LTRX - Earnings call transcript Q4 2019

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Operator

Good day and welcome to the Lantronix Incorporated 2019 Fourth Quarter Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]

After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

to coordinator. conference like Tint to now call [ph], would turn over the Amber I ahead. go Please

Unidentified Company Representative

Good afternoon thank fiscal everyone and XXXX fourth the conference quarter Lantronix call. you for joining

President Chief Financial and the are call Joining of Vice Officer; Executive us Whitaker, Paul Jonathan on Pickle, Jeremy Officer; and President today Strategy. Shipman, Chief

archived today’s website. call and be available live A will webcast of company’s on the

XXX-XXX-XXXX October Eastern, replay the dialing addition, available P.M. Pacific be for phone or passcode callers in X:XX will and X:XX a XX today international through In at starting P.M. entering by U.S., XXX-XXX-XXXX XXXXXXXX.

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

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

Chief Whitaker, With the that, over I’ll Financial Officer. Lantronix’s turn to Jeremy call now

Jeremy Whitaker

to I’m over our his year-end the and fiscal Thank the of Paul fourth hand going call. Amber welcome results, you, provide I it and afternoon’s as us to before quarter joining for commentary. as for this financial everyone highlights business some to well for

my the will release section and refer for our relations Please investor supplement additional of details today's financial information website news in that commentary. to

for June $XX for million the XX, net XXXX third compared XXXX. $XX.X fourth revenue we quarter to in and fiscal the quarter million $XX.X fiscal the of XXXX, quarter reported of million ended For

tension has our including market U.S./China the operational of well certainty ongoing dispute end contract distributors' we manufacturing out and issues the transition through China, decreased navigated related our customers the the have of trade demand. to into While of nature

shortages in factors inventory levels the uncertainty sales quarter. than Tariff in the These concerns industry-wide March earnings higher guidance the in last during June greater followed quarter, a by decline call. we macro and components on channel the resulted than provided in our normal drove

and end representing our user Having was believe total broad than down a this We our end attrition. in single of and as temporary began saw a no channel demand partners inventories. to sales, demand X% not more based customers decline bring we customer in slowdown our

throughout Lantronix we a end customer channel note, current On expect have demand our next and of been two positive inventory to see declining the and the levels quarters. improved product over quarter

XX.X% due absorption fiscal a of quarter and fiscal overhead for was was third of margin sequential net as as primarily fiscal in the to manufacturing costs. XXXX. profit for XX.X% revenue XXXX XXXX fourth of fixed XX.X% The the decline of of to quarter percentage compared Gross the our fourth lower quarter for

the for due fourth the and of quarter reductions the XXXX million XXXX. $X.X were quarter controls, quarter. with compared lower for improvement the fiscal quarter fiscal expenses administrative of in The for third million expense tight XXXX variable and fiscal general Selling, was million $X.X of primarily general current operational fiscal and fourth $X.X to compensation

development. the million quarter compared invest fiscal expenses were million the XXXX development XXXX and in XXXX $X.X as second quarter continue with fourth new $X the fiscal for fourth for of we of quarter of fiscal $X.X to Research for and million product

fourth during quarter quarter per per or $X.X income during compared of XXXX share of share the during $X.XX was $X.XX XXXX loss share related $XXX,XXX and net net per asset $X.XX fiscal Included or $XXX,XXX GAAP the to acquisition, costs. fourth million $X.X to of of or the approximately of impairment GAAP quarter severance net the of third million fiscal were in expenses loss XXXX. fiscal income and GAAP net GAAP

consecutive achieve or XXth $X.XX our non-GAAP fiscal non-GAAP of report of million to net for per quarter as $XXX,XXX XXXX. compares fiscal income non-GAAP of share $X.X fourth quarter income we of to quarter net profitability per per the fourth quarter the income $X.X the or pleased XXXX XXXX. non-GAAP or share This $X.XX I'm fiscal of for $X.XX of share net third and for of million

to the fiscal profit reported XXXX with improved of XXXX fiscal revenue able Gross million Net our fiscal increase exposure revenue as was $XX.X mitigation points basis XXXX. a to million, turning for limit percentage full for Now during XXXX. from net Through year $XX.X results. XX approximately XXXX. tariff XX.X% to our we're fiscal compared fiscal XX% to for in as an efforts

engineering, with fiscal fiscal to for expenses acquisition restructuring to the expenses expenses and were increase Operating XXXX. operating in million $XX.X of XXXX in primarily due million $XX.X charges Maestro. compared in related investment The

$X.XX GAAP fiscal GAAP For net approximately million of $X.X severance, of share for $XXX,XXX were net acquisition net $X.XX compared impairment of loss $XXX,XXX we or share income asset fiscal per per to or GAAP Included XXXX. loss to reported XXXX, expenses costs. and in related the

compared for to per $X.XX in for to XXXX XX% income net share fiscal Non-GAAP million XXXX. XXXX net fiscal for income non-GAAP $X.X compared as million fiscal as increased to $X.X and fiscal $X.XX of by XXXX

as million as $XX.X Cash capital as to of XX, XX, an million and Working compared increase June June XXXX of of XXXX. compared June $X.X XX, million million cash June equivalents $XX.X of were XXXX, as $XX.X was of with XXXX. XX, as million $XX.X as

offering. and capital Maestro. of July September of the XX, million million XXXX. of cash approximately In primarily March in we were use inventories of purchase compared June public with as increases $X $XX.X million XXXX to relates for XXXX working XXXX, Net $X.X XX, our The as cash

contract previous of China. manufacturing plan our strategy, we moving As mitigation calls, of on outside as included increase part to tariff discussed inventories our which

of substantially complete, effort that established long-term Now turns year. per target a the is have three we

to approximately cash in XXXX, Now, Maestro July doing in an On X, consideration. of you XX% approximately they its of a To XXX% $XX acquisition. with give the million of our shares of turning outstanding margin year approximately at $X revenue size, we acquired some subsidiaries around a XX% margin were perspective Maestro and gross recent million for operating loss.

of fiscal are identifying during the integrating and We the to synergies it in expect non-GAAP business, process our fully be to and earnings accretive XXXX. capturing

the we assets. the and of acquired including liabilities, intangible any fair are Currently, assets identifiable evaluating value

September of forma form quarter our disclosures present XXXX. allocation We and expect pro the and XX-Q to XX, liabilities fair of in for a the ending assets preliminary acquired value filings

on Now, earnings XXXX. the and for quarter first year ended provide revenue guidance fiscal I'll and

a For net synergies the range net to loss the the range to acquisition. $X.XX share in the revenue first breakeven of per quarter of fiscal capture from XXXX, million million to as begin we and $XX $XX of expect we non-GAAP in

revenue XXXX, greater For net growth XX% expect XX% non-GAAP share fiscal greater. of per and we net income year of or or growth

as later Now, quarter for to quick complete is call. integration earnings time housekeeping first a a next we weeks than call November, sufficient accounting planning XXXX to To relates our which our of cycle. certain note are activities, fiscal allow it earnings normal system and reporting mid our purchase couple Maestro

Paul. over call the to turn now will I

Paul Pickle

an Lantronix delivering as our are current control, non-GAAP My job did out quarter. first challenging trade Thank the such profitability both at of been factors full you, environment team our excellent and in quarter Despite which Jeremy. on has exciting.

grow While business over on our three the remain products WiFi from general concerns, and last macro appreciably base over-quarter-growth over newer to pace years suffered quarter year. the our fiscal released saw

world a and I and continue to larger franchise, delivering see growth a opportunity for incredible an build higher class profitability. to Lantronix serving industry-leading grow marketplace

group while maintaining a lot to are the we have is and elements return to at Over very last the rather rates are team The opportunity within of and Lantronix improve company's had upon, have I below customer requests while quality well industry X.XX%. high nimble assess responsive that degree each a working with quarter norms operations well. to functional there

transparency process seen goal engineering development with exemplified larger the increasing lot in and trimming has the recently, overhauled of of not and product tight Finance management development organizations. efficiency. much Relatively controls time a

next We see exercise several benefit this will over the quarters. the of

our efforts. to began ROI We more development the on intently improve working product

the continue existing products. at small of solely throwing resources iterations practice cannot engineering operating Lantronix Importantly, of standard

space result addressing in will too simply in the justify erosion, price to revenue product continue path to much competition hardware development and cannibalization the to offering price market existing expense, There's opportunities. this prone and down to of small

development focused hardware see recent software efforts which on a Our efforts are and and our started to of we consolidation improved planning has those processes have execution results. already through and improving

percentage of will parallel the as zeroing engineering and we're projects to improve of greatly reduce in a expenses Further, maximum reuse on efforts. efforts and eliminating conceptually R&D so where allow us same Doing ROI. sales on

next released initially product of tiers, development in latest than a be seen announced approach we our of past. featuring of schedule. point all multiple ahead this quarter well have is engineering ITM Using products be much a will This with running with price expense product to lower broader along family flagship, as the

Live in interest with I'll with was customer note conjunction platform, Recently, we high. that running demonstrated this at SaaS along application Cisco and our software

improving, stage refining pipeline have in two interest our results latest can customers customers but the with drive proof-of-concept another do we the software additional offering expect. the In XX we continues, we better. products some boarded are we to the While on quarter, the is in and

is software and the the in architecture impressive makes make hardware with to features value product focus. teams without for likes for of build an customer the software that expected platform use a the to typically the multiple robust us side traditionally It be and front would a foundation has added be fundamentally difficult can of or turn upon. package. services end MACHXX microservices to focused But it proper difficult fully

lack Further, ConsoleFlow, needed or also some but functionality, have like others. middleware client side applications

efforts. necessary will consolidation are resulting single development a consolidated focus. have In could when added multiple needed into addition, in are expense now modular be and we've they completed underway the development than there parallel plans These higher as been expeditiously efforts

connectivity concept, currently think to more if solutions layer be are to it's customers to Lantronix our a Strategically, as much is We but going are provide of need IoT looking positioned important we single a the is multi-layered for. IoT company.

enablement. roadmaps Our previous of IoT focused a segment connectivity primarily on narrow

IoT to IoT known And will forward, your so that will by connect, customers we that the solutions compute, stack. address of IoT capability the problems. doing other meaningful aspects we address in the comprehend, concepts cumulatively time, and the as control value are add and functions add deliver collect, solving Going larger within

The is game simple. plan

with to execute revenue opportunity our roadmap on hardware to solutions enhance technology organically. driven we grow recurring greatly software will metrics, ROI solutions model. We Furthermore, our leveraging a creating by revamped our see product the a

our leverage via into products to scale model. the also leading and expand business continue those adjacent to drive industry realize We deeper complimentary profitable will of to markets growing more acquisition, penetration customers use

deliver Lantronix market able As we while more be will will and larger, before. to to shareholders. Lantronix drive profit quickly volatility grow continuing weather to execute profit is more than better it our diversified

Our Maestro in wireless IoT is certain sense supplier that within first These tracking acquisition a for the cellular our narrowband specializes lot and strategically of of Maestro connectivity function and added wireless product wireless complimentary of capability a Lantronix. leading Whereas mobile in solutions. Lantronix needed much capability. wired products it IoT makes solutions, broadening is connectivity and mobility portfolio by cellular with IoT

add Satellite Global technologies. needed with Navigation receivers also function and IoT much products capability collect sensor These System

management it software In connected brings their the of capabilities new for addition and offering devices. with programming

than facing, front more ours a customer end of is is software the backing robust functionality. MACHXX terms quite bit foundation more the in offers While

product consolidate additive such, presents completely is we and base us from best using our also new with bringing offering to opportunities improved our a delivering our the both This product. existing As roadmap at products. product will much customers current to practices -- acquisition and customer while two new on

revenues, $XX product about a Looking XXXX calendar year referenced, during loss. Jeremy the operated did Maestro and at financials. at million in

we While they revenues revenue pass-through exit, a nicely. will of piece did their distribution growing have product that core

prudent synergies, the macro opportunity to guiding expect realize And scale the rate expect at operational revenue company confident to uncertainly, are of the in to for same from at current profit and potential XX% we a XX% that a further entity. real efficiencies Maestro's it rate the to Lantronix have is subject or significant combined grow benefits combined is revenue improve we more while XXXX. life profit as We synergies. its grow operating As we will integrate of to in

list Lantronix. such growth targets circling we find are opportunities long We accelerate as and here at our of compelling that plan. a more these from will further Expect us strategic on

look at and to team first forward challenging Lantronix As to potential I said for I benefit on quarter our was the shareholders. full both my of deliver exciting working earlier, with the our

prepared our remarks that And today. for concludes

our session. it Sean? I over the now analyst for to operator So, will turn Q&A

Operator

you. Thank

We Instructions] [Operator will now session. begin the question-and-answer

Schmidt Please Our first Jaeson today from question Street. Lake will with come go ahead.

Jaeson Schmidt

Thanks for anything I'm lines. pricing you if in standpoint out taking wondering the of ordinary Hey, could guys. of if comment any questions. you're my product your a from seeing

Paul Pickle

Seeing anything of Okay. product our ordinary pricing on out the for lines?

Jaeson Schmidt

Correct.

Paul Pickle

of good extract of couple raising the just Yeah, job the over full that We've making nothing last done we value the out years, for product lines. a ordinary. sure ASPs

So, the if look overall little returns an at to that drive in some out came that think there's we from with newer I a of the nothing us greater bit some price the the of terms products downside. of but acquisition, positioning, opportunity ordinary -- there of with for

Jaeson Schmidt

business of what about your historical that and business of sort grow forward? ability going growth that how to And Maestro we sort for business, the Okay. the rate should share you think was can regarding

Paul Pickle

Yeah.

product at a products you I took company. to they were you so if So, just remember historically business were would they the fairly a revenue, distributor flat, overall, before have first look the there if look but

zero of programs kind growth you little of products, first expect XXXX. standard years. out They that a beyond the of in and in of focus basis first if so, new of moderation a had rapidly, albeit some grew they out we just products some on the rather in And And the to see this hit. kind year, bit extract from

Jaeson Schmidt

into me, haven't queue. been final before. really That's you you they know a And back Okay. for to. I'll guys and tracking in business, jump which have I one sensor and alluded the market played

that sort of just greenfield Just share at curious thoughts market, if your you how space. look could the given in that on opportunity you broader

Paul Pickle

Yeah.

in is I back types out web clarify, in I land tracking probably business we deployment opportunity pretty client space. side, and because the of I So, -- some -- capability IoT asset is there you fantastic to it's customers market it ability our probably not the viewed it a ties -- the well look terms from been in services, there at out sticky, need analytics. of know, longest like on really fairly and scripting quite that a phenomenal. it’s And But that important, the is to is as as end have. as complete

at car you sitting sharing We less of up know, software our car But the types and to ridesharing enable, apps, motorcycle applications sharing important. some took that apps of apps. in lot hardware addition In sharing for hardware, customers being. are is can in hardware parking India, actually Germany and time probably look application prototyping those if our you what -- the coming, in

up So, opens possibilities. it's an important terms capability the door that to in of have

Jaeson Schmidt

Okay. Thanks guys. a lot

Operator

Richard Company. from Needham & come will question next ahead. Valera Our Please with go

Richard Valera

The a you. Thank an has for trade issue been few quarters.

gives trade what just caused the I and it I quarters. understood up to sure as what that related that picks of couple make to in the next specifically the quarter you the June in So, wanted slowdown confidence

Paul Pickle

confidence benefit reporting the juncture quarter with portion So, this the of is I done. the wise of -- good at a guess,

and seeing So, the A on we little of then as forecast. jump here bit Jeremy, some of have of maybe not commentary you purely well. just the in can and benefit data relying

customers implementation channel like run-up look seems in inventory If kind and both the fear numbers, of on and channel. of we back kind inventory the causing tariff numbers, it at the of end

more draw that might to to those then of down. then we inventory uncertainty increase of some mitigate tariffs did people saw built, wanted macro be we that a the wise, an numbers need the more So, kind kind as quarter. March see in uncertainty And of economic causing the with

in wholesale. It There subtleties some it. were was

based look -- in including business primarily build be So, an playing caused if be was there I have that OEM some might an our that at EMEA and the fears that could inventory Brexit, phenomenon, would us up. way other

fiscal so but down dependent. one been lumpy And has that and CapEx that little And note the more if in has the ITM look spending was defense in bit September to quarter. there's ITM, happen October U.S., that kind business cycle I'll at year, then was of is a some that, you cycle classically

we to larger mandates down looked, us there anomaly things was just and were they the And see trends a doing, what as demand be that was you specific draw and were out assured we were that to we happened the us. So, there said there they -- customers some for some base and look touched macro spending that with attribute happened. this And then were normal that that were sockets there solid, that reacting that okay, at some was to know, then, as the and would can inventory. things their went

Richard Valera

if Got you expected in a of talk it. design that on And number then has And had business, ramp. than there were a customers commentary what of status to lot prior were think been quarters IoT were of the about number longer taking of but waiting just the of that that pretty wins with was revenue and pipeline wins design meaningful the wins can a on kind design provide a wonder you some I won, ramp. of

Paul Pickle

Yeah.

customer that increase next about is of newer the remarks, production. over design seen we've look ramp techs production to definitely of growth in the design so to [floor] wins past flew wins they design see talking noted actually, get year. what which the pretty WiFi expect this, of were prepared and a been counts, as we to terms or we And running solved that an in primarily to I good in quarter. did into we products, to Taiwan will We issue. one we've a in some ramp couple So, on -- particular shift note his [ph], help technical those production one this and

-- say note just pretty additional design I'll that the counts wins, have been And one on good. I'll

look I -- higher to to have opportunities take back and win, to the -- at driving go at look little need a think volumes. start each dollar strive that's attached to we're bit to we we going slightly a better what and amounts chasing

can do doing about that saw to want up Jeremy's some currently. an IoT, I a indication inventory -- and run We regarding channel got me made prior is comment he respect two data weeks I with channel what inventory. give

Jeremy Whitaker

Yeah.

to within normal. channel I and probably think XX our on average, if channel, to -- demand quarters, the last than think positive one I we over And they the from those weeks this -- if are channel. our carry least the months. five look In least the was lead indicators to you at beginning that inventories back trend the is distributors, weeks historical refill has in improved typically inventory of distributors we as that higher quarter down at June seeing six about to begin the should so we're March those three and at levels

So, we there. are indicator seeing a positive

Richard Valera

early, then what's it. last year, -- flat but at the about a kind of seemingly it's I as I look guidance it's revenue double-digit know But the Got modest And historically year or growth IoT embedded growth. talked you and if your this business Paul, business. this been very organic think for in

high Or longer of wondering how about double-digit medium how that? you're business are single digit, growth So, you thinking this just term, potential? that to have thinking does

Paul Pickle

market it's particular puzzle classically We're strongly to is we widget of we be not can feel the able offer where the is a I that And been definitely way done market we address going one opportunity. it that to think pretty IoT. that there. piece or particular do the opportunity

little more a needs a bit it comprehensive. little more to bit platform So, driven, be

it talk they like care they go would really want They I how done, this. customers hi, to done. we do just it's when So, to say, don't

technology point so little take address a of of And requires set. agnostic that with to you bit a view, and a problem solution the totality that, of the

approach that it past. little mean of in take hardware. when something So may a to the an have do comes that we bit I agnostic done But

technology, we that been a sensor appointment have schedule is, one we've use give would tires prompt repair that user, technology tire you actually to the to order a track case I'll before tires One time changed. of of to data got of And -- like mean collection where implement a is platforms manufacturer anecdotal prototyping. kind service get and we've couple a hey, your

name car one we're use direct go brand this they can at prototyping -- for That's their tires, So, somebody now way than that a basis shop with case just right on Lowe's. capture somebody. rather having

of loss Another wasted one would buildings we're And cleaning buildings, holistically, the else equipment buildings. can the trying that equipment. that that we've got in office of particular to floor storey has man these a industrial of locate not Surprisingly address industrial enough and be solution the you hours, with of rest lot buffer worry system. location some a associated there's putting calculate multi together customer on a sensor a for particular to a just will about somebody

you a of kind that’s So, drive gives flavor what -- can hopefully, I do double-digits. of that But about. it think I'm talking

Richard Valera

Right.

Okay. could. if more I And one

going Just income, proxy I'm that. to of sort as rough a in think just reference EPS it's but XX% for I to use your And growth. non-GAAP

to of If And on coming hit reported around per require level from quarter that XX% would where the prior think you call do recent that pretty were the with kind -- first a been breakeven in put you've you year $X.XX the starting hefty your let's quarter, this I $X.XX have to year. would averaging it relative for you in EPS past. just or to is increase which

think a earnings we of should move kind ramp first breakeven-ish about year, the assuming the So, just start in we how through we wondering have as the quarter. the of

Paul Pickle

the just an taking to spend that addressing, remarks efficiencies the don't about question and that budgets need transitioning I we a business. a proper in about on. establishing little an with those can talk answer then business And harness my we from. synergy clearly work In So, projects prioritizing plan, we're asset bit be the I I lot going it's to of and the of we matter how some you will, will Lantronix address a and playbook, can game M&A if so talked more very acquired of that we're prepared

some is month to -- out needs one. to at work of the $XX that me happen. first And friend zero you're that There in a very going you year, starting if to make a mine dear in told transition you're got obviously, make dollar if

at starting is execute obviously as it we're half since see So, But that zero, second weighted. and of the the on will off synergy we execution you evidence plans.

And the perturbations will as I'd do back it's so any to the the massive like track on to the on playbook, group. cycle. suit going M&A bit We're on not that six-month finance, front integration consolidate. a to a rest we're little SG&A function, of follow lose the in the with progress we software making

up clean we as our we'll numbers move forward those plate it'll thing, will so, you come shortly. transpire see very and but quickly, off And one

Richard Valera

questions. Okay. Thank taking you the for

Operator

This I turn you. question-and-answer our remarks. the any Thank over for like concludes to Paul Pickle closing would session. to conference back Mr.

Paul Pickle

hope your you a you good for day. much and time, had Thank very

Operator

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

You may now disconnect.

Lantronix (LTRX) 10 Sep 192019 Q4 Earnings call transcript