Q3 2021 Lantronix Inc Earnings Call
Good afternoon, and welcome to the land and <unk> 2041 third quarter results Conference call all participants will be in a listen only mode share.
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I would now like to turn the conference over to Rob Adams Corporate development and the Investor Relations. Please go ahead.
Thank you.
Good afternoon, and thanks, everyone for joining the <unk> third quarter fiscal 2020 One conference call.
Joining us on the call today are Paul Pickle, President and Chief Executive Officer, Jeremy Whitaker, Chief Financial Officer, and Jonathan Shipman, Vice President of strategy, a live and archived webcast of today's call will be available on the company's website.
During this call management may make forward looking statements, which involve risks and uncertainties that could cause our results to differ materially from management's current expectations and 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 and the Companys SEC.
And as such as its 10-K and 10 Qs.
And Tronox undertakes no obligation to revise or update publicly any forward looking statements to reflect future events or circumstances.
Furthermore, during the call today, 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 financial information and the Investor Relations section of our website for additional details to supplement todays commentary with that I'll turn the call over to Jeremy what occurred the Chief Financial Officer.
Thank you, Rob and welcome to everyone joining us for this afternoon's call I'm going to provide the financial results as well as some of the business highlights for third quarter of fiscal 2021 before I hand, it over to Paul for his commentary.
For the third quarter of fiscal 2021, we reported $17 1 million and net.
Revenue and increase of 4% when compared to $16 5 million for the third quarter of fiscal 2020.
Sequentially net revenue was up three per cent compared to the $16 6 million reported and the second quarter of fiscal 2020 one.
For the nine months ended March 31, 2021 revenues were up 20% when compared to the nine months ended March 31 2020.
Once again, we exited the third quarter of fiscal 2020, one with a record level of total backlog as a result of increased customer demand and partially due to supply constraints.
Gross profit as a percentage of net revenue was 45, 1% for the third quarter of fiscal 2021 as compared with 44, 7% for the third quarter of fiscal 2020, and 42 two per cent for the second quarter of fiscal 2020 one.
The sequential improvement and can be attributed to improved product mix from the prior quarter.
That said, we continue to face headwinds and our gross margin as a result of component shortages and elevated logistics costs.
The other component shortages and logistics costs subside, we expect to see gross margins improve from 12 200 at the 400 basis points from the current levels.
Selling general and administrative expenses for the third quarter of fiscal 2021 remained consistent and $5 million.
Research and development expenses for the third quarter of fiscal 2021, with $2 5 million compared with $2 7 million for the third quarter of fiscal 'twenty, and 'twenty and $2 4 million for the second quarter of fiscal 2020 one.
Non-GAAP operating expenses as a percentage of net revenue decreased from 42% and the third quarter of fiscal 2020% to 38% and the third quarter of fiscal 2021, demonstrating our synergy capture and leverage and the operating module model.
GAAP net loss was $1 2 million or four cents per share during the third quarter of fiscal 2021 compared to a GAAP net loss of $5 2 million or 919 cents per share during the third quarter of fiscal 2020.
Non-GAAP net income was $1 5 million or <unk> <unk> per share during the third quarter of fiscal 2021 compared to non-GAAP net income of 611000, and our <unk> per share during the third quarter of fiscal 2020.
Now turning to the balance sheet.
We ended the March 'twenty, and 'twenty, one quarter with cash and cash equivalents of $8 3 million and increase of 656000 and from the prior quarter.
<unk> capital improved to $19 9 million as of March 31, 2021, as compared with $18 7 million as of June 30 of 2020.
Net inventories were $15 1 million as of March 31, 21, compared with $13 8 million as of June 30 of 2020.
Now turning to our outlook.
We are now targeting 2021 revenue growth of 15% to 25%.
And non-GAAP EPS growth of 100% to 175%.
As a reminder, this does not include any contribution from the acquisition that we announced this morning.
I'll now turn the call over to Paul Thank you Jeremy.
Im excited to report to you today on our third quarter results as the fundamentals of the <unk> continue to improve and our third quarter revenues resumed the growth trend with the strong customer demand bookings were up considerably with the book to Bill is solidly above one with consumption of inventory and the channel far outpacing our shipments into distribution and.
Once again, we ended the quarter the current quarter with the new record total backlog at levels that are as of today are more than four times, our historical norms as compared to our fiscal year 2020.
In addition, we experienced improved gross margins due to the favorable product mix not everything's perfect of course, the component shortages, we had been talking about for the last three quarters continued to gate, our ability to ship the customer demand and limited our revenue upside and the quarter as of the end of Q3 late the cusp.
And the request date shipments due to the component shortage pushed approximately $4 million of product into future quarters versus $2 million and the previous quarter. However, our product portfolio is heavily weighted towards products that have been designed in and for which there are no substitutes and while we could not ship that $4 million of product to our customers and the third quarter.
They are anxiously awaiting delivery of our products and the fourth quarter and beyond on the logistics front with the rollout of vaccines for the commercial air industries, beginning to recover as it does we expect our logistics cost improve.
And the component level supplier of capacity remains tight yes, we have procured much of the the crucial components needed to shift to our contractual obligations over the next couple of quarters and our discussions with suppliers lead us to believe we will see improvement towards the end of the calendar year.
As the logistics and supply constraints ease, we expect substantial upside to both revenues and margins as we match our delivery capability to the increased demand.
Let's delve into some more specifics on the quarter turning to our product categories. Our Iot products delivered $13 7 million and Q3 up 2% sequentially and roughly flat year over year, our Ethernet solutions grew sequentially and year over year.
Mitigated somewhat by Wifi, which had been strong through most of last calendar year, we saw a nice rebound and tracking and cellular or our telematics devices with things picking up and EMEA as well as impressive growth from our design services group, which grew revenue 72% year over year.
As we discussed and the prior quarter design services was maxed out and we have been increasing capacity to meet the demand coinciding with Qualcomm's recent next generation processor releases. These.
These services are important not only for the strong margins they provide but also because they ultimately turn into volume shipment opportunities for <unk> for.
For example, you may remember last quarter, we detailed contracts within all of the worlds largest manufacturer and distributor of electricity and gas as well as talk of Turkish electric vehicle manufacturer.
Additionally, in Q3, we extended our continuing engagement with Floc safety of high growth Technology company, using computer vision machine learning and objectives, evidenced to create and deliver automated and non biased leads for law enforcement.
And <unk> safety and will utilize plantronics recently announced flagship open Q <unk> hundred 65 system on module and the next generation design.
We continue to be the technology development partner on smart cities and safety projects, which aim to eliminate cry and protect privacy and mitigate human bias through the use of AI.
And the World debating law enforcement Reformed technologies, such as these are likely to have outsized growth potential.
As these projects move from design to production volume Plantronics will have the opportunity to capture sizable production revenues along with our design services team being completely built out.
Our opportunity funnel is robust and we look forward to converting these opportunities to revenue over the next year.
Turning to remote environment management, or RCM revenues totaled $3 3 million up almost 7% sequentially and up 36% from a year ago demand for out of band products drove this growth augmented by the continuing customer adoption of our SaaS solutions with that I would like to briefly recap.
Our announcement this morning regarding our signing of the definitive agreement to acquire electronics and software business segment of communication systems incorporated for those investors, who may not have yet seen it. This morning, we announced the acquisition and held the conference call before the market opened you can find the replay and the Investor Relations section of our website.
And excited about this opportunity because quite simply the number one and drive scale and efficiently efficiency. The pro forma combination of 11 annual revenue in excess of $100 million $100 million. It brings plantronics of highly complementary product offering a number of sticky federal and municipal customers and exposure and to several growing smart city.
The Iot applications and.
And due to the complementary nature of the products of substantial $7 million of synergies, which we expect to reap over the course of the next 18 months, which with much of that occurring on day one.
Our expectation is this acquisition will be immediately accretive to our model upon closing and adding significant non-GAAP EPS upside and its first full year onboard roughly doubling our current and non-GAAP EPS run rate.
This deal is subject to of the CSI shareholder approval, along with other customary conditions and we expect it should close in the June July timeframe.
As I'm sure you can tell it was a busy quarter for the <unk>. Despite the continuing difficulties of the supply chain disruption Plantronics has resumed its growth of course is improving profitability enters the fourth quarter with record backlog and is targeting a substantial pipeline of high volume opportunities.
With the addition of our just announced the acquisition. We are excited about our growing momentum and prospects and we look forward to reporting our progress the shareholders over the coming months.
With that I'll now turn it over to the operator for Q&A.
Thank you we will now begin the question and answer session to ask the question you May Press Star then one on the telephone keypad.
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To withdraw your question. Please press Star then two and.
At this time, we will pause momentarily to assemble our roster.
Yes.
And the first question will be from Scott Searle Roth capital. Please go ahead.
Hey, good afternoon, and thanks for taking my questions guys and good to talk to you again.
Absolutely.
And so maybe just a couple of quick cleanup questions and just wanted to make sure I heard the gross margin commentary correctly that with supply chain of normalizing.
Normalizing do you expect 200, the 400 basis point improvement off of what we just saw and the current quarter.
That's correct okay.
And then for clarification that would probably take some time to work.
Its way through and it's really subject to things coming back to normal right, which nobody has a clear picture of today, but probably over the next I would take two to three quarters. Yes. So if you begin to improve if you split that 200 to 400 basis points evenly between component increases and logistics cost we.
To get the logistics portion of it did more quickly as we get.
More of those commercial international, especially international flights going the component of will obviously come as we ease on the component shortages Gotcha and then Paul following up on that component shortage comment I think you said 4 million now cumulatively over the past three quarters. So it sounds like from your commentary that none of.
And of those previous slippage is have actually shipped is that correct. So you still have 4 million outstanding of orders that you know when product is available customers still want it and you can ship is that correct.
And that's not correct, so and the previous quarters, we've actually been able to take all of the outstanding and ship is almost completely and the very next month. So it's a we were about a month a delayed and you can kind of think of it in terms of the commitment times being pushed out a month.
So it ballooned, a little bit mostly because I think demand has taken a sharp uptick this past quarter, notably and even we're observing that trend continuing at this point of time and this quarter, we're seeing substantial backlog being put in place.
This will be the.
This is the first quarter, we're not going to be able to clear.
The entire $4 million.
This quarter. So some of it will bleed into next but.
I think you know.
If you kind of look at it.
We're seeing kind of unprecedented.
And levels, partly because of macroeconomic partly because we've been doing a lot of hard work getting those those opportunities and place, but you know our backlog is now five times, what we would call historical normal the normal levels and I'm referencing FY 'twenty, what we kind of saw on an average of those four quarters, it's more than <unk>.
Five times, what it has been and we're seeing an uptick and production of <unk>.
<unk> of the existing both the legacy business Classic business, but then also of new programs coming online so.
We're not seeing a lot of pull and associated with that the customer request states delivery dates.
And are staying pretty consistent so we don't see a lot of double the word ordering and this pattern.
But it just seeing a nice little uptick in demand and with the component lead times, we just can't keep up with this this ramp rate.
Paul just to clarify, though so 4 million is what you the the incremental demand that is there that you've not been able to satisfy and the most recent quarter.
And the most recent quarter. So if we referenced in the previous quarter, we were about $2 million of level, we were able to flush that $2 million ship it.
The very next month and so we've we've seen the late to CRD.
Accumulate this quarter alone and another $2 million for total of four.
We will not be able to the flush the entire $4 million and we don't anticipate we'll be able to flush the entire $4 million. This quarter got you, but just the normalized in terms of the demand for the March quarter was over $19 million versus reported $17 million.
That's correct, Okay, Gotcha, and and the comment that you made related to the acquisition. This morning.
Doubling EPS in terms of what Youre seeing I just want to go back and clarify that come and so is it doubling at what point in time from the time that the transaction is expected to close.
In the September quarter off of off of what base are we kind of think of it because there's quite a bit of accretion there when you start to pull out some of the synergies.
That sound like a big chunk of them start on day, one, but I just want to make sure and flesh out that comment a little bit more.
Yes.
And we would say the first full quarters just because.
We don't we don't know entirely when that's going to close but if we took our current estimates I'd say, we'd get that and our next fiscal year.
It's basically.
Taking a strong 'twenty target from land and Tronox and at least anticipating another 20.
And the.
The accretion from the target of synergies captured from the target and the first 12 months.
And so that's a it's a ballpark way to look at it but right now we think that Thats a pretty good conservative.
<unk>.
Very helpful and lastly, just on the component availability of front.
Obviously, it's continuing to process persist out there not just for you but for the industry in general.
Where are you seeing the shortages and it sounds like this continues the lessee and this year it seems like though that Oh.
All of the out of bed management solutions had been relatively well insulated does that continue as well and so that remains on and unrestricted growth curve.
Well and in those.
And those revenue areas, where we're not heavily dependent on large volumes of critical components.
And that's where we can actually support and uptick in demand and so you take R&D and for instance, we have quite of bit of whip. That's in play and certainly that's true for some of our older.
Mature products that had been pretty steady state. So we have the ability to to respond.
And to an uptick in demand, it's really where we have new production.
Volume, that's taking place customers that are going into production after and anticipated period, and having deeper ramps and what we anticipated and.
The good news is we have been talking about this.
For three quarters, and so we were able to put.
And some extended lead time orders in place all the way back to our last June quarter.
And so we'll be able to meet the demand that we anticipate over the next couple of quarters, but the new uptick and demand is going to take a little while the process.
Okay great.
Net.
And I'll just say, it's got a little flavor on that from the cost standpoint.
And those lower volume.
Products that we're able to source those materials and that's where we're seeing a little of the higher expenses because we're doing maybe of 1000 units of the box, we can relatively easily go out and source.
That component will pay a little bit more for it. So we're having some expedite costs related to paying a little bit more for some of those components to make sure. We can supply of the customer the spot buys and really do add up gotcha, and and lastly, if I could just on the recurring front I know, it's still early days, but in terms of building out that recurring SaaS model platform them.
Wondering any updates in terms of platform development and customer interest et cetera on that front. Thanks, so much and nice quarter.
Yes, thank you very much yet on the recurring front.
And we still call. It early early innings, we're going to exceed our forecast for this fiscal year that we had towards its a small number but it is an important milestone milestone for us so.
I've been talking about a $750000 between and software licensing and recurring.
We're going to really do more we expected to close Q4 with the being at an annualized clip of about 850 K.
And for US it was a great validation year.
Really I think we've seen a number of sign ups of late just because of some of the new features that we have rolling out over the next four months zero touch provisioning is one of those significant features. So this is just really out of the box experience ease of use of convenience factor for customers and they're eagerly eager.
Really anticipating the so it's.
It's really going well I think next year.
We certainly anticipate to be able to put a lot more color on that and hopefully reports from some better indicators there.
Okay.
Once again, if you have a question. Please press Star then one.
The next question will be from Ron <unk> with Needham and company. Please go ahead.
Great. Thanks for the question I wanted to ask part of any shifts and the competitive landscape are you seeing.
And any of the bigger players of the Cisco's of the ericsson's now with the.
The recent acquisition.
The active in your space at all or are they kind of leave and some of the kind of smaller opportunities may be more available to you. Thank you.
Yes, I appreciate it and so we often play and more boutique and niche applications and.
We don't bump heads with those guys.
Lot of especially on the console management and its either and internal solution on a Cisco router.
But the best practice the department of Homeland.
Security.
I guess certified or suggested would be to have and out of band of remote management solution like and external box like ours.
And so we find we find that our longtime along the lines of somebody building out of data center using Cisco products, we get pulled along with the infrastructure build outs of good for us.
Not necessarily competitive landscape for us, but something thats very.
The complementary and something that we definitely look for.
But you.
I will say of late I think that there are.
They are focusing their time and attention and a couple of key areas and I think that gives us some.
Some adjacent product opportunities, especially as we round out the product portfolio with products.
That would be a bit more competitive with the meraki or amongst the like like come with the spiking up.
The abuse and the project name at the transmission networks product line.
Okay. That's helpful and as far as you look at kind of over the next 12 to 18 months, what sort of macro catalysts do you see that are that are most important here. Obviously smart cities is one is.
Is the <unk> build to have much of the impact on your your kind of opportunities out there.
Yes without a doubt.
What we're seeing is.
Smart cities <unk> take those do kind of go hand in hand so.
<unk> just and it.
It brings connection densities two orders of magnitude higher than what our possible today, especially in densely populated urban areas.
And that's where we see a lot of the smart city and infrastructure being built out so we've seen a lot of activity.
On the deadline services side with the object classification is of particular area that that we like and are interested in our teams very familiar with the yellow type of object classification, you only once but allows you to to identify and object classify that in and of real time video district.
The distributions stream.
Categorized that metadata and make it available for advanced analytics. So those go hand in hand with connectivity.
And then <unk>, obviously is the connectivity play so very complementary and we really like the space.
Great appreciate that thanks for the questions.
Thank you Brian.
Ladies and gentlemen, this concludes our question and answer session and I would like to turn the conference back over to Paul Pickle for any closing remarks.
Thank you and once again, thank you for joining us and have a great rest of your day.
Thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Yeah.
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