LTRX earnings call analysis

NASDAQ:LTRX Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good day and welcome to the Landtronic's fourth quarter and full year 2025 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, then two. Please note that this event is being recorded. I would now like to turn the conference over to Brent Stringham, Chief Financial Officer. Please go ahead. Brent Stringham | Chief Financial Officer: Good afternoon, and thank you for joining our fiscal fourth quarter and full year 2025 earnings call. Joining me today is our President and Chief Executive Officer, Celio Alceray. 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, management may make forward-looking statements which involve risks and uncertainties that could cause our results to differ materially from management's current expectations. We encourage you to review the cautionary statements and risk factors contained in the earnings release, which was furnished to the SEC today and is available on our website, and in the company's SEC filings, such as its 10-K and 10-Qs. Landtronics undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Please refer to the news release and the financial information in the Investor Relations section of our website for additional details that will supplement management's commentary. Furthermore, during the call, the company will discuss non-GAAP financial measures, today's earnings release, which is posted in the investor relations section of our website, describes the differences between our non-GAAP and GAAP reporting, and presents reconciliations for the non-GAAP financial measures that we use. With that, I will now turn the call over to Salil. Salil Asare: Thanks, Brent, and thank you, everyone, for joining today's call. Fiscal 2025 marked returning point for Landtronics. A year of disciplined execution, meaningful transformation, and building the foundation for sustainable long-term growth. The progress was evident in our fourth quarter results, with revenue of $28.8 million and a non-GAAP EPS of $0.01, both well within our quarterly guidance range. These results reflect a return to growth in our core revenue base, excluding the impact of grids, but these are EMEA smart grid customers. As we enter the new fiscal year, we see powerful industry dynamics creating significant opportunities for landtronics. We believe we are entering a multiyear growth cycle for unmanned aerial systems supported by record defense funding and favorable regulatory momentum. According to the U.S. Department of Defense, more than $13 billion is year marked for unmanned platforms in 2026. that increased focus on secure U.S.-made technologies. We believe the demand environment for our solutions has never been stronger. Against this backdrop of growing demand, we are beginning to see meaningful traction in the market, highlighted by our most recent win with Red Cat Steel Drones, which we formally announced last week. We've been collaborating with their team for some time, And our TAA and NDAA-compliant solution now powers TEAL's Black Widow drones for the U.S. Army's short-range reconnaissance program. As a blue UAS-approved platform, this program highlights both the rigor of qualification process and the mission-critical role of our technology. We began shipments in the June quarter. generating initial revenue and strengthening visibility into fiscal 2026. We believe our competitive edge lies in our deep camera expertise. Military and other high-performance drone requirements include advanced camera tuning, sensor fusion, and complex software integration, capabilities we have refined over many years. Equally important, being North America-based and fully compliant with NDAA and TAA regulations, further positions us as a trusted supplier to OEMs and defense contractors engaged in U.S. government programs. Red Cat's Teal Drones exemplifies our secure edge compute solutions, drive long-term growth opportunities in the drone market. Beyond defense, our partnership with Aurora highlights our ability to deliver high-performance edge AI solutions for commercial drone applications. By combining our compute module with Teledyne FLIR's thermal camera and Prism AI software, we enable more intelligent, real-time decision-making for applications like autonomous flight, surveillance, and industrial inspection. Early market feedback has been very positive. and we expect revenue contribution from these solutions to begin fiscal 2026. Looking ahead, we see broader industry trends, including government investment and rising demand for U.S.-based suppliers, creating a strong runway for both defense and commercial growth. Moving to our next win, we recently signed a multi-year agreement with a major U.S. mobile carrier to provide devices and services as they modernize over 50,000 backup power systems at wireless cell sites nationwide. This win is a strong validation of our edge infrastructure strategy, enabling resilient network uptime, improved lifecycle management, and real-time operational visibility across thousands of distributed locations. So far, we've booked nearly all the initial units and have begun shipping in the June quarter. With additional orders expected as the rollout continues, we believe this is a long-term opportunity with this customer and expect additional volume beyond this initial deployment, reflecting the depth of our relationship and the strategic nature of the program. In addition to the sizable hardware deployment, this design win also incorporates our perception platform, enabling remote monitoring and ongoing management of connected assets, As these devices are brought online, we expect they will contribute our growing base of high-margin annual recurring revenue. This win also opens the door to broader collaboration with the carrier over time, including additional software-enabled services and potential expansion across their larger network footprint. These types of wins highlight our transition from a traditional hardware supplier through a strategic platform partner, helping customers accelerate intelligence at the edge. This evolution positions us to capture a larger share of customer wallet, deepen long-term relationships, and embed our solution more directly in their critical operations. By moving up the value chain, we are not only expanding revenue opportunities, but also creating stickier, high-margin business over time. Turning to our growth outlook. As we turn the corner into a new fiscal year, we are seeing growing momentum fueled by recent design wins that are expanding our customer base and enhancing the predictability of our business. This diversification marks an important step forward as we move past the impact of risk apiece and underscores the underlying strength of our core platform. Q1 is off to a strong start. With healthy engagement from both new and existing customers across multiple verticals, our core business has stabilized and is now positioned to deliver growth over the longer term. At the same time, we are beginning to see encouraging traction in our Edge AI strategy. Looking ahead, our visibility in fiscal 2026 has improved, supported by momentum across the two strategic pillars of our platform. Edge IoT, spanning compute and connectivity, and network infrastructure encompassing out-of-band management and networking solution. The momentum is driven by recent design wins in edge IoT and out-of-band, continued investment in product innovation, and expanding relationships across our distribution and technology partner ecosystems. Together, these initiatives reinforce our ability to scale profitably and capture long-term opportunities at the intelligent edge. With that, I turn the call over to Brent to provide more detail on our financial performance. Brent? Brent Stringham | Chief Financial Officer: Thanks, Salil. Building on that strategic context, I'll now walk through our fourth quarter and fiscal 2025 financial results, highlight the key drivers behind our performance, and provide our outlook for the first quarter of fiscal 2026. Looking back on fiscal 2025, we delivered revenue of $123 million, reflecting the transition from a record fiscal 2024 to a more normalized revenue base. As we've noted before, fiscal 2024 included a significant contribution from grid expertise, which accounted for roughly 25% of revenue that year. In fiscal 2025, we recognized just over 11 million from Grits4Tease in the first half, with minimal revenue contribution in the second half of the year as the customer continued to work through its prior deployments. Excluding this customer, our core revenue base stabilized in the second half of the year, and the operational discipline we've driven over the last 12 months positions us for more sustainable and diversified growth in fiscal 2026. In the fourth quarter of fiscal 2025, we delivered revenue of $28.8 million, a sequential increase from $28.5 million in the prior quarter, and approximately 4% higher than fiscal Q4 2024 when excluding the impact of grid expertise. This growth, driven by continued momentum in our edge IoT products, underscores the strength of our core platform and the benefits of a more diversified revenue base. Turning to margins. In the fourth quarter, GAAP gross margin was 40% compared to 43.5% in the prior quarter and 38.1% in the year-ago period. On a non-GAAP basis, gross margin was 40.6% versus 44.1% last quarter and 38.8% in the year-ago quarter. The sequential decline primarily reflects inventory charges for aged inventory and higher duties and tariffs incurred in the quarter. Despite these temporary impacts, margins remain above the year-ago period, reflecting benefits from our ongoing cost and supply chain initiatives, as well as a favorable product mix. As we continue to carefully manage our inventories and the impact of tariffs, we expect gross margins to recover to the levels we achieved in the first half of fiscal 2025. We've made strong progress on our 90-day plan to further improve our cost structure and supply chain efficiency. As of today, the vast majority of US-bound products are now manufactured outside of China, reducing costs and minimizing potential tariff exposure going forward. Turning to expenses and profitability, GAAP operating expenses in the fourth quarter of fiscal 2025 were $14.7 million, down from $16 million in the prior quarter and $18.2 million in the year-ago period. Gap net loss for the fourth quarter of fiscal 2025 was $2.6 million or $0.07 per share compared to gap net income of $400,000 or $0.01 per share in the year-ago quarter. Gap results for both the fiscal fourth quarter and full year include restructuring charges of $900,000 and $3.5 million, respectively, related to the cost reduction initiatives we executed during the year. On a non gap basis, we reported net income of just under 400,000 or one cent per share compared to non gap net income of 1.1 million or three cents per share in the prior quarter. Cost reductions that we have discussed in recent quarters continue to benefit our P&L with non gap operating expenses down by just under 200,000 from the prior quarter, and approximately 1.9 million compared to the year ago quarter. Importantly, The proactive steps we took have reduced just over $4 million of costs relative to fiscal 2024, and the implemented efficiency measures have created a leaner operating structure and meaningful leverage in our model. We streamlined our operations, optimized our supply chain, and reduced operating expenses while continuing to invest in strategic growth initiatives. These actions allowed us to maintain profitability on a non-GAAP basis despite the year-over-year revenue decline. Turning to the balance sheet, net inventories decreased to $26.4 million as of June 30, 2025, compared to $28.2 million in the prior quarter and $27.7 million at the end of fiscal 2024. We ended the June quarter with cash and cash equivalents of $20.1 million up from the prior quarter. For the quarter, we generated positive operating cash flow bringing our full year fiscal 2025 operating cash flow to $7.3 million. During the year, we paid down approximately $4.5 million of term debt, or 28% of our outstanding balance. As of June 30, 2025, our remaining debt was approximately $11.8 million, resulting in a net cash position of $8.3 million, providing us with a stronger balance sheet entering fiscal 2026. We also recently refinanced this term debt into an asset-backed line of credit with the same lending partner. This refinancing reduces interest expense, provides greater flexibility on principal repayments, and extends the maturity to August 2028. Together with our debt reduction efforts, these actions strengthen liquidity and improve the efficiency of our capital structure. Now turning to our outlook for the first quarter of fiscal 2026, which ends September 30, 2025. We expect revenue to be in the range of $28.5 million to $30.5 million. Non-GAAP EPS is expected to be in the range of $0.02 to $0.04 per share. With that, I'll turn the call back to Solil for closing remarks. Salil Asare: Thanks, Brent. To close, fiscal 2025 was a year of transformation for Landtronics. one in which we built a strong foundation for profitable growth and positioned the company to capitalize on high-value opportunities and edge AI and infrastructure modernization. We reshaped our global operations, established four centers of excellence, streamlined our cost structure, and strengthened our balance sheet. We successfully integrated the Netcom IoT acquisition and deepened our strategic partnership with Qualcomm. expanding our capabilities in edge IoT and AI-driven innovation. On top of this, we proactively mitigated tariff exposure and realigned our supply chain, actions that reduce risk and support improved gross margin performance going forward. Collectively, these initiatives have focused our resources on the highest impact opportunities, embedded meaningful operating leverage into our model, and strategically reposition Nantronics to scale with sustained profitability as we enter fiscal 2026. With that, we now open the call for your questions. Operator | Conference Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone 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 your question, please press star, then two. And your first question today will come from Jason Schmidt with Lake Street. Please go ahead. Jason Schmidt | Analyst, Lake Street: Hey, guys, thanks for taking my questions. I just want to start with the drone opportunity. Obviously, a massive market, and you guys are seeing some really nice traction here out at the gate. How should we think about the potential for you guys here in the near term, both with REDCAD and what you potentially have in the pipeline? Salil Asare: Jason, Salil, 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 26, representing a meaningful portion of our business longer term. And again, it's fueled by programs like the SRR with REDCAT, And 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, NDA and TA certified really allows us to win these contracts. So we have... Shift, as I said, last quarter, I mean, in the June quarter, we have visibility into fiscal 26 with a few of the 10 drone makers. And as we get into early 26 calendar, we'll be seeing more of these companies going into production. So we are feeling really good as I sit here today. Jason Schmidt | Analyst, Lake Street: 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. Salil Asare: Yeah, Jason, another great question. You're right. In the past, maybe last year or the year before, we were 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 some of it is new, and then even our networking business. And out-of-band also is growing nicely into this quarter. So, builds a lot of confidence as you think about fiscal 26. Christian Schwab | Analyst, Craig-Hallam Capital Group: Perfect. Thanks a lot, guys. Thank you, Jason. Operator | Conference Operator: And your next question today will come from Ryan Koontz with Needham & Company. Please go ahead. Ryan Koontz | Analyst, Needham & Company: Great. Thanks. You had some brilliant 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, Salil, in terms of how you think about gross margins evolving over the next 12 months? Salil Asare: Yeah, Ryan, great question. I think – not I think. I know in the June quarter we had some one-off gross margin-related items like tariffs and some inventory. But moving forward, it's going to 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. Brent Stringham | Chief Financial Officer: Yeah, I think, Ryan, as we talked about in the prepared remarks, we're seeing gross margins for the upcoming quarters here in fiscal 26 returning to what we saw a year ago in the, you know, Celio mentioned 44%. We're trending in that direction going forward. Great. Super. Thanks for that clarification. Ryan Koontz | Analyst, Needham & Company: And maybe, you know, all these opportunities in the drone market around defense and unmanned vehicles, can you talk a little bit about, you know, 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 somewhat new market motion? Thanks. Salil Asare: Yeah, Ryan, another great question. And you and I have spoken before. We kind of started on this journey of unmanned UAS or drones, you know, in calendar 24. And into that, we've kind of worked with Teledyne FLIR, which was a very important announcement that we did. They are the leader in thermal imaging cameras, which this market is 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 Red Cat 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. Ryan Koontz | Analyst, Needham & Company: That's great. So Teledyne sounds like somebody there, they're pulling you into some, some of these deals in a kind of a partner ecosystem. Salil Asare: Yeah. But Teledyne first pulling us into quite a few and, you know, they're a big company with a lot of access. So it's been very helpful. Yeah. Ryan Koontz | Analyst, Needham & Company: That's great. Maybe one last one, if I can squeeze it in. You talk about this backup generator for sell 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. Salil Asare: Yeah, thanks, Ryan. Another great question, right? We announced a big tier one mobile win with about 50,000, you know, of our customers. 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've booked most of the order. We started to ship in the June quarter, which we did, and 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 a 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. That's going to start – it's not starting at a big number, but as more and more devices come online, it's going to do that. So it shows the investments that we were making in the last 18 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, it could get bigger, and there are more that we're working on. Great. That's all I've got. Ryan Koontz | Analyst, Needham & Company: Thanks so much, Salil. Thank you, Ryan. Operator | Conference Operator: And your next question today will come from Christian Schwab with Craig Hallam Capital Group. Christian Schwab | Analyst, Craig-Hallam Capital Group: Please go ahead. Great. Thanks for taking my question. Just as it relates to the drone opportunity, can you give us an idea of what your average dollar content, you know, would be per device, you know, not specifically the REDCAT itself, but, you know, the entire – you know, 10 customers you're dealing with just kind of to give us either an idea of what your dollar content is, please? Salil Asare: Yeah, great. Great question, Christian. It's approximately around $500. So it's pretty very good from an ASP perspective. So as, you know, the volumes get into the, you know, many thousands or tens of thousands, this is meaningful revenue for the company as you think about moving forward. Christian Schwab | Analyst, Craig-Hallam Capital Group: Right. And then your prepared comments, you know, you talked about a meaningful revenue opportunity. You know, I assume some customers, of course, have different, you know, volumes that they would be planning on shipping over a multi-year timeframe. When you think of that market, could you give us a broad range of revenue? You know, is this a, you know, a $5 million business in two years? Is this a... $20 million business that, you know, some guideposts for us to be thinking about? Salil Asare: Yeah, great question again, Krishan. I would say the opportunity per customer, and again, some are going to be bigger, some are going to be smaller. The customer size could be four to five 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, they're socket. So could this be a 10% to 15% of Lantronics revenue in fiscal 27? 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. Christian Schwab | Analyst, Craig-Hallam Capital Group: Great. No other questions. Thank you, guys. Good quarter. Salil Asare: Thank you. Operator | Conference Operator: Your next question today will come from Scott Sorrell with Roth Capital. Please go ahead. Scott Sorrell | Analyst, Roth Capital: Hey, good afternoon. Thanks for taking my questions. Looks like I'll back clean up. Maybe just a 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, you know, a couple of the segments there, I just want to clarify, you know, 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 grids for keys in those numbers. And then I had a couple follow-ups. Brent Stringham | Chief Financial Officer: Yeah, thanks, Scott. On the inventory, you know, one way to maybe look at it is based on the margins that we disclosed here in the quarter, you know, we said that tariffs were a part of that. 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. Can you repeat the second part of your question? Scott Sorrell | Analyst, Roth Capital: 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 bulk in the build of business as we're looking into the second half? Brent Stringham | Chief Financial Officer: Yeah, out-of-band, quarter-of-a-quarter. Obviously, we don't break out the details at that level, but out-of-band was quarter-of-a-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? Scott Sorrell | Analyst, Roth Capital: Yeah, just in terms of the guidance, yeah. Brent Stringham | Chief Financial Officer: Yeah, we don't currently have any grid expertise estimates in our guidance. Salil Asare: Scott, just to put it right, you've had no grid expertise since January 1st of this year, right? So we've taken it out. So as I said, the core business is growing nicely. Scott Sorrell | Analyst, Roth Capital: Great. No, just wanted to clarify. Now, Salil, 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 26? You talked about fiscal 27 maybe being 10% to 15% of revenues. What do you think that looks like in fiscal 26? And when does it start to become meaningful in terms of contribution on a quarterly basis in fiscal 26? Salil Asare: You know, 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, right? It's not tens of millions this year, but 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. So we're feeling good about that. Does that kind of give you a goalpost for this year? Scott Sorrell | Analyst, Roth Capital: Absolutely does, just trying to calibrate, you know, where we are in the ramp. And maybe, Salil, to follow up on that front, I want to 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 at 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, et cetera, that fit into that as well. 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. Salil Asare: Yeah, so a bunch of questions there, right? So FLIR is a partner, but it's not for everyone. I want to be clear about that, right? FLIR is with some of the customers we're working with. The recent announced win we did does not use FLIR, so we had to provide FLIR. some camera tuning, some of the software that we had, and they also had some software. So it was kind of a combination of both teams. Remember, we did some services work for them, so it was kind of 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 going to go into is robotics, as you think about it, right? Because robotics means cameras. Those are very – on the early days, I think you see opportunities percolating – Probably, you know, calendar Q1, calendar Q2 that we're looking at. But right now, we're laser focused on the drone area. As you know, the U.S. government is making a big push. The Secretary of Defense Hex had talked about two drones per platoon, the smaller ones. And you hit the key point. We have worked with our customer to make sure that they have enough range. And there's a 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 hump. Scott Sorrell | Analyst, Roth Capital: Gotcha. And lastly, if I could, I'll just slip it 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, it 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. Salil Asare: Thanks. So two questions. We do call out software and services, so the ARR will be a part of that. But we also have 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've got a good high probability of getting that. But this carrier company has now sent us to the Generacs and these other guys who make these backup power generators, and they've kind of 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. Scott Sorrell | Analyst, Roth Capital: Perfect. Operator | Conference Operator: Thanks so much. Salil Asare: Thank you, Scott. Operator | Conference Operator: This will conclude our question and answer session. I would like to turn the conference back over to Salil Asare for any closing remarks. Salil Asare: I want to thank everyone for you joining us. I know it's Labor Day coming up, so please enjoy the weekend. And Lantronics will be at the Gateway Conference next week in San Francisco. Please, hopefully, you can join us there. Thank you so much. Operator | Conference Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. jsPDF 3.0.3 D:20260606090227-00'00'

NASDAQ:LTRX Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Conference Operator | Operator: Good day and welcome to the Landtronics 2025 Q3 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 1 on your telephone keypad. 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 Brent Stringham, Chief Financial Officer. Please go ahead. Brent Stringham | Chief Financial Officer: Good afternoon, and thank you for joining our quarterly earnings call. Joining me today is our President and Chief Executive Officer, Salil Al-Saray. 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, management may make forward-looking statements, which involve risks and uncertainties that could cause our results to differ materially from management's current expectations. We encourage you to review the cautionary statements and risk factors contained in the earnings release, which was furnished to the SEC today and is available on our website. and in the company's SEC filings, such as its 10-K and 10-Qs. Lantronics undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Please refer to the news release and the financial information in the Investor Relations section of our website for additional details that will supplement management's commentary. Furthermore, during the call, the company will discuss non-GAAP financial measures. Today's earnings release, which is posted in the investor relations section of our website, describes the differences between our non-GAAP and GAAP reporting and presents reconciliations for the non-GAAP financial measures that we use. With that, I will now turn the call over to Salil. Salil Al-Saray | President and Chief Executive Officer: Thanks, Brent, and thank you, everyone, for joining today's call. We reported revenue of $28.5 million for the third quarter of fiscal 2025, and our non-GAAP EPS was $0.03. Both metrics were well within our quarterly guidance range. Brent Stringham, our CFO, will be providing more details on the third quarter financial results shortly. On the call today, I would like to cover four topics with you. First, I will speak briefly to the current operating environment and how we've moved quickly with our own task force on tariffs while remaining focused on executing our business and controlling costs. Second, I'd like to talk about how we are expanding our distribution network in the European Union and Asia Pacific. Third, I would like to highlight some recent customer wins and mention products we've launched. Lastly, I want to highlight our solid operational execution and strengthening financial position, which Brent will speak to in more detail in his prepared remarks. So first off, we're carefully monitoring the current operating environment, and we are working very closely with our customers, suppliers, and contract manufacturers. In anticipation of the tariffs, we established an internal task force to identify our top priorities and devised a 90-day action plan. We are currently implementing this plan and closely managing expenses due to the uncertainty surrounding tariffs and any disruptions to the supply chain. Regarding pricing, we are working on a customer-by-customer basis with goal of minimizing the impact of landtronics. And we are in discussion with our largest partners and contract manufacturers to manage and reduce cost. In this operating environment, we will continue to analyze, adjust, and execute our action plan. Second, regarding our effort to grow our channel distribution, We announced this past quarter that we are expanding our partnership with TD Cynics, our major distributor in North America. They are now distributing throughout Europe, focused on out-of-band management, network infrastructure, and industrial IoT solutions, bringing expanded support to our customers and partners in the European Union. And we are also leveraging the acquired channel network from Netcom, to expand the distribution in Asia Pacific, Australia, and New Zealand. Overall, the integration of Netcom products into our business has gone very well, and I'm pleased with the level of customer engagement and new cross-selling opportunities that we are seeing. Third, regarding new customer wins, we recently announced a new AI-powered Camelot solution that uses our high-performance system and module paired with thermal infrared camera module from Teledyne FLIR. In this solution, our OpenCUE system and module provides advanced processing for AI-driven situational awareness, advanced thermal imaging, and real-time decision-making. This integration accelerates the next-gen AI camera solutions for drones, surveillance, and robotics. I'm also pleased that we announced our latest system and module using Qualcomm's Dragon Wing 8550 processor that's uniquely designed for higher AI and ML applications, such as video transcoding, camera applications, and edge gateway integration. As I've said previously, we are very focused on edge AI solutions because of the benefits of low latency, better security, and low power requirements at the edge of the network. And we are seeing more customers moving to hybrid architectures that are leveraging both cloud computing for heavy computational processing, as well as edge computing for intelligent real-time inferencing. And finally, we continue to manage our cost structure tightly, and I'm pleased to report our cash position increased sequentially in fiscal Q3 compared to the prior quarter, We also took the prudent step to pay down some debt, helping us reduce our interest expense. Brent will be covering that in more detail in his script. Brent, over to you. Brent Stringham | Chief Financial Officer: Thank you, Salil. I will review the financial results and some business highlights for our third quarter of fiscal year 2025 before commenting on our financial outlook for the fourth quarter of fiscal 2025. For the third quarter of fiscal 2025, or FQ3, We reported revenue of $28.5 million. As we expected, revenue was down both sequentially and on a year-over-year basis, with no shipments in the current quarter to our large smart grid customer in Europe as they worked through their initial deployments. The revenue impact was partially offset by sequential organic growth in our embedded connectivity and switch products, along with growth in our gateways and routers led by products from the acquisition of Netcom last December. As expected and discussed on last quarter's call, we saw sequential and year-over-year increases in our GAAP and non-GAAP gross margins. GAAP gross margin was 43.5% in FQ3 2025 compared to 42.6% in the prior quarter and 40.1% in the year-ago quarter. Our non-GAAP gross margin was 44.1% in FQ3 2025 compared to 43.2% in the prior quarter and 41% in the year-ago quarter. GAAP operating expenses for FQ3 2025 were $16 million, compared to $16.6 million in the year-ago quarter and $15.4 million in the prior quarter. We reduced our non-GAAP OPEX for FQ3 2025 by approximately $1.2 million compared to the year-ago quarter and by about $200,000 sequentially. We continue to realize the impact of the various cost reductions we have spoken to in recent quarters. We know in the March quarter that non-GAAP OPEX, including costs related to NetCom, was within our previously stated quarterly target range of $11.25 million to $11.75 million, which did not originally contemplate NetCom operating costs. GAAP net loss was $3.9 million, or $0.10 per share, during FQ3 2025, compared to gap net loss of $400,000 or one cent per share in the year-ago quarter. The current quarter gap net loss includes a restructuring charge of approximately $1.6 million related to the cost reduction initiatives that we undertook and completed in January. Non-gap net income was $1.1 million or three cents per share during FQ3 2025. compared to non-GAAP net income of $4.2 million, or 11 cents per share, in the year-ago quarter. Turning to the balance sheet, cash and cash equivalents at the end of the March quarter totaled $20 million, slightly up from the prior quarter. Before the three- and nine-month periods ended March 31, 2025, we generated positive operating cash flow of $3.2 million and $6.2 million, respectively. Net inventories decreased to $28.2 million as of March 31, 2025, as compared to $29.1 million in the prior quarter. Given our recent margin expansion and cost reductions, the positive cash flow from operations allowed us to improve our balance sheet during the current quarter by paying down about $2 million, or 15%, of our existing term debt. As Salil previously mentioned, this will help improve savings on interest costs. As of March 31st, 2025, our remaining debt balance approximates $12.5 million, giving us net cash of $7.5 million. Now for the outlook. For the fourth quarter of fiscal 2025, we expect revenue to be in the range of $26.5 to $30.5 million. Given the current environment, we are expecting some pressure on gross margins in FQ4 compared to our recent near-record gross margins in FQ3. Accordingly, non-GAAP EPS for FQ4 is expected to be in the range of zero to two cents per share. Thanks, Brent. Salil Al-Saray | President and Chief Executive Officer: As we considered our outlook for the June quarter, we have been cautious given the macro uncertainty. We are executing well in the current operating environment and managing our expenses closely. We are generating positive cash flow. Our balance sheet is strong. our customer design activity is growing very nicely. In addition to solid business execution, we remain very focused on developing edge intelligence solutions with compute and connect for our customers. With that, I'd like to ask the operator to open the call for Q&A. Thank you. Conference Operator | Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Jason Smith from Lake Street. Please go ahead. Jason Smith | Analyst, Lake Street: Thanks for taking my questions. Just curious what the NetCom contribution was in the March quarter. And I know you noted that you've been pleased with sort of customer engagement on that. But how should we think about potential growth of that business going forward? Salil Al-Saray | President and Chief Executive Officer: Hey, Jason. Salil here. Thank you for that question. As we mentioned when we did the acquisition, that we expect the revenue to be $6 million to $7 million on an annualized basis. We are tracking to exceed that run rate. And if you remember, I'd spoken, we should expect to be 15 to 20% higher than that run rate if you think about it on an annualized basis. The second part is how are the customers tracking? The majority, the two big customers are Vodafone and Coca-Cola. I've spoken to them before, and they seem to be very well engaged with us. But what has happened is... Some of the other customers that we were working with are also opportunities for some of our other products like out-of-band and some of our other industrial IoT products that we have. So in the mid to long term, this is going to be very good as we put it all together with the Lantronics products and the Netcock acquired products. And one key aspect that we really like the business for was for the 5G, and we got that 5G product, and it's already sampling. Jason Smith | Analyst, Lake Street: Okay, that's really helpful. And then just given the current macro, curious what you're seeing from sort of a quoting activity and order pattern perspective so far here in Q4. Salil Al-Saray | President and Chief Executive Officer: Great, great question with the macro. And, you know, the organization is ready. We've been handling the changes that are ongoing, and we feel really confident where we're at. So a few points. We're not seeing any cancellations, push-outs. or any unnatural behavior from our customers. The design activity is continuing to be just fine. And in the prepared remarks, maybe we talked about how we are managing it and adding a little bit more color to this. We will be pretty much out of our China manufacturing by early FQ-126. Maybe you want to add to that a little bit, Brent. Brent Stringham | Chief Financial Officer: Yeah, we, you know, this has been an ongoing process for the last few quarters already before all these tariffs were announced. So we've, you know, we're seeing the last remnants of some of the netcom acquired manufacturing playing out over the next quarter or so. And really, from a metric standpoint, you know, we have less than 5% of our products that are manufactured in China are destined for the U.S. And as Salil said, you know, we're in the process of fully decommitting from China in the next, you know, 90 days or so. Jason Smith | Analyst, Lake Street: Gotcha. And then just the last one from me, and I'll jump back into Q. Just following up on some of those comments, has the macro changed how you're thinking about current expertise in fiscal 26? Salil Al-Saray | President and Chief Executive Officer: You know, they continue to do their deployment. We continue to remain engaged with them. There is nothing new for me to add other than the fact that, you know, we are in good conversations with Grits for Tees. Their deployment is ongoing, and we are engaged, and we are still single-sourced. That's, you know, the clarity that I have for you on specifically Grits for Tees. Jason Smith | Analyst, Lake Street: Okay. Appreciate that call, you guys. Thanks a lot. Thanks, Jason. Conference Operator | Operator: Yes. Thank you. Our next question comes from Scott Sewell from Roth Capital. Please go ahead. Scott Sewell | Analyst, Roth Capital: Hey, good afternoon. Thanks for taking my questions. Hey, Sewell, maybe just to jump in on the edge compute side of the equation, a lot going on from a product development standpoint starting at CES, I think continuing at Mobile World Congress. I wonder if you could give us some updated thoughts in terms of what that engagement design activity pipeline looks like When we should start to see some revenues, how quickly does that ramp up in fiscal 26 and kind of frame in the opportunity? Salil Al-Saray | President and Chief Executive Officer: Great question, Scott, and thank you for that question. Our edge AI initiatives and focus is starting to pay off. First one was we announced with Teledyne FLIR, a cooperation where our product is in their new thermal imaging camera. and it's going to go into production shortly, I believe. So we're working with them on that. Specifically, three areas were where we were focused on. One was drones, robotics, and security and surveillance. I'm very pleased to report our first drone customer, if all the trials complete well, will go into production in the June quarter, small amounts. But as we then go into the fiscal 26, it's going to start to pick up speed. On the surveillance side, we are engaged with two companies where they're looking at our technology to put into their new, I would call it AI-enabled cameras, Scott. So in 26, we do see revenue from the AI activities that we are doing specifically around cameras. From a market size, as you've seen the numbers, Grandview, you know, all of these folks are talking about, you know, markets in the billions of dollars longer term. we do believe that we will be able to grow nicely with some of the engagements. And we've really been laser-focused enabling cameras with Edge AI, and that's what we do really well. So I'm happy to report that we have our first design and hopefully first volume shipments in this quarter. It's a start, but it will pay off in fiscal 26. Scott Sewell | Analyst, Roth Capital: Great. Thank you. It's good to see some of the traction momentum building on that front. And in terms of the guidance for the June quarter, I'm wondering at this point a couple things, like what visibility do you have to that range at the current time? What are kind of the swing factors on that front to the upside and the downside? Is grid expertise, you know, part of the equation at all in the June quarter? And then I know it's early, but I'm wondering if you could give us your initial thoughts in terms of growth into fiscal 26. It looks like the decks are cleared here with grid expertise now largely out of the numbers. You know, what are the early thoughts in terms of how that's starting to shape up? I know it's outside of the near-term tariff window, but I'd love to get your initial thoughts. Thanks. Salil Al-Saray | President and Chief Executive Officer: Yeah, yeah. Thanks for that, and let me try to take one at a time. For the June quarter, we have no grids for these revenues, similar to what it was for the March quarter. So, as you can see, our base business is starting to grow. I'm very pleased to tell you that. As I think about... where we are sitting today. Without getting into the details, our bookings were good last quarter. Our bookings continue to be good this quarter. So as I said in my prepared remarks, Scott, I was very prudent and cautious with the number that we put out there. So sitting today, we feel fine about the number we put out there for you guys. And we were cautious as we thought about it. So we did not go over our skis by any means. And as I think about the future for 26, you know, from the run rate business that we are at now from this quarter or last quarter, we should definitely grow double digits. And we have the design momentum and customers that we're working with that will allow us to show that. Scott Sewell | Analyst, Roth Capital: Very helpful. Lastly, just – On the out-of-band side of the equation, I'm just wondering some updated thoughts on that front. It's tended to be a little, I think, volatile over several quarter periods. But are you starting to get some stability and I'll call it recurring customers in terms of their buying patterns here? Thank you. Brent Stringham | Chief Financial Officer: Yeah. Hey, Scott. This is Brent. Thanks for the question. Yeah, as you mentioned, you know, we've seen some lumpiness in that business. And that's largely because, you know, as we know, it's dependent on, you know, project-based capital spending. and also to a certain amount of federal spending, which, you know, there's some slowdown there. So we're seeing good momentum with the pieces we put in place at the company, resources and the like, and we feel good about the business going forward and kind of expect to get out of the slowdown we've seen over the last quarter or two going forward. Salil Al-Saray | President and Chief Executive Officer: And, Scott, let me just add, we brought in a new general manager to run that business, and we feel really good about it. He comes out of open gear, and I think you know those guys. So I anticipate we will start to see some good momentum, you know, in the probably second half of 26 from where we're at with some new design and activity. Conference Operator | Operator: Great. Salil Al-Saray | President and Chief Executive Officer: Thanks so much. Thanks, Scott. Conference Operator | Operator: Thank you. A reminder to all the participants, if you wish to register for a question, please press star then one on your telephone keypad. Our next question comes from the line of Christian Schwab from Craig Hallam Capital Group. Please go ahead. Christian Schwab | Analyst, Craig Hallam Capital Group: Thanks for taking my question. I just want to follow up on the commentary you just made just a few seconds ago that you're confident you can grow, you know, double digits again in 2026. Is that based on, you know, obviously Netcom rolling in, but, you know, does that, you know, include grid expertise coming back and large, you know, digestion of previous orders being done? Or is that just based on the core business and expansion of opportunities, partnerships with TD, you know, or, you know, new design winds ramping, you know, through your Qualcomm relationship, any color there would be great. Salil Al-Saray | President and Chief Executive Officer: Christian, thank you for that question. So, as I said, you know, from the base business that we are at today, you know, it's for 28 and a half approximately, we definitely see a growth of 10%, double digits, could be 10, could be 12% from a couple things, design activity, the Qualcomm relationship with new products that we're releasing, new industrial IoT products coming. Also, without a ban, we're releasing a new box that's going to be coming out in probably 90 days. So all of that is in my plan and the company's plan as you think about fiscal 26 from the run rate we're at now. Without getting into too much with Gridspertise, All I'll say is they need to get their deployments done, and I'm working with them closely, but I wouldn't say I'm putting any big numbers for Grids for Tees in the number. Does that kind of give you enough clarity? Christian Schwab | Analyst, Craig Hallam Capital Group: That's great, Colin. And then my last question is, you know, are you still currently the only sole supplier to Grids for Tees should they – digest the inventory they have in their rollout and get back on track, would you still be the only one they would call? Salil Al-Saray | President and Chief Executive Officer: Yes, we are single-sourced with them, and we continue to be single-sourced. And as I've spoken in the past, they're doing a few POCs in the U.S. and things like that. I'm hopeful for the longer term, but, you know, we've helped them, we've shipped a lot of product, We are still working with them, but, you know, I've tried to delist the number as much as I can. So does that make sense? Like we are fully only the single source with them right now. And that I've confirmed as of a month ago. Christian Schwab | Analyst, Craig Hallam Capital Group: Perfect. That's all my questions. Thank you. Thank you so much. Conference Operator | Operator: Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Salil Afsari for closing remarks. Salil Al-Saray | President and Chief Executive Officer: Thank you, everyone, for joining the call. And we will be in Minnesota at the Craig Haaland Conference the week after Memorial Day. Thank you so much. Conference Operator | Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. jsPDF 3.0.3 D:20260606090229-00'00'

NASDAQ:LTRX Q2 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good day, and welcome to the fiscal 2025 second quarter results conference call. All participants will be in 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, then two. Please note this event is being recorded. I would now like to turn the conference over to Brent Stringham, Chief Financial Officer. Please go ahead. Brent Stringham | Chief Financial Officer: Good afternoon, and thank you for joining our quarterly earnings call. Joining me on the call today is our President and Chief Executive Officer, Salil Alseray. 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, Management may make forward-looking statements which involve risks and uncertainties that could cause our results to differ materially from management's current expectations. We encourage you to review the cautionary statements and risk factors contained in the earnings release, which was furnished to the SEC today and is available on our website, and in the company's SEC filings, such as its 10-K and 10-Qs. Lantronics undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Please refer to the news release and the financial information in the Investor Relations section of our website for additional details that will supplement management's commentary. Furthermore, during the call, the company will discuss non-GAAP financial measures. Today's earnings release, which is posted in the Investor Relations section of our website, describes the differences between our non-GAAP and GAAP reporting and presents reconciliations for the non-GAAP financial measures that we use. With that, I'll now turn the call over to Saleel. Salil Alseray | President and Chief Executive Officer: Thanks, Brent, and thank you, everyone, for joining us on the call today. We reported revenue of $31.2 million for the second quarter of fiscal 2025, and our non-GAAP EPS was 4 cents. Both metrics were solidly within the guidance range. Brent Stringham, a newly appointed CFO, will be providing more details on the second quarter financial results shortly. On the call today, I would like to cover four topics briefly with you. An update of our NetCom acquisition, which closed in late December. Expected growth of the edge AI market and comments from CES in Las Vegas. A strengthening relationship and AI developments with Qualcomm. and an update of our internal cost-saving initiatives. First, we are pleased with the strategic acquisition of Netcom for $6.5 million, which expands our Connect business with 4G and 5G gateways. The integration process is going well, and we are working closely with our supply chain partners to fill orders for their blue-chip customers. We recently met with several key customers at CES, including Vodafone, Netcom's largest customer. We believe we are off to a good start and are excited about the growth prospects for the business. Australia and New Zealand present greenfield opportunities for us, and we're exploring new cross-selling opportunities for Lantronics. To help us grow our Connect product offerings and integrate Netcom's gateway line, we hired Daniel Kwan to head up our industrial IoT group. Daniel will play a pivotal role in integrating AI into our new IoT devices and gateways for industrial and enterprise customers. With over 20 years of experience in industrial IoT and wireless communications, including his most recent role as Vice President and General Manager at Mutti Tech Systems in Minnesota, we are delighted to have him join the team. Second, a recent Gartner report highlights a significant shift towards edge computing. By 2025, 70% of data is expected to be captured at the edge of the network, up from 25% in 2018. Additionally, more than 50% of enterprise-generated data will be processed outside traditional data centers by 2028, as compared to only 25% in 2018. This trend represents a substantial market opportunity with AI and machine learning, projected to be a $76 billion market by 2031. Lantronics is strategically positioning itself to capitalize on this megatrend by focusing on compute and connect at the edge. Through both organic growth and strategic acquisitions, Lantronics aims to be the picks and shovels of the edge AI build-out. We provide the necessary hardware, software, and services to enable edge AI applications, helping customers deploy IoT edge solutions more efficiently. We showcased our edge intelligence technology to our key customers and partners at CES and received enthusiastic feedback. Third, we continue to strengthen our strong collaboration with Qualcomm on edge intelligence and some broader AI initiatives. For example, we are integrating Qualcomm's advanced AI frameworks into our Landtronics edge AI systems to enhance modeling and real-time analytics. We are positioned as one of Qualcomm's key partners for Edge AI, supporting their AI Hub program and their expansion into mid-tier and enterprise customers. For example, new opportunities include working on prototype solutions for banking institutions to test customer traffic analytics, working with an electronics manufacturer for quality control and predictive maintenance, and working with a large agriculture customer to explore real-time monitoring and maintenance for advanced farming equipment. While we invest in Edge AI solutions, we remain very focused on securing new customers and design wins. Several of note to share are, in out-of-band management, we are shipping to a large enterprise-ready AI data center business, that is deploying our top-of-rack solution, including hardware, software, and services that enable out-of-band management for remote configuration, fast recovery, and maintenance of the customer's AI cloud servers. This is critical for maintaining access to their assets at all times. In compute, we recently secured a design win with a U.S.-based drone manufacturer. We are providing our production-ready computing modules that are embedded in the drones for short-range reconnaissance by the military. The system is TAA compliant. In Connect, we are building on our strong relationship with the leading telecom provider to deliver gateway and routers to manufacturers of critical infrastructure assets such as generators and power plants. Our intelligent gateway allows customers to increase the operational readiness, reducing operating costs, and improving alerts and reporting. Finally, regarding the cost reduction initiatives we spoke about last quarter, I'm pleased to report that we are on track and made good progress in the fiscal second quarter. These initiatives are now substantially complete. Our process of consolidating our seven geographic locations down to four centers of excellence is progressing with Taipei for operations and hardware, Hyderabad for software and firmware, Vancouver for software and Qualcomm initiatives, Minneapolis for operations, and United States certified warehousing. We are making these changes to better serve our customers, help our future growth initiatives, and streamline operations. In addition to the four centers of excellence, we're retaining a small administrative head office nearby. With that, I will now turn the call over to Brent to provide you with the quarterly financial review. Brent Stringham | Chief Financial Officer: Thank you, Salil. I will review the financial results and some business highlights for our second quarter of fiscal year 2025 before commenting on our financial outlook for the third quarter of fiscal 2025. For FQ2 2025, we reported revenue of $31.2 million, which was near the midpoint of our guidance range. This did not include any revenue from the acquisition of the NetCom IoT products as the transaction closed right at the end of the quarter. As expected, revenue was down sequentially from the prior quarter, principally due to lower volume from our largest automotive customer and slightly lower activity in our enterprise vertical markets. On a year-over-year basis, revenue in FQ2 2025 was down approximately 5.9 million, or 16%, as we saw lower activity in some of our out-of-band management and switch products. Gap gross margin was 42.6% in FQ2 2025, compared to 42.1% in the prior quarter and 40.6% in the year-ago quarter. Non-GAAP gross margin was 43.2% in FQ2 2025 compared to 42.6% in the prior quarter and 41.6% in the year-ago quarter. The sequential improvement in gross margin reflects favorable product mix toward higher margin system solution products. GAAP operating expenses for FQ2 2025 were $15.4 million compared to $16.8 million in the year-ago quarter and $16.6 million in the prior quarter. Similarly, our non-GAAP OpEx for FQ2 2025 was down by approximately $700,000 compared to the year-ago quarter and down approximately $600,000 sequentially, reflecting the progress we're making on cost reductions, which I will speak more about in a moment. Gap net loss was $2.4 million or $0.06 per share during FQ2 2025 compared to gap net loss of $2.6 million or $0.07 per share in the year-ago quarter. Non-gap net income was $1.8 million or $0.04 per share during FQ2 2025 compared to non-gap net income of $3 million or $0.08 per share in the year-ago quarter. Further to Salil's comments regarding our cost reduction initiatives, activities to reduce our operating costs have been substantially completed as of last month in January. We reported in the prior quarter that we expected these initiatives to result in quarterly non-GAAP OPEX in the range of $11.25 to $11.75 million, and on a full-year basis, reduce fiscal 2025 OPEX by $4.5 million compared to fiscal 2024. With the initiatives implemented to date, we are on track to deliver these cost reductions. Note this quarterly OpEx estimate did not include incremental costs attributable to the acquisition of the NetCom IoT products, which we currently expect to add approximately $300,000 to $400,000 per quarter. Turning to the balance sheet, We ended FQ2 2025 with cash and cash equivalents of 19.2 million, which includes the disbursement of 6.5 million in late December for the acquisition of the Netcom IoT products. For the six-month period ended December 31st, 2024, we generated positive operating cash flow of 3 million. Net inventories decreased slightly to 29.1 million as of FQ2 2025, as compared to 29.5 million in the prior quarter. Now for the outlook. For the third quarter of fiscal 2025, we expect revenue to be in the range of 27 to 31 million. We're expecting sequentially lower revenue in FQ3, primarily reflecting a slower than anticipated rollout by our large smart grid customer in Europe. We anticipate resuming shipments once the initial deployment is complete. The revenue impact in FQ3 is partially offset by expected organic growth in gateways, routers, and out-of-band management. As a result, we're expecting non-GAAP EPS in the range of one cent to five cents per share in FQ3. On a general housekeeping note, when filing our Form 10-Q for the current quarter, we also intend to file a Form S3 registration statement which renews our existing shelf registration that recently expired. This is consistent with the company's long-standing practice. Thanks, Brent. Salil Alseray | President and Chief Executive Officer: In conclusion, I believe Lantronics has the key assets in computing connect to drive edge intelligence. We will continue to focus on three key verticals, enterprise, smart cities, which includes critical infrastructure, and transportation. And as new reports indicate, more and more data traffic will be generated at the edge of the network, with a higher percentage of processing happening there because it's secure and it makes for fast and efficient decision making. Rather than bringing data back and forth to the cloud, we are very well positioned for this megatrend. While we have experienced the effects of customer concentration, we set our corporate strategy, focused the business, executed well operationally while delivering consistent profitability. We're driving ahead with edge AI solutions, securing new design wins, integrating the newly acquired assets from Netcom, and positioning the company for exciting future growth. With that, we complete our prepared remarks for today, so I'll now turn it over to the operator to conduct our Q&A session. Thank you. Operator | Conference Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question comes from Jason Schmidt with Lake Street. Please go ahead. Jason Schmidt | Analyst, Lake Street Capital Markets: Hey guys, thanks for taking my questions. I just want to focus on your SmartCred customer. I know fiscal 25 was always going to be that transition year, but just based on your commentary on how the March quarter is shaking out, have your thoughts changed about potential follow-on orders from this customer later this calendar year? Salil Alseray | President and Chief Executive Officer: Hey Jason, Salil, thanks for that question. Our thoughts haven't changed around the SmartGrid customer. As you know, we ship to Gritspertise. We've said that in the past. They then work with Enel on the rollout, and we kind of need to just work around with them on the rollout. So we are sole sourced. We are continuing to work with them closely, and I'm going to be visiting them shortly in Europe. So not a lot of change on the future. They've been committing to us that Longer term, they know what the size of the opportunity is, and I believe we've spoken to that in the past. But right now, it's a matter of getting the rollout done. Jason Schmidt | Analyst, Lake Street Capital Markets: Okay. That makes sense. And any update on sort of the opportunity here in North America? Salil Alseray | President and Chief Executive Officer: Up to my recent discussions with them, they have two pilots going on, one in the Carolinas and one in the Northeast. Jason Schmidt | Analyst, Lake Street Capital Markets: Perfect. And then just the last one from me, and I'll jump back into Q. How should we think about gross margin trending the remaining kind of fiscal 25 here? Brent Stringham | Chief Financial Officer: Yeah, hi, Jason. This is Brent. Thanks for the question. You know, as you know, margin's pretty heavily dependent on our product mix, and we expect at least the next quarter's, you know, non-GAAP gross margin to come in slightly higher than what we saw here in FQ2. Okay, perfect. Jason Schmidt | Analyst, Lake Street Capital Markets: Thanks a lot, guys. Salil Alseray | President and Chief Executive Officer: Thanks, Jason. Thank you for the questions. Operator | Conference Operator: The next question comes from George Gianarchos with Canaccord Genuity. Please go ahead. George Gianarchos | Analyst, Canaccord Genuity: Thank you for taking my questions. Good afternoon. I was wondering first if you can talk a little bit more about what's happening in your out-of-band business, AnyColor, and how you expect that to proceed into the March quarter. Salil Alseray | President and Chief Executive Officer: Thank you. Thanks for the question, George. I spoke about out-of-band. Let me give you, like, a specific case that I said in my prepared remarks. We got a design win and we're shipping to an AI edge data center where our box sits at the top of the rack, so that's good. As you see, the data center build-out happened. And without getting into the specifics, we expect it to grow from Q2 fiscal, which ended in December, Q3 fiscal, which is going to be ending in March. George Gianarchos | Analyst, Canaccord Genuity: Right. But in the December quarter, what did you see? I think you mentioned on the call there was some weakness in out-of-band. Can you just talk a little bit about what happened there and any verticals specifically that were impacted? Salil Alseray | President and Chief Executive Officer: The weakness was primarily with one government-related entity. George Gianarchos | Analyst, Canaccord Genuity: Thank you. And then moving maybe to Otto, can you just talk a little bit about your progress with TOG and also whether you have been able to leverage that into additional conversations with other OEMs? Salil Alseray | President and Chief Executive Officer: Yeah, so TOG, our relationship is good. They've gone through some soft pockets, but we are anticipating to be very well engaged with them. More importantly, we have started to ship a new product to them for their new upcoming car. So good work going on there. We're also working with them on some services business as they move to the new levels of Android. So as I said in the past, we'll be in two of the cars. In Europe, as you know, we've been working with one truck manufacturer, and that's ongoing. That's the update on the automotive side, George, and thank you for that. Thank you so much. Operator | Conference Operator: And our next question comes from Ryan Koontz with Needham. Please go ahead. Ryan Koontz | Analyst, Needham & Company: Great. Thanks for the question. I want to expand the question around Smart Grid and your opportunities there as it relates, you know, apart from what Gridspertise is doing. I know you've got your own product there. You know, how do you look at that market? Where do you see opportunities? Is it a different competitive playing field than your traditional scene? Maybe just high-level reflections on the smart grid opportunity, particularly in light of modernization and new power needs from AI infrastructure. Salil Alseray | President and Chief Executive Officer: Thanks. Yeah. Hey, great question, Ryan. And this really dwells into how we think about the company longer term and about the future growth that I talked about, which is around AI. And when I had spoken at CES and maybe when I had even come to your conference, We talked about our smart LV box, which is a edge box using a Qualcomm SOM that we've created, adding our firmware software, really defining how the grid is managed at the edge device. So this could be sitting at a low-voltage substation, or even if you go further, even at your house. But right now our focus is around the low-voltage substations, where you decide where the power needs to be sent, decide, hey, is Salil at home or not? So it kind of is doing a lot of the traffic management of how the power comes. And we believe we've got a POC happening in Europe, which is we are progressing well. And then once we finish that and start going after more customers, I expect to see some results in that. And again, this is using a Qualcomm SOM for getting after the power at the edge device. You'll be able to see this one shortly again at Embedded World at the Qualcomm suite. Ryan Koontz | Analyst, Needham & Company: That's really helpful. That's really great. And is that a different set of competitors than you typically face in the smart grid arena? And in terms of channels, would you develop new channels for this market, folks that are more aligned at the utility business? Salil Alseray | President and Chief Executive Officer: Yeah, so we're looking at the channels that we want to develop in that. And specifically, we're going to focus a little bit in Europe because you've got some traction in that area. And we talked about our biggest Smart Grid customer. They are also interested in it because they also believe they want to go one more level from the medium-voltage substation to the low-voltage substation. It's early days, but we are also engaged with them. So that would be one channel, and then we would have some of our own channels that our sales team is working on. Ryan Koontz | Analyst, Needham & Company: Great. Super. I guess in terms of your legacy business in switching and out-of-band, I mean, how do you think about that in the big picture of, you know, is that a low-growth TAM at all, or do you think it's going to be a headwind as far as your opportunity for your traditional products? Salil Alseray | President and Chief Executive Officer: Yeah, great question, right? So if I think about compute and connect, and you specifically talked about switching and out-of-band. I'll think out-of-band for a minute. Out of band, we expect this to be a growing business for us, and it's higher than corporate gross margins, as we've said before. We have services on ARR with it, so we like it, and we believe as the data center build-out happens, we are going to benefit from that. So that's number one. The switches, media converters, some of these other businesses that we have, I believe our market share is not large. Thus, I see an opportunity for us moving forward to grow some of that from the base that we are at. And you'd say, hey, why are you getting confidence around it? I'm seeing some good traction in North America, primarily because we are a Western supplier. That's becoming more and more important now. Ryan Koontz | Analyst, Needham & Company: Okay. That's great, Shiloh. Thanks for that, Culler. Appreciate it. Operator | Conference Operator: Thank you, Ryan. And the next question comes from Scott Searle with Roth Capital. Please go ahead. Scott Searle | Analyst, Roth Capital: Hey, good afternoon. Thanks for taking my questions. Hey, Searle, maybe just to quickly follow up on the out-of-band management opportunity, I'm wondering if you could frame what you think the growth rate is going forward. And then on the edge AI opportunity, I know it's very early days, but it seems like there was some good traction coming out of CES. Can you just provide a little bit more color on design cycles, metrics that we should be paying attention to, and how this will start to ramp up in fiscal 26? Salil Alseray | President and Chief Executive Officer: Yeah, so let me take the edge AI first, and then we'll go to out-of-band. Edge AI, Scott, we had good momentum out of CES. I spoke specifically about three customer programs that we were working on. One is for the banking industry, and I think you saw that demo when you were at our suite at CES. The other one is around a manufacturing where they've got predictive maintenance that they're looking at the existing box that we've added some technology in. And the last one is really with farming. So in fiscal 26, we will start to see green shoots and we anticipate to have revenue in fiscal 26 in these areas. I don't know whether you saw the news that Qualcomm also spoke about it yesterday, that more and more inference is going to run on the device, making AI more accessible and customizable, and we're going to be right there with that. So I'm expecting to see growth. And, you know, the industry is talking about a 12% growth rate, so I expect we should be in that area, if you may. Oh, and out-of-band management, sorry. Let me get to that. Out-of-band management should be growing more, You know, at the rate that we talked about, you know, 10%, 12%, the market's about $400 million to $500 million, as I've spoken in the past. And the reason we like it, high gross margins, very sticky, and it's a differentiated sale for Landtronics. Scott Searle | Analyst, Roth Capital: Great. And if I could, just to follow up on supply chain issues, obviously it's a key topic of discussion. in the broader community right now, but could you kind of take us through some of your exposures, how the current or potential tariff environment impacts you or doesn't impact you? Thanks. Salil Alseray | President and Chief Executive Officer: Great question, and thank you for asking me that, Scott. So on the tariff side of it, we have initiatives in place to address potential tariff increases. We are in the process of transitioning the majority of our manufacturing out of China in the near term, Scott. And I'm very confident this is not going to have any material impact on our business. Operator | Conference Operator: Great. Thank you. And the next question comes from Christian Schwab with Craig Allen Capital Group. Please go ahead. Christian Schwab | Analyst, Craig Allen Capital Group: Hey, guys. Most of my questions have been answered. I just have one. You kind of entered the conference call talking about exciting growth to come. And I'm just wondering if you could kind of frame that on a multi-year basis for us, what you are expecting. Salil Alseray | President and Chief Executive Officer: You got cut out at the end, Christian, but I think you were talking about the growth that we are focused on. So we anticipate, we expect that we should be growing around the 12% rate. That's what we are planning on. Once some of these edge AI things hit, we should start growing faster than that in the longer term. Christian Schwab | Analyst, Craig Allen Capital Group: Great. Salil Alseray | President and Chief Executive Officer: And then as far as – And let me make one more add to that. I believe the NetCom asset is also going to be additive to that. Sorry. Please go ahead, sir. Christian Schwab | Analyst, Craig Allen Capital Group: Yeah, no worries. Complimentary. And my last question is just, you know, gross margins, you know, would you assume gross margins stay kind of at the level that you're kind of guiding to March, or do you see something more aspirational in the future? Brent Stringham | Chief Financial Officer: Yeah, Christian, this is Brent. We think in the near term, especially this next quarter, Q3, we expect gross margins to be slightly higher than yesterday. than what we saw here in Q2, especially given the mix that we're projecting for that quarter and shortly thereafter in the quarters to come. Salil Alseray | President and Chief Executive Officer: And, Christian, if you think about longer term, we anticipate the margins to keep improving closer to the 45% rate without giving too much color. But, yes, we are really seeing that happening. We've got a laser focus on the supply chain right now. Christian Schwab | Analyst, Craig Allen Capital Group: Great. No other questions. Thank you. Operator | Conference Operator: Thank you everyone for joining our call. Salil Alseray | President and Chief Executive Officer: We are always available for more discussions. Thank you again. Bye-bye. Operator | Conference Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. jsPDF 3.0.3 D:20260606090230-00'00'