Core Insights - Lantronix Inc. has been recognized with the 2025 IoT Evolution Product of the Year Award for its Open-Q System-on-Module (SOM), which is utilized in drone development for defense unmanned aerial vehicles [1][2] - The company has strategically focused on the drone market, collaborating with 10 manufacturers to develop advanced technology for drone products [2] - Lantronix's Open-Q SOM solution is compliant with TAA and NDAA, ensuring it meets U.S. security requirements for deployment in sensitive Department of Defense missions [3] Company Overview - Lantronix is a global leader in Edge AI and Industrial IoT solutions, providing intelligent computing, secure connectivity, and remote management for mission-critical applications [5] - The company serves high-growth markets, including smart cities, enterprise IT, and commercial and defense unmanned systems, enabling customers to optimize operations and accelerate digital transformation [5] - Lantronix's solutions are designed to enhance efficiency, security, and competitive advantage in an AI-driven environment [5]

Core Insights - Lantronix Inc. reported a strategic transformation in fiscal 2025, focusing on operational streamlining and targeted investments in high-value markets, positioning itself for sustainable growth and enhanced supply chain resilience [2][6]. Financial Performance - For Q4 FY2025, Lantronix achieved net revenue of $28.8 million, with a GAAP EPS of ($0.07) and a Non-GAAP EPS of $0.01 [5][6]. - For the full fiscal year 2025, net revenue totaled $122.9 million, with a GAAP EPS of ($0.29) and a Non-GAAP EPS of $0.14 [6][23]. Business Highlights - The company secured a multi-year contract with a Tier-1 U.S. wireless operator to manage nationwide backup power systems, enhancing network resilience and reducing operational costs [6]. - Lantronix was selected by Red Cat's Teal Drones to power U.S. Army-approved drones, providing early revenue visibility for fiscal 2026 [6]. - The launch of the NTC-500 Series industrial-grade 5G routers aims to support private 5G, edge computing, and industrial IoT applications [6]. Strategic Initiatives - The leadership team was expanded with three strategic hires to accelerate growth in Edge IoT and Network Infrastructure, focusing on network resilience and AI-driven connectivity solutions [6]. - The company is positioned to capture multi-year, high-margin opportunities in the secure defense drone market and Edge AI solutions [2][6]. Revenue Breakdown - In Q4 FY2025, revenue from Embedded IoT Solutions was $10.2 million, IoT System Solutions was $16.7 million, and Software & Services was $2.0 million [30]. - For the fiscal year, revenue from Embedded IoT Solutions was $46.4 million, IoT System Solutions was $68.7 million, and Software & Services was $7.8 million [30]. Geographic Performance - In Q4 FY2025, revenue from the Americas was $19.8 million, EMEA was $5.3 million, and APJ was $3.7 million [31]. - For the full fiscal year, revenue from the Americas was $70.1 million, EMEA was $30.9 million, and APJ was $21.9 million [31].

Financial Data and Key Metrics Changes - The company reported revenue of $28.5 million for Q3 FY2025, which was down both sequentially and year-over-year due to no shipments to a large smart grid customer in Europe [4][10] - GAAP gross margin increased to 43.5% in Q3 FY2025 from 42.6% in the prior quarter and 40.1% in the year-ago quarter [10] - Non-GAAP gross margin was 44.1% in Q3 FY2025 compared to 43.2% in the prior quarter and 41% in the year-ago quarter [10] - GAAP net loss was $3.9 million or $0.10 per share during Q3 FY2025, compared to a GAAP net loss of $0.4 million or $0.01 per share in the year-ago quarter [11] - Non-GAAP net income was $1.1 million or $0.03 per share during Q3 FY2025, down from $4.2 million or $0.11 per share in the year-ago quarter [12] Business Line Data and Key Metrics Changes - Revenue impact was partially offset by sequential organic growth in embedded connectivity and switch products, along with growth in gateways and routers from the NetComm acquisition [10] - The company reduced non-GAAP operating expenses by approximately $1.2 million compared to the year-ago quarter and by about $200,000 sequentially [11] Market Data and Key Metrics Changes - The company is expanding its distribution network in the European Union and Asia Pacific, leveraging partnerships with TD SYNNEX and the acquired channel network from NetComm [7] - The integration of NetComm products has gone well, leading to increased customer engagement and cross-selling opportunities [7] Company Strategy and Development Direction - The company is focused on expanding its distribution network and managing costs amid tariff uncertainties [5][6] - There is a strong emphasis on developing edge AI solutions, particularly in the areas of drones, robotics, and surveillance [8][30] - The company is cautious about the macroeconomic environment but is generating positive cash flow and maintaining a strong balance sheet [15] Management's Comments on Operating Environment and Future Outlook - Management is closely monitoring the operating environment and has established a task force to address tariff impacts [5][6] - The company expects revenue for Q4 FY2025 to be in the range of $26.5 million to $30.5 million, with some pressure on gross margins anticipated [14] - Management is optimistic about double-digit growth in FY2026 based on design activity and new product releases [36][45] Other Important Information - Cash and cash equivalents at the end of Q3 FY2025 totaled $20 million, slightly up from the prior quarter [12] - The company paid down approximately $2 million of its existing term debt, reducing interest expenses [13] Q&A Session Summary Question: What was the NetComm contribution in March and its growth potential? - Management expects NetComm revenue to be $6 million to $7 million on an annualized basis, tracking to exceed that run rate [18] Question: How is customer engagement tracking amid macro uncertainties? - There are no cancellations or push-outs, and design activity remains strong [21] Question: What is the outlook for edge compute initiatives? - The company is seeing positive engagement and expects revenue from AI activities, particularly around cameras, in FY2026 [30] Question: What visibility is there for June guidance and growth into FY2026? - Management is cautious but confident in the June guidance, expecting double-digit growth driven by core business and new design wins [36][45] Question: Is the company still the sole supplier to Gridspertise? - Yes, the company remains the single source for Gridspertise, and management is working closely with them [47]

Financial Data and Key Metrics Changes - Annual Recurring Revenue (ARR) grew 12% year over year to a record $123 million in the quarter, representing 29% of annualized quarterly revenues [6][7] - Free cash flow generation was $26 million in the quarter, reducing net debt to $45 million after paying down $25 million of debt [7][9] - Current free cash flow yield is at 9%, with expectations to be net cash positive by the end of the fiscal year [8][9] Business Line Data and Key Metrics Changes - The recurring revenue trends in Products and Services (P&S) increased over 20% in the quarter, driven by improved attach rates of software and services [15][16] - The inventory position has improved significantly, approaching historical norms, indicating a positive trend in inventory management [7][20] Market Data and Key Metrics Changes - Demand remains steady across most regions, with the exception of a weaker performance in the APAC region [24][30] - Sales cycle lengths and order sizes have stabilized post-COVID, with no significant deterioration observed [30] Company Strategy and Development Direction - The company is focused on a solution-oriented approach in the industrial IoT market, emphasizing software and services to enhance product offerings [6][16] - Plans to pursue solution-oriented acquisitions of scale as the balance sheet improves [9] Management's Comments on Operating Environment and Future Outlook - The macro environment is acknowledged as fluid, but the company has a robust history of adaptability and resiliency [10] - Current outlook assumes steady demand and existing tariff rates, with no anticipated drop-off in demand [9] Other Important Information - The company has diversified and optimized its supply chain across geographies and suppliers, enhancing flexibility in operations [10][32] Q&A Session Summary Question: What operational levers are being used to unlock recurring revenue growth? - The company is focusing on providing complete solutions by attaching software and services to products, which has improved attach rates [16] Question: How is the inventory situation evolving? - The inventory situation is resolving itself, with a significant reduction in inventory levels, returning to normalized levels [20] Question: How has macro volatility affected customer spending? - Demand remains steady, with some fluidity acknowledged, particularly in the APAC region [24] Question: What is the status of software attach rates? - Software attach rates are improving, with ongoing efforts to increase these rates across the portfolio [25] Question: What is the current state of deal timelines and supply chain? - Sales cycles have stabilized, and the company is monitoring opportunities closely, with no significant deterioration noted [30] Question: How is the company managing tariff exposures? - The outlook incorporates current tariff states, with a focus on maintaining flexibility in operations to mitigate potential impacts [33] Question: How are the Ventus and SmartSense solutions performing? - Both solutions are performing well, with growth offsetting some soft churn, and the company is extending the Ventus model into its cellular router business [36]

Financial Data and Key Metrics Changes - Annual Recurring Revenue (ARR) grew 12% year over year to a record $123 million in the quarter, representing 29% of annualized quarterly revenues [6][7] - Free cash flow generation was $26 million, allowing the company to reduce net debt to $45 million after paying down $25 million during the quarter [7][8] - The company expects to be net cash positive by the end of the fiscal year, a quarter earlier than initially planned [8] Business Line Data and Key Metrics Changes - The recurring revenue trends in Products and Services (P&S) increased over 20% in the quarter, driven by improved attach rates of software and services to products [14][15] - The inventory position improved significantly, approaching historical norms, indicating a positive trend in inventory management [8][19] Market Data and Key Metrics Changes - Demand remains steady across most regions, with the exception of the APAC region, where sales have been weaker [24][30] - The company has diversified and optimized its supply chain across geographies and suppliers, enhancing its resilience to macroeconomic changes [9][32] Company Strategy and Development Direction - The company is focused on a solution-oriented approach in the industrial IoT market, emphasizing software and services to enhance product offerings [6][15] - There is a commitment to pursuing solution-oriented acquisitions of scale as the balance sheet improves [8] Management's Comments on Operating Environment and Future Outlook - The management acknowledges a fluid macro environment but expresses confidence in the company's adaptability and resilience [9][30] - The outlook for the remainder of fiscal 2025 assumes current tariff rates and steady demand, with no anticipated drop-off [8][24] Other Important Information - The company is working on extending the Ventus model into its cellular router business, which may impact top-line revenue but contribute positively to ARR [36][39] - Management noted that the software attach rates are improving, although they are still below 50% across the portfolio [25] Q&A Session Summary Question: What operational levers are being used to unlock recurring revenue growth? - The company is focusing on providing complete solutions by attaching software and services to products, which has improved attach rates [15] Question: How is macro volatility affecting customer spending? - Demand remains steady, with some fluidity acknowledged, particularly in the APAC region [24][30] Question: What is the current state of inventory management? - The inventory situation is resolving, with significant reductions noted, and the company is approaching normalized levels [19][31] Question: What are the timelines for closing deals and supply chain management? - Sales cycles have stabilized, with no deterioration observed except in the APAC region [30] Question: How is the company managing tariff exposures? - The outlook incorporates current tariff rates, and the company has options to manage potential impacts from reciprocal tariffs [33][34]