Lantronix, Inc.

Good afternoon and welcome to the Lantronics, Inc. 2020 Q3 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. 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 Amber Pinz. Please go ahead.

Good afternoon, everyone, and thank you for joining the Lantronix Third 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, Lantronix Vice President of Strategy. 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 May 21st by dialing 877-344-7529 in the U.S. or for international callers, 412-317-0088 and entering passcode 10143448. 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 business highlights for our third 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 third quarter of fiscal 2020, net revenue was at the upper end of our revised guidance range of $15 to $17 million, which we provided on our investor update call held on March 11, 2020. We reported $16.5 million in net revenue, an increase of 34% when compared to $12.3 million for the third quarter of fiscal 2019. Sequentially, revenue was up 25% compared to the $13.2 million reported in the second quarter of fiscal 2020. The year-on-year growth was primarily driven by contribution from our acquisitions, although our growth was significantly tempered by disruptions caused by the COVID-19 pandemic. Gross profit as a percentage of net revenue was 44.7% for the third quarter of fiscal 2020. as compared with 57.4% for the third quarter of fiscal 2019 and 51.2% for the second quarter of fiscal 2020. The declining gross profit percentage was primarily due to a change in product mix as a result of our recent acquisitions. In addition, our margins were negatively impacted by freight and tariff costs related to supply chain mitigation efforts we took in light of the pandemic. Selling general administrative expenses for the third quarter of fiscal 2020 were $5.6 million compared with $3.9 million for the third quarter of fiscal 2019 and $4.9 million for the second quarter of fiscal 2020. The year-on-year increase in SG&A was primarily due to additional headcount costs related to the recent acquisitions and an increase in share-based compensation. Research and development expenses for the third quarter of fiscal 2020 for $2.7 million compared with $2.4 million for the third quarter of fiscal 2019 and $2.3 million in the second quarter of fiscal 2020. Non-GAAP operating expenses as a percent of net revenue decreased sequentially from 47% in the second quarter of fiscal 2020 to 42% in the third quarter of fiscal 2020 as we continue to capture synergies and take advantage of the operating leverage from our recent acquisitions. Looking forward, we expect non-GAAP operating expenses to continue to decline as a percent of net revenue as we relight synergies from the recent acquisitions. GAAP net loss was $5.2 million, or 19 cents per share, during the third quarter of fiscal 2020. Included in the GAAP net loss were $4.3 million of acquisition and severance-related costs. During the third quarter of fiscal 2019, we reported GAAP net income of $857,000, or $0.04 per share. There were no acquisition or severance related costs in the comparative period. I'm pleased to report that despite the significant supply chain and business interruption that we faced last quarter, our team still delivered non-GAAP earnings per share within the two to six cent guidance range that we originally provided on our February 12, 2020 earnings call. Non-GAAP net income was two cents per share or $611,000 for the third quarter of fiscal 2020. This compares to non-GAAP net income of $1.3 million or five cents per share for the third quarter of fiscal 2019 and non-GAAP net income of $666,000 or three cents per share for the second quarter of fiscal 2020. Cash and cash equivalents were $7 million as of March 31st, 2020, compared to $15.3 million as of December 31st, 2019. In January 2020, we used approximately $8.3 million of net cash as partial consideration for the acquisition of Intrinsic. You may have seen our recent Form 8Ks disclosing our receipt and subsequent repayment of the PPP loan. Although eligible for the financing, we decided to repay the loan in light of our most recent forecast for the fourth quarter and fiscal year 2021, which improved substantially from the time we initially decided to apply for the funding. Working capital was $18.6 million as of March 31, 2020, as compared with $26.7 million as of June 30, 2019. Net inventories were $15.2 million as of March 31, 2020, compared to the 10.5 million as of June 30th, 2019. Now turning to our recent acquisition of Intrinsic, which closed on January 16th, 2020. As mentioned earlier in my remarks, Intrinsic contributed significantly to this quarter's revenue growth. In addition, I'm pleased to announce that the acquisition was accretive to our non-GAAP earnings in the quarter, and we expect it to be accretive to non-GAAP EPS in our fourth fiscal quarter as well, which will be the first full quarter of combined operations. As a reminder, we set a target of $2 million in annual cost synergies within a year of closing the acquisition as we integrate supply chains, eliminate redundant public company costs, and realize other operating efficiencies. And we have already begun to capture some of these savings. I'll now turn the call over to Paul.