Hello, and welcome to the Lantronix 2023 Q4 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 your telephone keypad. To withdraw from the question queue, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Robert Adams. Please go ahead. Thank you. Good afternoon, everyone, and thank you for joining the fourth quarter fiscal 2023 conference call. Joining us on the call today are Jeremy Whitaker, our Interim CEO and Chief Financial Officer, and Jacques Issa, our 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 and details for the phone replay in today's earnings release. 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 SEC today and is available on our website and in the company's SEC filings, such as its 10-K and 10-Qs. Lantronix 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 will now turn the call over to Jeremy Whitaker, Lantronix's Interim CEO and Chief Financial Officer. Jeremy? Thank you, Rob, and welcome to everyone joining us for this afternoon's call. I'm gonna provide the financial results as well as some of the business highlights for our fourth quarter and fiscal year 2023 before I provide our financial targets for fiscal 2024 and an update on our CEO search. For FQ4 2023, we reported revenue of $34.9 million, up 6% sequentially and down 3% from the year ago period. The sequential growth of 6% was largely a function of a strong quarter for our embedded solutions products, led by an embedded compute sale of approximately $3.4 million to an in-flight infotainment customer. We also experienced continued contribution from our electric vehicle customer, Togg. Systems solutions were relatively flat quarter-over-quarter and included $1.4 million in revenue from the delivery of QEd pilot production units to Gridspertise. We saw a weaker quarter in out-of-band products as our larger financial customers continued to exhibit cautious spending patterns. We expect out-of-band to improve against the backdrop of the upcoming Fed buying season, and sales here should increase in the September and December quarters, adding a boost to gross margins. In FQ4 2023, software and services revenues were down sequentially, a function of lower design services revenue. However, there was an ebb and flow to these design projects, and we expect improvement going forward. GAAP gross margin was 39.5% for FQ4 2023, compared to 44.4% in the prior quarter and 41.9% in the year-ago quarter. The decline in gross margin was primarily a function of product mix, with the biggest variances being higher embedded compute sales and lower out-of-band sales as a percentage of revenue during FQ4 2023. For FQ1 2024, we expect our sales mix to normalize with lower compute sales and gross margins closer to the mid-40s%. GAAP SG&A expenses for FQ4 2023 were $8 million, compared with $9.4 million in the year ago quarter and $9.9 million in the prior quarter. The decline in GAAP SG&A was primarily due to lower share-based compensation expense and a focus on cost containment. GAAP R&D expenses for FQ4 2023 were $4.9 million, flat with the year ago quarter and down from $5.1 million in the prior quarter. GAAP net loss was $1.7 million, or $0.05 per share during FQ4 2023, compared to GAAP net income of $2.5 million, or $0.07 per share in the year ago quarter. Non-GAAP net income was $2.2 million, or $0.06 per share during FQ4 2023, compared to non-GAAP net income of $2.8 million, or $0.08 per share in the year ago quarter. Now, turning to the balance sheet. We ended FQ4 2023 with cash and cash equivalents of $13.5 million, an increase of $650,000 from the prior quarter. Working capital was $50.2 million as of FQ4 2023, and remains steady with the prior quarter. Net inventories were $49.7 million as of FQ4 2023, a decrease of $2 million from the prior quarter. The balance of inventory includes nearly $10 million of long lead time components that were prepaid by a customer.... We expect to consume these components during fiscal 2024 as we deliver on the customer agreement. Now, turning to the first quarter and fiscal year 2024. We expect that revenue in the first quarter will be down sequentially, as the revenue growth in FQ4 2023 was largely a function of a significant shipment to the customer deploying in-flight infotainment systems. We don't expect this customer to contribute at a similar level in the upcoming quarter. That said, we remain confident about the fiscal year ahead of us and expect to deliver upon the fiscal 2024 guidance that we provided during our previous earnings call. We entered fiscal 2024 with record backlogs, a cautious but relatively steady demand environment, and new compute designs moving into production. Compute solutions, both embedded and at the system level, are expected to drive much of the growth in fiscal 2024 and beyond, led by smart grid deployments, intelligent vehicles, and enterprise video. As we have previously discussed, Gridspertise is our lead smart grid customer with the QEd, an all-in-one edge computing platform, providing electric grid operators with real-time insights and automated control of distributed energy resources. Since our last call, we've made substantial progress on getting the QEd into production, which will allow us to realize the more than $40 million in revenue that we have in current backlog for Gridspertise during fiscal 2024. Specifically, we completed the shipment of substantially all of the QEd units under the pilot production contract during FQ4 2023, and are ready to start mass production in the upcoming December-ended quarter. All component shortages that would gate deliveries in fiscal 2024 have been resolved. On the demand side, Gridspertise recently increased their fiscal 2024 production order by over $750,000 and are currently negotiating the first follow-on purchase order, which we would expect to drive continued growth from this customer in fiscal 2025. Furthermore, we received the final deposit that was due under the initial production contract for a grand total of $20 million in deposits paid to us thus far. Based upon these factors, we are confident in the program and our ability to begin volume production of the QEd in FQ2 2024, which would result in meaningful revenue contribution during that quarter, and leading to a full production ramp in the second half of fiscal 2024. More specifically, our current production forecast indicates that we would deliver approximately $5 million in FQ2 2024. We would double that amount in Q3 and deliver the balance in FQ4. Our lead EV customer, Togg, is also progressing well. During FQ4 2023, we received a significant order from Togg that would double their current run rate and greater than what we had previously anticipated for fiscal 2024. In addition, we continue to engage a handful of other EV opportunities with design services that have the potential to transition to meaningful supply arrangements. We're also seeing traction with other compute designs. For example, we have a high-volume enterprise video collaboration design expected to ramp in FQ3 2024. Furthermore, with the recent Qualcomm announcement of their QCS8550, with increased computing for Edge AI processing and Wi-Fi 7 connectivity, we have had multiple engagements with customers interested in using that solution for various compute-intensive applications, such as autonomous mobile robots, industrial drones, and Edge AI boxes. Now, I'd like to provide the specifics for our fiscal 2024 guidance. With the backdrop of a record backlog, a cautious but relatively steady demand environment for our system solutions, and new compute designs going into production, we anticipate delivering over 30% growth during fiscal 2024 and are reiterating our annual target of revenue in a range of $175 million-$185 million, and non-GAAP EPS in a range of $0.50-$0.60 per share. Now, I'll provide a brief update on our CEO search. In June 2023, the board engaged a third-party firm to conduct a candidate search. We're well along in the process and have begun performing in-person interviews. While it is difficult to pinpoint the exact timing, I do expect that we'll identify a qualified candidate before the calendar year end. That completes our prepared remarks for today. I'll now turn it over to the operator to conduct our Q&A session. Thank you very much. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Scott Searle with Roth MKM. Please go ahead. Good afternoon. Thanks for taking the questions. Nice to continue to see the reinforced outlook for fiscal 2024. Hey, Jeremy, maybe I just want to quickly dive in and get some color around the gross margins. It sounds like that's purely mix? in the June quarter, and you're expecting a recovery back to where we've been in recent quarters, kind of given the recovery in out-of-band and some of the other products. Is that, is that correct? Yeah, that would be correct. We had a really strong compute quarter, and our out-of-band was actually down sequentially. You know, the compute being on the lower end of our margin scale and the out-of-band on the higher end of the scale. For FQ one, we're expecting that to kind of flip, where we're gonna see much more contribution from out-of-band and lower contribution from compute. And the result of that would likely be returning to, you know, gross margins closer to the mid-forties. Great. And then just looking at the top line, I thought I heard September sequentially down a little bit. Just wanna clarify that, but then you start to see the ramp-up and the contribution from Gridspertise ramping up. I think you said $5 million in December, going to $10 million in the March quarter. Wanna clarify that because it really implies, right, that you continue to see that big ramp-up over the course of the year and the contribution on that front. I'm wondering two things on top of it. Gross margin profile, how is that gonna impact you guys in the back half of the fiscal year? And then the follow-on contract, I'm wondering what other color you could provide around that in terms of the magnitude, size, and timing related to that. Thanks. Yeah, I think you're characterizing, you know, how we expect the year to play out. As it relates to margin, we are expecting to maintain margins in the mid- to low-40s. You know, similar to what we saw in fiscal 2023. You know, as Grid rolls in, it's pretty close to our corporate average. That said, it will bring down margins slightly, but we do have some tailwinds as it relates to, you know, we've been experiencing lower supply chain costs and lower PPVs. And so I would expect, as those lower costs roll in, we will see some benefit from that, which would offset some of the lower gross margin that we would get on a combined basis from Gridspertise. Great. And lastly, if I could, you talked about some of the other opportunities in different verticals, guys like Togg, et cetera. But I'm not sure if I heard a number in terms of the opportunity pipeline. I think last quarter you talked about $150 million plus in opportunities. I'm wondering if there's a number that you would put on it. Thanks, and I'll get back in the queue. Yeah, you know, that number has continued to grow. You know, we're still pursuing a large number of opportunities, you know, greater than what the company has seen in the past. A lot of that is in applications such as smart cities, smart grid, EV, automotive, as well as security and surveillance. Thanks. Thank you. The next question comes from Mike Walkley with Canaccord Genuity. Please go ahead. Great, thanks. And, yeah, my congrats on reiterating the guidance and closer to Gridspertise ramping. Just, just on Gridspertise, you talked about you're in early negotiations for the follow-on contract. You know, if that goes well, as we look out to fiscal 2025, could, could that be at least another $40 million, or do you think it could grow off that as you have another maybe full year of production versus it ramping throughout the year? Yeah, I think on the high end, we would grow year on year with the Gridspertise, based upon the units that they have and the pricing that we're currently talking about. And so, yeah, we do have a really good, I think, opportunity to continue the business with Gridspertise and to grow it year on year. Great. That's helpful. As Gridspertise ramps or as you look at your mix throughout the year, Jeremy, is there anything to call out on gross margins? I know you're saying Q2 should bounce back kind of to that mid-40% ish. Is that a good way to think about for the full year, or is there any puts and takes how we should think about gross margin throughout the year based on your pipeline? Yeah. With the models that we've put together and based upon our current forecast, the gross margin profile for the full fiscal year looks pretty close to what we had in fiscal 2023. And like I said, or as I mentioned previously, we do see some benefit from, you know, greater absorption, you know, as revenue increases from some of our fixed costs. And also, we are seeing quite a bit of relief in both in logistics and purchase price variances, which should start showing themselves, you know, as we get into Q2 and the second half of the fiscal year. I think in addition to that, just on the operating margin, there's also quite a bit of leverage, you know, in the business. And so as we do, you know, grow the top line, we don't expect to add, you know, OpEx, you know, at a similar level, which would allow us to exit the year with, you know, an even a margin in the mid-teens. Okay, that's helpful as we think about the ramp and the model. I guess last question for me, just on, you know, embedded, you know, very strong quarter, you know, due to that, the $3 million shipment, and you talked about it down sequentially. Is this a business that then builds from there, and do you think it grows year-over-year, or is most of the growth coming from IoT systems in 2024? Yeah. So on the embedded compute side, the next, the next couple of quarters will be a little bit, a little bit soft there. We have a couple of new, or a number of new design wins that are beginning to ramp in Q3, which would, you know, continue to, to grow that business. But in general, the compute business is driving the growth. You know, Gridspertise itself is, you know, is, is part of the, I would call it the, the compute business, although it's not an embedded product, and that, that opportunity was brought to us through our design services on the Qualcomm processor. Great. Thanks. That takes my questions. I'll pass the line. Thank you. The next question comes from Christian Schwab with Craig-Hallum Capital Group. Please go ahead. Hey, great. Thanks for taking my question. So I just wanted to verify that you guys still believe you can do $50 million over the next few years with Togg. Is that still the production goal? Yeah, and if, if anything, you know, it's gotten better. You know, we just received this quarter a follow-on order from Togg, which was much, much greater than we had initially anticipated. So they're on track, if not doing, you know, better than, you know, what we've indicated previously. Fantastic. And then, and then, my final question is, it like follow-up to the first question, I think, from Scott. There's about 40 projects that you kind of highlighted before that could contribute $150 million in annual revenue. You know, are any of those projects in your expectations, you know, for next fiscal year? You know, there are a couple that could help fiscal 2024. I would say the vast majority of them would be projects that we'd be winning in fiscal 2024, and then most likely contributing to revenue in fiscal 2025. Okay, great. More about the future, with that pipeline, you know, although, you know, some of them, you know, have a high likelihood of closing and contributing in the current fiscal year as well. Okay, great. No other questions. Thanks, guys. Thank you. The next question comes from Ryan Koontz with Needham. Please go ahead. Yeah, just kind of drilling down on the near term, sounds like a, you know, promising pipeline and any contracts that, with kind of the, the current state of the business out there in terms of, you know, are you still dealing with inventory and distribution? And, there was some Qualcomm commentary about kind of general softness in industrial IoT. Can you kind of contrast your pipeline versus near-term dynamics? That'd be helpful. Thank you. Yeah. Starting with channel inventories, you know, we saw several quarters with our inventory in the channel, you know, declining at least with our distributors. This quarter, we did see it bump up a little bit, but it is within, I would say, our historical norms. So we're not seeing elevated inventory at our distributors. We have heard from a couple of customers where they feel like they have inventory that they need to burn through, but it's not necessarily systematic, I think, in our distributor channel. I think it's a situation where, like a lot of companies, with supply shortages and COVID, you know, everybody was or, you know, companies were putting more inventory on hand because of the difficulty in getting it. We did mention, you know, previously on several calls that, you know, coming out of post-COVID, we did see some weakness in certain parts of our business. You know, that said, most of our growth drivers for fiscal 2024 are really, you know, driven by large programs that we've won and, you know, in particular, Gridspertise and Togg, where we have, you know, orders on hand to be able to drive that growth. In addition, we are seeing some new demand being generated from some of our newer product releases in connectivity. In particular, we have a nice opportunity with AT&T that we mentioned on our previous call, that's made some nice progress over the last quarter. That will also help with the growth next year. That's, that's great to hear. And, and, a quick follow-up on the competitive front. Any, any changes? You know, you know, I've heard about a few kind of new entrants, kind of coming at this with, you know, industrial hardened type products in the areas that you play, out of Europe and, and other spots. Are, are you seeing much of an impact or is it pretty stable, in competitive landscape? Yeah, I think we're not necessarily seeing any new entrants at this point. With our you know out-of-band product, with our recent acquisition of Uplogix, we think we've got a market-leading product there. You know, on the Qualcomm side, with the design services, I think we have a great ability there to differentiate ourselves, and so- Yeah. not necessarily seeing anything new in those areas today. Okay, cool. Thanks. That's all I have. Appreciate it. Thank you. This concludes our question and answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.