SOURCE: Lantronix, Inc.

Lantronix, Inc.

September 15, 2011 16:30 ET

Lantronix Reports Fiscal 2011 Fourth Quarter and Full Year Financial Results

IRVINE, CA--(Marketwire - Sep 15, 2011) - Lantronix, Inc. (NASDAQ: LTRX), a leading global provider of smart connectivity solutions that enable business and technology professionals to access any device, anywhere, anytime, today reported financial results for its fiscal 2011 fourth quarter and full year ended June 30, 2011.

  • Net revenue of $12.0 million and GAAP net loss of ($3.6) million, or ($0.34) per share for the quarter ended June 30, 2011.
  • Non-GAAP net loss of ($433,000), or ($0.04) per share for the fourth fiscal quarter of 2011.
  • Net revenue of $49.3 million and GAAP net loss of ($5.3) million, or ($0.51) per share for the twelve months ended June 30, 2011.
  • Non-GAAP net income of $1.3 million, or $0.12 per share for the 2011 fiscal year.
  • Cash and cash equivalents decreased to $5.8 million at June 30, 2011.
  • During the fourth fiscal quarter, the Company substantially completed the independent investigation of certain allegations asserted by a director of the Company. For the fiscal year ending June 30, 2011, the Company reported approximately $2.1 million of expenses related to the investigation. The Company expects to incur an additional $250,000 of expenses in the first quarter of fiscal 2012 related to remediation activities and other costs associated with concluding the investigation.
  • As reported on the Company's Form 8-K dated June 24, 2011, the former Chief Executive Officer and former Chief Financial Officer resigned and entered into separation agreements with the Company. As a result of the separation agreements, the Company recorded approximately $862,000 of expenses as of June 30, 2011, related to severance and benefits that will be paid according to the terms of the respective agreements. In addition, the Company will incur approximately $150,000 of expenses in the first quarter of fiscal 2012 related to consulting services per the terms of the separation agreements.

"With the pain and expenses from last year's events largely behind us, we are looking toward a future of opportunities for Lantronix in the growing M2M space," said Kurt Busch, newly-appointed President and CEO for Lantronix. "The Board and our management team are focused and aligned on our priorities. We are concentrating on increasing our margins, decreasing inventory, and ensuring strong financial discipline is in place. Our objectives are to attract key finance, sales and marketing talent, work with our customer base to redefine and create a customer-centric, market driven product strategy, and ultimately, build a product development machine that will drive growth and value for the Company and its shareholders."

Financial Results for the Fiscal Fourth Quarter Ended June 30, 2011

Net revenue was $12.0 million, an increase of 2 percent, compared to $11.8 million for the fourth fiscal quarter of 2010. The increase to net revenue was the result of an increase in net revenue from our device enablement and device management product lines, partially offset by a decrease in net revenue from our non-core product lines.

Gross profit margin decreased to 46.1 percent, compared to 50.8 percent for the fiscal fourth quarter of 2010. Gross profit margin declined as a result of an increase in warranty expenses related to a specific product issue, an increase in inventory reserves related to slow moving products and excess materials for certain end of life products, and product mix as a result of certain lower margin products increasing as a percentage of revenue. Barring a continued increase in warranty or inventory reserves, the Company believes that gross profit margins will return to the range of 49 percent to 51 percent during fiscal 2012.

GAAP operating expenses were $9.1 million, an increase of $2.6 million, compared to $6.5 million for the fourth fiscal quarter of 2010, primarily due to increased selling, general and administrative expenses discussed in further detail below.

  • Selling, general and administrative (SG&A) expenses were $7.3 million, an increase of $2.5 million, compared to $4.8 million for the fourth fiscal quarter of 2010. The increase in SG&A expenses for the fourth fiscal quarter of 2011 was the result of approximately $1.7 million of expenses related to investigation and $862,000 of expenses related to the separation of the former CEO and CFO.
  • Research and development expenses were $1.8 million, an increase of $61,000 compared to $1.7 million for the fourth fiscal quarter of 2010.

Non-GAAP operating expenses were $6.1 million, an increase of $190,000, compared to $5.9 million for the fourth fiscal quarter of 2010.

GAAP net loss was ($3.6) million, or ($0.34) per share, compared to GAAP net loss of ($509,000), or ($0.05) per share, for the fourth fiscal quarter of 2010. Included in GAAP net loss in the fourth fiscal quarter of 2011, was approximately $1.7 million of expenses related to investigation and $862,000 of expenses related to the separation of the former CEO and CFO.

Non-GAAP net loss was ($433,000), or ($0.04) per share, compared to non-GAAP net income of $169,000, or $0.02 per share, for the fourth fiscal quarter of 2010.

Financial Results for the Fiscal Year Ended June 30, 2011

Net revenue was $49.3 million for fiscal 2011, an increase of 6 percent, compared to $46.4 million for fiscal 2010. The increase to net revenue was the result of an increase in net revenue from our device enablement and device management product lines, partially offset by a decrease in net revenue from our non-core product lines.

During fiscal 2011, Lantronix renegotiated its agreements with certain distributors as part of an initiative to optimize the sales channel during the second and third fiscal quarters of 2011. These new agreements removed stock rotation and price protection terms, which previously caused the Company to recognize revenue on a sell through basis as opposed to upon shipment. A majority of these customers were redirected to purchase through large Lantronix distributors located in their respective regions. The result of these changes was the recognition of revenue during the second and third fiscal quarters that would have otherwise been deferred to the third and fourth fiscal quarters. These customers are no longer required to provide sell through reports and the majority of these customers are now buying from other Lantronix distributors (whose revenue is recognized on a sell-through basis by Lantronix) and not directly through Lantronix. The net impact to revenue in the current fiscal year is not practically determinable. It should be noted that the Company has not changed its revenue recognition policy as revenue is still recognized on a sell-through basis for those customers with stock rotation and price protection terms.

Gross profit margin was 49.5 percent, compared to 52.0 percent for fiscal 2010. Gross profit margin declined as a result an increase in inventory reserves related to slow moving products and excess materials for certain end of life products, and increase in warranty expenses as a result of a specific product issue and product mix as a result of certain lower margin products increasing as a percentage of revenue.

GAAP operating expenses were $29.5 million, an increase of $4.1 million, compared to $25.4 million for fiscal 2010, primarily due to an increase in SG&A expenses and research and development costs discussed in further detail below.

  • SG&A expenses were $22.4 million, an increase of $3.4 million, compared to $19.0 million for fiscal 2010. The increase in SG&A expenses was the result of approximately $561,000 of expenses associated with the contested proxy that was settled in November of 2010, $2.1 million of expenses related to investigation, and $862,000 of expenses related to the separation of the former CEO and CFO.
  • Research and development expenses were $7.0 million, an increase of $695,000, compared to $6.3 million for fiscal 2010. The increase was due to personnel-related expenses as a result of the suspension of a Company-wide furlough program in the equivalent period one year ago and an increase in outside services for engineering projects.

Non-GAAP operating expenses were $23.6 million, an increase of $770,000, compared to $22.8 million for fiscal 2010.

GAAP net loss was ($5.3) million, or ($0.51) per share, compared to a GAAP net loss of ($1.5) million, or ($0.15) per share, for fiscal 2010. Included in GAAP net loss in fiscal 2011 was approximately $3.5 million of expenses associated with the contested proxy, independent investigation, and the separation of the former CEO and CFO.

Non-GAAP net income was $1.3 million, or $0.12 per share, compared to non-GAAP net income of $1.6 million, or $0.15 per share, for fiscal 2010.

Balance Sheet Summary

Cash and cash equivalents were $5.8 million as of June 30, 2011, compared to $10.1 million as of June 30, 2010. The decrease in cash was mainly due to payments associated with the increase in inventory and payments of expenses related to the proxy contest and investigation.

Net accounts receivable were $2.9 million as of June 30, 2011 as compared to $1.3 million as of June 30, 2010. The increase in net accounts receivable was mainly due to renegotiating agreements with certain distributors as part of an initiative to optimize our sales channel as discussed in detail above. The impact to net accounts receivable was a lower deferred revenue balance which is recorded as an offset to accounts receivable.

Net inventory was $9.2 million as of June 30, 2011, compared to $6.9 million as of June 30, 2010. The increase in inventory was due to an increase in safety stock of certain products to ensure the on time fulfillment of customer demand as well as an increase in the SLS product family as a result of lower than forecasted demand.

Accounts payable were $8.4 million as of June 30, 2011, compared to $6.5 million as of June 30, 2010. The increase was due to the increase in inventory and costs associated with the investigation.

Working capital was $5.2 million as of June 30, 2011, compared to $7.6 million as of June 30, 2010. The decrease in working capital is mainly due to the costs and payments related to the investigation, contested proxy and separation of the former CEO and CFO.

Discussion of Non-GAAP Financial Measures

Lantronix believes that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to the Company's financial condition and results of operations. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The Company has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

Non-GAAP operating expenses consist of operating expenses excluding share-based compensation, depreciation and amortization, and costs associated with the investigation, former CEO and CFO separation agreements, and the contested proxy, as well as charges and gains that are driven primarily by discrete events that management does not consider to be directly related to the company's core operating performance.

Non-GAAP net income (loss) consists of net income (loss) excluding non-GAAP adjustments to operating expenses, interest income (expense), other income (expense), income tax provision (benefit), as well as charges and gains that are driven primarily by discrete events that management does not consider to be directly related to the Company's core operating performance.

Non-GAAP net income (loss) per share is calculated by dividing non-GAAP net income (loss) by non-GAAP weighted-average shares outstanding (diluted). For purposes of calculating non-GAAP net income (loss) per share, the calculation of GAAP weighted-average shares outstanding (diluted) is adjusted to exclude share-based compensation, which is treated as proceeds assumed to be used to repurchase shares under the GAAP treasury stock method.

Conference Call and Webcast
Lantronix will host a conference call and webcast today at 2:00 p.m. Pacific Time (5:00 p.m. ET) to discuss its fiscal 2011 fourth quarter and year-end financial results. Those wishing to participate in the live call should dial 800-659-2037 (international dial-in 617-614-2713) using the passcode 88060927. A telephone replay of the call will be available through September 22, 2011 by dialing (888) 286-8010 (international dial-in 617-801-6888) and entering passcode 39975276.

About Lantronix
Lantronix, Inc. (NASDAQ: LTRX) is a global leader of secure communication technologies that simplify remote access, management and control of any electronic device. Our smart connectivity solutions empower businesses to make better decisions based on real-time information, and gain a competitive advantage by generating new revenue streams, improving productivity and increasing efficiency and profitability. Easy to integrate and deploy, Lantronix products remotely connect and control electronic equipment via the Internet; provide secure remote access to firewall-protected equipment; and enable remote management of IT equipment over the Internet. Founded in 1989, Lantronix serves some of the largest security, industrial and building automation, medical, transportation, retail/POS, financial, government, consumer electronics/appliances, IT/data center and pro-AV/signage entities in the world. The company's headquarters are located in Irvine, Calif. For more information, visit www.lantronix.com

The Lantronix blog, http://www.lantronix.com/blog, features industry discussion and updates. To follow Lantronix on Twitter, visit http://www.twitter.com/Lantronix

This news release contains forward-looking statements, including statements concerning our future business plans. These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that could cause actual reported results and outcomes to differ materially from those expressed in the forward-looking statements. Factors that could cause our expectations and reported results to vary, include, but are not limited to: final accounting adjustments and results; quarterly fluctuations in operating results; our ability to identify and profitably develop new products that will be attractive to our target markets, including products in our device networking business and the timing and success of new product introductions; changing market conditions and competitive landscape; government and industry standards; market acceptance of our products by our customers; pricing trends; actions by competitors; future revenues and margins; changes in the cost or availability of critical components; unusual or unexpected expenses; and cash usage including cash used for product development or strategic transactions; and other factors that may affect financial performance. For a more detailed discussion of these and other risks and uncertainties, see our SEC filings, including our Quarterly Report on Form 10-Q for the quarters ended March 31, 2011, December 31, 2010 and September 30, 2010 and our Annual Report on Form 10-K for the year ended June 30, 2010. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

LANTRONIX, INC.
Unaudited Consolidated Balance Sheets
(In thousands, except share and per share data)
June 30, June 30,
2011 2010
Assets
Current Assets:
Cash and cash equivalents $ 5,836 $ 10,075
Accounts receivable (net of allowance for doubtful accounts of $102 and $93 at June 30, 2011 and 2010, respectively) 2,908 1,342
Inventories, net 9,160 6,873
Contract manufacturers' receivable 636 1,015
Prepaid expenses and other current assets 605 515
Deferred tax assets 569 542
Total current assets 19,714 20,362
Property and equipment, net 1,761 2,392
Goodwill 9,488 9,488
Purchased intangible assets, net 54 155
Other assets 175 135
Total assets $ 31,192 $ 32,532
Liabilities and stockholders' equity
Current Liabilities:
Accounts payable $ 8,358 $ 6,545
Accrued payroll and related expenses 2,000 1,568
Warranty reserve 268 183
Short-term debt 667 667
Other current liabilities 3,199 3,776
Total current liabilities 14,492 12,739
Non-Current Liabilities:
Long-term liabilities 550 646
Long-term capital lease obligations 45 153
Long-term debt 833 111
Deferred tax liabilities 569 542
Total non-current liabilities 1,997 1,452
Total liabilities 16,489 14,191
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding - -
Common stock, $0.0001 par value; 100,000,000 shares authorized; 10,549,852 and 10,322,597 shares issued and outstanding at June 30, 2011 and 2010, respectively 1 1
Additional paid-in capital 192,780 191,147
Accumulated deficit (178,477 ) (173,206 )
Accumulated other comprehensive income 399 399
Total stockholders' equity 14,703 18,341
Total liabilities and stockholders' equity $ 31,192 $ 32,532
LANTRONIX, INC.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended Years Ended
June 30, June 30,
2011 2010 2011 2010
Net revenue (1) $ 12,028 $ 11,819 $ 49,321 $ 46,375
Cost of revenue 6,478 5,819 24,907 22,257
Gross profit 5,550 6,000 24,414 24,118
Operating expenses:
Selling, general and administrative 7,290 4,756 22,373 19,035
Research and development 1,761 1,700 7,033 6,338
Amortization of purchased intangible assets 18 18 72 72
Total operating expenses 9,069 6,474 29,478 25,445
Loss from operations (3,519 ) (474 ) (5,064 ) (1,327 )
Interest expense, net (36 ) (31 ) (123 ) (149 )
Other income (expense), net (45 ) (11 ) (28 ) (19 )
Loss before income taxes (3,600 ) (516 ) (5,215 ) (1,495 )
Provision for income taxes 15 (7 ) 56 24
Net loss $ (3,615 ) $ (509 ) $ (5,271 ) $ (1,519 )
Net loss per share (basic and diluted) $ (0.34 ) $ (0.05 ) $ (0.51 ) $ (0.15 )
Weighted average shares (basic and diluted) 10,495 10,321 10,434 10,276
(1) Includes net revenue from related parties $ 295 $ 161 $ 942 $ 642
LANTRONIX, INC.
Unaudited Reconciliation of Non-GAAP Adjustments
(In thousands)
Three Months Ended Years Ended
June 30, June 30,
2011 2010 2011 2010
GAAP net loss $ (3,615 ) $ (509 ) $ (5,271 ) $ (1,519 )
Non-GAAP adjustments:
Cost of revenues:
Share-based compensation 17 13 63 43
Employer portion of withholding taxes on stock grants - - 4 3
Depreciation and amortization 109 76 362 264
Total adjustments to cost of revenues 126 89 429 310
Selling, general and adminstrative:
Costs associated with the investigation 1,672 - 2,124 -
Separation costs related to the former CEO and CFO 862 - 862 -
Costs associated with the contested proxy - - 561 -
Share-based compensation 123 272 1,114 1,380
Employer portion of withholding taxes on stock grants - - 18 13
Depreciation and amortization 165 164 665 625
Total adjustments to selling, general and administrative 2,822 436 5,344 2,018
Research and development:
Share-based compensation 109 89 426 478
Employer portion of withholding taxes on stock grants - - 23 21
Depreciation and amortization 10 11 43 56
Total adjustments to research and development 119 100 492 555
Amortization of purchased intangible assets 18 18 72 72
Total non-GAAP adjustments to operating expenses 2,959 554 5,908 2,645
Interest expense, net 36 31 123 149
Other (income) expense, net 46 11 28 19
Provision for income taxes 15 (7 ) 56 24
Total non-GAAP adjustments 3,182 678 6,544 3,147
Non-GAAP net income (loss) $ (433 ) $ 169 $ 1,273 $ 1,628
Non-GAAP net income (loss) per share ( basic and diluted) $ (0.04 ) $ 0.02 $ 0.12 $ 0.15
Denominator for GAAP net income (loss) per share (basic and diluted) 10,495 10,321 10,434 10,276
Non-GAAP adjustment - 666 421 549
Denominator for non-GAAP net income (loss) per share (basic and diluted) 10,495 10,987 10,855 10,825
GAAP operating expenses $ 9,069 $ 6,474 $ 29,478 $ 25,445
Non-GAAP adjustments to operating expenses (2,959 ) (554 ) (5,908 ) (2,645 )
Non-GAAP operating expenses $ 6,110 $ 5,920 $ 23,570 $ 22,800

LANTRONIX, INC.
Unaudited Consolidated Net Revenue by Product Line
(In thousands)
Quarters Ended June 30,
% of Net % of Net Change
2011 Revenue 2010 Revenue $ %
(In thousands, except percentages)
Device enablement $ 9,705 80.7 % $ 9,557 80.9 % $ 148 1.5 %
Device management 2,169 18.0 % 2,103 17.8 % 66 3.1 %
Device networking 11,874 98.7 % 11,660 98.7 % 214 1.8 %
Non-core 154 1.3 % 159 1.3 % (5 ) (3.1 %)
Net revenue $ 12,028 100.0 % $ 11,819 100.0 % $ 209 1.8 %
Years Ended June 30,
% of Net % of Net Change
2011 Revenue 2010 Revenue $ %
(In thousands, except percentages)
Device enablement $ 39,608 80.3 % $ 37,096 80.0 % $ 2,512 6.8 %
Device management 9,055 18.4 % 8,384 18.1 % 671 8.0 %
Device networking 48,663 98.7 % 45,480 98.1 % 3,183 7.0 %
Non-core 658 1.3 % 895 1.9 % (237 ) (26.5 %)
Net revenue $ 49,321 100.0 % $ 46,375 100.0 % $ 2,946 6.4 %

Contact Information

  • Investor Relations Contacts:

    Lantronix, Inc.
    Jim Kerrigan
    Interim CFO
    (949) 453-3990