Thank you for joining us for this fireside chat as we enter the afternoon, the last day of the 38th A nnual Roth Conference. I'm Scott Searle. I'm the communications AIoT and Edge Compute Analyst with Roth. What we try to do in our fireside chats are identify and highlight companies where there's something differentiated, there's something in the story that's changing, there's a transformation, there's something that's not being recognized by the Street, and try and have an intelligent dialogue about that. With that in mind, very, very excited to have Lantronix as our next presenter. Presenting on behalf of the company is Saleel Awsare, CEO. Saleel, thanks so much for joining us.
Thank you for having me, Scott. Always a pleasure to be at your conference.
A lot's gone on in the last two years, a lot of transformations at the company. We're gonna talk about Edge Computing and AI. We're gonna talk about robotics. We're gonna talk about ARR. Why don't you start by giving us a kinda state of the union for Lantronix. What's happened over the last couple years, what have you guys been doing, and how are you positioned now going forward?
Yeah. I finished two years last December.
Yeah.
It's a great time to be at Lantronix, and we're really at the cutting edge of Edge Intelligence. You and I have spoken in the past. When I came, I'm like, "We need to drive E dge Computing and Edge Intelligence." We are enabling Edge Intelligence with Compute & Connect, and that's where we started our journey.
Okay.
Fast-forward a couple years, we have now moved primarily from a hardware player, which has been in Orange County, to more of a systems and solution player where we are providing a full stack for the market. Why we've done that, with our CFO, Brent Stringham, we've made the company a much more stronger financially. We've got net cash on the balance sheet. We're generating cash every quarter. We're generating non-GAAP EPS every quarter, so a good story from a financial perspective. In addition, we are in some of the highest growth areas in the market that we're in, and this is where I think really you and I have spoken and a lot of the investors are very interested in, we are in Aerospace and Defense, which was not a market that Lantronix has traditionally been in.
We got into it in the last, you know, 8 to 12, closer to 18 months, and now that's become a very meaningful portion of our business now and moving forward. Specifically, we are in the drones space, and what a place, time to be in that market. The other growth area that we are also in is in our critical infrastructure monitoring, where there's recurring revenue around that and just stickiness with the customer because we do hardware and software that is developed in. Lastly, we are in our networking business. That has been the bread and butter of Lantronix, and we continue to deliver on that, and we're happy with where we are at. Enabling Edge Intelligence with Compute & Connect on some great verticals with great growth prospects. A different company than maybe two years ago.
Perfect and timing is everything, and your timing is perfect, right, in this case. You bring Edge Computing and AI capabilities, and now you're bringing this to the drone market, so that's a perfect area to start. Getting a lot of traction there, a lot of announcements that you've made. Why are you guys winning? What's differentiated about your solution? What do you bring to the equation?
Yeah, Scott, what is a drone? A drone is the manifestation of Physical AI. People are talking about Physical AI. I got into this a couple years ago by doing the technology that delivers Physical AI. In a drone, we are the brains. We drive the camera, and by the way, for those of you who don't know, drones don't have just one. 6, 8, 10, 12 cameras. We aggregate that. We integrate that. We know how to do camera integration, and by the way, that's been in our DNA. We've been doing products for camera integration for a long time, license plate readers, video conferencing, so this was the great step forward. In addition, we do sensor integration. We add a software layer on top of it, and we kinda provide a whole system solution that drives the camera.
We were very lucky to have partnered early with Teledyne FLIR. Teledyne FLIR, which is owned by Teledyne, which Teledyne purchased a few years back for $8 billion, as one of their leading partners for the aerospace and defense area with their thermal imaging cameras. Our differentiation, we're building a great moat around the business, understanding the application. We use a Qualcomm chip in this case and multiple ones for different application. Give the customer the ability with our EdgeFabric.ai t o run their own software on board and then integrate it, put a whole solution together, and get it to market.
You kind of answered this, but I wanna make sure to drive the point home. We talk about differentiation and sustainability in terms of where you are with these solutions. Computer vision, right, is something that's been talked about for years, and there are a lot of guys that have video AI models.
Mm-hmm
... that are, they're implementing at the Edge. When you look at what you're doing today for drone manufacturers, how defensible, how differentiated is it in terms of where you are today and going forward?
Yeah. First of all, being a first mover is the best place to be. We are the first mover in Group 1 and Group 2 drones, which did not exist in the U.S. It was all coming out of China. With the new administration and the new perspective that was put by the Department of Defense, it's a new industry that's been created, and we invested in it early, so that's why we are seeing our business really pick up in that space. It's not just that we are first movers. We put a lot of technology. We are at the intersection of payload, communications, and compute. We understand how all of that works.
We put it together, and we provide our customers more so a canvas where they can add their IP and technology, and that's why we created this EdgeFabric.ai . As shown by some of the announcements we've made with companies like Safe Pro Group, we announced with Unusual Machines last week, where they want to bring in their capabilities onto our solution to get to market. What I am trying to create with Lantronix is be at the heart of it, the brains, create an ecosystem where we become the vendor of choice to bring edge AI and Edge Compute, as I said, Physical AI is happening as we speak today, and we are gonna be leading in that space.
You mentioned Unusual Machines, that's a significant relationship. Can you talk a little bit about that, maybe why you won as well? What can you talk about in terms of the number of vendors that you've either won at this point in time or you're engaged with from a drone standpoint? Because the number's pretty significant at this point in time.
Yeah. The number of vendors we are engaged with is well over 15. This fiscal year, we will probably have revenue with at least 15 odd customers. You know, we're 2/3 of the quarter, 2/3 of the fiscal year done. Considering a year ago, we were hardly in the market. Why now? Why today? The Department of Defense is giving out bids, so a lot of customers wanna get to market faster, and we are becoming the go-to company for that. You specifically talked about Unusual Machines. They partnered with us, I've been working with them for a bit, but they announced openly a partnership with Lantronix last Thursday morning, saying, "Hey, Lantronix is gonna bring edge AI, Edge Compute to drones.
They're gonna bring flight control, the motors, all of that, as you put it together. Why are we doing this? We are creating the ability for our customers to get to market faster. The Department of Defense has talked about 300,000 drones that have to be built in the next 12-18 months, and we're gonna be at the intersection of all of that. To put it in perspective, one of our bigger customers that I didn't mention, Red Cat Holdings, as you talk about customers, I mean, they're leading in the market. Their symbol is RCAT. We are single-sourced on their Black Widow Short-Range Reconnaissance Program, and we are in every gimbal that is there that's being driven into the market.
Their CEO was on, a couple weeks back, on Mornings with Maria, and he said, "The Russians and the Chinese are all making 4 million drones a year. The U.S., probably tens of thousands." We've got a lot of catching up to do. That's why creating an ecosystem, working with some of the top companies in the market, is gonna allow us to really win the space.
Let's start to translate this to some deployment timelines.
Yes.
We've got the Drone Dominance program, $150 million getting allocated basically right around now.
Yeah
Right, for the first phase, but there's over $1 billion+ over the next 18 months to be deployed. How do you see that rolling out, and how are your customers positioned on that front?
Yeah, let me back up a little bit and talk about our journey and then how it aligns with this. If you look at Lantronix, our fiscal year, guys, is from July 1st to June 30th, you know, we are 3/4 done. Last fiscal year, which was ending June 30th, 2025, our drone revenue was near zero. Near zero. In September, when we announced, we said, "Probably be around $5 million." In December, we upped that number to $8 million-$12 million, so meaningfully increasing. Going into next fiscal year, we expect it to probably double from here, if not more, as more vendors come. To put it in perspective, right, our ASPs in the market, anywhere from $500 to $700.
We're also gonna go downmarket with some of the first-person view drones, which is gonna be $300-$400. Go upmarket with more tops, more Edge AI, maybe $700-$800. We are working, what we have decided as a strategy is to work with a lot of customers, give a design that's cut and paste with all of them, being driving the camera, because we gotta make sure that we're with the winners.
Yeah.
Because not everybody's gonna win, but there are a lot of customers now bidding on the programs, and the program size is 300,000 drones, $1.1 billion that has to be used up in about 24 months.
So-
We're working with a bunch of these customers. Sorry, go ahead.
No, no. I just wanna make sure that to highlight here, so revenue could in fiscal 2026 could double where we are.
$27 million.
$27 million.
Mid and fiscal 2026 now.
We get to call it $20 million +-
Yeah, plus
from that $8 million-$12 million.
Yeah.
It sounds like from your ability to service the marketplace, it's basically, you know, mid, high, low strategy.
Correct
... where you'll be able to service anything there, and so really kind of broadening your coverage in terms of how you support the marketplace.
Broadening our coverage, giving the choice to the customers, because the drone costs are gonna be anywhere from $10,000 to $50,000. Some are gonna need a lot more intelligence at the Edge. We're gonna give you a much more powerful processor. There's gonna be more lower end, which are what they call attritable drones, which are one-time use. They're gonna need less. And as I said, this is a manifestation of Physical AI. The big thing here you guys have to think about, you're going into environments that are GPS-denied. You don't know where the drone's at, so you do not have a cloud. Therefore, you need Edge Computing, you need a smaller model to run right there to figure out what the drone needs to do. Perfect example of edge AI.
You and I have spoken about Edge AI for a while now.
For a while now.
It's yeah.
Exactly. Yes, we're so prescient, way ahead of the market.
Exactly.
Now in the last two weeks, you had another interesting announcement as well. You've added MediaTek to your list of silicon suppliers and processors. Why? How did that come about? What do they bring to the equation? You know, why are you differentiating or expanding beyond just supporting Qualcomm?
Yeah. We've had a single source silicon strategy for the X amount of years Lantronix has had this compute business. We brought on MediaTek, we announced to them at Embedded World just a couple weeks back in Nuremberg, Germany, mainly to go after more industrial and commercial applications. We are now going to a multi-silicon strategy.
It's not that we're gonna do less with Qualcomm, we're gonna probably do more as the markets expand, but we need to be looking beyond this. We're going into commercial areas, industrial areas, and MediaTek has what is known as the Genio product line. The Qualcomm line is known as Dragonwing, just to put that in perspective. The Genio line allows us to have more industrial-focused applications, industrial-based IoTs like Ethernet, USB, that makes it a little more well-suited for that market. It's early days, and we expect we'll be working closely with MediaTek into these, some of the newer markets. I think there's a market that we can talk about.
There you go, give me a T-ball.
So, so-
Exactly.
MediaTek, there's been certainly a lot of talk, whether it's at CES or Mobile World Congress, about robotics.
Yes.
You can't walk anywhere on the show floor without almost being knocked down by a robot.
Mm.
You play into those Edge AI capabilities. How does that work? Where you're seeing the opportunity, what do you bring to the basically the solution set?
Great. Right. What is robotics? A robot has a camera. What do we do really well? Integrate cameras, make cameras intelligent. We are the brains. The reason, one of the reasons we went with MediaTek is robotics is a big area of focus for them. They're based out of Taiwan, and that is gonna allow us a segue to that market. Take the technology, the effort that we have put into enabling video analytics, video AI, into the next step in commercial areas and industrial, where robotics is going to be huge. I believe our solution is well suited for this. It's early days in the way I think about robotics, but we're talking about it, so we've already, to your point, you know, getting ready, right? We did with drones, right? Nobody even knew about us with drones 12 months ago.
Now it's almost a $10 million a year business, doubling. We're getting ready with robotics. Because robotics is going to happen, and we are enabling the products and technologies and getting into the supply chain as I think about it.
You're teeing this up again, right? We look at what happened in drones in the past 12 months, early days in robotics. Are you getting inbounds? Are you having those conversations? When does this start to emerge? Is this fiscal 2027, or should we be thinking about fiscal 2028 when this starts to become, I'll call it meaningful?
Early days in robotics, we thoughtfully went with MediaTek because they're based in the Asian ecosystem. They're well known in this market, and we believe probably the second half of fiscal 2027, we should see some, you know. We're getting interest already. We are thinking about some POCs or proof of concepts with a couple customers. Probably meaningful revenue is fiscal 2028, but we gotta get started now. Similar to what we did with drones, right? We were zero, and now we're at about a 10. If the market takes off, it could be very well suited for us as we do it. Again, a robot is Physical AI.
Yep.
People have talked about Physical AI, but now you're seeing reality with Physical AI, and that's what we're driving.
Maybe to follow up. We've gone from drones, we're starting to move into robotics. Are there some other verticals? When I think about your core capabilities, right, Edge Computing, and you're now bringing video processing.
Yeah
... at the Edge. Smart cities, are there other things that you're starting to have a dialogue about and seeing the early, I'll call it, green sprouts of opportunity?
Yeah. We talk about three verticals, right? We talk about A&D, which is drones, but and then critical infrastructure, and then our networking stuff. If I think about green shoots with video analytics and things like that, as a matter of fact, this evening, I'm heading directly to Vegas for the ISC, which is a security and surveillance show. All these cameras that are out there, and there are millions that are dumb cameras, we want to be at the cusp of making them smart and intelligent by adding edge AI and edge analytics to it. That's a perfect example of that. Now, talking about other areas, I mean, we can talk about the critical infrastructure area that we also like, where again, there's another edge box that's driving monitoring cell sites, right? We've spoken about that in the past.
We won a large MNO, one of the top three, where they use our 4G box and then going to 5G in the future to monitor the diesel power generators that are at the cell sites. It's a huge brownfield opportunity, and we've already shipped 50,000, and the best part about it, our software Percepxion platform covers it. Therefore, we know as they're coming on board. Our strategy with that business is a land and expand. In a cell site, there's a power generator, diesel power generator, there are power banks, there are rectifiers. We are now kicking off POCs on their power banks. This MNO needs to be able to figure out not only how is the equipment functioning well, what are the fuel levels.
If you're in California, there's a lot of theft. If it leaves the site, it gets turned off, and all of that. Big new brownfield opportunity with our edge. It's a 4G, 5G connectivity box. But think about it. We also at CES took that, we put a compute module in it and made it an edge box, where now you can run the inference. Sorry, go ahead.
No, I was gonna say, but on, in addition to the hardware component, right, this is driving your ARR strategy now, which was very, very nascent going back 12 months ago.
Yeah.
Now you're adding a tier one MNO. It sounds like you're expanding dollar content there, and there are other MNO opportunities to do similar sort of cell site diagnostics and monitoring.
Correct. First land and expanding the existing one, then go after the other ones. ARR, we have a category on our reporting that we do called software and services. Traditionally, it's been around 5% or so. Last couple quarters as this M&A has started to come online, it's gone to about 7%-8%, probably closer to 8%. Brent Stringham and I have spoken that in the future we'd like this to be around, in 24 months, 10%-12% of the company. Again, have a consistent 10%-12%, which is recurring kind of revenue, including software and services that we do. It's the it's high protein kinda business that we like, and we're working after that.
High protein, I like that. We've got the cell site diagnostics, but you've also announced relationship-
Mm
with Vodafone, as it relates to, in this case, compressors, right? Remote monitoring compressors, but it could be anything. Can you talk a little bit about, I guess, same sort of opportunity, it's ARR, it's got a hardware component to it.
Mm
where are you seeing the opportunity? How do compressors roll out, and are there other opportunities, other product categories to monitor behind that?
Compressors are a very interesting product, right? Everywhere, there's probably a compressor in this hotel that's being run. The compressor whisperers who used to know how to manage them are now retiring out of the market. There are also portable compressors. We announced a relationship, I think in October, November timeframe with Vodafone. Vodafone signed up with us to enable what I call Device as a Service. This is really gonna be in that forefront device as a service, and it's called Kompress.ai, with a K, . ai. I'm happy to report in the Midwest now we have our first POC kicked off with a multi-state vendor who does not only rents compressors, but also installs compressors, where they also want analytics on a compressor, understand how it works. Another good brownfield opportunity.
Greenfield is great, you know, you gotta get new ones going in, but existing ones need to get retrofitted. Being a partner with Vodafone is gonna help us into Europe. We are gonna go after the European market with them, and there's also some early POC starting in that. Announced it in October, I think we will have something to report, smaller revenue, but second half of this calendar year.
Okay.
Which we feel really good about that we just got started, so within nine months we'll have, you know, proof points as to that this is working.
Kind of adding up what we've talked about so far, right? It's the Edge Computing and Edge AI opportunity with drones, going into robotics that didn't exist 12 months ago. Now you've got an ARR opportunity that was nascent getting much bigger.
Mm-hmm.
I mean, this is 25%-30% of your revenue.
Correct
in the second half of fiscal 2027 from zero
Yes
12 months ago.
Yeah.
We kinda skipped over, though, the core business. What are some quick updates in terms of-
Sure
Core business, existing demand? How is the macro impacting or not impacting what you're seeing from your customers?
The core business continues to tick along. You know, it's switches, media converters, it's out-of-band, which is to monitor, you know, remote management. It continues to do well. From a macro perspective, the macro is the macro. We are managing that to the extent we can. Some of you might have heard about memory pricing and things like that. We are doing our best to mitigate those sharks in the water, if you may, over the next few quarters. But that's holding and, you know, it's a profitable piece of business, very profitable for us, and we continue to make sure we invest in it appropriately, not over-invest in it, because we know what the growth rates are gonna be in that business.
We investigate it appropriately to make sure we are aligned with our customers' expectation. That's switches, media converters, device servers, out-of-band. It continues to tick along, and we're happy with where we're at with it.
Now, in your tenure at the company, you've done a small acquisition or two, which have gone well. How are you thinking about M&A now as part of the strategy, given that you've got a little bit more of a currency, you're generating free cash flow, where does that fit in? What are you kinda looking for? What parameters do you put around it from an accretion/dilution standpoint and timing, size, things like that?
Yeah. We did a small acquisition about 14 months ago, primarily to get 5G capability that we needed. As I think about acquisitions now, we're really gonna be laser focused on two areas. One is on the drone side. Unfortunately, the drone acquisitions are very expensive right now, as you might have seen some of the information out there, but we wanna add capability and capacity in that area. The second one is around critical infrastructure, but mainly ARR focused. Those are the two areas you will see us focused on doing acquisitions on that. We've got net cash on the balance sheet. We're generating cash every quarter.
You know, we will probably lean into these two areas as I think about to bring more capability, stickiness with our customer, and how we drive it for the future.
Is there anything in particular right now as you're looking at your customer base, your engagements that's concerning right now on the margin? Or are you feeling pretty good about just overall demand trends, what you're seeing from your customers?
I think we've navigated last quarter in spite of the big shutdown, we met our midpoint, because we do have a good amount of federal business. The company continues to navigate through some troubled times. We feel good where we are at. I mean, considering the shutdown, because we do have federal business, about 30% of the combined company's business is federal. You know, we feel good where we're at, right? We're navigating it well. The team is laser focused, and we've got some green shoots in new areas, and more than green shoots. They're already into you know, bushes where we're doing some great revenue generation. We feel really good where we're at today.
We'll get you out of here on this as we wind down. What are institutional investors missing? What’s most misunderstood about the stock and the company from your perspective?
Yeah. I think Lantronix was known, because it's been public for a while in Orange County. As I said, I've been only a couple years here. Known more as a hardware box company around networking, things like that. What they're really missing, and now some folks are starting to understand it, we are at the cutting edge of Physical AI. Specifically in the areas that we like. We're not doing everything. We're a small company, so we're focused on enabling cameras, enabling areas where there can be Edge Computing and Edge AI. Edge AI, Edge Computing, and secure connectivity. Those are the two things we are gonna put together, and those are what some of the investors need to understand as they look at the future.
Well, Salil, it's always a pleasure. Thank you so much for joining us, and I look forward to seeing you back next year.
Thank you, Scott. Always a pleasure.