Lantronix, Inc.

Good day and welcome to the Landtronics, Inc. 2020 Q4 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 touch-tone 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 Tinz. Please go ahead.

Good afternoon, everyone, and thank you for joining the Landtronix Fourth Quarter Fiscal 2020 Conference Call. Joining us on the call today are Paul Pickles, Landtronix President and Chief Executive Officer, and Jeremy Whitaker, Landtronix Chief Financial Officer. 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 September 17th by dialing 877-344-7529 in the U.S. or for international callers 412-317-0088 and entering passcode 10146169. 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. Lantronix 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 fourth 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 fourth quarter of fiscal 2020, we reported a record high of $17.4 million in net revenue, an increase of 71% when compared to $10.2 million for the fourth quarter of fiscal 2019. Sequentially, revenue was up 5% compared to the $16.5 million reported in the third quarter of fiscal 2020. The year-on-year growth was primarily driven by contribution from our acquisitions, despite continuing disruptions in supply chain and customer demand related to the COVID-19 pandemic. Gross profit as a percentage of net revenue was 37.7% for the fourth quarter of fiscal 2020, as compared with 56.6% for the fourth quarter of fiscal 2019 and 44.7% for the third quarter of fiscal 2020. while product mix always affects gross margin. We had two issues in the fourth quarter which lowered gross margins below recently seen levels. In the fourth quarter, we took a charge for excess and obsolete inventories for certain end-of-life classic product inventories. This plus increased logistics expense as a result of the COVID-19 pandemic accounted for the majority of the quarterly decline. continue to see elevated logistics expenses as a result of the ongoing pandemic. We expect them to decline sequentially. Given these two factors, we expect gross margins to improve substantially in the upcoming September quarter. Selling, general, and administrative expenses for the fourth quarter of fiscal 2020 were $4.7 million compared with $3.6 million for the fourth quarter of fiscal 2019 and $5.6 million for the third 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 fourth quarter of fiscal 2020 were $2 million compared with $2.2 million for the fourth quarter of fiscal 2019 and $2.7 million in the third quarter of fiscal 2020. Non-GAAP operating expenses as a percentage of net revenue decreased sequentially from 42% in the third quarter of fiscal 2020 to 32% in the fourth quarter of fiscal 2020. And we're down from 50% of net revenue in the year-ago fourth quarter as we continue to capture synergies and take advantage of the operating leverage we created from our recent acquisitions. In the upcoming quarter, we expect non-GAAP operating expenses to increase sequentially due to the timing of R&D products and annual financial statement audit. Gap net loss was $1.7 million or $0.06 per share during the fourth quarter of fiscal 2020 compared to a gap net loss of $1.5 million or $0.06 per share during the fourth quarter of fiscal 2019. Non-gap net income was $0.04 per share or $1.2 million for the fourth quarter of fiscal 2020. This compares to non-gap net income of $722,000 or $0.03 per share for the fourth quarter of fiscal 2019. and Nongap net income of $611,000 or two cents per share for the third quarter of fiscal 2020. Now turning to the full year results. Net revenue for fiscal 2020 was $59.9 million, an increase of 28% from $46.9 million in fiscal 2019. Gross profit as a percentage of net revenue for fiscal 2020 was 44.9% compared with 56% for fiscal 2019. The decline in gross margin was primarily due to the two acquisitions we completed during fiscal 2020 and the resulting change in product mix. It is worth noting that during the fourth quarter, we exited a single digit low margin product line assumed in the Meister acquisition. It represented about $2.5 million in revenue in fiscal 2020 and while the exit of this product line represents a small revenue headwind going forward, we expect to see an improvement in gross margins as a result in fiscal 2021. Operating expenses for fiscal 2020 were $37.4 million compared with $26.8 million for fiscal 2019. The increase in operating expenses were primarily due to $8.2 million of costs related to our recent acquisitions of Intrinsic and Maestro and our efforts to integrate and take advantage of synergies of the combined companies. Non-GAAP operating expenses for fiscal 2020 were 42% of revenue, compared to 49% of revenue in fiscal 2019, as we began to see the benefits of our integration efforts and leverage in the operating model. For fiscal 2020, we reported a GAAP net loss of $10.7 million, or 42 cents per share, compared to a gap net loss of $408,000 or $0.02 per share for fiscal 2019. Included in the 2020 gap net loss were approximately $8.2 million of acquisition and severance related costs. Non-gap net income was $2.5 million or $0.09 per share for fiscal 2020 as compared to $3.7 million or $0.16 per share in fiscal 2019. Now turning to the balance sheet. Cash and cash equivalents were $7.7 million as of June 30, 2020, compared to $7 million as of March 31, 2020. Cash grew by approximately $700,000 from the prior quarter, as we generated operating cash flow of approximately $900,000 during the fourth quarter of fiscal 2020. Working capital was $18.7 million as of June 30, 2020, as compared with $26.7 million as of June 30, 2019. The decline in working capital is primarily related to the use of cash for the two acquisitions that we made during fiscal 2020. Net inventories were $13.8 million as of June 30, 2020, compared with $10.5 million as of June 30, 2019. Now, I'll provide some guidance on the upcoming quarter and fiscal year. In light of the ongoing uncertainty created by the COVID-19 pandemic, will not be providing specific quarterly guidance and will transition to providing annual operating growth targets for revenue and non-GAAP EPS. That said, we expect revenue for our first quarter of fiscal 2021 to be flat to slightly up and non-GAAP earnings to increase. For fiscal 2021, we are targeting revenue growth of 20 to 25 percent and Nongap EPS growth of 120 to 160%. I'll now turn the call over to Paul.