Ubiquiti Networks Inc. shares finished lower Tuesday following an investor-day presentation as Chairman and Chief Executive Robert Pera defended his untraditional network technology company structure with zeal, but perhaps less polish than Wall Street investors would like.
shares, which were trading down 0.4% at $55.20 just before the start of the presentation, finished down 2.9% at $53.84 at the close. Pera, who is also majority owner of the NBA’s Memphis Grizzlies, fielded questions about the company’s seemingly informal attitude toward corporate governance, short-seller arguments and distribution practices.
Addressing the defection of board members from the company’s audit committee, Pera said those members were placed there by private equity firms, and were never long-term players. As for Ubiquiti’s questionable practice of not having an official chief financial officer, Pera dismissed this as a semantics argument.
“Maybe I should have just called [Kevin Radigan] CFO so everybody would shut up,” Pera said. “CAO, CFO, whatever you want to call it, he’s in charge of the finances, he signs the books. Maybe that was my mistake, maybe we should just call him the CFO.” Radigan’s formal title is “chief accounting officer.”
Addressing short-seller arguments like those from Citron Research, Pera inferred that he could scoop up cheapened shares in share buybacks.
“It’s kinda hard to tell someone the sky is really blue,” Pera said. “What am I going to do? Tell him, ‘Look up, the sky’s blue,’ and then people are shouting ‘No, the sky’s red.’ How do you argue with that? The second thing is we just like to take what the market gives us. If we can buy stock at fractions of a dollar, then we buy it back. It will only help our long-term goal of increasing EPS.”
Ubiquiti shares dropped nearly 8% following the Citron post last week but have since recovered to levels near where they were before it published. Prior to the Citron post, shares closed at $54.95. Shares hit a closing record of $66.44 in early August.
Last week, Ubiquiti said it expects revenues for its fiscal quarter ending Sept. 30 of between $240 million and $250 million. For fiscal 2018, Ubiquiti expects revenue of $1 billion to $1.15 billion in revenue and earnings of $3.70 to $4.30 a share. Analysts surveyed by FactSet estimate revenue of $235.5 million for the quarter and $1.03 billion for fiscal 2018, with earnings of $3.85 a share.
Additionally, Ubiquiti’s board authorized a $100-million stock repurchase program.
Analysts have expressed concern on Ubiquiti’s fast and loose relationships with sometimes shady distributors to keep costs down. Addressing how investors should interpret risk, Pera said a recent shift to warehousing has improved distributor problems. Ubiquiti’s business model includes a tiny workforce that avoids large overhead costs and distribution largely conducted in small, poorer countries through third parties.
“The inventory centers were a step in the right direction,” Pera said. “I don’t think our operations in general have been very good.”
“Our job to make sure what we’re shipping to the channel reflects the sell-through demand,” Pera said, adding that distributors would be too reactive to demand, which would cause problems when they would order too much following shortages.
“I think one of the reasons we’re executing much better is because we erred on the side of caution with inventory,” he said. “And we have a sizable Utah warehouse and distributors that are reactive, they don’t cause as much harm as we’re able to get them products so your orders and our payments and our shipping, everything looks very tightly controlled.”
“I know a big knock on us is visibility,” Pera said. “And I believe our business is very stable, very visible, we’re not making video games and movies where we live hit by hit … we have lifetime customers.”
Tweets during the presentation were a polarizing mix:
Ubiquiti shares have fallen 6.9% in 2017, while the S&P 500
has gained 12% and the Dow Jones Industrial Average
has gained 12.8%. .
View more information: https://www.marketwatch.com/story/ubiquiti-shares-finish-lower-after-ceos-spirited-defense-at-investor-day-2017-09-26