Lantronix lifts outlook as drone, AI demand rise

Lantronix reported fiscal second-quarter 2026 revenue of $29.8 million, with non-GAAP earnings per share of $0.04, both within its prior guidance range. Excluding its MER smart grid customer Grid Expertise, the company said it achieved double-digit year-over-year revenue growth, driven by strength in embedded compute, including AMD- and drone-related programs, and solid contributions from network infrastructure switch products.

Gross margin continued to trend higher versus last year. GAAP gross margin was 43.6%, up from 42.6% a year earlier, and non-GAAP gross margin was 44%, compared with 43.2% in the prior-year quarter. Operating discipline also supported results: GAAP operating expenses were $14 million, down just under 6% sequentially and about 9% year over year, reflecting cost optimization measures taken in the prior year.

On a GAAP basis, Lantronix narrowed its net loss to $1.3 million, or $0.03 per share, from a $2.4 million, or $0.06 per share, loss a year earlier. On a non-GAAP basis, net income improved to $1.6 million, or $0.04 per share. The balance sheet showed net inventories of $27.1 million and cash and cash equivalents of $23 million as of December 31, 2025, with approximately $2.2 million of positive operating cash flow and a further $1 million reduction in outstanding debt during the quarter.

Management highlighted drones and unmanned systems as a primary growth driver. Drone revenues increased meaningfully from the first to the second quarter, prompting Lantronix to raise its fiscal 2026 drone revenue outlook to a range of $8 million to $12 million from its prior $5 million to $10 million estimate. The company now expects drones to represent roughly 15% to 20% of total revenue in fiscal 2027, equivalent to approximately $20 million to $30 million based on its commentary.

Lantronix said it is currently focused on Group 1 and Group 2 short-range reconnaissance drones, an area it believes aligns well with current unmanned funding. It is working with more than 15 original equipment manufacturers and reported deeper engagements with customers such as Red Cat’s Teal drones and Flightwave, as well as Trillium Engineering and Flock Safety in newer use cases like drone-as-first-responder and AI-enabled threat detection.

The company cited a supportive funding backdrop, noting that the signed fiscal 2026 U.S. defense budget includes more than $13 billion in enacted funding related to unmanned systems, autonomy, ISR and counter-UAS programs. Management said it sees this as creating capacity for more advanced unmanned platforms as programs move from development into execution, though some funds have yet to be released.

Lantronix positions itself at what it describes as the intersection of payload, compute and secure connectivity in unmanned systems, with its AI edge compute modules serving as the “brains” of many drones. At CES, it introduced a drone reference kit aimed at accelerating time to market for defense and commercial UAV developers, reinforcing a shift from component supplier to platform partner by reducing integration complexity and development risk in regulated environments.

Beyond drones, Lantronix is targeting critical infrastructure monitoring as a long-term pillar of its industrial IoT strategy. It continues to roll out deployments with a Tier 1 U.S. mobile network operator, having recognized revenue over the last two quarters and highlighting the program as a foundation for recurring revenue. The company said it is expanding beyond generator monitoring into additional tower applications such as backup power bands and rectifiers.

At CES, Lantronix also debuted Smart Edge AI and Smart Switch AI, an edge AI gateway and AI-powered fiber switch designed to support real-time video analytics and multi-camera orchestration. Management said these solutions can upgrade existing non-intelligent cameras and devices in brownfield environments, broadening its addressable market across surveillance, smart buildings and critical infrastructure without requiring hardware replacement.

Looking ahead to the quarter ending March 31, 2026, Lantronix expects revenue in the range of $28.5 million to $32.5 million and non-GAAP EPS between $0.03 and $0.04. Management indicated that GAAP operating expenses should remain in the range of roughly $11.8 million to $12.3 million per quarter in the near term, reflecting ongoing cost controls alongside growth investments.

The company noted that a recent U.S. government shutdown created a short-term slowdown in purchasing activity from certain federal agency customers, weighing on some IoT systems and box products. However, it said its teams were able to execute around the disruption and that government spending was beginning to normalize. On supply dynamics, Lantronix acknowledged sector-wide memory pricing and supply pressures but said it does not see major short- or mid-term issues due to proactive planning with customers.