Laura Kiernan - Senior Vice President of Investor Relations Robert Pera - Founder, Chief Executive Officer and Chairman.

Travis McCourt - Raymond James Woo Jin Ho - Bloomberg Timothy Long - BMO Capital Brian Bedell - Deutsche Bank.

Good day, ladies and gentlemen, and welcome to the Ubiquiti Networks Fiscal Q4 2017 Question-and-Answer Conference Call. As a reminder, this conference is being recorded. Now I would like to turn the call over to Laura Kiernan..

Good morning and thank you, everyone, for joining us today. I'm here with Robert Pera, our Founder, CEO and Chairman of the Board at Ubiquiti Networks. Before, we get started, I would 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, et cetera.

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 financial Form 10-K with the SEC and other SEC filings, which are available on the SEC's website at www.sec.gov. Forward-looking statements are made as of today, August 3, and we assume no obligation to update them.

We hope you have reviewed management's prepared remarks, which are posted as a transcript on the Events and Presentations and Financial section of our website at www.ir.ubnt.com. This call will be a Q&A only. Please limit yourself to two questions. Time permitting, we will allow for follow-up questions.

Operator, we are now ready to take your questions..

[Operator Instructions] Thank you. Our first question comes from Travis McCourt with Raymond James..

Hey, thanks for taking my question. So two for you Robert.

I guess as it relates to the full-year guidance for fiscal 2018 I presume that you are confident in the gross margins increasing back to at least the midpoint of the range that seems to be what you would require to get to that earnings all, but I want to make sure that's kind of the assumption you are using.

And then secondly, on the recently announce fiber products obviously really interesting price points and products.

I guess help us understand the level of demand in the wisp in markets for fiber connectivity, because it's not intuitive that there would be a substantial amount of fiber to the home deployments by wisp so maybe some commentary around kind of early demand for those products and what you expect? Thanks..

Okay, thanks. I'm going to take a step back with regards to your yearly guidance question. So I know we probably are getting a lot of attention right now and with some potential long-term investors, I wanted to give them by my view of where the Company stands and my vision for the future.

So first of all, I believe up to this point in time Ubiquiti as a Company has been misunderstood by a lot of people. I feel we have a group of core competencies that gives us the great competitive advantage in the market. Specifically our ability to target markets, our vision in being in markets a lot of times people or others.

Off course our business model which revolves around touch list evangelism and pool. I would say how we allocate our resources and get great investment on our resource allocation.

And finally which we don’t get enough credit for is our design capabilities and I believe we are one of the few companies right now in the hardware space that could execute on beautiful technology inside and out everywhere from industrial design to hardware design mechanical mobile apps software back end software front end user interfaces and great user experiences.

So together those core competencies has given us a really unique I think competitive advantage in the market and has allowed us to weather a lot of storms and a lot of adversity and it has been frustrating to see a lot of critics poke at our core competencies as something that’s fraud, that something that’s short lived and I believe it's the strength of the Company.

And our ability moving forward to grow and to become more profitable is a matter of improving our product development efficiency and that will lead to more revenue growth hopefully accelerated revenue growth from here on forward.

And also our operational efficiency which is controlling our supply chain and our production which we have a lot of room for improvement.

So in the long winded way of answering your question, yes I do feel there is huge opportunities for margin expansion as I specifically and the Company focuses on operational efficiency and I'm in Asia right now and I'm going to be here a lot more.

I feel our product development efficiency has made huge leaps in the past two years and it will continue to get better and now we are just getting started on operational efficiency. So where as a lot of critics say our margins have peaked, I believe we have huge room to further expand margins. Okay. So your next point about GPON and Fiber.

I originally wanted to do GPON probably in 2012. Five years ago, we started it, I had kind of some intuition it would be a big market for us, a good market for us and we had a focus group from U.S. wisp that geared us towards active Ethernet and so we switched from GPON to active Ethernet and it just kind fizzled out.

And I don’t think we were really serious about it, we had a one product we call that Fiber Station that didn’t really have much traction. And a couple of years ago, we had another focus through this time from wisp in Brazil.

As we noted that, out of all our markets brazil seems to be the one that wisp didn’t have the same excitement we've seen around entrepreneurial wisp in other areas of the world. So we want to know a bit more.

And in Brazil, it's interesting, because that cost of digging fiber is pretty much irrelevant for these wisps that are starting to get into fiber. They essentially hang the fiber cables and run them across the power tower lines, and so they have three runs to deliver GPON paying customers.

And now that the unlicensed wireless stands are becoming more and more crowed and the internet applications streaming video specifically demands faster, faster bandwidths. The wisp are turning more towards from wireless to GPON and Fiber.

Now traditionally Fiber and these GPON networks have been owned on what they call the Optical Line Terminal the access point side by big companies, by Callaway or ZTE or some smaller niche players in the U.S. like Calix and the ONUs which are the cheap CPUs have been owned by again companies like ZTE or a FiberHome in China.

And they are very low cost solutions not so much unlike the wisp market in its infancy. and the OLT tend to be very expensive, it’s very complicated to set up. the ONUs of course are cheap, but the solution as a whole is intimidating I would say for new entrepreneurial Fiber ISPs.

So our strategy was well let's pretty much take exactly what we did in the unlicensed wireless space where we created a plug-and-play high-quality solution with price relevance and through that solution we built this community that evangelize and opened up a whole new market of new ISPs and overtime we improved the performance.

We dropped the pricing and we traded this business which is close to $0.5 million business now. And I think fiber has huge run way, it might take us a little while to figure it out, but I would say in its first year and out of the gate it's much more mature than say our airMAX solution was at that time.

we've already developed what we call Ubiquiti Network Management System that gives you a centralized control of the whole fiber network and allows you to set-up the OLT, ONU in a number of minutes and it's very intuitive, it has great user experience.

The ONUs themselves , we did something to differentiate the industrial design, which is tough to do within the commodity ONU, but it's got a LED screen that could tell you the SNR of the optical signal as well as give you live throughput of the ISP seeds.

And those are our first two products, off course eventually we want to lower the price point down to something sub $100 somebody could start setting up a GPON network wisp. And once we get there, I think we will further democratize GPON ISP industry to that’s the vision..

And then a quick follow-up on that Robert.

Your mentioned specifically Brazil, I think the product have been in your beta store for a bit now, are you seeing demand across all your geographies or it specific to South America?.

At this time, we are really focused on the U.S. and we have several data customers and early adaptors in the U.S. And to prove out the technology, we haven’t started to get really cost disruptive in our designs yet, but the second generation will be.

So we want to first prove out the technology, make sure its performance is good before we get disruptive and roll it out globally. That’s the plan..

Okay. Thanks..

Our next question comes from Woo Jin Ho with Bloomberg..

Great. Thank you for taking my question. Just a question on the full-year guidance, can you just give us some mechanics on what the drivers of growth are? How much of it is from new products versus existing products? And then I have another question on EPS after you are done..

Sure, so we split the business now in three segments. If you go to our website we have what we call Operator Tab and operator consist of course our airMAX technology which is in the wisp.

airMax is undergoing a shift, that should have happened before, but I guess better late than ever, we added a airMAX AC that’s finally working great from accounts in the field.

We have backwards compatibility, we added GPS synchronization as well as new family of what we call Generation 2 Hardware including our PrismStation AP we call which I think close away anything we have ever delivered in airMAX world, in terms of capacity noise resiliency and throughput performance.

So I think you will see revenue increase purely by replacement cycle from airMAX AC as well as new deployment with airMAX ac. So I would say that’s one area of growth. The second area of growth is what just talked about with GPON, and I would say the third area of growth which is hopefully shifts before the end of the year.

We announced before as what we call LTU or Long-Term Ubiquiti wireless and that is our own standard, its completely created from scratch for the fixed outdoor on license market.

So we believe it will deal with things like unlicensed than noise, points some multipoint scalability, maintaining low latency far better than you can do with a lot as I have said. So that’s all for this segment.

Then you have UniFi and UniFi I believe is poised for much larger growth as it's being accepted now as not just the low cost solution, I think a lot of people see it as the best, solutions in the industry.

Best in terms of user experience, best in terms of hardware, best in terms of wireless performance, we are getting into high-density deployments, people are happy with the results, we are introducing higher-end hardware, access points, 10-Gig switching, we will have security gateways coming in, we have a security team that's focused on next generation Firewall and the Universal Sub Management, introducing prevention system and introducing detection features, more advanced deep packet and inspection and so I think you will see UniFi go upstream and have an opportunity for higher ASP success.

In addition we are rounding out the UniFi line, UniFi video when I talked about our product development efficiency increasing that’s improving last couple of years. Video is a huge opportunity for us, our solution isn’t that good today, it still sells 100 to 1,000 cameras a year.

Once it is fixed, the underlying issues are fixed specifically our network video recording hardware and our software and our camera hardware which I believe in the process of coming out with some really great stuff. I think you will see camera sales go from 100 to 1,000 a years to millions a year.

We also have more complimentary technologies set back to UniFi and I think what you will see in our vision is you go into a building one day and you will see UniFi running everything, everything from the automation to the lighting to the Wi-Fi piece to endorse security systems that the video security systems and more.

And we have teams working on all of that stuff. Okay, finally we are talking about the third segment Ubiquiti Labs AmpliFi it actually a did not meet my expectation at launch, we didn’t execute well.

That being said, it's growing, and it's growing in the absence of marketing spend you see from competitive companies and I think that validates when I say we have great design and it just hasn’t been appreciated yet.

And I think AmpliFi picking the momentum reflects on our design and people appreciate the inside out total user experience design of AmpliFi. And when they add more products not just to AmpliFi, but to Ubiquiti Labs, and I think in the next several months, hopefully we will surprise a lot of people with some of these designs we are coming out with..

Okay, Robert just a follow-on on the revenue side.

Is it fair to say that some your growth is dependent on unannounced products?.

The way I look at it is the unannounced products would be icing on the cake. But with what we have now between operators and segment and our UniFi segment I intend that we will be able to hit those estimates..

Okay, and then in terms of your EPS targets for 2018, you guys have done a good job in taking that share count through buybacks since 2015. Are buybacks accounted for as part of your EPS target for the year? And if so given how much of your cash is offshore, how are you going to fund those buybacks..

I'm always looking for ways to put our capital at work, and if I feel the stock is significantly undervalued we are going to continue to buy it back.

And it is true, we are lending money onshore to buyback, but if we believed in the long-term story the Company which we do, I don’t think cash is going to be a problem over the long-term as the Company is going to generate a lot of cash..

Okay. Thank you..

Our next question comes from the Tim Long with BMO Capital..

Hey Roberts its Tim. Thanks for the question. Two of them if I could.

First on the service provider business, you mentioned the advances the technology advances you have done with airMAX, but at the same time with fiber you are seeing some of their customers just want that as an alternative maybe for some of the higher bandwidth type of the applications.

So could you talk a little bit about what you think the longer term impact will be on the airMAX business from the potential for a broader wisp rollout of fiber or you think its fully complementary. And then on the enterprise side, if you could just talk a little bit about - it sounds like you are getting more dents deployment.

So I'm just curious if maybe deal sizes are getting bigger, you are getting into larger accounts win rates, anything you can talk about on how that business is scaling better with enterprise customer. Thank you..

Sure. So I think fiber is going to be largely complementary. There are areas in terrain where wireless works really well and it’s not practical to rollout fiber. There is some areas without infrastructure where apartments or housing or space really close together and fiber makes great sense.

So I like to think of fiber is expanding our overall of our operated business. Now to your UniFi question, I think this has been a function purely of our product quality. Before a couple years ago, our UniFi piece were decent in handling smaller capacity loads. But quite frankly they weren’t the best in the industry.

If you compare them to Aruba or Meraki, Cisco, Ruckus, Aerohive. I would say two years ago, we were worst and the team has done a fantastic job.

And they have done such a great job that if you looked at the performance of our latest hardware it will beat those guys in a lot of tests, in especially tests involving high density video streaming lower latency and it’s been reconfirmed in the field by system integrators that also use higher-end brands.

So I think UniFi is an interesting point in its story right now. It has been seen as the cheap brand that’s not really enterprise.

Now it’s seen as the low cost leader and the performance leader and I think we have this really step on the pedal and gains some distance from these guys and make it known that we are the standard and that's the plan over the next year..

Okay, thank you..

Our next question comes from Vijay Bhagavath with Deutsche Bank..

Hi this is Brian in on for Vijay thanks for taking the question. Actually I was curious.

So first could you just give us a referent on how long that typical product cycle refresh last looking on your service providers solutions and second can you maybe give us an update on how the AmpliFi rollout is trending I know it's small part of this now, but any update on your retail distribution strategy would be helpful? Thanks..

So I think refresh cycle is dependent on the complexity of the products, if you take something like UniFi where guys are changing from 11 NAP to an 11 ACAP, in the case of UniFi each deployment kind of happens in a vacuum.

The 11 AC access points were lower costs than the 11 in access points, and we did a great job of qualifying the performance and the overall product quality prior to release. So you saw that the UniFi AC refresh cycle happened very fast. In the case of airMAX, we are dealing with the different animal.

There is a lot more variables in outdoor fixed wireless, we already had two previous generations of airMAX, these deployments don’t happen in a vacuum.

Usually people will have big multipoint networks and they need toPCupgrade and we took a lot of time to get things right and that the airMAX AC technology worked in a variety of applications and backward compatibility considerations and it's just in a long road.

What is positive right now is it looks like it's finally being concluded and the upgrade cycle is starting..

Great, thanks.

And just an update on the AmpliFi product rollout and retail side of things?.

So AmpliFi was a good experience for us, we botched the launch. We had great momentum I believe in May and June of 2016.

We had design for a mass production issues and production QA issues and it cost us about six months and by that time you had a lot of players come in including Google Wi-Fi and I think we lost a big brand awareness opportunity to be the first there. Air was there, but I think we had some advantages especially on the design side there.

Now the positive about AmpliFi is we do have good reporting tools, so generally it's not 100% accurate, but generally we can see new installed turn on by new customers that plug in the device at home and turn it on for the first time, which is positive because its trending up in spite of us essentially turning off marketing spend and where as competitors constantly have to pay maybe for shelf space promotions and advertising and big sales teams and constantly push.

What we did with AmpliFi is we were able to essentially retain our standard Ubiquiti business operating model and come up with a product that was high priced, but we focused on what we do best which designing user experience.

And organically it seems to be picking up steam and I think that’s great for us, because we got a valuable learning lesson out of it that’s going to help us with future products across the whole Company. And I think it’s a very nice set up now when we introduced add-on products I believe they have a chance to sell quite well..

Thank you ladies and gentlemen, for participating in today's conference. This does conclude the question and answer session. And you may all disconnect, everybody have a wonderful day..