Lantronix (LTRX) 10 May 232023 Q3 Earnings call transcript

Good day, and welcome to the Lantronix Third Quarter Results Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Rob Adams. Please go ahead.

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

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

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

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

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

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

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

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

the up prior in of period. quarter reported of for XXXX the XXXX, ago fiscal to the to sequentially up of margin compared quarter, fiscal year ago GAAP quarter third and the from in year X% we XX.X% XX quarter. improved XX.X% revenue third X% million, gross the For and XX.X%

development fiscal the million XXXX with were the third fiscal of X.X quarter of million administrative quarter for quarter for expenses of third for X.X X.X compared fiscal second million, for X.X and of XXXX. and the and general, Selling, for the compared of XXXX. million XXXX XXXX million fiscal expenses Research third were quarter quarter the for XXXX third X.X fiscal fiscal second X.X the quarter million of

The loss were driven or XXXX year-on-your XXXX. headcount September of GAAP $X.XX to the assumed the acquisition during million net per third quarter in of increases compared loss of share SG&A of Uplogix. and X.X million X.X quarter largely R&D fiscal by was $X.XX XXXX GAAP share net in during per the a fiscal or we third

of during Non-GAAP quarter million or third XXXX. was third share per per to fiscal X.X income share net $X.XX during net XXXX the the of X.X of $X.XX compared or million income quarter non-GAAP fiscal

XXXX. ended sheet. with was Now compared XX, as turning million million December XXXX March XX.X capital the million of March and Working as quarter in to XX, balance compared of XXXX, X.X million prior the quarter. with equivalents the of XX.X as cash We as XX.X cash to

XX, to as with assumed was long of arrangement to the due increase million compared of September of primarily several the grid of XX.X March were of the XXXX, XX.X acquisition inventory time million quarters as supply the inventories expertise last XXXX. Net December XX, lead Uplogix. purchase with over our in ramp components inventories in The support and

our outlook. turning Now to

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

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

over call I'll to turn Paul. the now

Thank you, Jeremy.

continued sequential sequential can in look fourth quarter. see you in our toward as in deliver guidance, to we growth pleased and delivering are our We March, growth

are expectations, investors, our our have below like and our we state imagine, have but been demand year our results fiscal on intensely XXXX, good, the might the results normalization business. been in focused our into inventories. which classic distributors are revenues you economy hampered the In of been As pushed the the for of year, us those last than and less quarters our order program, fiscal QED delays lean in to following the three their to ordering from out who products, through selling have they for their by customers

impressive the in XXXX. importantly, for fiscal set is growth table year But

our about for to I make our first We results and revenue. the term much in we prepared expectations the on little beyond report and $XXX ‘XX fiscal our remainder bit talk for FY later have achieved more my expectations towards of of year. QX in and goal intermediate significant poised but annual let's are progress can million a remarks, XXXX

Turing embedded of our and to WiFi well embedded fiscal as our IoT XX.X million, ethernet solutions, totaled our In growth X% our Sequential representing as XX% revenues. sequentially March compute third XX% year-over-year, by solutions was largely up driven embedded results. and products. quarter, revenue

front, ethernet the WiFi [ship us up On it] improving chain dynamics demand. supply pent allowed to to and

shipments Early fiscal a pipeline, for which EV XXXX. late the we electric vehicle Togg and are the in and customer schedule translate opportunity platform has XXXX end Fisker, Ghost, expect Renault, will growing compute Volvo and Daimler new revenue ramping contribute funnel expectations with to demand and automotive on the engagements exceeded On year side, to and is growing.

these our relative embedded, car the with some and our be within time, largely federal some in The nature can customers more for base our in federal products. interface are network from to saw case to forecast. as experiencing we products delays Elsewhere, customer is time softening we classic

that sector are our with in is address this to this a temporary public working confident our setback. partners We actively

continued driven EV with from we by wired wireless and continuing in chain from embedded steady see products Nevertheless, supply improvements looking automotive. compute strength and ahead, growth coupled sum demand,

management increased our our customers. were here to revenues X% sales from million environment products year-over-year. totaled XX% thanks solutions Turning revenues, approximately remote down to X% sequentially or XX system communication of system solutions up, and Within of buying

temporary delayed the leading to in a sector financial we for continued weakness However, products. these orders acknowledge

We the tempered recent revenues expected seasonal coming in strength. back to quarters, as bounce after switch well

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

high March contribution the We continue coming additional to acquisition. from progress services at remained recent of ARR end in selling above $X from our revenue margin recurring and with make software some million.

strong For QX expectation fiscal chain, continuing enter our quarter out have improving noted some logistics the their our driven on and inventories, dynamics, record fourth turns XXXX, and distributors while leaning of growth. supply slowness we business we in sequential backlog, an bookings, with focus

delivering better. we and next Turning outlook XX% a to have has We into during visibility year. the over growth strong anticipate our year demand fiscal XXXX, never fiscal been

Lantronix the to a Quantum engagement poised next the pipeline. customer pipeline are shipping opportunities years. to Today's opportunities drive digit bringing while several over We into that device begin Edge improve, quality, value our we double of continues growth at high pursue could

XX smart automotive, top pursuing more than cities, $XXX surveillance is that EV in security such smart departure incredible gains Lantronix customer our the We a new Looking hit from just grid, ago, revenue classic we to an performance prospects, share over at as growth are This meet due only and target we is stride. well million revenue market need and from macroeconomic inherited as despite softening and our and our annual to and opportunities peak years applications total modest our environment. as in about products to business telematics. four

that table opportunities in pipeline in future. the We referenced deliver for to near forward to of We expect fiscal results reporting of XXXX. more and on on the same I set year the look our

Chad? Q&A our with that, session. we'll start And

the Instructions] [Operator be Mike And Genuity. first from Canaccord Walkley question from will

see the more. I Great. break year. Thanks for guess, to fiscal guidance great guidance taking little for a And ‘XX us you just down for if my Paul, question. the next could

I don't as but should you, to the about of projects ‘XX, contract, number, a call maybe You fiscal but catch said out ramps? how grids the we of it the think, XXX and linearity want didn't know, you think I million. XX contract entering timing And you

in it in correct hits might be of it that's could ‘XX how earlier. and could model much be if that you If that on fiscal if upside me considered and the not

sure. Okay,

We're at But a December, certainly you you FY do you you as at that. statement look would we you looking over quarter the, know, the not September of continue know, upside several we we strengthening in and know, quarters. that at ‘XX in and ship kind contribution to ramp it into some the then, schedule. if that will to potential number production If we ramp know, the start contract, production we that there is So production past is it's with expect, appreciably ‘XX. a FY to that total would that next look expect typically the made in

there's step additional lots really just kind And that so the $XX contract. certainly, of to first realizing million But opportunity. the is of

revenue do XXX half if in say additional so they do, more the -- ‘XX. well, a and years XX some mass these And that you those year some potential do have is we of production and two upside really ‘XX. let's know, FY been contribution FY we working go that's in the some get that FY past was and on, most of And number it programs million over but ‘XX, do that we've even a, in and appreciable programs provide opportunities but opportunities,

but you So, the right of that conservative that's XXX. a We giving current midpoint know, outlook. feel to number right is, we're a guidance number, like the now now potentially

help it's what down levels some Paul, distributors to needed to indicated how it? into modest you that growth terms of maybe follow-up you maybe assumptions just that to that? from where want Just a to your put your to take long your the regular flat Just distributors? you slight with kind think number. you that of you to contribution at just modest and inventory of to they Can -- And hit draw your side to have going business, or to clearing inventory context business

the last that it's So, pretty half interesting. of question,

you these and Historically, could of customers, turns right it mid-single their digit of business, talking But Disney, There's think number. of -- it flow I a last an year we probably fiscal we kind really if would about talked little would and you're to is doing digits that the it. growth against just preferred. was if bit levels double and ship that be prefer zero think drop inventory compare I to shouldn't.

and little of it seen And correction past as turns so, slowed increase of the a in we of I'll booking has But the has end three that last couple trend quarters. it moderated -- say today, quarters, the saw business bit. the the year towards we've that

readily we'll point and business So, decline and that we're of a moderation, that new get probably still it. that business what turns we or those slight Honestly, could that terms we out this at in correction in execution long as we on readily of hit numbers. programs, need tolerate see we cautiously optimistic of bottom a as

question last of to you or how mentioned type that and line even long a you And manufacturers. it might us sounds take and design your Is more longer? for like thing transition of those to going other some a that's above ones into shipments? just Can me, pass into one-to-two-year even those expectations with trials auto remind

we the public or in, Well, production with them, release we've started volumes, just they to started to so civilians. are modest albeit shipping to those cars but to tog, some,

take And all but will the sold so expected I'm pre-orders. moving of meet of They up. tune still to, the and to referencing program. them in a demand ramp their along they certainly Xx vehicles in term. really little that to nicely, Things the while short can't number of they Then it deposit quite are

expecting probably next we're that uptime, some them will But meaningful fold upsize orders is forward. that So this revenue out year. going into of some

probably some engagements doing a we've been get of those development. engagements are program do a go time level and about of We'll been slated to engagement, is really of most year the have In working they and them little terms for runs. ‘XX. engagements, contribution some slated contribute some quarter in longer. is them length But ‘XX. last bit of for one and half ’XX FY other FY in our FY in out those sometimes quite But some There of that production a on --

point terms So ‘XX. in talking it at about FY this we're comfortable of

The next Street. Lake is question Jaeson from from Schmidt

Paul, you prepared your and remarks.

just be in but there You've some to lines, supply chain couldn't any if headwinds, improving dynamics product that due mentioned supply chain March? some fulfilled and was revenue curious

SKU supply dollars about portion to due on due had million we that changing was a last Yeah, couldn't We of at to a the did that minute. we meet. customer chain and us a

falls And this Logistics pretty costs in so chain costs But is down. come quarter. next it come have continue to down, good. supply component largely

result. a of bit support a line margin little gross see in to going the You're as

that and or those are that As but are some see this somewhat components inventory per we handful several did one is problematic. okay, push it's but NXP -- outs manageable, do through occasionally two it's next quarters. flushes We bomb still But still quarter, that over the largely a past tough. there have

could That's And you noted helpful. you a number? share then if that Okay. backlog. Curious record

a it's as for imagine, I the don't number just backlog. a give now we've in -- we're so shape total fully really contract it's ticked want that will can up starting got to in that and say you but backlog number, large is nicely. we rather backlog quarter, Essentially, the good

quarters make point So a in we've the in QX, this for numbers we been terms better needed we're quarter. at have than to previous got position in of

booking strands. things just So healthy, overall bookings good requested pretty quarter in are trends

good we're in So I shape. think pretty

from Gross is me, of picked the up this last sequentially. How that Okay. year? maybe margin think trending one And this about rest nicely just should Jeremy. then for calendar the we

the expect kind think for impacted mix we the I Yeah, on positive similar rest in note. could a year be by performance margins, of a had of somewhat

seeing the fiscal in are year. we logistics a saw tempering bit costs quite from earlier We what

are think into coming also, there upside we potential next the fiscal if starting from there I And So costs And continues. PPV year. that down. to some see is then

for standpoint, those to a bit previous inventory, paying little less some cash incurred. that we're we from continuing we still So amortize costs a are off of but

the we to fiscal wouldn't from benefit I P&L get expect So into that see to year. the until next

be are would for I say coming. have been. do we've to consistent we'd or quarter improvements But that some so, the it next I with think, pretty we where expect So

next Koontz The question from from will be Ryan Needham.

great you and opportunity performing see you plan. et Thanks. are fiscal on of ‘XX reflect a on the Where generally Paul wonder some others kind for weaknesses all ones been there you've opportunities. whether city, -- the smart cetera, could with, some most if government, where caller it's upside? Appreciate the EV engaged are which I of the and in

Yes.

more I and think fragmentation nowadays built And a that's is with the about that we're the reflect just up one use lot of of that end different IoT of on we the capability toughest is you about thing strengths would everybody the market on faster in cases. the able to this number that conferencing our video particular should address drive would We platform labs, But some with pretty that highlight. to audio, but disparate there's program time a I opportunities. volumes. few on of decent a bit that going got enterprise revenue one,

And so that'll be a nice add for us.

of with We a proof on color little York that until couple a not could DOT of further lot the continue to New I call work New on a it program for that, let's applications bit There's that concepts along. pull give smart now. of gets York, right

pane go an network of And of mesh a so application. with management it's, it's program number Think bit a to single things surveillance, different that IOT a it. attached of that backbone into glass

New lot would obviously be volume City, XXX,XXX about York got excited in then of one. so pretty municipalities. poles years other a it's number significant of over in and a There's we're So application that it

I on an highlight, in up needs. as hardware an list other status, our assess would the all the little approved then got well. bit But a that one their term it's to side ones meet are make with on IOT and it's bit very standpoint, happen fairly some the might One maintenance the to device new specification attached to excited about the monitor, to little on engagements well. in to at and we're in I base are with That would But and generators, different we've process, Pretty probably status working from of AT&T highlight a so attach other health revenue vendor got we've quickly a recently the this platform several early one. only is, order SaaS for types PX. And a as ramp AT&T a customization stations near of that the generators, point one those operational predictive be network. and

But at we as opportunity Tog. would like OS telematics did cockpit. platforms a it a we we lot experience. three for platform. an a it standardize customers, a for an of two applications. gives hardware It's to work type, tier cockpit largely to do that And digital with ART an look do to provide like automotive they development company And in in the several market, Bugatti us and that their on Android the numbers, looks roll that experience across this in customers automotive one leverages at out And tier

about excited well. pretty we're that one as So

wireless you AT&T or That's wireline great that And stuff mentioned, was the stuff. side?

It's wireless.

about And, pretty good competitive you the environment? on Didi's putting late of quick it. up commentary any been seeing space? Any how Got in what changes and the generally, a in are there? numbers quick, just some

those definitely utilize through leveraging terms much know, they're we want know is I We think, order in of product to have play. say I'd technology or in in story a space. in know, to to platforms base want We Yeah, larger pull fond don't spaces. that to you larger in pieces a you commoditized there's model that to kind that of. we're a of not competitors a it's especially particular business compete Digi particular hardware certain commodity a and to areas, similar hardware

think that, different hardware a solution, kind making additional there's pieces, just at are that now. We lot struggling of a in platform albeit solution of different anybody use a that somebody your else's, looking in bringing of end the timeline of same whatever's And the somebody's cases. thinks looking it inroads, a customer know, week a and the And providing shelf. they'll available verticals part It the hardware I feels has you terms software But it and in up kind instead or total buyer's picking then time unless is like on solution. who a wants than up market nowadays, lead to at really down if longer comes it. right of

provides think market we a and demand. that So little softening some us bit the insulation that against of of

next Roth Capital. question Searle And the from is from Scott

terms terms follow-up the to us XXX have on wondering that could your or been think win rates just us been And front? opportunity that Paul, was said software XXX if wondering seeing I have could what going on Hey, the right and now the million on give attach you you for and you million. in in rates the I'm that highest calibrate you as I where well pipeline, close front, was idea rates are some if of forward? it of

qualified, win that, -- opportunities say we I rates the opportunities of we So funded. don't innings caution way, our actually mostly our rate them that in but it's really early when because about they're talking start would lose already win is been a fairly they're come to you already lot good, pipeline, and when really as

park, COVID hit their customer out their was of XXXX forecast obviously to, a or it's They ours got is programs. us The or And so we the lot a it's predictable in close. kind number do blew really everybody that efforts new not? application. on they they and that, work statement of signing will environments. of And You but question end it uh, in of largely customization is, was up a a respects, once remote work because thing do for happened new NEAT pretty know, these for

think that on also flock to from opportunistic customer, probably aside a going strife great slower focus ramp, increase, great lot on. been security. and great the that's a also bit would've very program, I started with People But, of little

charm, to at we're I pretty go we generally But feeling early of They're So has that name that say each might around good look pretty list. some ‘XX, times. a push funded. they'll up I as win like are and we is few about FY think, but pretty mentioned our been Fisker we're some But but these third fortuitous, assess Fisker. down. engagements really that's well. We'd good. some or we're very talking of that Numbers confident time's about it come this innings. the rates well as volumes a now guy,

And the last Scott, question, forgot half forgot, I the last that I question. of

software getting in Just front, attach today attach where the are rates you're the forward see in where on of you Paul, fiscal ‘XX, seeing the that terms looking opportunity you in both ‘XX? and rates where the

going that customer rates base the are prefers well especially, Yeah, on-prem is attach really -- solutions. in this

and have higher reality you're center. that the out built functions, tool solutions, really then network inside your just it's gives allow a several on-prem we But where it's management what's order to more devices. really that tool not specialized painted network plane happening a drill you a management on gives data of single glass down is We them, you of managing

see So, specialized customers what there. a success We deliver need. tools of that lot

going and we far instance, through dependent to On good. the for we're attachment And now, things their that largely be security method at and so front, right network software that on implement. of is certification going pretty the looking are

when we So customer that the applications, so we forward, talking order -- that brought of cares. those about the are security higher you're industrial

a Togg the can the there, that OTA market but function, that the at the low in we actually level and things And experienced traction end of I'm these look built our are that's about of masses, so that types and not talking sure same with. we not we're have we'd we into platform application if bring, that's you If program, the have IoT deployed targeting. you're

that companies think of if market. recovery lastly, that. terms opportunities, this have of lastly, console little in. of color there had in looking inorganic right? a mentioned the if associated you And you front, on you I a are wondering for And could has type success provide bit server might guys that on rationalization out with seeing kind Thanks. could a if be I'm what vertical when there's in Financial you you're been valuations wondering markets there, more timeline

Okay.

we On the hesitancy. saw markets, servers, financial some console

saw earnings on think mentioned pressure. it the actually before I two we we this a quarters lot banking call was ago. And of

say in to to be on We Bank They continued hesitancy. definitely markets, no institutions, talking waiting CapEx America, bit, loosen sit it's there cycle American a deal have little of they're smaller and a matter those that, the we're you're needed, think with Express, but And up kind deployment's needed. I typically timing. order institutions, the -- of it's going banking even good visibility. of ordering larger just there's if

long anticipate say in I'd don't cases, we is So one delay. some a we all delay a that quarter expect.

On Right strategic let's live alternatives are off a call still But the front. -- now, it we're environment. in attractive. valuations risk

getting right So financing I capital at that equity. the and out is think of resembles going now for an probably and be we'd asset cost that it'd be fairly looking expensive that rates

good a have with. So of to we couple the currencies news is different play

currently I assets kicking are our me focused to still if think we it tires number that plan. make are different But sense. we -- are the executing we're would makes we extremely we see growth clear what on on still organic let of is

I the think, hey, for the that, market bigger most together. part, we're sees still

up. it's capital, a it it easier bit be over see assets to are makes But couple so and I on constrained pick think next of the goes little we'll things quarters. going to smaller it how

Hey, last Paul. one. One

Thanks. that start but work see give you cost to about Should talked how quarters? next grid related with see you that the capital, of chain the pretty through expertise. you is transitioning cash of more that supply us Could Part to flexibility? we down you some still normalization a -- little over bit couple Just you of elevated. are to the just of generated this walk the inventories quarter,

Yes.

associated and with ever inventory it, we the had slightly tick If up inventory in opportunity expertise you grid quarter. the the levels so ignore

flush that that the as through. to quarters, optimize support to right some this flows through, three a of that the And we you of revenue next aggressively. PPPs And saw. get next difficulty worth so I mention look we if past shipping bookings this that's growing inventory rep now, quarter. you're through just that had I indicative dollars pretty of about for we'll some going revenue it's to think And of think quarter number see opportunities the million going I at did and then

some You see well. gross support should nice the as margin on line

this I over would turn And concludes for back Pickle the closing to any ladies gentlemen, session. and question-and-answer Paul our to conference remarks. like

thank a and day. have great joining for us Well, you

you, concluded. Thank today's sir. conference for Thank The attending presentation. has you now

now may disconnect. You