創力 (LTRX) 2026 Q2 法說會逐字稿

Good day and welcome to the Lantronix Inc. 2026 second-quarter results conference call. (Operator -Instructions) Please note this event is being recorded. I would now like to turn the conference over to Brent Stringham, Chief Financial Officer. Please go ahead.

Good afternoon and thank you for joining our fiscal second-quarter earnings call. Joining me today is our President and Chief Executive Officer, Saleel Awsare. 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, we may make forward-looking statements which involve risks and uncertainties that could cause our results to differ materially from current expectations.

We encourage you to review the cautionary statements and risk factors contained in today's earnings release, which was furnished to the SEC and is available on our website and other SEC filings such as our 10-k and 10-Q's. Lantronix undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Additionally, during the call, we will discuss 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 Saleel.

Thanks, Brent, and thank you everyone for joining today's call. We continued our momentum into the second quarter through discipline execution, delivering revenue of $29.8 million and non-GAAP EPS of $0.04, both well within our guidance range. As expected, we experienced double-digit growth year over year when excluding our MER smart grid customer Gridspertise.

Profitability remains strong, driven by continued year over year gross margin expansion and the operating leverage created by last year's cost optimization initiatives. Overall, Q2 was another step forward in aligning financial execution with our long-term Edge AI strategy.

More importantly, we are now seeing that strategy translates into tangible customer adoption across multiple end markets as several customer engagements are moving from development and pilots into broader deployment. As we discuss our end markets, it's worth noting that the government shutdown last quarter created a short-term slowdown in purchasing activity from certain federal agency customers.

Despite this disruption, our teams executed well and delivered solid results. Diving into the markets we operate in beginning with drones and unmanned systems, Calendar 2026 is widely expected to mark the start of an unmanned aerial systems super cycle, reflecting accelerating adoption of autonomous platforms across defense and commercial applications.

This view is increasingly supported by the broader defense funding environment. The signed fiscal 2026 US defense budget already includes over $13 billion in enacted funding allocated across unmanned systems, autonomy, ISR and counter UAS programs, including reconnaissance drone initiatives across the full range of mission profiles.

While portions of this funding have yet to be released, the scale and breadth of these allocations suggest meaningful capacity to support more advanced, unmanned platforms as programs move from development into execution. Looking ahead, we believe unmanned autonomous and AI enabled platforms are well positioned to capture a growing share of future defense modernization spending.

We're also seeing a broader shift in how the Department of War engages with domestic drone supply chain with a more commercial and partnership-oriented mindset focused on accelerating readiness and scaling production across trusted suppliers. Against this backdrop, our evolution within unmanned systems positions Lantronix squarely in the value creation layer of the ecosystem.

Since entering this market, we've moved up the stack from initially providing general purpose compute modules to delivering intelligent imaging platforms and now to enabling integrated system level workflows that combine sensing, processing, and secure connectivity.

In many deployments, our AI-Edge compute modules serve as the brains of the drone enabling autonomous operation and real-time decision making independent of a network connection. As a result, Latronics operates at the intersection of payload, compute, and connectivity. Three of the highest value and least easily substituted layers in modern unmanned systems, where we believe value creation and customer relationships compound over time.

Currently focus on Group 1 and Group 2 short-range reconnaissance drones, which aligns well with where a significant portion of current unmanned funding is directed. These programs typically represent multi-year engagement with strong lifetime value, supporting applications ranging from surveillance to advanced payloads.

Today we're working with over 15 OEM's and these customers are increasingly looking to deepen their engagement with us. In response to customer demand, we introduced our drone reference kit at CES last month. Designed to accelerate time to market for defense and commercial UAB developers.

This platform reinforces our strategic shift from a component supplier to a platform partner by reducing integration complexity and development risk in regulated environments. Red Cap with their teal drones continues to expand their work with us beyond hardware into software and next generation platform development. As their production needs increase, we are expanding our support, accordingly, including higher volume bills for the Teal platform and follow on commitments that reinforce Red Cap's confidence in our capabilities.

We're also partnering in the next generation drone platform, strengthening our position as a long-term partner. Additionally, we were selected by FlightWave, a Red Cap company, to incorporate our Open-Q™ System on Module into their new drone, another example of the deepening trust in our technology across the ecosystem.

Importantly, these engagements are not limited to designs or early development. We have demonstrated the operational capability to support high volume production today, and we believe we are well positioned to scale alongside our customers as the United States and allied governments accelerate deployment of unmanned system.

In December, our Edge AI solution was selected by Trillium Engineering to power gimbaled imaging systems deployed across ISR infrastructure inspection and Wi-Fi operations, validating the performance, security, and reliability of our Edge AI architecture for mission critical deployments.

We also recently secured our first design win with flock Safety in the drone as first responder or DFR category. Extending our AI capabilities into public safety applications. While early, this win represents growing interest beyond defense in real time, AI enables situational awareness at the edge.

Lastly, we expanded our engagement into AI enabled threat detection through a new collaboration with Safe Pro Group. Together we are helping to build an integrated edge intelligence ecosystem by combining Safe Pro's object threat detection models with our compute modules to enable real-time on device detection of landmines and other ground hazards without the reliance on cloud connectivity.

By allowing drones and autonomous platforms to identify threats that endanger soldiers, vehicles, and civilians on the ground, this collaboration meaningfully strengthens our role at the center of a growing network of defense and autonomous systems standardizing on AI compute technology.

We are seeing clear and accelerating momentum in our drone business through the first half of fiscal 2026. Drone revenues grow meaningfully from Q1 to Q2, driven by deeper customer engagement and the early benefits of our platform-led approach, positioning us to realize operating leverage as programs scale over time.

As customer programs expand and move further into execution, we are seeing continued growth through the remainder of the fiscal year and into fiscal 2027. Reflecting the strength and the pace of our momentum since entering the drone market approximately a year ago, we are raising our expectation to a range of $8 million to $12 million in drone revenue this fiscal year.

An increase from the previous range of $5 million to $10 million with drones becoming an increasingly meaningful contributor as programs scale. Now turning to critical infrastructure monitoring, an important long-term pillar of our industrial ID strategy, where our intelligent hardware, secure connectivity, and perception software come together to deliver end to end solutions.

Moving to our tier one US mobile network operator. The rollout continues to progress as expected. We recognized revenue over the last two quarters and this deployment remains an important foundation of our recurring revenue strategy. Looking ahead, our focus is on expanding beyond monitoring generators into additional high value applications within the tower, including backup power banks and rectifiers.

Each cell tower includes these systems and the opportunities compatible in size to the generated deployment we support today. This program represents a step forward in building the recurring revenue and scaling into a repeatable multi-year deployment model.

Over the last 12 months, software and services are accounted for approximately 6% of total revenue. Which we view as the early innings. As we replicate this model across additional sites and applications, we see a clear and achievable path to more than doubling that mix over the midterm by layering software, analytics, and AI pipeline orchestration into hardware deployments already in the field.

At CES, we dubbed SmartEdge.ai™ and SmartSwitch.ai™, our new Edge AI gateway and AI powered fiber switch. Together, these solutions create a unified platform for real-time video analytics, intelligent connectivity, and multi-camera orchestration across enterprise and industrial environments. A key advantage of this platform is its ability to upgrade existing infrastructure.

There are millions of deployed non-intelligent cameras and devices already in the field and our solutions enable customers to bring AI capabilities to these environments without requiring hardware replacement. This significantly expands our addressable market and supports scalable brownfield upgrade opportunities across surveillance, smart buildings, and critical infrastructure.

In summary, I'm encouraged by our performance to the first half of fiscal' 26. We're executing with discipline as we scale high growth verticals, expand software enabled recurring revenue, and deliver continued operating leverage from a leaner cost structure. What's most compelling is that our diversified growth vectors, unmanned systems, critical infrastructure monitoring, and enterprise connectivity are increasingly converging around a common Edge AI platform.

This convergence enables efficient scaling, deeper customer relationships, and positions Lantronix to capture long-term secular trail winds across aerospace, defense and intelligent infrastructure. With that, I'll turn the call back to Brent to cover the financial results.

Thank you, Saleel. Let me begin by going through the financial results for our fiscal Second-quarter, including some of the key drivers behind our performance. I'll then provide our outlook for the Third-quarter ending March 31, 2026.

As Saleel noted, in the current quarter, we delivered revenue of $29.8 million, excluding Gridspertise, we experienced year over year growth driven by strength and embedded compute, including our A&D and drone programs, along with solid contributions from our network infrastructure switch products.

We also deliver higher SaaS-based ARR supported by the ongoing ramp of our critical infrastructure monitoring deployment with the Tier one M&O we've discussed. Turning to gross margins in the second-quarter, GAAP gross margin was 43.6% compared to over a three-year high of 44.8% last quarter and was up from 42.6% a year ago. On a non-GAAP basis, gross margin was 44% compared to 45.3% last quarter and 43.2% in the prior year quarter.

As we mentioned previously, the prior quarter's margin partially benefited from certain inventory recoveries and royalty benefits that came in slightly above plan. Overall, our continued underlying margin performance is supported by a higher mix of premium products and the discipline cost management that we've been speaking to. Turning to expenses and profitability GAAP operating expenses in the Second-quarter of fiscal 2026 were $14 million down just under 6% from the prior quarter and also down approximately 9% from $15.4 million in the year ago period as our P&L continues to benefit from the actions we took last year.

GAAP net loss for the second quarter of fiscal 2026 improved to $1.3 million or $0.03 per share, compared to GAAP net loss of $2.4 million or $0.06 per share in the year ago quarter. On a non-GAAP basis, net income improved to $1.6 million or $0.04 per share compared to non-GAAP net income of $1.5 million or $0.04 per share in the prior quarter.

Turning to the balance sheet net inventories were $27.1 million as of December 30, 2025, compared to $26.8 million in the prior quarter and $29.1 million in the year ago quarter. We ended the quarter with cash and cash equivalents of $23 million, an increase of approximately $800 thousand from the prior quarter.

During the second quarter, we also generated positive operating cash flow of nearly $2.2 million. During the quarter we paid down about another $1 million of our outstanding debt, leaving a remaining balance of approximately $9.7 million as of December 31, 2025, which compares to $14.7 million a year ago. Our corresponding net cash position currently is approximately $13.3 million.

Now moving to our outlook for the Third-quarter of fiscal 2026, which ends March 31, 2026. We expect revenue to be in the range of $28.5 million to $32.5 million. Non-GAAP EPS is expected to be in the range of $3 to $0.06 per share. I'll now turn the call back to Saleel for closing remarks.

Thanks, Brent. As we move to the second half of fiscal' 26, I'm energized by the momentum across our business and the clarity we have around our path forward. Our AI strategy is driving real adoption across our growth vectors, and we're increasingly operating from a position of strength.

There are three key takeaways I want to leave you with today. First, drones are scaling faster than we initially expected. We are seeing strong execution. Expanding customer engagement and clear momentum as programs move into broader deployment. Reflecting this progress, we increased our fiscal 2026 drone revenue outlook to $8 million to $12 million a meaningful step up from our prior expectations.

Second, We See drones becoming a material contributor to our business as we look ahead. Based on the trajectory of current programs and customer demand, we expect drone revenue to represent approximately 15% to 20% of the total revenue in fiscal' 27. Reinforcing our confidence in the durability and scale of this opportunity.

Third, our platform-led approach is creating leverage. We're combining Edge AI. Embedded compute and connectivity across drones, critical infrastructure and enterprise markets. While maintaining a disciplined cost structure and expanding recurring revenue. This positions us to scale efficiently as demand accelerates.

We are disciplined, well positioned and entering our next phase of growth with momentum. We believe Lantronix is building a differentiated Edge AI platform with expanding end markets, increasing mix of higher value revenue and a clear runway ahead. With that, we'll now open the call for questions, operator.

(Operator Instructions) Scott Searle, Roth Capital

Hey, good afternoon. Thanks for taking my questions. Nice to see the drone momentum starting to accelerate a little earlier than expected, maybe quick to kick off Saleel to calibrate on IoT systems and solutions, I think it was down sequentially. Can you just provide some commentary in terms of, what happened on that front and kind of how we expect things to transition over the next couple of quarters going forward and then on drones, I'm, I wonder if you could give us an idea about.

You know what the December quarter looked like in terms of contribution, and I want to clarify your comments in terms of fiscal' 27, raising the guidance for fiscal '26, but in fiscal' 27 I thought you said 15% to 20% of the mix, which gets drones over $20 million in absolute dollars in fiscal '27. I want to make sure that that's in the ballpark and then a lot of developments going on within the marketplace and specifically in the last day or so.

I think there was, commentary around the drone dominance program starting to kick into gear with awards starting in March. I'm wondering if you could provide some commentary about your participation in that. I think there are 25 entities involved and it sounds like you're working with 15 plus and just kind of give us an idea of how well you are positioned there and how defensible the opportunity is for you. Thanks.

Go, thanks for the question. Let me start with the drone section first, because you've got a few things that let me unpack all of that for you. So let's do revenue. On the revenue side, as I said, our prior expectation was about $5 million to $10 million for fiscal' 26, which ends in June. We have now moved it up to $8 million to $12 million in fiscal' 26, so it's a meaningful increase.

We're seeing a lot of momentum in the business, so we feel good where we are at. Without getting into the details, Q1 to Q2, we saw a big bump up. So, we're very happy, and that's why we believe we'll continue to increase every quarter into Q3 and Q4 as I look forward.

For fiscal' 27, you're, you, you've done the math right. It should be 15% to 20%, so it could be anywhere from, $20 million to $30 million range, give or take. So that's how, big part of our company's revenue it will become, the other question you had is about, the differentiation, and how we're winning.

Let me get a, spend some time on that's really a very important point and let's spend a few minutes on it. So first our differentiation starts when we operate in the drone stack. We have the intersection of payload integration with our edge compute and secure connectivity, so it all goes hand in hand.

Second is our long-term relationship with Qualcomm, which is a real advantage because we are able to, meet the requirements which is known as swap size, weight, power compared to what's in the market right now so we're winning using that solution making a system on module.

At CES, as we announced a drone platform in anticipation of the drone dominance program, and I'll come back to that in a minute. So, we announced that we started providing a full solution and a kit, so we're providing a system solution as opposed to just a module, and I've said this in the past, we win because.

Embedding cameras into systems is in our DNA. We've done that for a long time, and this is probably one of the more complex ones where they have 6 to 8 cameras on each drone. We know how to integrate that into a solution that the customer can use and go to market. The other thing is the market is up and coming and new and us making it easier for our customers to get to market fast is really a big differentiator now as we're able to go out and work with a lot of customers and.

Over time, I believe this creates a lot of stickiness, all the things that I talked about, and the margins are going to improve. Out of the 25 customers, 25 folks who won the vendors who won the drone dominance, this is the first one, by the way, it's going to be a multi, quarter program, and then it's going to be a total of, I believe 300,000 drones over the lifetime, over the next 18 months, so they only did.

30k in the program which is a start we are working with a sizable amount of them either directly or through some of our partners where we are in the gimbals, so the list was very exciting to see the list I happen to know a lot of the folks on the list.

So, I hope I covered all the drone's questions. I'm going to have, Brent take the IoT systems, a little bit into detail but just want to remind everybody we did have a bit of a shutdown last quarter where some of our IoT system products get sold. With that, Brent, go ahead.

Yeah, Scott, to build on that real quick on the, on some of our, IOT box products, the quarter ending September, so our prior quarter, is traditionally a heavier quarter with some of the Fed customers in the Fed buying season in that summer quarter ending in September.

So, some of that was expected, in terms of, sequential decline. And you know we also saw a pretty meaningful ramp in our tier one, M&O customer from the prior two quarters as we shipped and deployed, a big number of those boxes to them and so here in the December quarter we, we're still shipping, but the program is nearing, it's end point on the rollout. So, I think those two things are kind of contributing to the, to that category being down quarter over quarter.

Great, thanks so much. Very exciting news about the drones. I'll get back in the queue. Thank you.

Thank you, Scott.

(Operator Instructions) Christian Schwab, Craig-Hallum

Yeah, congrats on the acceleration of the drone business. Can you explain or give us a little bit of color on, what the ASE, uptake would be moving from just providing modules to an entire system.

Yeah, so, thank you for that question, Christian. So, as we stated pretty clearly, our ASP is in the 4 to 500 range today and this is mainly in the class group 2 drones that we are in as we go to a full turnkey kind of solution, it'll move up, quite nicely, as we do more integration in the $100 thousands more and if we go and our plan is then also to go after the FPV drones which will have a bit of a lower ASP.

So, it's going beyond 11 kind of price point where we're now having a portfolio that we're going after so it's going to vary but it's a healthy ASP that we're seeing and good margins in the business.

Great. And then if we look, we kind of in essence gave guidance for what we think the drone business, can be in fiscal year' 27, what type of growth rate do you think we should assume for the core business or the non-drone business, in fiscal year' 27 and what would be the potential puts it takes, to that.

Christian, we do, quarterly guidance as we've said in the past, we see, let me the drone business, I think is new and exciting, and you can see double-digit high double-digit growth rates in that, which is great. Also, the December quarter Lantronix grew 17% (YOY) when you remove (Gridspertise).

And drones were a component of it, but the other businesses also at the midpoint that we have put out there, the whole business is again growing, so I see a fiscal '27 to be a good year. The numbers that the analysts have us at are what we're working through and we're not allergic to what the numbers are out there right now.

Okay, and that, that's fair, and then regarding operating expenses given, the increased growth opportunities, would you, is there anything that you're aware of that would materially change, operating expenses, on a go forward basis, or should we just assume, less than revenue, obviously.

Yeah Christian, on the, on the near-term next quarter or to, I think it's safe to assume OPEX kind of in the range of around, 11.8 to maybe 12.3 million a quarter, so kind of in the range of what we're seeing in the last couple quarters. OPEX was slightly lower than that, I believe here in this quarter, but in Q3, Q4, the range I just mentioned is probably a reasonable estimate.

Okay, that's fantastic. Congrats, no other questions. Thank you.

Thank you, Christian.

(Operator Instructions) Jaeson Schmidt, Lake Street.

Hey guys, thanks for taking my questions. Just curious if you could quantify what the government shutdown or that impact was in the December quarter. Obviously, as you noted, it causes, cost some friction, and then relatedly if you're seeing any supply constraints today, obviously with the well-known memory shortage out there, just curious if you're seeing any other dynamics.

What I want to leave you with on the government shutdown, and I think Brent talked a little bit about the IoT system which is our box products which, were a bit slower than we anticipated because of the shutdown, but the team executed so well that, we were able to make up all of it, and I'm really happy with that. So, think about that from that perspective.

The government is starting to normalize, so we hope, I expect and hope that things will improve on that side if you think about it. On the memories, great question on the memory shortage. By the way, Jaeson, everybody's talking about it.

We do see a pricing, and supply pressures going on. We are proactively working with our customers to alleviate this, to ensure that we are supplying them enough product, especially in some of the new businesses like our drone stuff, so we've got a supply that we have prepared for them. They're working with us closely on that.

And we don't see a big issue in the short-term to even the midterm and longer-term I mean we gotta think about all of that, but we'll be we're we're able to work around most of the issues that we are having and we're working with our customers very closely to ensure.There is no supply disruptions.

Okay, that's really helpful. And then just as a follow-up, given the momentum and upward revision to your Drone and revenue guidance coupled with, I mean, it sounds like the software piece of the pie is going to continue to grow going forward, how should we think about the gross margin profile, or are you thinking about sort of the near term or medium term gross margin profile differently given those dynamics?

Yeah Jason, on the margins for that business specifically and to answer your question on the near term, what I think we've said previously the margins are near our kind of our corporate average maybe slightly below those levels, but, longer-term as software services become a bigger part of what we're providing our customers we would expect the margin to slightly increase but In the near term, next quarter or two, we're not forecasting a meaningful increase in what we previously discussed.

Jaeson, let me add another point on the gross margin. You can see compared to the year ago we're up. Last quarter we were up, this quarter we're up, so the trajectory is where we want it to be, and we're working on all of this as you think about it. So, you know that that gives you an understanding that we're building a moat around our business, right? That's how the gross margins.Is improving and we got to keep working it, but I'm pleased to see the upward progress that the team has made.

No, gotcha. Thanks a lot, guys.

(Operator Instructions) Austin Moeller, Canaccord

Hi, good afternoon, nice quarter.

Thanks Austin.

Just my first question. So now the defense budget is passed and the FCC has banned, new Chinese drones. So how should we be thinking about how quickly we might see demand materialize into your backlog either from the 340,000 American drone dominance initiative or on the commercial side (forams)?

Yeah, so, on the drone dominance and the FCC ruling on December 23rd is going to be helpful for all American manufacturers and Austin, we are working with a slew of companies now to get them enabled and into the market faster and you know I can go over the list we've got Red Cap multiple programs, multiple Red Cap companies, Trillium, which is big and it's in the large ecosystem there Sightline, Grimzy we worked with Safe Pro.

And you know you're going to be seeing more announcements from us so we're getting geared up to support this and that's why, we increased our, expectations for next year to 15% to 20% of the company's revenue which is very meaningful. The other little thing in my prepared remarks that you might have got, we got our first win in the drone.

As a first responder category, which is, if you would think about it as a commercial or a public safety area, now that's new and unique and because that was all held by the Chinese in the past. Now that's getting created in the United States and we want to be a part of that also. So great and exciting times ahead of us and we are ready. We are.

Ready.

Okay, and how should we think about potential M&A, that you might be eyeing to expand margins and drive ASPs beyond like the $400 to $500 range for like broader systems or subsystems.

Yeah, we are looking at M&A really in two areas as I think about the company looking at. A subsystem like, should we be now we're working with some companies that do a lot of the drone manufacturing already, so, but can we integrate more into our SOM's? Can we add a software layer around it? SPAR is a perfect example where we partnered with somebody who's putting their IP onto our SOMs.

So, M&A is going to be an important feature I think about the future as we create. More of an ecosystem and a platform play Austin so you know we're talking and talking to a bunch of folks in that the other area we're also looking at M&A is around our critical infrastructure monitoring where we want ARR and software to be a larger portion of the company so we're both of those areas are areas we're going to focus on, and that'll get this company to higher gross margins, higher software revenues, higher stability as I think about it.

That's very interesting, exciting time in the drone industry. Thanks.

Thank you, Austin.

This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.

Thank you for your questions and joining us today. We appreciate your continued interest in Electronics and look forward to keeping you updated as we execute our strategy. We're excited to have you with us on this journey, and we believe we are just. Beginning to take flight. With that, thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.