Hey, good afternoon. Continuing on with the program, thank you for joining us. I'm Scott Searle, the Communications, Wireless, and IoT Analyst with Roth. It's my pleasure. Next, we have Lantronix. For those of you who aren't familiar with Lantronix, they are Compute and Connect in IoT and wireless communications. A lot of exciting things that are going on with the story. On stage with me today is Jeremy Whitaker, CFO, and Saleel Awsare, the new CEO. He's a whole 100 days in at this point in time. We'll get to that in a minute. With that, I'll hand it over quickly to you, Jeremy.
Great. Thanks, Scott. Before starting, I'd like to remind everyone that we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in any forward-looking statements we make today. The factors that could cause our actual results to differ materially are discussed in our most recent Form 10-Q and 10-Ks filed with the SEC. With that, I'll hand it back to you.
Great. So, Saleel, you're a whole 100 days in at this point in time. So that means we've crossed the threshold that I get to ask you unfair questions. So just beware. Look, you've got an incredible pedigree in terms of RF and semis. You ran a $700 million business at Synaptics. What brought you here? Why are you here? And what have you found so far in the first 3+ months?
Thanks, Scott, for having us here. And as you said, I came from Synaptics, ran the enterprise and mobile business, but I'm uber-excited to be here as the CEO of Lantronix. And as I was going through the process of making the decision to come here, there were a multitude of reasons I decided to make the move. But let me start with a few that really resonated with me. First is the IoT market. It's in a growth stage, and Lantronix, with its products and technology, is well placed in that. Number two, the customers that Lantronix has acquired over the last few years are really very good. And we're going to probably talk about that in more detail. Number three, a very talented team, including a board of directors who understands the IoT market.
to the work that Jeremy and his team have done, a company that's growing in the March quarter, we said we're going to grow record revenue. December quarter, we had record revenue. Positive EBITDA allowing us to think about not only organic growth, but if there are accretive acquisitions around the areas that we want to focus on. So putting it all together, really, I look at Lantronix as an opportunity where we can build on strength. There's a great base. Time to take it to the next level. So that's how I thought about it.
OK, before getting into some of the fun stuff in terms of customers, products, roadmaps going forward, can you calibrate us in terms of where the core business is today? 2023 was a tumultuous year for everyone with elevated inventories, customers working things down, some demand softness on the margin. Take us through where we are today in terms of Lantronix's core business.
Correct. So at our last call, we kind of brought our guidance down for the second half of the fiscal year. Mainly, there were a couple of reasons that we did that. First was we had some channel inventory on some of our classic products that Lantronix has been shipping in, mainly the industrial IoT space. And the second one was really one customer for our compute solutions that really got pushed out from their deployment. So that I would consider more as just a push out. So we will capture the revenue as I think about it in the future. So that's where we are at. We had some softness in the market, some channel inventory that's getting worked through, not unsimilar to a lot of what our peers have done.
OK. Maybe jumping in then on the customer front. Gridspertise is something that's always at the forefront of investors' minds. You want a $40 million contract that has now just started to ramp up and ship. Of course, investors always focus on, well, what's next? So tell us, how is that going, and what's next?
Let me start with Gridspertise. So as you said, it's now our largest customer. In the last 100 days now, I had the opportunity to go to Rome to see their executives, including the CEO. I met them in our Irvine office. And as of a few weeks ago, we went to DISTRIBUTECH, which is the largest power delivery, power transmission show where Gridspertise displayed the Quantum Edge device. Let me just define for people what Gridspertise is, because maybe all of you don't know exactly what that is. Gridspertise is a spin-out of Enel. Enel is a $40 billion Italian utility. Gridspertise is a company that makes smart meters for them and this new device called Quantum Edge. It's 50% owned by Enel, 50% owned by CVC Capital Partners, which is a European private equity fund. So our customer, to be precise, is Gridspertise.
Our relationship really has amplified and deepened over the last many years that the Lantronix team worked on it and in the last 100 days that I've really spent a lot of time with them. I'm really excited about this opportunity because Gridspertise is not only focused on the Italian market, which is their original DNA. Now, with the Nordics investing in them, they're going after a more pan-European. They came to DISTRIBUTECH, primarily in Orlando, to now exhibit into the U.S. market with this Quantum Edge device. What is a Quantum Edge device? You might have started hearing about the smart grid. Smart grid is where you're virtualizing multiple different boxes, like metering, sensoring, mainly focused around green energy, into a single box. It's a rack-mounted device. So that's really the Quantum Edge device.
We are now working with them as I think about the future for their next generation. So the opportunity size, we talked about $40 million in about fiscal 2024. The long-term opportunity size, the way Enel's talked about it to us in the past, it's hundreds of thousands of units.
Well, to put in perspective, that $40 million represented what in terms of?
About 15,000 units. So put that in perspective. So deepening relationship, I see them as a conduit for us to go after much bigger, different utilities, different geographic locations, different markets as we work with them. And our content is also increasing in that QEd device. Now, obviously, we provide the whole device. And finally, the question you asked, is this one and done? What's next? At my last conference call, we actually said we expect an order beyond this. So today, I'm very happy to report we recently received a substantial order from Gridspertise to ship for our first half of fiscal 2025. What we have done with this business now is what I would say a run-rate business. I came from companies where we had run-rate businesses, where they sent POs. Within lead times, we build and we ship.
The other question that's been there, have they deployed this into the market? I'm happy to report because I met them end of February. Thousands of units are now in the Italian market. All good, which is always great for somebody to know when you've made a device like that. So I would say with Gridspertise, we're just beginning. This could be a multi-year, multi-product if they work with us and we execute as I look into the future.
So just to clarify here, so shipping in fiscal 2025, so we see continuity from the end of this fiscal year. Fiscal year, for those of you who aren't familiar, ends in June. The existing Gridspertise contract was basically expected to ship by the end of the June quarter. So now we get follow-on continuity on that front. Do you define substantial for us?
You'll have to wait.
Have to wait?
I mean, you can guess. I got it clarified by Jeremy, our General Counsel, before I could use a word like substantial. Let me say it's more than one, a lot more. I got all the approvals to say it is that.
Got you. But the big news here is, look, there is a follow-on, and it seems like this is going to be some form of run-rate business. So we're not sitting here every 6 months or 12 months thinking, is there another Gridspertise contract coming? It feels like this is a regular order of business.
Yeah, and that's my DNA. I've worked with large enterprise customers in the past where this becomes just par for the course. Let me be clear. We got to execute. We got to differentiate. And we got to really customer centricity. So we intend to do all three of that.
Just to clarify, so is this just in the Italian market, or is this actually going to take you into another geography initially now?
I don't want to go Gridspertise is very careful because they got spun out recently. They have aspirations for an IPO. Let me just leave it at that. They want to be a pan-European player.
OK. Well, congratulations. That's big news.
Thank you very much.
It's great to hear. So moving on to other customers as well. So Togg, Turkish auto manufacturer, has been a big customer of yours as well. They're starting to expand into other geographies. Take us through, help us understand, first of all, what you do for them, how you're expanding with them, and if that product then is applicable into other EVs.
Yeah. So for those you don't know, Togg is really a Turkish EV maker. I had the great opportunity of meeting with them at CES and then a couple of follow-on calls. Those of you who were not at CES, they actually spent $5 million on one of the nicest booths in the automotive area. They have two cars right now, EV cars. And they just announced, and I was just reading about it in the past month, a multi-billion-dollar investment for 175,000, a factory that's going to be about 175,000. I don't have the exact timeline when it's going to be up and running. When I met with the Togg guys, it's a very nationalistic thing to have a Turkish EV. To your point, they want to go into Europe. So that's what they're looking at. What does Lantronix provide to them?
So let me step up a little bit. As you know, those of you who got new cars recently, the displays have gone pillar to pillar. So it's the whole display. And in the old days, when the displays were smaller, you could use a microcontroller or a small CPU to drive it. Now, as they have gone pillar to pillar, it needs horsepower and processing. Our relationship with Qualcomm, which is where we work with them to take their ASIC, make it into a SOM, add our software, add our design services, give a solution to Togg. So we drive the automotive infotainment for the digital cockpit, as you call it. And some of the features of the digital cockpit that require a CPU with horsepower are things like camera, audio/video that's going on, navigation, just passenger notification. All of that requires a much beefier processor.
So that's what we're doing. So that's specific to Togg. What's really exciting about this is we call it our Automotive Infotainment Computer. This goes beyond Togg for us. Now, the automotive cycle is a bit longer, which is OK, but it's stable, as you think about it. So I've had the opportunity to meet with multiple other Tier II. Because the Tier I, like a BMW or a Mercedes-Benz, Qualcomm's going to support them all day long. But if you're a 100,000-unit Daimler Truck, Qualcomm's not going to pick up your phone. Or Volvo Trucks. All of these are in our sweet spot. And we've got IP for this Automotive Infotainment Computer. You mentioned EVs. This goes beyond EVs, which I'm excited about. This goes wherever you have a pillar-to-pillar display. So we've got truck manufacturers coming to us. We've got motorcycle guys.
Even their displays are getting larger, including some of the ag equipment people. Again, these take a bit longer. But we have IP in there. And we've got first looks at all of these guys, customers, primarily because we have a design services component in our business. That allows us to have an early look. And we've got this great compute relationship. So that really drives this.
I want to talk about other potential customers and other opportunities. But before going to that, I want to go to something more basic. When you first came on board and we met, we started talking about Compute and Connect, kind of a—I'll call it—a simplification of the Lantronix message, but really articulating what you guys do. So I'd like you to tell us, what does Compute and Connect mean? What is Lantronix doing going forward when you think about those core capabilities and what you bring to your customers?
Great. So I came to Lantronix, and I looked at our products. I also did a deep dive of a strategic portfolio review a couple of weeks back. And I've come out of that even more convinced that moving forward, Compute and Connect are the two pillars of how we drive this business. Compute, based on our relationship with Qualcomm, but that doesn't preclude that we won't look at other things as you think about it. Qualcomm also why Qualcomm? Qualcomm's lower power. Qualcomm's newer processors have an NPU or a neural processing unit that will allow inferencing on the edge. So we'll be right there. And within the last couple of weeks, we announced a new system with a Qualcomm SoC with a neural processing in there that customers can do their own development for inferencing on there. So that's on the compute side.
And the other thing with compute that really drives, which is even more exciting, you get to see the system early. Compute is something a vendor picks pretty early up. And with that, you get to see the whole BOM of the business. So we know what else is in there. If there are other things like a Connect piece of product, if there's something else, we can definitely pull from our portfolio. And with compute, we also provide design services. So we really get to learn. And then, longer term, we pick those customers that are going to be volume shipments. And Lantronix has shown that in the past. You can grow with this. Gridspertise started as a compute engagement. And now it's a great one that you think about. Connect's been in Lantronix's DNA for a while. And there, we provide both wired and wireless.
And that's a great part. And Compute and Connect going together is really important. Now, let me put a finer point on what more Lantronix is, I think about it for the future. Compute and Connect's pretty wide. That's great. We've got products for that. In that, now, we are going to focus on three specific verticals. One of them I call the smart cities. But in that, smart grid and smart infrastructure. And I'll give you an example of smart infrastructure in a minute, the digital cockpit for the automotive infotainment. And I believe I talked about that. And lastly, enterprise. In enterprise, not only do we have our compute solutions, we've got something called out-of-band. Let me go back to our smart infrastructure because that was part of my smart city vertical. So Compute and Connect company with three major verticals, smart cities, auto infotainment, enterprise.
I already talked about smart grid quite a bit in detail. The other one that I'm excited about, and we mentioned that at our last conference call, which is these new power generators, especially in California, up and down Interstate 5, those who are local would know, a large telecom vendor has used our telematics router for these. And why would you say you need that? Multiple reasons. One, green initiative needs to know how often that thing turned on and off, also monitoring and sensing how that is working. And this is, sorry, I should have said, for 4G and 5G cell towers. So we are already designed in with one of the largest telecom guys in the U.S. with one of their generator makers. Guess what? The other four that supply them are working with us now to design it in.
So longer term, this is a very good opportunity. Think about where we could take this. And I mean longer term. I bet you the hotel has a power generator. It's a dumb generator. This is an add-on module that could eventually get added on, putting some smarts onto it, things like that. So that's what on the smart cities.
Let me just follow up on a couple of the things that you've been alluding to throughout the conversation. Lantronix used to provide multiple products. I kind of used to refer to it, Lantronix, as a diversified IoT widget company, a lot of different things. I keep hearing more and more about solutions and increased value. And so is Lantronix now a full-on solutions company? Is that where we're going to be going in terms of that product and evolution and roadmap?
100%. We are providing a solution. That's the telecom vendor I talked to you about. Not only do they buy our hardware, they buy our new IoT Percepxion software that we just announced earlier this year. Obviously, we've been working with them. They've designed us in, which connects to their own cloud, where we do device management, and we do application integration. Hardware, software, design services, again, unique for an IoT company like us, put it together with a wrapper called our IoT Percepxion software platform. Focus is going to be in those verticals. As we get deeper, as we learn more about these verticals, and we already have great expertise in there, we're going to be more and more important and provide a final solution for the customer.
Just as we're getting towards the end, I wanted to hit out-of-band for a minute.
Thank you.
Because we've spent some time talking about it, a very exciting yet underappreciated aspect of your business. Can you talk a little bit of what it is, why it matters, and how that looks going forward?
Great. So out-of-band is something we put in our enterprise category. The customers that we have for out-of-band are banks, telcos, the U.S. government. And for that, I'll just, before I get into the detail, us being a TAA, BABA compliant, which is being a Western supplier, is very helpful now in the United States and in Europe. So that's becoming a key differentiator for us as I think about it. What is out-of-band? Out-of-band is a secondary resilient network. So I'll give you an example so you guys can all envision it. You go to a bank office or the T-Mobile store. They all have a network now. In the old days, there weren't these big networks in all these offices or stores. Now, if the network goes down, they would have to send in a technician to come and bring it back up.
What out-of-band is a secondary resilient way for us to pull the network, remotely manage the network, and bring it up when it goes down. The great news is, once you get deployed in there, we're not done. It's not only a hardware sale. This is, to yours, a solution sale. One of the acquisitions that Lantronix did in the last 24 months adds on to this. There are few vendors in the market. The market's about $450 million-$500 million. We are probably in the top three or four, depending on how you count it. As I said, not only do we sell a piece of hardware, which is great, but we sell ongoing software services or level services, as we call it. It's annualized revenue because we are now their trusted supplier.
What our technology does, it can go up to 8 ports at a minimum in a small shop to 106 ports for a data center. We are pulling the network every 30 seconds to make sure it's up and it's resilient. Really, if it goes down, go in and bring it up. To your point, I believe it's been underappreciated, specifically with the changing cyber, all these other issues that are happening.
Highly fragmented as well. It creates a nice opportunity for you.
Lantronix, to its credit, started acquired a company in that space two years ago, kind of consolidation. You think about it's highly fragmented because it's kind of been one-off kind of people getting designs in. If I'm just use an example, Bank of America, I would rather use a guy who's done it, who's deployed it. Once you get deployed with them, it's going to go on. It's going to go on. It's a long-term business.
As we get to the end of our discussion here, shifting to financials, you have the unusual luxury of having great visibility into the next fiscal year right now with the follow-on from Gridspertise. I wonder if you could talk about what you think the long-term growth rate is for you guys organically, and then layer on top of that inorganic opportunities, M&A. You've done some in your past history. Lantronix has been acquisitive. How does that fit into the overall theme going forward?
Let me talk about the M&A first because I think we haven't hit upon that. I have experience of buying companies at Synaptics. We bought at least two businesses for my division to really make us more meaningful to our customers and a part of our strategy. As we look at acquisitions, they're going to be a part of our Connect and Compute strategy. Would love to have ARR or recurring revenue possibility. Those sometimes tend to be expensive, but we can do it. They need to be immediately accretive. To the credit of the Lantronix team, they've done that in the past. I'm happy to have a team who knows how to do that. They grow our business. That's how I think about it.
As I think about Lantronix as, if you may, for the lack of a better word, organic business, as I said, I came out of the SPR really feeling good about where we are at today. It's a matter of, as I think about it, building on strength. The company's got a lot of strength, a great base. We have built on it. So long term, the growth rates, I think, should be in the double digits. The compares, because we've got this huge growth that's happening for one specific customer, it kind of muddies the water just a touch if you think about it. But when I mean, we should grow better than the IoT market as you think about it in the future. And Compute really does allow us to drive larger opportunities, which is what will allow us to grow our business.
So it sounds like, overall, look, we're evolving more into a solutions company, higher dollar content, higher margins, better visibility for fiscal 2025. You've got a huge customer win or add-on in terms of Gridspertise. What else are we missing here in the final seconds? Any final thoughts?
I think the final thought to really give with you guys is the company's well-placed, a great team. And really, I've been at two big companies in the past, Synaptics, Qualcomm, and before that. A lot of companies don't have product. Lantronix has product that can serve the market today. Now, we need to go execute. We need to sell more of what we have to the same customer. So I think the takeaway is we are building on strength with a good company. That's how I would think about it.
It's a perfect way to end it.