Lantronix, Inc. (LTRX) on Q3 2021 Results - Earnings Call Transcript

Operator: Good afternoon and welcome to the Lantronix 2021 Third Quarter Results Conference Call. All participants will be in a listen-only mode After today's presentation there will be opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Rob Adams, Head of Corporate Development and Investor Relations. Please go ahead. Rob Adams: Thank you. Good afternoon. Thanks everyone for joining the Lantronix third quarter fiscal 2021 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. Jeremy Whitaker: 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 our 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 in net revenue, an increase of 4% when compared to 16.5 million for the third quarter of fiscal 2020. Sequentially, net revenue was up 3% compared to the 16.6 million reported in the second quarter of fiscal 2021. For the nine months ended March 31, 2021, revenues were up to 20% when compared to the nine months ended March 31, 2020. Once again, we exited the third quarter of fiscal 2021 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 42.2% for the second quarter of fiscal 2021. The sequential improvement can be attributed to improve product mix from the prior quarter. That said we continue to face headwinds in our gross margin as a result of components shortages and elevated logistics costs. As a component shortages and logistics costs subside. We expect to see gross margins improve from 200 to 400 basis points from the current levels. Paul Pickle: Thank you, Jeremy. I'm excited to report to you today on our third quarter results as the fundamentals of Lantronix continue to improve. In our third quarter, revenues resumed a growth trend with a strong customer demand. Bookings were up considerably with the book to build solidly above one, with consumption of inventory in the channel far outpacing our shipments into distribution. And once again, we ended the quarter - the current quarter with a new record total backlog levels that 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 a favorable product mix, not everything's perfect of course. The component shortages we've been talking about for the last three quarters continued to gate our ability to ship to customer demand, and limited our revenue upside in the quarter. As of the end of Q3, late to customer requested shipments due to the component shortage pushed approximately $4 million of product into future quarters versus $2 million in the previous quarter. Operator: Thank you. We will now begin the question-and-answer session. And the first question will be from Scott Searle with ROTH Capital. Please go ahead. Scott Searle: Hey, good afternoon. Thanks for taking my questions, guys. Good to talk to you again. Paul Pickle: Absolutely. Scott Searle: 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 normalizing you expect 200 to 400 basis point improvement off of what we just saw in the current quarter. Jeremy Whitaker: That's correct. Okay. And then for clarification, that would probably take some time to work its way through. I mean, 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 say two to three quarters begin to improve. Paul Pickle: Yes. So if you need to improve, if you split that 200 to 400 basis points evenly between component increases and logistics costs. We expect to get the logistics portion bit more quickly as we get more of those commercial, international, especially international flights going. The components will obviously come as we ease on the component shortages. Scott Searle: Got you and then Paul, following up with 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 those previous slippages have actually shipped, is that correct? So you still have 4 million outstanding of orders that when product is available, customers still want it and you can ship, is that correct? Paul Pickle: So that's not correct. So in the previous quarters, we've actually been able to take all of the outstanding and ship it almost completely in the very next month. So it's - we were about a month delayed. You can kind of think of it in terms of 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 in 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 that entire $4 million this quarter, so some of it will bleed into next. But I think if you kind of look at it, we're seeing kind of unprecedented demand levels, partly because of macroeconomic partly because we've been doing a lot of hard work getting those opportunities in place. Scott Searle: Got you, Paul, just to clarify those, so 4 million is what you - the incremental demand that is there that you have not been able to satisfy in the most recent quarter? Paul Pickle: In the most recent quarter, so if we referenced the previous quarter, we were about $2 million level, we were able to flush that $2 million, ship it the very next month. And so we've seen the late to CRD accumulate this quarter, balloons another $2 million for total for. We will not be able to flush the entire $4 million or we don't anticipate we'll be able to flush the entire $4 million this quarter. Scott Searle: Got you, but just to normalize in terms of the demand for the March quarter was over 19 million versus reported 17 million. Paul Pickle: That's correct. Scott Searle: Okay, got you and the comment that you made related to the acquisition this morning, doubling EPS in terms of what you're seeing, I just want to go back and clarify that comment. So is it doubling at what point in time? From the time that the transaction is expected to close in the September quarter? Also what base we kind of think about 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. Paul Pickle: Yeah, it's - so we would say first full quarters, just because 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 in our next fiscal year. It's basically taking a strong $0.20 target from Lantronix. And at least anticipating another $0.20 in accretion from the target or synergies captured from the target in the first 12 months. And so that's a - it's a ballpark way to look at it. But right now, we think that that's a pretty good conservative outlook. Scott Searle: Okay, very helpful. And lastly, just on the component availability front, obviously it's continuing to persist out there, not just for you, but for the industry in general. Where are you seeing the shortages? It sounds like this continues last year and this year. It seems like though that REM or out-of-band management solutions have been relatively well insulated, does that continue as well. And so that remains on an unrestricted growth curve? Paul Pickle: Well, in those in those revenue areas where we're not heavily dependent on large volumes of critical components, that's where we can actually support an uptick in demand. So you take REM for instance, we have quite a bit of whip that's in play. Certainly, that's true for some of our older, mature products that have been pretty steady state. So we have the ability to respond 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 an anticipated period, and having deeper ramps than what we anticipated. The good news is we have been talking about this for three quarters, and so we were able to put 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 in demand is going to take a little while to process. Jeremy Whitaker: I was going to say, it's got a little flavor on that from the cost standpoint, on those lower volume products that were able to source those materials. That's where we're seeing a little higher expense, because we're doing maybe 1000 units of a box, we can relatively easily go out and source that component. We'll pay a little bit more for it. So you we're having some expedite costs related to paying a little bit more for some of those components to make sure we can supply the customer. Paul Pickle: Yeah, the spot buys really do add up. Scott Searle: Got you 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, I'm just wondering, any updates in terms of platform development, customer interest, et cetera, on that front? Thanks so much. Nice quarter. Paul Pickle: Yeah, thank you very much. Yeah, on the recruiting front, we still call it early innings. We're going to exceed our forecast for this fiscal year that we had for it's a small number. But it's an important milestone for us. So I've been talking about a $750,000 between software licensing and recurring. We're going to really do more - we expected to close Q4 with being at an annualized flip of about 850k. And for us, it was great validation here. Really, I think we've seen some - a number of signups off 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 a really out of the box experience. Ease of use, convenience factor for customers and they're eagerly anticipating those, so it's really going well. I think next year, we certainly anticipate to be able to put a lot more color on it and hopefully report some better indicators there. Operator: The next question will be from Ryan Koontz with Needham & Company. Please go ahead. Ryan Koontz: Great, thanks for question. One, as many shifts in the competitive landscape are you seeing the bigger players, the Cisco's, the Erickson's now, with their recent acquisition, active in your space at all or are they kind of leave in some of the kind of smaller opportunities maybe more available to you. Thank you. Paul Pickle: Yeah, appreciate it. So we often play a more boutique in niche applications and we don't bump heads with those guys a lot, especially on console management, it's either an internal solution on a Cisco router, but best practice, Department of Homeland Security, I guess certified or suggested would be to have an out-of-band or remote management solution, like an external box like ours. And so we find that a long time, along those lines of somebody building a data center, using Cisco products, we get pulled along with those. So infrastructure build outs are good for us. It's not necessarily competitive landscape for us. It's something that's very complimentary, and something that we definitely look for. But I will say off late, I think that they're focusing their time and attention in a couple of key areas. And I think that gives us some adjacent product opportunities, especially as we round out the product portfolio with products that would be a bit more competitive with a Meraki or a Masa like, come with the biking up the museum, the project name, cut the transition networks, product line. Ryan Koontz: Okay, that's helpful. And as far - as you look at kind over the next 12, 18 months, what sort of macro catalysts do you see that are most important here? Obviously smart cities is one, is the 5G build have much of an impact on your kind of opportunities out there? Paul Pickle: Yeah, with without a doubt, what we're seeing is smart cities, 5G those do kind of go hand-in-hand. So 5G just brings connection densities to orders of magnitude higher than what are possible today, especially in densely populated urban areas. And that's where we see a lot of the smart city infrastructure being built out. So we've seen a lot of activity on the deadline services side with object classification is a particular area that we like and are interested in. Our team is very familiar with yellow type object classification, you only work once, but allows you to identify an object, classify that in a real time video distributions, stream, categorize that metadata and make it available for advanced analytics. So those go hand-in-hand with connectivity. And then 5G obviously, is the connectivity place, so very complimentary, and we really liked the space. Ryan Koontz: Great, appreciate that. Thanks for the questions. Paul Pickle: Thank you, Ryan. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Paul Pickle for any closing remarks. Paul Pickle: Thank you. And once again, thank you for joining us and have a great rest of your day. Operator: Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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Lantronix Inc. Receives Buy Rating Upgrade from Lake Street

Lantronix Inc. (LTRX:NASDAQ) Receives Upgrade from Lake Street

On April 30, 2024, Lake Street upgraded its rating for Lantronix Inc. (LTRX:NASDAQ) to Buy, while adjusting its price target to $7 from the previous $8, as reported by TheFly. This decision came in the wake of Lantronix's impressive third-quarter financial performance for the fiscal year 2024, which was discussed in detail during their earnings conference call on April 29, 2024. The call, covered by Seeking Alpha, featured key company figures including CFO Jeremy Whitaker and CEO Saleel Awsare, alongside analysts from notable firms such as Lake Street and Canaccord Genuity. The discussion focused on the company's financial achievements, including a notable earnings surprise and revenue growth.

Lantronix reported quarterly earnings of $0.11 per share, surpassing the Zacks Consensus Estimate of $0.09 per share and marking a significant improvement from the previous year's earnings of $0.06 per share. This 22.22% earnings surprise is part of a consistent trend, with the company beating consensus EPS estimates in three of the last four quarters. Additionally, Lantronix posted revenues of $41.18 million for the quarter, exceeding expectations by 0.94% and representing a substantial increase from the year-ago revenues of $32.96 million. This performance indicates a strong financial health and operational efficiency within the competitive Zacks Computer - Networking industry.

The company's financial success is further highlighted by its record net revenue of $41.2 million for the third quarter, an 11 percent sequential increase and a 25 percent growth year-over-year. This achievement underscores Lantronix's solid market position and the growing demand for its IoT solutions. On a GAAP basis, the EPS improved to ($0.01) from ($0.08) in the previous year, showing a reduction in losses, while the non-GAAP EPS rose to $0.11 from $0.06, reflecting solid profitability.

Looking forward, Lantronix provided an optimistic business outlook for the fourth fiscal quarter of 2024, expecting revenue to be in the range of $46.5 million to $51.5 million, with non-GAAP EPS projected to be between $0.12 and $0.18 per share. This guidance suggests continued growth momentum and confidence in the company's strategic direction. Lantronix's management plans to host an investor conference call and audio webcast to discuss these results and offer more insights into the company's performance and future plans, providing stakeholders an opportunity to engage directly with the company's leadership.

The positive adjustment in Lantronix's stock rating by Lake Street, coupled with the company's strong financial performance and optimistic future outlook, reflects a growing confidence in Lantronix's market position and its potential for continued success in the IoT solutions sector. With a record revenue and improved earnings for the third quarter of fiscal 2024, Lantronix appears well-positioned for sustained growth and operational efficiency, making it an attractive option for investors.