Ubiquiti (UI) Down 16.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Ubiquiti Inc. (UI). Shares have lost about 16.1% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Ubiquiti's Q2 Earnings Match Estimates

Ubiquiti reported relatively modest second-quarter fiscal 2020 results, wherein the bottom line increased year over year and matched the Zacks Consensus Estimate. Following the results, its share price fell 15.1% in Friday’s trading session to close at $144.95 as investors probably expected a healthy beat.

Net Income

On a GAAP basis, net income for the December quarter was $85.8 million or $1.32 per share compared with $77.8 million or $1.09 per share in the prior-year quarter. The improvement was primarily attributable to lower operating expenses and a reduction in outstanding share count.

Non-GAAP earnings came in at $91.4 million or $1.40 per share compared with $95.1 million or $1.33 per share in the year-ago quarter. The bottom line was in sync with the Zacks Consensus Estimate.

Revenues

Quarterly revenues were relatively flat at $308.3 million and missed the consensus estimate of $343 million. By product type, revenues from Service Provider Technology were $97.7 million compared with $113.2 million reported in the year-ago quarter due to lower revenues in Europe, Middle East and Africa (EMEA), North America, South America and Asia Pacific. Enterprise Technology revenues were $210.6 million, up from $194.1 million driven by product expansion and further adoption of UniFi technology platform across all regions other than EMEA.

Region wise, revenues from North America were $130 million compared with $121.2 million a year ago. Revenues from South America were $24.9 million compared with $20.9 million, and the same from Asia Pacific totaled $32.8 million, up from $30.7 million. The increase was primarily due to higher revenues from Enterprise Technology products, partially offset by lower contribution from Service Provider Technology products. Revenues from EMEA were $120.6 million, down from $134.4 million.

Other Details

Overall gross profit increased to $145.1 million from $140.2 million in the year-ago quarter driven by lower costs of sales. Gross margin improved to 47.1% from 45.6%, led by favorable mix of products sold, partly offset by higher tariffs and indirect costs. Total operating expenses were $33 million compared with $48.6 million in the year-earlier quarter led by higher litigation costs in the year-ago quarter. Operating income improved to $112 million from $91.7 million mainly due to lower operating expenses.

Cash Flow & Liquidity

For the first six months of fiscal 2020, Ubiquiti generated $243.3 million of net cash from operating activities compared with $144.6 million in the prior-year period. As of Dec 31, 2019, the computer networking company had $100 million in cash and equivalents with $615.5 million of long-term debt. During the reported quarter, Ubiquiti repurchased 995,495 shares at an average price of $120.11.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.