Lantronix Q1 2024 Earnings Call Transcript

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Provided by Quartr
November 8, 2023

There are 7 speakers on the call.

Operator

Good day, and welcome to the Lantronix Inc. First Quarter 2024 Results Conference Call. Please signal a conference please press star then 2. Please note this event is being recorded. And now I would like to turn the conference over to Robert Adams.

Operator

Please go ahead.

Speaker 1

Good afternoon and thank you for joining the Q1 2024 Conference Call. Joining us on the call today are Jeremy Whittaker, Interim CEO and Chief Financial Officer and Jacques Issa, Vice President of Marketing. A live and archived webcast of today's call will be available on the company's website. In addition, you can find the call in details for the phone replay in today's earnings release. 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.

Speaker 1

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 as well as the company's SEC filings such as its 10 ks and 10 Qs. Lantronix undertakes no obligation to revise or update publicly any forward looking statements to reflect future events or circumstances. Please refer to the news release and the financial information in the Investor Relations section of our website for additional details that will supplement management's commentary. 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.

Speaker 1

With that, I'll now turn the call over to Jeremy Whitaker, our Interim CEO and Chief Financial Officer.

Speaker 2

Thank you, Rob, and welcome to everyone joining us for this afternoon's call. First, I'd like to acknowledge the passing of our Chairman, Paul Folino, and thank him for the many years of leadership and service he provided to the Lantronix team. Paul will be missed by all. Now, I'll provide the financial results and some business highlights for our Q1 of fiscal 2024 before commenting on our financial targets for the full

Speaker 3

full year.

Speaker 2

For fq1 twenty twenty four, we reported revenue of $33,000,000 which was higher than our initial expectations for the quarter. Sequentially, revenue was down 5% and up 4% from the year ago period. System solutions increased significantly, driven by record revenues from our out of band deployments, strong sales to federal customers and revenue recognition for the remaining QED pilot production units for Gridspertise. We see continuing strength from our IoT system solutions, driven by contributions from out of band, the coming production ramp of the QED and initial shipment of telematics asset tracking solutions to a Tier 1 telecom carrier. As expected, we experienced a sequential decline in embedded systems as a result of a couple of large shipments in the prior quarter that did not repeat this quarter.

Speaker 2

Looking forward, we see improving results from this product group, driven by our EV customers across multiple geographies for both hardware and design services. We also expect to begin ramping production of an AI powered video conferencing product for a large enterprise customer that should contribute meaningfully throughout the remainder of fiscal 2024. In FQ1 twenty twenty four, software and services revenues were up sequentially, a function of increased design services revenue and we expect similar activity in the upcoming quarter. GAAP gross margin was 42.7 percent for fq1 twenty twenty four compared to 39.5% in the prior quarter and 44.1% in the year ago quarter. The improvement in gross margin was primarily a function of a change in product mix from the prior quarter As a result of the record quarter in out of band sales during FQ1, 2024.

Speaker 2

For FQ2, 2024, we expect a similar product margin as a percentage of revenue. GAAP SG and A expenses for FQ1 2024 were $9,200,000 compared with $9,200,000 in the year ago quarter and $8,000,000 in the prior quarter. The sequential increase in GAAP SG and A was primarily due to lower than normal share based compensation expense during FQ4 2023. GAAP R and D expenses for FQ1 2024 were $5,100,000 compared with $4,500,000 in the year ago quarter and relatively flat with the prior quarter. GAAP net loss was $1,900,000 or $0.05 per share during FQ1 2024, compared to GAAP net loss of $1,700,000 or $0.05 per share in the year ago quarter.

Speaker 2

Non GAAP net income was $2,500,000 or $0.07 per share during FQ1 twenty twenty four compared to non GAAP net income of $2,700,000 or $0.07 per share in the year ago quarter. Now turning to the balance sheet. We ended FQ1 2024 with cash and cash equivalents of $19,500,000 an increase of $6,000,000 from the prior quarter. Working capital was $50,200,000 as of FQ1 2024 and remained steady with the prior quarter. Net inventories were $45,800,000 as of fq1 2024, a decrease of $3,900,000 from the prior quarter.

Speaker 2

Now turning to the upcoming Q2 and fiscal year 2024. We expect that revenue in the second quarter will be up sequentially as the QED ramps into volume production. We have commissioned the production lines and the customer has approved the firmware to begin manufacturing. Based upon these factors, we expect to begin volume shipments in the next several weeks. As such, we maintain our prior guidance for the QED revenue ramp, Expecting approximately $5,000,000 in December 2023, double that in our March 2024 quarter with the remainder of the shipments falling in our Q4 ending June 2024.

Speaker 2

In a cautious, but relatively stable demand environment. We remain optimistic about the fiscal year ahead of us and expect to deliver the fiscal 2019 that we provided during our previous earnings call. We're therefore reiterating our guidance with revenue in a range of $175,000,000 to 185,000,000 and non GAAP EPS in a range of $0.50 to $0.60 per share. Finally, For those who may not have seen it, I'm excited to report that Lantronix has selected Saleel Oswehr as its next President and CEO. Saleel comes to Lantronix from Synaptics where he was the SVP and GM of the company's mobile and enterprise division, the largest business unit within the company.

Speaker 2

Soleal was instrumental in the company's pivot from mobile markets and IoT and enterprise application And drove a multifold increase in market cap for the company's shareholders. Soleil will officially join Lantronix on November 20, and I look forward to introducing him to you on our next earnings call. That completes our prepared remarks for today. So, I'll now turn it over to the operator to conduct our Q and A session.

Operator

Thank you. We will now begin the question and answer session. And our first question comes from Mike Walkley from Canaccord Genuity. Mike, please go ahead.

Speaker 4

Great. Thanks. Congratulations on the strong quarter and reiterating guidance for the year despite the tough macro. Maya, I guess to start my question, just on the IoT Solutions business, it was down as you highlighted before, but Just wondering how maybe that pipeline is growing and Qualcomm had its recent Snapdragon Summit with exciting new announcements that seem like it could help drive your business. Can you maybe update us on how that pipeline generation is coming for that section of your business?

Speaker 2

Yes. The second half of the year, we do have a number of design wins that are expected to go into production. And so we are expecting to see the embedded compute business to improve over the next Several quarters. That business has tended to be a little bit lumpy because we tend to have A few larger customers driving some of that growth and as one design win We have some others coming in, but the timing of those don't always overlap just how we'd like them. As for some of the new products with Qualcomm, we do have some new Modules that we are working on and expect to be delivering.

Speaker 2

So as those Products do come to market, typically what we'll see as an increase in our Kit sales and design services and then that typically then translates into design wins if we're The customer successful in us on the design services. So we do expect to continue to see Strong growth coming from the compute business, both on the embedded side and also on the system solutions, More specifically as it relates to the Gridspertise design win, which is also based upon A Qualcomm process.

Speaker 4

Okay. That's helpful. I guess, Jeremy, just building on that on a big picture, you've Shared in the past 40 plus deals with over $150,000,000 How is that pipeline holding up given the challenging macro out there?

Speaker 2

Yes, we're still seeing good progress in pipeline and opportunities. I think we provided an update on that, maybe it was about 6 weeks ago on our year end call and haven't seen any significant change In that outlook, our pipeline, but we do continue to see A lot of really good opportunities in the markets that we're playing in. So we're pretty optimistic about The remainder of fiscal 'twenty four and fiscal 'twenty five based upon the opportunity pipeline.

Speaker 4

Last question for me, I'll pass the line. Just on the telematics deal with the Tier 1 carrier, anything you can share on just Yes, size of the opportunity or timing of ramp or what you're doing for that carrier?

Speaker 2

Yes. This Something we've been working on with them over several quarters. We did receive our first large order from them, A little bit less than $1,000,000 order. I believe most of that will be shipped in The next couple of quarters, we do expect it to be a multimillion dollar annual opportunity with this carrier and it is in an application where it's Helping them

Speaker 5

monitor

Speaker 2

I'm blinking on The application to monitor power generators in towers or at towers.

Speaker 4

Great. Thanks. I'll take my questions. I'll pass the line.

Operator

And our next question comes from Jason Schmidt from Lake Street. Jason, please go ahead.

Speaker 6

Hey, guys. Thanks for taking my questions. Just following up On Mike's question on the telematics deal, do you anticipate any potential follow on orders eventually from this customer?

Speaker 2

Yes, we are expecting this to be a longer term engagement. And so our expectation is this is just the initial order From them and likely it'd be a multiyear rollout.

Speaker 6

Got it. And then what are you seeing as far as inventory levels in the distributor channel?

Speaker 2

Yes, our distributor inventories have remained relatively consistent. If anything, they're down a little bit from the prior quarter. I don't we didn't see, I would say, an unusual increase in our Distributor inventories over the last several quarters as I've heard other companies indicate. So They're remaining relatively consistent and if anything down a little bit.

Speaker 6

Okay. That's good to hear. And then just the last one for me and I'll jump back in the queue. Can you just give us an update on TOG and any change in expectations there?

Speaker 2

Yes. We're continuing to ship to TAG under the purchase order that we received, it was in the last quarter or the quarter before. As I mentioned on our on the previous call, we received an order for about $13,000,000 from them. Some most of that within the fiscal year and at a run rate that was about 2x From what we are doing before. So no change to our current forecast.

Speaker 2

That was already baked into the numbers that we previously provided to everybody on the last call and it continues to progress well and we're shipping against the contract.

Speaker 6

Sounds good. Thanks for the color.

Speaker 2

Thank you.

Operator

And now we are going to take a question from Christian Schwab from Craig Hallum Capital. Christian, please go ahead.

Speaker 5

Hey, guys. This is Tyler on behalf of Christian. Thanks for letting us ask a couple of questions here. So I guess, on Grupoetit, it's great to hear that the production shipments are ramping this quarter and this year as expected, I guess, any update there with conversations and negotiations on follow on orders from that customer?

Speaker 2

Yes, we've been over the last several months negotiating a follow on contract with Gritzpertise. So that is still in progress. We are expecting that Graz Batiste will remain Partner and customer of ours for several years. I think probably the as soon as we begin Volume shipments and they can begin their production rollout That those negotiations will probably remain somewhat stalled until We can they actually start delivering to their customers, but still feel good about fiscal 2025 and continuing with them as a significant customer going forward.

Speaker 5

Great. That sounds great. Yes, I think all the rest of my questions have really been answered. So I'll pass it on. Thanks, guys.

Speaker 2

Thank you.

Operator

And we'll take a question now from Scott Searle from ROTH, MKM. Scott, you may proceed.

Speaker 3

Hey, good afternoon. Thanks for taking my questions. Jeremy, just to follow-up on the prior Enel question. As you're starting to contemplate what that follow on looks like, do you see it as being a similar magnitude or otherwise? So Your comment about growth in fiscal 'twenty five implies that it's still relatively sizable.

Speaker 3

So I'm kind of wondering about how you think Of the magnitude and size as we get beyond these initial deployments?

Speaker 2

Yes. From what they've indicated to us As it relates to the size of this business for them, the total business is at a magnitude that's much greater than what we're doing with them in fiscal 'twenty four. They have indicated that they may want to dual source The business going forward. And then there will be as the business grows, there will be More price pressure on the delivery as well. So I think it has the potential to be Greater than what we've seen in fiscal 'twenty four, the entire business.

Speaker 2

What portion we get of that is still being discussed and negotiated.

Speaker 3

Got you. And maybe to follow-up to that, I believe the design that you've done with Cannell is applicable into other markets, geographies and customers. Is that correct? Is there interest building beyond just Gridspertise in the Italian market?

Speaker 2

So, there is opportunity in other markets for this type of solution and other solutions that were have the ability To play in this specific design is Grispertise design. So us taking that into other markets Unless we're working with them, would not be allowable. That said, this is still A big market and we do have a number of other products and designs that can work within it.

Speaker 3

Got you. And a couple of other things quickly. Gross margins as we progress over the course of the fiscal year, Now as we start to see the Enel contract ramping up, how should we be thinking about that trajectory? And as well, I was just wondering if Quickly comment on the EV market in general. I know there's a lot of design activity and I think in terms of your $150,000,000 plus pipeline or some EV design wins in there.

Speaker 3

I'm just wondering how the visibility on that has progressed, there have been some headwinds on that front? Thanks.

Speaker 2

Yes. So on the margin front, we're still expecting gross margins and Slightly below the mid-40s, consistent with what we've been seeing on average over the last several quarters. And even with Grisvertis coming in, we do pick up, Although some of that is at a margin that's slightly lower than our corporate average, we do get more leverage in The operations model, so we do make up for some of that by absorbing more of our fixed overhead costs. On the EV front, we're working a number of different opportunities. They're all in various stages.

Speaker 2

A few of those are design service contracts that are currently in play. Expectation is some of those design services contracts will then roll into production agreements. And then we're also continuing to some of the work that we did for TOG. We do have some shared IP around that And we're looking at how we commercialize that work we've done and take that into the EV market as well. So we have a couple of different Areas that we're progressing on as it relates to EV.

Speaker 2

And this current fiscal year, I would expect we'll see Continued good growth, our continued growth from TOG. And then we and also as it relates to some of the other service contracts that are in play. And then those service contracts to the extent they become Production contracts would most likely benefit us in fiscal 'twenty five.

Operator

Thank you very much. And this will conclude our question and answer session as well as the conference. We thank you very much for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Lantronix reported Q1 revenue of $33.0 million, up 4% year-over-year but down 5% sequentially, driven by record out-of-band system solutions, strong federal sales and QED pilot unit shipments, while embedded systems declined after a heavy prior-quarter shipment.
  • GAAP gross margin improved to 42.7% (vs. 39.5% in Q4 ’23 and 44.1% a year ago), with a GAAP net loss of $1.9 million (-$0.05/share) and non-GAAP net income of $2.5 million ($0.07/share).
  • Balance sheet strength was highlighted by cash and equivalents of $19.5 million (up $6.0 million from Q4) and a $3.9 million reduction in inventory, while working capital remained steady at $50.2 million.
  • The QED volume production ramp is on track, targeting ~$5 million in December, ~$10 million in March and the rest in Q4, as Lantronix reiterates full-year guidance of $175–185 million in revenue and non-GAAP EPS of $0.50–0.60.
  • Lantronix named Saleel Oswehr—formerly SVP/GM of Synaptics’ mobile and enterprise division—as its next President and CEO, joining the company on November 20.
A.I. generated. May contain errors.
Earnings Conference Call
Lantronix Q1 2024
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