LTRX earnings call analysis

NASDAQ:LTRX Q2 2026 Earnings Call Transcript Generated on 10/9/2026 Operator | Conference Facilitator: Good day and welcome to the Landtronics, Inc. 2026 Second Quarter Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star then 1 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

Brent Stringham Good afternoon, and thank you for joining our fiscal second quarter earnings call. Joining me 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, we may make forward-looking statements which involve risks and uncertainties that could cause our results to differ materially from current expectations. We encourage you to review the cautionary statements and risk factors contained in today's earnings release, which was furnished to the SEC and is available on our website, and other SEC filings such as our 10-K and 10-Qs. Lantronics undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Additionally, during the call, we will discuss non-GAAP financial measures. 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 Alseray | President and Chief Executive Officer

Thanks, Brent, and thank you, everyone, for joining today's call. We continued our momentum into the second quarter through discipline execution, delivering revenue of $29.8 million and non-GAAP EPS of $0.04, both well within our guidance range. As expected, we experienced double-digit growth year over year when excluding our MER Smart Grid customer grid expertise. Profitability remained strong, driven by continued year-over-year gross margin expansion and the operating leverage created by last year's cost optimization initiatives. Overall, Q2 was another step forward in aligning financial execution with our long-term Edge AI strategy. More importantly, we are now seeing that strategy translates into tangible customer adoption across multiple end markets as several customer engagements are moving from development and pilots into broader deployment. As we discuss our end markets, it's worth noting that the government shutdown last quarter created a short-term slowdown in purchasing activity from certain federal agency customers. Despite this disruption, our teams executed well and delivered solid results. Diving into the markets we operate in, beginning with drones and unmanned systems, calendar 2026 is widely expected to mark the start of an unmanned aerial systems super cycle, reflecting accelerating adoption of autonomous platforms across defense and commercial applications. This view is increasingly supported by the broader defense funding environment. The signed fiscal 2026 US defense budget already includes over 13 billion in enacted funding allocated across unmanned systems, autonomy, ISR, and counter UAS programs, including reconnaissance drone initiatives across the full range of mission profiles. While portions of this funding has yet to be released, the scale and breadth of these allocations suggest meaningful capacity to support more advanced unmanned platforms as programs move from development into execution. Looking ahead, we believe unmanned autonomous and AI-enabled platforms are well positioned to capture a growing share of future defense modernization spending. We are also seeing a broader shift in how the Department of War engages with domestic drone supply chain with a more commercial and partnership-oriented mindset focused on accelerating readiness and scaling production across trusted suppliers. Against this backdrop, our evolution within unmanned systems positions Lantronic squarely in the value creation layer of the ecosystem. Since entering this market, we've moved up the stack from initially providing general purpose compute modules to delivering intelligent imaging platforms, and now to enabling integrated system level workflows that combine sensing, processing, and secure connectivity. In many deployments, Our AI Edge compute modules serve as the brains of the drone, enabling autonomous operation and real-time decision-making independent of a network connection. As a result, Lantronics operates at the intersection of payload, compute, and connectivity, three of the highest value and least easily substituted layers in modern unmanned systems. where we believe value creation and customer relationships compound over time. We currently focus on group one and two short-range reconnaissance drones, which aligns well with where a significant portion of current unmanned funding is directed. These programs typically represent multi-year engagement with strong lifetime value, supporting applications ranging from surveillance to advanced payloads. Today, we are working with over 15 OEMs, and these customers are increasingly looking to deepen their engagement with us. In response to customer demand, we introduced our drone reference kit at CES last month. designed to accelerate time to market for defense and commercial UAV developers. This platform reinforces our strategic shift from a component supplier to a platform partner by reducing integration complexity and development risk in regulated environments. REDCAT with their teal drones continues to expand their work with us beyond hardware. into software and next-generation platform development. As their production needs increase, we are expanding our support accordingly, including higher volume builds for the TEAL platform and follow-on commitments that reinforce REDCap's confidence in our capabilities. We are also partnering in their next-generation drone platform, strengthening our position as a long-term partner. Additionally, we were selected by FlightWave, a Red Cat company, to incorporate our OpenCUE system and module into their new drone, another example of the deepening trust in our technology across the ecosystem. Importantly, these engagements are not limited to design or early development. We have demonstrated the operational capability to support high volume production today, and we believe we are well positioned to scale alongside our customers as the United States and allied governments accelerate deployment of unmanned system. In December, our Edge AI solution was selected by Trillium Engineering to power Gimbal imaging systems deployed across ISR, infrastructure inspection, and Wi-Fi operations, validating the performance, security, and reliability of our Edge AI architecture for mission-critical deployments. We also recently secured our first design win with flock safety in the drone as first responder or DFR category, extending our Edge AI capabilities into public safety applications. While early, this win represents growing interest beyond defense in real time, AI enables situational awareness at the edge. Lastly, we expanded our engagement into AI-enabled threat detection through a new collaboration with SafePro Group. Together, we are helping building an integrated edge intelligence ecosystem by combining SafePro's object threat detection models with our compute modules to enable real time on device detection of landmines and other ground hazards without the reliance on cloud connectivity. By allowing drones and autonomous platforms to identify threats that endanger soldiers, vehicles, and civilians on the ground, This collaboration meaningfully strengthens our role at the center of a growing network of defense and autonomous systems standardizing on AI compute technology. We are seeing clear and accelerating momentum in our drone business to the first half of fiscal 2026. Drone revenues grew meaningfully from Q1 to Q2. driven by deeper customer engagement and the early benefits of our platform-led approach, positioning us to realize operating leverage as programs scale over time. As customer programs expand and move further into execution, we are seeing continued growth through the remainder of the fiscal year and into fiscal 2027. Reflecting the strength and the pace of our momentum since entering the drone market approximately a year ago, we are raising our expectation to a range of $8 million to $12 million in drone revenue this fiscal year. An increase from the previous range of $5 million to $10 million with drones becoming an increasingly meaningful contributor as programs scale. Now, turning to critical infrastructure monitoring, an important long-term pillar of our industrial IRB strategy, where our intelligent hardware, secure connectivity, and perception software come together to deliver end-to-end solutions. Moving to our tier one US mobile network operator, the rollout continues to progress as expected. We recognize revenue over the last two quarters, and this deployment remains an important foundation of our recurring revenue strategy. Looking ahead, our focus is on expanding beyond monitoring generators into additional high-value applications within the tower, including backup power banks and rectifiers. Each cell tower includes these systems, and the opportunity is compatible in size to the generated deployment we support today. This program represents a step forward in building recurring revenue and scaling into a repeatable multi-year deployment model. Over the last 12 months, software and services accounted for approximately 6% of total revenue, which we view as the early innings. As we replicate this model across additional sites and applications, we see a clear and achievable path to more than doubling that mix over the term by layering software, analytics, and AI pipeline orchestration into hardware deployments already in the field. At CES, we debuted SmartEdge AI and SmartSwitch AI, our new Edge AI gateway and AI-powered fiber switch. Together these solutions create a unified platform for real-time video analytics, intelligent connectivity, and multi-camera orchestration across enterprise and industrial environments. A key advantage of this platform is its ability to upgrade existing infrastructure. There are millions of deployed non-intelligent cameras and devices already in the field. and our solutions enable customers to bring AI capabilities to these environments without requiring hardware replacement. This significantly expands our addressable market and supports scalable, brownfield upgrade opportunities across surveillance, smart buildings, and critical infrastructure. In summary, I'm encouraged by our performance through the first half of fiscal 2026. We're executing with discipline as we scale high-growth verticals, expand software-enabled recurring revenue, and deliver continued operating leverage from a leaner cost structure. What's most compelling is that our diversified growth vectors, unmanned systems, critical infrastructure monitoring, and enterprise connectivity are increasingly converging around a common edge AI platform. This convergence enables efficient scaling, deeper customer relationships, and positions Lantronics to capture long-term secular trailwinds across aerospace, defense, and intelligent infrastructure. With that, I'll turn the call back to Brent to cover the financial results.

Brent Stringham | Chief Financial Officer

Brent. Thank you, Sunil. Let me begin by going through the financial results for our fiscal second quarter, including some of the key drivers behind our performance. I'll then provide our outlook for the third quarter ending March 31, 2026. As Salil noted, in the current quarter, we delivered revenue of $29.8 million. Excluding GridSpertice, we experienced year-over-year growth driven by strength in embedded compute, including our A&D and drone programs, along with solid contributions from our network infrastructure switch products. We also delivered higher SAS-based ARR, supported by the ongoing ramp of our critical infrastructure monitoring deployment with the Tier 1 MNO we've discussed. Turning to gross margins, in the second quarter, GAAP gross margin was 43.6% compared to over a three-year high of 44.8% last quarter and was up from 42.6% a year ago. On a non-GAAP basis, gross margin was 44% compared to 45.3% last quarter and 43.2% in the prior year quarter. As we mentioned previously, the prior quarter's margin partially benefited from certain inventory recoveries and royalty benefits that came in slightly above plan. Overall, our continued underlying margin performance is supported by a higher mix of premium products and the disciplined cost management that we've been speaking to. Turning to expenses and profitability, GAAP operating expenses in the second quarter of fiscal 2026 were 14 million, down just under 6% from the prior quarter, and also down approximately 9% from 15.4 million in the year-ago period. as our P&L continues to benefit from the actions we took last year. Gap net loss for the second quarter of fiscal 2026 improved to $1.3 million or $0.03 per share compared to gap net loss of $2.4 million or $0.06 per share in the year-ago quarter. On a non-gap basis, net income improved to $1.6 million or $0.04 per share compared to non-gap net income of $1.5 million or $0.04 per share in the prior quarter. Turning to the balance sheet, net inventories were $27.1 million as of December 31, 2025 compared to $26.8 million in the prior quarter and $29.1 million in the year-ago quarter. We ended the quarter with cash and cash equivalents of $23 million, an increase of approximately $800,000 from the prior quarter. During the second quarter, we also generated positive operating cash flow of nearly $2.2 million. During the quarter, we paid down about another $1 million of our outstanding debt, leaving a remaining balance of approximately $9.7 million as of December 31, 2025, which compares to $14.7 million a year ago. Our corresponding net cash position currently is approximately $13.3 million. Now moving to our outlook for the third quarter of fiscal 2026, which ends March 31, 2026. We expect revenue to be in the range of 28.5 million to 32.5 million. Non-GAAP EPS is expected to be in the range of three to six cents per share. I'll now turn the call back to Saleel for closing remarks.

Salil Alseray | President and Chief Executive Officer

Thanks, Brent. As we move to the second half of fiscal 2026, I'm energized by the momentum across our business and the clarity we have around our path forward. Our edge AI strategy is driving real adoption across our growth vectors, and we're increasingly operating from a position of strength. There are three key takeaways I want to leave you with today. First, drones are scaling faster than we initially expected. We are seeing strong execution, expanding customer engagement, and clear momentum as programs move into broader deployment. Reflecting this progress, we increased our fiscal 2026 drone revenue outlook to $8 to $12 million, a meaningful step up from our prior expectations. Second, we see drones becoming a material contributor to our business as we look ahead. Based on the trajectory of current programs and customer demand, we expect drone revenue to represent approximately 15 to 20% of the total revenue in fiscal 2027, reinforcing our confidence in the durability and scale of this opportunity. Third, our platform-led approach is creating leverage. We are combining edge AI, embedded compute, and connectivity across drones, critical infrastructure, and enterprise markets, while maintaining a disciplined cost structure and expanding recurring revenue. This positions us to scale efficiently as demand accelerates. We are disciplined, well positioned, and entering our next phase of growth with momentum. We believe Lantronics is building a differentiated edge AI platform with expanding end markets, increasing mix of higher value revenue, and a clear runway ahead. With that, we'll now open the call for questions. Operator?

Operator | Conference Facilitator

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 2. At this time, you will pause momentarily to assemble our roster. The first question today comes from Scott Searly with Roth Capital.

Please go ahead. Scott Searly | Analyst, Roth Capital

Hey, good afternoon. Thanks for taking my questions. Nice to see the drone momentum starting to accelerate a little earlier than expected. Maybe quick to kick off, Salil, To calibrate on IoT systems and solutions, I think it was down sequentially. Can you just provide some commentary in terms of what happened on that front and kind of how we expect things to transition over the next couple of quarters going forward? And then on drones, I wonder if you could give us an idea about what the December quarter looked like in terms of contribution. And I want to clarify your comments in terms of Fiscal 27, raising the guidance for fiscal 26, but in 27, I thought you said 15 to 20% of the mix, which gets drones over 20 million in absolute dollars in fiscal 27. Want to make sure that that's in the ballpark. And then a lot of developments going on within the marketplace, and specifically in the last day or so, I think there was commentary around the drone dominance program starting to kick into gear with awards starting in March. I'm wondering if you could provide some commentary about your participation in that. I think there are 25 entities involved and it sounds like you're working with 15 plus and just kind of give us an idea of how well you are positioned there and how defensible the opportunity is for you.

Thanks. Salil Alseray | President and Chief Executive Officer

Scott, thanks for the question. Let me start with the drone section first because you've got a few things that let me unpack all of that for you. So let's do revenue. On the revenue side, as I said, our prior expectation was about $5 million to $10 million for fiscal 26, which ends in June. We have now moved it up to $8 million to $12 million in fiscal 26. So it's a meaningful increase. We're seeing a lot of momentum in the business, so we feel good where we are at. Without getting into the details, Q1 to Q2, we saw a big bump up. So we are very happy. And that's why we believe we'll continue to increase every quarter into Q3 and Q4 as I look forward. For fiscal 27, you've done the math right. It should be 15% to 20%. So it could be anywhere from $20 million to $30 million range, give or take. So that's how big part of our company's revenue it will become. The other question you had is about the differentiation and how we are winning. Let me spend some time on that. It's really a very important point, and let's spend a few minutes on it. So first, our differentiation starts where we operate in the drone stack. We are at the intersection of payload integration with our edge compute and secure connectivity. So it all goes hand in hand. Second is our long-term relationship with Qualcomm, which is a real advantage because we are able to meet the requirements, which is known as SWAP, size, weight, power, compared to what's in the market right now. So we are winning using that solution, making a system on module. At CES, as you know, we announced a drone platform in anticipation of the drone dominance program, and I'll come back to that in a minute. So we announced that, we started providing a full solution and a kit. So we're providing a system solution as opposed to just a module. And I've said this in the past, we win because embedding cameras into systems is in our DNA. We've done that for a long time, and this is probably one of the more complex ones where they have six to eight cameras on each drone. We know how to integrate that into a solution that the customer can use and go to market. The other thing is the market is up and coming and new, and us making it easier for our customers to get to market fast is really a big differentiator now as we are able to go out and work with a lot of customers. And over time, I believe, this creates a lot of stickiness, all the things that I talked about, and the margins are going to improve. Out of the 25 folks who won, the vendors who won the drone dominance, this is the first one, by the way. It's going to be a multi... Quarter program and then it's going to be a total of I believe 300,000 drones over the lifetime over the next 18 months So they only did 30k in the program, which is a start We are working with a sizable amount of them either directly or through some of our partners where we are in the gimbal so The list was very exciting to see the list. I happen to know a lot of the folks on the list. I So I hope I covered all the drones questions. I'm going to have Brent take the IoT systems a little bit into detail, but just want to remind everybody we did have a bit of a shutdown last quarter where some of our IoT system products get sold. With that, Brent, go ahead.

Brent Stringham | Chief Financial Officer

Yeah, Scott, to build on that real quick on some of our IoT box products, the quarter ending September or so, our prior quarter, is traditionally a heavier quarter with some of the Fed customers in the Fed buying season in that summer quarter ending in September. Some of that was expected in terms of a sequential decline. We also saw a pretty meaningful ramp in our Tier 1 M&O customer from the prior two quarters as we shipped and deployed a A big number of those losses to them. And so here in the December quarter, we were still shipping, but the program is nearing its end point on the rollout. So I think those two things are kind of contributing to that category being down quarter over quarter.

Great. Thanks so much. Scott Searly | Analyst, Roth Capital

Very exciting news about the drones. I'll get back in the queue. Thank you. Thank you, Scott.

Operator | Conference Facilitator

The next question comes from Christian Schwab with Craig Hallam.

Please go ahead. Christian Schwab | Analyst, Craig Hallam Capital Group

Yeah. Congrats on the acceleration of the drone business. Can you explain or give us a little bit of color on what the ASE uptake would be moving from just providing modules to an entire system?

Salil Alseray | President and Chief Executive Officer

Yeah. Thank you for that question, Christian. So as you stated pretty clearly, our ASP is in the 400 to 500 range today. And this is mainly in the class group two drones that we are in. As we go to a full turnkey kind of solution, it will move up quite nicely as we do more integration in the hundreds of dollars more. And if we go And our plan is then also to go after the FPV drones, which will have a bit of a lower ASP. So it's going beyond one kind of price point where we're now having a portfolio that we're going after. So it's going to vary, but it's a healthy ASP that we are seeing and good margins in the business.

Christian Schwab | Analyst, Craig Hallam Capital Group

Great. And then as we look, you know, we kind of, in essence, gave guidance for what we think the drone business is can be in fiscal year 27. What type of growth rate do you think we should assume for the core business or the non-drone business in 27? And what would be the potential puts and takes to that?

Salil Alseray | President and Chief Executive Officer

You know, Christian, we do quarterly guidance, as we've said in the past. We see, let me, the drone business I think is new and exciting and you can see double digit, high double digit growth rates in that, which is great. Also the December quarter, Lantronics grew 17% YOY when you remove grids per tees. And drones were a component of it, but the other businesses also. At the midpoint that we have put out there, the whole business is again growing. So I see fiscal 27 to be a good year. The numbers that the analysts have us at are what we're working through, and we're not allergic to what the numbers are out there right now.

Christian Schwab | Analyst, Craig Hallam Capital Group

Okay, that's fair. And then regarding operating expenses, given the increased growth opportunities, is there anything that you're aware of that would materially change operating expenses on a go-forward basis? or should we just assume less than revenue, obviously?

Brent Stringham | Chief Financial Officer

Yeah, Christian, on the near term, next quarter or two, I think it's safe to assume OpEx kind of in the range of around 11.8 to maybe 12.3 million a quarter, so kind of in the range of what we're seeing in the last couple quarters. OpEx was slightly lower than that, I believe, here in this quarter, but in Q3 and Q4, the range I just mentioned is probably a reasonable estimate.

Christian Schwab | Analyst, Craig Hallam Capital Group

Okay. That's fantastic. Congrats. No other questions. Thank you. Thank you, Christian.

Operator | Conference Facilitator

The next question comes from Jason Schmidt with Lake Street.

Please go ahead. Jason Schmidt | Analyst, Lake Street

Hey guys, thanks for taking my questions. Just curious if you could quantify what the government shutdown or that impact was in the December quarter. Obviously, as you noted, it causes cost and friction. And then relatedly, if you're seeing any supply constraints today, obviously with the well-known memory shortage out there, just curious if you're seeing any other dynamics.

Salil Alseray | President and Chief Executive Officer

What I want to leave you with on the government shutdown, and I think Brent talked a little bit about the IoT system, which is our box products, which were a bit slower than we anticipated because of the shutdown, but the team executed so well that we were able to make up all of it, and I'm really happy with that. So think about that from that perspective. You know, the government is starting to normalize, so we hope I expect and hope that things will improve on that side if you think about it. On the memory, great question on the memory shortage, by the way, Jason. Everybody's talking about it. We do see pricing and supply pressures going on. We are proactively working with our customers to alleviate this, to ensure that we are supplying them enough product, especially in some of the new Businesses like our drone stuff, so we've got supply that we have prepared for them. They're working with us closely on that. And we don't see a big issue in the short term, even the midterm. Longer term, I mean, we've got to think about all of that. But we are able to work around most of the issues that we are having, and we're working with our customers very closely to ensure there is no supply disruptions.

Jason Schmidt | Analyst, Lake Street

Okay, that's really helpful. And then just as a follow-up, given the momentum and upward revision to your drone revenue guidance, coupled with, I mean, it sounds like the software piece of the pie is going to continue to grow going forward. How should we think about the gross margin profile? Or are you thinking about sort of the near-term or medium-term gross margin profile differently given those dynamics?

Brent Stringham | Chief Financial Officer

Yeah, Jason, on the margins for that business specifically, and to answer your question on the near term, I think we've said previously the margins are near our corporate average, maybe slightly below those levels. But longer term, as software services become a bigger part of what we're providing our customers, we would expect the margin to slightly increase. But In the near term, next quarter or two, we're not forecasting a meaningful increase in what we previously discussed.

Salil Alseray | President and Chief Executive Officer

Jason, let me add another point on the gross margin. You can see compared to the year ago, we are up. Last quarter we were up. This quarter we are up. So the trajectory is where we want it to be. And we are working on all of this as you think about it. So, you know, that gives you an understanding that we're building a moat around our business. Right? That's how the gross margin is improving. And we got to keep working it, but I'm pleased to see the upward progress that the team has made.

Jason Schmidt | Analyst, Lake Street

No, gotcha. Thanks a lot, guys.

Operator | Conference Facilitator

The next question comes from Austin Moeller with Canaccord.

Please go ahead. Austin Moeller | Analyst, Canaccord

Hi. Good afternoon. Nice quarter. Thanks, Austin. Just my first question. So now the defense budget is passed and the FCC has banned new Chinese drones. So how should we be thinking about how quickly we might see demand materialize into your backlog, either from the 340,000 American drone dominance initiative or on the commercial side for SOMS?

Salil Alseray | President and Chief Executive Officer

Yeah, so on the drone dominance and the FCC ruling on December 23rd is going to be helpful for all American manufacturers. And Austin, we are working with a slew of companies now to get them enabled and into the market faster. And, you know, I can go over the list. We've got Red Cat, multiple programs, multiple Red Cat companies, Trillium, which is big and it's in the large ecosystem there. Sightline, Grimsy, we worked with SafePro, and you're gonna be seeing more announcements from us, so we are getting geared up to support this, and that's why we increased our expectations for next year to 15 to 20% of the company's revenue, which is very meaningful. The other little thing in my prepared remarks that you might have got, we got our first win in the drone as a first responder category. which is if you would think about it as a commercial or a public safety area. Now, that's new and unique because that was all held by the Chinese in the past. Now, that's getting created in the United States, and we want to be a part of that also. So, you know, great and exciting times ahead of us, and we are ready.

We are ready. Austin Moeller | Analyst, Canaccord

Okay. And how should we think about potential M&A that you might be eyeing to expand margins and drive ASPs beyond, like, the $400 to $500 range for, like, broader systems or subsystems?

Salil Alseray | President and Chief Executive Officer

Yeah. We are looking at M&A really in two areas as I think about the company. Looking at, A, subsystems like, you know, Now, we're working with some companies that do a lot of the drone manufacturing already, but can we integrate more into our SOMs? Can we add a software layer around it? SPAR is a perfect example where we partnered with somebody who's putting their IP onto our SOMs. So M&A is going to be an important feature as I think about the future as we create more of an ecosystem and a platform play, Austin. So we're talking and talking to a bunch of folks in that. The other area we're also looking at M&A is around our critical infrastructure monitoring, where we want ARRs and software to be a larger portion of the company. So both of those areas are areas we're going to focus on, and that will get this company to higher gross margins, higher software revenues, higher stability as I think about it.

Austin Moeller | Analyst, Canaccord

That's very interesting. Exciting time in the drone industry.

Thanks. Salil Alseray | President and Chief Executive Officer

Thank you, Austin.

Operator | Conference Facilitator

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

Salil Alseray | President and Chief Executive Officer

Thank you for your questions and joining us today. We appreciate your continued interest in Lantronics and look forward to keeping you updated as we execute our strategy. We are excited to have you with us on this journey, and we believe we are just beginning to take flight. With that, thank you very much.

Operator | Conference Facilitator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. jsPDF 3.0.3 D:20261009125904-00'00'

NASDAQ:LTRX Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Conference Operator | Operator: And welcome to the Landtronics Inc. 2026 First Quarter Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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, CFO.

Please go ahead. Brent Stringham | Chief Financial Officer

Good afternoon, and thank you for joining our fiscal first quarter 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 Saleel.

Salil Al-Saray | President and Chief Executive Officer

Thanks, Brent, and thank you, everyone, for joining today's call. We entered fiscal 2026 from a position of strength, and our first quarter results reflect that momentum. We delivered revenue of 29.8 million and non-GAAP EPS of 4 cents, both at the high end of our guidance range. Revenues grew 3% sequentially and 3% year-over-year, excluding grids for teas, underscoring the progress we have made in positioning Lantronics for profitable growth. Importantly, non-GAAP EPS improved from 1 cent in Q4 to $0.04 in Q1, driven by gross margin expansion and the operating leverage created by last year's cost optimization initiatives. Turning to the overall market environment, industry dynamics remain favorable for Landtronics. We continue to see record defense funding and supportive regulatory momentum driving long-term opportunities across our three verticals. At the same time, demand for networking and connectivity solutions remains strong, creating continued tailwinds for our network infrastructure business, and reinforcing our role as a trusted partner in government and smart city applications. Starting with unmanned aerial systems, commonly known as drones, we are benefiting from broad-based demand across multiple customers. The AUSA event in Washington, D.C. was highly productive as we met with several strong existing and new partners, further strengthening our position in the market. We made good progress in fiscal Q1 as we expanded our presence and scaled production with Red Cat Steel Drones, where we've already secured meaningful follow-on orders, a clear sign of customer confidence in our capabilities. We are also partnering with Red Cat on next generation platforms designed to further enhance the drone's performance and mission readiness. At the end of Q1, our OEM engagements grew from 10 last quarter to 17 today, highlighting accelerating customer adoption and market momentum. This activity is supported by few recent developments. We introduced our Edge AI Drone solution, which integrates payloads from Gremsi and Teledyne FLIR. Working with these partners, we completed a reference design that validates the solution's performance and simplifies integration for OEM customers. The solution enables longer flight times, real-time edge data processing, and up to 80% faster integration for developers. Just as important, it meets stringent NDAA and TAA requirements for defense and government programs. More recently, Sightline Intelligence selected our Edge AI technology for integration into its new high-performance video processing solution for defense and commercial drone applications, further expanding our reach within the UAS ecosystem. Together, these advancements underscore our ability to deliver secure, AI-enabled flight systems at scale. While still early in the fiscal year, we are encouraged by our momentum in our drone business. This is a growing contributor to Lantronics and positions us for potential upside to our initial expectations as these programs scale to the remainder of fiscal 2026. Building on this momentum, we recently introduced EdgeFabric.ai, our new visual orchestration platform for Edge AI deployment, which debuted at Qualcomm's Imagine conference in September. Purpose-built for our OpenCUE system and module, or SOM solutions, EdgeFabric.ai enables customers to design and deploy AI applications in minutes instead of months. without needing a team of AI experts. Whether configuring smart cameras, industrial IoT monitors, or other Edge AI-enabled devices, customers can now visually design their AI workflows and deploy them instantly, all without writing a single line of code. By simplifying development and automating deployment, Edge Fabric.ai strengthens customer engagement accelerates time to market, and creates a foundation for recurring software and services revenue over time. In asset monitoring, a key long-term component of our industrial IoT strategy, we partner with Vodafone IoT to launch Compress.ai by Lantronics, a subscription-based SaaS platform targeting the $27 billion global industrial air compressor market. While still in the early stages, we view this as a significant long-term opportunity, one that expands our reach, enhances our edge-to-cloud capabilities, and creates incremental high-margin recurring revenue potential over time. Together with our progress in drones and edgefabric.ai, Compress.ai reinforces our execution of the long-term strategy to build scalable platforms that expand recurring revenue and strengthen a diversified model. Our strategy is clear. Scale high-growth verticals, expand software-enabled recurring revenue, and drive operating leverage from a leaner cost structure. This quarter marked another important step forward with increased engagement with aerospace and defense customers, the launch of EdgeFabric.ai, and continued expansion in targeted platforms. At the same time, our core network infrastructure business delivered solid growth and margins and focus areas, demonstrating consistent execution and strengthening our diversified model. I'll now pass it on to Brent to cover the financial results.

Brent. Brent Stringham | Chief Financial Officer

Thanks, Salil. With the business off to a strong start in fiscal 2026, I'll walk through our first quarter financial results, discuss the key drivers behind our performance, and then provide our outlook for the second quarter. As Salil mentioned, in the first quarter, we delivered revenue of $29.8 million, an increase of 3% from the prior quarter and approximately 3% higher than the same period last year when excluding the impact of grid expertise. Sequential growth was primarily driven by strength in some of our network infrastructure products, continuing to highlight our diversified revenue base. Turning to margins, in the first quarter, gap gross margin was 44.8%, up from 40% last quarter and 42.1% a year ago. On a non-gap basis, gross margin was 45.3%, and improvement from 40.6% in Q4 and 42.6% in the prior year quarter. The increase reflects a more favorable product mix, lower inventory charges, and benefits from certain royalties. We're encouraged by the continued strength in our underlying margin performance, supported by a higher mix of premium products and disciplined cost management. Looking ahead, we expect gross margin to remain healthy and generally consistent with first half fiscal 2025 levels. We continue to proactively manage our global footprint in a dynamic trade environment, and we are closely monitoring evolving tariff and trade developments. We're also working closely with customers to help them adapt to changing cross-border requirements. Turning to expenses and profitability, GAAP operating expenses in the first quarter of fiscal 2026 were $14.9 million. up less than 2% from the prior quarter and down 10% from $16.6 million in the year-ago period. Gap net loss for the first quarter of fiscal 2026 was $1.4 million, or 4 cents per share, compared to gap net loss of $2.5 million, or 7 cents per share, in the year-ago quarter. On a non-gap basis, we reported net income of $1.5 million, or 4 cents per share, compared to non-GapMed income of $400,000 or $0.01 per share in the prior quarter. Turning to the balance sheet, net inventories were $26.7 million as of September 30, 2025, compared to $26.4 million in the prior quarter and $29.5 million in the year-ago quarter. We ended the quarter with cash and cash equivalents of $22.2 million, an increase of over $2 million from the prior quarter. During the first quarter, we also generated positive operating cash flow of approximately $3.6 million. As we noted on our last call, in August we refinanced our term debt into an asset-backed line of credit with the same lender. During the quarter, we paid down another $1 million of our outstanding debt, leaving a remaining balance of approximately $10.7 million as of September 30, 2025, and a corresponding net cash position of $11.5 million. Now turning to our outlook for the second quarter of fiscal 2026, which ends December 31st, 2025. We expect revenue to be in the range of $28 million to $32 million. Non-GAAP EPS is expected to be in the range of two to four cents per share. With that, I'll turn the call back to Saleel for closing remarks.

Salil Al-Saray | President and Chief Executive Officer

Thanks, Brent. The close fiscal 2026 is off to a strong start. and we remain confident in the trajectory ahead. At the midpoint, our Q2 guidance implies sequential revenue growth and nearly 20% year-over-year growth, excluding risk fatigue, together with another quarter of solid profitability. This outlook reflects the operating leverage and cost discipline we established last year, while enabling continued investment in our highest growth opportunities. We are encouraged by the sustained momentum across our drone and asset monitoring platforms, driven by new customer programs and growing adoption of our integrated AI solutions. At the same time, our core network infrastructure business is performing well, with steady demand in out-of-band management and strong contribution from switches and device servers. supported by healthy enterprise and industrial connectivity demand as we approach the calendar year-end. With robust industry tailwinds, a strong balance sheet, and disciplined execution, we believe we are well-positioned to deliver growth and profitability in fiscal 2026 and beyond. With that, we'll now open the call for questions.

Thank you. Conference Operator | 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 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 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Ryan with Needham & Co.

Please go ahead. Ryan | Analyst, Needham & Co.

Great, thanks. Nice quarter, guys. With regards to the drone opportunities, Salil, can you maybe outline, like, where we are in this kind of adoption period? You talk about some wins. When you count a win, you count that as a design win. What gives you confidence that, you know, it's yours? And what's the competitive landscape like for you there?

Thank you. Salil Al-Saray | President and Chief Executive Officer

Ryan, thank you for your question. As I spoke in my prepared remarks, we are now working with 17 OEMs. A few of them have already gone into design in, design win, and some of them into shipping. So we're seeing accelerating momentum in the drone business and very proud of the progress that we've made. Our outlook definitely has improved over the last 90 days. And while it's still early, we expect demand to accelerate throughout the fiscal year, you know, presenting potential upside to what my current expectations are. And longer term, as I said, we expect this opportunity could be 10% to 15% of the company's revenue. So good progress in all areas for the drone area and feeling good as we sit here today.

Ryan | Analyst, Needham & Co.

Got it. Great. And I know you had a – a generator win with a major service provider. Any update there as far as how that business is progressing?

Salil Al-Saray | President and Chief Executive Officer

Yeah, thanks for that question. So as we had mentioned earlier, we have the generator win with the large MNO, if you remember. That is progressing well, and we are now moving beyond the diesel generator to other equipment that needs to get tracked. So it's a growing business for us for asset tracking. Additionally, we announced Compress.ai, which is focused more on the compressor space, but based on the same theme, which builds on our successes at the tier one MNO and expands our recurring revenue model and supports our critical infrastructure strategy. So it's going as per plan and the deployment for the MNO is also continuing nicely.

Ryan | Analyst, Needham & Co.

Great. Maybe just to follow up there, you talked about a new product here with this Compress.ai. What's the sales and fulfillment model there you have with Vodafone IoT?

Salil Al-Saray | President and Chief Executive Officer

Yeah. Compress.ai is an AI-powered SaaS solution designed really to generate long-term high-margin recurring revenue while addressing urgent market needs with compressors who have really no tracking in there. So Vodafone has partnered with us, they will provide the connectivity for it, Ryan, while we provide both the hardware and the SaaS deployment and the revenue for that longer term. So it's early days, but we expect this in the next 24 months to start providing, you know, revenue into the model as we think about it. But more and more ARR. So it builds on what we did with the Tier 1 MNO. and now it builds on that and more ARR revenue as I think about the future.

Ryan | Analyst, Needham & Co.

Got it. Great. I'll get back to you.

Thank you. Salil Al-Saray | President and Chief Executive Officer

Thank you, Ryan.

Conference Operator | Operator

The next question comes from Scott Surley with Roth Capital.

Please go ahead. Scott Surley | Analyst, Roth Capital

Hey, good afternoon. Thanks for taking the questions, and nice job on the quarter. Hey, Sulil, maybe just to dive right in, you had a couple of comments about out-of-band management, but I'm wondering if you could provide a little bit of color there in terms of strength weaknesses, kind of how you're feeling about growth on that front. And then to go back to drones for a second with the government shutdown ongoing, is there any impact on that or because you're basically dealing with various primes and vendors that the design activity continues, but there just might be some delays in terms of how shipping and revenue ramps up. And if that changes dramatically, your expected timeline to get to 10% to 15% of sales, and then I have a follow-up.

Salil Al-Saray | President and Chief Executive Officer

Thank you for that question, Scott. Let me start with the second question first because it's current. Most of the defense drone and UAS are funded through multi-year contracts, so we are seeing minimal to no disruptions to our existing work. So as I said today, we are full on with the customers. We are shipping to them, so no disruptions. I don't anticipate any issues or concerns with that. Does that give you a perspective, a clear idea of what I'm thinking about the drones prospectively on this? Going on to the out-of-band one, we are seeing growth in out-of-band from the June quarter to the September quarter. are anticipating as we go into the December quarter to see. Again, we don't call it out specifically. It's part of our IoT business. But we are definitely seeing growth in that space as more deployments are happening. And we'll be able to do some announcements probably later this year, early next year on some big win that we've done in that space. So feel confident around Audubon as we go through the fiscal year. More importantly, we are going to be introducing a brand-new Audubon product late this year to go after some new markets. But stay tuned for that. We'll get into it more in our next call with you, Scott.

Scott Surley | Analyst, Roth Capital

Gotcha. And then on the ARR front, you've got a couple of different ways that you're attacking the market with the sell-side monitoring, with compress, attacking the compressor market. Two things. I guess I'm wondering – how big of an opportunity can that be as you look at 12, 18, 24 months in terms of the recurring revenue stream? And then as I think about other adjacent opportunities, particularly once you start to bring in your video performance and video AI capabilities that you're using in the drone market, are there other adjacencies that you could see expanding into over the next couple of quarters?

Salil Al-Saray | President and Chief Executive Officer

So, again, I take your second question first because – We are very good with cameras, and we've been good with cameras, and that's why we are winning in drones. We supply what you call, we are in the payload, and if you think about it, that's the most important part of the drone. So what's the next adjacency, which we are definitely looking at, won't be going through details this time around, is robotics. You know, humanoid robots are gonna happen. What do they need? They need a good camera. Second one is security and surveillance. an area that we are doing well in with some customers. So again, good adjacent opportunities, same basic IP and technology and a solution that we provide to. Going to your first question about ARRs, as I said, our first foray into ARRs happened with the MNO opportunity, as we said, the sell side. And it's a small portion of the revenue. Software and services is 5% to 7%, and Brent can correct me if I'm wrong. I expect that to keep on chugging along to 7% to 9% and 10% in the future as you aggregate all of that as a bucket that we call out, Scott.

Scott Surley | Analyst, Roth Capital

Great. Thanks so much. I'll get back to you.

Conference Operator | Operator

The next question comes from Christian Swab with Craig Helen.

Please go ahead. Christian Swab | Analyst, Craig-Hallam

Yeah, thanks for my question. And congrats on a good quarter. I guess it wasn't clear to me, you know, with 17 OEM, you know, potential on the drone side of the business, you know, when would you anticipate being that being 10 to 15% of revenue? Is that something that could happen as soon as, you know, you know, fiscal year 2027?

Salil Al-Saray | President and Chief Executive Officer

Yeah, as I sit here today, it's definitely on my radar for fiscal year 2027 possibility of 10 to 15% of revenue.

Christian Swab | Analyst, Craig-Hallam

Okay. And then, you know, last quarter, you highlighted, you know, a Tier 1 telecom service provider. I think it was, you know, in the backup power systems. you know, was an $8 million to $10 million win. Did you recognize any revenue in the quarter, and what is your outlook on that for the next few quarters?

Salil Al-Saray | President and Chief Executive Officer

Yeah, we recognize revenue in the September quarter, and we intend to recognize revenue in the December quarter. So it's going well, and as planned. No surprises here. And then... Go ahead. I'm sorry. No, no. Last word. It's progressing nicely is all I was trying to say, Christian.

Christian Swab | Analyst, Craig-Hallam

Okay. And then a follow-up on that, you know, when would you anticipate follow-on orders from that customer?

Salil Al-Saray | President and Chief Executive Officer

So we get quarterly orders from them. So maybe the way to think about it is it's a run rating business now. We talked about the 50,000-piece opportunity, and we have purchase orders from them for that whole opportunity in place. We haven't shipped it all. We'll continue to ship it as the year progresses. Beyond that, we're expecting probably sometime in calendar 26 to get follow-on orders for additional, not necessarily for the diesel generator that we talked about, but additional equipment that they want to have tracked.

Great. Christian Swab | Analyst, Craig-Hallam

Thank you. No other questions.

Thank you. Salil Al-Saray | President and Chief Executive Officer

Thank you, Christian.

Conference Operator | Operator

The next question comes from Scott Tierley with Roth Capital.

Please go ahead. Scott Surley | Analyst, Roth Capital

Hey, just two quick follow-ups on the financial front. First, I wanted to clarify the gross margin outlook. I think you said in line with fiscal first half of 25, so in the low 40s, 42, 43, to think about that the next couple of quarters. And then, Salil, just in terms of an early shot at fiscal 26 in terms of how you're thinking about growth, that this is, in fact, a growth year, and we should continue to expect a sequential progression of the revenue stream over the next couple of quarters.

Thanks. Brent Stringham | Chief Financial Officer

Yeah, Scott, thanks. On the gross margin, you're right. Last quarter, we talked about returning from a down quarter, right around 40%, I think, last quarter, and talked about returning to 43%, 44%, which is what we saw a year ago. And so we think modeling at that level going forward in the near term is appropriate.

Salil Al-Saray | President and Chief Executive Officer

Yeah, Scott, to add more color, the September quarter, we did a non-GAAP gross margin of 45.3. It's the highest gross margin that the companies had in the last few years that I have been here and beyond that. So it's turned nicely as we are focused on cost controls, working with our CMs, all good things. What was your second question, Scott?

Scott Surley | Analyst, Roth Capital

Oh, the growth rate for fiscal 26th. you know, how you're expecting the sequential progression just, you know, conceptually over the next couple of quarters and if you're, in fact, still expecting, you know, growth overall for the year.

Salil Al-Saray | President and Chief Executive Officer

Yeah. Again, we do quarterly guidance, so put it in perspective. YOY, without good expertise, we are growing close to 20%, Scott. That's darn good. So I expect sitting here today, you know, we expect to staircase up. Again, we don't give annual guidance, but nothing has changed in my mind. We feel good today, sitting here today.

Scott Surley | Analyst, Roth Capital

Great.

Thanks so much. Salil Al-Saray | President and Chief Executive Officer

Thank you, Scott.

Conference Operator | Operator

The next question comes from Jason Schmidt with Lake Street.

Please go ahead. Jason Schmidt | Analyst, Lake Street

Hey, guys, thanks for taking my questions. Just looking at that wireless operator opportunity or just that market in general, can you talk about any sort of discussions or engagements you're having beyond that customer you've already won? And how are you looking at that opportunity longer term?

Salil Al-Saray | President and Chief Executive Officer

Yeah, Jason, thank you for that question. So with that MNO, the opportunity, as we've said in the past, could be 3x the size, so we could grow that business nicely just with them. With the introduction of Compress.ai, we've opened a new market, and we were at the Compressor show a few weeks back, and we feel good about that. It's early days, but then you've got another MNO who's working with us. We haven't named the first one, but this one, we named and they were very happy to do a joint announcement with us, which is Vodafone IoT. So this is a part of one of the key verticals, asset tracking, asset management, just preventive maintenance, all of that is what it is. So moving forward, this is a focus area in addition to all the drones that we talked about, and we should see growth moving forward with this.

Jason Schmidt | Analyst, Lake Street

Okay, perfect. And then just A follow-up for me, looking at that drone opportunity, to your point, kind of 10% to 15% potential in fiscal 27. As drones become a bigger portion of the pie, does that significantly alter what gross margin ultimately will settle out to be?

Salil Al-Saray | President and Chief Executive Officer

I'll let Brent opine on it a little bit after I'm done. The good news with the drone opportunity right now, it's a decent gross margin for us right now. So, you know, we are uber-focused on gross margins. So I expect to continue where we are at right now. But, you know, Brent can add to it.

Brent Stringham | Chief Financial Officer

I think that's generally accurate, Jason. I mean, with kind of the wide breadth of products we have – we're still kind of forecasting that margin profile into the near and middle term that I mentioned previously.

Jason Schmidt | Analyst, Lake Street

Okay, that's helpful. Thanks a lot, guys.

Conference Operator | Operator

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

Salil Al-Saray | President and Chief Executive Officer

Thank you very much, everyone, for joining the call. We will be at the Craig Hallam and the Robb Conferences in New York in a couple of weeks.

Thank you so much. Conference Operator | Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. jsPDF 3.0.3 D:20260606090226-00'00'

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'