Financial Data and Key Metrics Changes - The company reported revenue of $29.8 million for Q1 2026, reflecting a 3% increase sequentially and year-over-year, excluding GRIT's fatigue [4][11] - Non-GAAP EPS improved to $0.04 from $0.01 in Q4 2025, driven by gross margin expansion and operating leverage from cost optimization initiatives [4][13] - GAAP gross margin increased to 44.8% from 40% in the previous quarter and 42.1% a year ago, while non-GAAP gross margin rose to 45.3% from 40.6% in Q4 2025 [11][12] Business Line Data and Key Metrics Changes - The OEM engagements grew from 10 to 17, indicating accelerating customer adoption in the drone business [6] - The company introduced edge AI drone solutions and partnered with Red Cat, leading to follow-on orders and enhanced customer confidence [5][6] - The asset monitoring segment launched compress.ai, targeting the $27 billion global industrial air compressor market, which is expected to create high-margin recurring revenue [9] Market Data and Key Metrics Changes - The overall market environment remains favorable, with record defense funding and strong demand for networking and connectivity solutions [4][5] - The company is experiencing strong demand in the drone sector, with expectations for continued growth throughout fiscal 2026 [8][19] Company Strategy and Development Direction - The company aims to scale high-growth verticals, expand software-enabled recurring revenue, and drive operating leverage from a leaner cost structure [9][15] - The introduction of edgefabric.ai is designed to simplify AI application deployment, enhancing customer engagement and creating a foundation for recurring revenue [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the trajectory ahead, expecting nearly 20% year-over-year growth in Q2 2026, excluding GRIT's fatigue [15][41] - The company anticipates continued strong performance in its core network infrastructure business, supported by healthy demand [15][41] Other Important Information - The company ended Q1 with cash and cash equivalents of $22.2 million, an increase of over $2 million from the prior quarter [13] - Positive operating cash flow of approximately $3.6 million was generated during the first quarter [13] Q&A Session Summary Question: Drone opportunities and competitive landscape - Management noted that they are working with 17 OEMs, with some already in design and shipping phases, indicating accelerating momentum in the drone business [18][19] Question: Update on generator win with a major service provider - The generator win is progressing well, expanding beyond diesel generators to other equipment for asset tracking [20][21] Question: Sales and fulfillment model for compress.ai - Compress.ai is an AI-powered SaaS solution aimed at generating long-term high-margin recurring revenue, with Vodafone providing connectivity [22] Question: Growth in out-of-band management - Management confirmed growth in out-of-band management and plans to introduce a new product targeting new markets [26][29] Question: Recurring revenue opportunities - Management expects software and services revenue to grow from 5-7% to 10% in the future, with significant opportunities in adjacent markets like robotics and security [31] Question: Timeline for drone revenue contribution - Management anticipates that drone revenue could reach 10-15% of total revenue by fiscal year 2027 [33] Question: Revenue recognition from tier one telecom service provider - Revenue from the $8 million-$10 million win was recognized in the September quarter, with expectations for continued revenue recognition in the December quarter [34] Question: Gross margin outlook - Management expects gross margins to remain in the low 40s, consistent with previous quarters [39][40]