Lantronix, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2022. The supplied filing is for the quarter ended March 31, 2022, despite the request metadata labeling it “2021 Q3.” Financial statement amounts below are in millions of dollars unless stated otherwise.
Business context and performance
Lantronix provides hardware, engineering services and SaaS for IoT, edge computing and remote environment management. The August 2021 acquisition of Transition Networks and Net2Edge expanded its IoT connectivity products.
| Metric | Three months ended Mar. 31, 2022 | Three months ended Mar. 31, 2021 | Nine months ended Mar. 31, 2022 | Nine months ended Mar. 31, 2021 |
|---|---|---|---|---|
| Revenue | $32.324 | $17.108 | $93.710 | $50.839 |
| Gross profit / margin | $13.616 / 42.1% | $7.718 / 45.1% | $40.519 / 43.2% | $22.953 / 45.1% |
| Operating loss | $(2.080) | $(0.848) | $(5.579) | $(2.376) |
| Net loss | $(3.190) | $(1.187) | $(7.868) | $(2.948) |
| Loss per share, basic and diluted | $(0.09) | $(0.04) | $(0.25) | $(0.10) |
Quarterly revenue grew 88.9% year over year; nine-month revenue grew 84.3%. IoT revenue increased 109.3% in the quarter and 91.8% for nine months; REM revenue rose 9.3% and 51.7%, respectively. The acquisition contributed approximately 30% of quarterly revenue and slightly over 28% of nine-month revenue. Management also cited organic growth in selected SoC, xPico, XPort and UDS products and engineering services.
Gross margin declined year over year, which management attributed to higher component, freight and logistics costs and a mix shift toward SoC products and engineering services, which generally carry lower margins. Nine-month margin also reflected approximately $0.380 million of acquired-inventory profit amortization.
Cash flow, balance sheet and financing
- At March 31, 2022, cash and cash equivalents were $22.782 million, working capital was $51.821 million, and current assets and current liabilities were $85.160 million and $33.339 million, respectively.
- Inventory was $33.166 million, up from $15.059 million at June 30, 2021. Management linked the increase partly to acquired inventory and partly to building finished goods and long-lead-time components amid supply constraints. Accounts receivable was $23.189 million, versus $13.515 million.
- For the nine months, operating cash flow was negative $6.066 million, investing cash flow was negative $24.767 million, and financing cash flow was positive $43.876 million. Investing outflows included $23.629 million for the acquisition. Financing inflows included approximately $32.6 million of net equity-offering proceeds and $29.5 million of gross credit-facility proceeds.
- Gross outstanding borrowings were $16.625 million; net carrying debt was $16.362 million after unamortized issuance costs. The company repaid its $12 million mezzanine loan in January 2022 and recorded a $0.764 million noncash extinguishment loss. In February, it increased its senior revolver capacity from $2.5 million to $7.5 million and replaced LIBOR provisions with Term SOFR provisions.
- Substantially all tangible and intangible assets are pledged as collateral. The company reported compliance with financial covenants at March 31, 2022. Management stated available cash, borrowing capacity and operating cash were expected to fund working capital, capital expenditures and other commitments for at least 12 months.
Material changes, outlook and risks
- Operating expenses rose with acquisition-related headcount and integration costs, higher R&D investment, share-based compensation and marketing. Nine-month expenses included $0.760 million of restructuring charges and $0.763 million of acquisition-related costs.
- The quarter included a $1.203 million upward remeasurement of acquisition earnout consideration; the nine-month total earnout remeasurement expense was $2.462 million. The estimated earnout liability was $2.855 million at March 31, 2022.
- The November 2021 equity offering issued 4.7 million primary shares at $7.50 per share and generated approximately $32.6 million net proceeds to the company. The underwriters also purchased 705,000 existing shares from the selling stockholder; those shares were not company-issued.
- No specific revenue or earnings guidance is provided in the supplied filing. Management cautions that results are not necessarily indicative of full-year performance and that forecasting remains difficult.
- Management reported ongoing supply-chain constraints, higher component and logistics costs, and shipment delays. Risks include semiconductor and other component shortages, reliance on Asian contract manufacturers and distributors, project-driven demand and long sales cycles, acquisition integration, cybersecurity, competition, and COVID-19-related disruption. The filing also notes uncertainty from geopolitical events and trade restrictions.
- New leases add long-term commitments: an Irvine headquarters lease with expected initial rent of $28,900 per month for an 84-month term, and a Minnesota facility lease with initial rent of $46,738 per month beginning May 1, 2022, subject to stated abatements and escalations. The Minnesota lease has an initial term through July 31, 2032.
- Management said ordinary-course legal matters were not expected to have a material adverse effect. Disclosure controls were assessed as effective at the reasonable-assurance level, with no material change in internal control over financial reporting reported for the quarter.
Most important facts for investors to verify
- How much of future growth is organic versus attributable to the Transition Networks and Net2Edge acquisition.
- Whether supply constraints, shipment delays and elevated inventory convert into sales and cash collections without material obsolescence or margin pressure.
- Whether gross margins recover as product mix, component costs and freight expenses change.
- Cash burn, working-capital needs, borrowing availability and ongoing compliance with credit-facility covenants.
- Actual earnout payments and acquisition integration costs, along with the effect of share-based compensation and the equity offering on per-share results.