Q3 2022 Lantronix Inc Earnings Call
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Good afternoon, and welcome to the Lamb <unk> third quarter 2022 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Rob Adams head of Investor Relations. Please go ahead.
Thank you and good afternoon, everyone and thanks for joining the third quarter of fiscal 2022 conference call.
Joining us on the call today are Michael <unk>, President and Chief Executive Officer, and Jeremy Whitaker, Chief Financial Officer, a live and archived webcast of today's call will be available on the company's website. In addition, you can find a column details for the phone replay in todays earnings release.
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. 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 the 10-K and 10-Q.
Tronox undertakes no obligation to revise or update publicly any forward looking statements to reflect future events or circumstances. Please refer to the news release and the financial information in the Investor Relations section of our website for additional details that will supplement managements commentary.
Furthermore, during the 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 measure measures that we use with that I'll turn the call over to Jeremy Whitaker <unk>.
Chief Financial Officer Jeremy.
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 other business highlights for our third quarter of fiscal 2022 beforehand. It over to Paul for his commentary.
For the third quarter of fiscal 2022, we reported revenue of $32 3 million, an increase of 89% when compared to $17 1 million for the third quarter of fiscal 2021, and down 4% sequentially as compared to $33 7 million reported in the second quarter of FIS.
<unk> 2022.
The year on year increase was driven by organic growth of 32%. In addition to contribution from our recent acquisition of the 10 companies.
GAAP gross margin was 42, 1% for the third quarter of fiscal 2022, as compared with 42, 9% in the prior quarter.
The sequential decline in gross margin was primarily due to increased supply chain costs. In addition to product mix, while logistics and supply chain costs were higher than our initial expectations due to significant disruptions in the Asia Pacific region experienced during the quarter.
<unk> navigated these issues delivered revenue above our initial expectations and largely met customer needs.
Selling general and administrative expenses for the third quarter of fiscal 2022 were $8 3 million compared with $5 million for the third quarter of fiscal 2021, and $8 9 million for the second quarter of fiscal 2022.
Research and development expenses for the third quarter of fiscal 2022 were $4 5 million compared with $2 5 million in the third quarter of fiscal 2021, and $4 3 million for the second quarter of fiscal 2022.
The year on year increases in SG&A, and R&D were largely largely driven by the acquisition of the 10 companies at the beginning of this fiscal year.
GAAP net loss was $3 2 million or nine cents per share during the third quarter of fiscal 2022 compared to a GAAP net loss of $1 2 million or four cents per share during the third quarter of fiscal 2021.
The increase in GAAP net loss was primarily due to earn out consideration and noncash charges related to our most recent acquisition.
non-GAAP net income was $2 8 million or eight cents per share during the third quarter of fiscal 2022 compared to non-GAAP net income of $1 5 million or five cents per share during the third quarter of fiscal 2021.
After adjusting for our recent capital raise which in cat, which impacted non-GAAP EPS by approximately <unk> <unk> per share. This quarter. We are meeting our post acquisition quarterly target of 10 cents per share.
Now turning to the balance sheet.
We ended the March 2022 quarter with cash and cash equivalents of $22 8 million a decrease of $13 6 million from the prior quarter working capital decreased to $51 8 million as of March 31, 2022, as compared with $64 2 million in the prior quarter.
The decrease in work cash and working capital was primarily due to the use of cash to pay down the high interest loan in January 2022.
Net inventories were $33 2 million as of March 31, 2022, compared with $29 4 million as of December 31, 2021.
Now turning to our annual outlook, which includes approximately 11 months of contribution from our most recent acquisition.
Once again, we exited the quarter with record backlog and strong customer demand based upon our current outlook, we expect to see a much stronger fourth quarter and as a result, we are narrowing the range and increasing our annual revenue guidance.
For the full fiscal year 2022, we're now targeting annual revenue of $125 million to $129 million Rep.
Representing growth in the range of 75% to 80%.
In addition, we are adjusting our annual earnings target, which includes the full share impact of our recent capital raise and expect non-GAAP EPS in a range of 31 to 37 per share representing growth of 64% to 95%.
We continue to believe that without supply chain constraints, we couldn't deliver annual revenue and non-GAAP EPS above the high end of our updated guidance.
I'll now turn the call over to Paul.
Thank you Jeremy.
I'm pleased to report another solid quarter to our shareholders year to date, while our view of component commitment early in the March quarter, coupled with expectations for typical government customer seasonality pointed to a soft in Q3, thanks to the hard work of our operations team here at Plantronics with managed to deliver over $32 million in revenue down only 4%.
Essentially we booked well above that rate.
Barring supply chain constraints demand in the March quarter would've been sequential growth.
That point shipments late to customer expectations in Q3 totaled just over $7 million up from $5 $7 million as compared to the second quarter Q3 was a uniquely challenging in this regard with the large regional disruptions in the Asia Pacific region.
And even where direct factory dependencies do not exist, we still experienced challenges in both secured components import export logistics routes.
These disruptions created both significant operational challenges and cost, but I am pleased to say that we were able to largely mitigate the disruption and deliver we view these costs as transitory and a more normalized environment.
I'm, especially pleased to report March results, because they were driven by strong organic growth on the order of 32% year over year.
This is happening for a number of reasons first of all we are now three years into the transformation of electronics in many of the basic blocking and tackling functions, we set forth to improve upon three years ago are beginning to show results, we're going to market better we are more in tune with our customer and our customers' needs and we are doing a better job in closing those sales.
Secondly, in transforming electronics through acquisition, we have acquired pieces of the puzzle necessary to deliver our customers the technologies they need in order to better capitalize on the promise of Iot and accelerate our growth as we look toward our future.
And finally, we are fortunate in that the age of Iot is being realized whether spurred or accelerated by COVID-19 and the resulting remote work environment. Many of us have come to know and enjoy or necessitated by supply chain disruptions, which enforced companies to rest every bit of efficiency possible out of their operations.
Haps, even the rollout of five G networks. Our design activity is such that we see continued growth opportunity on the horizon for electronics with that lets look at our quarter with a little more granularity.
While we expected the march quarter to be down sequentially. Some product lines did grow in Q3, including our industrial switching products, which grew almost 10% sequentially in what is normally a more seasonal quarter we.
We also saw good growth in the quarter from network interface products and optical communication interfaces compute modules. After posting strong results in Q2 were down as expected in March due to component availability, but importantly professional services were up almost 30% from the prior quarter and development kit sales almost doubled from the prior quarter. These two items.
Leading indicators for our intelligent edge compute business and point to strong future revenue growth. Conversely, our remote environment management solutions were down sequentially. After several strong sequential quarters growth.
And as has been the case historically some quarter to quarter volatility in this product line is expected all in we expect a return to growth and anticipate delivering a strong double digit growth year.
Looking at our intelligent edge compute module business, we expect a return to growth in our fourth quarter and we look for edge compute to be an important growth driver of plantronics as we look to FY 'twenty three and beyond we continue to gain traction in this technology area, adding to the design ins we've spoken to in the past and looking to fiscal 2023, we continue to.
We will begin shipping the enel quantum edge device as we have stated in the past. This large design win which we have conservatively estimated contribution of $10 million to $20 million in revenue for fiscal 'twenty three alone. It takes us a long way towards achieving our 20% plus annual organic growth target in.
In addition, we have received an award for an additional 20000 units for this platform more than doubling the previous award.
We continue to believe an additional upside potential for intelligent edge applications Atlanta Onyx in the years to come while the near term has its challenges in the form of supply chain disruptions and related component pricing variations. We continue to view. These as transitory we will navigate these issues as we deliver on the promise of Iot for the benefit of the shareholders.
Yeah.
I'll now turn it over to the operator for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
The first question comes from Mike Walkley of Canaccord Genuity. Please go ahead.
Great Congratulations on the strong quarter and thanks for taking my question.
Thank you Mike Paul just.
Just starting starting with with and now with the 20000 additional units ordered how does that impact that 10 to 20 million outlook does that put the heightened in the range are those 20000 units more.
Follow on into future years.
Yeah, that's that's a great question.
I'd say at this point.
We would say, it's probably at the higher end of that range.
The details are really kind of associated with customers rollout. There is one additional vendor dependency that we have one of our network vendors has to deliver some boards, they're experiencing some difficulty and so this production is expected to go forward.
In stages. So at this point are we understand what it is the customer would like their their schedules a lot more aggressive in what we believe that they can execute on and so we're still being a little bit cautious in terms of the rollout how we see that revenue rolling out over the next fiscal 'twenty.
'twenty three.
But it could be towards the high end of that range.
Great that's great to hear.
Follow up question.
Just can you update us on your strong relationship with Qualcomm and you made some comments about good demand for intelligent edge going forward can you just update us on that pipeline and your ability to procure supply to support the opportunity funnel.
Sure so the relationships going really well with Qualcomm we had.
Several meetings with different geographies within Qualcomm to talk about expanding the relationship in chasing more opportunity and I think they've seen in us a unique ability to make customer applications come alive with the software that we developed that runs on their platform. In addition to the hardware that we put together for.
For our customers. So it's going really well I think this is the area that we really want to build continue to build a core expertise competing platforms and the architectures that Qualcomm is pushing will define what edge hardware it looks like in the future and we definitely want to be a.
Part of that process.
On a on a go forward basis, so it's going really well at this point.
Great. Thanks last question for me and I'll jump back in the queue. Just you mentioned 7 million that you werent able to ship up but it sounds like you did a good job.
We're going through a tough supply chain issues that are well known out there can you just give us a little more color on what are the areas that are still stretched or problematic from a lead time standpoint, and how you see it may be improving over here at June quarter end.
Half of the calendar year.
Yeah.
So this quarter, we had some significant upside.
Upside to component availability and the December quarter March we didn't have the commitments at the time of the earnings call, but we were able to get some additional supply from Qualcomm they were very supportive on that front.
Which did give us some additional revenue having said that some of the additional upside we should have been able to ship, we werent able to ship because you know, while we don't necessarily have.
A manufacturer that was necessarily.
Isolated in churn than it is a major import export hub.
We actually saw a cargo carrier set up a new route but the 747 going from Shenzhen Hong Kong, If you know anything about geography, that's a ludicrous.
Opposition, but this past quarter, we just had extreme difficulty moving items. So a lot of high touch that made components a bit harder to get a hold of specifically to your question, where we see difficulty I think.
We see a little bit of easing on the digital side.
Processors, Qualcomm has always been supportive, but this quarter, we didn't have as many as we would like.
Memory is coming in line, both Slash C D R.
Signal is still a bit tough some of the Ethernet switches still a bit tough but.
You know as it kind of relates to light at the end of the tunnel.
Starting to even see some RTC ads that are in very very short supply, we're starting to get committed scheduling for manufacturers in the January timeframe. So it does feel like we're turning.
Turning that corner, However, Q3 was a bit unique in terms of its challenges.
Okay, well congrats again on the strong results and I'll jump back in the queue.
Thank you.
Our next question comes from Christian Schwab of Craig Hallum Capital Group. Please go ahead.
Great.
Great execution in this environment a couple of quick questions I'm, sorry, I jumped on a little bit late did we say we now have a 20000 unit order in hand from Aneel did I hear that correctly.
It's an additional award so the previous award was 15000 units 1000 prototypes 15000 preliminary or I should say preliminary production runs a thousand.
And it's a pilot build and so that 15000 has now been taken to 35000. So we got an additional 20000 unit award for production in the quarters to come.
Okay and is that roughly at the end of the same dollar content that you guys have talked about before I think roughly at about $1500 plus or minus.
Yeah, I think that's what we're anticipating the pilot run is a is a bit higher at $1900.
Content.
And but we would we would expect as we entered more volume production and to be able to kind of reduce some of that where we're spot buying for some of the early build and we're trying to stage is as many orders as we can for the production run and we would anticipate.
To start that preliminary production run.
To start to recognize revenue in the December quarter, and then the ramp up.
To target volumes after that.
Great.
We're all hoping for lead times on on components and logistics to eventually normalize but did you guys. Just did you guys disclose exactly what your backlog was at the end of the quarter.
We did not I can say that we.
We did have record starting backlog for Q4.
We had a.
Our record in terms of quarter ending total backlog.
We had we stated we had a significant or a book to bill or bookings number that was considerably higher than our current.
The quarter's revenue so.
But if you wanted a total backlog. It's you know at this point in time, it's on the order of where we were last quarter, but the latest CRD number did tick up a little bit we should have had.
Last quarter, we had a late to customer request date of $5 7 million.
When just above $7 million. This time around so we should have had about another $1 $4 million $1.3 million of revenue in the quarter that we werent able to get out the door. So that late to CRD did move up a little bit.
Great.
And then my last question as it relates to future growth you know you've talked about before.
It being very confident and you know at 20% CAGR outlook, you know, which.
Would you you would hope would be conservative kind of dependent upon the rollout of some of these big awards now give it.
Potentially there's more clarity on those awards you know Oh I.
I understand you know supply chain logistics, thank everybody listening does but that being said you know is that still the baseline number that you feel very confident in or.
Could that be starting to improve a little bit too conservative.
Oh, Yeah. That's that's a tough question Christian if I, if I do the roll up today, I'm I'm too conservative, but if I factor in.
A little bit of a moderation in terms of.
Some of the older products and I think that's prudent I think I'm, probably on the conservative side, but you know where we are talking about.
15 months.
Outlook at this point and so we'll give updated fiscal year guidance at the next quarter, but we do feel pretty good about that 20% number at this point in time.
You know as my old boss used to say you have to shoot above the who in order to get the ball in the basket and so we're definitely shooting above that but we're still putting together an outlook that we think is prudent.
Great.
Congratulations again on a solid quarter. Thanks.
Thank you.
As a reminder, if you have a question. Please hit Star one. The next question comes from Chad Tee ball of Needham. Please go ahead.
Hey, it's Chad on for Ryan Koontz.
Just on margins in the quarter I think last quarter. They were down sequentially, primarily due to a strong intelligent edge quarter, it sounds like supply chain there.
Been a bigger impact this quarter or is there any way to sort of quantify that impact.
Yeah, I think if you if we look at our we gave a PPV number for last fiscal year. So you know on the order of two point I think the number I gave previously was about $2 $1 million $71 million in revenue.
The reality is it was probably more on the order of two four I think if you think in terms of what we're shipping a lot more revenue, but in terms of percentage of revenue, it's uptick slightly it would be easily the impact this quarter that we had was.
I guess, just above 200 basis points.
If you look if you look at the total cost is substantially higher than I think you know on a positive we're managing the opex in order to to compensate for that and we've been doing slightly better than we had originally projected on the integration of the two companies and you could go back to our August 2nd close.
And the performance that we said we'd get out into two P&L. So we're still delivering that bid a number ahead of expectation and we still have around the July timeframe to do a couple of additional.
Additional integration maneuvers the last pieces of it to get some additional cost out. So I think we're you know we're running a bit ahead of our leverage in the P&L, where we expect it to be so that's a positive we're managing the opex to compensate for some of the pricing pressure that we're experiencing from having to go out to the spot market.
But if you if you said it was a couple of hundred basis points, you wouldn't be you wouldn't be that far off.
Awesome, that's very helpful. Thanks, guys.
This concludes our question and answer session I would like to turn the conference back over to Paul Pickle for closing remarks.
Thank you Danielle and thank you for joining us today and have a great week.
The conference.
Is now concluded. Thank you for attending today's presentation you may now disconnect.