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Noah Newman:

Hello and welcome to another edition of the Precision Farming Dealer podcast, brought to you by our friends at Ag Express. We'll have a special message from them later in the podcast. I'm your host, Noah Newman, and today Precision Farming Dealer's Dan Crummett goes one-on-one with Hylio co-founder and CEO, Arthur Erickson. Hylio is a Houston area-based drone manufacturing company that creates crop spraying drone systems. Although they work with farmers around the world, Erickson says, row crop farmers in the Corn Belt and Sun Belt make up the biggest chunk of their customer base. Let's jump into the conversation. Here's Arthur Erickson and Dan Crummett.

Arthur Erickson:

Our company started back in 2015. I am one of the original co-founders. I am the CEO right now and was a co-founder along with two of my fellow students at the University of Texas at Austin, way back in January of 2015. So at that time, essentially we were seeing a bunch of news articles about how drones were revolutionizing a number of industries. One of the most exciting industries back then was parcel delivery, so doing the last mile parcel delivery for medicine, food, et cetera, et cetera, and we got really excited about it. I was studying aerospace engineering, so I figured I got the prerequisite skills. I had a roommate that was an electrical engineer and a computer science double major. His name's Nikhil, he's our CTO now. I had another roommate named Mike who had a finance degree from McCombs at UT, and also helped ran, or helped run I should say, multiple family businesses.

So the three of us kind of forming the prerequisite skills and getting along together pretty well, we figured we'd just start a drone company. We wanted to tackle that parcel delivery sector a little bit at first, but we were also dabbling in all sorts of stuff, including agriculture. So we made a general use platform. Our first minimally viable product or prototype was just a relatively simple drone frame that was, I think, 30 pounds or so maximum takeoff weight. And we built a little app around it to make it really as easy as possible for someone to utilize for either drone delivery or a simple camera scanning type of mission or an agricultural type of mission. It was a general purpose type of machine. And so that's how the company started. We did parcel delivery commercially for about nine months from early 2017 to fall of 2017. But after that, we shifted entirely to agriculture when we realized that we just simply liked that market a lot better, and we liked the people in the ag industry a lot better, and the value proposition was simply much stronger. So we've been doing strictly ag since late 2017.

Dan Crummett:

I noticed on the website that you're active in Costa Rica. How does that play into what you're doing with agriculture currently?

Arthur Erickson:

Yeah, so Costa Rica was actually the very first country that I just mentioned we operated a drone delivery service in. And the reason we did Costa Rica was it was a bit of kismet or just destiny. I graduated school and we were looking for a commercial project to take on, and a Costa Rican entrepreneur happened to reach out to us and say, hey. That entrepreneur had an on-demand delivery service similar to Favor or Uber Eats. And he was like, I want to use your drones. We'll split the revenues like 50/50 for each delivery. I'll pay for your room and board down here in Costa Rica, so just come on and let's try it. So we did that, like I just mentioned, for about nine months. We pivoted from that to ag in Costa Rica, which then spread out to other parts of Central America. So from Costa Rica, we got started doing spray services for farmers there, mostly just relatively small plots.

Their average plot size down in Central America is usually much smaller than here up in the states. So we were spraying like three to 20 hectare, or let's call it like five to 50 acre plots, getting paid to do that. And that was in Costa Rica, El Salvador, Honduras, a little bit of Guatemala as well. So it kind of spread out radially from there, from that Costa Rica starting point to the rest of Central America. That was where we got started. We still have customers down there. We don't operate spray operations or teams down there, but we do have customers in those countries still. But primarily our business nowadays is all stateside. I mean, it's at least 95%, 96% stateside.

Dan Crummett:

Well, tell me a little bit about that overall market. What drones are currently being used for in agriculture in North America, overall numbers, where it's based, where is the market the hottest and why, that sort of thing, and where do you fit into that?

Arthur Erickson:

Sure. So I recently ran some of the metrics, the demographics on our customer base. And to start with, it is mostly row crop farmers that utilize our drones. So when I first went into this ag sector, I thought that it would be specialty crops at first that were utilizing these drones because the drones have relatively small payloads compared to tractors, and you'd think that you'd want to utilize them for small amounts of acreage, but high value crops. So your berries and your other specialty crops essentially, your vegetables. That wasn't the case. Like I just mentioned, it's been like 80+% row crop farmers utilizing these drones. So the Midwest Corn Belt, so to speak, of course, is definitely our hottest area in terms of congregation of customers. But we sell all over. We're not super popular on the coasts. So west coast, east coast, we don't have so so many customers out there yet. But throughout the Midwest and then the south and the southeast, so we're talking like Texas, Georgia, Florida, Alabama, all those areas are pretty rife with our products as well.

They're being utilized for really anything you can imagine except for your pre-season heavy fertilizers, simply because the drones don't carry that much payload yet. So they're still not useful for that one application. Of course, they can't be used for earth moving stuff either, so you can't plant or till with these or what have you. But pretty much everything else, mid to late season, if you're doing a topical feed, if you're doing an herbicide, insecticides, fungicide, these drones are really excelling at that. So they're popular for all of the above except for that early season NPK stuff.

Dan Crummett:

How does swarm technology come into this? A number of individual UAVs operating at the same time, is that what your application is?

Arthur Erickson:

Yeah, so the whole idea of it is to force multiply the ability of one operator. And that's the dream, right? Farming labor is getting harder and harder to come by, not to mention just having more people out there in general is just more expensive than it has to be. So Hylio, for example, we maximized our software hardware stack to really emphasize the ability for one operator to easily manage 3, 4, 5, 10 drones by himself or herself. So it's built for that swarm control, and that's not something that I could say for, like you had mentioned earlier, how does the industry look in general? We compete with foreign made drones primarily. So the biggest company that makes foreign made drones in the world is DJI, which I'm sure you're familiar with. They make more than 80% of the world's market share of drones, not just agricultural drones, but drones across the board.

So your industrial payloads, your sensor payloads, your camera drones for fun, all that DJI makes it. So they have a handful of resellers here stateside, so American facing company. But at the end of the day, it's that DJI product from China that we're competing with. And there's really, it sounds kind of ridiculous, but we are pretty much the only American manufacturer of spray drones for the ag industry right now. There are probably one or two other ones that you could find that are sort of custom shops that could do one off things for you at small volumes. We are the only at scale, so to speak, American manufacturer of these drones at the moment. So it's essentially us versus DJI and DJI'S resellers. And so to bring this all back to what I was saying earlier, DJI's drone is not built from an architectural standpoint to be swarm flown or flown in a fleet formation.

They are more so built for one operator, one drone, one controller. That's where their DNA is. That's what they brought over from the camera drone background that that company has. Whereas we, from the ground up, were like, okay, we want one operator to be working four drones, and how do we make that as easy as possible and how do we deconflict the risks of that operation as much as possible? So that is one objective strength that we have over DJI when it comes to the way the tech is laid out. We are, I would say to summarize that, we're the B2B in heavy industrial scale solution, whereas DJI might arguably be a little better as a consumer-facing thing, just a one-off. You can use them for commercial applications, but if you were just a farmer who's looking to dip their toes in, maybe, maybe you go for DJI because they're a little cheaper up front because they're tiny [inaudible 00:09:18]-

Dan Crummett:

Or maybe just monitor crops or something like that.

Arthur Erickson:

Yeah, something like low-key, for lack of a better phrase. Something where you're not really expecting a really robust ROI. Otherwise, I wouldn't recommend them.

Noah Newman:

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Dan Crummett:

Tell me a little bit about the politics of security risks and things like that that the Pentagon has raised about DJI. What does that do for your market? How are you affected?

Arthur Erickson:

Well, it's a really interesting subject and I want to be careful when I'm talking about it because, okay, these are all my opinions. I'm not a geopolitical strategist, I'm not an FAA lawyer, none of that. I think it's at least alarming. If I were in the shoes of a consumer, I would definitely be thinking twice about buying A DJI product after seeing it being put on this Pentagon blacklist. So essentially what that means, in a nutshell, how I understand it is that the Pentagon is telling us, the American people, that we think that these drones are dangerous in some way to national security. So we are not going to let them be used for any publicly funded project or any government related project. So if you're a publicly funded entity, if you're a county, or if you're a three-letter agency, you can't buy and use DJI drones.

If you're a private contractor servicing these government agencies or municipal contracts, et cetera, you also can't use DJI drones. So they're sending a very clear message within their power as the government to essentially say, don't use DJI drones. Please don't. And of course, they haven't banned them privately yet, which is something that we actually did see with Huawei as a parallel example. So Huawei was first, the telecommunications company, of course based out of China. They were first banned on the public side. And then as of, I think, six months after that public ban, they banned them privately. Meaning that the big telecom companies here couldn't utilize their networking equipment on their towers. It's still legal for a consumer here, like an individual person like you or I to buy a Huawei phone, but you're not going to have any support with it because Huawei as a company is not allowed to operate within this country.

So that's a long way of me saying that I think it could move that way with DJI as well because we're seeing the same pattern that happened with Huawei. It seems like the government feels similarly threatened by DJI. So we could see this being just a situation in a few years or maybe even a few months, where even if you manage to buy one as farmer or an operator in the ag space, you're not going to have any reseller support, not going to have any server support here in the States. So you might not even be able to log into the app and could just cause a lot of issues. So politics aside and all that, even just knowing no matter how you feel about it as a person, left, right, center, whatever, it's a fact that the government is making moves against DJI. So I would think that would affect the outlook of the ROI for A DJI product that you're buying as a consumer because you might not be able to use it in six months. So that's a very important thing to consider.

Dan Crummett:

You have not been involved in any of discussions with the Pentagon or anything like that? There's any communication at all with you or can you answer that?

Arthur Erickson:

Not with decision makers, of course, but we do work with a lot of DOD and DOD adjacent customers, and so we interact with them on the basis of them ensuring that our technology and our products are up to spec or "safe" for them to use according to these statutes. So we do operate in that sense. So we have an understanding of what they're looking for in terms of compliance with these regulations, but we're not looking ahead. We don't get information ahead of what's coming down the pipeline.

Dan Crummett:

Right. Well thanks for your candor on that. A little more general question, what is the overall challenges you see for expanded drone use or UAV use in agriculture going forward?

Arthur Erickson:

Well, there is a lot of momentum or inertia, I suppose I should call it, to overcome in terms of educating the market of the drone's benefits. Basically, one thing we've run into as an industry is, and I've brought this up already several times, but the drones have a smaller payload than most farmers are used to. So most farmers, when they're hiring a helicopter or an airplane or they're using their tractor, they're thinking in terms of hundreds if not thousands of gallons of volume. The drones are able to, thanks to some physics involved with the actual pattern that's put out by these drones, you're able to get away with much less overall volume per acre. And so you're able to be effective with a 20 gallon drone, which is the largest drone we offer now, two or three of those are just as effective as a thousand gallon tractor.

And it depends on how you're using them too, because a thousand gallon tractor, I know I'm meandering off from your original question, but a thousand gallon tractor can't do the things a drone can do in terms of precision applications. So with one 20 gallon drone, you could go look at a 2000 acre field and you can just go hop from spot to spot to spot and spray the 200 acres that actually need attention, and you're still in effect protecting that entire 2000 acre lot. Whereas with the big tractor, you'd have to take a shotgun approach. It wouldn't even really be worth your time to go out there and try to just only turn on the nozzles for those 200 acres because you're still going to have to run an entire lawnmower pattern across the entire thing, just burning diesel, it's running machine time, et cetera, and you're smashing down crops. So yeah, I digress, but the point is-

Dan Crummett:

Well, and the technology is there to isolate and draw polygons around hotspots in fields as far as insecticides or pesticides, it might be included. So I think that's-

Arthur Erickson:

In summary, people just need to understand exactly what you're saying, which is like, yes, this technology's already here, therefore these drones are already useful. You don't need to wait for them to get 10 times bigger. They don't need to be the size of helicopters to be just as useful, if not better, than the current equipment. So it's that that we're still overcoming as an industry. It'll come in time. This is like with any new tech technology, there's a ramp up period, we just have to inform the populace about the benefits. And so we're still in that somewhat educate, inform mode right now as an industry. And then basically, once everybody kind of knows and the word is out, then it's going to be floodgates open, drinking through a fire hose type of thing.

Dan Crummett:

Yes, I can just see that. What do you see as far as the next five years of your own development? What may be coming down the pipe from Hylio over the next five years?

Arthur Erickson:

A lot of exciting stuff. There are some serious advancements in automation that we're working on right now that should be available in the next, I'd hope, two to four years. And by that I mean right now the drones are completely autonomous. You can go out, assign a mission, they'll go spray whatever they need a spray at the exact dosage that you identify. But in between flights, you as the operator are still there. You're still swapping battery and you're swapping payload. So that only takes about 30, 45 seconds on the ground. It's not a huge deal, but still we want to get to the point where these drones essentially are landing in these, imagine a shipping container. So they'll land in a shipping container type of object or base camp, they'll auto charge, they'll auto fill and go out and spray consecutive missions until they're done covering exactly what all needs to be covered.

So in this way, instead of having an operator go out there and actually handle this swarm of three to four drones or what have you, they are simply dropping off the shipping container at the beginning of the week and they're picking it up on Sunday. The drones have been spraying five or six days, it's done covering 5,000 acres or whatever it is. Or sorry, the fleet of drones I should say, are done. And then you come pick up the container, move it on to the next property, or do whatever you want with it. So that's what we're headed to; taking the human as much out of the equation as possible just to reduce that handholding of the drones. And that's, I'll say it's not super difficult to do from a technical perspective, it's hard to do it reliably over every single edge case. So that's what we're working through right now. I could show you a demo right now, of course, of a drone just landing on a pad charging in a relatively secure, safe type of operation or example, but can we do it well when there's a 25 mile per hour gust coming in or if it's raining? You have to put in all these considerations just so it works all the time in every single scenario.

Dan Crummett:

And the geography that you've outlined that your market area is currently has that at all times.

Arthur Erickson:

Yeah, exactly. Any given day could be a whole host of obstacle and challenges in terms of weather and climate. So we need to make sure we cover all those bases.

Dan Crummett:

What's the potential of monitoring, say, this week long project of doing a 5,000 acre field? How does an operator go in and look at what has been sprayed, what has been distributed, that sort of thing, what kind of monitoring is available or will be?

Arthur Erickson:

So our app essentially looks like most digital ag platforms these days where your main interface is a map. Typically, we use Google Maps as the base layer for people to interface with the software, but you could pull in map tiles if you have satellite imagery or drone imagery, et cetera. You could pull that all in. So on this map, or in our software, which we call AgrosolGCS, you have access to data covering every single drop you've ever sprayed with drones. So there is a reports tab, which will show you a map overlay of what you've sprayed, when you sprayed it, who the operator was that sprayed it, what product you sprayed, how much of the product you sprayed, how much water you sprayed with that product, what the wind was like, what the humidity was like when you sprayed it. All of that is accessible directly to the operator through your software account. And that's all filterable, searchable, you can print out PDFs, you can export CSVs, so you can link this up with other work order programs you have, or other tracking programs if you're using MyJohnDeere Operations Center or what have you. So all that is extremely flexible from a data perspective. You pretty much have everything you could imagine you want to look at at your fingertips through this app.

Noah Newman:

Big thanks to Dan Crummett and Arthur Erickson for that conversation. That'll wrap up this week's podcast. Thanks again to you for listening. Thanks to our sponsor, Ag Express. And remember, for all things precision farming dealer related, head to precisionfarmingdealer.com. Until next time, I'm Noah Newman, have a great day.