Q1 2024 Lantronix Inc Earnings Call
Good day and welcome to the land Tronic thing first quarter 'twenty 'twenty four results conference call.
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And now I would like to turn the conference over to Robert Adams. Please go ahead.
Good afternoon, and thank you for joining the first quarter of fiscal 2024 conference call.
Joining us on the call today are Jeremy Whitaker interim CEO, and Chief Financial Officer, and Jackie <unk>, Vice President of marketing a live and archived webcast of today's call will be available on the company's website.
In addition, you can find the call in details for the phone replay in todays 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. We encourage you to review the cautionary statements and risk factors contained in the earnings release, which was furnished to the SEC today and is available on our website.
As well as the Companys SEC filings such as its 10-K and 10-Qs Plantronics undertakes no obligation to revise or update publicly any forward looking statements to reflect future events or circumstances.
Please refer to the news release and the financial information in the Investor Relations section of our website for additional details that will supplement management's commentary.
Are there more 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'll now turn the call over to Jeremy Whitaker.
Our interim CEO and Chief Financial Officer.
Thank you, Rob and welcome to everyone joining us for this afternoon's call.
First I'd like to acknowledge the passing of our chairman portfolio now and thank him for the many years of leadership and service. He provided to the land Tronox team Paul will be missed by all.
Now I will provide the financial results and some business highlights for our first quarter of fiscal 'twenty 'twenty four before commenting on our financial targets for the full fiscal year.
For F Q1, 'twenty 'twenty four we reported revenue of $33 million, which was higher than our initial expectations for the quarter sequentially revenue was down 5% and up 4% from the year ago period.
Systems solutions increased significantly driven by record revenues from our out of band deployments strong sales to federal customers and revenue recognition for the remaining QED pilot production units for grids for Ts.
We see continuing strength from our Iot system solutions, driven by contributions from our out of band there.
Coming production ramp of the QED.
And initial shipments of telematics asset tracking solutions to a tier one telecom carrier.
As expected we experienced a sequential decline in embedded systems as a result of a couple of large shipments in the prior quarter that did not repeat this quarter.
Looking forward, we see improving results from this broad product group driven by our E V customers across multiple geographies for both hardware and design services.
We also expect to begin ramping production of an AI powered video conferencing product for a large enterprise customer that should contribute meaningfully throughout the remainder of fiscal 'twenty 'twenty four.
In F Q1, 'twenty 'twenty four software and services revenues were up sequentially a function of increased design services revenue and we expect similar activity in the upcoming quarter.
GAAP gross margin was 42, 7% for F Q1, 'twenty 'twenty four compared to 39, 5% in the prior quarter and 44.1% in a year ago quarter.
The improvement in gross margin was primarily a function of a change in product mix from the prior quarter as a result of the record quarter and out of band sales during F Q1, 'twenty 'twenty four.
F Q2, 'twenty 'twenty four we expect a similar product margin as a percentage of revenue.
GAAP SG&A expenses for F Q1, 'twenty, 'twenty, four or $9 2 million compared with $9 2 million in the year ago quarter, and 8 million in the prior quarter.
The sequential increase in GAAP SG&A was primarily due to lower than normal share based compensation expense during F Q4, 2023.
GAAP R&D expenses for F Q1, 'twenty 'twenty four were $5 1 million compared with $4 5 million in a year ago quarter and relatively flat with the prior quarter.
Net loss was $1 9 million or five cents per share during F. Q1, 2024, compared to GAAP net loss of $1 7 million or five cents per share in the year ago quarter.
non-GAAP net income was $2 5 million or seven cents per share. During F. Q1, 2024, compared to non-GAAP net income of $2 7 million or seven cents per share in the year ago quarter.
Now turning to the balance sheet.
We ended F Q1, 'twenty 'twenty, four with cash and cash equivalents of $19 5 million, an increase of $6 million from the prior quarter.
Working capital was $50 2 million as of F Q1, 'twenty 'twenty, four and remained steady with the prior quarter.
Net inventories were $45 8 million as of F. Q1, 2024, a decrease of $3 9 million from the prior quarter.
Now turning to the upcoming second quarter and fiscal year 'twenty 'twenty four.
We expect that revenue in the second quarter will be up sequentially as the acuity ramps into volume production.
We have commissioned the production lines and the customer has approved the firmware to begin manufacturing.
Based upon these factors, we expect to begin volume shipments in the next several weeks.
As such we maintain our prior guidance for the acuity revenue ramp expecting approximately $5 million in December 2023.
Double that and our March 'twenty 'twenty four quarter with the remainder of the shipments falling in our fourth quarter ending June 2024.
And a cautious but relatively stem at stable demand environment, we remain optimistic about the fiscal year ahead of us and expect to deliver that fiscal 'twenty 'twenty four guidance that we provided during our previous earnings call. We're therefore, reiterating our guidance with revenue in a range of 175 $285 million.
And non-GAAP EPS in a range of 50 to 60 cents per share.
Yeah.
Finally for those who may not have seen it I'm excited to report that land Tronox has selected <unk> as its next president and CEO.
So we all come to electronics from Synaptics, where he was a S V. B S V P and G M of the Companys mobile and Enterprise Division the largest business unit within the company.
So Leo was instrumental in the company's pivot from mobile markets in Iot and enterprise application and drove a multi fold increase in market cap for the company's shareholders.
So Leo will officially joined <unk> on November 20th and I look forward to introducing him to you on our next earnings call.
That completes our prepared remarks for today, so I'll now turn it over to the operator to conduct our Q&A session.
Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble our roster.
Sure.
And our first question comes from Mike Walkley from Canaccord Genuity.
Mike. Please go ahead.
Great. Thanks, congratulations on another strong quarter and reiterating guidance for the year, despite the tough macro.
My I guess to start my question just on the Iot solutions business. It was down as you highlighted the store, but just wondering how maybe that pipeline is growing and Qualcomm had its recent snapdragon sound that was exciting new announcements that seemed like it could help drive your business.
Maybe update us on how that pipeline.
Generations coming for that section of your business.
Yeah.
Yeah, you know the second half of the year, we do have a number of design wins that are expected to go into production and so we are expecting to see the embedded compute business to improve over the next several quarters.
That business has tended to be a little bit lumpy because we tend to have a few larger customers driving some of that growth that is one design win.
You know potentially goes away, we have some others coming in but the timing of those aren't don't always overlap.
You know just how we'd like them.
As for.
Some of the new products.
Products with Qualcomm, we do have some new.
Modules that we are working.
Working on and expect to be delivering so as those.
You know products do come to market.
Typically what we'll see as an increase in our kit sales and design services and then that typically then translates into design wins there for.
You know the customer successful and I've said on the on the design services. So we do expect to continue to see strong growth coming from the compute business.
Both on the embedded side and also on the system solutions.
More specifically as it relates to the grids for Ts.
Our design win which is also based upon our Qualcomm process.
Okay. That's helpful.
I guess, Jeremy just building on that in a big picture Ive shared in the past 40, plus deals with over 150 million how is that pipeline holding up given the challenging macro out there.
Yeah, we're still seeing good progress in pipeline and opportunities I think we provided an update on that you know maybe it's about six weeks ago on our year end call in.
Havent seen.
You know any significant change in that outlook our pipeline.
But we do continue to see.
You know.
A lot of really good opportunities in the markets that we're playing in so we're pretty optimistic about the remainder of fiscal 'twenty four end and fiscal 'twenty five based upon the opportunity pipeline.
Great last question for me and I'll pass the line just on the telematics deal with a tier one carrier.
Anything you can share on just sizing the opportunity or timing of grant or what youre doing for that carrier.
Yeah.
This is something we've been working on with them over over several quarters.
We did receive our first large order from them a little bit less than a million dollar order I believe most of that will be.
Shipped in.
The next next couple of quarters.
We do expect it to be.
Multimillion dollar annual opportunity with with this carrier.
And it is in an application, where it's helping them monitor.
Blinking on me.
The the application to monitor power generators and towers are at towers.
Great. Thanks for taking my questions I'll pass the line.
Yeah.
And our next question comes from Jason.
Jason.
Smith from Lake Street.
Jason Please go ahead.
Hey, guys. Thanks for taking my questions just following up on Mikes question on the telematics deal do you anticipate any potential follow on orders eventually from this customer.
Yeah, we are expecting this to be a longer term engagement and so our expectation is this is just the initial order.
From them and you know likely would be a multi year rollout.
Got it and then what are you seeing as far as inventory levels in the distributor channel.
Yeah, our distributor inventories have remained relatively consistent if anything they're down a little bit from the prior quarter.
I don't we didn't see a I would say an unusual increase in our distributor inventories over the last several quarters as you know I've heard other other companies indicate so they're remaining relatively consistent and if anything down a little bit.
Yeah.
Okay. That's good to hear and then just the last one for me and I'll jump back into queue can you just give us an update on target and any change in expectations there.
Yeah, there were continuing to ship to target under the purchase order that we received it was either last quarter or the quarter before as I mentioned on our call.
On the previous call.
Receiving an order for about $13 million from them.
So most of that you know within within the fiscal year and at a run rate that was about to ask from a from what we were doing before.
So.
No change to our current forecast that was already baked into the numbers that we previously.
Provided to everybody on the last call and it continues to progress well and we're shipping against that contract.
Sounds good thanks for the color.
Thank you.
And as a reminder, you May press Star one if you would like to join the question queue.
Yeah.
And now we're going to take a question from Christian Schwab from Craig Hallum Capital Christian. Please go ahead.
Hey, guys. This is Tyler on behalf of Christian Thanks for letting us ask a couple of questions here. So.
So I guess I'm group, which is great to hear that.
The production shipments are ramping this quarter and this year as expected I guess any update there with conversations negotiations on an follow or follow on orders from that customer.
Yeah, we've been over the last several months negotiating a follow on contract with grids for Ts. So that is still in progress.
You know we are expecting that you know grids for Ts will remain our partner and customer of ours for for several years I think probably the as soon as we began.
Volume shipments and they can.
Begin.
Our production rollout that those negotiations will probably.
You know remains somewhat stalled until.
You know, we can you know they actually start delivering to their customers, but still feel good about you know fiscal 'twenty five and.
Continuing with them as as a significant customer going forward.
Great that sounds great. Yeah, I think all the rest of my questions have really been answered so I'll pass it on thanks guys.
Thank you.
And we'll take a question from Scott Serially from Roth.
Yeah.
Scott You May proceed.
Hey, good afternoon, thanks for taking my questions.
Hey, Jeremy just to follow up on the prior and no question as you're starting to contemplate what that follow on looks like is it do you see it as being a similar magnitude or otherwise. So your comment about growth in fiscal 'twenty five implies that it's still relatively sizable so I'm kind of wondering about how you think of the magnitude in <unk>.
As we get beyond these initial deployments.
Yeah from from what they've indicated to us as it relates to the size of this business for them. The total business is that a magnitude that's that's much greater than what we're doing.
With them in fiscal 'twenty four they have indicated that they may want to dual source the business.
Going forward.
And then you know there will be as the business grows there will be more price pressure.
On an on on the delivery as well so I think it has the potential to be.
You know greater than what.
What we've seen in fiscal 'twenty four.
The entire business you know what portion we get of that.
You know is still being discussed and negotiated.
Gotcha.
Maybe I'll follow up to that I believe the design that you've done with Enel is applicable into other markets geographies and customers is that correct or is there interest building beyond just grids for Ts in the Italian market.
So you know there is opportunity in other markets for this this type of solution and other solutions that were you now have the ability to to play in this specific design is grids for Ts design, so us taking that.
The other markets.
Unless we're working with them.
You know we would not be allowable you know that said this is still a big market and we do have a number of other products and designs that that can work within it.
Gotcha and.
Couple of other things quickly gross margins as we progress over the course of the fiscal year now as we start to see the <unk> contract ramping up how should we be thinking about that trajectory.
And as well I was just wondering if you could quickly comment on the EV market in general I know, there's a lot of design activity and I think in terms of your $150 million plus pipeline or some EV design wins in there I'm just wondering how the visibility on that as progress had been some headwinds on that front. Thanks.
Yeah, so on the margin front.
We're still expecting our gross margins and slightly below the mid forty's.
Consistent with what we've been seeing you know on average over the last several quarters.
And even with.
Grids parties coming in.
We do pick up although some of that is at a margin that's slightly lower than our corporate average we do get more leverage in the operations model. So we do make up for some of that by absorbing more of our fixed overhead costs.
On the EV front, we're working a number of different opportunities.
They're all in various stages a few of those are design service contracts that are currently in play expectation is you know some of those design services contracts will then roll into production agreements and then we're also.
Continuing to.
You know some of the work that we did for tog.
We do have some shared IP around that and we're looking at how we commercialize that work, we've done and take that into the EV market as well. So we have a couple of different areas that we're progressing on as it relates to E V.
And.
This current fiscal year I would expect you know, we'll see continued good growth or continued growth from from tog.
And then we also as it relates to some of the other service contracts that are in play and then.
Those service contracts to the extent they become a production contracts with more most likely benefit us in fiscal 'twenty five.
Great. Thanks, so much nice job on the quarter.
Thank you.
Thank you very much and this will conclude our question and answer session as well as the conference.
We thank you very much for attending today's presentation you may now disconnect.
Yes.