Lantronix, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2022, compared with fiscal 2021. The filing is not for calendar 2021 Q4, despite the request metadata.
Business context
Lantronix provides industrial and enterprise IoT products and services, including embedded computing and connectivity, network systems, remote environment management, software and engineering services. It reports one operating segment. In August 2021, it acquired Transition Networks and Net2Edge (the TN Companies), expanding its switching, Power over Ethernet and media-conversion offerings.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net revenue | $129.655 million | $71.477 million |
| Gross profit / margin | $55.586 million / 42.9% | $33.025 million / 46.2% |
| Operating loss | $5.011 million | $3.337 million |
| Net loss | $5.362 million | $4.044 million |
| Net loss per diluted share | $0.16 | $0.14 |
| Cash from operating activities | $(9.416) million | $4.304 million |
| Cash from investing activities | $(25.747) million | $(0.783) million |
| Cash from financing activities | $42.645 million | $(1.473) million |
- Revenue rose 81.4%. Embedded IoT Solutions revenue increased 60.0% to $61.773 million; IoT System Solutions rose 144.0% to $59.019 million; Software & Services increased 2.1% to $8.863 million. The TN Companies contributed approximately 28% of FY2022 total net sales.
- Gross margin fell 3.3 percentage points, attributed mainly to product mix, higher supply-chain and logistics costs, and $0.380 million of acquired-inventory profit amortization.
- At June 30, 2022, cash and cash equivalents were $17.221 million, working capital was $54.512 million, total assets were $137.374 million, and stockholders’ equity was $79.896 million. Gross term-loan borrowings were $16.188 million ($15.945 million net of issuance costs); current debt was $1.671 million. The revolving facility limit was increased to $7.5 million.
- Inventory increased to $37.679 million from $15.059 million, and accounts receivable rose to $26.262 million from $13.515 million. Management cited acquisition effects, higher sales, longer lead times and supply constraints. These working-capital movements contributed to operating cash use.
Material changes and unusual items
- The TN Companies acquisition was completed August 2, 2021. The final purchase consideration disclosed in the acquisition note was $24.044 million, including estimated earnout consideration. The earnout was remeasured to $1.5 million, resulting in a $1.107 million operating expense.
- Lantronix received approximately $32.6 million net from an offering of 4.7 million newly issued shares at $7.50 per share. The underwriters also exercised an option for 705,000 shares sold by an existing holder; those shares were not proceeds to the company.
- The company repaid its $12 million mezzanine loan in January 2022 and recorded a $0.764 million non-cash debt-extinguishment loss. It reported $5.590 million of purchased-intangible amortization expense.
- SG&A rose to $34.529 million and R&D to $17.687 million, while each declined as a percentage of revenue. The company cited acquisition-related staffing and professional fees, compensation, share-based compensation, and increased marketing and development activity.
- Revenue mix shifted geographically: the Americas represented 60% of revenue versus 54% in FY2021; EMEA was 17% versus 24%; APJ was 23% versus 22%. The top five customers accounted for 44% of revenue, and the top five distributors also accounted for approximately 44%.
Outlook, risks and controls
- No specific revenue or earnings guidance is provided. Management said existing cash, borrowing capacity and operating cash flows should fund working capital, capital expenditures and other commitments for at least the next 12 months and beyond.
- Management reported ongoing semiconductor and component shortages, longer lead times, higher component and freight costs, and shipment delays. COVID-19, geopolitical tensions, tariffs and reliance on Asian contract manufacturers may further disrupt supply or demand.
- Other key risks include project-driven and difficult-to-forecast sales, lengthy customer qualification cycles, reliance on distributors, competitive pricing pressure, cybersecurity and product-defect exposure, acquisition integration, and covenant restrictions. Substantially all assets secure the SVB facilities; the company reported compliance with financial covenants at year-end.
- The company reported historical net losses and operating cash flow was negative in FY2022. It maintained a full valuation allowance against net deferred tax assets, although acquisition-related deferred tax liabilities supported a partial release that contributed to the FY2022 tax benefit. Approximately $26.5 million of federal net operating losses were stated to expire by June 30, 2023, subject to applicable limitations.
- The independent auditor gave an unqualified opinion on the financial statements and identified inventory reserves and the valuation of acquired TN Companies intangible assets as critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective; auditor attestation on internal controls was not included. The filing reports no material legal proceedings.
Important facts for investors to verify
- Reconcile the acquisition purchase-price and financing disclosures, and confirm earnout payments and integration results.
- Track inventory, receivables, operating cash flow and whether supply constraints or cost inflation continue to pressure margins.
- Review debt maturities, interest terms, available revolver capacity and ongoing compliance with liquidity, leverage and fixed-charge covenants.
- Assess revenue concentration among major customers and distributors, and compare future results under the reorganized product-line reporting.
- Confirm the status and potential availability of expiring tax attributes and the assumptions behind goodwill, intangible-asset and inventory valuations.