Lantronix Inc Canaccord Genuity's 46th Annual Growth Conference

Yeah, great. Yeah. Thank you for having us, Austin.

I've been with Lantronix just about 2 and a half years. We've repositioned the company, transformed it into enabling edge intelligence with compute and connect, focused on three verticals. This IR deck's online, but I wanted to just show you the three verticals that we're in. The first one, and the one that is growing extremely fast, and I'm sure we're going to speak with Austin a fair amount about that, is our aerospace and defense. Mainly focused in unmanned systems, AKA drones today, but we're going into ground, USVs, counter-drones, all of that, and I'll tell you what we do throughout as we speak in that.

The second one is our critical infrastructure monitoring, which we really like because it has recurring revenue themes around it, and it is very sticky, and we are focused selling 5G hardware and recurring revenue based on that. That is our second vertical. And the third one is, which Lantronix has been known for, it has been in the market a little while, which is really our enterprise business. And that business also is a great business. It is very profitable for us. And in the last couple of years that I have been there, we have transformed the model to more of a JDM model, where things that have been commoditized from a hardware perspective, we do not put a lot of R&D resources in. But what we put a lot of R&D resources in software layers, device management, things like that. That is what we have all put together.

The takeaway is enabling edge intelligence, with compute and connect focused on these three verticals.

Great question, and talking about being a trusted supplier. I will start with that today. Some of you might have seen The Wall Street Journal this morning. A company that makes USVs or unmanned boats, they found Chinese components in there that were in the camera that was transmitting data back to China. That is in today's Wall Street Journal.

Yes. It's in the U.K.'s Navy, by the way. It's a big article on The Wall Street Journal today, and they had to turn off the internet connectivity, but then it's useless. Having said that's just a sidebar. Lantronix is headquartered in sunny California. We do a lot of our development in North America between Minnesota and Vancouver, British Columbia. He talked about our Open-Q SOMs. What do we provide? We provide a compute platform or the brains of the camera or computer vision that goes into drones. We either sit in the payload, we sit with the camera, or in the gimbal. We are NDAA and TAA certified, very important. We are 99.9% out of China for any of our manufacturing. PCB, they'll still have to come from China, so we're working on that.

We've got a scaling going on in Plymouth, Minnesota, where we've got a warehouse and testing being done. We are adding more capacity that'll eventually give us country of origin, for United States. We'll be working towards that. We bring back the SOMs, which is a System on Module, which is the brains of the camera in this case, in a drone. Comes back to the U.S., we do more final testing, things like that, and then ship to our customers. Majority of customers happen to be with the DoD in the U.S. today, but we are scaling internationally also. This is being trusted. You've also seen the asymmetry that happened, the Shahed drones, what's happening in Ukraine. We can be spending $8 million-$10 million on a Patriot missile to bring down a $40,000 drone.

That's where we are behind, but we are working really hard, the United States, in catching up and making drones. Austin and I have spoken, put things in perspective. In Ukraine, for those of you who don't know, they make 5 million-6 million drones a year. The United States is in the hundreds of thousands. We've got a long way to go. Supposedly, the Chinese have over 20 million ready, if they want to do something with that. We've got a long way to go, but having a trusted supplier based in the United States, headquartered here with the software development happening in North America, is a big plus for us.

That's right. They're ramping up.

They're ramping up. They're ramping up a lot because they're the most field-tested right now. Yeah. What does the transition timeline look like for your customer to initially get SOMs, as a test kit or a dev kit, and then evaluate them and then decide, "I want to procure these at volume and go into full-rate production"?