優比快 (UI) 2012 Q1 法說會逐字稿

Good day and welcome to the Ubiquiti Networks Q1 2012 conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator instructions). As reminder, this conference call is being recorded.

I would now like to turn the call over to JoAnn Horne, Investor Relations for Ubiquiti Networks. Ma'am, please go ahead.

I am pleased to welcome you to Ubiquiti's first quarter fiscal 2012 conference call. At 1 PM Pacific daylight time, Ubiquiti published its earnings press release through Globe Newswire. The release is also available on Ubiquiti's investor relations website at ir@ubnt.com. A replay of this conference call will be available through November 13, 2011, at 855-359-2056, and enter passcode 211746771. Callers outside the US and Canada should dial 800-585-8367 and enter passcode 24746771. This webcast will also be archived on Ubiquiti's investor relations website for two months.

During the course of today's presentation, we will make forward-looking statements, including statements regarding, among others, Ubiquiti's expected financial performance for the second quarter of fiscal 2012, expected profitability, price and business strategies and strategic relationships. These forward-looking statements include but are not limited to statements with words like expect, anticipate, target, plan to, continue to, may, potential, will, or the negative of those terms. We wish to caution you that such statements are just predictions based on management's current expectations or beliefs and that actual events or results may differ materially.

We refer you to documents with the Securities and Exchange Commission, including our registration statement on Form S-1. These documents identify important risk factors that could cause our actual results to differ materially from those contained in our forward-looking statements.

In addition to today's discussions, we expect that during the upcoming quarter, we will meet or discuss privately with investors, the media, investment analysts and others. In these discussions we may reiterate the business outlook discussed publicly during our quarterly earnings conference call, but we do not intend to update our business outlook or give material guidance beyond that discussed in prior public statements. We see no duty to confirm, update or revise the financial forecast for the quarter or any other forward-looking information in this call as a result of new developments or otherwise.

Our financial results are affected by the business environment in which we operate and related risks and opportunities it presents. These risks and uncertainties include but are not necessarily limited to fluctuations in our operating results, varying demand for our products between the financial and operating position of our distributors and their customers, distributors' inventory management practices and general economic conditions; our reliance on a limited number of distributors and the inability of our contract manufacturers and suppliers to meet our demands; our dependence upon certain chipset suppliers without a short-term alternative; as we move into new markets, competition from certain current or potential customers who may be more established in such markets; success and timing of new product introductions by us and the performance of our products generally; that a substantial majority of our sales are into countries outside the United States and are subject to numerous US export control and economic sanction laws; costs related to responding to government inquiries related to regulatory compliance; our ability to keep pace with technological and market developments; our reliance on the Ubiquiti community; our reliance on certain key members of our management team, including our Founder and Chief Executive Officer, Robert J. Pera; adverse tax-related matters, such as tax audits, changing our effective tax rate or new tax legislative proposals and the impact of any intellectual property litigation and claims for indemnification and litigation related to US securities laws and economic and political conditions in the United States and abroad.

Today, we will be discussing our results on a non-GAAP basis. These non-GAAP results exclude stock-based compensation expense and the tax effect of these adjustments and assume that our preferred stock was converted to common stock throughout the periods presented. We use these additional non-GAAP measures as we believe they give useful operating information in addition to the GAAP results. A reconciliation of GAAP to non-GAAP financial statements is available in our press release and our investor relations webpage.

Now let me turn the call over to Robert J. Pera, Ubiquiti's CEO.

Thanks, everyone. Hopefully, you are still awake. Welcome to our first earnings call as a public company. We are very pleased with the performance for the quarter with revenues increasing 132% while income grew by 189%. Ubiquiti's vision is to identify fragmented markets in underserved areas around the world and introduce disruptive communication technology platforms that redefine price performance metrics and usability. These results begin to prove that our business model is scalable and our strategy is working.

Before I provide some color on the Q1 results and our outlook for next quarter, I want to take a few minutes to briefly expand on the Company, our strategy and our opportunity. Ubiquiti Networks is not just a wireless networking company anymore. We're much more than that. We are a next-generation communications technology company that creates highly integrated hardware and software system platforms that address global markets.

While our first platforms, AirMax and UniFi, are in fact, wireless-based platforms, Ubiquiti's end goal is to leverage our core IP, our distribution channels and our user community to replicate our technology platform strategy in adjacent non-wireless markets. We took our first step with AirVision, our IP video surveillance product, which started shipping in this quarter.

Now, some conclude our disruptive cost strategy is a way of buying into markets, but this is essentially wrong. Our Q1 results prove the strength and scalability of our model. We have been a cash profitable and cash generative company since inception.

One key differentiator I would like to talk about, which re-leverages our Ubiquiti user community -- the community provides evangelism for new product platform options, it provides technical support and also guides Ubiquiti develop development teams evolving our platforms. We frequently host our Ubiquiti conferences throughout the world, where we are seeing several hundred attendees at each event, and the number of attendees is getting larger. At our last show in Las Vegas a few weeks ago, one customer talked about Ubiquiti AirMax superior carrier cost performance that had more than 80% savings over alternatives.

Ubiquiti in effect has made numerous unprofitable business models suddenly wildly profitable, as we have essentially removed capital expenditure costs. This, in turn, has created a high level of loyalty and goodwill amongst our user community.

When we combine our disruptive technology platforms with our growing user community, you can start to understand how we achieve our operating margin profile. Because we create tremendous pull, Ubiquiti platforms sell themselves through roughly 100 distributor global networks without the use of a sales force. Additionally, our community provides a lot of support and marketing functions. And as our sales volume increases, the community and the capacity for the support and marketing functions increases with it.

Now, with the introduction of UniFi this year showing an AirMax-like growth trajectory along with the promising launch of our latest AirVision platform, we are confident we can replicate our strategy into many new adjacent markets.

Now, turning to our first-quarter results we can see the effectiveness of our model. Our strong performance reflects accelerating demand for AirMax, our first major platform release, and our second platform, UniFi, also contributed in the quarter, growing 3X since its launch in early fiscal 2011 this year.

Looking past Q1, we expect our momentum to continue as we introduce new platforms targeted to adjacent market segments. The recently launched AirVision addresses the multibillion IT video surveillance market and will begin to generate revenues in Q2. The AirVision platform provides insight into how we identify and develop new platforms. Specifically, we look for highly fractured professional markets that have many small players and no dominant integrated application-specific platform. We attack these markets with a few key elements.

First, we focus on powerful management software with an emphasis on user experience and creating a closed proprietary platform. We offer software with our hardware at no additional cost. Second, we pair elegant, world-class, carrier class hardware with our software and generate revenue from these hardware sales. And third, we leverage our operating model and economies of scale to disrupt pricing.

We see many other similar markets to the video surveillance case study, and our pipeline for new products addresses many of these opportunities. We expect to introduce four more new platforms in fiscal 2012.

Obviously, we are very excited about the future with a proven strategy and business model to address the opportunities in front of us. We look forward to validating our vision each quarter with solid growth in earnings and revenue.

Now I'll turn the call over to John, our CFO, to review the financial details in the quarter and provide some perspective on our operating model and outlook for the second quarter.

Thanks, Robert, and thank you all for joining us on our initial earnings call. Before I go through our results, I'd like to provide some insight regarding the timing of future earnings calls. We expect to announce our results in the last week of the month following the end of each quarter. As a reminder, the schedule for today's call was dictated by the 25-day cooling-off period that follows the Company's initial public offering.

Now I will move onto our results for the quarter. We saw strong growth in the first quarter of 2012 with revenues up 132% or up $45.1 million to $79.2 million, up from the $34.1 million recorded in the same period last year. The increase in revenue was primarily driven by a 192% increase in our AirMax revenues, a result of 329% increase in our antenna other category.

On a sequential basis revenues increased 17% or $11.6 million from the $67.6 million reported in the June quarter. Non-GAAP net income for the quarter was $21.7 million, and on a GAAP basis was $21.5 million. Our non-GAAP EPS was $0.23 per share compared with $0.07 in the prior period, up more than 3X.

Before I go through the revenue in detail, I want to key some highlights and milestones that we achieved during the quarter. To begin with, we far exceeded the high end of our long-range operating model goal of 32% with operating margins coming in at approximately 35% for the quarter. Given the improved performance, we are increasing the long-term operating margin goal from 30% to 32%, to 32% to 34%. This higher operating margin target means we need to grow R&D expenses in both absolute terms as well as percentage of revenue terms.

We just completed our sixth straight quarter of improved gross margins. Our quarterly UniFi revenues tripled from the March quarter when the product was first introduced to a total of approximately $2.7 million in the current quarter. Our AirMax product posted its eighth consecutive quarter of double-digit sequential revenue growth.

Now moving onto our results by product line and looking at the little bit of background on how we report our revenue by category, we have two line items in our systems category -- our AirMax platforms and our other systems. In addition, we have embedded radios and the antenna and other category. In the antenna and other category, that primarily consists of non-integrated AirMax antennas and, to a lesser extent, spare parts and other accessories, such as cables, mounting brackets, etc. Note that once a platform reaches a significant revenue level, we will break it out separately, as we did with AirMax.

Now I'll go into each category with a little more detail, starting off with our proprietary AirMax platform. Revenues came in exceptionally strong at $49.8 million, up 192% or up $32.8 million from the $17.1 million reported in the same period last year. On a sequential basis, AirMax revenues increased 19%, or up $7.8 million from the $42 million reported in the June quarter. AirMax revenues were 63% of total revenues in the current quarter, up from 62% in the prior quarter and up from 50% on a year-over-year basis.

Our systems product category includes our AVG products as well as revenue from our UniFi platform. Revenues from this category contributed $15.5 million, up 35%, or up $4 million from the same period last year. On a sequential basis, other systems increased 20% or up $2.6 million from the $12.9 million in the June quarter. A large component of both the year-over-year and the sequential growth was from sales of our successful UniFi platform. We expect modest gains in this category with accelerated UniFi growth being offset by slower growth in the AVG products.

Moving onto embedded radios, our original product line where we saw a modest year on year increase of 6%, going from $3 million to $3.2 million, and on a sequential basis we saw a decline from $4.1 million to $3.2 million. Also during the quarter our antenna/other category came in at $10.6 million, up 329% or up $8.1 million from the $2.5 million reported in the same period last year. On a sequential basis, antenna/others were up 24%, or up $2 million from the $8.6 million reported in the June quarter. Revenues in this category again are driven by sales of nonintegrated standalone AirMax antennas. This product has shown significant success along with the core AirMax product line since its introduction in fiscal 2010.

Moving onto revenues by geography, North American revenues increased 13% sequentially and 145% on a year-over-year basis to a total of $24.9 million, representing 32% of our global revenues. South American revenue increased 9% sequentially and 102% on a year-over-year basis to a total of $19.8 million, representing 25% of our revenues on a global basis. EMEA revenues increased 13% sequentially, 143% on a year-over-year basis to a total of $24.8 million, representing 31% of our global revenues. And lastly, Asia-Pac/rest of the world increased 78% sequentially, 149% on a year-over-year basis, to a total of $9.6 million, representing 12% of our global revenue.

In general, our products sell in the same relative mix across all geographies. The only exception to this is during the new product introduction phase. Newly introduced products tend to gain traction in the developed markets first and are quickly adopted by developing market territories.

Moving on to gross margins, gross margins were up on a year-over-year basis 170 basis points from 40% in the year-ago period to 41.7% in the September quarter. The gross margin improvement on a year-over-year basis was driven by improved supply chain management as well as the benefits of a relatively stable operational cost spread across higher revenue levels. Sequentially, gross margins were up 20 basis points from the 41.5% we recognized in the June quarter.

Now, moving onto our non-GAAP expenses, which exclude the impact of stock-based compensation, these expenses came in at $5.2 million compared to $4 million in the prior year, reflecting our continued focus on increasing our R&D spending as well as extending our infrastructure. For the second quarter we expect expenses to come in at approximately 7% of revenue. Though our expense levels are relatively low, we in continue to aggressively pursue and hire the most talented engineers we can find in any location globally to further our R&D efforts. This strategy of hiring shows us results in our exceptionally high return on our R&D investments. Moving forward, we expect R&D to increase in absolute terms.

In addition, we expect SG&A costs to increase in absolute terms as we build out our public company infrastructure. As you saw in the press release, our operating margins are significantly ahead of our previous goal of 30 to 32 points, coming in at 35 points. That 35% operating margin compares to 28% in the prior year and is up from 34% sequentially. The primary driver of this sizable improvement in operating margins was modest operating expense growth coupled with significant revenue growth.

As I mentioned earlier, going forward we expect operating margins to range between 32% and 34%, which leaves us room to grow our R&D expenses in both absolute terms as well as percentage of revenue terms.

Now moving below the operating income line, in the quarter we have approximately $600,000 of interest/other expense in the quarter. The interest was from the financing costs related to our $108 million repurchase of preferred shares. This occurred in the September quarter, early in the September quarter. We used $40 million of our domestic cash to pay for this repurchase, leaving a balance of $68 million which we financed through our convertible notes. We subsequently refinanced half of that balance, $34 million, with our traditional term loan and paid the balance of the convertible note, leaving no convertible note outstanding, with the IPO proceeds. We have left the term loan in place for a total of $35 million. At today's interest rates, we expect quarterly interest expense of approximately $300,000.

Now, moving down to the last item on our P&L, our effective tax rate, the effective tax rate for the September quarter was 20%. The primary driver of our effective tax rate is the geographical mix of our revenues. Assuming no meaningful change in this geographical revenue mix, the 20% rate should continue.

Now moving away from the P&L and onto the balance sheet, during the quarter we generated approximately $16.2 million in cash net of the $40 million used in the preferred share repurchase. We expect to generate significant free cash going forward as we have minimal working capital requirements and minimal capital expense requirements. Looking forward to the future, we do expect the majority of the cash build to occur outside the US.

Moving onto inventory, our inventory balances were $8.4 million, an increase of $2.7 million compared to the ending balances for last year of $5.7 million. The increase in inventory levels was driven by two factors -- first, to support our increased revenue levels; and, secondly, in support of our decision to proactively increase our safety stock and provide increased certainty around our revenue forecast.

As a reminder, the significant majority of our inventory consists primarily of raw materials comprising of chipsets which we in turn consign to our contract manufacturers. We hold very little in the way of finished goods.

Accounts receivable for the quarter increased $8.3 million from $48.1 million from the $39.8 million that we had at the end of the fourth quarter. The increase was primarily driven by $11.6 million in increased revenue on a sequential basis. Our DSOs have held steady on a quarter-over-quarter basis or on a sequential quarter basis in the mid-50-day range, and that has actually held steady now for about three quarters. We expect going forward the DSOs will remain in the mid-50 to mid-60 day range, depending on the linearity, the shipping linearity in a given quarter.

Now I will move on to where we expect our second-quarter results to come in. We are projecting revenues today in the range of $83 million to $86 million and earnings per share on a non-GAAP basis of $0.24 to $0.25.

Now, with that, I will be happy to turn it over to the operator to gather questions. Thanks.

(Operator instructions) Amitabh Passi, UBS.

Congratulations on your first quarter as a public company. I had a couple of questions.

The first one -- if I just look at your revenue growth projected for AirMax, you are basically coming off almost six quarters of double-digit sequential growth. It looks like you are now guiding to maybe around mid-single-digit growth for the December quarter. So just trying to understand -- is it just simply the law of large numbers? Was there some catch-up in the June-September quarters? How should I think about the implied growth for the December quarter for AirMax?

So just to clarify, we are not giving growth projections by product lines, specifically. I think, clearly, there is a component of law of large numbers. But at this point, we have no reason to believe that the success that we've seen in the past with AirMax will not continue.

Okay, John, maybe if I ask it slightly differently -- is your expectation that that product line will grow sequentially into the December quarter?

Yes.

Okay, and then just on your business model, 35% operating margins for this quarter -- I guess a couple of questions. Where could gross margins go and what would drive your 35% margin back down to the 32% to 34% level, and in what time frame?

So the 32% to 34% level -- just to be clear, we don't think that would impact our ability to increase profits as we move forward. That being said, we want to leave room for investments in R&D as we move forward. We've put out -- I think we've put out a fairly conservative model. I think it's important that we, especially fresh out of the gate as a new public company, that we take a fairly conservative approach. I don't think there's much more I can add to that.

And just my question -- are you able to -- I was just wondering what your plans or expectations were for the Edge OS router that you announced at the AirMax conference. I think, timing wise, you said first-half 2012. I would love to hear you are who you are targeting, what the intended customer base and end markets would be, and anything else that you could share with us at this point.

Sure. I can't be specific on release dates. It will be sometime in the next fiscal year. And as for who we are targeting, (inaudible) people was disruptive. So like AirMax and UniFi and AirVision, we believe Edge OS platform is one that will create a huge new market and eventually compete upstream as you have seen AirMax compete with, let's say, Motorola, for example, in the past year.

Okay, got it. I'll jump back in queue, thank you.

Mark McKechnie, ThinkEquity.

So congrats on the quarter. I want to -- just a housekeeping question on your share count for the December quarter, relevant to your earnings guidance. Are you expecting the low 90s, or can you give us an estimate on that share count jump?

Your low 90s estimate is correct. It's impossible to predict with a tremendous amount of accuracy, given the impact share price has on the dilutive share count. But for our modeling purposes, we use the low 90s.

Got you. And can you talk about visibility into December? I guess we are, what, almost a month and a half into it. Is it visibility? And given the end of year, would you see kind of a front-end loaded quarter, or do you expect much business in the last two weeks?

We are not a company where the fourth quarter would drive any business, any more or any less business. There is no real seasonality at this point we can determine.

Regarding visibility, as you can imagine, when you give a conference call this late in the quarter, we have a very, very high degree of confidence in the numbers that we have given. In general, we are telling our customers 8- to 10-week lead times. We are doing part of that purposely, so if we are giving a conference call on the fourth week over quarter, we will have a high degree of confidence, given the visibility we will have at that point in time.

Got you. And then, Robert, any comments on early results of AirVision? I guess it launched, what, after October, after your conference. But can you give us some early signs of results and maybe talk about -- would you see this as a ramper, similar to your early AirMax and your UniFi?

Yes, sir. So just for the people listening, I'll give you a brief background. So what AirVision is, it's a highly disruptive IP surveillance platform. It consists of air cams. We have three different IP cameras -- megapixel, H (inaudible) indoor/outdoor, [some $100] an end user. But what makes the AirVision platform really attractive is we have our AirVision software, which is unlimited scalable IP camera management software with an NDR and advanced video analytics built-in, and that has a killer UI and user experience.

So out of the gate, we have tens of thousands of units backlogged, and I think you will see it have a similar trajectory to AirMax and to UniFi.

Great, thank you. Last one -- John or Robert, either way, it seemed like you had pretty big sequential growth in Asia and maybe a little less aggressive in Brazil or Latin America. One is, did you take a hit on the currency in Brazil? Did that impact you one way or the other? And the second, maybe if you could tell us some of the regions that drove the growth there in Asia?

Sure. So first of all, in general, I'll talk to South America first, then we'll circle back to Asia. I would say, in general in South America, we bill our products to the USD. But ultimately, the end user customer is at some point translating, so we have some indirect exposure to FX.

But I do want to be clear. Our fastest-growing market inside the South American category is indeed Brazil. Brazil is actually up on a year-over-year basis, up about 240%. So we are still seeing, despite fluctuations you have seen in the last year-plus in the real-to-dollar exchange rate, we are still seeing tremendous growth in Brazil.

Relative to the rest of the world, we are seeing growth in the Asia-Pac/rest of the world category. But to be honest with you, they're off of such a small base, we don't think that that's really that meaningful. When the numbers get larger, we think it will become more meaningful in terms of trending off of the sequential growth numbers.

Got you, any -- okay, so stay tuned on India and China, I guess; right?

Correct.

Todd Koffman, Raymond James.

I just wanted a clarification, Robert. I think I heard you say that you expect to introduce four new platforms in the current fiscal year, or you will have four platforms in total?

No, introduce four new platforms.

So just so I can be really clear, so you have the AirMax platform; you have the UniFi platform. You are now ramping AirVision, which would be three. And I'm assuming you consider the new router platform, so that would be four. So that would suggest that there's three additional platforms that you have not yet talked about or you have talked about forthcoming?

Yes. Let's say seven total, to make it easy. So it's seven total by the end of this fiscal year we will have on the market.

And is the router considered a platform?

Let's say, by end of next calendar year, yes, we will have seven total.

Seven total by the end of the calendar. Have you given any other details as to what those (multiple speakers) --

Let's be very clear. End of 2012 calendar year, we will have seven total in the market.

Yes, end of calendar 2012, seven total. Have you given any color as to what some of those yet-to-be-introduced platforms just in a general category might be, or you haven't shared that yet?

So I think we've talked about the AIRFIBER product and we've talked about the SCADA product, but there's one or two that we haven't yet disclosed, and we are not prepared to do that at this point.

Your anchor -- really successful product -- is AirMax. And I'm wondering, what do you think the thought of the lifeline of this product will look like, meaning, will we hit sort of a run rate where it will start to stabilize? Or is it seeming as though the subscriber numbers of new networks being built that you can't even see what this ramp will look like? Any color on that, on AirMax?

Yes. So one thing I think people miss about Ubiquiti is we are very different from other commodity -- companies making like a Linksys or a Netgear that have 6-month product cycles. So Ubiquiti product cycles tend to be very long. We don't even know how long they are yet because some of the products, the first products we launched in 2008 are still selling in high volumes nearly four years later and continue to do that.

So with AirMax, I'm always surprised at the growth. But at the same time, I think there's a lot more growth ahead. And the reason I say that is because we see areas like South America coming on strong recently in the past couple years, but we were yet to see big -- like India and China and Russia and some other untapped markets. We are just seeing those markets just starting.

So I think the future for AirMax and the volumes -- it looks bright right now.

The one thing I would add to that, Todd, is, as we pore over data trying to figure out the size of these markets, the one piece of data that jumps out at us is the relatively low level of penetration of broadband connectivity in several of the markets where we are successful. And when I talk about low levels of broadband penetration, we're talking single-digit, low-double-digit levels.

We think that they will eventually, over a course of many years, eventually migrate towards developed market levels, which are in the 60%, 70%, 80% range. So given that, AirMax has a lot of room left in it to (inaudible).

Just another follow-up question. I think you called out about 100 distributors. Is that the number you're going to sort of try to run with here, or is that number increasing or decreasing in the next six months or so?

So, to be quite honest with you, the 100 that we have we think are fine. We may swap distributors out, but that number seems to be able to satisfy the revenue levels that we are looking to attain. I would say the exception to that would be, as we move into China and India, we may have one or two significant distributors there. But our growth plans right now can be met through the distribution network that we currently have in place.

And then one last question -- when do you expect first revenue for the recently introduced router, or have you not decided?

The router has not been introduced. We talked about it at the Las Vegas show, but we haven't given a specific date when that product gets introduced.

Very good, thank you and good luck.

(Operator instructions) Amitabh Passi, UBS.

Sorry; not to harp on this, John, but I was intrigued -- the Asia-Pacific question that was asked earlier -- yes, it's off a small base, but I think on an absolute dollar basis, it grew the largest. It does seem like from a volume perspective you did pretty well. So I just wanted to see again if there's any one or two specific markets that led to that growth or anything else you can shed just specific to the Asia-Pacific market.

So I'll give you as specific an answer as I can, and we are not trying to hold anything back here. So the country within Asia-Pacific that grew the most was Hong Kong, but the vast majority of that product is getting transshipped to destinations that we can't confirm. And that is the one country that showed the growth.

Got it. And then accounts receivable days, maybe up slightly sequentially. Just how are you feeling as far as your receivables, and just anything you can shed on the channel, if you have any visibility to inventory levels in the channel?

So, as we mentioned on the road show, we think one of the primary drivers we used to check the health of channel inventories are DSOs and AR levels by customer, because these would tend to be from the capitalized distributors. They are very cash-flow focused. When they start slipping past terms, we interpret that as being -- potentially having excess inventories. We tested that over the past 18 months, and we think that it is -- we had two distributors that we moved, slowed down and moved to cash basis. And we flagged those two distributors through the analysis that we made.

So, that being said, things today look fine. We don't see any sort of macro issues with inventory. So we, right at this point in time, don't concern us.

And just final one for me -- just on the macro stuff, lots of concerns emanating out of Europe. Are you hearing anything from your distributors in the region constraining the ability to either have the access to credit? Is any of that starting to affect their business? And then, related to macro, any impact to your business or any concerns around the floods in Thailand?

The floods in Thailand is the easiest one. No, we are not seeing that; I think that's predominantly hitting the disk drive makers.

Now, to your earlier question or the first question, the impact on Europe -- right now, our biggest single end market in Europe is Poland, and we saw sequential growth there. And my understanding is Poland was getting through this mess probably as one of the healthier countries in Europe.

But ultimately, I don't think that any Company is ultimately immune to these macro events. But keep in mind our price points are very, very low. We have a customer base that probably doesn't benefit tremendously in a great economic environment and probably doesn't suffer as much in a really bad economic environment. And all the macro issues that are going on in the world today, to the extent that we can interpret them, we have embedded those in our guidance.

Got it, thank you.

Mark McKechnie, ThinkEquity.

Just a short one here -- John or Robert, any change in your pricing on your AirMax units, one way or the other? Thanks.

Yes, so Ubiquiti tracking, we have never dropped the cost of anything, ever. So we believe in disrupting markets. So usually we come in with a very aggressive cost point and we never have to change. As our platforms evolve and as we pick up momentum, we do have the ability to introduce more sophisticated, higher-margin products. An example of this is our Rocket GPS base station, which sells for a significantly higher margin than our standard Rocket base station, as it has a GPSE -- GPS satellites for timing synchronization.

So over time, I hope, as our volumes scale, a lot of people think that we will face margin pressure. But my vision is actually the opposite. As Ubiquiti continues to grow, I look for margin -- gross margin expansion, blended gross margin expansion.

Got you, no, that's fair; thank you. So really no change because that's your common business practice, is not to change pricing, so we didn't see any, and we don't expect to see any?

That is absolutely correct.

Thank you.

Todd Koffman, Raymond James.

John, are there any markets that your relatively narrow group of 100 distributors, that your products are well suited for, are not really strong or exposed for that you have identified?

I think India is -- from an end-user market, country specific, we think there's room for us to grow in India as well as in China.

Thank you.

This concludes the Q&A portion of the conference. At this time, I would like to return the call over to Robert J. Pera, Founder and CEO of Ubiquiti Networks for closing remarks. Please go ahead, sir.

So I would like to thank our Ubiquiti community and express our commitment to continue to deliver to the market disruptive technology platforms in the most efficient way possible. I would also like to thank our new shareholders who have shown their confidence in Ubiquiti and our unique business model.

Thank you.

Ladies and gentlemen, thank you for your participation today's conference. This does conclude the program and you may now disconnect. Everyone have a wonderful day.