Q2 2022 Lantronix Inc Earnings Call

Speaker 1: Good day and welcome to the Lantronic 2022 second quarter results conference call. All participants will be in a listen only mode.

Good day and welcome to the land Tronox 2022 second quarter results conference call.

All participants will be in a listen only mode.

Speaker 1: Should you need assistance, pre-signal a conference specialist by pressing the star key followed by zero.

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Speaker 1: After today's presentation, there will be an opportunity to ask questions.

After today's presentation there'll be an opportunity to ask questions.

Speaker 1: To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star then two on a touch tone phone.

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Speaker 1: Please note this event is being recorded. I would now like to turn the conference over to Rob Adams, Investor Relations. Please go ahead.

Please note this event is being recorded.

I would now like to turn the conference over to Rob Adams Investor Relations. Please go ahead.

Speaker 2: Thanks Betsy. Good afternoon everyone and thank you for joining the second quarter fiscal 2022 conference call. Joining us on the call today are Paul Pickle, President and Chief Executive Officer Jeremy Whitaker, Chief Financial Officer and Jacques Issa, Vice President of Market.

Thanks Betsy.

Afternoon, everyone and thank you for joining the second quarter of fiscal 2022 conference call.

Joining us on the call today are Paul Pickle, President and Chief Executive Officer, Jeremy Whitaker, Chief Financial Officer, and Chuck <unk>, Vice President of marketing.

Speaker 2: A 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 8 p.m. Eastern, 5 p.m. Pacific today through February 17th by dialing 877-344-7529 or for international callers, 412-317-0088 and enter passcode 3413427.

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 February 17th by dialing 870 734475 to nine.

For International callers four one to 3170088 and enter pass code 34134 to seven.

Speaker 2: 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. 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.

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. 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 Companys SEC filings such as.

Its 10-K and 10.

Qs.

Speaker 2: And intronix undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances

<unk> 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 of our 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.

Speaker 2: 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 report and presents reconciliations for the non-GAAP financial measures that we use. With that, I'll now turn the call over to Jeremy Littaker, Lantronics Chief Financial Officer of Greenway Bank determined totaintetra statutes into office instead of admirably

Presents reconciliations for the non-GAAP financial measures that we use that I'll now turn the call over to Jeremy Whitaker <unk> Chief Financial Officer.

Speaker 2: Thank you, Rob, and welcome to everyone joining us for this afternoon's call. I'm going to provide the financial results as well as some of the business highlights for our second quarter of Fiscal 2022 before I hand it over to Paul for his commentary.

Thank you, Rob and welcome to everyone joining us for this afternoon's call I'm going to provide the financial results as well as some of the business highlights for our second quarter of fiscal 2022 before I hand, it over to Paul for his commentary.

Speaker 3: Please refer to the news release and the financial information in the investor relations section of our website for additional details that will supplement my commentary.

Please refer to the news release and the financial information in the Investor Relations section of our website for additional details that will supplement my commentary.

Speaker 3: For the second quarter of fiscal 2022, we reported record revenue of 33.7 million, an increase of 103%, when compared to 16.6 million for the second quarter of fiscal 2021.

For the second quarter of fiscal 2022, we reported record revenue of $33 7 billion, an increase of 103% when compared to $16 6 million for the second quarter of fiscal 2021.

Speaker 3: The year on year growth was driven by contribution from our recent acquisition and organic growth

The year on year growth was driven by contribution from our recent acquisition and organic growth of 7%.

Speaker 3: Sequentially, net revenue was up 22% compared to $27.7 million reported in the first quarter of fiscal 2022.

Sequentially net revenue was up 22% compared to $27 7 million reported in the first quarter of fiscal 2022.

Speaker 3: Jack gross margin was 42.9% for the second quarter fiscal 2022 as compared with 45% in the prior quarter.

GAAP gross margin was 42, 9% for the second quarter of fiscal 2022, as compared with 45% in the prior quarter.

Speaker 3: The sequential decline in gap gross margin was primarily due to product...

The sequential decline in GAAP gross margin was primarily due to product mix.

Speaker 3: selling general administrative expenses for the second quarter of fiscal 2022 were $8.9 million compared with $4.9 million for the second quarter of fiscal 2021 and $7.9 million for the first quarter of fiscal 2022.

Selling general and administrative expenses for the second quarter of fiscal 2022 were $8 9 million compared with $4 9 million for the second quarter of fiscal 2021, and $7 9 million for the first quarter of fiscal 2022.

Speaker 3: Research and development expenses for the second quarter of fiscal 2022 were $4.3 million, compared with $2.4 million for the second quarter of fiscal 2021 and $4 million for the first quarter of fiscal 2022.

Research and development expenses for the second quarter of fiscal 2022 were $4 3 million compared with $2 4 million the second quarter of fiscal 2021 and $4 million for the first quarter of fiscal 2022.

Speaker 3: The increase in SG&A and R&D was impacted by increased headcount and operating costs related to the recent.

The increase in SG&A and R&D was impacted by increased head count and operating costs related to the recent acquisition.

Speaker 3: We've made good progress in implementing our synergy plan, and as a result, non-GAAP operating.

We've made good progress in implementing our synergy plan and as a result, non-GAAP operating expenses as a percentage of revenue declined sequentially and from the year ago quarter.

Speaker 3: as a percentage of revenue declined sequentially and from the year ago quarter.

Speaker 3: Gap net loss was 2.4 million or 8 cents per share during the second quarter of fiscal 2020.

GAAP net loss was $2 4 million or eight cents per share during the second quarter of fiscal 2022 compared to a GAAP net loss of $1 5 million or five cents per share during the second quarter of fiscal 2021.

Speaker 3: compared to a gap net loss of 1.5 million or five cents per share during the second quarter of fiscal 2020.

Speaker 3: The increase in gap net loss was primarily due to costs related to our recent

The increase in GAAP net loss was primarily due to costs related to our recent acquisition.

Speaker 3: non-GAAP net income was $3.3 million, or $0.10 per share, during the second quarter of fiscal 2022, compared to non-GAAP net income of $861,000, or $0.03 per share, during the second quarter of fiscal 2021.

non-GAAP net income was $3 3 million or <unk> 10 per share during the second quarter of fiscal 2022.

Compared to non-GAAP net income of 861000 or <unk> <unk> per share during the second quarter of fiscal 2021.

Now turning to the balance sheet.

Speaker 3: We ended the December 21 quarter with cash and cash equivalents of $36.4 million, an increase of $26 million from the prior quarter.

We ended the December 21 quarter with cash and cash equivalents of $36 4 million, an increase of $26 million from the prior quarter.

Speaker 3: During November of 2021, we raised $32.6 million in an offering and sale of 4.7 million common shares at a price of $7.50 per share.

During November of 2021, we raised $32 6 million and an offering and sale of $4 7 million common shares at a price of $7 50 per share and.

Speaker 3: In January of 2022, we used 12 million of the proceeds to pay down a high-interest, clean, turbulent facility that we used as partial consideration for our recent act.

In January of 2022, we used $12 million of the proceeds to pay down our highest interest second lien term loan facility that we use as partial consideration for our recent acquisition.

Speaker 3: Working capital improved to $64.2 million as of December 31, 2021, as compared with $32.2 million as of the prior quarter.

Working capital improved to $64 2 million as of December 31, 2021, as compared with $32 2 million as of the prior quarter.

Speaker 3: Met inventories were 29.4 million as of December 31st, 2021, compared with 26.6 million as of September 30th, 2021.

Net inventories were $29 4 million as of December 31, 2021, compared with $26 6 million as of September 32021.

Speaker 3: Now turning to our annual outlook, which includes approximately 11 months of contribution from our recent.

Now turning to our annual outlook, which includes approximately 11 months of contribution from our recent acquisition.

Speaker 3: We exited the December quarter with strong customer demand and backlog. We continue to believe that without supply chain constraints, we could deliver annual revenue and non-GAAP EPS above the high end of our guided range.

We exited the December quarter with strong customer demand and backlog, we continue to believe that without supply chain constraints, we could deliver annual revenue and non-GAAP EPS above the high end of our guided range.

Speaker 3: based upon forecasted improvements in the supply chain and our current outlook.

Based upon forecasted improvements in the supply chain and our current outlook, we expect to see a much stronger fourth quarter and as a result, we are increasing our annual revenue guidance.

Speaker 3: we expect to see a much stronger fourth quarter. And as a result, we are increasing our annual revenue.

Speaker 3: For fiscal year 2022, we are raising our annual revenue target to a range of 112.5M to 127.5M.

For fiscal year 2022, we are raising our annual revenue target to a range of $112 5 million to $127 5 million representing growth in the range of 57% to 78%.

Speaker 3: representing growth in the range of 57 to 78.

Speaker 3: In addition, we are adjusting our annual earnings target to take into account our recent capital raise and expect non-GAAP EPS in a range of 32 to 40 cents per share, representing growth in a range of 68 to 111 percent. I'll now turn the call over to the next speaker.

In addition, we are adjusting our annual earnings target to take into account our recent capital raise and expect non-GAAP EPS in a range of 32 to <unk> 40 per share representing growth in a range of 68% to 111%.

I'll now turn the call over to Paul.

Thank you Jeremy.

Speaker 3: I am especially pleased to report record results to our shareholders here today. During the second quarter, we made progress on several fronts. Number one, we reported record revenues of $33.7 million, 22% sequentially, and 103% year-over-year.

I am, especially pleased to report record results to our shareholders here today during the second quarter, we made progress on several fronts number one we reported record revenues of $33 7 million up 22% sequentially and 103% year over year.

Speaker 3: Excluding our most recent acquisition, organic revenue grew an impressive 47% year over year and 21% squint.

Excluding our most recent acquisition organic revenue grew an impressive 47% year over year and 21% sequentially.

Speaker 3: Number three, we continue to move high potential edge compute projects through the pipeline, and we currently expect that volume production on multiple projects will drive our growth well into next fiscal year.

Number three we continue to move high potential edge compute projects through the pipeline.

And we currently expect that volume production on multiple projects will drive our growth well into next fiscal year.

Speaker 3: Number four, the team did a fantastic job navigating supply chain constraints, and we were able to meet some of the upside demand and backlog that we experienced in the September quarter.

Number four the team did a fantastic job navigating supply chain constraints, and we were able to meet some of the upside demand and backlog that we experienced in the September quarter.

Speaker 3: And finally, we successfully completed a secondary equity offering, raising almost 33 million dollars to fund our growth, pay down high interest rate debt and potentially fund our next acquisition.

And finally, we successfully completed the secondary equity offering raising almost $33 million to fund our growth pay down high interest rate debt and potentially fund our next acquisition.

Speaker 3: With the headlines out of the way, let's get into some detail on second quarter results in our outlook. As I pointed out, revenues of 33.7 million were a new record. Q2 benefited from a full quarter of contribution from our most recent acquisition, an incremental one more month than in Q1.

With the headlines out of the way, let's get into some detail on second quarter results and our outlook as I pointed out revenues.

The $33 7 million were a new record Q2 benefited from a full quarter of contribution from our most recent acquisitions and incremental one one more months than in Q1.

Speaker 3: Removing these newly acquired revenues from the equation, organic growth was 22% on a sequential basis and an exciting 47% year over year. We saw broad strength in our business in the second quarter. Notable contributors included our remote environment management products, wifi, cellular tracking, and device server solutions. The largest upside came from our intelligent edge products where product revenues more than doubled from Q1 level.

Removing these newly acquired revenues from the equation organic growth was 22% on a sequential basis and an exciting 47% year over year.

We saw broad strength in our business in the second quarter. Notable contributors included a remote environment management products Wifi cellular tracking and device server solutions. The largest upside came from our intelligent edge products, where product revenues more than doubled from Q1 levels.

Speaker 3: Benefiting from our recent execution and bolstered by our strong relationship with Qualcomm, demand for intelligent edge compute solutions continues to grow and the opportunity to funnel is very healthy. We are in the process of expanding our capacity to meet this influx and we are selectively focusing on those programs that offer the strongest revenue potential.

Benefiting from our recent execution and bolstered by our strong relationship with Qualcomm demand for intelligent edge compute solutions continues to grow and the opportunity funnel is very healthy we are in the process of expanding our capacity to meet this influx and we are selectively focusing on those programs that offer the strongest.

Revenue potentials.

Speaker 3: To capture this growth potential, however, we must also continue to navigate ongoing supply chain constraints, and we are pleased to report we made some progress on this front in Q2.

To capture this growth potential. However, we must also continue to navigate ongoing supply chain constraints and we are pleased to report we made some progress on this front in Q2.

Speaker 3: After exiting Q1 with over $6 million in customer requested product that we could not deliver on, we managed to draw down that surplus a few hundred thousand dollars sequentially to about 5.7 million. While the decrease is relatively small, this is the first time in more than a year that we have been able to bring that number down.

After exiting Q1 with over $6 million in customer requested product that we could not deliver on we managed drawdown that surplus a few hundred thousand dollars sequentially to about $5 7 million. While the decrease is relatively small. This is the first time in more than a year that we have been able to bring that number down.

Speaker 3: In this environment, securing components for upside in a given quarter does not necessarily translate to an ability to do it repeatedly. Each product and its related supply chain has its own set of circumstances and we feel it is prudent to temper the upside potential in our outlook. But we will continue to navigate the situation and deliver upside whenever possible.

In this environment securing components for upside in a given quarter does not necessarily translate to an ability to do it repeatedly each product and its related supply chain has its own set of circumstances and we feel it is prudent to temper the upside potential in our outlook, but we will continue to navigate the situation deliver upside whenever possible.

Speaker 3: Our current belief is that the shortages will continue to linger, especially for semiconductor products built on older, high-reliability processes.

Our current belief is that the shortages will continue to linger, especially for semiconductor products built on older high reliability processes, but we are cautiously optimistic that the supply chain constraints are beginning to ease.

Speaker 3: But we are cautiously optimistic that the supply chain constraints are beginning to eat.

Speaker 3: Finally, as Jeremy detailed earlier, we were able to successfully complete an equity offering in Q2, which increased the company's cash balance by $32.6 million. Since that time, we have used $12 million to pay down an expensive second lien loan, thus eliminating a double-digit coupon that was poised to rise with interest rates.

Finally, as Jeremy detailed earlier, we were able to successfully complete an equity offering in Q2, which increased the companys cash balance by $32 $6 million.

Since that time, we've used $12 million to pay down an expensive second lien loan that's eliminating double digit coupon that was poised to rise with interest rates.

Speaker 3: The remainder of these funds will serve as a source of working capital to enable our growth, allowing us to procure long lead time components for crucial shipments, and potentially leaving us dry powder for acquisition.

The remainder of these funds will serve as a source of working capital to enable our growth, allowing us to procure long lead time components for crucial shipments and potentially leaving us dry powder for acquisitions in summary, I am pleased with our results in the second quarter, we navigated a supply environment that continues to be difficult and we're able to deliver another quarter of record revenues.

Speaker 3: In summary, I'm pleased with our results in the second quarter. We navigated a supply environment that continues to be difficult, and we're able to deliver another quarter of record revenues. We grew at an impressive rate, organic.

We grew at an impressive rate organically.

Speaker 3: We improved our balance sheet and put in place the capital to fund the next leg of our growth. That completes our prepared remarks for today, so I will now turn it over to Betsy to conduct our Q&A session.

We improved our balance sheet and put in place the capital to fund the next leg of our growth.

That completes our prepared remarks for today, So I will now turn it over to Betsy to conduct our Q&A session.

Thank you.

We'll now begin the question and answer session.

Speaker 1: To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing 1 on your touch-tone phone.

To ask a question you May Press Star then one on Entresto Paul.

If you are using a speakerphone please pick up your handset.

<unk>.

Speaker 1: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time we will pause momentarily.

Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Speaker 1: The first question comes from Scott Surley with Ross Capital. Please go ahead.

The first question comes from Scott Henry with Roth Capital. Please go ahead.

Speaker 4: Good afternoon, thanks for taking my questions. Nice job on the quarter guys.

Good afternoon, Thanks for taking my questions and nice job on the quarter guys.

Speaker 4: Thank you. Maybe just to start quickly on the financial front, I was wondering if you could quantify a little bit the supply chain impact on gross margins in terms of expedites, incremental component costs. I know there's a mix issue in the quarter. If you could kind of flush that out a little bit in terms of component costs maybe versus mix and then I've got a couple of follow-ups.

Maybe just to start quickly on the financial front.

I was wondering if you could quantify a little bit the supply chain impact on gross margins you know in terms of expedites incremental component costs.

I know theres a mix issue in the quarter, if you could kind of flesh that out a little bit in terms of component cost maybe versus mix.

And then I've got a couple of follow ups.

Speaker 3: Hey Scott, this is Jeremy. So yeah, most of the sequential decline was driven by mix.

Hey, Scott this is Jeremy so yes, most of the sequential decline was driven by by mix, we had a record quarter with our intelligent edge solution products, they more than doubled from the previous quarter.

Speaker 3: We had a record quarter with our intelligent edge solution products. They more than doubled from the previous quarter and even probably even more than that from from the year ago quarter. And this this product group is on the lower end of the scale as you look at our various products from a margin standpoint.

And probably even more than that from from the year ago quarter and this this product.

Our group is on the lower end of the scale as you look at our various product from a margin standpoint.

Speaker 3: So that said, we are still feeling the pressure from.

So that said we are still feeling the pressure from.

Speaker 3: component shortages and PPVs and other costs, but

Component shortages, and ppvs and other cost but.

Speaker 3: it was more a matter of mix this quarter than it was necessarily a change.

It was more a matter of mix this quarter than it was necessarily a change in <unk>.

Speaker 3: costs because those costs have been relatively consistent over the last several.

Costs because of those costs have been relatively consistent over the last several quarters Gotcha and Jeremy if I could follow up on the Opex front. It was up sequentially you had a full quarter of impact from the transition networks. So I think versus two months in the prior quarter.

Speaker 4: Gotcha. And Jeremy, if I could, to follow up on the OPEX front, it was up sequentially. You had a full quarter of impact from transition networks, I think, versus two months in the prior quarter. Is that the only impact in there? Is there anything else? Is this the base level that we should be thinking about extrapolating going forward into the second half of fiscal 22?

Is that the only impact in there or is there anything else is just the base level that we should be thinking about extrapolating going forward into the second half of fiscal 'twenty two.

Speaker 3: Yeah, because of the higher than expected revenue this quarter, we also had a higher amount of variable costs. So that was so as revenue tempers and we could see the variable cost come down.

Yes.

Because of the higher than expected revenue. This quarter you also had a higher.

Variable cost.

So that was good.

As revenue are temporary and we could see.

The variable costs come down you know accordingly, as well yeah, but just.

Speaker 3: Yeah, but just to cost as a percentage of revenue, maybe we proved that a little bit, but I wouldn't say that on a dollar basis that this is a base level. We are in a growth mode. We definitely have some good programs that we're looking to source and fund. So I would expect on a dollar basis spending to go up over time as the revenue grows. But as a percentage of revenue, I think we've continued to drive some additional efficiency.

Cost as a percentage of revenue, maybe we've proved that a little bit, but I wouldn't say that on a dollar basis that this is a base level. We are in a growth mode. We definitely had some good programs that we're looking to source and fund. So I would expect you know on a dollar basis spending to go up over time.

As the revenue grows but as a percentage of revenue I think we would continue to drive some additional efficiency gotcha.

Speaker 4: Gotcha. And Paul, maybe to jump in on the supply chain, it sounds like you guys have been doing a pretty good job on that front, but could you provide a little bit more color in terms of what areas are stretched, still problematic from a lead time standpoint? And then maybe just from an end market standpoint, I think last quarter you talked about some larger opportunities as related to intelligent meters. If you could kind of flesh out where some of the bigger opportunities are for you over the next couple of quarters and levers to move things up or down. Thanks.

And Paul maybe to jump in on the supply chain. It sounds like you guys have been doing a pretty good job on that front, but could you provide a little bit more color in terms of what areas are stretched still problematic from a lead time standpoint, and then maybe just from an end market standpoint, I think last quarter, you talked about some larger opportunities as it related to our intelligent meters. So you kind of.

Flesh out where some of the bigger opportunities are for you over the next couple of quarters and levers to move things up or down. Thanks.

Speaker 3: Okay, so yeah, if I reflect back on some of the comments I made last quarter, I believe I said last quarter that Qualcomm would not be the long pole in the tent. So, you know, at this point, as I reflected, doing additional upside, we've managed to secure a lot of the other components around the Qualcomm processors, and we were able to get some additional shipments in the quarter, but that does not necessarily mean it will translate to additional shipments.

Okay. So yeah on the.

If I reflect back on some of the comments.

Comments I made last quarter I believe I said last quarter that Qualcomm would not be the long pole in the tent. So.

At this point as I reflect it doing additional upsides, we managed to secure a lot of the other components around the Qualcomm processors, and we were able to get some additional shipments in the quarter, but that does not necessarily mean, it will translate to additional shipments in the March quarter timeframe. So.

Speaker 3: in the March quarter timeframe. So we've got some good visibility on some upside potential, possibly in Q4 and Qualcomm in particular on processors are scrambling to try and get those deliveries to us. So at this point, there has been more than 60,000 active internet carriers and Soccer But at this point.

We've got some good visibility on some upside potential.

Possibly in Q4 and Qualcomm in particular on processors are scrambling to try and get those deliveries to us but at this point.

Speaker 3: It's mostly spot market buys. I have to say I did dive into the Rolodex last quarter to try and source some additional upside demand. When we go out and look for it, we're able to find it. But the tough components are the exotic substrates as mentioned before, pop memory in particular, even though the chips are in relatively good supply, and then flash. So processors, flash, memory.

It's mostly spot market buys I have to say I dive into the rolodex last quarter or two to try and source. Some additional upside demand when we go out and look for it we're able to find it.

But the.

The tough components or the exotic substrates as mentioned before part in memory in particular, even though the chips are in relative relatively good supply and then flash so processors flash memory.

Speaker 3: And then some Wi-Fi chipsets and then I will say Ethernet switches is starting to creep up as a shortage here

And then some Wi Fi chipsets, and then I will say Ethernet switches is starting to creep up as a shortage here.

Speaker 3: That we're able to navigate, but is definitely getting a little bit more difficult. I think it's that's more related to certain suppliers. So if we go outside of those.

We're able to navigate but is definitely getting a little bit more difficult I think it's that's more related to certain suppliers. So if we go outside of those suppliers were able to get those but one other additional point I will say that we did qualify some additional vendors.

Speaker 3: suppliers were able to get those. One other additional point, I will say that we did qualify some additional vendors on platforms this past quarter, which gave us more optionality. That will be definitely a planned shift in strategy as we kind of look forward to production in future quarters. And in terms of in-market on the opportunities.

On platforms, this past quarter, which gave us more optionality.

That will be definitely a planned shift in strategy as we kind of look forward to production in future quarters, and then in terms of end markets on the opportunities.

Speaker 3: We've secured a couple of compute projects that are more in the, I'll say AR space, but

We secured a couple of compute projects that are more in the.

I'll say, a our space, but still.

Speaker 3: Not consumer electronics, this is more industrial safety type applications. But HAR, it's still kind of the same core competency in terms of camera processing.

Not consumer electronics is more industrial.

Safety type applications, but H or is it still kind of the same core competency in terms of camera processing visual processing, but automotive of course remains strong smart utility.

Speaker 3: visual processing, but automotive of course remains strong, smart utility, some additional projects we're picking up in smart cities related to security cameras and then AR is a new one, a new contract that we just picked up of late.

Some additional projects, we're picking up in smart cities related to security cameras, and then ours is a new one a new contract that we just picked up.

Right.

Great. Thank you and nice quarter.

Thank you Sir.

Speaker 1: The next question comes from Christian Schwab with Craig Hallam Capital Group. Please go ahead.

The next question comes from Christian Schwab with Craig Hallum Capital Group. Please go ahead.

Speaker 5: Hey, great quarter guys. So you have a record backlog or not a record backlog, but a backlog number? Or did you do them?

Hey, great quarter, guys. So you have it.

Hum record backlog.

And that had record backlog, but a backlog number or did you did I missed that.

Speaker 3: Yeah, we, you know, it's, uh, we gave backlog out last quarter, um, because it was such a big jump. We had, uh, you know, tripling of order rates and then several pull in requests by customers. And it went from, um, you know, essentially, uh, $27 million to 30

Yes.

When gave backlog out last quarter.

It was such a big jump we had.

A tripling of order rates and then several Poland request by customers and it went from.

Essentially a $27 million to 32.

Speaker 3: to 39, excluding the 3 million of acquired backlog. So that's why we gave it last quarter. We really thought it was relevant. It's not necessarily something we want to fixate on. Having said that, I will say it's north of 50 as of today. So it did grow despite being able to see some significant upside in revenue in the quarter. So it does continue to grow, but it's also not something that I think is...

The 39, excluding the $3 million of acquired backlog. So that's why we gave it last quarter, we really thought it was relevant it's not necessarily something we want to fixate on having said that I will say, it's north of 50 as of today. So it did grow despite being able to see some significant upside in.

Revenue in the quarter. So it does continue to grow but it's also not something that I think is something that we want to fixate on a on a go forward basis, but it does continue to grow.

Speaker 3: It's something that we want to fixate on a go-forward basis, but it does continue to grow.

Speaker 5: Great. And then, you know, do you have any update on, you know, the new smart grid energy customer win that was supposed to kind of maybe start kicking in the 2nd, half and and drive more material revenue growth in the fiscal 23 timeframe? Everything on track ahead of track any update there.

Great.

And then do you have any update on <unk>.

The new.

Smart grid energy customer win that was supposed to kind of maybe start kicking in in the second half and and drive you know more material revenue growth in the fiscal 'twenty three time frame is everything on track ahead of track any update there.

Speaker 3: I'd say it's on track, on track to our expectations of customers driving some aggressive schedules. They're still driving those schedules.

I'd say, it's on track are on track to our expect expectations of customers driving some aggressive schedules theres still driving those schedules.

Speaker 3: There's some consigned boards that come into the platform, some consigned components that come into the platform, I should say. You know, our customers had some difficulty procuring those components, so we've kind of stepped in and been able to secure them to ensure that the program continues to move forward.

There is some consigned boards that come into the platform. Some tenant signed components that come into the platform I should say.

Customers had some difficulty procuring those components. So we've kind of stepped in and been able to secure them to ensure that the program continues to move forward happy to say, we just finished a three day workshop talking about what the next generation looks like.

Speaker 3: Happy to say we just finished the three-day workshop talking about what the next generation looks like.

Speaker 3: And then just for additional color comparing the commentary from last quarter, we talked about a $10 to $20 million contribution.

And then just for additional color comparing the commentary from last quarter, we talked about a $10 million to $20 million contribution in the December quarter.

Speaker 3: in the December quarter. Well, 10 to 20 in terms of fiscal year starting to impact the December quarter and I'd say we're probably a bit more confident in the upper end of that range and and you know so far things are going pretty nice.

Well 10 to 20 in terms of the fiscal year, starting to impact the December quarter, and I'd say, we're probably a bit more confident in the upper end of that range and and so far things are going pretty nicely.

Speaker 5: Okay, great. That's that's good news. And then I guess my last question, I mean, the the type of organic growth that that you're seeing is quite material. And our backlog, we talked about being north of 50M.

Okay, Great. That's good news and then I guess my last question I mean, the type of organic growth that you're seeing.

M is quite material.

And our backlog, we talked about being north of 50 million.

Hum.

Sure.

Speaker 5: you know, got a bunch of new programs here, been there a while now, Paul, I mean, what do you kind of see as like the true organic growth rate of this business, you know, minus any acquisitions that could be layered on over time?

Got a bunch of new programs here been there a while now Paul I mean.

Well, what do you kind of see as like the true organic growth rate of this business minus any acquisitions that could be later dog overtime.

Speaker 3: This is where I'd probably take a little bit of a more conservative position, but in terms of, I think that we can continue to drive 20 plus percent.

This is where I'd, probably take a little bit of.

A more conservative position, but in terms of I think that we can continue to drive 20 plus percent.

Speaker 3: And I'll caveat that. I don't think that is on the entirety of the business. We have not really worked the new roadmaps that we acquired with the business because it closed on August 2nd.

Now I'll caveat that caveat that I don't think that is on the entirety of the business we have not really.

Worked the deal Roadmaps that we acquired with the business that we closed on August 2nd.

Speaker 3: So we need to turn that around, but I think if we look at what we've done so far, 20 plus percent is probably conservative, I'm factoring in, that we're in just an extraordinary demand growth phase that could very well continue through next year. If you look at that smart meter program that is not, or I should say smart utility program, it's currently not in the backlog. That would obviously add some considerable growth potential of 20 plus percent. So I think that's a good number even in a more normalized environment. I think we can manage to drive that level.

So we need to turn that around but I think if we look at what we've done so far 20 plus percent probably conservative.

Factoring in that we're in just an extraordinary.

Demand growth phase that could very well continue through next year. If you look at that smart meter program that is not or I should say smart utility program. It's currently not in the backlog.

That would obviously add some considerable growth potential of 20 plus percent. So I think that's a good number even in a more normalized environment I think we can manage to drive that level of performance.

Speaker 5: Great, fantastic. No other questions. Thank you.

Great Fantastic no other questions. Thank you.

Okay.

Speaker 1: The next question comes from Ryan Kuntz with Needham. Please go ahead.

The next question comes from Ryan Koontz with Needham. Please go ahead.

Speaker 5: Thanks for the question. What if you contrast really your core organic business and the acquired transition networks business as it relates to

Thanks for the question.

If you contrast, really your core organic business and the acquired transition networks business as it relates to the.

Speaker 6: different market verticals you're seeing strength across the two and how's your progress coming along on you know your cross selling strategies.

The different market verticals youre seeing strength across the two and how is your progress coming along on your cross selling strategies. Thanks.

Speaker 3: The cross selling strategy, I'll kind of talk about that one first. I will say that we're pleasantly surprised. We kept a good portion.

The cross selling.

Strategy.

Kind of talk about that one first I will say that that's a we're pleasantly surprised.

We kept a good portion of.

Speaker 3: of the sales team that came with that with Transition Networks asset. They're doing a phenomenal job. These guys are picking up the product lines from Lantronics proper, we'll say, but in time.

The sales team that came with that with the transition networks asset they're doing a phenomenal job. These guys are picking up the product lines from land Tronox proper.

We will say, but and you know there's a natural pull through opportunities. We thought that potential was there, but I don't know that we put a lot of emphasis on it at the beginning of the acquisition, but I have to say that team is performing quite well so pretty happy about that I would still say a little bit more muted from an organic growth rate.

Speaker 3: you know, there's natural pull through opportunities. We thought that potential was there, but I don't know that we put a lot of emphasis on it at the beginning of the acquisition. But I have to say that team is performing quite well. So pretty happy about that. I would still say a little bit more muted from an organic growth rate though, in terms of the rest of the business right now.

Though in terms of the rest of the business right now.

Speaker 3: The compute business is really growing at just a staggering rate, you know, with a couple of key customer programs, and we expect that to continue.

<unk> business is really growing at just a staggering rate with a couple of key customer programs and we expect that to continue so newly acquired business. If I. If I contrast that I would say you know a 10 plus percent is probably a reasonable expectation.

Speaker 3: So newly acquired business, if I contrast that, I would say 10 plus percent is probably reasonable expectation. Maybe we'll get to a point where we can confidently drive a steady 15, but right now...

Maybe we'll get to a point, where we can.

Constantly drive a steady 15.

But right now two contrasting that with 20 plus percent.

Speaker 3: Contrasting that with 20 plus percent, even approaching 25 on the more compute oriented solutions that we have.

Even approaching 25 on the on the newer.

More compute oriented solutions that we have.

Okay got it.

Speaker 6: touching base on the different verticals across the two businesses and how they're different.

Touching base on the different verticals across the two businesses and how they are different or similar.

Speaker 3: Yeah, so in the newly and I won't say that there's two different boards. We have two different sales teams that really can sell the entirety of the portfolio. So we've not.

Yeah, so and the newly and I won't say that Theres two different words, we have two different sales teams that really can sell the entirety of the portfolio. So we have not separated the business I think it makes sense to combine the product portfolio. We just have two distinct selling motions and theres a portion of.

Speaker 3: separated the business, I think it makes sense to combine the product portfolio. We just have two distinct selling motions and there's a portion of account responsibility that went to the acquired sales team as well. So just, I don't want to send a message that they're two different organizations, but if we look at, go through the verticals, there's two different sales motions certainly that come about. Smart Cities is one that's a little bit more industrial. There's a Fed business.

Account responsibilities they went to the acquired sales team as well. So just I don't want to send a message that there are two different organizations, but if we look at the go through the verticals. There's two different sales motions certainly they come about smart cities is one that's a little bit more industrial theres, a fed business on that particular sales motion as well.

Speaker 3: On that particular sales motion as well. Uh, that one does move at a bit of a slower pace It does have some cyclicality to it with having a stronger September and December quarter

That one does move at a bit of a slower pace. It does have some cyclicality to it with having a stronger September and December quarter, and a little bit pull back in the March and June timeframe.

Speaker 3: and a little bit pullback in the March and June timeframe, and then march towards that fiscal year end for government spending. So that one, we could look at it from a DOT standpoint, within smart cities.

And then March towards that fiscal year end for government spending so that one we.

Look at it from a D O T standpoint, if within smart cities.

Speaker 3: That one is definitely slower moving. The sales cycles are a little bit longer, but then once again it's a bit stickier.

That one is definitely slower moving the sales cycles are a little bit longer, but then once again, it's a bit stickier. So.

Speaker 3: If we move into where we expect some of the extreme growth to come from in the next several quarters, certainly smart utility would be one of those. If I contrast that with where the growth is coming from today, it's really enterprise and some municipal applications and security vertical. MR Fest.

If we move into where we expect some of the extreme growth to come from in the next several quarters, certainly smart utility would be one of those.

If I contrast that with where the growth is coming from today, it's really enterprise and.

And.

Some municipal applications and security Bert.

Paul Thank you very much.

Thank you.

Speaker 1: This concludes our question and answer session. I would like to turn the conference back over to Paul Pickle for any closing remarks.

This concludes our question and answer session I would like to turn the conference back over to Paul Pickle for any closing remarks.

Speaker 3: Thank you Betsy. Thank you for joining us today and have a great evening.

Thank you Betsy. Thank you for joining us today and have a great evening.

Yes.

Speaker 1: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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