Lantronix, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2020; comparative quarter ended September 30, 2019. Figures are unaudited and, unless stated otherwise, in millions of U.S. dollars.
Business context
Lantronix provides hardware, engineering services and software-as-a-service offerings for edge computing, IoT and remote environment management. Its products are organized into IoT, REM and Other lines. Most manufacturing is outsourced to contract manufacturers in Asia.
Financial results and liquidity
| Metric | Quarter ended Sep. 30, 2020 | Quarter ended Sep. 30, 2019 |
|---|---|---|
| Revenue | $17.146 | $12.741 |
| Gross profit / gross margin | $8.239 / 48.1% | $6.195 / 48.6% |
| Operating loss | $(0.206) | $(2.435) |
| Net loss / diluted loss per share | $(0.302) / $(0.01) | $(2.470) / $(0.11) |
| Operating cash flow | $0.830 | $(1.079) |
- Revenue grew 34.6%. IoT revenue rose 43.0% to $14.620 million; REM increased 4.4% to $2.402 million; Other declined 43.4% to $0.124 million.
- Americas revenue increased 89.6% to $10.929 million; APJ rose 45.7% to $3.578 million; EMEA fell 41.6% to $2.639 million.
- Gross profit rose 33.0%, but gross margin declined 0.5 percentage points, primarily because acquired Intrinsyc products generally carried lower margins.
- Operating expenses were $8.445 million, down 2.1%. Purchased-intangible amortization rose to $0.882 million from $0.144 million. Prior-year expenses included $0.749 million in restructuring charges and $0.643 million in acquisition costs; current-quarter restructuring charges were $0.092 million.
- Cash and cash equivalents were $7.709 million at September 30, versus $7.691 million at June 30. Working capital was $19.306 million. Operating cash flow was positive, while investing used $0.113 million and financing used $0.699 million.
- Term-loan borrowings were $4.875 million gross and $4.786 million net of issuance costs; $1.472 million was current. The $6 million revolving facility was undrawn. Lantronix reported compliance with loan covenants, including a $3 million minimum cash balance at SVB.
Changes, outlook and risks
- Management attributed much of IoT growth to the Intrinsyc acquisition, with additional product-family gains. Growth was partly offset by exiting a low-margin distribution business acquired with Maestro and declines in certain cellular, tracker and legacy products.
- Management believed available cash, operating cash generation and borrowing availability would fund working capital, capital expenditures and other commitments for at least 12 months. No specific revenue or earnings guidance was provided.
- Management reported no material COVID-related customer payment delays or defaults and no known manufacturing-capacity issues as of the report date. However, restrictions, weaker demand, longer sales cycles and supply-chain disruptions could reduce future revenue and collections; most manufacturing is in Malaysia, Thailand and China.
- Other key risks include project-driven and difficult-to-forecast demand, long sales cycles, distributor dependence, component availability, competition and the uncertain development of newer software and SaaS offerings. Management stated there were no material changes to the risks disclosed in its prior annual report.
- Ordinary-course legal matters were not expected by management to have a material adverse effect, though litigation may entail costs and management distraction. The company reported effective disclosure controls and no material internal-control changes during the quarter.
Important facts for investors to verify
- How much of the revenue increase reflects ongoing organic demand versus acquisitions, and whether IoT growth persists.
- Whether gross margin stabilizes as the acquired product mix affects results, and how intangible amortization and restructuring costs evolve.
- Cash conversion and working-capital needs, including the increase in receivables and accounts payable.
- Loan covenant headroom and access to the undrawn revolver if cash flow or operating results weaken.
- COVID-19 effects on customer demand, distributor activity and Asian manufacturing and component supply.