Financial Data and Key Metrics Changes - The company reported revenue of $29.8 million for the second quarter, with a Non-GAAP EPS of $0.04, both within guidance range [4][15] - Year-over-year growth was noted when excluding the major Smart Grid customer, Gridspertise, with profitability supported by gross margin expansion and cost optimization initiatives [4][15] - GAAP gross margin was 43.6%, down from 44.8% in the previous quarter but up from 42.6% a year ago [15][16] - GAAP net loss improved to $1.3 million, or $0.03 per share, compared to a loss of $2.4 million, or $0.06 per share in the prior year [17] Business Line Data and Key Metrics Changes - The drone business showed significant growth, with revenue expectations raised to $8 million-$12 million for fiscal 2026, up from $5 million-$10 million [11][20] - The company is focusing on unmanned systems, with a strong pipeline of customer engagements moving from development to broader deployment [6][10] - Critical infrastructure monitoring is also a key area, with ongoing deployments expected to expand into additional high-value applications [12][13] Market Data and Key Metrics Changes - The U.S. defense budget for fiscal 2026 includes over $13 billion allocated for unmanned systems, indicating a favorable environment for the company's drone initiatives [5][6] - The company is positioned to capture a growing share of defense modernization spending, particularly in unmanned and AI-enabled platforms [6][10] Company Strategy and Development Direction - The company is transitioning from a component supplier to a platform partner, focusing on reducing integration complexity and development risk for customers [8][10] - The Edge AI strategy is central to the company's growth, with a focus on combining embedded compute and connectivity across various markets [14][20] - The company aims to leverage its position in the drone market to create deeper customer relationships and capture long-term growth opportunities [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a short-term slowdown in purchasing activity due to a government shutdown but expressed confidence in the company's execution and recovery [5][44] - The company anticipates continued growth in the drone business and expects it to represent 15%-20% of total revenue in fiscal 2027 [20][27] - Management is optimistic about the future, citing a disciplined approach and a clear path for growth across multiple verticals [20][21] Other Important Information - The company generated positive operating cash flow of nearly $2.2 million during the quarter and reduced outstanding debt to approximately $9.7 million [18][19] - The company is actively exploring M&A opportunities to enhance margins and expand its software offerings [55] Q&A Session Summary Question: What happened with IoT systems and solutions? - Management noted a sequential decline in IoT systems due to a government shutdown affecting federal purchasing, but they executed well to mitigate the impact [23][32] Question: Can you provide insights on drone revenue contribution? - The company raised its drone revenue outlook for fiscal 2026 to $8 million-$12 million, with expectations for continued growth in fiscal 2027 [26][27] Question: What is the impact of the government shutdown and supply constraints? - Management indicated that the government shutdown caused some friction but did not significantly hinder overall performance, and they are proactively managing supply chain issues [44][45] Question: How should we think about gross margin profiles moving forward? - Management expects gross margins to slightly increase in the long term as software services become a larger part of the business, but no significant changes are anticipated in the near term [46][47]

Financial Data and Key Metrics Changes - The company reported revenue of $29.8 million for the second quarter, with a Non-GAAP EPS of $0.04, both within guidance range [4][16] - Year-over-year growth was experienced when excluding the MER Smart Grid customer, Gridspertise, with profitability supported by gross margin expansion and cost optimization initiatives [4][16] - GAAP gross margin was 43.6%, down from 44.8% in the previous quarter but up from 42.6% a year ago [16][17] - Non-GAAP gross margin was 44%, compared to 45.3% last quarter and 43.2% in the prior year quarter [17] - GAAP net loss improved to $1.3 million, or $0.03 per share, compared to a loss of $2.4 million, or $0.06 per share in the year-ago quarter [18] Business Line Data and Key Metrics Changes - The drone business showed significant growth, with revenue expectations raised to $8 million-$12 million for fiscal 2026, up from $5 million-$10 million [11][21] - The company is focusing on Group One and Two short-range reconnaissance drones, which align with current unmanned funding [7][11] - The critical infrastructure monitoring segment is progressing, with a focus on expanding applications beyond monitoring generators [12][13] Market Data and Key Metrics Changes - The U.S. defense budget for fiscal 2026 includes over $13 billion allocated for unmanned systems, indicating a supportive funding environment for the drone market [5][6] - The company is positioned to capture a growing share of defense modernization spending, particularly in unmanned and AI-enabled platforms [6][10] Company Strategy and Development Direction - The company is transitioning from a component supplier to a platform partner, focusing on reducing integration complexity and development risk for customers [8][10] - The Edge AI strategy is driving customer adoption across multiple end markets, with a focus on drones, critical infrastructure, and enterprise connectivity [14][15] - The company aims to create a unified platform for real-time video analytics and intelligent connectivity, expanding its addressable market [14] Management's Comments on Operating Environment and Future Outlook - Management noted a short-term slowdown in purchasing activity due to a government shutdown but expressed confidence in the company's execution and results [5][21] - The company anticipates continued growth through fiscal 2027, with drones expected to represent 15%-20% of total revenue [21][22] - Management highlighted the importance of maintaining a disciplined cost structure while expanding recurring revenue [21] Other Important Information - The company generated positive operating cash flow of nearly $2.2 million during the quarter and paid down approximately $1 million of outstanding debt [19][20] - The company is actively working to mitigate supply chain issues related to memory shortages, ensuring product availability for customers [48] Q&A Session Summary Question: Commentary on IoT systems and drone contribution - Management acknowledged a sequential decline in IoT systems due to a government shutdown but expressed optimism about future transitions and drone revenue contributions [24][33] Question: Details on the Drone Dominance Program - Management confirmed participation in the Drone Dominance Program and highlighted strong positioning with multiple partners [25][32] Question: Impact of government shutdown and supply constraints - Management indicated that the government shutdown affected IoT system sales but noted successful execution despite challenges [45][47] Question: Gross margin outlook with increasing software revenue - Management expects gross margins to improve in the long term as software services grow, but no significant near-term changes are anticipated [49][50]

Financial Data and Key Metrics Changes - The company reported revenue of $29.8 million for Q2 2026, with a Non-GAAP EPS of $0.04, both within guidance range [4][16] - Year-over-year growth was experienced when excluding the MER Smart Grid customer, Gridspertise, indicating strong underlying performance [4][16] - GAAP gross margin was 43.6%, slightly down from 44.8% in the previous quarter but up from 42.6% a year ago [16][17] - Non-GAAP gross margin was 44%, compared to 45.3% last quarter and 43.2% in the prior year quarter [17] - GAAP net loss improved to $1.3 million, or $0.03 per share, compared to a loss of $2.4 million, or $0.06 per share in the year-ago quarter [18] Business Line Data and Key Metrics Changes - The drone business saw significant growth, with revenue expectations raised to $8 million-$12 million for fiscal 2026, up from $5 million-$10 million [11][21] - The company is focusing on Group One and Two short-range reconnaissance drones, aligning with current unmanned funding [7][11] - The critical infrastructure monitoring segment is progressing, with revenue recognized from a tier one U.S. mobile network operator [12][14] Market Data and Key Metrics Changes - The U.S. defense budget for fiscal 2026 includes over $13 billion allocated for unmanned systems, indicating a favorable environment for the company's drone initiatives [5][6] - The company is positioned to capture a growing share of future defense modernization spending, particularly in unmanned and AI-enabled platforms [6][10] Company Strategy and Development Direction - The company is transitioning from a component supplier to a platform partner, focusing on reducing integration complexity and development risk for customers [8][10] - The Edge AI strategy is driving customer adoption across multiple end markets, with a focus on drones, critical infrastructure, and enterprise connectivity [15][21] - The company aims to create a unified platform for real-time video analytics and intelligent connectivity, expanding its addressable market [14] Management's Comments on Operating Environment and Future Outlook - Management noted that the government shutdown caused a short-term slowdown in purchasing activity from federal agency customers, but solid execution led to strong results [5][19] - The company expects continued growth through the remainder of fiscal 2026 and into fiscal 2027, with drones projected to represent 15%-20% of total revenue in fiscal 2027 [21][28] - Management expressed confidence in the durability and scale of the drone opportunity, supported by a disciplined cost structure and expanding recurring revenue [21][28] Other Important Information - The company generated positive operating cash flow of nearly $2.2 million during the quarter and paid down approximately $1 million of outstanding debt [19] - The company is actively working to mitigate supply chain issues related to memory shortages, ensuring adequate product supply for new business areas [46][47] Q&A Session Summary Question: Can you provide commentary on IoT systems and the December quarter's contribution? - Management acknowledged a sequential decline in IoT systems due to the government shutdown but noted strong execution in other areas [24][33] Question: What is the expected growth rate for the core business in fiscal 2027? - Management indicated that the overall business is expected to grow, with the drone business showing high double-digit growth rates [40] Question: What impact did the government shutdown have in the December quarter? - Management stated that the shutdown caused some friction but overall execution was strong, allowing the company to make up for lost time [45][46] Question: How should we think about the gross margin profile moving forward? - Management expects margins to remain near current levels in the near term but anticipates slight increases as software services grow [48][49]