優比快 (UI) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ubiquiti Networks Q1 2013 conference call. At this time, all participants are in a listen-only mode. Later, we will have a question and answer session, and instructions will follow at that time.

(Operator Instructions)

As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Miss Amy Feng, Investor Relations. Ma'am, you may begin.

Thank you, operator, and thank you everyone for joining us. I am here with Robert J. Pera, Founder and Chief Executive Officer at 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 results to differ materially or cause a materially adverse effect on results. Please refer to the risk factors discussed in our SEC filings in the press release.

We do not undertake to update in light of new information or future events. In addition, references will be made to non-GAAP financial measures. Information regarding a reconciliation of non-GAAP and GAAP measures can be found in the press release that was issued earlier this afternoon on our website at the Investor Relations section at www.UBNT.com. Now let me turn the call over to Robert Pera, Ubiquiti Networks Founder.

Thank you everyone for joining. So this has been quarter of meaningful progress for Ubiquiti, one in which we continue to take significant steps to enhance and broaden our product offerings in ways that we believe will drive improved revenue growth in the future. As expected, the counterfeiting problem that we discussed in our previous earnings call has impacted our revenue growth in the first quarter of 2013. However, I'm pleased with the progress we are making in attacking the issue, and I expect the revenue line will rebound in the future quarters. As you know, we have take an series of aggressive legal actions and will be unrelenting in protecting our brand name and intellectual property.

Our fundamentals have remained strong with a 27% operating margin, $0.15 earning per share and approximately $14 million of net income for the quarter. These excellent results underline our robust business model. In addition, we have made significant progress in our legal and operational infrastructure that we believe will put us in a great position moving forward, and we look forward to the opportunity to demonstrate stronger execution over the coming quarters. Under Jessica Zhou, our new general counsel, the legal infrastructure has expanded, and we have made solid progress in containing counterfeit activities and setting up a strong global intellectual property strategy.

Under Sandy Ro, the new Senior VP of Operations, we have been successful in decreasing lead times and fulfilling products in a more linear fashion. We believe by early next year, we will have a sell in model that very accurately correlates with the sell through demand generated by our customer base, which today looks stronger than ever. John Ritchie will remain on board as we transition a new financial leadership, a process which is currently underway, and we already have the search narrowed down to a short list of strong candidates we are very excited about. We thank him for his contributions and wish him well in his future endeavors.

Looking at the Board of Directors, we are committed to strategically building a strong group of leaders. Last quarter, we added Ron Sege, former President & COO of 3Com, who follows the appointment of Bill Gurley earlier in the year. In addition, we have also added Alan Cohen as an Advisor to the Company. Alan was the former VP of Marketing at Nicira, acquired by VMware, a pioneer in network virtualization, and before that Airespace, a pioneer in enterprise wireless LAN acquired by Cisco.

Innovative and cutting edge technology platforms are the life blood of our business, and we continue to roll out exciting new platforms that are just scratching the surface of their market potential. In fact, the new product category contributed approximately $15 million of revenue this quarter, up about 500% year-over-year. Most recently, we announced EdgeMAX, the world's first sub-$100 routing technology with greater than 1 million packet-per-second LAN rate performance, and it's packed with powerful routing features. EdgeMAX combined with AirMAX gives Ubiquiti an end-to-end complete wire and wireless internet distribution solution for operators. AirFiber, our microwave backhaul product has enjoyed rave reviews from early customers and recently won the 2012 Wireless Internet Service Provider Association Product of the Year award last month.

UniFi, our enterprise wireless LAN product, is growing quickly and exhibiting an early trajectory and deployment rate similar to that of our AirMAX technology. AirVision, our IT video surveillance platform, has been rearchitected and vastly upgraded with the announcement of our AirVision 2.0 NVR and management software. We expect strong growth in AirVision over the next year and going forward. Finally, mFi, our machine to machine networking platform has been shipping to rave reviews, and we look forward to realizing its market potential. As for the Ubiquiti community, it's stronger than ever. With over 147,000 users and more than 40,000 unique visitors per day, our Ubiquiti community driven forum and website traffic is at an all-time high.

Recently I have personally completed a deal to become the controlling owner of the Memphis Grizzlies basketball team of the National Basketball Association. I will serve as Chairman of the team while Jason Levien, an experienced Sports Management Executive, will be the CEO of the Grizzlies and oversee the organization's day to day operations. I will remain as always 100% devoted to Ubiquiti and its future success. I did not sell a single share of Ubiquiti stock in order to finance the acquisition of the team. However, I was required by the NBA league to improve the liquidity of my personal balance sheet, and to this end, I have obtained financing for $26 million, collateralizing 15 million shares of my UBNT share holdings.

Because of my strong confidence in the long term vision of the Company, I did not sell any of my share holdings and IPO, nor have I chosen to sell any stock since the Company has been public. In addition, we plan to continue executing our share buy back plan. I am pleased with the progress we made in the last quarter. Our anti-counterfeiting efforts are making significant progress. We are strengthening our leadership team and building out an infrastructure to support our next levels of growth, and most importantly our new technology platforms are extremely well received in the marketplace. I will turn those things over to John Ritchie.

Thanks, Robert. And thank you all for joining us on our first quarter fiscal 2013 earnings call. As we mentioned in our last call, the results of the first quarter were going to be significantly impacted by the effects of counterfeiting on our end markets. We will provide more detail later in the prepared remarks, but we're seeing some very tangible and positive signs regarding this success we're having with our anti-counterfeiting and brand protection efforts. Now moving on to our results, for the first quarter, our revenues approached the low end of our range for revenues coming in at just over $61.5 million. Our non-GAAP net income for the quarter was $13.6 million. Our non-GAAP diluted EPS was $0.15, which exceeded the low end of our previously stated guidance. This compared to $0.23 from the year ago period.

Before I go into the numbers in more detail, I would like to highlight some significant milestones we achieved in the quarter. We generated $23.7 million in cash flow from operations, continuing our string of very strong cash flow quarters. Our new product category saw a strong quarter with revenues increasing 24% on the sequential basis with UniFi and AirFiber contributing the majority of the revenues for this category. As a reminder, the products within this category contain the highest level of our anti-counterfeiting measures. We also introduced [Edge] EdgeMAX, our advanced routing technology that combines industry leading price performance characteristics.

Now I'll go into each category with more detail, starting with our proprietary AirMax platform. Revenues came in at $32.1 million, down $17.8 million from the $49.8 million in the same period last year. On a sequential basis, AirMax revenues decreased $26.9 million from $59 million in the June quarter. Again, we attribute this decrease in the previously discussed counterfeiting issues. AirMax revenues were 52% of total revenues in the quarter, down from 62% in the prior quarter and 63% in the year ago period.

The new product categories came in very strong with revenues for this category totaling $15.6 million, up $3 million or 24% on a sequential basis and up $12.9 million or approximately 500% in the year-over-year basis. This category represented 25% of the September quarter revenues in total. The revenue growth in this category again was driven by the success of our recently introduced AirFiber product line. The last component of our systems category is our other systems products. These primarily consist of our non-AirMax outdoor wireless product line. Revenues in this category contributed $3.8 million, down $9 million on the year-over-year basis and down $7 million sequentially. This product category, like our AirMax product line, is being negatively impacted by counterfeiting. Longer term, we expect the steady decline in this category as our customers transition from this product line to our AirMax product line.

Revenues for the embedded radio category were $1.7 million, down $300,000 sequentially and down $1.5 million on the year-over-year basis. As we have said in the last few earnings calls, we expect this category to decline in absolute terms as we move forward. And moving on to our last category, antenna/other, revenue there -- revenue in this category was $8.4 million, down $2.3 million for the same period last year and down $2.1 million sequentially. Revenues in this category are driven largely by the sale of non-integrated stand alone AirMax antennas and sales of brackets, cables and other miscellaneous accessories. A decline in this category was not unexpected as a large percentage of the revenues in this category are directly related to sales of our AirMax product line.

Moving on to our geographic revenue break down. North America revenues were $20.4 million, down 18% on a year-over-year basis and down 19% on the sequential basis. We believe the decline in North American revenue was a result of the prior quarter benefiting from pent up demand from our distributors who for several quarters were limited by our credit policies, and we talked about this last quarter. Moving to South America, revenues there decreased 38% sequentially and 48% in the year-over-year basis to $10.2 million. The expected decline in South America was a result of the affirmation of the counterfeit issues.

Over the past couple of months, we have, however, seen some very positive signs coming out of the South American region. Our sales order volume has picked up significantly, we've seen significant improvement in our credit exposure to this region as the pace of payments out of this region has improved in the past several weeks. We believe both of these facts clearly indicate the effectiveness of our IP protection and anti-counterfeiting efforts. The EMEA region are in line with our expectations with revenues down 41% on the sequential basis and 7% on the year-over-year basis to $23.1 million. The EMEA region represented approximately 37% of revenues for the quarter.

Revenue in this region is largely concentrated with distributors in Eastern Europe and to a much lesser extent the Middle East and Africa. As expected this quarter, this region showed some of the same characteristics we previously experienced in South America. With customers being hesitant to purchase until they have more confidence they are buying genuine Ubiquiti products. And lastly, moving on to the Asia-Pac region, sales there decreased 19% on the year-over-year basis to $7.8 million and 45% on the sequential basis.

Let me read further down on the income statement moving on to gross margin. Our non-GAAP gross margin in the year-over-year basis was approximately 40.8%, down 90 basis points from the 41.7% we realized in the year ago period and down 250 basis points from 43.3% in the June quarter. Our gross margin decline year-over-year and sequentially is primarily due to the decreased revenue levels, and to a lesser extent, changes in product mix and increasing variable operating cost expenses.

Now moving on to the -- further down the P&L to the expense lines. Our non-GAAP expenses came in at $8.7 million, up from $8.1 million or up 8% on a sequential basis, and that is from $5.2 million or up 68% on a year-over-year basis. The total Op Ex came in at approximately 14% of revenues. The sequential increase was driven by an increase of SG&A spending, partially offset by lower prototype expenses in the R&D expense line.

Our non-GAAP operating expenses exclude the impact of stock based compensation, which was $700,000 for the quarter. Non-GAAP operating margins came in at 27%, down from 36% last quarter and 35% in the year ago period, again, all driven by the lower revenue levels. As you look ahead to next quarter, we expect to see an increase of operating expenses of approximately $500,000, with the largest component of this expected increase related to increased R&D costs and a modest increase in SG&A costs for the December quarter.

Now moving below the operating income line, we have approximately $100,000 of net interest expense. The net interest expense -- as a reminder, the net interest expense is related to our line of credit. At today's interest rates, we expect net interest expense to be approximately $300,000 for the quarter as we draw down our credit facility to fund our buyback program. Now moving on to the last item of the P&L, our effective tax rate, for the quarter, the effective tax rate came in at 16%. We were currently planning on this rate to hold for the balance of 2013. As a reminder, our rate is largely driven by the geographic revenues slope.

Turning to the balance sheet. We had a very strong cash generation quarter with cash flows from operation coming in at $23.7 million. Our gross cash balances grew $10.4 million for total of $132.5 million for the quarter. As we have done in the past and we expect to generate significant free cash flow, as we move forward, with the majority of that cash being generated outside the US. For the quarter, our net inventory balances -- our net inventory balance is essentially unchanged at $7.6 million. As we ramp up our distribution hub in China, we expect inventory levels will increase. We believe that the increased inventory levels will allow us to reduce our lead time to our customers, which in turn will more closely align our sell in with our distributor sell through. For the quarter, accounts receivable decreased 20% or decreased $14.8 million to a total of $60.9 million, down from $75.6 million at the end of last year.

As expected, we saw significant deterioration in our DSOs which increased to 91 days from 73 days on a sequential basis. As a reminder, a side effect of the counterfeiting issue was a build up in our channel inventory with our distributors. This inventory buildup resulted in slower payments cycles, which directly impacted our DSOs. One of the positive signs giving us comfort that our DSOs and our credit exposure in this region will improve is the fact that we collected almost $30 million in accounts receivables since September 30. The vast majority of this cash was related to June 30 receivables. It will take a couple of quarters to get back to normalized DSOs -- a more normalized DSO range, but we expect a significant improvement in the current quarter.

Lastly, I'd like to provide an update on the status of our buyback program. As of yesterday, we have repurchased 3.7 million shares for a total of $37.8 million, leaving approximately $62.2 million of our authorization available for further repurchases. Now for the second quarter, in terms of our outlook, we expect revenues in a range of $70 million to $78 million. We expect non-GAAP (sic-see press release "GAAP") earnings in the range of $0.18 to $0.21 per share. And lastly as you know from the press release, I will be leaving Ubiquiti, but will be helping to ensure a smooth transition. I want to take this opportunity to personally thank Robert for the opportunity he has given me to work here at Ubiquiti and to work with a very special creative and dedicated team, and I wish the Company much success in its future. Now with that, I will turn it over for questions.

(Operator Instructions)

Amitabh Passi, UBS.

Hey, thank you. This is actually Chelsea Shi on behalf of Amitabh. John, just a quick question in terms of the cash. So just wondering how much cash is in US and how much cash is oversea at this point and another question is about the new product. Which is just wondering, as I remember at the beginning of the year, the company, they rolled out seven platforms by the end of the year, so just wondering what's the update at this point. Is the number seven platform still on track or just any color is about that will be helpful.

I will answer your questions regarding the technology platforms. Right now we have six platforms, AirMax, Unifi, AirVision, AirFiber, mFy and recently EdgeMax. We did say we announced one platform each quarter this calendar year, which we have done the three this year. AirFiber, mFy and most recently EdgeMax.

The next platform is undetermined. We might release it next quarter. It might be sometime next year. We are still deciding. We have a lot of R&D released this year as well as the pipeline, so we want to make sure we release it when it's ready.

Now in terms of the cash question, some of our gross cash balance of roughly $132 million. Of that balance, we have approximately $112 million offshore and the balance on shore.

Thank you.

Matt Robison, Wunderlich.

The question, the first one is related to the North American business. Did you see any effect from destocking associated with the lead times in that revenue area?

You know, we have communicated our shortened lead times to our customer. We have to deliver on that before they have confidence we can do it, but I think Sandy is doing a great job there. It had some marginal impact on revenues for the quarter. I wouldn't want to go beyond saying it was marginal.

Where would you say your lead times averaged in the quarter and where do you think they will be this quarter and to what degree do you think destocking is a factor this quarter?

So I think lead times, we are probably in the five, six week range heading to four. And I think just to be clear, our goal to go well beyond four. We would like to start setting up our Chinese distribution hub. It's a really focused on the aligning our sell-in with our customers sell through.

We are fairly far along in that process and getting that infrastructure set up. I wouldn't want to hazard a guess to estimate how much that destocking impacted the quarter that we just went through. I think the quarter was the quarter. It was impacted significantly by the counterfeiting. Wouldn't want to attribute it to too much else other than that.

In your guidance for the current quarter, you expect that to reflect some destocking, or should we anticipate that the channel inventory decrease will be more meaningful in the March quarter?

I think imbedded in the guidance, and by the way, we view the guidance as very positive and the increased sales order volume and increased cash coming out of South America really gives us confidence in that number, we think that takes into consideration the communication that we had with our customers regarding the short lead times.

Now you mentioned AirFiber drove the new platforms growth. Did Unifi grow sequentially?

One of the reasons we categorized all the revenues in this new product category is not to get into revenues at that level of granularity. So I will indirectly answer your question that the vast majority of that $15.6 million came from those two product categories. Unifi and AirFiber.

Okay. And just to sort of finish up the housekeeping side of things. What was Cap Ex depreciation and head count?

We're filing our Q, but I believe head count was about 154 heads. Cap Ex was $2.4 million. And that relates primarily to the timing of payments around the kind of wrapping up the construction of our new facility to be moved into in the May-June time frame.

And did you say you had the distribution center in China already built out? Or is that forthcoming?

We were using a third party logistics firm, a 3PL firm for that, but we have that relationship in place. We should be shipping from it this quarter.

Okay. Thanks a lot.

Brian Modoff, Deutsche Bank.

John, I guess first off, why are you leaving the firm? Any plans? How are you guys looking at replacing John? Obviously he led a lot of development in terms of putting controls in place, and now he is leaving shortly after those controls get put into place. Can you talk about why you are leaving and what the firm is doing to deal with replacing someone like you -- getting someone like you?

Thanks, Brian. Let me answer that first part about controls. So Ubiquiti has been a public company for a year now. We are very serious about putting proper controls in place. And as we transition through John, we believe we have a great infrastructure.

Jessica Zhou is leading that. Also our board. We are expanding the board and controls are a big part of what's being discussed right now. The other thing I want to say is we have begun the process of searching for a new CFO. We have a short list of very strong candidates we are excited about and we hope this will be a smooth transition. John?

One thing I will add to that is I'm very focused. Ubiquiti has been a great experience for me, this was a tough decision for a whole bunch of personal reasons. I think it's time to move on. The company has very -- I think has tremendous prospects ahead, and one of the reasons I am very focused in making sure I help with the transition is I don't want this to be -- we will handle this in a way that's barely a speed bump in terms of Ubiquiti's road map to success.

So the question on the outlook, what gives you confidence in the Q4 outlook? What visibility do you have on that? Assuming in terms of counterfeit product and the channel.

Well, I can talk on that. One of the great things about Ubiquiti is we embrace this concept of transparency. So unlike a lot of networking companies who might deal with carriers that are dependent on them for orders and visibility, in our business model, you can go on our site, and you go on the internet, and you can see if people love our products. How much talk is going on about them. Just last week, two weeks ago, our forums had a record of 14,000 users online simultaneously, our website traffic raking has broken 17,000, which is incredible for kind of a networking company in the states we play in. So I think the demand for our products is at an all-time high.

Now if you look at the progress we made on the counterfeit issues, we made significant progress, a lot of the litigation is public. So Jessica and our anti-counterfeit team has been doing great. And you can tell by the guidance into the next quarter that progress is going in the right direction. So I think when you look at -- we are making great progress on the counterfeit side and look at the Ubiquiti brand name and demand for our products are an all-time high. Not just that, but we are diversifying. Our new products have gone from $3 million to $15 million year over year. And I think that the future is looking very bright. I would say that intrinsic value and the core strength of this company is as strong as it's ever been.

Just to add a little bit. -- go ahead.

Go ahead, John.

We are sitting in a much stronger position at this point in the quarter versus where we were last quarter in terms of we think the quarter is going to shape up. And I think that's indicative of sales order volumes picked up significantly since last quarter. We think as I mentioned that we are seeing increased cash flows come out of South America, which means our distributors are seeing some relief from the inventory pressure they had and the pressure that put on their cash flows. It's those positive signs and the benefit of having hard orders in place which give us confidence in the guidance.

How many, any 10% customers in the quarter and then, Robert, what happens if the stock goes down? Do you have to pledge? In other words, pledge more shares or is it similar to a margin call?

No, the amount of collateralization is fixed, but you can tell by the numbers that it's heavily over collateralized, and I chose to do that because I'm very bullish on the stock. I never sold -- I didn't participate or sell stock in IPO, I haven't sold since our being public and I'm looking at long-term value, I have great confidence. I want to put myself in a position so I can hold on to my stock long term.

On your 10% question, we have one 10% revenue customer for the quarter.

Who is that?

That was a North American customer.

North American -- okay. I will pass it on. Good luck, John, with your future endeavors.

Brent Bracelin, Pacific Crest.

Thank you. I guess the first question for you, Robert, is on AirMax. $32 million quarterly run rate, do you think this is as bad as it gets from here, the worse of the impact of the counterfeiters is now behind you, and can you break out the split of how much AirMax was tied to the AirMax titanium product, the new version of AirMax versus the historical classic casing kind of AirMax?

Let me point out a couple of things that is going on with AirMax now. We've added around AirMax two key platforms. So the first was AirFiber, which gives our operators a true carrier class back haul at disruptive AirMax-type pricing. We also added very powerful disruptive routing technology platform, EdgeMax.

Now you have EdgeMax, AirMax and AirFiber and it's a complete end to end solution and it's much stronger than it's ever been. I think the future for those three platforms together will drive further growth in this operator market. And at the same time, we have made significant progress in containing and deterring counterfeit activities for the future. And I have full confidence in Jessica and our legal team. Yes, I'm confident that the future is very bright for AirMax and our operator market.

Okay. Then to be clear, on AirMax, that does sound like you are adding a new distribution hub. I was wondering if in addition to that, you actually are changing kind of [rev-rack], you mentioned sell-in, are you going in the plan is to go to more of a sell-in-type model? Help me understand what the distribution hub provides you and then what does that do from a rev-rack standpoint.

Yes, so here is the challenge with Ubiquiti, right. We shipped millions of these AirMax radios and we pretty much created markets that didn't exist before. If you look at our AirMax technology, it drives multi billion dollars per year in service revenue for these operators, and it's connecting millions of people in these remote emerging areas nobody knows about. Now the problem is when you go into a new market and you create a new market, there is not existing distribution to serve these markets. Our distribution network was created kind of in the same mold of Ubiquiti. We powered the distribution network, so a lot of these guys have grown up with us and very quickly. And a lot of these distributors don't have the kinds of sophisticated controls and systems typical big distributors have.

So as much as we want a sell through recognition model, unfortunately it's very tough for us to get the data we need to accurately account for sell through. The goal of the company right now is to reduce our lead times to basically as low as possible so we even though we are sell-in, we get to a dynamic where our sell-in numbers are really very, very close to the sell through demand. If you look at our operations, we've added [Ken Euro], I believe the quarter before last, and he is rearchitecting a new operation system that hopefully gets our lead times down enough so we can get closer to representing a true sell through kind of model. What John talked about, DMI and 3PL are a couple of ways we are achieving that, and we hope to have that implemented early next year, fully implemented.

Okay. That's helpful. And then I want to shift gears on the new product front, obviously that's now at a $60 million annualized run rate and good momentum sequentially. Is there any counterfeiting within any of the new products that is a risk as you see it, and how should we think about the momentum and pipeline on the new products going forward specifically kind of Unifi, AirFiber and so forth?

So when we first discovered the AirMax counterfeiting, I believe it was in late 2010 -- mid-late 2010. And right when we found out about it initially, we put in place a system to protect against this thing happening to our newer platforms. All of our newer platforms have anti-counterfeit ICs, special ICs. We have a cloud server authorization program, and we have a hardware keys at the factory. It's really -- it's nearly impossible for bad guys to steal our IP and reproduce a manufacturing factory for product lines outside of AirMax. We don't know of any counterfeit activities affecting new platforms and don't anticipate it spreading to other platforms.

Okay. Thank you.

Tavis McCourt, Raymond James.

Thank you for taking my question. Robert, I wondered if you could just give us a little detail on how the channel looks vis-a-vis counterfeit product. I think last quarter there was significant counterfeit product in the channel plus some still being manufactured. How much of that -- is there still kind of product in your mind being manufactured with the Ubiquiti brand on it? And is there still some sitting in the channel, or has most of that been worked through?

So I think the kind of the good news here is Jessica and her team have made great progress in really undermining the counterfeit operations momentum. We have significantly seen a reduction in counterfeit production. We do have an increased surveillance in Asia looking for any kind of counterfeit activities. And what our intelligence report says, it's vastly declined.

The second piece of good news is since we've alerted our sales channels, a lot of our sales channel customers are cooperating with us and identifying where the counterfeits are being made, and so it's almost like we got our sales channel supporting us in kind of deterring counterfeit use. And so I think there are counterfeit products in the inventory, but the good news is the trends are going down. And I think the combination of us containing it and deterring it and the fact that we are diversifying so fast with these new platforms like Unifi and AirFiber that are very much protected, I think we are in a good position to show solid top line growth for the future.

Have you had to turn off any distributor relationships because of the counterfeiting issue?

Besides the ones actually involved in the counterfeit activities, no.

Okay. And then a DSO question, you mentioned you expect those to come down, John, next quarter. I guess two things. Is it slightly down or back down so the traditional range? And then of the $61 million or so of receivables at the end of September, can you give us a sense of the aging of those? How much is post 90 days or 120 days or that would conceivably be at risk? Thanks.

We haven't disclosed that in the past and probably not going to now. I will tell you that the dollar amount in each of those buckets was -- let me rephrase this to get clarity on it. The dollar amount in the oldest buckets is actually improving on an absolute basis. The problem is we have the revenue decline we have, you can mathematically end up with a large percentage. But the dollar amount declining and I view that as a reduction in our credit exposure and a reduction in our risk.

I think that it is impressive that we collected somewhere around $30 million when we had the $60 million balance as of little over 30 days before that. But getting back to your DSO question, so 91, we think of normalized as between 55 and 65 days. I think it will take two quarters to get back there. I think we should make significant headway and be somewhere in the mid-$70 millions if not better in the December quarter.

Great. And then final question on the guidance in terms of revenue. Should we be thinking about the sequential revenue ramp as simply a bounce back in the AirMax revenues? Or should we still be thinking about strong sequential growth and new products as well?

I think we expect to see growth across all the major categories. But I think the AirMax bounce is probably going to be the biggest contributor.

Great. And then any legit competition out there? It's been a couple of years that AirMax has been out there, have any of your traditional competitors in this space brought lower end product legitimately to market or lower price product that's more competitive?

So the great thing about our technology platforms and in the case of AirMax, it's not standard space. It's our own proprietary standard. Once operators build out AirMax networks using our AirMax space station and AirMax application software, if they want to expand those networks, they have to continue to buy AirMax compatible products. I think inherently, we just have very good defensibility in our technology platforms.

Thanks, Robert.

Matt Robison, Wunderlich.

I wanted to touch on the regional break down a little bit more. Was the counterfeit effect pretty much the whole story there with the regional decline? Was there something else going on particularly looking at APAC which on a percentage basis showed the most decline.

So with all the regions except for North America, it was primarily counterfeiting.

Okay. Thanks.

Amitabh Passi, UBS.

Thank you. Actually I just trying to follow-up on the growth margin. Could you help us understand what's the drivers for the growth margin? For example, for this color there is about 258 basis point decline. And just trying to understand like how much is contributed by lower revenue level. And how much is really by the product mix, and going forward as the new product ramping up quickly, how should we understand the trends of the gross margin, let's say by the end of the fiscal year, '13 or going forward, should that trend down or the previous growth margin target is still valid at this point. Thank you.

I'll try to answer that. Typically when we enter a market, we try to push a drive of paradigm shifts where we disrupt markets. And we kind of reinvent them. One of the ways we do that is with this incredible price performance. Typically we enter a markets with lower gross margin like AirMax, and over time as we get momentum, we use our economy to scale and also we introduce higher level products, and you should see a gross margin expansion as our top line grows. Now in this case, I think we saw some margin decline because just we had a steep fall off in the top line. I guess our operating costs of goods --

The fixed cost we have related to cost of goods sold and yet negative scale on that. And that really was driven by revenue, which is the primary contributor. Everything else is much less significant. But to put it in perspective I think on our last call, we gave guidance of about 40 points, we beat that by 80 bips, we are pleased with that, and pointed to the success Sandy is having, and we have no reason to believe we should see it decline going into the next quarter. I think the gross margin story as we move forward, as Robert mentioned, the gross margin story at Ubiquiti should be a positive story as we move throughout the balance of fiscal 2013.

And also I'd like to point out we never lowered the price of a product ever in the history of the company. My marketing philosophy is we make disruptive price product that are also top performance. And there is no reason to ever lower the price of any of our products. Our markets really has respond positively to the way we do things, and that could benefit to the leverage story on the gross margin as our revenue grows.

That's helpful. Thank you very much.

(Operator Instructions)

Sanjit Singh, Wedbush.

Hi, thank you for taking my questions. Three quick questions for you. How much of the sales are outside your core list market? Secondly, is there any type of macro impact on the business that you can see either from a Cap Ex standpoint, is that being constrained? And finally on AirMax or on the time frame you set out last quarter, I think you mentioned two to three quarters to get back to the types of revenue levels you were achieving prior to the counterfeit issue, does that time frame still hold? What are the kind of sub milestones that you are looking to hit to get back to those revenue levels?

Let's me take the first question. I think regarding the list market. Right now I think is a very interesting time in Ubiquiti's history. Because in the past, we created this wireless internet service provider market largely with our AirMax platforms and AirMax platform and we added to it with AirFiber and EdgeMax. We introduced a new platform in -- I believe it was introduced in 2011. And that's our unified platform, which is a enterprise wireless LAN platform used for schools, small to medium businesses, hospitality, and it's similar to companies offerings such as Aruba or Aero High or Trapeze, Juniper, Ruckus and so on. And what's special about Unifi is that it's showing incredible growth in a completely new market from our list customers.

So if you go to sites like spiceworks.com or Edugeek or some of these websites and forums that IT professionals hang out in, a lot of these customers are raving about Unifi without ever hearing about Ubiquiti or list before. And what is phenomenal about Unifi is that whole platform was created by several engineers, and it's completely leveraged by all of our AirMax IP and using the same disruptive Ubiquiti model. And when you look at its incredible growth, it gives me confidence that Ubiquiti is a much more than just a wisp or outdoor wireless strategy -- wireless outdoor story. I believe we can do and take our strategy to any market, and we can disrupt any market we want to. And I think this SMBIT world, we have very high hopes that we will be successful in that over the next year. And you will hear more about Unifi, I think. So I'm sorry, I went a little long there. But two other parts of your question?

Repeat the first two parts.

Yes, it was any macro impact, and then if we were still on track for the two to three quarter time frame to achieve the revenue levels that we were doing before the counterfeit issue.

So, yes, another great thing about Ubiquiti technology, which you saw during the crisis in 2008, we grew right through it, because our products are so disruptively priced -- have such disruptive price performance economics that we actually thrive in many cases where budgets are cut. So I think we are positioned very well comparatively to other companies to compete in any kind of macro-economic downturn.

So the one thing I would add to that I think in your initial question you talked -- there was a reference to Cap Ex, the beauty of what Robert's built here is that you can become a telecom service provider with really no capital budget required because the price points are so low. I think that's critical in terms of how you think about Ubiquiti. Now on your when do we get back to the historic highs in terms of revenue guidance, we're going to stick to one quarter's worth of guidance at a time. The new CFO may have a different point of view, but historically that's what we have done. We think that some future quarters obviously those are attainable goals, and the midpoint of our current guidance is 20% sequentially up. So clearly we have that potential, but we don't want to hazard to guess right now as to when that will occur.

Appreciate it. Thank you.

I would like to turn the conference back to Mr. Robert Pera for closing remarks.

Thank you. So I would like to close by saying our goal in the coming months is to further our growth powered by our great technology platforms and to enter 2013 as a stronger company equipped to produce even stronger results. This is our focus and this is for me, my absolute focus. The company has a history of demonstrating an extraordinary ability to dynamically evolve and conquer challenges. We just look forward to the opportunity to show this ability again in the coming quarters. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect at this time.