Executives:.

Anne Fazioli - VPof IR:.

Robert J. Pera - CEO and Chairman:.

Erik Suppiger - JMP Securities Travis McCourt - Raymond James Pierre Ferragu - Sanford C. Bernstein Matt Robinson - Wunderlich Rajesh Ghai - Macquarie Jess Lubert - Wells Fargo Securities James Faucette - Morgan Stanley.

Good day, ladies and gentlemen and welcome to the Ubiquity Networks’ Question-Answer Session for Q2 2016 Conference Call. At this time all participants are in a listen-only mode. Later we will host a question-and-answer session and instructions will follow at that time. [Operating Instructions] As a reminder to the conference this is being recorded.

Now I would like to turn the call over to Anne Fazioli. You have the floor..

Thank you, Brian and thank you everyone for joining us today. I’m Anne Fazioli, Vice President of Investor Relations for Ubiquiti Networks. I’m here with Robert J. Pera, Founder, CEO and Chairman of the Board at Ubiquiti Networks. Before we get started, I’d like to review the Safe Harbor statement.

Some of the statements we will make during this call constitute forward-looking statements, including perspectives on our future financial results, products, market conditions and competition.

These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed during this call.

Information on risk factors and uncertainties is contained in our most recent filing on Form 10-K with the SEC and other SEC filings, which are available on SEC’s website, at www.sec.gov. Forward-looking statements are made as of today, February 4, 2016, and we assume no obligation to update them.

We hope you’ve reviewed management’s prepared remarks, which are posted as a transcript on the Events & Presentations and Financial Information sections of our Investor Relations website, at ir.ubnt.com. This call will be a Q&A only. Please limit yourself to two questions and time permitting we’ll allow for follow-up questions.

Brian, we are ready to take questions..

Thank you [Operator Instructions]. Our first question comes from Erik Suppiger with JMP. Your line is now open please go ahead..

Yeah congrats on a very solid quarter there. Your UniFi business was strong in the U.S.

can you comment a little bit about the competitive dynamics in the past you’ve talked a lot about how that’s a lot of Greenfield is that still that case or do you feel like you’re making more inroads into some of the traditional Wi-Fi vendor territories and displacing them anymore?.

I UniFi has huge growth ahead of it with solid growth was purely on the execution, the development execution. So if you look when we launched UniFi in 2011-2012 when it starts shipping at volume. There is nothing like it was high end managed Wi-Fi platform that was just a fraction of the cost of the guys like Cisco out there.

And in the past couple of years you’ve seen the growth kind of tail out because we mis-executed on a number of front. We mis-executed on our AC strategy for the large part we mis-executed on our switches and gateways along with general wireless stability and a lot of advanced controller features.

And we pretty much refreshed the whole development team in the past year and things are finally clicking. So I think with the introduction of AC, which looks good. And I think this year we’ll make a lot of good progress on the deficient areas.

I think you will see UniFi starting to return to its growth trajectory and it’s really important we should be $1 billion company right now if we executing on UniFi. But all we can do is learn from mistakes and correct them..

Are you still trying to be number one in unit volumes on the UniFi product line?.

Of course. I think Cisco is in the range I don’t have the correct numbers, but I think that Cisco in the range of shipping something like 3 million or 4 million unit volume per year. And we’re not too far off that mark.

We should have surpassed it already, but I think over the next year or two years we’ll definitely make a push and I think we can get there..

Okay.

And secondly, can you give us an update on the SolarMax where you are in terms of delivering that in the market and how that’s been received?.

We just got inventory in the channel. The first deployments are taking place. Our training has been promising there is a lot of obstacles around I guess that compliance and registration especially in the United States go deploying these systems. And it’s going to take a little longer than we thought.

The good news is I think our solar investment is really misunderstood by the investment community here and you guys. It’s really a drop in the bucket for us in terms of R&D it’s a small team. I think it’s I don't know the exact numbers but it’s probably few hundred thousand dollars a quarter of R&D investment.

And Ubiquiti we’re going to return to a lot more R&D investments and we’re going to start shooting out a lot more products. And if we come up with something radically different that not as close to what we’ve been successful in it doesn’t mean that the company is distracted or weakening money.

We’re in the fortunate position where we have a very lean and efficient R&D model where we can take a lot of that without materially affecting our operating health. And over the next year we’re going to make some strong pushes and some new product releases. .

Very good, thank you. .

Thank you. Our next question comes from Travis McCourt with Raymond James. Your line is now open. Please go ahead. .

Hey, thanks for taking my question and nice quarter Robert. I guess my question is, my guess is AC is helping trends in both businesses right now.

So I don’t know if you give us maybe a qualitative feel for the percentage of shipments either in the December quarter or the March quarter that maybe AC in the UniFi business and in the airMAX business how early are we in this transition?.

I think we’re still shipping a lot of legacy UniFi. I don’t think it’s really ramped up our UniFi AC sales completed yet. A lot of it' still the old AC, which we are trying to get out of the place in the channel with the new UniFi AC product that have performed much better and were encouraging the channel to take new UniFi AC products.

The new UniFi AC platform in general has been well received and it looks promising so far. We’ll have to wait and make sure that’s [indiscernible]. On the airMAX side it’s been kind of a mess, we haven’t executed well in backward compatibility which is what all the operators are waiting for and we got a lot of pressure.

We got to do it, everyday counts. So that’s the primary focus in the company airMAX AC backward compatibility is in data trials and we got to find a way to close it out and get it favorable here in the next few months that’s a major focus within the company right now..

And so the increase in the service provider business in the quarter if it wasn’t a material increase in airMAX AC sales, what else went right in the quarter?.

Well, that service provider is also includes EdgeMAX that team and platform has been very strong, airFiber as well team that top the performance has been very strong. So I think just and the market is definitely not been growing yet.

So I think it’s grown marginally just probably because of the strength of the other technologies that grouped in that category..

Great, thanks a lot..

Thank you. Our next question comes from the line of Pierre Ferragu with Bernstein. Your line is now open. Please go ahead..

Hey Robert, thanks for taking my question. So there are actually three areas where I’d love to hear a quick update and you know that areas I care a lot about. The first one is your new enterprise product things that are like beyond UniFi so you voice over IP, [indiscernible] gateway, your switches, the M5 product line.

I’d love to hear how this things, how material these things are in the quarter and what’s like the early learning from ramping up these products? And then the other one is just like kind of getting the status update on what happened over incident in Asia I love to hear how much you’ve recovered in terms of money and where the season but in terms of operation so I imagine after what happened you have been reviewing all internal processes and looking at strengthening operations so I’d love to hear you on that one.

And then the last one is your interim CEO, Mark, he is not on the call, is he an interim CEO that at some point you get a CFO that you will have in front of investors or do you wait for like your permanent hire before getting there? Thanks a lot..

Okay. So question I guess your first part is about complementary technologies around our UniFi Wi-Fi ACs. We always have new ideas to expand UniFi one example is UniFi voice of our people and that was the hardware was fantastic, the idea was fantastic and that’s another instance where we just didn’t execute well.

So we are going to continue to bring more ideas and products to market. But the focus here is to upgrade our engineering teams and execute better, a lot of people are frustrated and I’m most frustrated in the company, the lack of execution on R&D side. So there has been a lot of changes this year and we are going to even changes in helping the group.

I guess the next part of your question I heard about CFO. Yeah, we are actively searching not only for a CFO but to form a general strong general finance functions. So we could phase out our temporary contractors which are very expensive.

But we want to make the right fit we’ve had now two CFO turnovers and I guess the past four year and I want somebody long-term and I want stability. So we filled the couple of those positions we still have to fill out the rest of the team and that includes a leader on the finance side as well..

Okay.

And on your review of your internal process for what happened over the summer, like the money you lost, how is that work progressing? Do you see like you hove like a safe internal processes now in that kind of incident cannot happen again anymore or are you still in process of fixing operations in finance?.

Yes. So we originally had a SOCs control system in place. We did an investigation on why that system broke down and we put in appropriate measures to do everything we can so it doesn’t breakdown again that’s about all I can say. .

Thanks. .

Thank you. [Operator Instructions] Our next question comes from Matt Robinson with Wunderlich. Your line is now open. Please go ahead. .

Hey thanks for taking my question.

Robert, would you say that the backwards compatibility development is your biggest challenge at this point?.

AirMAX AC backwards comparability, yes. That’s the number one priority in the company right now. .

What would you say is your biggest accomplishments in the December quarter?.

Well I think our biggest accomplishments are on our R&D side which you won’t see for next I don’t five or another three or four quarters. Everything kind of has a lag. So everything we view in terms of operations success or mis-execution doesn’t show up real kind. .

Okay.

On the product side, was -- were there any significant production constraints relative to demand for the new AC products in UniFi?.

We never really announced launch of new product like AirMAX AC, there is always pent up demand and we try to control shipments to sure initial quality is good and in the case of UniFi and AirMAX AC those are pretty sophisticated products with a lot of functionality that means a lot of things that could also go on.

So we're really controlling our initial shipments to the channel. But yeah there is a lot of the growth ahead of it..

The strong gross margin is a function of mix to EdgeMAX and airFiber or what other things might have been a factor there? I know you said cost reductions in the press material..

Yeah I think this is another thing misunderstood by you guys. We have never dropped the price of product in the history of the company.

When we go into new markets and we see opportunities we’ll purposely price the product much lower and a lot of in some cases we leave money on the table, but we do that to ensure our position for long-term opportunity.

And I think what you’re seeing is that strategy playing out where with a disruptive pricing we secured position for long-term opportunity and because that prices never change and because our product lifecycles are so long we had a lot of time in the background to make materials production cost more efficient.

And I think that’s what you’re seeing now..

Is there a timeframe later this year when the power requirements for AirMAX in the U.S.

will cause you to have to de-rate the power on the legacy M-series airMAX products?.

I think you’re talking about the switch between what they call the DTS rules with FCC and it’s switching to the UNII rules. And I believe we have until June of this year to make the changes and lockdown all our shipments of 5 gigahertz products to UNII rules. And we’ve already certified all the products for UNII rules.

With our new software upgrades the products are switching over to UNII rules and we’re in a position by the deadline to ship everything moved over to those UNII rules. So I think we’re okay..

Okay.

Now one last question from me is can you operate indefinitely with FTI or do you envision maybe having to change your some of your recruiting objectives to align the CFO sooner rather than later?.

I have already made my comments concerning this..

So basically if obviously the company has performed just find with FTI that can -- we can expect that as a status quo you can continue that way if necessary until you find the right guy or girl?.

Yeah I’ve already commented on this question..

Thanks. .

Thank you. Our next question comes from the line of Rajesh Ghai with Macquarie. Your line is now open please go ahead..

Yes, thanks.

I wanted to understand your views on the currency impact obviously after five quarters of a run rate in the 150s you seem to have broken that $150 million per quarter barrier and moved to the $160 million and guiding above that is it fair to say that the currency impacted your service provider business especially in the developing world as strength of a dollar continued to go up and now it’s probably reached a steady state where currency probably does matter as much or you still see some impact to currency going forward and right now?.

So I think the question is about how currency exchange rate affects our overall business..

Has the impact of currency cannot become a steady state it probably impacted your business over the last six quarters now it’s kind of reached a point where the channel as well as your customers are kind of used to a stronger dollar I know the fact that there’s been in developing world in Latin America and Eastern Europe it’s more expenses about Ubiquiti is because for the stronger dollar now is that reached a steady state at this point of time?.

Absolutely a weaker dollar is better for our business. A lot of the emerging markets Brazil is a good example that taxes are heavy so whenever you have a strong dollar not only it’s more expensive to import the products but to add that tax on top of that it amplifies the comp.

But we’ve been through cycles of weak dollar and strong dollar and I think if the dollar returns to a weaker value we’ll get some benefits from that but it’s nothing we can control..

And your success this quarter how much of that had to do with the new UniFi products video and voice over IP and airFiber versus the traditional UniFi, Wi-Fi and airMax?.

I think our earnings press release broke down the revenue by enterprising and broadband so you can refer to that..

No what I was talking about was within enterprise there is various products so was video, voice over IP, UniFi security yet how much of that was contributed to the success?.

Next question..

Okay. .

Thank you our next question comes from the line of Jess Lubert with Wells Fargo Securities. Your line is now open please go ahead..

Hi, Robert.

A couple of questions as well, maybe just first with respect to UniFi AC you mentioned that you’ve been controlling volumes would it be fair to say you expect them to ramp up over the next couple of quarters or are there any constraints there at the moment from a supply perspective?.

You’re talking about UniFi?.

Yeah UniFi AC..

Yeah no constraints from the supply perspective and yes instruments will ramp up..

And then I was hoping maybe you could provide us with a little bit of inside into how you’re thinking about seasonality at this point in time in the past I feel like you guys have suggested that the business would be stronger in the summer months, weaker in the weather months because of weather factors.

Is that still the right way to think about things and to what degree do you believe CAF to funding will help you I think with where you’re able to apply for it? Any kind of thoughts there. .

So seasonality the more experience we have in this business so less I think it has to do with weather. We do have weaker quarters around both December quarter and probably the March quarter looks like weaker than the two other quarters due to like the vacations. People especially in Europe tend to take long vacations during the end of the year.

And that does affect the product consumption.

Sorry what was your second question?.

CAF to funding is that helping at all do you think that’s a catalyst for 2015?.

Do you mean like offering funding to our operators?.

No the Government Connect America funds that which can take to deploy broadband equipment. .

Yeah I really don’t understand how that stuff looks. I remember there was $8 billion broadband stimulus package a few years back. If you thought Ubiquiti equipment with that you could probably connect every home in the country. So I don’t know where all that money goes, but we’re definitely not aware of what’s going on. .

And then maybe just last one it looks like you completed the last buyback authorization.

Are there plans to issue another one or should we not expect buybacks at this point in time?.

I think if the stock looks like it’s weakening it’s undervalued we’re always going to look to buyback. .

Alright, thanks. .

Thank you. Our next question comes from the line of James Faucette with Morgan Stanley. Your line is now open. Please go ahead. .

Thanks a lot. So a couple of questions from me. First I guess going back on the enterprise product line up and talking about the ramp there.

It seems like at least versus our estimate enterprise was maybe a little weaker I mean was it do you think that that was just the availability of new products ramping and that should itself resolve over the next one or two quarters.

Or were you seeing any change in buying behavior from your enterprise customers during the course of the quarter?.

Like I mentioned before UniFi’s growth has been -- I’m convinced it’s completed limited by our development execution. If we address the areas of efficiency it’s got Jesse we’re on the way ahead of us. So I think you see it picking up a little as a result of the progress we’ve made in probably the last half year.

Things like now have to simple way to install the controller with our cloud key and provider remote activity. We greatly improved we have an AC solution with greatly improved wireless stability where we’re assigned to introduce advanced wireless features now like balloon steering and spectral scanning and air time fairness.

And our controller we're starting to get into more advanced usability and a better front end. So I think the UniFi growth is going to closely correlate to how quickly we can solve the areas of efficiency and the platform and we still have a long ways to go..

Got it. And then my second question was just when you look at I guess your plan that you've laid them out a couple of quarters ago. You seem to have indicated that the time that you thought that that you’d be ramping research and development spending pretty aggressively. It seems like that really -- like the rate of spend hasn't changed that much.

Just wondering if you could talk about it if there had been a change in your plan and thinking that resulted in kind of that increase in R&D not materialize or is it still something that we should expect to come down the road?.

So I think in the past six months to one year we probably done as much higher on the R&D side as we’ve ever done and we’ve also done the most borrowing as we’ve ever done.

So I think R&D greatly improved in the past year by a combination of we brought a new blood that's so far it looks like they are working out and we did a lot of addition not subtraction..

Got it. And so I guess it sounds like you are able to just turnover your heads rather than have to increase R&D rather than any change in product development plans..

Yeah, our R&D spend is limited by our ability to find talent and that's tough. It's not something a lot of companies have headcounts and positions to fill and they throw money at building R&D.

If you want good returns in R&D you can’t throw money at the palm you got find the right people that generally have passion about building the product are accountable. They don't play politics or want job titles or looking for the next thing and see it just as a starting point.

So that's the most difficult part of scaling and strengthening our R&D group and you can't really control how fast you can build those things.

It's got to be organic and when I talk about our mis-execution on a number of fronts especially with UniFi that's what happened we built out the team way too aggressively the quality of the engineers drops and we just made things a lot worse.

So we press a reset button probably about a year ago and I think we are on a much better track and like I said results aren’t real time. But over the next few quarters hopefully we’ll show there is lots of what we’ve been doing..

Great. Thanks a lot..

Thank you. Our next question comes from the line of Kulbinder Garcha with Credit Suisse. Your line is now open. Please go ahead. Mr. Garcha, your line is now open. If you had yourself on mute please take it off mute. If you are on the speaker please pick up the handset. Pardon me Mr. Garcha, your line is now open for a question.

If your phone is on mute please take it off mute, if it's on a speaker please lift up the handset. Thank you, ladies and gentlemen for participating on today’s conference. This does conclude the question-and-answer session. You may all disconnect. Everybody have a wonderful day..