創力 (LTRX) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fiscal 2014 third-quarter conference call. (Operator Instructions).

As a reminder, this call is being recorded for replay purposes. And now I would like to turn the call over to your host EE Wang. Please proceed, ma'am.

Thank you, Sheena. Good afternoon everyone and thank you for joining the Lantronix fiscal 2014 third-quarter conference call. Joining us on the call today our 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 starting at 7 PM Eastern, 4 PM Pacific today through May 7, by dialing 888-286-8010 in the United States. For international callers 617-801-6888 and entering passcode 86190554.

During this call management may make forward-looking statements which involve risks and uncertainties that could cause Lantronix's results to differ materially from management's current expectations. We encourage you to review the cautionary statements and risk factors as contained in the earnings release which was furnished with the SEC today and is available on our website and in the Company's SEC filings such as its 10-K and 10-Q.

Lantronix undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Also please note that during this call the Company will discuss some non-GAAP financial measures. Today's earnings release which is posted in the Investor Relations section of our website describes the differences between our non-GAAP and GAAP reporting and presents reconciliations for the non-GAAP financial measures that we use.

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

Thank you EE. And thank you to everyone joining us this afternoon.

I am pleased to report that during the third quarter of fiscal 2014 Lantronix grew revenue by 6% sequentially and achieved its third consecutive quarter of non-GAAP profitability driven by new product development and expansion of our sales channels. Simply put, we are executing on our plan and our plan is working.

We are happy with the strength of our pipeline and the progress we have made in converting opportunities into wins with Tier 1 customers. Sales from new product introductions continue to contribute to total revenue growth. As mentioned in today's news release, we had our first major customer design win move into production with the xPico embedded device server.

Enterprise solutions sales in our EMEA, Asia-Pacific and Japan regions are up 15% for the year to date, a result of our international sales and distribution channel expansion initiatives. Our continuing efforts to improve operational efficiencies have resulted in Lantronix's third quarter of sequential gross margin improvement.

Overall we recorded 6% sequential revenue growth. We believe that our efforts will ultimately lead to long-term sustainable growth and profitability.

Before I go into more details on our progress and expectations I'd like to turn the call over to Jeremy to go over our financial highlights. Jeremy?

Thank you, Kurt. Please refer to today's news release and the financial information in the Investor Relations section of our website for additional details that will supplement my financial commentary.

Now I'd like to take a few minutes to go over the highlights of our results for the third quarter of fiscal 2014 ended March 31, 2014. Net revenue for the third quarter of fiscal 2014 was $11.6 million compared to $12.2 million for the third quarter of fiscal 2013 and $11.0 million for the second quarter of fiscal 2013. The year-over-year decrease in net revenue was primarily due to a continued general decline in sales of our mature OEM products and a decrease in unit sales of xPrintServer Home and Network editions.

The decrease in net revenue was partially offset by sales from new products and sales channel expansion efforts. The sequential growth in net revenue was primarily due to an increase in OEM module sales that benefited from a new Tier 1 customers' initial production run using the xPico platform.

Enterprise solutions sales decreased in part due to weakness in the Americas distribution channel. This decline was partially offset by increased enterprise solutions sales in the EMEA region where we have been expanding our sales and distribution channels.

Gross profit margin for the third quarter of fiscal 2014 was 50.9% compared to 46.2% for the third quarter of fiscal 2013 and 49.6% for the second quarter of fiscal 2014. The improvement in gross profit margin is primarily due to a combination of operational improvements and lower inventory reserve costs.

Gross profit margin was within our long-term target model range of 49% to 51% for the third consecutive quarter. Selling, general and administrative expenses for the third quarter of fiscal 2014 were $4.2 million compared to $4.7 million for the third quarter of fiscal 2013 and $4.1 million for the second quarter of fiscal 2014.

The year-over-year decline in SG&A expenses was primarily due to a decrease in advertising costs. As we expected, SG&A expenses increased sequentially as a result of increased trade show costs during the March quarter.

Research and development expenses for the third quarter of fiscal 2014 were $1.8 million compared to $1.7 million for the third quarter of fiscal 2013 and $1.6 million for the second quarter of fiscal 2014. Total operating expenses for the third quarter of fiscal 2014 were $6.0 million compared to $6.4 million for the third quarter of fiscal 2013 and $5.7 million for the second quarter of fiscal 2014. In part, the sequential increase in operating expenses was due to increased payroll taxes in the US as a result of the annual FICA tax reset.

GAAP net loss was $130,000 for the third quarter of fiscal 2014, or $0.01 per share compared to a GAAP net loss of $801,000, or $0.05 per share for the third quarter of fiscal 2013. And sequentially a GAAP net loss of $323,000, or $0.02 per share for the second quarter of fiscal 2014.

Non-GAAP net income for the third quarter of fiscal 2014 was $331,000, or $0.02 per share compared to a non-GAAP net loss of $388,000, or $0.03 per share for the third quarter of fiscal 2013. And sequentially, non-GAAP net income of $191,000, or $0.01 per share for the second quarter of fiscal 2013.

Now turning to the balance sheet, cash and cash equivalents as of March 31, 2014, were $5.9 million compared to $5.2 million as of June 30, 2013. Net inventories were $7.6 million as of March 31, 2014, compared to $8.7 million as of June 30, 2013.

As discussed on previous calls, our revenue has a history of fluctuating from quarter to quarter due to the nature of our project-based sales cycle that oftentimes has a significant impact on our quarterly operating results. The quarterly lumpiness we experienced is further exaggerated due to the current size and scale of our business.

For the upcoming fourth quarter, we expect operating expenses to be relatively consistent with the third quarter ended March 31, 2014. That said, we expect to continue to manage our spending based upon revenue expectations with a primary focus on driving long-term revenue growth while preserving working capital and maintaining fiscal discipline. I will now turn the call back to Kurt.

Thank you, Jeremy. Our results for the third quarter reflect the steady progress we have made throughout fiscal 2014 in executing on our strategic plan to drive Lantronix towards sustainable long-term growth and profitability through disciplined and innovative product development, expansion of sales channels worldwide and continued fiscal and operational discipline. During the quarter we reported one of our first large xPico sales as a Tier 1 customer moved from the design win phase to initial production. This project was accelerated into production with the assistance of our newly launched professional service offering.

The positive development in our OEM module business reinforced our belief that as we make progress in converting more design wins into production we should see stabilization in this business and ultimately top-line growth for this product line. Our third-quarter results also reflect our efforts to expand our sales channels worldwide. This is most evident in the 15% increase in year-to-date enterprise solutions revenue in the EMEA, Asia-Pacific and Japan regions.

In addition to increased revenue contribution from across the spectrum of our enterprise solutions, we are attracting opportunities from new Tier 1 customers worldwide in a variety of verticals with medical device, energy and remote management applications driving our early successes. As our sales and new product initiatives continue to develop worldwide, we expect an overall growth trend in our enterprise solutions product line.

During the March quarter we began shipment of our xPrintServer Cloud Print Edition, the latest member of the Lantronix award-winning xPrintServer mobile printing product family. Currently the only Google certified print server, this new mobile printing solution enabled Google Cloud Print users to wirelessly print to their existing printers from a variety of devices such as Chromebooks, laptops and Android smartphones and tablets.

The launch of this new xPrintServer allows Lantronix to address a large segment of the mobile printing market that has been underserved. We believe this product along with our xPrintServer Office Edition for Apple iOS devices will continue to create enterprise opportunities in verticals such as retail, education, hospitality and more.

For the second year in a row Lantronix was the mobile print sponsor for Macworld in San Francisco. Lantronix provided mobile print stations throughout the conference allowing attendees to experience firsthand the ability to print from their iOS devices without wires or additional applications.

At the Embedded World 2014 Conference in Nuremberg, Germany we demonstrated how our solutions enable customers to quickly, securely and cost-effectively leverage the power of the Internet of Things. These demos included the xPico WiFi solutions that allow for the secure and quick deployment of end-to-end conductivity for our Arduino and Raspberry Pi-based devices.

A premier wave-powered humanoid robot developed by Kondo in Japan a WiFi-enabled autonomous quadcopter drone and universal -- and Google universal analytics support for Lantronix PremierWave product families allowing simple and inexpensive cloud-based analytics for IoT applications. All these demonstrations were targeted at reinforcing the Lantronix key value proposition that we make it easy for our customers to quickly and securely leverage the power of the Internet of Things.

Our solutions provide our customers with the freedom to choose the best platforms, cloud partners and analytics to implement their connected solutions. We continue to manage our revenue and product development efforts with fiscal and operational discipline. These efforts resulted in our achieving improved gross margin in non-GAAP income for the third quarter in a row.

As we move forward, we continue to focus on expanding and deepening our relationships with customers, partners and distributors worldwide so that we can deliver our rugged, secure and easy-to-deploy solutions. We believe continued execution to our strategy will enable us to deliver sustainable long-term top-line growth, profitability and enhanced value for our shareholders.

Before I turn the call over for questions, I would 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 results. And I had a couple of questions on the OEM business.

It is good to see the Tier 1 customer moved to production with the xPico. Can you give us some sense for that opportunity, what vertical market that is targeted at?

Sure, first of all, thanks for calling in, Krishna. This is a design in the security vertical. Basically, it's an access control application that the xPico is in.

Okay.

And then for your information the security vertical has traditionally been one of Lantronix's largest vertical areas for our wired device enablement products.

Okay. And do you have others such OEM products which would be helpful for your new professional services organization could potentially move to production faster? I mean are there any other things like this in the pipeline where you are hopeful?

Sure, so we put the professional service organization in place to really do exactly what we did with the xPico. Is this was a customer that had a design that would've taken them quite some time to get to production if we didn't bring the Lantronix engineering and services in play. So our goal and our plan is to have the engineering services assist our customers to go to production with a wide variety of Lantronix solutions.

And will this be kind of a revenue-generating segment or will it merely support your new product design wins and customer development or will you actually get service revenues from this new group?

So to give you kind of an order of magnitude is for this OEM module the revenue for products was about 90% of the deal and professional services was about 10% of the deal. So we definitely do get revenue from it and it will be a revenue generator but the main purpose is to accelerate our product sales with our customers.

Okay. And then you said that you still have a decline in the older kind of legacy OEM products. Can you give us some sense for when that decline might stabilize and when we may start to see overall growth in the OEM module business?

So we are not really predicting an exact time when we see that that decline will reverse. But we are expecting some time in calendar 2015 the continued ramp of xPico as well as the ramp of the xPico WiFi should be stabilizing the OEM products.

Okay. And then on the enterprise solutions it sounds like the xPrint Home and Network Edition for the Apple platform declined. Is that just kind of seasonal or what do you see happening in that market?

So we see that in the home market more and more how printers are available with AirPrint so that product is not going to be a main focus for us on the xPrintServer product line moving forward. We think it is a good product and we will continue to have it but the market for that space is not as growing nearly as well as the enterprise and OEM market for the xPrintServer is.

We think that the main space for the xPrintServer product lines both the Google and the Apple products are really in enterprise applications as well as retail. And those types of applications as opposed to really the home.

Okay, and then finally can you comment on the macro environment? Last year from the March to the June quarter how much did you grow sequentially? And can you talk about the macro environment and how that could potentially shape the June quarter given your new products and what you see in the macro?

I can comment on the change in the year-ago period from Q3 to Q4. Q3 fiscal 2013 we did about $12.2 million in revenue and in the following quarter we did about $11.1 million in revenue.

Okay. Was that I mean seasonally you typically would have a better in terms of seasonality the June quarter would be better than the March quarter or what are seasonal trends?

There is not a lot of seasonality in our business, Krishna.

Krishna, I probably should maybe just elaborate on that is I feel that the business right now is being driven primarily by new Tier 1 designs going into production. And the format for that is typically you see a peak in the first quarter when they go to production then followed by a valley then followed by a ramp.

In the last couple of quarters we have benefited by several Tier 1 customers going into production really over the last three quarters. And I think that that is probably the bigger drive of revenue for Lantronix right now as opposed to changes in the macro environment.

That being said of course if there is a sudden decrease or increase in either direction we could see a change. But we are really being driven by Tier 1s going to production today.

Okay. And then how are the international distribution efforts coming along? Anything to report there in terms of updates and how that is coming along?

Sure. We are actually really excited about that. So if you look at year-to-date, this year year-to-date versus last year we are up 15% in the EMEA, APAC and Japan regions.

So the work that we have been doing there to expand our international distribution and sales and marketing efforts looks to be working. And we are going to be continuing to build that out.

Okay, great. Thank you.

Thanks, Krishna. Thanks for calling in.

(Operator Instructions). Sir, we have no further questions at this time. Therefore I will turn the call back to Kurt Busch for closing remarks.

Thank you, operator. I'd like to thank you all for participation on our call today. We look forward to updating you on our progress, achievements and actions when we report on our fourth-quarter and fiscal 2014 in late August.

Thank you for joining today's conference. This concludes the presentation. You may now disconnect and have a very good day.