Lantronix, Inc.

Good afternoon, and welcome to the Landtronix Q2 2020 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. Please note, today's event is being recorded. I would now like to turn the conference over to Amber Tinz. Please go ahead, ma'am.

Good afternoon, everyone, and thank you for joining the Lantronix second quarter fiscal 2020 conference call. Joining us on the call today are Paul Pickle, Lantronix president and chief executive officer, Jeremy Whitaker, Lantronix chief financial officer, and Jonathan Shipman, vice president of strategy and marketing. A live and archived webcast of today's call will be available on the company's website. In addition, a phone replay will be available starting at 8 p.m. Eastern, 5 p.m. Pacific today through March 12th by dialing 877-344-7529 in the U.S. or for international callers, 412-317-0088 and entering passcode 101. 39087. 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. 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 its 10-K and 10-Qs. Plantronics undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. 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 measures that we use. With that, I'll now turn the call over to Jeremy Whitaker, Landtronic's Chief Financial Officer.

Thank you, Amber, 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 second quarter of fiscal 2020 before I hand it over to Paul for his commentary. Please refer to today's news release and the financial information in the investor relations section of our website for additional details that will supplement my commentary. For the second quarter of fiscal 2020, net revenue was at the upper end of our guidance range as we reported $13.2 million in net revenue compared to $12.1 million for the second quarter of fiscal 2019 and $12.7 million for the first quarter of fiscal 2020. Gross profit as a percentage of net revenue was 51.2% for the second quarter of fiscal 2020 as compared with 55% for the second quarter of fiscal 2019 and 48.6% for the first quarter of fiscal 2020. The year-over-year decline in gross margin was primarily due to product mix as a result of our July 2019 acquisition of Maestro. Selling general and administrative expenses for the second quarter of fiscal 2020 were $4.9 million compared with $4.2 million for the second quarter of fiscal 2019 and $4.5 million for the first quarter of fiscal 2020. The year-on-year increase in SG&A was primarily due to additional headcount related to the recent acquisition and an increase in share-based comp. Research and development expenses for the second quarter of fiscal 2020 were $2.3 million, compared with $2.3 million for the second quarter of fiscal 2019, and down from $2.6 million in the first quarter of fiscal 2020. Gap net loss was $1.4 million, or six cents per share, during the second quarter of fiscal 2020 compared to GAAP net income of $277,000 or one cent per share during the second quarter of fiscal 2019 and a GAAP net loss of $2.5 million or 11 cents per share during the first quarter of fiscal 2020. Included in the GAAP net loss were $858,000 of acquisition and severance related costs. Non-GAAP Net Income was below the midpoint of our guidance range and up sequentially as we reported $0.03 per share or $666,000 for the second quarter of fiscal 2020. This compares to Non-GAAP Net Income of $790,000 or $0.03 per share for the second quarter of fiscal 2019 and Non-GAAP Net Income of $7,000 or $0.00 per share for the first quarter of fiscal 2020. Cash-in-cash equivalents and restricted cash were $15.3 million as of December 31, 2019, as compared to $18.3 million as of June 30, 2019. In January 2020, we used approximately $11 million of this cash balance to fund the acquisition of Intrinsic. Working capital was $23.3 million as of December 31, 2019, as compared with $26.7 million as of June 30, 2019. Net inventories were $11 million as of December 31, 2019, compared with $10.5 million as of June 30, 2019. Now turning to our recent acquisition of Intrinsic, which closed on January 16, 2020. Let me give some perspective of the potential contribution that Intrinsic brings. For the 12 months ended December 31, 2019, Revenue was approximately $25 million, which brings additional scale to the combined entity. From an earnings standpoint, we expect the transaction to be accretive to non-GAAP EPS in our fourth fiscal quarter, which will be the first full quarter of combined operations. Longer term, we are targeting $2 million in annual cost synergies as we integrate supply chains, eliminate redundant public company costs, and realize other operating efficiencies. Intrinsic finished the calendar year strong with a little over $7 million in sales for the quarter ended December 31, 2019. This business typically has a stronger second half seasonality, and as we look ahead, we expect a typical slower seasonal first half. In addition, it should be noted that the first 15 days of January will not be included in our financial results for the March 2020 quarter. Now, I will provide guidance on revenue and earnings for the third quarter of fiscal 2020. We expect net revenue of $18 million, plus or minus 10%, and non-GAAP net income per share of $0.02 to $0.06. I'll now turn the call over to Paul. Thank you, Jeremy.