Good afternoon, and welcome to the Lantronix Incorporated Fiscal Year 2017 Fourth Quarter Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there’ll be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to E.E. Wang. Please go ahead.

Thank you, Brian. Good afternoon, everyone, and thank you for joining the Lantronix fourth quarter and fiscal 2017 conference call. Joining us on the call today are Jeff Benck, Lantronix President and CEO; and Jeremy Whitaker, Lantronix CFO. A live and archived webcast of today’s call will be available on the Company’s website at www.lantronix.com. In addition, a phone replay will be available starting at 8:00 p.m. Eastern, 5:00 p.m. Pacific today, through August 30th by dialing (877) 344-7529 in the United States; or for international callers (412) 317-0888, and entering passcode 10111393. During this call, management may make forward-looking statements which involve risks and uncertainties that could cause Lantronix 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-Q. Lantronix undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Also, please note that during this 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. I’ll now turn the call over to Jeff Benck, President and CEO of Lantronix.

Thanks, E.E, and welcome to everyone joining us for this afternoon’s call. Today, we will be covering our results for our fourth quarter and recapping what’s been a very productive fiscal 2017 for the Company. I’m proud of our team’s execution in what has been a challenging environment due to the retooling we took on to get the right people, products and processes in place for the future. In fiscal 2017, we transitioned from a company that was focused on stabilization to one that has delivered 10% revenue growth and a sixth consecutive quarter of non-GAAP profitability. At the same time, we continue to make strategic investments in support of our IoT strategy and solution roadmap while keeping expenses in check. As we enter fiscal 2018, we will continue our journey to move up the value chain in the industrial IoT market with an intent to deliver greater value to our shareholders. We have a lot we want to accomplish in the new fiscal year and our focus will be on driving three key initiatives. First, growing our wireless IoT gateway business; second, continuing our share gain momentum in the market with our IT management products; and lastly, establishing our IoT software business with the launch of MACH10, our IoT platform. We believe we have the right strategy in place to enable the Company to capitalize on the opportunity the industrial IoT market represents. Before I provide some additional insight on our business, I’m going to turn the call over to Jeremy to discuss our financial results from the fourth quarter and fiscal year.

Thank you, Jeff. 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 financial commentary. Now, I’d like to take a few minutes to go over our results for the fourth quarter and fiscal year ended June 30, 2017. Net revenue for the fourth quarter of fiscal 2017 was $11 million compared with $10.5 million for the fourth quarter of fiscal 2016, and $11.5 million for the third quarter of fiscal 2017. The year-over-year growth was due to increased sales in both our IoT and IT management product lines. More specifically, our IoT product line increased by 8%, primarily due to increased sales in our Americas region. In addition, our ITM product line increased by 28%, primarily due to sales growth of our SLC 8000 advanced console manager solution. Gross profit, as a percentage of net revenue was 51.3% for the fourth quarter of fiscal 2017, compared with 47% for the fourth quarter of fiscal 2016 and 55.5% for the third quarter of fiscal 2017. The improvement from the year ago quarter was primarily due to improved product mix, as some of our higher-margin products, such as the SLC 8000 and XPort contributed to a larger portion of our net revenue. Looking forward to next quarter, we expect to continue to maintain gross margins above 50%. Selling, general and administrative expenses for the fourth quarter of fiscal 2017 were $3.7 million compared with $3.4 million for the fourth quarter of fiscal 2016 and $4.4 million for the third quarter of fiscal 2017. Our research and development expenses for the fourth quarter of fiscal 2017 were $2 million compared with $1.8 million for the fourth quarter of fiscal 2016 and $2.1 million for the third quarter…

Thanks, Jeremy. During fiscal 2017, we made significant progress on the key initiatives that I laid out at the beginning of the year. These were, first, driving operational excellence to improve the financial results of our business while making room for investment in our growth initiatives; second, accelerating growth in our IT management product line through deal wins and market share gain; and third, executing on our strategic product roadmap, including investing in new offerings to more broadly participate in the fast-growing IoT market. Let’s begin with the review of our progress on operational excellence. Over the past year, we implemented a number of improvements throughout our organization including product cost reductions, focused improvement in sales and marketing execution, better deal closure rates and closely managed spending. Our full year results reflected the impact of consistent execution as we recorded double-digit revenue growth, improved margins and achieved $1.6 million in non-GAAP profitability. This progress is all that more striking when you consider that over the last year we invested a substantial amount of resources in our business between adding new engineering, sales and marketing resources; building an IoT software lab; and introducing several new IoT and ITM solutions. Our efforts to rebuild our sales team in the Americas, paid dividends in fiscal 2017. The revitalized team drove new opportunities and better customer engagement, resulting in 20% annual growth in this region. During the second half of fiscal 2017, we took action to restructure our EMEA sales team, put in place a new leader and hired new sales managers to focus on specific product segments. While this transition may impact our near-term results, we expect the actions and investments we have taken to pay dividend as we get further into fiscal 2018. Turning to our second initiative. We achieved 76% annual…

We will now begin the question-and-answer session. [Operator Instructions] And our question comes from Jaeson Schmidt with Lake Street Capital Markets. Please go ahead.

Hi, guys. Thanks for taking my questions. I just wanted to start with the MACH10 product. How should we think about the potential revenue opportunity there? Is it mainly going to be used to facilitate pull-through on the product side? And what are some of the goalposts investors should be looking forward on that product line?

Thanks, Jaeson. It’s Jeff here. Yes. So, the focus of MACH10 right now, as you can imagine, we’re in beta and we’re anxious to get the product formally in the market, and we will be looking to do that before the end of this calendar year. So, that right now is our immediate focus. As you think about revenue, we -- obviously, at that point when we’re formally in the production, then we will start collecting revenue for the product. But because it’s going to be enterprise license agreement structure, it will be recognized ratably as customers get on the platform. And given that it’s targeted OEMs, it will have some OEM cycle time associated with their adoption and their development of it. So, as we look at this fiscal year, we will clearly be looking to the backend of this fiscal year before we see any real contribution, and it will ramp as we go through time. We are also, beyond just developing an application, a global device management application that customers can get started with, we also see the ability for us to use the platform as an extension or a feature of some of our products. And as such, there will be other ways for us to potentially monetize the MACH10 investment. As you can imagine, some of our products, we might want to just provide device management as a feature to a particular gateway. But, our real goal here is for customers to leverage MACH10 to manage their own devices in the marketplace.

Okay. That’s helpful. And then, just looking at gross margin. I know, it was down in the June quarter. Was that largely just due to mix and lower revenue?

Hey, Kevin or -- sorry, Jaeson. Yes. This is Jeremy. So, margins were down sequentially, primarily due to some E&O charges that we took in the fourth quarter. The product mix was relatively consistent sequentially. So, the standard margin is still -- was still relatively consistent but we did take some E&O charges, which impacted it and resulted in the decline sequentially.

Okay. And then, longer term, how should we think about gross margin trending? I mean, obviously, with some of these newer products, that should help pull it higher, but any sort of midterm target we should be thinking about?

Yes. We continue to believe that we will be able to sustain margins above 50% in the near-term.

If you look out in time, there is no question that softer margins will be higher and could help to take us in a higher direction. But, as we also look to grow our wireless business, some of the wireless embedded products will be on the lower end of our gross margin spectrum for the Company. So, we want to grow both of those, so they might have some cancelling effect. But as you’ve seen. We improved margins this fiscal year 500 basis points, which I think is pretty good progress by the team. We don’t anticipate a big take up in the new year. But, as Jeremy said, we want to -- we would like to stay above 50%. And we will see what progress we make with cost and -- cost reductions and pricing discipline that we’ve demonstrated in fiscal 2017 and how that helps us in 2018.

Okay. That makes sense. And then, just the last one for me and I’ll jump back into queue. For the September and December quarter, it sounds like revenue is going to be around that $11 million range. Is that largely jut due to some of the newer product sampling and then eventually rolling out in the latter half of fiscal 2018, so really just timing of orders or have you seen a pause in demand across any of the products?

We have a pretty broad portfolio of products. I think you’re absolutely right that we clearly have some design wins that were designed in on some projects that have to go through the development cycle, and some of those we look to actually accelerate -- or come into market in the second half of the fiscal year. So, we do think that some of it is timing. Just, I think we -- I know we mentioned that in the script as well. We clearly still have a legacy product line that did quite well in fiscal 2017. We know there’ll be ups and downs in that. Our new products have demonstrated growth and it’s been able to offset that. But just when we take everything in the context, we wanted to give some visibility into how we’re thinking about the first half. We still see FY 2018 being a growth year. But, we also I think beat folk’s expectations in 2017 with 10% growth, so you’re coming off a much higher base now. And we’ve seen a level of stabilization in the business. And demand trends still seem encouraging. When you think about our IT management products, we see a number of large deals that we’re participating in. I think we mentioned in the script that there are some RFQs that we’re pretty excited about that could be very meaningful. Of course, we got to go win that business. We had a great track record adding 30 new customers in 2017 to do that. But that’s still some business to win in front of us. We see opportunities in the Wi-Fi portfolio. And it’s a bit early yet on MACH10. So, just taking it all in the context and looking at where our design wins are and how they may -- to how they may ramp, we feel that that’s the way we see the business today.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to E.E. Wang for any closing remarks.

Thanks, Brian. Just one quick announcement before we sign off. Jeff and Jeremy will be presenting tomorrow at the 2017 Southern California Investor Conference in Newport Beach, California. We will have an updated investor presentation up on the website for investors who are interested in looking at that, and you can also access the webcast through our website at www.lantronix.com. Thank you. And we look forward to updating you on our progress, achievements and actions when we report on our first quarter results in late October.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.