Q4 2024 Lantronix Inc Earnings Call

Speaker Change: Good day, and welcome to the Lantronics 4th Quarter to 2024 Results Conference Call. All the dispense will be in listen-only mode. To do 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.

Operator: 24 Results Conference Call. All participants will be in listen-only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask questions, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two.

Speaker Change: Transquestions 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.

Operator: Please note, this event is being recorded.

Jeremy Whitaker: I would now like to turn the conference over to Jeremy Whitaker, Chief Financial Officer. Please go ahead. Good afternoon, everyone, and thank you for joining our quarterly earnings call.

Speaker Change: I would now like to turn the conference over to Jeremy Whitaker, Chief Financial Officer. Please go ahead.

Speaker Change: 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, Silly O'Sari. A live and archived webcast of today's call will be available on the company's website.

Jeremy Whitaker: Joining me on the call today is our president and chief executive officer, Silio. Sorry, a live and archived webcast of today's call will be available on the company's website. In addition, you can find the column details for the phone replay in today's earnings release.

Speaker Change: In addition, you can find the column details for the phone replay in today's earnings release.

Jeremy Whitaker: During this call, management may make forward-looking statements, which involve risks and uncertainty. 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 the company's SEC filings, such as its 10-K and 10-Qs. Lantronix undertakes no obligation to revise or update publicly. Any forward-looking statements to reflect future events are safe.

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 and the company's SEC filings such as 10K and 10Qs.

Lanternics: Lanternics undertakes no obligation to revise or update publicly, any forward-looking statements to reflect future events or circumstances.

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

Lanternics: Please refer to the news release and the financial information in the investor relations section of our website for additional details that will supplement management commentary. Furthermore, during the call, the company will discuss non-gap financial measures.

Jeremy Whitaker: Furthermore, during the call, the company will discuss non-GAAP financial measures. Today's earnings release, which is posted in the Investor Relations section of our website, describes the differences between our non-GAAP and GAAP reporting and presents reconciliation for the non-GAAP financial measures that we use.

Lanternics: Today's earnings release, which is posted in the Investor Relations section of our website, describes the differences between our non-gap and gap reporting and presents reconciliations for the non-gap financial measures that we use.

Silio: With that, I'll now turn the call over to Silio. Thanks, Jeremy, and thank you everyone for joining us on the call today. I'm pleased to report record revenue of 49.1 million for the fourth quarter of fiscal year 2024. A year-over-year increase of 41% compared to the same period of 2023, and a sequential increase of 19% compared to the March quarter. Non-GAAP EPS and fiscal year Q4 grew 150% compared to the same period last year, demonstrating the leverage in our operating model as revenue grows.

Lanternics: With that, I'll now turn the call over to Saleel.

Saleel: Thanks, Jeremy and thank you everyone for joining us on the call today.

Saleel: I'm pleased to report a record revenue of 49.1 million for the fourth quarter of fiscal year 2024. A year over a year increase of 41 percent compared to the same period of 2023 and a sequential increase of 19 percent compared to the March quarter.

Saleel: Non-Gap EPS, it fiscal year Q4, grew 150% compared to the same period last year, demonstrating the leverage in our operating model as revenue grows.

Silio: Jeremy will provide you with more details and analysis on fiscal year 2024 and the fourth quarter financial results shortly. At Lentronics, we enable edge intelligence with our computer-connect solutions, allowing our customers to improve both the operational efficiency and real-time decision making. We understand the complexity of edge compute requirements, and we provide our customers with complete solutions, including hardware, software, device management, and design services. Because our offerings are differentiated, sticky, and help our customers solve problems, we are able to achieve a relatively higher value for these solutions in the March.

Speaker Change: will provide you with more details and analysis on fiscal year 2024 and the fourth quarter financial results shortly.

Adlantronics: Adlantronics, we enable edge intelligence with our computer-connect solutions.

Adlantronics: Allow me our customers to improve both your peripheral efficiency and real-time decision making.

Adlantronics: We understand the complexity of edge compute requirements and we provide our customers with complete solutions, including hardware, software, device management and design services.

Adlantronics: Because our offerings are differentiated, sticky, and help our customers solve problems. We are able to achieve a relatively higher value for these solutions in the marketplace.

Silio: We remain focused on three key vertical markets: smart cities, automotive, and enterprise that have double digital growth rates, favorable secular trends, and a combined serviceable, addressable market of approximately 8.5 billion, representing a tremendous opportunity for Lantronix. Today, let me start with the enterprise vertical market. Our Out-of-Band Management Solutions business is performing very well and grew more than 70% from fiscal year 2023 to fiscal year 2024. Our Out-of-Band Management product portfolio makes it easier to securely manage distributed enterprise networks and devices that provide access, resiliency, and tools for daily management tasks, and then a disruption occurs.

Adlantronics: We remain focused on three key vertical markets, smart cities, automotive and enterprise. The double digital draw trades, favorable secular trends and combined serviceable addressable market.

Adlantronics: of approximately eight and a half billion representing a tremendous opportunity for electronics.

Adlantronics: [inaudible]

Adlantronics: Today, let me start with the enterprise vertical market.

Adlantronics: Out of that management solutions business is performing very well and grew more than 70% from fiscal year 2023 to fiscal year 2024.

Adlantronics: Art of band management product portfolio makes it easier to securely manage, distribute, enterprise networks and devices by providing access, resiliency and tools for daily management tasks and vendor disruption occurs.

Silio: For example, during the global CrowdStrike outage that occurred last month, our Out-of-Band Management products with remote access were likely used to reduce network downtime. Our solutions minimize mean time to recovery, allowing network administrators to restore the affected Windows devices and get businesses back up and running again. In addition to providing resiliency and recovery during emergency, our Out-of-Band Management Solutions make daily operational tasks easier, more efficient, and highly secure. In fact, our LMCD products are a leader in the industry with patented automation that can greatly reduce time to recovery during network outage events, malicious or accidental.

Adlantronics: For example, during the global crowd strike outage that occurred last month, our out-of-end management products within the mode access were likely used to reduce network downtime.

Adlantronics: Our solutions minimize mean time to recovery, allowing network administrators to restore the affected window devices and get businesses back up and running again.

Adlantronics: In addition to providing resiliency and recovery during emergency, a lot of management solutions make daily operational tasks easier, more efficient and highly secure.

Adlantronics: In fact, our LMCDs products are a leader in the industry with passionate automation that can greatly reduce time to recovery during network outage events.

Silio: Our Out-of-Band Management Solutions have higher than our average corporate growth margins and are often combined with other Lantronix products such as IoT gateways, media converters, and recurring services.

Adlantronics: Malicious or Accident.

Adlantronics: Our Outer Band Management Solutions have higher than our average corporate gross margins and are often combined with other electronic products such as IoT, G8ways, Media Converters and Recaring Services.

Silio: Also in the enterprise vertical, we began shipping to our largest video conferencing customer that recently announced their next generation product. In the automotive vertical, our relationship with Talk continues to progress. The Turkish automotive OEM is looking at new software features that will require high performance compute modules, and we are engaged with them on that. Talk is also continuing to focus on its goal of introducing its new vehicles to Germany next calendar year. With these developments, we expect continued growth with this customer into the future.

Operator: 24 Results Conference Call. Our participants will be in listen only mode. Should you need assistance? Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask questions, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two.

Adlantronics: Also in the enterprise vertical, we began shipping to our largest video conference in customer that recently announced the next generation product.

Adlantronics: In the automotive vertical, our relations with talk continue to progress.

Adlantronics: The Turkish automotive OEM is looking at new software features that will require high performance compute modules and be engaged with them on that.

Operator: Please note, this event is being recorded.

Jeremy Whitaker: I would now like to turn the conference over to Jeremy Whitaker, Chief Financial Officer. Please go ahead.

Speaker Change: Dog is also continue to focus on its goal of introducing its new vehicles to Jeremy

Jeremy Whitaker: Good afternoon everyone and thank you for joining our quarterly earnings call.

Jeremy Whitaker: Joining me on the call today is our president and chief executive officer, Silio, sorry. A live and archived webcast of today's call will be available on the company's website. In addition, you can find the column details for the phone replay in today's earnings release.

Speaker Change: With these developments, we expect continued growth with this customer into the future.

Silio: Additionally, we recently secured a design services purchase order with a large German OEM that is developing a new infotainment platform for long and short-haul trucks. We are pleased to have entered into this new relationship, and it shows great progress in our longer-term goal of winning new compute designs in our emerging automotive infotainment business. In the smart cities vertical, we continue to work closely with our lead smart grid customer. During the June quarter, we shipped over $21 million in product to them, as we expected, and while it will take them some time to digest and deploy this product with their customer, we believe that this can be an ongoing business for several years.

Speaker Change: Additionally, we recently secured a design services purchase order with a large German OEM that is developing a new infotainment platform for long and short haul trucks.

Jeremy Whitaker: 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 web site and in the company's SEC filings such as its 10K and 10Qs. Lantronics 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.

Speaker Change: We are pleased to have entered into this new relationship and it shows great progress in our longer-term goal of winning new compute designs in our emerging automotive and 14-minute business.

Speaker Change: In the Smart Citizen's Vertical, we continue to work closely with our lead smart grid customer.

Speaker Change: During the June quarter we shipped over 21 million dollars in product to them as we expected and while it will take them some time to digest and deploy this product with their customer we believe that this can be an ongoing business for several years.

Silio: In the current quarter, fiscal Q1 2025, we expect to deliver approximately $5 million in product to them. We believe that as the initial inventory is consumed, this business is transitioning into a run rate business. We are also very pleased to be partnering with them on expanding into the North American market. They are currently working with a large US energy company on a similar smart grid solution and will be supplying demo units for a proof of concept. Many electrical grids are having to be upgraded significantly given the rise in energy demands, and these networks are requiring real-time decision making at the edge.

Speaker Change: In the current quarter fiscal Q1 2025, we expect to deliver approximately $5 million in product to them.

Speaker Change: We believe that as the initial and retreats consumed, this business is transitioning into a run rate business.

Jeremy Whitaker: Furthermore, during the call, the company will discuss non-gap financial measures. Today's earnings release, which is posted in the investor-relations section of our website, describes the differences between our non-gap and gap reporting and presents reconciliation for the non-gap financial measures that we use.

Speaker Change: We are also very pleased to be partnering with them on expanding into the North American market.

Speaker Change: They are currently working with a large US energy company on a similar smart grid solution and we will be supplying demo units for a proof of concept.

Saleel Awsare: With that, I'll now turn the call over to Silio. Thanks Jeremy and thank you everyone for joining us on the call today. I'm pleased to report a record revenue of 49.1 million for the fourth quarter of fiscal year 2024. A year-over-year increase of 41% compared to the same period of 2023 and a sequential increase of 19% compared to the March quarter. Non-gap EPS at fiscal year Q4 grew 150% compared to the same period last year, demonstrating the leverage in our operating model as revenue grows.

Speaker Change: Many electrical drugs are having to be upgraded significantly, given the rise in energy demands and these networks are requiring real-time decision-making at the edge which this device provides.

Silio: Which this device provides. While it is still early days, we are pleased to be assisting our customer as they enter the large US market.

Speaker Change: While it is still early days, we are pleased to be assisting our customer as they enter the large US market.

Silio: Lastly, we are very excited to be working on new projects with our key partner, Qualcomm, related to edge AI computing. In late June, we demonstrated our perception edge AI solution fully integrated with Qualcomm's AI Hub at Qualcomm's Industry Analyst Day. This platform enables deployment of edge AI solutions of vertical markets such as smart city and enterprise. Qualcomm's AI hub, when combined with our perception platform, reduces the complexity of edge AI applications and simplifies the deployment of AI models. Building on our platform, we are closely collaborating with our compute partner, who we expect to deploy our software tools at scale to help their developers build leading edge AI edge solutions.

Speaker Change: Lastly, we are very excited to be working on new projects with our key partner Qualcomm related to Edge AI computing.

Speaker Change: In late June we demonstrated a perception edge AI solution fully integrated with Qualcomm's AI Hub at Qualcomm's industry analyst day.

Saleel Awsare: Jeremy will provide you with more details and analysis on fiscal year 2024 and the fourth quarter of financial results shortly. At Lentronics, we enable edge intelligence with our compute and connect solutions, allowing our customers to improve both the operational efficiency and real-time decision-making. We understand the complexity of edge compute requirements, and we provide our customers with complete solutions, including hardware, software, device management, and design services. Because our offerings are differentiated, sticky, and help our customers solve problems, we are able to achieve a relatively higher value for these solutions in the market.

Speaker Change: This platform enables deployment of edge AI solutions for vertical markets such as Smart City and Enterprise.

Speaker Change: Welcome AI Hub, when combined with our perception platform, reduces the complexity of AI applications and simplifies the deployment of AI models.

Speaker Change: Building on our platform, we are closely collaborating with our compute partner who we expect to deploy our software tools at scale to help their developers build leading edge AI edge solutions.

Silio: While it is still early days for us, the opportunity in the edge AI for electronics lies in providing integrated solutions using our compute modules and edge AI gateways for customers looking to deploy solutions with compute power needed to drive AI models at the edge of the network.

Saleel Awsare: We remain focused on three key vertical markets, smart cities, automotive and enterprise that have double digit growth rates, favorable secular trends, and combined serviceable, addressable market of approximately eight and a half billion, representing a tremendous opportunity for Lantronix Today, let me start with the enterprise vertical market. Our out-of-band management solutions business is performing very well and through more than 70% from fiscal year 2023 to fiscal year 2024. Our out-of-band management product portfolio makes it easier to securely manage distributed enterprise networks and devices that providing access, resiliency and tools for daily management tasks and then a disruption occurs.

Lanternics: While it's still early days for us, the opportunity in edge AI for Lanternics lies in providing integrated solutions using our compute modules and edge AI gateways for customers looking to deploy solutions with compute power needed to drive AI models at the edge of the network.

Silio: In support of this, we are pleased to see our perception platform win the 2024 Product of the Year of War from the IoT Evolution World earlier this month.

Lanternics: In support of this, we are pleased to see our perception platform, when the 2024 product of the year of war from the IOT evolution world earlier this month.

Silio: To conclude, I am very optimistic about the electronic future given our strong balance sheet, the momentum in our enterprise verticals, specifically in video conferencing and our advanced solutions, new engagements in automotive infotainment. Diversifying into additional geographic regions with our smart grid customer, and our deepening relationship with Qualcomm enabling us to participate in the new mega trend of edge AI.

Lanternics: To conclude, I'm very optimistic of our line-trony future, given our strong balance sheet, the momentum in our enterprise verticals, specifically in video conferencing and our

Lanternics: Diversifying into additional geographical regions for that smart grid customer, and our deep new relationship with Qualcomm enabling us to participate in the new mega trend of G-R.

Saleel Awsare: For example, during the global crowd strike outage that occurred last month, our out-of-band management products with remote access were likely used to reduce network downtime. Our solutions minimize mean time to recovery, allowing network administrators to restore the affected window devices and get businesses back up and running again. In addition to providing resiliency and recovery during emergency, our out-of-band management solutions make daily operational tasks easier, more efficient and highly secure. In fact, our LMCD products are a leader in the industry with patented automation that can greatly reduce time to recovery during network outage events, malicious or accidental. Our out-of-band management solutions have higher than our average corporate gross margins and are often combined with other Lantronix products such as IoT gateways, media converters and recurring services.

Silio: We are also mindful of inorganic a creative growth opportunities, and we will pursue those that fit within our portfolio and make economic sense. Our goal is to increase shareholder value through both organic and inorganic growth.

Speaker Change: We will also mind full of inorganic, a pleative growth opportunities and we will pursue those that fit within our portfolio and make economic sense.

Speaker Change: Our goal is to increase the role of value through both organic and inorganic crops.

Jeremy Whitaker: With that, I will now hand the call back over to Jeremy.

Speaker Change: With that, I will now hand the call back over to Jeremy.

Jeremy Whitaker: Thank you, Celil. Now, I will provide the financial results and some business highlights for our fiscal year 2024 and fourth quarter before commenting on our financial outlook for the first quarter of fiscal 2025. I will start with a brief recap of our fiscal 2024. Re-reported record revenue of 160.3 million, representing 22% growth from the prior year. In addition, we reported record non-GAAP earnings of 15.4 million, representing 83% growth from the prior year. We also reported record non-GAAP EPS of 40 cents per share, or 76% growth from the prior year. The significant growth in non-GAAP earnings demonstrates the leverage in our operating model and our commitment to maintain financial discipline while still delivering record revenue for the fiscal year.

Jeremy Whitaker: Thank you, Saleel. Now, I will provide the financial results and some business highlights for our fiscal year 2024 and fourth quarter. Before commenting on our financial outlook for the first quarter of fiscal 2025.

Jeremy Whitaker: I will start with a brief recap of our fiscal 2024.

Jeremy Whitaker: We reported record revenue of 160.3 million, representing 22% growth from the prior year. In addition, we reported record non-gap earnings of 15.4 million, representing 83% growth from the prior year.

Jeremy Whitaker: We also reported record non-gap EPS of 40 cents per share or 76% growth from the prior year.

Saleel Awsare: Also in the enterprise vertical, we began shipping to our largest video conferencing customer that recently announced their next generation product. In the automotive vertical, our relationship with Talk continues to progress. The Turkish automotive OEM is looking at new software features that will require higher performance compute modules and we are engaged with them on that. Talk is also continuing to focus on its goal of introducing its new vehicles to Germany next calendar year. With these developments, we expect continued growth with this customer into the future.

Jeremy Whitaker: The significant growth in non-gap earnings demonstrates the leverage in our operating model and our commitment to maintain financial discipline while still delivering record revenue for the fiscal year.

Jeremy Whitaker: Not only did the team deliver record revenue and earnings, we also improved our balance and liquidity from the prior year. We ended the year with cash of 26.2 million, up 95% from the prior year, by generating 18.6 million in cash flow from operations. We reduced inventories from 49.7 million in the prior year to 27.7 million, a reduction of 44%. Furthermore, we increased our working capital to 59 million, an increase of 17% from the prior year. In addition, this week we extended the maturity of our $16.2 million term loan by one year, further improving our short-term liquidity.

Jeremy Whitaker: Not only did the team deliver record revenue and earnings, we also improved our balance sheet and liquidity from the prior year.

Jeremy Whitaker: We ended the year with cash of 26.2 million, up 95% from the prior year by generating 18.6 million in cash flow from operations.

Jeremy Whitaker: We reduced inventories from $49.7 million in the prior year to $27.7 million, a reduction of $44%.

Saleel Awsare: Additionally, we recently secured a design services purchase order with a large German OEM that is developing a new infotainment platform for long and short haul trucks. We are pleased to have entered into this new relationship and it shows great progress in our longer term goal of winning new compute designs in our emerging automotive infotainment business.

Jeremy Whitaker: Furthermore, we increased our working capital to 59 million, and increased a 17% from the prior year.

Jeremy Whitaker: In addition, this week we extended the maturity of our $16.2 million term loan by one year, further improving our short term liquidity.

Jeremy Whitaker: With these balance sheet and working capital improvements, we remain well-positioned to drive our strategic growth plan.

Jeremy Whitaker: With these balance sheet and working capital improvements, we remain well positioned to drive our strategic growth plan.

Jeremy Whitaker: Now turning to the FQ4-2024 results. For FQ4-2024, we reported revenue of 49.1 million, slightly above the midpoint of our guide and an all-time record for electronics. Revenue was up 19% and 41% from the sequential and year-go periods, respectively. IoT system solutions increased by 33% and 156% from the sequential and year-go periods, respectively. The increase was primarily driven by the continued ramp of production shipments for our lead smart grid customer. In addition, the year-over-year increase was impacted by strong sales of our out-of-band management products. Sequentially, embedded IoT solutions were down 9% with continued contribution from our lead automotive customer.

Saleel Awsare: In the smart cities vertical, we continue to work closely with our lead smart grid customer. During the June quarter, we shipped over 21 million dollars in product to them as we expected and while it will take them some time to digest and deploy this product with their customer, we believe that this can be an ongoing business for several years. In the current quarter, fiscal Q1 2025, we expect to deliver approximately $5 million in product to them.

Jeremy Whitaker: Now turning to the FQ4 2020 for Results.

Jeremy Whitaker: For FQ4-2024, we reported revenue of 49.1 million, slightly above the midpoint of our guide and an all-time record for land tronics.

Jeremy Whitaker: Revenue was up 19% and 41% from the sequential and year ago periods respectively.

Jeremy Whitaker: IOT system solutions increased by 33% and 156% from the sequential and year ago periods respectively.

Saleel Awsare: We believe that as the initial inventory is consumed, this business is transitioning into a run rate business. We are also very pleased to be partnering with them on expanding into the North American market. They are currently working with a large US energy company on a similar smart grid solution and will be supplying demo units for a proof of concept. Many electrical grids are having to be upgraded significantly given the rise in energy demands and these networks are requiring real-time decision-making at the edge, which this device provides. While it is still early days, we are pleased to be assisting our customer as they enter the large US market.

Jeremy Whitaker: The increase was primarily driven by the continued ramp of production shipments for our lead smart grid customer.

Jeremy Whitaker: In addition, the year of our year increase was impacted by strong sales of our out-of-band management products.

Jeremy Whitaker: To quenchily, embedded out two solutions were down 9%, with continued contribution from our lead automotive customer.

Jeremy Whitaker: As expected, we experienced a year-on-year decline in embedded IoT solutions. As a year-go period included two large customer designs that ended in FQ4-2023. In FQ4-2024, software and services were down from the year-go 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 38.1% for FQ4-2024, compared to 40.1% in the prior quarter and 39.5% in the year-ago quarter. Non-GAAP gross margin was 38.8% for FQ4-2024, compared to 41% in the prior quarter and 39.9% in the year-go quarter. The declining gross margin percent was primarily related to charges taken related to the build-up of access inventory costs.

Jeremy Whitaker: As expected, we experienced a year on your decline in embedded IoT solutions. As a year-go period included two large customer designs that ended in FQ4 2023.

Jeremy Whitaker: and FQ4-2024 Software and Services 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.

Saleel Awsare: Lastly, we are very excited to be working on new projects with our key partner Qualcomm related to edge AI computing. In late June, we demonstrated a perception edge AI solution fully integrated with Qualcomm's AI hub at Qualcomm's industry analyst day. This platform enables deployment of edge AI solutions for vertical markets such as smart city and enterprise. Qualcomm's AI hub, when combined with our perception platform, reduces the complexity of edge AI applications and simplifies the deployment of AI models.

Jeremy Whitaker: Gap Gross margin was 38.1% for FQ4, 2024, compared to 40.1% in the prior quarter and 39.5% in the year ago quarter.

Jeremy Whitaker: Non-Gap Gross margin was 38.8% for FQ4, 2024 compared to 41% in the prior quarter and 39.9% in the year ago quarter.

Jeremy Whitaker: The declining gross margin per cent was primarily related to charges taken related to the buildup of access inventory costs.

Jeremy Whitaker: We expect gross margin percent to improve to the low to mid-40s, as we don't expect similar charges and our improvement in product mix in FQ1. Gap SGN expenses for FQ4 2024 were 11 million compared with 8 million in the Eurogo quarter, in 9.8 million in the prior quarter. Gap R&D expenses for FQ4 2024 were 5.3 million compared with 4.9 million in the Eurogo quarter and 5.2 million in the prior quarter. The increases in SGNA and R&D were driven by a record year for revenue and earnings, which resulted in higher share-based and variable compensation during Fiscal 2024 as compared to Fiscal 2023.

Jeremy Whitaker: We expect gross margin percent to improve to the low to mid-40s.

Saleel Awsare: Building on our platform, we are closely collaborating with our compute partner who we expect to deploy our software tools at scale to help their developers build leading edge AI edge solutions. While it is still early days for us, the opportunity in the edge AI for Lentronics lies in providing integrated solutions using our compute modules and edge AI gateways for customers looking to deploy solutions with compute power needed to drive AI models at the edge of the network. In support of this, we are pleased to see our perception platform win the 2024 product of the year of war from the IoT evolution world earlier this month.

Jeremy Whitaker: As we don't expect similar charges.

Jeremy Whitaker: and our Improvement and Product Mix and FQ1.

Jeremy Whitaker: GAPS Genie expenses for FQ4, 2024, were 11 million compared to 8 million in the year ago quarter, in 9.8 million in the prior quarter.

Jeremy Whitaker: Gap R&D expenses for FQ4-2024 were 5.3 million compared with 4.9 million in the year ago quarter and 5.2 million in the prior quarter.

Speaker Change: The increases in SGA and A and R&D were driven by a record year for revenue and earnings, which resulted in higher share-based and variable compensation during fiscal 2024 as compared to fiscal 2023.

Jeremy Whitaker: In the upcoming quarter, we expect a sequential decrease in non-GAAP operating expenses related to continued cost containment and lower variable compensation. Gap net income was 386,000 or 1 cent per share during FQ4 2024 compared to a Gap net loss of 1.7 million or 5 cents per share in the Eurogo quarter. Non-GAAP net income increased by 160 percent from the Eurogo quarter, demonstrating leverage in our operating model and strong cost control. Non-GAAP net income was 5.8 million or 15 cents per share and came in at the midpoint of our guide for FQ4 2024 compared to non-GAAP net income of 2.2 million or 6 cents per share in the Eurogo quarter.

Saleel Awsare: To conclude, I am very optimistic about Lentronics future, given our strong balance sheet, the momentum in our enterprise verticals specifically in video conferencing and our advanced solutions, new engagements in automotive infotainment, diversifying into additional geographic regions with our smart grid customer and our deepening relationship with Qualcomm enabling us to participate in the new mega trend of edge AI. We are also mindful of inorganic a creative growth opportunities and we will pursue those that fit within our portfolio and make economic sense. Our goal is to increase shareholder value through both organic and inorganic growth.

Speaker Change: In the upcoming quarter, we expect a sequential decrease in non-gap operating expenses related to continued cost containment and lower variable compensation.

Speaker Change: Gapnade income was 386,000 or one cent per share during FQ4, 2024 compared to a gap net loss of 1.7 million or 5 cents per share in the year ago quarter.

Speaker Change: Non-gap net income increased by 160% from the year-go quarter, demonstrating leverage in our operating model and strong cost control.

Speaker Change: Non-gap net income was 5.8 million or 15 cents per share, and came in at the mid point of our guide for FQ4 2024, compared to non-gap net income of 2.2 million or 6 cents per share in a year ago quarter.

Jeremy Whitaker: With that, I will now hand the call back over to Jeremy. Thank you, Celil.

Jeremy Whitaker: Now, I will provide the financial results and some business highlights for our fiscal year 2024 and fourth quarter before commenting on our financial outlook for the first quarter of fiscal 2025. I will start with a brief recap of our fiscal 2024. We reported record revenue of 160.3 million representing 22 percent growth from the prior year. In addition, we reported record non-gap earnings of 15.4 million representing 83 percent growth from the prior year.

Jeremy Whitaker: Now turning to our outlook for the first quarter of fiscal 2025, we expect revenue to be in the range of 34 to 38 million and non-GAAP EPS in a range of 7 to 11 cents per share. The sequential decline for FQ1 was anticipated due to the steep ramp of our smart grid customer in FQ4 2024, as discussed on our previous earnings calls. During FQ4 2024, we delivered a record 21.4 million to this customer. In addition, we have received a follow-on order from this customer, and in FQ1 2025, we expect to deliver them approximately 5 million of additional product.

Speaker Change: Now turning to our outlook.

Speaker Change: For the first quarter of fiscal 2025, we expect revenue to be in the range of 34 to 38 million and non-gap EPS in a range of 7 to 11 cents per share.

Speaker Change: The sequential decline for FQ-1 was anticipated due to the steep ramp of our smart grid customer in FQ-4, 2024, as discussed on our previous earnings calls.

Jeremy Whitaker: We also reported record non-gap EPS of 40 cents per share or 76 percent growth from the prior year. The significant growth in non-gap earnings demonstrates the leverage in our operating model and our commitment to maintain financial discipline while still delivering record revenue for the fiscal year. Not only did the team deliver record revenue and earnings, we also improved our balance sheet and liquidity from the prior year. We ended the year with cash of 26.2 million up 95 percent from the prior year by generating 18.6 million in cash flow from operations.

Speaker Change: During FQ4-2024, we delivered a record 21.4 million to this customer.

Speaker Change: In addition, we have received a follow-in order from this customer, and in FQ125, we expect to deliver them approximately 5 million of additional products.

Jeremy Whitaker: If we exclude this expected shipment from our FQ1 guidance, the balance of our revenue is expected to grow sequentially by approximately 10 percent.

Speaker Change: If we exclude this expected shipment from our FQ-1 guidance, the balance of our revenue is expected to grow sequentially by approximately 10%.

Jeremy Whitaker: As we look forward, we are focused on continued improvement of financial performance by enhancing the operational leverage of the business.

Speaker Change: As we look forward, we are focused on continuing improvement of financial performance, by enhancing the operational leverage of the business.

Operator: 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.

Jeremy Whitaker: We reduced inventories from 49.7 million in the prior year to 27.7 million a reduction of 44 percent. Furthermore, we increased our working capital to 59 million and increased the 17 percent from the prior year. In addition, this week we extended the maturity of our 16.2 million dollar term loan by one year further improving our short term liquidity. With these balance sheet and working capital improvements, we remain well positioned to drive our strategic growth plan.

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.

Operator: Thank you. We will now begin the question and on session to ask a question. You may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keypad. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Thank you.

Speaker Change: Thank you.

Speaker Change: We will now begin the question and answer session to ask a question, you may press star, then one on your telephone keypad. If you are using a speaker's phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.

Scott Searle: The first question comes from Scott Searle with Roth Capital. Please go ahead. Good afternoon. Thanks for taking my questions. They quick clarification, Jeremy. You mentioned charges impacting gross margins in the fourth quarter. Could you tell them a little bit? What was the magnitude of the impact there? It sounds like they go away as we go into the September quarter, and given the favorable mix from the out of band management solutions, that gross margins should come back a little bit. Yeah, it was several hundred basis points by two or three hundred basis points. It was primarily related to some charges for excess and obsolete inventory.

Speaker Change: First question comes from Scott Serel with Rob Capital. Please go ahead.

Jeremy Whitaker: Now turning to the FQ4 2024 results. For FQ4 2024, we reported revenue of 49.1 million. Slightly above the midpoint of our guide and an all-time record for electronics. Revenue was up 19 percent and 41 percent from the sequential and year-go periods respectively. IoT system solutions increased by 33 percent and 156 percent from the sequential and year-go periods respectively. The increase was primarily driven by the continued ramp of production shipments for our lead-smarkored customer.

Scott Serel: Good afternoon. Thanks for taking my questions. They quick clarification, Jeremy. You mentioned charges impacting gross margins in the fourth quarter. Could you detail them a little bit? What was the magnitude of the impact there? It sounds like they go away as we go into the September quarter and given the favorable mix from the out-of-band management solutions.

Speaker Change: Cross margin should come back a little bit.

Jeremy Whitaker: Yeah, we, um...

Jeremy Whitaker: It was several hundred basis points, right, two or three hundred basis points, and it was primarily related.

Speaker Change: to some charges for excess and obsolete inventory, and in addition to that.

Jeremy Whitaker: And in addition to that, some costs that were accumulated with the growth of inventory during the pandemic. And as inventories have come down significantly, those costs also came off. That's not the books.

Jeremy Whitaker: In addition, the year-over-year increase was impacted by strong sales of our out-of-band management products. Sequentially, embedded IoT solutions were down 9 percent with continued contribution from our lead automotive customer. As expected, we experienced a year-on-year decline in embedded IoT solutions. As a year-go period included two large customer designs that ended in FQ4 2023. In FQ4 2024, software and services were down from the year-go period, primarily a function of the completion of two large design services projects that transitioned into production during the first half of fiscal 2024.

Speaker Change: Some costs that were accumulated with the growth of inventory during the pandemic and as the stories have come down significantly, those costs also came off the books.

Scott Searle: Okay, very helpful. And so we'll on the out-of-band management front. It's very exciting to hear the growth that's going on in that business. Could you size it a little bit or give us a range in terms of how big that business is right now? And maybe what the expected growth outlook would be as we look into fiscal 25 and how that, how and where that pipeline is shaping up? Sure thing. Scott, we are very pleased with our out-of-band management growth. And as I mentioned, it grew 70% Y-O-Y. We wouldn't expect the same 70% growth, but it's got double-digit growth as we get into fiscal year 25.

Speaker Change: Okay, very helpful. And Saleel, on the out-of-band management front, it's very exciting to hear the growth that's going on in that business. Could you size it a little bit or give us a range in terms of how big that business is right now? And maybe what the expected growth outlook would be as we look into fiscal 25 and how that, how and where that pipeline is shaping up.

Saleel: Sure thing, Scott, we are very pleased with our out-of-band management growth as I mentioned, it grew 70% while why. We wouldn't expect the same 70% growth, but it's got double-digit growth as we get into fiscal year 25.

Jeremy Whitaker: Gap Gross margin was 38.1 percent for FQ4 2024, compared to 40.1 percent in the prior quarter and 39.5 percent in the year-go quarter. Non-Gap Gross margin was 38.8 percent for FQ4 2024, compared to 41 percent in the prior quarter and 39.9 percent in the year-go quarter. The declining gross margin percent was primarily related to charges taken related to the build-up of excess inventory costs. We expect gross margin percent to improve to the low to mid-40s.

Jeremy Whitaker: And it's about average gross margins for the business. So the way the market has been sized is approximately all in with all vendors around four to five hundred million dollars. Our data shows in that area. So the market sizing. Now we don't start break out revenue by sub-segment. So I won't go into that, but really exciting business for us. Gotcha. Yeah. And for clarification, the gross margins are on the upper end of our scale as well. So it's a nice, high margin, high margin product. Gotcha. And two more questions, if I could. You know, the Qualcomm relationship is obviously been very favorable, and more and more we're seeing AJI pushing into the equation these days.

Speaker Change: and it's about average gross margins for the business so the way the market has been sized is approximately all in with all vendors around 4 to 500 million dollars is our data shows in that area.

Speaker Change: So, the market sizing.

Speaker Change: Now, we don't start breakout revenue by subsequent, so I won't go into that, but really exciting business for us.

Speaker Change: And for clarification, the gross margins are on the upper end of our scale as well, so it's a nice high margin, high margin product.

Jeremy Whitaker: As we don't expect similar charges and our improvement in product mix in FQ1, gap SGN expenses for FQ42024 were 11 million compared with 8 million in the Eurogo quarter, in 9.8 million in the prior quarter. Gap R&D expenses for FQ42024 were 5.3 million compared with 4.9 million in the Eurogo quarter and 5.2 million in the prior quarter. The increases in SGNA and R&D were driven by our record year for revenue and earnings, which resulted in higher share-based and variable compensation during Fiscal 2024 as compared to Fiscal 2023.

Speaker Change: and two more questions if I could, you know, the Qualcomm relationship is obviously been very favorable and more and more we're seeing as AI, you know, pushing into the equation these days. I'm wondering, you know, is there some way to help us better understand?

Scott Searle: I'm wondering, you know, is there some way to help us better understand the design funnel, the opportunity funnel of what you're seeing out there on that front. And then coupling that with inorganic growth, you know, you talked about 10% sequential growth from June to September with we X out grid expertise. What is the normalized number we should be thinking out about taking good expertise out of the numbers of, you know, the organic growth, we should be looking for the next several quarters.

Speaker Change: V.

Speaker Change: Design funnel, the opportunity funnel of what you're seeing out there on that front.

Speaker Change: and then coupling that with inorganic growth.

Speaker Change: You talked about 10% sequential growth from June to September, and what we ask for, what is the normalized number we should be thinking about, taking goods for T's out of the numbers of the organic growth we should be looking for in the next several quarters.

Jeremy Whitaker: In the upcoming quarter, we expect a sequential decrease in non-gap operating expenses related to continued cost containment and lower variable compensation. Gap net income was 386,000 or 1 cent per share during FQ42024 compared to a Gap net loss of 1.7 million or 5 cents per share in the Eurogo quarter. Non-gap net income increased by 160 percent from the Eurogo quarter, demonstrating leverage in our operating model and strong cost control. Non-gap net income was 5.8 million or 15 cents per share and came in at the mid-point of our guide for FQ42024 compared to non-gap net income of 2.2 million or 6 cents per share in the Eurogo quarter.

Silio: So let me take the edge I first. And this one is really exciting. I think about it, right. And what would electronics offer? We will offer compute songs and a full AJI box. And we demoed the AJI box at the Industry Analyst Day in June at Qualcomm headquarters. As from a sizing, it's early for me to give you a revenue number for that, but we are very closely aligned with Qualcomm on this. Additionally, if you caught in my prepared march, we're building on the platform; we're working with our partner, who we expect to deploy our software.

Speaker Change: So, let me take the edge of I first and this one is really exciting that I think about it, right? And what would land electronics offer? We will offer compute sums.

Speaker Change: and the full edgy box.

Speaker Change: and we demoed the HAI box.

Speaker Change: at the Industry Analyst Day in June at Qualcomm headquarters. As from a sizing, it's early for me to give you a revenue number for that, but we are very closely aligned with Qualcomm on this.

Speaker Change: Additionally, if you've caught in my prepared remarks, you're building on the platform, you're working with our partner.

Silio: Tools into their tool chain to enable developers to rapidly build and deploy solutions. So that would make what they're doing a little bit more unique to us, and we can be differentiated in the market. So that's specific to Qualcomm. So it's early days, as you know, for AJI data centers already happened. So that's on the early days. On the market, we're doing, you know, we're giving you quarterly guidance. Sequentially, as Jeremy mentioned, we grew 10%. The SAMs that we are addressing are, gives us a lot of headroom, so eight and a half billion dollars plus.

Speaker Change: who we expect to deploy our software tools.

Speaker Change: and to their tool chain to enable developers to rapidly build in the poor solutions.

Jeremy Whitaker: Now turning to our outlook. For the first quarter of Fiscal 2025, we expect revenue to be in the range of 34 to 38 million and non-gap EPS in a range of 7 to 11 cents per share. The sequential decline for FQ1 was anticipated due to the steep ramp of our smart grid customer in FQ42024 as discussed on our previous earnings calls. During FQ42024, we delivered a record 21.4 million to this customer.

Speaker Change: So that would make what they are doing a little bit more unique to us and we can be differentiated in the market.

Speaker Change: Specifically to Qualcomm. So it's early days as you know for AJ ID and a sentence already happened. So that's on the early days. On the market we're doing, you know, we're giving you quarterly guidance.

Speaker Change: We grew 10%

Speaker Change: The Sam's that we are addressing are giving us a lot of a group, so 8 and a half billion dollars plus. As I've said in the past, I'll say again, we expect to be growing at or better than the growth rate that we've said that in India.

Scott Searle: As I've said in the past, I'll say again: we expect to be growing at or better than the growth rate that we've said that area. And the growth rate that we mentioned is about 12%. So we expect to be growing better than that in the longer term, Scott. Great.

Jeremy Whitaker: In addition, we have received a follow-on order from this customer. In an FQ12025, we expect to deliver them approximately 5 million of additional product. If we exclude this expected shipment from our FQ1 guidance, the balance of our revenue is expected to grow sequentially by approximately 10 percent.

Speaker Change: and the Grocery that we mentioned about 12% so we expect to be going better than that in the longer-top Scott.

Scott Searle: Thanks so much. I'll get back in the queue.

Speaker Change: Thanks so much, I'll get back in the queue.

Jason Schmidt: The next question comes from Jason Schmidt with Lake Street. Please go ahead. Yes. Thanks for your time. My questions.

Speaker Change: A-A-A-A-A-A-A-A-A

Speaker Change: The next question comes from Jason Smith to a click street, please go ahead.

Jason Schmidt: I just want to follow up on your comments on the North American offer, Smart Credit opportunity. I know you mentioned demoing some units. How should we think about the potential timing of this opportunity contributing to the P&L? Yeah. You know, we work with our partner there, and they have just started demoing with a pretty large goth American utility a proof-of-concept system that's going in there. It's early days to give you revenue ramps on that, but the key point is the system is very similar to what got deployed in Italy. So it's not like the brand new system.

Jeremy Whitaker: As we look forward, we are focused on continued improvement of financial performance by enhancing the operational leverage of the business.

Jason Smith: Hi guys, thanks for tuning my questions. Just want to follow up on your comments on the North American Opera Smart Credit Opportunity. I know you mentioned demoing some units. How should we think about the potential timing of this opportunity contributing to the P&L?

Operator: 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. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.

Speaker Change: Yeah, you know, as you know...

Speaker Change: the bridge, we work with our partner there and...

Speaker Change: They have just started, demoing with a pretty large goto-american utility, a proof of concept system that's going in there. It's early days to give you revenue ramps on that, but the key point is the system.

Scott Searle: The first question comes from Scott Searle with Roth Capital. Please go ahead. Good afternoon. Thanks for taking my questions. They quit clarification, Jeremy. You mentioned charges impacting gross margins in the fourth quarter. Could you tell them a little bit? What was the magnitude of the impact there? It sounds like they go away as we go into the September quarter and given the favorable mix from the out of band management solutions that gross margins should come back a little bit.

Speaker Change: is very similar to what got deployed in Italy.

Silio: Now it's going through lots of testing, like it does. I expect it's out 18 to 24 months before you see a big ramp on that, but it's out there. But they've started the POCs with it already, as I speak. And it's a proof of concept is what we're doing.

Speaker Change: So it's not like it's a brand new system now it's going through lots of testing like it does. I expect it's out, you know, 18 to 24 months before you see a big ramp on that, but it's out there. But they've started the POCs with it already as I speak.

Speaker Change: and you know it's a pre-for-concept is what we're doing.

Jason Schmidt: Okay, that's helpful.

Jeremy Whitaker: And then Jeremy, just a clarification on Croce margin in September. I know you mentioned low to mid 40%. Does that include any continued excess inventory charges, though? No, it doesn't. We currently don't anticipate meaningful charges going forward. We do forecast kind of a historical run rate as part of our modeling, but with significant decline in revenue coming down nearly 50% from the year-ago period, and also at this point in time having amortized off, pretty much all of the costs, purchase price variances and capitalized overhead related to the buildup during the pandemic. We have some nice tailwinds there that should help drive that improvement.

Jeremy Whitaker: Okay, that's helpful. And then Jeremy, just the clarification on Crow's margin in September. I know you mentioned low to mid 40 percent. Does that include any continued access in mid to horary charges, though?

Scott Searle: Yeah, it was several hundred basis points by two or three hundred basis points. It was primarily related to some charges for excess and obsolete inventory. And in addition to that, some costs that were accumulated with the growth of inventory during the pandemic. And as inventories have come down significantly, those costs also came off the books.

Speaker Change: Now it doesn't, you know, we currently don't anticipate, you know, meaningful charge is going forward, you know, we do, we do for a cast kind of a historical run rate is part of our modeling.

Jeremy Whitaker: Okay, very helpful. And so we'll on the out of band management front. It's very exciting to hear the growth that's going on in that business. Could you size it a little bit or give us a range in terms of how big that business is right now? And maybe what the expected growth outlook would be as we look into fiscal 25 and how that, how and where that pipeline is shaping up? Sure thing.

Speaker Change: Pretty much all of the costs like purchase price variances and capitalized overhead related to the build-up during the pandemic.

Jeremy Whitaker: Scott, we are very pleased with our out of band management growth. And as I mentioned, it grew 70% Y O Y. We wouldn't expect the same 70% growth, but it's got double digit growth as we get into fiscal year 25. And it's about average gross margins for the business. So the way the market has been sized is approximately all in with all vendors around four to five hundred million dollars is our data shows in that area.

Speaker Change: We have some nice tailwinds there that should help drive.

Jeremy Whitaker: In addition to that, with a lower contribution anticipated from our market customer in fiscal 25, we'll also expect to see improvement from mix as well. Gotcha.

Speaker Change: Adam Proofment. In addition to that, with a lower contribution anticipated from our SmartGay customer in fiscal 25, we'll also expect to see improvement from mix as well.

Operator: Thanks a lot, guys.

Operator: Thank you.

Speaker Change: Gotcha, thanks a lot guys.

Jeremy Whitaker: So the market sizing. Now we don't start break out revenue by sub segment. So I won't go into that, but really exciting business for us. Gotcha. Yeah. And for clarification, the gross margins are on the upper end of our of our scale as well. So it's a nice high margin, high margin product. Gotcha.

George Gianarikas: Once again, if you have a question, please press high. Good afternoon, everyone. Thank you for taking my questions.

Speaker Change: Thank you.

Speaker Change: Once again, if you have a question, please press star, then one, the next question comes from George Janurika with Canapur Generity. Please go ahead.

Speaker Change: and a few minutes later.

Speaker Change: The next question comes from George G. Henry Dasbitt, can I court? Please go ahead. Hi, good afternoon everyone. Thank you for taking my questions.

Jeremy Whitaker: And two more questions if I could, you know, the Qualcomm relationship is obviously been very favorable and more and more we're seeing. AJI, you know, pushing into the equation these days, I'm wondering, you know, is there some way to help us better understand the design funnel, the opportunity funnel of what you're seeing out there on that front. And then coupling that with inorganic growth, you know, you talked about 10% sequential growth from June to September with we ax out grid expertise.

Silio: Hi, George. So maybe to start, can you just sort of give us a little more detail on this engagement that you have on the autoside, any profile on the average selling price and margins there? So let me give you a little bit more on the specific things that we're doing there. So we've signed a purchase order with the German truck OEM for software and services. They're developing a new infotainment platform focused on long and short-haul trucks. We know the cycle is long for automotive customers, but it really adds to our customer diversification in this emerging automotive infotainment business.

Speaker Change: The Jarred

Speaker Change: So maybe to start, can you just sort of give us a little more detail on this engagement that you have on the auto side, any profile on the average selling price and margins there?

Speaker Change: So, let me give you a little bit more on the specifics.

Speaker Change: and we'll see that we're doing there so we've signed a purchase order with the German Truck OEM for Software and Services.

Speaker Change: They are developing a new enforcement platform focused on long and short haul trucks.

Jeremy Whitaker: What is the normalized number we should be thinking about about taking grids for tease out of the numbers of, you know, organic growth, we should be looking for the next several quarters. So let me take the AJI first. And this one is really exciting. I think about it, right? And what would Lantronics offer? We will offer compute songs and a full AJI box. And we demoed the AJI box at the industry analyst day in June at Qualcomm headquarters.

Speaker Change: We know the cycle is wrong for automotive customers, but it really adds to our customer diversification in this emerging automotive and for team and business.

Silio: I expect the gross margins should be what we have done in the automotive and the past. We haven't given a specific number out there, but I expect it to be around that area.

Speaker Change: I expect the gross margins should be, you know, what we have done in the automotive in the past. We haven't given a specific number out there, but I expect it to be around that area.

Silio: And by the way, George, this is the key point here. What is really exciting is Greenfield. It's part of the stories to go beyond our one customer or couple customers that we have into many more, and this is really the start of that. And it shows that our technology is getting adapted. Thank you.

Speaker Change: And by the way, this is the key point here what's really exciting, it's green field. It's part of the story is to go beyond our one customer, a couple of customers that we have, into many more, and this is really the start of that.

Jeremy Whitaker: As from a sizing, it's early for me to give you a revenue number for that, but we are very closely aligned with Qualcomm on this. Additionally, if you caught in my prepared march, we're building on the platform. We're working with our partner who we expect to deploy our software, in their tools, into their tool chain to enable developers to rapidly build and deploy solutions. So that would make what they're doing a little bit more unique to us and we can be differentiated in the market.

Speaker Change: and it shows that our technology is getting adapted.

George Gianarikas: And maybe just on the M&A side, the inorganic side, I'm sort of new obviously to the story.

Speaker Change: and thank you. And maybe just on the M&A side, you know, organic.

Speaker Change: I'd love to understand a little bit about your philosophy around accretion, earnings accretion when you look at acquisitions in addition to strategic fit. Thank you.

Jeremy Whitaker: I'd love to understand a little bit of your philosophy around accretion, earnings accretion when you look at acquisitions in addition to strategic sets. Thank you. On the financial side, the type of things we've done in the past and that we look at doing on a go-forward basis are very focused on becoming accretive straight out of the gate or at least having a very short timeline to get there through synergy capture. That's been a pretty significant focus for us in the past. And I'd say all four of the last deals that we've done have met that criteria.

Jeremy Whitaker: So that's specific to Qualcomm. So it's early days, as you know, for edge AI data centers already happen. So that's on the early days. On the market, we're doing, you know, we're giving you quarterly guidance. Sequentially, as Jeremy mentioned, we grew 10%. The SAMs that we are addressing are, gives us a lot of headroom, so 8.5 billion dollars plus. As I've said in the past, I'll say again, we expect to be growing at or better than the growth rate that we've said that area. And the growth rate that we mentioned is about 12%. So we expect to be going better than that in the longer term, Scott. Great. Thanks so much.

Scott Searle: I'll get back in the queue.

Speaker Change: Yeah, so on the financial side, you know, the type of things we've done in the past and that we look at doing on a go-forward basis are very focused on becoming a creative.

Speaker Change: Straight out of the gate, or at least having a...

Speaker Change: a very short timeline to get there through synergy capture. So that's been a pretty...

Speaker Change: Significant Focus for us in the past and, you know, Hatsail Aws.

Speaker Change: For the last deals that we've done have met that criteria and at this point that's also how we're evaluating deals on a go-forward basis in a let's fill the old.

Silio: And at this point, that's also how we're evaluating deals on a go-forward basis.

Jason Schmidt: The next question comes from Jason Schmidt with Lake Street. Please go ahead. Thanks for your time, my questions.

Silio: And I'll let Ciliol comment on the strategic side of things. Yeah, so George, great question, right? We have three verticals we really like: smart cities, enterprise, and automotive infotainment. We like compute; we like to connect. And in those spaces where we are going to be looking at acquisitions. And we are seeing a pipeline now coming. So we're starting to evaluate stuff.

Jason Schmidt: I just want to follow up on your comments on the North American Opera, Smart Grid Opportunity. I know you mentioned demoing some units. How should we think about the potential timing of this opportunity contributing to the P&L? Yeah. You know, we work with our partner there and they have just started demoing with a pretty large goth American utility, a proof of concept system that's going in there. It's early days to give you revenue ramps on that, but the key point is the system is very similar to what got deployed in Italy.

Speaker Change: Um, you have common on the strategic side of things. Yeah, so George Great question, right? We have three verticals we really like.

Speaker Change: Smart Cities Enterprise and Automotive Infotainment.

Speaker Change: We'd like to compute, we'd like to connect, and in those spaces where we're going to be looking at acquisitions, and we're seeing a pipeline now coming, so we're starting to evaluate stuff.

Silio: And I'll just add my own personal experience with acquisitions in my previous company. Being accretive from day one is really important. And we're going to be focused on that for sure. Thank you.

Speaker Change: and I'll just add my own personal experience with acquisition in my previous company, being a creative from day one is really important and you know, we're going to be focused on that for sure.

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

Speaker Change: Thank you.

Jason Schmidt: So it's not like the brand new system. Now it's going through lots of testing like it does. I expect it's out 18 to 24 months before you see a big ramp on that, but it's out there, but they've started the POCs with it already as I speak. And it's a proof of concept is what we're doing.

Speaker Change: The next question comes from Ryan Coons with Needham & Co. Please go ahead.

Ryan Koontz: Next question: quick clarification on your autonomous truck. Did you mention your time frame at all? When you thought that might be able to move into your first revenue? We did not mention the timing of first revenue right now. What we said is we got our first PO for working with them closely on software and services. The hardware revenue is going to be out a little bit. As you know, the cycles Ryan for automotive are longer, so we did not give you a schedule on the hardware revenue yet. But we said we did get our PO for software and service, which then in the future leads to hardware.

Ryan Coons: Alright, thanks for the question. Quick clarification on your autonomous truck. Did you mention your time frame at all, when you thought that might be able to move into your first revenue?

Speaker Change: We did that mention the timing of first revenue right now. What we said is we got our first PO for working with them closely on software and services.

Speaker Change: The hardware revenue is going to be out a little bit. As you know, the cycle's Ryan for automotive and lawners, so we did not give you a schedule on the hardware revenue yet. But we said we did get our PO for software and service, which then in the future leads to hardware.

Jeremy Whitaker: That's great. And Jeremy Quickhouse keeping on looking at inventory was down substantially. Do you have a cue? Was that mostly related to your shipments to your large smart grid customer? Or was it was a right up high impact there or other things that you're driving in the towards down? Yeah, the biggest impact was the shipments to our smart grid customer. Then after that we also brought down inventory levels in other areas. That's been a focus of ours. And then some of the write downs were probably the smallest impact to the bringing down the inventory for the quarter.

Jeremy Whitaker: and Jeremy Whitaker's key thing on, look up, you've been told it was down substantially, you have a queue, was that mostly related to your shipments to your large, smart-grade customer, or was it was a right-off kind of path there or other things that you're driving into to yourself?

Speaker Change: Yeah, the biggest impact was the shipments to our smart grid customer, then after that, we also brought down inventory levels in other areas that's been a focus of ours.

Speaker Change: Some of the right-downs were probably the smallest impact to the bringing down the inventory for the quarter.

Silio: Got it. So a lead time is much more manageable now, and you can share there about your lead times you're seeing for kind of key components, strategic components. No, the lead times are very manageable and do what Jeremy said for the past three quarters. The two of us have been over focused on getting this inventory right sized, and I think we are sitting there now. We made some tremendous progress, and the lead times to your point, Ryan. We are okay. We are okay now.

Speaker Change: Got it. So lead times I'm sure much more manageable now. It isn't going to share there about your lead times you're seeing for kind of key components for key components.

Speaker Change: Now the lead type is a very manageable and

Speaker Change: to what Jeremy said for the past three quarters, the two of us have been Uber focused on getting this inventory right-sized and I think we are sitting there now, we've made some tremendous progress and the leak times you are point-run, we are okay, we are okay now.

Ryan Koontz: Great.

Ryan Koontz: And circling back to the edge AI topics, sounds really exciting. Anything more you can share there in terms of the architecture of what these sort of devices would do. Are they part of a larger, you know, AI cloud and this is kind of the edge cloud that you're involved in the inferencing from kind of a core or you can share there about the architecture on the AI platform. Yeah, great, great question, Ryan. So obviously, this is the edge inferencing is what we are going to differentiate and win in. Yeah. And let me give you like two examples.

Speaker Change: Great. And circle back to the edge AI topics, sounds really exciting. Anything more you can share there in terms of the architecture of what these sort of devices would do, or they part of a larger.

Jason Schmidt: Okay, that's helpful.

Jeremy Whitaker: And then Jeremy, just a clarification on Croce margin in September. I know you mentioned low to mid 40%. Does that include any continued access and inventory charges, though? No, it doesn't. We currently don't anticipate meaningful charges going forward. We do forecast kind of a historical run rate as part of our modeling. But with the significant decline in revenue coming down nearly 50% from the year ago period, and also at this point in time having amortized off, pretty much all of the costs, purchase price variances, and capitalized overhead, related to the buildup during the pandemic, we have some nice tailwinds there that should help drive that improvement. In addition to that, with a lower contribution anticipated from our smart did customer in fiscal 25, we'll also expect to see improvement from mix as well. Gotcha.

Operator: Thanks a lot, guys. Thank you. Once again, if you have a question, please press high.

Speaker Change: You know, AI cloud and this is kind of the edge cloud that you're involved in the infersing from kind of a core or any can share about the architecture on the AI platform.

George: Good afternoon, everyone. Thank you for taking my questions. Hi, Jarge.

Speaker Change: Yeah, great question Ryan, so obviously this is the edge in French sing is what we have got a differentiated and winning, and let me give you two examples you can see where it really fits with what we do right, in video conferencing.

Saleel Awsare: So, maybe to start, can you just sort of give us a little more detail on this engagement that you have on the autoside, any profile on the average selling price and margins there? So, let me give you a little bit more on the specific things that we're doing there. So, we've signed the purchase order with the German Truck OEM for software and services. They are developing a new infotainment platform focused on long and short haul trucks.

Silio: You can see where it really fits with what we do, right. In video conferencing, AI tools are now being used to enhance both video and audio. And we've got some great video conferencing customers. So I'm talking about the future, right. Right now we're already shipping to them. But in the future, with our Psalms, they will be able to have auto framing, tracking, gesture recognition, interesting things like that. We won't be making the models. The models are going to be what they have, but we will have the ability to run them. And we've actually created tools, as I mentioned. Our partners are going to embed it in their tool chain.

Speaker Change: AI2 is now being used to enhance both video and audio.

Saleel Awsare: We know the cycle is long for automotive customers, but it really adds to our customer diversification in this emerging automotive infotainment business. I expect the gross margins should be what we have done in the automotive and the past. We haven't given a specific number out there, but I expect it to be around that area.

Speaker Change: and we've got...

Speaker Change: Some great video conference in customers. So I'm talking about the future right right now. We're already shipping to them But in the future with with with our Psalms, they will be able to have

Speaker Change: Auto framing, tracking, gesture recognition, interesting things like that. We won't be making the models, the models are going to be what they have, but we will have the ability to run them.

Saleel Awsare: And by the way, Jarge, this is the key point here. What's really exciting is Greenfield. It's part of the stories to go beyond our one customer or couple customers that we have into many more and this is really the start of that. And it shows that our technology is getting adapted. Thank you.

Speaker Change: and we've actually created tools, as I mentioned, our partners were going to embed it in their tool chain. So that's one example. In the smart grid, both the low voltage and medium voltage substations are going to allow influencing of large set of variables. So the variables in the data are going to come from the energy companies.

Silio: So that's one example. In the smart grid, both the low voltage and medium voltage substations are going to allow inferencing of large set of variables. So the variables in the day that are going to come from the energy companies, but our products in the future will be able to kind of understand the grid loading and steer energy anticipation of loads. So it's really, it's early days because DJI is early days on the edge, but we're really working with a key partner, and you know who they are, Qualcomm. And we've indexed to them quite a bit, and they have some nice low power trips, and that's a great focus for them also.

Speaker Change: But our products in the future will be able to kind of understand the grid loading and steer energy and dissipation of load. So it's really it's early days because as I was early days on the edge, but we're really working with it.

Jeremy Whitaker: And maybe just on the M&A side, the inorganic side, you, I'm sort of new obviously to the story. I'd love to understand a little bit about your philosophy around accretion, earnings accretion when you look at acquisitions and addition to strategic fit. Thank you. Yeah, so on the financial side, the type of things we've done in the past and that we look at doing on a go-forward basis are very focused on becoming accretive straight out of the gate or at least having a very short timeline to get there through synergy capture.

Speaker Change: a key partner and who they are call come and we've indexed to them quite a bit and they have some nice low power trips and that's a great focus for them also. So good alignment on our side.

Silio: So good alignment on our site.

Ryan Koontz: Great, that's all I've got. Thanks for the question. Thank you.

Speaker Change: Great, that's all I've got. Thanks for your question.

Operator: This concludes the question-and-answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: This concludes the question analysis session and today's conference call. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: Music Music

Jeremy Whitaker: So that's been a pretty significant focus for us in the past. And I'd say I'll for the last deals that we've done have met that criteria. And at this point, that's also how we're evaluating deals on a go-forward basis.

Saleel Awsare: And I'll let Ciliol comment on the strategic side of things. Yeah, so George, great question, right? We have three verticals we really like. Smart cities, enterprise and automotive entertainment. We like compute, we like to connect. And in those spaces where we are going to be looking at acquisitions. And we are seeing a pipeline now coming. So we're starting to evaluate stuff. And I'll just add my own personal experience with acquisitions in my previous company. Being accretive from day one is really important and we're going to be focused on that for sure. Thank you.

Ryan Koontz: The next question comes from Ryan Koontz with Needham and Cole. Please go ahead. Thanks for question. Quick clarification on your autonomous truck. Did you mention your time frame at all? When you thought that might be able to move into your first revenue? We did not mention the timing of first revenue right now. What we said is we got our first PO for working with them closely on software and services. The hardware revenue is going to be out a little bit.

Ryan Koontz: As you know, the cycles Ryan for automotive are longer, so we did not give you a schedule on the hardware revenue yet. But we said we did get our PO for software and service, which then in the future leads to hardware. That's great. And Jeremy Quickhouse keeping on looking at inventory was down substantially. Do you have a cue? Was that mostly related to your shipments to your large smart grade customer? Or was it was a right-off high impact there or other things that you're driving in the doors down?

Ryan Koontz: Yeah, the biggest impact was the shipments to our smart grade customer. Then after that, we also brought down inventory levels in other areas. That's been a focus of ours. And then some of the write downs were probably the smallest impact to the bringing down the inventory for the quarter. Got it. So a lead time is much more manageable now and you can share there about your lead times you're seeing for kind of key components strategic components.

Ryan Koontz: No, the lead times are very manageable. And to what Jeremy said for the past three quarters, the two of us have been over-focused on getting this inventory right sized. And I think we are sitting there and now we've made some tremendous progress. And the lead times to your point Ryan, we are okay. We are okay now. Great. And circling back to the edge AI topics sounds really exciting. Anything more you can share there in terms of the architecture of what these sort of devices would do.

Ryan Koontz: Are they part of a larger, you know, AI cloud. And this is kind of the edge cloud that you're involved in the inferencing from kind of a core or you can share there about the architecture on the AI platform.

Saleel Awsare: Yeah, great, great question, Ryan. So obviously this is the edge inferencing is what we are going to differentiate and win in. And let me give you like two examples. You can see where it really fits with what we do, right. In video conferencing, AI tools are now being used to enhance both video and audio. And we've got some great video conferencing customers. So I'm talking about the future, right. Right now, we're already shipping to them, but in the future with with our Psalms, they will be able to have, you know, auto framing, tracking, gesture recognition, interesting things like that.

Saleel Awsare: We won't be making the models. The models are going to be what they have, but we will have the ability to run them. And we've actually created tools. As I mentioned, our partners are embedded in their tool chain. So that's one example. In the smart grid, both the low voltage and medium voltage substations are going to allow inferencing of large set of variables. So the variable that the data are going to come from the energy companies, but our products in the future will be able to kind of understand the grid loading and steer energy anticipation of loads.

Saleel Awsare: So it's really, it's early days because DJI's early days on the edge, but we're really working with a key partner and you know who they are, Qualcomm. And we've indexed to them quite a bit and they have some nice low power trips. And that's a great focus for them also. So good alignment on our side. Great.

Ryan Koontz: That's all I've got. Thanks for questions. Thank you. This concludes the question and answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect. [inaudible]