Financial Data and Key Metrics Changes - The company reported revenue of $29.8 million for the second quarter, with a Non-GAAP EPS of $0.04, both within guidance range [4][16] - Year-over-year growth was experienced when excluding the MER Smart Grid customer, Gridspertise, with profitability supported by gross margin expansion and cost optimization initiatives [4][16] - GAAP gross margin was 43.6%, down from 44.8% in the previous quarter but up from 42.6% a year ago [16][17] - Non-GAAP gross margin was 44%, compared to 45.3% last quarter and 43.2% in the prior year quarter [17] - GAAP net loss improved to $1.3 million, or $0.03 per share, compared to a loss of $2.4 million, or $0.06 per share in the year-ago quarter [18] Business Line Data and Key Metrics Changes - The drone business showed significant growth, with revenue expectations raised to $8 million-$12 million for fiscal 2026, up from $5 million-$10 million [11][21] - The company is focusing on Group One and Two short-range reconnaissance drones, which align with current unmanned funding [7][11] - The critical infrastructure monitoring segment is progressing, with a focus on expanding applications beyond monitoring generators [12][13] Market Data and Key Metrics Changes - The U.S. defense budget for fiscal 2026 includes over $13 billion allocated for unmanned systems, indicating a supportive funding environment for the drone market [5][6] - The company is positioned to capture a growing share of defense modernization spending, particularly in unmanned and AI-enabled platforms [6][10] Company Strategy and Development Direction - The company is transitioning from a component supplier to a platform partner, focusing on reducing integration complexity and development risk for customers [8][10] - The Edge AI strategy is driving customer adoption across multiple end markets, with a focus on drones, critical infrastructure, and enterprise connectivity [14][15] - The company aims to create a unified platform for real-time video analytics and intelligent connectivity, expanding its addressable market [14] Management's Comments on Operating Environment and Future Outlook - Management noted a short-term slowdown in purchasing activity due to a government shutdown but expressed confidence in the company's execution and results [5][21] - The company anticipates continued growth through fiscal 2027, with drones expected to represent 15%-20% of total revenue [21][22] - Management highlighted the importance of maintaining a disciplined cost structure while expanding recurring revenue [21] Other Important Information - The company generated positive operating cash flow of nearly $2.2 million during the quarter and paid down approximately $1 million of outstanding debt [19][20] - The company is actively working to mitigate supply chain issues related to memory shortages, ensuring product availability for customers [48] Q&A Session Summary Question: Commentary on IoT systems and drone contribution - Management acknowledged a sequential decline in IoT systems due to a government shutdown but expressed optimism about future transitions and drone revenue contributions [24][33] Question: Details on the Drone Dominance Program - Management confirmed participation in the Drone Dominance Program and highlighted strong positioning with multiple partners [25][32] Question: Impact of government shutdown and supply constraints - Management indicated that the government shutdown affected IoT system sales but noted successful execution despite challenges [45][47] Question: Gross margin outlook with increasing software revenue - Management expects gross margins to improve in the long term as software services grow, but no significant near-term changes are anticipated [49][50]

Core Insights - Ainos, Inc. has formed a strategic partnership with NEXCOM International Co., Ltd. to enhance its AI-powered scent digitization technology [1] - The collaboration aims to tap into the approximately $60 billion edge AI market, which is expected to expand global industrial channels [1] - The partnership is set to accelerate the commercialization of Ainos' AI Nose technology, contributing to advancements in intelligent sensing and industrial sustainability [1] Company Overview - Ainos, Inc. is recognized as a leader in AI-powered scent digitization [1] - NEXCOM International Co., Ltd. is a Taiwan-based pioneer in industrial computing and edge AI solutions [1] Market Potential - The partnership targets the edge AI market, valued at around $60 billion, indicating significant growth opportunities [1] - The collaboration is expected to enhance the reach and application of AI Nose technology across various industrial sectors [1]