Lantronix : Q3 Earnings Transcript (Lantronix Q3FY26 Earnings Transcript)

Published: 2026-05-08 15:27:05 ET LTRX

Published on 05/08/2026 at 03:27 pm EDT

Lantronix, Inc.

Q3 2026 Earnings Call

Wednesday, May 06, 2026, 04:30 PM ET

Welcome to the Lantronix Q3 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded.

I'd like to turn the conference over now to Mr. Brent Stringham, Chief Financial Officer. Thank you, and over to you.

Good afternoon, everyone, and thank you for joining our fiscal third quarter earnings call. Joining me today is our President and Chief Executive Officer, Saleel 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 Saleel.

Thanks, Brent, and thank you, everyone, for joining today's call. We delivered revenue of 30.2 million and non-GAAP EPS of $0.04, both within our guidance range. Our Embedded IoT Solutions portfolio delivered extremely robust growth of 22% year-over-year, driving overall sequential and year-over-year revenue growth for the company.

This performance reinforces our position as a critical onboard edge compute platform for unmanned systems, an increasingly important contributor to our business. Gross margin also remained strong at above 43%, supported by a richer mix of higher margin products and recurring revenue across the portfolio. Overall, these results reflect a disciplined execution and continued momentum across the business.

Turning to our results. We continue to see strong demand for unmanned systems or drones, supported by favorable industry and military tailwinds that position Lantronix for sustained growth. Our customer list in unmanned systems continues to expand, reflecting both the effectiveness of our drone strategy and the increasing need for reliable, real-time computing solutions. Drones are physical AI in action, and we deliver that capability to our customers by enabling autonomy, edge compute, and real-time decision-making, further increasing the value of our technology.

The FCC's December 2025 action, which bars DJI and other foreign drone makers on the covered list from obtaining approval for new drone models in the U.S. has meaningfully improved the outlook for domestic and trusted supplier platforms. This environment strengthens our competitive

moat as a U.S. partner that is both NDAA and TAA compliant, providing trusted and secured AI-enabled edge compute platform solutions for the Group 1 and 2 drone ecosystems.

Further, we are expanding both our capabilities and the number of active engagements. Our SOMs, or System-on-Modules, provide the onboard edge compute foundation for greater autonomy, which is becoming increasingly critical as mission complexity rises and the market pushes beyond what human operators alone can support. In aerospace and defense, scale will require more intelligence, more autonomy and Lantronix is helping enable that shift. As a result, we are moving up the tech stack, evolving from supporting the camera to enabling full intelligent drone and counter drone systems.

In parallel, growing interest in swarming and coordinated autonomy is driving demand for larger fleets requiring more advanced Edge AI and machine learning-based compute solutions to support increasingly complex missions. Beyond the drone itself, we are expanding our role into counter-UAS and spectrum dominance applications. These markets require high-performance, low-power compute to process sensor data and enable real-time decision-making in contested environments. As systems become more intelligent, connected and electronically aware, we expect our SOMs and broader technology to play an increasingly central role across more of the mission stack.

Given the growth opportunity ahead, we are investing to scale. We are expanding our technical R&D talent to deepen our capabilities and capture more opportunities across the drone ecosystem, while also expanding our dedicated drone sales effort. As the unmanned aerial systems market continues to heat up, new entrants will emerge. However, our first-mover advantage positions to become the go-to provider for unmanned systems compute, and these investments are designed to strengthen the moat around our business as a critical platform partner to the unmanned ecosystem.

In parallel with those investments, we are also advancing the product and technology initiatives that will support our next phase of growth. During the quarter, we announced the advancement of our multi-silicon strategy with MediaTek's Genio family of System-on-Chip or SoC platforms, strengthening our ability to serve a wide range of Edge AI and industrial IoT applications.

MediaTek's SoCs delivered strong AI performance with processing power comparable to our Qualcomm platforms, while offering a feature set highly optimized for industrial and commercial use cases. By adding MediaTek, we are filling important use case coverage in our portfolio. Both MediaTek and Qualcomm are highly capable Edge AI compute solutions and together allow Lantronix to serve a broader set of customers and end markets with architectures tuned to their specific requirements.

Diving deeper, we continue to build momentum during the quarter. We significantly expanded the number of OEMs we engaged with and now have shipped product to over a dozen of these partners. Importantly, we recently converted one of these engagements into a design win, another drone as a first responder program with one of the largest U.S. based body camera makers. This adds a new DFR customer and further validates our position as a leading compute and connectivity provider across the UAS ecosystem.

We also secured a new customer win with a payload that identifies hostile drone operators, marking our expansion into counter drones. This new win reinforces our role as a trusted partner in mission-critical applications, underscoring our expanding relevance into counter unmanned systems, where FPV drones are used to detect, track, identify and mitigate hostile systems in

contested environments. More broadly, it demonstrates our Edge AI drone solutions support the full UAS ecosystem, including counter drone use cases.

In addition to expanding capabilities and applications, we have been growing beyond the U.S. market into international markets, as we are now supporting global expansion with Red Cat as they enter NATO and across the Asia Pacific. We also made our first shipment to Evolve Dynamics, a UK based developer of unmanned aerial systems serving the defense, emergency response, and critical infrastructure markets. Expanding our unmanned OEM customer base internationally is an important part of our growth strategy, and this shipment marks another step in expanding our reach across the global autonomous ecosystem.

Additionally, we recently engaged with multiple Ukraine drone makers. Ukraine is becoming one of the most leading edge and fastest evolving market for unmanned systems globally, and its domestic drone companies have demonstrated a remarkable real-world performance. As the United States Department of War continues to increase its investments in unmanned systems, collaborating with leading Ukrainian innovators provide us with critical insights and validation opportunities for our technology in highly demanding real-world environments.

We are seeing a broader shift towards trusted platforms with customers increasingly moving away from Chinese components towards NDAA-compliant solutions. This transition is creating meaningful opportunities for Lantronix, particularly as customers evaluate our products such as our Drone Reference Platform, which helps shorten development cycles and accelerates evaluation to deployment.

Further, in March, we formed a strategic collaboration with Unusual Machines to support the next generation of unmanned platforms. This partnership combines Lantronix's edge compute and integrated connectivity solution with UMAC's flight components to help accelerate deployment timelines, enhance ISR and autonomous capabilities across aerial systems.

Together, this enables both companies to pursue emerging opportunities tied to the Department of War's drone dominance program, and we believe we are well positioned to capitalize on this near-term growth opportunity. We are encouraged by the early progress made during the collaboration so far, and we'll release additional updates as appropriate.

We are making a concerted effort to strengthen our position in the unmanned ecosystem by scaling the platform and introducing new capabilities that support faster, easier, and more effective deployments. As we expand the platform, we are building an ecosystem around it, one that enables customers and partners to adapt, integrate and scale solutions more seamlessly.

We are encouraged by the momentum we've built in unmanned systems since entering the market just over a year ago. And we are once again increasing our fiscal 2026 drone outlook now to a range of $10 million to $14 million. Our team is executing with urgency, and we continue to see a clear path for unmanned systems to represent 15% to 20% of overall revenue in fiscal 2027.

Moving to software and services. We remain excited about the expanding ARR we are seeing. Over the last two quarters, we have expanded our software, and services mix from 5% to 6% to 8% to 9% of total revenue, and we see a clear path of sustainably reaching double-digits over the midterm. This confidence is driven by our ability to layer high-value software and services onto a growing installed base of hardware already in the field.

As we integrate capabilities such as device management, analytics, AI orchestration, we are not only expanding recurring revenue streams but are also improving overall mix and increasing the lifetime value of each deployment. Over time, we believe this will drive greater revenue visibility, stronger margins, and a higher quality business model overall.

On IoT system solutions, we continue to experience slower federal spending and extended procurement cycles, particularly with our core enterprise and networking products, which includes media converters and out-of-band management. Federal customers are moving more cautiously, and continued government shutdowns have resulted in slower ordering patterns and a more measured pace of conversion.

That said, these are timing dynamics, not demand issues. Importantly, enterprise and networking continue to deliver margins well above our corporate average and provides strong cash generation, giving us the ability to reallocate resources into near, higher growth opportunities such as unmanned aerial systems and critical infrastructure monitoring.

In summary, I'm encouraged by our third quarter performance and the discipline of our execution as we continue to deliver strong margins and profitability. We are hyper-focused on growing the business, and we are putting the right team and capabilities in place to capture the growing opportunities we are seeing.

Before passing the call over to Brent, I want to highlight a couple of important developments, starting with a key leadership addition for our next phase of growth. In March, we appointed Sano Marsiano as our new Vice President of Operations, bringing years of leadership experience across global operations, manufacturing, and quality.

Also in March, we participated in ISC West 2026, where we showcased SmartSwitch.ai, SmartEDGE Gateway and our Edge AI solutions for autonomous systems. We saw strong interest in both our Drone Reference Platform and SmartSwitch, particularly from security and surveillance customers evaluating next-generation perimeter monitoring and agentic edge network configuration monitoring and proactive maintenance.

A consistent theme was a growing shift towards drone-based surveillance for large compounds, complementing or, in some cases, reducing reliance on fixed parameter camera infrastructure, an area where we are uniquely positioned. We offer an integrated full stack solution that spans switches and drones, offering customers a single differentiated partner for autonomous perimeter security. Nobody else in the market can deliver the breadth we provide.

With that, I'll turn the call back to Brent to cover financial results. Brent?

Thank you, Saleel. I'll first start with our fiscal third quarter financial results and some of the key drivers behind our performance, after which I'll provide our outlook for the fourth quarter ending June 30, 2026.

As previously discussed, our current quarter revenue was 30.2 million. We saw sequential and year-over-year growth driven by strength in embedded compute products, including our A&D and drone programs and continuing momentum in software and services revenues. Federal customers are moving cautiously, resulting in slower ordering patterns for our core enterprise and networking products. However, like Saleel mentioned, we believe these are primarily timing dynamics, not demand issues, and we should benefit once this market normalizes.

Wednesday, May 06, 2026, 04:30 PM ET

Disclaimer

Lantronix Inc. published this content on May 08, 2026, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 08, 2026 at 19:26 UTC.