Lantronix(LTRX) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Presents the unaudited condensed consolidated financial statements for the three months ended September 30, 2022 Unaudited Condensed Consolidated Balance Sheets Total assets and liabilities increased, driven by growth in inventories, goodwill, and long-term debt Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $90,557 | $90,033 | | Inventories, net | $45,260 | $37,679 | | Goodwill | $27,151 | $20,768 | | Total Assets | $150,132 | $137,374 | | Total Current Liabilities | $40,241 | $35,521 | | Long-term debt, net | $18,473 | $14,274 | | Total Liabilities | $70,394 | $57,478 | | Total Stockholders' Equity | $79,738 | $79,896 | Unaudited Condensed Consolidated Statements of Operations The company's net loss narrowed year-over-year due to higher revenue and gross profit Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net revenue | $31,795 | $27,705 | | Gross profit | $14,036 | $12,463 | | Total operating expenses | $15,407 | $14,223 | | Loss from operations | $(1,371) | $(1,760) | | Net loss | $(1,653) | $(2,283) | | Net loss per share | $(0.05) | $(0.08) | Unaudited Condensed Consolidated Statements of Cash Flows Cash decreased by $4.1 million, reflecting cash used in operations and acquisitions, offset by financing proceeds Cash Flow Summary (in thousands) | Activity | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,666) | $(516) | | Net cash used in investing activities | $(5,606) | $(24,092) | | Net cash provided by financing activities | $6,176 | $25,139 | | Increase (decrease) in cash | $(4,096) | $531 | | Cash at end of period | $13,125 | $10,270 | Notes to Unaudited Condensed Consolidated Financial Statements Provides details on accounting policies, the Uplogix acquisition, and recent financing activities - On September 12, 2022, Lantronix acquired Uplogix, Inc for $8 million in consideration, plus a potential earnout of up to $4 million based on revenue targets[44][46][47] - The company amended its loan agreement with Silicon Valley Bank, securing an additional $5 million term loan and borrowing $2 million on its revolving credit facility[71][72][74] Net Revenue by Product Line (in thousands) | Product Line | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Embedded IoT Solutions | $15,095 | $12,376 | | IoT System Solutions | $14,621 | $13,158 | | Software & Services | $2,079 | $2,171 | | Total | $31,795 | $27,705 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 14.8% YoY revenue growth, gross margin trends, and the impact of acquisitions on liquidity Results of Operations Revenue grew 14.8% YoY, driven by IoT solutions, while gross margin slightly declined due to product mix Net Revenue Change by Product Line (YoY) | Product Line | Change ($) | Change (%) | | :--- | :--- | :--- | | Embedded IoT Solutions | +$2,719k | +22.0% | | IoT System Solutions | +$1,463k | +11.1% | | Software & Services | -$92k | -4.2% | | Total | +$4,090k | +14.8% | - Gross margin decreased slightly from 45.0% to 44.1% year-over-year, primarily due to a sales mix with higher unit sales of lower-margin compute modules[116] - Selling, general and administrative (SG&A) expenses increased by 15.8% YoY, driven by higher professional fees, share-based compensation, and personnel costs from acquisitions[117][118] - Research and development (R&D) expenses increased by 12.0% YoY, primarily due to higher personnel-related costs from acquisitions and internal growth[119] Liquidity and Capital Resources Cash decreased by $4.1 million due to acquisitions and operations, offset by proceeds from new debt Key Liquidity Metrics (in thousands) | Metric | September 30, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Working capital | $50,316 | $54,512 | | Cash and cash equivalents | $13,125 | $17,221 | - Cash used in operating activities increased to $4.7 million, largely due to a $7.6 million increase in inventories and a $5.3 million decrease in accounts payable[133][134][135] - Financing activities provided $6.2 million in net cash, resulting from $7.0 million in gross proceeds from credit facilities used in part to fund the Uplogix acquisition[137] Quantitative and Qualitative Disclosures about Market Risk This section is omitted as the company qualifies as a smaller reporting company - As a smaller reporting company, Lantronix is not required to provide the information for this item[139] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[141] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[142] PART II. OTHER INFORMATION Risk Factors The company faces risks from supply chain constraints, cybersecurity threats, acquisitions, and its history of losses - The ongoing COVID-19 pandemic continues to pose risks, including demand volatility, supply chain disruptions, and potential limitations on manufacturing capacity[149][150] - The company is experiencing supply constraints and price fluctuations for critical components, particularly semiconductor chips, which could delay product shipments[152] - Cybersecurity breaches pose a significant risk, potentially compromising sensitive data and exposing the company to liability and reputational damage[176] - The company has a history of net losses and may require additional capital to fund its operations and growth, which may not be available on acceptable terms[186][187] Exhibits Lists exhibits filed with the Form 10-Q, including merger and loan agreements and required certifications - Key exhibits filed include the Agreement and Plan of Merger for the Uplogix acquisition and the Third Amendment to the Loan and Security Agreement with Silicon Valley Bank[211]