Lantronix Q3 2025 Earnings Call Transcript

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Provided by Quartr
May 8, 2025

There are 6 speakers on the call.

Operator

Good day, and welcome to the Lantronix twenty twenty five Q3 Results Conference Call. All participants will be in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Brent Stringham, Chief Financial Officer. Please go ahead.

Speaker 1

Good afternoon and thank you for joining our quarterly earnings call. Joining me today is our President and Chief Executive Officer, Saleel Alsireh. 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 and in 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 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 will now turn the call over

Speaker 2

to Saleel. Thanks, Brent, and thank you everyone for joining today's call. We reported revenue of $28,500,000 for the third quarter of fiscal twenty twenty five and our non GAAP EPS was $03 Both metrics were well within our quarterly guidance range. Brent Stringham, our CFO, will be providing more details on the third quarter financial results shortly. On the call today, I would like to cover four topics with you.

Speaker 2

First, I will speak briefly to the current operating environment and how we've moved quickly with our own task force on tariffs, while remaining focused on executing our business and controlling costs. Second, I'd like to talk about how we are expanding our distribution network in the European Union and Asia Pacific. Third, I would like to highlight some recent customer wins and mention products we've launched. Lastly, I want to highlight our solid operational execution and strengthening financial position, which Brent will speak to in more detail in his prepared remarks. So first off, we are carefully monitoring the current operating environment and we are working very closely with our customers, suppliers and contract manufacturers.

Speaker 2

In anticipation of the tariffs, we established an internal task force to identify our top priorities and devised a ninety day action plan. We are currently implementing this plan and closely managing expenses due to the uncertainty surrounding tariffs and any disruptions to the supply chain. Regarding pricing, we are working on a customer by customer basis with goal of minimizing the impact to Lantronix. And we are in discussion with our largest partners and contract manufacturers to manage and reduce cost. In this operating environment, we will continue to analyze, adjust and execute our action plan.

Speaker 2

Second, regarding our effort to grow our channel distribution, we announced this past quarter that we are expanding our partnership with TD Synix, our major distributor in North America. They are now distributing throughout Europe, focused on Arab band management, network infrastructure and industrial IoT solutions, bringing expanded support to our customers and partners in the European Union. And we are also leveraging the acquired channel network from NetComm to expand the distribution in Asia Pacific, Australia and New Zealand. Overall, the integration of NetComm products into our business has gone very well, and I'm pleased with the level of customer engagement and new cross selling opportunities that we are seeing. Third, regarding new customer wins, we recently announced a new AI powered camera solution that uses our high performance system on module paired with thermal infrared camera module from Teledyne FLIR.

Speaker 2

In this solution, our OpenCue system and module provides advanced processing for AI driven situational awareness, advanced thermal imaging and real time decision making. This integration accelerates the next gen AI camera solutions for drones, surveillance and robotics. I'm also pleased that we announced our latest system and module using Qualcomm's Dragon Wing 8,550 processor that's uniquely designed for higher AI and ML applications such as video transcoding, camera applications and edge gateway integration. As I've said previously, we are very focused on edge AI solutions because of the benefits of low latency, better security and low power requirements at the edge of the network. And we are seeing more customers moving to hybrid architectures that are leveraging both cloud computing for heavy computational processing as well as edge computing for intelligent real time inferencing.

Speaker 2

And finally, we continue to manage our cost structure tightly and I'm pleased to report our cash position increased sequentially in fiscal Q3 compared to the prior quarter. We also took the prudent step to pay down some debt, helping us reduce our interest expense. Brent will

Speaker 1

be covering that in more detail in his script. Brent, over to you. Thank you, Saleel. I will review the financial results and some business highlights for our third quarter of fiscal year twenty twenty five before commenting on our financial outlook for the fourth quarter of fiscal twenty twenty five. For the third quarter of fiscal twenty twenty five or FQ3, we reported revenue of $28,500,000 As we expected, revenue was down both sequentially and on a year over year basis with no shipments in the current quarter to our large smart grid customer in Europe as they work through their initial deployments.

Speaker 1

The revenue impact was partially offset by sequential organic growth in our embedded connectivity and switch products along with growth in our gateways and routers led by products from the acquisition of NetComm last December. As expected and discussed on last quarter's call, we saw sequential and year over year increases in our GAAP and non GAAP gross margins. GAAP gross margin was 43.5% in FQ3 twenty twenty five compared to 42.6% in the prior quarter and 40.1% in the year ago quarter. Our non GAAP gross margin was 44.1% in FQ3 twenty twenty five compared to 43.2% in the prior quarter and 41% in the year ago quarter. GAAP operating expenses for FQ3 twenty twenty five were $16,000,000 compared to $16,600,000 in the year ago quarter and $15,400,000 in the prior quarter.

Speaker 1

We reduced our non GAAP OpEx for FQ3 twenty twenty five by approximately $1,200,000 compared to the year ago quarter and by about $200,000 sequentially. We continue to realize the impact of the various cost reductions we have spoken to in recent quarters. We know in the March that non GAAP OpEx, including costs related to NetComm was within our previously stated quarterly target range of $11,250,000 to $11,750,000 which did not originally contemplate net comp operating costs. GAAP net loss was $3,900,000 or $0.10 per share during FQ3 twenty twenty five compared to GAAP net loss of 400,000 or $01 per share in the year ago quarter. The current quarter GAAP net loss includes a restructuring charge of approximately $1,600,000 related to the cost reduction initiatives that we undertook and completed in January.

Speaker 1

Non GAAP net income was $1,100,000 or $03 per share during FQ3 twenty twenty five compared to non GAAP net income of $4,200,000 or $0.11 per share in the year ago quarter. Turning to the balance sheet. Cash and cash equivalents at the end of the March quarter totaled $20,000,000 slightly up from the prior quarter. For the three and nine month periods ended 03/31/2025, we generated positive operating cash flow of $3,200,000 and $6,200,000 respectively. Net inventories decreased to $28,200,000 as of 03/31/2025 as compared to $29,100,000 in the prior quarter.

Speaker 1

Given our recent margin expansion and cost reductions, the positive cash flow from operations allowed us to improve our balance sheet during the current quarter by paying down about $2,000,000 or 15% of our existing term debt. As Saleel previously mentioned, this will help improve savings on interest costs. As of 03/31/2025, our remaining debt balance approximates $12,500,000 giving us net cash of $7,500,000 Now for the outlook. For the fourth quarter of fiscal twenty twenty five, we expect revenue to be in the range of $26,500,000 to $30,500,000 Given the current environment, we are expecting some pressure on gross margins in FQ4 compared to our recent near record gross margins in FQ3. Accordingly, non GAAP EPS for FQ4 is expected to be in the range of $00 to $02 per share.

Speaker 2

Thanks, Brent. As we consider our outlook for the June, we have been cautious given the macro uncertainty. We are executing well in the current operating environment and managing our expenses closely. We are generating positive cash flow. Our balance sheet is strong.

Speaker 2

Our customer design activity is growing very nicely. In addition to solid business execution, we remain very focused on developing edge intelligence solutions with Compute and Connect for our customers. With that, I'd like to ask the operator to open the call for Q and A. Thank you.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from Jason Smith from Lake Street. Please go ahead.

Speaker 3

Yes. Thanks for taking my questions. Just curious what the Netcomm contribution was in the March. And I know you noted that you've been pleased with sort of customer engagement on that. But how should we think about potential growth of that business going forward?

Speaker 2

Jason, it's Saleel here. Thank you for that question. As we mentioned when we did the acquisition that we expect the revenue to be 6,000,000 to $7,000,000 on an annualized basis. We are tracking to exceed that run rate. And if you remember, I'd spoken, we should expect to be 15% to 20% higher than that run rate if you think about it on an annualized basis.

Speaker 2

The second part is how are the customers tracking. The majority the two big customers are Vodafone and Coca Cola. I've spoken to them before, and they seem to be very well engaged with us. But what has happened is some of the other customers that we were working with are also opportunities for some of our other products like out of band and some of our other industrial IoT products that we have. So in the mid to long term, this is going to be very good as we put it all together with the Lantronix products and the Netgolf acquired products.

Speaker 2

And one key aspect that we really like the business for was with the five gs and we got that five gs product and it's already sampling.

Speaker 3

Okay. That's really helpful. And then just given the current macro, curious what you're seeing from sort of a quoting activity and order pattern perspective so far here in Q4?

Speaker 2

Great question with the macro and the organization is ready. We've been handling the changes that are ongoing and we feel really confident where we're at. So a few points, we're not seeing any cancellations, push outs or any unnatural behavior from our customers. The design activity is continuing to be just fine. And in the prepared remarks, maybe we talked about how we are managing it and adding a little bit more color to this, we will be pretty much out of our China manufacturing by early FQ1 twenty twenty six.

Speaker 2

Maybe you want to add to that a little bit Brent?

Speaker 1

Yes. This has been an ongoing process for the last few quarters already before all of these tariffs were announced. So we've we're seeing the last remnants of some of the NetCom acquired manufacturing playing out over the next quarter or so. And really from a metric standpoint, we have less than 5% of our products that are manufactured in China are destined for The U. S.

Speaker 1

And as Saleel said, we're in the process of fully decommitting from China in the next ninety days or so.

Speaker 3

Got you. And then just the last one for me and I'll jump back in the queue. Just following up on some of those comments, has the macro changed how you're thinking about Career Expertise in fiscal twenty twenty six?

Speaker 2

They continue to do their deployment. We continue to remain engaged with them. There is nothing new for me to add other than the fact that we are in good conversations with Grispertise. Their deployment is ongoing and we are engaged and we are still single sourced. That's the clarity that I have for you on specifically Gritspertise.

Speaker 3

Okay. Appreciate that color guys. Thanks a lot.

Speaker 2

Thanks, Jason. Thank

Operator

you. Our next question comes from Scott Soule from ROTH Capital. Please go ahead.

Speaker 4

Hey, good afternoon. Thanks for taking my questions. Hey, Souleil, maybe just to jump in on the edge compute side of the equation. A lot going on from a product development standpoint, starting at CES, I think continuing at Mobile World Congress. I'm wondering if you could give us some updated thoughts in terms of what that engagement design activity pipeline looks like?

Speaker 4

When we should start to see some revenues? How quickly does that ramp up in fiscal twenty twenty six and kind of framing the opportunity?

Speaker 2

Great questions, Scott, thank you for that question. Our edge AI initiatives and focus is starting to pay up. First one was we announced with Teledyne FLIR, a cooperation where our product is in their new thermal imaging camera and it's going to go into production shortly, I believe. So we're working with them on that. Specifically, three areas where we were focused on.

Speaker 2

One was drones, robotics and security and surveillance. I'm very pleased to report our first drone customer, if all the trials complete well, will go into production in the June, small amounts. But as we then go into the fiscal twenty twenty six, it's going to start to pick up speed. On the surveillance side, we are engaged with two companies where they are looking at our technology to put into their new, I would call it, AI enabled cameras, Scott. So in 2026, we do see revenue from the AI activities that we are doing specifically around cameras.

Speaker 2

From a market size, as you've seen the numbers, Grand View, all of these folks are talking about markets in the billions of dollars longer term. We do believe that we will be able to grow nicely And we've really been laser focused enabling cameras with edge AI, and that's what we do really well. So I'm happy to report that we have our first design in and hopefully, volume shipments in this quarter. It's a start, but it will pay off in fiscal twenty twenty six.

Speaker 4

Great. Thank you. It's good to see some of the traction momentum building on that front. And in terms of the guidance for the June, I'm wondering at this point, a couple of things like what visibility do you have to that range at the current time? What are kind of the swing factors, on that front to the upside and the downside?

Speaker 4

Is grids for teas part of the equation at all in the June. And then I know it's early, but I'm wondering if you could give us your initial thoughts in terms of growth into fiscal twenty twenty six. It looks like the decks are cleared here with grids for keys now largely out of the numbers. What are the early thoughts in terms of how that's starting to shape up? I know it's outside of the near term tariff window, but I'd love to get your initial thoughts.

Speaker 4

Thanks.

Speaker 2

Yes. Thanks for that. And let me try to take one at a time. For the June, we have no Gridspertise revenue similar to what it was for the March. So as you can see, our base business is starting to grow.

Speaker 2

I'm very pleased to tell you that. As I think about where we are sitting today, without getting into the details, our bookings have were good last quarter. Our bookings continue to be good this quarter. So as I said in my prepared remarks, Scott, I was very prudent and cautious with the number that we put out there. So sitting today, if we feel fine about the number we put out there for you guys.

Speaker 2

And we were cautious, though, as we thought about it. So we did not go over our skis by any means. And as I think about the future for '26, from the run rate business that we are at now from this quarter or last quarter, we should definitely grow double digits. And we have the design momentum and customers that we're working with that will allow us to show that.

Speaker 4

Very helpful. And lastly, just on the out of band side of the equation, I'm just wondering some updated thoughts on that front. It's tended to be a little, I think, volatile over several quarter periods. But are you starting to get some stability and, call it, recurring customers in terms of their buying patterns here?

Speaker 2

Hey, Scott, this is Brent.

Speaker 1

Thanks for the question. Yes, as you mentioned, we've seen some lumpiness in that business and that's largely because of as we know, it's dependent on project based capital spending and

Speaker 4

also to

Speaker 1

a certain amount of federal spending, which there's some slowdown there. So we're seeing good momentum with the pieces we put in place at the company resources and the like, and we feel good about the business going forward and kind of expect to get out of the slowdown we've seen over the last quarter or two going forward.

Speaker 2

And Scott, let me just add, we brought in a new General Manager to run that business, and we feel really good about it. He comes out of OpenGear, and I think you know those guys. So I anticipate we will start to see some good momentum in the probably second half of twenty twenty six from where we're at with some new design win activity.

Speaker 4

Great. Thanks so much.

Speaker 2

Thanks, Scott.

Operator

Thank you. Our next question comes from the line of Christian Schwab from Hallum Capital Group. Please go ahead.

Speaker 5

Thanks for taking my questions.

Speaker 2

I just want to follow-up on

Speaker 5

the commentary you just made just a few seconds ago that you're confident you can grow double digits again in 2026. Is that based on obviously netcom rolling in, but does that include GridPartisse coming back and large digestion of previous orders being done? Or is that just based on the core business and expansion of opportunities, partnerships with TD, SYNNEX or new design wins ramping through your Qualcomm relationship? Any color there would be great.

Speaker 2

Christian, thank you for that question. So as I said, from the base business that we are at today, it's about 28.5% approximately. We definitely see a growth of 10% double digit, could be 10%, could be 12% from a couple of things. Design activity, the Qualcomm relationship with new products that we're releasing, new industrial IoT products coming. Also, without a ban, we are releasing some a new box that's going to be coming out in probably ninety days.

Speaker 2

So all of that is in my plan and the company's plan as you think about fiscal twenty twenty six from the run rate we are at now. Without getting into too much with Gridspertise, all I'll say is they need to get their deployments done. And I'm working with them closely, but I wouldn't say I'm putting in any big numbers for Grit's Patrice in the number. Does that kind of give you enough clarity?

Speaker 5

That's great color. And then my last question is, are you still currently the only sole supplier to GridParty should they digest the inventory they have in their rollout and get back on track? Would you still be the only one they would call?

Speaker 2

Yes. We are single sourced with them. And we continue to be single sourced. And as I've spoken in the past, they're doing a few POCs in The U. S.

Speaker 2

And things like that. I'm hopeful for the longer term, but we've helped them, we've shipped a lot of product. We are still working with them. But I've tried to de risk the number as much as I can. So does that make sense?

Speaker 2

Like we are fully only the single source with them right now. And that I've confirmed as of a month ago.

Speaker 5

Perfect. That's all my questions. Thank you.

Speaker 2

Thank you so much.

Operator

Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Saleel Avsaray for closing remarks.

Speaker 2

Thank you everyone for joining the call and we will be in Minnesota at the Craig Hallum Conference the week after Memorial Day. Thank you so much.

Speaker 4

Bye bye.

Operator

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

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Earnings Conference Call
Lantronix Q3 2025
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