Earnings call transcript Q2 2023

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Operator

Good day, ladies and gentlemen and welcome to the Lantronix, Inc. 2023 Q2 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rob Adams, Investor Relations. Please go ahead, sir.

Rob Adams

you. Thank everyone. afternoon, Good joining quarter for call. XXXX the you fiscal second conference Thank

Financial and us are will and Executive Chief today the be Jeremy A Pickle, our Joining company’s call Chief available Paul on on website. today’s webcast archived of President the and Whitaker, Officer. call live Officer;

call In release. the for phone and addition, you can replay the details find in earnings today’s

expectations. XX-Qs. could materially make in call, statements, on in revise was to undertakes which risk current that update the management from SEC filings uncertainties differ to may and circumstances. no publicly forward-looking its SEC or available to statements to encourage furnished any review cause or and this its it as the events to results During risks, our our the is statements which you the reflect Lantronix We company’s management’s involve is earnings cautionary future also release today contained factors obligation such and forward-looking and website XX-K

which of in reporting the differences use. is supplement earnings Investor Relations Relations reconciliations the will for section section presents discuss Please refer website company Investor and in Today’s measures. during call, that our our details non-GAAP the news financial measures information financial our we that release the describes financial to GAAP website, posted between non-GAAP and the non-GAAP the additional will for commentary. of the Furthermore, management’s some the and release

Lantronix that, Financial With turn now call Jeremy I will Chief to the Officer. over Whitaker,

Jeremy Whitaker

some Paul for hand XXXX quarter financial results commentary. I I it fiscal everyone of Thank as you, the his going for am before over and to joining this us well highlights of provide to our business the call. for to welcome second Rob as afternoon’s

was of XXXX compared For the revenue consistent XXXX, quarter. $X.X Selling, second which second second fiscal the fiscal quarter with margin the second million for quarter about $XX.X point and fiscal of of $X.X reported with $XX.X fiscal prior XXXX. million we XXX and Sequentially, X%. was for administrative of second XX% down GAAP the the first quarter for of million basis to XXXX the gross revenue XXXX quarter a and of million fiscal quarter general the year XXXX. fiscal were compared million $X.X for the expenses ago of quarter for is improvement from quarter

per acquisition headcount of the and XXXX. assumed expenses R&D fiscal were of share and Research during the the to in million of second million we SG&A non-GAAP $X.XX $X.X or of fiscal by and income fiscal $X.XX for the $X.X during loss $X.X for million driven quarter with $X.X loss XXXX. XXXX first XXXX $X.X quarter were during $X.X or $X.X September quarter GAAP GAAP compared per development XXXX second year-on-year of during Non-GAAP increases the net share million, second of or net quarter to The of fiscal largely fiscal quarter per or for second share of the compared XXXX in the second quarter was a XXXX million income of million fiscal net million $X.XX per Uplogix. of quarter was XXXX. $X.XX share the fiscal second compared net

capital announced prior $XX.X compared contract, components XX, million was is million The XXXX primarily the the receive contract, recently to we during quarter compared and million XX, of inventories of the XX, to expected increase we with quarter. XXXX, as of months. June XXXX, with as aggregate Now as of as was Net $XX.X Working to recently December turning the XX, compared of fiscal to purchase our ended June $XX balance during expect as million to the equivalents million announced next $X.X With $XX.X $XX.X XXXX. due December as $XX.X of sheet, million cash which XXXX. prepayments with XXXX. December of X the million ramp cash to were support in

our Now annual outlook. turning to

are $XXX we range of million revenue XXXX, EPS fiscal $X.XX in share. a million non-GAAP to $XXX and to per targeting of For $X.XX

I will call now to the Paul. turn over

Paul Pickle

Thank you, Jeremy.

We transforming the make announced history place. finalizing pieces which in into contract falling the progress are company, the of weeks in and QX Lantronix continue ago, largest to in we after the two

Lantronix quarter, contract million smart didn’t its largest who history, distributors. those in a of to compute of the the the the world’s grid platform see announcement close For finalized energy by leading subsequent one December $XX the utilized

our to the capabilities our XXXX expect one is fiscal XXXX. fiscal visibility that on outlook our opportunity growth into continued prospects. revenue. The at the over the This ship in towards backdrop current contract our of the and us easing, accelerate $XXX will annual delivery substantially substantial and pipeline is goal but of intermediate of validates looking of of with million product Against our $XXX chain longer-term course million, resources are executing in supply We against we contract bright. capacity excess provides

and inventory improving lean for normalized run we return to are COVID, strong Lantronix backlog a a Looking off remains post just by implying that bolstered QX our highs, a channel, supply a at QX, while after decidedly a immediately more chain all-time a slowly growth. has classic and business

embedded to X% gate continue shift total revenues of now customer in In turn and demand supply healthy, driven to fiscal revenues. The Solutions December demand. WiFi XX% to IoT Ethernet our solutions by representing but to our million, and focus sequentially second ability disruptions quarter, XX% was largely With $XX.X decline our embedded that, where totaled our year-over-year, let’s down was results.

compute quarter-over-quarter. and were were revenues automotive grew Enterprise side, to nicely surveillance the steady. compute Security revenues up revenues positive and On contribute. began

year, expected continue products the currently plan, the reportedly and according strengthening the largely contribution limitations In to terms earthquake some outlook, recent by unaffected country. and Shipments our electric the vehicle to Turkey by customer supply in the in chain Ethernet we of compute driven to was see systems throughout remainder with from of WiFi embedded eased. factory

X% of Turning funnel $XX.X in the Within products see year-over-year. to or million here of the remained Systems Solutions, remainder strong though environment a that to good or part well revenues switches revenues, and sequentially Uplogix System XX% continue Solutions, to of contributor, quarter Remote down up activity totaled year. we approximately REM December acquisition a in thanks also in the management grew mid-September. for bodes the of X%

the seen see funnel up weakness While able were of as some push were activity out quarter as we gateways and a we good continue within routers, on the in came Also to systems, sector in. proof for in resulting trackers we IoT financial up REM, to catch have of in of opportunities concepts. December nicely supply

of switches in For and remote in XXXX, remainder of solutions routers, continued and trackers. gateways management fiscal the continued expect growth led to strength see we rebounded by

million, and Looking approximately XX% year-over-year. XX% at software sequentially QX in and $X.X up were services. Revenues

progress in high-margin at We quarter with some make ARR $X.X additional our to totaled software from of continue just and selling the revenue over December services contribution coming acquisition. end million. recurring from recent

chain. highs the In summary, solid for backlog we a growth and a improving look supply year, near of forward slowly remains funnel to that bookings, a strong fiscal opportunity a record resumption the to thanks of remainder

visibility customer is year, have the with growth fiscal can’t still of rolling. we in into there the anticipate excellent we solid our funnel but and on help the contract the fiscal as history, much ball shift While fast-growing for we to opportunities to revenue largest XXXX remainder focus to keep

the today. completes for That remarks prepared

it I’ll to the So operator turn over Q&A session. to our conduct

Operator

ROTH you. Please Searle Scott Thank first with question Our go MKM. Instructions] [Operator ahead. comes from

Scott Searle

different expect of couple supposed into ‘XX? you ramp bit Paul, going got that of up? a as really more then Is questions. should my be taking dive announced. to follow-ups. we for if was in and color well? Thanks terms units. a I Gridspertise you business color that provide in the of phase horizon first appreciate the to of was color of afternoon. that that the see I good relationship. how little breakdown on wondering the I’ve Hi, do contract kind think a to there And to And lot could of Maybe What fiscal the extend hearing was the this

Paul Pickle

Yes.

have the December come I think in a quite nicely that QX QX fiscal quite and customer. the have target This we of our ramping quarter. we a have, the into in we the and should out gate strong schedule contract by

And of the terms a quite follow-on That’s are this is the of developing The In SKUs. bringing over the of delay. engagement, the job to phenomenal market. certainly, part we have just excited. fulfillment first is done point, step reason and additional the couple talking And this years at we’ve they about this been market with them. for product past what of

use would now of lot they we’ve DSOs focusing In customers fact, the and changes, shifted have that as the started some a changes and launch been feature they SKU out product, direction a from it’s prompted there, feedback getting this, on. that

launch this and will certainly at point, So have anticipate first that the certainly we’ve here, got this a firm us that will is take of XXXX. this bit we success beyond just product

Scott Searle

of you dates And Perfect. fiscal some ‘XX. right? is that firm maybe emphasize, comfort got this in could said opening we’re to what I at you that what I And bit you more ‘XX your was here, a us good contract into or as this very, fiscal giving think visibility. is think got just was you little said to some provide Paul, I point. terms details in that one you’ve if just looking ship give you’ve So wondering very else monologue, visibility color

Paul Pickle

Yes.

really have pipeline – have opportunities. we large We of quite a

opportunities opportunities definition. before work been especially announce a Not years, doing platform. band, working some of success specifics we’re until new got new parlaying with SKUs quite – on we’ve X.X Tag out the deploying. at that experienced is and new Some been coming our new in there that to fulfilled years other at we are but Out software few X on to point, with some of we’re ready technology that we’re this some we’ve on into POCs automotive, taking get platforms. these vehicle we EV been a quite recent them, a a acquisition for We’ve We’ve With working they tool product platforms. new into on few.

applications cities promising. then in help of along probably needle applications, up quite on up a platform but some management early devices our of in that the mover to still there. discussions off with It’s smart smart the alley. what little engagement, of quite municipalities. be Gridspertise a IoT Not IoT but some city for innings, is that’s there And bit the smart couple we a a distributed are So that did in right certainly compute grid been take would large

opportunities in opportunity is of got anything but We’ve are do pipeline. that like large. innings. like – were nice early reflect have still to It’s X be this life over one engaged there, years to a in program. on an X-digit to didn’t the ago, that the our So lot of work this I If it’s we

Scott Searle

just June shift chain for Gridspertise. I’m up. get Perfect. about the sounds could customers your I’ll part lean you And issues into is continuing for is sort that I like terms if the other chain as to of It the inventories customers, and time, pretty like in it sounds then your over preparation could and terms on to of some queue. in supply if going. related aspects in are going of that seeing back expect But you front. a of is what of how we’re talk supply this WiFi then selling sounds March in But wondering recovery It see the so the And to like point your you’re here. you’re at you’re channel

couple kind So in and the us terms should expect coming we you ramp give holistic what wonder in if have seeing of of I quarters? things you’re the your their over next premise view customers the to what door of on and how could of

Paul Pickle

I building question. couple and collect other the can but you BOM, of is being the getting BOM we see dissimilar don’t and you as components XX% ease, artifact inventory being suppliers. prevent then XX% of or of kind and what going worsened from to the really high there placed, were that to you great it’s it’s as CMs starting if a that of or two a probably brought is Everybody’s chain manufacturing supply even to paying think that’s down. have demand the problem orders one there an or of Yes, might turns

we’re case, So some to new, the were I take going special acquired kind components. a those out a of that’s if bit We a inventory prepayments receive to with of for Uplogix.

look if that saw a jump have we are and two cash. acquired and bit inventory into preventing So at really sales numbers all do from one inventory us just components inventory that that with little really problematic a turning rest, thus or the associated I we in of dismiss the if

that So saw WiFi components we revenue in but allowed Cypress some problematic that, that of had was better that one slowed a getting some of quarter. difficult said have down our turn a from December. came improvements That some standpoint us in a shipments having here chipset this bit and It’s in slightly We and better, shipments. there. chipsets to still

critical ones lot the all up weeks. supply better. of But XX a Some still the chain most the to are for XX way is part, getting

the the versus In into there more terms But this hesitancy of the be channel we product the people it’s at what a channel, a saw we of quarter, a little doing. quite as exited channel we of disparity, POS of in terms was inventory, sold might think what bit channel. of look I out think the market bit lot

came it so channel about of inventory. good, down It’s weeks numbers. And healthy X really

are some re-up. to So at have point, they going to

Scott Searle

I got I And Perfect. one apologize, follow-up. more

the are better. I But nice On million well. levels to start expect down inventory to $XX that the going see to to kind make of work that’s a balance going look sheet as that, lot your prepayment,

little we out Thanks. to portion So see the bit next the a help should on sheet? of cash here a balance to over the of of couple reversal working quarters capital start of

Paul Pickle

offset prepayment that the coming as will So it deposit a balance it money, sheet that on be in, won’t inventory.

see those won’t you quickly. So turn

better next the on quarters color get three improvements, but that, inventory you Do any I to think expect want marginal to so. or over give make will we Jeremy?

Jeremy Whitaker

Yes.

come against mentioned, dictate will that of deposit bit that then then books a Gridspertise. then turn also orders a customer be we ship ultimately the will ship will to kind when them. And Paul when liability As we from will the and also it off liability obviously of and inventory as the lead we it off build we

Scott Searle

queue. I Thanks. back will into Great. get

Paul Pickle

you. Thank

Operator

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

Mike Walkley

taking And question. Thanks deal Great. signed. for on Gridspertise my the getting congratulations

you couldn’t us, you customer-requested Just those due in update can given the components, get? in of you’ve some product couple to following up of on shared that questions, Scott’s the couldn’t quarter those just you quite past, deliver the troubled components

Paul Pickle

Yes.

waiting terms business process so a is And the biggest with that the we WiFi – that modems, have ASIC, new that of of a to bit have we our a we incorporate of cellular a one better. some was it. little line components that’s on We have portion WiFi started blocks GNSS, chipsets, WiFi big cellular problematic just associated product backlog in some for doing foundry. cards systems also subassemblies we is incorporate, into biggest

you say, having culprits, mixed does ADI at still it of should like. the those, I with signal if look we’re same were It’s signal, I – will. suppliers problematic still and issues it’s the So associated to components, RF analog those if TI the mixed still is – some

Mike Walkley

expect But contract, Gridspertise flat you’re follow-on the ‘XX. on just think when that of it fiscal in do growing then years? keep with to keep And $XX to most you at million them, have future you’ll levels sounds Great. the in ship orders Okay. working like or least you

Paul Pickle

partially a this owned is just give So A straightforward subsidiary by program, XX% the is purchased the valued an a And is to for is so the that’s PE so flagship that at just the $X yes. product of answer idea firm them. scope – now you Gridspertise And of a this billion. Enel. roughly to consideration

usage. then other approximately talking than Enel’s about consumption you they there million those a markets So use this. substations, rather XX% are device just of look And X.X would at captive are like if

to year. a like So, XXX,XXX to a run of would roughly rate they get

that we launch. very it for of early is think to we time, I us shape it wouldn’t a that will participate of eventually, in little innings take all safe it’s say product of the in And us. really different recurring component and a this business. over for are There bit

‘XX So, be of as could be there yes, anticipate upside to would and anticipate we in bulk this. that, FY what but that And some ‘XX after fulfilling will we to this certainly are we definitely contract, happens contribution the pretty this FY some excited we see well.

Mike Walkley

will is Last Tag just I car other opportunity Tag how for question in me. the That’s opportunities some Great. us on and these they about you queue. update going bigger jump or of you talked helpful. are that Can EV, and opportunity? the similar size in than even

Paul Pickle

Yes.

quarter XXth. October shipped shipping without We a Things moving well. factory really going are are is on went this opening we well. and along off had hitch. That planned. Tag So, December, as They program as their in

in development still platform. on are mode We that

implementing still are We software features.

finalized yet, and It’s well, are are we twice vehicle nose we down, meetings, software daily but image our have the platform. into hardware integrating should tracking We at week, a It’s the are head least at the moment. and not say, at the I not we rather breakneck progress total a down, firmware holding. meetings pace, going but

been interesting a are In out is lot terms you players opportunities, to of more with there that’s EV what’s a platform I think, revolution, follow-on the see to and starting starting standardize.

resell opened hardware the for automotive sell other instance, developed we certifications we attempt market. IP. we it to that across has a is will go do really license across a got for hardware, on So, there opportunities. Lantronix The We broad broader that market, the up to get that. And ASIL sell out and Tag,

us those a a I little moment, still few at early dozen but bit So, could for of in half engagements. name the it’s a terms

a be nice on are let to incubate announce this date. we a at will continue work us. space to going those so them should And and we But those, later for

for market partner a front. automotive supplier all with on without number of to become infrastructure reasons there full-blown a having we think exploit can that’s the necessary a a I it’s that

us expect platforms give as So, the continue to details mature. to more automotive

Mike Walkley

Great. Thanks my taking for questions.

Operator

go [Operator Instructions] Koontz next Needham comes ahead. Ryan question with Company. Please The from &

Ryan Koontz

for afternoon. the Hi. opportunity. question Good Thanks

this margin should margin a the there Gridspertise ‘XX, is we the factor So, puts about how upside, with upsizing on little deal, with we should and that takes there gross think pressure in? for

Paul Pickle

about Not at basis, through the anticipate would we over continue recurring this aggregate then talking point, are gross just a as with margin we reminder, mid-XXs we would to plus million. And we ARR I margin at we When at revenue. moment. And still year. on this talk business comfortable look revenue, just the feel kind grow as this our of an $X about XX% when

margin that that gross we we to it, able high-margin offset opportunity, number, as we grow come hopefully might As with offset we make at and be to with in margins dilutive opportunity. be particular, But to grow Gridspertise, and the number, don’t expect it continue areas to improvements scale corporate to with any expect to would this it a some that FY we expect in ‘XX. look other particular

Ryan Koontz

companies of either any about bigger made sales on Paul. go-to-market deals on and or longer bit to super you use the reflect these go-to-market sure. Got and you – these I changes think it. That’s cycles, geographically how Can to around channels a helpful, go you have larger sounds how types it chasing strategy? the side, deals, longer am of your And reoriented some fix, you like after the

Paul Pickle

XX% that Today, channel. Yes. had the probably pretty against been order X a channel. wholesale revenue I ago, through runs the of roughly ran overhaul. years XXX% it’s It’s much through we of If compare on

into reoriented that as sales team starting game as hunting. to we it’s team And channel a as targets opportunities. strike have refer affectionately healthy larger big to to working development well business would but balance, what on like exclusively We launch a out. are direct sales a team a would entire the management We we basis,

we the do And engage extension the We complexity potential opportunity partner ways out. customized I so that, with pretty being requires to to platforms. to R&D more the our to business. if set would able us go-to-market gains, we the vast. for development engagement take are of to make actually today. for customized. to that in it, standpoint looking scalable that and they their have to of in still value value us We don’t more been customization. need skill the become at leveraging I to try nature and IP IoT that’s That’s return. And look able it are customers on necessary proposition sure to looking today’s at opportunities customers can in-house standardized some allow is a most think a And bit business instead unlock full is think technology be something terms have a bring a we reuse, talent to the an is build make we to so we model that semiconductor have ICs parse on But of proposition have are just to order – we just some of that Every of

Thank least we and a do We question. exploit. have already able that the reuse a at you. developed It’s that’s on the XX% to sweet spot leverage customization little good And have top. of bit been

Ryan Koontz

Alright.

You’re Qualcomm welcome. with how that to the regard? in changes A in this that evolving, follow-up is relationship also any there, quick

Paul Pickle

to in Qualcomm, Well, what key other We a this it has a our partner, we is see key get particular, some Qualcomm seen value do. in continues is of like partner. chipsets, as just better. really

where And I diversified ability said, IoT go to enable applications is young. don’t market. they to able have are We address really the pretty quite like a

recognized future, the I fragmented. their same at pretty think as but they IoT it’s time,

that that I – one just to require be they continue And us. what have. we to like going partnerships important to it’s So, believe

to are. I ingrained what be think going targets bit a and market more we their alongside are

plans will share to those off strategic start together. catch – start those and opportunities to and We go get

build continue of to on able that might looks that on I So, have to the news quarters. next engagement what us exactly expect on couple over some that. be to like

Ryan Koontz

Thanks Great. lot. a

Operator

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

Christian Schwab

large taking the X contracts. to growth be business, for my What next Hey. Great. the X rate core Paul, over years business the do years? think Thanks as ex should about question. we you think

Paul Pickle

question. great a It’s

draw So bit of a little – I contrast. will and

it we the we should moderate and to grew before, ‘XX, As done, what And more FY about was it talked than far year of it has. have. fiscal expected kind it really shortly after

the normally, well-established that’s some really we we kind We out that down so probably industrial business are do. cycle. CAGR lines and it do markets targets, sustained a maybe markets, have product in that it, older product digits them So, of mid-single of growth mid high-single business, get growth the those digit should what got of have that marching a But useful life in mode. its few

We have got and we not like a anymore software opportunities into growth compute where like to few of investing higher frank. the them business, funds like are redirecting and REM be

Christian Schwab

That’s my you. Okay. Thank great. That’s only question.

Paul Pickle

you. Thank

Operator

Paul This will now concludes conference turn the Pickle I for over Mr. closing remarks. back our question-and-answer any to session.

Paul Pickle

Alright. Well, and us hope you. joining Thank I you great week. a a have great thank today. evening for you

Operator

you The for today’s conference attending concluded. has Thank now presentation.

all may disconnect. You now

Lantronix (LTRX) 9 Feb 232023 Q2 Earnings call transcript