Wall Street is warming up to networking and Internet of Things equipment maker Lantronix Inc. after years of lackluster performance.
Shares doubled in August, reaching a high of $6.47 before settling around $5.50 and a $105 million market cap. As recently as 2016, shares traded as low as 83 cents.
The Irvine-based company (Nasdaq: LTRX) is still a long way from the Internet bubble of the early 2000s, when it topped $70 a share.
The recent strong run closely follows another positive quarterly performance, new design wins, and the recent addition of a high-profile chief-executive-turned-activist-investor.
On Aug. 22, the company reported a 9% fourth-quarter revenue climb to $12 million and net income of $752,000, compared to a $52,000 loss a year earlier, beating Wall Street estimates on both targets.
Lantronix also reported its first annual profit in 18 years.
“People are rediscovering the story,” Chief Executive Jeff Benck told the Business Journal. “We’ve been executing pretty well for several years.”
Wall Street Cheer
That sentiment was echoed by Lake Street Capital Markets LLC analyst Jaeson Schmidt, who in an Aug. 23 note to investors reiterated a buy rating on the stock and raised the price target from $4 to $6.
“We think the solid results further illustrate Lantronix’s steady execution and potential leverage in the model,” he said.
Schmidt highlighted the company’s third consecutive quarter of GAAP profitability and expanding profit margins. He predicts revenue will climb 7.5% to $49 million in fiscal 2019 and 11% to $54.2 million in fiscal 2020.
“Although we do not anticipate a hockey stick-like snapback in revenue in the coming quarters, we believe the headwinds from the legacy business will continue to lessen going forward and the company will be able to start to show meaningful overall growth,” Schmidt wrote.
Industrial IoT Playground
The company makes electronic devices and related software that allow secure online communication in medical equipment, motor vehicles, thermostats, retail terminals, ATMs, among other products. Lantronix’s technology has been used by industrial and enterprise customers for more than 25 years.
It’s entering a field that’s picked up the marketing tag IoT, or Internet of Things—a segment forecasted to grow from about $3 trillion in 2014 to $8.9 trillion in 2020, with big gains across the industrial manufacturing, healthcare and life sciences segments, according to marketing researcher Statistica.
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.
The company’s new wave of products helps remotely monitor things such as water consumption for municipalities and grinders at coffee shops. The devices are being built into train systems in Asia, allowing them to communicate arrival and departure times. Sports networks rely on its bandwidth services—another focus area—so they can access the network anywhere in case of an outage.
“We play all over the industrial IoT spectrum,” Benck said.
Its fourth-quarter IoT revenue rose 4% to $9.1 million as its IT management business soared 22% to $2.2 million.
The latter unit added several customers in the last quarter, including Santa Clara-based Advanced Micro Devices Inc. (Nasdaq: AMD); Flipkart Internet Private Ltd., India’s largest online retailer, which recently sold a majority stake to Walmart Inc. for $16 billion; and JD.com (Nasdaq: JD), China’s largest online retailer with annual revenue exceeding $258 billion and a $46 billion market cap.
A key to Lantronix’s goals in the IoT market are new recurring revenue streams that provide extra services, such as data analytics, customer support, maintenance and migration.
“We used to just make the connection, but now we can help you manage and securely access data from your devices,” Benck said in an earlier interview. “We see that as the strategic play.”
The June quarter was the first time in at least five years that Lantronix hit $12 million in quarterly sales, he said.
OC Connections
Peterson Capital Group, cofounded by former Microsemi Corp. Chief Executive Jim Peterson, disclosed in mid-August that it took a 6.4% ownership stake in Lantronix. (The Business Journal will feature Peterson in an article next week.)
Benck, who’s known Peterson for more than a decade, is sure “Jimmy will be active.”
“I’ve known Jimmy for a long time,” Benck said, “so he’s no stranger to us.”
The two have mutual acquaintances, such as Paul Folino, who’s served on the boards of both Lantronix and Microsemi, and is former chief executive of Emulex Corp. Folino left the board of Aliso Viejo-based Microsemi after it was sold in May for $10.3 billion to Microchip Technology Inc.
Benck served as chief executive of networking equipment maker Emulex 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.
The Broadcom sale, which led to business divestitures and more than 700 local job losses, has already reshaped OC’s tech industry, but the full effects won’t be realized for years. The company’s now known as Broadcom Inc. and has operational headquarters in San Jose.
Lantronix Chairman Bernhard Bruscha, who founded the company in 1989, owns a 33% stake and is considered a pioneer in networking software.
Micro Index Add
Lantronix employs about 160, the majority at its Spectrum headquarters. Benck told analysts on the quarterly conference call that he’s considering acquisitions that would be quickly accretive to earnings.
The company received more good news last month when it was added to the LD Micro Index, which was created to provide the most accurate representation of intraday activity of microcap stocks in the U.S. and Canada. It has more than 980 stocks with market capitalizations between $50 million and $300 million, and average daily traded value of $50,000 over the past three months.
“There’s good momentum, and the momentum is going to continue,” Benck said.
