Q3 2024 Lantronix Inc Earnings Call
Operator: Good afternoon, and welcome to the Lantronix third quarter fiscal 2024 earnings conference call. All participants will be in listen-only mode.
Good afternoon, and welcome to the land Tronic third quarter fiscal 'twenty 'twenty four earnings 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. Please note, this event is being recorded. I would now like to turn the conference over to Jeremy Whitaker, Chief Financial Officer. Please go ahead.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll 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.
Please note this event is being recorded.
I would now let's turn the conference over to Jeremy Whitaker, Chief Financial Officer. Please go ahead.
Jeremy R. Whitaker: Good afternoon, everyone, and thank you for joining our quarterly earnings call. Joining me on the call today is our President and Chief Executive Officer, Saleel Awsare.
Jeremy R. Whitaker: Good afternoon, everyone and thank you for joining our quarterly earnings call. Joining me on the call today is our president and Chief Executive Officer, Silvio Sorry alive.
Jeremy R. Whitaker: 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 today's earnings release. 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 10-Qs.
Jeremy R. Whitaker: A live and archived webcast of today's call will be available on the company's website.
Speaker Change: In addition, you can find the collyn details for the phone replay in todays earnings release.
Speaker Change: 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 Change: 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.
Speaker Change: And in the Companys SEC filings, such as its 10-K and 10-Qs.
Jeremy R. Whitaker: Lantronix 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. Furthermore, during the call, the company will discuss non-GAAP and 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 Saleel.
Speaker Change: <unk> undertakes no obligation to revise or update publicly any forward looking statements to reflect future events or circumstances.
Speaker Change: 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 Change: Furthermore, during the call the company will discuss non-GAAP and financial measures.
Speaker Change: Today's earnings release, which is posted in the Investor Relations section of our website describes the differences between our non-GAAP and GAAP reporting and.
Speaker Change: It presents reconciliations for the non-GAAP financial measures that we use.
Speaker Change: With that I'll now turn the call over to Silvio.
Saleel Awsare: Thanks, Jeremy, and thank you, everyone, for joining us on the call today. I am pleased to report record revenue of $41.2 million for the third quarter of fiscal year 2024, a year-over-year increase of 25% compared to the same period in 2022, and a sequential increase of 11% compared to the December quarter. Non-gap EPS in fiscal year Q3 grew 88% compared to the same period last year, demonstrating leverage in our operating model as revenue improves.
Silvio Sorry: Thanks, Jeremy and thank you everyone for joining us on the call today.
Silvio Sorry: I'm pleased to report record revenue of $41 2 million for the third quarter of fiscal year, 'twenty 'twenty, four or year over year increase of 25% compared to the same period of 2023, and a sequential increase of 11% compared to at the December quarter.
Silvio Sorry: non-GAAP EPS in fiscal year, Q3 grew 88% compared to the same period last year.
Silvio Sorry: Demonstrating leverage in our operating model as revenue improves.
Saleel Awsare: Jeremy will provide you with more details and analysis on the third quarter financial results shortly. As I have recently completed five months with Lantronix, and have spent a lot of time with our key customers, strategic partners, and most importantly, the Lantronix team. I'm very optimistic about the future, given our strong products and solutions, our growing customer engagement, and our improving EBITDA and solid balance sheet. We see both compute and connect technologies converging at the edge of the network, and that's exactly where we play with our core capabilities and solutions.
Silvio Sorry: Jeremy will provide you with more details and analysis on the third quarter financial results shortly.
Okay.
Silvio Sorry: As I have recently completed five months with Len Tri mix and having spent a lot of time with our key customers strategic partners and most importantly, the land tonics team I'm very optimistic about the future given our strong products and solutions are growing customer engagement and.
Silvio Sorry: Improving EBITDA and solid balance sheet.
Silvio Sorry: We see both compute and connect it acknowledges converging at the edge of the network and that's exactly where we play with our core capabilities and solutions.
Saleel Awsare: We have a deep understanding of edge compute requirements and provide our customers with complete solutions, including hardware, software, design services, and our Perception IoT platform for device management and application integration. Our focus going forward will be on three key vertical segments, including Smart Cherries, automotive infotainment, and enterprise. We estimate the served available market the companies are addressing in the three different verticals is $8.5 billion, and we expect the compound annual growth rate over the next few years to be approximately $12 billion. Let me give you an example for each of these words.
Silvio Sorry: We have a deep understanding of edge compute requirements and provide our customers with complete solutions, including hardware software design services and our perception Iot platform for device management and application integration.
Our focus going forward will be on three key vertical segments.
Silvio Sorry: Including smart cities.
Silvio Sorry: Automotive infotainment and enterprise.
Silvio Sorry: We estimate the served available market companies are addressing in the three different verticals is 8.5 billion and we expect compound annual growth rate over the next few years to be approximately 12%.
Speaker Change: Let me give you an example in each of these verticals.
Saleel Awsare: In smart cities, we have the opportunity to drive revenue growth over a couple of key areas, namely smart grid and critical infrastructure. We estimate the serviceable addressable market for the smart cities vertical to be approximately 3.9 billion and the compound annual rate over the next few years to be approximately 12%. In the smart grid sector, we see continued momentum with our lead smart grid customer, where we received our first follow-on order for the first half of fiscal year 25, as this customer is transitioning from design and initial production to a run rate business.
Speaker Change: And smart cities, we have the opportunity to drive revenue growth over a couple of key areas, namely smart grid and critical infrastructure.
We estimate the serviceable addressable market of the smart cities vertical to be approximately $3 9 billion and a compound annual rate over.
Speaker Change: The next few years to be approximately 12%.
Speaker Change: In the smart grid sector, we see continued momentum with our lead smart grid customer, where we received our first follow on order for the first half of fiscal year 'twenty five as this customer is transitioning from design and initial production to a run rate business.
Saleel Awsare: Our relationship continues to deepen with our lead customer, and we are engaged at all levels of the organization. We expect that as they expand their market beyond the current rollout and into broader applications and geographies with the QED device and its variants, we will continue to partner with them to address this need. I expect this to be a long-term, mutually beneficial engagement.
Speaker Change: Our relationship continues to deepen with our lead customer and we are engaged at all levels of the organization.
Speaker Change: We expect that as they expand their market beyond the current rollout and into broader applications and geographies with the QED device and its variance.
Speaker Change: We will continue to partner with them to address these needs.
Speaker Change: I expect this to be a long term mutually beneficial engagement.
Saleel Awsare: Now, moving to critical infrastructure. A great example of this sector is a recent design win with a Tier 1 telecom customer who's using our Fox Telematics device coupled with our Perception SAS solution for monitoring and managing cell site power generators. We are replicating this design with multiple generator makers who have similar needs.
Speaker Change: Now moving to critical infrastructure agree.
Speaker Change: A great example of this sector is a recent design win with a tier one telecom customer who is using our Fox telematics device, coupled with a perception SaaS solution for monitoring and managing cell site power generators.
We are replicating this design win with multiple generator makers, who have similar needs.
Saleel Awsare: Looking further out, the same solution can be extended to applications at construction sites, hospitals, and other such locations. In automotive infotainment, the trend is clearly towards pillar-to-pillar, large interactive displays, with the digital cockpit becoming a highly valued part of the vehicle. We estimate the current SAM in the automotive infotainment market to be approximately 900 million and the annual growth rate to be about 21%. Our IP resides in the Automotive Infotainment Compute System.
Speaker Change: Looking further out the same solution can be extended to applications that construction site hospitals and other such locations.
Speaker Change: In automotive infotainment the trend is clearly towards pillar to pillar large interactive displays with the digital cockpit, becoming a highly valued part of the vehicle.
Speaker Change: We estimate the current Sam in the automotive infotainment to be approximately 900 million and annual growth rate to be about 21%.
Speaker Change: How would I be resides in the automotive infotainment compute system, we developed for Cogs, The Turkish based automotive OEM and we are seeing strong interest from tier two and tier three automotive Oems as well as manufacturers of commercial trucks motorcycles and heavy machinery.
Saleel Awsare: We developed TOG for the Turkish-based Automotive OEM, and we are seeing strong interest from Tier 2 and Tier 3 Automotive OEMs, as well as manufacturers of commercial trucks, motorcycles, and heavy machinery. Let me also add an update on Todd.
Speaker Change: Yeah.
Let me also add an update on talk.
Saleel Awsare: They recently unveiled their second wave, the T-10F sedan, and our embedded compute solution is designed into the vehicle's digital cockpit. Additionally, they have told us they plan to start shipping vehicles in Germany in the calendar year 2025. We continue to collaborate and innovate with them as they expand their business. In the enterprise vertical, we are focused on out-of-band, video conferencing, and security and surveillance. We estimate the served available market of our enterprise vertical opportunity to be approximately $3.7 billion, growing at about 9% annually over the next few years. Let me add some color on one of our products addressing the growing need for out-of-band management. Autobad solutions provide alternative paths to access servers, networks, and routers when the primary access is unavailable.
Speaker Change: The recently unveiled the second vehicle.
Speaker Change: The T 10 F sedan and embedded compute solution is designed into debate goes digital cockpit.
Speaker Change: Additionally, they have told us they plan to start shipping vehicles in Germany in the calendar year 'twenty 'twenty five.
Speaker Change: We continue to collaborate and innovate with them as they expand their business.
Speaker Change: In the enterprise vertical we are focused on auto bad video conferencing and security and surveillance. We estimate the served available market of enterprise vertical opportunity to be approximately $3 $7 billion growing at about 9% annually over the next few.
Speaker Change: Years.
Speaker Change: Let me add some color on one of our products addressing the growing need for out of band management.
Auto bag solutions provide alternative paths to access servers networks and routers, where the primary axis is unavailable.
Saleel Awsare: Providing uptime and resilient networks is important for many sectors, including banks, government, healthcare, and the retail sector. We provide not only hardware but also management software, ongoing support, and warranty services. In summary, we are focused on three growing, attractive vertical markets with a combined served available market of $8.5 billion and growing. Our business teams are actively targeting new customer design wins across these three verticals and all our major geographic areas. I remain excited about the growth opportunity ahead for Lantronix, especially given our broad portfolio, IP, and great customer base.
Speaker Change: Providing uptime and resilient networks is important for many sectors, including banks government health care and the retail sector.
Speaker Change: We provide not only hardware, but also management software ongoing support and warranty services.
Speaker Change: In summary, we are focused on three growing attractive vertical markets with the combined served available market of $8 $5 billion and growing.
Speaker Change: Our business teams are actively targeting new customer design wins across the three verticals and all our major geographic areas.
Speaker Change: I remain excited about the growth opportunity ahead for electronics.
Speaker Change: Especially given our broad portfolio.
Speaker Change: B and great customer base.
Saleel Awsare: In summary, we have a great company, and we are building on strength. Moving forward, we will become an even stronger company given the technology and talent we have in place, driving profitable growth and shareholder value. With that, I will now turn the call over to Jeremy, our Chief Financial Officer, for his comments on Fiscal Year Q3 and guidance for the next quarter.
Speaker Change: In summary, we have a great company and we are building on strength moving forward, we will become an even stronger company given the technology and talent, we have in place driving profitable growth and shareholder value.
Speaker Change: With that I will now turn the call over to Jeremy <unk>, Our Chief Financial Officer for his comments on fiscal year Q3 and guidance for the next quarter Jeremy.
Jeremy R. Whitaker: Thank you, Saleel. Now I will provide the financial results and some business highlights for our third quarter of fiscal year 2024 before commenting on our financial outlook for the fourth quarter of fiscal 2024. For FQ3 2024, we reported revenue of $41.2 million, an all-time record for Lantronix. Revenue was up 11% and 25% from the sequential and year-ago periods, respectively. IoT system solutions revenue increased by 16% and 91% from the sequential and year-ago periods, respectively.
Jeremy R. Whitaker: Thank you. So we'll now I will provide the financial results and some business highlights for our third quarter of fiscal year 2024, before commenting on our financial outlook for the fourth quarter of fiscal 'twenty 'twenty four.
Jeremy R. Whitaker: For F Q3, 'twenty 'twenty four we reported revenue of $41 2 million, an all time record for electronics revenue was up 11% and 25% from the sequential and year ago periods, respectively.
Jeremy R. Whitaker: Iot systems solutions revenue increased by 16% and 91% from the sequential and year ago periods, respectively.
Jeremy R. Whitaker: The increase was primarily driven by the continued ramp-up of production shipments for our lead smart grid customers. In addition, the year-over-year increase was impacted by strong sales from our out-of-band management products. For the remainder of the fiscal year, we expect continued growth from our IoT system solutions. Sequentially, embedded IoT solutions revenue was up 6% with continued contribution from our lead automotive customers.
Jeremy R. Whitaker: The increase was primarily driven by the continued ramp of production shipments for our lead smart grid customer.
Jeremy R. Whitaker: In addition, the year over year increase was impacted by strong sales from our out of band management products.
Jeremy R. Whitaker: For the remainder of the fiscal year, we expect continued growth from our Iot system solutions.
Jeremy R. Whitaker: Sequentially embedded Iot solutions revenue was up 6% with continued contribution from our lead automotive customer.
Jeremy R. Whitaker: 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 that ended in FQ4 2023. In FQ3 2024, software and services revenues were down from the year-ago period, primarily a function of the completion of two large design services projects that transitioned into production during the first half of fiscal 2024. Gap gross margin was 40.1% for FQ3 2024 compared to 40.6% in the prior quarter and 44.4% in the year-ago quarter.
Jeremy R. Whitaker: As expected we experienced a year on year decline in embedded Iot solutions at the year ago period included a large enterprise video customer design that ended in F Q4 2023.
Jeremy R. Whitaker: In F Q3, 2020 for software and services revenues were down from the year ago period, primarily a function of the completion of two large design services projects that transitioned into production during the first half of fiscal 2024.
Jeremy R. Whitaker: GAAP gross margin was 41% for F Q3, 2024, compared to 46% in the prior quarter and 44.4% in the year ago quarter.
Jeremy R. Whitaker: Non-gap gross margin was 41% for FQ3 2024 compared to 41.6% in the prior quarter and 45.1% in the year-ago quarter. The decline in gross margin percent was primarily a function of a change in product mix driven by the product ramp with our smart grid customers, and for FQ4 2024, we expect gross margins in a similar range.
Jeremy R. Whitaker: non-GAAP gross margin was 41% for F Q3, 2024, compared to 41, 6% in the prior quarter and 45, 1% in a year ago quarter.
The decline in gross margin percent was primarily a function of a change in product mix driven by the product ramp with our smart grid customer.
Jeremy R. Whitaker: In F Q4, 'twenty 'twenty four we expect gross margins in a similar range.
Jeremy R. Whitaker: Gap SG&A expenses for FQ3 2024 were $9.9 million, compared with $9.7 million in the year-ago quarter and $10.2 million in the prior quarter. GAAP R&D expenses for FQ3 2024 were $5.2 million, compared with $5.1 million in the year-ago quarter and $4.7 million in the prior quarter. In the upcoming quarter, we expect a sequential increase in OPEX related to variable compensation as revenue and earnings are expected to improve in FQ4 2024. Gap net loss was $423,000, or $0.01 per share, during FQ3 2024. Compared to a gap net loss of $3.1 million, or $0.08 per share, in the year-ago quarter, non-GAAP net income doubled from the year-ago quarter, demonstrating leverage in our operating model and cost control.
Jeremy R. Whitaker: GAAP SG&A expenses for F. Q3, 2024 were $9 9 million compared with $9 7 million in a year ago quarter, and $10 2 million in the prior quarter.
Jeremy R. Whitaker: GAAP R&D expenses for F. Q3, 2024 were $5 2 million compared with $5 1 million in the year ago quarter, and $4 7 million in the prior quarter.
Jeremy R. Whitaker: In the upcoming quarter, we expect a sequential increase in opex related to variable compensation as revenue and earnings are expected to improve in F Q4 2024.
Jeremy R. Whitaker: GAAP net loss was 423000 or one cent per share during F. Q3, 2024, compared to GAAP net loss of $3 1 million or eight cents per share in the year ago quarter.
Jeremy R. Whitaker: non-GAAP net income doubled from the year ago quarter, demonstrating leverage in our operating model and cost control.
Jeremy R. Whitaker: Non-GAAP Net Income was $4.2 million, or $0.11 per share, in FQ3 2024, compared to Non-GAAP Net Income of $2.1 million, or $0.06 per share, in the year-ago quarter. Now turning to the balance sheet. We ended FQ3 2024 with cash and cash equivalents of $24.6 million, an increase of $2.5 million from the prior quarter; working capital was $54.3 million, an increase of $2.4 million from the prior quarter; and net inventories were $40.6 million at the end of FQ3 2024, a decrease of $2.2 million from the prior quarter.
Jeremy R. Whitaker: non-GAAP net income was $4 2 million or <unk> 11 per share in F. Q3, 2024, compared to non-GAAP net income of $2 1 million or six cents per share in the year ago quarter.
Speaker Change: Now turning to the balance sheet.
Speaker Change: We ended Q3, 2024 with cash and cash equivalents of $24 6 million and.
Speaker Change: An increase of $2 5 million from the prior quarter.
Working capital was $54 3 million, an increase of $2 4 million from the prior quarter.
Speaker Change: Net inventories were $40 6 million at the end of Q3 2024, a decrease of $2 2 million from the prior quarter.
Jeremy R. Whitaker: Now turning to our outlook, for the fourth quarter of fiscal 2024, we expect revenue to be in the range of $46.5 to $51.5 million, and Nongap EPS in the range of $0.12 to $0.18 per share. In summary, we are maintaining the annual guidance for fiscal 2024 that we provided during our February 2024 earnings call. At the midpoint of our FQ4 2024 outlook, we expect to deliver revenue and non-GAAP earnings for fiscal 2024 with 22% organic revenue growth and a 74% increase in non-GAAP EPS as compared to our fiscal year 2023 results.
Speaker Change: Now turning to our outlook.
Speaker Change: For the fourth quarter of fiscal 'twenty 'twenty four we expect revenue to be in the range of 46.5 to $51 5 million.
Speaker Change: And non-GAAP EPS in a range of 12 to 18 per share.
Speaker Change: In summary, we are maintaining the annual guidance for fiscal 2024 that we provided during our February 2024 earnings call.
Speaker Change: At the midpoint of our F Q4 of 2024 outlook, we expect to deliver revenue and non-GAAP earnings for fiscal 2024.
Speaker Change: With 22% organic revenue growth.
Speaker Change: And a 74% increase in non-GAAP EPS as compared to our fiscal year 2023 results.
Operator: With that, we have completed our prepared remarks for today. So I will now turn it over to the operator to conduct our Q&A session. We will now begin.
Speaker Change: With that we complete our prepared remarks for today, So I will now turn it over to the operator to conduct our Q&A session.
Speaker Change: We will now begin the question and answer session.
Operator: 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're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question is from Jaeson Schmidt with Lake Street. Please go ahead.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question is from Jason Schmidt with Lake Street. Please go ahead.
Jaeson Allen Min Schmidt: Hey guys, thanks for taking my questions. I just want to start with the Gridspertise. Curious if you could help us size this follow-on opportunity or how we should be thinking about this additional order.
Jaeson Allen Min Schmidt: Hey, guys. Thanks for taking my questions I just wanted to start with the courage pretty just curious if you could help us size the follow on opportunity or how we should be thinking about this additional order and relatedly should we assume youre still sole sourced here.
Saleel Awsare: Hey, Jason, Saleel, thank you very much for the question. So, let me take it on.
Jaeson Allen Min Schmidt: Hey, Jason So Leo Thank you very much for the question. So let me take it on.
Saleel Awsare: As discussed in our prepared remarks, we have a steep product ramp with our smart grid customer during fiscal Q3 and fiscal Q4, with around $20 million of product expected to ship in the fourth quarter of the fiscal year. We expect them to remain a very important customer and an opportunity for further growth. While we don't expect $20 million a quarter to be the immediate run rate, we expect it will take some time for them to deploy the units we are currently shipping, and they will demonstrate their success.
Jaeson Allen Min Schmidt: As discussed in our prepared remarks, we have a steep product ground with our smart grid customer during our fiscal Q3 and fiscal Q4 with around $20 million of products expected to ship in the fourth quarter of the fiscal year.
Jaeson Allen Min Schmidt: We expect them to debate, a very important customer and the opportunity for further growth, while we don't expect $20 million a quarter can be the immediate run rate. We expect it will take some time for them to deploy the units. We are currently shipping and they demonstrate the success. We expect the business will continue to grow over time.
Saleel Awsare: We expect the business will continue to grow over time. That said, I'm very pleased that we received our first follow-on order, even though they're just at the beginning of the deployment, and the initial order is around $11 million to be delivered in the first half, as they've also gone to a run-rate sort of business. It shows the customer's commitment to the program and, as they put it, more supply for a successful rollout.
Jaeson Allen Min Schmidt: That said I'm very pleased that we received our first follow on order, even though theyre just at the beginning of the deployment.
Jaeson Allen Min Schmidt: And the initial order is around $11 million to be delivered in the first half as they have also gone to a run rate total business. It's.
Jaeson Allen Min Schmidt: It shows the customer's commitment to the program and as they put in more supply for a successful rollout.
Saleel Awsare: To conclude, we expect the overall opportunity is much larger, is what they've told us, than what we shipped in fiscal 24, and we really look forward to enabling the continued success of their rollout. Jaeson, one other thing. I have a few questions.
Jaeson Allen Min Schmidt: Conclude we expect the overall opportunity is much larger as what they have told us than what we shipped in fiscal 'twenty four and we really look forward to enabling the continued success in their rollout.
Okay, there's a more of a second half.
Jaeson Allen Min Schmidt: Sure.
Speaker Change: I'd, just say Oh, we should assume you're still sole sourced.
Jaeson Allen Min Schmidt: We should assume you're still fully sourced.
Saleel Awsare: Yeah, to my knowledge, we are the sole source.
Speaker Change: To my knowledge, we are sole sourced.
Jaeson Allen Min Schmidt: And then, just as a follow-up, I'd be curious if you could update us on what you're seeing from sort of a customer inventory or channel inventory standpoint.
Speaker Change: Perfect and then just as a follow up curious if you could update us on what youre seeing from sort of a customer inventory or channel inventory standpoint.
Saleel Awsare: Yeah, so great question, right? So if I think about our business, Jaeson, it's in two areas. We've got a broad-based channel business, and based on the quarter that we just completed and our current forecast, it appears that our broad-based channel business is normalized and is poised for growth over the next several years. In addition, we've looked at the inventory, and it's come down from the prior quarter and is running at this historical average. So that's on the channel side.
Speaker Change: Yeah. So great question right. So if I think about our business Jason it's in two areas. We've got a broad based channel of business and based on the quarter that we just completed and our current forecast. It appears that our broad based channel of business is normalizing.
And it's poised for growth over the next several quarters.
Speaker Change: In addition, we've looked at the inventory and it's come down from the prior quarter and is running at this historical average so that's on the channel side on the embedded compute.
Saleel Awsare: On the embedded compute, we've said in the past that there were some delays in our embedded compute. A specific couple of designs that were done in fiscal 23, they were supposed to ramp in 24, but they're now going to ramp in 25. And Jaeson and I had the great opportunity of visiting the CEO of one of the large companies that we're working with, and they're on track to start ramping up in fiscal 25. So as they're successful, we'll be successful with them.
Speaker Change: Said in the past that there were some delays in that.
Speaker Change: Better compute one specific couple of design designs that were done in fiscal 'twenty three.
Speaker Change: There were supposed to ramp in 'twenty, four but they're now going to wrap in 'twenty, five and Jason I had the great opportunity of visiting the CEO of one of the large companies that would be working with and they're on track to start ramping in fiscal 'twenty five so as they are successful we will be successful.
Jaeson Allen Min Schmidt: Okay, that's really helpful. Thanks a lot, guys.
Speaker Change: Okay. That's really helpful. Thanks, a lot guys.
Thomas Michael Walkley: The next question is from Mike Walkley with Canaccord Genuity. Please go ahead.
Thanks.
Speaker Change: The next question is from Mike Walkley with Canaccord Genuity. Please go ahead.
Thomas Michael Walkley: Great, thanks for the question. I guess, Saleel, just on the three targeted segments, you know, that make a lot of sense given your product portfolio. As you went through the portfolio, are there some areas maybe that you're pruning that could impact fiscal 25 growth on a run rate basis?
Thomas Michael Walkley: Great. Thanks. Thanks for the question I guess, so we have just done that three targeted segments. You know they make lot of sense given your product portfolio. Yet as you went through the portfolio or are there some areas maybe that you're pruning that could impact our fiscal 'twenty five growth on a run rate basis.
Saleel Awsare: Yeah, so we did a review of the products and, you know, our whole products, our technology. I'm really happy to report that I really like where we are sitting.
Speaker Change: Okay.
Speaker Change: Yes, So we did a review with the products.
Whole products, our technology I'm really happy to report I'd really like wed be a city yesterday.
Saleel Awsare: We've got a pretty broad but also deep product portfolio for the three verticals that I spoke about. As I look ahead, we are going to be putting a lot more focus on products that are really going to provide us with some outsized growth. Embedded compute being one of them, out of band being one of them, some of the other ones I won't go into, but really, we'll get some outsized growth out of them.
It's pretty broad.
Speaker Change: Broad, but also deep product portfolio for the three verticals that I spoke off as I'm looking in the future. We are going to be putting a lot more focus on products that are really going to provide us some outsized growth embedded computer being one of them out of a bad being one of them. Some of the other ones I won't go into but really we can get some.
Speaker Change: What size growth out of there.
Saleel Awsare: Also, the products that we are focusing on pull in our Perception IoT software for device management and application integration. So, in summary, as I think about the company, three verticals, transitioning, not just selling point products, but a solution that consists of our hardware, our cloud-based software, and, in some areas, even our design services. So putting it all together, really bringing a holistic solution to our customers.
Speaker Change: Also the products that we are focusing on pulling a perception Iot software for device management and application integrations. So in summary, as I think about the company three verticals transitioning not just selling point products, but a solution that consists of hardware are cloud based.
Speaker Change: Software and in some areas, even though design services, so putting it altogether really break, bringing a holistic solution to our customers.
Thomas Michael Walkley: Okay, thanks. And just a follow-up question here. Thanks for some of the color in the Q&A on grid expertise as they go through the digestion period. Maybe, I know you're only given a quarter-at-a-time guidance, but as you shared the SAMs for the three different targeted areas, how should we think maybe about a baseline run rate for modeling Fiscal 25 given grid expertise is likely to have a decline from the strong initial shipment?
Speaker Change: Okay. Thanks, and just a just a follow up question yeah. Thanks for some of the color on the Q&A on grid Streeteasy they'd go through a digestion period, maybe I know, you're only giving a quarter at a time guidance, but as you shared the Sam for that for the three different targeted areas.
Speaker Change: How should we think maybe about like a baseline run rate for modeling fiscal 'twenty five given green speakeasys likely to have a a decline from from that strong initial shipments.
Saleel Awsare: Yeah, as we mentioned in our last call, we are transitioning, like most companies, to providing quarterly as opposed to annual guidance, and I'm really looking forward to providing you an outlook in our fiscal Q1, on the August call for our fiscal Q125. But having said that, let me be very clear.
Speaker Change: Yeah, as we mentioned in our last call. You know we are transitioning like most companies to providing a quarterly as opposed to an annual guidance and I'm really looking forward to providing you know outlook you know in our fiscal Q1 in the August call for our fiscal Q1, 'twenty five but <unk>.
Speaker Change: <unk> said that let me be very clear.
Saleel Awsare: The long-term growth prospects are tremendous. We've got a big SAM, we're growing at 12%, an eight and a half billion dollar SAM. And with our product portfolio and growing customer base, I expect, over the longer term, we can grow at or really faster than the market.
Speaker Change: The long term growth prospects are tremendous year, we've got a big Sam we are growing at 12% eight would have been in all the time and with our product portfolio and growing customer base I expect over the longer term, we can grow at or really faster than the market.
Thomas Michael Walkley: Great. That's helpful. I'll pass it along.
Speaker Change: Okay. That's helpful I'll pass the line.
Speaker Change: Thank you Sir.
Scott Wallace Searle: The next question is from Scott Searle with Roth MKM. Please go ahead.
Speaker Change: The next question is from Scott Searle with Roth M. Cam. Please go ahead.
Scott Wallace Searle: Hey, good afternoon. Thanks for taking the questions.
Scott Wallace Searle: Hey, good afternoon, thanks for taking the questions.
Scott Wallace Searle: Nice job on the March quarter, and nice to see the continued growth into June. Saleel, maybe to follow up on the Grids for Teens outlook, it looks like they're starting to rapidly expand or create some other opportunities, both within the pan-European opportunity as well as in the U.S. markets. I'm wondering if you could help us kind of size and understand the opportunity set there and the timeline that might be associated with it. Then I had a couple of follow-ups.
Scott Wallace Searle: Nice job on the March quarter, and nice to see the continued growth into June.
Scott Wallace Searle: So maybe to follow up on the grids for teens outlook, it looks like they're starting to rapidly expand or create some other opportunities both within.
The Pan European opportunity as well as in the U S markets I'm wondering if you could help us kind of size and understand the opportunity set there and the timeline that might be associated with it and then I had a couple of follow ups.
Saleel Awsare: Yeah, so let's start with what they have told us specific to their largest customer, which is Enel. We've been told that the opportunity size there is in the hundreds of thousands of units.
Speaker Change: Yeah, So let's start with what they have stored is specific to their largest customer.
Speaker Change: No.
Speaker Change: We've been told that the opportunity size that is in the hundreds of thousands of units. So we're just getting started scott to that extent.
Saleel Awsare: So we're just getting started, Scott, to that extent. They are putting in a big team in the United States to get started. They were at Distributech, and they're now gonna be at the show in San Diego, where the public power company's going to be there. So it's early days for them to get started in the U.S., but we are engaged with them in many areas, and that's another area that we are really looking forward to. So the Enel opportunity, we understand. As they look at the U.S. in the future, we'll be working with them as they deploy. But it's early days for the United States.
They are putting in a big team in the United States to get started they distribute back and they're not going to be in the show in San Diego, but it's mainly public power companies going to be there. So it's early days for them to get started in the U S. But you know we haven't engaged with them on many areas and that's another area that we are.
Speaker Change: Looking forward to do so and that opportunity if you understand as.
Speaker Change: As they look at the U S in the future, we'll be working with them.
Speaker Change: As they deploy but it's early days for the the United States for that right now.
Scott Wallace Searle: Great, and maybe to couple that into Mike's question, looking at the design pipeline, it seems like there's a lot of opportunity going on within that right now. I think the blended CAGR was about 12% for the three different verticals that you talked about and growing faster than that. I'm wondering if you could tell us how that design pipeline is looking, and then again, we should be thinking about 12% plus growth as a long-term growth rate excluding any sort of, I'll call it, normalization in the near-term great expertise shipment.
Speaker Change: Great and maybe to couple that into Mike's question.
Speaker Change: Looking at the design pipeline it seems like Theres, a lot of opportunity going on within that right. Now I think the blended CAGR was about 12% and beyond with the three different verticals that you talked about and growing faster than that I'm wondering if you could tell us how that design pipeline is looking up and then again, we should be thinking about.
Speaker Change: 12% plus growth as a long term growth rate, excluding any sort of I'll call. It normalization in the near term grids for Ts shipment rate.
Saleel Awsare: Yeah, so, you know, the opportunity pipeline is really helpful. We've reviewed it, we review it relatively often, so I'm happy to report it's very healthy.
Speaker Change: Yeah. So you know the opportunity pipeline is really healthy.
Speaker Change: You know we would have.
Speaker Change: You did we debuted a relatively often so I'm happy to report its very healthy.
Saleel Awsare: We'll continue to target large customer deals with our Compute and Connect, so that'll give us visibility as we look at the business over the longer term. We are focused on the three key verticals, Scott, that I talked about. And you know, it's $8.5 billion, Sam, growing 12%. So as I said, we expect to be growing at or better than in the longer term.
Speaker Change: We continue to target larger customer deals without computers connect so that would give us visibility as we look at the business longer term.
Speaker Change: We are focused on the three key verticals.
Scott that I talked about.
And you know, it's $8 5 billion dollar Sam growing 12%. So as I said, we expect to be growing at or better that in the longer term.
Scott Wallace Searle: Great and one last one if I could.
Scott Wallace Searle: And one last one, if I could, you certainly have expertise in terms of edge compute and connect. That together equals a lot of discussion around AI. So I'm kind of wondering how that's filtering into the conversation with customers and how you're specifically positioned for those types of opportunities. Is it driving a lot of...
Scott Wallace Searle: You certainly have the expertise in terms of edge compute and connect that.
Scott Wallace Searle: That together equals a lot of discussion around AI. So I'm kind of wondering how that's filtering into the conversation with customers and how you're specifically positioned for those types of opportunities is it driving a larger opportunity. Both in terms of hardware software and cloud I mean, how is that shaping up and when do we start to see I'll call. It.
Saleel Awsare: That's a great question and thank you for bringing that up, Scott. So Lantronix is really integrating edge compute devices with our Perception IoT software to simplify and streamline the Edge AI applications, as I think about it as build, deploy, and accelerate. It's going to start with our Compute Song, which allows for rapid development. And as you know, we've got the NPU on that. It gives you robust tools that streamline optimization. This results in a powerful, scalable solution that accelerates the transition from prototype to production, significantly boosting efficiency and product reliability. We gave an early look at this.
Scott Wallace Searle: A more defined impact from that.
Speaker Change: That's a great question and thank you for bringing that up Scott. So <unk> is really integrating edge compute devices with our perception of Iot software to simplify and streamline the edge applications as I think about it that build deploy and accelerate.
It's going to start with our compute song, which allows for rapid development and as you know we've got visit N. B you want that so and it gives you a robust tool that streamlines optimization. So this resulted a powerful scalable solution that accelerates the transition for broker production significantly boosting efficiency product with <unk>.
Speaker Change: Liability, we gave an early look at this at embedded there.
Speaker Change: The embedded show in Nuremberg.
Speaker Change: A matter of our partner actually called it out it'd be shorted working it's early days, but we feel really good about it and that was one of the areas. We are focusing on as I look about look into the future.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you.
Operator: Again, if you have a question, please press star then 1. The next question is from Christian Schwab with Craig Hallam. Please go ahead.
Speaker Change: Again, if you have a question. Please press Star then one the next question is from Christian Schwab with Craig Hallum. Please go ahead.
Christian David Schwab: Hey guys, this is Tyler. I'm from Christian.
Speaker Change: Hey, guys. This is Tyler on for Christian Thanks for letting us ask a couple questions.
Tyler: Thanks for letting us ask a couple of questions. I guess, first, maybe, you know, the three key areas you highlighted. And, you know, I think we can kind of do some math and understand what the smart city one, you know, kind of looks like. But, you know, could you maybe frame a little bit how much revenue you're getting? I understand you outlined the size of the markets, but how much revenue in those... you know, three areas are you currently doing?
Speaker Change: First maybe you know the three care key areas you highlighted and you know I think we can kind of do some math to understand what the smart city. One you know kind of looks like death grip parties, but.
Tyler: Could you maybe frame a little bit how much revenue you know youre doing I understand you outlined the size of the markets, but how much revenue in those.
Tyler: Now three three areas or you are currently doing.
Saleel Awsare: So right now, the way we report our revenue right now, so I don't want to change our reporting on the call today. We report it as embedded solutions, IoT, and software and systems. So that's how we report it today, and that's how Jeremy and I are going to talk about it specifically.
Speaker Change: So right now and as we need to pull down our revenue right now so I want to not change our reporting on the call today, we reported that the embedded solution Iot and software systems. So that's what we reported today.
Speaker Change: Jeremy and I'm going to talk about it specifically.
Saleel Awsare: Going into the specific verticals, I don't want to break out the revenue right now because some of the products that we report, like our embedded compute, go into a couple of different verticals and even on the enterprise side. So it kind of goes into different verticals. So I don't have it specifically for those three verticals. We specifically gave it out for what we have that we're talking about here. But, you know, the way I look at it right now, our enterprise is probably our largest. Our smart cities is our second largest, and automotive is the third one, just to kind of put it in perspective for you.
Speaker Change: Into the specific verticals.
Speaker Change: I don't want to break out the revenue right now because some of the products that we report like an embedded compute go into couple of different articles to go into the automotive vertical they go into the smart cities vertical.
Speaker Change: And even even though in the enterprise side, so it kind of goes into different verticals. So.
Speaker Change: I don't have it specifically for those three verticals, we specifically gave it out for what we have is that we're talking about there.
Speaker Change: You know the way I look at it right now our enterprise is probably our largest our smart cities is our second largest in automotive is the is the third one just to kind of put it in perspective for you.
Tyler: That's completely fair, and I appreciate the color of the ranked order. I guess, you know, maybe to be a little bit pointed, but I understand not trying to give guidance for next year, but, you know, Gripper T is going to be, you know, sounds like down next year with some digestion on this first order, which I think makes sense. Can you still grow your top line, you know, your total top line next year? And if so, comparatively, I guess, where is that offset?
Speaker Change: That's that's completely fair and I appreciate the the the the rank order color.
Speaker Change: I guess, you know maybe it would be a little bit pointed, but I understand not trying to give guidance for next year, but you know with.
Speaker Change: With Gerber T is going to be you know sounds like down next year with some digestion on this first order, which I think makes sense. You know can you still grow your topline you know what your total top line next year and if so comparatively I guess, whereas whereas that offset.
Saleel Awsare: Yeah, so again, just going back to what we said, we've gone through quarterly guidance. So I'm really looking forward to spending a lot of time with you guys as I get into the August call with you to give you a much better view of fiscal Q125. Having said that, let's be clear. We had a big ramp up with them, and we were excited about that, but they gave us a follow-on order, and they're deploying systems as we go forward. So this goes to run rate, and our follow-on order is only for the first half of the fiscal year, so we're working with them for the future.
Speaker Change: Yeah. So again, just going back to what we said right. We've gone to a quarterly guidance. So I'm really looking forward to spending a lot of time with you guys as I get into the August call with you to give you a much better view into fiscal Q1, 'twenty five having said that let's be clear, we had a big ramp with them excited about that.
Speaker Change: He was a follow on order and Theyre deploying systems as we do forward. So as this goes through run rate and our follow on orders already for the first half of the fiscal year so that.
Speaker Change: You know, we're working with them for the future.
Speaker Change: Yeah Fair enough alright, that's helpful. Thanks, guys.
Speaker Change: This concludes the question and answer session and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.
Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Tyler: Yeah, fair enough. All right, that's all for us. Thanks.
Operator: This concludes the question and answer session, and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].
Operator: [inaudible] ?? ?? ?? ??