Ubiquiti Inc. (UI) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Ubiquiti Networks Q1 2013 Conference Call. [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, Ms. Amy Feng, Investor Relations. Ma'am, you may begin.

Thank you, operator, and thank you, everyone, for joining us. I am here today 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 facts 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 materially adverse effects on results. Please refer to the risk factors discussed in our SEC filings and 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 Industrial (sic) Relations section at www.ubnt.com. Now let me turn the call over to Robert Pera, Ubiquiti Network's founder. Robert?

Thanks a lot. Thanks, everyone, for joining. So this is another quarter of meaningful progress for Ubiquiti, one in which we continue to take significant steps in enhancing and broadening our product offerings in ways that we believe will drive improved revenue growth in the future. As expected, that, the counterfeiting problem that we discussed in our previous earnings call has impacted our revenue growth in 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 taken a 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 earnings 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 product demand in a more linear fashion. We believe by early next year, we will have a selling model that very actively 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 and COO of 3Com, who followed the appointment of Bill Gurley earlier in the year. In addition, we have also added Alan Cohen as an adviser of 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. Innovated and cutting-edge technology platforms are the lifeblood of our business, and we continue to rollout exciting new platforms that are scratching the surface of the 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 with AirMax give Ubiquiti an end-to-end, complete wired and wireless internet distribution solution for operators. AirFiber, our microwave backhaul product, has enjoyed great 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 IP video surveillance platform has been re-architected 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 is 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 becoming -- to become the controlling owner of the Memphis Grizzlies basketball team of the National Basketball Association. I will serve as the 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 operation. 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 obtained financing for $26 million collateralizing 15 million shares of my UBNT shareholdings. Because of my strong confidence in the long-term vision of the company, I did not sell any of my shareholdings in IPO, nor have I chosen to sell any stock since the company has been public. In addition, we plan to continue executing our share buyback plan. I'm pleased with the progress we've 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'll turn the 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 market. We'll provide more detail later in the prepared remarks, but we're seeing some very tangible and positive signs regarding the 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 with 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 low end of our previously stated guidance. This compared to $0.23 from the year-ago period. Now before I go into the numbers in more detail, I'd like to highlight some significant milestones we achieved in the quarter. We generated $23.7 million in cash flow from operations, continuing our strength of very strong cash flow quarters. Our new product category saw a strong quarter with revenues increasing 24% on a sequential basis with a unified AirFiber contributing the majority of the revenues for this category. And as a reminder, the products within this category contained the highest level of our anti-counterfeiting measures. And we also introduced EdgeMAX, our advanced routing technology, which combines industry-leading price-performance characteristics. Now I'll go to each category in 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 to $26.9 million from $59 million in the June quarter. Again, we attribute this decrease to the previously discussed counterfeiting issues. AirMax revenues were 52% of total revenues for 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% on a 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. This primarily consists of non-AirMax outdoor wireless product line. Revenues In this category contributed $3.8 million, down $9 million on a 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 a 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 a year-over-year basis. As we've 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, Antennas/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. Now moving on to our geographic revenue breakdown. North American revenues were $20.4 million, down 18% on a year-over-year basis and down 19% on a 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. We talked about this last quarter. Going to South America. Revenues there decreased 38% sequentially and 48% on a year-over-year basis to $10.2 million. The expected decline in South America was the result of the aforementioned 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're seeing significant improvement in our credit exposure to this region as the pace of payment out of this region has improved in the past several weeks. We believe both of these facts clearly indicate the effective use of our IP protection and anti-counterfeiting efforts. The EMEA region, were in line with our expectations with revenues down 41% on a sequential basis and 7% on a 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've previously experienced in South America, with customers being hesitant to purchase until they have more confidence they're buying genuine Ubiquiti products. And lastly, moving on to the Asia Pac region. Sales there decreased 19% on a year-over-year basis to $7.8 million and 45% on a sequential basis. Let me move further down on the income statement, moving on to gross margin. Our non-GAAP gross margin on a 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 level and, to a lesser extent, changes in product mix and increasing variable operating costs expenses. Now moving on to the -- further down the P&L for 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 up from $5.2 million or up 68% on a year-over-year basis. The total OpEx came in approximately at 14% of revenues. The sequential increase was driven by an increase in 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 from this quarter, we expect to see an increase in operating expenses of approximately $500,000, with the largest component of this expected increase related to increased R&D cost and a modest increase in SG&A comps 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're currently planning on this rate to hold for the balance of 2013. As a reminder, our rate is largely driven by the geographic revenues flows. Turning to the balance sheet. We had a very strong cash generation quarter with cash flows from operations coming in at $23.7 million. Our gross cash balances grew $10.4 million to a total of $132.5 million for the quarter. As we have done in the past, we expect to generate significant free cash flow as we move forward with the majority of that cash being generated outside the U.S. For the quarter, our net inventory balance was 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 level -- 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 distributors' 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 a 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 buildup in our channel inventory with our distributors. This inventory buildup resulted in slower payment cycles, which directly impacted our DSOs. One of the positive signs giving us comfort that our DSOs and our product's credit exposure in this region will improve is the fact that we've collected almost $30 million in accounts receivable 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 in 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 the range of $70 million to $78 million. We expect non-GAAP earnings in the range of $0.18 to $0.21 a share. And lastly, as you know from the press release, I'll 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's 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 the future. Now with that, I will turn it over for questions.

[Operator Instructions] And our first question comes from Amitabh Passi from UBS.

This is actually Chelsea Shi on behalf of Amitabh. So, John, just a quick question in terms of the cash. So just wondering how much cash is in U.S. and how much cash is overseas at this point? And another question is about the new product change, which is just wondering, as I remember at the beginning of the year, the company mentioned they will launch 7 platforms by the end of the year. So just wondering what's the update at this point. Is the 7, the number 7 platform still on track or just any color about that will be helpful?

Yes. I'll answer your question regarding the technology platforms. So right now we have 6 platforms: AirMax, Unifi, AirVision, AirFiber, mFi and, recently, EdgeMAX. We did say we'd announce one platform each quarter this calendar year, which we have done, the 3 this year year: AirFiber, mFi and, most recently, EdgeMAX. The next platform is undetermined. We might release it next quarter. It might be some time next year. We're still deciding. We have a lot of R&D release this year as well as in the pipeline, so we want to make sure we release it when it's ready.

Now in terms of the cash question. So of our gross cash balance of roughly $132 million, of that balance, we have approximately $112 million offshore and the balance onshore.

Our next question comes from Matt Robinson from Wunderlich.

I guess 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?

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

Where would you say your lead times' average in the quarter? And where do you think they'll be this quarter? And to what degree you think destocking is a factor this quarter?

So I think lead times, we're probably in the 5, 6-week range heading to 4. And, yes, I think just to be clear, our goal is go well beyond 4, right? We would like to as part of setting up our Chinese distribution hub, and so really focus on aligning our sell-in with our customers' sell-through. So we're fairly far along in that process. We're just getting the infrastructure setup. Now I don't -- I wouldn't want to hazard a guess to try to estimate how much that destocking impacted the quarter that we just went through. I think the quarter was quarter. It was impacted significantly by the counterfeiting I wouldn't want to attribute it to too much else other than that.

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

No, I think embedded in the guidance -- and by the way we view the guidance as very positive and that the increased of order -- sales order volume, the increased cash coming out of South America will really give 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 that AirFiber drove the new platform's growth. Did Unifi grow sequentially?

One of the reasons we've categorized all the revenues in this new product category is not to get into revenues at that level of granularity. So to indirectly answer your question, the vast majority of that $15.6 million came from those 2 product categories, Unifi and AirFiber.

Okay. And just to sort of finish up the housekeeping side of things. What was the CapEx depreciation and headcount?

So we're filing our Q, but I believe headcount was about 154 heads. CapEx was $2.4 million. And that relates primarily to the timing of payment around the kind of wrapping up the construction of our new facility we move into in the kind of May, June time frame.

Okay. And did you say that you have the distribution center in China already built out or is that forthcoming?

No. We're using a third-party logistics firm, a 3PL firm for that. But we have that relationship in place and we should be shipping from it this quarter.

Our next question comes from Brian Modoff from Deutsche Bank.

John, I guess first off, why are you leaving the firm? And 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's leaving shortly after those controls were put into place. So can you talk a little bit about why you're leaving and what the firm is doing to try to deal with replacing someone like you or getting someone like you?

Let me answer that, the first part about controls. So Ubiquiti has been a public company for a year now. We're 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're 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 began the process of searching for a new CFO. We have a short list, very strong candidates we're excited about, and we hope this will be a smooth transition. John?

One thing I'll add to that is I'm very focused. I mean, Ubiquiti has been a great experience for me. This is a very 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'm very focused in making sure I help with this transition is I don't want this to be -- we're going to handle this in a way it's not, it's barely a speed bump in terms of Ubiquiti's roadmap for success.

So a question on the outlook. What gives you confidence in the Q4 outlook? What kind of visibility do you guys have on that? What are you assuming in terms of counterfeit products in the channel?

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 who are dependent on them for orders and visibility, in our business model, you can go on our site, you can go on the Internet, you can see if people love our products, and how much talk is going on about them. Just last week or 2 weeks ago, our forum had a record, 14,000 users online simultaneously. Our Website traffic raking has broken 17,000, which is incredible for kind of a networking company in the space we play in. So I think the demand for our products are 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 counterfeit team has been doing great. And you can tell by the guidance into the next quarter that, that progress is going in the right direction. So I think when you look at it, we're making great progress on the counterfeit side, and you look at the Ubiquiti brand name and the demand for our products are at an all-time high. And not just that, but we're diversifying. Our new products have gone from $3 million to $15 million year-over-year. And I think the future is looking very bright. I would say that intrinsic value in this, the core strength of this company is stronger than it's ever been.

Just to add a little bit right now ...

Any -- go ahead, John.

We're sitting in a much stronger position at this point in the quarter versus where we were last quarter in terms of how we think the quarter is going to shape up. I think that's indicative of sales order volumes pick up significantly since last quarter. We think, as I mentioned, that what we're 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 flow. So 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? Is it similar to a margin call?

No. It is -- not only is collateralization is fixed, but you could 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've never sold -- I didn't participate or sold stock in IPO since we're being public. And I'm looking at long-term value, and I have really great confidence. So I want to put myself in a position, so I can hold on to all my stocks long term.

Now on your 10% question. We have 1 10% revenue customer for the quarter.

And how is that?

It was a North American customer.

Our next question comes from Brent Bracelin from Pacific Crest.

I guess the first question for you Robert is really on AirMax, $32 million kind of quarterly run rate. Do you think this is as bad as it gets from here? The worst of the impact of the counterfeiters is now behind you? And then could you break out the split of how much of AirMax is or was tied to the AirMax titanium product, the new version of AirMax versus the historical plastic casing kind of AirMax?

Sure. So let me point out a couple of things that's going on with AirMax now. So we've added, around AirMax, 2 key platforms. So the first was AirFiber, which gives our operators a true carrier class backhaul at disruptive AirMax type pricing. We've also added very powerful disruptive routing technology platform, EdgeMAX. So 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. So I think the future for those 3 platforms together will drive further growth in this operating market. And at the same time, we have made significant progress in containing and determining counterfeit activities for the future, and I have full confidence in Jessica and her legal team. So, yes, I'm confident that the future is very bright for AirMax in our operating market.

Okay. And then just to be clear on AirMax. That does sound like you're adding a new distribution hub. I was wondering if in addition to that, you actually are changing kind of rev rec. You mentioned kind of sell-in. Are you kind of going and planning 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 rec standpoint?

Yes, so here's kind of the challenge with Ubiquiti, right? So we've shipped millions of these AirMax radios, and we pretty much created a market that didn't exist before. And if you look at our AirMax technology, it probably drives about multibillion dollars per year in service revenue for these operators, and it's connecting millions of people in this remote, emerging areas nobody knows about. Now the problem is when you go into a new market and you create a new market, there's not existing distribution to service these markets. So 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. So the goal of the company right now is to reduce our lead times to basically as low as possible. So even though we're sell in, we get to a dynamic where our sell-in numbers are really very, very close to the sell-through demand. So if you look at our operations, we've added Sandy Ro I believe the quarter before last and he's re-architecting 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. And what John talked about, DMI and 3PL are a couple ways we're achieving that and we hope to have it implemented early next year, fully implemented.

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

Yes. So when we first discovered the AirMax counterfeiting, I believe it was in mid-late 2010. And right when we found out about it initially, we put in place kind of a system to protect against this thing happening to our newer platforms. So all our newer platforms have anti-counterfeit ICs, special ICs. We have a cloud server authorization program, and we have hardware keys at the factory. So 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. So we don't know of any counterfeit activities affecting new platforms, and I don't anticipate it spreading to other platforms.

Our next question comes from Tavis McCourt from Raymond James. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: Rob, I wonder if you 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 channel plus some still being manufactured. How much of that -- is there still counterfeit products in your mind being manufactured with Ubiquiti brands on it? And is there is 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 has made great progress in really undermining the counterfeit operations momentum. We've significantly seen a reduction in counterfeit production. We do have an increased kind of surveillance in Asia looking for any kind of counterfeit activities. And what our kind of intelligence report says it's vastly declined. The second kind of piece of good news is since we've alerted our sales channels, a lot of our sales channels customers are cooperating with us and identifying where the counterfeits are being made. And so it's almost like we've got our sales channels 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 they're going down. And I think the combination of us kind of containing it and deterring it and the fact that we're diversifying so fast with these new platforms like Unifi and AirFiber that are very much protected, I think we're in a good position to show solid top line growth for the future. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: Have you had to turn off any distributor relationships because of the counterfeiting issue?

Besides the ones actually involved in the counterfeit activities, no. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: And then a DSO question. You mentioned you expect DSOs to come down, John, next quarter. I guess 2 things. Is it slightly down or back down to 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?

We haven't disclosed out the path, and we're probably not going to now. But what I will tell you that the dollar amount on each of those buckets was -- let me rephrase this with a little more clarity in it. The dollar amount in the oldest buckets is actually improving on an absolute basis. The problem is when you have the revenue decline we have, you can still mathematically end up with a large percentage. But the dollar amount's declining, and I view that as a reduction in our credit exposure and a reduction in our risk. I think when you pressure that to be collected somewhere around $30 million when we had the $60 million as of a little over 30 days before that. But getting back to your DSO question. So 91, we think, normalized is between 55 and 65 days. I think it'll take 2 quarters to get back there. I think we should make significant headway and be somewhere in the mid 70 if not better in the December quarter. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: Great. And then the 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 in the 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. Tavis C. McCourt - Raymond James & Associates, Inc., Research Division: Great. Any legit competition out there? It's been a couple of years now the AirMax has been out there. Have any of your traditional competitors in this space brought lower-end product legitimately to market or lower-priced product that's more competitive?

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

Our next question is a follow-up from Matt Robison from Wunderlich.

I just wanted to touch on the regional breakdown a little bit more. Was the counterfeit effect pretty much the whole story there with the regional decline? Or was there something else going on that's, particularly, looking at APAC, which on a percentage basis showed the most decline?

All the regions except North America was primarily counterfeited.

Our next question is a follow-up from Amitabh Passi from UBS.

Actually, I'm just trying to follow up on the gross margin. Could you help us understand what's the drivers for the gross margin? For example, for this quarter, there's about 250 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 they trend down, the previous gross margin target is still valid at this point?

Yes, I'll try to answer that. So typically when we enter a market, we try to push, drive a paradigm shift, where we disrupt markets and we kind of reinvent them. So one of the ways we do that is with this incredible price performance. So typically we enter markets with lower gross margin like AirMax. And over time, as we get momentum, we use our economies of 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 we had a steep fall off in the top line, so I guess our operating cost of goods contributed more.

The fixed cost we have related to cost of goods sold, you get negative scale on that. And that's really driven by revenue, which is the primary contributor. Everything else is much less significant. To put it in perspective, I think on our last call, we gave guidance of about 40 points. We beat that by 80 bps. We're very pleased with that. Again, let me point you to the success Sandy is having. And we have no reason to believe that we should see a decline going into the next quarter. So I think the gross margin story is we move forward, as Robert mentioned. The gross margin story of Ubiquiti should be a very positive story as we move throughout the balance of fiscal 2013.

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

[Operator Instructions] Our next question comes from Sanjit Singh from Wedbush Securities.

Three quick questions for you. How much of this -- of your sales are outside your core market? Secondly, is there any type of macro-impact on the business that you can see either from a CapEx standpoint without being constrained? And finally on AirMax. Well actually on the time frame that you set out last quarter, I think you mentioned 2 to 3 quarters, to get back to the types of revenue levels you were achieving prior to the counterfeit issue, does that timeframe still hold? What are the kind of sub-milestones that you're looking to hit to get back to those revenue levels.

Okay. So let me take the first question, I think, regarding the risk market. So 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, when we added to it with AirFiber and EdgeMAX. But we introduced new platform, and I believe it was introduced in 2011. And that's our unified platform, which is an enterprise, wireless LAN platform which is used for schools, small-medium businesses, hospitality and it's similar to companies offerings such as Aruba or Aerohive or Trapeze, Juniper, Ruckus and so on. And what's special about Unifi is it's showing incredible growth in a completely new market from our list of 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 WISP before. And what's phenomenal about Unifi is that the whole platform was created by just several engineers, and it's completely leveraged by all 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 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 is -- we have very high hopes that we're going to be successful in that over the next year. And you'll hear more about Unifi I think. I'm sorry, I went on a little long there. But 2 other parts of your question.

Any macro impact? And then if we're still on track for the 2 to 3 quarter time frame to achieve the revenue level that we were getting before the counterfeiting issue?

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

The one thing I would add to that I think in your initial question, there was a reference to CapEx. The beauty of what Robert's built here is you can become a telecom service provider with really no capital budget required because the price is just so low. So 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 I think historically that's what we've done. We do think that in some future quarters, obviously, those are attainable goals. And the midpoint of our current guidance is 20% sequentially up. So I think, clearly, we have that potential, but we don't want to hazard a guess right now as to when that will occur.

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

Okay, thanks. So I'd like to close by saying our goal in the coming months is to further our growth powered by 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.