Ubiquiti - Earnings Call - Q3 2016
May 5, 2016
Transcript
Operator (participant)
Good day, ladies and gentlemen, and welcome to the Ubiquiti Networks Third Quarter Fiscal Year 2016 Question and Answers Conference call. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Ms. Anne Fazioli, Vice President of Investor Relations. You may begin, ma'am.
Anne Fazioli (VP of Investor Relations)
Thank you, Ronnie, and thank you, everyone, for joining us today. I'm Anne Fazioli, Vice President of Investor Relations for Ubiquiti Networks. I'm here with Robert J. Pera, Founder, CEO, and Chairman of the Board at Ubiquiti Networks. Before we get started, I'd like to review the Safe Harbor Statement. Some of the statements we'll make during this call constitute forward-looking statements, including perspectives on our future financial results, products, market conditions, and competition. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed during this call. Information on risk factors and uncertainties is contained in our most recent filing on Form 10-K with the SEC and our other SEC filings, which are available on the SEC's website at www.sec.gov. Forward-looking statements are made as of today, May 5th, 2016, and we assume no obligation to update them.
We hope you've reviewed management's prepared remarks, which are posted as a transcript on the Events and Presentations and Financial Information sections of our Investor Relations website, ir.ubnt.com. This call will be a Q&A only. Please limit yourself to two questions. Time permitting, we will allow for follow-up questions. Operator, we are now ready for questions.
Operator (participant)
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star and the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. One moment for our questions. Our first question comes from the line of Matt Robinson from Wedbush Securities. Your line is now open.
Matthew Robinson (Managing Director)
Hey, thanks. Nice results and guidance. A lot of drama with the relative growth in the two major segments and some of the changes in geography. Also noticed no 10% distributors. Robert, can you give us a little flavor on what segments of your business you think are going to drive this strong guidance that you have for the June quarter?
Robert J. Pera (CEO)
Obviously, UniFi is starting to take off, which is both kind of frustrating and encouraging. It should have been huge. It should be three, four, five times as big as it is now. We finally turned around the R&D team, and what you're seeing right now is the start of hopefully a really good run. The vision for UniFi was to be a complete software-defined networking platform, not just a Wi-Fi platform, but the merge of advanced system Wi-Fi with high-end switching and security gateways, and something that could go upstream, not just to low-cost Wi-Fi deployments. I think our business model is positioned really well for a future run and to disrupt a lot of the traditional IT sales cycles. I think you're just seeing the beginning of UniFi.
Of course, there's some concern on the service provider side, but I think it's a little early to draw conclusions. Definitely, UniFi is a much larger addressable market. That's what we're excited about. Service provider, we do have significant investments that you'll see come to market in the next few quarters. We also have not yet turned the corner on airMAX AC and interoperability, but we believe we will. In the short term, it's kind of our game to lose with airMAX AC. If we can get there, I think you'll see a significant bump in the short term in the operator space. I think it will be an interesting few quarters as we'll have some really compelling technology breakthroughs for the operator space.
Matthew Robinson (Managing Director)
It's a little more diversified than the 802.11ac on the UniFi side these days? You've seen some pickup in some other places?
Robert J. Pera (CEO)
Just starting to see it, especially with switching.
Matthew Robinson (Managing Director)
Switching. Good. Congrats for the addition of Mr. Radigan as well. I'll let somebody else ask a question now.
Operator (participant)
Our next question comes from the line of Meta Marshall from Morgan Stanley. Your line is now open.
Meta Marshall (Managing Director)
Hi. I just wanted to ask about some of the strength that you saw in Europe and whether that was channel expansion or strength in emerging markets. Then, with the appointment of Mr. Radigan today, do you think the timeline to kind of FTI expenses going down accelerates, or are they still to be there for the near future? Thank you.
Robert J. Pera (CEO)
I think EMEA is strong because of UniFi, and UniFi is starting to reach higher-tier customers, and a lot of those customers are in that region. The FTI expenses, of course, will start trailing down. I don't know when we'll be fully independent of FTI, but it's going to be definitely quarters and not years.
Meta Marshall (Managing Director)
Great. Thank you.
Operator (participant)
Again, ladies and gentlemen, to ask a question, that is star and the one key on your touch-tone telephone. Our next question comes from the line of Mike, substituting for Jess Lubert from Wells Fargo. Your line is now open.
Hey, guys. It's Mike calling on for Jess. I just wanted to confirm with Kevin. He had mentioned that he'll be performing principal financial officer and accounting duties. What does this mean for the CFO position? Will he be handling those responsibilities as well, or is that sort of ongoing?
Robert J. Pera (CEO)
I know traditionally the term CFO is used. I don't know what you want to call it, CFO, Yale. What we needed was a responsible leader of the accounting team, someone that is going to, first and foremost, install very good controls, which we were lacking, and is going to be fully concentrated on the finance side. We think it's probably a more disciplined approach to call this person Chief Accounting Officer because we want to emphasize the person we're bringing on board isn't somebody who's going to build a personal Rolodex and talk with Wall Street. It's somebody that's going to, first and foremost, roll up his sleeves and lead that finance team and set an example and make sure we have the proper controls in place so something like we went through never happens again.
Okay. Thanks. That's helpful. Just on the enterprise business, what was the mix of UniFi AC versus the older UniFi lineup? I believe in the past you had mentioned the newer AC might carry better gross margin. Just wanted to confirm if that's correct because I did notice you expanded your gross margin long-term forecast just a little bit at the upper end of the guidance.
What I can tell you is UniFi AC is picking up very strong. It's out of stock in a lot of places. The demand's great. The reviews have been great. What's interesting is in previous versions or the previous version of UniFi, the lower-end models, the lower-priced models tended to dominate the volumes. With UniFi AC, the highest-end model is dominating the volume, which bodes very well for our plan and our vision to take UniFi upstream to higher-end markets. We're heavily invested into high-end switching and high-end security gateways and some other solutions coming up.
Okay. Thanks.
Operator (participant)
As a reminder, ladies and gentlemen, to ask a question, that is star and the one key on your touch-tone telephone. That does conclude our question and answer session for today's call. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a wonderful.