Lantronix Inc. says it is looking to expand through acquisitions after a public offering last week that raised about $48 million for the maker of electronics that link vending machines, thermostats and other devices to the Internet.
“We think this a very good time to look at acquisition candidates,” said Steve Cotton, chief operating officer at Lantronix. “I think what you’ll see is us trending toward using less cash and more stock for acquisitions.”
Last month, Lantronix completed its $16 million buy of Millford, Conn.-based Lightwave Communications Inc. using cash and some shares. The deal cut the company’s cash reserves to about $6 million, down from $22 million as of March 31.
Lantronix is looking to last week’s stock offering,a brave move in a tough market for technology stocks,to help refill its coffers. As for additional acquisitions, the company hopes to use cash and its stock,a bet that Lantronix shares will be able to swim against the tide on Wall Street.
“The way we look at it is we can’t control the markets,” Cotton said. “But we can control our business and we are doing very well on our business plan.”
While the company’s stock has strayed from its high for the year, Lantronix shares were up 30% for the year at a recent check. The company, which counts annual sales of about $50 million, had a market value of more than $300 million as of last week.
Lantronix’s main products are known as device servers and allow companies to connect any electronic device to the Internet using existing connections. Normally when a company that wants to link a device to its network,such as a bank hooking up an automatic teller machine,it must pipe in a costly high-speed line such as a T1.
Using a Lantronix device server, companies instead can plug an ATM or other devices into an existing Internet connection. The result: the company can save huge amounts of time and money for each device it wants to connect to the Internet, according to Lantronix.
Lantronix executives contend that with companies looking to easily connect distant locations to a company network, the opportunities to hawk their wares are endless.
“Think of a company like TicketMaster,” Cotton said. “They want to hook their kiosks, located in local stores, to their networks to see how many tickets they’re selling and the average price at the kiosk. Instead of having to bring in a dedicated T1 line, they can use one of our servers and just go out over the local stores’ existing network.”
The technology behind the Lantronix devices was a long time coming. Founded in 1989, Lantronix came out early with a device that connected a terminal to a company’s local network. The company built on the technology and eventually came out with a new line of servers,called print servers,that let users access any printer on a network from any computer.
As the Internet grew in the 1990s, Lantronix sold more of its print servers and began to find new uses for its technology, which resulted in the company introducing a standard device server in 1998.
Now Lantronix says its device servers make up about 92% of sales and are doubling yearly. The company’s old print server division accounts for 8% of the company’s revenue, but is declining.
Company executives won’t comment directly on whether they plan to divest the print server business. But they say they expect it to be around for at least the next 18 months.
“As long as people want them, we’ll continue to support them,” Cotton said.
Lantronix executives have a plan to continue growing: develop all new technology in-house and acquire companies that can immediately add sales.
The company plans to double its research and development spending in the next fiscal year in a bid to launch three new products in the fall. Lantronix also plans to invest heavily in developing software to run its device servers.
Acquisitions also stand to keep boosting the ranks at Lantronix. In the past six months, the company has increased its headcount 25% to 250, with about 185 people based in Orange County.
But Lantronix has had its share of troubles. As the company’s stock price shows, Lantronix’s business has gone through peaks and valleys as it competes with other companies,both large and small,to make products that easily connect to the Internet.
In the late 1990s, Lantronix grappled with slowing sales, which dropped 30% from $40.2 million to $28 million at one point. The company’s stock fluctuated as well, following a cyclical pattern as the company shifted its business focus to sell more device servers and fewer products from its old-line business.
The company’s sales have rebounded to $44 million last year, and it has won some praise from Wall Street.
“Their business is pretty strong right now,” said Russell Sedat, an analyst with brokerage L.H. Friend, Weinress, Frankson & Presson Inc. in Irvine. “They’re doing well at establishing technology.”
Lantronix’s immediate challenge is a precarious one: acquire the right companies while keeping in good graces with investors.
“We’re just looking for acquisitions that fit our products,” Cotton said. “And also ones that add to earnings.” n
