After the close yesterday, the company reported third quarter earnings of $0.25 per share, excluding non-recurring items, which came in better than expected. However, on the top line, revenues fell 5.5% year/year to $88.5 mln, though those nevertheless came in slightly above expectations. Gross margin was 41.1%, up from 40.8% in the prior year.
Worse than the revenue miss are near-term sales expectations. Looking ahead to its fourth quarter, the company expects to see earnings fall in the range of $0.23-0.29, which falls in-line with expectations.
However, fourth quarter revenue is forecasted at $86.0-92.0 mln, which comes in below expectations and is one of the key drivers to weakness in the stock’s price this morning.
Sales took a slide due to supply chain execution challenges. Of course, the company is disappointed in its supply chain diversification efforts and is addressing those operational challenges.
Earlier in the year, the company commenced a supply chain diversification program to transfer the manufacturing of its products to various tier one global contract manufacturers with facilities outside of China. The company recently sped up its efforts in an attempt to minimize the potential impact of any impending tariffs on the company and its customers.
However, in the third quarter, the company experienced various supply chain disruptions related to this transition, in addition to extended lead times driven by component shortages. The company took the steps of making certain organizational adjustments and instituted new process improvement in order to address these issues.
Looking at some good news, subscription revenue is still strong. The company reports 862,000 unique subscribers in the quarter, up from 821,000 in the prior quarter. LoJack Italy produced strong results again, providing $5 mln in revenue, up 19% year/year.
On the flipside, Telematics Systems revenue for the third quarter was $68.6 mln, down 12% year/year, principally due to a decline in legacy LoJack SVR product sales. This segment made up 77.5% of total sales in the quarter.
The company has some bugs to work out, but it knows what to do, and it is addressing these challenges.
In the meantime, shares are feeling some pressure and are down almost 9% in morning trade.