Good day, ladies and gentlemen and thank you for standing by. Welcome to the Ubiquity Networks' First Fiscal Quarter of 2016 Question-and-Answer Conference Call. [Operating Instructions] I would now like to introduce your host for today's presentation Ms. Anne Fazioli. Ma'am, please begin.

Thank you, Nicole [ph] 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-Q 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, November 5, 2015, and we assume no obligation to update them. We hope you had – 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 will be a Q&A only call. Please limit yourself to two questions and time permitting we'll allow for follow-up questions. Nicole, we are now ready for questions.

[Operating Instructions] Your first question comes from the line of Matt Robison from Wunderlich. Your line is open.

Hi. Thanks for taking the question. Can you just give us a little bit of background on the gross margin performance and especially the new guidance for margin and the small amount of capitalization you had, and whether or not you include the solar energy initiative in your guidance or if we might be thinking about that as something that might change things as it got to become a meaningful amount of revenue?

Gross margins, we improved it just with better supply chain, material management, better efficiency. Moving forward, I don't know if they will be that high, but they should definitely be improved from past history. So sunMAX, it hasn't been material yet. Next probably or this quarter end of this month or early next month, we will have initial product in the channel. But I don't expect it to be material to revenue next quarter.

Yeah, I guess the context was the guidance range went from 44% to 47% from the prior range of 43% to 45%. And so was just, I get the fact that you've already shown that you can hit the new guidance range without sunMAX. When you start, if you start producing that in volume, do you think you'll still be in this range or are we just going to wait-and-see and gauge that as it comes.

Yes, wait and see.

Okay.

Your next question comes from the line of James Faucette from Morgan Stanley. Your line is open.

This is Meta Marshall for James Faucette. A quick question on, kind of, a continued weakness in South America. So, now it's been kind of down year-over-year for about four quarters, well, kind of the explanation of macro and currency headwinds. So, what kind of gifts, demand, moving back there is it just currency, or is it something else? And then if you could just kind of speak to, kind of, initial reactions you guys have heard in the channel to the new airMAX and UniFi refreshes, would be helpful. Thanks.

South America from what we've heard is the – there's the currency exchange issues, which are compounded in areas where that that is really high in countries like Brazil, and that makes it more difficult for operators to come up with capital to expand. At the same time, I think we just need to have a better plan of introducing new services, so you saw we're entering the market with solar, but we have a couple more coming up next year. As for UniFi, AC, I think is your question, what you're referencing, we have not started seeing significant volume yet, maybe there is several thousand in the channel, but we're pretty aggressively going to ramp-up production. Initial reports have been very good and we expect it to pick-up a lot of momentum within the next few quarters.

Great. And then just one last question on the search for a new Board member or a new CFO, I know you commented you are searching, but is there, kind of, a timeline you guys are hoping to get to or just an update on that, would be helpful.

I think we've had more turnovers than we'd like, and I think that's just because we just had bad fits in those positions, so we're taking our time. We want to fill those positions as soon as we can, but we want to make sure we have the right fit, so it's a long-term pairing.

Thanks.

Your next question comes from the line of Joe Del Gaudio from Bernstein. Your line is open.

Hi, Robert. Just a question on – for mix, what has helped your margins this quarter, was there specific shift in terms of the enterprise portfolio? And can you also comment on your UniFi switches, you have any interaction yet?

So, margin improvements, probably a combination. We become more efficient on the materials side, and as you've seen we are introducing higher end or higher-priced SKUs with improved margin, especially AirFiber picking up. We have things like UniFi switches, higher priced products, you mentioned. UniFi switches, the volume is decent, but I think what's holding it back is we just haven't developed a lot of the advanced Layer-3 switching features that a lot of the competitors have, and we are working on that. Overall, there's no question UniFi in general has been a huge disappointment. We didn't execute overall in the platform. Last quarter 48 million we got from UniFi. If we did our job the past couple of years it should be double that, at least, but we have some new leadership on that platform and I think the last several months have been probably better than the past couple of years in terms of our R&D productivity and execution. So I expect UniFi will see better growth over this next year.

Okay. Thanks.

[Operator Instructions] Your next question comes from the line of Jess Lubert from Wells Fargo. Your line is open.

Hey, guys. Its Mike Carlin on for Jess. Just following up on the UniFi question, it sounds like you are still getting the new ac lineup out the door, so was the strength primarily driven by the older 11n portfolio?

No. Like I said, two questions ago, we haven't shipped much UniFi at all. Let's see if I could find some numbers here. On UniFi CQ this quarter, less than 10,000 units shipped, so it's not even material.

Okay.

That is less than $1 million.

So the strength is what the older access points?

Yes.

Okay.

Everything except ac.

Okay. Great. And then the service provider businesses although its soft again this quarter. And last call you mentioned that kind of two factors might benefit this portfolio going forward. You talked about bringing the market a lower cost UPE and improving then operability between 802.11ac, airMAX ac, rather, and the older portfolio in operability between the two, so can you maybe just provide an update on those two factors and if we should start to see that benefiting service provider sales within forward?

Okay, so service provider AirMax business is always surprise me. Every time I think it's completely saturated, it keeps going up steps. So now we are at roughly what $400 million plus a year run rates, and we shipped several million radios a year. So it could be saturated, but I had been wrong before. But even if it is saturated, I think there is still growth from essentially replacement, network replacement, because AirMax ac is three times faster, AirFiber is at least that in a some cases much even faster, and up to this point with AirMax ac, we didn't have backwards compatibility so operators will have to deploy completely new networks, which is not where replacement revenue comes from. Replacement revenue comes from upgrading their existing customers. And in order to do that, they can't replace all their customers at once because a lot of these networks they have hundreds of thousands of subscribers. So what we refer to in our conference last month was NEXT Event was this idea of backwards compatibility where they could essentially replace the base station with an airMAX ac base station. And that would instantly boost up their network and then for further performance enhancement they could replace their stations one at a time. And that's a feature we've been working on for quite a while. It's in beta right now; we've resolved a lot of issues. We're down to what we believe is -- are the final issues and we hope an official release of AirMax ac with backwards compatibility will be up by the end of the year. And I believe that's where you'll see some growth in the service provider business. At the same time, we've been aggressive in R&D in the last few years to come up with new services, Solar is one you saw and we have a couple more coming up. I think that's a key for us. We have a great collection of entrepreneurial operators that are deploying Internet, but as you can see with companies like say Vivint you could sell, they sell all kinds of services, right, solar, alarm services, they've recently tried Internet. There's no reason why our operators can't up-sell new services to their existing customers. So that's what we are trying to do, build technology to support them with more service offerings.

Okay. Thanks.

Your next question comes from Ryan Hutchinson from Guggenheim. Your line is open.

Hi, Robert. This is Nate Cunningham on for Ryan. My question is on sunMAX, can you give us some detail around the resources you planned on providing for west to get the requisite state licensing for solar installation and then what kind of incremental cost that will incur for the business?

We have a simulator we call that somelink.UBNT.com and you could enter the sign in and you have an account as an operator. You can enter in the address, it will simulate, you could deploy a sunMax power system and it will output your complete building materials. In addition we have an application process with the team of professional engineers that will pretty much work with operators in their local governments or authorities to get the application processed and the installation started. So it's really a turnkey solution for someone without any experience to become essentially a solar provider. In addition, we have a community with a couple hundred thousand members, and a lot of them are active in the sunMax forum. And we have a training session online with all kinds of videos and tutorials explaining solar power, the application process, things like rebates and installations.

So you think all the infrastructure is essentially in place already?

For the U.S. it looks good. We are still learning outside the U.S. so it's going to be a lot of – lot more work to do.

Okay. Thanks.