SOURCE: Lantronix

Lantronix

February 03, 2011 16:10 ET

Lantronix Reports Fiscal 2011 Second Quarter Financial Results

Second Quarter Revenue of $12.7 Million an 11% Year-Over-Year Increase

IRVINE, CA--(Marketwire - February 3, 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 second quarter ended December 31, 2010.

Recent Highlights

--  Net revenue of $12.7 million, an increase of 11% year-over-year and 4%
    sequentially.
--  GAAP net loss improved sequentially to ($579,000), or ($0.06) per share
    compared to ($678,000) or ($0.07) per share in the previous quarter.
--  Non-GAAP net income increased sequentially to $603,000, or $0.06 per
    share compared to $417,000 or $0.04 per share in the previous quarter.
--  Tenth consecutive quarter of non-GAAP net income.
--  Cash and cash equivalents increased to $10.6 million at December 31,
    2010.
--  Integrated AccessMyDevice VIP Access™ software agent with Texas
    Instruments' Sitara line of microprocessors to provide secure remote
    access for OEMs' embedded designs.
--  Co-sponsored white paper and webinar with HIMSS Analytics, a wholly
    owned not-for-profit subsidiary of the Healthcare Information and
    Management Systems Society (HIMSS): Medical Devices Landscape:
    Current and Future Adoption, Integration with EMRs, and Connectivity

Jerry Chase, president and CEO, said, "Our revenue growth in the second quarter reflects growth in both our core business and our new generation of products which continue to gain increasing traction in the market. We are excited about the positive momentum generated by our new products, and we expect this momentum to continue with more new product launches later this month."

Financial Results for the Second Fiscal Quarter Ended December 31, 2010

Net revenue was $12.7 million, an 11% increase compared to net revenue of $11.5 million for the second fiscal quarter of 2010. Revenue from new products such as SpiderDuo, XPortPro and EDS 1100/2100 increased to $569,000 compared to $300,000 for the first fiscal quarter of 2011 and $214,000 for the fourth fiscal quarter of 2010. As part of an ongoing corporate initiative to optimize our sales distribution channel, the Company renegotiated our agreement with a direct customer that removed stock rotation and price protection terms, which allows the Company to recognize revenue upon shipment as opposed to a sell-through basis. The result was recognition of approximately $342,000 of net revenue during the quarter. As part of this same initiative, we removed stock rotation and price protection terms from certain low volume direct customers and redirected them to master distributors, which allows the Company to recognize revenue upon shipment as opposed to a sell-through basis. The result was the recognition of approximately $297,000 of net revenue during the quarter.

Gross profit margin was 49.4%, compared to 52.7% for the second fiscal quarter of 2010. The decrease in gross profit margin was due to product mix, increased reserves for excess and obsolete inventory related to an end-of-life product, an increase in warranty reserves, and an increase in freight costs related to an increase in the volume of inventory receipts during the quarter.

GAAP operating expenses were $6.8 million, an increase of $420,000, compared to $6.4 million for the second fiscal quarter of 2010. GAAP operating expenses were negatively impacted by approximately $372,000 in legal and consulting expenses related to the Company's contested proxy that was settled in November of 2010.

--  Selling, general and administrative expense was $5.1 million, an
    increase of $233,000, compared to $4.9 million for the second fiscal
    quarter of 2010. The increase was primarily due to legal and consulting
    expenses of approximately $372,000 related to the Company's contested
    proxy, which was settled in November of 2010, and an increase in
    payroll costs, offset by a decrease in advertising and marketing
    expense. Although payroll costs were higher during the quarter, they
    reflect a return to normal levels following the suspension of a
    company-wide furlough program that was in effect during the year ago
    quarter.

--  Research and development expense was $1.7 million, an increase of
    $187,000, compared to $1.5 million for the second fiscal quarter of
    2010. The increase was due to expenses related to development projects
    for upcoming product releases and an increase in payroll costs.
    Although payroll costs were higher during the quarter, they reflect a
    return to normal levels following the suspension of a company-wide
    furlough program that was in effect during the year ago quarter.

Non-GAAP operating expenses were $5.8 million, compared to $5.6 million for the second fiscal quarter of 2010.

GAAP net loss was ($579,000), or ($0.06) per share, compared to a GAAP net loss of ($375,000), or ($0.04) per share, for the second fiscal quarter of 2010. The GAAP net loss in the second fiscal quarter of 2011 was negatively impacted by approximately $372,000 in legal and consulting expenses related to the Company's contested proxy that was settled in November of 2010.

Non-GAAP net income was $603,000, or $0.06 per share, compared to non-GAAP net income of $495,000, or $0.05 per share, for the second fiscal quarter of 2010.

Financial Results for the Six Months ended December 31, 2010

Net revenue was $24.9 million, an 11% increase compared to $22.4 million for the six months ended December 31, 2009. Revenue from new products such as SpiderDuo, XPortPro and EDS 1100/2100 increased to $868,000 compared to $85,000 for the six months ended December 31, 2009. As part of an ongoing corporate initiative to optimize our sales distribution channel, the Company renegotiated our agreement with a direct customer that removed stock rotation and price protection terms, which allows the Company to recognize revenue upon shipment as opposed to a sell-through basis. The result was recognition of approximately $342,000 of net revenue during the second fiscal quarter of 2011. As part of this same initiative, we removed stock rotation and price protection terms from certain low volume direct customers and redirected them to master distributors, which allows the Company to recognize revenue upon shipment as opposed to a sell-through basis. The result was the recognition of approximately $297,000 of net revenue during the second fiscal quarter of 2011.

Gross profit margin was 50.2%, compared to 52.5% for the six months ended December 31, 2009. The decrease in gross profit margin reflects product mix and increased freight costs due to expedite charges relating to component and product shortages as well as an increase in the volume of inventory receipts.

GAAP operating expenses were $13.7 million, compared to $12.5 million for the six months ended December 31, 2009. GAAP operating expenses were negatively impacted by approximately $561,000 in legal and consulting expenses related to the Company's contested proxy.

--  Selling, general and administrative expense was $10.1 million, an
    increase of $666,000, compared to $9.5 million for the six months
    ended December 31, 2010. The increase was primarily due to legal and
    consulting expenses of approximately $561,000 related to the Company's
    contested proxy and an increase in payroll costs. Although payroll
    costs were higher during the period, they reflect a return to normal
    levels following the suspension of a company-wide furlough program
    that was in effect during the year ago period.

--  Research and development expense was $3.5 million, an increase of
    $525,000, compared to $3.0 million for the six months ended
    December 31, 2009. The increase was due to expenses related to
    development projects for upcoming product releases and an increase
    in payroll costs. Although payroll costs were higher during the
    period, they reflect a return to normal levels following the
    suspension of a company-wide furlough program that was in effect
    during the year ago period.

Non-GAAP operating expenses were $11.7 million, an increase of $689,000, compared to $11.0 million for the six months ended December 31, 2009.

GAAP net loss was ($1.3 million), or ($0.12) per share, compared to a GAAP net loss of ($874,000), or ($0.09) per share, for the six months ended December 31, 2009. The GAAP net loss for the six-month period was negatively impacted by approximately $561,000 in legal and consulting expenses related to the Company's contested proxy.

Non-GAAP net income was $1.0 million, or $0.09 per share, compared to non-GAAP net income of $907,000, or $0.08 per share, for the six months ended December 31, 2009.

Balance Sheet Summary

Cash and cash equivalents were $10.6 million as of December 31, 2010, an increase of $570,000, compared to $10.1 million as of June 30, 2010.

Total receivables, which include accounts receivable, net, and contract manufacturers' receivable, were $3.5 million as of December 31, 2010, compared to $2.4 million as of June 30, 2010. The increase in accounts receivable is a result of the increase in revenue.

Net Inventory was $9.6 million as of December 31, 2010, an increase of $2.7 million, compared to $6.9 million as of June 30, 2010. The increase was attributable to a buildup of finished goods and strategic components to ensure timely delivery and enhance customer satisfaction.

Accounts payable were $9.8 million as of December 31, 2010, compared to $6.5 million as of June 30, 2010. The increase was primarily due to the increase in inventory during the quarter as inventory is the primary driver of accounts payable.

Working capital was $8.6 million as of December 31, 2010, compared to $7.6 million as of June 30, 2010.

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 and related payroll taxes and depreciation and amortization, 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, such as the costs associated with the contested proxy during the first and second quarters of fiscal 2011.

Non-GAAP net income (loss) consists of net income (loss) excluding share- based compensation and related payroll taxes, depreciation and amortization, 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, such as the costs associated with the contested proxy during the first and second quarters of fiscal 2011.

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 second quarter fiscal 2011 financial results. Those wishing to participate in the live call should dial 866-783-2139 (International dial-in 857-350-1598) using the passcode 92079586. A telephone replay of the call will be available for one week beginning approximately one hour after the call's conclusion by dialing (888) 286-8010 and entering 85982809 followed by the "#" key when prompted for a code. To access the live webcast of the call, go to the Investor Relations section of Lantronix's website at www.lantronix.com. The webcast will be archived on the Company's web site for twelve months.

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 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 medical, security, industrial and building automation, 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.

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 quarter ended 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 CONDENSED CONSOLIDATED BALANCE SHEETS
                              (In thousands)


                                                December 31,    June 30,
                                                    2010          2010
                                                ------------  ------------
Assets
Current assets:
   Cash and cash equivalents                    $     10,645  $     10,075
   Accounts receivable, net                            1,970         1,342
   Contract manufacturers' receivable                  1,488         1,015
   Inventories, net                                    9,586         6,873
   Prepaid expenses and other current assets             366           515
   Deferred tax assets                                   542           542
                                                ------------  ------------
      Total current assets                            24,597        20,362

   Property and equipment, net                         2,094         2,392
   Goodwill                                            9,488         9,488
   Purchased intangible assets, net                      109           155
   Other assets                                          167           135
                                                ------------  ------------
      Total assets                              $     36,455  $     32,532
                                                ============  ============

Liabilities and stockholders' equity
Current liabilities:
   Accounts payable                             $      9,756  $      6,545
   Accrued payroll and related expenses                1,288         1,568
   Warranty reserve                                      209           183
   Short-term debt                                       667           667
   Other current liabilities                           4,123         3,776
                                                ------------  ------------
      Total current liabilities                       16,043        12,739
                                                ------------  ------------
Non-current liabilities:
   Long-term liabilities                                 591           646
   Long-term capital lease obligations                    91           153
   Long-term debt                                      1,167           111
   Deferred tax liabilities                              542           542
                                                ------------  ------------
      Total non-current liabilities                    2,391         1,452
                                                ------------  ------------
         Total liabilities                            18,434        14,191
                                                ------------  ------------

Commitments and contingencies

Stockholders' equity:
   Common stock                                            1             1
   Additional paid-in capital                        192,084       191,147
   Accumulated deficit                              (174,463)     (173,206)
   Accumulated other comprehensive income                399           399
                                                ------------  ------------ 
      Total stockholders' equity                      18,021        18,341
                                                ------------  ------------
      Total liabilities and stockholders'
       equity                                   $     36,455  $     32,532
                                                ============  ============






                              LANTRONIX, INC.
              Unaudited Consolidated Statements of Operations
                  (In thousands, except per share data)


                                    Three Months Ended   Six Months Ended
                                       December 31,        December 31,
                                    ------------------  ------------------
                                      2010      2009      2010      2009
                                    --------  --------  --------  --------
Net revenue (1)                     $ 12,719  $ 11,478  $ 24,911  $ 22,432
Cost of revenue                        6,441     5,429    12,406    10,666
                                    --------  --------  --------  --------
Gross profit                           6,278     6,049    12,505    11,766
                                    --------  --------  --------  --------
Operating expenses:
 Selling, general and
  administrative                       5,088     4,855    10,141     9,475
 Research and development              1,697     1,510     3,520     2,995
 Amortization of purchased
  intangible assets                       18        18        36        36
                                    --------  --------  --------  --------
Total operating expenses               6,803     6,383    13,697    12,506
                                    --------  --------  --------  --------
Loss from operations                    (525)     (334)   (1,192)     (740)
Interest expense, net                    (36)      (42)      (58)      (89)
Other income (expense), net               (5)       11        24       (25)
                                    --------  --------  --------  --------
Loss before income taxes                (566)     (365)   (1,226)     (854)
Provision for income taxes                13        10        31        20
                                    --------  --------  --------  --------
Net loss                            $   (579) $   (375) $ (1,257) $   (874)
                                    ========  ========  ========  ========
Net loss per share (basic and
 diluted)                           $  (0.06) $  (0.04) $  (0.12) $  (0.09)
                                    ========  ========  ========  ========
Weighted-average shares (basic and
 diluted)                             10,429    10,301    10,389    10,234
                                    ========  ========  ========  ========
Net revenue from related parties    $    212  $    142  $    453  $    267
                                    ========  ========  ========  ========

(1)  Includes net revenue from related parties






                              LANTRONIX, INC.
             Unaudited Reconciliation of Non-GAAP Adjustments
                  (In thousands, except per share data)


                                     Three Months Ended  Six Months Ended
                                       December 31,        December 31,
                                   -------------------  ------------------
                                      2010      2009      2010      2009
                                   --------  --------  --------  --------

GAAP net loss                       $   (579) $   (375) $ (1,257) $   (874)
  Non-GAAP adjustments:
      Cost of revenues:
        Share-based compensation           9        10        35        19
        Employer portion of
         withholding taxes on stock
         grants                            -         -         2         3
        Depreciation and
         amortization                     84        64       169       118
                                    --------  --------  --------  --------
      Total adjustments to cost of
       revenues                           93        74       206       140
                                    --------  --------  --------  --------
      Selling, general and
       adminstrative:
        Costs associated with the
         contested proxy                 372         -       561         -
        Share-based compensation         382       426       790       851
        Employer portion of
         withholding taxes on stock
         grants                            -         2        12        13
        Depreciation and
         amortization                    167       148       333       281
                                    --------  --------  --------  --------
      Total adjustments to selling,
       general and administrative        921       576     1,696     1,145
                                    --------  --------  --------  --------
      Research and development:
        Share-based compensation          85       142       236       273
        Employer portion of
         withholding taxes on stock
         grants                            -         3        18        21
        Depreciation and
         amortization                     11        16        23        32
                                    --------  --------  --------  --------
      Total adjustments to research
       and development                    96       161       277       326
                                    --------  --------  --------  --------
      Amortization of purchased
       intangible assets                  18        18        36        36
                                    --------  --------  --------  --------
    Total non-GAAP adjustments to
     operating expenses                1,035       755     2,009     1,507
                                    --------  --------  --------  --------
    Interest expense, net                 36        42        58        89
    Other income (expense), net            5       (11)      (24)       25
    Provision for income taxes            13        10        31        20
                                    --------  --------  --------  --------
Total non-GAAP adjustments             1,182       870     2,280     1,781
                                    --------  --------  --------  --------
Non-GAAP net income                 $    603  $    495  $  1,023  $    907
                                    ========  ========  ========  ========
Non-GAAP net income per share
 (diluted)                          $   0.06  $   0.05  $   0.09  $   0.08
                                    ========  ========  ========  ========

Denominator for GAAP net income per
 share (diluted)                      10,429    10,301    10,389    10,234
Non-GAAP adjustment                      373       554       467       529
                                    --------  --------  --------  --------
Denominator for non-GAAP net income
 per share (diluted)                  10,802    10,855    10,856    10,763
                                    ========  ========  ========  ========

GAAP operating expenses             $  6,803  $  6,383  $ 13,697  $ 12,506
Non-GAAP adjustments to operating
 expenses                             (1,035)     (755)   (2,009)   (1,507)
                                    --------  --------  --------  --------
Non-GAAP operating expenses         $  5,768  $  5,628  $ 11,688  $ 10,999
                                    ========  ========  ========  ========




                              LANTRONIX, INC.
                  Unaudited Net Revenues by Product Line
                    (In thousands, except percentages)




                    Three Months Ended December 31,
                  -------------------------------------       Change
                           % of Net           % of Net  -----------------
                    2010   Revenue     2009   Revenue       $        %
                  -------- --------  -------- --------  --------  -------
Device enablement $ 10,469     82.3% $  9,255     80.6% $  1,214     13.1%
Device management    2,076     16.3%    1,899     16.5%      177      9.3%
                  -------- --------  -------- --------  --------
 Device
  networking        12,545     98.6%   11,154     97.2%    1,391     12.5%
 Non-core              174      1.4%      324      2.8%     (150)   (46.3%)
                  -------- --------  -------- --------  --------
   Net revenue    $ 12,719    100.0% $ 11,478    100.0% $  1,241     10.8%
                  ======== ========  ======== ========  ========




                     Six Months Ended December 31,
                  -------------------------------------       Change
                           % of Net           % of Net  -----------------
                    2010   Revenue     2009   Revenue       $        %
                  -------- --------  -------- --------  --------  -------
Device enablement $ 20,352     81.7% $ 17,995     80.2% $  2,357     13.1%
Device management    4,234     17.0%    3,902     17.4%      332      8.5%
                  -------- --------  -------- --------  --------
 Device
  networking        24,586     98.7%   21,897     97.6%    2,689     12.3%
 Non-core              325      1.3%      535      2.4%     (210)   (39.3%)
                  -------- --------  -------- --------  --------
    Net revenue   $ 24,911    100.0% $ 22,432    100.0% $  2,479     11.1%
                  ======== ========  ======== ========  ========

Contact Information

  • Company Contact:
    Reagan Sakai
    CFO
    Lantronix
    Email Contact

    Investor Contacts:
    Todd Kehrli / Jim Byers
    MKR Group, Inc.
    323-468-2300
    Email Contact