創力 (LTRX) 2012 Q1 法說會逐字稿

(Operator Instructions). Good day ladies and gentlemen and welcome to the first quarter 2012 Lantronix, Inc. earnings conference call. I would now like to turn the call over to Ms. E.E. Lukowski. Please proceed.

Thanks. Good afternoon everyone and thank you for joining us on the Lantronix, first quarter fiscal 2012 conference call. Joining outside on Kurt Busch, Lantronix Chief Executive Officer and Jeremy Whitaker Lantronix Chief Financial Officer. A live and archived webcast of today's call will be available on the Company's website at www.lantronix.com. In addition a replay will be available through November 17th by dialing 88-286-8010 in the US or for International callers 617-801-6888 and entering the pass Code 99413299.

As a reminder during the course of this conference call management may make forward-looking statements in their prepared remarks and in response to your questions and statements regarding product strategy, marketing plans and future financial metrics including revenue, profitability, operating expenses, cash flow, and working capital. These forward-looking statements are based on current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially as a result of several risk factors for a more detailed discussion of these Risk Factors and other risks and uncertainties see the Company's recent SEC filings including its Form 10-Q filed for the fiscal quarters end in March 31, 2011, December 31st, 2010, and September 30th, 2010 and its Form 10-K filed for the fiscal year-ended June 30th, 2011. All of these are available through the Investor Relations portion of our website at www.lantronix.com.

Readers and listeners are cautioned not to place undue reliance on any forward-looking statements. Which speak only as of the date here of and the Company under takes no obligation to update these forward-looking statements to reflect subsequent events or circumstance. I would now like to introduce Jeremy Whitaker, Chief Financial Officer of Lantronix. Jeremy.

Thank you. In addition to GAAP results, we report adjusted net income which is referred to as non-GAAP net income or loss and non-GAAP net income or loss per share. We also report adjusted operating expenses referred to as non-GAAP operating. Please refer to our first quarter fiscal 2012 news release posted in the Investor Relations section of our website where we have provided the definitions for the non-GAAP financial measures that we use and reconciliations of Lantronix's non-GAAP financial measures. We believe that the presentation of non-GAAP financial measures provides important supplemental information relating 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 according to GAAP. Non- GAAP financial measures used by Lantronix may be calculated differently from and, therefore, may not be comparable to similar non-GAAP information provided by other companies. All financial results and reconciliations should be evaluated carefully. Now turning to our financial results for the first fiscal quarter...

Net revenue was $11.2 million, a decrease of 8% compared to $12.2 million for the first quarter of 2011. The change was in part due to a decrease in net revenue in the Americas region as a result of general economic conditions. In addition, in the Americas region we had a royalty sale of $275,000 in the year-ago fiscal quarter that did not repeat in the current fiscal quarter. The decrease in net revenue from our device enablement product lines was partially offset by a slight increase in net revenue from our device management and non-core product lines.

Gross profit margin was 47.4% compared to 51.1% for the first quarter of 2011. The decrease in gross profit margin was in part due to lower selling prices and a decrease in royalty sales which had no associated cost of sales. GAAP operating expenses were $6.7 million, a decrease of $0.2 million, compared to $6.9 million for the first quarter of fiscal 2011.

Selling, general and administrative expenses were $5.0 million, a decrease of $0.1 million compared to $5.1 million for the first quarter of fiscal 2011. SG&A expenses for the first quarter of fiscal 2012 included $108,000 in accounting and legal fees associated with the special investigation, and $153,000 in consulting fees related to the two former executive officers' separation agreement.

Research and development expenses were $1.7 million compared to $1.8 million for the first quarter of 2011. Non- GAAP operating expenses were $6.1 million compared to $6.1 million for the first quarter of fiscal 2011.

GAAP net loss was $1.4 million, or $0.14 per share, compared to a GAAP net loss of $678,000, or $0.07 per share for the first quarter of fiscal 2011. Non- GAAP net loss was $679,000 or $0.07 per share, compared to non-GAAP net income of $228,000 or $0.02 for the first quarter of fiscal 2011.

Now turning to the balance sheet. Cash and cash equivalents were $4.0 million, compared to $5.8 million as of June 30, 2011. The decrease in cash was mainly due to payments of expenses related to the internal investigation and the net loss incurred during the current fiscal quarter.

Net inventory was $9.3 million as of September 30, 2011 compared to $9.2 million as of June 30, 2011. The slight increase in inventory was due to lower than expected revenue. As Kurt expressed on the last call, we began taking action in September to improve our inventory management and as a result, we expect to reduce inventory levels in the upcoming fiscal quarters.

Accounts payable were $6.9 million compared to $8.4 million as of June 30, 2011. Working capital was $3.6 million, compared to $5.2 million as of June 30th, 2011. Our working capital was affected by the costs associated with last year's special investigation and the net loss we incurred during the current fiscal quarter.

To improve our future operating results and stabilize working capital we have put in place a cost restructuring plan, specifically, we have taken the following actions. Reduced headcount by approximately 11% which will result in annualized cash savings of approximately $2 million. As a result of these cost reduction activities, we expect to take a restructuring charge of approximately $300,000 during the second quarter of fiscal 2012.

By November 16th, we will have reduced the size of our Board from nine directors at this time last year to four directors. In addition, we have reduced executive officer compensation. These two actions will result in annualized net savings of approximately $350,000. Furthermore, we are tightening our spending across the Company to ensure that our expenses are in line with revenue expectations.

Based on the cost restructuring and changes to our operating plan we expect our future operating results to improve and working capital to stabilize over the next few quarters. I would now like to turn the call over to Kurt Busch, Lantronix's President and CEO. Kurt?

Thank you, Jeremy. Jeremy has just spent the last few minutes giving you the financial details of what occurred during the first fiscal quarter of 2012. During our last call, I told you that our focus was on executing a plan to leverage Lantronix's assets and redefine the product strategy to create value for our shareholders. Specifically, I outlined several key near-term objectives. Increase margins, decrease inventory and ensure strong financial discipline is in place. Hire and integrate the right leadership and resources to execute on our plan, and reach out to our customer base to help refine the product strategy.

While our financial results for the first quarter were disappointing, I would like to emphasize that we have made and continue to make progress in all of these areas. Since joining the Company in the last few weeks of the first quarter we took immediate action to instill greater financial discipline. During the first quarter we saw some slight improvement in gross margins over the June quarter and our goal is to have gross margins return to the corporate average of 49% to 51%.

We have implemented and continue to implement process improvements to reduce inventory and we expect to see the results of these actions over the next several quarters.

As Jeremy stated, our focus is on primarily reducing SG&A expenses and bringing them in line with revenues. These cost reductions began at the Board level and were extended to the management team, external service providers and throughout the operations.

We believe the new levels of operation expense will be more in line with the current short-term economic conditions. As our revenues increase our plan is to reinvest into our engineering and product development resources. As you are aware over the last month we completed recruitment of key finance, sales and marketing talent.

First, Jeremy Whitaker returned to Lantronix in late September as Chief Financial Officer, after briefly serving as Vice President and Controller at Mindspeed. Jeremy has nearly ten years of history with Lantronix both as former Vice President of Finance and as an outside auditor during his tenure at Ernst and Young. Jeremy hit the ground running and I am pleased to have someone with his experience in this critical partnership role.

More recently we added key sales and product marketing talent. Robert Robinson joined us last months as Vice President of Worldwide Sales and will be leading the global strategy and execution of Lantronix's sales, distribution and channel efforts. Robert has more than 20 years of experience most recently serving as Vice President of Enterprise Sales and Marketing for Global Track, a wireless provider M2M provider. Earlier he served in key sales and management positions with Crossbow technology, D Link, Arrow Electronics and Ingram Micro(Inaudible).

After a nine year absence, Mak Manesh returned to Lantronix as Vice President of Product Management. Mak has more than 20 years of experience at M2M product marketing. Seven of those years were spent as Lantronix's product manager. During his prior Lantronix's tenure, Mak was involved with the development and the launch of several Lantronix's award-winning device servers including our most successful product the XPort.

Also returning to Lantronix as Senior Director of US sales is Tom Buckley. In 2010 Tom was Lantronix's top salesperson. He brings more than 25 years of technical and marketing expertise. Please welcome Rob, Mak , and Tom to our team.

Since our last call, I have met face-to-face with many of our key partners and customers in North America, Japan, Europe, and the APAC region. What I have learned is that Lantronix continues to maintain both strong relationships with our customers and partners, and a highly respected reputation for offering high-quality easy to use products. We have started work towards our objective of building an efficient product development machine that will create value and growth for our shareholders. First and perhaps most importantly, we are reorganizing our engineering team to increase productivity and enhance the speed at which we launch market driven solutions into production. Over the next 12 months you can expect Lantronix to bring to market on average one new product each quarter.

The new products will both expand the markets we address as well as allow for share capture in the markets we already play in. For example, we will be enhancing our device servers by introducing new interfaces and software tools for machine and network connectivity that will open many more applications for this class of product. These new capabilities are intended to shorten the time-to-market for our customers and time to revenue for ourselves. We will revive and refresh several mature but still promising product lines to take advantage of today's technology trends and the enterprise and data center.

Currently we have focused resources to accelerate product development schedules on several products that have been slated for production sometime next year. We expect to launch one of those five into production during this current quarter. In talking with some of you, I know that the past year has been a challenging one. During our last call, I shared with you that I knew the task before us was not an easy one but one that would require time to achieve. As Jeremy and I have shared with you today in the past three months we have take action to complete recruitment of key senior (Inaudible). talent, implement process improvements in cost containment initiatives to instill financial discipline and improve key financial metrics, reach out to customers an key partners, and set the foundation for a more efficient and responsive product development.

Finally, I want to emphasize that your Board, management, and the entire Lantronix team are both energized by the opportunities we see and committed to take the actions needed to position Lantronix to deliver enhanced value. I look forward to continuing to share with you the actions, results , and progress we are making in the upcoming quarters. Before turning call over for questions I would like to take the opportunity to thank my Lantronix's colleagues, our investors, our partners , and our customers for your ongoing support. Operator, we

(Operator Instructions). Our first question comes from the line of Paul Johnson with Nicusa Capital. Please proceed.

Thank you. Thanks, Kurt. Obviously you're still measuring your tenure here in weeks and I guess were up to a few months , so not to suggest you've had extensive time, but as you look out over the next I don't know couple of quarters what are the most important metrics that we should be tracking? Obviously, just committed to roughly a new product a quarter earlier in the presentation and last quarters you commented on P&L type measures. Obviously you focus on the balance sheet in terms of working capital. Can you walk us through what you think from the outside you would like us to measure your progress over the next three, four,

Thank you, Paul. I think the most important is really that's going to see growth or generate growth for the Company is one new product per quarter. In the long-term that is what is going to be driving long-term revenue for the Company. The other metrics I discussed, inventory reduction and increasing margins are also I would say key metrics, but these are more refinements of the operations, but the real top line growth that you're going to see from new product introductions.

If we drilled down on that specific for a moment it sounds like some of the new products could be refreshes of current products, but that you fear may be a little stale or more importantly take advantage of advances in silicon or advances in software, but other ones could be brand new products that perhaps we have never seen before?

Yes. There will definitely be both in the mix.

And obviously just almost by definition you are going to stay in the M2M market, you're going to stay where the core strengthens have been historically?

Yes. That's right.

And as you get to the know the R&D department is it sounds like there is some restructuring coming, it sounds like you think there could be some more efficiency in terms of the process R&D process but it like you also say lot of faith that there's some great technology and some great engineers there.

Yes. We have really been fortunate when I walked in the door at Lantronix I found that the Company had strong technology which I could grossly split into I would say basic technology, more advanced technology, and then some I would say premiere level technology and on those platforms at those three price points we have the ability to leverage those particular levels or price points, if you will, and expand those into different markets or different subsegments that we do not play in today.

Is there any gaping holes in the technology that you would love to be able to fill easily maybe over the next year or so or have you got enough there to keep you going?

There's definitely some auxiliary functions that we would like to add and fortunately those are available in the merchants market so they are things that we are working to add to our portfolio.

Products and features and capabilities that you can bring into your system level products on an OEM basis?

Well, really it's more buying different silicon to integrate into our own components.

Got it. When you go talk to the customers which obviously you are starting to do and the sales (Inaudible). is getting beefed up is this a problem where you're going to have to go and explain stability or are they just happy to have products that solve their problems and the issues that companies have been through aren't really a big concern of theirs?

I just spent the last month on the road spending time in Europe, and A Pac, and Japan and met also with a number of US customers and partners and what I found is that the stability issues and the turmoil and I would say insecurity of the past is really in the past. The customers are very excited that the new team is in place. Some of which are old faces to the customer and they're very excited about moving forward. So I don't really see that as hindering any kind of future development for the Company.

Well, I must say as my time comment you've been able to re recruit people that were there before, so you have some magic that's pretty impressive.

Thank you, Paul.

You're welcome. Thanks for the answers.

And our next question comes from the line of David Kanen with Williams Financial Group. Please proceed.

Hi. I joined the call a little bit late so you may have covered this. I read in the press release that you're going to reduce OpEx by $2 million on an annual basis. Is that inclusive of R&D or operating expenses exclusive of R&D?

I can take that. So that's across-the-board reduction. Primarily coming from operating expenses, but there is some impact on R&D spending and those are the charges specifically -- or the savings I should say are specifically related to the restructuring event that we did.

I see. So non-GAAP OpEx will get down to what is it, about -- right now it's at $6 million a quarter, you will get down to $5.5 million?

Is that about right?

That's about in the range, yes.

Okay. And then as far as I know gross margins were up a little bit sequentially. Getting back to the 50%, low 50% area, how quickly can you do that and the degradation is it mostly just working through older inventory or is there pricing pressure? Just what information can you give me to help me to understand that a little bit better it?

I think it's a combination of both so we have seen some pricing pressure and our prices have come down a little bit more quickly than our inventory reductions and part of that reason is some of the inventory that we have gotten price reductions is still sitting in inventory. So we do expect over time and as we bring down inventory to start realizing some of those price reductions over the next few quarters.

I'm sorry. Can you repeat that, the last part?

Yes. So some of the price reductions you have --

Yep.

That we with our vendors and manufacturers are in inventory still.

I see. Okay. Great. Thanks. Good luck.

Thank you.

(Operator Instructions). We have no further questions at this time. I will turn it over to Mr. Kurt Busch for closing remarks.

Thank you and I look forward to sharing with you our results on our next call in February.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.