Q1 2025 Lantronix Inc Earnings Call
Speaker Change: Good evening, and welcome to the Lantronics First Quarter Fiscal 2025 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.
Speaker Change: 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.
Speaker Change: I would now like to turn the conference over to Brent Stringham, Chief Accounting Officer and Interim Chief Financial Officer. Please go ahead.
Brent Stringham: Good afternoon and thank you for joining our quarterly earnings call. Joining me on the call today is our President and Chief Executive Officer, Saleel Awsare.
Brent Stringham: 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.
Brent Stringham: 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.
Brent Stringham: 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.
Brent Stringham: Lantronics undertakes no obligation to revise or update publicly any forward looking statements to reflect future events or circumstances.
Brent Stringham: 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.
Brent Stringham: Furthermore, during the call, the company will discuss non-GAAP financial measures.
Brent Stringham: 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.
Saleel Awsare: Thanks, Brent, and thank you, everyone, for joining us on the call today.
Saleel Awsare: We reported revenue of $34.4 million for the first quarter of fiscal 2025, which was up 4% compared to the same quarter last year.
Non-GAAP EPS in fiscal year Q1 was six cents.
Saleel Awsare: Brent Stringham, our Interim CFO, will provide more details on the first quarter financial results shortly.
Speaker Change: On the call today, I would like to highlight three topics with you.
a recently announced acquisition of Netcom's IoT product line
Speaker Change: the progress we are making in our collaboration with Qualcomm and Edge AI.
Speaker Change: and our strategic focus on investing in areas where we can differentiate and demonstrate IoT leadership while continuing to emphasize operational efficiency and cost savings.
Speaker Change: First, our purchase of Netcom's IoT product line for $6.5 million in cash fits very well with our compute and connect strategy.
Speaker Change: It strengthens our Connect offerings by providing our customers with leading-edge IoT solutions.
Speaker Change: The acquisition expands our portfolio in gateway routers and modems, including the latest 5G products, enhancing our edge compute solutions.
Speaker Change: It also adds new blue-chip enterprise customers for additional cross-selling opportunities and opens target-rich, unserved geographic markets for our products, such as Australia and New Zealand.
Speaker Change: In calendar year 2024, the Netcom products are expected to generate approximately $6 million to $7 million in revenue, and the acquisition is expected to be immediately accretive to EPS.
Speaker Change: In summary, this transaction improves our competitive position in the cellular gateway market, reduces our R&D requirements for the development of 5G IoT gateway and router line, and contributes additional revenue to our enterprise business.
Speaker Change: The deal is expected to close in November, subject to customary closing conditions.
Speaker Change: Second, on the topic of Edge AI, I'm very pleased to report the last four months have been very productive in our engagement and strategic collaboration with Qualcomm for AI and machine learning.
Speaker Change: We delivered on three milestones recently, including, first, we are thrilled to announce the signing of a development agreement with Qualcomm to advance their Graphical Composer tool to accelerate new Edge AI applications.
Speaker Change: What we are doing is optimizing Qualcomm's AI Hub Toolkit to manage complex AI workflows, making it easier for end-users to do AI modeling.
Speaker Change: The collaboration with Qualcomm demonstrates our ability to deliver scalable, high-performance AI solutions for our partners, customers, and the AI ecosystem.
Speaker Change: Second, we are expanding our offerings in the Smart City vertical by successfully launching the first AI-enabled edge compute gateway called SmartLV in collaboration with Qualcomm.
Speaker Change: Our smart LV gateway which deploys the IQ615 processor was designed specifically for low voltage substations and in next generation smart grids, utilities and other industrial applications.
Speaker Change: SmartLB provides operators with real-time management of their networks, enabling them to deliver energy on demand while ensuring network stability during periods of peak loading.
Speaker Change: And third, earlier this month, we announced five new system-in-package solutions based on the latest Qualcomm processors.
Speaker Change: These new SIPs and SOM solutions work at the edge of the network and help to accelerate the development of AI applications in the enterprise and industrial markets, such as video surveillance, robotics, and industrial automation.
Speaker Change: As AI moves to the edge, we are positioning ourselves to lead not only with Qualcomm-based system and package solutions, but also our gateway hardware and software solutions.
Speaker Change: We have differentiated IP, development capabilities, and we are a Western-based supplier.
Speaker Change: Together, these achievements with Qualcomm allow us to lay the foundation for a long-term strategy to become a key player in the edge AI ecosystem.
Speaker Change: driving innovation and delivering end-to-end solutions that address the evolving needs of industries transitioning to an AI-powered, edge-centric architecture.
Speaker Change: And finally, we are implementing initiatives to drive business focus, improve operating efficiency, and enhance future profitability.
Speaker Change: Specifically, we are in the process of streamlining our product portfolio. Going forward, we will not be making future investments in some non-core products such as our Wi-Fi and GNSS modules.
Speaker Change: These lines are smaller contributors to our top line, and we want to direct our development resources on core growth areas where we provide differentiation and leadership. We are in the process of moving from seven sites globally to four centers of excellence, providing scale and efficiency.
Speaker Change: In conclusion, we remain focused on the megatrend of enabling edge intelligence with our computer and Kinect solutions, allowing our customers to improve their real-time decision-making while increasing their operational efficiency.
Speaker Change: and we are continuing to focus on profitable growth, cash generation and making the right investments that help scale the business into fiscal year 2026 and beyond.
Speaker Change: We will continue to look for acquisitions that complement our core strategy as demonstrated by a pending Netcom acquisition.
Speaker Change: Overall, I'm very pleased with our accomplishments this quarter, including the acquisition of Netcom's IoT product line, our progress with Qualcomm and Edge AI, and our focusing of our product portfolio and improving our operating efficiency.
Speaker Change: With that, I will now turn the call over to Brent Stringham, our Interim CFO.
Brent Stringham: Thank you Saleel. I will review the financial results and some business highlights for our first quarter of fiscal year 2025 before commenting on our financial outlook for the second quarter of fiscal 2025.
Brent Stringham: For FQ1 2025, we reported revenue of $34.4 million, which was at the lower end of our guidance range.
Brent Stringham: As expected, sequentially, revenue was down from the record revenues we reported last quarter, which included relatively high shipments to our smart grid customer to support its initial deployments.
On a year-over-year basis, FQ1 2025 revenue was up 4%.
Brent Stringham: Embedded IoT solutions revenue increased by 18% from both the sequential and year-ago periods. Sequentially, the increase was primarily driven by growth from a large enterprise video conferencing customer.
Brent Stringham: IoT system solutions decreased by 47% and 1% from the sequential and year-ago periods, respectively.
Brent Stringham: The sequential decrease was largely driven by the expected reduction of approximately $16 million in shipments to our large smart grid customer and a large federal government agency order, which did not materialize as originally expected.
Brent Stringham: We expect this to be fulfilled incrementally in the coming quarters.
Brent Stringham: Software and services were up 8% sequentially and lower by 13% from the year-ago quarter as products have moved into production.
Brent Stringham: Gap gross margin was 42.1% for FQ1 2025 compared to 38.1% in the prior quarter and 42.7% in the year-ago quarter.
Brent Stringham: Non-GAAP gross margin was 42.6% for FQ1 2025, compared to 38.8% in the prior quarter and 44% in the year-ago quarter.
Brent Stringham: As expected, gross margin improved sequentially as we did not experience similar inventory-related charges as in the previous quarter.
Brent Stringham: We expect gross margin percent to remain in the low 40s range.
Brent Stringham: GAAP SG&A expenses for FQ1 2025 were $9.5 million compared with $9.2 million in the year ago quarter and $11.1 million in the prior quarter.
Brent Stringham: The sequential decrease was largely due to lower variable and share-based compensation owing to lower revenue levels.
Brent Stringham: GAAP R&D expenses for FT1 2025 were $5 million compared to with $5.1 million in the year ago quarter and $5.3 million in the prior quarter.
Brent Stringham: Gap net loss was $2.5 million, or $0.07 per share, during FQ1 2025, compared to gap net loss of $1.9 million, or $0.05 per share, in the year-ago quarter.
Brent Stringham: Non-Gap Net Income was $2.3 million, or $0.06 per share, during FQ1 2025, compared to Non-Gap Net Income of $2.5 million, or $0.07 per share, in the year-ago quarter.
Speaker Change: As Saleel mentioned earlier, the streamlining of our product portfolio and site consolidation is allowing us to reduce our operating costs.
Speaker Change: These activities are underway and we expect will result in quarterly non-gap OPEX in the range of $11.25 to $11.75 million for the balance of the fiscal year.
Speaker Change: For the full year, we expect to reduce our non-GAAP operating expenses by approximately $4.5 million relative to fiscal 2024.
Now turning to the balance sheet.
Speaker Change: We ended FQ1 2025 with cash and cash equivalents of $26.4 million, relatively flat with the prior quarter, and we generated positive operating cash flow of $2.7 million.
Speaker Change: Net inventories increased slightly to $29.5 million as of FQ1 2025, as compared to $27.7 million in the prior quarter.
Speaker Change: Now, turning to our outlook, for the second quarter of fiscal 2025, we expect revenue to be in the range of $29 to $33 million.
Speaker Change: We're expecting sequentially lower revenue in FQ2, primarily due to lower volume from our largest automotive customer in Turkey, and slightly lower activity in our enterprise vertical market.
Speaker Change: As a result, we're expecting non-GAAP EPS in a range of 1 cent to 5 cents per share in FQ2.
Speaker Change: This guidance for FQ2 does not include any contribution from the purchase of NetCom's IoT product line, as we have not yet closed the acquisition.
Speaker Change: With that, we complete our prepared remarks for today. So I'll now turn it over to the operator to conduct our Q&A session.
We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your telephone keypad.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
To withdraw your question, please press star then 2.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Our first question is from Christian Schwab with Craig Hallam. Please go ahead.
Speaker Change: Hey guys, this is Tyler. I'm for Christian. Thanks for letting us ask a couple questions here.
You know, so maybe first off, you know
Speaker Change: Some pushouts in some federal projects in Q1 and you know, it sounds like some some potential headwinds from from your large You know auto customer in Q2, you know sounds like you know Some of that should hopefully come back in the second half I guess, you know any help just kind of maybe bracketing what type of growth or recovery or pickup
Speaker Change: We could potentially be thinking about in the second half of the fiscal year.
Speaker Change: Hey Christian, this is, well, I guess Tyler Saleel here. Thanks for the question.
Speaker Change: For this quarter, as we guided specifically, you know, we are seeing slowdown in our largest automotive customer and, you know, they're in Turkey and there's some slowdown in the consumer spending and rebates.
Speaker Change: and a little bit of enterprise vertical market slowdown, but that's slight. So as I think about the rest of the fiscal year, you know, we've got a number out for next quarter. We don't guide the rest of the year, but we start to see improvements sequentially as we go through the rest of this fiscal year, Tyler.
Thank you.
Alright, that's great.
Speaker Change: Robert Adams, Jeremy Whitaker, Robert Adams, Jeremy Whitaker, Robert Adams, Jeremy Whitaker,
Any update on those opportunities and how those are tracking.
Speaker Change: Yes, sure, Tyler Saleel here again. So, I was just in Europe about four weeks back.
met with the leadership of our largest partner company there.
Speaker Change: The deployments in Italy are ongoing. And as we said, this calendar year, we shipped quite a lot of products. So they're gonna deploy them.
Speaker Change: Then we are also seeing them going into the Latin American market. So there is some traction and also getting into
Speaker Change: other areas in Europe. Now these take some time but the good news is the device is ready and it was it's been shown at all the shows you might want to wear an NLIT Europe. It was shown there the Griswold folks showed that.
Speaker Change: In addition, we even showed our own smart LV product that is for the low voltage grid in collaboration with Qualcomm at the same show. So we believe this is a long-term area that we are going to invest in and see good growth in.
in the longer term.
Speaker Change: Great, and then maybe last one here, you know, good to hear some of the the progress you're making right with your Edge AI partnership with Qualcomm, you know, just wondering
Speaker Change: Any of these signed development agreements with them, or any of these things have any monetary connection to them? And if so, if you could, I guess, quantify those to any degree, or how we should think about those going forward.
Thanks.
Speaker Change: Yes, so we put three specific things that we did with Qualcomm, you know, we don't talk about specific dollar amounts on this, any development agreement that we have signed with them, but you can be rest assured, we're going to, you know, it's collaborative with them and we're not sharing a dollar amount, but yes, we are providing services that enable us.
Speaker Change: to improve upon their AI hub that they've developed, allowing end customers to develop products faster. So we're doing a small portion of their whole AI hub, but we are uniquely doing that for them.
Blah.
Speaker Change: Sounds great. All right, that's all for us. Appreciate it, guys. Thanks, Tyler.
Speaker Change: The next question is from Ryan Kuntz with Needham. Please go ahead.
Hi, thanks for the question.
Speaker Change: I want to ask about your acquired Netcom business here. What do you see as the synergies with what you're already doing in terms of...
and how do you think about the channel relationships that...
Speaker Change: come with that? Are they additive? Are they synergistic? And, you know, can you kind of walk me through...
Speaker Change: and in addition it complements what we've had so that's a great add to us and it gives us 5G ready to go now.
Speaker Change: They have some great customers that we were not engaged with, and they are Blue Chip Enterprise customers. And as time goes on, we'll give you more details. So there's great opportunity there for us, not only for the Netcom products that we acquired, but some of our other enterprise products that we could sell in there. Right? So there's going to be some cross-selling.
Speaker Change: Giving an example, they have a large MNO, Mobile Network Operator, and we believe this brings us a great opportunity to sell a lot of our stuff, like our out-of-band products, just to put it in perspective.
Secondly, you know, we said...
Speaker Change: The revenue was in the 6 to 7 million dollar rate for this calendar 24. I expect this to grow 20% into calendar 25 and beyond. We see that really there. And on the cost side, which was a great question you asked.
We are absorbing a very small team since it's
accretive
Speaker Change: And once Netcom is integrated, we can leverage our own capability to support the growth. So, I want to be very crisp and clear. This is not something that's not in our portfolio. We have a few products. This augments it. It adds revenue. It adds customers and makes us a lot stronger in this space.
Speaker Change: Does that give you a good perspective? Yeah, I guess from a channel perspective, will you use your existing channels? Are they bringing their own channel relationships? What's going on there?
Speaker Change: Yeah, great, great question. So I'll add to that. They are bringing some channel relationships and we will be taking those channel relationships over. And what I didn't address is, they're also bringing Australia, which is a pretty decent market for IoT, which is underserved by us completely.
Speaker Change: So that also helps us from that perspective. So they bring channel. And then the other thing we can help there is on the cost structure, right? They're bringing in some of the suppliers. We work with them also already. So that's going to allow us to get some cost squeezed out of it.
Speaker Change: Got it. And if we could kind of click back to your Edge AI.
Speaker Change: Applications and verticals are like your low-hanging fruit here that you're looking at that can kind of fit with your
Speaker Change: Your expertise. Yeah, yeah. With our strategy, you know, it's really focused.
Speaker Change: And you're right, it's a longer-term thing. We expect it fiscal 26 and beyond, which is not really that long. But if you think about where we are at...
Enterprise area, video conferencing,
Speaker Change: improving the quality, both our video and audio is a perfect example. In the grid area, again making sure which is a part of our smart cities vertical, this goes out to the low voltage portion of it, gives you that. And then, and then frankly, robotics
Speaker Change: drones, industrial applications, and all the applications that I mentioned, us being a Western-based supplier is also very important because we are both TAA and NDAA certified.
Speaker Change: When you say robotics, you're thinking like factory floor kind of stuff?
That's right, that's right, automation.
Speaker Change: And, frankly, we have introduced a few products. You know, I believe 26 we will start to see some green shoots on this, so it's not too long away. But, you know, we're putting a lot of effort into it, and I'm feeling really good with our work that we're doing with Qualcomm.
Speaker Change: Okay, and just a clarification, if we could, on your big smart grid customer in Europe. Did you mention kind of what your outlook looked like for that over the next few quarters?
Speaker Change: around $10 million, and we are on track to do that. Moving forward, we are not going to be getting into that granularity, Ryan, but as I answered an earlier question, they're working on other projects with the same device.
Speaker Change: and, you know, they need to finish their deployments in Italy. So this, as I said, is a long-tail partnership, the way I think about it.
Speaker Change: It sounds largely on track with what we've talked about before. Okay. Yeah, nothing to report there. Great. And you mentioned on the enterprise slowdown, that was more federal. Were you feeling some push-outs, you said?
Speaker Change: Yeah, I would say it's mainly around our government, a little bit of the government side, but also some of our insurance and banking customers have been a little careful with the spend as they think about the future, but maybe that's where we saw the slowdown.
The federal one was specifically for last quarter.
Speaker Change: Perfect, that's all I've got. Thank you so much. Thank you, Ryan.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Saleel Awsare for any closing remarks.
Thank you, everyone, and talk to you next quarter.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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