創力 (LTRX) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Lantronix fourth-quarter and fiscal year 2012 earnings conference call. My name is Keith, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later on, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, today's conference is being recorded for replay purposes.

And with that, I would now like to turn the conference over to your host for today, Ms. E.E. Wang. Please go ahead.

Thank you, Keith. Good afternoon, everyone, and thank you for joining Lantronix's fourth-quarter and fiscal 2012 conference call.

Joining us on the call today are Kurt Busch, Lantronix's Chief Executive Officer, and Jeremy Whitaker, Lantronix's 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 phone replay will be available through September 5 by dialing 888-286-8010 or for international callers 617-801-6888 and entering passcode 65476087.

Before we begin, we would like to make our investors aware of some upcoming investor relations events we will be participating in. Tomorrow we will be presenting at the Southern California Investor Conference here in Newport Beach. An audio webcast for our presentation will be available via our website tomorrow starting at around 2 PM Pacific.

On September 5, we will be participating at the ROTH Semiconductor Corporate Access Day in San Francisco, and on September 10 Lantronix will also be presenting at the Rodman & Renshaw Annual Growth Conference in New York City. For more information on these events, please feel free to contact me at investors@Lantronix.com.

As a reminder, during the course of this conference call, management may make forward-looking statements in their compared remarks and in response to your questions and statements regarding product strategy, marketing plans, operations, inventory and future financial metrics, including revenue, profitability, operating expenses, cash flow and working capital. These forward-looking statements are based on Lantronix's current expectations and are subject to substantial risks and uncertainties that could cause the Company's results or future business, financial condition, results of operation or performance to differ materially from historical results or those expressed or implied in any forward-looking statements made in this conference call. For a more detailed discussion of these and other risks and uncertainties facing our business, see the Company's recent SEC filings, including its annual report on Form 10-K filed for the fiscal year June 30, 2011, and its quarterly reports on Form 10-Q filed for the fiscal quarters ended September 30, 2011, December 31, 2011 and March 31, 2012, which are available through the Investor Relations portion of our website at www.Lantronix.com.

Lantronix's annual report on Form 10-Q for the fiscal year ended June 30, 2012, also will be made available through the Investor Relations portion of our website. Readers and listeners are cautioned not to place undue reliance on any 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. If the Company were to update or correct one or more of these statements, investors or others should not conclude that the Company will make additional updates or corrections.

During this call, the Company also will discuss non-GAAP financial measures. The Company believes that the presentation of non-GAAP financial measures, which when presented in conjunction with the corresponding GAAP measures, provides important supplemental information relating to the Company's financial condition and results of operation.

The non-GAAP financial measures disclosed by Lantronix should not be considered a substitute for or superior to financial measures calculated according to GAAP. Management believes that non-GAAP operating expenses, non-GAAP net income or loss and non-GAAP net income or loss per share are important measures of the Company's business. Management uses these non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of our comparative operating performance.

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.

Please refer to our fourth-quarter and fiscal year 2012 news release where we have provided the definition and reconciliations for the non-GAAP financial measures that we use.

I would now like to introduce Kurt Busch, President and CEO of Lantronix.

Thank you, E.E. Before Jeremy gets into the details regarding our financial performance for the fourth quarter ended June 30, 2012, I wanted to share with you a few thoughts on Lantronix's performance since I joined the Company a year ago, as well as give some insight on where we are headed.

As outlined in our previous conference calls, the key elements of our fiscal 2012 plan were to recruit the right leadership and resources, improve margins, decrease inventory and ensure that strong financial discipline is in place, put in place a new product strategy and culture that's focused on delivering innovative new products that will increase Lantronix's marketshare, as well as expand the markets we address.

Today Jeremy and I are pleased to report that we have executed on each one of these elements. Specifically, we put in place a world-class management team that in less than one year delivered measurable, significant results, including delivering four sequential quarters of gross margin improvement, bringing operating expenses in line with our non-GAAP revenue breakeven target of approximately $11 million, achieving non-GAAP net income in two quarters in a row, reducing net inventory by more than one third, reducing accounts payable by more than half, stabilizing working capital, and at the same time, re-energizing and refocusing the Company's R&D resources and substantial IP portfolio to launch five new products into production during fiscal 2012 and a total of seven since the new strategy was put in place.

Over the past fiscal year, our focus was on creating a solid foundation or platform for the future of Lantronix. In fiscal 2013, our focus will be on continuing to aggressively execute on our development plan and increase our marketing and sales efforts to drive towards profitable growth. Before I go into the details of our plans for fiscal 2013, I would like to turn the call over to Jeremy to go over our financial highlights for the fourth quarter, ended June 30, 2012. Jeremy?

Thank you, Kurt. By now, many of you have seen our Q4 and fiscal 2012 news release, which is available on the Investor Relations section of our website at www.Lantronix.com and provides income statement and balance sheet information on our full fiscal year and quarterly results.

I would now like to take a few minutes to go over the highlights of our results from the fourth quarter of fiscal 2012.

Net revenue for the three months ended June 30, 2012, was $11.6 million, a decrease of 4% compared to $12.0 million for the three months ended June 30, 2011, and sequentially a decrease of 4% compared to $12.1 million for the three months ended March 31, 2012.

The year-over-year change was due to decreases in our device enablement and device management product lines, which were partially offset by an increase in our xPrintServer, Spider and PremierWave EN product families. The sequential decrease in net revenue was primarily due to lower sales in our EMEA region that we believe are the result of economic uncertainty and instability in the euro zone, a decrease in sales of SLC console servers, which tends to vary based upon the timing of data center buildouts and projects, and a slight decrease in sales resulting from supply constraints. We've made some good progress towards remediating this issue. However, we may continue to see some constraints during the first fiscal quarter of 2013.

While our business has traditionally been lumpy, the continuing economic uncertainty combined with the typical summer slowdown in euro zone has further reduced our visibility into Q1. Gross profit as a percentage of net revenue for the three months ended June 30, 2012, was 50.7% compared to 46.1% for the three months ended June 30, 2011, and 48.8% for the three months ended March 31, 2012. This represents the fourth sequential quarter of margin improvement. While we may experience downward pressure on our gross margins due to product mix as new, lower-margin products start to make up a larger portion of our total sales, we expect our gross margin to remain within the Company's target model range during fiscal 2013.

Selling, general and administrative expenses were $4.2 million for the three months ended June 30, 2012, a decrease of $3.1 million or 43% compared to $7.3 million for the three months ended June 30, 2011, and up sequentially by $105,000 or 3% from $4.1 million for the three months ended March 31, 2012. The year-over-year decrease in SG&A expenses were primarily due to costs of $2.5 million associated with an independent investigation and severance for former named executive officers during the fourth quarter of fiscal 2011. There were no more costs during the fourth fiscal quarter of 2012.

In large part, the remaining balance of the decrease in SG&A expenses of approximately $600,000 can be attributed to the cost containment activities that management began to implement during the second fiscal quarter of 2012. During the first fiscal quarter of 2013, we may experience a slight increase in SG&A expenses as a result of professional fees related to the timing of our annual audit and proxy statement. Research and development expenses were $1.8 million for the three months ended June 30, 2012, and remained essentially flat from the same quarter in fiscal 2011 and the third quarter of fiscal 2012. During fiscal 2013, we expect our R&D expenses may turn upward as we continue to execute on new product relevant.

GAAP net loss was $178,000 for the three months ended June 30, 2012, or $0.01 per share compared to a GAAP net loss of $3.6 million or $0.34 per share for the three months ended June 30, 2011, and sequentially a GAAP net loss of $41,000 or $0.00 per share for the three months ended March 31, 2012. Non-GAAP net income for the three months ended June 30, 2012, was $351,000 or $0.03 per share compared to non-GAAP net loss of $433,000 or $0.04 per share for the three months ended June 30, 2011, and sequentially non-GAAP net income was $471,000 or $0.04 per share for the three months ended March 31, 2011.

We expect to maintain a quarterly non-GAAP breakeven point at or below $11 million in quarterly net revenue. This assumes a 50% gross margin and takes into consideration our variable costs such as variable compensation.

Now turning to the balance sheet, cash and cash equivalents as of June 30, 2012, were $11.4 million compared to $5.8 million as of June 30, 2011, and $1.8 million as of March 31, 2012. The increase in cash was due to the sale of our common stock in April and May 2012, which generated net proceeds of approximately $9.5 million. During fiscal 2013, we expect to use some of this cash to further execute on our product development plan, including capital expenditures to support this plan and continued payments on our existing term loan.

Net inventories as of June 30, 2012, were $6.0 million, a decrease of $3.2 million or 35% compared to $9.2 million as of June 30, 2011. Based upon our current forecasts, we expect to increase inventories over the next year as we put in place stocking levels for product releases and increase buffer stock for projected growth and demand. Accounts payable were $3.6 million as of June 30, 2012, a decrease of $4.8 million or 57% compared to $8.4 million as of June 30, 2011. The decrease was primarily due to paying vendors on a more timely basis and reducing the balance of our net inventories.

Working capital was $11.9 million as of June 30, 2012, compared to $5.2 million as of June 30, 2011. While our quarter-to-quarter results may fluctuate based on economic conditions and the timing of end-user orders, we believe that as our new products begin to take hold we will be able to achieve our financial targets and drive increased shareholder value.

I will now turn the call back to Kurt.

Thank you, Jeremy. During fiscal 2012, I committed to you that we would build a strong product development machine. Lantronix achieved this goal by launching an unprecedented number of new products, seven and nine months, and exceeding our stated objective of, on average, one new product released to production per quarter. I'd like to give you a brief update on the market response we have received on some of these new products.

I'll start with our device management products, which often generate immediate new revenue as we experienced with the xPrintServer product family, as it contributed to the last two quarters of fiscal 2012. The launch of the xPrintServer products enhance the Company's visibility in the marketplace, increase visits to our website, pull through sales on our e-commerce storefront, as well as overall business opportunities.

After launching the network edition, we received considerable customer feedback requesting support for USB printers. Though not part of our original enterprise-focused plan, we quickly addressed this request with the release of the Home Edition. The media response to this member of the xPrintServer family has exceeded our expectations with coverage in New York Times, Wired, InfoWorld and many other publications. To further grow revenue, we are working diligently on expanding the sales channels for our full xPrintServer product line.

Our external device enablement products such as the EDS-MD for medical device aggregation, PremierWave-XN for industrial wireless and PremierWave-XC for managing machines over cellular networks usually involves nine months or longer sales cycles. These products often provide long-term, multi year recurring revenue, once a VAR or OEM buys into the product and bundles it as part of a larger solution such as we experienced today with our EDS and UDS product lines. While revenues from these products are often dependent on the timing of end-user projects and can fluctuate from quarter to quarter, the market longevity of these types of products is often in the range of five years and sometimes longer.

We have recently experienced increased interest in our EDS product line in healthcare environments and expect healthcare to be a driver for the EDS products moving forward. The new additions to the EDS and PremierWave product lines have generated a good pipeline of opportunities in the energy, healthcare and security segments. We are expecting these products to be drivers for increased revenue in the latter part of fiscal 2013.

In February of this year, we launched xPico, the world's smallest device server and newest embedded member of our device enablement product line. This product line is one that we believe will provide significant long-term value to the Company. As an embedded solution, the sales cycles for products such as the xPico can be anywhere from nine to 18 months or longer before a customer commits to high volume purchases. However, the upside of this type of product line is it generates recurring revenue once it is adopted, six more years, and the increased likelihood that the next-generation version is designed in.

Since launching xPico, we're happy with the traction it has generated in several markets, including security, industrial automation and utility segments. As we move forward in fiscal 2013, we can expect to expand the xPico family with new members that can be dropped into the xPico sockets and deliver an almost instant upgrade to future functionality for our customers.

Most recently in July, we launched the xSenso, our first analog device server. We believe that the ability to simply and cost effectively put sensor data on the network is an underserved market with substantial opportunities in a wide range of verticals. We developed and launched the xSenso to address this market, allowing organizations to not only collect data remotely from analog sensors but manage the data collection intelligently in a wide range of physical environments. Since its launch in late July, we have seen solid interest in this product from customers in industrial automation, manufacturing and energy segments that we expect will translate over the next several quarters into new product revenue. I want to give special kudos to our engineering team for hitting the aggressive schedule for this brand-new and very challenging project.

Looking forward to the coming quarters, you can expect to see new members of our cellular, xSenso, xPico and xPrintServer product lines.

In addition, we will introduce enhancements and new form factors to proven and familiar Lantronix products. All these are directed towards expanding our market share and creating long-term growth drivers for the Company.

A key to the successful ramp of these products will be execution on our sales and marketing plans. During fiscal 2012, we've bought greater discipline and accountability to both these fronts. With this foundation, we plan to expand and accelerate efforts throughout fiscal 2013.

Last week we announced the launch of our global sales partner program. In addition to providing an improved and more direct collaboration between our global distribution network and Lantronix's in-house and field sales teams, the new program enables our sales partners to develop co-marketing programs, tap into faster business lead dissemination and access to additional tools that we believe will accelerate our global business sales and distribution efforts as we continue to launch new and exciting product solutions.

Last year many of you asked me why I joined Lantronix. At that time, what I saw was a company with an established brand, deep engineering and IP resources, a strong distribution network and a team that was passionate about the Company. Today I can say that in addition to those strengths, we have an energized and focused department development and execution mentality that continues to build momentum. We have a range of new products that provide a solid platform to fulfill the needs of the M2M marketplace. And we are witnessing increased excitement from existing customers and distributors, as well as growing interest from new channels.

In summary, we are pleased with the progress we have made in fiscal 2012, and in fiscal 2013 our focus will be to continue to execute the market-driven product development, maintain financial and operational discipline and aggressively expand our marketing and sales efforts.

We remain confident that as our new products ramp over the next fiscal year, that we will be on track to achieve our previously stated target model and ultimately to deliver long-term value and growth.

Before I turn the call over to questions, I would like to take a moment and welcome our newest Board member, Mr. Paul Folino. The former CEO and currently Chairman of Emulex, Paul is an inspiring technology industry veteran and leader, and we are thrilled to have someone with his experience on our Board. I look forward to working with him and the rest of our Board of Directors as we move forward to create profitable growth for our shareholders.

Finally, I would like to thank my Lantronix colleagues, our shareholders and our partners and our customers for ongoing support.

Operator, we would like to open the call for questions.

(Operator instructions) Krishna Shankar, ROTH Capital.

Congratulations on the solid results. And looking at the September quarter, can you talk about what you see in terms of order activity both from OEM partners and the distribution channel, and how macro weakness may weigh on your results? You did indicate that Europe was more of a factor, that you saw some revenue weakness in the June quarter. If you could talk about the environment and your order trends, that would be helpful.

Right now we continue to have poor visibility even into the September quarter. Given the macroeconomic situation in Europe, as well as the traditional summer slowdown in Europe, has only made our visibility worse. As much as I'd like to give guidance into this quarter, I really can't do so at this time. I'm sorry about that.

Okay. And then in terms of the new products that you have, which ones will likely show the sort of fastest trajectory to revenues, if you could contrast the xPrint, the xPico, the other embedded products, if you could talk about the revenue opportunities in each of the three major new products you've launched?

Yes, that's a great question. So typically our device management products such as the xPrintServer, our SLC product line, our Spider product line, things that fall into the device management product line, - those types of products we almost see immediate revenue on. They are typically products that stand on their own and very often are not designed in with other products, but sometimes there's some lumpiness with, say, data center buildouts and whatnot.

Our embedded products are the opposite of that. So things like the xPico is an embedded product, and it needs to be designed in much like a semiconductor into someone's system, and then that system has to go through its full qualification and its ramp. We typically see somewhere between nine to 18 months when I look back at historical revenue ramps of things like the XPort, which is one of Lantronix's -- still one of Lantronix's most successful products.

So those embedded type products that are much like chips are some of the nine to 18 months. And then the ones that are in the middle would be the external device-enablement products, and those would be the things along the lines of the PremierWave-XN for industrial wireless, the PremierWave-XC for cellular connectivity, as well as the xSenso. All those types of products you typically would start seeing revenue in the nine months to, say, nine months to, say, year and a half kind of timeframe. But it really starts seeing things at the nine-month timeframe.

Also, on the xPrintServer for the Apple ecosystem, you have expanded your footprint there with new channels and distribution partners, and you also had the Home Edition. Can you talk about the opportunity there with the Home Edition and the new set of distribution channels?

Yes. We've made some progress there, and in fact, I think we have quite a bit more progress to go on the distribution channels for the xPrintServer product line.

Today it is available on many online sites such as Amazon and Newegg and whatnot. And the only brick-and-mortar today is in Micro Center, and we really do need to expand our sales channels for the xPrintServer product line, and we are doing that today.

We do think that the opportunity for the Home version of the xPrintServer, it is really targeted towards those people that are moving with what was referred to by Apple as the post-PC world, the people that use tablets as their main computing device, and that is basically what we have done at our house where we don't even turn on our PCs anymore at home. It is just the xPrint or the iPads and the xPrintServers are typically the main things that are on. So we are quite encouraged by the opportunity, but we do need to increase the channel for those products.

And then a question on inventories, a nice reduction in inventory there year over year. What is the state of your inventory both on hand and in the channel, and do you see -- are there any lingering effects to the disruptions from the Thailand floods and other factors you had cited in your last call?

I think that from an inventory standpoint, we have gotten our inventory where basically we are at the bottom of our inventory, I guess is the best way to put it. We completed our inventory reduction efforts, and now we are going to be building up inventory slightly to support both buffers for increased demand, as well as stocking quantities for new product introductions.

So we think that we've gotten our inventory -- it is basically at the high end of the range. At the last call, we talked about an inventory turn range between 3 and 4. At the end of this order, inventory turns were approximately 3.9, I believe, was the number --

3.8.

Or 3.8, okay. Thank you, Jeremy. We think we're at the top end of that level.

Also, to clarify, we are not impacted by the Thailand flooding.

Okay. So things are in a steady state in terms of both your inventory on hand and in the channel right now?

Yes, we believe so.

Bill Nasgovitz, Heartland Funds.

What percent of our sales is in Europe?

Usually it is approximately 30% of our sales within in Europe, plus or minus a few percent.

Is there any particular area of the world where sales were up for the June fiscal year?

For the quarter on quarter, we did see an increase in our Asia-Pacific region.

And what percent is Asia?

Approximately 20%. Actually, it was 18% in Q4 2012 and is about 15% in the prior quarter.

Okay. Do you see that opportunity as a large one for the Company?

The APAC region?

Yes.

Yes, actually we do feel that there is a good opportunity for the Company, and that is one of the areas when in the prepared comments I talked about increasing our marketing and sales effort, and the APAC region is one of the target areas for that.

Okay. Well, I'm just looking at your slideshow here, and your one particular -- page 13 you have accelerate growth, expanding Lantronix's addressable market. I'm looking at 2012 versus 2011, looks as if you are estimating about a 60% increase in the addressable market for this calendar year, I would assume. And it's just frustrating. We all know that this market, addressable market over the years has grown, and having been a long-term Lantronix shareholder, it's extremely frustrating to go through year after year, and we know that it is a new team and all that, but if the addressable market has been growing, again, very fast this year, how come we keep recording down sales?

As we come out with new products, those are increasing our addressable market. As I address Shankar's or Krishna Shankar's questions is there is some lag between new products coming out. My feeling of looking at this, Bill, is that when we have new products coming out, that expands our addressable market. But it does take some time for those new product to get into production and actually start generating revenue.

And our increase here on the slide that you're talking about, slide 13 of the investor presentation, that increase in addressable market is entirely due to new products being introduced into the marketplace.

All right. Well, okay. Just a follow-up question on this market. You highlighted two device management products, the xPico and xSenso.

Looking for device enablement products is how we refer to those.

So which sector would they be in? Would it be cellular analogue?

Referring back to slide 13, the xPico fits into the current device management business. That is a much smaller version of our wired -- or, pardon me, the current device enablement segment. That is a much smaller, more cost-effective version of our, say, something similar to the XPort, and that would fit into the bottom darkest color to refer to the slide that you're bringing up.

Okay. So is it fair to say under current device management, is that where the bulk of our products are today? Because that area really hasn't grown that much.

Most of the revenue today is under current device enablement, the bottom line, and a very small part of our revenue, approximately 20%, is in the device management space. Those are products such as our SLC and Spider products.

So then going forward, we have added even this new xPrintServer, that's a big growth area, and the cellular analogue device enablement?

Yes, exactly. The analog product is the xSenso was the first of the analogue products.

So do you anticipate -- looks as if September is going to be another bad quarter. So when are we going to see a turn on the top line?

We are not giving that detailed of guidance, but we do expect that the new products will be contributing to revenue in the latter half of fiscal 2013.

The second half of 2013, next to --

We should be seeing some of the new products such as the xSenso, the PremierWave, the two PremierWave products that we are talking about, and then the xPico, being that it's an embedded product, probably will not contribute significantly for at least a year from now.

Which of the new products has the biggest potential going forward?

Oh, I don't have a real good answer for that. I think they all actually have pretty good potential at this point.

Going back to your examples, xSenso and xPico, which do you think is going to be bigger in 2013-2014?

We're not giving that level of information at this point.

Well, could you just give us as an example? Your customer -- our customer list is impressive. Can you just give a specific example of where the xSenso or the xPico is used today?

So the xPico is an embedded product, and that is targeting toward the same product or the same segment as our XPort today. So XPort today is Lantronix's most successful product, and it makes up, say, 30% of our revenue, plus or minus, on any given quarter.

The xPico is to expand that market that we are pretty much closed off of today, due to either form factor, because of size, as well as costs. The xPico is both smaller and lower costs. So that will expand the addressable market for things like the XPort could go into, and that typically goes into security type applications, as well as we see industrial automation and energy applications for the XPort. So that is where the xPico is, and it's really intended to grow market share of where we play today.

The xSenso, on the other hand, is an analog device server. And we are seeing interest there in areas such as industrial automation, manufacturing, energy, where people want to --

Kurt, just give a specific example. You don't have to name the customer. But they are using in the industrial areas the xSenso to do what, specifically?

The most common sensor is temperature. So the xSenso -- we can plug temperature sensors into it and put it into the network and set up alarms. So, say you are doing manufacturing, and the temperature has to stay within a certain range. The xSenso can offer you that. The same for humidity or any variation of sensor you would like to plug into it.

Okay. And then the xPico, just a specific example?

So a specific example for xPico is say you have a security panel that you want to network enable, and the xPico is a very small module. It is about the size of a US quarter. It can be plugged into that panel and enable that panel to be accessed over the network.

Okay. And then just two final questions. Do you use 3-D printers at all in your design or manufacturing process?

We use them purely for prototyping. We do not have any in production with 3-D printers, but we regularly use them for prototyping.

And that's a positive?

Yes, I think it's great. We can get a 3-D version of a product in three or four days.

Fantastic.

We use that for prototyping our boxes so we get a look and feel, and actually can have something that we can do beta testing with it as well.

The 3-D printed versions are a little bit more fragile, but they do look like it really helped us get to market quicker.

Then, lastly, in your presentation here, I don't see the balance sheet. I did see working capital or I heard working capital $11.9 million. What is the debt outstanding versus a year ago?

So current debt is $667,000, and a year ago it was -- let's see. It was about $1.2 million.

Well, okay, I hope this is a year of top line. It looks as if you have made some really good moves here with the balance sheet. Certainly R&D is starting to pay off with new products, so that's great to see. I just hope we get some traction on the sales front. It's been a long, long pull here.

We agree, Bill. Thank you for dialing in.

Thank you.

[Ed Broom], [Roanoke].

I'm just trying to get a feel for what we are looking at top line for the next couple of quarters. Because the year over year is one thing, but the sequential decline is 4% in your fourth quarter, which, given the new products I understand some of them won't be revenue generating for a while.

But EMEA is 30% of your total revenues. In the quarter that just finished, was that market down double-digits sequentially to create a 4% topline decline for the quarter? What kind of decline is occurring in Europe for you guys?

This is Jeremy. EMEA was down about 15% sequentially.

Down 15%. And I would presume, given that Europe shuts down and things are not very good there, that you are not looking at anything better sequentially in the quarter that we are in. I know you don't want to answer that because that's guidance.

So the other question I have is SpiderDuo and I guess XPort Pro were two products that were refreshed a couple of years ago. They are important products to you guys, but what did they represent as a total percent of revenue? And are they the ones that are creating the disappointing topline growth here?

Those products, the SpiderDuo and the XPort Pro, though they came out a few years ago, they are growing, but they are not growing as quickly as probably we would like. Really, at the end of the day, the issue is a decrease in legacy products that are very, very old.

All right. Okay. All right. Listen, and are you -- you made no commitment or at least I didn't hear a commitment to maintaining non-GAAP profitability in the quarter that we are in? Is that correct? I didn't hear that, so I would presume that this quarter, hearing what you are saying, that we could see you slip back into a non-GAAP loss in the quarter that we are in.

We are really not in a position to comment in either direction, being that we don't have full visibility of where the quarter will end.

All right. Okay. Well, listen, I think you guys are obviously doing as well as you can. I think you have done a great job on your balance sheet in managing the expense side of your P&L, and we will just have to wait and be a little patient to see whether your new products and marketing strategy will pan out.

J.D. Abouchar, GRT Capital.

I had a question on the embedded products because obviously that's where a fair amount of growth can come from if they get traction. How different is that sales channel? Is that more an OEM sale, and how do you handle the conflict between going through your VARs versus direct? And ultimately, what impact does margins have if you get more OEM business?

The impact business today makes up approximately 50% of our business. So, actually, we have a good channel for developing the embedded relationships today. And, though the embedded products are slightly below the corporate average, they are not dramatically below the corporate average. So we are not foreseeing any kind of a drastic change in our overall gross margins due to expanding the embedded business.

And on the healthcare products, is that a dramatically different sales channel, or is that sort of the guys you already have?

It's a similar sales channel that we already have. And healthcare, we believe, is a very good market for us. But it, like embedded, has a very long, long qualification cycle.

And my final question -- on the xPico, we are working on a wireless version. Is that correct?

So we haven't commented on what the next version of xPico is, but I think that is highly likely.

[Mark Gomez], [High Air].

Your presentation tells us that your addressable market should double over the next year. So addressing the angst of one of your previous callers, it seems to me that is important if you can provide us with a view into the things that you see on a day to day basis that make you bullish on your intermediate and long-term revenue picture. Obviously, revenues haven't taken off, but the stock is at its low or pretty much close to its lows paying investors to wait if you are, indeed, set up to be successful. So maybe you can provide us some insight into that.

In the short-term, we have our device management products such as the xPrintServer, which we believe will continue to ramp. We have -- if you look at the largest opportunities, which we believe are in the cellular and analog device enablement efforts, where we've come out with the first members of those families and we will be coming out with future cellular and future analog products to be able to better address each area of that -- of those market segments. And I'm actually quite encouraged by that area because those are areas that we really could not plan before, so that is expanding our addressable markets.

And then really for long-term, we will have continued and newer device enablement products, which are really the xPico and the future xPico versions that we think will be more of a long-term revenue driver for us, say, a year, a year and a half out from today.

Okay. And in your current market segments, is it safe to say that your goal is to at least maintain if not grow marketshare?

Yes, that's exactly right.

Okay. And then obviously your market share will increase in your new areas because you're coming from zero, right?

Exactly.

So it should be safe to say, then, as these products ramp up and we see your addressable market double in size, that you must be feeling that at some point once these products do ramp up that your Company revenue will double in size as well?

Yes. We did publish a target model that basically has a one- to two-year outlook, as well as a three-year outlook of what we looked at what we would be from a gross margin operating income and non-GAAP operating income point of view, and all of that is assuming topline growth.

Right. But what I'm saying is if you maintain your market share or grow your market share in each of your segments and your segments double in size, then your revenues should by the associated property also at least double in size?

At some point, you don't get it immediately.

Right, right, of course. Thanks a lot, folks.

That's all the time we have for Q&A today, so I'm going to turn the call back over to Mr. Busch for some closing remarks.

I would like to thank all of you for calling in today, and I look forward to update you on our progress, achievements and actions when we report our first-quarter results in early November. Thank you.

Ladies and gentlemen, that will conclude today's conference. Thank you very much for joining us, and you may now disconnect. Have a great day.