Q4 2023 Lantronix Inc Earnings Call
Speaker 1: Hello and welcome to the Lantronics 2023 Q4 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw from the question queue, please press star, then two. Please note, this event is being recorded.
Hello, and welcome to the land Tronic 20, twenty-three Q4 results conference call all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question.
You May press Star then one on your telephone keypad to withdraw from the question queue. Please press Star then two please note. This event is being recorded.
Speaker 1: I would now like to turn the conference over to Robert Adams. Please go ahead.
I'd now like to turn the conference over to Robert Adams. Please go ahead.
Speaker 2: Thank you. Good afternoon, everyone. And thank you for joining the fourth quarter fiscal 2023 conference call.
Thank you good afternoon, everyone and thank you for joining the fourth quarter fiscal 2023 conference call Joy.
Speaker 2: Joining us on the call today are Jeremy Whitaker, our interim CEO and Chief Financial Officer, and Jacques Isep, our Vice President of Marketing. A live and archived webcast of today's call will be available on the company's website. In addition, you can find the call in detail for the phone replay in today's earnings really.
Joining us on the call today are Jeremy Whitaker, our interim CEO , and Chief Financial Officer, and Jackie <unk>, Our vice President of marketing.
Live and archived webcast of today's call will be available on the company's website.
In addition, you can find the call in detail for the phone replay in todays earnings release.
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.
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 2: 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 10k and 10 cues. When Antronics undertakes no obligation to revise or update publicly any forward looking statements to reflect future events or circumstances, we encourage you to review the cautionary statements and risk factors contained in the earnings release, which was furnished to the SEC.
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.
<unk> undertakes no obligation to revise or update publicly any forward looking statements to reflect future events or circumstances. Please.
Speaker 2: 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 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 managements commentary.
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 reporting and presents reconciliation for the non-GAAP financial measures that we use. With that, I will now turn the call over to Jeremy Whitaker.
Furthermore, during the call the company will discuss some non-GAAP financial measures today's earnings release, which is posted in the Investor Relations section of our website describes the differences between our non-GAAP and GAAP reporting and presents reconciliations for the non-GAAP financial measures that we use with that I will now turn the call over.
To Jeremy Whitaker <unk>.
Speaker 2: Lantronics interim CEO and chief financial officer.
<unk> interim CEO and Chief Financial Officer.
Thank you Rob.
Speaker 3: 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 fourth quarter and fiscal year 2023. Before I provide our financial targets for fiscal 2024 and an update on our CEO search.
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 fourth quarter and fiscal year 2023, before I provide our financial targets for fiscal 'twenty 'twenty, four and an update on our CEO search.
Speaker 3: For FQ4 2023, we reported revenue of $34.9 million, up 6% sequentially, and down 3% from the year ago period. The sequential growth of 6% was largely a function of a strong quarter for our embedded solutions products, led by an embedded compute sale of approximately $3.4 million to an in-flight infotainment customer.
F Q4, 2023 we reported revenue of $34 9 million up 6% sequentially and down 3% from the year ago period. The sequential growth of 6% was largely a function of a strong quarter for our embedded solutions products led by an embedded compute sale of approximately $3 4 million.
And in flight infotainment customer.
Speaker 3: We also experienced continued contribution from our electric vehicle customer, Tog.
We also experienced continued contribution from our electric vehicle customer tog.
Speaker 3: System solutions were relatively flat quarter over quarter and included 1.4 million in revenue from the delivery of QED pilot production units to GRITS for...
Systems solutions were relatively flat quarter over quarter and included $1 4 million in revenue from the delivery of QED pilot production units to grids for Ts.
Speaker 3: We saw a weaker quarter in out-of-band products as our larger financial customers continued to exhibit cautious spending patterns.
We saw a weaker quarter and out of band products as our larger financial customers continue to exhibit cautious spending patterns.
Speaker 3: we expect out of band to improve against the backdrop of the upcoming fed buying season.
We expect out of band to improve against the backdrop of the upcoming fed buying season.
Speaker 3: and sales here should increase in the September and December quarters, adding a boost to gross margins.
And sales here should increase in the September and December quarters, adding a boost to gross margins.
Speaker 3: In FQ4 2023, software and services revenues were down sequentially a function of lower design services revenue.
In F Q4, 2023 software and services revenues were down sequentially, a function of lower design services revenue.
Speaker 3: However, there is an ebb and flow to these design projects, and we expect improvement going forward.
However, there is an ebb in Florida. These design projects and we expect improvement going forward.
Speaker 3: Gap gross margin was 39.5% for FQ4 2023 compared to 44.4% in the prior quarter and 41.9% in the year ago quarter.
GAAP gross margin was 39, 5% for F Q4, 2023, compared to 44, 4% in the prior quarter and 41, 9% in a year ago quarter.
Speaker 3: The decline in gross margin was primarily a function of product mix, with the biggest variances being higher embedded compute sales and lower out-of-band sales as a percentage of revenue during FQ4 2023.
The decline in gross margin was primarily a function of product mix with the biggest variances being higher embedded compute sales and lower out of band sales as a percentage of revenue during F Q4 of 2023.
Speaker 3: For FQ-1 2024, we expect our sales mix to normalize with lower compute sales and gross margins closer to the mid-40.
For FQ, one 2024, we expect our sales mix to normalize with lower compute sales and gross margins closer to the mid Forty's.
Speaker 3: GAAP SG&A expenses for FQ4 2023 were $8 million compared with $9.4 million in the year ago quarter and $9.9 million in the prior quarter.
GAAP SG&A expenses for F. Q4 of 2023 were $8 million compared with $9 4 million in the year ago quarter, and $9 9 million in the prior quarter.
Speaker 3: The decline in GAAP SG&A was primarily due to lower share-based compensation expense and a focus on...
The decline in GAAP SG&A was primarily due to lower share based compensation expense and are focused on cost containment.
Speaker 3: Gap R&D expenses for FQ4 2023 were $4.9 million.
GAAP R&D expenses for F Q4, 2023 were $4 9 million flat.
Speaker 3: flat with the year ago quarter and down from 5.1 million in the prior quarter.
Flat with a year ago quarter and down from $5 1 million in the prior quarter.
Speaker 3: Gap net loss was 1.7 million or 5 cents per share during FQ4 2023 compared to gap net income of 2.5 million or 7 cents per share in the year ago quarter.
GAAP net loss was $1 7 million or five cents per share. During F. Q4, 2023, compared to GAAP net income of $2 5 million or seven cents per share in the year ago quarter.
Speaker 3: non-GAAP net income was $2.2 million, or $0.06 per share during FQ4 2023, compared to non-GAAP net income of $2.8 million, or $0.08 per share in the year-ago quarter.
non-GAAP net income was $2 2 million or six cents per share. During F. Q4, 2023, compared to non-GAAP net income of $2 8 million or eight cents per share in the year ago quarter.
Now turning to the balance sheet.
Speaker 3: We ended FQ4 2023 with cash and cash equivalents of $13.5 million, an increase of $650,000 from the prior quarter.
We ended Q4 2023 with cash and cash equivalents of $13 5 million an increase of 650000 from the prior quarter.
Speaker 3: Working capital was $50.2 million as of FQ4 2023 and remains steady with the prior quarter.
Working capital was $50 2 million as of Q4, 2023 and remained steady with the prior quarter.
Speaker 3: Net inventories were 49.7 million as of FQ4 2023, a decrease of 2 million from the prior quarter.
Net inventories were $49 7 million as of F. Q4, 2023, a decrease of $2 million from the prior quarter.
Speaker 3: The balance of inventory includes nearly $10 million of long lead time components that were...
The balance of inventory includes nearly $10 million of long lead time components.
That were prepaid by a customer.
Speaker 3: We expect to consume these components during fiscal 2024 as we deliver on the customer agreement.
We expect to consume these components during fiscal 'twenty 'twenty four as we deliver on the customer agreement.
Now turning to the first quarter and fiscal year 2024.
Speaker 3: Now turning to the first quarter and fiscal year 2024.
Speaker 3: We expect that revenue in the first quarter will be down sequentially as the revenue growth in FQ4 2023 was largely a function of a significant shipment to the customer deploying inflight infotainment.
We expect that revenue in the first quarter will be down sequentially as the revenue growth in F. Q4, 2023 was largely a function of a significant shipment.
The customer deploying in flight infotainment systems.
Speaker 3: We don't expect this customer to contribute at a similar level in the upcoming quarter.
We don't expect this customer to contribute at a similar level in the upcoming quarter.
Speaker 3: That said, we remain confident about the fiscal year ahead of us and expect to deliver upon the fiscal 2020 pork guidance that we provided during our previous earnings call.
That said, we remain confident about the fiscal year ahead of us and expect to deliver upon the fiscal 'twenty 'twenty four guidance that we provided during our previous earnings call.
Speaker 3: We entered fiscal 2024 with record backlog, a cautious but relatively steady demand environment, and new compute designs moving into production.
We entered fiscal 2024 with record backlog.
Cautious about relatively steady demand environment, and new compute designs moving into production.
Speaker 3: Compute solutions, both embedded and at the system level, are expected to drive much of the growth in fiscal 2024 and beyond, led by smart grid deployments, intelligent vehicles, and enterprise video.
Compute solutions, both embedded and at the system level are expected to drive much of the growth in fiscal 'twenty 'twenty four and beyond led by smart grid deployments intelligent vehicles in enterprise video.
As we have previously discussed grids for Ts as our lead smart grid customer with the QED and all in one edge computing platform, providing electric grid operators with real time insights and automated control of distributed energy resources.
Speaker 3: As we have previously discussed, Gridsportis is our lead smart grid customer with the QED, an all-in-one edge computing platform providing electric grid operators with real-time insights and automated control of distributed energy resources.
Speaker 3: Since our last call, we've made substantial progress on getting the QED into production, which will allow us to realize the more than $40 million in revenue that we have in current backlog for GRDS expertise during fiscal 2024.
Since our last call we've made substantial progress on getting the QED into production, which will allow us to realize the more than $40 million in revenue that we have in current backlog for grids for Ts during fiscal 2024.
Speaker 3: Specifically, we completed the shipment of substantially all of the QED units under the pilot production contract during FQ4 2023.
Specifically, we can completed the shipment of substantially all of the acuity units under the pilot production contract during F Q4 2023.
Speaker 3: and are ready to start mass production in the upcoming December ended quarter.
And are ready to start mass production in the upcoming December ended quarter.
Speaker 3: All component shortages that would gate deliveries in fiscal 2024 have been resolved.
All component shortages that would gate deliveries in fiscal 2024 have been resolved.
Speaker 3: On the demand side, Grid Sportice recently increased their fiscal 2024 production order by over three quarters of a million dollars and are currently negotiating the first follow-on purchase order.
On the demand side grids for Ts recently increased their fiscal 'twenty 'twenty four production order by over three quarters of a million dollars and are currently.
Negotiating the first follow on purchase order.
Speaker 3: which we would expect to drive continued growth from this customer in fiscal 2025.
We would expect to drive continued growth from this customer in fiscal 2025.
Speaker 3: Furthermore, we received the final deposit that was due under the initial production contract for a grand total of 20 million in deposits paid to us thus far.
Furthermore, we received the final deposit.
That was due under the initial production contract for a grand total of $20 million in deposits paid to us thus far.
Speaker 3: Based upon these factors, we are confident in the program and our ability to begin volume production of the QED in FQ-2 2024, which would result in meaningful revenue contribution during that quarter.
Based upon these factors we are confident in the program and our ability to begin volume production of acuity in F Q2, 'twenty 'twenty, four which would result in meaningful revenue contribution during that quarter.
Speaker 3: and leading to a full production ramp in the second half of fiscal 2024.
And leading to a full production ramp in the second half of fiscal 2024.
More specifically.
Speaker 3: Our current production forecast indicates that we would deliver approximately 5 million in FQ2 2024. We would double that amount in Q3 and deliver the balance in FQ4. Living fQ4 service levels rises over three decades.
Our current production forecast indicates that we would deliver approximately $5 million in F Q2 2024.
We would double that amount in Q3 and deliver the balance in F Q4.
Our lead EV customer Tog is also progressing well during.
Speaker 3: During FQ4 2023, we received a significant order from TOG that was double their current run rate and greater than what we had previously anticipated for fiscal 2024.
During Q4 2023, we received a significant order from tog that would double their current run rate and greater than what we had previously anticipated for fiscal 2024.
Speaker 3: In addition, we continue to engage a handful of other EV opportunities with design services
In addition, we continue to engage a handful of other EV opportunities with design services.
Speaker 3: that have the potential to transition to meaningful supply ranges.
That have the potential to transition to meet meaningful supply arrangements.
Speaker 3: We're also seeing traction with other compute designs. For example, we have a high volume enterprise video collaboration design expected to ramp in FQ3 2024.
We're also seeing traction with other compute designs. For example, we have a high volume enterprise video collaboration design expected to ramp in F Q3 2024.
Speaker 3: Furthermore, with the recent Qualcomm announcement of their QCS8550 with increased computing for edge AI processing and Wi-Fi 7 connectivity.
Furthermore, with the recent Qualcomm announcements of their QC S. H 550.
With increased computing for edge, AI processing and Wi Fi connectivity.
Speaker 3: We have had multiple engagements with customers interested in using that solution for various compute intensive applications such as autonomous mobile robots, industrial drones, and edge AI bots.
We have had multiple engagements with customers interested in using that solution for various compute intensive applications, such as autonomous mobile robots industrial drones and edge AI boxes.
Speaker 3: Now I would like to provide the specifics for our fiscal 2024 guidance.
Now I'd like to provide the specifics for fiscal 2020 for guidance.
Speaker 3: with the backdrop of a record backlog, a cautious but relatively steady demand environment for assistance solutions.
With the backdrop of a record backlog, a cautious but relatively steady demand environment for our system solutions and.
Speaker 3: and new compute designs going into production. We anticipate delivering over 30% growth during fiscal 2024 and are reiterating our annual target of revenue in a range of $175 to $185 million.
And new compute designs going into production, we anticipate delivering over 30% growth during fiscal 2024.
And are reiterating our annual target of revenue in a range of $175 million to $185 million.
Speaker 3: and non-gap EPS in a range of 50 to 60 cents per share.
And non-GAAP EPS in a range of 50 to 60 cents per share.
Speaker 3: Now I'll provide a brief update on our CEO search. In June 2023, the board engaged a third-party firm to conduct a candidate search. We're well along in the process and have begun performing in-person interviews.
Now I'll provide a brief update on our CEO search and June 2023, the board engaged a third party firm to conduct a candidate search we're well along in the process and have begun performing in person interviews.
Speaker 3: While it is difficult to pinpoint the exact timing, I do expect that we will identify a qualified candidate before the calendar you're in.
While it is difficult to pinpoint the exact timing I do expect that we will identify qualified candidates before the calendar year end.
Speaker 3: That completes our prepared remarks for today. So now I'll turn it over to the operator to conduct our Q&A session.
That completes our prepared remarks for today, so now I'll turn it over the operator to conduct our Q&A session.
Speaker 1: Thank you very much. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.
Thank you very much we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Speaker 1: To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster.
At this time, we will pause momentarily to assemble our roster.
Speaker 1: Today's first question comes from Scott Searle with RothMKM. Please go ahead.
Today's first question comes from Scott Searle with Roth M. K M. Please go ahead.
Speaker 4: Good afternoon. Thanks for taking the questions. Nice to continue to see the reinforced outlook for fiscal 24. Hey, Jeremy, maybe I just want to quickly dive in and get some color around the gross margins. It sounds like that's purely mix in the June quarter and you're expecting a recovery back to where we've been in recent quarters, kind of given a recovery and out of band in some of the other products. Is that correct?
Hey, good afternoon, thanks for taking the questions nice to continue to see the reinforced outlook for fiscal 'twenty four he Germany, maybe to I just want to quickly dive in and.
Give some color around the gross margins it sounds like that's purely mix in the June quarter, and you were expecting a recovery back to where we've been in recent quarters kind of given a recovery and out of band in some of the other products is that correct.
Speaker 3: Yeah, that would be correct. We had a really strong compute quarter, and our out-of-band was actually down sequentially. You know, the compute being, you know, on the lower end of our margin scale, and the out-of-band on the higher end of the scale. For FQ1...
Yeah that would be correct, we had a really strong compute quarter.
And our out of band was actually down sequentially you know the compute being you know on the lower end of our margin scale on the out of band on the higher end of the scale.
For F Q1.
Speaker 3: We're expecting that to kind of flip where we're going to see much more contribution from out of band and lower contribution from compute. And the result of that would likely be returning to gross margins closer to the mid 40s.
We're expecting that to kind of flip where we're going to see much more contribution from out of band and lower contribution from compute and the results of that would likely be.
Returning to gross margins closer to the mid Forty's.
Speaker 4: Great, and then just looking at the top line, I thought I heard September sequentially down a little bit. Just want to clarify that, but then you start to see.
Okay, Great and then just looking at the topline I thought I heard September sequentially down a little bit just want to clarify that but then you start to see the ramp up in the contribution from grids for Ts ramping up I think you said $5 million in December going to $10 million.
Speaker 4: The ramp up in the contribution from grid expertise, ramping up. I think you said 5M in December , go into 10M in the March quarter want to clarify that because it really implies that you continue to see that big.
In the March quarter want to clarify that because it really implies right that you continue to see that big ramp up over the course of the year and the contribution on that front I'm wondering two things on top of it.
Speaker 4: Ramp up over the course of the year and the contribution on that front. I'm wondering two things on top of it Gross margin profile. How is that going to impact you guys in the back half of the fiscal year? And then the follow-on contract?
Gross margin profile, how is that going to impact you guys in the back half of the fiscal year and then the follow on contract.
Speaker 4: I'm wondering what other color you could provide around that in terms of the magnitude, size, and timing related to the...
I'm wondering what other color you can provide around that in terms of the magnitude size and timing related to that thanks.
Speaker 3: Yeah, I think you're you're characterizing, you know, how we expect the year to play out. As it as it relates to
Yeah, I think you're you're characterizing how we expect the year to play out as it as it relates to.
Speaker 3: as it relates to margin, we are expecting to maintain margins in the mid to low 40s, you know, similar to what we saw in fiscal 23.
As it relates to margin.
We are expecting to maintain margins in the mid to low Forty's you know similar to what we saw and fiscal 'twenty.
'twenty three.
Speaker 3: you know, as grid rolls in, it's pretty close to our corporate average.
You know as grid roles and it's pretty close to our corporate average that said it will bring down margins slightly but we do have some tailwind as it relates to you know we've been experiencing lower supply chain costs and lower P. P vs.
Speaker 3: That said, it will bring down margins slightly, but we do have some tailwinds as it relates to, you know, we've been experiencing lower supply chain costs and lower PPVs. And so I would expect as those lower costs roll in, we will see some benefit from that, which would offset some of the lower gross margin that we would get on a combined basis from Grispring.
So I would expect as those lower costs rolled in we will see some benefit from that which would offset some of the lower gross margin that we would get.
On a combined basis from Christopher Ts.
Speaker 4: Great, and lastly, if I could, you talked about some of the other opportunities in different verticals, guys like Tog, et cetera, but I'm not sure if I heard a number in terms of the opportunity pipeline. I think last quarter you talked about 150 million plus in opportunities. I'm wondering if there's a number that you would put on it. Thanks and I'll get back.
Great and lastly, if I could you talked about some of the other opportunities in different verticals, guys like Todd et cetera, but I'm not sure if I heard a number in terms of the opportunity pipeline I think last quarter, you talked about 150 million plus in opportunities I'm wondering if there's a number that you would put on it thanks and I'll get back in the queue.
Speaker 3: Yeah, you know that number has continued to grow. You know we're still pursuing a large number of opportunities, you know, greater than what the company has seen in the past. A lot of that is in applications such as Smart Cities, Smart Grid, EV, Automotive, as well as security and surveillance.
Yeah, you know that number has continued to grow them you know we're still.
Pursuing a large number of opportunities you know greater than than what the company has seen in the past a lot of that is in applications such as smart cities Smart grid E V automotive.
As well as security and surveillance.
Thanks.
Speaker 1: Thank you. The next question comes from Mike Walkley with Can Accord Genuity. Please go ahead.
Thank you. The next question comes from Mike Walkley with Canaccord Genuity. Please go ahead.
Speaker 4: Great, thanks and my congrats on reiterating the guidance.
Great. Thanks, and my congrats on reiterating the guidance and.
Speaker 4: closer to Grispertice ramping, just on Grispertice, you talked about your early negotiations for the follow-on contract. If that goes well, as we look out to fiscal 25, could that be a good sign for the next
Closer to goods piece ramping just just on grades per Keith you talked about you're in early negotiation for the follow on contract.
If that goes well as we look out to fiscal 'twenty five.
Speaker 4: Could that be at least another 40 million? Or do you think it could grow off that as you have another maybe four year of production versus it? Ram.
Could that be at least another $40 million or do you think it could grow off that as you have another.
Maybe for your production versus it ramping throughout the year.
Speaker 3: Yeah, I think on the high end We would grow year on year with the grid with grid expertise based upon the units
Yeah, I think on the high end, we would grow year on year with their grids with grids for Ts based upon the units that they have and the pricing that we're currently talking about.
Speaker 3: that they have and the pricing that we're currently talking about. And so, yeah, we do have a really good, I think, opportunity to continue the business with Grids for Teeth and to grow year on year.
So yeah, we do have a really good.
I think opportunity to continue the business with grids for Ts and to grow it year on year.
Speaker 4: Great, that's helpful. And then as a grid expertise ramps, or as you look at your mix throughout the year, Jeremy, is there anything to call out on gross margins? I know you're saying Q1 should bounce back kind of to that mid 40-ish. Is that a good way to think about for the full year? Is there any puts and takes how we should think about gross margin throughout the year based on your pipeline?
Great. That's helpful and then as it can.
Pirquitas ramps or as you look at your mix throughout the year. Jeremy is there anything to call out on gross margins I know, you're saying Q1 should bounce back kind of into that mid fortyish is that the way to think about for the full year or is there any puts and takes how we should think about gross margin throughout the year based on the pipeline.
Speaker 3: Yeah, with the models that we put together and based upon our current forecast, the gross margin profile for the full fiscal year Look
Yeah, what with the models that we put together and based upon our current forecast the gross margin profile for the full fiscal year looks pretty close to what we're what we had in fiscal 'twenty three and like I said as I mentioned previously.
Speaker 3: pretty close to what we had in fiscal 23. And like I said, as I mentioned previously, we do see some benefit.
We do see some benefit.
Speaker 3: from greater absorption as revenue increases from some of our fixed costs. And also, we are seeing quite a bit of relief in both in logistics and purchase price variances, which should start showing themselves as we get into Q2 and the second half of the fiscal year.
From you know greater absorption you know as revenue increases from some of our fixed cost and also we are seeing.
Quite a bit of relief in both in logistics and purchase price variances.
Which should start showing themselves you know as we get into Q2 and in the second half of the fiscal year.
Speaker 3: I think in addition to that, just on the operating margin, there's also quite a bit of leverage in the business. And so as we do grow the top line, we don't expect to add OpEx at a similar level, which would allow us to exit the year with a higher level of leverage.
I think in addition to that.
Just on the operating margin, there's also quite a bit of leverage in the business and so as we do grow the topline. We don't expect to add you know Opex you know at a similar level.
Which would allow us to exit the year with.
Speaker 3: know with with you know and even a margin and in the mid team.
With with a you know an EBITDA margin in the mid teens.
Speaker 4: Okay, that's helpful to think about the ramp and the model. I guess last question for me, just on, you know, embedded, you know, very strong quarter, you know, due to that $3 million shipment and you talked about it down sequentially. Is this a business that then builds from there and do you think it grows year over year or is most of the growth coming from IoT systems in 2024?
Okay. That's that's helpful. As you think about the ramp in the model I guess last question for me just on <unk>.
Embedded you have very strong quarter due to that full $3 million shipment.
Talk about it down sequentially is this a business that then builds from there and do you think it grows year over year or most of the growth coming from Iot systems in 2024.
Speaker 3: Yeah, so on the embedded compute side The next the next couple of quarters will be a little bit a little bit soft there. We have a couple of new or a number of new design wins.
Yeah, so on the embedded compute side.
The next the next couple of quarters will be a little bit of a little bit soft there. We have a couple of new or a number of new design wins that are beginning to ramp and in Q3, which would continue to grow that business, but in general.
Speaker 3: that are beginning to ramp in Q3, which would continue to grow that business. But in general, the compute business is driving the growth. You know, Gritz-Vertis itself is part of the, I would call it the compute business, although it's not an embedded product, and that opportunity was brought to us through our design services on the Qualcomm processor.
The compute business is driving the growth you know grids for teeth itself. As you know is as part of the I would call. It the compute business, although it's not an embedded product and that that opportunity was brought to us through our design services on the Qualcomm processor.
Great. Thanks for taking my questions I'll pass the line.
Speaker 1: Thank you. The next question comes from Christian Schwab with Craig Hallam Capital Group. Please go ahead.
Thank you. The next question comes from Christian Schwab with Craig Hallum Capital Group. Please go ahead.
Speaker 5: Hey, great. Thanks for thinking of my question. So I just want to verify that you guys still believe you can do 50 million over the next few years with Todd. I guess that's still the production goal.
Hey, great. Thanks for taking my question. So I just wanted to verify that.
I still believe you can do 50 million over the next few years with till August that's still but production goal.
Speaker 3: Yeah, and if anything, you know, it's gotten better. You know, we just received this quarter a follow on order from Tog, which was much, much greater than we had initially anticipated. So they're on track, if not doing, you know, better than, you know, what we've indicated previously.
Yeah, and if anything.
You know it's gotten better you know we just received this quarter.
A follow on order from Tog, which was.
Much much greater than we had initially anticipated so they're on track if not doing better than you know what we've indicated previously.
Speaker 5: Fantastic. And then my final question is, you'll like call up to the first question and think from Scott, this is about 40 projects that you kind of highlighted before that could contribute 150 million of annual revenue. Are any of those projects and your expectations for next fiscal year?
Fantastic and then.
My final question is.
Got it you like follow up to the first question I think from Scott about 40 projects that you've kind of highlighted before that can contribute 115 billion of annual revenue. You know are any of those projects in your expectations.
No for next fiscal year.
Speaker 3: You know, there are a couple that could help fiscal 24. I would say the vast majority of them would be projects that we'd be winning in fiscal 24 and then most likely contributing to revenue in fiscal 25.
You know there are there are a couple that could help fiscal 'twenty four I would say.
Vast majority of them would be projects that we'd be winning in fiscal 'twenty four it like to.
We contributing to revenue in fiscal 'twenty five.
Speaker 3: Okay, great. I think more about the future with that pipeline, although some of them have a high likelihood of closing and contributing in the current fiscal year as well. Okay, great.
Okay, great and more about more about the future with that pipeline you know, although you know some of them you now have a high likelihood of closing and contributing.
In the current fiscal year as well.
Okay, great no other questions. Thanks, guys.
Speaker 1: Thank you. The next question comes from Ryan Coots with Needham. Please go ahead.
Thank you. The next question comes from Ryan Koontz with Needham. Please go ahead.
Speaker 2: Yeah, just kind of drilling down on the near term, sounds like a, you know, promising pipeline and any contracts that with kind of the current state of the business out there in terms of, you know, are you still dealing with inventory and the distribution and there was some Qualcomm commentary about kind of general softness and industrial IoT. Can you kind of contrast your pipeline versus near term dynamics? That'd be helpful. Thank you.
Yeah, just kind of drilling down on the near term it sounds like a promising pipeline.
Contracts are with kind of the current state of the business out there in terms of.
Are you still dealing with inventory in the distribution and there was some qualcomm commentary about kind of general softness in industrial Iot.
Can you kind of contrast, your pipeline versus near term dynamics that'd be helpful. Thank you.
Speaker 3: Yeah, starting with channel inventories, we saw several quarters with our inventory and the channel declining at least with our distributors. This quarter we did see it bump up a little bit, but it is within, I would say, our historical norms. So we're not seeing elevated inventory at our distributors.
Yeah.
Darting with channel inventories you know we saw several quarters with our.
Our inventory in the channel declining at least with with our distributors.
This quarter, we did see a bump up a little bit but it is within I would say our historical norms. So we're not seeing elevated.
Inventory at our distributors.
Speaker 3: We have heard from a couple of customers where they feel like they have inventory that they need to burn through, but it's not necessarily systematic. I think in our distributor channel, I think it's a situation where like a lot of companies with supply shortages and COVID,
We have heard from a couple of our customers and where they feel like they have inventory that they need to burn through but it's not necessarily systematic I think in our in our distributor channel I think it's a situation where like a lot of companies with supply shortage.
And Covid.
Speaker 3: Everybody was, our companies were putting more inventory on hand because of the difficulty in getting it.
Everybody was you know companies, where we're putting more inventory on hand, because of the difficulty in getting it.
Speaker 3: We did mention, you know, previously on several calls that, you know, coming out of post-COVID, we did see some weakness in certain parts of our business.
We did mention you know previously on several car several calls that you know coming out of post Covid, we did see some weakness in certain parts.
<unk> of our business.
Speaker 3: You know, that's said, most of our growth drivers for fiscal 24 are really driven by large programs that we've run and in particular, Grisberg decent hog where we have orders on hand to be able to drive that growth.
You know that that said most of our growth drivers for fiscal 'twenty four are really you know.
Driven by large programs that we blend in and.
And in particular grids for decent tog, where we have orders on hand to be able to drive that growth.
Speaker 3: In addition, we are seeing some new demand being generated from some of our newer product releases in connectivity. In particular, we have a nice opportunity with AT&T that we mentioned on our previous call that's made to nice progress over the last quarter, and that will also help with the growth next.
In addition, we are seeing some new demand being generated for some of our newer product releases and connectivity in particular, we have a nice opportunity.
With AT&T that we mentioned on our previous call that that's.
Made some nice nice progress over the last quarter.
That will also help with the growth next year.
Speaker 2: It's great to hear and a quick follow up on the competitive run any changes, you know Yeah, I've heard about a few kind of new entrants kind of coming at this with You know industrial hardened type products in areas that you play Out of Europe and other spots. Are you seeing much an impact? Those are two pretty stable?
That's great to hear.
Quick follow up on the competitive front.
Any changes.
Yes, I've heard about a few kind of new entrants.
Coming at this with the industrial heart and type products in the areas that you play.
I'm out of Europe , and other spots are you seeing much of an impact because it's a pretty stable.
And competitive landscape.
Speaker 3: Yeah, I think we're not necessarily seeing any new entrants at this point.
Yeah, I think we're not necessarily seeing any new entrants at this point.
Speaker 3: With our out-of-band product, with our recent acquisition of Oblogix, we think we've got a market-leading product there. You know, on the Qualcomm side with the design services, I think we have a great ability there to differentiate ourselves. And so, not necessarily seeing anything new in those areas today. Okay, cool.
With our you know out of band product with our recent acquisition of <unk>, We think we've got a market leading product there.
No.
On the Qualcomm side with the design services.
I think we have.
Great ability there to differentiate ourselves.
So you're not necessarily seeing anything new in those areas today.
Okay cool. Thanks, that's all I have I appreciate it.
Speaker 1: Thank you. This concludes our question and answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your line.
Thank you.
This concludes our question and answer session. The conference has now concluded.
You for attending today's presentation you may now disconnect your lines.
[music].
Operator: Hello and welcome to the Lantronix 2023 Q4 Results Conference Call. All participants will be in listen only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero.
Operator: After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on your telephone keypad. To withdraw from the question queue please press star then two. Please note this event is being recorded.
Robert Adams: I would now like to turn the conference over to Robert Adams. Please go ahead. Thank you.
Robert Adams: Good afternoon everyone and thank you for joining the Ford Quarter fiscal 2023 conference call. Joining us on the call today are Jeremy Whitaker, our interim CEO and chief financial officer and Jacques Issa, our vice president of marketing. A live and archived webcast that 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.
Robert Adams: 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 10k and 10qs. When in Toronto it takes 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 managing that's commentary.
Robert Adams: Furthermore during the call the company will discuss some non-gap financial measures. Today's earnings release which is posted in the Investor Relations section of our website describes the differences between our non-gap and gap reporting and presents reconciliation for the non-gap financial measures that we use.
Jeremy Whitaker: With that I will now turn the call over to Jeremy Whittaker, Lanceronics, Interim, CEO and Chief Financial Officer. Thank you Rob. And welcome to everyone joining us for the Saturday news call. I'm going to provide the financial results as well as some of the business highlights for our fourth quarter and fiscal year 2023 before I provide our financial targets for fiscal 2024 and an update on our CEO search. For FQ4 2023 we reported revenue of 34.9 million up 6% sequentially and down 3% from the year ago period.
Jeremy Whitaker: The sequential growth of 6% was largely a function of a strong quarter for our embedded solutions products led by an embedded compute sale of approximately 3.4 million to an end-flight infotainment customer. We also experienced continued contribution from our electric vehicle customer tag. System solutions were relatively flat quarter of a quarter and included 1.4 million in revenue from the delivery of QED pilot production units to grids for teas. We saw weaker quarter and out of band products as our larger financial customers continued to exhibit cautious spending patterns.
Jeremy Whitaker: We expect out a ban to improve against the backdrop of the upcoming Fed buying season, and sales here should increase in the September and December quarters, adding a boost to Gross Margin. In FQ4 2023, Software and Services revenues were down sequentially a function of lower design services revenue. However, there was an ebb and flow to these design projects, and we expect improvement going forward. Gap Gross Margin was 39.5% for FQ4 2023, compared to 44.4% in the prior quarter, and 41.9% in the year ago quarter.
Jeremy Whitaker: The declining Gross Margin was primarily a function of product mix, with the biggest variances being higher embedded compute sales, and lower out of band sales, as a percentage of revenue during FQ4 2023. For FQ1 2024, we expect our sales mix to normalize with lower compute sales, and Gross Margin's closer to the mid-40s. Gap SGNA expenses for FQ4 2023 were 8 million, compared with 9.4 million in the year-go quarter, and 9.9 million in the prior quarter.
Jeremy Whitaker: The decline in Gap SGNA was primarily due to lower share-based compensation expense, and a focus on cost containment. Gap R&D expenses for FQ4 2023 were 4.9 million, flat with the year-go quarter, and down from 5.1 million in the prior quarter. Gap Net loss was 1.7 million, or 5 cents per share, during FQ4 2023, compared to Gap net income of 2.5 million, or 7 cents per share, in the year-go quarter. Non-Gap net income was 2.2 million, or 6 cents per share, during FQ4 2023, compared to non-Gap net income of 2.8 million, or 8 cents per share, in the year-go quarter.
Jeremy Whitaker: Now, turning to the balance sheet, we ended FQ4 2023 with caching cash equivalence of 13.5 million, an increase of 650,000 from the prior quarter. Working capital was 50.2 million as of FQ4 2023, and remained steady with the prior quarter. Net inventories were 49.7 million as of FQ4 2023, a decrease of 2 million from the prior quarter. The balance of inventory includes nearly $10 million of long lead time components that were prepaid by a customer.
Jeremy Whitaker: We expect to consume these components during Fiscal 2024, as we deliver on the customer agreement. Now, turning to the first quarter and fiscal year 2024, we expect that revenue in the first quarter will be down sequentially, as the revenue growth in FQ4 2023 was largely a function of a significant shipment to the customer deploying and flight infotainment systems. We don't expect this customer to contribute at a similar level in the upcoming quarter.
Jeremy Whitaker: That said, we remain confident about the fiscal year ahead of us, and expect to deliver upon the fiscal 2024 guidance that we provided during our previous earnings call. We entered fiscal 2024 with record backlogs, a cautious but relatively steady demand environment and new compute designs moving into production. Compute solutions both embedded and at the system level are expected to drive much of the growth in fiscal 2024 and beyond, led by smart grid deployments, intelligent vehicles, and enterprise video.
Jeremy Whitaker: As we have previously discussed, grid expertise is our lead smart grid customer with the QED and all-in-one edge computing platform providing electric grid operators with real-time insights and automated control of distributed energy resources. Since our last call, we've made substantial progress on getting the QED into production, which will allow us to realize the more than 40 million in revenue that we have in current backlog for grid expertise during fiscal 2024. Specifically, we completed the shipment of substantially all of the QED units under the pilot production contract during FQ4 2023 and are ready to start mass production in the upcoming December-ended quarter.
Jeremy Whitaker: All components shortages that would get deliveries in fiscal 2024 have been resolved. On the demand side, grid expertise recently increased their fiscal 2024 production order by over three quarters of a million dollars and are currently negotiating the first follow-on purchase order, which we would expect to drive continued growth from this customer in fiscal 2025. Furthermore, we received the final deposit that was due under the initial production contract for a grand total of 20 million in deposits paid to us thus far.
Jeremy Whitaker: Based upon these factors, we are confident in the program and our ability to begin volume production of the QED in FQ2 2024, which would result in a meaningful revenue contribution during that quarter. And leading to a full production ramp in the second half of fiscal 2024. More specifically, our current production forecast indicates that we would deliver approximately 5 million in FQ2 2024. We would double that amount in Q3 and deliver the balance in FQ4.
Jeremy Whitaker: Our lead EV customer talk is also progressing well. During FQ4 2023, we received a significant order from talk that was double their current run rate and greater than what we had previously anticipated for fiscal 2024. In addition, we continue to engage a handful of other EV opportunities with design services that have the potential to transition to meaningful supply arrangements. We are also seeing traction with other compute designs. For example, we have a high volume enterprise video collaboration design expected to ramp in FQ3 2024.
Jeremy Whitaker: Furthermore, with the recent Qualcomm announcement of their QCS-850 with increased computing for edge AI processing and Wi-Fi 7 connectivity, we have had multiple engagements with customers interested in using that solution. For various compute-intensive applications such as autonomous mobile robots, industrial drones, and edge AI box. Now, I would like to provide the specifics for our fiscal 2024 guidance, with the backdrop of a record backlog, a cautious but relatively steady demand environment for our system solutions, and new compute designs going into production.
Jeremy Whitaker: We anticipate delivering over 30 percent growth during fiscal 2024, and are reiterating our annual target of revenue in a range of 175 to 185 million, and non-GAP EPS in a range of 50 to 60 cents per share.
Jeremy Whitaker: Now I'll provide a brief update on our CEO search. In June 2023, the board engaged the third-party firm to conduct a candidate search. We're well along in the process, and have begun performing in-person interviews.
Jeremy Whitaker: While it is difficult to pinpoint the exact timing, I do expect that we will identify a qualified candidate before the calendar you're in. That completes our prepared remarks for today, so now it's turned over to the operator to conduct our Q&A session. Thank you very much.
Operator: We will now begin the question and answer session. To ask a question, you may press star, then one, on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.
Scott Surle: Today's first question comes from Scott Surle with Roth MKM. Please go ahead. Good afternoon. Thanks for taking the questions. Nice to continue to see the reinforced outlook for fiscal 24. Jeremy, maybe I just want to quickly dive in and get some color around the gross margins. It sounds like that's purely mixed in the June quarter, and you're expecting a recovery back to where we've been in recent quarters, kind of given a recovery and out of band in some of the other products.
Scott Surle: Is that correct? Yeah, that would be correct. We had a really strong compute quarter, and our out of band was actually down sequentially. The compute being on the lower end of our margin scale and the out of band on the higher end of the scale. For FQ1, we're expecting that to kind of flip where we're going to see much more contribution from out of band and lower contribution from the compute, and the result of that would likely be returning the gross margins closer to the mid-40s.
Jeremy Whitaker: Okay. Great. And then just looking at the top line, I thought I heard September is sequentially down a little bit. I just want to clarify that. But then you start to see the ramp up in the contribution from grid expertise ramping up. I think you said 5 million in December, going to 10 million in the March quarter. Want to clarify that because it really implies that you continue to see that big ramp up over the course of the year and the contribution on that front.
Jeremy Whitaker: I'm wondering two things on top of it. Gross margin profile, how is that going to impact you guys in the back half of the fiscal year? And then the follow-on contract, I'm wondering what other color you could provide around that in terms of the magnitude size and timing related to that. Thanks. Yeah, I think you're characterizing how we expect the year to play out as it relates as it relates to margin.
Jeremy Whitaker: We are expecting to maintain margins in the mid to low 40s, you know, similar to what we saw in fiscal 23. You know, as grid rolls in, it's pretty close to our corporate average. That said, it will bring down margins slightly, but we do have some tailwinds as it relates to, you know, we've been experiencing lower supply chain costs and lower PPVs. And so I would expect as those lower costs roll land, we will see some benefit from that, which would offset some of the lower gross margin that we would get on a combined basis from grid expertise.
Scott Surle: Great. And lastly, if I could, you talked about some of the other opportunities in different verticals, guys like Todd, et cetera. But I'm not sure if I heard a number in terms of the opportunity pipeline. I think last quarter, you talked about 150 million plus in opportunities. I'm wondering if there's a number that you would put on it. Thanks, and I'll get back in the queue. Yeah, you know, that number has continued to grow.
Scott Surle: You know, we're still pursuing a large number of opportunities greater than what the company has seen in the past. A lot of that is in applications such as smart cities, smart grid, EV, automotive, as well as security and surveillance. Thanks.
Operator: Thank you.
Mike Walkley: The next question comes from Mike Walkley with Can Accord Genuity. Please go ahead. Great. Thanks. And get my congrats on reiterating the guidance and closer to grid's expertise ramping. Just on grid's expertise, you talked about your early negotiates for the follow on contract. You know, if that goes well, as we look out the fiscal 25, could that be at least another 40 million? Or do you think it could grow off that as you have another maybe four year of production versus it ramping throughout the year?
Mike Walkley: Yeah, I think on the high end, we would grow year on year with the grid's with grid's expertise based upon the units that they have and the pricing that we're currently talking about. And so yeah, we do have a really good opportunity to continue to business with grid's expertise and to grow a year on year.
Mike Walkley: Great. That's helpful.
Jeremy Whitaker: And then as a grid's expertise ramps, or as you look at your mix throughout the year, Jeremy, is there anything to call out on gross margins? I know you're saying two months, you bounce back kind of into that mid 40 issues that the way to think about for the full year, is there any puts and takes how we should think about gross margins throughout the year based on your pipeline? Yeah, with the models that we put together and based upon our current forecast, the gross margin profile for the full fiscal year looks pretty close to what we had in fiscal 23.
Jeremy Whitaker: And like I said, as I mentioned previously, we do see some benefit, from greater absorption as revenue increases from some of our fixed costs, and also we are seeing quite a bit of relief in both logistics and purchase price variances, which should start showing themselves as we get into Q2 and the second half of the fiscal year. I think in addition to that, just on the operating margin, there's also quite a bit of leverage in the business, and so as we do grow the top line, we don't expect to add a similar level, which would allow us to exit the year with an even margin in the mid-teens.
Mike Walkley: Great. That's helpful. I just think about the ramp in the model.
Mike Walkley: Last question for me, just on embedded the very strong quarter, you know, to that $3 million shipment, and you talked about it down sequentially. Is this a business that builds from there, and do you think it grows year-over-year, or is most of the growth coming from IoT systems in 2024? Yeah, so on the embedded compute side, the next couple of quarters will be a little bit soft there. We have a couple of new, or a number of new design wins that are beginning to ramp in Q3, which would, you know, continue to grow that business.
Mike Walkley: But in general, the compute business is driving the growth. You know, Gritzvirtis itself is, you know, is part of the, I would call it, the compute business, although it's not an embedded product, and that that opportunity was brought to us through our design services on the Qualcomm processor.
Mike Walkley: Great. Take my question. I'll pass the line.
Operator: Thank you.
Christian Schwab: The next question comes from Christian Schwab with Craig Hallum Capital Group. Please go ahead. Hey, great. Thanks for thinking about questions. So I just want to verify that you guys still believe you can do 50 million over the next few years with Todd. I guess that's still the production goal. Yeah. And if anything, you know, it's gotten better. You know, we just received this quarter a follow-on order from Todd, which was much, much greater than we had initially anticipated. So they're on track, if not doing, you know, better than, you know, what we've indicated previously.
Christian Schwab: Fantastic. And then my final question is, you know, you'll like call up to the first question, I think from Scott. This is about 40 projects that you've kind of highlighted before that could contribute 150 million of annual revenue. You know, are any of those projects in your expectations, you know, for next fiscal year? You know, there are a couple that could help fiscal 24. I would say the vast majority of them would be projects that we'd be winning in fiscal 24 and then most likely contributing to revenue in fiscal 25. I think more about the future with that pipeline, although some of them have a high likelihood of closing and contributing in the current fiscal year as well.
Christian Schwab: Great. No other questions, thanks guys.
Operator: Thank you.
Ryan Koontz: The next question comes from Ryan Koontz with Needham. Please go ahead. Yeah, it's kind of drilling down on the near term, something like a promising pipeline and any contracts that with kind of the current state of the business out there in terms of, you know, are you still dealing with inventory and the distribution and there was some Qualcomm commentary about kind of general softness and industrial IoT.
Jeremy Whitaker: Can you kind of contrast your pipeline versus near term dynamics? That would be helpful. Thank you. Yeah, starting with channel inventories, you know, we saw several quarters with our inventory and the channel, you know, declining at least with with our distributors. This quarter, we did see it bump up a little bit, but it is within, I would say, our historical norms. So we're not seeing elevated inventory at our distributors. And we have heard from a couple of customers and where they feel like they have inventory that they need to burn through, but it's not necessarily systematic, I think, in our distributor channel.
Jeremy Whitaker: I think it's a situation where like a lot of companies with supply shortages in COVID, you know, everybody was, you know, companies were putting more inventory on hand because of the difficulty in getting it. We did mention, you know, previously on on several calls that, you know, coming out of post COVID, we did see some weakness in certain parts of our business. You know, that said, most of our growth drivers for fiscal 24 are really, you know, driven by large programs that we've won and, you know, in particular, grids release and talk where we have, you know, orders on hand to be able to drive that growth.
Jeremy Whitaker: In addition, we are seeing some new demand being generated from some of our newer product releases and connectivity. In particular, we have a nice opportunity with AT&T that we mentioned on our previous call that that's made some nice progress over the last quarter. And that will also help with the growth next year.
Ryan Koontz: That's great to hear and I'll follow up on the competitive front. Any changes, you know, I've heard about a few kind of new entrants coming at this with industrial, hard and tight products in areas that you play out of Europe and in other spots. Are you seeing much of an impact because it's a pretty stable, and Compositive Landscape. Yeah, I think we're not necessarily seeing any new entrance at this point. With our, you know, out of band products, with our recent acquisition of obliogics, we think we've got a market leading product there.
Ryan Koontz: You know, on the Qualcomm side with the design services. I think we have a great ability there to differentiate ourselves. And so, not necessarily seeing anything new in those areas today. Okay, cool. Thanks. That's all I have. Appreciate it. Thank you.
Operator: This concludes our question and answer session.
Operator: The conference is now concluded. Thank you for attending today's presentation.
Operator: You may now disconnect your lines.