Kurt Busch - President and CEO Jeremy Whitaker - CFO E.E. Wang - IR.
Jaeson Schmidt - Lake Street Capital Markets.
Presentation:.
Hello and welcome to the Lantronix Inc. Third Quarter Fiscal Year 2015 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there’ll be an opportunity to ask questions. [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..
Thank you, Amy. Good afternoon everyone and thank you for joining the Lantronix Fiscal 2015 Third Quarter 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 Web site at www.lantronix.com. In addition, a phone replay will be available starting at 08:00 PM Eastern, 05:00 PM Pacific today through May 5th, by dialing 877-344-7529 in the U.S. or for international callers, 412-317-0888 and entering pass code 10064423.
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 contained in the earnings release, which was furnished to the SEC today and is available on our Web site, and in the Company’s SEC filings such as its 10-K and 10-Qs.
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 Web site, describes the differences between our non-GAAP and GAAP reporting and presents reconciliations for the non-GAAP financial measures that we use. I’ll 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. Starting this quarter, we will be providing financial details regarding our new products which as we’ve stated in the past are a key element of our growth strategy.
We achieved 33% year-over-year increase in new product revenues during the third quarter of FY ’15 compared with the same period last year. For the fiscal year-to-date, new product revenues were up 59% for the nine months ended March 31, 2015 compared with the same period last year.
We’re pleased that the year-to-date new product revenues have already exceeded full FY ’14 new product revenues. Total revenues continued to be affected by decline in legacy products and weakness in customer capital spending that impacted the timing of projects. These resulted in total revenues being down year-over-year and sequentially.
Despite challenging near-term conditions we are focused on executing to our growth strategy of delivering disciplined and innovative product development; engaging with tier I accounts and expanding our sales and marketing efforts worldwide.
As new products become a larger percentage of our revenues, we believe that these actions will ultimately create long-term profitable growth. Before I go into more detail on our progress and expectation, I'd like to turn the call to Jeremy to go over our financial highlights..
Thank you, Kurt. Please refer to today's news release and the financial information in the Investor Relations section of our Web site 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 2015.
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 cycles. As Kurt mentioned earlier, starting this quarter we will be providing more detail regarding our new product revenue.
We define new products as products that have been released since the start of the second quarter of fiscal 2012. Net revenue for the third quarter of fiscal 2015 was 10.4 million compared with 11.6 million for the third quarter of fiscal 2014, and 10.7 million for the second quarter of fiscal 2015.
The year-over-year and sequential decreases in net revenue were primarily due to decline in legacy product sales and weakness in capital spending that impact the timing of customer projects. The year-over-year decline in legacy products was partially offset by 33% growth in new product revenue.
During the third quarter of fiscal 2015, new product revenue was 1.7 million compared with 1.2 million for the third quarter of fiscal 2014, and flat with the second quarter of fiscal 2015. Fiscal year-to-date net revenue was 32.7 million compared with 33.4 million for the same period last year.
Fiscal year-to-date new product sales were 5 million, up 59% compared with 3.2 million for the same period last fiscal year. Since this is the first time that we are disclosing revenue from new products we will provide data for the last three fiscal years.
New product revenue was 4.6 million in fiscal 2014, 3.0 million in fiscal 2013 and approximately 900,000 in fiscal 2012. Gross profit margin for the third quarter of fiscal 2015 was 45.1% compared with 50.9% for the third quarter of fiscal 2014 and 48.2% for the second quarter of fiscal 2015.
The decrease in gross profit margin was primarily due to $290,000 charge for excess and obsolete inventories, mainly related to the repurchase of excess raw materials from our contract manufacturers. Over the long-term we continue to target a gross profit margin in the range of 49% to 51%.
Selling, general and administrative expenses for the third quarter of fiscal 2015 were 3.9 million compared with 4.2 million for the third quarter of fiscal 2014 and 4.0 million for the second quarter of fiscal 2015.
Research and development expenses for the third quarter of fiscal 2015 were 1.6 million compared with 1.8 million for the third quarter of fiscal 2014, and 1.8 million for the second quarter of fiscal 2015.
GAAP net loss was 839,000 for the third quarter of fiscal 2015 or $0.06 per share compared with a GAAP net loss of 130,000 or $0.01 per share for the third quarter of fiscal 2014, and sequentially a GAAP net loss of 632,000 or $0.04 per share for the second quarter of fiscal 2015.
Non-GAAP net loss for the third quarter of fiscal 2015 was 357,000 or $0.02 per share compared with non-GAAP net income of 331,000 or $0.02 per share for the third quarter of fiscal 2014, and sequentially non-GAAP net loss of 99,000 or $0.01 per share for the second quarter of fiscal 2015.
Now turning to the balance sheet, cash and cash equivalents were 5.6 million as of March 31, 2015 compared with 6.3 million as of June 30, 2014. Our cash balance at the end of the quarter benefited from customer prepayments and the letter of credit that are since been repaid.
We continue to believe that we have a sufficient resource to execute on our growth plan and meet our working capital needs. Net inventories were 8.7 million as of March 31, 2015 compared with 8.4 million as of June 30, 2014. For the upcoming quarter, we expect operating expenses to trend up slightly.
That said our primary focus remains on driving long-term revenue growth for managing our spending based upon revenue expectations, preserving working capital and maintaining financial discipline. I’ll now turn the call back to Kurt..
In hospitals, Lantronix’s products have been deployed to securely connect medical devices to the network and proving the safety and effectiveness of treatment by providing medical professionals with the real time access to accurate patient data.
Lantronix’s solutions enable organizations to securely connect to industrial machines providing access to real time data and allowing end users to manage and conserve energy and other valuable resources.
Our management solutions allow companies from retail shops to hotels and data center to reduce cost and downtime associated with managing resources in remote and branch locations.
As I stated on previous calls, our growth strategy is focused on disciplined and innovative product development engagement with tier I accounts and expansion of sales channels worldwide.
I’d like to take a few minutes to update you on this specific progress Lantronix has made in these areas and the results we’ve delivered in our OEM module and enterprise solutions product line during the third quarter of FY15. Over the last 3 years we’ve introduced significant new product families in both our product lines.
Our plan was to release the production on average 1 new product per quarter. During the third quarter of FY15, we continued to meet this goals, when we released to production and began volume shipment of the xPico Wi-Fi SMT, the newest addition of our xPico Wi-Fi embedded device of our product family.
Despite the long time from design win to production ramp, new OEM modules currently or almost 10% of total OEM module revenue. As more customers move from design win to production, we expect new OEM modules to become a more significant contributor to OEM module product line and a growth drive for Lantronix.
Overall new OEM module products are gaining tractions. Combined with our expanded sales and marketing efforts, we believe that a contribution from new product families will reverse the decline in total OEM module sales for FY15 in line with our previously stated goal.
A key part of our new product development strategy has included close engagements with tier I accounts. By creating market leading solution that address the needs of tier I customers it is our belief that we will attract both large and small customers for these solutions.
During the third quarter of FY ’15 we saw this strategy payoff in our enterprise solutions product line as we recorded volume sales of the new SLC 8000.
Developed in close collaboration with the tier 1 lead customer and launched last October, the SLC 8000 is the industry’s first modular console manager and was designed to address the growing needs of the modern data center.
Its innovative design allows for customizable deployment and scalability that helps organizations reduce cost by providing secure, centralized, out-of-band management for most IT equipment.
In addition, the SLC 8000 is the first to enable USB console access to support next generation enterprise and data center equipment from leading providers such as Cisco, Brocade, HP and others. This week the SLC 8000 is part of the InteropNet SDN Lab showcase in Las Vegas.
In addition, as a Cisco solutions partner we’ll be demonstrating the SLC 8000 at several upcoming Cisco live events. We expanded sales channels for the xPrintServer product family during the third quarter of FY ’15. In January, we announced the Konica Minolta added the xPrintServer Cloud Print edition to its Envision IT portfolio mobile solutions.
This afternoon, we announced that Ricoh, a global leader in information mobility has added Lantronix xPrintServer Office Edition to its line of network accessories. Both of these tier-1 relationships have the potential to expand our xPrintServer sales worldwide and reinforce Lantronix’s tactical leadership in the enterprise mobile printing space.
Today, new products make up approximately 22% of our total enterprise solutions revenue. While the slowdown in customer capex spending makes achieving our FY ’15 goal of growing total enterprise solutions unlikely, we expect new product revenue to continue to grow.
In summary, focused execution on our growth strategy has helped to drive new product sales. For the nine months ended March 31, 2015 new products grew by 59% partially offsetting the decline in our legacy business.
Moving forward we continue to focus on increasing new product opportunities through engagement with tier 1 accounts and introducing new solutions that address IoT security, management and mobility.
We believe that these actions will position us to reverse the decline in total OEM modules; deliver top-line growth in total enterprise solutions as customers capex spending recovers; and ultimately create long term profitable growth and value for our shareholders.
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..
Thank you. [Operator Instructions] Our first question comes from Jaeson Schmidt at Lake Street Capital Markets..
Jaeson Schmidt:.
Kurt Busch:.
Jaeson Schmidt:.
Kurt Busch:.
Jaeson Schmidt:.
Kurt Busch:.
[Operator Instructions] Our next question is from Mark Spiegel with Stanphyl Capital.
Hey guys. I see two good things in this report. And unfortunately it looks almost like only two good things, but they might be meaningful. Sequential revenue overall was down 2.7% with last quarter was down 7% versus the quarter before that.
Has the business stabilized in terms of revenue?.
Kurt Busch:.
As a reminder, I’m sorry, you have another question. Go ahead sir..
Okay. I don’t know what have the operator kind of came in and cut me off there. The new products are sequentially flat from last quarter.
So why is that?.
Kurt Busch:.
So we’re now, I don’t know five years into this alleged economic recovery, which if you saw the GDP report this morning is really not much of recovery at all.
What makes you think that enterprise capital spending is going to comeback if that hasn’t comeback by now?.
Kurt Busch:.
Last one, as I said one of the good things is that you’ve appeared to have generated around $200,000 in cash this quarter.
Now you mentioned a letter of credit, I don’t know how that works into that, and can you talk a little bit about cash consumption going forward?.
Jeremy Whitaker:.
So you really consumed around $400,000 in cash, is what you’re saying?.
Jeremy Whitaker:.
And do you have any color on what that’s going to look like going forward, the cash consumption?.
Jeremy Whitaker:.
So in another quarter you’re just reporting what is I mean, all those to be equal, essentially $400,000 of consumption you’re saying.
When you say right now you’re within 200,000 [indiscernible] like, the quarter we’re in right now -- I mean that you’ve cut it by another 200,000?.
Jeremy Whitaker:.
So any color on your cutting expense I mean at this level of revenue, is that where that’s going to stay?.
Kurt Busch:.
All right, I have no more questions. .
At this time I show no other questions. Would you like to make any closing remarks Mr.
Busch?.
Thank you operator. I’d actually like to thank everyone for your participation on our call today. We look forward to updating you on our progress, achievement and actions when we report on our fiscal 2015 results in late August..
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..