Item 1. Business
ITEM 1.
BUSINESS
Overview
Lantronix, Inc. is a global leader in compute
and connectivity solutions, targeting high-growth industries such as Smart Cities, Automotive, and Enterprise markets. Our products and
services empower companies to capitalize on the expanding internet of things (“IoT”) market by delivering customizable solutions
that address each layer of the IoT stack.
Our portfolio is organized into three primary
product lines: Embedded IoT Solutions, IoT Systems Solutions, and Software and Services. Each product line is designed to meet the demands
of scalable, secure, and reliable IoT deployments.
References in this Report to “fiscal 2024” refer to
the fiscal year ended June 30, 2024, and references to “fiscal 2023” refer to the fiscal year ended June 30, 2023. In
addition, unless the context suggests otherwise, all references in this Report to the “Company,” “we,”
“our” and “us,” refer to Lantronix, Inc. together with its subsidiaries.
Our Strategy
We focus on three high-potential
vertical markets - smart cities, automotive and infotainment, and enterprise. We position ourselves in these markets to deliver complete
solutions encompassing our hardware, software, device management, and design services to meet the evolving needs of our customers and
address each layer of the IoT stack. Below are customer examples that highlight our impact:
· Smart Cities: We are partnering with a Smart Grid customer that deploys their solutions to enhance
grid resiliency and flexibility through intelligence at the edge. We supply this customer an entire solution than includes our edge compute
and connectivity solutions as well as our design services. This engagement underscores the ongoing value and scalability of our solutions
within the growing smart city infrastructure market.
· Automotive: Lantronix is driving innovation in the automotive sector with our edge computing solution,
currently powering infotainment systems in volume production for a Turkish automotive manufacturer. Our relationship with this customer
is expanding as we support the launch of a second vehicle, with plans for market entry into Germany and other European regions. Additionally,
we are focusing on opportunities with other Tier II & III original equipment manufacturers (“OEMs”) in the auto, truck,
and motorcycle segments, further broadening our footprint in the mobility ecosystem.
· Enterprise: In the financial sector, we provide solutions to a Tier 1 banking customer to enhance
network resiliency using our Out-of-Band Management offerings. Our hardware and software offerings provide secure alternative pathways
for critical infrastructure, including servers, networks, and routers. These solutions not only bolster cybersecurity and tracking but
also improve operational efficiency through enhanced automation, uptime, and resiliency.
Our growth strategy centers on continuous innovation
and strategic acquisitions designed to increase scale, broaden our scope, and enhance our value proposition. This approach allows us to
address a broader spectrum of our customers’ operational needs, positioning Lantronix as a strategic partner rather than just a
vendor. Our acquisitions and innovations have expanded our capabilities in key areas such as intelligent infrastructure and connected
automotive solutions, driving deeper customer engagement and market penetration.
By focusing on these strategic priorities, we
continue to strengthen our competitive position and attract new customers across a wide variety of applications. Looking ahead, we plan
to capitalize on market opportunities by further enhancing our product offerings, expanding geographically, and pursuing targeted acquisitions
that align with our long-term growth objectives.
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Products and Solutions
Embedded IoT Solutions
Our portfolio of embedded products provides a comprehensive range of
options, including Compute System-on-Module (“SOM”) and System-in-Package (“SIP”) solutions, complemented by wired
and wireless network connectivity products. As the level of silicon integration continues to advance, our compute modules offer the capability
to collect, analyze, and interpret digital information (e.g., Video, Audio or Sensor data) using specialized artificial intelligence (“AI”)/machine
learning algorithms.
Our latest SIP devices are designed to process multiple media streams
using Computer Vision (CV) technology, enabling sophisticated edge analytics. These modules are remotely managed via Percepxion™,
Lantronix’s Cloud IoT Edge Solution software, offering seamless control and monitoring. Typically embedded into customer product
designs, Lantronix’s IoT compute products provide application processing that enables edge solutions for data transformation, computer
vision, machine learning, augmented/virtual reality, and custom applications.
Our products are designed with customer needs in mind, offering pre-certified
solutions across multiple regions, significantly reducing regulatory certification costs and expediting time-to-market for OEM customers.
Additionally, Lantronix provides software tools that further accelerate development, empowering customers to quickly bring their products
to market while enhancing their overall value proposition.
Our embedded IoT modules serve a wide range of applications, from industrial
automation and automotive systems to smart city infrastructure, positioning us as a leading provider of flexible and scalable solutions
in the growing IoT market.
IoT System Solutions
Our IoT Systems Solutions portfolio 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 OEM customers’ regulatory certification costs and speeds up their time-to-market.
Our PoE products support remote devices such as cameras and wireless
access points by passing electrical power along with data on Ethernet cabling, eliminating the need for traditional AC/DC electrical power
in hard-to-reach locations. As the adoption of smart city technologies accelerates, our switches provide the critical connectivity, bandwidth,
and power needed to support intelligent transportation systems and surveillance networks that safeguard citizens.
Our products also incorporate features to perform advanced levels of
fault management and diagnostics to troubleshoot networks and proactively fix problems. Its media converters and other customer premise
equipment (“CPE”) assist customers in resolving challenges in the areas of bandwidth constraints, security risks and distance
limitations as networks extend from local area to wide area networks and adapt to ever-increasing end-user demands.
Our smart tracking devices are designed to deliver robust data logging
and positional tracking functionality and reliability for supply chain and logistics solutions. Our telematics devices are designed to
be flexible in the field while offering a variety of connectivity options to suit the customers’ needs across 4G, 5G and LTE cellular
networks. These power-efficient products are designed to support communications across interfaces and industrial protocols for vehicle,
fleet and asset tracking and management. Many of the products are offered with software tools intended to further accelerate Lantronix
customers’ time-to-market and increase their value add. Our IoT Telematics products are pre-certified in a number of countries,
significantly reducing its OEM customers’ regulatory certification costs and accelerating their time-to-market.
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As Edge Computing deployment accelerates, Out-of-Band (OOB) Management
allows for full comprehension and control of remote information technology (“IT”) infrastructure across a range of sensors
(e.g., temperature, humidity, light, acceleration, open/close, etc.), providing status and alerting while enabling automation and remote
control of devices, servers and end stations. OOB uses a dedicated management network to access critical infrastructure components and
ensure production-independent connectivity. Remote Management allows organizations to effectively monitor and control their enterprise
IT equipment and facilities (environments), either in or out of band, optimizing their IT support resources.
Our Advanced OOB (“AOOB”) product line includes console
management, power management and IP-connected keyboard-video-mouse (commonly referred to as “IPKVM”) products that provide
remote access to IT and networking infrastructure deployed in test labs, data centers, branch offices, remote sites and server rooms.
Software and Engineering Services
Our SaaS platform offers comprehensive single-pane-of-glass management
for 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.
For OEMs and System Integrators (“SI”) our platform offers
multitenancy functionality for supporting a broad customer base while ensuring customer separation and data security. Over the Air (“OTA”)
updates, streamlines the process of security patches, firmware upgrades and configuration changes, keeping devices up to date and secure.
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.
In addition to our production-ready edge computing solutions, we offer
experienced multidisciplinary engineering services across complete aspects of IoT product development, including hardware, software, mechanical
engineering, rapid prototyping, and quality assurance. Our specialized services also extend to camera, audio, and AI/ML development, ensuring
our customers can bring cutting-edge products to market faster and with greater reliability.
Our engineering design services are a key component
of our business model, enabling clients to accelerate product development and market readiness. The services focus on designing and developing
high-quality, innovative IoT and embedded solutions. We leverage extensive expertise in hardware and software engineering to provide custom
designs for complex applications, helping customers reduce costs and time-to-market while improving performance and reliability.
Our design services are especially valuable in the
development of IoT systems, remote management solutions, and edge computing applications. Our engineering teams have experience across
a range of technologies, including embedded systems, wireless connectivity, and custom hardware. By integrating these design services,
we offer end-to-end support, from concept through to manufacturing, allowing businesses to focus more on core operations while still achieving
advanced technological outcomes.
This strategy positions us as a go-to partner for companies needing specialized
engineering capabilities for industrial, automotive, medical, and other high-tech applications.
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Net Revenue by Product Line
We have one operating and reportable business segment. A summary of
our net revenue by product line is found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
included in Part II, Item 7 of this Report, which is incorporated herein by reference. A discussion of factors potentially affecting our
net revenue and other operating results is set forth in “Risk Factors” included in Part I, Item 1A of this Report, which is
incorporated herein by reference.
Sales Cycle
Our embedded IoT solutions are typically designed into products by
OEMs, original design manufacturers (“ODMs”) and contract manufacturers. OEMs design and sell products under their own brand
that are either manufactured by the OEM in-house or by third-party contract manufacturers. ODMs design and manufacture products for third
parties, which then sell those products under the third parties’ brands. The design cycles using our embedded solutions typically
range from nine to 24 months and can generate revenue for the entire life cycle of an end user’s product.
Our IoT System Solutions are typically sold to end users through value-added
resellers (“VARs”), systems integrators, distributors, online retailers and, to a lesser extent, OEMs. The design cycles for
these products typically range from three to 18 months and are often project-based.
Sales Channels
Distributors
A majority of our sales are made through distributors. Distributors
resell our products to a wide variety of resellers and end customers including OEMs, ODMs, VARs, systems integrators, consumers, online
retailers, IT resellers, corporate customers and government entities.
Resellers
Our products are sold by industry-specific system integrators and VARs,
who often obtain our products from our distributors. Additionally, our products are sold by direct market resellers such as CDW, ProVantage,
and Amazon.com.
Direct Sales
We sell products directly to larger OEMs and end users. We also maintain
an ecommerce site for direct sales.
Sales and Marketing
We sell our products primarily through an internal sales force, which
includes regional sales managers, inside sales personnel and field applications engineers in major regions throughout the world. This
team manages our relationships with our partners and end users, identifies and develops new sales opportunities and increases penetration
at existing accounts. We implement marketing programs, tools and services, including displaying our products at industry-specific events,
to generate sales leads and increase demand for our products.
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Manufacturing
Our manufacturing operations are currently conducted through five third-party
contract manufacturers. We currently utilize Hana Microelectronics, primarily located in Thailand and China, Honortone, primarily located
in China, and Tailyn and Info-Tek in Taiwan as our contract manufacturers for most of our products. In addition, we use Marvell Technology
Inc., to manage the manufacture of our large-scale integration chips in Taiwan. We manufacture certain products with final assembly in
the U.S. to meet trade compliance requirements.
Our contract manufacturers source raw materials, components
and integrated circuits, in accordance with our specifications and forecasts, and perform printed circuit board assembly, final assembly,
functional testing and quality control. Our products are manufactured and tested to our specifications with standard and custom components.
Many of these components are available from multiple vendors. However, we have several single-sourced supplier relationships, either because
alternative sources are not available or because the relationship is advantageous to us.
Research and Development
Our research and development efforts are focused on the development
of hardware and software technology to differentiate our products and enhance our competitive position in the markets we serve. Product
research and development is primarily performed in-house and supplemented with outsourced resources.
Competition
Our industry is highly competitive and characterized by rapid technological
advances and evolving industry standards. The market can be affected significantly by new product introductions and marketing activities
of industry participants. We believe that we compete for customers based on product features, software capabilities, company reputation,
brand recognition, technical support, relationships with partners, quality, reliability, product development capabilities, price and availability.
A discussion of factors potentially affecting our ability to compete in the markets in which we operate is set forth in “Risk Factors”
included in Part I, Item 1A of this Report, which is incorporated herein by reference.
Intellectual Property Rights
We believe that a considerable portion of our value resides in our
intellectual property. We have developed proprietary methodologies, tools, processes and software in connection with delivering our products
and services. We protect our intellectual property through a combination of patents, copyrights, trademarks, trade secrets, licenses,
non-disclosure agreements and contractual provisions. We enter into a non-disclosure and confidentiality agreement with each of our employees,
consultants and third parties that have access to our proprietary technology. Pursuant to assignment of inventions agreements, all of
our employees and consultants assign to us all intellectual property rights for the relevant inventions created in connection with their
employment or contract with us. We currently hold U.S. and international patents covering various aspects of our products, with additional
patent applications pending.
U.S. and Foreign Government Regulation
Many of our products are subject to certain mandatory regulatory approvals
in the regions in which our products are deployed. In particular, wireless products must be approved by the relevant government authority
prior to these products being offered for sale. In addition, certain jurisdictions have regulations requiring products to use environmentally
friendly components. Some of our products employ security technology, which is subject to various U.S. export restrictions.
Employees
As of August 19, 2024, we had 373 total employees including 367 full
time employees, none of whom is represented by a labor union. We have not experienced any labor problems resulting in a work stoppage
and believe we have good relationships with our employees.
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Customer and Geographic Concentrations
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”). A
discussion of sales to our significant customers and sales within geographic regions is set forth in Notes 2 and 11 of Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Report, which is incorporated herein by reference. A discussion of factors potentially
affecting our customer and geographic concentrations is set forth in “Risk Factors” included in Part I, Item 1A of this Report,
which is incorporated herein by reference.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, Proxy Statements on Schedule 14A and other reports and information that we file or furnish pursuant to the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) are available free of charge on our website at www.lantronix.com as
soon as reasonably practicable after filing or furnishing such reports with the Securities and Exchange Commission (the “SEC”).
The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding
issuers that file electronically. The contents of our website are not incorporated by reference into this Report. References to our website
address in this Report are inactive textual references only.
Information About Our Executive Officers
Executive officers serve at the discretion of our board of directors
(the “Board”). There are no family relationships between any of our directors or executive officers. The following table presents
the names, ages, and positions held by our executive officers as of the date of this Report:
Name
Age
Position
Saleel Awsare
59
President and Chief Executive Officer
Jeremy R. Whitaker
54
Chief Financial Officer
Mathi Gurusamy
53
Chief Strategy Officer
Kurt Hoff
67
Vice President of Worldwide Sales
SALEEL AWSARE has served as our President and Chief Executive Officer,
and as a member of our Board, since November 2023. Awsare served as Senior Vice President and General Manager of the Enterprise and Mobile
Division of Synaptics Incorporated, a developer of human interface hardware and software, from September to November 2023. Prior to that,
Mr. Awsare served as Senior Vice President and General Manager of the PC and Peripherals Unit of Synaptics from August 2020 to September
2023; Senior Vice President and General Manager of Synaptics’s IoT Division from April 2019 to July 2020; and Senior Vice President
of Corporate Marketing & Investor Relations at Synaptics from October 2018 until April 2019. Prior to joining Synaptics as Corporate
Vice President and General Manager of Audio & Imaging Products in August 2017, Mr. Awsare was President of Conexant Systems, LLC,
a software developer and fabless semiconductor company, from March 2016 until Conexant’s acquisition by Synaptics in August 2017,
and Conexant’s Senior Vice President & General Manager of Audio & Imaging from April 2012 to March 2016. Prior to joining
Conexant, Mr. Awsare served as President of U.S. Operations and General Manager of Audio & Voice Solutions of Nuvoton Technology Corporation,
a Taiwan-based semiconductor company, from December 2008 to March 2012.
JEREMY R. WHITAKER has served as our Chief Financial Officer since
September 2011 and served as our interim Chief Executive Officer from June 2023 until Mr. Awsare’s appointment in November 2023.
Mr. Whitaker returned to Lantronix after serving as Vice President, Corporate Controller at Mindspeed, a supplier of semiconductor solutions
for network infrastructure, from January 2011 to September 2011. Mr. Whitaker previously served as our Vice President of Finance and Accounting
from September 2010 to January 2011, where he was responsible for managing all worldwide finance and accounting functions. Mr. Whitaker
also served as our Senior Director of Finance and Accounting from February 2006 to September 2010 and our Director of Finance and Accounting
from August 2005 to February 2006. Prior to August 2005, Mr. Whitaker held vice president and director level finance and accounting positions
with two publicly-traded companies and worked in the assurance practice at Ernst & Young LLP for six years.
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MATHI GURUSAMY has served as our Chief Strategy Officer since May 2024.
Prior to joining Lantronix, Mr. Gurusamy served as Chief Operating Officer at Ikotek USA, Inc., a global provider of original design manufacturing
for IoT, from November 2023 to May 2024. Mr. Gurusamy served as President at Telit Cinterion, an end-to-end IoT solutions enabler, from
October 2022 to October 2023, and previously served at Telit as Chief Operating Officer from January 2010 to March 2016 and as Global
VP – Operations & Supply Chain from June 2008 to December 2009. He also served as President and Chief Operating Officer of Mobilogix,
a startup company specializing in custom IoT solutions, from April 2016 to June 2018 and as Chief Executive Officer and President from
June 2018 until Mobilogix’s acquisition by Telit in September 2022.
KURT HOFF has served as our Vice President of Worldwide Sales since
March 2024. Prior to his appointment at Lantronix, Mr. Hoff served as Vice President of Global Sales at MYTHIC AI, a venture-backed AI
processor company, from May 2022 to December 2022. Previously, Mr. Hoff served as Senior Vice President of Worldwide Sales at Synaptics
Inc., a developer of human interface hardware and software, from July 2017 to July 2020, and at Conexant Systems, Inc., a software developer
and fabless semiconductor company, from November 2015 until Conexant’s acquisition by Synaptics in July 2017. He also served as
Senior Vice President of Worldwide Sales at Silicon Laboratories Inc. from July 2007 until November 2015.