Lantronix(LTRX 0.81%) reported revenue of $28.8 million in Q4 FY2025 and non-GAAP earnings per share (EPS) of $0.10, driven by core growth excluding the Gridspertise customer and key design wins in defense and telecom markets. Management guided FY2026 revenue to a range of $28.5 million to $30.5 million, highlighting rising recurring revenue, improved gross margin (non-GAAP gross margin was 40.6% in Q4), and expanding opportunities in the drone and edge infrastructure segments. The following analysis identifies three pivotal developments with direct consequences for the company’s long-term value proposition and risk profile.

Drone segment emerges as multi-customer growth engine for Lantronix

Lantronix's momentum in unmanned aerial systems accelerated, with active engagement across over 10 military and industrial drone customers, an average dollar content of $500 per unit, and initial production shipments starting in June. Strategic alignment with U.S. Department of Defense priorities and regulatory compliance (NDAA/TAA) is unlocking volume opportunities in both defense and commercial drone platforms.

"we announced Redcat about a week ago, but as of this quarter, we have over 10 different drone makers that we're working on. Mainly military or industrial applications. We see this market growing really nicely into fiscal 2026 representing a meaningful portion of our business longer term. And again, it's fueled by programs like the SRR with Redcat, and, you know, as more funding comes, we are well suited there. And I think the key is our competitive edge is our expertise in cameras. We've been working around cameras for a long time. And that's really what a drone requires. The camera tuning, the fusion, the software integration, and then us being North American based NDAA and TAA certified really allows us to win these contracts. So we have shipped, as I said last quarter, I mean, in June, we have visibility into fiscal 2026 with a few of the 10 drone makers."
-- Saleel Awsare, President & CEO

This rapid expansion into defense and commercial drone verticals should diversify the company’s revenue and reduce customer concentration risk.

Carrier infrastructure win secures recurring revenue and scaling potential

The company secured a multi-year agreement with a Tier 1 U.S. mobile carrier to deploy 50,000 FOX gateway devices—each integrated with its Perception platform—at cell sites nationwide, with shipments having begun in June. This deployment is establishing a high-margin annual recurring revenue (ARR) base, positioning Lantronix as a solution provider rather than solely a hardware vendor.

"we recently signed a multi-year agreement with a major U.S. Mobile carrier to provide devices and services as they modernize over 50,000 backup power systems at wireless cell sites nationwide. This win is a strong validation of our edge infrastructure strategy enabling resilient network uptime, improved lifecycle management, and real-time operational visibility across thousands of distributed locations. So far, we booked nearly all the initial units and have begun shipping in June. With additional orders expected as the rollout continues, we believe this is a long-term opportunity with this customer. And expect additional volume beyond this initial deployment reflecting the depth of our relationship and the strategic nature of the program. In addition to the sizable hardware deployment, this design win also incorporates our perception platform enabling remote monitoring and ongoing management of connected assets. As these devices are brought online, we expect they will contribute to our growing base of high-margin annual recurring revenue."
-- Saleel Awsare, President & CEO

Migrating large enterprise clients to bundled hardware/software offerings increases customer lifetime value, embeds the company in mission-critical workflows, and supports the growth of high-margin annual recurring revenue streams.

Gross margin recovers as supply chain realigns and cost controls endure

GAAP gross margin in Q4 was 40%, impacted by a 100 basis point quarter-over-quarter (QoQ) decline due to tariffs and further by aged inventory charges, while non-GAAP gross margin was 40.6% (down from 44.1% in the prior quarter). Management projects a near-term return to historic gross margin levels due to supply chain overhauls and the strategic migration of manufacturing out of China.

"In the fourth quarter, GAAP gross margin was 40%. Compared to 43.5% in the prior quarter and 38.1% in the year-ago period. On a non-GAAP basis, gross margin was 40.6% versus 44.1% last quarter and 38.8% in the year-ago quarter. The sequential decline primarily reflects inventory charges for aged inventory and higher duties and tariffs incurred in the quarter. Despite these temporary impacts, margins remain above the year-ago period, reflecting benefits from our ongoing cost and supply chain initiatives as well as a favorable product mix. As we continue to carefully manage our inventories and the impact of tariffs, we expect gross margins to recover to the levels we achieved in the first half of fiscal 2025. We've made strong progress on our ninety-day plan to further improve our cost structure and supply chain efficiency. As of today, the vast majority of U.S.-bound products are now manufactured outside of China, reducing costs and minimizing potential tariff exposure going forward."
-- Brent Stringham, CFO

The successful shift of U.S.-bound sourcing to non-China locations and sustained operational discipline should restore margin expansion by mitigating tariff volatility and lowering structural costs over the coming quarters, as discussed by management regarding Q4 and the outlook for future quarters.

Looking Ahead

Management guided non-GAAP EPS to $0.02 to $0.04 for Q1, with expectations that GAAP gross margin will trend toward 44%-45% as cost and supply chain initiatives mature. No Gridspertise revenue is included in forecasts, reflecting improved business diversification. Management continues to invest selectively in Edge AI and IoT platforms, with visibility supported by multi-year customer agreements in telecommunications and a robust pipeline in both drone and telecommunications verticals.