Investor Presentation - Lantronix · Lantronix believes that the presentation of nonGAAP financial information, when presented in conjunction with the corresponding- GAAP measures,

InvestorPresentation

December 2018

Copyright © Lantronix 2018. All rights reserved.COMPANY CONFIDENTIAL. DO NOT DISTRIBUTE

Forward-Looking Statements

COMPANY CONFIDENTIAL. DO NOT DISTRIBUTE 2

This presentation contains forward-looking statements, including statements concerning our business and product development plans andstrategies, the perceived benefits of our products, and our future growth and financial performance. Any statement relating to our plans, goals,expectations or any future event should be considered a forward-looking statement. While we have based our forward-looking statements onour current assumptions and expectations, forward-looking statements are not guarantees of future performance and are subject to substantialrisks and uncertainties. As a result, our actual results could differ materially from those indicated in our forward-looking statements, and youshould not rely on any of these forward-looking statements.

Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-lookingstatements include the risks and uncertainties described in “Risk Factors” in our Annual Report on Form 10-K filed with the Securities andExchange Commission, or SEC, as well as in our other filings with the SEC. In addition, new risks emerge from time-to-time and we cannotpredict all future risks or assess the impact of all risks to our business. Our forward-looking statements are based on our view as of the datethey are made. Except as require by law, we expressly disclaim any intent or obligation to update any forward-looking statements after the datehereof because of new information, future events or otherwise.

This presentation references certain non-GAAP financial measures, including non-GAAP net income (loss). A reconciliation of the non-GAAPfinancial measures to the corresponding GAAP financial measures, along with important information regarding our disclosure of the non-GAAPfinancials, is provided in Appendix A.

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OUR MISSION

CREATING SECURE DATA ACCESS & MANAGEMENT SOLUTIONS FOR THE INDUSTRIAL IOT

Our mission is to be the leading supplier of IoT solutions that enable companies to dramatically simplify the creation, deployment, and management of IoT projects while providing secure access to data for applications and people.

COMPANY CONFIDENTIAL. DO NOT DISTRIBUTE

LantronixEnabling the Industrial Internet of Things

• Global provider of secure data access and management solutions for Industrial IoT

• Industry leading connectivity solutions that are easy to deploy and accelerate time to market

• Millions of devices connected worldwide

• Strong Blue Chip customer base

• Significant financial momentum and operating leverage

IoT Pure Play

Return to Growth with Margin Expansion

Global Revenue• Americas 55%• EMEA 30%• APJ 15%

New Experienced Leadership Team


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PROVEN LEADERSHIP TEAM

Jeffrey BenckPresident & CEO

Jeremy WhitakerCFO

Michael A. FinkVP, Operations

Fathi HakamVP, Engineering

Shahram MehrabanVP, Marketing

Kurt ScheuermanVP, General Counsel

Tom MortonVP, Human Resources

Kevin YoderVP, WW Sales


OUR GROWTH STRATEGY


Expand SaaS IoT Platform with New IoT and ITM Appl icat ions

Pursue Strategic Acquis it ion Opportunit ies

Grow IoT Revenue with New Gateway Products

Pursue Market Share Gains with IT Management Products

what

STRONG BASE OF GLOBAL BLUE-CHIP CUSTOMERS

We l l P o s i t i on e d i n K e y M a r k e t S e g m e n t s

RETAIL INDUSTRIAL ENERGY / UTILITIESHEALTHCARE SMART BUILDING

TRANSPORTATION FINANCIALS EDUCATIONMILITARY & GOV’T TELECOM


http://www.rockwellautomation.com/

FAVORABLE SECULAR TRENDS

Integration of Renewables &

Distributed Energy

Rise of Robotics & Automation

Connected Healthcare &

Remote Patient

Monitoring

Smart Building Integration

Increase Government &

Defense Spending

M2M, Big Data, Analytics


THE LANTRONIX DIFFERENCE

Lantronix takes care of IoT connectivity, management and security so our customers can take care of their business

Reducing total cost of ownership

Reducing OEM time to market


Industrial hardened solutions

10%

12%

12%

10%

10%

12%

9%

10%

10%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Implementation complexity

Cost/funding concerns

Security concerns

Ranked 1st Ranked 2nd Ranked 3rd

Top 3 Issues with IoT Deployments

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IOT SOLUTIONS FROM THE DEVICE TO THE DATA CENTER

New Connected Devices

Legacy Devices

Network

LantronixEmbedded Modules

& Gateways

Data Center

LantronixExternal Device

GatewaysLantronix

IT Management Solutions


Broad Suite of IIoT Solutions

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IOT GATEWAYS & BUILDING BLOCKS

Connectivity Without Complexity

IT MANAGEMENT SOLUTIONS

Management of Enterprise IT Infrastructure

MANAGEMENT SOFTWARE

Scalable Software Made Simple


LANTRONIX IOT GATEWAYS

Secure and certified enterprise-ready connectivity, network intelligence and

management at scale for industrial and commercial devices and machines

Embedded IoT Gateways

• Ideal to drop into any new or inflight design

• Small size ideal for high-volume integration

IoT Device Gateways

• Ideal for connecting existing devices and machines

• Or, when it is desirable to keep connectivity external to asset

xPico 240Mid-range

Ethernet, Wi-Fi

PremierWave 2050

Enhanced Ethernet, Wi-Fi Bluetooth

SGX5150Ethernet, Wi-Fi

Bluetooth

PremierWave XC HSPA+

Ethernet, Cellular

xPico 250Mid-range

Ethernet, Wi-FiBluetooth

XPort EDGESerial to Ethernet


NOW SHIPPING

Lantronix IT Management

ADVANCED CONSOLE MANAGER BRANCH OFFICE MANAGER REMOTE KVM-OVER-IP

Enterprise Data Centers & Development Labs Retail Store & Branch Offices Kiosks, Digital Signs, Test Labs


MACH10 Management Software PlatformRecurring Revenue Through SaaS Model

Global Device Manager

Gateway Central

ConsoleFlow

for IoT OEMs

for Lantronix Gateways

for Lantronix Console Managers


THE LANTRONIX DIFFERENCE IN ACTION


Enabling Secure Smart

Meter Integration

Enabling Secure Medical Device

Connectivity

Connecting Hospital Devices

Securely to the WiFi Network

Enabling New Business Models in

Retail

Increasing Warehouse Efficiency

Through Fast Roaming

Connecting Weighing Scale for

Higher Efficiency

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Operating Results


SELECTED FISCAL YEAR AND QUARTERLY FINANCIAL DATA

$-

$10,000

$20,000

$30,000

$40,000

$50,000

FY15 FY16 FY17 FY18

Net Revenue by Product Line

IoT ITM Other

47.3% 47.7%

52.7%55.7%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

$(4,000)

$(3,000)

$(2,000)

$(1,000)

$-

$1,000

$2,000

$3,000

$4,000

FY15 FY16 FY17 FY18

Gross Margin and Profitability

GAAP Income Non-GAAP Income GPM %

COMPANY CONFIDENTIAL. DO NOT DISTRIBUTE 21* R e f e r t o A p p e n d i x A f o r r e c o n c i l i a t i o n o f N o n - G A A P f i n a n c i a l m e a s u r e s

$7,889 $9,061

$10,391

$13,544

$24,407

$4,989 $5,962

$8,073 $9,568

$18,925

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

FY15 FY16 FY17 FY18 Q1 FY19

Liquidity

Working Capital Cash

SELECTED QUARTERLY FINANCIAL PERFORMANCE

COMPANY CONFIDENTIAL. DO NOT DISTRIBUTE 22* R e f e r t o A p p e n d i x A f o r r e c o n c i l i a t i o n o f N o n - G A A P f i n a n c i a l m e a s u r e s

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Net Revenue by Product Line

IoT ITM Other

47.9% 48.1% 47.9% 47.0%

52.1% 51.8%

55.5%

51.3%52.7%

55.7% 56.8% 57.1%54.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

$(1,000)

$(500)

$-

$500

$1,000

$1,500

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Improving Margins and Profitability

GAAP Income Non-GAAP Income GPM %

SELECTED BALANCE SHEET INFORMATION

(In thousands except price per share data)June 30, September 30,

2018 2018

Cash and Cash Equivalents $ 9,568 $ 18,925

Accounts Receivable, Net 4,244 5,917

Inventories, Net 8,439 8,032

Total Current Assets 23,270 34,222

Current Liabilities 9,726 9,815

Working Capital 13,544 24,407

Common Shares Outstanding 18,908 21,893

RSUs Outstanding 140 683

Stock Options Outstanding 3,931 3,476

Weighted Average Exercise Price Per Option $ 1.73 $ 1.73


Minimum impact from Other (EOL) products

going forward

Significant progress with meaningful design-wins

New WiFi products entering the market

IoT Software and SaaS offerings launched

Inorganic growth opportunities can accelerate growth


LANTRONIX DRIVERS FOR ACCELERATED GROWTH

Invest in one of the few public company IoT pure plays

E s t a b l i s h e d g l o b a l I o T s o l u t i o n s p r o v i d e r w i t h b l u e c h i p c u s t o m e r b a s e S e a s o n e d l e a d e r s h i p t e a m w / s i g n i f i c a n t e n t e r p r i s e e x p e r i e n c e P u r s u i n g f a s t g r o w i n g I o T m a r k e t w i t h d o u b l e d i g i t C A G R s M A C H 1 0 p l a t f o r m a n d r e l a t e d s o f t w a r e a p p l i c a t i o n s e n a b l e i n c r e m e n t a l g r o w t h

o p p o r t u n i t y

Significant growth potential

I n F Y 1 8 , r e p o r t e d G A A P p r o f i t & n e a r l y d o u b l e d n o n - G A A P p r o f i t B u s i n e s s m o d e l w i t h s i g n i f i c a n t o p e r a t i n g l e v e r a g e N o l o n g - t e r m d e b t , n i n e c o n s e c u t i v e q u a r t e r s o f i n c r e a s e d c a s h S u b s t a n t i a l N O L f e d e r a l c a r r y o v e r A d d i n g S t r a t e g i c A c q u i s i t i o n P o t e n t ia l t o S t r a t e g y

SUMMARY


[email protected]


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(In thousands) Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 FY16 FY17 FY18

GAAP Net Income (Loss) $ (641) $ 225 $ 344 $ 752 $ (83) $ (1,962) $ (277) $ 680

Non-GAAP Adjustments:

Share-based Compensation 272 310 295 292 478 870 912 1,169

Depreciation and Amortization 117 109 110 106 105 759 594 442

Interest Expense, Net 4 5 5 4 4 32 23 18

Other (Income) Expense, Net (1) (1) 1 9 10 (61) 3 8

Withholding Taxes on Stock Grants 3 3 4 4 6 4 12 14

Severance and Restructuring Costs 527 - (21) - 323 533 246 506

Provision (Benefit) for Income Taxes 25 38 29 6 40 63 68 98

Total Non-GAAP Adjustments 947 464 423 421 966 2,200 1,858 2,255

Non-GAAP Net Income (Loss) $ 306 $ 689 $ 767 $ 1,173 $ 883 $ 238 $ 1,581 $2,935

L a n t r o n i x b e l i e v e s t h a t t h e p r e s e n t a t i o n o f n o n - G A A P f i n a n c i a l i n f o r m a t i o n , w h e n p r e s e n t e d i n c o n j u n c t i o n w i t h t h e c o r r e s p o n d i n g G A A P m e a s u r e s , p r o v i d e s i m p o r t a n t s u p p l e m e n t a l i n f o r m a t i o n t o m a n a g e m e n t a n d i n v e s t o r s r e g a r d i n g f i n a n c i a l a n d b u s i n e s s t r e n d s r e l a t i n g t o t h e C o m p a n y ' s f i n a n c i a l c o n d i t i o n a n d r e s u l t s o f o p e r a t i o n s . T h e n o n - G A A P f i n a n c i a l m e a s u r e s d i s c l o s e d b y t h e C o m p a n y s h o u l d n o t b e c o n s i d e r e d a s u b s t i t u t e f o r , o r s u p e r i o r t o , f i n a n c i a l m e a s u r e s c a l c u l a t e d i n a c c o r d a n c e w i t h G A A P , a n d t h e f i n a n c i a l r e s u l t s c a l c u l a t e d i n a c c o r d a n c e w i t h G A A P a n d r e c o n c i l i a t i o n s o f t h e n o n - G A A P f i n a n c i a l m e a s u r e s t o t h e f i n a n c i a l m e a s u r e s c a l c u l a t e d i n a c c o r d a n c e w i t h G A A P s h o u l d b e c a r e f u l l y e v a l u a t e d . T h e n o n - G A A P f i n a n c i a l m e a s u r e s u s e d b y t h e C o m p a n y m a y b e c a l c u l a t e d d i f f e r e n t l y f r o m , a n d t h e r e f o r e m a y n o t b e c o m p a r a b l e t o , s i m i l a r l y t i t l e d m e a s u r e s u s e d b y o t h e r c o m p a n i e s . T h e C o m p a n y h a s p r o v i d e d r e c o n c i l i a t i o n s o f t h e n o n - G A A P f i n a n c i a l m e a s u r e s t o t h e m o s t d i r e c t l y c o m p a r a b l e G A A P f i n a n c i a l m e a s u r e s . M a n a g e m e n t b e l i e v e s t h a t n o n - G A A P n e t i n c o m e ( l o s s ) i s a n i m p o r t a n t m e a s u r e o f t h e C o m p a n y ' s b u s i n e s s . M a n a g e m e n t u s e s t h i s f i n a n c i a l m e a s u r e t o m o n i t o r a n d e v a l u a t e o n g o i n g o p e r a t i n g r e s u l t s a n d t r e n d s t o g a i n a n u n d e r s t a n d i n g o f o u r c o m p a r a t i v e o p e r a t i n g p e r f o r m a n c e .

APPENDIX A: Reconciliation of Non-GAAP Financial Measures


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(In thousands) Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 FY16 FY17 FY18

Net Revenue $ 10,606 $ 11,336 $ 11,601 $ 12,037 $ 12,279 $ 40,592 $ 44,730 $ 45,580

Gross Profit $ 5,594 $ 6,314 $ 6,584 $ 6,876 $ 6,741 $ 19,378 $ 23,580 $ 25,368

% of Net Revenue 52.7% 55.7% 56.8% 57.1% 54.9% 47.7% 52.7% 55.7%

GAAP Net Income (Loss) $ (641) $ 225 $ 344 $ 752 $ (83) $ (1,962) $ (277) $ 680

Non-GAAP Net Income (Loss) $ 306 $ 689 $ 767 $ 1,173 $ 883 $ 238 $ 1,581 $2,935

H i g h e s t n e t r e v e n u e i n 2 0 q u a r t e r s O v e r 2 0 0 B P i m p r o v e m e n t f r o m y e a r a g o 1 1 t h c o n s e c u t i v e q u a r t e r o f n o n - G A A P

p r o f i t a b i l i t y

Q1 FY 2019 HIGHLIGHTS:

SELECTED INCOME STATEMENT INFORMATION

2 n d y e a r o f s e q u e n t i a l r e v e n u e g r o w t h 3 0 0 B P i m p r o v e m e n t i n G M % N e a r l y d o u b l e d n o n - G A A P p r o f i t

FY 2018 HIGHLIGHTS:


* R e f e r t o A p p e n d i x A f o r r e c o n c i l i a t i o n o f N o n - G A A P f i n a n c i a l m e a s u r e s

Accelerating the development of secure connected machines

xPico 200 Series of Embedded IoT Gateways

Leading Embedded Solution for Managed Industrial Wi-Fi Connectivity

AGV Robot Connected Weighing Scale Traffic Control Systems Medical ScannerDrone


XPort EDGEN e x t G e n e r a t i o n E m b e d d e d E t h e r n e t G a t e w a y & D e v i c e S e r v e r

I n d u s t r i a l I O T - A c c e l e r a t e d .

Next generation of the leading embedded Ethernet device server providing full IoT

gateway connectivity to any device with serial capability

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Connected Door Locks Commercial Smart Meter Connected Cash Drawer Connected Parking MeterGaming Machines


LANTRONIX VALUE

PROPOSITION

Industrial Networking Experience

10-15 Years Product Life

Industrial Temperature

Industrial Grade Security

Industrial Protocols

Ruggedized Hardened

Designs


Reducing Complexity, Risk, andTime-to-Market for Delivering Industrial

IoT Solutions

27

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LANTRONIX GATEWAY CENTRAL

Configuration, Management & Monitoring For Lantronix Gateways… in the Cloud

Centralized Directory for IoT Gateways

Automate Updates

Monitor Network Statistics andConfigure Alerts

MINIMIZE TRUCK ROLLS.INCREASE EQUIPMENT UPTIME.

Seamless Upgrade to Global Device Manager


Documents

Investor Presentation - Lantronix · Lantronix believes that the presentation of nonGAAP financial information, when presented in conjunction with the corresponding- GAAP measures,