創力 (LTRX) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter and fiscal year 2009 Lantronix Incorporated earnings conference call. I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Reagan Sakai, Chief Financial Officer. Please proceed, sir.

Thank you. Good afternoon everyone and welcome to today's conference call. Before we begin, I would like to highlight that an archived Webcast of this call will be available on the Company's website at www.lantronix.com, and an audio playback will be available through October 10th. The number to call for the replay is 888-286-8010 or 617-801-6888 for international callers with pass code 19193771.

Please be reminded that during the course of this conference call, management will be making forward-looking statements in their prepared remarks and in response to your questions concerning, among other matters, our plans for future product introductions, upcoming planned product releases, the implementation of new corporate marketing messages and marketing techniques and statements regarding future financial metrics including non-GAAP profitability and cash flow. These forward-looking statements are based on Lantronix's current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially as a result of several factors. For a more detailed discussion of these and other risks and uncertainties, see the Company's recent SEC filings including its Form 10-K, to be filed for the fiscal year ended June 30th, 2009, and Form 10-Qs, for the fiscal quarters ended September 30, 2008, December 31st, 2008, and March 31st, 2009. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

I would now like to introduce Jerry Chase, President and Chief Executive Officer of Lantronix. Please go ahead, Jerry.

Thank you, Reagan. Good afternoon, everyone, and thank you for joining us. For the June ended quarter which was our fiscal Q4, Lantronix was non-GAAP profitable for the fourth quarter in a row. We also generated $1.3 million in cash from operations for the fiscal year which again ended for us on June 30th. Our customer design-in activity has started to pick up and it appears that the worst of the economic downturn is behind us.

Our engineering and marketing teams have done an excellent job executing to our product development schedules. As a result, we have a number of new exciting customer-driven products that have been recently announced and more are on the way in the next weeks and months. Over the last few months we significantly strengthened our management team by filling key sales and marketing leadership positions with top notch executives who are beginning to favorably impact our business. Taken together, these factors give us reason for optimism about our future. We look forward to discussing these items and more in greater detail during today's call.

Reagan?

In addition to GAAP results, we report adjusted net income and adjusted operating expenses, referred to as non-GAAP net income or loss, and non-GAAP operating expenses, respectively, and non-GAAP net income or loss per share. Please refer to our Earnings Release posted in the Investor Relations section of our website where we have provided the definition for these non-GAAP financial measures. We believe that the presentation of non-GAAP financial measures provides important supplemental information to management and investors regarding financial and business trends related to the Company's financial condition and results of operations. The non-GAAP financial measures disclosed by Lantronix should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP. And the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by Lantronix may be calculated differently from and therefore may not be comparable to similarly titled measures used by other companies. In our Investor Relations section of our website, we have provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

My upcoming comments relate to the fiscal year ended June 30th, 2009, compared to June 30, 2008. Net revenue was $49.1 million for fiscal 2009 a decrease of $8.4 million or 14.8% compared to $57.6 million. Device networking net revenue was $47.3 million for fiscal 2009, a decrease of $6.3 million or 12% compared to $53.7 million. Our device networking business is comprised of device enablement products and device management products. Device enablement or DeviceLinx net revenue was $40 million for fiscal 2009, a decrease of $5 million or 11%, compared to $45 million. Device management net revenue was $7.4 million for fiscal 2009, a decrease of $1.3 million or 15% compared to $8.7 million. Non core net revenue was $1.8 million for fiscal 2009, a decrease of $2.1 million or 54% compared to $3.9 million.

Gross profit margin was 52.2% for fiscal 2009, compared to 50.5%. The increase in gross profit margin percentage was attributable to lower product costs, lower inventory reserve costs and lower royalty costs. Our lower costs were a result of tighter supply chain management, attention to discretionary spending, and focus on key high volume products. Selling, general and administrative expense was $19.5 million for fiscal 2009, a decrease of $4.4 million or 18% compared to $23.9 million. Research and Development expense was $5.9 million for fiscal 2009, a decrease of $1.1 million or 15% compared to $6.9 million. The reduction in R&D expense was attributable to a flattening of the organization and a reduction in nondesign engineering personnel.

Operating results across all functional areas were positively impacted by the Company's previous restructuring efforts, stringent control on discretionary spending and a Company wide furlough program that was taken in response to the economic downturn. GAAP operating expenses were $26.3 million for fiscal 2009, a decrease of $5.4 million or 17% compared to $31.7 million. GAAP operating expenses included restructuring charges of $806,000, and $757,000 for fiscal 2009 and 2008, respectively. Non-GAAP operating expenses were $23 million for fiscal 2009, a decrease of $6.3 million or 21% compared to $29.2 million. GAAP net loss was $780,000 or $0.01 per share for fiscal 2009, compared to a GAAP net loss of $2.5 million or $0.04 per share. GAAP net loss for fiscal 2009 included restructuring charges of $806,000. GAAP net loss for fiscal 2008 included restructuring charges of $757,000. Other income of $104,000 related to the sale of an investment and a benefit for income taxes of $119,000. Non-GAAP net income was $2.9 million, or $0.05 per share for fiscal 2009, compared to non-GAAP net income of $97,000, or zero cents per share.

Now turning to the three months ended June 30th, 2009, compared to the three months ended June 30, 2008, which represents our fourth fiscal quarter. Net revenue was $11.4 million for the fourth fiscal quarter of 2009, a decrease of $3.3 million or 23% compared to $14.7 million. Device networking net revenue was $11.1 million for the fourth fiscal quarter of 2009, a decrease of $3 million or 21% compared to $14.1 million. Device enablement or DeviceLinx net revenue was $9.6 million for the fourth fiscal quarter of 2009, a decrease of $2.5 million or 20% compared to $12 million. Device management net revenue was $1.6 million for the fourth fiscal quarter of 2009, a decrease of $534,000 or 26% compared to $2.1 million. Non core net revenue was $286,000 for the fourth fiscal quarter of 2009, a decrease of $334,000 or 54% compared to $620,000. Gross profit margin was 49.4% for the fourth fiscal quarter of 2009, compared to 50.5%. The decrease in gross profit margin percent was attributable to an increase in costs related to capitalized manufacturing overhead caused by the $1.5 million decrease in net inventories.

Selling, general and administrative expense was $4.5 million for the fourth fiscal quarter of 2009, a decrease of $1.8 million or 28% compared to $6.3 million. Research and Development expense was $1.5 million for the fourth fiscal quarter of 2009, a decrease of $242,000 or 14% compared to $1.7 million.

As stated before, operating results were positively impacted by the Company's previous restructuring efforts, stringent control on discretionary spending and a Company-wide furlough program that was taken in response to the economic downturn. GAAP operating expenses were $6.1 million for the fourth fiscal quarter of 2009, a decrease of $2.6 million or 30% compared to $8.8 million. Non-GAAP operating expenses were $5.4 million for the fourth fiscal quarter of 2009, a decrease of $2.2 million or 29% compared to $7.6 million. GAAP net loss was $553,000, or $0.01 per share for the fourth fiscal quarter of 2009, compared to GAAP net loss of $1.4 million or $0.02 per share. Non-GAAP net income was $326,000 or $0.01 per share for the fourth fiscal quarter of 2009, compared to non-GAAP net loss of $70,000 or zero cents per share.

In addition to being our fourth consecutive quarter of non-GAAP profitability, this marked our sixth quarter of non-GAAP profitability out of the last seven quarters. As we drive topline growth we expect our non-GAAP overhead cost structure to remain relatively stable.

My upcoming comments on the balance sheet relate to the fiscal year ended June 30th, 2009, compared to June 30th, 2008. Cash and cash equivalents were $9.1 million as of June 30, 2009, an increase of $1.7 million compared to $7.4 million. Total receivables which includes accounts receivable and contract manufacturers receivables were $2.5 million as of June 30th, 2009, a decrease of $2.3 million compared to $4.8 million. Net inventories were $6.5 million as of June 30, 2009, a decrease of $1.5 million compared to $8 million. Accounts payable were $5.6 million as of June 30, 2009, a decrease of $2.1 million compared to $7.7 million. Working capital was $7.4 million as of June 30, 2009, an increase of $1.7 million compared to $5.7 million. The 19% decrease in inventories and the related 27% decrease in accounts payable were direct results of our efforts to better manage our inventory, reduce our overall accounts payable balance, and aging, and improve our working capital.

This concludes my prepared remarks. I'd now like to turn the call back to Jerry.

Thank you, Reagan. In previous calls we've committed to our shareholders, partners and customers that Lantronix would deliver sustained, non-GAAP profitability and positive cash flow. As we mentioned at the beginning of the call, this is our fourth consecutive quarter of non-GAAP profitability and is also the sixth out of the last seven. During fiscal 2009, we took significant steps to position Lantronix for revenue growth and sustained non-GAAP profitability. Today our financial house is in order. Our management team is strengthened with key executive hires. We have a robust customer driven product pipeline and we continue to invest in new technology.

Since our last call, our development schedules have remained on track and as a result we have recently or will soon announce the following products. You may have noticed that earlier today, we announced the newest member of our Spider family, SpiderDuo. SpiderDuo is a palm sized device that provides users secure real-time control of remote computers and equipment as if the computers or equipment were right in front of them, while simultaneously allowing local access. Competitive offerings that are software only solutions require the remote computer to be constantly powered up, consuming many kilowatts of energy per day. To save energy costs and in support of an environmental conscious world, SpiderDuo allows the PC to be completely powered down or powered up remotely at the user's discretion. Via the network, SpiderDuo can also awaken a PC in standby mode.

SpiderDuo is ideal for point of sale, kiosks, ATM, campus or other environments where the device is in active local use but maintained by remote IT staff. Advanced features such as local port, power control, IPv6, and ManageLinx VIP access provide a superior unmatched remote control experience. SpiderDuo greatly reduces the need for expensive service calls and significantly improves uptime performance. There's nothing like it on the market today.

The next generation of XPort, the XPort Pro, will be released in mid October. While keeping the popular foreign factor of our flagship XPort product, the next generation XPort has five times the raw performance and 32 times the memory. This allows XPort Pro to move beyond a communications processor. In many cases, eliminating the need for any other embedded processor in a system. Applications development is made easy with industry standard tools and the Linux operating system. In fact, XPort Pro is the world's smallest Linux computer, complete with a built-in ethernet jack. IPv6 and ManageLinx VIP access give XPort Pro leading edge secure communications ability. XPort Pro allows us to better serve our compute intensive customer needs with the most powerful device server in the smallest package on the market. In a break from our normal practice we are offering free XPort Pro development kits to qualified customers for the first three months of release to accelerate demand.

ManageLinx software Version 2.0 will be available in late October of this year. This newest version supports VIP access on an increasing number of our DeviceLinx products including XPort Pro and all of our Spider products. We are also exploring other platforms where ManageLinx VIP access makes business sense such as cable modems and micro-processors. Version 2.0 is an enterprise class release which represents the integration of features and operational inputs from the demanding requirements of key market applications.

You may recall that we announced Linux support for our MatchPort AR product. Since we announced last quarter, we have received a lot of press attention and design activity and we are beginning to receive orders. Linux capability opens our MatchPort AR, XPort Pro and all of our products going forward to the growing Linux development community. It unleashes new and innovative applications and expands the total market opportunity for our products.

Our popular EDS device server family is being enhanced with increased processing and security features, along with ManageLinx VIP access. Due in January 2010, the EDS 1100 and 2100 will address the growing demand in the medical, security and retail markets for advanced connectivity applications for networking and devices.

These are just some of the exciting products we are launching over the next weeks and months. We look forward to providing you additional updates as these products come online. Matching investments in our product pipeline, we have continued to invest in sales and marketing to better connect with our customers and partners. You may recall that in April Jeff Kost joined us as the Senior Vice President of Worldwide Sales. On the marketing front, in June we announced the appointment of Paul Pishal as VP of Marketing. Jeff and Paul are experienced leaders in their respective areas. They've raised the performance bar for the Company and we've begun to feel the positive impact of their leadership on our business. We expect that their positive influence will grow and accelerate over the next quarters.

We continue to concentrate much of our marketing efforts on web and interactive marketing such as interactive ads, pay per click campaigns and search engine optimization. For example, in response to customer demand, we have recently augmented our popular website video series with the addition of five brief video tutorials that help customers get started with our products. As a result of such efforts we are seeing referrals from search engines such as Google up 10% compared to last year.

As mentioned on our last call, we're continuing to run focused quarterly marketing campaigns which provide information on key products and solutions to targeted audiences. For example, this quarter we are running a campaign on our embedded solutions that promotes XPort and MatchPort BG sample kits for use in medical, point of sale and security equipment applications, and a medical case study campaign that promotes our recent success with Lehigh Valley Hospital and their selection of our EDS intelligent multi-port device server as an integral part of their implementation of a clinical information system in their intensive care units.

Turning to plans for the December ending quarter, we will be initiating campaigns to support product launches and to build on the success we've seen in our targeted verticals. Programs will include campaigns on XPort Pro, ManageLinx Version 2.0 and SpiderDuo. We continue to see good responses to our marketing campaigns, and our messaging continues to focus on solutions rather than products. Our new marketing approach drives more interest from decision makers who are focused on how our offerings can help save their companies time, money, and reduce unnecessary use of natural resources and energy. Please visit our web site to check out what we are doing at www.Lantronix.com. Continued focused investments in our product pipeline and sales and marketing have positioned Lantronix well for sustainable growth in the future.

This concludes our prepared remarks but before moving to Q&A I'd like to thank our customers and partners for their business, efforts and loyalty, and our employees for their hard work and contributions.

I'd like to now open the call to questions.

Thank you. (Operator Instructions). Your first question comes from the line of Mark Newman with Atlanta Investor Company. Please proceed.

Hi, Jerry and Reagan. Good afternoon. Hopefully this isn't too early in the game for you to answer this, but can you craft for us how you envision the Company's performing over the next six to 18 months with emphasis on what kind of market you hope to penetrate and any particular geographic centers or areas and price per contracts and what that could relate to in a high, low for sales gains.

So I'll take a first crack at that. We continue to focus on our security, medical and industrial automation markets across all of our geographies. We're seeing particular strength in Europe and in Japan. The US has remained flat but, as we said, we think the worst of it is behind us. We see that the average value of contracts should be going up as we're offering more and more solutions capability on top of our traditional connectivity solutions.

We've seen a growth in our trend towards moving intelligence towards the network edge. We fully intend to participate in that and with our more powerful platforms we believe that we're well positioned for that. And as we mentioned during the prepared remarks, to offer the primary processor on our platforms, eliminating the need for processors in our customers' equipment. Reagan, I don't know if you had anything to add to that.

No, nothing more to add.

Thank you.

Your next question comes from the line of Bill Nasgovitz with Heartland Funds. Please proceed.

Good afternoon, fellows. I'm not very tech savvy, this raft of new products you mentioned, the XPort Pro, world's smallest Linux, was that server?

Linux computer.

Linux computer, excuse me. Could you just talk about pricing and margin potential and where this could be used? If you could be specific in terms of examples or customers I think that would be very helpful and how large could this market be? Thank you.

Okay. We actually have our VP of Engineering here today in case we do need to talk in more detail but the XPort Pro is our most successful product. Our top seller right now is the XPort, and XPort basically offers serial connectivity to anything with a serial port. Medical equipment, security equipment, industrial equipment, whatever the case may be. Customers, for some reason, absolutely love that form factor. And when I first got to the Company about 18 months ago and did a road trip, several road trips around the world, what customers told us is that they wanted to keep that identical form factor, but they wanted a more powerful processor. They wanted more memory. They wanted Linux capability, and oh, by the way, if we could put ManageLinx secure transport on there, which we call VIP Access, that would be great too. So that's exactly what we did.

We are launching it in mid October, identical form factor. This will allow existing customers to upgrade their products with more processing power, more memory. They can eliminate duplicate processors that could be on their equipment. Plus, they have secure transport which they didn't have before, plus they have Linux which opens us up to the broad community of worldwide programmers of Linux. This is an incredibly powerful platform that allows existing customers to upgrade, new customers to look at us in a different way, beyond just connectivity. I'll let Reagan talk about where we're going to be launching this into the distribution channel in terms of pricing.

The pricing will be $20 more than our current XPort pricing. And as you know, for competitive reasons, we don't release the gross margin on that product but suffice to say that we'll be experiencing gross margin or standard margins similar to what we currently experience on the XPort line. Does that answer your question, Bill?

I think we might have lost Bill.

At this time, there are no further questions. I would now like to turn the call back over to Jerry Chase for any closing remarks.

Thank you. I'd like to thank everyone for your participation on our call today and we look forward to speaking with you next quarter. Hold on, it looks like we might have another question in the queue and it looks like Mark Newman might have come back on. Is that the case? Is that what you're seeing? No, I think we lost him. Okay, so in that case, we would like to conclude the call and we look forward to speaking with everyone next quarter.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.