Lantronix, Inc. Q1 FY2026 earnings call

• Entered fiscal 2026 from a position of strength, delivering revenue of $29.8 million and non-GAAP EPS of $0.04, both at the high end of guidance range.
• Revenues grew 3% sequentially and 3% year-over-year excluding Gridspertise, with non-GAAP EPS improving from $0.01 in Q4 to $0.04 in Q1 due to gross margin expansion and operating leverage from cost optimization.
• Industry dynamics favorable with record defense funding and supportive regulations driving opportunities across verticals; demand for networking and connectivity solutions strong.
• Drone business: Benefiting from broad-based demand, expanded presence with Red Cat's teal drones, secured follow-on orders, partnered on next-gen platforms, introduced Edge AI drone solution, and OEM engagements grew from 10 to 17.
• Launched EdgeFabric.ai, a visual orchestration platform for Edge AI deployment, simplifying development and deployment of AI applications.
• Partnered with Vodafone IoT to launch Kompress.ai, a subscription-based SaaS platform targeting the industrial air compressor market, expanding recurring revenue potential.

Lantronix reported revenue of $29.8 million for the first quarter of 2026. Revenues grew 3% sequentially and 3% year-over-year excluding Gridspertise. The company's product segments include network infrastructure, unmanned aerial systems (drones), EdgeFabric.ai, and Kompress.ai. The network infrastructure business delivered solid growth and margins, while the drone business showed accelerating momentum with 17 OEM engagements, and EdgeFabric.ai and Kompress.ai were launched as part of strategic initiatives.

• Second quarter of fiscal 2026 revenue expected in the range of $28 million to $32 million.
• Non-GAAP EPS expected in the range of $0.02 to $0.04 per share.
• Midpoint of Q2 guidance implies sequential revenue growth and nearly 20% year-over-year growth excluding Gridspertise, with solid profitability.

Management noted that forward-looking statements involve risks and uncertainties that could cause results to differ materially from expectations, and encouraged reviewing cautionary statements and risk factors in SEC filings.

Q: Regarding drone opportunities, outline adoption period, what counts as a win, and competitive landscape?

A: Now working with 17 OEMs, with some in design-in, design win, and shipping. Outlook improved, expecting demand to accelerate, with potential for drone business to be 10% to 15% of revenue long-term.

Q: Update on generator win with major service provider?

A: Progressing well, moving beyond diesel generator to other equipment, Kompress.ai launched building on success, deployment continuing nicely.

Q: Sales and fulfillment model for Kompress.ai with Vodafone IoT?

A: Vodafone provides connectivity, Lantronix provides hardware, SaaS deployment, and long-term recurring revenue, early days but expected to contribute to ARR.

Q: Out-of-band management strength and impact of government shutdown on drones?

A: Out-of-band seeing growth, no disruptions to defense drone work due to multiyear contracts. Introducing new out-of-band product later in the year.

Q: ARR opportunity and adjacent opportunities?

A: ARR growing with MNO opportunity, software and services expected to increase. Adjacent opportunities in robotics, security, and surveillance using camera and AI capabilities.

Q: Timing of drone business reaching 10% to 15% of revenue?

A: Anticipated possibility in fiscal year 2027.

Q: Revenue recognition on Tier 1 telecom service provider win?

A: Recognized revenue in September quarter, intended to recognize in December quarter, progressing as planned.

Q: Follow-up on follow-on orders from Tier 1 telecom service provider?

A: Get quarterly orders, 50,000 piece opportunity with purchase orders in place, continuing to ship, expecting follow-on orders in calendar 2026 for additional equipment.

Q: Gross margin outlook and growth expectation for fiscal 2026?

A: Gross margin expected to be in line with first half of fiscal 2025 (low 40s), expecting sequential revenue progression and overall growth for the year excluding Gridspertise.