Q2 2024 Lantronix Inc Earnings Call

Operator: Good afternoon, and welcome to the Lantronix second quarter 2024 results conference call. All participants will be in listen-only mode.

Good afternoon, and welcome to the land Tronic second quarter 'twenty 'twenty four results conference call.

All participants will be in listen only mode.

Operator: 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 1 on your telephone keypad. To withdraw your question, please press star, then 2.

Should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

After todays 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 your question. Please press Star then two.

Operator: Please note, this event is being recorded. I would now like to turn the conference over to Rob Adams. Please go ahead. Good afternoon, everyone.

Please note this event is being recorded.

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

Good afternoon, everyone and thank you for joining the second quarter fiscal 2024 conference call joining us on the call today are silly, Oh, sorry, Chief Executive Officer, and Jeremy Whitaker, Chief Financial Officer, a live and archived webcast of today's call will be available on the company's website.

Rob Adams: And thank you for joining the second quarter fiscal 2024 conference call. Joining us on the call today are Salil Alsare, Chief Executive Officer, and Jeremy Whittaker, Chief Financial Officer. This 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.

In addition, you can find the call in details for the phone replay in todays earnings release.

Rob Adams: During this call, management may make forward-looking statements that 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 its 10-Q. Lantronix undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Refer to the news release and the financial information in the investor relations section of our website for additional details that will supplement management's commentary. Furthermore, during the call, the company will discuss 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.

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-Q.

<unk> undertakes no obligation to revise or update publicly any forward looking statements to reflect future events or circumstances.

You can refer to the news release and the financial information in the Investor Relations section of our website for additional details that will supplement management's commentary.

Furthermore, during the call the company will discuss 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 Silvio outright plantronics, President and CEO.

Salil Alsare: With that, I'll now turn the call over to Salil Alseraif, Lantronix President and CEO. Thanks, Rob, and thank you, everyone, for joining us on the call today. I'm happy to be speaking to you for the first time since I joined at the end of November.

Thanks, Rob and thank you everyone for joining us on the call today.

I'm happy to be speaking to you for the first time since I joined at the end of November.

Salil Alsare: I'm pleased to report record results for the second quarter of FY 2024 with total revenues of $37 million in FYQ2, an increase of 18% compared to the same period of FY 2023 and an increase of 12% over the last quarter. And we expect record revenues for fiscal 2024. I'm optimistic about the future of Lantronix given our wide range of leadership in technology, strong product pipeline, and growing customer engagement. I thought it would be helpful to provide some of my background and why I joined Lantronix as well as discuss some of the initiatives that I'm driving in the short term. For more than 25 years, I've navigated the high-tech landscape, driving successes across hardware, software, and service. Most recently, I was the Senior Vice President and General Manager of Enterprise and Mobile Business Finance, the company's largest division. Prior to that, I ran the IoT.

I'm pleased to report record results for the second quarter of FY 2024, with total revenues of $37 million. That's why Q2, an increase of 18% compared to the same period.

FY 2023, and an increase of 12% over the last quarter and we expect record revenue for fiscal 2024.

I'm optimistic about the future of electronics, given our wide array of leadership in technology strong product pipeline and growing customer engagement.

I thought it would be helpful to provide some of my background and why I joined electronics as well as also discussed some of the initiatives that I'm driving into shock.

But more than 25 years and navigate to the high tech landscape driving successes across hardware software and services.

Most recently I was the senior Vice President and general manager of the enterprise and mobile business. The Genoptix the company's largest division.

Prior to that I ran the Iot Division.

Wireless Genoptix I made significant changes streamlining operations.

Salil Alsare: While at Synaptics, I made significant changes to streamlining operations, prioritizing customer centricity, and implementing robust go-to-market methodologies that led to significant gross margin and profitability. Across multiple companies, including Connexent, Winborn, and Synaptics, I've established a track record of business performance improvement across a range of methods. When the Lantronix opportunity was presented, it was quickly apparent to me that there is much potential to be unlocked. The macro trends of IoT are accelerating, and Lantronix, with its unique portfolio of secure compute and connect solutions, is perfectly positioned to capitalize on this, from wireless routers, programmable telematics, out-of-band management, edge compute modules, and a rapidly growing secure custom solution.

As in customer Centricity and implementing robust go to market methodologies that led to significant gross margin and profitability improvements.

Across multiple companies, including connection wind Barton Synaptics I've established a track record of business performance improvement across a range of metrics.

When the line drawn X opportunity was presented was quickly pattern to meet that as much potential should be unlocked.

The macro trends of Iot at accelerating and chronic <unk> with its unique portfolio of secure computing connect solutions.

Perfect lead position to capitalize on this moment.

From wireless routers programmable telematics out of band management.

Compute modules and a rapidly growing secured custom solution business.

Salil Alsare: We have the breadth and depth to be the differentiated and trusted vested supplier of IoT solutions providing unparalleled global reach. As the new president and CEO, I see myself as a steward of shareholder capital, and I take that responsibility seriously. You'll find me direct, results-oriented, and focused on building a profitable growing business in my first 60 days. I met many customers, partners, and employees, immersing myself in our strengths and opportunities. However, my focus remains on enhancing performance.

We have the breadth and depth to be the differentiator.

Just interested supplier of Iot solutions, providing unparalleled global reach and coverage.

As the new President and CEO I see myself as a steward of shareholder capital and I take that responsibility seriously.

You'll find me direct results oriented and focus on building a profitable growing business.

In my first 60 days I've met with many customers partners and employees.

Myself, and our strengths and opportunities.

However, my focus remains on enhancing performance.

Salil Alsare: We've launched multiple initiatives, including the Strategic Portfolio Review, diving deeply into various areas like engineering, operations, and marketing. In FYQ2, we made our first volume shipment to our smart grid customer, and we have the backlog in place to drive a strong wrap for the remainder of the year. In FY 2025, we expect to transition to a run rate business receiving purchase orders against our existing design win and in line with. Having just met with the customer in Europe, I'm happy to say that the relationship has deepened, and I expect this to be a long-term engagement. Other noteworthy business highlights include the commencement of volume shipments of our FOX 3 Gateway device to a major telecom carrier. This device enables tracking, data collection, communication, and diagnostics in power-critical applications. Initial deployments will be generators supplying their own power. This adoption is driven by mandates in power backup systems and state energy reporting standards.

We've launched multiple initiatives, including the strategic portfolio review delving deeply into various areas like engineering operations in March.

Yes.

By Q2, we made our first volume shipment to our spot with customer and we have the backlog in place to drive a strong ramp for the remainder of the year.

And that's why 2025, we expect to transition to a run rate business, receiving purchase orders against our existing design wins and in line with lead times.

Having just met with the customer in Europe, I'm happy to say that the relationship has deepened and I expect this to be a long term engagement.

Other noteworthy business highlights include the commencement of volume shipments of our Fox III gateway device to be a major telecom carrier.

This device enabled tracking data collection communication and diagnostics empowered critical applications.

Initial deployments will be generated supplying subtopics.

This adoption was driven by mandates in power backup systems State energy reporting standards.

And finally, our out of band products continued to perform well with our large enterprise customers resuming purchases.

Salil Alsare: And finally, our out-of-band products continue to perform well with our large enterprise customers resuming purchases. Before I hand over the call to Jeremy to review the Q2 financials in more detail, I'd like to conclude by saying I'm really excited about the opportunity ahead at Lantron. Since I've been on board, I've been impressed with our team, the broad portfolio of technology and IP, and our great customers. We have a lot of work ahead of us as we continue to make the transformation. But I'm confident we have the building blocks in place to drive Lantronix to become an even stronger company built on differentiated and sustainable franchises that generate profitable growth. I'll now turn over the call to Jeremy Whittaker, Lantronix's Chief Financial Officer. Thank you, Salil.

Okay.

Before I hand over the call to Jeremy to review the Q2 financials in more detail I'd like to conclude by saying I'm really excited about the opportunity ahead of electronics.

Since I've been on board I've been impressed with our team the broad portfolio of technology, and IP and our great customers.

We have a lot of work ahead of us as we continue to drive the transformation.

I'm confident we have the building blocks in place for driveline Tronox to become an even stronger company built on differentiated and sustainable franchises that generate profitable growth.

I'll now turn over the call to Jeremy Whitaker Electronics, Chief Financial Officer.

Thank you. So we'll now I will provide the financial results and some business highlights for our second quarter of fiscal year 2024, before commenting on our financial targets for the remainder of the fiscal year.

Jeremy Whittaker: Now, I will provide the financial results and some business highlights for our second quarter of fiscal year 2024 before commenting on our financial targets for the remainder of the fiscal year. For FQ2 2024, we reported revenue of $37 million, an all-time record for Lantronix, driven by initial production shipments to a smart grid solutions provider. Revenue was up 12% and 18% from the sequential and year-ago periods, respectively.

For F Q2, 2024, we reported revenue of $37 million, an all time record for electronics, driven by initial production shipments to a smart grid solutions provider.

Revenue was up 12% and 18% from the sequential and year ago periods, respectively.

Jeremy Whittaker: IoT system solutions increased by 21% and 54% from the sequential and year-ago periods, respectively. The increase was primarily driven by initial production shipments for our lead smart grid customer, as previously noted. In addition, the year-over-year increase was impacted by strong sales from out-of-band deployment.

Iot system solutions increased by 21% and 54% from the sequential and year ago periods, respectively. The.

The increase was primarily driven by initial production shipments for our lead smart grid customer as previously noted.

In addition, the year over year increase was impacted by strong sales from out of band deployments.

Jeremy Whittaker: For the remainder of the fiscal year, we expect continuing growth from our IoT system solutions, driven by the production ramp of our smart grid customer, continued strength and out of band, and Telematics asset tracking solutions to a tier one telecom carrier. Sequentially embedded IoT solutions were up 3% with meaningful contribution from our lead EV customer design. As expected, we experienced a year-on-year decline in embedded IoT solutions, as the year-ago period included a large enterprise video customer design win that ended in FQ4 2023. In FQ2-2024, software and service revenues were down sequentially, primarily a function of the completion of two large design services projects that have transitioned into production. Gap gross margin was 40.6% for FQ2 2024, compared to 42.7% in the prior quarter and 43.8% in the year-ago quarter.

For the remainder of the fiscal year, we expect continuing growth from our Iot system solutions.

Even by the production ramp of our smart grid customer.

Continued strength and out of band.

And telematics asset tracking solutions to a tier one telecom carrier.

Sequentially embedded Iot solutions were up 3% with meaningful contribution from our lead E V customer design at <unk>.

As expected, we experienced a year on year decline in embedded Iot solutions as.

As the year ago period included a large enterprise video customer design win that ended in F Q4 2023.

In F Q2, 2020 for software and service revenues were down sequentially.

Primarily a function of the completion of two large design services projects that have transitioned into production.

GAAP gross margin was 46% for F Q2, 2024, compared to 42, 7% in the prior quarter and 43, 8% in a year ago quarter.

non-GAAP gross margin was 41, 6% for F Q2, 2024 compared to 44% in the prior quarter and 44, 6% in the year ago quarter.

Jeremy Whittaker: Non-GAAP gross margin was 41.6% for FQ2 2024, compared to 44% in the prior quarter and 44.6% in the year-ago quarter. The decline in gross margin was primarily a function of a change in product mix from the prior quarter and increased logistics costs. For FQ3 2024, we expect gross margins in a similar range. Gap SG&A expenses for FQ2 2024 were $10.2 million compared with $9.8 million in the year-ago quarter and $9.2 million in the prior quarter.

The decline in gross margin was primarily a function of a change in product mix from the prior quarter and increased logistics costs.

For F Q3, 'twenty 'twenty four we expect gross margins in a similar range.

GAAP SG&A expenses for F. Q2, 2024 were $10 2 million compared with $9 8 million in the year ago quarter, and $9 2 million in the prior quarter.

Jeremy Whittaker: The sequential increase in GAAP SG&A was primarily due to costs related to variable and share-based compensation, partially offset by cost-cutting activities. Gap R&D expenses for FQ2 2024 were $4.7 million compared with $5.1 million in the year-ago quarter and the prior quarter. The decline was primarily related to cost-cutting efforts.

The sequential increase in GAAP SG&A was primarily due to costs related to variable and share based compensation, partially offset by cost cutting activities.

GAAP R&D expenses for F. Q2, 2024 were $4 7 million compared with $5 1 million in the year ago quarter and the prior quarter.

The decline was primarily related to cost cutting efforts.

Jeremy Whittaker: Company-wide, we reduced headcount by approximately 7% during FQ2 2024. Over the last several quarters, we have reduced headcount by approximately 10% as part of our ongoing efforts to capture cost synergies from our previous acquisitions, run the business more efficiently, and improve operating margins. Gap net loss was $2.6 million, or $0.07 per share, during FQ2 2024, compared to gap net loss of $2.6 million, or $0.07 per share, in the year-ago quarter. Non-GAAP net income was $2.9 million, or $0.08 per share, during FQ2 2024, compared to non-GAAP net income of $1.4 million, or $0.04 per share, in the year-ago quarter.

Companywide, we reduced head count by approximately 7% during F Q2, 'twenty 'twenty four.

Over the last several quarters, we have reduced head count by approximately 10% as part of our ongoing efforts to capture cost synergies from our previous acquisitions run the business more efficiently.

And improve operating margins.

GAAP net loss was $2 6 million or seven cents per share during F. Q2, 2024, compared to GAAP net loss of $2 6 million or seven cents per share in the year ago quarter.

non-GAAP net income was $2 9 million or eight cents per share during F. Q2, 2024 compared to non-GAAP net income of $1 4 million, our forks cents per share in the year ago quarter.

Jeremy Whittaker: Now turning to the balance sheet. We ended FQ2 2024 with cash and cash equivalents of $22.1 million, an increase of $2.7 million from the prior quarter. Working capital was $51.9 million, an increase of $1.8 million from the prior quarter. Net inventories were $42.8 million as of FQ2 2024, a decrease of $3.0 million from the prior quarter.

Now turning to the balance sheet.

We ended F Q2, 'twenty 'twenty, four with cash and cash equivalents of $22 1 million, an increase of $2 7 million from the prior quarter.

Working capital was $51 9 million, an increase of $1 8 million from the prior quarter.

Net inventories were $42 8 million as of F Q2, 'twenty 'twenty four a decrease of 3.0 million from the prior quarter.

Jeremy Whittaker: Now turning to our, For the third quarter of fiscal 2024, we expect revenue in a range of $38 to $42 million, and Nongap EPS in a range of $0.09 to $0.13 per share. For fiscal 2024, we are updating our annual guidance to revenue in a range of $155 to $165 million, and Nongap EPS in a range of $0.35 to $0.45 per share. The change in our annual guidance is primarily due to lower expected sales for our embedded IoT solutions as a result of two factors. A general slowdown in our broad-based channel business as customers work through their inventories, and an embedded compute design win in video applications that was slated for revenue in the second half of fiscal 2024 that was pushed into fiscal 2025. We remain optimistic about the business and are on track to deliver a record year on both the top and bottom lines with 18-26% organic revenue growth and over 50% growth in non-GAAP earnings. With that, we complete our prepared remarks for today.

Now turning to our outlook.

For the third quarter of fiscal 2024, we expect revenue in a range of $38 million to $42 million.

And non-GAAP EPS in a range of nine to 13 cents per share.

For fiscal 2024, we are updating our annual guidance to revenue in a range of $155 million to $165 million.

And non-GAAP EPS in a range of 35 to 45 cents per share.

The change in our annual guidance is primarily due to lower expected sales for our embedded Iot solutions as a result of two factors.

A general slowdown in our broad based channel business as customers work through their inventories.

And in embedded compute design win and video applications that was slated for revenue in the second half of fiscal 2024.

Got pushed into fiscal 2025.

We remain optimistic on the business and are on track to deliver a record year on both the top and bottom lines with 18% to 26% organic revenue growth.

And over 50% growth in non-GAAP earnings.

With that we complete our prepared remarks for today.

Operator: So I will now turn it over to the operator to conduct our Q&A session. 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.

So I will now turn it over for the operator to conduct our Q&A session.

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 speakerphone please pick up your handset before pressing the keys.

Scott Serrell: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster, and our first question will come from Scott Serrell of Roth MKM. Please go ahead. Hey, good afternoon.

To withdraw your question. Please press Star then two.

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

Okay.

Yeah.

Yeah.

Okay.

And our first question will come from Scott Searle of Roth.

Please go ahead.

Salil Alsare: Thanks for taking the questions. So we'll give you congratulations and welcome aboard. Hey, maybe just to dive in quickly on the Outlook, a little below expectations, it sounds like you've got a design with on the embedded push front. I wonder if you could provide a little more color and clarity in terms of how the Enel ramp is going, how you're thinking about a phase two opportunity with them, and, you know, what the channel level of inventory looks like at the current time, and, you know, are there Hey Scott, thanks for the question. Let me start with the NL ramp, and then I'll pass it to Jeremy for some of the other questions that you asked.

Hey, good afternoon, thanks for taking the questions. So will our congratulations and welcome aboard.

Maybe just to dive in quickly on the outlook a little below expectations. It sounds like you've got a design win on the embedded push front.

I'm wondering if you could provide a little more color and clarity in terms of how the enel ramp is going how youre thinking about these two opportunity with them and.

What the channel level of inventory it looks like at the current time and is there any other risks to slippage of a larger customer like youre talking about on the embedded front that slip.

Hey, Scott. Thanks for the question, let me start with you and they'll ramp and then I'll pass it to Jeremy for some of your other.

Question that you asked them. So as I said I was in Europe are meeting our customer who is a customer of NLS. If you put it precisely.

Salil Alsare: So, as I said, I was in Europe meeting our customer, who is a customer of NLs, if you put it precisely, and that ramp is going well. Systems are now getting deployed in the field, and we hear no showstoppers.

And that ramp is going well.

Systems are now getting deployed in the field and we had no show stoppers and as I said in the call in my prepared remarks.

Salil Alsare: And as I said on the call in my prepared remark, we've got a good backlog until the end of June for the fiscal year. And as we transition this business into more of a run rate kind of business, we will be getting in purchase orders for the second half of the year. I expect to get purchase orders for the second half of the year, and we'll ramp with them as we move forward. Now there is a big buildup as they start the deployments, especially in our calendar Q3. I mean our fiscal Q3 and Q4. It'll slow down just a little bit as we go into the second half of the calendar. Jeremy

Good backlog till end of June for the fiscal year and as we transition this business into more of a run rate kind of business, we will be getting in purchase orders for the second half of the year I expect to get pushes us to think about the year and we will ramp with them as as we move forward now there is a big.

Bid up as they start the deployment, especially in our calendar Q3, I mean, our fiscal Q3 and Q4.

It slowed down just a little bit as we go into the second half of calendar year.

Jeremy.

Jeremy Whittaker: Yes, Scott, you had a question regarding distributor inventories. Yeah, Jeremy, just on the embedded front, it sounds like you're working down some elevated inventory levels. I'm wondering if you could give us an idea about, you know, channel inventory weeks or otherwise to kind of help us calibrate and then on the design when that slipped out, the visibility and the comfort level that that is going through, in fact, ramp up in September. Yeah, so starting with channel inventories and what we're hearing back from our sales team as it relates to, you know, end customers, a lot of that business is going to And what we heard back from our sales team is that there are customers that are working down inventories, and that was, and also, you know, a general slowdown in the macro that is impacting customers. And for that reason, we brought down the forecast for our embedded solutions for the second half of the fiscal year.

Yes, Scott you had a question regarding distributor inventories.

Yeah, Jeremy just on the embedded front it sounds like Youre working down some elevated inventory levels I'm wondering if you could give us an idea about.

Channel inventory weeks or otherwise to kind of help us calibrate and then on the <unk>.

Bill.

Design win that slipped out the visibility and the comfort to that that that is going through in fact ramp in September and December.

Yeah, so so starting with channel inventories.

And what we're hearing back from our sales team as it relates to.

And customers a lot of that business is going to a broad based.

Customer base, a lot of it and industrial Iot connectivity.

And then embedded solutions in that area and what we heard back from our sales team is that there are customers that are working down inventories and that was and and also you know a general slowdown and in a in a macro.

That is impacting customers.

And for that reason, we brought down our.

Our forecast for our embedded solutions for the second half of the fiscal year.

Salil Alsare: As it relates to the push out of our one embedded compute customer in video applications, as far as we understand from talking with the sales team and their interaction with the customer, they are on track to go into production in fiscal 25, or I would say they have more of a ramp. They are already buying some product from us at this point, but the actual ramp of their production has slipped into 25. Just let me add a little bit more color, Scott. This is a video conferencing system, and they need to go through some certification.

As it relates to the push out of our one embedded compute customer and video applications.

As far as we understand from from talking with the sales team and their interaction with the customer is that they are on track to.

So to go into production.

In our fiscal 'twenty, five or I would say more have more of a ramp there already are.

Our buying.

Some product from us at this point, but the actual erect the actual ramp up their production has slipped into 'twenty five.

Just let me add a little bit more color Scott.

This is a video conferencing system and they need to go through some certification you might be familiar with it like things like teams and stuff.

Scott Serrell: You might be familiar with it, like things like Teams and stuff. Usually, this takes a bit longer than you anticipate, and that's, I think, what they're going through right now. Gotcha. Very helpful. And if I could, just one follow-up.

It usually takes a bit longer than you anticipate and that's what they're going through right now.

Got you very helpful and if I could one one follow up.

Salil Alsare: So I know it's still early, so this is perhaps a bit unfair, but I'm wondering if you could give us some insight into, you know, how you think about the growth of the business as we get into fiscal 25, not necessarily to give guidance, but are you comfortable that this is a double-digit or a mid-teens kind of growth business given the product portfolio and the customer interactions that you've had? And as part of that, you know, the gross margin profile that you're thinking about now that you see in the combined business and product offerings, if you could give us some insight on that front. And if I could throw in as well, edge compute is becoming a bigger and bigger discussion point within the industry.

So I know it's still early so this is perhaps a bit unfair, but I'm wondering if you could give us some insight into.

How you think about the growth of the business as we get into fiscal 'twenty five not necessarily to give guidance, but are you comfortable that this is a double digit or a mid teens kind of growth business, given the product portfolio and the customer interactions that <unk> had and as part of that.

Most margin profile.

You are thinking about now that you've seen the blended.

Business from product offerings.

If you can give us some insight on that front and then if I could throw in as well on the edge compute is becoming a bigger and bigger.

A discussion point within the industry you guys have a lot of components on that front that have led to our business over the past several years I'm wondering how you see that evolving and your position in the marketplace. There. Thanks.

Salil Alsare: You guys have a lot of components on that front that have led to business over the past several years. I'm wondering how you see that evolving and your position in the marketplace there. Thanks.

Salil Alsare: Yeah, so I think it's a little too early for me to get into the specifics of Fiscal 25 from, you know, percentages and numbers, but we have all the right things in this company, as I said, as I move forward to compute and Kinect, and our compute business is growing quite a bit. Almost It grew by 60% from fiscal 23 to fiscal 24, just to be clear, as we are projecting it to grow. So I expect that to be a growth driver as we look into the future. Now, going specifically to the edge compute, you're right; we do have some great technology and products.

Yeah. So I think it's a little too early for me to get into the specifics for fiscal 'twenty five from percentages or numbers, but we have all the right things in this company as I said as I move forward to compute.

And connect.

And our computer business is growing.

Quite a bit almost it grew 60% from fiscal 'twenty three to fiscal 'twenty four just to be clear that we are projecting it to grow so I expect that to be a growth driver as I look into the future.

Now going specifically to the edge compute you're right. We do have some great technology and products. It's early days, but I do see.

Salil Alsare: It's early days, but I do see some momentum into fiscal 25 for those specific areas. And we're doing, Scott, a really deep dive into the product portfolio starting in March called the Strategic Program Review. This is something that I've done in the past, and I'm going to spend probably the better part of a week with our business teams and also the engineering teams trying to go through every product line, understand our strengths, our weaknesses, and look at the ROI and the growth in that area. I'll be able to give a better view of this in the May call or so. Great. Thanks so much.

Some momentum into fiscal 'twenty five for those specific areas.

And we are doing Scott, a really deep dive into the product portfolio starting in March while the strategic program review that is something that I have done in the past and I'm going to spend probably a better part of a week with our our business teams and also the engineering teams trying to go through every product line I understand.

Our our strength or weakness and look at the Ottawa and the growth in that area. So I'll be able to give a better view about this you know in the may call herself.

Great. Thanks, so much.

Scott Serrell: Thank you. The next question comes from Mike Rockley of Canaccord Genuity. Please go ahead.

Thank you.

The next question comes from Mike Walkley of Canaccord Genuity. Please go ahead.

Mike Rockley: Great, thanks for taking my questions, and I'll try to keep them a little a little briefer than multi-part here. Just welcome to the board, I look forward to working with you. Yet, you mentioned you're in the midst of a strategic portfolio review, but given your short tenure at Lantronix and with your unique industry background, do you see any low hanging fruit right away in terms of like going to market or distribution channels that you think can help expand Lantronix's reach? You know what? I did my first QBR with the team just a few weeks ago.

Alright, Thanks for taking my questions and I'll try to keep them a little little briefer than multi park here filial, yes, yes, welcome aboard I look forward to working with you yet you mentioned during the midst of our strategic portfolio review, but given your short tenure at land Tronox and with unique industry.

Background.

Do you see any low hanging fruit right away in terms of like go to market or distribution channels that you think can help expand plantronics reach.

Yeah.

You know what I've done my first QBR with the team just a few weeks back I wouldn't go into low hanging fruit I mean, there are areas that I can look at that we can go with customers that I might have worked waves in the past and as I look at the future, but as I said earlier I think the computer and connect portfolio that'd.

Salil Alsare: I wouldn't go into low-hanging fruit. I mean, there are ideas that I can look at that we can go with customers that I might have worked with in the past and as I look at the future. But as I said earlier, I think the Compute and Connect portfolio that we have is really very good as I think about it in the future. And I'll get you more details as I go through the quarter and go through the review because that's when I'm going to really get my teeth into it to understand what if any low-hanging fruits there are. And I've done this in the past.

We have is really very good as I think about it in the future and I know I'll get you more details as I go through the quarter and go through the review because that's we're not going to get my really make deep into it to understand what if any low hanging fruits that are and I've done. This in the past. It's a great question what can we do more work and we go do more.

Salil Alsare: It's a great question. What can we do more? Where can we go to do more?

Salil Alsare: And I'll just digress and give you one little piece which I've really gravitated toward, and I understand it's kind of differentiated here, which is the out-of-band area. In that out-of-band area, you know, Lantronix is a leader. Not a lot of people in this space.

I will just digress on you one little piece, which I really gravitated and I understand it's kind of differentiated here, which is the I'll go back that out of band aid. Yeah. You know <unk> is a leader not a lot of people in this space.

Salil Alsare: As folks like NVIDIA and stuff roll out these new pods for data centers for AI, they all have this out-of-band port in there that is not being used yet. But as I think about that, can that be a low-hanging fruit? Maybe. But again, give me a little bit more time, and I think there are things here that we can really go after. Right, that's helpful. And just to follow up maybe for you and, and or Jeremy, as you start to meet with customers in the long term, as you look at the longer term opportunity, you know, in the past, Lantronix shared, you know, kind of the number of large deals in the pipeline. I think maybe the last time it was around 40 deals and $150 million.

As as folks like in media and stuff rollout these new pods for Datacenters or AI. They all have this out of band ported and theyre not being exercised yet, but as I think about that can that'd be a low hanging fruit, maybe but again give me a little bit more time, but I think there are things here that we can really go after.

Yeah.

Okay. That's helpful.

And just to follow up maybe for you in <unk>, Jeremy you know as you start to meet with customers in the world. When you look at the longer term opportunity you know in the past when tracks shared.

Kind of number of large deals in our pipeline I think maybe the last time. It was around 40 deals on $150 million any update on that pipeline opportunity.

Salil Alsare: Any update on that pipeline opportunity? Yeah, so let me talk about the funnel. This is something I spent a lot of time on when I was at Synaptics. The funnel is a great thing that you really want to understand.

Yeah. So let me talk about the funnel and this is something I've spent a lot of time when I was at Synaptics. Our funnel is a great thing that you really want to understand so as I said I went to the QBR with our sales team and marketing team just a few weeks back and I am very pleasantly surprised at the size of the funnel, but before I had it pulled back.

Salil Alsare: So, as I said, I went through the QBR with our sales team and marketing team just a few weeks ago, and I'm very pleasantly surprised at the size of the funnel. But before I report back on the specific numbers, and I am very familiar with the number out there, I'm going to do a much deeper dive, understand it, and see where we are with each of the programs in the funnel with respect to the schedules and stuff like that. So, just give me a little bit of time, but so far, I'm happy with what I saw with the funnel. Last question for me, and I'll pass the line.

On the specific numbers and I am very familiar there's a number out there I'm going to just do a much more of a deeper dive understand it and see you know where we are with each of the programs and the final with respect to the scheduled and stuff like that so just give me a little bit of time, but so far I'm happy with what I saw.

With the final.

Great. Thanks last question for me and I'll pass Fine Yeah, Jeremy I'm just in terms of the reduced fiscal 'twenty four guidance can you just help maybe rank order.

Jeremy Whittaker: Jeremy, just in terms of the reduced fiscal 24 guidance, can you just help maybe rank order the different issues between inventory at some of your customers and this project getting pushed? And were there any other impacts to the guidance, or were those really just the two main issues?

Yeah.

The different issues between inventory at some of your customers in this project getting pushed and are there any other impacts to the guidance or were those really just two main issues.

Jeremy Whittaker: You know, those I would say those are the two main things that came out of our QBR several, several weeks ago, after we reviewed the forecast with the sales team, both primarily coming out of the embedded business, relatively, I would say, evenly split between kind of a broad-based expected decline from our connectivity business, embedded connectivity business, which is mostly wired products, a little bit of wireless, but not as impacted by that. And then there is the compute customer and the video application that I mentioned previously. So those were the primary drivers for the reason to bring down our numbers for the second half of the fiscal year. Thank you very much.

You know those I would say those are the two main.

The main things that came out of our QBR. Several several weeks ago. After we reviewed the forecast with the sales team.

Both primarily coming out of the embedded business Hum.

Uh huh.

Relatively I would say evenly split between kind of a broad based.

Expected decline from our connectivity business embedded embedded connectivity business, which is mostly.

Wired products, a little bit of wireless, but but but not as impacted by that and then the.

The compute customer.

And the video application that I mentioned previously so those were the primary drivers for the reason to bring down our numbers for the second half of the fiscal year.

Thank you very much.

Ryan Koontz: Thank you. The next question comes from Ryan Koontz of Needleman Co., Inc. Please go ahead.

Thank you.

The next question comes from Ryan Koontz of Needham <unk> co. Please go ahead.

Ryan Koontz: Thank you. Thank you. Thinking about this from a different angle here on the second half, the Outlook change sounds like the core business, what I think of as the core business, dating back the last couple of years, that's where the big headwind here is on your embedded. And so, that's looking like it's going to, is that stepping down in its run rate materially into your fiscal second half? Jeremy, is that how we should think about it?

Thanks for the question.

Just thinking about this from a different angle here on the second half.

Change.

Like the core business when I was when I think of as the core business dating back last couple of years that that's where the big headwind here is on your embedded and so.

That's looking like it's going to is that stepping down.

Run rate materially into your fiscal second half.

Jeremy is that how we should think about it.

Yeah, I would say it's it's.

Jeremy Whittaker: Yeah, I would say it's lower than what we would have originally anticipated. I'm not sure if it's taking a major step down, but many of these are legacy products that have been in the market for a period of time, and we do have a general expectation that they're not high-growth products, even in the forecast. So, many of these products did have a bit of a resurgence during COVID, and I think this is just on the other side of that COVID resurgence. I think that a lot of companies, including us, saw potential in some of these legacy products. Ryan, let me just add a little bit of more color, right? Salil here.

The lower than what we would have originally anticipated I'm not sure. If it's taking a major step down but many of these are legacy products have been in.

In the market.

For a period of time, and we do have a general expectation that they're not and high growth products, even even in the forecast.

So.

If they did have a bit of a many of these products that have a bit of a resurgence during during COVID-19.

And I think this is just on the other side of that Covid resurgence I think that a lot of cut.

Companies, including Us saw and some of these.

That's kind of legacy products.

Ryan Let me just add a little bit more color right.

Yeah. So as I think about this is Jeremy clearly pointed out it's really broad market.

Salil Alsare: So as I think about this, as Jeremy clearly pointed out, it's a really broad market. And, you know, there might still be, you know, more industrial kinds of IOT areas. So a few macro slowdowns, you know, as opposed to what it was originally when they planned it, maybe, nine months ago. So that's how I would think about it. So it's nothing hugely material, it's just from that dimension, helpful. And then any color you can share on the RIF in terms of what areas of the business, you know, are these duplicative functions? Are these a redeployment of resources?

And you know there might be still more industrial kind of Iot areas broad market. So a few few macro slowdowns.

As opposed to what was originally when they plan to maybe six nine months ago. So that's how I would think about it. So it's nothing hugely material is just from that dimension.

Okay helpful. And then any color you can share on the risk in terms of what areas of the business.

Duplicative functions of these redeployment of resources.

Jeremy Whittaker: Kind of walk us through what sort of adjustments you made on the OPEX side. Yeah, some of it was duplicative, you know; we did an acquisition of Logix nearly a year ago, and then prior to that, a transition network. And so some of these were positions that as we've been able to get systems integrated and offices together, we've been able to identify some additional cost synergies to take out of the business. So I think it's just a bit more of where we are in the wrap-up of the integration phase and identifying areas where we had duplicity. In terms of the different cost components of R&D, SG&A, and operations folks that flow into COGS, is it pretty broad-based or more... Um, I would say it was pretty broad-based.

Kind of walk us through what sort of adjustments you made on the on the Opex side that'd be helpful.

Yes, some of it was duplicative you know.

We did.

An acquisition of a project nearly a year ago and then prior to that.

Transition networks and so some of these were positions that as we've been able to.

Good.

Systems integrated in offices together, we've been able to identify some additional cost synergies to.

To take out of the business. So I think it's just.

A bit more of a.

Uh huh.

Where we're at and the wrapping up.

The integration phase and identifying areas.

That we had.

Duplicity.

And is that in terms of the different cost components of R&D SG&A and ops.

Ops ops folks that flow into Cogs, as a pretty broad based or more focused.

I would say it was pretty broad based.

We had done something in sales a couple of quarters ago, and so this was probably more ops.

Jeremy Whittaker: We had done something in sales a couple quarters ago, and so this was probably more operations, R&D, a little bit of marketing, and G&A. That's all I can have for you today. The next question comes from Christian Schwab of Craig Hallam Capital Group. Please go ahead.

R&D, a little bit of marketing and G&A.

That's all I have thank.

Thank you.

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

Christian David Schwab: Hey guys, I just want to, Jeremy, confirm something. So the roughly $20 million miss at the midpoint from, you know, street expectations were around 180 to 160. So half of that came from the distribution channel and excess inventory levels, and the other 10 million came from the large customer pushout. Is that correct? Yeah, I would say it's probably a little more heavily weighted to the distribution channel, the long tail kind of broad-based business. Okay, so it's not 50-50, it's maybe two-thirds, one-third. That's probably in the ballpark.

Yes.

Hey, guys I, just wanted to Jeremy confirm something so the roughly $20 million Miss at the mid point from.

You know street expectations of around 180 to 160, so half of that came from the distribution channel excess inventory levels and the other 10 million came from the large customer push out is that correct.

Yeah, I would say, it's probably a little more heavily weighted to the to the distribution channel long tail kind of broad based business.

Okay. So it's about 50 50, it's baby.

Maybe two thirds one third.

That's probably in the ballpark.

Okay. Okay, and then and then you know shipping to grid parties. You know you know how much revenue do you expect to ship to grid for teeth in fiscal 'twenty four.

Jeremy Whittaker: Okay, okay. And then, you know, shipping to Gridbertese, you know, how much revenue do you expect to ship to Gridbertese in fiscal 24, roughly? Yeah, so yeah, it's nearly $40 million, right around, maybe slightly a tad below that.

Roughly.

Yeah. So yeah, it's nearly $40 million right around maybe slightly a tad below that.

Jeremy Whittaker: And we're on track to deliver that this fiscal year, and it was a significant contributor to the current quarter, as we'd expected. Yeah, okay. So Grit Vertice is going, you know, as planned.

And we're on track to deliver to deliver that this fiscal year.

The.

<unk> contributor.

A contributor to the current quarter as we had expected.

Yeah. Okay. So good for teasers going you know as planned and then we're kind of seeing some of the disruptions in the business that are well many of your peers.

Jeremy Whittaker: And then we're kind of seeing some of the disruptions in the business that, well, many of your peers are seeing. So, you know... Right. So, as we look beyond the fiscal year, you know, the range of assumptions of, you know, big pipeline, large deals, inventory correction being over. I mean, have we figured out what we think the sustainable top line and growth rate of the portfolio is? I mean, are we running a 10% company? Are we running a 15% company, a 20% company? You know, what should we be thinking about, you know, over a multi-year timeframe? Yeah, you know, this is Salil here, Krishan.

Or C. So we do.

So it is as we look beyond this fiscal year.

No.

Range of assumptions of big pipeline large deals inventory correction being over I mean, if we figured out what we think the sustainable top line.

Growth rates, but you know of the portfolio is.

I mean, if we run into that 10% company everybody in the 15% company at 20% Company you know what what should we be thinking about you know over a multiyear timeframe.

Yeah. You know this is still Youll hear Christian I am still going through all the numbers as I look at it.

Salil Alsare: I am still going through all the numbers as I look at them. I think this is a growing company for sure. It's not a 25% grower. Let me be clear about that because that's, you know, substantially different. I think this is, you know, a high single digits, low double digit kind of grower. And, you know, to be clear, some of these compute platforms that we're working on could do better than we anticipate. Just like Jeremy said, one of them got pushed out. But these are, I would think about as, a high-protein kind of businesses. So if one hits, it's a big number.

I think this is a growing company for sure.

It it's not a 25% grower that'd be clear about that because that's you.

You know substantially different where I think I think this is you know high single digits low.

Double digit kind of grower and be clear some of these compute platforms that we're working on.

Good do better than we anticipate just like Jeremy said, one of them got pushed out but these are I.

I would think about it as a high protein kind of businesses. So there's one hits its a big number so but right now I'm not ready to get into fiscal 'twenty five and moving forward are you going to kind of give you guys more near term kind of guidance as I think about it.

Salil Alsare: But right now, I'm not ready to get into Fiscal 25. And moving forward, we're gonna kind of give you guys more near-term kind of guidance as I think about it. But I see this as a growing company, for sure, because we've got some of the right stuff for these compute and connect platforms that we have internally. Yeah, so on a go forward basis, you know, we should be, you know, expecting you guys to act like, you know, the disproportionately large share of public companies, we're going to go one quarter at a time, and then we'll speak esoterically about Did I hear you correctly? Yeah, that's where I'm at with my head's at right now. I came from, I'll be very transparent with you. I came from a place where we did that.

I see this as a growing company for sure because we've got some of the right stuff with these compute and connect platforms that we haven't totally.

Yeah. So you know on a go forward basis, you know well we should be you know expect you guys to act like you know the disproportionate large share of public companies, we're going to go one quarter at a time and they will speak so typically about the future, but we're not going to start the year and give you guidance like this again.

That's probably something we shouldn't be anticipating as we exit this fiscal year did I hear you correctly.

Yeah, that's what I meant.

My head is that right now I came from I'll be very transparent with you I came from a place where we did that that's where my head's at but you know I'm open to adopting which I've done in the past. So we can think about it but that's where my head is that right now.

Salil Alsare: That's where my head's at. But you know, I'm open to adapting, which I've done in the past. So we'll think about it. But that's where my head's at right now.

Okay perfect.

Salil Alsare: Okay, perfect. No other questions. Thanks, guys. Thank you. This concludes our question and answer session. The conference has now also concluded. Thank you for attending today's presentation, and you may now disconnect.

No other questions. Thanks, guys.

Hey, Thank you. Thank you for your question.

This concludes our question and answer session. The conference has now also concluded thank.

You for attending today's presentation and you may now disconnect.

Yes.

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