創力 (LTRX) 2015 Q4 法說會逐字稿

Good afternoon and welcome to the Lantronix fourth-quarter and fiscal year 2015 conference call. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to E.E. Wang. Please go ahead.

Thanks, Emily. Good afternoon everyone and thank you for joining the Lantronix fiscal 2015 conference call. Joining us on the call today are 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 phone replay will be available starting at 8 PM Eastern, 5 PM Pacific today through August 27 by dialing 877-344-7529 in the US or for international callers 412-317-0888 and entering passcode 10070671.

During this call management may make forward-looking statements which involve risks and uncertainties that could cause Lantronix results to differ materially from management's current expectations. We encourage you to review the cautionary statements and risk factors contained in the earnings release which was furnished to 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. 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 today's comments.

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. As a reminder, we define new products as products that have been released since the start of the second quarter of the fiscal year ended June 30, 2012. Also going forward, we are referring to our OEM modules product line as IoT Modules.

I will now turn the call over to Kurt Busch, President and CEO of Lantronix.

Thank you, E.E. and thank you to everyone joining us this afternoon. During fiscal 2015, we continue to execute on the fundamental elements of our strategy developing and launching smart IoT and M2M solutions through close collaboration with Tier 1 customers, expanding our sales and marketing efforts worldwide and exercising financial discipline while investing for growth.

From a financial standpoint, FY15 was a challenging year with a 4% reduction in net revenue. The decline was driven primarily by a higher than expected 10% decrease in legacy product revenue. In addition as stated on our last call, weakness in CapEx spending from a few large customers resulted in us not achieving our FY15 goal of total enterprise solutions growth.

On a positive note, we were able to offset a large portion of the legacy decline with 48% growth in new products marking our third consecutive year of new product growth. During FY15, new product revenues grew to $6.8 million from $4.6 million in FY14 growing by $2.2 million in FY15 versus $1.5 million of growth in FY14.

During FY15, we completed significant milestones that we believe further expand our ongoing efforts to drive new product revenue and move us closer to sustainable topline growth.

First, we began receiving production orders for our new wireless IoT modules. During the year, both xPico and xPico Wi-Fi sales grew as design wins began transitioning to production orders. New IoT module revenue growth helped to stabilize our total IoT module productline that was one of our stated goals for FY15. Over the next few quarters we expect to increase sales of new IoT modules as design wins move to production.

Second, we have substantially completed development of a custom white label print server device for a Tier 1 printer manufacturer. Incorporating our xPrintServer technology, this new platform development has the potential to further expand our revenue opportunities in the mobile printing space. We are now in the process of completing final certifications of this product that we expect to begin shipping during FY16.

Third, as previously announced, we are pleased to receive Apple AirPrint certification for our xPrintServer product in June. This certification was a multi-year effort that resulted in our xPrintServer becoming the first and only enterprise print server appliance certified by both Apple and Google. Today, xPrintServer is the only AirPrint server appliance that supports thousands of printers for multiple manufacturers.

AirPrint certification has already led to the inclusion of our newest xPrintServer in the Apple online store in July of 2015 and we believe it has the potential to expand our opportunities with key printer OEMs.

Fourth as expected, our SLB and SLC 8000 products along with other new enterprise solutions continued to gain significant market traction. Overall, new enterprise solutions grew by 42%. Going into FY16, we believe that our new products are well-positioned for continued double-digit growth.

Before I go into more detail on our progress and expectations, I would like to turn the call over to Jeremy to go over our financial highlights. Jeremy?

Thank you, Kurt. Now I would like to take a few minutes to go over the highlights of our results for the fourth quarter of fiscal 2015.

Net revenue was $10.2 million for the fourth quarter of fiscal 2015, a decrease of $871,000 compared with $11.1 million for the fourth quarter of fiscal 2014 and a decrease of $213,000 compared with $10.4 million for the third quarter of fiscal 2015.

The year-over-year sequential decreases in net revenue were primarily due to a decline in legacy product sales. The decline in legacy products was partially offset by growth in new product revenue of 24% from the year-ago quarter and 6% on a sequential basis.

New product revenue was $1.7 million for the fourth quarter of fiscal 2015 compared with $1.4 million for the fourth quarter of fiscal 2014 and an increase of $95,000 compared with $1.7 million for the third quarter of fiscal 2015.

Gross profit as a percentage of net revenue was 47.1% for the fourth quarter of fiscal 2015 compared with 50.1% for the fourth quarter of fiscal 2014 and up from 45.1% for the third quarter of fiscal 2015.

Selling, general and administrative expenses for the fourth quarter of fiscal 2015 were $4.1 million compared with $4.1 million for the fourth quarter of fiscal 2014 and $3.9 million for the third quarter of fiscal 2015.

Research and development expenses for the fourth quarter of fiscal 2015 were $1.8 million compared with $1.7 million for the fourth quarter of fiscal 2014 and $1.6 million for the third quarter of fiscal 2015.

Total operating expenses for the fourth quarter of fiscal 2015 included severance charges of approximately $230,000. GAAP net loss was $1 million or $0.07 per share for the fourth quarter of fiscal 2015 compared with GAAP net loss of $213,000 or $0.01 per share for the fourth quarter of fiscal 2014 and sequentially GAAP net loss of $839,000 or $0.06 per share for the third quarter of fiscal 2015.

Non-GAAP net loss for the fourth quarter of fiscal 2015 was $575,000 or $0.04 per share compared with non-GAAP net income of $206,000 or $0.01 per share for the fourth quarter of fiscal 2014 and sequentially non-GAAP net loss of $357,000 or $0.02 per share for the third quarter of fiscal 2015.

Now turning to the full fiscal year, net revenue was $42.9 million for fiscal 2015, a decrease of $1.6 million compared with $44.5 million for fiscal 2014. The decrease in net revenue was primarily due to a 10% decline in legacy product sales and weakness in capital spending from a few large customers. The decrease in legacy product sales was partially offset by 48% growth in new products.

New product revenue was $6.8 million for fiscal 2015, an increase of $2.2 million compared with $4.6 million for fiscal 2014. Gross profit margin was 47.3% for fiscal 2015 compared with 50% for fiscal 2014. The decline in fiscal 2015 was primarily due to charges for excess and obsolete inventories.

Selling, general and administrative expenses were $16 million for fiscal 2015 compared with $16.4 million for fiscal 2014. Research and development expenses were $6.9 million for fiscal 2015 compared with $6.7 million for fiscal 2014.

GAAP net loss for fiscal 2015 was $2.8 million or $0.19 per share compared with GAAP net loss of $933,000 or $0.06 per share for fiscal 2014. Non-GAAP net loss for fiscal 2015 was $767,000 or $0.05 per share compared with non-GAAP net income of $948,000 or $0.06 per share for fiscal 2014.

Now turning to the balance sheet. Cash and cash equivalents were $5 million as of June 30, 2015 compared with $6.3 million as of June 30, 2014. The decline in cash was primarily related to the operating losses we experienced in fiscal 2015 and an increase in inventories which was offset by $700,000 in borrowings on our revolving line of credit.

Net inventories were $9.5 million as of June 30, 2015 compared with $8.4 million as of June 30, 2014. Most of the inventory increase was for two of our new product families, the SLB and EDS-MD. These were two of our best-performing new products during fiscal 2015 and we built inventories in anticipation of additional opportunities that remained open as we exited the fiscal year. We expect to use cash during the next fiscal quarter related to the recent increase in inventories. We plan to bring down inventory levels over the next few quarters which we believe will reduce our use of cash.

As of June 30, 2015, our working capital was $7.4 million which we believe is sufficient to achieve our current growth plan. Ending the year, our other current liabilities increased by $431,000 to $3.8 million. In part the increase was a result of more than $0.5 million in deferred revenue related to new product custom development. We expect to recognize this revenue during fiscal 2016.

For fiscal 2016, our goals are to deliver double-digit new product revenue growth and bring gross margins closer to our target model of 49% to 51%. Our primary focus continues to be driving long-term revenue growth while managing our spending based upon our revenue expectations, preserving working capital and maintaining financial discipline.

I will now turn the call back to Kurt.

Thank you, Jeremy. As the numbers show, FY15 was a challenging year for us. Even as we achieved our third consecutive fiscal year of high double-digit growth and new products, these accomplishments were masked by the decline in legacy products that impacted our overall revenue for the year.

I want to share with you the specific progress we have made during FY15 and why I believe these achievements have the potential to drive continued growth and demand for Lantronix new products in FY16 and to ultimately deliver enhanced value to our shareholders.

As I've stated on previous calls, our growth strategy is focused on disciplined and innovative product development in close collaboration with Tier 1 companies, expansion of sales channels worldwide and financial discipline focused on managing working capital while investing for growth. Since FY13, we have consistently achieved substantial double-digit growth and new product revenue and we continued this trend in FY15 with 48% year-over-year new product growth.

We continue to attract interest from significant customers for both our new IoT module and enterprise solutions.

During FY15, new IoT module sales grew as more early adopters of xPico and xPico Wi-Fi began moving towards production. Today, our modules are IoT enabling a wide range of applications including industrial automation, security, environmental monitoring as well as consumer devices. We are currently developing new IoT modules in close collaboration with Tier 1 accounts that we have plans to launch in FY16. These products will set the stage for future growth opportunities.

We believe that as more of our customers begin moving from design to production, the new IoT modules will again deliver double-digit revenue growth in FY16.

For FY15, new enterprise solutions delivered 42% growth over FY14 despite headwinds from reduced capital spending from a few large customers. Our new IT and datacenter management products, the SLC 8000 and SLB, delivered significant positive results in FY15. As many of you are aware, these products were developed in close collaboration with Tier 1 partners from the telecom and networking industries. During FY15, we began to see broader adoption of these products.

We recently announced an SLC 8000 firmware upgrade that included FIPS 140-2 compliance. This high-security standard is mandatory for government applications and is quickly becoming a must-have for healthcare and financial environments where protection of privacy is mission-critical. Having this FIPS compliance further expands the opportunities for SLC 8000 advanced console server.

During FY15, we continued to expand visibility of the xPrintServer product family as top printer manufacturers began including xPrintServer in their accessory lines. Apple awarded AirPrint certification to the xPrintServer making it the first AirPrint server appliance certified by both Apple and Google that supports mobile printing to thousands of printers.

We will have already achieved immediate benefit from our AirPrint certification. In July 2015, our newest xPrintServer office edition began selling in the Apple online store. In addition, we believe that AirPrint certification will be a key selling point for expanding our relationship with OEM printer manufacturers.

During FY15, we substantially completed development of a custom white label print server solution for a Tier 1 printer manufacturer. We expect to begin realizing revenues from this product during FY16 as we complete final product certifications.

During FY16, we expect to launch new IoT gateway products that will enable the Internet of Things for critical devices in a wide range of applications from retail to medical. Today new enterprise products make up 25% of our total enterprise solution revenue. We believe that as we continue to move forward with expanded channel opportunities the new enterprise solutions will continue to deliver double-digit growth in FY16.

On the sales and marketing front, we continue to make progress in expanding and deepening our VAR, distributor and rep relationships worldwide. As many of you are aware in early FY13, we expanded our relationship with Ingram Micro to include the EMEA region. During FY15, our continued efforts bore fruit as Ingram EMEA delivered significant revenue for the region as well as generated new product opportunities.

Resellers continue to be a key part of our go to market strategy and during FY15, we were pleased to see that our top 20 resellers as a group experienced overall revenue growth as they expanded sales. We increased the number of manufacturer reps in the US to increase sales of our IoT modules and in mid-FY13, we expanded our relationship with Arrow Electronics. Since then, Arrow has delivered meaningful revenue and become a key opportunity generator for Lantronix extending our reach into Asia and Europe. With the opportunities they brought during FY15, we believe that this relationship has the potential to become a significant contributor in the future.

Moving into FY16, we are committed to further deepening our relationships with our sales partners worldwide to accelerate new product growth.

Total new products made up 16% of our net revenue in FY15, up from 10% in FY14. New products were 25% of Enterprise Solutions and 6% of IoT modules. IoT modules typically have a longer timeframe from customer engagement to revenue. In FY16 as more new IoT modules move from design win to production, we expect new products to become a larger contributor to total IoT sales.

In summary, focused execution on our growth strategy has helped to drive new product sales. For FY15, new products grew by 48% partially offsetting the decline in our legacy business. Entering FY16, we believe that we have a solid foundation for continuing to drive new product revenue growth with design wins for IoT modules moving to production, broader adoption of our enterprise products, AirPrint certification opening new opportunities for our mobile printing products and expanding channel sales as we continue to deepen our relationships with key partners worldwide.

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 would like to open the call for questions.

(Operator Instructions). Jaeson Schmidt, Lake Street Capital Markets.

Thanks for taking my questions. Just wondering when we look out to fiscal 2016, is there a particular end market or a couple of end markets you think will really drive growth going forward?

Thank you for calling in, Jaeson. Looking into fiscal 2016, we have a couple of things that are kind of on deck now with the expansion of our Enterprise Solutions and that really is both datacenter, branch office and really a kind of an adjacent market to data centers is what we call test labs with basically the SLC 8000 is used in testing a good number of network equipment.

And as well in the Enterprise Solutions, we see good traction and interest through the xPrintServer. Now that we have achieved AirPrint certification we think that opens a lot of opportunities for us. So those are all pretty vertically focused type products that we see on the enterprise side.

On the IoT module side, these are much more horizontal products that are used to enable the Internet of Things in a broad range of applications. That being said, our initial design wins are in resource monitoring, industrial automation as well as we have a consumer design and we expect those to be the initial revenue drivers moving into FY16.

Okay, great. And then looking at the legacy business, how should we look at that decline going forward? I know it sounds like you are looking for double-digit growth in the new product segment but any visibility within that legacy business?

The legacy business is always difficult to forecast a decline but we saw approximately 10% decline last year and that has been around that range over the last couple of years.

Okay, that is helpful. And then the last question and then I will jump back into queue. Any change in the competitive landscape? Do you think some of the softness you saw in fiscal 2015 was a result of share loss, docket loss or do think it was just a matter of kind of a weaker capital spending environment?

In fiscal 2015, we had a few enterprise customers that were very strong in FY14 and they ran into their own headwinds and that basically brought some of their orders effectively to zero for FY15. And that was very specific to a few large customers that did great in FY14 and didn't do so well in FY15. It really had nothing to do with share loss. They weren't buying from anyone.

Okay, great. Thanks a lot, guys.

[Mark Steeple], [Stanfield Capital].

I will start with a statement and then I'll ask you a couple of questions. The statement is that as a shareholder, I find it really grating to hear you guys or really you, Kurt -- and nothing personal because I like you, you are a good guy -- but to hear you say that we are executing on our strategy and you keep saying we are executing on our strategy -- well you've got steadily declining revenue and steadily increasing losses. So if you are executing on your strategy then maybe you need a new strategy. So that is my statement. You can respond to that or not. I can ask you my questions, up to you.

Mark, we are executing on our strategy and the strategy is around driving new product growth and we have been investing for future new product growth. And the key aspects of our strategy really engaging with large Tier 1 accounts, we put that strategy in place a couple of years ago. We have seen good results for it on the enterprise side, both engaged in selling to the initial Tier 1s as well as follow on sort of mass-market type sales. And we are expecting to start seeing the results on the IoT module side. And then once we get the revenue for both the IoT modules and the enterprise side then we will be able to reverse the decline of overall topline growth and really overcome the decline in the legacy business.

So you speak several times about the 48% year-over-year growth in new products but unless I'm missing something, maybe I am making a mistake, it seems that sequentially for the last three quarters I mean this quarter to Q3 and Q3 to Q2 that there was almost no growth in new products. Is that correct? If so, what does that mean?

Hello?

Please hold the line. It appears the speaker line has accidentally disconnected. So please continue to hold while we reconnect that line. Just one moment please.

The speaker's line has been reconnected. Please go ahead.

Apologies, I accidentally pressed the wrong button so I meant to press mute and there are two red buttons and they are fairly close together and I get the wrong one. So sorry about that, Mark.

You bought 90 seconds to come up with an answer for my question.

That was used in trying to dial back in. So from an absolute number, the new products have been relatively flat on a quarter by quarter basis and a little bit of growth in each quarter. But the key thing is really what is happening underneath and we are seeing a good amount of different new products growing at different rates and there is a high degree of lumpiness on the new products. Many of them are what I refer to as new customer, new market so there is a good amount of lumpiness in what makes up those new product numbers.

And when we look at the details as well as the guys that are ramping in the short term for FY16, we are quite confident that we will be able to continue a substantial overall new product growth rate. But quarter-by-quarter numbers are not really indicative of what to expect on a year-by-year basis.

Okay. So based on this quarter that you just reported ballpark, it looks as if you've got around six quarters of cash left without further drawing down your credit line. So how do you respond to that? I mean is revenue stabilized now at a run rate of 10.2 per quarter or is it that going to get worse and are the losses going to get worse? And what can you do on the expense side to get closer to breakeven at the current revenue run rate?

I can help you with that. Starting with the liquidity question, today we have about $7.4 million in working capital. Prior to doing our raise in 2012, that was down to close to $2 million so there is up about $5 million plus buffer there from what we have operated in the past. So we feel pretty good about the amount of working capital we have today and our ability to achieve our growth plans with our existing working capital.

Does that mean that you are not going to need to raise more money, that what you have now will get you to breakeven and profitability?

We believe today we have sufficient working capital based on our current growth plan.

Okay. All right. And then last question, the stock is pretty darn close to all-time lows, it briefly touched all-time lows one day last week. Why aren't you guys stepping up and buying some? I mean in some reasonable amount?

You mean the management team or you mean the Company?

The management team.

We recently purchased in the last few months, many members of the management team if you look at our Form 4s.

Something in the 401(k) or something?

No, there is an ESPP plan. Employee stock purchase plan that many of the management team participates in. (multiple speakers)

All right. I may have seen that but I think it was really small amounts, correct me if I'm wrong. Why aren't you guys stepping up and buying $20,000 worth of stock or something like that? I mean you are at an all-time low. If you really believe that you've got this thing turned around, the Company is an absolute steal down here.

I think I did by around $20,000 worth of stock.

All right, thank you.

And Mark, today we are in a closed window.

Yes, so when does that open question?

Typically opens three days after our release.

Okay, great. I look forward to seeing some more Form 4s then. Thank you.

(Operator Instructions). At this time I'm not showing any additional questions. This will conclude our question-and-answer session. I would like to turn the conference back over to Kurt Bush for any closing remarks.

Thank you, operator. I would 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 on the first quarter FY16 results in late October.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.