Irvine’s Lantronix Inc., which made its way out of hot water with federal regulators a few years ago, is looking for a chief executive to execute its plan for growth.
“The toughest thing is the uncertainty,” said Reagan Sakai, interim chief executive and chief financial officer. “Wall Street is looking for stability, credibility and clear messaging.”
Lantronix makes small electronic devices that allow vending machines, thermostats, retail terminals, ATMs and others to be accessed via the Internet or other computer networks.
The company has yearly sales of about $60 million and had a similar market value at recent check.
In September, Marc Nussbaum stepped down as chief executive after an amicable “parting of ways,” Sakai said.
Nussbaum was brought on five years ago to lead a two-year turnaround.
His stint “was more than two years because of other issues at the company,” Sakai said. “And five years for any senior manager is a long time.”
Lantronix’s board has set up a search committee and hired a local executive recruiter that it declined to name. The board also is considering promoting from within, Sakai said.
There’s no timeline in place for the search but “there is a sense of urgency,” he said.
“It’s the top position and the company needs to find its leader,” Sakai said.
There are other shifts playing out.
Chairman H.K. Desai, who helped straighten out Lantronix’s finances and corporate practices starting in 2002, is stepping down.
Desai, chief executive of Aliso Viejo-based QLogic Corp., cited a “winding down” of his outside commitments.
The company is yet to elect a new chairman.
Meanwhile, a familiar face has returned to Lantronix’s board. Founder and former chairman Bernhard Bruscha, who stepped down in 2002 amid the company’s troubles, has rejoined as a director.
The company’s largest shareholder at 30%, Bruscha came up in a 2001 company probe and a subsequent Securities and Exchange Commission investigation.
In early 2001, Lantronix reported increased shipments to a Transtec AG, a German company controlled by Bruscha. The products later were returned to Lantronix, after the company completed a stock sale.
Former financial chief Steven Cotton was fired in spring 2002.
In late 2006, the Securities and Exchange Commission filed suit against Cotton.
Lantronix ended up restating revenue for 18 months in 2000 and 2001, eliminating about $7.4 million in sales.
It’s also settled shareholder lawsuits stemming from the scandal.
The company has moved on, but “We have this kind of albatross around our necks,” Sakai said.
Now, “at any point when you lose a CEO or CFO, the question is just making sure there is no financial malfeasance,” Sakai said.
In the case of Bruscha, Sakai said, “There are no lingering concerns from problems years ago.”
“Bernard wasn’t necessarily brought back,” Sakai said. “He owns about 30% of Lantronix’s shares. During any transition, it’s helpful if management, the board and shareholders are all in alignment.”
The past few years have been marked by slowing revenue growth at Lantronix.
“The company in the last three or four years hasn’t really been growing that much,” Sakai said. “Some of our 10- and 15-year-old products are obsolete. We can’t even find the parts for some of them in order to ship them out.”
For the three months ended Sept. 30, Lantronix had sales of $13 million, up 4% from a year earlier.
Sales of its “non-core” products fell 29% to $1.3 million in the quarter.
The company’s loss widened to nearly $2 million from $651,000 a year earlier.
The loss included charges of $900,000 in severance pay for Nussbaum and others and costs associated with the executive search, the company said.
Lantronix is a laggard among its rivals, which include Cisco Systems Inc., Avocent Corp. and Echelon Corp.
“If you look at some of the other companies in this space they really seem to be posting strong results,” said Michael Ciarmoli, analyst at Boenning & Scattergood Inc. in West Conshohocken, Pa. “Then you look at Lantronix, and they haven’t been participating. I had much higher hopes.”
Analyst coverage of Lantronix is light. The company’s shares trade for less than a dollar and at a low volume of about 140,000 trades per day.
“It’s not on the radar screens of a lot of institutional investors,” Ciarmoli said. “The risk is that you are sitting on dead money until investors see further signs of execution.”
Lantronix got its start in 1989 and has about 150 workers in Irvine.
The company, which does its manufacturing abroad, sells mainly through resellers and distributors, including Santa Ana’s Ingram Micro Inc.
The biggest task for the next chief executive will be getting back “in” with customers, according to analyst Ciarmoli.
“They didn’t really stay in touch with the customer, and I think that’s going to be a focus going forward,” he said. “They have really been mired in this stagnant period.”
Lantronix said it doesn’t need another turnaround guy. Rather, the company wants to pursue a strategy of phasing out money-losing products and concentrating on newer technologies, Sakai said.
The company needs someone who’ll focus on long-term growth, he said.