Q1 2026 Lantronix Inc Earnings Call
Speaker #3: Good day . And welcome to the Lantronix Inc 2026 first quarter results conference call . All participants will be in a listen only mode should you need assistance , please signal a conference specialist by pressing the star key , followed by zero .
Speaker #3: After today's presentation , there will be an opportunity to ask questions . To ask a question , you may press star , then one on the touch tone phone .
Speaker #3: 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 Brent Stringham CFO .
Speaker #3: Please go ahead .
Speaker #4: Good afternoon and thank you for joining our fiscal first quarter earnings call . Joining me today is our president and Chief Executive Officer .
Speaker #4: 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 .
Speaker #4: 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 .
Speaker #4: 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-q .
Speaker #4: 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 .
Speaker #4: For additional details that will supplement management's commentary . Furthermore , during the call , the company 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 .
Speaker #4: With that , I will now turn the call over to Salil .
Speaker #5: Thanks , Brent . And thank you , everyone , for joining today's call . We entered fiscal 2026 from a position of strength .
Speaker #5: And our first quarter results reflect that momentum . We delivered revenue of $29.8 million and non-GAAP EPs of $0.04 , both at the high end of our guidance range .
Speaker #5: Revenues grew 3% sequentially and 3% year over year , excluding parties , underscoring the progress we have made in repositioning Lantronix for profitable growth .
Speaker #5: Importantly , non-GAAP EPs improved from $0.01 in Q4 to $0.04 in Q1 , driven by gross margin expansion and the operating leverage created by last year's cost optimization initiatives .
Speaker #5: Turning to the overall market environment . Industry dynamics remain favorable for Lantronix . We continue to see record defense funding and supportive regulatory momentum driving long term opportunities across our key verticals .
Speaker #5: At the same time , demand for networking and connectivity solutions remains strong , creating continued tailwinds for our network infrastructure , business and reinforcing our role as a trusted partner in government and smart city applications .
Speaker #5: Starting with unmanned aerial systems , commonly known as drones , we are benefiting from broad based demand across multiple customers . The AUSA event in Washington , DC was highly productive as we met with several strong existing and new partners .
Speaker #5: Further strengthening our position in the market . We made good progress in fiscal Q1 as we expanded our presence and scaled production with Redcat , teal drones , where we've already secured meaningful follow on orders , a clear sign of customer confidence in our capabilities .
Speaker #5: We are also partnering with Redcat on Next Generation platforms designed to further enhance the drones performance and mission readiness . At the end of Q1 , our OEM engagements grew from ten last quarter to 17 today , highlighting accelerating customer adoption and market momentum .
Speaker #5: This activity , supported by few recent developments , we introduced our edge AI drone solution , which integrates payloads from Gramsci and Teledyne Fleur .
Speaker #5: Working with these partners , we completed a reference design that validates the solutions performance and simplifies integration for OEM customers . The solution enables longer flight times , real time edge data processing , and up to 80% faster integration for developers .
Speaker #5: Just as important , it meets stringent NDAA and TAA requirements for defense and government programs . More recently , sightline Intelligence selected our edge AI technology for integration into its new high performance video processing solution for defense and commercial drone applications .
Speaker #5: Further expanding our reach within the UAS ecosystem . Together , these advancements underscore our ability to deliver secure AI enabled flight systems at scale while still early in the fiscal year .
Speaker #5: We are encouraged by our momentum in our drone business . This is a growing contributor to Lantronix and positions us for potential upside to our initial expectations .
Speaker #5: As these programs scale to the remainder of fiscal 2026 . Building on this momentum , we recently introduced edge fabric AI , our new visual orchestration platform for edge AI deployment , which debuted at Qualcomm's imagined conference in September .
Speaker #5: Purpose built for our Openc system and module , or swarm solutions . Edge fabric AI enables customers to design and deploy AI applications in minutes instead of months without needing a team of AI experts .
Speaker #5: Whether configuring smart cameras , industrial IoT monitors or other edge AI enabled devices . Customers can now visually design their AI workflows and deploy them instantly , all without writing a single line of code .
Speaker #5: By simplifying development and automating deployment , edge fabric strengthens customer engagement , accelerates time to market , and creates a foundation for recurring software and services revenue over time .
Speaker #5: In asset monitoring , a key long term component of our industrial IoT strategy , we partner with Vodafone IoT to launch compressed AI by Lantronix Inc , a subscription based SaaS platform targeting the $27 billion global industrial air Compressor market .
Speaker #5: While still in the early stages , we view this as a significant long term opportunity , one that expands our reach , enhances our edge to cloud capabilities , and creates incremental , high margin , recurring revenue potential over time .
Speaker #5: Together with our progress in drones and edge fabric , AI , compressed AI reinforces our execution of the long term strategy to build scalable platforms that expand recurring revenue and strengthen our diversified model .
Speaker #5: Our strategy is clear scale , high growth verticals , expand software enabled recurring revenue and drive operating leverage from a leaner cost structure .
Speaker #5: This quarter marked another important step forward with increased engagement with aerospace and defense customers. The launch of edge AI and continued expansion in targeted platforms, at the same time, our core network infrastructure business delivered solid growth and margins in focus areas, demonstrating consistent execution and strengthening our diversified model.
Speaker #5: I'll now pass it on to Brent to cover the financial results . Brent .
Speaker #4: Thanks , Salil . With the business off to a strong start in fiscal 2026 , I'll walk through our first quarter financial results .
Speaker #4: Discuss the key drivers behind our performance , and then provide our outlook for the second quarter . As Salil mentioned in the first quarter , we delivered revenue of 29.8 million , an increase of 3% from the prior quarter .
Speaker #4: And approximately 3% higher than the same period last year . When excluding the impact of grid's purchase . Sequential growth was primarily driven by strength in some of our network infrastructure products , continuing to highlight our diversified revenue base .
Speaker #4: Turning to margins in the first quarter, GAAP gross margin was 44.8%, up from 40% last quarter and 42.1% a year ago.
Speaker #4: On a non-GAAP basis , gross margin was 45.3% , an improvement from 40.6% in Q4 and 42.6% in the prior year quarter . The increase reflects a more favorable product mix , lower inventory charges and benefits from certain royalties .
Speaker #4: We're encouraged by the continued strength in our underlying margin performance , supported by a higher mix of premium products and disciplined cost management .
Speaker #4: Looking ahead , we expect gross margin to remain healthy and generally consistent with first half fiscal 2025 levels . We continue to proactively manage our global footprint in a dynamic trade environment , and we are closely monitoring evolving tariff and trade developments .
Speaker #4: We're also working closely with customers to help them adapt to changing cross-border requirements . Turning to expenses and profitability GAAP operating expenses in the first quarter of fiscal 2026 were 14.9 million , up less than 2% from the prior quarter and down 10% from 16.6 million in the year ago period .
Speaker #4: GAAP net loss for the first quarter of fiscal 2026 was 1.4 million , or $0.04 per share , compared to GAAP net loss of 2.5 million , or $0.07 per share , in the year ago quarter .
Speaker #4: On a non-GAAP basis , we reported net income of $1.5 million , or $0.04 per share , compared to non-GAAP net income of 400,000 , or $0.01 per share , in the prior quarter .
Speaker #4: Turning to the balance sheet , net inventories were 26.7 million as of September 30th , 2025 , compared to 26.4 million in the prior quarter and 29.5 million in the year ago quarter .
Speaker #4: We ended the quarter with cash and cash equivalents of 22.2 million , an increase of over 2 million from the prior quarter . During the first quarter , we also generated positive operating cash flow of approximately 3.6 million .
Speaker #4: As we noted on our last call in August , we refinanced our term debt into an asset backed line of credit with the same lender .
Speaker #4: During the quarter , we paid down another 1 million of our outstanding debt , leaving a remaining balance of approximately 10.7 million . As of September 30th , 2025 , and a corresponding net cash position of 11.5 million .
Speaker #4: Now , turning to our outlook for the second quarter of fiscal 2026 , which ends December 31st , 2025 , we expect revenue to be in the range of 28 million to 32 million .
Speaker #4: non-GAAP EPs is expected to be in the range of 2 to $0.04 per share . With that , I'll turn the call back to Salil for closing remarks .
Speaker #5: Thanks , Brent . To close fiscal 2026 is off to a strong start , and we remain confident in the trajectory ahead at the midpoint , our Q2 guidance implies sequential revenue growth and nearly 20% year over year growth .
Speaker #5: Excluding respects , together with another quarter of solid profitability , this outlook reflects the operating leverage and cost discipline we established last year , while enabling continued investment in our highest growth opportunities .
Speaker #5: We are encouraged by the sustained momentum across our drone and asset monitoring platforms driven by new customer programs and growing adoption of our integrated AI solutions .
Speaker #5: At the same time , our core network infrastructure business is performing well with steady demand in out-of-band management and strong contribution from switches and device service supported by healthy enterprise and industrial connectivity demand .
Speaker #5: As we approach the calendar year end with robust industry tailwinds , a strong balance sheet and disciplined execution , we believe we are well positioned to deliver growth and profitability in fiscal 2026 and beyond .
Speaker #5: With that, we'll now open the call for questions. Thank you.
Speaker #3: We will now begin the question and answer session . To ask a question , you may press star then one on your touch tone phone .
Speaker #3: If you are using a speakerphone , please pick up your handset before pressing the keys . If at any time your question has been addressed and you would like to withdraw your question , please press star then two .
Speaker #3: At this time , we will pause momentarily to assemble our roster . The first question today comes from Ryan Cook with Needham and Co .
Speaker #3: Please go ahead .
Speaker #6: Great . Thanks . A nice quarter guys . With regards to the drone opportunities . Salil can you maybe outline like where we are in this kind of adoption period .
Speaker #6: You talk about some wins these when you count a win you count that as a as a design win . And what gives you confidence that you know it's yours .
Speaker #6: And what's the competitive landscape like for you there . Thank you .
Speaker #5: Ryan . Thank you for your question . As I spoke in my prepared remarks , we are now working with 17 OEMs . Few of them have already gone into design in design win , and some of them into shipping .
Speaker #5: So we're seeing accelerating momentum in the drone business . And very proud of the progress that we've made . Our outlook definitely has improved over the last 90 days .
Speaker #5: And while it's still early, we expect demand to accelerate throughout the fiscal year. You know, presenting potential upside to what my current expectations are.
Speaker #5: And longer term , as I said , we expect this opportunity could be 10 to 15% of the company's revenue . So good progress in all areas for the drone area .
Speaker #5: And feeling good as we sit here today.
Speaker #6: Got it . Great . And I know you had a , you know , a generator win with a with a major service provider .
Speaker #6: Any update there as far as how that business is progressing ?
Speaker #5: Yeah . Thanks for that question . So as we had mentioned earlier , we had the generator win with a large Mo , if you remember , that is progressing well and we are now moving beyond the diesel generator to other equipment that needs to get tracked .
Speaker #5: So it's a growing business for us . So asset tracking . Additionally , we announced compressed AI which is focused more on the compressor space .
Speaker #5: But based on the same theme , which builds on our successes successes at the tier one Mo and expands our recurring revenue model and supports our critical infrastructure strategy .
Speaker #5: So it's going as per plan and the deployment for the AU is also continuing nicely .
Speaker #6: Great . Maybe just a follow up there . You talked about a new product here with this compressed AI . What's the what's the sales and fulfillment model there .
Speaker #6: You have with with Vodafone IoT .
Speaker #5: Yeah . Compressed AI is an AI powered SaaS solution designed really to generate long term high margin recurring revenue while addressing urgent market needs with compressors who have really no tracking in there .
Speaker #5: So we Vodafone has partnered with us . They will provide the connectivity for it . Ryan , while we provide both the hardware and the SaaS deployment and the revenue for that longer term .
Speaker #5: So it's early days , but we expect this in the next 24 months to start providing revenue into the model . As we think about it .
Speaker #5: But more and more are . So it builds on what we did with the tier one . Mo . And now builds on that and more IRR revenue as I think about the future .
Speaker #6: Got it . Great . I'll get back in the queue . Thank you .
Speaker #5: Thank you Ryan .
Speaker #3: The next question comes from Scott Searle with Roth Capital . Please go ahead .
Speaker #4: Hey good afternoon . Thanks for taking .
Speaker #7: The questions . And nice job on the quarter . Hey , so maybe just to dive right in , you had a couple of comments about out-of-band management , but I'm wondering if you could provide a little bit of color there in terms of strength , weaknesses , kind of how you're feeling about growth on that front .
Speaker #7: And then to go back to drones for a second with the government shutdown ongoing , is there any impact on that or because you're basically dealing with various primes and vendors that the design activity continues , but there just might be some delays in terms of how shipping and revenue ramps up .
Speaker #7: And if that changes your expected timeline to get to 10 to 15% of sales . And then I had a follow up .
Speaker #5: Thank you for that question , Scott . Let me start with the second question first , because it's current , most of the defense drone and UAS are funded through multi-year contracts .
Speaker #5: So we are seeing minimal to no disruptions to our existing work . So as I said today , we are full on with the customers .
Speaker #5: We're shipping to them . So no , I don't anticipate any issues or concerns with that . Does that give you a perspective , clear idea of what I'm thinking about ?
Speaker #5: The drones perspective on this ? Yeah . Going to your yeah , going on to the out of band one . We are seeing growth in out-of-band from last from the June quarter to the September quarter .
Speaker #5: And we are anticipating as we go into the December quarter to see again , we don't call it out specifically . It's part of our , you know , IoT business .
Speaker #5: But we are definitely seeing a growth in that space as more deployments are happening and we'll be able to do some announcements probably later this year , early next year on some big , big win .
Speaker #5: With that , we've done in that space . So feel confident around out-of-band as we go through the fiscal year . More importantly , we are going to be introducing a brand new out-of-band product late , late this year to go after some new markets .
Speaker #5: But stay tuned for that . We'll get into it more in our next call with you , Scott . .
Speaker #7: Gotcha. And then on the AR front, you've got a couple of different ways that you're attacking the market with the cell site monitoring, with Compress attacking the compressor market.
Speaker #7: Two things I guess I'm wondering: How big of an opportunity can that be as you look out to 2026, in terms of the recurring revenue stream over the next 24 months?
Speaker #7: And then as I think about . Other adjacent opportunities , particularly once you start to bring in your video , video performance and video , AI capabilities that you're using in the drone market , are there other adjacencies that you could see expanding into over the next couple of quarters ?
Speaker #5: So again , I take your second question . First , because we are very good with cameras and we've been good with cameras , and that's why we are winning in drones .
Speaker #5: We supply what you call we are in the payload . And if you think about it , that's the most important part of the drone .
Speaker #5: So what's the next adjacency which we are definitely looking at won't be going into details this time around . Is robotics . You know , humanoid robots are going to happen .
Speaker #5: What do they need . They need a good camera . Second one is security . And surveillance . An area that we are doing well in with some customers .
Speaker #5: So again , good adjacent opportunities , same basic IP and technology and a solution that we provide to going to your first question about Ars , as I said , our first foray into Ars happened with the no opportunity , as we said with the sell side .
Speaker #5: And , you know , it's it's a small portion of the revenue , a software and services is 5 to 7% . And Brent can correct me if I'm wrong .
Speaker #5: I expect that to keep on chugging along to 7 to 9% and 10% in the future . As you aggregate all of that as , as a as a bucket that we call out Scott .
Speaker #7: Great, thanks so much. I'll get back in the queue.
Speaker #3: The next question comes from Christian Schwab with Craig-hallum . Please go ahead .
Speaker #8: Yeah . Thanks for my question and congrats on a good quarter . I guess it wasn't clear to me , you know , with 17 OEM , you know , potential , the drone side of the business , you know , when would you anticipate being that being ten to to to 15% of revenue .
Speaker #8: Is that something that could happen as soon as , you know , you know , fiscal year 2027 .
Speaker #5: Yeah . As I sit here today , it's definitely on my radar for fiscal year 2027 . Possibility of 10 to 15% of revenue .
Speaker #8: Okay . And then , you know , last quarter you highlighted , you know , a tier one telecom service provider . I think it was , you know , in the backup power systems .
Speaker #8: But you know , it was an 8 to $10 million win . Did you recognize any revenue in the quarter . And what is your outlook on that for the next few quarters ?
Speaker #5: Yeah , we recognize revenue in the September quarter and we we intend to recognize revenue in the December quarter . So it's it's going well .
Speaker #5: And as planned . No surprises here . And then .
Speaker #8: Go ahead. I'm sorry.
Speaker #5: No , no . Last quarter it's it's progressing nicely . It's all I was trying to say Christian .
Speaker #8: Okay . And then a follow up on that . You know , when would you anticipate follow on orders from that customer .
Speaker #5: So we get quarterly orders from them . So maybe the way to think about it is it's a run rate business . Now , we talked about the 50,000 piece opportunity and we have purchase orders from them for that whole opportunity in place .
Speaker #5: We haven't shipped it all . We'll continue to ship it as the year progresses . Beyond that , we are expecting probably sometime in calendar 26 to get follow on orders for additional , not necessarily for the diesel generator that we talked about , but additional equipment that they want to have tracked .
Speaker #8: Great . Thank you . No other questions . Thank you .
Speaker #5: Thank you Christian .
Speaker #3: The next question comes from Scott Searle with Ross Capital . Please go ahead .
Speaker #7: Hey , just two quick follow ups on the financial front . Just first , I wanted to clarify the gross margin outlook . I think you said in line with fiscal first half of 25 .
Speaker #7: So in the low 40s , 4243 , to think about that , the next couple of quarters and then just in terms of an early shot at fiscal 26 , in terms of how you're thinking about growth , that this is , in fact a growth year , and we should continue to expect a sequential progression of the revenue stream over the next couple of quarters .
Speaker #7: Thanks .
Speaker #4: Yeah , Scott , thanks . On the on the gross margin . You're right . You know , we you know last quarter we talked about a returning from a you know a down quarter low .
Speaker #4: You know we're right around 40% I think last quarter and talked about returning to you know , 4043 44% , which is what we saw a year ago .
Speaker #4: And so we we think modeling at that , at that level going forward in the near term is , is appropriate .
Speaker #5: Yeah . Scott , to add more color , the September quarter , we did a non-GAAP gross margin of 45.3 . It's the highest gross margin that the company has had in the last few years that I have been here .
Speaker #5: And beyond that . So it's turned nicely as we have focused on cost controls , working with our CMS . All good things .
Speaker #5: What was your second question , Scott ?
Speaker #7: Oh , the gross rate for fiscal 26 . You know how you're expecting the sequential progression just , you know , conceptually over the next couple of quarters .
Speaker #7: And and if you're in fact still expecting , growth overall for the year .
Speaker #5: Yeah . Again , we do quarterly guidance . So put it in perspective . Why or why without species we are growing close to 20% .
Speaker #5: Scott . That's that's that's darn good . So I expect sitting here today you know we expect to staircase up again . We don't give annual guidance .
Speaker #5: But nothing has changed in my mind. We feel good today. Sitting here today.
Speaker #7: Great . Thanks so much .
Speaker #5: Thank you Scott .
Speaker #3: The next question comes from Jason Schmidt with Lake Street . Please go ahead .
Speaker #9: Hey guys . Thanks for taking my questions . Just looking at that wireless operator opportunity or just that market in general . Can you talk about any sort of discussions or engagements you're having beyond that customer ?
Speaker #9: You've already won and how are you looking at that opportunity longer term ?
Speaker #5: Yeah , Jason , thank you for that question . So with that Mo , the opportunity , as we've said in the past , could be three x the size so we could grow that business nicely .
Speaker #5: Just with them with the introduction of compressed AI , we've opened a new market . Right . And we would at the compressor show a few weeks back .
Speaker #5: And we feel good about that . It's early days , but then you got another man who's working with us . We haven't named the first one , but this one we we named and they were very happy to do a joint announcement with us , which is an IoT .
Speaker #5: So this is a part of one of the key verticals , asset tracking , asset management . Just preventive maintenance . All of that is what what it is .
Speaker #5: So moving forward this is a focus area in addition to all the drones that we talked about . And we should see growth moving forward with this okay .
Speaker #9: Perfect . And then just a follow up from me looking at that drone opportunity . To your point , kind of 10 to 15% potential in fiscal 27 as drones become a bigger portion of the pie , does that significantly alter what gross margin ultimately will settle out to be ?
Speaker #5: I'll let Brent opine on it a little bit after I'm done . The good news with the drone opportunity right now , it's it's it's a decent , gross margin for us right now .
Speaker #5: So , you know , we are Uber focused on gross margins . So I expect to continue where we at right now . But Brent can add to it .
Speaker #4: I think that's that's generally accurate . Jason I mean with with the with the kind of the wide breadth of products we have , you know , we're we're still kind of forecasting that that margin profile into the , into the , you know , near and middle term that I , that I mentioned previously .
Speaker #4: So .
Speaker #9: Okay, that's helpful. Thanks a lot, guys.
Speaker #3: This concludes our question and answer session . I would like to turn the conference back over for any closing remarks .
Speaker #5: Thank you very much for everyone for joining the call . We will be at the Craig-hallum and the Roth conferences in New York in a couple of weeks .
Speaker #5: Thank you so much .