Lantronix, Inc.

And welcome to the Lentronics, Inc. first quarter 2024 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone, And if you need to withdraw your question, please press star then two. Please note this event is being recorded. And now I would like to turn the conference over to Robert Adams. Please go ahead.

Good afternoon and thank you for joining the first quarter fiscal 2024 conference call. Joining us on the call today are Jeremy Whitaker, Interim CEO and Chief Financial Officer and Jacques Issa, Vice President of Marketing. 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. During this call, management may make forward-looking statements which involves risks and uncertainties that could cause our results to differ materially from management's current expectations. We encourage you to review the cautionary statements and risk factors contained in the earnings release, which was furnished to the SEC today and is available on our website, as well as the company's SEC filings, such as its 10-K and 10-Qs. Landtronics undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Please refer to the news release and the financial information in the investor relations section of our website for additional details that will supplement management's commentary. Furthermore, during the call, the company will discuss some non-GAAP financial measures. Today's earnings release, which is posted in the investor relations section of our website, describes the differences between our non-GAAP and GAAP reporting and presents reconciliations for the non-GAAP financial measures that we use. With that, I'll now turn the call over to Jeremy Whitaker, our interim CEO and chief financial officer.

Thank you, Rob. And welcome to everyone joining us for this afternoon's call. First, I'd like to acknowledge the passing of our chairman, Paul Foligno, and thank him for the many years of leadership and service he provided to the Lentronics team. Paul will be missed by all. Now I'll provide the financial results and some business highlights for our first quarter of fiscal 2024, before commenting on our financial targets for the full fiscal year. For FQ1 2024, we reported revenue of 33 million, which was higher than our initial expectations for the quarter. Sequentially, revenue was down 5% and up 4% from the year-ago period. System solutions increased significantly, driven by record revenues from our out-of-band deployments, strong sales to federal customers, and revenue recognition for the remaining QED pilot production units for Gridspertise. We see continuing strength from our IoT system solutions, driven by contributions from out-of-band, the coming production ramp of the QED, and initial shipments of telematics asset tracking solutions to a Tier 1 telecom carrier. As expected, we experienced a sequential decline in embedded systems, as a result of a couple of large shipments in the prior quarter that did not repeat this quarter. Looking forward, we see improving results from this product group, driven by our EV customers across multiple geographies for both hardware and design services. We also expect to begin ramping production of an AI-powered video conferencing product for a large enterprise customer that should contribute meaningfully throughout the remainder of fiscal 2024. In FQ1 2024, software and services revenues were up sequentially, a function of increased design services revenue, and we expect similar activity in the upcoming quarter. GAAP gross margin was 42.7% for FQ1 2024 compared to 39.5% in the prior quarter and 44.1% in the year-ago quarter. The improvement in gross margin was primarily a function of a change in product mix from the prior quarter as a result of the record quarter in out-of-band sales during FQ1 2024. For FQ2 2024, we expect a similar product margin as a percentage of revenue. GAAP SG&A expenses for FQ1 2024 were $9.2 million compared with $9.2 million in the year-ago quarter and $8 million in the prior quarter. The sequential increase in GAAP SG&A was primarily due to lower-than-normal share-based compensation expense during FQ4 2023. GAAP R&D expenses for FQ1 2024 were $5.1 million, compared with $4.5 million in the year-ago quarter, and relatively flat with the prior quarter. GAAP net loss was $1.9 million, our $0.05 per share during FQ1 2024, compared to gap net loss of $1.7 million or $0.05 per share in the year-ago quarter. Non-gap net income was $2.5 million or $0.07 per share during FQ1-2024, compared to non-gap net income of $2.7 million or $0.07 per share in the year-ago quarter. Now turning to the balance sheet. We ended FQ1-2024 with cash and cash equivalents of $19.5 million. an increase of $6 million from the prior quarter. Working capital was $50.2 million as of FQ1 2024 and remained steady with the prior quarter. Net inventories were $45.8 million as of FQ1 2024, a decrease of $3.9 million from the prior quarter. Now turning to the upcoming second quarter and fiscal year 2024. We expect that revenue in the second quarter will be up sequentially as the QED ramps into volume production. We have commissioned the production lines and the customer has approved the firmware to begin manufacturing. Based upon these factors, we expect to begin volume shipments in the next several weeks. As such, we maintain our prior guidance for the QED revenue ramp, expecting approximately $5 million in December 2023, double that in our March 2024 quarter, with the remainder of the shipments falling in our fourth quarter ending June 2024. In a cautious but relatively stable demand environment, we remain optimistic about the fiscal year ahead of us and expect to deliver the fiscal 2024 guidance that we provided during our previous earnings call. We're therefore reiterating our guidance with revenue in a range of $175 to $185 million and non-GAAP EPS in a range of 50 to 60 cents per share. Finally, for those who may not have seen it, I'm excited to report that Lantronics has selected Salil Aswar as its next president and CEO. Salil comes to Lantronics from Synaptics, where he was the SVP and GM of the company's mobile and enterprise division, the largest business unit within the company. Salil was instrumental in the company's pivot from mobile markets and IoT and enterprise application, and drove a multifold increase in market cap for the company's shareholders. Salil will officially join Lantronics on November 20th, and I look forward to introducing him to you on our next earnings call. That completes our prepared remarks for today, so I'll now turn it over to the operator to conduct our Q&A session.