Ubiquiti Networks Inc. Reports Meager Growth

By Tim BeyersFool.com

Image source: Ubiquiti Networks.

Ubiquiti Networks last week reported neglible year-over-year growth in its fiscal first quarter that came right toward the higher end of guidance issued in last year's fiscal Q4. The stock jumped 13% immediately afterward.

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But are these results really worth celebrating? Hoped-for sales to networked corporations and other institutions didn't materialize as fast as management had hoped. Revenue from wireless service providers also declined. Here's a closer look at the company's overall performance in fiscal Q1:

Metric Q1 2016 Actuals Q1 2015 Actuals YOY Growth
Revenue $151.4 million $150.1 million 0.87%
Non-GAAP net income $45.5 million $43.4 million 4.8%
Adjusted EPS $0.51 $0.48 6.3%
Cash From Operations $47.7 million $46.9 million 1.7%

Data sources: S&P Capital IQand Ubiquiti Networks press release.

Putting the results in context, CEO and founder Robert Pera told analysts that Ubiquiti is seeking further improvement in the enterprise portion of its business even as it lowers costs elsewhere.

S&P Capital IQ quotes Pera as saying:

Eagle-eyed investors will notice thatRuckus Wireless -- another maker of wireless networking devices -- spent part of its most recent report pitching new ways to entice customers. In Ruckus' case, a lower-end product called Unleashed will be aimed at the small- to medium-sized business market in hopes of driving higher volume and more profit. (Ruckus hadzero growth in per-share earnings last quarter.)

What went right: Pera spent much of the call with analysts touting higher gross margin. He's right to do so. Pricing improvements pushed gross margin to 48.5%, up a whopping 420 basis points year over year. That's the best performance in over five years,S&P Capital IQ reports.

What went wrong:Enterprise technology didn't provide the growth Pera or investors had come to expect. Segment revenue improved just 12.1%, a far cry from the near-doubling we'd seen in earlier quarters. Ubiquiti is also spending big on share repurchases as growth in cash from operations stagnates. Total cash and short-term investments fell $10 million sequentially as a result. Inventory fell nearly $7 million over the same period.

What's next:Looking ahead, Pera and his team forecast fiscal-second-quarter revenue between $150 million and $160 million, resulting in $0.48 to $0.55 a share of profit according to generally accepted accounting principles. Non-GAAP earnings are expected to come in between $0.49 and $0.56 a share.

In the meantime, investors should pay attention to whether Pera's confidence in the changes in the enterprise group take hold and reinvigorate UniFi sales the way he hopes. Details on the capital investment needs of the new sunMAX solar power business are also key. As slow acceptance for UniFi proves, new ideas don't always produce at the level management hopes -- and sunMAX is far afield of Ubiquiti's more traditional data networking business.

The article Ubiquiti Networks Inc. Reports Meager Growth originally appeared on Fool.com.

Tim Beyerstries not to cause a ruckus. He's also a member of theMotley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission but didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim'sweb homeandportfolio holdingsor connect with him onGoogle+,Tumblr, or Twitter, where he goes by@milehighfool.The Motley Fool recommends Ruckus Wireless and Ubiquiti Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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