創力 (LTRX) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter fiscal year 2013 Lantronix 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 first-quarter fiscal 2013 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 November 8 by dialing 888-286-8010 in the US, or for international callers, 617-801-6888 and entering passcode 59543811.

As a reminder, during the course of this conference call, management may make forward-looking statements in their prepared remarks and statements in response to questions. 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, or performance to differ materially from the historical results or those expressed or implied in any forward-looking statement made in this conference call. For a more detailed discussion of these and other risks and uncertainties, see the Company's recent SEC filings, including its annual report on Form 10-K and its quarterly reports on Form 10-Q. 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.

Also, please note that during this call, the Company will discuss non-GAAP financial measures. Please refer to our first-quarter fiscal year 2013 news release posted in the Investor Relations section of our website where we have provided the definitions and reconciliations for the non-GAAP financial measures that we use.

On that note, I'd now like to turn the call over to Kurt Busch, President and CEO of Lantronix.

Thank you, E.E., and thank you to everyone for joining us this afternoon. I'd like to extend a special thanks to our East Coast investors for joining us, and we hope they have a quick recovery from the damage caused by Hurricane Sandy.

At our last call, we stated that our focus for fiscal year 2013 would be on leveraging the foundation that we've built in fiscal 2012 and executing the second phase of our turnaround. The key elements of our plan for fiscal 2013 are to further expand our efforts into the market areas we first entered in fiscal 2012. These include wireless device networking, sensor device networking, and mobile printing solutions. We will continue the product refresh cycle in our core business areas, execute on our product development plan with a target of one new product launch per quarter, expand our marketing and sales efforts to accelerate the ramp of new products, and finally, manage our operations in line with current market conditions.

In spite of the continued European economic uncertainty, I am pleased to report that during the first quarter we continued to make measurable progress on each of our objectives. Namely, we achieved year-over-year improvements in gross profit, operating margins, and reduced GAAP loss; maintained non-GAAP profitability for the third quarter in a row; experienced increased sales and design win activity for our new products; began initiatives that will expand our distribution channels and relationships with value-added resellers.

In addition, we began shipping the xPrintServer Home Edition, and in September we announced that the xPrintServer product family is now being carried at Fry's Electronics Mega Stores. And since the start of fiscal 2013, we have launched three new products -- xSenso, which is our first device server designed for analog sensors; xDirect, a simple to use and cost-effective solution for networking machine; and vSLM, a virtualized software solution that allows IT managers to seamlessly integrate and manage IT equipment.

Before I go into more detail on our plans for fiscal 2013, I would like to turn the call over to Jeremy to go over our financial highlights for the first quarter ended September 30, 2012. Jeremy?

Thank you, Kurt. Please refer to the financial information in the Investor Relations section of our website for additional details that will supplement my commentary. Now I would like to take a few moments to go over the highlights of our results from the first quarter of fiscal 2013.

Net revenue for the first quarter of fiscal 2013 was $11.2 million, flat with the first quarter of fiscal 2012 and sequentially a decrease of 4% compared to $11.6 million for the fourth quarter of fiscal 2012. Revenue for the quarter continued to be impacted by weak economic conditions in the EMEA region. Net revenue in the EMEA region was $3.1 million in the first quarter of fiscal 2013 compared to $3.5 million in the first quarter of fiscal 2012, a decrease of $0.4 million or 13%.

On the other hand, we're encouraged that revenues in both the Americas and Asia-Pacific regions increased year over year. Net revenue in the Americas was $6 million in the first quarter of 2013 compared to $5.7 million in the first quarter of fiscal 2012, an increase of $0.3 million or 5%. Net revenue in the Asia-Pacific region was $2.2 million in the first quarter of fiscal 2013 compared to $2 million in the first quarter of fiscal 2012, an increase of $0.2 million or 9%.

Despite the economic uncertainty in EMEA, we experienced a sequential quarterly increase in sales of our new products, which offset a portion of the decline in sales of our older products.

Gross profit as a percentage of net revenue for the first quarter of fiscal 2013 was 48.8% compared to 47.4% for the first quarter of fiscal 2012 and 50.7% for the fourth quarter of fiscal 2012. As discussed on our last call, the sequential decrease in gross profit as a percentage of net revenue was expected as some of our new products that are early in their product lifecycle have gross margins that are lower than our corporate average.

We may experience some downward pressure on our gross margins due to product mix as products early in their life cycle continue to make up a larger portion of our product sales. However, we expect our gross margin to remain within the Company's target model range of 49% to 51% during fiscal 2013 as planned cost reductions are realized.

Selling, general, and administrative expenses were $4.3 million for the first quarter of fiscal 2013 compared to $5 million for the first quarter of fiscal 2012 and up slightly from $4.2 million for the fourth quarter of fiscal 2012. The year-over-year decrease in SG&A expenses were primarily due to lower professional fees and personnel-related costs.

During fiscal 2013, we expect that our SG&A expenses may trend upward as we execute on our plan to expand our sales channels and increase our marketing efforts to build market awareness for new product releases.

Research and development expenses were $1.6 million for the first quarter of fiscal 2013 compared with $1.7 million for the first quarter of fiscal 2012 and a slight decrease from $1.8 million for the fourth quarter of fiscal 2012. During fiscal 2013, we expect that our R&D expenses may trend upward as we continue to execute on new product development.

GAAP net loss was $430,000 for the first quarter of fiscal 2013 or $0.03 per share compared to a GAAP net loss of $1.4 million or $0.14 per share for the first quarter of fiscal 2012 and sequentially a GAAP net loss of $178,000 or $0.01 per share for the fourth quarter of fiscal 2012. Non-GAAP net income for the first quarter of fiscal 2013 was $48,000 or $0.00 per share compared to non-GAAP net loss of $697,000 or $0.07 per share for the first quarter of fiscal 2012, and sequentially, non-GAAP net income of $351,000 or $0.03 per share for the fourth quarter of fiscal 2012.

Going forward, we expect that our quarterly non-GAAP breakeven point will increase to approximately $11.5 million in quarterly net revenue, primarily as a result of our expanded sales and marketing efforts. The non-GAAP breakeven point 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 September 30, 2012, were $10.5 million compared to $11.4 million as of June 30, 2012. As discussed on our last call, during fiscal 2013, we expect to use cash to execute on our product development plan, including increased inventory levels and capital expenditures to support this plan and continued payments on our existing term loan.

Net inventories as of September 30, 2012, were $7.6 million compared to $6 million as of June 30, 2012. As previously mentioned, the increase was put in place to provide optimal stocking levels for new product releases and buffer stock for anticipated customer demand.

Working capital was $11.6 million as of September 30, 2012, compared to $11.9 million as of June 30, 2012.

I'll now turn the call back to Kurt.

Thank you, Jeremy. At the end of last quarter's conference call, I told you that we had completed phase one of our turnaround plan. Entering into fiscal 2013, our intent is to put the same energy, discipline, and focus into executing on phase two and putting the Company on a path to achieve long-term, profitable growth.

Our plan is not one that is centered on creating one or two quarters of results. It is on one that is designed to achieve steadily quarterly progress that we will create value and profitability for our shareholders over the long term.

Namely, we will make progress towards this vision in fiscal 2013 by executing on the following. First, increasing our marketing and sales efforts. As I stated earlier, this means not just deepening our existing relationships, but actively pursuing opportunities to expand our sales and distribution network globally. In August we launched a new global Premier Partner Program. This program is directed at improving and creating more direct collaboration between our retail and VAR network with Lantronix sales and marketing teams.

In September we announced the appointment of industry sales veteran, Lei Zhong, as sales director for the APAC region, excluding Japan. Lei has extensive experience in M2M sales. We expect him to play a significant role in deepening our relationship and expanding our sales opportunities in Asia.

A key part of this initiative is to expand our sales and distribution relationships worldwide. For example, in EMEA and APAC, the vast majority of our sales consists of embedded product. At the same time in the Americas, our sales are roughly evenly distributed between our three main product categories -- embedded device enablement, external device enablement, and device management solutions.

In fiscal 2013, we plan to add new relationships that will expand visibility, awareness, and availability in the European and Asian markets of our shorter sales cycle, external device enablement, and device management products.

Yesterday we announced that we had signed a distribution agreement with Ingram Micro Europe. This is one of the first steps of our plan to expand Lantronix sales opportunities in Europe from predominantly embedded modules to our external device enablement and device management products.

We were also expanding our investments in marketing the popular xPrintServer product family. This product family has garnered a lot of media and industry awareness, and during fiscal 2013, we plan to capitalize on this through our concentrated effort to broaden awareness among IT managers, users, and potential retail partners.

Second is continued, consistent execution of our product strategy. The launch of new products and platforms is critical to our business and our long-term vision of becoming a preferred leader in delivering secure, feature-rich, simple-to-deploy M2M connectivity solutions.

Since the start of the current fiscal year, we have launched three new products -- xSenso, the first member of our analog device server product family; xDirect, a serial-to-ethernet device server whose small form factor and simple plug-and-play connectivity will broaden the market application for Lantronix solutions; and today we announced the availability of the vSLM, a Virtual Secure Lantronix Management Appliance, the software version of our popular SLM appliance, a key selling enabler of our device management products.

For those of you that don't know, SLM is a master control center that allows IT managers to seamlessly integrate and manage multiple pieces of IT equipment through a single interface. With vSLM, we have created a software version of the SLM that is scalable, cost-effective, and can be accessed securely anywhere in the enterprise.

In addition, IT managers can evaluate the solution by downloading a free, time-limited trial version before committing to adoption.

During the September quarter, we have experienced a ramp in both design opportunities and design wins for our new embedded products such as the PremierWave EN and xPico, as well as measurable revenue growth from the ramp of our PremierWave EN design win.

Since last December, Lantronix has introduced eight new products into our external device enablement and device management product categories. I'm happy to report that we are encouraged by the initial response of these products. With our efforts to increase investment in marketing and strengthen our sales channels, we expect to further expand the opportunities for both our device management and external device enablement products.

In the coming quarters, you should expect to see new members of the xSenso and xPrintServer family that we believe will greatly enhance their usability in these key new market areas.

We also plan on increasing our wireless offerings, including introducing a new addition to the well-received xPico product line.

Third, we understand that we cannot create success without also continuing to execute on strong financial and operational disciplines. Establishing a strong operational foundation was the primary focus of our efforts during fiscal 2012.

As we continue to make progress in fiscal 2013, we realize it is important that we continue to carefully monitor market conditions and exercise control over both our expenses and balance sheet, even as we increase our investment in sales, marketing, and R&D to support new product ramps.

In summary, we are continuing to make progress on our plan. We have taken and continue to take steps to expand our sales and marketing efforts worldwide. We have executed and will continue to consistently drive our market-driven product strategy, and over the coming quarters, we plan on expanding our product offerings for the key new areas of wireless, analog sensor, and mobile printing. While carefully managing our expenses and balance sheet, we have made investments to optimize our inventory and align it with anticipated new product demand.

During the first quarter, our plan has already yielded promising initial results with growth in new product revenues and opportunities. Ultimately, we will continue to focus on execution of phase two of our plan. We believe our efforts will accelerate new product revenue and, in the long-term, position Lantronix as the preferred leader in delivering secure, feature-rich and easy-to-deploy M2M connectivity solutions.

Before I turn the call over for questions, I'd like to thank my Lantronix colleagues, our shareholders, our partners, and our customers for your ongoing support.

Operator, we'd like to open the call for questions.

(Operator Instructions) Krishna Shankar, ROTH Capital.

Yes, Kurt and Jeremy, congratulations on the new product momentum and the focus on operating expense control, which seems very disciplined.

Just a couple of questions. What are the mix of device enablement and device management -- what is the revenue mix during the quarter for the two product lines?

And can you also talk about the weakness in the EMEA markets and what you're seeing there so far in the December quarter?

Hey, Krishna. It's Jeremy. I'll give you the mix by product line for the Q1 that we just completed.

For device enablement embedded, it was approximately 52%; for device enablement external, it was approximately 29%; and device management was 19%.

Okay. And that --?

Krishna, this is Kurt again here. In the EMEA region, we are really focusing on expanding our channels there, and the Ingram Micro agreement with Ingram Micro Europe is the first step in expanding our channels to be able to effectively sell our external device enablement product, as well as our device management products.

Okay. So I guess the focus there is get some of these external device management and device enablements which have quicker time to revenues compared to the embedded product line.

Exactly.

Okay.

And then can you talk about -- you said you had good design win momentum for the PremierWave EN and xPico. Can you talk about design wins and the initial revenue ramps in those two new product lines?

Krishna, we don't break out specific revenue by products, but we're very encouraged by the areas that these are in. The PremierWave EN is our first -- I describe it as a System on Module or a SoM-type part. This device allows people to run their applications on the Lantronix module. And we've seen a lot of good traction in both POS, point-of-service applications, as well as energy monitoring applications with the PremierWave EN.

And then the xPico, we've seen -- that's much more of a horizontal-type product, and we're seeing good traction in a number of the verticals that we play in from security to healthcare to some industrial applications, as well as IT datacenter. So being the xPico is effectively a horizontal device enablement-type product, it's basically selling across all the verticals that we play in today.

And you'd describe xPico as more of an embedded module, right?

Yes, xPico is a very small embedded module. There is a picture of it on our website. It's about the size of a quarter.

Okay. And then can you give -- how are bookings during the September quarter? Can you give a sense for how the bookings trended during the September quarter?

Krishna, this is Jeremy. We don't provide that level of information.

Okay. All right. Great. Thank you.

Thank you, Krishna.

J.D. Abouchar, GRT Capital.

Maybe following up on Krishna's -- one of his earlier questions, with the Company balancing sort of near-term sales opportunities with the longer-term embedded ones, you just have a longer pipeline, maybe you could talk a little bit about how you expand the xPrintServer product and capitalize on this Christmas? Fry's is a great partner, but obviously it is regional and spotty in its locations.

J.D., thank you for calling in. The xPrintServer is really one aspect of our vision about being a secure, feature-rich and simple deploy M2M provider. And one of the nice things we've seen about it is that it is doing a good job of pulling through IT data or datacenter IT management of products; has very similar sales channels.

So part of our increased effort in IT datacenter, which basically will help the external device enablement, as well as all the device management products, and the increased marketing effort that we're making around xPrintServer will also help those other products.

Okay. And then maybe a different question. You spoke earlier about the vSLM new software product, and it highlights the software content overall in your devices. Maybe from 30,000 feet, give us a better overview of where the R&D dollars are being spent, how many engineers are software versus hardware, and what's really making your products unique?

That's a great question, J.D. I view our products as really software-enabled hardware. And when you go into our R&D office, it is something like 80% of our engineers are software engineers and approximately 20% are hardware engineers.

Okay, great. Thank you.

Mark Gomes, Pipeline Data.

I was hoping you could maybe talk a little bit more about the expected ramp time in terms of building channel, building pipeline and getting to the revenue or the products that you have released in the last few months. Thanks.

We're continuing to work on expanding our channels. I guess there's really probably two questions that you have got there. One is around channels, and one is around products.

So quarterly or pretty much on a relatively short-term basis we will be working to expand our channels. And I think we have made some good progress on that with Ingram Micro and adding Fry's in this last quarter.

Around the products, the external products such as the ITM product, as well as the external device enablement products, those products typically ramp in the sort of nine months to a year range. When some of them -- some of the ITM or the device management products we actually will see revenue immediately like we did with the xPrintServer.

On the embedded side, which is a good amount of our efforts today, actually, I want to stress that embedded is about 50% of Lantronix revenue today, and it's approximately about that in our efforts internally and in the sales channel. Those products take somewhere, say, a year and a half to two years to really reach measurable revenue. Though you do get some sample revenue right away, but to get good, measurable revenue it's the year and a half plus timeframe.

(Operator Instructions) Bill Nasgovitz, Heartland Funds.

I might have missed this -- R&D, you expect it to be hanging around the $1.6 million a quarter. Is that --?

Yes, in my remarks, I stated that we expect R&D to potentially increase slightly as we continue to release new products and develop.

All right. Could you just give us --?

We could give you a little more information on that is that a good amount of our new products are wireless products, and those have associated with them one-time certification fees, and those are usually in the $100,000-plus range. So you will see R&D go up and down in that range based on when they tap into the number of products that would go through our pipeline.

Okay. Say, well, congratulations on the product ramp here. Could you give us an idea of what the market potential is of perhaps your hottest two that you're most excited about?

We're actually pretty excited about all of our products. And as we discussed in our Lantronix investor presentation, we think that the market potential for the xPrintServer is in the several hundred million dollar range, and we've just scratched the surface of where that market potential is. And it is sort of the same range for both the wireless and the analog space for us. This is very new for us, and it's a very exciting market that we're getting into.

Okay. Well, good luck and thanks.

Thank you, Bill.

And gentlemen, you have no other questions at this time.

Thank you, operator. I'd like to thank you all for your participation on our call today. We look forward to updating you on our progress, achievements, and actions when we report our second-quarter results for fiscal 2013 in late January.

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