Good afternoon and welcome to the Lantronix Second 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 0. 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 your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Rob Adams. Please go ahead. Good afternoon, everyone, and thank you for joining the second quarter fiscal 2024 conference call. Joining us on the call today are Saleel Awsare, Chief Executive Officer, and Jeremy Whitaker, Chief Financial Officer. 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 and 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 its 10-Q. 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'll now turn the call over to Saleel Awsare, Lantronix President and CEO. Thanks, Rob, and thank you, everyone, for joining us on the call today. I'm happy to be speaking to you for the first time since I joined at the end of November. I'm pleased to report record results for the second quarter of FY 2024 with total revenues of $37 million in FY Q2, an increase of 18% compared to the same period of FY 2023, and an increase of 12% over the last quarter. We expect record revenue for fiscal 2024. I'm optimistic about the future of Lantronix given our wide array of leadership in technology, strong product pipeline, and growing customer engagement. I thought it would be helpful to provide some of my background and why I joined Lantronix, as well as also discuss some of the initiatives that I'm driving in the short term. For more than 25 years, I've navigated the high-tech landscape, driving successes across hardware, software, and services. Most recently, I was a Senior Vice President and General Manager of the Enterprise and Mobile Business at Synaptics, the company's largest division. Prior to that, I ran the IoT division. While at Synaptics, I made significant changes streamlining operations, prioritizing customer centricity, and implementing robust go-to-market methodologies that led to significant gross margin and profitability improvements. Across multiple companies, including Conexant, Winbond, and Synaptics, I've established a track record of business performance improvement across a range of metrics. When the Lantronix opportunity was presented, it was quickly apparent to me that there is much potential to be unlocked. The macro trends of IoT are accelerating, and Lantronix, with its unique portfolio of secure compute and connect solutions, is perfectly positioned to capitalize on this momentum from wireless routers, programmable telematics, out-of-band management, edge compute modules, and a rapidly growing secure custom solution business. We have the breadth and depth to be the differentiated and trusted Western supplier of IoT solutions, providing unparalleled global reach and coverage. As the new President and CEO, I see myself as a steward of shareholder capital, and I take that responsibility seriously. You'll find me direct, results-oriented, and focused on building a profitable, growing business. In my first 60 days, I met with many customers, partners, and employees, immersing myself in our strengths and opportunities. However, my focus remains on enhancing performance. We've launched multiple initiatives, including a strategic portfolio review delving deeply into various areas like engineering, operations, and marketing. In FY Q2, we made our first volume shipment to our smart grid customer, and we have the backlog in place to drive a strong ramp for the remainder of the year. In FY 2025, we expect to transition to a run-rate business, receiving purchase orders against our existing design win and in line with lead times. Having just met with the customer in Europe, I'm happy to say that the relationship has deepened, and I expect this to be a long-term engagement. Other noteworthy business highlights include the commencement of volume shipments of our FOX 3 Gateway device to a major telecom carrier. This device enables tracking, data collection, communication, and diagnostics in power-critical applications. Initial deployments will be generators supplying cell towers. This adoption is driven by mandates in power backup systems and state energy reporting standards. Finally, our out-of-band products continue to perform well, with our large enterprise customers resuming purchases. Before I hand over the call to Jeremy to review the Q2 financials in more detail, I'd like to conclude by saying I'm really excited about the opportunity ahead at Lantronix. Since I've been on board, I've been impressed with our team, the broad portfolio of technology and IP, and our great customers. We have a lot of work ahead of us as we continue down the transformation, but I'm confident we have the building blocks in place to drive Lantronix to become an even stronger company built on differentiated and sustainable franchises that generate profitable growth. I'll now turn over the call to Jeremy Whitaker, Lantronix Chief Financial Officer. Thank you, Saleel. Now I will provide the financial results and some business highlights for our second quarter of fiscal year 2024 before commenting on our financial targets for the remainder of the fiscal year. For FQ2 2024, we reported revenue of $37 million, an all-time record for Lantronix, driven by initial production shipments to a smart grid solutions provider. Revenue was up 12% and 18% from the sequential and year-over-year periods, respectively. IoT system solutions increased by 21% and 54% from the sequential and year-over-year periods, respectively. The increase was primarily driven by initial production shipments for our lead smart grid customer, as previously noted. In addition, the year-over-year increase was impacted by strong sales from out-of-band deployments. For the remainder of the fiscal year, we expect continuing growth from our IoT system solutions, driven by the production ramp of our smart grid customer, continued strength in out-of-band, and telematics asset tracking solutions to a Tier 1 telecom carrier. Sequentially, embedded IoT solutions were up 3% with meaningful contribution from our lead EV customer design-i n. As expected, we experienced a year-on-year decline in embedded IoT solutions as the year-ago period included a large enterprise video customer design win that ended in FQ4 2023. In FQ2 2024, software and service revenues were down sequentially, primarily a function of the completion of two large design services projects that have transitioned into production. GAAP gross margin was 40.6% for FQ2 2024 compared to 42.7% in the prior quarter and 43.8% in the year-ago quarter. Non-GAAP gross margin was 41.6% for FQ2 2024 compared to 44% in the prior quarter and 44.6% in the year-ago quarter. The decline in gross margin was primarily a function of a change in product mix from the prior quarter and increased logistics costs. For FQ3 2024, we expect gross margins in a similar range. GAAP SG&A expenses for FQ2 2024 were $10.2 million compared with $9.8 million in the year-ago quarter and $9.2 million in the prior quarter. The sequential increase in GAAP SG&A was primarily due to costs related to variable and share-based compensation, partially offset by cost-cutting activities. GAAP R&D expenses for FQ2 2024 were $4.7 million compared with $5.1 million in the year-ago quarter and the prior quarter. The decline was primarily related to cost-cutting efforts. Company-wide, we reduced headcount by approximately 7% during FQ2 2024. Over the last several quarters, we have reduced headcount by approximately 10% as part of our ongoing efforts to capture cost synergies from our previous acquisitions, run the business more efficiently, and improve operating margins. GAAP net loss was $2.6 million or $0.07 per share during FQ2 2024 compared to GAAP net loss of $2.6 million or $0.07 per share in the year-ago quarter. Non-GAAP net income was $2.9 million or $0.08 per share during FQ2 2024 compared to non-GAAP net income of $1.4 million or $0.04 per share in the year-ago quarter. Now turning to the balance sheet, we ended FQ2 2024 with cash and cash equivalents of $22.1 million, an increase of $2.7 million from the prior quarter. Working capital was $51.9 million, an increase of $1.8 million from the prior quarter. Net inventories were $42.8 million as of FQ2 2024, a decrease of $3.0 million from the prior quarter. Now turning to our outlook, for the third quarter of fiscal 2024, we expect revenue in a range of $38-$42 million and non-GAAP EPS in a range of $0.09-$0.13 per share. For fiscal 2024, we are updating our annual guidance to revenue in a range of $155-$165 million and non-GAAP EPS in a range of $0.35-$0.45 per share. The change in our annual guidance is primarily due to lower expected sales for our embedded IoT solutions as a result of two factors: a general slowdown in our broad-based channel business as customers work through their inventories and an embedded compute design win in video applications that was slated for revenue in the second half of fiscal 2024 that pushed into fiscal 2025. We remain optimistic on the business and are on track to deliver a record year on both the top and bottom lines with 18%-26% organic revenue growth and over 50% growth in non-GAAP earnings. With that, we complete our prepared remarks for today, so I will now turn it over for the operator to conduct our Q&A session. 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 the roster. Our first question will come from Scott Searle of Roth MKM. Please go ahead. Hey, good afternoon. Thanks for taking the questions. Saleel, congratulations and welcome aboard. Maybe just to dive in quickly on the outlook, a little below expectations, it sounds like you've got a design win on the embedded push front. I wonder if you could provide a little more color and clarity in terms of how the Enel ramp is going, how you're thinking about a phase two opportunity with them, and what the channel level of inventory looks like at the current time, and is there any other risk to slippage of a larger customer like you're talking about on the embedded front that slipped? Hey, Scott. Thanks for the question. Let me start with the Enel ramp, and then I'll pass it to Jeremy for some of the other questions that you asked. So as I said, I was in Europe meeting our customer, who's a customer of Enel's, if you put it precisely, and that ramp is going well. Systems are now getting deployed in the field, and we hear no showstoppers. And as I said in my prepared remarks, we've got good backlog till the end of June for the fiscal year. And as we transition this business into more of a run-rate kind of business, we will be getting in purchase orders for the second half of the year. I expect to get purchase orders for the second half of the year, and we'll ramp with them as we move forward. Now, there is a big buildup as they start the deployments, especially in our calendar Q3 I mean, our fiscal Q3 and Q4. It'll slow down just a little bit as we go into the second half of the calendar year. Jeremy? Yes, Scott. You had a question regarding distributor inventories. Yeah. Jeremy, just on the embedded front, it sounds like you're working down some elevated inventory levels. I wonder if you could give us an idea about channel inventory weeks or otherwise to kind of help us calibrate. And then on the design win that slipped out, the visibility and the comfort to that, that that is going to, in fact, ramp in September and December. Yeah. So starting with channel inventories and what we're hearing back from our sales team as it relates to end customers, a lot of that business is going to a broad-based customer base, a lot of it in industrial IoT connectivity and embedded solutions in that area. And what we heard back from our sales team is that there are customers that are working down inventories, and that was and also a general slowdown in the macro that is impacting customers. And for that reason, we brought down our forecast for our embedded solutions for the second half of the fiscal year. As it relates to the push out of our one embedded compute customer in video applications, as far as we understand from talking with the sales team and their interaction with the customer, is that they are on track to go into production in fiscal 2025 or I would say have more of a ramp. They already are buying some product from us at this point, but the actual ramp of their production has slipped into 2025. Just let me add a little bit more color, Scott. This is a video conferencing system, and they need to go through some certification. You might be familiar with it, things like Teams and stuff. Usually, this takes a bit longer than you anticipate, and that's, I think, what they're going through right now. Gotcha. Very helpful. If I could, one follow-up. Saleel, I know it's still early, so this is perhaps a bit unfair, but I wonder if you could give us some insight into how you think about the growth of the business as we get into fiscal 2025, not necessarily to give guidance, but are you comfortable that this is a double-digit or a mid-teens kind of growth business given the product portfolio and the customer interactions that you've had? And as part of that, the gross margin profile that you're thinking about now that you've seen the blended business and product offerings, if you give us some insight on that front. If I could throw in as well, edge compute is becoming a bigger and bigger discussion point within the industry. You guys have a lot of components on that front that have led to business over the past several years. I'm wondering how you see that evolving and your position in the marketplace there. Thanks. Yeah. So I think it's a little too early for me to get into the specifics of fiscal 2025 from percentages and numbers, but we have all the right things in this company, as I said, as I move forward to compute and connect. Our compute business is growing quite a bit. It grew 60% from fiscal 2023 to fiscal 2024, just to be clear, as we are projecting it to grow. So I expect that to be a growth driver as I look into the future. Now, going specifically to the edge compute, you're right. We do have some great technology and products. It's early days, but I do see some momentum into fiscal 2025 for those specific areas. And we are doing, Scott, really a deep dive into the product portfolio starting in March called the strategic program review. This is something that I have done in the past, and I'm going to spend probably a better part of a week with our business teams and also the engineering teams trying to go through every product line, understand our strength, our weakness, and look at the ROI and the growth in that area. So I'll be able to give a better view about this in the May call or so. Great. Thanks so much. Thank you. The next question comes from Mike Walkley of Canaccord Genuity. Please go ahead. Great. Thanks for taking my questions, and I'll try to keep them a little briefer than multi-part here. Saleel, just welcome aboard. I look forward to working with you. You mentioned you're in the midst of a strategic portfolio review, but given your short tenure at Lantronix and with your unique industry background, do you see any low-hanging fruit right away in terms of go-to-market or distribution channels that you think can help expand Lantronix' reach? You know what? I've done my first QBR with the team just a few weeks back. I wouldn't go into low-hanging fruit. I mean, there are areas that I can look at that we can go with customers that I might have worked with in the past and as I look in the future. But as I said earlier, I think the compute and connect portfolio that we have is really very good as I think about it in the future. And I'll get you more details as I go through the quarter and go through the review because that's when I'm going to get really my teeth into it to understand what, if any, low-hanging fruits there are. And I've done this in the past. It's a great question. What can we do more? Where can we go do more? And I'll just digress and give you one little piece which I've really gravitated and I understand it's kind of differentiated here, which is the out-of-band. That out-of-band area, Lantronix is a leader. Not a lot of people in this space, as folks like NVIDIA and stuff roll out these new pods for data centers for AI, they all have this out-of-band port in there. Not being exercised yet. But as I think about that, can that be a low-hanging fruit? Maybe. But again, give me a little bit more time, but I think there are things here that we can really go after. Great. No, that's helpful. And just a follow-up maybe for you and/or Jeremy. As you start to meet with customers and you look at the longer-term opportunity, in the past, Lantronix has shared kind of a number of large deals in a pipeline. I think maybe the last time it was around 40 deals and $150 million. Any update on that pipeline opportunity? Yeah. So let me talk about the funnel. This is something I've spent a lot of time when I was at Synaptics. The funnel is a great thing that you really want to understand. So as I said, I went through the QBR with our sales team and marketing team just a few weeks back, and I'm very pleasantly surprised at the size of the funnel. But before I report back on the specific numbers - and I'm very familiar there's a number out there - I'm going to go just do much more of a deeper dive, understand it, and see where we are with each of the programs in the funnel with respect to the schedules and stuff like that. So just give me a little bit of time, but so far, I'm happy with what I saw with the funnel. Great. Thanks. Last question for me, and I'll pass it on. Jeremy, just in terms of the reduced fiscal 2024 guidance, can you just help maybe rank order the different issues between inventory at some of your customers and this project getting pushed? And were there any other impacts to the guidance, or were those really just the two main issues? I would say those are the two main things that came out of our QBR several weeks ago after we reviewed the forecast with the sales team, both primarily coming out of the embedded business, relatively, I would say, evenly split between kind of a broad-based expected decline from our connectivity business, embedded connectivity business, which is mostly wired products, a little bit of wireless, but not as impacted by that, and then the compute customer and the video application that I mentioned previously. So those were the primary drivers for the reason to bring down our numbers for the second half of the fiscal year. Great. Thank you very much. Thank you. The next question comes from Ryan Koontz of Needham & Co. Please go ahead. Thanks for the question. Just thinking about this from a different angle here on the second-half outlook change, it sounds like the core business what I think of as the core business dating back the last couple of years, that that's where the big headwind here is on your embedded. And so that's looking like it's going to is that stepping down in its run rate materially into your fiscal second half? Jeremy, is that how you should think about it? Yeah. I would say it's lower than what we would have originally anticipated. I'm not sure if it's taking a major step down, but many of these legacy products have been in the market for a period of time, and we do have a general expectation that they're not high-growth products even in the forecast. So many of these products did have a bit of a resurgence during COVID, and I think this is just on the other side of that COVID resurgence. I think that a lot of companies, including us, saw in some of these kind of legacy products. Ryan, let me just add a little bit of more color, right? Saleel here. So as I think about this, as Jeremy clearly pointed out, it's really broad market, and there might be still it's more industrial kind of IoT areas, broad market. So a few macro slowdowns as opposed to what was originally when they planned it maybe 6-9 months ago. So that's how I would think about it. So it's nothing hugely material. It's just from that dimension. Okay. Helpful. And then any color you can share on the RIF in terms of what areas of the business are these duplicative functions? Are these redeployment of resources? Kind of walk us through what sort of adjustments you made on the OpEx side. That'd be helpful. Yeah. Some of it was duplicative. We did an acquisition of Uplogix nearly a year ago, and then prior to that, Transition Networks. And so some of these were positions that as we've been able to get systems integrated and offices together, we've been able to identify some additional cost synergies to take out of the business. So I think it's just a bit more of where we're at in wrapping up the integration phase and identifying areas that we had duplication. And is that in terms of the different cost components of R&D, SG&A, and ops folks that flow into COGS? Is it pretty broad-based or more focused? I would say it was pretty broad-based. We had done something in sales a couple quarters ago, and so this was probably more ops, R&D, a little bit of marketing, and G&A. Helpful. That's all I can have. Thank you. The next question comes from Christian Schwab of Craig-Hallum Capital Group. Please go ahead. Hey, guys. I just want to, Jeremy, confirm something. So the roughly $20 million missed at the midpoint from street expectations were on $180-$160 million. So half of that came from the distribution channel excess inventory levels, and the other $10 million came from the large customer push-out. Is that correct? Yeah. I would say it's probably a little more heavily weighted to the distribution channel long-tail kind of broad-based business. Okay. So it's not 50/50. It's maybe two-thirds, one-third? That's probably in the ballpark. Okay. Okay. And then shipping to Gridspertise, how much revenue do you expect to ship to Gridspertise in fiscal 2024, roughly? Those are my questions. Yeah. So yeah, it's nearly $40 million, right around maybe slightly a tad below that, and we're on track to deliver that this fiscal year. And it was a significant contributor to the current quarter as we had expected. Yeah. Okay. So Gridspertise is going as planned, and then we're kind of seeing some of the disruptions in the business that, well, many of your peers are seeing. So right. So as we look beyond this fiscal year, range of assumptions of big pipeline, large deals, inventory correction being over I mean, have we figured out what we think the sustainable top-line growth rate of the portfolio is? I mean, are we running a 10% company? Are we running a 15% company, a 20% company? What should we be thinking about over a multi-year timeframe? Yeah. This is Saleel here, Christian. I'm still going through all the numbers as I look at it. I think this is a growing company for sure. It's not a 25% grower. Let me be clear about that because that's substantially different than what I think. I think this is high single-digits, low double-digit kind of grower. And be clear, some of these compute platforms that we're working on could do better than we anticipate. Just like Jeremy said, one of them got pushed out, but these are I would think about as high-protein kind of businesses. So if one hits, it's a big number. But right now, I'm not ready to get into fiscal 2025, and moving forward, we're going to kind of give you guys more near-term kind of guidance as I think about it. But I see this as a growing company for sure because we've got some of the right stuff with these compute and connect platforms that we have internally. Yeah. So on a go-forward basis, we should expect you guys to act like the disproportionate large share of public companies. We're going to go one quarter at a time, and then we'll speak esoterically about the future, but we're not going to start the year and give you guides like this again. That's probably something we shouldn't be anticipating as we exit this fiscal year. Did I hear you correctly? Yeah. That's where my head's at right now. I'll be very transparent with you. I came from a place where we did that. That's where my head's at. But I'm open to adapting, which I've done in the past. So we'll think about it, but that's where my head's at right now. Okay. Perfect. No other questions. Thanks, guys. Thank you. Thank you for your question. This concludes our question-and-answer session. The conference has now also concluded. Thank you for attending today's presentation, and you may now.