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Ubiquiti Q4 Earnings Beat Estimates, Revenues Rise Y/Y

Ubiquiti reported relatively healthy fourth-quarter fiscal 2020 results, with the bottom and top lines increasing year over year. However, although non-GAAP earnings surpassed the Zacks Consensus Estimate, revenues missed the same. Notably, the company recorded solid revenue growth despite supply-chain disruptions due to the coronavirus pandemic.

Net Income

On a GAAP basis, net income in the June quarter was $92.6 million or $1.45 per share compared with $70.9 million or $1.01 in the prior-year quarter. The improvement can be primarily attributed to top-line growth. For fiscal 2020, GAAP earnings were $380.3 million or $5.80 per share compared with $322.7 million or $4.51 in fiscal 2019.

Non-GAAP net income came in at $93.2 million or $1.46 per share compared with $83.6 million or $1.19 per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 33 cents. For fiscal 2020, non-GAAP earnings improved to $387.5 million or $5.91 per share from $341.7 million or $4.77 in fiscal 2019.

Revenues

Quarterly revenues increased 10.1% year over year to $315.5 million, backed by higher sales of enterprise technology products. Revenues from Service Provider Technology were $121.9 million compared with $100.9 million reported in the year-ago quarter. Enterprise Technology revenues were $193.6 million, up from $185.7 million in the prior-year quarter. The top line, however, missed the consensus mark of $325 million. For fiscal 2020, revenues aggregated $1,284.5 million compared with $1,161.7 million in fiscal 2019.

Region-wise, revenues from North America were $160.1 million compared with $147.5 million in the year-ago quarter, driven by higher revenues from Enterprise Technology products. Revenues from South America were $20.8 million compared with $20.7 million and that from the Asia Pacific totaled $23.4 million, down from $26.1 million in the year-ago quarter. The year-over-year decline was primarily caused by lower revenues from Service Provider Technology products, partially offset by higher revenues from Enterprise Technology products. Revenues from Europe, the Middle East and Africa were $111.2 million, up from $92.3 million in the prior-year quarter mainly on higher Enterprise Technology revenues.

Other Details

Overall gross profit increased to $152.1 million from $132.9 million in the year-ago quarter, driven by top-line growth. Gross margin improved to 48.2% from 46.4%, led by favorable mix of products sold and reduced inventory reserves. However, it was partly offset by higher tariffs and indirect costs. Total operating expenses were $34 million compared with $32.1 million in the year-earlier quarter due to higher R&D and SG&A expenses. Operating income increased to $118.1 million from $100.9 million, primarily driven by higher revenues.

Cash Flow & Liquidity

For fiscal 2020, Ubiquiti generated $460.3 million of net cash from operating activities compared with $259.3 million in the prior-year quarter. As of Jun 30, 2020, the company had $142.6 million in cash and equivalents and $628.4 million of long-term debt compared with respective tallies of $238.1 million and $464.7 million in the year-ago period.

During the reported quarter, Ubiquiti repurchased nearly 1 million shares at an average price of $138.25 per share. In fiscal 2020, the company repurchased more than 5.8 million shares at an average price of $119.45 per share.

Moving Ahead

Despite the uncertainties pertaining to the COVID-19 pandemic, Ubiquiti has emerged as a strong player by augmenting its proprietary network communication platform that is well equipped to meet end-market customers’ needs. Backed by a resilient business model, the operating framework contributes significantly toward the expansion of its addressable market, thereby maintaining its dominant foothold in the industry. However, the global pandemic has taken a toll on Ubiquiti’s supply chain and logistics, thereby disrupting the distribution of products and services globally. Nevertheless, the company is committed to increasing R&D investments and enhancing inventory management techniques to offset challenges and maximize growth.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.


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