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Ubiquiti (UBNT) Q2 Earnings Beat on Healthy Revenue Growth

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Ubiquiti Networks, Inc. (UBNT - Free Report) reported solid second-quarter fiscal 2019 results, wherein both the bottom line and the top line surpassed the respective Zacks Consensus Estimate, and increased on a year-over-year basis.

Net Income

On a GAAP basis, net income for the reported quarter was $77.8 million or $1.09 per share against loss of $51.5 million or loss of 66 cents per share in the prior-year quarter. The year-over-year improvement was primarily due to top-line growth and lower provision for income taxes.

Non-GAAP net income came in at $95.1 million or $1.33 per share compared with $59.6 million or 76 cents per share a year ago. The bottom line beat the Zacks Consensus Estimate by 39 cents.

Ubiquiti Networks, Inc. Price, Consensus and EPS Surprise

Revenues

Quarterly revenues increased 22.5% year over year to $307.3 million, primarily driven by higher sales at Enterprise Technology business. The top line surpassed the consensus estimate of $253 million.

By product type, revenues from Service Provider Technology were $113.2 million compared with $119.9 million in the year-ago quarter. Enterprise Technology revenues were $194.1 million compared with $131 million a year ago.

Geographically, revenues from North America were $121.2 million compared with $95 million in the year-ago quarter. Revenues from Europe, the Middle East and Africa were $134.4 million, up from $102 million. Revenues from Asia Pacific were $30.7 million, down from $33.1 million. Revenues from South America were $20.9 million compared with $20.7 million in the prior-year quarter.

Other Quarterly Details

Gross profit increased to $140.2 million from $96.9 million in the year-ago quarter on the back of top-line growth. Gross margin improved to 45.6% from 38.6%. The computer networking company expects to incur costs due to higher tariffs imposed on certain Chinese products imported into the United States, and thus anticipates near-term gross margin between 42% and 45%.

Total operating expenses were $48.6 million compared with $30.8 million in the year-earlier quarter. Despite year-over-year increase in operating expenses, operating income improved to $91.7 million from $66.1 million owing to higher gross profit.

Cash Flow and Liquidity

During the first six months of fiscal 2019, Ubiquiti generated $144.6 million of cash from operating activities compared with $165.7 million in the year-ago period. As of Dec 31, 2018, the company had $293.3 million of cash and cash equivalents with long-term debt of $448.2 million.

Ubiquiti repurchased 356,576 shares for $34.7 million at an average price of $97.31 per share between Nov 8, 2018 and Feb 7, 2019.

The company’s board of directors announced a cash dividend of 25 cents per share payable Feb 25 to shareholders of record as on Feb 18.

Fiscal 2019 Outlook Reaffirmed

Ubiquiti has reaffirmed its earlier guidance for full-fiscal 2019 based on the recent healthy demand trends in its end markets. The company expects to generate revenues between $1.1 billion and $1.2 billion and earnings per share (EPS) of $4.00-$4.80 in fiscal 2019. Also, due to the potential impact of the tariffs imposed for certain products imported into the United States from China, the low-end of EPS may decline to $3.65 or lower. The company anticipates to mitigate the effect of the tariffs in the long term and expects long-term gross margin between 45% and 50%.

Zacks Rank and Other Stocks to Consider

Ubiquiti currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the industry include Comtech Telecommunications Corp. (CMTL - Free Report) , Harris Corporation (HRS - Free Report) and PCTEL, Inc. (PCTI - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Comtech has a long-term earnings growth expectation of 5%.    

Harris has a long-term earnings growth expectation of 8%.

PCTEL currently has a forward P/E (F1) of 65.3x.

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