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Lantronix Inc. Reports Operating Results (10-Q)

February 14, 2012 | About:
10qk

10qk

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Lantronix Inc. (LTRX) filed Quarterly Report for the period ended 2011-12-31.

Lantronix Inc. has a market cap of $30.8 million; its shares were traded at around $2.88 with and P/S ratio of 0.6.

Highlight of Business Operations:

Net revenue was $10.5 million for the three months ended December 31, 2011, a decrease of $2.2 million or 17.8%, compared to $12.7 million for the three months ended December 31, 2010. The decline was primarily the result of a $2.1 million, or 20.3%, decrease in sales of our device enablement product lines primarily due to lower unit sales of embedded device enablement products in our Europe, Middle East and Africa region, which we believe was significantly impacted by current economic conditions in Europe. In addition, net revenue for the three months ended December 31, 2010 included approximately $639,000 of deferred revenue that was recognized as a result of entering into contracts that removed certain distributors rights to stock rotation and price protection in connection with an initiative to streamline our sales distribution channel. No similar revenue was recognized during the three months ended December 31, 2011.

Gross profit as a percent of net revenue was 48.2% for the three months ended December 31, 2011, compared to 49.4% for the three months ended December 31, 2010. Gross profit for the three months ended December 31, 2011 included a $480,000 charge for excess and obsolete inventory.

The decrease in net revenue for the six months ended December 31, 2011, compared to the six months ended December 31, 2010 was primarily the result of a decrease in net revenue from our device enablement product lines. We believe that our net revenue was negatively impacted by worldwide general economic conditions and, in particular the EMEA region, which experienced a 20.8% decline in net revenue. In addition, net revenue for the six months ended December 31, 2010 included approximately $639,000 of deferred revenue that was recognized as a result of entering into contracts that removed certain distributors rights to stock rotation and price protection in connection with an initiative to streamline our sales distribution channel. There was no similar revenue recognized during the six months ended December 31, 2011. The decrease in net revenue from our device enablement product line was primarily due to a decrease in unit sales of some of our embedded device enablement products, in particular our XPort and, to a lesser extent, our Micro, which is a legacy embedded serial-to-ethernet solution. In addition, we had a $275,000 embedded royalty sale in the prior year that did not recur in the current year. The decreases to the embedded device enablement products were partially offset by an increase in unit sales of our new products, XPort Pro and PremierWave. To a lesser extent, the decrease in net revenue from our device enablement product line was impacted by a decrease in unit sales of our external device enablement products, in particular our MSS product family, a legacy product, partially offset by an increase in unit sales of our EDS and Xpress product families. The decrease in net revenue from our device management product line was due to a decrease in unit sales of our SCS product family, a legacy product, partially offset by an increase in unit sales of our SLS Spider product family.

The decrease in net revenue for the six months ended December 31, 2011 compared to the six months ended December 31, 2010 reflects decreased unit sales in the EMEA, Americas, and Asia Pacific. The decrease in net revenue from EMEA region was in large part due to a decrease in unit sales in our embedded device enablement product lines and to a lesser extent our device management product lines and external device enablement product lines. In addition, net revenue for the three months ended December 31, 2010 included approximately $639,000, of which $489,000 related to EMEA and $150,000 related to Asia Pacific, of deferred revenue that was recognized as a result of entering into contracts that removed certain distributors rights to stock rotation and price protection in connection with an initiative to streamline our sales distribution channel. There was no similar activity during the six months ended December 31, 2011. The decrease in net revenue from the Americas region was primarily due to a decrease in unit sales of our embedded device enablement product lines. The decrease in net revenue in the Asia Pacific region was due to a decrease in unit sales of our device enablement product and device management product lines.

On January 19, 2012, we entered into another amendment (the “2012 Loan Amendment”) to the Amended Loan Agreement. The 2012 Loan Amendment provided for (i) a modification of the minimum tangible net worth financial covenant, effective November 30, 2011, that now requires a tangible net worth of at least $2.5 million plus 50% of all consideration received for equity securities and subordinated debt; (ii) a monthly collateral monitoring fee of $2,000 if our credit extensions outstanding during the month are equal to or greater than $1.0 million, otherwise a monthly collateral fee of $500; (iii) a modification of the interest rate related to the Term Loan to the prime rate plus 3.00%, payable monthly. If the Company achieves certain profitability thresholds for two consecutive fiscal quarters, for so long as the Company continues to maintain such thresholds, the interest shall accrue at a per annum rate equal to the prime rate plus 1.50%, payable monthly. In addition, the 2012 Loan Amendment modified the interest rate related to the Revolving Line to the greater of (i) the prime rate plus 1.0% or (ii) 5.0%, payable monthly.

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