Jeff Benck has left networking products maker Lantronix Inc. in a stronger financial position than what he inherited in late 2015.
But at least one notable investor in the Irvine-based maker of Internet of Things and secure data products thinks his successor has plenty more room for growth, and perhaps a change in strategic direction.
Benck resigned on March 8 to take the top post at Tempe, Ariz.-based Benchmark Electronics Inc. (NYSE: BHE), a contract manufacturer with a $1 billion market cap and about $2.3 billion in annual revenue.
Lantronix (Nasdaq: LTRX), by comparison, is valued at about $65 million.
“We do not view his departure as an indication of any deterioration in the business,” Jaeson Schmidt, an analyst at Lake Street Capital Markets LLC wrote in a March 1 investor note. “We simply think it was an opportunity that was too difficult to pass up.”
Lantronix, which makes electronic devices and related software that secures online communication in medical equipment, motor vehicles and retail terminals among other products, posted sales of $46 million in the 12 months through June, the end of its fiscal year.
The company is on pace to grow the top and bottom line for the third straight fiscal year as it continues to capitalize on its push into new market segments —particularly the growing IoT segment, which helps provide online connectivity to everyday objects—that Benck championed.
It has nearly 150 employees, with 80 in Irvine.
Lantronix Chief Financial Officer Jeremy Whitaker was named interim chief executive until the board finds a permanent replacement, which could happen within a month.
“They are talking with internal candidates, as well as external ones,” said Vice President of Marketing Shahram Mehraban. “The board has said they don’t want this to be [a] long process.”
Emulex Background
Benck’s resignation came as a bit of a surprise to Lantronix insiders, but the opportunity to again lead a much bigger company piqued his interest.
Benck served as chief executive of Costa Mesa-based networking equipment maker Emulex Corp. for seven years, leaving amid cuts following its 2015 sale for $660 million to Singapore-based Avago Technologies Ltd.
Avago bought Irvine-based Broadcom Corp. a year later for $37 billion and renamed the chipmaker Broadcom Inc. last year.
Benck, who was hired in late 2015 after four straight years of revenue declines, has made operational and strategic turns to capture more of the IoT market, a growing segment that covers devices connected to the internet and ones that enables machines to communicate with each other.
Bain and Co. forecasts the market will more than double from 2017 to about $520 billion in products and services in 2021.
Benck’s initiatives have led to 12 straight quarters of non-GAAP profitability and its first fiscal year of GAAP profitability in 18 years.
“He turned around the company,” Mehraban said.
Benck remains a large Lantronix shareholder, with about 333,000 shares—currently worth about $1 million—based on recent Securities and Exchange Commission filings.
He’s also boosted the executive ranks, attracting Mehraban, for example, a 17-year veteran at Intel Corp.
Lantronix shares are still sluggish, but have rebounded from under $1 when Benck took the helm.
They reached a 52-week high of $6.47 last August and were trading at about $2.90 as of press time.
“We still believe the company can see consistent, solid top line growth, mid-50% gross margins, and strong profitability going forward,” Schmidt wrote in the investor note.
Lake Street reiterated its buy rating and $6 price target.
The target is still miles from the record high valuation of Lantronix during the internet bubble of the early 2000s, when its stock topped $70 a share.
Impatient Jimmy P
Some new investors, like James Peterson, have grown impatient with the company.
“It’s time for a strategic thinker who understands organic and inorganic growth,” the former Microsemi Corp. chief executive, known in local business circles as Jimmy P, said in an email last week.
“Strategic alternative needed here!!!!”
Peterson Capital disclosed in mid-August that it took a 6.4% ownership stake in Lantronix. Peterson—who during his term at Microsemi oversaw numerous acquisitions—said at the time that the company “needs some assistance.”
The Business Journal last year was the first to report that Peterson established the private equity firm with proceeds he cashed out on after Microsemi’s $10.4 billion sale to Microchip Technology Inc. in suburban Phoenix.
Lantronix enters the New Year with plans to seek acquisitions, thanks to a public offering last year that raised $9 million.
“We have a nice war chest of about $20 million and we’ve been active talking to a lot of target companies,” Mehraban said.
“Nothing has slowed because Jeff is leaving. From a company perspective everything is full steam ahead.”
