Lantronix, Inc. Q4 FY2025 earnings call

• Fiscal 2025 marked a turning point with disciplined execution and transformation. Q4 2025 revenue of $28.8 million and non-GAAP EPS of $0.10 were within guidance. - Opportunities in unmanned aerial systems due to record defense funding; more than $13 billion earmarked for unmanned platforms in 2026. - Win with Red CAT steel drones, with shipments beginning in June, strengthening visibility for fiscal 2026. - Partnership with Aurora for commercial drone applications, with revenue expected in 2026. - Multi-year agreement with a major U.S. mobile carrier to provide devices and services for modernizing backup power systems at wireless cell sites, with initial shipments in June.

Fiscal 2025 revenue was $123 million. In the fourth quarter of 2025, revenue was $28.8 million, a sequential increase from $28.5 million in the prior quarter and approximately 4% higher than fiscal Q4 2024 when excluding Gridspertise. GAAP gross margin in Q4 was 40%, and non-GAAP gross margin was 40.6%. Excluding Gridspertise, the core revenue base stabilized in the second half of fiscal 2025, reflecting growth in the core revenue base.

• Expected revenue for 2026 is in the range of $28.5 million to $30.5 million. - Non-GAAP EPS expected to be in the range of $0.02 to $0.04 per share.

Management noted that forward-looking statements involve risks and uncertainties that could cause results to differ from expectations. Refer to the earnings release and SEC filings for cautionary statements and risk factors.

Q: Hey, guys. Thanks for taking my questions. Just want to start with the drone opportunity. Obviously, a massive market and you guys are seeing some really nice traction here out of the gate. How should we think about the potential for you guys here in the near term, both with Redcat and what you potentially have in the pipeline?

A: Jaeson, thank you for that question. We are extremely excited about the drone market and the drone opportunity. Just to give you a frame of reference, we announced Redcat about a week ago, but as of this quarter, we have over 10 different drone makers that we're working on. Mainly military or industrial applications. We see this market growing really nicely into fiscal 2026 representing a meaningful portion of our business longer term. And again, it's fueled by programs like the SRR with Redcat, and, you know, as more funding comes, we are well suited there. And I think the key is our competitive edge is our expertise in cameras. We've been working around cameras for a long time. And that's really what a drone requires. The camera tuning, the fusion, the software integration, and then us being North American based NDAA and TAA certified really allows us to win these contracts. So we have shipped, as I said last quarter, I mean, in June, we have visibility into fiscal 2026 with a few of the 10 drone makers. And as we get into early 2026 calendar, we'll be seeing more of these companies going into production. So we are feeling really good as I sit here today.

Q: Okay. That's really helpful. And then just as a follow-up if you could comment on sort of what you're seeing from a bookings or order perspective so far here in September? If I look back at the past few years, usually, September is sequentially down. But obviously, the midpoint of your guidance, for September here is for growth sequentially. Just curious if you could provide some additional color around the dynamics driving that growth?

A: Yes. Jaeson, another great question. You're right. In the past, last year or the year before, we might have been down sequentially. We are seeing momentum in our business. We are seeing new customers that we've acquired, and the momentum is really broad-based. Throughout our core business, including our Edge IoT, which is some of it is new, and then even our networking business. And out of band, also is growing nicely into this quarter. So it builds a lot of confidence as you think about fiscal 2026.

Q: Great, thanks. You had some real interesting comments there on gross margin. I just want to make sure I'm not losing the forest through the trees here, so to speak. Can you maybe unpack that, Saleel, in terms of how you think about gross margins evolving over the next twelve months?

A: Ryan, great question. I think, not I think, I know in June, we had some one-off gross margin-related items like tariffs and some inventory. But moving forward, it's gonna be closer to 44, 45% for the fiscal year. But I'll pass the mic to Brent to add a little bit more color to that.

Q: Great. Super. Thanks for that clarification. And then maybe all these opportunities in the drone market around defense and unmanned vehicles, can you talk a little bit about is that a new channel for you? Are you working direct? Are you working through integrators? I mean, maybe walk through some of the commercial side of these drone opportunities. Are they very similar to your business of the past? Or is it or somewhat new kind of market motion?

A: Yeah. Ryan, another great question. And you and I have spoken before, we kind of started on this journey of unmanned UAS or drones in calendar '24. And into that, we've kinda worked with Teledyne FLIR, which was a very important announcement that we did. They are the leader in thermal imaging cameras, which is what this market's all about. They gave us, hey. We are a great partner for them. So that helped us. And we worked with them on major designs. And then just having this camera expertise working with some of the integrators that are out there. And we've increased our understanding of the market, what we can do for the market, and that's how we've really gotten to winning somebody like Redcat on one of their big programs. And this one, we pretty much got done in eight months from beginning to end. So it was really all systems go, all hands on deck to get them ready. So we are very proud of what we've done there.

Q: That's great. So Teledyne sounds like somebody they're pulling you into some of these deals. A kind of a partner ecosystem?

A: Yeah. But Teledyne FLIR is pulling us to quite a few. And, you know, they're a big company with a lot of access, so it's been very out there.

Q: That's great. Maybe one last one if I can squeeze it in. You talked about this backup generator for cell site opportunities. Great to finally get that deal closed. Any more you can tell us about that? And are there other opportunities similar to that in the pipeline that you can address? Thank you.

A: Yeah. Thanks, Ryan. Another great question. Right? We announced a big Tier one mobile win with about 50,000 of our gateways, our FOX gateways in that. And we anticipate longer term, this should be at least three times what it is, as we progress over the next couple of years. So the good news is we booked most of the order. We started to ship in June, which we did. We'll continue to ship throughout this fiscal year. I do want to make one point of clarification, Ryan, which is I think very important. Not only are we selling hardware, but we are also incorporating our perception platform. Enabling remote monitoring and device management. And as these devices come online, we are starting to get our first real ARR or annual recurring revenue. So that's another great thing. So that's gonna start at it's not starting at a big number, but as they move more and more devices come online, it's gonna do that. So it shows the investments that we were making in the last eighteen months in these areas where giving a platform giving a solution has enabled us to be successful. So I'm optimistic just with this vendor could get bigger and there are more that we're working on.

Q: Great. Thanks for taking my question. Just as it relates to the drone opportunity, can you give an idea of what your average dollar content would be per device? Not specifically to Redcat itself, but the entire 10 customers you're dealing with just kind of to give us an idea of what your dollar content is, please?

A: Yes, great question, Christian. It's approximately around $500. So it's pretty very good from a perspective. So as you know, the volumes get into the many thousands or tens of thousands, this is meaningful revenue for the company as you think about moving forward.

Q: Great. And then in your prepared comments, you talked about a meaningful revenue opportunity. I assume some customers, of course, have different volumes that they would be planning on shipping over a multiyear time frame. When you think of that market, could you give us a broad range of revenue? Is this a $5 million business in two years? Is this $20 million business that, you know, some guidepost for us to be thinking about?

A: Yes. Great question again, Christian. I would say the opportunity per customer and, again, some are gonna be bigger, some are gonna be smaller. The customer size could be $4 to $5 million annualized, each customer. Again, as I said, the ones that we're working with today, if they're a bit smaller ones, they could be smaller. But again, they're going to come online and as they win their sockets. So could this be a 10% to 15% of Lantronix, Inc. revenue in fiscal 2027? There's a probability it could get there. But we're working through all that and working through all the customers. But the opportunity size on some of the early ones are, you know, $3 million to $5 million each.

Q: Hey, good afternoon. Thanks for taking my questions. Looks like I back clean up. Maybe just quick clarification, Brent, on the inventory write-down. I'm wondering if you could quantify that. I'm not sure if I missed that. And then a couple of the segments there, I just want to clarify, what are you seeing in terms of out-of-band management in terms of in the June quarter and as we're going into the back half of the calendar year here? And I just want to clarify in terms of the September guidance that there's no Gridspertise in those numbers. And then I had a couple of follow-ups.

A: Yes. Thanks, Scott. On the inventory, one way to maybe look at it is based on the margins that we disclosed here in the quarter, we said that tariffs were a part of that. The tariffs probably made up about 100 basis points of the decline in margin quarter over quarter. With a large part of the difference being some of the inventory charges that we took in the quarter. Could you repeat the second part of your question?

Q: Out-of-band management contribution in the quarter, what kind of growth were you seeing in June? What are you guys seeing in terms of the focus to build the business as we're looking into the second half?

A: Yeah. Out-of-band, over quarter, obviously, we break out the details at that level. But out-of-band was up quarter over quarter from our third quarter and we're seeing pretty solid momentum in that business with some of the resources and other things we have going on in that product line. And then you had asked about what was the third part of your question?

Q: Yeah. Just in terms of the guidance.

A: Yeah. We don't currently have any Gridspertise estimates in our guidance.

Q: Great. Now just wanted to clarify. Now Saleel, the drone opportunity really starting to perk up for you. It seems like there's an incredible backlog of opportunities. Is there a number that you're comfortable with in fiscal 2026? You talked about fiscal 2027 maybe being 10% to 15% of revenues. What is that what do you think that looks like in fiscal 2026? And when does it start to become meaningful in terms of contribution on a quarterly basis in fiscal 2026?

A: We don't specifically call out the details, but it's definitely going to be meaningful in this year and it's in the millions of dollars for the fiscal year. Scott. It's not tens of millions this year. It's in the millions of dollars. And as I said, these guys are just starting to launch. And our ASP is pretty good at around $400. It's $500 approximately, give or take. We're feeling good about that. Does that kinda give you a goal post for this year?

Q: Absolutely does. Just trying to calibrate, you know, where we are in the ramp and maybe, Saleel, to follow-up on that front, I wanna make sure I understand in terms of your software content versus what FLIR brings to the equation? And then as you look at the characteristics of why you're being adopted in drones being low power, right, I think you're leveraging off of Qualcomm processors. As well as your computer vision and AI capabilities. There are other markets related to security surveillance, etcetera that fit into that as well. So I'm wondering if there are I'll call them tethered opportunities as opposed to drones and UAV that are starting to perk up in your backlog or opportunity pipeline?

A: Yeah. So a bunch of questions there. Right? So FLIR is a partner, but it's not for everyone. Want to be clear about that, right? FLIR is with some of the customers that we're working with. The recent announced win we did does not use FLIR, so we had to provide some camera tuning, some of the software that they we had. And they also had some software. So it was a kind of a combination of both teams. Remember, we did some services work for them, so it was kinda getting together on this. So FLIR is great. It's doing well for us, but we also are doing independent programs, Scott, on that. The other area that this is gonna go into is robotics. It's think about it. Right? Because robotics needs cameras. Those are very on the early days, I think you'll see opportunities percolating probably, you know, calendar Q1, calendar Q2 that we are looking at. But right now, we are laser-focused on the drone area. As you know, the US government is making a big push Secretary of Defense, HEXA, talked about two drones per platoon. The smaller ones. And hit the key point. We have worked with our customer to make sure that they have enough range. And there's a whole whole and you and I can talk offline. Of what the range means and how that needs to be. So right now, it's all hands on deck to get these guys multiple guys over the hub.

Q: Gotcha. And lastly, if I could, I'll just slip one in on the carrier opportunity. There's a nice recurring revenue component that goes along with it. I'm not sure if you quantify that, I'd love to get your thoughts. And then just in terms of RFP pipeline, sounds like you think that could be three exercise of where it is today. I'm just kind of wondering if you're actually those opportunities are currently percolating or you know, with a formal RFP or if you guys are just you know, continuing to knock on other doors? Thanks.

A: So two questions. We do call out software and services, so the ARR will be part of that. But we also have a service portion of that. So it's going to be shown in that line as you think about the future. As for the carrier one, there is one RFP that we are bidding on, and we believe we have a good high probability of getting that. But this carrier company now sent us to the Generacs and these other guys who made these control these you know, backup power generators and they've kinda told us we are the approved vendor for that. So that also is in motion as you think about it. So, therefore, we believe in the next, you know, few years, next couple of years, this should be a larger portion, as I said, could be as high as three times of what we announced already.