Q4 2026 Lantronix Inc Earnings Call

August 26, 2026

Speaker #1: Good day, and welcome to the Lantronix 2026 fourth-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.

Operator: Good day, and welcome to the Lantronix 2026 Q4 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, and then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Brent Stringham, Chief Financial Officer. Please go ahead.

Speaker #1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1, on a touch-tone phone.

Speaker #1: To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Brent Stringham, Chief Financial Officer.

Speaker #1: Please go ahead.

Speaker #2: Good afternoon, everyone, and thank you for joining our fiscal fourth quarter earnings call. Joining me today is our President and Chief Executive Officer, Saleel Awsare.

Brent Stringham: Good afternoon, everyone, and thank you for joining our fiscal Q4 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-Qs. 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.

Speaker #2: 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 #2: 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, as well as other SEC filings such as our 10-K and 10-Qs.

Speaker #2: 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.

Speaker #2: 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.

Brent Stringham: 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.

Speaker #2: With that, I will now turn the call over to Saleel.

Speaker #3: Thanks, Brent. And thank you, everyone, for joining today's call. The fourth quarter marked a strong finish to fiscal 2026. Over the course of the year, we transformed our operating model, strengthened our balance sheet, and built the foundation for profitable growth.

Saleel Awsare: Thanks, Brent, and thank you, everyone, for joining today's call. The Q4 marked a strong finish to fiscal 2026. Over the course of the year, we transformed our operating model, strengthened our balance sheet, and built the foundation for profitable growth. We are now seeing the tangible results of that work. Our continued strong execution drove 8% year-over-year revenue growth to $31.2 million, and a 300% increase in non-GAAP EPS to $0.04. Both metrics were within our guidance range. Importantly, our embedded IoT solutions, which includes our drone business, grew 34% year over year. Gross margins remained strong at above 44%, reflecting our team's disciplined execution as we accelerate momentum across the business. Turning to the broader operating environment, starting with unmanned systems. Fiscal 2026 was the year our drone opportunity progressed from early validation to a meaningful growth engine for Lantronix.

Speaker #3: We are now seeing the tangible results of that work. Our continued strong execution drove 8% year-over-year revenue growth to $31.2 million, and a 300% increase in non-GAAP EPS to $0.04.

Speaker #3: Both metrics were within our guidance range. Importantly, our embedded IoT solutions, which include our drone business, grew 34% year over year. Gross margins remained strong at above 44%, reflecting our team's disciplined execution as we accelerate momentum across the business.

Speaker #3: Returning to the broader operating environment, starting with unmanned systems. Fiscal 2026 was the year our drone opportunity progressed from early validation to a meaningful growth engine for Lantronix.

Speaker #3: We set the foundation in Q4 last year when we secured our first drone win with Red Cat, powering Teal Drones' Black Widow platform for the U.S.

Saleel Awsare: We set the foundation in Q4 last year when we secured our first drone win with Red Cat powering Teal Drones' Black Widow platform for the US Army's Short Range Reconnaissance program. As a Blue UAS-approved platform, this was a rigorous qualification process, and we believe we won the program because of our deep camera expertise and years of experience in camera tuning, sensor fusion, and the complex software integration required for military-grade imaging. Our status as a North American supplier was also a key factor. With NDAA and TAA compliance now table stakes for defense programs, a trusted domestic supply chain mattered as much as our deep technical capabilities. That win came against a backdrop of record defense funding with the U.S. Department of Defense earmarking over $13 billion for autonomous systems in 2026 alone, alongside clear and growing requirements for secure US-made technology.

Speaker #3: Army's Short-Range Reconnaissance program. As a Blue UAS-approved platform, this was a rigorous qualification process, and we believe we won the program because of our deep camera expertise and years of experience in camera tuning, sensor fusion, and the complex software integration required for military-grade imaging.

Speaker #3: Our status as a North American supplier was also a key factor. With NDAA and TAA compliance now table stakes for defense programs, a trusted domestic supply chain mattered as much as our deep technical capabilities.

Speaker #3: That win came against a backdrop of record defense funding, with the U.S. Department of War earmarking over $13 billion for autonomous systems in 2026 alone.

Speaker #3: Alongside a clear and growing requirement for secure, U.S.-made technology. From there, we built on the early momentum, adding several customers, including Sightline, Trillium Engineering, and others.

Saleel Awsare: From there, we built on the early momentum, adding several customers, including Sightline, Trillium Engineering, and others, to our drone roster. Over the course of the fiscal year, we scaled our broader unmanned systems engagements from roughly 10 in Q1 to over 30 today. That growth accelerated following a major regulatory shift in December 2025, when the FCC restricted China-based DJI, historically the dominant drone supplier, from introducing new products into the US market. The move created a significant tailwind for domestic trusted supply platforms like ours and was soon followed by meaningful US government funding to accelerate the deployment of domestic drone technologies. And just a couple of weeks ago, that regulatory momentum was further reinforced by the action from Washington. The President signed a Section 232 proclamation imposing new tariffs on foreign-made drones and components aimed at reducing reliance on foreign suppliers and building out domestic manufacturing capacity.

Speaker #3: To our drone roster. Over the course of the fiscal year, we scaled our broader unmanned systems engagements from roughly 10 in Q1 to over 30 today.

Speaker #3: That growth accelerated following a major regulatory shift in December 2025, when the FCC restricted China-based DJI, historically the dominant drone supplier, from introducing new products into the U.S.

Speaker #3: The move created a significant tailwind for domestic trusted supplier platforms like ours, and was soon followed by meaningful U.S. government funding to accelerate the deployment of domestic drone technologies.

Speaker #3: And just a couple of weeks ago, that regulatory momentum was further reinforced by action from Washington. The President signed a Section 232 proclamation imposing new tariffs on foreign-made drones and components, aimed at reducing reliance on foreign suppliers and building out domestic manufacturing capacity.

Speaker #3: While the FCC's action in December focused on restricting new foreign-made drones and components from entering the market, this latest action is broader, directly targeting the economics of importing drones and related components across the existing market.

Saleel Awsare: While the FCC's action in December focused on restricting new foreign-made drones and components from entering the market, this latest action is broader, directly targeting the economics of importing drones and related components across the existing market. This is another clear tailwind for domestic NDAA-compliant suppliers like Lantronix, and we expect it to accelerate the shift towards domestically manufactured alternatives. Just as important, we are seeing the industry focus shift from simply building more drones to making drones increasingly autonomous. At the scale governments and commercial operators envision, there simply won't be enough trained pilots to operate every drone, and training new operators takes time. This makes autonomy essential, and autonomy requires powerful AI compute at the edge, what we call physical AI, and that's exactly where Lantronix fits.

Speaker #3: This is another clear tailwind for domestic NDAA-compliant suppliers like Lantronix, and we expect it to accelerate the shift towards domestically manufactured alternatives. Just as important, we are seeing the industry focus shift from simply building more drones to making drones increasingly autonomous. At the scale governments and commercial operators envision, there simply won't be enough trained pilots to operate every drone, and training new operators takes time.

Speaker #3: This makes autonomy essential, and autonomy requires a powerful AI computer at the edge—what we call physical AI—and that's exactly where Lantronix fits. Our edge compute platform enables the onboard intelligence that allows drones to perceive, navigate, and execute missions autonomously, even in GPS-denied environments, positioning us at the center of this long-term transition.

Saleel Awsare: Our edge compute platform enables the onboard intelligence that allows drones to perceive, navigate, and execute missions autonomously in GPS-denied environments, positioning us at the center of this long-term transition. Against this backdrop, we delivered USD 12.6 million in unmanned systems revenue in fiscal 2026, above the midpoint of our most recent guidance range. Importantly, this momentum extends beyond defense. We are also seeing growing adoption across commercial, industrial, agricultural, drone as a first responder, and counter-UAS applications, reinforcing the breadth of our unmanned systems opportunity. Our international expansion is also progressing well, including two recent partnerships we formed in the unmanned systems market. The first is with DoD Solution, an Estonian-Ukrainian developer of onboard autonomy technology for drones and other unmanned systems. By combining Lantronix's edge compute solutions and engineering expertise with DoD Solution's AURA autonomy platform, we are supporting a range of demanding applications.

Speaker #3: Against this backdrop, we delivered $12.6 million in unmanned systems revenue in fiscal 2026, above the midpoint of our most recent guidance range. Importantly, this momentum extends beyond defense.

Speaker #3: We are also seeing growing adoption across commercial, industrial, agricultural, drone-as-a-first-responder, and counter-UAS applications, reinforcing the breadth of our unmanned systems opportunity.

Speaker #3: Our international expansion is also progressing well, including two recent partnerships we formed in the unmanned systems market. The first is with DoD Solution, an Estonian-Ukrainian developer of onboard autonomy technology for drones and other unmanned systems.

Speaker #3: By combining Lantronix's edge compute solutions and engineering expertise with DoD Solutions' AURA autonomy platform, we are supporting a range of demanding applications. This partnership also strengthens our presence in Europe and Ukraine, where demand for our solutions continues to grow.

Saleel Awsare: This partnership also strengthens our presence in Europe and Ukraine, where demand for our solutions continue to grow. Our second partnership is with AVT Australia, a CACI company that develops gimbaled camera payloads for drone manufacturers. AVT has designed its payload around our System on Modules platform, which is purpose-built for high-performance AI and robotics applications. Together, these partnerships demonstrate Lantronix's growing presence across the global unmanned systems ecosystem. Additionally, we recently announced a collaboration with Swarmer, a US-based drone autonomy software company. Together, we are developing a production-ready compute platform that combines Swarmer's combat-proven software with roughly four times the onboard processing power focused on Group 1 unmanned aerial systems. This collaboration highlights the strength of our hardware, software integration, and engineering services while creating a path to long-term production revenue as Swarmer scales across US and allied defense programs.

Speaker #3: Our second partnership is with AVT Australia, a CACI company that develops gimbaled camera payloads for drone manufacturers. AVT has designed its payload around our system-on-module platform, which is purpose-built for high-performance AI and robotics applications.

Speaker #3: Together, these partnerships demonstrate Lantronix's growing presence across the global unmanned systems ecosystem. Additionally, we recently announced a collaboration with Swarmer, a U.S.-based drone autonomy software company. Together, we are developing a production-ready compute platform that combines Swarmer's combat-proven software with roughly four times the onboard processing power, focused on Group 1 unmanned aerial systems.

Speaker #3: This collaboration highlights the strength of our hardware, software integration, and engineering services, while creating a path to long-term production revenue as Swarmer scales across the U.S.

Speaker #3: and allied defense programs. With that, let me turn to our IoT Systems Solutions business. After navigating several quarters of federal government shutdowns, which created extended procurement cycles, we are beginning to see conditions improve.

Saleel Awsare: With that, let me turn to our IoT system solution business. After navigating several quarters of federal government shutdowns, which created extended procurement cycles, we are beginning to see conditions improve. Q4 revenue grew 16% sequentially, driven by a recovery in our out-of-band management portfolio, strength in network switches, and early signs of stabilization in our federal business. Within out-of-band management, we are seeing growing traction in the data center space as edge compute and AI infrastructure deployments accelerate the need for remote monitoring and control of critical IT and data center equipment. One proof point of this is SambaNova Systems, where our out-of-band solution is deployed as a part of their DataScale platform, a purpose-built AI infrastructure rack for large-scale inference and training workloads. We provide dedicated remote access to the critical networking and compute infrastructure within that platform.

Speaker #3: Q4 revenue grew 16% sequentially, driven by a recovery in our out-of-band management portfolio, strengthened network switches, and early signs of stabilization in our federal business.

Speaker #3: Within out-of-band management, we are seeing growing traction in the data center space, as edge compute and AI infrastructure deployments accelerate the need for remote monitoring and control of critical IT and data center equipment.

Speaker #3: One proof point of this is SambaNova Systems, where our out-of-band solution is deployed as a part of their DataScale platform—a purpose-built AI infrastructure rack for large-scale inference and training workloads.

Speaker #3: We provide dedicated remote access to the critical networking and compute infrastructure within that platform. Moving to our critical infrastructure monitoring vertical, just over a month ago, we took another step forward in our platform strategy by acquiring Vecima Networks’ Industrial IoT business, including its Nero Global Tracking platform, for $11.7 million, which closed this month.

Saleel Awsare: Moving to our critical infrastructure monitoring vertical, just over a month ago, we took another step forward in our platform strategy by acquiring Vecima Networks' industrial IoT business, including its Nero global tracking platform for $11.7 million, which closed this month. The tuck-in acquisition adds approximately $5 million in annual revenue, with the majority coming from ARR and gross margin in the mid to high 60s range. Based on the purchase price relative to the asset's financial profile, we view this as a highly favorable transaction and one that is immediately accretive to earnings. Just as important, it advances a strategy we've been executing deliberately over the past several quarters, layering more software onto our hardware base to expand recurring revenue. That strategy is increasingly visible in our revenue mix.

Speaker #3: The tuck-in acquisition adds approximately $5 million in annual revenue, with the majority coming from ARR and gross margin in the mid- to high-60s range.

Speaker #3: Based on the purchase price relative to the asset's financial profile, we view this as a highly favorable transaction and one that is immediately accretive to earnings.

Speaker #3: Just as important, it advances a strategy we've been executing deliberately over the past several quarters, layering more software onto our hardware base to expand recurring revenue.

Speaker #3: That strategy is increasingly visible in our revenue mix. Our software and services mix has steadily increased throughout the year, moving from 5 to 6% of revenue, and then to 7 to 8%.

Saleel Awsare: Our software and services mix has steadily increased throughout the year, moving from 5% to 6% of revenue and then to 7% to 8%. With this acquisition, on a pro forma basis, our software and services revenue mix increases above 10% of total company revenue. This represents a meaningful step towards a more predictable, higher-margin business model. Beyond the immediate financial benefits, we see meaningful cross-sell potential. Nero brings an installed base of roughly 125,000 device tags across fleet, municipal, restoration, and industrial asset tracking markets, creating a natural opportunity to deploy our cellular gateways, modems, edge compute products, and connectivity solutions. Together, Nero's software and our hardware provide customers with a more vertically integrated end-to-end asset monitoring solution. In summary, I'm encouraged by our performance in fiscal 2026 and the significant progress we achieved. Our focused execution, disciplined operating approach, and strengthened organization are providing tangible results.

Speaker #3: With this acquisition, on a pro forma basis, our software and services revenue mix increases to about 10% of total company revenue. This represents a meaningful step toward a more predictable, higher-margin business model.

Speaker #3: Beyond the immediate financial benefits, we see meaningful cross-sell potential. Nero brings an installed base of roughly 125,000 device tags across fleet, municipal, restoration, and industrial asset tracking markets, creating a natural opportunity to deploy our cellular gateways, modems, edge compute products, and connectivity solutions.

Speaker #3: Together, Nero's software and our hardware provide customers with a more vertically integrated, end-to-end asset monitoring solution. In summary, I'm encouraged by our performance in fiscal 2026 and the significant progress we achieved.

Speaker #3: Our focused execution, disciplined operating approach, and strengthened organization are providing tangible results. We are meaningfully scaling our presence in high-growth verticals, increasing the contribution of software-enabled recurring revenue, and continuing to realize operating leverage from a more efficient cost structure.

Saleel Awsare: We are meaningfully scaling our presence in high-growth verticals, increasing the contribution of software-enabled recurring revenue, and continuing to realize operating leverage from a more efficient cost structure. As we enter fiscal 2027, we believe Lantronix is better positioned than ever to benefit from long-term growth trends reshaping edge computing and connectivity. With strong momentum, a differentiated portfolio, and a clear strategic roadmap, we are excited about the opportunities ahead and remain committed to creating long-term shareholder value. With that, I turn the call back to Brent to cover financial results. Brent?

Speaker #3: As we enter fiscal 2027, we believe Lantronix is better positioned than ever to benefit from long-term growth trends reshaping edge computing and connectivity. With strong momentum, a differentiated portfolio, and a clear strategic roadmap, we are excited about the opportunities ahead and remain committed to creating long-term shareholder value.

Speaker #3: With that, I'll turn the call back to Brent to cover the financial results. Brent.

Speaker #1: Thanks, Saleel. I'll begin with our fourth quarter and fiscal 2026 financial results, and some of the key drivers behind our performance. After that, I'll provide our outlook for our first fiscal quarter ending September 30, 2026.

Brent Stringham: Thanks, Saleel. I'll begin with our Q4 and fiscal 2026 financial results and some of the key drivers behind our performance. After which I'll provide our outlook for our first fiscal quarter ending 30 September 2026. For fiscal 2026, revenue was nearly $121 million, representing 8% growth over fiscal 2025 revenue of just over $111 million, excluding Grid Connect. Our growth was driven by more than 15% annual growth in embedded IoT solutions led by unmanned systems. As Saleel mentioned, unmanned systems revenue reached $12.6 million, above the midpoint of the $10 million to $14 million range we provided last quarter. Revenue for the Q4 was $31.2 million, representing both sequential and year-over-year growth.

Speaker #1: For fiscal 2026, revenue was nearly $121 million, representing 8% growth over fiscal 2025 revenue of just over $111 million, excluding grid services. Our growth was driven by more than 15% annual growth in embedded IoT solutions, led by unmanned systems.

Speaker #1: As Saleel mentioned, unmanned systems revenue reached $12.6 million, above the midpoint of the $10 million to $14 million range we provided last quarter. Revenue for the fourth quarter was $31.2 million, representing both sequential and year-over-year growth.

Speaker #1: Our IoT systems solutions rebounded in the quarter, contributing more than $15 million of revenue after slower ordering patterns in the prior two quarters related to the government shutdowns in late calendar 2025 and early 2026.

Brent Stringham: Our IoT systems solutions rebounded in the quarter, contributing more than $15 million of revenue after slower ordering patterns in the prior two quarters related to the government shutdowns in late calendar 2025 and early 2026. As we've said over the past several quarters, we viewed those federal headwinds as timing related rather than reflective of underlying demand. The 16% sequential growth we delivered in Q4 reinforces that view. Turning to our gross margins. In Q4, GAAP gross margin was 43.7%, up from 43.1% in the prior quarter and 40% a year ago. On a non-GAAP basis, gross margin was 44.1%, compared with 43.6% in the prior quarter and 40.6% a year ago. The year ago period was impacted by aged inventory charges and higher duties and tariffs.

Speaker #1: As we've said over the past several quarters, we viewed those federal headwinds as timing-related, rather than reflective of underlying demand. The 16% sequential growth we delivered in the fourth quarter reinforces that view.

Speaker #1: Turning to our gross margins, in the fourth quarter, GAAP gross margin was 43.7%, up from 43.1% in the prior quarter and 40% a year ago.

Speaker #1: On a non-GAAP basis, gross margin was 44.1%, compared with 43.6% in the prior quarter and 40.6% a year ago. The year-ago period was impacted by aged inventory charges and higher duties and tariffs.

Speaker #1: The sequential improvement reflects a combination of favorable revenue mix, including stronger performance in systems solutions, and the continued focus of our operations team on supply chain efficiency and execution.

Brent Stringham: The sequential improvement reflects a combination of favorable revenue mix, including stronger performance and system solutions, and the continued focus of our operations team on supply chain efficiency and execution. Looking ahead, we believe these efforts, together with our disciplined approach to cost management, should support gross margins at or near current levels in fiscal 2027. Let me also briefly address the broader supply environment, which we continue to monitor closely. Memory availability has tightened and prices have increased as AI infrastructure and hyperscaler data centers consume a growing share of industry supply. This is an industry-wide dynamic affecting the embedded compute market broadly and is not unique to Lantronix. We believe our early preparation has positioned us well in this constrained environment. Leveraging our fabless operating model and diversified manufacturing partners, we identified these trends early and proactively secured supply.

Speaker #1: Looking ahead, we believe these efforts, together with our disciplined approach to cost management, should support gross margins at or near current levels in fiscal 2027.

Speaker #1: Let me also briefly address the broader supply environment, which we continue to monitor closely. Memory availability has tightened, and prices have increased as AI infrastructure and hyperscaler data centers consume a growing share of industry supply.

Speaker #1: This is an industry-wide dynamic affecting the embedded compute market broadly, and is not unique to Lantronix. We believe our early preparation has positioned us well in this constrained environment.

Speaker #1: Leveraging our fabless operating model and diversified manufacturing partners, we identified these trends early and proactively secured supply. Looking at our expenses and profitability, GAAP operating expenses in the fourth quarter of fiscal 2026 were $14 million, slightly down from $14.1 million in the prior quarter, and down approximately 5% from $14.7 million in the year-ago period.

Brent Stringham: Looking at our expenses and profitability, GAAP operating expenses in Q4 of fiscal 2026 were $14 million, slightly down from the $14.1 million in the prior quarter and down approximately 5% from $14.7 million in the year ago period. We continue to observe the leverage in our OpEx model based on the actions we took last year and the ongoing cost discipline that we are executing on. GAAP net loss for Q4 of fiscal 2026 improved to $269,000, or one cent per share, compared to GAAP net loss of $2.6 million or seven cents per share in the year ago quarter. On a non-GAAP basis, net income of $1.8 million or four cents per share compares to $1.5 million or four cents per share in the prior quarter, and was an improvement from the one cent per share in the year ago quarter.

Speaker #1: We continue to observe the leverage in our opex model based on the actions we took last year, and the ongoing cost discipline that we are executing on.

Speaker #1: GAAP net loss for the fourth quarter of fiscal 2026 improved to $269,000, or $0.01 per share, compared to GAAP net loss of $2.6 million, or $0.07 per share, in the year-ago quarter.

Speaker #1: On a non-GAAP basis, net income of $1.8 million, or $0.04 per share, compares to $1.5 million, or $0.04 per share, in the prior quarter, and was an improvement from the $0.01 per share in the year-ago quarter.

Speaker #1: Moving to the balance sheet, we raised just over $44 million in net proceeds during the quarter through our public and ATM offerings, bringing our year-end cash balance to more than $60 million.

Brent Stringham: Moving to the balance sheet. We raised just over $44 million in net proceeds during the quarter through our public and ATM offerings, bringing our year-end cash balance to more than $60 million. We also repaid the remaining $8.7 million of debt and ended the fiscal year debt-free. Our strong balance sheet gives us the flexibility to execute our growth strategy while remaining disciplined and opportunistic in allocating capital to the highest return opportunities across R&D, go-to-market initiatives, and strategic M&A. During the current quarter and full fiscal year, we generated positive operating cash flow of approximately $1.9 million and $9.9 million, respectively. Net inventories were $25.8 million as of 30 June 2026, compared to $26.4 million last quarter and $26.4 million in the year ago quarter. Lastly, our outlook for Q1 of our fiscal 2027, which ends 30 September 2026, is as follows.

Speaker #1: We also repaid the remaining $8.7 million of debt and ended the fiscal year debt-free. Our strong balance sheet gives us the flexibility to execute our growth strategy while remaining disciplined and opportunistic in allocating capital to the highest return opportunities across R&D, go-to-market initiatives, and strategic M&A.

Speaker #1: During the current quarter and full fiscal year, we generated positive operating cash flow of approximately $1.9 million and $9.9 million, respectively. Net inventories were $25.8 million as of June 30, 2026, compared to $26.4 million last quarter and $26.4 million in the year-ago quarter.

Speaker #1: Lastly, our outlook for the first quarter of our fiscal 2027, which ends September 30, 2026, is as follows: We expect revenue to be in the range of $31 million to $33 million. Non-GAAP EPS is expected to be in the range of $0.04 to $0.06 per share. With that, I'll turn the call back to Saleel for closing remarks.

Brent Stringham: We expect revenue to be in the range of $31 million to $33 million. Non-GAAP EPS is expected to be in the range of $0.04 to $0.06 per share. With that, I'll turn the call back to Saleel for closing remarks.

Speaker #2: Thanks, Brent. Fiscal 2026 was a year of measurable progress. We returned the core business to growth, established unmanned systems as a meaningful contributor, expanded recurring revenue, and significantly strengthened our financial position.

Saleel Awsare: Thanks, Brent. Fiscal 2026 was a year of measurable progress, which turned the core business to growth, established unmanned system as a meaningful contributor, expanded recurring revenue, and significantly strengthened our financial position. Along the way, we continued transforming Lantronix from a broad-based hardware provider into a focused solutions platform combining compute, connectivity, physical AI, software, and services at the intelligent edge. Unmanned systems is the clearest proof point. From minimal revenue contribution a year ago, we delivered $12.6 million in fiscal 2026 after raising our outlook three times. We tripled our active engagements, expanded our global customer and partner base, and moved further up the technology stack. In fiscal 2027, we expect unmanned systems to represent 15% to 20% of total revenue, with continued growth beyond these levels in subsequent years.

Speaker #2: Along the way, we continued transforming Lantronix from a broad-based hybrid provider into a focused solutions platform, combining compute, connectivity, physical AI, software, and services at the intelligent edge.

Speaker #2: Unmanned systems is the clearest proof point. From minimal revenue contribution a year ago, we delivered $12.6 million in fiscal 2026 after raising our outlook three times.

Speaker #2: We tripled our active engagements, expanded our global customer and partner base, and moved further up the technology stack. In fiscal 2027, we expect unmanned systems to represent 15 to 20 percent of total revenue.

Speaker #2: With continued growth beyond these levels in subsequent years, we enter fiscal 2027 with multiple engines of profitable growth, the strongest financial position in our history, and confidence in our ability to deliver double-digit revenue growth.

Saleel Awsare: We enter fiscal 2027 with multiple engines of profitable growth, the strongest financial position in our history, and confidence in our ability to deliver double-digit revenue growth. As we continue to move further up the technology stack and expand our role across the broader autonomy ecosystem, we believe Lantronix is becoming the go-to edge compute company for unmanned systems. With that, operator, we will now open the call for questions.

Speaker #2: As we continue to move further up the technology stack and expand our role across the broader autonomy ecosystem, we believe Lantronix is becoming the go-to edge compute company for unmanned systems.

Speaker #2: And with that, operator, we will now open the call for questions.

Speaker #1: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. 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 the question, please press star and then two. At this time, we'll pause momentarily to assemble the roster. The first question will come from Austin Bolig with Needham. Please go ahead.

Speaker #1: 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 the question, please press star, then 2.

Speaker #1: At this time, I'll pause momentarily to assemble the roster. The first question will come from Austin Bolig with Needham. Please go ahead.

Speaker #3: Hey, guys. Thanks for taking my question, and congrats on the strong results and really strong traction in the unmanned business. And so guys, just maybe just to dive in a little bit into your guys' newest fiscal 27 drone guide, just would love to get a sense of what your visibility looks like into this number and does this largely just assume the engagements that you have today?

Austin Bolig: Hey, guys. Thanks for taking my question and congrats on the strong results and really strong traction in the unmanned business. Just maybe just to dive in a little bit into your guys' newest fiscal 2027 drone guide, just would love to get a sense of what your visibility looks like into this number, and does this largely just assume the engagements that you have today?

Austin Bohlig: Hey, guys. Thanks for taking my question and congrats on the strong results and really strong traction in the unmanned business. Just maybe just to dive in a little bit into your guys' newest fiscal 2027 drone guide, just would love to get a sense of what your visibility looks like into this number, and does this largely just assume the engagements that you have today?

Speaker #2: Thank you for the question, Austin. And specifically, to the guide, it does tie into the visibility we have today and the engagements. What I want to clarify is we're working with over 30 vendors now.

Saleel Awsare: Thank you for the question, Austin. Specifically to the guide, it does tap into the visibility we have today and the engagements. What I want to clarify is we're working with over 30 vendors now. We've shipped to over a dozen already. Not only are we doing unmanned systems, specifically drones, but we're also in the counter-UAS area. We actually shipped to a couple customers in the last quarter. So the breadth of the opportunity is there. We've seen decent visibility as we started fiscal 2027, and the numbers are based on where we sit today.

Speaker #2: We've shipped to over a dozen already, and not only are we doing unmanned systems, specifically drones, but we're also in the counter-UAS area. We actually shipped to a couple of customers in the last quarter.

Speaker #2: So the breadth of the opportunity is there. We've seen decent visibility as we started fiscal '27, and the numbers are based on where we see it today.

Speaker #3: Okay, perfect. And maybe just to kind of get a little bit more color on this 15% to 20% of revenues, is it fair to assume that from an absolute dollar perspective, you guys did almost $13 million in fiscal '26?

Austin Bolig: Okay, perfect. Maybe just to kind of get a little bit more color on this 15% to 20% of revenues, is it fair to assume that from an absolute dollar perspective, you guys did almost $13 million in fiscal 2026. Should we be assuming this could be at least maybe $25 million in 2027?

Austin Bohlig: Okay, perfect. Maybe just to kind of get a little bit more color on this 15% to 20% of revenues, is it fair to assume that from an absolute dollar perspective, you guys did almost $13 million in fiscal 2026. Should we be assuming this could be at least maybe $25 million in 2027?

Speaker #3: Should we be assuming this could be at least, maybe, $25 million in '27?

Speaker #2: Yeah, yeah. We should be there, around the 25-plus range for fiscal '27.

Saleel Awsare: We should be there, around the $25 million-plus range for fiscal 2027.

Speaker #3: Awesome, thank you. And then just one last quick one here: I would just love to know— is there any big impact to you guys, both positively and negatively, related to the new drone tariffs that were announced a couple of weeks ago?

Austin Bolig: Awesome. Thank you. Just one last quick one here. Just would love to know, is there any big impact to you guys, both positively and negatively, related to the new drone tariffs that were announced a couple weeks ago?

Austin Bohlig: Awesome. Thank you. Just one last quick one here. Just would love to know, is there any big impact to you guys, both positively and negatively, related to the new drone tariffs that were announced a couple weeks ago?

Speaker #2: Yeah, I think, Austin, I'll take that one. It's definitely a structural tailwind for our drone business. Being an NDAA- and TAA-compliant solutions provider, we believe that this tariff policy could support additional design win opportunities for us.

Brent Stringham: Yeah, I think, Austin, I will take that one. It is definitely a structural tailwind for our drone business. Being an NDAA and TAA-compliant solutions provider, we believe that this tariff policy could support additional design win opportunities for us. On the actual tariff side of things, we do not see a meaningful impact based on the way some of our components are imported today, as more general purpose modules as opposed to specific drone components. The things that we import from Taiwan and other areas, we are not anticipating a meaningful impact at this time.

Speaker #2: On the actual tariff side of things, we don't see a meaningful impact based on the way some of our components are imported today, as more general-purpose modules as opposed to specific drone components.

Speaker #2: So, the things that we import from Taiwan and other areas—we're not anticipating a meaningful impact at this time.

Speaker #4: Yeah, Austin, let me add one more thing. As you're well aware, we've got a big facility in Plymouth, Minnesota, and we are ramping up there.

Saleel Awsare: Yeah, Austin, let me add one more thing. As you are well aware, we have got a big facility in Plymouth, Minnesota, and we are ramping up there to provide our drone customers with products with a TAA NDA certified, and in the midterm, country of origin, United States of America. So I feel this is going to be helpful for Lantronix.

Speaker #4: To provide our drone customers with products that are TAA and NDAA certified, and in the midterm, with country of origin, United States of America. So I feel this is going to be helpful for Lantronix.

Speaker #3: Awesome. All right, guys, well, keep up the great work. We'll be in touch.

Austin Bolig: Awesome. All right, guys, well, keep up the great work. We will be in touch.

Austin Bohlig: Awesome. All right, guys, well, keep up the great work. We will be in touch.

Speaker #2: Thank you so much, Austin.

Saleel Awsare: Thank you so much, Austin.

Speaker #1: The next question will come from Scott Buck with Titan Partners. Please go ahead.

Operator: The next question will come from Scott Buck with Titan Partners. Please go ahead.

Speaker #4: Hey, good afternoon, guys. Thanks for taking my questions. I'm curious, between Swarmer and the DoD solutions, and I guess all the Ukraine-linked programs, what percentage of unmanned revenue is tied to Ukraine and demand?

Scott Buck: Hey, good afternoon, guys. Thanks for taking my questions. I am curious, between Swarmer and the DoD solutions, and I guess all the Ukraine link programs, what percentage of unmanned revenue is tied to Ukraine and demand? How do you think about that revenue in a ceasefire scenario?

Speaker #4: And how do you think about that revenue in a ceasefire scenario?

Speaker #2: So, Scott, thank you for that question. Our drone revenue for the last 12 months, or for fiscal ‘26 and fiscal ‘27 — for fiscal ‘26, it's mainly it.

Saleel Awsare: Scott, thank you for that question. Our drone revenue for the last 12 months of fiscal 2026 and fiscal 2027, for fiscal 2026, it is mainly US-based. A big majority of it. Fiscal 2027, the Ukraine portion is not a meaningful portion, specifically with the one customer that we talked about and we mentioned. So I do not see a measurable concern for a ceasefire or what have you, because the growth, we have just changed how war is conducted, and this requires the ability to have unmanned systems, more specifically unmanned systems with autonomy, and that is where we fit. So I do not anticipate any big issues specifically if that ceasefire happens in Ukraine.

Speaker #2: Fiscal '27, the Ukraine portion is not a meaningful portion, specifically with the one customer that we talked about and we mentioned. So I don't see a measurable concern for a ceasefire or what have you, because the growth—we have just changed how war is conducted.

Speaker #2: And this requires the ability to have unmanned systems—more specifically, unmanned systems with autonomy. And that is where we fit. So, I don't anticipate any big issues if, specifically, that ceasefire happens in Ukraine.

Saleel Awsare: Okay. Great. That's helpful color. My second question, just on gross margin, as unmanned scales, do you start to see some mix pressure there, or does the progress or kind of growth in the software and services offset that?

Scott Buck: Okay. Great. That's helpful color. My second question, just on gross margin, as unmanned scales, do you start to see some mix pressure there, or does the progress or kind of growth in the software and services offset that?

Speaker #4: Okay, great. That's helpful color. And then my second question, just on gross margin: as Unmanned scales, do you start to see some mix pressure there?

Speaker #4: Or does the progress or kind of growth in the software and services offset that?

Speaker #2: Yeah, thanks. I'll take that one. You're right. With the expected growth of our module business related to unmanned and drones, there is natural pressure.

Brent Stringham: Yeah. Thanks, I'll take that one. You're right. With the expected growth of our module business related to unmanned and drones, there is natural pressure. The margins in that business are slightly below kind of our corporate average, in the low to mid-40s there. So, we do see potential pressure, but as you mentioned, we expect to continue to grow some of the higher margin sides of our business, including the ARR, which Saleel talked about with the acquisition. Seeing a return to growth in some of our other businesses that carry higher margins, some of the network infrastructure and other products that might have had some headwinds against them earlier in the fiscal 2026 with government shutdowns and things like that. So we think the offset between those two kind of keeps us in a similar range to where we've been company-wide.

Speaker #2: The margins in that business are slightly below our corporate average, in the low to mid-40s. So we do see potential pressure.

Speaker #2: But as you mentioned, we expect to continue to grow some of the higher-margin sides of our business, including ARR, which Saleel talked about with the acquisition, and seeing a return to growth in some of our other businesses that carry higher margins, such as some of the network infrastructure and other products that might have had some headwinds against them earlier in fiscal '26 with government shutdowns and things like that.

Speaker #2: So we think the offset between those two kind of keeps us in a similar range to where we've been company-wide.

Speaker #4: And Scott, I'm going to go back.

Brent Stringham: Perfect.

Scott Buck: Perfect.

Saleel Awsare: Scott, I'm going to go back.

Speaker #1: Yeah, Scott, let me just add a little bit more color to your question about specifically in Ukraine. I think the message I wanted to make sure comes through is clear.

Brent Stringham: Yeah.

Scott Buck: Sure.

Scott Buck: Scott, let me just add a little bit more color to your question about specifically in Ukraine. I think the message I want to make sure comes through, we have expanded our reach. We talked about a Ukrainian customer, we talked about a big win in Australia with CACI, which is a big company, US headquartered. We've talked about, and you're going to hear more in the next call about international expansion beyond North America. So I want to be clear, we are going global and we are seeing traction globally.

Brent Stringham: Scott, let me just add a little bit more color to your question about specifically in Ukraine. I think the message I want to make sure comes through, we have expanded our reach. We talked about a Ukrainian customer, we talked about a big win in Australia with CACI, which is a big company, US headquartered. We've talked about, and you're going to hear more in the next call about international expansion beyond North America. So I want to be clear, we are going global and we are seeing traction globally.

Speaker #1: We have expanded our reach. We talked about the Ukrainian customer. We talked about a big win in Australia with CACI, which is a big company.

Speaker #1: U.S. headquartered. We've been talking about, and you're going to hear more in the next call, international expansion beyond North America. So I want to be clear—we're going global, and we're seeing traction globally.

Speaker #4: Nope. Perfect. I appreciate that.

Scott Buck: No, perfect. I appreciate that. Congrats on the strong result, guys.

Speaker #3: And congrats on the strong result, guys.

Speaker #2: Thank you.

Saleel Awsare: Thank you.

Speaker #1: The next question will come from Josh Sullivan with Jones Trading. Please go ahead.

Operator: The next question will come from Josh Sullivan with Jones Trading. Please go ahead.

Speaker #5: Hey, good evening. Just a follow-up on the 232 decision—have you seen any change in behavior or activity from customers since the announcement?

Josh Sullivan: Hey, good evening. Just a follow-up on the 232 decision. Have you seen any change in behavior or activity from customers since the announcement?

Speaker #2: Yeah, so Josh, thank you for that question. This is Saleel. It's pretty fresh, but we have had a few customers come to us pretty quickly to make sure that we are NDAA, NTAA certified.

Saleel Awsare: Yeah. Josh, thank you for that question. This is Saleel. It is pretty fresh, but we have had a few customers come to us pretty quickly to make sure that we are NDAA and TAA certified. When I mentioned to them we are going to start, obviously, doing more manufacturing out of our testing area in Plymouth, Minnesota, they were very happy to hear that. As I said earlier, in my prepared remarks, and even what Brent said, we believe this is a good tailwind for us, especially with our solutions. Interest in us being US headquartered, and delivering solutions here. I think it is a big plus for us.

Speaker #2: And then, when I mentioned to them that we're going to start, obviously, doing more manufacturing out of our testing area in Plymouth, Minnesota, they were very happy to hear that.

Speaker #2: So, as I said earlier in my prepared remarks, and even what Brent said, we believe this is a good tailwind for us—especially with our solution.

Speaker #2: So, interest in us being U.S.-headquartered and delivering solutions here—I think it's a big plus for us.

Speaker #5: Got it. And then, on the Nero acquisition—now that you're a software and hardware end-to-end solution—what other markets might that take you into? Or what does that capability allow you to do?

Josh Sullivan: Got it. On the Nero acquisition, now that you are a software, hardware end-to-end solution, what other markets might that take you into? What does that capability allow you to do?

Speaker #2: Yeah. So, if you think about Nero asset tracking, they've already got 125,000 tags out there. So, two things: as you think about the markets, they've been very focused on restoration and fleet tracking.

Saleel Awsare: Yeah. If you think about Nero asset tracking, they already have 125,000 tags out there. Two things as you think about the markets, they have been very focused on restoration and fleet tracking. Lantronix has been very focused on managing diesel power generators at cell sites with the big MNOs. Think about how we can start putting that together. That was a part of our overarching strategy that we did this deal for. They bring a strong software backbone to us. It ties in with our perception software that we have and really goes after new markets that we are going after, and they will be able to get us there faster. Secondly, we have hardware. Nero Global Tracking did not have their own hardware. They were buying hardware from other companies.

Speaker #2: LANTRONIX has been very focused on managing diesel power generators at cell sites with the big MNOs. Think about how we can start putting that together.

Speaker #2: That was a part of our overarching strategy that we did this deal for. They bring a strong software backbone to us, and it ties in with our perception software that we have.

Speaker #2: And really goes after new markets that we are going after, and they will be able to get us there faster. Secondly, we have hardware, right?

Speaker #2: Nero Global Tracking did not have their own hardware. They were buying hardware from other companies. Our cellular modems and gateways are a perfect fit for that.

Saleel Awsare: Our cellular modems and gateways are a perfect fit into that, so we are going to see an upsell from our side from our hardware business that we have. It is a great fit, gross margins in the 60-plus percent. We really like it and it helps the company overall. More importantly, it takes our software and services business that I have been saying was 5% to 6%, we took it to 7% to 8%. I want it to be over 10%. Guess what, guys? We took it to over 10%.

Speaker #2: So we're going to see an upsell from our side, from our hardware business that we have. So it's a great fit. Gross margins in the 60-plus percent range.

Speaker #2: We really like it, and it helps the company overall. More importantly, it takes our software and services business—which I've been saying is five to six percent—higher.

Speaker #2: We took it to seven to eight. I want it to be over 10%. Guess what, guys? We took it to over 10%.

Josh Sullivan: And then I guess on the SLC 9000, what does the rollout of that product look like? What is the TAM there? Obviously a huge market, but curious what you think you can access there over kind of what timeframe.

Speaker #5: And then, I guess, on the LC9000, what does the rollout of that product look like? What’s the TAM there? Obviously, it’s a huge market, but I’m curious what you think you can access there over what kind of time frame?

Speaker #2: Yeah, thanks for the SLC9000. For those on the call, it's our out-of-band product. And I mentioned in my prepared remarks that we won a design with a company called SambaNova.

Saleel Awsare: Yeah. Thanks for the SLC 9000. For those on the call, it is our out-of-band product, and I mentioned in my prepared remarks that we won a design with a company called SambaNova Systems out of Silicon Valley, heavily funded by Intel. And in that one, we are sitting in their rack. I think it is called the DataScale rack that they have, and we are sitting in that rack. So we are excited about as they go deploy their racks, and each rack has accelerated nodes, host servers, and our box on the top. So it gives you remote access to it. We believe the TAM in this market could be over $500 million, and we are just getting started with this. SambaNova is one proof point of our SLC 9000. The product is ready and it has already started to ship.

Speaker #2: Systems out of Silicon Valley, heavily funded by Intel. And in that one, we are sitting in their rack—I think it's called the DataScale rack that they have.

Speaker #2: And we are sitting in that rack. So, we are excited about, as they go deploy their racks, and each rack has accelerated nodes, host servers, and our box on the top.

Speaker #2: So it gives you remote access to it. We believe the TAM in this market could be over $500 million. And we're just getting started with this.

Speaker #2: SambaNova is one proof point of our SLC9000. The product is ready and has already started to ship. And I'll add to that, SambaNova picked us because of our ease of use, our reliability, and the zero-touch provisioning that we've designed in.

Saleel Awsare: And I will add to it, SambaNova picked us because of our ease of use, our reliability, and our zero-touch provisioning that we have designed in. Additionally, our API is integrated with their tools. So this is a long-term business for us as I think about it.

Speaker #2: Additionally, our API is integrated with their tools. So, this is a long-term business for us, as I think about it.

Josh Sullivan: Great. Chip, thank you. I will leave it there.

Speaker #5: Great. Good. Thank you. I'll leave it there.

Speaker #2: Thanks.

Saleel Awsare: Thanks.

Speaker #1: The next question will come from Jason Schmidt with Lake Street. Please go ahead.

Operator: The next question will come from Jaeson Schmidt with Lake Street. Please go ahead.

Speaker #3: Hi, guys. Thanks for taking my questions. Just first, starting on the drone market, given your comments about the traction you're seeing globally...

Jaeson Schmidt: Hi, guys. Thanks for taking my questions. Just first starting on the drone markets a little, given your comments about the traction you are seeing globally, are you continuing to expand the sales team and infrastructure focused on this market?

Speaker #3: Are you continuing to expand the sales team and infrastructure focused on this market?

Speaker #2: Jason, thank you for that question. And yes, we are expanding the go-to-market as we think about the future. As a matter of fact, we kicked off the fiscal year by having a drone summit with all the stakeholders at Lantronix, meeting for literally a week.

Saleel Awsare: Jaeson, thank you for that question. Yes, we are expanding the go-to market as we think about the future. As a matter of fact, we kicked off the fiscal year with having a drone summit with all the stakeholders at Lantronix meeting for literally a week, going through all the opportunities, how do we need to go tackle them. We have added resources in North America. We have added resources in Europe. We are also going to be adding some resources in advocacy in Washington, DC. We are really all, a big effort going on to do this. I really feel this is going to pay really well for us. The ROI is going to be wonderful for it.

Speaker #2: Going through all the opportunities, how do we need to go tackle them? So, we've added resources in North America. We've added resources in Europe.

Speaker #2: We're also going to be adding some resources in advocacy in Washington, DC, so there's really a big effort going on to do this.

Speaker #2: And I really feel this is going to pay really well for us. The ROI is going to be wonderful.

Speaker #3: Okay, that's really helpful. And then just as a follow-up, obviously the memory availability remains tight, and there's some pricing pressure out there. Are you guys going to pass through some of these prices as part of your price mitigation strategy?

Jaeson Schmidt: Okay. That is really helpful. Just as a follow-up, obviously, the memory availability remains tight, and there is some pricing pressure out there. Are you guys going to pass through some of these prices as part of your price mitigation strategy?

Speaker #2: Yeah. Jason, we're working closely with customers on the memory issues that everybody seems to be facing right now. So from a cost pass-through standpoint, we're obviously trying to be careful, but working with customers on what's most reasonable for both parties, and I think in general, most parties out there kind of expect those costs to be passed through.

Brent Stringham: Yeah, Jaeson, we are working closely with customers on the memory issues that everybody seems to be facing right now. From a cost pass-through standpoint, we are obviously trying to be careful, but working with customers on what is most reasonable for both parties. I think in general, most parties out there kind of expect those costs to be passed through. That is kind of the direction we are seeing others heading.

Speaker #2: And so that's kind of the direction we're seeing others heading, so.

Speaker #3: Understood. Thanks a lot, guys.

Jaeson Schmidt: Understood. Thanks a lot, guys.

Speaker #2: Thank you.

Saleel Awsare: Thank you.

Brent Stringham: Thank you.

Speaker #1: The next question will come from Christian Schwab with Craig-Hallum Capital Group. Please go ahead.

Operator: The next question will come from Christian Schwab with Craig-Hallum Capital Group. Please go ahead.

Speaker #2: Great. Good quarter, good outlook, guys. I just want to ask one quick question, then another follow-up. The cash at quarter-end that you highlighted—did that take into account the recent Tuck-In acquisition, or should that be reduced?

Christian Schwab: Great. Good quarter, good outlook, guys. I just want one quick question, then another follow-up. The cash at quarter end that you highlighted, did that take into account the recent tuck-in acquisition or should that be reduced?

Speaker #4: Yeah. So our cash at June 30, our fiscal year-end that we reported, we had not closed the acquisition yet, Christian, so no disbursements of any cash or proceeds had taken place as of year-end.

Brent Stringham: Yeah. Our cash at 30 June, our fiscal year end that we reported, we had not closed the acquisition yet, Christian.

Christian Schwab: Okay.

Brent Stringham: No disbursements of any cash or proceeds had taken place as of year-end.

Speaker #2: Okay, I just wanted to get that quick, Matt. And as we look at your outlook for next fiscal year—excluding the unmanned systems, which you've given great clarity on—we ran into multiple headwinds that we've addressed over the last few quarters in the remaining part of the business.

Christian Schwab: Okay. I just wanted to get that quick, Matt. As we look at your outlook for next fiscal year, excluding the unmanned systems, which you have given great clarity on, we ran into multiple headwinds that we have addressed over the last few quarters in the Vermeet part of the business. Let us just lump it and call it all IoT systems. Given the strong sequential growth in the quarter, and new opportunities, for example, in the out-of-band product that you highlighted, would you expect that portion of the business to be like a 5% to 10% growth business or maybe even better than that in fiscal year 2027? How should we think about that?

Speaker #2: Let's just lump it all together and call it IoT systems. Given the strong sequential growth in the quarter, and new opportunities—for example, in the out-of-band product that you highlighted—would you expect that portion of the business to be like a 5 to 10 percent growth business, or maybe even better than that, in fiscal year '27?

Speaker #2: How should we think about that?

Speaker #4: Yeah. So, Christian, thank you for that question. We had 16% growth quarter over quarter. In the first half of the fiscal year ’26, as you remember, we had government shutdowns.

Saleel Awsare: Yeah. Christian, thank you for that question. We had a 16% growth quarter-over-quarter. The H1 of the fiscal year of 2026, as you remember, we had government shutdowns. Some of that business is our federal business, so that was affected by that. I am just being careful as I give you guides, and we want to be intelligent about how we go about doing it. We believe that business should grow. We are with that mindset that we are seeing design and activity. One piece of data is something called quote activity for this business, and that is doing really well. As I said, we expect the company to grow double digit, and we are confident we can deliver that. I believe we can deliver that. Stay tuned as we move forward, but we grew 16% quarter-over-quarter.

Speaker #4: And some of that business is our federal business, so that was affected by that. I'm just being careful as I give you guidance, and we want to be intelligent about how we go about doing it.

Speaker #4: We believe that business should grow. And we are with that mindset that we're seeing design and activity a one piece of data is something called quote activity for this business.

Speaker #4: And that is doing really well. So, as I said, we expect the company to grow double-digit, and we're confident we can deliver that.

Speaker #4: I believe we can deliver that, so stay tuned as we move forward. We grew 16% quarter over quarter.

Speaker #2: Great, thank you for that clarity. And then my last question, just as it relates to gross margins—as we layer in and expand our ARR in the higher gross margin portion of the business, potentially helping offset any type of pressure you may have as far as component costs.

Christian Schwab: Great. Thank you for that clarity. My last question, just as it relates to gross margins, as we layer in and expand our ARR in higher gross margin portions of the business, potentially helping offset any type of pressure you may have as far as component costs. Do you think gross margins could improve throughout the course of the year, or do you expect them to be relatively stable?

Speaker #2: Do you think gross margins could improve throughout the course of the year, or do you expect them to be relatively stable?

Speaker #4: Yeah, Christian, we do think there's opportunity to grow the gross margin throughout fiscal '27, especially as we see, as I mentioned earlier, an uptick in some of these other businesses that do carry higher gross margins as compared to how we performed in fiscal '26.

Brent Stringham: Yeah, Christian, we do think there is opportunity to grow the gross margin throughout fiscal 2027, especially as we see, as I mentioned earlier, an uptick in some of these other businesses that do carry higher gross margins as compared to how we performed in fiscal 2026. Certainly, the ARR that comes along with the acquisition, and to the extent we can continue to ramp that up, we should see margins pick up slightly. As I mentioned before, there is maybe a little headwind on the other side with some of the growth in modules on the drone and UAS business. Net-net, I think there is opportunity to grow the margins.

Speaker #4: And certainly, the ARR that comes along with the acquisition, and to the extent we can continue to ramp that up, we should see margins pick up slightly.

Speaker #4: Now, as I mentioned before, there is maybe a little headwind on the other side with some of the growth in modules on the drone and UAS business.

Speaker #4: But net-net, I think there's an opportunity to grow the margins.

Speaker #2: Great. And then my last question, as far as future potential strategic M&A, Saleel, do you have a target list of companies that you're looking at or targeting, or should we not really anticipate any further tuck-in acquisitions?

Christian Schwab: Great. Then my last question, as far as future potential strategic M&A, Saleel, do you have a target list of companies that you are looking at or targeting, or should we not really anticipate any further tuck-in acquisitions, for example, in fiscal year 2027?

Speaker #2: For example, in fiscal year '27?

Speaker #4: Yeah, we've been very deliberate and thoughtful about how we run this company. We've got cash on the balance sheet, and we want to grow in two areas.

Saleel Awsare: Yeah. We have been very deliberate and thoughtful as to how we run this company. We have got cash on the balance sheet. We want to grow in two areas, unmanned systems, increasing our strength in there, move up the drone stack, and secondly is on recurring revenue. Both of those areas we like. We have a list of companies we are looking at, and some even we are engaged with. So yes, we are moving forward on that, Christian.

Speaker #4: Unmanned systems— increasing our strength in there, move up the drone stack. And secondly, on recurring revenue. Both of those areas we like. And we have a list of companies we are looking at.

Speaker #4: Some we are even engaged with. So yes, we are moving forward on that, Christian.

Speaker #2: Great. No other questions. Thank you.

Christian Schwab: Great. No other questions. Thank you.

Speaker #4: Thank you, Christian.

Saleel Awsare: Thank you, Christian.

Speaker #1: The next question will come from Austin Moeller with Canaccord. Please go ahead.

Operator: The next question will come from Austin Moeller with Canaccord. Please go ahead.

Speaker #5: Hi, good afternoon. Saleel and Brent’s quarter. Just my first question here: it sounds like Putin wants to call a general mobilization to invade Kiev from the north.

Austin Moeller: Hi, good afternoon, Saleel and Brent. Nice quarter. My first question here. It sounds like Putin wants to call a general mobilization to invade Kyiv from the north. If you start producing and shipping SOMs at scale in Eastern Europe, how would you expect the gross margins on SOMs to compare in Eastern Europe relative to what you might get on the Drone Dominance Program at the higher build rates?

Speaker #5: So, if you start producing and shipping SOMs at scale in Eastern Europe, how would you expect the gross margins on SOMs to compare in Eastern Europe relative to what you might get on the drone dominance program at the higher build rates?

Speaker #4: Yeah, thanks for that, Austin. With respect to our European business, or potentially European businesses, I think the gross margins on our SOMs there—it's reasonable to think they might be slightly more challenged than maybe what we've seen here in the growth we've seen over the last year, mostly in the US.

Brent Stringham: Yeah, thanks for that, Austin. With respect to our European business or potential European businesses, I think the gross margins on our SOMs there, it is reasonable to think they might be slightly more challenged than maybe what we have seen here in the growth we have seen over the last year here, mostly in the US.

Speaker #5: Okay. And how does the AVT Australia opportunity open up—does that open up the TAM for SOMs and drones in Asia Pacific, or will that also open up the opportunity in Asia Pacific and the Middle East for tactical drones?

Austin Moeller: Okay. How does the AVT Australia opportunity, does that open up the TAM for SOMs and drones in Asia-Pacific, or does that also open up the opportunity in Asia-Pacific and the Middle East for tactical drones?

Speaker #4: Yeah. The AVT, which is a CACI company, Austin, I'm sure you're familiar with them—big company in the US, a defense tech company. So right now, our understanding is it's Asia-Pacific, it's Europe, some America, and some in the Middle East.

Saleel Awsare: Yeah, the AVT, which is a CACI company, Austin, I am sure you are familiar with them, a big company in the US, a defense tech company. Right now, our understanding is it is Asia Pacific, it is Europe, some America, and some in the Middle East. It really does open up. We are also actively engaged with customers now in Japan. As you know, they are thinking about NDAA certification. I will be meeting some of them shortly at one of the shows coming up. We have been very thoughtfully going. North America, started in Europe, working this Australian opportunity, which is a good size opportunity for us. As I said earlier when somebody else asked me a question, we are going internationally, and we are spreading internationally. We are putting go-to-market resources. Our breadth is improving every day.

Speaker #4: So it really does open up. And we are also actively engaged with customers now in Japan. As you know, they're thinking about NDA and TAA certification.

Speaker #4: I'll be meeting some of them shortly at one of the shows coming up. So we've been very thoughtfully going through North America, started in Europe, working with the Australian opportunity, which is a good-sized opportunity for us.

Speaker #4: So, as I said earlier, when somebody else asked me a question, we're going internationally, and we're re-spreading internationally. We are putting go-to-market resources.

Speaker #4: So, our breadth is improving every day.

Speaker #5: Thank you. Very exciting. I'll pass it back there. Thanks.

Austin Moeller: Super exciting. I will pass it back there. Thanks.

Speaker #4: Thank you so much for that question.

Saleel Awsare: Thank you so much for that question.

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

Speaker #1: This concludes our question-and-answer session. I would now like to turn the conference back over to Saleel Awsare for any closing remarks.

Speaker #4: Thank you again for your questions and for joining us today. We appreciate your continued interest in Lantronix and your support throughout the year. Fiscal 2026 marked important progress in our journey.

Saleel Awsare: Thank you again for your questions and joining us today. We appreciate your continued interest in Lantronix and your support throughout the year. Fiscal 2026 marked important progress in our journey. The strategy that was beginning to take flight is now delivering measurable results. As we enter fiscal 2027, we are continuing our climb with greater momentum, a stronger platform, and clear visibility to multiple opportunities that we expect will drive double-digit revenue growth for the full year. in September, I will be at the Piper Sandler Government and Defense Tech CEO Summit in Washington, DC, the Lake Street BIG conference, the Gabelli Aerospace and Defense Symposium in New York, and the Needham Summit in Minneapolis. Thank you very much, everybody.

Speaker #4: The strategy that was beginning to take flight is now delivering measurable results. As we enter fiscal 2027, we are continuing our climb with greater momentum.

Speaker #4: A stronger platform and clear visibility into multiple opportunities are expected to drive double-digit revenue growth for the full year. In September, I will be at the Piper Sandler Government and Defense Tech CEO Summit in Washington, DC.

Speaker #4: The Lake Street BIG Conference, and the Gabelli Aerospace and Defense Symposium in New York, and the Needham Summit in Minneapolis. Thank you very much, everybody.

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