優比快 (UI) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Ubiquiti Networks Q3 2012 Conference Call. At this time, all participants will be in a listen-only mode, but later we will conduct a question-and-answer session, which instructions will be given at that time.

(Operator Instructions)

And as a reminder, today's conference is being recorded. And now, I would like to introduce your host for today, JoAnn Horne, Investor Relations for Ubiquiti Networks.

Thank you, operator, and thank you for joining us, everyone. I have here with me today Robert J. Pera, Founder and Chief Executive Officer of Ubiquiti Networks, and John Ritchie, Chief Financial Officer.

Before we get started, let me review the Safe Harbor Statement. During the call, we will be making forward-looking statements that are statements other than statements of historical fact, including, but not limited to, our strategy, estimates, projections, revenues, and EPS. Forward-looking statements are statements of risks and uncertainties that could cause the results to differ materially or cause a materially adverse effect on results. Please refer to the risk factors discussed in our SEC filings and the press release. We do not undertake to update in light of new information or future events.

In addition, reference will be made to non-GAAP financial measures. Information regarding a reconciliation of the non-GAAP and GAAP measures can be found in the press release that was issued this afternoon or on our website at the IR section at www.ubnt.com.

Now, let me turn the call over to Robert Pera, Ubiquiti's Founder. Robert?

Hello. Thanks for joining us to review Ubiquiti Networks' third quarter fiscal 2012 results. We are very pleased with our 79% revenue growth and 113% growth in net income, once again exceeding expectations while significantly outperforming our long-term model. airMAX delivered its tenth sequential quarter of revenue growth, while we also saw increasing demand for UniFi and airVision, with revenues from these new platforms growing 135% on a sequential basis.

Perhaps the most noteworthy development during the quarter was the introduction of our new airFiber platform, which we formally introduced at our Ubiquiti World user conference in Chicago. The event was attended by over 700 people -- the largest gathering in Ubiquiti's history -- and featured presentations covering all four of our announced platforms -- airMAX, UniFi, airVision and airFiber -- and presented by the very engineering teams that designed them.

The approach of providing direct access to the R&D team is unlike most other gatherings in our industry. The accessibility and transparency we provide with our community of operators not only strengthens our bond with them, but also provides valuable feedback, which we leverage to gain a competitive advantage over our peers.

airFiber represents Ubiquiti's first proprietary in-house radio design effort that was purpose-built for the wireless ISP industry. It operates in the license-free 24 gigahertz band with ultra-low latency, up to 1.4 gigabits per second of proof of performance, and a disruptive price point, making it a key building block for next-generation outdoor wireless broadband networks.

As the name implies, it provides optical fiber network performance without the significant capital costs associated with fiber cable network deployment. The 24 gigahertz airFiber radio uses an innovative system design, which enables frequency division duplex, time division duplex, and Ubiquiti's patent-pending hybrid division duplex modes of operation.

I recommend watching the airFiber video available on our website at ubnt.com. I think it will give you a good sense of the dedication and excitement of the team, who joined Ubiquiti from Motorola and designed the platform.

As the team points out, airFiber was designed with leverage in mind for support of future products. The video will also give you a sense of how we attacked engineering problems through freeing our development teams of the constraints typically found at most technology companies and correspondingly brings insight into how Ubiquiti's efficient R&D model can produce superior results.

While our strategy is to aggressively grow our total addressable market through a diversified family of new communications technology platforms, we are also very much focused on advancing and expanding our existing platforms.

This can be seen through the continuing drive to improve our software performance and feature sets according to community feedback as well as the introduction of more powerful, higher end hardware offerings which further monetize our market momentum. We hope to demonstrate this particularly in our airVision and UniFi platforms, where we plan to introduce several higher end products.

A key differentiator across all of our platforms is our IP, whether it is our proprietary technology or our highly regarded brands. We plan on increasing our legal efforts around IP and brand protection as well as to protect our customers from counterfeiters. The hiring of our new general counsel with significant experience in this area was a step in this direction.

Going forward, we intend to aggressively defend our IP to the full extent of the law, especially in foreign markets, where our brand is particularly strong, but markets that tend to be less disciplined about IP protection. Whether through patent and trademark filing or seeking legal retribution from those that infringe on our patents and steal our technology and potentially damage our brand, we intend to increase our focus and financial commitment to this area.

We also continue to seek the best engineering talent we can find globally. Since our IPO, we have expanded our R&D team by about one-third. And perhaps the most reason we became a public Company was to raise our visibility and improve our changes in recruiting outstanding engineers. We are very pleased that this plan has been well executed.

In summary, our strategy is working, and we are even more excited about Ubiquiti Networks' unique position to bring connectivity to the emerging markets around the globe while leveraging our business model and infrastructure to add value for our shareholders.

Now, I'll turn the call over to John to discuss the financial results in greater detail.

Thanks, Robert, and thank you all for joining us on our third quarter call. Moving on to our results for the quarter, we saw strong continued growth in the third quarter of 2012 with revenues up 79%, or up $40.5 million to a total of $91.7 million, an increase from the $51.2 million recorded in the same period in the prior year.

The increase in revenue was primarily driven by a significant rebound in our airMAX product line, which showed 119% growth on a year-over-year basis and 17% growth on a sequential basis.

We also saw sizeable increases in our new products category, which consists of our airVision and UniFi platforms. This category was up a large 135% on a sequential basis. This more than offset the expected decline in the other systems category.

On a non-GAAP basis, net income for the quarter was $28.1 million; and on a GAAP basis, it was $27.9 million. Our non-GAAP EPS was $0.30 per share, up 131% compared to the $0.13 per share from the year-ago period.

Before I go through the quarter in more detail, I wanted to highlight some key milestones we achieved during the quarter. We once again exceeded the high end of our long range operating model goal of 32% to 34%, with operating margins of approximately 36%. This operating margin target still leaves us room to expand our R&D investments in both absolute terms as well as a percentage of revenue.

airMAX posted its tenth sequential growth quarter. We recorded our eighth straight quarter of improved gross margins. Our new platforms contributed $9.9 million in revenue, growing 135% sequentially. We added $29.4 million to the balance sheet in terms of cash. That was -- on a per share basis, that was a penny ahead of the $0.30 of EPS we had for the quarter, so we had $0.31 of cash.

Before I go into our revenue in more detail, I wanted to take a few minutes to talk about our revenue categories. To increase transparency, we have added a third line within our systems category -- new products. This category includes revenue from both airVision and the UniFi platforms. We will report new product revenues in this line item until we feel it's appropriate to create a stand-alone category, similar to what we did with airMAX.

So to recap, we now report revenue as five categories. We report three line items within our systems category -- airMAX, new products, and other systems. In addition to that, we have embedded radios and our antennas/other category.

I'll now go into each category in more detail, starting with our proprietary airMAX platform. Revenues came in at $62 million, or up 119%, or up $33.7 million from the $28.3 million recorded in the same period in the prior year. On a sequential basis, revenues saw a nice rebound, increasing 17%, or $9 million, from the $52.9 million in the December quarter. airMAX represented 68% of total revenues for the quarter, up from 60% in the prior quarter and up from 55% in the year-ago period.

Moving on to the new products category, revenues there came in strong, with revenue for the quarter totaling $9.9 million, up from less than $1 million in the year-ago period and up to an impressive 11% of total revenues.

The last component of our systems category, or other systems group, primarily consists of non-airMAX wireless outdoor products. Revenues from this category contributed $10.3 million, roughly flat on the year-over-year basis and, as expected, declined sequentially from the $18.3 million in the prior period. This decline was related to outperformance in the prior quarter which we did not expect to repeat.

Revenues from embedded radios, our original product line, were $2.2 million, down $300,000 sequentially and down $1.9 million on the year-over-year basis. Looking forward, we expect this category to account for a contracting percentage of our overall revenues and likely a decline in absolute dollars as well. During the quarter, our antennas/other category revenues were $7.2 million, even with the same period last year, and on a sequential basis were down from $9.8 million.

Now, moving on to the geographic breakdowns of our revenues. North America revenues were $16.6 million, up 5% on the year-over-year basis and down 22% on a sequential basis. We believe the decline in the North American business is primarily related to shifts in our customers' approach to ordering so that they are receiving Ubiquiti products closer to the ultimate end users.

As you will recall, we have stated that we believe approximately 50% of the products shipped to the US and recorded as part of our North American revenues were actually destined for other geographies. With the introduction of the US-specific SKUs, we are now seeing distributors who operate in both the US and international markets choose to ship products directly to those end markets, thereby streamlining their operations and reducing their own logistics costs. With our current platforms, we expect that going forward North American revenues will represent anywhere from the high teens to the low 20% range of our overall revenues.

In addition to more efficient inventory management and greater insight into our geographic demand, we gain another significant benefit from this change in shipping patterns -- a decrease in our effective tax rate. As we mentioned at each of our earnings calls, the most significant variable that determines our effective tax rate is the geographic revenue mix. A mix shift away from the US effectively lowers our tax rate.

Moving on to South American revenues, they increased 14% sequentially and 102% on a year-over-year basis to a total of $27.7 million. Supporting the growth rates in South America are relatively low connectivity rates in the region, as well as the impact of changes in distributor-direct shipment patterns noted previously.

Moving on to the EMEA region, which showed the highest sequential growth rates of all of our regions and has been our largest region for the past couple of quarters, there we saw revenues increase 20% sequentially and 112% on a year-over-year basis to a total of $36.4 million. The EMEA region represented approximately 40% of our revenues for the quarter.

Revenue in this region is largely concentrated in distributors located in Eastern Europe with minimal exposure to Western Europe and the current economic circumstances going on in Western Europe. Similar to South America, the underlying driver of the growth is the relatively low penetration rates of internet connectivity, as well as the changes in the previously mentioned distributor-direct shipment patterns.

And lastly, moving on to Asia-Pac, their revenues increased 145% on a year-over-year basis to $11 million and were down $800,000 sequentially. As I noted earlier, last quarter benefitted from a large other systems order which we did not expect to repeat in Q3. This order was related to our business in the Asia-Pac region and was responsible for the decline -- the sequential decline.

Our non-GAAP gross margin for the quarter was up approximately 200 basis points to a new high of 43.3% from 41.3% in the year-ago period. Much like last quarter's gross margin improvement, it was driven primarily from improved supply chain management. Sequentially, gross margins were up approximately 80 basis points from the 42.5% recorded in the December quarter. Again, this marks our eighth consecutive improvement at the gross margin line.

Now moving on to expenses. It came in at $6.8 million for the quarter, up from $5.8 million, or 18%, on a sequential basis, and up from $4.6 million, or up 49% on a year-over-year basis. This reflects our continued focus on increasing our R&D spend. Total OpEx came in at just under 7.5% of total revenues. And as a reminder, our non-GAAP operating expenses exclude the impact of stock-based compensation.

Though our expense levels are relatively low, we continue to aggressively pursue and hire the most talented engineers we can find in any location globally to enhance our R&D efforts. We continue to expect R&D expenses to increase in absolute terms.

In addition, we expect SG&A to increase in absolute terms as we continue to build out our infrastructure, especially in areas such as IP protection. I will talk about this more in detail a little later on in the presentation.

As you saw in the press release, our non-GAAP operating margins, again, are ahead of our long-term model of 32% to 34%. Operating margins came in at 36%, even with the prior quarter and an improvement over the 32% recorded at last year.

As I mentioned the last couple of quarters, over the long term we expect operating margins in the range of 32% to 34%, which leaves us room to grow our R&D expense in both absolute terms as well as a percentage of revenue yet still deliver industry-leading operating margins.

Now, a little more detail in terms of our forecasted expenses. As we look ahead to the fourth quarter, we expect to see a meaningful increase in operating expenses of approximately $1.5 million. The largest component of this increase relates to costs to protect our intellectual property, as Robert discussed earlier.

As we become more and more successful, we have unfortunately become the subject of counterfeiting efforts. We intend to be aggressive in defending our IP and the Ubiquiti brand around the globe. After this increase, we expect our operating expenses to stay in the range of 8.5% to 9%, driven in the future primarily by increased R&D investments.

Now, moving on to the operating income line. We had approximately $200,000 of net interest expense. This net interest expense is related to the remaining $31 million balance of our loan agreement with East West Bank. At today's interest rates, we expect this expense level to be similar in the June quarter.

Moving on to the last item of our P&L, our effective tax rate. For the September quarter, our effective tax rate was 14%. The 14% represents a catch-up adjustment to bring our year-to-date rate to 17.75%. We expect the tax rate to hold at these levels for the balance of the year. And again, as a reminder -- the same reminder we've given the last few quarters -- the primary driver of our effective tax rate is a geographical mix of our revenues.

Now, moving on to the balance sheet. As we mentioned before, a very strong cash quarter with cash growing $29.4 million and cash generation a penny ahead of our non-GAAP EPS. As we have consistently done in the past, we expect to generate significant free cash going forward with the majority of the cash being generated outside the US.

For the quarter, our net inventory balance was roughly even at roughly $9 million compared to the prior quarter, and accounts receivable increased $7.1 million to a total of $68.5 million, up from the $61.4 million at the end of the fourth quarter.

The increase in R&D was partially driven by a sequential increase in revenue. The DSOs increased to 68 days from 64 days on sequential basis. The DSOs were impacted by factory shutdowns associated with Chinese New Year, which had an effect on our linearity. As anticipated, this quarter was more back-end loaded because of this, resulting in higher levels of DSOs; however, notice that we're very pleased with our cash collection activities and expect these DSOs to return to the high end of our range, somewhere in the mid 60-day level, in the upcoming quarter.

Now, I will talk a little bit about our upcoming -- our Q4 guidance. We expect revenues in the range of $93 million to $95 million, and we expect non-GAAP EPS between $0.28 and $0.29. With that, we'll turn it over for questions.

Operator, we're ready to take questions now, please.

Okay. (Operator Instructions). And we'll take our first question coming from Brian Madoff from Deutsche Bank. Please go ahead, sir.

Hi, guys. So, Robert, on the -- in terms of the OpEx increase to defend your IP and such, how are you looking at that on a go-forward basis? Do you think that the amount you're allocating now is going to be kind of a consistent number, or are you thinking you may have to get more aggressive in the future to help -- to deal with that issue?

Thanks, Brian. Maybe I'll let John answer that one.

Brian, we're expecting kind of a big bump when we make our initial efforts in that area. But after this quarter we expect the legal expense to ebb down, but then it will be offset by our expected increases in the R&D spend area. So the point of giving the guidance at moving forward to expect OpEx in the kind of the 8.5% to 9% range we think indirectly answered that question. Was that helpful?

And then -- go ahead.

No, (inaudible) make sure I answered your question.

Yes, you did. Okay. And then, you've got some new products coming down the pike. Can you talk about, with regard to the airFiber product, what's the feedback been? When do you expect to see revenue from that product?

And then, what's next on the list? Are you kind of looking at where else do I need to -- we need to provide to give our customers a complete solution in terms of from the access point -- the point of egress into the network back to the APs. In other words, things like routers, those kinds of things? Or are you thinking about more along the lines of expanding out the areas you address, like you did with the camera?

Yes. So if you look at how Ubiquiti started, it started just making radio models that went into other people's systems. And then we got into DPs, and once we were successful in DPs we started to go closer to the core and get into base stations. And now the next step is wireless backhaul.

And the wireless service providers, they need higher end backhauls. They need something with some millisecond latency that's very fast to support these growing airMAX networks. So I think airFiber is kind of like the perfect solution. It's a key piece of what we're missing in the full system solution.

And the field testing has been going great, and we think we're going to have some shipments coming up in this June quarter. They're probably not going to be material, but we expect after that, subsequent quarters, it should ramp up.

Okay. And then finally, just kind of an update on last quarter, John, you had the issue with the distributor. Can you give us an update on how that's going now with regard to them working through the inventory? And then can you just briefly give us the number for other last -- for the new products last quarter? What was the revenue number on new products this last quarter, Q4 -- calendar Q4? Thanks.

So for the December quarter, the other category was $4.2 million.

The new products was $4.2 million?

Yes. So in the December quarter it was $4.2 million, up 135% to $9.9 million in the current quarter.

Okay, great. And then, on the distributor?

Yes, on the distributor -- yes, I think I've mentioned before I'm really focused on the credit risk. Distributors have done a great job of bringing down their AR level. And I think if you look at the bounce we had -- the rebound we had in airMAX, that gives you some indication that that problem is a long way to resolving itself.

Excellent. Okay, I'll pass it on to the next person. Thank you.

Thank you.

Thank you. And we'll take our next question coming from Brent Bracelin from Pacific Crest. Please go ahead, sir.

Thank you. A couple of questions for John, then one for Robert. Starting with John here, clearly you [hashed down] for two consecutive quarters here. I know you also talked a little bit about a change in where you're shipping product, but do you think we've kind of bottomed relative to shipments into the US, and we could start to see sequential growth from here?

Or again, with the change in where and how you're shipping, should we just not look at the US segment and try to extrapolate given the change in how you're shipping there?

Well, we actually -- we think the US as a percentage of our total revenues will move up a little bit in the current quarter. But longer term we think the US is going to be in the kind of 18% to 20% range of our total revenues.

But the big driver there is not necessarily -- we don't believe it's necessarily -- the decline is not necessarily reflective of end user demand in the US. We just think it's a more the change in the shipping patterns. As we've said repeatedly in the past, we think that 50% of our US product gets exported. Well, that number will decline, and our North American revenues are going to become more consistent with North American demand.

Okay, that's very helpful. And the secondly, obviously, the new platforms are growing very fast now, north of 10% of revenue. As you think about the contribution from UniFi and airVision, I know you're not breaking out, but it sounds like demand is outstripping supply for UniFi based on our checks. Is the bulk of the increase tied to UniFi? I know you're not breaking that out, but could you give a little more color on what drove the magnitude of increase that you saw in the new platform side?

We're not going to break it out in any more detail other than to give you the kind of subjective answer that we're pleased with the growth in both of the products. UniFi continues to gain traction and airCam plus airVision has done very well for a product just recently out of the gate. I know it's not the objective answer you're looking for, but I don't want to get anymore granular than the total new products revenue number we give.

That's all right. I had to ask. And then, Robert, on the airFiber, just for a follow-up here, you guys are taking pre-orders for that now on your website. Can you give us any sort of color based on the pre-orders that you're seeing for that, that would help gauge the interest level? Or again, is it just too early and this is a product that's going to have to be kind of tested in the field before you see a volume kind of shipment?

Yes. I think those pre-orders will -- they are limited to just US customers and they are limited, I think, to five links per customer. It's healthy, but I don't think those shipments -- hopefully, we'll get them out in the June quarter. I don't think they'll be material.

Okay. Do you expect a material ramp in the September timeframe? Or again, is this like your existing airMAX product, it's going to take a while?

I would say our goal is to have some material revenue from airFiber in the September quarter.

Okay. Thank you.

Thank you. And we'll take our next question coming from Amitabh Passi from UBS.

Thank you. John, my first question for you was the gross margin line continues to trend up. How should we think about that going forward? Is it simply the benefit of increasing volumes? Do you think it continues to trend higher?

I think it should stay stable at these levels.

Okay.

I think we -- we're very pleased with how the team is executing and getting our costs down. But I think stable at these levels is the right way to view it.

And then just maybe if I could follow-up with you, John. On your accounts payable, did something funky happen? Because if I did the math right, it seems like that also expanded by 14-15 days, sequentially.

Accounts payable pretty much well tracks our receivables.

Okay.

So you would expect a bump up in the AP when you expect a bump up in AR.

Okay. Fair enough. And then I was hoping you could provide any more color in terms of -- with any new geographies you manage to penetrate this quarter, any new distributors you added, just any color in terms of where this strength in both airMAX and also your new platforms.

Yes. I think one of the things we're pleased with right now is how the EMEA region is doing. We saw very good growth there. It's probably one of our more established markets. But we're seeing -- we're kind of seeing strength in the big markets -- EMEA and South America.

So basically, just in geographies, Poland, Brazil --? I was just curious if there were any new markets you managed to add.

No, it's the same cast of characters -- Czech Republic, Poland, Brazil, Argentina. Those countries all continue to do well for us.

And then just a final one from me. Antenna products, I was surprised that sales were as weak as they were given how strong airMAX was. Just trying to understand why we're seeing a bit of a decoupling between airMAX sales and your antenna product sales.

It's hard, because we mix in the accessories/other, so I wouldn't -- honestly, I wouldn't read much into that. It's a relatively small portion of the overall revenue.

Okay.

You're going to see more volatility there.

Yes.

And that benefitted the past couple of quarters with the roll-out of our TOUGHcable product, so we have some inventory fill of that. But really other than that, there's really not much going on there.

Okay. I'll jump back in queue. Thanks.

Thank you. And we'll take our next question coming from Mark McKechnie from ThinkEquity. Please go ahead, Mark.

Very good, thanks. Hey, John and Robert. Can, I guess for John, talk about visibility on your guidance here for June relative to what you had going in last quarter?

I think in terms of visibility, we've shrunk our lead times, so I think we've said before we were at eight to 10-week lead times. We're at six to eight-week lead times, so we have the visibility that that would provide.

Got you. Okay. And then I didn't quite understand your tax -- I understood the catch-up, but did you have a tax rate expected for June and then for next fiscal year?

I'll just recap. The benefit we're seeing, and it's kind of a fallout benefit from the introduction of the US-only SKUs, is we're seeing our distributors ship product more directly to their end user customers because they have less ability now to consolidate inventory in one location. Because they can't have it at one location and send it all over the world, and so they're putting to closer to the end user demand. And again, that's a fallout of the US SKU issue.

The more foreign direct ship-to addresses, or as the geographic mix of our product moves away from the US, it puts downward pressure on our effective tax rate. So we actually have to catch up based on our projected revenue mix in the quarter, which took the effective tax rate down to 14%, which we picked up about $0.02 of it on EPS because of that catch-up adjustment.

Then, going into the -- and that caught us up to a rate of 17.75%. We expect that rate to hold in the June quarter. And as you look out, if you're doing multi-year forecasting, I would have a rate estimate anywhere between -- somewhere between 18% and 20%, depending on where your models put the geographic revenue mix.

Okay, great. No, that's very clear. Thanks. And then, maybe for Robert or for John, on that big uptick sequentially on your new products. You're not really breaking out which one was which, but our call last quarter you had them essentially metered, right? You really weren't ready to push the button and ship them until you got a lot of the updates from the Ubiquiti community in there.

Am I looking at that right? Is that why you were -- did you basically just push the button on manufacturing on those because the products are ready for bigger distribution? And what should we think about for June and beyond in that group?

I'll answer the revenue piece, and I'll let Robert give you more insight into the feedback we're getting from the customers. Basically, we're not going to give any sort of -- kind of specific guidance on product lines.

In terms of kind of a ramp-up in where these products are, we're going to point you back to what happens with airMAX. And the benefit of Ubiquiti is we're extremely transparent. You can see what our customers are saying about our products by going out into the forum. UniFi is clearly a more mature product than the airVision product, which is exactly where we would expect it to be.

So in terms of where the products are, UniFi is more mature than airVision, but the feedback -- and I'll let Robert get to more details on the feedback -- but the feedback we're getting is exactly the feedback we'd expect based on their level of maturity. Robert?

Yes. I would say Unifi right now is mature, after about a year. We have the feature set pretty much complete, it's very stable, it's well liked. I expect big things from UniFi in the next several quarters.

airVision, it still has a lot of room for growth. It's doing okay now, but I think we still have a lot of improvement to go. airFiber, because it's not as software-intensive as Unifi and airVision, it's FPGA-based, and we've done a lot of QA and reliability and field testing. I think that one will ramp up -- hopefully, my goal is quicker. So yes, all three platforms, they look positive.

Great. Okay. Thanks, gents.

Thank you.

Thank you. And we'll take our next question from Matt Robison from Wunderlich Securities. Please go ahead.

Thanks for taking the question. John, just for some housekeeping, can you provide the cash flow from operation CapEx and depreciation? And while you're looking at that, I'll get some more interesting questions. Is there an update on the forthcoming product launches? I think we've got another two or three we're looking for in this calendar year, right?

Yes. Our goal is we have three more technology platforms in the near-term, and our plan is to introduce one in each of the next quarter -- subsequent quarters.

Okay. Good.

On your CapEx, free cash flow questions, we're filing our Q probably in the next four to five hours, so you'll be able to get that information quickly. On the CapEx, our CapEx this quarter was about $0.5 million.

Okay. What was -- okay, I'll just get it off the Q as far as -- I was going to ask what the depreciation was, but I can wait.

Did you say 8.5% to 9% OpEx for the out quarters?

Yes.

And obviously, the denominator is a question there. Are you just talking about relative to the current kind of revenue run rates you've got?

That is roughly correct, yes.

Okay. And when should we expect --? I know you had this back-loaded pattern because of the supply conditions. Should we expect you to get back into your range this quarter, or will it take longer than that on the DSO?

We're hoping to get back into the high end of our range this quarter.

Okay. So a drop in two or three days, then?

Yes, somewhere in the mid 60s.

Okay. That's basically it for me. Thanks.

Thanks, Matt.

Thank you. And our next question is coming from Tavis McCourt from Raymond James.

Thanks for taking my question. First, a bigger picture one for you, Robert. When you launched the new product lines, whether it's UniFi or airVision or airFiber or whatever is coming up next, to what degree do you think it's important to be able to expand the distribution beyond your core customers you have now, versus you think there's enough room to run just with the market opportunity that exists with these customers buying these particular new product lines? And then I've got a follow-up financial one for John.

Okay. So my business philosophy and engineering philosophy, everything I do is about leverage. So if you look at how we're architecting these new technology platforms, we're reusing what we've already developed and adding something new to it to apply it to a new market. And if you look at how we're creating addressable market, we're following a similar philosophy.

So if you look at Unifi, for instance, so there's a lot of overlap between UniFi system integrators and airMAX wireless internet service providers. And the overlap is not 100%, but it's significant. So right out of the gate we got momentum with UniFi. And as we matured that product, we got a whole other independent group of addressable markets. And if you look at airVision, it's the same thing. airVision takes -- some Unifi guys will hop on airVision, and the airVision product will also create a new market in video surveillance system integrators.

So everything is about leverage and expanding, using what we already have.

Understood. And I guess there's been some new satellite competition in Latin America for two-way broadband via sat and I think a couple of others are launching. Is that something that came up in any of your user groups? Does that create any new opportunities from an equipment standpoint for you guys that your customers may need now?

I have not heard about what you're talking about yet.

Okay.

We've seen that in other markets -- competing technology in other markets. But what we find is the subscription price tends to be significantly higher than the subscription price being offered by (inaudible).

Yes, I would agree with that. I'm looking at the pricing right now. I just wondered if it created any new equipment opportunities, but I guess we'll see.

In terms of the gross margin, should we think about the new products launching at somewhat lower gross margin and then engineering costs out as times goes by? Or should we see -- or can you maintain it, even with the growing percentage of new products as part of the mix over the next year?

What we like to do is we like to disrupt markets and cost is a big part of that. So to get momentum, we usually start off with lower gross margins. But over time, we like to expand those gross margins.

UniFi is an example of that. So we're introducing -- or we're going to start shipping this next quarter UniFi Pro, which has a lot more functionality. It's dual-radio integrated. It's got Gigabit Ethernet. It's got support for 802.3af (inaudible) POE switches. So it's a lot more functionality, but it's also much higher margin for us. And we're able to do that and we have a lot of demand for that product, because we already have the initial UniFi momentum.

So I think the tracks of disrupting these markets, what you don't see at first is we see gross margin expansion in the long term once we build up momentum.

It makes sense. And then last question, for you, John, how much of the cash right now is in the US versus overseas, and how should we think about the timing of the remaining debt pay-down?

Right now, roughly $12-ish million of the cash is in the US. That's like as of today. In terms of the debt pay-down, the debt amortizes over five years with a monthly payment. We would -- our preference, clearly, is to accelerate that, and so the US cash flows allow us to do that. Because we can only pay the debt with US cash flows, we will pay it down quicker.

Great. Thanks a lot.

Thank you.

Okay. Thank you, ladies and gentlemen. I would now like to turn the conference back to your hosts for any concluding remarks.

All right. I'd like to thank everyone, thank our Ubiquiti community, and thank our shareholders who have placed their confidence in Ubiquiti and our unique business model.

I want to again remind everyone of Ubiquiti's mission, which is to bring industry-leading connectivity technology to the world in a most efficient way possible, with platforms moving from the R&D lab to the end users with minimum impedance. This efficiency allows us to provide disruptive high performance solutions to markets that were previously underserved.

Thank you all. I appreciate you attending.

Okay, ladies and gentlemen. This does conclude your conference. You may now disconnect and have a great day.