Author Topic: UBNT - Ubiquiti Networks  (Read 12285 times)

Jerry Capital

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Re: UBNT - Ubiquiti Networks
« Reply #40 on: November 09, 2017, 09:13:03 AM »
This is not good.

"Ubiquiti Community

As a result of a reporting error, the previously furnished Prior Investor Presentations and the investor presentation used by Company management dated as of May 2017 referenced 4 million registered users in the Ubiquiti Community, and the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017 reported that the Ubiquiti Community included over 4 million entrepreneurial operators and systems integrators. In actuality, as of December 31, 2016, the Ubiquiti Community included approximately 609,000 registered users, while there were approximately 4 million registered user sessions at https://community.ubnt.com during the calendar year ended December 31, 2016. The information on https://community.ubnt.com is not part of this Current Report on Form 8-K."


Foreign Tuffett

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Re: UBNT - Ubiquiti Networks
« Reply #41 on: November 09, 2017, 01:26:29 PM »
Speaking of buybacks, if you look at UBNT's cash flow statements, the company has repurchased more stock then excess cash generated, when considering the change in US cash balances. The company's Amended Credit Agreement is co-signed by the US and Cayman Islands subs and allows for unrestricted borrowing and repayment by either sub. However, the US uses a worldwide tax system and the credit agreement is invalid if UBNT is not fully compliant with all tax laws.

If all of the cash was rightfully generated in the US (as you'd hope) then it would appear as if there could be a gap in international cash generation and the cash balance reported. I want to be careful in my wording because I have not had a chance to speak to UBNT yet.

There has been instances in the past of balance confirmation issues (some very large):
https://www.accountingweb.com/aa/auditing/audit-fraud-the-confirmation-angle
https://attestationupdate.com/2013/08/05/3-bank-confirmation-frauds/

Would you be able to break down your math that leads you to these conclusions?

Schwab711

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Re: UBNT - Ubiquiti Networks
« Reply #42 on: November 09, 2017, 03:03:24 PM »
Speaking of buybacks, if you look at UBNT's cash flow statements, the company has repurchased more stock then excess cash generated, when considering the change in US cash balances. The company's Amended Credit Agreement is co-signed by the US and Cayman Islands subs and allows for unrestricted borrowing and repayment by either sub. However, the US uses a worldwide tax system and the credit agreement is invalid if UBNT is not fully compliant with all tax laws.

If all of the cash was rightfully generated in the US (as you'd hope) then it would appear as if there could be a gap in international cash generation and the cash balance reported. I want to be careful in my wording because I have not had a chance to speak to UBNT yet.

There has been instances in the past of balance confirmation issues (some very large):
https://www.accountingweb.com/aa/auditing/audit-fraud-the-confirmation-angle
https://attestationupdate.com/2013/08/05/3-bank-confirmation-frauds/

Would you be able to break down your math that leads you to these conclusions?

I will eventually. I haven't had enough time to finish researching everything I want to look in to and I'd like to talk to the company to give them a chance to comment before I publicly post what I think. I'm deleting the prior post because it's probably not fair to leave that hanging without being willing to post more support. At the same time, I wouldn't change anything I wrote. With all the issues against short sellers, I'm trying to be careful/respectful. I'm only researching this to practice so it's not worth getting in to any problems over.

I'm not trying to blame UBNT of anything illegal (there could be a valid reason for all I know). I'm just saying where my research is leading me.

Schwab711

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Re: UBNT - Ubiquiti Networks
« Reply #43 on: November 10, 2017, 12:35:09 PM »
Here's one of the earliest examples I have. I've already archived and saved screenshots of all of the important websites, LinkedIn profiles, ect. Lets see how many getting deleted or changed from this point on :)

Flytec CEO says they had $3.3m in sales in 2011
https://www.linkedin.com/in/osniarruda 

$UBNT says Flytec had $39.6m in sales in 2011

This implies Flytec had an AR balance with UBNT of $6.17m to $6.57m. This is more than the claimed sales...

Why would the CEO under-sell his sales achievement by more than a magnitude? Who's lying here?

Here's some more info about Flytec Computers:
First, to go off the last post, so it's not just a LinkedIn profile as my only evidence. The below link also supports the $3.3m in revenue. I'm not sure when it was last updated but they have info from 2017 on there. The CEO of Flytec actually purchased the building at the below address in Doral, FL, yet the name of a courier business, Servientrega, is on the front of the building. Servientrega leases the majority of the building and Flytec operates out of a single unit within the building (as they have prior to the CEO purchasing the building).

Although circumstantial (this will be a pattern in my posts), what's interesting is the huge gap between the revenue UBNT says Flytec does and the sales everyone else (including Flytec) says Flytec does. Considering the private business revenue estimates are generally good at creating a range that includes the right number, one would guess that Flytec does roughly $3.3m - $20.0m in revenue. UBNT has stated that this number is much higher since they went public.
Hoovers: $15.576m
GovTribe: $3.3m
Owler: $65.7m (with 61 employees) - use with caution as this data is crowdsourced (unlike the others). However, notice the 3 guesses entered throughout the last 2 years.
Mantra: $20.02m
Credability: $10.5m

I will fully outline the importance of this disparity as I go. However, consider my quoted comment with respect to Flytec's CEO's LinkedIn and the GovTribe record . UBNT's 2011 income statement would certainly fit industry norms if $39.6m in revenue was removed, as opposed to UBNT reporting eye-popping margins that have been unfathomably consistent (zero operating leverage) despite revenue CAGR of 27.9% over that period!!! In addition, UBNT claimed that Flytec grew roughly in-line with UBNT from 2011-present. This implies a cumulative gap in UBNT's financials of $100's of millions.

Support for the above:
https://govtribe.com/vendor/flytec-computers-inc-miami-fl-dba-flytec-computers-usa
https://www.google.com/maps/place/3043+NW+107th+Ave,+Doral,+FL+33172/@25.8017374,-80.3691684,3a,75y,80.11h,90t/data=!3m6!1e1!3m4!1sbPpdyKkffJdA_lAPc7QlhA!2e0!7i13312!8i6656!4m5!3m4!1s0x88d9beb250962019:0x4f961e7c3739ab49!8m2!3d25.801749!4d-80.3690841
http://www.hoovers.com/company-information/cs/revenue-financial.flytec_computers_inc.e249956799377d7c.html
https://www.manta.com/c/mhw5v8t/flytec-computers-usa
https://www.owler.com/iaApp/1008717/flytec-computers-company-profile
https://credibility.com/computer-and-computer-peripheral-equipment-and-software-merchant-wholesalers/us-fl-doral/flytec-computers-inc

Everything said about Flytec basically says they are a terrible reseller, who sometimes ships orders with packaging or shipping labels from different distributors (which occasionally are other "official UBNT distributors"). Again, circumstantial, but UBNT's business model reminds me quite a bit of the specialty pharma industry (especially the "grey market" or wholesale specialty pharma industry). Products are often "sold to" other wholesale pharma companies until they finally exit this "grey market". See below for the FDA's presentation on the issue.
https://www.resellerratings.com/store/Flytec_Computers_Flytec_USA
https://www.fda.gov/downloads/aboutfda/workingatfda/fellowshipinternshipgraduatefacultyprograms/pharmacystudentexperientialprogramcder/ucm528194.pdf




More on the CEO:
The CEO is Osni Muccellin de Arruda, formerly "considered the largest computer products smuggler in Brazil"
http://www.gazetadopovo.com.br/vida-e-cidadania/presos-contrabandistas-de-computadores-9y279wkbtp9suvmgue19dwxn2

The Pacific Invest company is this one: http://www.pacificinvest.com.br/

The charges were ultimately dropped against Osni, though others did serve time. I'm not sure how Osni got the charges dropped. Again, circumstantial, what's interesting about the case is the money was laundered through Pacific Invest and one of the partners of the government-sanctioned currency exchange firm was involved.
http://www.justica.gov.br/central-de-conteudo/combate-a-pirataria/relatorios/iii_report_cncp.pdf (p.105/208)

This part of the story is interesting because my later posts will try to determine how UBNT moves cash around. For most of UBNT's history, Flytec was the largest customer and still is a very important customer to this day.

Despite Flytec's importance to UBNT's growth, they are not listed among the top "Distributors & Master Resellers" for UBNT (see pic).

Side note: Interestingly, P.W. Batna Magadalena Mucha (PW Batna), the distributor from Citron's report that does indeed operate out of a backyard tent, with a handful of employees (FB made it possible to find a couple - gotta love social media!), is not even listed as one of the 38 official Distributors & Master Resellers or as a Reseller. We will discuss PW Batna and Streakwave Wireless at a later time.

Luckily for me, Flytec is Florida corporation so we are able to learn a little more about them. Flytec is the only Florida-based company registered to Osni. The filing introduces us to Osni's right-hand man, Denis Figueiro, who is the registered agent and VP of Flytec. I believe Flytec has 4-9 employees in the US, though I've only found 6 (one of them seems to work as a salesmen for both Comcast and Flytec?). To be fair, Relationship Science reports 25 employees worldwide


Flytec's Florida data:
http://search.sunbiz.org/Inquiry/CorporationSearch/SearchResultDetail?inquirytype=OfficerRegisteredAgentName&directionType=Initial&searchNameOrder=ARRUDAOSNIMUCCELIN%20P070000990601&aggregateId=domp-p07000099060-4d7b2e47-1065-43c8-a599-44a2adb0faae&searchTerm=Arruda%20%20%20%20%20%20%20%20%20%20%20%20%20%20Osni%20Muccelin&listNameOrder=ARRUDAOSNIMUCCELIN%20P070000990601


A final side note: A company called Mikrotik, a listed competitor of UBNT, has an extremely similar growth trajectory and project margins, and almost every important UBNT reseller specializes in selling UBNT and/or Mikrotik products and generally nothing else.


To summarize, all of this is for one distributor. I am attempting to detail various facts about them that will ultimately be used to show that claims made by UBNT are unlikely to be true. You can see why it's going to take me awhile to detail everything I know about UBNT and their distributors/partners. I don't think it's an accident that UBNT looks so internally chaotic or that they don't have a COO or CFO.
« Last Edit: November 10, 2017, 12:48:14 PM by Schwab711 »

Foreign Tuffett

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Re: UBNT - Ubiquiti Networks
« Reply #44 on: November 12, 2017, 03:39:31 PM »
Here's one of the earliest examples I have. I've already archived and saved screenshots of all of the important websites, LinkedIn profiles, ect. Lets see how many getting deleted or changed from this point on :)

Flytec CEO says they had $3.3m in sales in 2011
https://www.linkedin.com/in/osniarruda 

$UBNT says Flytec had $39.6m in sales in 2011

This implies Flytec had an AR balance with UBNT of $6.17m to $6.57m. This is more than the claimed sales...

Why would the CEO under-sell his sales achievement by more than a magnitude? Who's lying here?

Here's some more info about Flytec Computers:
First, to go off the last post, so it's not just a LinkedIn profile as my only evidence. The below link also supports the $3.3m in revenue. I'm not sure when it was last updated but they have info from 2017 on there. The CEO of Flytec actually purchased the building at the below address in Doral, FL, yet the name of a courier business, Servientrega, is on the front of the building. Servientrega leases the majority of the building and Flytec operates out of a single unit within the building (as they have prior to the CEO purchasing the building).

Although circumstantial (this will be a pattern in my posts), what's interesting is the huge gap between the revenue UBNT says Flytec does and the sales everyone else (including Flytec) says Flytec does. Considering the private business revenue estimates are generally good at creating a range that includes the right number, one would guess that Flytec does roughly $3.3m - $20.0m in revenue. UBNT has stated that this number is much higher since they went public.
Hoovers: $15.576m
GovTribe: $3.3m
Owler: $65.7m (with 61 employees) - use with caution as this data is crowdsourced (unlike the others). However, notice the 3 guesses entered throughout the last 2 years.
Mantra: $20.02m
Credability: $10.5m

I will fully outline the importance of this disparity as I go. However, consider my quoted comment with respect to Flytec's CEO's LinkedIn and the GovTribe record . UBNT's 2011 income statement would certainly fit industry norms if $39.6m in revenue was removed, as opposed to UBNT reporting eye-popping margins that have been unfathomably consistent (zero operating leverage) despite revenue CAGR of 27.9% over that period!!! In addition, UBNT claimed that Flytec grew roughly in-line with UBNT from 2011-present. This implies a cumulative gap in UBNT's financials of $100's of millions.

Support for the above:
https://govtribe.com/vendor/flytec-computers-inc-miami-fl-dba-flytec-computers-usa
https://www.google.com/maps/place/3043+NW+107th+Ave,+Doral,+FL+33172/@25.8017374,-80.3691684,3a,75y,80.11h,90t/data=!3m6!1e1!3m4!1sbPpdyKkffJdA_lAPc7QlhA!2e0!7i13312!8i6656!4m5!3m4!1s0x88d9beb250962019:0x4f961e7c3739ab49!8m2!3d25.801749!4d-80.3690841
http://www.hoovers.com/company-information/cs/revenue-financial.flytec_computers_inc.e249956799377d7c.html
https://www.manta.com/c/mhw5v8t/flytec-computers-usa
https://www.owler.com/iaApp/1008717/flytec-computers-company-profile
https://credibility.com/computer-and-computer-peripheral-equipment-and-software-merchant-wholesalers/us-fl-doral/flytec-computers-inc

Everything said about Flytec basically says they are a terrible reseller, who sometimes ships orders with packaging or shipping labels from different distributors (which occasionally are other "official UBNT distributors"). Again, circumstantial, but UBNT's business model reminds me quite a bit of the specialty pharma industry (especially the "grey market" or wholesale specialty pharma industry). Products are often "sold to" other wholesale pharma companies until they finally exit this "grey market". See below for the FDA's presentation on the issue.
https://www.resellerratings.com/store/Flytec_Computers_Flytec_USA
https://www.fda.gov/downloads/aboutfda/workingatfda/fellowshipinternshipgraduatefacultyprograms/pharmacystudentexperientialprogramcder/ucm528194.pdf




More on the CEO:
The CEO is Osni Muccellin de Arruda, formerly "considered the largest computer products smuggler in Brazil"
http://www.gazetadopovo.com.br/vida-e-cidadania/presos-contrabandistas-de-computadores-9y279wkbtp9suvmgue19dwxn2

The Pacific Invest company is this one: http://www.pacificinvest.com.br/

The charges were ultimately dropped against Osni, though others did serve time. I'm not sure how Osni got the charges dropped. Again, circumstantial, what's interesting about the case is the money was laundered through Pacific Invest and one of the partners of the government-sanctioned currency exchange firm was involved.
http://www.justica.gov.br/central-de-conteudo/combate-a-pirataria/relatorios/iii_report_cncp.pdf (p.105/208)

This part of the story is interesting because my later posts will try to determine how UBNT moves cash around. For most of UBNT's history, Flytec was the largest customer and still is a very important customer to this day.

Despite Flytec's importance to UBNT's growth, they are not listed among the top "Distributors & Master Resellers" for UBNT (see pic).

Side note: Interestingly, P.W. Batna Magadalena Mucha (PW Batna), the distributor from Citron's report that does indeed operate out of a backyard tent, with a handful of employees (FB made it possible to find a couple - gotta love social media!), is not even listed as one of the 38 official Distributors & Master Resellers or as a Reseller. We will discuss PW Batna and Streakwave Wireless at a later time.

Luckily for me, Flytec is Florida corporation so we are able to learn a little more about them. Flytec is the only Florida-based company registered to Osni. The filing introduces us to Osni's right-hand man, Denis Figueiro, who is the registered agent and VP of Flytec. I believe Flytec has 4-9 employees in the US, though I've only found 6 (one of them seems to work as a salesmen for both Comcast and Flytec?). To be fair, Relationship Science reports 25 employees worldwide


Flytec's Florida data:
http://search.sunbiz.org/Inquiry/CorporationSearch/SearchResultDetail?inquirytype=OfficerRegisteredAgentName&directionType=Initial&searchNameOrder=ARRUDAOSNIMUCCELIN%20P070000990601&aggregateId=domp-p07000099060-4d7b2e47-1065-43c8-a599-44a2adb0faae&searchTerm=Arruda%20%20%20%20%20%20%20%20%20%20%20%20%20%20Osni%20Muccelin&listNameOrder=ARRUDAOSNIMUCCELIN%20P070000990601


A final side note: A company called Mikrotik, a listed competitor of UBNT, has an extremely similar growth trajectory and project margins, and almost every important UBNT reseller specializes in selling UBNT and/or Mikrotik products and generally nothing else.


To summarize, all of this is for one distributor. I am attempting to detail various facts about them that will ultimately be used to show that claims made by UBNT are unlikely to be true. You can see why it's going to take me awhile to detail everything I know about UBNT and their distributors/partners. I don't think it's an accident that UBNT looks so internally chaotic or that they don't have a COO or CFO.

I took 15 minutes and looked into a few of the claims you've made here. I stumbled onto the following almost immediately:

1) Flytec and Servientrega do not appear to be in the same building in Doral, FL. Servientrega is across the street from Flytec (3043 vs. 3047). Assuming Flytec occupies and operates in the entire building (which it seems to based on signage clearly visible using Google Street View), claims about Flytech doing only $3 million in annual revenue look almost laughably low. Also note that the building looks exactly like the building featured in a video on Flytec's "About Us" webpage on its website.

Also, based on the same video Flytec clearly has more than the "4 - 9 employees" US-based employees that you estimate. What do you mean when you say that you've "only found 6" employees? Do you think every last warehouse worker and secretary in America can be tracked down on the internet via their employer?

2) You bring up the specialty pharmacy industry like it's some sort of spectre haunting Flytec's business model, but I think you are missing the obvious. Flytec's Doral, FL building looks to be within a few miles of the Miami International Ariport. Miami is a well-known conduit for goods to move from the US to Latin America. It's likely that a big part of Flytec's business model is to ship wireless networking equipment via air freight to Latin America. This may be why the name of the company is what is it:  F-L-Y  T-E-C-[H]

Grant

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Re: UBNT - Ubiquiti Networks
« Reply #45 on: November 13, 2017, 03:17:56 PM »
In addition to what Foreign Tuffett said,

Flytec Computers Inc. (https://www.flyteccomputers.com/) has always been listed as a reseller in the U.S., and Flytec Computers SA (http://www.flytec.com.py/) has always been listed as a distributor in Latin America. Osni founded both. As a multinational, I don't believe UBNT distinguishes between the the two different entities in its reporting.

Per the S-1, a distributor used to take delivery of product at a U.S. address for sale in SA, greatly throwing off the geographic revenue figures. This stopped or began to stop 2011Q3. I believe this distributor was Flytec.

Flytec claims to have six employees and $3.3M in revenue as late as 2017. I don't think they should be taken seriously as their videos, office space and parking lot clearly show at least a dozen employees.

PW Batna is listed as a European distributor.

I scrape data from two (soon to be five) UBNT distributors, and have generally found my results consistent with UBNT's reported figures. The flat guidance this quarter was no surprise.

MikroTik is UBNT's closest competitor, but they're unfortunately not public.

UBNT recently increased the size of its revolving loan with Wells Fargo, with no increase in interest rates or fees. To me this indicates they're confident the cash (flows) are real. Given the simplicity of UBNT's balance sheet, I would be extremely surprised if they managed to fool Wells Fargo and KPMG. Verifying bank statements and cash balances is fairly easy.

The forum user count is a classic example of UBNT screwing up because they don't spend any money on management or controls.

Starting with a conclusion isn't a sound way to conduct an investigation.

gjangal

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Re: UBNT - Ubiquiti Networks
« Reply #46 on: November 13, 2017, 05:20:34 PM »
the short case is getting very interesting

Total diluted shares - 79.1mn
Insiders. - 57.6mn

Edgepoint - 6.3mn
Akre - 2.3mn

This leaves about 14 mn shares float.Of which 10.2mn are short as of Oct 31. Securities lending rates for UBNT are between 10-14%. Shorts could get squeezed here

rkbabang

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Re: UBNT - Ubiquiti Networks
« Reply #47 on: November 14, 2017, 10:28:17 AM »
the short case is getting very interesting

Total diluted shares - 79.1mn
Insiders. - 57.6mn

Edgepoint - 6.3mn
Akre - 2.3mn

This leaves about 14 mn shares float.Of which 10.2mn are short as of Oct 31. Securities lending rates for UBNT are between 10-14%. Shorts could get squeezed here


I just bought some more.  I can't find anyone with a real reason to think this is fraud other than a gut feeling they seem to have.  I'm not convinced. It doesn't make sense that insiders would own so much stock yet run the company into the ground making their assets worthless.  If Robert Pera starts unloading his shares in a big way I'll start getting nervous.  In the meantime I'm waiting for the squeeeeeze.

chrispy

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Re: UBNT - Ubiquiti Networks
« Reply #48 on: November 14, 2017, 11:58:54 AM »
Agree.

Schwab711

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Re: UBNT - Ubiquiti Networks
« Reply #49 on: November 14, 2017, 09:52:28 PM »
I definitely made at least 2 minor mistakes. You get what you pay for on here. No one is paying me for an exclusive, final opinion. I may make more mistakes in the future but the fundamentals should be sound.

We talked the other night about Flytec, Grant. I don't have a smoking gun. In general, I think folks are missing the Forrest for the tree(s). My posts are/will be about building a case based on many unusual incidents. My guess of 100s of millions is probably better said "I think $100m or more". I don't start with any interest in outcome. Like most math problems and investment ideas, I started with assumption of "no" and in the case of UBNT, I have yet to disprove. This logic makes sense to me but that's what makes a market. I'm doing this for fun. You have posted almost exclusively about long UBNT.

I'll post more of my thesis soon.

As a partial continuation, Flytec had >$9m in US rev in 2010 and $3.3m in 2011. Brazil had an economic depression recently but overall Flytec revenue was up 300%. This is about building a case of mispriced CP risk, accounting controls, legal compliance, ect. Flytec almost certainly lied on government forms about US operations between 2013-present. This is only one CP. Right now, how much in A/R does UBNT have allocated to the former 'largest illegal electronics distributor' in South America? The guy that laundered money through the firm of a partner/accomplice. How much inventory is based on Flytec order patterns? Do you trust Flytec's credit? What would you pay, pro rata, for UBNT if Flytec was the only customer?

Its about showing a pattern at UBNT. I think I need to show this long pattern to better capture my concerns with the cash flow statements. We'll see if I get any converters.

Either way, UBNT is not exactly cheap on any FCF metrics. Good luck to longs and I look forward to continuing this debate. Should be an interesting case study either way.
« Last Edit: November 14, 2017, 10:00:17 PM by Schwab711 »