Q2 2025 Lantronix Inc Earnings Call
Carl: [music].
Good day and welcome to the fiscal 'twenty twenty-five second quarter results conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Brent shrink them Chief Financial Officer. Please go ahead.
Speaker Change: Good afternoon, and thank you for joining our quarterly earnings call. Joining me on the call today is our president and Chief Executive Officer Silvio else right.
Speaker Change: A live and archived webcast of today's call will be available on the company's website.
Speaker Change: In addition, you can find the collyn details for the phone replay in todays earnings release.
Speaker Change: During this call management may make forward looking statements, which involve risks and uncertainties that could cause our results to differ materially from management's current expectations.
We encourage you to review the cautionary statements and risk factors contained in the earnings release, which was furnished to the FCC today and is available on our website and in the Companys SEC filings such as its 10-K and 10-Qs.
Speaker Change: Plantronics undertakes no obligation to revise or update publicly any forward looking statements to reflect future events or circumstances.
Speaker Change: Please refer to the news release and the financial information in the Investor Relations section of our website for additional details that will supplement management's commentary.
Speaker Change: Furthermore, during the call the company will discuss non-GAAP financial measures.
Speaker Change: <unk> 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 soil.
Speaker Change: Thanks, Brent and thank you everyone for joining us on the call today.
Speaker Change: We reported revenue of $31 $2 million for the second quarter of fiscal 2025, and our non-GAAP EPS was four cents.
Speaker Change: Both metrics were solidly within the guidance range.
Speaker Change: Brand strength.
[noise] appointed CFO will be providing more details on the second quarter financial results shortly.
Speaker Change: On the call today I would like to cover four topics briefly with you.
Speaker Change: The update of our Netcom acquisition, which closed in late December.
Speaker Change: Expected growth of the edge AI market and comments from CES in Las Vegas.
Speaker Change: Strengthening the relationship and the idea of Love mentioned Qualcomm.
Speaker Change: And an update of our internal cost saving initiatives.
Speaker Change: First we are pleased with the strategic acquisition of <unk> com for $6 $5 million, which expands our connect business with foreign G and five G gateways.
Speaker Change: The integration process is going well and we are working closely with our supply chain partners to fill orders for their blue chip customers.
Speaker Change: We recently met with several key customers at CES, including border point.
Speaker Change: Net comps largest customer we believe we are off to a good start and are excited about the growth prospects for the business.
Speaker Change: Australia, and New Zealand present, greenfield opportunities for us and have been exploring new cross selling opportunities for electronics.
Speaker Change: To help us grow our connected product offerings and integrate Netcom escaped me line, we hired Daniel corn to head up our industrial Iot group.
Speaker Change: And he will play a pivotal role in integrating <unk> into our new Iot devices, and gateways for industrial and enterprise customers.
Speaker Change: With over 20 years of experience in industrial Iot and wireless communications, including his most recent role as Vice President and general manager of multi Tex systems in Minnesota, we are delighted to have them join the team.
Speaker Change: Second a recent Gartner report highlights a significant shift towards edge compute.
Speaker Change: By 2025, 70 odd percent of data is expected to be captured at the edge of the network up from 25% in 2018.
Speaker Change: Additionally, more than 50% of enterprise generated data would be processed outside traditional datacenters by Friday 28, as compared to only 25% in 2000 and AP.
Speaker Change: This trend represents a substantial market opportunity with edge AI and machine learning projected to be $76 billion market by 2031.
Speaker Change: I'm trying to strategically positioning itself to capitalize on the mega trend by focusing on <unk>.
Speaker Change: Fusion connect sketch.
Speaker Change: Through both organic growth and strategic acquisitions, and chronic aims to be the picks and shovels of the edge AI buildout.
Speaker Change: We provide the necessary hardware.
Speaker Change: Software and services to enable edge AI applications, helping customers deploy Iot edge shapes with more of a ship.
Speaker Change: We showcased our edge intelligence technology to our key customers and partners at CES and received enthusiastic feedback.
Speaker Change: Third we continue to strengthen our strong collaboration with Qualcomm on edge intelligence. Some broader AI chips for example, get integrating qualcomm's advanced AI framework and to our design phonics edge AI systems to enhance modeling and real time analytics.
Speaker Change: We are positioned as one of Qualcomm's key partners, what edge AI supporting yeah, Yeah hub program and their expansion into mid tier and enterprise customers.
Speaker Change: For example, you opportunities include working on prototype solutions for banking institutions best.
Speaker Change: Customer traffic analytics.
Speaker Change: Working with an electronics manufacturer for quality control and predictive maintenance.
Speaker Change: And working with a large agriculture customer, who explore real time monitoring and maintenance of at bats Barbie.
Speaker Change: Yeah.
Speaker Change: While we invest in edge AI solutions remain very focused on getting new customers and design wins.
Speaker Change: Several of notable share all in.
Speaker Change: And out of band management is shipping to a large enterprise ready AI data center business that is deploying our top of rack solution hardware software and services that enable out of band management or remote configuration fast recovery and maintenance of the customers' AI cloud service. This is critical.
Speaker Change: Maintaining access to their assets at all times.
Speaker Change: In compute we recently secured a design win with a U S. Based drone manufacturer, we are providing a production ready computing modules that are embedded in the drones for short range reconnaissance by the Ministry the system is TAA compliant.
Speaker Change: In connect we are building on our strong relationship with a leading telecom provider to deliver gateways and routers to manufacturers of critical infrastructure assets, such as generators and power plants.
Speaker Change: Our intelligent gateway allows customers to increase the operational readiness and reducing operating costs and improving alerts and reported.
Speaker Change: Finally regarding the cost reduction initiatives, we spoke about last quarter I'm pleased to report that we are on track and made good progress in the fiscal second quarter.
Speaker Change: These initiatives are now substantially complete our process of consolidating our seven geographic locations down four centers of excellence is progressing with.
Speaker Change: I paid for operations in hardware.
Speaker Change: And your bag of software and firmware bank.
Speaker Change: Vancouver for software and Qualcomm initiatives Minneapolis for operations in the United States certified Madhouse.
Speaker Change: We are making these changes to better serve our customers help our future growth initiatives and streamline operations.
Speaker Change: In addition to the four centers of excellence, we are retaining a small administrative head office nearby.
Speaker Change: With that I will now turn the call over to Brent to provide you with the quarterly financial review.
Brent: Thank you Sylvia.
Brent: Ill review the financial results and some business highlights for our second quarter of fiscal year 2025, before commenting on our financial outlook for the third quarter of fiscal 2025.
Brent: For F Q2, 2025, we reported revenue of $31 2 million, which was near the midpoint of our guidance range.
Brent: This did not include any revenue from the acquisition of the Netcom Iot products as the transaction closed right at the end of the quarter.
Brent: As expected revenue was down sequentially from the prior quarter, principally due to lower volume from our largest automotive customer and slightly lower activity in our enterprise vertical market.
Brent: On a year over year basis revenue in F Q2, 'twenty twenty-five was down approximately $5 9 million or 16%.
Brent: As we saw lower activity in some of our out of band management and switch products.
Brent: GAAP gross margin was 42, 6% in F Q2, 2025, compared to 42, 1% in the prior quarter and 46% in the year ago quarter.
Brent: non-GAAP gross margin was 43, 2% in F Q2, 2025, compared to 42, 6% in the prior quarter and 41, 6% in the year ago quarter.
Brent: The sequential improvement in gross margin reflects favorable product mix towards higher margin system solutions products.
Brent: GAAP operating expenses for F. Q2, 2025 were $15 4 million compared to $16 8 million in the year ago quarter, and $16 6 million in the prior quarter.
Brent: Similarly, our non-GAAP Opex for F. Q2, 2025 was down by approximately 700000 compared to the year ago quarter and down approximately 600000 sequentially.
Brent: Selecting the progress, we're making on cost reductions, which I will speak more about in a moment.
Brent: GAAP net loss was $2 4 million or six cents per share during Q2 2025 compared to GAAP net loss of $2 6 million or seven cents per share in the year ago quarter.
Brent: non-GAAP net income was $1 8 million or four cents per share during Q2 2025 compared to non-GAAP net income of 3 million or eight cents per share in the year ago quarter.
Brent: Further to <unk> comments regarding our cost reduction initiatives activities to reduce our operating costs have been substantially completed as of last month in January.
Brent: We reported in the prior quarter that we expect these initiatives to result in quarterly non-GAAP Opex in the range of 11.25 to $11 $75 million.
Brent: And on a full year basis reduced fiscal 2025, opex by $4 5 million compared to fiscal 'twenty 'twenty four.
Brent: With the initiatives implemented to date, we are on track to deliver these cost reductions.
Brent: Note. This quarterly Opex estimate did not include incremental costs attributable to the acquisition of the Netcom Iot products, which we currently expect to add approximately 300 to 400000 per quarter.
Brent: Turning to the balance sheet.
Brent: We ended Q2 2025 with cash and cash equivalents of $19 2 million, which includes the disbursement of $6 5 million in late December for the acquisition of the Netcom Iot products.
Brent: For the six months period ended December 31, 2024, we generated positive operating cash flow of $3 million.
Brent: Net inventories decreased slightly to $29 1 million as of Q2 2025, as compared to $29 5 million in the prior quarter.
Brent: Now for the outlook.
For the third quarter of fiscal 2025, we expect revenue to be in the range of 27 to 31 million.
Brent: We're expecting sequentially lower revenue in F Q3, primarily reflecting a slower than anticipated rollout by our large smart grid customer in Europe.
Brent: We anticipate resuming shipments once the initial deployment is complete.
Brent: The revenue impact in F. Q3 is partially offset by expected organic growth and gateways routers and out of band management.
Brent: As a result, we're expecting non-GAAP EPS in the range of one to five cents per share in F Q3.
Brent: On a general housekeeping note when filing our Form 10-Q for the current quarter. We also intend to file a form S. Three registration statement, which renews our existing shelf registration that recently expired.
Brent: This is consistent with the company's long standing practice.
Brett: Thanks, Brett.
Brent: In conclusion I.
Speaker Change: I believe plantronics has the key asset that computer connect dry bedroom intelligence we.
We will continue to focus on three key verticals.
Speaker Change: Enterprise Smart cities, which includes critical infrastructure and transportation.
Speaker Change: And as new reports indicate more and more data traffic would be generated at the edge of the network with the higher percentage of processing happening there because it's secure and it makes it.
Speaker Change: And if we should decision making.
Speaker Change: Rather than wait data back and forth to the cloud.
Speaker Change: Very well positioned for this megatrend.
Speaker Change: While we have experienced the effects of customer concentration you set a corporate strategy focused business.
Speaker Change: Executed well operationally, while delivering consistent profitability.
Speaker Change: We are driving ahead with a G I solutions, securing new design wins integrating the newly acquired assets from Netcom and positioning the company for the exciting future growth.
Speaker Change: Could that be complete our prepared remarks for today. So I'll now turn it all work with the operator to conduct a Q&A session. Thank you.
Speaker Change: Thank you we will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and he would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Okay.
Jason Smith: And our first question comes from Jason Smith with Lake Street. Please go ahead.
Jason Smith: Hey, guys. Thanks for taking my questions I, just want to focus on your smart grid customer I know fiscal 'twenty five was always going to be that transition year, but just based on your commentary on how the March quarter is shaking out have your thoughts changed about potential follow on orders from this customer later.
Jason Smith: Calendar year.
Jason Smith: Hey, Jason Thanks for that question, our thoughts Havent changed around the smart give customer as you know.
Jason Smith: We shipped to grips, but because you've said that in the past they've been worked with enel on the rollout and we are kind of need to just work around with them on the rollout. So we are sole sourced.
Jason Smith: We are continuing to work with them closely.
Jason Smith: And I'm gonna be visiting them shortly in Europe, so not a lot of change on the future.
Jason Smith: They've been committing to us that longer term they know what the size of the opportunities and I believe you've spoken to that in the past.
Jason Smith: Right now, it's a matter of getting the rollout.
Okay that makes sense and then any update on I'm sorry, the opportunity here in North America.
Jason Smith:
Jason Smith: Up to my recent discussions with them. They have two pilots going on one in the Carolinas and one in the northeast.
Jason Smith: Perfect and then just last one for me and I'll jump back into you how should we think about gross margin trending the remaining kind of fiscal 'twenty five here.
Jason Smith: Yeah, Hi, Jason This is Brian. Thanks for the question Yeah. As you know margins are pretty heavily dependent on our on our product mix and we expect at least the next quarter's non-GAAP gross margin to be to come in slightly higher than what we saw here in FQ2.
Jason Smith: Yeah.
Jason Smith: Okay.
Jason Smith: Okay perfect. Thanks, a lot guys.
Jason Smith: Thanks, Jason and thank you for the questions.
Our next question comes from George <unk> with Canaccord Genuity. Please go ahead.
George: Thank you for taking my questions good afternoon.
George: I was wondering first if you can talk a little bit more about what's happening in your out of band business any color and how you expect that to proceed into the March quarter. Thank you.
Thanks for the question.
George: George.
George: I spoke about at a band let me give you like a specific case that I said in my prepared remarks, we got a design win and we are shipping to AI edge data center with our box sits at the top of the rack. So that's good as you see the datacenter build out happened and without getting into the specifics we expect it to grow.
George: So from Q2 fiscal which ended in December two.
George: With three fiscal which is going to be ending in March.
Speaker Change: Right, but in the December quarter, what did you see because I think you've mentioned on the call. There was some weakness not a band can you just talk a little bit about what happened there and.
George: And any vertical specifically that were impacted.
George: The weakness was primarily with some one government related entity.
Thank you.
George: Then moving maybe to auto can you just talk about a little bit about your progress with target and also whether you have been able to leverage that into additional conversations with other Oems.
Tom: Yeah, So Tom.
Our relationship is good.
Tom: You know they they have gone through some soft buckets, but we are anticipating to be very well engaged with them. More importantly, we have started to ship a new product.
Tom: Two of them for their new upcoming car. So good work going on there. We are also working with them on some services business as they move to the new levels of Android. So we are as I said in the past we had been two of the cars in Europe. As you know we've been working with one truck manufacturer.
Tom: And that's ongoing.
Tom: That's the update on the automotive side, George and thank you for that.
Tom: Thank you so much.
Speaker Change: And our next question comes from Ryan Koontz with Needham. Please go ahead.
Ryan Koontz: Great. Thanks for the question.
Speaker Change: And the question around.
Speaker Change: Around smart grid and your opportunities there as it relates.
Speaker Change: Apart from what our grid expertise is doing I know you've got your own product. There. How do you look at that market, where do you see opportunities is it is it a different competitive playing field that nutritional seen maybe just.
Speaker Change: High level reflections on the smart grid opportunity, particularly in light of no modernization in new new power needs from from AI infrastructure. Thanks.
Speaker Change: Yeah, Great Great question, Ryan and then this really dwells in too.
Speaker Change: How we think about the company longer term and about the future growth that I talked about which is around AI and when I had spoken at CES and then maybe you know overnight even come through your conference we talked about our smart L V box, which is a edge box using a qualcomm.
Speaker Change: Some that we've created adding are formed where software really defining how the grid is managed.
Speaker Change: Each device. So this could be sitting at a low voltage substation or even if you go further even after your house, but right now our focus is around the low voltage substations, where you decide.
Speaker Change: Where the power needs to be sent decide hey is soil at home or not so it kind of is doing a lot of the traffic management of how the power. It comes and we believe we've got up you'll see happening in Europe.
Speaker Change: Which is we are progressing well and then once we finish that and start going after more customers I expect.
Speaker Change: To see some results in that and again this is using.
Speaker Change: At Qualcomm some for getting after the power at the edge device youll be able to see this one shortly again at embedded world.
Speaker Change: Broadcom suite.
Speaker Change: That's really helpful. That's really great and is that a different.
Speaker Change: Set of competitors than you typically face and in the smart grid arena and in terms of channels would you develop new channels for this market.
Speaker Change: Folks that are more aligned at the utility business.
Speaker Change: Yeah. So we're looking at the channels that we want to develop it not and specifically if you go to a focus a little bit in Europe, because we've got some traction in that area and we talked about are our biggest smart grid customer. They're also interested in it because they also believe they want to go one more level from the medium voltage substation to the low voltage substation. It's early.
Speaker Change: Days, but we're also engaged with them so that would be one channel and then we will have some of our own channels that our sales team is working on.
Speaker Change: Yeah.
Speaker Change: Great Super and.
Speaker Change: I guess.
Speaker Change: In terms of the.
Your legacy business and switching in and out of band I mean, how do you think about that in the big picture of you know.
Speaker Change: Is that a is that a low gross tam at all or do you think it's going to be a headwind as far as your your opportunity for your traditional products.
Speaker Change: Yes, great question right. So if I think about computers and connect and you're specifically talking about switching and <unk>.
Out of that I would think on a bad for a minute out of band we expect this to be a growing business for us.
Speaker Change: And it's it's higher than corporate gross margins as we've said before we have services on anr with it. So we like it and we are and we believe as the data center build out happens we are going to benefit from that so that's the number one the switches media converters. Some of these other businesses that we have I believe our market share.
Speaker Change: Is not large thus I see an opportunity for us moving forward.
Speaker Change: To grow some of that from the base that we are at and you'd say Hey, why are you getting confidence around it I'm seeing some good traction in North America, primarily because we had a vested supplier.
Speaker Change: That's becoming more and more important.
Speaker Change: Okay, that's great so with that thanks for that color I appreciate it.
Ryan Koontz: Thank you Ryan.
Ryan Koontz: And the next question comes from Scott Searle with Roth Capital. Please go ahead.
Ryan Koontz: Hey, good afternoon. Thanks for taking my questions, Hey, Sunil maybe just to quickly follow up on the out of band management opportunity I'm wondering if you could frame. What you think the growth rate is going forward and then on the edge AI opportunity I know, it's very early days, but it seems like there was some good traction coming out of CES can you just provide a little bit more color on.
Ryan Koontz: On design cycles.
Tricks that we should be paying attention to and how this will start to ramp up in fiscal 'twenty six.
Speaker Change: Yeah. So let me take the edge AI first and then we'll go to out of band edge AI. Scott We had good momentum out of CES I spoke specifically about three <unk>.
Ryan Koontz: Customer.
Ryan Koontz: Programs that we're working on one is for the banking industry and I think you saw that demo and you were at our suite of CES. The other one is around a manufacturing where they've got predictive maintenance.
Ryan Koontz: Looking at the existing box that we've added some technology in and the last one is really with farming. So in fiscal 'twenty six we will start to see green shoots and we anticipate.
Ryan Koontz: To have revenue in fiscal 2006 in these areas.
Ryan Koontz: I don't know whether you saw the news that Qualcomm also spoke about it yesterday that more and more inference is going to run on the device, making it more accessible and customizable and we're gonna be right there with that so.
Ryan Koontz: Expecting to see growth and you know the industry is talking about a 12% growth rate. So I expect we should be in that Adi if you may.
Speaker Change: Oh and out of band management sorry.
Speaker Change: Let me get to that out of band management should be growing more you know at the rate that we had talked about 10% to 12% in the markets about 400 million to $500 million as I've spoken in the past and the reason we like at high gross margins very sticky.
Speaker Change: And it's a differentiate itself electronics.
Speaker Change: Great and if I could just to follow up on the supply chain issues. Obviously, it's a key topic of discussion in the broader community right now, but could you kind of take us through some of your exposures how the current or.
Speaker Change: Or potential.
Speaker Change: Tariff environment impacts you or does it impact you.
Speaker Change: Great question and thank you for asking me that Scott.
Speaker Change: So on the title side of it.
Speaker Change: We have initiatives in place to address potential tariff increases.
Speaker Change: We are in the process of transitioning the majority of our manufacturing out of China in the near term Scott.
Speaker Change: And I'm very confident this is not going to have any material impact on our business.
Speaker Change: Great. Thank you.
Speaker Change: Yes.
Speaker Change: And the next question comes from Christian Schwab with Craig Hallum Capital Group. Please go ahead.
Speaker Change: Hey, guys.
Speaker Change: Most of my questions have been answered I just have one.
Speaker Change: Can you kind of ended the conference call talking about.
Speaker Change: Exciting growth to come and I'm, just wondering if you could kind of frame that on a multiyear basis for us what you.
Speaker Change: Alright.
Speaker Change: Oh.
Speaker Change: Thanks Mark.
Speaker Change: Yeah, you got cut out at the end of Christian but I think you were talking about the growth that we are focused on so we anticipate we expect that we should be growing.
Speaker Change: Around the 12% rate.
Speaker Change: What we are planning on and.
Speaker Change: Once some of these edge AI things hit we should start growing faster than that in the longer term.
Great and then and then as far as and let me make one more one more I'll add to that I believe the netcom asset is also going to be any different additive to that sorry. Please go ahead Sir.
Speaker Change: No problem.
Speaker Change: Sure.
Speaker Change: And my last question is just you know gross margins would you assume gross margins stay kind of at the level that you're kind of guiding to March or do you see.
Speaker Change: Something more aspirational in the future.
Brent: Yeah Christian this is Brent.
Speaker Change: We think in the in the near term.
Speaker Change: Specially this this next quarter Q3, we expect gross margins to be slightly higher than then.
Speaker Change: Then than what we saw here in Q2, especially given the mix that we're projecting for that quarter and shortly thereafter in the quarters to come.
Christian Schwab: And Christian if you think about longer term.
Christian Schwab: We anticipate the margins to keep improving closer to the 45% great.
Christian Schwab: Without giving too much color, but yes, we are really seeing that happening we've got a laser focus on the supply chain right now.
Christian Schwab: Great no other questions. Thank you.
Christian Schwab: Concludes our question and answer session I would like to turn the conference back over to <unk> ASO Ray for any closing remarks.
Speaker Change: Yeah. Thank you everyone for joining our call we're always available for more discussions. Thank you again bye bye.
Christian Schwab: Yeah.
Christian Schwab: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Christian Schwab: [music].