Lantronix Inc 2026 Q4 Earnings Call

Please go ahead. Good afternoon, everyone, and thank you for joining our fiscal fourth quarter earnings call.

Joining me today is our President and Chief Executive Officer, Salil Awsare. A live and archived webcast of today's call will be available on the company's website. In addition, you can find the call-in details for the phone replay in today's earnings release. During this call, we may make forward-looking statements which involve risks and uncertainties that could cause our results to differ materially from current expectations. We encourage you to review the cautionary statements and risk factors contained in today's earnings release, which was furnished to the SEC and is available on our website, and other SEC filings such as our 10-K and 10-Qs. Lantronix undertakes no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Additionally, during the call, we will discuss non-GAAP financial measures.

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.

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

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

From there, we built on the early momentum, adding several customers, including Sightline, Trillium Engineering, and others to our drone roster. Over the course of the fiscal year, we scaled our broader unmanned systems engagements from roughly 10 in Q1 to over 30 today. That growth accelerated following a major regulatory shift in December 2025 when the FCC restricted China-based DJI, historically the dominant drone supplier, from introducing new products into the U.S. market. The move created a significant tailwind for domestic trusted supplier platforms like ours and was soon followed by meaningful U.S. government funding to accelerate the deployment of domestic drone technologies. Just a couple weeks ago, that regulatory momentum was further reinforced by the action from Washington.

The president signed a Section 232 proclamation imposing new tariffs on foreign-made drones and components aimed at reducing reliance on foreign suppliers and building out domestic manufacturing capacity. While the FCC's action in December focused on restricting new foreign-made drones and components from entering the market, this latest action is broader, directly targeting the economics of importing drones and related components across the existing market. This is another clear tailwind for domestic NDAA-compliant suppliers like Lantronix, and we expect it to accelerate the shift towards domestically manufactured alternatives. Just as important, we are seeing the industry focus shift from simply building more drones to making drones increasingly autonomous. At the scale governments and commercial operators envision, there simply won't be enough trained pilots to operate every drone, and training new operators takes time.

This makes autonomy essential, and autonomy requires powerful AI compute at the edge, what we call physical AI, and that's exactly where Lantronix fits. Our Edge Compute platform enables the onboard intelligence that allows drones to perceive, navigate, and execute missions autonomously in GPS-denied environments, positioning us at the center of this long-term transition. Against this backdrop, we delivered $12.6 million in unmanned systems revenue in fiscal 2026, above the midpoint of our most recent guidance range. Importantly, this momentum extends beyond defense. We are also seeing growing adoption across commercial, industrial, agricultural, drone as a first responder, and counter-UAS applications, reinforcing the breadth of our unmanned systems opportunity. Our international expansion is also progressing well, including two recent partnerships we formed in the unmanned systems market. The first is with DoD Solution, an Estonian-Ukrainian developer of onboard autonomy technology for drones and other unmanned systems.

By combining Lantronix's Edge Compute solutions and engineering expertise with DoD Solution's AURA autonomy platform, we are supporting a range of demanding applications. This partnership also strengthens our presence in Europe and Ukraine, where demand for our solutions continues to grow. Our second partnership is with AVT Australia, a CACI company that develops gimbaled camera payloads for drone manufacturers. AVT has designed its payload around our SOMs platform, which is purpose-built for high-performance AI and robotics applications. Together, these partnerships demonstrate Lantronix's growing presence across the global unmanned systems ecosystem. Additionally, we recently announced a collaboration with Swarmer, a U.S.-based drone autonomy software company. Together, we are developing a production-ready compute platform that combines Swarmer's combat-proven software with roughly four times the onboard processing power focused on Group 1 unmanned aerial systems.

This collaboration highlights the strength of our hardware, software integration, and engineering services while creating a path to long-term production revenue as Swarmer scales across U.S. and allied defense programs. With that, let me turn to our IoT system solution business. After navigating several quarters of federal government shutdowns, which created extended procurement cycles, we are beginning to see conditions improve. Q4 revenue grew 16% sequentially, driven by a recovery in our out-of-band management portfolio, strength in network switches, and early signs of stabilization in our federal business. Within out-of-band management, we are seeing growing traction in the data center space as Edge Compute and AI infrastructure deployments accelerate the need for remote monitoring and control of critical IT and data center equipment.

One proof point of this is SambaNova Systems, where our out-of-band solution is deployed as a part of their DataScale platform, a purpose-built AI infrastructure rack for large-scale inference and training workloads. We provide dedicated remote access to the critical networking and compute infrastructure within that platform. Moving to our critical infrastructure monitoring vertical, just over a month ago, we took another step forward in our platform strategy by acquiring Vecima Networks' Industrial IoT business, including its Nero Global Tracking platform for $11.7 million, which closed this month. The tuck-in acquisition adds approximately $5 million in annual revenue, with the majority coming from ARR and gross margin in the mid to high 60s range. Based on the purchase price relative to the asset's financial profile, view this as a highly favorable transaction and one that is immediately accretive to earnings.

Just as important, it advances a strategy we've been executing deliberately over the past several quarters, layering more software onto our hardware base to expand recurring revenue. That strategy is increasingly visible in our revenue mix. Our software and services mix has steadily increased throughout the year, moving from 5%-6% of revenue, and then to 7%-8%. With this acquisition, on a pro forma basis, our software and services revenue mix increases above 10% of total company revenue. This represents a meaningful step towards a more predictable, higher-margin business model. Beyond the immediate financial benefits, we see meaningful cross-sell potential. Nero brings an installed base of roughly 125,000 device tags across fleet, municipal, restoration, and industrial asset tracking markets, creating a natural opportunity to deploy our cellular gateways, modems, Edge Compute products, and connectivity solutions.

Together, Nero's software and our hardware provide customers with a more vertically integrated end-to-end asset monitoring solution. In summary, I am encouraged by our performance in fiscal 2026 and the significant progress we achieved. Our focused execution, disciplined operating approach, and strengthened organization are providing tangible results. We are meaningfully scaling our presence in high-growth verticals, increasing the contribution of software-enabled recurring revenue, and continuing to realize operating leverage from a more efficient cost structure. As we enter fiscal 2027, we believe Lantronix is better positioned than ever to benefit from long-term growth trends reshaping Edge Compute and connectivity. With strong momentum, a differentiated portfolio, and a clear strategic roadmap, we are excited about the opportunities ahead and remain committed to creating long-term shareholder value. With that, I turn the call back to Brent to cover financial results.