Quarterly Report for Quarter Ending December 31, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and the related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the three months ended December 31, 2025 (this "Report"). This discussion and analysis contains forward-looking statements that are based on our current expectations and reflect our plans, estimates and anticipated future financial performance. See the section of this Report entitled "Cautionary Note Regarding Forward-Looking Statements" for additional information. These statements involve numerous risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those set forth in "Risk Factors" in Part II, Item 1A of this Report.

Unless otherwise indicated by the context, all references to the "Company", "Lantronix", "we", "us", and "our" in this Quarterly Report on Form 10-Q include Lantronix, Inc. and its consolidated subsidiaries.

Overview

Lantronix Inc. is a global leader in Edge AI and Industrial IoT solutions, delivering intelligent computing, secure connectivity, and remote management for mission-critical applications. Serving high-growth markets, including smart cities, enterprise IT, and commercial and defense unmanned systems (including drones), we enable customers to optimize operations and accelerate digital transformation. Our comprehensive portfolio of hardware, software, and services powers applications from secure video surveillance and intelligent utility infrastructure to resilient out-of-band network management. By bringing intelligence to the network edge, we help organizations achieve efficiency, security, and a competitive edge in today's AI-driven world.

We conduct our business globally and manage our sales teams by three geographic regions: the Americas; Europe, Middle East, and Africa ("EMEA"); and Asia Pacific Japan ("APJ").

Products and Solutions

We organize our portfolio services and products into the following product lines: Embedded IoT Solutions, IoT Systems Solutions, and Software and Services.

Embedded IoT Solutions

Our embedded product portfolio includes a broad range of Compute System-on-Modules ("SoM") and System-in-Package ("SiP") solutions, together with wired and wireless connectivity products. As semiconductor technology continues to evolve and integrate more functionality, our compute modules now provide not only processing power but also the ability to run advanced AI and machine learning applications. This enables our customers to process and analyze digital inputs such as video, audio, and sensor data, directly at the device level, reducing latency, enhancing security, and enabling real-time decision making.

IoT System Solutions

Our IoT System Solutions portfolio includes a wide range of fully functional standalone systems that provide routing, switching or gateway functionalities as well as telematics and media conversion. These products include wired and wireless connections that enhance the value and utility of modern electronic systems and equipment by providing secure network connectivity, power for IoT end devices through Power over Ethernet ("PoE"), application hosting, protocol conversion, media conversion, secure access for distributed IoT deployments and many other functions. By offering pre-certified products across multiple regions, Lantronix significantly reduces Original Equipment Manufacturer ("OEM") customers' regulatory certification costs and speeds up their time-to-market.

Software and Services

Our Software as a Service ("SaaS") platform offers comprehensive single-pane-of-glass management for Out-of-Band ("OOB") and IoT deployments. Our platform enables customers to easily deploy, monitor, manage and automate across their global deployments, all from a single platform login, virtually and seamlessly connected as if located directly on each device. Our platform eliminates the need to have 24/7 personnel on site and makes it easy to observe and address issues quickly, even in large-scale deployments.

We leverage our deep engineering expertise and product development best practices to deliver high-quality, innovative products cost-effectively and on schedule. Our engineering services model is flexible, offering either turnkey product development or team augmentation to accelerate complex product development challenges, such as camera tuning, voice control, machine learning, AI, computer vision, augmented/virtual reality, and more.

We also provide extended warranty, support and maintenance services related to our OOB and certain other product families.

Recent Accounting Pronouncements

Refer to Note 1 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion of recent accounting pronouncements.

Critical Accounting Policies and Estimates

The accounting policies that have the greatest impact on our financial condition and results of operations and that require the most judgments are those relating to revenue recognition, sales returns and allowances, inventory valuation, valuation of deferred income taxes, valuation of goodwill and long-lived and intangible assets. These policies are described in further detail in our Annual Report on Form 10-K for the ficsal year ended June 30, 2025 and filed with the SEC on August 29, 2025 (the "Form 10-K") and have not changed significantly during the six months ended December 31, 2025 as compared to what was previously disclosed in the Form 10-K.

Results of Operations - Three Months Ended December 31, 2025 Compared to the Three Months Ended December 31, 2024

Summary

In the three months ended December 31, 2025, our net revenue decreased by $1,387,000 or 4.5%, compared to the three months ended December 31, 2024. The decrease in net revenue was driven by a 28.6% decrease in net revenue in our IoT System Solutions product line, partially offset by increases in net revenue in our Embedded IoT Solutions product line of 28.6% and our Software and Services product line of 47.2%. We had a net loss of $1,330,000 for the three months ended December 31, 2025 compared to a net loss of $2,372,000 for the three months ended December 31, 2024. The improvement in net loss was primarily driven by a decrease in operating expenses of $1,403,000 for the three months ended December 31, 2025 compared to the three months ended December 31, 2024.

Net Revenue

The following tables present our net revenue by product line and by geographic region:

		Three Months Ended December 31,
						% of Net								% of Net				Change
		2025				Revenue				2024				Revenue				$				%
		(In thousands, except percentages)
Embedded IoT Solutions		$	13,865				46.6	%		$	10,784				34.6	%		$	3,081				28.6	%
IoT System Solutions			13,281				44.6	%			18,592				59.7	%			(5,311	)			(28.6	%)
Software & Services			2,628				8.8	%			1,785				5.7	%			843				47.2	%
		$	29,774				100.0	%		$	31,161				100.0	%		$	(1,387	)			(4.5	%)

		Three Months Ended December 31,
						% of Net								% of Net				Change
		2025				Revenue				2024				Revenue				$				%
		(In thousands, except percentages)
Americas		$	20,481				68.8	%		$	16,386				52.6	%		$	4,095				25.0	%
EMEA			5,138				17.3	%			9,036				29.0	%			(3,898	)			(43.1	%)
APJ			4,155				13.9	%			5,739				18.4	%			(1,584	)			(27.6	%)
		$	29,774				100.0	%		$	31,161				100.0	%		$	(1,387	)			(4.5	%)

Embedded IoT Solutions

Net revenue increased primarily due to (i) higher unit sales of our embedded compute products, which includes our drone and aerospace and defense programs, in the Americas and EMEA regions and (ii) higher unit sales of our embedded ethernet connectivity and wireless communication products in the Americas and APJ regions.

IoT System Solutions

Net revenue decreased primarily due to reduced sales to Gridspertise. We did not have any shipments to this customer in the current quarter, as compared to approximately $5.8 million the prior year quarter. The year-over-year decrease in revenue from this customer was partially offset by (i) increased unit sales of our network switches in the Americas and APJ regions and (ii) increased unit sales of our routers and modems products across all regions.

Software and Services

Net revenue increased primarily due to higher SaaS solutions revenue in the Americas and increased engineering services in EMEA..

Gross Profit

Gross profit represents net revenue less cost of revenue. Cost of revenue consists primarily of the cost of raw material components, subcontract labor assembly from contract manufacturers, direct and indirect personnel expenses related to professional services, manufacturing overhead, inventory reserves for excess and obsolete products or raw materials, warranty costs, royalties and share-based compensation.

The following table presents our gross profit:

		Three Months Ended December 31,
						% of Net								% of Net				Change
		2025				Revenue				2024				Revenue				$				%
		(In thousands, except percentages)
Gross profit		$	12,967				43.6	%		$	13,284				42.6	%		$	(317	)			(2.4	%)

Gross profit as a percentage of revenue (referred to as "gross margin") increased primarily as a result of our product sales mix. This was primarily driven by the absence of revenue from Gridspertise in the current period, and a slightly higher percentage of our current period revenue derived from software and services.

We currently expect that gross margin will fluctuate in the future, from period-to-period, based on changes in our product mix, average selling prices, and average manufacturing costs.

Selling, General and Administrative

Selling, general and administrative expenses consist of personnel-related expenses, including salaries and commissions, share-based compensation, facility expenses, information technology, advertising and marketing expenses, and professional, legal and accounting fees.

The following table presents our selling, general and administrative expenses:

		Three Months Ended December 31,
						% of Net								% of Net				Change
		2025				Revenue				2024				Revenue				$				%
		(In thousands, except percentages)
Personnel-related expenses		$	5,358							$	5,154							$	204				4.0	%
Professional fees and outside services			781								1,069								(288	)			(26.9	%)
Advertising and marketing			501								494								7				1.4	%
Facilities and insurance			494								385								109				28.3	%
Share-based compensation			1,354								1,044								310				29.7	%
Depreciation			252								348								(96	)			(27.6	%)
Other			-								317								(317	)			(100.0	%)
Selling, general and administrative		$	8,740				29.4	%		$	8,811				28.3	%		$	(71	)			(0.8	%)

Selling, general and administrative expenses decreased slightly due to lower legal fees and various professional and outside services costs. We recovered certain previously written-off receivables, the benefit of which is included in the "other" category in the table above. This was partially offset by (i) increased share-based compensation costs driven by new stock awards granted during the current fiscal year, and (ii) slightly higher personal-related expenses.

Research and Development

Research and development expenses consist of personnel-related expenses, share-based compensation, and expenditures to third-party vendors for research and development activities and product certification costs. Our quarterly costs related to outside services and product certifications vary from period to period depending on our level and timing of development activities.

The following table presents our research and development expenses:

		Three Months Ended December 31,
						% of Net								% of Net				Change
		2025				Revenue				2024				Revenue				$				%
		(In thousands, except percentages)
Personnel-related expenses		$	3,107							$	3,292							$	(185	)			(5.6	%)
Facilities			564								698								(134	)			(19.2	%)
Outside services			316								108								208				192.6	%
Product certifications			185								205								(20	)			(9.8	%)
Share-based compensation			197								421								(224	)			(53.2	%)
Other			251								260								(9	)			(3.5	%)
Research and development		$	4,620				15.5	%		$	4,984				16.0	%		$	(364	)			(7.3	%)

Research and development expenses decreased due to (i) lower personnel-related expenses in our engineering groups driven by restructuring activities during the previous fiscal year, (ii) lower facilities-related equipment and software costs, (iii) reduced share-based compensation costs based on the value of new and outstanding awards. These decreases were partially offset by increased spending on outsourced product development, which is included in the "outside services" category in the table above.

Results of Operations - Six Months Ended December 31, 2025 Compared to the Six Months Ended December 31, 2024

Summary

In the six months ended December 31, 2025, our net revenue decreased by $6,016,000 or 9.2%, compared to the six months ended December 31, 2024. The decrease in net revenue was driven by an 20.4% decrease in net revenue in our IoT System Solutions product line. These decreases were partially offset by a 4.8% increase in net revenue in our Embedded IoT Solutions product line and as well as a 10.7% increase in our Software and Services product line. We had a net loss of $2,731,000 for the six months ended December 31, 2025 compared to a net loss of $4,874,000 for the six months ended December 31, 2024. The decrease in net loss was primarily driven by a reduction in operating expenses of $3,133,000 for the six months ended December 31, 2025 compared to the six months ended December 31, 2024.

Net Revenue

The following tables present our net revenue by product line and by geographic region:

		Six Months Ended December 31,
						% of Net								% of Net				Change
		2025				Revenue				2024				Revenue				$				%
		(In thousands, except percentages)
Embedded IoT Solutions		$	25,332				42.5	%		$	24,171				36.9	%		$	1,161				4.8	%
IoT System Solutions			29,740				49.9	%			37,351				57.0	%			(7,611	)			(20.4	%)
Software & Services			4,496				7.6	%			4,062				6.1	%			434				10.7	%
		$	59,568				100.0	%		$	65,584				100.0	%		$	(6,016	)			(9.2	%)

		Six Months Ended December 31,
						% of Net								% of Net				Change
		2025				Revenue				2024				Revenue				$				%
		(In thousands, except percentages)
Americas		$	41,132				69.1	%		$	33,806				51.5	%		$	7,326				21.7	%
EMEA			10,225				17.2	%			19,520				29.8	%			(9,295	)			(47.6	%)
APJ			8,211				13.7	%			12,258				18.7	%			(4,047	)			(33.0	%)
		$	59,568				100.0	%		$	65,584				100.0	%		$	(6,016	)			(9.2	%)

Embedded IoT Solutions

Net revenue increased primarily due to higher unit sales of (i) our embedded compute product line in the Americas and EMEA regions, (ii) our legacy embedded ethernet connectivity products in the Americas and APJ regions, and (iii) our wireless communications products in the Americas and APJ regions. This increase was partially offset by lower unit sales of (i) our network interface card products in the Americas and EMEA regions and (ii) our OOB products in the Americas and EMEA regions.

IoT System Solutions

Net revenue decreased primarily due to reduced sales to Gridspertise. We did not have any shipments to this customer in the in the six months ended December 31, 2025, as compared to just over $11 million of revenue during the six months ended December 31, 2024. The year-over-year decrease in revenue from this customer was partially offset by (i) increased unit sales of our network switches in the Americas and APJ regions and (ii) increased unit sales of our telematic gateways in the Americas, APJ and EMEA regions.

Software & Services

Net revenue increased primarily due to higher SaaS solutions in the Americas and EMEA regions. This increase was partially offset by a decrease in our extended warranty services in the Americas region.

Gross Profit

The following table presents our gross profit:

		Six Months Ended December 31,
						% of Net								% of Net				Change
		2025				Revenue				2024				Revenue				$				%
		(In thousands, except percentages)
Gross profit		$	26,313				44.2	%		$	27,759				42.3	%		$	(1,446	)			(5.2	%)

Gross margin increased primarily as a result of our product sales mix. This was primarily driven by the absence of revenue from Gridspertise in the current period, and also a slightly higher percentage of our current period revenue derived from software and services.

We currently expect that gross margin will fluctuate in the future, from period-to-period, based on changes in our product mix, average selling prices, and average manufacturing costs.

Selling, General and Administrative

The following table presents our selling, general and administrative expenses:

		Six Months Ended December 31,
						% of Net								% of Net				Change
		2025				Revenue				2024				Revenue				$				%
		(In thousands, except percentages)
Personnel-related expenses		$	10,758							$	10,485							$	273				2.6	%
Professional fees and outside services			1,886								2,561								(675	)			(26.4	%)
Advertising and marketing			1,031								950								81				8.5	%
Facilities and insurance			976								796								180				22.6	%
Share-based compensation			2,808								2,170								638				29.4	%
Depreciation			542								699								(157	)			(22.5	%)
Other			281								617								(336	)			(54.5	%)
Selling, general and administrative		$	18,282				30.7	%		$	18,278				27.9	%		$	4				0.0	%

Selling, general and administrative expenses in total remained relatively consistent year-over-year. In the current year, we saw decreases in (i) legal fees and certain other professional and outside services costs and (ii) the benefit from recovering certain receivables as described above. These were largely offset by increases in share-based compensation costs driven by stock award activity in the current fiscal year, and slightly higher headcount and insurance costs.

Research and Development

The following table presents our research and development expenses:

		Six Months Ended December 31,
						% of Net								% of Net				Change
		2025				Revenue				2024				Revenue				$				%
		(In thousands, except percentages)
Personnel-related expenses		$	6,197							$	6,564							$	(367	)			(5.6	%)
Facilities			1,156								1,346								(190	)			(14.1	%)
Outside services			653								324								329				101.5	%
Product certifications			301								343								(42	)			(12.2	%)
Share-based compensation			481								831								(350	)			(42.1	%)
Other			430								532								(102	)			(19.2	%)
Research and development		$	9,218				15.5	%		$	9,940				15.2	%		$	(722	)			(7.3	%)

Research and development expenses decreased due to (i) lower personnel-related expenses in our engineering groups resulting from restructuring activities in the previous fiscal year, (ii) lower facilities-related equipment and software costs, and (iii) reduced share-based compensation costs based on stock award activity in the current fiscal year. These decreases were partially offset by increased spending on outsourced product development, which is included in the "outside services" category in the table above.

Restructuring, Severance and Related Charges

During the three and six months ended December 31, 2025, we incurred charges of $43,000 and $136,000, respectively, related to headcount reductions. During the three and six months ended December 31, 2024, we incurred $193,000 and $1,093,000, respectively, of restructuring, severance and related charges.

We may incur additional restructuring, severance and related charges in future periods as we continue to identify cost savings and efficiencies related to our business.

Interest Expense, Net

For the three and six months ended December 31, 2025 and December 31, 2024, we incurred net interest expense due to borrowings on our credit facilities. We also earn interest income on our domestic cash balance.

Other Income (Expense), Net

Our other income (expense), net, is comprised primarily of foreign currency remeasurement and transaction adjustments related to our foreign subsidiaries whose functional currencies are the U.S. dollar.

Provision for Income Taxes

Refer to Note 7 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion regarding our provision for income taxes.

Liquidity and Capital Resources

Liquidity

The following table presents our working capital and cash and cash equivalents balances:

		December 31,				June 30,
		2025				2025				Change
		(In thousands)
Working capital		$	49,533			$	46,971			$	2,562
Cash and cash equivalents		$	22,964			$	20,098			$	2,866

Our principal sources of cash and liquidity include our existing cash and cash equivalents, borrowings and amounts available under our Loan Agreement (as defined in Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report), and cash generated from operations. We are subject to a variable amount of interest on the principal balance of our borrowings and could be adversely impacted by rising interest rates in the future. We believe that our current cash holdings, net cash provided by operating activities, and expected availability under our Loan Agreement will be sufficient to fund our material requirements for working capital, capital expenditures and other financial commitments for at least the next 12 months and beyond. We continue to monitor our existing banking relationships and the availability of potential alternate sources of credit based on market conditions and our ongoing capital requirements. There can be no guarantee that we would be able to obtain any needed alternate financing on acceptable terms, or at all, or that such a financing would not result in a default under the Loan Agreement. We anticipate that the primary factors affecting our cash and liquidity are net revenue, working capital requirements and capital expenditures.

We define cash and cash equivalents as highly liquid deposits with original maturities of 90 days or less when purchased. We maintain cash and cash equivalents balances at certain financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation ("FDIC"). There can be no assurance that our deposits in excess of the FDIC limits will be backstopped by the U.S., or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis.

As of the date of this report, we have full access to and control of our cash and cash equivalents balance at Silicon Valley Bank and our other banking institutions. Our emphasis is primarily on safety of principal and secondarily on maximizing yield on those funds.

Our future working capital requirements will depend on many factors, including the following: timing and amount of our net revenue; our product mix and the resulting gross margins; research and development expenses; selling, general and administrative expenses; and expenses associated with any strategic partnerships, acquisitions or infrastructure investments.

From time to time, we may seek additional capital from public or private offerings of our capital stock, borrowings under our existing or future credit lines or other sources in order to (i) develop or enhance our products, (ii) take advantage of strategic opportunities, (iii) respond to competition or (iv) continue to operate our business. We currently have a Form S-3 shelf registration statement on file with the SEC. If we issue equity securities to raise additional funds, our existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of our existing stockholders. If we issue debt securities to raise additional funds, we may incur debt service obligations, become subject to additional restrictions that limit or restrict our ability to operate our business, or be required to further encumber our assets. There can be no assurance that we will be able to raise any such capital on terms acceptable to us, if at all.

Bank Loan Agreement

Refer to Note 5 of Notes to Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Report, which is incorporated herein by reference, for a discussion of our Loan Agreement.

Cash Flows

The following table presents the major components of the unaudited condensed consolidated statements of cash flows:

		Six Months Ended
		December 31,
		2025				2024				Change
		(In thousands)
Net cash provided by operating activities		$	5,783			$	3,003			$	2,780
Net cash used in investing activities		$	(166	)		$	(6,699	)		$	6,533
Net cash used in financing activities		$	(2,751	)		$	(3,331	)		$	580

Operating Activities

Cash provided by operating activities during the six months ended December 31, 2025 increased compared to the prior year period primarily as a result of strong collections on accounts receivable, and a reduction in net loss in the current period. For the six months ended December 31, 2025, our net loss included $5,448,000 of non-cash charges, while the changes in operating assets and liabilities provided net cash of $3,066,000.

Accounts receivable decreased by $1,831,000, or 7.3%, from June 30, 2025 to December 31, 2025. The decrease was primarily due to the timing of payments from certain customers.

Contract manufacturers' receivables decreased by $1,957,000, or 63.7%, from June 30, 2025 to December 31, 2025. The decrease is primarily due to timing of shipments of components to contract manufacturers during the fiscal period.

Investing Activities

Net cash used in investing activities for the six months ended December 31, 2025 and 2024 consisted of purchases of equipment totaling $166,000 and $241,000, respectively, primarily for computer hardware and tooling at our contract manufacturers and certain research and development projects. Net cash used in investing activities for the six months ended December 31, 2024 also includes the acquisition of Netcomm, which used cash of $6,458,000.

Financing Activities

Net cash used in financing activities during the six months ended December 31, 2025 resulted primarily from net principal payments and borrowings on our Loan Agreement, as well as from tax withholdings paid on behalf of employees for restricted shares. Net cash used in financing activities during the six months ended December 31, 2024 resulted primarily from tax withholdings paid on behalf of employees for restricted shares as well as principal payments on our previous term loan borrowings.