Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record revenue of $49.1 million for Q4 2024, a 41% year-over-year increase.
- Non-GAAP EPS grew 150% compared to the same period last year.
- Strong performance in the out-of-band management solutions business, with a 70% year-over-year growth.
- Significant progress in the automotive vertical with new engagements, including a design services purchase order with a large German OEM.
- Improved balance sheet and liquidity, with cash up 95% from the prior year and a 44% reduction in inventories.
Negative Points
- GAAP gross margin declined to 38.1% for Q4 2024 from 40.1% in the prior quarter.
- Sequential decline in embedded IoT solutions by 9%.
- Software and services revenue down from the year-ago period.
- GAAP SG&A expenses increased to $11 million from $8 million in the year-ago quarter.
- Expected sequential decline in revenue for Q1 2025 due to the steep ramp of the smart grid customer in Q4 2024.
Q & A Highlights
Q: Jeremy, you mentioned charges impacting gross margins in the fourth quarter. Could you detail a little bit what was the magnitude of the impact there?
A: Jeremy Whitaker, CFO: It was several hundred basis points, like 200 or 300 basis points, primarily related to charges for excess and obsolete inventory, and costs accumulated with the growth in inventory during the pandemic. As inventories have come down significantly, those costs also came off the books.
Q: Saleel, on the out-of-band management front, it's very exciting to hear the growth that's going on in that business. Could you size it a little bit or give us a range in terms of how big that business is right now and maybe what the expected growth outlook would be as we look into fiscal '25?
A: Saleel Awsare, CEO: We are very pleased with our out-of-band management growth, which grew 70% YoY. We expect double-digit growth as we get into fiscal year 25. The market size is approximately $400 million to $500 million. We don't break out revenue by subsegment, but it's a really exciting business for us.
Q: The Qualcomm relationship has obviously been very favorable. Is there some way to help us better understand the design funnel, the opportunity funnel of what you're seeing out there on that front?
A: Saleel Awsare, CEO: We offer compute farms and a full edge AI box, demoed at Qualcomm's Industry Analyst Day. It's early to give a revenue number, but we are closely aligned with Qualcomm. We are building on the platform and working with our partner to deploy our software tools into their tool chain to enable developers to rapidly build enterprise solutions.
Q: Just want to follow up on your comments on the North American smart grid opportunity. How should we think about the potential timing of this opportunity contributing to the P&L?
A: Saleel Awsare, CEO: Our partner has started demoing with a large North American utility. It's early days to give revenue ramps, but the system is similar to what was deployed in Italy. I expect it's out 18 to 24 months before you see a big ramp, but they've started the proof of concepts already.
Q: Jeremy, just a clarification on gross margin in September. Does that include any continued excess inventory charges?
A: Jeremy Whitaker, CFO: No, it doesn't. We currently don't anticipate meaningful charges going forward. With the significant decline in revenue and having amortized off costs related to the buildup during the pandemic, we have some nice tailwinds that should help drive improvement. We also expect improvement from mix as well.
Q: Can you give us a little more detail on this engagement that you have on the auto side, any profile on the average selling price and margins there?
A: Saleel Awsare, CEO: We signed a purchase order with a German truck OEM for software and services, developing a new infotainment platform. The gross margins should be around what we've done in the automotive in the past. This engagement shows our technology is getting adopted and adds to our customer diversification.
Q: On the M&A side, I'd love to understand a little bit of your philosophy around accretion, earnings accretion, when you look at acquisitions in addition to strategic fit?
A: Jeremy Whitaker, CFO: We focus on becoming accretive straight out of the gate or having a very short timeline to get there through synergy capture. Saleel Awsare, CEO: We like smart cities, enterprise, and automotive infotainment. We are seeing a pipeline now and will focus on being accretive from day one.
Q: Quick clarification on your autonomous truck. Did you mention your time frame at all for when you thought that might be able to move into your first revenue?
A: Saleel Awsare, CEO: We did not mention the timing of first revenue. We got our first PO for software and services. The hardware revenue is going to be out a little bit as the cycles for automotive are longer.
Q: Jeremy, about inventory being down substantially, was that mostly related to your shipments to your large smart grid customer?
A: Jeremy Whitaker, CFO: The biggest impact was the shipments to our smart grid customer. We also brought down inventory levels in other areas. Write-downs were the smallest impact to bringing down the inventory for the quarter.
Q: Circling back to the edge AI topic, anything more you can share there in terms of the architecture of what these sorts of devices would do?
A: Saleel Awsare, CEO: This is the edge. Inferencing is what we are going to differentiate and win in. For example, in videoconferencing, AI tools are being used to enhance both video and audio. In the smart grid, our products will be able to understand grid loading and steer energy anticipation of load. It's early days, but we are working closely with Qualcomm.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
