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LANTRONIX INC (LTRX)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 delivered revenue of $28.5M and non-GAAP EPS of $0.03, in line with guidance; revenue was modestly below consensus while EPS matched consensus, with margins expanding sequentially and YoY as mix and cost actions improved profitability .
  • Revenue softness reflected zero shipments to the large European smart grid customer (Gridspertise) as they digest deployments; management also guided Q4 revenue to $26.5–$30.5M and non-GAAP EPS of $0.00–$0.02 with some gross margin pressure vs Q3 .
  • Strategic initiatives progressed: EU channel expansion with TD SYNNEX, Edge AI wins (Teledyne FLIR), and launch of the Open‑Q 8550CS SoM (Qualcomm QCS8550) underpin the medium-term growth narrative into FY’26+ .
  • Balance sheet strengthened: operating cash flow of $3.2M in Q3, cash ~$20M, and ~$2M of term debt repaid in the quarter, leaving ~$12.5M of debt and ~$7.5M net cash; management is exiting China manufacturing within ~90 days to de-risk tariff exposure .
  • Stock-reaction catalysts: improving gross margins, prudent but achievable Q4 outlook (potentially conservative on macro/tariffs), AI design ramps, and distribution leverage in Europe; watch for smart grid re-orders and out-of-band reacceleration as key swing factors .

What Went Well and What Went Wrong

  • What Went Well

    • Sequential and YoY gross margin expansion: GAAP GM 43.5% (vs 42.6% Q2 and 40.1% YoY); non‑GAAP GM 44.1% (vs 43.2% Q2 and 41.0% YoY) as mix and cost actions flowed through .
    • Strong cash discipline: Q3 operating cash flow of $3.2M; paid down ~$2M (15%) of term debt, leaving ~$12.5M debt and ~$7.5M net cash at 3/31/25 .
    • Strategic progress: expanded EU distribution with TD SYNNEX and advanced Edge AI portfolio (Teledyne FLIR camera integration; Open‑Q 8550CS SoM launch), supporting FY’26 growth ramps .
    • Quote: “We’re positioning Lantronix to lead the next wave of industrial and enterprise transformation at the edge,” said CEO Saleel Awsare .

  • What Went Wrong

    • Revenue declined to $28.5M (vs $31.2M in Q2 and $41.2M YoY) due to no smart grid shipments; base business growth only partially offset the gap .
    • GAAP net loss widened to ($3.9M) or ($0.10) per share given restructuring (~$1.6M) despite margin gains; non‑GAAP EPS declined to $0.03 vs $0.11 YoY .
    • Outlook tempered: Q4 guided to $26.5–$30.5M revenue and $0.00–$0.02 non‑GAAP EPS with expected gross margin pressure; no Gridspertise revenue assumed in Q4 either .

Financial Results

MetricQ3 FY2024Q2 FY2025Q3 FY2025
Revenue ($USD Millions)$41.183 $31.161 $28.500
GAAP EPS ($)($0.01) ($0.06) ($0.10)
Non-GAAP EPS ($)$0.11 $0.04 $0.03
GAAP Gross Margin (%)40.1% 42.6% 43.5%
Non-GAAP Gross Margin (%)41.0% 43.2% 44.1%

Q3 FY2025 vs Consensus (Wall Street, S&P Global)

MetricConsensusActualDelta
Revenue ($USD Millions)$29.118*$28.500 -$0.618 (≈ -2.1%)*
Non-GAAP EPS ($)$0.03*$0.03 In line*
# of Estimates (Rev / EPS)5 / 5*——

Values marked with * retrieved from S&P Global.

Segment Revenue ($USD Millions)

SegmentQ3 FY2024Q2 FY2025Q3 FY2025
Embedded IoT Solutions$12.452 $10.784 $11.990
IoT System Solutions$26.789 $18.592 $14.730
Software & Services$1.942 $1.785 $1.780
Total$41.183 $31.161 $28.500

Regional Revenue ($USD Millions)

RegionQ3 FY2024Q2 FY2025Q3 FY2025
Americas$17.543 $16.386 $16.497
EMEA$18.354 $9.036 $6.048
Asia Pacific Japan$5.286 $5.739 $5.955
Total$41.183 $31.161 $28.500

Select KPIs and Operating Metrics

KPIQ3 FY2025
Operating Cash Flow ($M)$3.2
Cash & Equivalents ($M, 3/31/25)$20.0
Net Inventories ($M, 3/31/25)$28.151
Debt Balance ($M, 3/31/25)~$12.5
Net Cash ($M, 3/31/25)~$7.5
GAAP Operating Expenses ($M)$16.0
Non-GAAP Operating Expenses ($M)~$11.52 (GAAP OpEx $15.98 – Non-GAAP adj. $4.46)
Non-GAAP Net Income ($M)$1.061

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 FY2025Not previously provided$26.5M–$30.5M New
Non-GAAP EPSQ4 FY2025Not previously provided$0.00–$0.02 New
Gross MarginQ4 FY2025—Expect “some pressure” vs Q3 near-record Qualitative
Q3 FY2025 guide (for reference, issued Q2)Q3 FY2025Rev $27.0M–$31.0M; non-GAAP EPS $0.01–$0.05 Actual: Rev $28.5M; non-GAAP EPS $0.03 Met range

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY2025 and Q2 FY2025)Current Period (Q3 FY2025)Trend
Tariffs and supply chainTransitioning majority of manufacturing out of China; limited tariff impact expected .Internal tariff task force, 90‑day plan; <5% of products made in China destined for U.S.; fully decommitting from China in ~90 days .De‑risking accelerating.
Distribution/channelNo EU TD SYNNEX expansion mentioned in Q1; integration of NetComm channels underway .TD SYNNEX distribution expanded into Europe for OOB, network infra, IIoT; leveraging NetComm channel across APAC .Channel leverage expanding.
Edge AI initiativesQualcomm collaboration; SmartLV gateway; SI/SoM roadmap .Teledyne FLIR AI camera integration; Open‑Q 8550CS SoM launched; first drone customer potentially in production with volumes in FY’26 .Pipeline turning to early revenue in FY’26.
Smart grid (Gridspertise)H1 FY25 shipments ~$10M; digestion expected; U.S. pilots .No shipments in Q3; none assumed in Q4; still single‑sourced; deployments ongoing .Temporary pause; long‑tail intact.
Out‑of‑Band (OOB)Data center top‑of‑rack design wins; Q3 improvement expected .Lumpy, tied to project/federal spend; new GM hired; expect momentum into 2H FY’26 .Stabilizing to improving.
Cost actions/OpExTarget non‑GAAP OpEx $11.25–$11.75M/quarter; $4.5M FY’25 OpEx reduction vs FY’24 .Q3 non‑GAAP OpEx within target even including NetComm costs .Execution on plan.

Management Commentary

  • CEO strategy: “We’re positioning Lantronix to lead the next wave of industrial and enterprise transformation at the edge,” emphasizing investment in AI-enabled gateways and 5G connectivity .
  • Tariffs: “We established an internal task force… a 90‑day action plan… closely managing expenses due to the uncertainty” .
  • Distribution: “Expanding our partnership with TD SYNNEX… now distributing throughout Europe… leveraging the acquired channel network from NetComm in AsiaPac” .
  • AI product momentum: “AI‑powered camera solution [with Teledyne FLIR]… Open‑Q SOM provides advanced processing… next‑gen AI camera solutions for drones, surveillance, and robotics” .
  • CFO on profitability: “GAAP GM was 43.5% vs 42.6% in the prior quarter and 40.1% in the year‑ago quarter… non‑GAAP GM 44.1% vs 43.2% prior quarter and 41% year‑ago” .
  • Balance sheet: “Operating cash flow of $3.2M… paid down about $2M… remaining debt ~$12.5M, giving us net cash of $7.5M” .

Q&A Highlights

  • NetComm trajectory: Annualized rev initially $6–$7M; tracking to exceed that run-rate by ~15–20%; major customers include Vodafone and Coca‑Cola; 5G product sampling .
  • Tariffs/manufacturing: Less than 5% of products manufactured in China are destined for the U.S.; fully decommitting from China within ~90 days .
  • Smart grid: No Gridspertise revenue in March or June quarters; still single‑sourced; deployments continue; long‑term opportunity maintained .
  • Edge AI revenue timing: First drone customer expected to start small production in June quarter; broader ramp in FY’26; camera-centric AI engagements progressing .
  • OOB outlook: Lumpy due to project/federal cycles; new GM hired; expect better momentum in 2H FY’26 with a new OOB box in ~90 days .

Estimates Context

  • Q3 FY2025 consensus vs actual (S&P Global): Revenue $29.118M* vs actual $28.5M (≈ -2.1% miss); non‑GAAP EPS $0.03 vs actual $0.03 (in line); based on 5 estimates for both revenue and EPS. Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Margin inflection intact: sequential/YoY GM gains (GAAP and non‑GAAP) despite revenue headwinds show mix and cost actions are working; watch for Q4 GM moderation then re‑expansion as AI/OOB mix improves .
  • Guidance prudence: Q4 outlook embeds macro/tariff caution and no Gridspertise; potential for upside if base business and early AI shipments land better than expected .
  • AI/design ramps: Teledyne FLIR collaboration, Open‑Q 8550CS launch, and initial drone production underpin FY’26 double‑digit growth ambitions discussed by management .
  • Channel leverage: TD SYNNEX EU expansion and NetComm channel in APAC broaden reach for OOB/network/IIoT portfolios, potentially smoothing order cadence over time .
  • Smart grid is a call option: digestion continues, but single-source status and multi‑region pilots sustain the long‑tail thesis; near‑term numbers exclude it, reducing risk to estimates .
  • Balance sheet/cash: positive operating cash flow and debt paydown created ~$7.5M net cash; tariff de‑risking via China exit reduces tail risk .
  • Near-term trading: Shares likely key off margin durability, Q4 order visibility (bookings commentary was constructive), and any incremental AI or OOB wins; monitor June quarter GM and bookings updates closely .