Lantronix's Q4 2025 Earnings Call: Contradictions Emerge in Drone Market Revenue and Gross Margin Expectations

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $28.8M, up from $28.5M sequentially; approximately +4% YOY when excluding Gridspertise
• EPS: Non-GAAP EPS $0.01, down from $0.03 in the prior quarter
• Gross Margin: Non-GAAP gross margin 40.6%, down from 44.1% sequentially; up from 38.8% in the prior year

Guidance:

• Revenue expected at $28.5M–$30.5M for the September quarter (Q1 FY26).
• Non-GAAP EPS expected at $0.02–$0.04 for Q1 FY26.
• Gross margin expected to recover toward ~44–45% during FY26 after one-off tariff/inventory impacts in June.
• No Gridspertise revenue included in outlook.
• Tier-1 carrier rollout to continue through FY26; adds ARR via Perception platform.
• Drone programs ramping with FY26 revenue in the “millions” (not tens of millions); shipments began in June.

Business Commentary:

* Revenue Stabilization and Core Growth: - Lantronix reported revenue of $28,800,000 in Q4 FY2025, within their quarterly guidance range, reflecting a return to growth in their core revenue base. - The stabilization and growth were driven by disciplined execution and a focus on strategic opportunities, notably in the drone market.

• Drone Market Opportunity:
• Lantronix saw strong momentum in the drone market, with recent wins like the collaboration with Redcat's Teal drones for the U.S. Army's short range reconnaissance program.

• This growth is attributed to increased defense funding, favorable regulatory momentum, and Lantronix's expertise in camera tuning, software integration, and military drone requirements.

• Edge Infrastructure Strategy:

• The company secured a multi-year agreement with a major U.S. mobile carrier to provide devices and services, modernizing over 50,000 backup power systems nationwide.

• This win validates Lantronix's edge infrastructure strategy, enabling resilient network uptime and improved lifecycle management, and is expected to contribute to growing high-margin annual recurring revenue.

• Financial Discipline and Operational Efficiency:

• Despite a revenue decline year-on-year, Lantronix maintained profitability on a non-GAAP basis, with non-GAAP operating expenses down by $1,900,000 compared to the year ago quarter.
• This achievement was due to proactive cost reductions and efficiency measures, resulting in a leaner operating structure and meaningful leverage in their model.

Sentiment Analysis:

• “Q1 is off to a strong start… Our core business has stabilized.” “Visibility in fiscal 2026 has improved.” Guidance: revenue $28.5M–$30.5M and non-GAAP EPS $0.02–$0.04. Management expects gross margins to return toward ~44–45% after one-off tariff/inventory impacts. Design wins (Tier-1 carrier, Redcat TEAL drones) and ARR contributions support growth.

Q&A:

• Question from Jason Schmidt (Lake Street): How should we think about the near-term drone opportunity with Redcat and the broader pipeline?
  Response: Working with 10+ drone makers (mostly military/industrial); shipments began in June; expect meaningful FY26 contribution; differentiation is camera expertise and NDAA/TAA compliance.

• Question from Jason Schmidt (Lake Street): What are you seeing in bookings/orders for September given guidance implies sequential growth?
  Response: Broad-based momentum across Edge IoT and networking/out-of-band with new and existing customers, supporting sequential growth and FY26 confidence.

• Question from Ryan Koontz (Needham & Company): How will gross margins evolve over the next 12 months?
  Response: June margin was impacted by one-offs (tariffs, aged inventory); expect recovery toward ~44–45% in FY26.

• Question from Ryan Koontz (Needham & Company): Is the drone channel new, and are you selling direct or via partners/integrators?
  Response: Leveraging partners like Teledyne FLIR and integrators plus direct OEM engagement; executed Redcat program in ~8 months using camera/software expertise.

• Question from Ryan Koontz (Needham & Company): More details on the backup power/cell site win and similar opportunities?
  Response: Tier-1 win for ~50k gateways with Perception platform (ARR); shipping began in June; expect total volumes to potentially triple over coming years with added software services.

• Question from Christian Schwab (Craig-Hallum Capital Group): What is the average dollar content per drone device across customers?
  Response: Approximately $500 per unit ASP.

• Question from Christian Schwab (Craig-Hallum Capital Group): Scope of the drone revenue opportunity over time?
  Response: Per customer annual opportunity ~$3–5M (some larger/smaller); drones could reach 10–15% of company revenue by FY27.

• Question from Scott Searle (ROTH Capital): Can you quantify the inventory write-down, OOB trends, and Gridspertise in guidance?
  Response: Tariffs drove ~100 bps of margin decline; remaining sequential margin drop largely inventory charges; out-of-band up q/q with solid momentum; no Gridspertise in guidance (none since Jan 1).

• Question from Scott Searle (ROTH Capital): How large is drone revenue in FY26 and when does it become meaningful?
  Response: FY26 drone revenue will be in the “millions” (not tens); ASP ~$400–$500; contribution becomes meaningful as programs ramp during FY26.

• Question from Scott Searle (ROTH Capital): Software content vs. FLIR and other adjacent markets (security/robotics)?
  Response: Some programs use FLIR; others use Lantronix camera tuning/software; robotics is emerging next, but current focus is drones.

• Question from Scott Searle (ROTH Capital): Carrier ARR magnitude and pipeline/RFP status?
  Response: ARR recognized in software/services line; active RFP with high win probability; carrier is driving approvals with generator OEMs; opportunity could scale to ~3x initial deployment.