Lantronix's 2026 Earnings Call Contradictions: Drone Revenue Projections, Geo Mix, and Margin Pressures Diverge

Date of Call: Aug 26, 2026

Financials Results

• Revenue: Fiscal 2026: nearly $121 million, representing 8% growth over fiscal 2025 revenue of just over $111 million.
• EPS: Non-GAAP EPS for Q4 fiscal 2026: $0.04 per share, up from $0.01 per share in the year-ago quarter and $0.04 per share in the prior quarter.
• Gross Margin: Non-GAAP gross margin in Q4: 44.1%, compared with 43.6% in the prior quarter and 40.6% a year ago.
• Operating Margin: Non-GAAP operating margin not explicitly provided.

Guidance:

• Revenue for Q1 fiscal 2027 expected to be in the range of $31 million to $33 million.
• Non-GAAP EPS for Q1 fiscal 2027 expected to be in the range of $0.04 to $0.06 per share.
• Unmanned systems expected to represent 15 to 20% of total revenue in fiscal 2027.
• Expect to deliver double-digit revenue growth for fiscal 2027.

Business Commentary:

Strong Revenue Growth and Profitability:

• Lantronics reported an 8% year-over-year revenue increase to $121 million for fiscal 2026, with a notable 300% rise in non-GAAP EPS to $0.04 per share.
• The growth was driven by enhancements in the operating model, a strengthened balance sheet, and increased demand for embedded IoT solutions, particularly in unmanned systems.

Unmanned Systems Expansion:

• The unmanned systems segment grew to $12.6 million in revenue for fiscal 2026, marking a 34% year-over-year increase.
• This growth was fueled by a significant increase in customer engagements, regulatory changes restricting foreign drone suppliers, and a shift towards autonomous drone technology.

Strategic Acquisitions and Recurring Revenue:

• The acquisition of Vesema Network's industrial IoT business added approximately $5 million in annual revenue, with gross margins in the mid to high 60s range.
• This strategic move is aligned with Lantronics' goal to layer more software onto its hardware base, increasing recurring revenue and expanding its platform strategy.

Improved Gross Margins:

• Q4 non-GAAP gross margins improved to 44.1%, compared to 43.6% in the prior quarter and 40.6% a year ago.
• The improvement was attributed to favorable revenue mix, supply chain efficiency, and disciplined cost management.

International Expansion and Partnerships:

• Lantronics formed partnerships with DoD Solution and AVT Australia, enhancing its global presence in unmanned systems and expanding its market reach.
• These partnerships are part of a broader strategy to capitalize on growing international demand for domestic, NDAA-compliant drone technologies.

Sentiment Analysis:

Overall Tone: Positive

• "The fourth quarter marked a strong finish to fiscal 2026... We are now seeing the tangible results of that work." "We enter fiscal 2027 with multiple engines of profitable growth, the strongest financial position in our history, and confidence in our ability to deliver double-digit revenue growth."

Q&A:

• Question from Austin Bolig (Needham): Just to dive in a little bit into your guys' newest fiscal 27 drone guide, just would love to get a sense of, like, what your visibility looks like into this number, and does this largely just assume the engagements that you have today?
  Response: The guidance is based on current visibility and engagements, with over 30 vendors and shipments to a dozen customers, including counter-UAS.

• Question from Austin Bolig (Needham): Just would love to know, is there any big impact to you guys, both positively and negatively, related to the new drone tariffs that were announced a couple weeks ago?
  Response: Tariffs are a structural tailwind for NDAA-compliant business, with no meaningful direct impact expected on current imports.

• Question from Scott Buck (Titan Partners): I'm curious, between Swarmer and the DoD solutions and I guess all the Ukraine-linked programs, what percentage of unmanned revenue is tied to Ukraine in demand? And how do you think about that revenue in a ceasefire scenario?
  Response: Ukraine is not a meaningful portion of drone revenue; growth is driven by broader unmanned systems and autonomy demand, not tied to a specific conflict.

• Question from Scott Buck (Titan Partners): Just on gross margin, as unmanned scales, do you start to see some mixed pressure there? or does the progress or kind of growth in the software and services offset that?
  Response: Unmanned growth may pressure margins, but higher-margin software/ARR and recovering network infrastructure should offset, keeping company margins stable.

• Question from Josh Sullivan (Jones Trading): Just a follow-up on the 232 decision. Have you seen any change in behavior or activity from customers since the announcement?
  Response: Customers quickly confirmed Lantronics' NDAA/TAA certification and expressed interest in U.S.-based manufacturing, viewing it as a tailwind.

• Question from Josh Sullivan (Jones Trading): And then on the Nero acquisition, you know, now that you're a software, hardware, end-to-end solution, what other markets might that take you into or what, you know, what does that capability allow you to do?
  Response: Nero's asset tracking software and installed base create cross-sell opportunities for Lantronics' hardware and expands into restoration, fleet, and industrial markets.

• Question from Josh Sullivan (Jones Trading): And then I guess on the LC9000, what does the rollout of that product look like? What's the TAM there? You know, obviously a huge market, but curious what you think you can access there over kind of what timeframe.
  Response: The out-of-band product has a TAM over half a billion dollars; it has already shipped with SambaNova Systems and is a long-term business with zero-touch provisioning and API integration.

• Question from Jason Schmidt (Lake Street): Just first starting on the drone markets a little, given your comments about the traction you're seeing globally, are you continuing to expand the sales team and infrastructure focused on this market?
  Response: Yes, expanding go-to-market with added resources in North America, Europe, and Washington, D.C., driven by a significant future opportunity.

• Question from Jason Schmidt (Lake Street): And then just as a follow-up, obviously the memory availability remains tight and there's some pricing pressure out there. Are you guys going to pass through some of these prices as part of your price mitigation strategy?
  Response: Working with customers on cost pass-through for memory; industry expectation is for these costs to be passed through, and the company is seeing that direction.

• Question from Christian Schwab (Craig-Hallum Capital Group): The cash at quarter end that you highlighted, did that take into account the recent tuck-in acquisition or should that be reduced?
  Response: Cash balance at June 30 did not include the Nero acquisition, as it closed after the fiscal year-end.

• Question from Christian Schwab (Craig-Hallum Capital Group): As we look at your outlook for next fiscal year, excluding the unmanned systems, which you've given great clarity on, we ran into multiple headwinds that we've addressed over the last few quarters in the remaining part of the business. Let's just lump it and call it all IoT systems. Given the strong sequential growth in the quarter and new opportunities, for example, in the out-of-band product that you highlighted, would you expect that portion of the business to be like a 5% to 10% growth business or maybe even better than that in fiscal year 27? How should we think about that?
  Response: The company expects double-digit revenue growth overall, with IoT systems recovering from government shutdown headwinds; strong quote activity supports growth confidence.

• Question from Christian Schwab (Craig-Hallum Capital Group): And then my last question, just as it relates to gross margins, you know, as we layer in and expand our ARR in higher gross margin portions of the business, potentially helping offset any type of pressure you may have as far as component costs. Do you think gross margins could improve throughout the course of the year or do you expect them to be relatively stable?
  Response: Opportunity exists to grow gross margins in fiscal 2027 as higher-margin businesses ramp, though drone module growth may present some headwind.

• Question from Christian Schwab (Craig-Hallum Capital Group): And then my last question, as far as future potential strategic M&A, you know, Salil, do you have a target list of companies that you're are looking at or targeting, or should we not really anticipate any further tuck-in acquisitions, for example, in fiscal year 27?
  Response: The company has a list of targets and is engaged with some, focusing on expanding unmanned systems strength and recurring revenue.

• Question from Austin Moeller (Canaccord): It sounds like Putin wants to call a general mobilization to invade Kiev from the north. So if you start producing and shipping SOMs at scale in Eastern Europe, How would you expect the gross margins on SOMS to compare in Eastern Europe relative to what you might get on the drone dominance program at the higher build rates?
  Response: Gross margins on SOMs in Europe may be slightly more challenged than the growth seen in the U.S. drone business.

• Question from Austin Moeller (Canaccord): And how does the AVT Australia opportunity open up the – does that open up the TAM for SOMs and drones in Asia Pacific, or does that also open up the opportunity in Asia Pacific and the Middle East for tactical drones?
  Response: The AVT partnership opens up opportunities in Asia Pacific, Europe, Middle East, and America, with active engagement in Japan, expanding the company's international presence.

Contradiction Point 1

Unmanned Systems Revenue Growth and Outlook

Guidance for unmanned systems revenue appears inconsistent between quarters.

Austin Bolig (Needham) - Austin Bolig (Needham)

2026Q4: Unmanned systems revenue is projected to be around $25 million plus for fiscal 2027. - Salil Al-Saray and Brent Stringham(CFO)

Does the fiscal 2027 drone guidance assume only current engagements, and should we expect unmanned systems revenue to reach at least $25 million? - Scott Searle (Roth Capital)

2026Q3: The doubling of revenue in fiscal 2027 is based on current customer visibility and programs. - Saleel Awsare(CEO)

Contradiction Point 2

Geographical Composition of Unmanned Systems Revenue

Statements about the geographic source of drone revenue conflict between quarters.

Scott Buck (Titan Partners) - Scott Buck (Titan Partners)

2026Q4: The majority of drone revenue in fiscal 2026 was U.S.-based. The Ukraine portion is not meaningful for fiscal 2027. - Salil Al-Saray and Brent Stringham(CFO)

What percentage of unmanned systems revenue is tied to Ukraine, and how would a ceasefire impact it? - Austin Beaulac (Needham)

2026Q3: The majority of current revenue is domestic. International is an emerging and important vector... No specific number provided for the 2027 split. - Saleel Awsare(CEO)

Contradiction Point 3

Fiscal 2027 Drone Revenue Guidance

Contradiction on the projected revenue size for the drone business in fiscal 2027.

Austin Bolig (Needham) - Austin Bolig (Needham)

2026Q4: Unmanned systems revenue is projected to be around $25 million plus for fiscal 2027. - Salil Al-Saray and Brent Stringham

Can you provide visibility into the fiscal 2027 drone guidance, including whether it assumes only current engagements, if unmanned systems revenue will reach at least $25 million, and the impact of new drone tariffs? - Scott Searle (Roth Capital)

2026Q2: At 15-20% of total revenue, drones are projected to become a $20-30 million business in fiscal 2027. - Saleel Awsare(CEO)

Contradiction Point 4

Gross Margin Trajectory and Expectations

Contradiction on the direction and drivers of future gross margin changes.

Christian Schwab (Craig-Hallum Capital Group) - Christian Schwab (Craig-Hallum Capital Group)

2026Q4: Gross margins have potential to improve in fiscal 2027, driven by higher-margin business growth and ARR from the acquisition, partially offset by unmanned module pressure. - Brent Stringham and Salil Al-Saray

Did the quarter-end cash balance include the Nero acquisition, what growth is expected for IoT systems excluding unmanned systems, could gross margins improve in fiscal 2027, and what is the outlook for strategic M&A? - Jaeson Schmidt (Lake Street)

2026Q2: Long-term, as software and services become a larger portion of revenue, gross margins are expected to slightly increase. The overall gross margin trajectory has been positive, improving sequentially and year-over-year. - Saleel Awsare and Brent Stringham

Contradiction Point 5

Impact of the Nero Acquisition on Software/Services Revenue Mix

The expected future contribution of software/services to revenue from the Nero acquisition is presented differently.

Josh Sullivan (Jones Trading) - Josh Sullivan (Jones Trading)

2026Q4: The Nero acquisition... increases the software/services revenue mix to over 10%. - Salil Al-Saray(CFO)

How does the Nero acquisition enable new markets and capabilities? - Scott Searle (ROTH Capital)

20251106-2026 Q1: Software and services currently represent 5% to 7% of revenue, a portion that is expected to grow to 7% to 10% in the future as more offerings like Kompress.ai are aggregated. - Saleel Awsare(CFO)