Lantronix, Inc. — Form 10-Q summary
Period: Fiscal third quarter and nine months ended March 31, 2021; filed April 30, 2021. The request metadata says “2020 Q3,” but the filing covers the quarter ended March 31, 2021.
Business context and financial performance
Lantronix provides hardware, engineering services and SaaS for edge computing, IoT and remote environment management (REM). Financial figures below are in millions of dollars unless otherwise noted.
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $17.108, up 3.6% from $16.512 | $50.839, up 19.7% from $42.481 |
| Gross profit / margin | $7.718 / 45.1%, versus $7.377 / 44.7% | $22.953 / 45.1%, versus $20.349 / 47.9% |
| Operating loss | $(0.848), versus $(5.219) | $(2.376), versus $(8.942) |
| Net loss / diluted loss per share | $(1.187) / $(0.04), versus $(5.216) / $(0.19) | $(2.948) / $(0.10), versus $(9.037) / $(0.37) |
- Quarterly revenue growth was led by REM, up 36.3% to $3.305 million; IoT declined 1.9% to $13.661 million. Americas revenue fell 14.9%, while EMEA rose 13.4% and APJ rose 58.5%.
- For the nine-month period, IoT revenue rose 18.0% and REM rose 34.2%. The acquired Intrinsyc business contributed to IoT growth. Americas and APJ revenue increased 26.9% and 42.9%, respectively; EMEA declined 8.2%.
- Quarterly gross margin improved slightly, which management attributed to product mix. Nine-month gross margin declined, mainly because Intrinsyc products and services generally carry lower margins.
- Operating expenses were $8.566 million for the quarter, down from $12.596 million, and $25.329 million for nine months, down from $29.291 million. Lower restructuring and acquisition-related costs contributed to the comparisons.
Cash, debt and liquidity
- At March 31, 2021, cash was $8.277 million, working capital was $19.851 million, and current assets and current liabilities were $38.574 million and $18.723 million, respectively.
- Nine-month operating cash flow was positive $2.584 million, versus cash use of $3.435 million a year earlier. Investing used $0.665 million; financing used $1.333 million. Cash increased $0.586 million during the period.
- Inventory rose $1.298 million from June 30, 2020, which management linked to building stock amid longer lead times and supply constraints.
- Term-loan borrowings totaled $4.125 million gross ($4.050 million net carrying value); no revolving-facility borrowings were outstanding. The existing revolving line provided up to $6 million and matures November 12, 2021. Lantronix reported compliance with its financial covenants and stated it expected existing resources and operating cash to meet requirements for at least 12 months.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management emphasized that COVID-19 uncertainty limits its ability to predict future effects.
- Lantronix reported higher component and freight costs and shipment delays, with manufacturing concentrated in Malaysia, Thailand and China. Further supply disruption, customer-project delays, restrictions on travel and trade events, or weaker demand could weigh on revenue and cash collection.
- On April 28, 2021, after quarter-end, Lantronix agreed to acquire CSI’s Transition Networks and Net2Edge businesses for up to $32.028 million: $25.028 million cash at closing and up to $7 million in earnouts. Closing was expected in June or July 2021, subject to customary conditions and CSI shareholder approval.
- Also on April 28, Lantronix obtained commitment letters for proposed financing: up to $20 million in senior secured facilities and a $12 million second-lien term loan, expected to help fund the acquisition, refinance existing obligations and support working capital. These facilities were not reported as funded at March 31; closing terms include financial covenants and other restrictions.
- Quarterly results include $0.120 million of restructuring charges and $0.178 million of acquisition-related costs. The company also recorded a $0.192 million loss on disposal of manufacturing equipment. Ordinary-course legal matters were not expected by management to have a material adverse effect; the filing reports no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether the Transition Networks and Net2Edge acquisition closed, its final purchase price and earnout terms, and the acquired businesses’ subsequent performance.
- Whether the proposed senior and second-lien financing closed, its final interest, covenant and repayment terms, and the resulting leverage and liquidity.
- Whether component shortages, freight inflation and shipment delays persist, and how they affect inventory, revenue and gross margin.
- Whether REM growth offsets softness in IoT and Americas sales, and whether Lantronix progresses toward profitability given its continuing net losses.
- Future cash generation and covenant headroom, including refinancing or repayment needs related to the existing facility’s November 2021 maturity.