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LANTRONIX INC (LTRX)·Q2 2025 Earnings Summary

Executive Summary

  • Net revenue was $31.2M and Non-GAAP EPS $0.04, both within guidance; GAAP EPS was ($0.06) . Sequential revenue declined on softness at the largest automotive customer and slightly lower Enterprise activity; YoY revenue fell ~16% on weaker out-of-band and switch products .
  • Gross margins expanded: GAAP to 42.6% and Non-GAAP to 43.2%, reflecting a favorable mix toward higher-margin System Solutions .
  • Q3 FY2025 guidance calls for revenue of $27.0–$31.0M and Non-GAAP EPS of $0.01–$0.05, with a slower-than-expected smart grid rollout in Europe the primary headwind; management expects shipments to resume after initial deployment .
  • Strategic catalysts center on Edge AI initiatives (Qualcomm collaboration, SmartLV, Teledyne/FLIR camera design wins), NetComm integration into the Connect portfolio (4G/5G gateways), and cost reduction plans largely completed, positioning the model for improved margin and lower OpEx .

What Went Well and What Went Wrong

What Went Well

  • Margin expansion: GAAP GM 42.6% (vs. 42.1% in Q1 and 40.6% YoY) and Non-GAAP GM 43.2% (vs. 42.6% in Q1 and 41.6% YoY) on improved mix toward higher-margin System Solutions .
  • Cost actions: Non-GAAP OpEx trending to $11.25–$11.75M per quarter; initiatives substantially complete in January, with expected FY2025 OpEx ~$4.5M lower vs FY2024; incremental NetComm costs ~$0.3–$0.4M per quarter .
  • Strategic progress in Edge AI and customer wins: “We continue to strengthen our strong collaboration with Qualcomm… integrating Qualcomm’s advanced AI frameworks into our Lantronix Edge AI systems” and shipping OOB solutions into AI data centers; drone computing module win for a U.S. defense application .

What Went Wrong

  • Revenue pressure: Q2 revenue down sequentially and ~16% YoY (-$5.9M), driven by softness in out-of-band and switch products, and lower volume from the largest automotive customer .
  • OOB weakness in the quarter tied to a government-related entity, partially offset by expected sequential growth into Q3 as data center build-outs progress .
  • Q3 outlook softer on smart grid timing: “Sequentially lower revenue in FQ3 primarily reflecting a slower than anticipated rollout by our large Smart Grid customer in Europe” (shipments expected to resume after initial deployment) .

Financial Results

Consolidated Financials

MetricQ1 FY2025Q2 FY2025Q3 FY2025
Net Revenue ($USD Millions)$34.423 $31.161 $28.500
GAAP EPS ($)($0.07) ($0.06) ($0.10)
Non-GAAP EPS ($)$0.06 $0.04 $0.03
GAAP Gross Margin %42.1% 42.6% 43.5%
Non-GAAP Gross Margin %42.6% 43.2% 44.1%

Segment Breakdown (Net Revenues)

Segment ($USD Thousands)Q1 FY2025Q2 FY2025Q3 FY2025
Embedded IoT Solutions$13,387 $10,784 $11,990
IoT System Solutions$18,759 $18,592 $14,730
Software & Services$2,277 $1,785 $1,780

Revenue by Region

Region ($USD Thousands)Q1 FY2025Q2 FY2025Q3 FY2025
Americas$17,420 $16,386 $16,497
EMEA$10,484 $9,036 $6,048
Asia Pacific Japan$6,519 $5,739 $5,955

KPIs

KPIQ1 FY2025Q2 FY2025Q3 FY2025
Cash & Equivalents ($USD Thousands)$26,395 $19,210 $19,999
Inventories, net ($USD Thousands)$29,533 $29,070 $28,151
GAAP Operating Expenses ($USD Thousands)$16,603 $15,444 $15,982
Non-GAAP Net Income ($USD Thousands)$2,337 $1,757 $1,061

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ3 FY2025—$27.0M–$31.0M Initiated; sequentially lower vs Q2 actual
Non-GAAP EPSQ3 FY2025—$0.01–$0.05 Initiated
Non-GAAP Gross MarginQ3 FY2025“Low 40s” (Q1 commentary) Slightly higher than Q2’s 43.2% Raised marginally
Non-GAAP OpExQ3 FY2025$11.25–$11.75M per quarter $11.25–$11.75M; +$0.3–$0.4M NetComm costs Maintained with incremental costs
RevenueQ4 FY2025—$26.5M–$30.5M Initiated
Non-GAAP EPSQ4 FY2025—$0.00–$0.02 Initiated
Non-GAAP Gross MarginQ4 FY2025—Down vs near-record Q3 Lower

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY2025 and Q3 FY2025)Current Period (Q2 FY2025)Trend
Edge AI initiativesQ1: Signed Qualcomm development agreement; launched SmartLV; 5 new SiP/SOMs; expect momentum in FY2026 . Q3: Teledyne/FLIR camera; Open-Q 8550CS SoM; initial production expected in drones, surveillance; FY2026 ramp .Strengthening Qualcomm collaboration; integrating advanced AI frameworks; banking, electronics, agriculture prototypes; design wins incl. drone and AI data center OOB .Building; pipeline broadened, early revenue expected FY2026 .
Supply chain & tariffsQ3: 90-day task force; channel expansion; decommitting from China in ~90 days; <5% China-sourced to U.S. .Transitioning majority of manufacturing out of China; expect minimal impact from tariffs .Mitigation in progress; risk managed .
Smart grid (Gridspertise)Q1: ~$10M 1H shipments; deployments ongoing; POCs in Carolinas, MA; long-tail partnership; single-sourced . Q3: No shipments; deployments ongoing; still single-sourced; FY2026 cautious outlook .Q3 guidance softer due to slower rollout; expect shipments to resume post-deployment .Pause near term; longer-term engagement intact .
AutomotiveQ1: Softness at large Turkish customer; services and new product engagement (Togg, EU truck OEM) . Q3: Continued engagement; base business growth; cautious macro .Sequential softness driven by largest automotive customer .Mixed; stabilizing efforts continue .
Out-of-Band ManagementQ1: OOB stickiness, ARR; attractive margins . Q3: Lumpy; expecting recovery; new GM hired; growth into 2H FY2026 .Shipping to large AI data center; weakness tied to one government entity; projecting slightly higher gross margins in Q3 .Improving into Q3; product launches (LM4) expand TAM .
Distribution & ChannelsQ3: TD SYNNEX expansion in EU; NetComm channels in APAC/Australia/NZ .Customer engagement at CES; Vodafone meetings; integrating NetComm assets .Expanding globally; cross-sell opportunities rising .

Management Commentary

  • “Lantronix has the key assets in Compute and Connect to drive Edge Intelligence… focused on Enterprise; Smart Cities including critical infrastructure; and Transportation” .
  • “We continue to strengthen our strong collaboration with Qualcomm… integrating Qualcomm’s ‘advanced AI frameworks’” and pursuing prototypes across banking, manufacturing, and agriculture .
  • “Sequential improvement in gross margin reflects favorable product mix toward higher-margin System Solution products” .
  • “Activities to reduce our operating costs have been substantially completed… quarterly non-GAAP OpEx in the range of $11.25 to $11.75 million… NetComm IoT products… add approximately $300 to $400 thousand per quarter” .
  • “For the Third Quarter… revenue… $27 to $31 million… Non-GAAP EPS… $0.01 to $0.05… slower than anticipated rollout by our large Smart Grid customer in Europe” .

Q&A Highlights

  • Smart grid visibility: Management remains single-sourced with Gridspertise; Q3 softness from rollout timing; North America pilots underway (Carolinas and Northeast/Massachusetts) .
  • Gross margin outlook: Non-GAAP GM expected “slightly higher” in Q3 vs Q2; Q4 margin pressure anticipated vs near-record Q3 levels .
  • Out-of-band trajectory: December-quarter weakness tied to a government entity; expecting growth from AI data center deployments; LM4 platform expands addressable use cases .
  • Tariffs/supply chain: Transitioning majority of manufacturing out of China; management does not expect material business impact .
  • FY2026 growth framing: Double-digit growth targeted from base business via Edge AI, out-of-band refresh, NetComm 5G gateways, and channel expansion; cautious to exclude large Gridspertise assumptions .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 FY2025 EPS and revenue was unavailable due to S&P Global daily request limits at the time of retrieval. As a result, formal comparisons to consensus estimates cannot be provided. Values would normally be retrieved from S&P Global.

Key Takeaways for Investors

  • Margin mix shift remains a bright spot; Non-GAAP GM reached 43.2% in Q2 and guided slightly higher for Q3, despite top-line pressure .
  • Q3 guide softness is primarily timing-related at the European smart grid customer; shipments expected to resume post initial deployment, limiting structural demand concerns .
  • Cost reduction program is largely complete, with Non-GAAP OpEx tracking $11.25–$11.75M per quarter; NetComm adds a manageable $0.3–$0.4M per quarter .
  • Edge AI momentum is building: Qualcomm collaboration and Teledyne/FLIR camera design wins support FY2026 revenue contributions; drone and surveillance programs are approaching early production .
  • Out-of-band positioning strengthens: LM4 platform extends OOBM into compact deployments; AI data center deployments are a near-term growth vector .
  • Balance sheet discipline: Cash of $19.2M at Q2 including NetComm purchase; positive operating cash flow in H1 FY2025; debt reduction actions initiated in Q3 .
  • Near-term trading implications: Expect narrative driven by gross margin resilience and Edge AI/design-win updates versus headline revenue softness; watch execution against Q3 and Q4 guidance and smart grid rollout cadence for sentiment shifts .