Q4 2020 Lantronix Inc Earnings Call
So let's call. It 2020 Q4 results conference call all participants will be on listen only mode should you need assistance. Please corporate specialist by pressing star keep whole applies here.
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Good afternoon, everyone and thank you for joining the Lantronix fourth quarter fiscal 2020 conference call joining up on the call today, our Paul Pickle, Lantronix, President and Chief Executive Officer, and Jeremy Whitaker, Lantronixs Chief Financial Officer.
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 eight P.M. eastern five P.M. Pacific today through September 17th by dialing 8773 0.475 to nine in the U.S.
Oh for international callers for one to 3.70088 and entering passcode 101 for 6169.
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.
Encourage you to review the cautionary statement and risk factors contained in the earnings release, which was furnished to the FTC today and is available on our website and in the Companys FTC filings.
At the 10-K as having kids 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 todays earnings release, we're just supposed to.
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 Jeremy would occur Lantronixs Chief Financial Officer.
Thank you remember.
And welcome to everyone joining us for this afternoons call I'm going to provide the financial results as well 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 in a financial information in the Investor Relations section ever website for additional details that will supplement my commentary.
For the fourth quarter fiscal 2020, we reported a record high of 17.4 million or net revenue an increase of 71% when compared to 10.2 billion for the fourth quarter of fiscal 2019.
Sequentially revenue was up 5% compared to the 16.5 million reported that third quarter of fiscal 2020.
A year on year growth was primarily driven by contribution from our acquisitions, despite continuing disruptions in supply chain and customer demand related to the cobot 19 pandemic.
Gross profit as a percentage of net revenue was 37.7% for the fourth quarter fiscal 2020 hours compared with 56.6% for the fourth quarter fiscal 2019, and 44.7% for the third quarter fiscal 2020.
What product mix always affect gross margin, we had two issues in the fourth quarter, which lowered gross margins below recently seen levels.
And the fourth quarter, we took a charge for excess and obsolete inventories for certain end of life classic product inventories.
Yes, plus increased logistics expense as a result at the Cobot 19 pandemic accounted for at the majority of the quarterly decline.
Well, we will 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 fiscal 2000, 24.7 million compared with 3.6 million for the fourth quarter fiscal 2019 at 5.6 million for the third quarter fiscal 2020.
The year on year increase the next Gen. Eight was primarily due to additional headcount costs related to the recent acquisitions and an increased and share based compensation.
Research and development expenses for the fourth quarter fiscal 2020 were 2 million compared with 2.2 million for the fourth quarter fiscal 2019, and 2.7 million in the third quarter fiscal 2020.
Non-GAAP operating expenses as a percentage of net revenue.
Decreased sequentially from 42% and a third quarter fiscal 2020 to 32.2, 32% in the fourth quarter fiscal 2020 and were down from 50% of net revenue and a year ago fourth quarter as we continue to capture synergies and take advantage of the operating leverage we created from our recent acquisition.
Yes.
And the upcoming quarter, we expect non-GAAP operating expenses to increase sequentially due the timing of R&D products and annual financial statement audit.
GAAP net loss was 1.7 million or six cents per share during the fourth quarter fiscal 2020 compared to a GAAP net loss of 1.5 million or six cents per share during the fourth quarter fiscal 2019.
Non-GAAP net income was four cents per share our 1.2 million for the fourth quarter of fiscal 2020.
This compares to non-GAAP net income of 720, 22000 or three cents per share for the fourth quarter fiscal 2019, and non-GAAP net income of 611000 or two cents per share for the third quarter fiscal 2020.
Now turning to the full year results.
Net revenue for fiscal 2020 was 59.9 billion an increase of 28% from 46.9 billion 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 and product mix.
It's worth noting that during the fourth quarter, we exited a single digit low margin product line assumed in the Maestro acquisition. It represented about two and a half 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, with 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 and operating model.
For fiscal 2020, we reported a GAAP net loss of 10.7 million or 42 cents per share compared to a GAAP net loss of 408000, our two cents per share for fiscal 2019.
Included in the 2020 GAAP net loss were approximately 8.2 million of acquisition and severance related costs.
Non-GAAP net income was two and half million or nine cents per share for fiscal 2020, as compared to 3.7 million or 16 cents per share in fiscal 2019.
Now turning to the balance sheet.
Cash and cash equivalents were 7.7 million as of June Thirtyth 2020, compared to 7 million as of March 30, Onest 2020.
Cash grew by approximately 700000 from the prior quarter as we generated operating cash flow of approximately 900000 during the fourth quarter fiscal 2020.
Working capital at 18.7 million as of June Thirtyth 2020, as compared with 26.7 billion as of June Thirtyth 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 Thirtyth, 20, Twentys compared with 10.5 million as of June Thirtyth 2019.
Now ill provide some guidance on the upcoming quarter and fiscal year.
In light of the ongoing uncertainty created by the covert 19 pandemic, we 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 fiscal 2021 to be flat to slightly up and non-GAAP earnings to increase.
For fiscal 2021, you're targeting revenue growth of 20% to 25%.
Non-GAAP EPS growth of 120% to 160%.
I'll now turn the call over to call. Thanks, Jeremy.
While we still operator in world hampered by the co. Good 19 pandemic I'm pleased to report on results to shareholders today results, which included a record revenue quarter with record year over year revenue growth.
Never get an increase in operating margin cash flows result, deficiencies related to the realization of synergies and our acquisitions and guidance for 20 plus percent revenue growth in fiscal 2021, while earnings are expected to more than doubled.
Looking back at our first full year here Lantronix, we have accomplished much of what we set out to do in terms of in organic growth, we executed on two acquisitions in fiscal 2020.
Adding highly strategic cellular mobility asset tracking and intelligent edge computing solutions to our product portfolio.
With these acquisitions onboard and despite a challenging year for our classic products Lantronixs able to grow 28% year over year in fiscal 2020.
We continue to pursue additive and accretive acquisitions to increase our Sam and bolster our capability within the I teach stack, while remaining focused on the integration of already completed transactions.
Realizing synergies and delivering accretion through improved operating efficiency for our shareholders. Since fiscal Q4 2019, our non-GAAP operating expenses have fallen from 50% to 32% of revenues as of this most recent quarter and we did this with revenues growing 71% year over year over the same timeframe.
All in our I O T product lines contributed 14.6 million in Q4 of 5% sequentially and 75% year over year work from home initiatives at many of our customers. It strengthened backlog and we believe we are still in the early innings of a massive shift toward a remote management model at many of our customers. We are looking for a strong year.
From our intelligent edge competing solution products, driven by a number of design wins from top tier videoconferencing customers design work has already begun a multiple projects and while co. Good has led to stretch lead times for the processing components. We use we expect to see an increasing ramp of revenues as the fiscal year progresses. We also saw good billings in bookings active.
It needs from our out of band and remote management products as well as our Wi Fi solutions for medical applications, and our cellular connectivity solutions offset in part by ongoing weakness in our telematics solutions, which are tied more heavily to a weaker European and Asian business environment.
Our remote environment management previously referred to as ITM product revenues totaled 2.7 million up 10% sequentially and up 62% from year ago software continues to validate our efforts and bolster our long term prospects interest in our newly and integrated single pane of glass SaaS solution continues to grow.
Customers of validating the solution, while the annually recurring revenue.
For revenue and licensing revenue is still expected to be relatively small at approximately 750 k. annually, we see a steep ramp in these revenues over the next three years.
As I hope you can discern from my comments demand for many of our solutions is growing while we still face some disruptions in our supply chain due to the pandemic. The situation is improving and we see the effects dissipating over the next two quarters at which time, we expect our business could grow in line with demand and tethered by our supply chain in aggregate demand.
For our products has strengthened and we are increasingly optimistic about our prospects in fiscal 2021.
With that that completes their prepared remarks for today. So I will now turn it over to the operator grant to conduct our Q next session.
We will now begin the question answer session.
Good question Star then one on your Touchtone phone serious speakerphone, please pick up the headset before considering the keys. So let's start your question. Please press Star then too.
We'll pause momentarily to assemble a roster.
Our first question will come from rich Valera with Needham <unk> co. Please go ahead.
Thank you Paul I was wondering if you could drill down into some of the areas you're seeing strength in particular video conferencing can you give us a sense of how big Thats been recently for you I know you've been mentioning it more but it sounds like you've got a number of design win there just how being kind of that could be.
And then on the just previously referred to is the ITC management company the out of band products. It sounds like maybe.
Maybe there's sort of a sustainable.
Tailwind there due to co bid.
Put a real nice quarter and it sounds like the the bookings in pipeline are quite good. There. So I was wondering if you talk about maybe the sustainability of the strength you're seeing there actually moved beyond this next quarter and then finally any other areas that are really notable from up from a strength standpoint. Thank you.
Okay sure.
Yeah.
I suppose disappointingly. This is a plus in a negative for us in a video conference really it's been a lot of activity. It's it's been design ends, but we've really been kind of betting on the come in terms of revenue.
Orders are in but we haven't really been able to realize that revenue because we're just waiting on.
Products. So the actual contribution has been fairly small so for both from the services and a hardware standpoint, and it's it's pretty well back end loaded than in the year, but it's something that we definitely have some visibility for so one of our customers that kind of launched their product in January and ramped and.
Video conferencing.
They had.
They were expecting about.
On the order of 5000 units.
To be shipped out first half of the year that doubled.
Then a triple then of course once we get into that territory, we just weren't able to ship it as we're just waiting on some.
25 to 28 week lead time components, and those kind of stretched out through the March and June quarter, So I guess.
The positive is we haven't really seen it yet we see it and the demand we see it into bookings we see it in backlog.
And it should be realized in second half of the year. So the real contribution is the come in the second half some of those we've gotten some additional.
Design wins from contracts standpoints, so weve gotten those contracts in house signed and are starting to services work on those video conferencing applications.
But we really havent.
Build for those quite yet so those are those the kind of milestone based and then the hardware comps. After the fact, so even those some of the new wins since January timeframe, even those have yet to really show up in a billings from the billing standpoint.
Hi, Tim or remote environment management definitely.
We saw a nice increase this quarter.
It has always been a bit of a lumpy business for us.
But we're definitely we've seen the activity ramp up I will say that salesforce is forecasting they have good year I think thats in part largely because of this push to remote management. So that is something that I do expect to continue it was not something that we had in the original planned to see significant growth kind of really.
Let's call it low single digits.
What were a bit more optimistic than that at this at this juncture and then another area that I'd highlight why Fi was really strong for us that was primarily driven by medical industrial applications.
In medical medical also bolstered some of the cereal to Ethernet products that we have so overall.
That was pretty strong seller did come back but telematics.
Does remain a little bit soft so that's some color on the various areas that we're seeing.
Yes, thats great appreciate that Paul.
And then Jeremy on the the write down you took inventory that hit colleagues can you give us a rough sense of the magnitude of that Im presuming that wont reoccur in the first quarter is that is that correct assumption.
Yes.
Not expecting that at this point.
A number of years ago decision was made to to purchase.
The materials for some of a couple of end of life products that we had and.
Demand materialize at that level, we expected it to a few years ago. When those purchase decisions were made and so based upon that we.
Needed to write down some of that inventory between the admin between the I mean between the write downs and the.
Increase logistic related expenses, that's close to four or 500 basis points.
Between the two of those so pretty significant impact on this quarters gross margin, which we wouldn't necessarily expect to see on a go forward basis.
Got it do you expect to recover most of that in the first quarter is that chair.
Correct.
Got it perfect yeah. The other together on the other somewhat.
The other thing we're going to see a benefit from going forward is we exited a really low margin business that we acquired in the Maestro acquisition that's.
Low single digit margin business.
Doing about two and a half million a year.
So that also on a go forward basis should.
Help us on the gross margin front, yes, we previously announced that we're going to exit that business and so this past quarter. We finally fulfilled all our obligation. So there is nothing no business.
None of that business in the numbers going forward.
Got it can you say how much that business contributed in the fourth quarter was it below that on a run rate basis. It was it below 1.5 million annualized run rate.
It wasn't just in line with that slightly below it so.
Okay got it maybe and then just.
Got it Okay. That's helpful and just on the on the Opex.
So obviously very very nice opex decline in the just reported quarter and it sounds like you're expecting them to move up a bit.
In one Q can you give us Jeremy any student sizing on the ex the expected increase in how we should think about opex trending.
The balance of the year.
Yes, it usually what.
From a spending standpoint.
The type of spending that is usually varies from quarter to quarter.
Relates to some of our different R&D projects and some of the hard.
Costs, we have related to those such as product certification costs and other outside cost related to the development of the products and then we also I mentioned have our annual audit so between those two.
Between those two items that could be anywhere between you know.
300 to 500 Kay.
Yes.
Fluctuation and in spending any given quarter.
Got it great. Okay. Those are all my questions. Thanks, very much gentlemen.
Thank you.
Our next question will come from Jason Smith West Lake Sir.
Please go ahead.
Yes, thanks for taking my questions. Just curious if you could comment or provide some additional color how order patterns have been since quarter end and if you've seen any meaningful changes in the lead times, you're seeing from customers.
Yes, I mean from a supply chain standpoint, we definitely on I you know, we talked about long lead time components.
From our standpoint, we do have some processors that had been in production that we're waiting on that do have some long lead times associated with those.
But there are some new process is coming out that also have some lead times attention is just really kind of nature being a new product introduction. So some of the new programs that we have new revenue that's coming onboard is related to.
The age 65 processor release from Qualcomm and and naturally there is a little bit of delay early allocation that that takes place. So overall ordering patterns from our customers.
We have always been a high turns business, we do book and ship a good portion better than 80% of the quarter in in the quarter.
And so if I look at March in June and kind of look at those two quarters, we did have significant.
Seven digit delinquency numbers to do demand. So we did have a lot of product in the quarter that we weren't able to ship.
Expect to exit September.
Improving on that just a little bit, but not quite there and probably wont wont truly clean it up probably until the end.
December we also are kind of juggling between build locations, we're utilizing at least.
Three to four actually five right now just to make sure that we can get enough product.
Stage it and then.
Freight allocations also continuing issue so it's.
Customers.
They seem to be in some cases, there, they're giving us forecasts, but they're placing orders.
Well inside our cycle times, and so thats producing some of the delinquencies, but at the same time they know the needed product. So we're getting the forecast there just managing their business appropriately as well so it's a little bit disjointed at the moment, but we had the benefit of kind of seeing some of the longer term projections that are.
That are coming out of our customers.
Okay, that's helpful and.
No thats. Some more time has passed I know, it's a little bit challenging with co bid, but can you just comment on if the two acquisitions have kind of played out as expected or if there have been any significant surprises positive or negative now that you've had more time with them.
Yes, so the first acquisition that we did.
Really the first year was right on the money of what we expected.
There really wasn't to any surprises there I think if I discount for the March quarter. So there was a major base business that just went to zero.
I should say near zero the end of the ticket just got turned off in the March quarter recovered.
China, largely shutting down so if I if I account for that it's still came in just about where we had expected for the first year second year looks to be a little bit better than we had originally projected in our financials.
Second acquisition, it's really quite.
Early innings still this is our first full quarter with them. So we just closed that in January.
And I'll say largely as we look to the to the first year I'd say the first calendar year.
Looked at a little bit disappointing.
Given March and June.
If I normalize a little bit for what was done on their watch in December.
I think things kind of coming in right around where we expect a first fiscal year, though.
They are expected to exceed expectations, a little given take that no real surprises no huge impact.
And quite honestly.
That teams, making.
More significant contribution we accounted for initially so really pretty excited about that one as well.
Okay and then the last one from me and I'll jump back into queue. I know you mentioned software is still going to be a small contributor but could you just talk about customer feedback or how it would the pipeline.
As far as a customer engagement has tracked over the past few months.
It's been really quite solid I think.
We've we've learned.
A lot we had we had a thesis when we started off John King then John shipment and came in we had an operating thesis that we needed to.
Moved well beyond hardware sales and we knew software would be an intimate part of our strategy.
The way we were doing software development was bit disjointed that largely was improved.
Got the Hakan was really kind of taking the range their head of engineering, we've consolidated emerged those developments into a single.
Software platform back end, we have regular code drops at this juncture, we have a roadmap.
Software features that are in line with what our customers are asking for over the next six months and so.
It's really been in conjunction with our customers feedback thats. The part that has been kind of excited when they kind of.
Okay hardware and software they really kind of talking solutions and they they must have that software being intimate part of that that hardware strategy and so right now.
The feedback has been pretty solid so the engagement is good the pipeline is filling up.
We definitely have sign people up.
For the promise of features that are to come and they're starting that ramp now we went through.
With Medtronic, adding some of their devices that they have already deployed and we're putting that into the into their single pane of glass.
And then as the product features roll off those will be things that we can sell on top of the subscriptions little micro services that will offer so overall like where we're headed I still want to say, though that it's early innings.
At this juncture 750, k. approximately annual contribution.
Over the next three years three to five years, we'd like to see recurring revenue would be at least 10% of our revenue. So we're definitely focused on driving that.
Okay. Appreciate the color. Thanks, a lot guys.
Thank you.
Our next question will come from Scott SARIL RA capital. Please go ahead.
Hey, good afternoon. Thanks for taking my questions steep real quick Paul just to clarify some earlier remarks in terms of some of the supply chain issues.
Could you quantify how that impacted the June quarter sales and the immediate September quarter outlook starts like it sounds like a search get alleviated post set but is there a dollar number you could put around that.
I could I'd hesitate to break that out, but I'll give you a rough order.
Percentage wise I think if we had.
If we had all the product that we needed to shift to a customer's forecast would probably do a little bit for September we'd probably be on the order of 5% to 10% higher than where I think we're going to come in at.
Gotcha, So if I, if I take that figure of 5% to 10% higher theres, another 600000, or so of the terminated product line at maestro as well that that produces a little bit of sequential headwind so would look even better.
At least that okay.
Looking at the pipeline could you provide a little bit of color in terms of the size of deals that you're starting to see now given the two acquisitions in the past 12 months the product portfolio in the module portfolio has expanded you've got cellular yet wife I got Ethernet.
You bring now the processing component with intrinsic so are the dollar amounts that you're talking about they're getting larger with each customer that you're you're starting to engage with and I guess is or things like out of Bam getting pulled in as well and how was that the overall channel kind of shaping up in terms, how you're attacking those opportunities.
That's a really good question so engagements are much much larger.
For a certain product lines that they kind of lend itself to that so.
When we pull in design services contract it might be 750 K. for instance, there might be another went out there for 1.2 million.
But then on the back of that is always a hardware sale that runs.
Several million dollars and so if I contrast that to where we were a year ago without the acquired businesses.
Lantronix largely had I think our largest customer was on the order of 250, K. thereabouts, but most of them falling below that so.
We don't have a risk of significant customer contract.
Concentration, but we are talking too much much larger players, we're going to end up having.
A three to 5 million dollar year type customer and then we need to look to see if make sure that we grab the next generation in the generation after that so our engagements much broader world.
Able to talk about a lot more pieces of the solution, which definitely makes the opportunity a bit larger.
Got you, great and maybe if I could just quickly on Crs. The auctions concluded a couple of weeks ago quite a bit spent and attractive mid band spectrum, which has also been talked a lot about both for the shared spectrum capabilities for private networks, but also some enterprise as we're out there bidding as well so I'm kind of wondering if if crs is playing in it.
All into some of the dialogue that you're having an opportunities integration private networks as you're starting to engage with customers.
So that's something that.
That's a conversation that we've had in definitely something that we've looked at in the industrial.
You know market I think industrial market in particular, if you look at automated warehouses. They are rather large there's somewhat crowded assembly lines and simply plants.
Our unbelievably crowded and the 2.4 gig spectrum.
I think being able to implement something in the three and half gig range would be phenomenal most of them are trying to implement all new.
New deployments in the five gig space. So I think Crs has the promise of giving them some optionality.
We were asking the question at a lot of these.
When we get associated tables in terms of what is that they're trying to implement.
For us, we don't really care what network, they implement but I haven't seen a lot of guys.
Move towards.
More of a private LT tight put that in air quotes LT implementation.
Onto Pbrs to me kind of makes sense, there's some benefits, but in those working environment. There is some specifics that they need and in terms of rolling specs handoff.
And they don't like to deal with the latency. So at the moment. It seems like Wi Fi is still a great solution for them or some proprietary network protocols, but it's something that we're definitely looking at and keeping in mind as we go forward to me it seems it I like it.
Personally I like three and half gig because it means that you get to use a lot of readily available inexpensive hardware to implemented.
Private network solution, but I think we we just have to kind of monitor it a little bit more.
And industrial.
So sure it's that big of a concern okay. Thanks, and Paul Lastly, if I could just on the M&A front.
I know without getting specific but you you've had a pretty active pipeline I think in in terms of opportunities that are out there I'm wondering how the co current environment with cobot is impacting those discussions both in terms of a sense of urgency.
With potential targets.
As well as valuation parameters that are starting to be sort about thanks.
Yes, you know the conversations are still happening.
I think it's easy to have those conversations I think the operating thesis that were better together still works really really well I think was tougher for us in terms of picking a target co bid.
Made a parents a lot of.
Some businesses are definitely impacted profoundly impact and then you have to sit there and guest.
What the recovery actually looks like for them, so could be a fantastic deal, but they end up being.
Negative contribution in the short term.
And so we're just.
If this is making it since we're trying to be careful to make sure that we can kind of continue.
Picking up good businesses that have great fundamentals.
That will contribute in the short term and then have outsized performance in a long term so I have the benefit of being.
Patient at the moment.
Right now we've got several quarters of growth I think in front of us.
And so we have the benefit of being patient showing the financials and we need to make sure that we we find.
The right target thats going to be.
Be at the right pricing going to contribute so.
We are being a little selective I.
But the pipeline is still very healthy in the conversations are still happening.
And so.
We just need to make sure that we find the right deal.
Great. Thanks, so much.
Our next question will come from harsh Kumar with Piper Sam. Please go ahead.
Yes, Hey, Paul to be talking again add up at a quick question. A basic question actually if you could summarize for us what.
Total capabilities do you have at this point in time strategically speaking and then what capabilities do you want to have in the next three to five years.
Had a follow up.
Okay.
Harsh I got a smile when I heard your voice, it's good to good to hear from [laughter] that's in Hawaii.
So we've got an entrenched physician historically in cereal to Ethernet hardware Wi Fi cereal cereal to Wi Fi cereal to Bluetooth.
All that is part of Lantronixs legacy and.
And it's part of what we called the classic business.
Over the last year, we added cellular so you can think of.
Cellular to Ethernet bridges gateways routers.
As well as lower radio capability. So we've we've now have a bit brought over the portfolio from a connect standpoint.
And then.
The compute capability, we have firmware team in house that team can pretty much.
Take any application that a customer can imagine.
Can customize that so that they are able to interact with their connected endpoint through the web interface through a cloud backend test backend doesn't really matter and that compute capability goes anywhere from a Singapore computer that would be running.
Full lennox down too.
Linux kernel implemented on health fitness monitors wearables those types of things and really the Kennedy began in between.
We've got decent camera tuning capability on.
Onboard that part of the reason why I think we get picked up for a lot of these.
Application software development for video conferencing systems, we're on.
A rival some electric cargo van that arrival, just got to contract by U.P.S. and we do a lot of the camera work on those.
So it's kind of runs the gamut internally. We also have a software development team that we brought up in India. So that is more of a SAS backend in front end.
If we look at what capability, we want the future at one I think we definitely have.
Enough capability in house to be able to address just about anything or customers could throw at us there might be some specialties.
Specialty services like algorithms AI analytics that we would end up plugging tools into our own solution, we wouldn't necessarily develop those in house.
So I don't know that we need to strategically go and acquire those because a lot of those are definitely available, but if if theres a piece that we're missing where our customers.
Loses a little bit of that.
Traction or beholden.
To us.
Because we don't they need to farm something out we want to make sure that we bring that in house, we want to be viewed as our customers extended R&D on so does that give you a little bit of color too much color. Yeah. No. That's this is great and then Adam I don't follow up I, just kind of asked is to understand your long term revenue targets.
Our not long term revenue targets, what's your what's your full year over year target of 20.
Plus call it pursuing growth.
And much more significant like Fourx fivex driving EPS growth. Those are all I have to ask is I assume is organic correct that doesn't include anything that okay.
Now, let me where all organic.
We definitely have some targets for inorganic but right now we only talked about the organic targets.
No I think Thats fair and then in terms of Opex, what kind of synergies can you see going forward like where do you where do you have seen who can take out some more.
As you have done so low so far.
I think we're probably always going to be on the order of about a 35%.
Back to.
Revenue as a percentage of revenue over this next year.
Definitely driving to a 10% do I think that we can go beyond that I think the answer to that is yes.
The.
I'd like to believe that we can drive it closer to 15% op margin numbers.
And what will what we need to do is we need the right now we're going through an exercise where we're going back through everything that we have done we're looking at sustaining engineering that we allocate to certain product lines, we're looking at whether or not we continue certain programs and so it'd be more of a refinement and priority.
Sensation in terms of where we allocate our capital in our investment for the future software is definitely going to remain pretty high component of Opex spend R&D spend especially.
And then now that Rogers come in Roger Holiday came in we've got a pretty good handle on on some of our sales investments that we need to make and so this next year, it's got to get allocation attach that I don't think it needs to really grow.
But a.
A little bit a refinement in terms of where we invest.
But maybe we can add another 5% if we look at two years out.
Great always a pleasure talking thank you.
Thank you.
This concludes our question answer session I'd like to turn the conference back over to Paul Pickle CEO for any closing remarks.
Thank you Grant I appreciate you guys attending today and hope you have a good great evening. Thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.