Ubiquiti Inc
NYSE:UI
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Ubiquiti Inc
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Good morning and welcome to the Ubiquiti Networks Fourth Quarter Fiscal 2018 Conference Call. All participants are in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Laura Kiernan. Please go ahead.
Thank you, Ann and thank you everyone for joining us today. I am here with Robert Pera, 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 the 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 today’s call. Information on these risk factors and uncertainties is contained in our most recent Form 10-K filed with the SEC and our other filings, which are available on the SEC website at sec.gov. Forward-looking statements are made as of today, August 24, 2018 and we assume no obligation to update them.
This call will be a Q&A call only. Please limit yourself to one question. Operator, we are now ready for questions.
Thank you. [Operator Instructions] We will take our first question from Tim Long with BMO Capital Markets.
Thank you. Robert, real strong performance in North America and in enterprise in the quarter, I am sure they are related. Could you just talk a little bit about what was behind that strong performance this quarter? I am assuming UniFi was strong, but was there anything – any other color you can give us maybe on kind of the unit ASP dynamic or other products that might have contributed to that strength that would be great? Thank you.
Sure. Thanks for the question. I think it was maybe a couple of main things. First, UniFi is expanding fast from just being known as WiFi to being a unified networking solution with getting in network security and we continue to add advanced features. The second thing is our supply chain is still pretty inefficient and our sales channel and their ability to stock is still very inefficient and we setup some – a big facility in the U.S., inventory facility that kind of plugged the weaknesses of the sales channel to-date keeping product and stock. And we are still not there yet, but I think those are the two key things with UniFi. Moving forward, we continue to expand the application use and get into more verticals and then we need to continue improving our operations to just meet the demand, which we are not doing yet.
We will go next to Erik Suppiger with JMP Securities.
Yes, thanks for taking the question. I have two if I could. One, on the tariff front, can you tell us are you expecting those to take effect and if you are, would you consider raising prices to pass through some of the cost or the tax? And then secondly on the warehouse inventory, your inventories are approaching your – your finished good inventories are approaching 8 to 12 weeks right now, how much of your shipments are actually coming from inventory that has been through your warehouse?
I believe a decent percentage of our U.S. revenue is now flowing through our inventory center. Outside the U.S. largely we ship directly out of Asia.
That suggests that there is still going to be a considerable addition of finished goods as you expand warehouse inventory or is it at a level that you think you will maintain at least at this point?
My primary priority is we are trying to find a way to meet demand. Right now, we have still chronic stock-outs on key items and that’s what’s going to drive my business decisions not inventory level on the balance sheet.
We will take a follow-up question from Tim Long with BMO Capital Markets.
Thanks a lot. Just wanted to ask Robert on the gross margin, it sounds like there is obviously an impact from expedited shipping cost this quarter, but longer term that would go away, particularly with what you are doing on the inventory front. But you made some comments about new products having higher margins and some cost reduction actions that you continually take on the products. Can you just give us a little color on that new product front? Are you addressing some newer areas and why would they have higher margin profiles? And the cost reduction actions would that – should we think of that really focused on across the portfolio or is that mostly UniFi or where would that be targeted most?
So, we are continuously making good cost reductions, but we also plan to continue to be aggressive on new product introductions. For example, video security is something I think we should have a much larger market share of and we are going to be very aggressive with UniFi video over the next couple of years. And so you have a product mix that could bring margins down in the short-term, but you also have some material efficiency, cost efficiency capture on mature products. So, I think long-term, our peer margins should remain relatively steady. Now, where we have to improve is everything else that goes into those margins, specifically, our shipping logistics efficiency. We have been very inefficient on delivering product to the channel and meeting demand and as a result, we have had a lot of excessive cost due to last minute air shipping. So, I think as our operations continue to mature you are going to see significant margin improvement from that.
And this does conclude today’s conference. We thank you for your participation. You may now disconnect.