Irvine, Calif., February 9, 2012 – Lantronix, Inc. (NASDAQ: LTRX), a leading global provider of smart M2M connectivity solutions, today reported results for its second quarter of fiscal 2012, ended December 31, 2011.

Financial and Operational Highlights

• Net revenue of $10.5 million.
• Gross profit as a percentage of net revenue was 48.2%.
• GAAP net loss of $1.4 million, or ($0.13) per share.
• Non-GAAP net loss of $629,000, or ($0.06) per share.
• Cash and cash equivalents of $3.3 million.
• Recruited a new management team.
• In November 2011, implemented a cost-reduction program that is forecasted to achieve annualized cash savings of approximately $2.0 million.
• In December 2011, began production of the EDS-MD, a next generation medical device aggregator based on the company’s award-winning EDS product platform.
• In December 2011, announced the xPrintServer – Network Edition, the first network device solution to allow iPad and Apple iOS users to print wirelessly to virtually any networked printer.

“During the second fiscal quarter, we continued to make progress on our key goals of improving financial discipline and creating a more efficient, market-driven product development process,” said Kurt Busch, Lantronix President and CEO. “While our revenue and year-over-year results were disappointing, since taking the helm 150 days ago, the new management team reduced operating expenses and put in place a new product strategy to both capture market share as well as expand the markets we address. These efforts culminated in the launch of two new products within the last 60 days: EDS-MD, a next-generation medical device aggregator based on the Lantronix award-winning EDS product platform, and the xPrintServer – Network Edition, an entirely new product family that was fully conceived, developed and launched by our team in under five months. We’re very pleased with the industry response to date.”

Financial Results for the Second Fiscal Quarter Ended December 31, 2011

Net revenue was $10.5 million for the second quarter of fiscal 2012, compared to $12.7 million for the second quarter of fiscal 2011. The decrease in net revenue was primarily due to lower unit sales of embedded device enablement products in the Europe, Middle East and Africa region, which the Company believes was significantly impacted by economic conditions in Europe. In addition, net revenue for the second quarter of the prior fiscal year included approximately $639,000 of revenue that was recognized as a result of modifying contracts with certain distributors in Europe and Asia. No similar revenue was recognized during the second quarter of fiscal 2012.

Gross profit as a percentage of net revenue was 48.2% for the second quarter of fiscal 2012, compared to 49.4% for the second quarter of fiscal 2011. Gross profit for the second quarter of fiscal 2012 was impacted by a $480,000 charge for excess inventory due to a reduction in sales forecast of certain device management products.

GAAP operating expenses were $6.4 million for the second quarter of fiscal 2012, compared to $6.8 million for the second quarter of fiscal 2011.

• Selling, general and administrative expenses were $4.4 million for the second quarter of fiscal 2012, a decrease of $647,000, compared to $5.1 million for the second quarter of fiscal 2011.
• Research and development expenses were $1.6 million for the second quarter of fiscal 2012, compared to $1.7 million for the second quarter of fiscal 2012.
• Restructuring charges for employee severance and related costs were $269,000 for the second quarter of fiscal 2012. On November 7, 2011, the Company initiated a restructuring plan, consisting of a reduction in headcount and other cost savings measures. The restructuring plan was designed to reduce operating expenses and bring them more in line with revenue levels in order to improve future results of operations. This restructuring plan is expected to reduce annualized cash expenses by approximately $2.0 million. The restructuring activities contemplated by the plan were substantially completed during the quarter ended December 31, 2011.

Non-GAAP operating expenses for the second quarter of fiscal 2012 were $5.8 million, consistent with those for the second quarter of fiscal 2011.

GAAP net loss for the second quarter of fiscal 2012 was $1.4 million, or ($0.13) per share, compared to GAAP net loss of $579,000, or ($0.06) per share, for the second quarter of fiscal 2011.

Non-GAAP net loss for the second quarter of fiscal 2012 was $629,000, or ($0.06) per share, compared to non-GAAP net income of $603,000, or $0.06 per share, for the second quarter of fiscal 2011.

Financial Results for the Six Months ended December 31, 2011

Net revenue was $21.6 million for the six months ended December 31, 2011, compared to $24.9 million for the six months ended December 31, 2010.

Gross profit as a percentage of net revenue was 47.8% for the six months ended December 31, 2011, compared with 50.2% for the six months ended December 31, 2010.

GAAP operating expenses for the six months ended December 31, 2011 were $13.1 million, compared to $13.7 million for the six months ended December 31, 2010.

• Selling, general and administrative expenses for the six months ended December 31, 2011 were $9.4 million, compared to $10.1 million for the six months ended December 31, 2010.
• Research and development expenses for the six months ended December 31, 2011 were $3.3 million, compared to $3.5 million for the six months ended December 31, 2010.
• Restructuring charges for the six months ended December 31, 2011 were $269,000.

Non-GAAP operating expenses for the six months ended December 31, 2011 were $11.9 million, compared to $11.7 million for the six months ended December 31, 2010.

GAAP net loss for the six months ended December 31, 2011 was $2.8 million, or ($0.27) per share, compared to $1.3 million, or ($0.12) per share, for the six months ended December 31, 2010.

Non-GAAP net loss for the six months ended December 31, 2011 was $1.3 million or ($0.13) per share, compared to non-GAAP net income of $1.0 million, or $0.09 per share, for the six months ended December 31, 2010.

Balance Sheet Summary

Cash and cash equivalents were $3.3 million as of December 31 2011, compared to $5.8 million as of June 30, 2011.

Total receivables, which include accounts receivable, net, and contract manufacturers’ receivable, were $1.7 million as of December 31, 2011, compared to $3.5 million as of June 30, 2011.

Net inventory was $8.5 million as of December 31, 2011, compared to $9.2 million as of June 30, 2011.

Accounts payable were $4.8 million as of December 31, 2011, compared to $8.4 million as of June 30, 2011.

Working capital was $2.4 million as of December 31, 2011, compared to $5.2 million as of June 30, 2011.

Discussion of Non-GAAP Financial Measures

Lantronix believes that the presentation of non-GAAP financial information, when presented in conjunction with the corresponding GAAP measures, provides important supplemental information to management and investors regarding financial and business trends relating to the Company’s financial condition and results of operations. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The Company has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures. Management believes that non-GAAP operating expenses, non-GAAP net income (loss) and non-GAAP net income (loss) per share are important measures of the Company’s business. Management uses the aforementioned non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of our comparative operating performance. In addition, certain stockholders have expressed an interest in seeing financial performance measures, which exclude the impact of certain matters such as decisions relating to the restructuring, which while important, are not central to the core operations of the Company’s business.

Non-GAAP operating expenses consist of operating expenses excluding share-based compensation and related payroll taxes, depreciation and amortization, restructuring charges, costs associated with the contested proxy, costs associated with the investigation, and consulting fees for former executives.

Non-GAAP net income (loss) consists of net income (loss) excluding (i) non-GAAP adjustments to operating expenses, (ii) interest income (expense), (iii) other income (expense), and (iv) income tax provision (benefit).

Non-GAAP net income (loss) per share is calculated by dividing non-GAAP net income (loss) by non-GAAP weighted-average shares outstanding (diluted). For purposes of calculating non-GAAP net income (loss) per share, the calculation of GAAP weighted-average shares outstanding (diluted) is adjusted to exclude share-based compensation, which for GAAP purposes is treated as proceeds assumed to be used to repurchase shares under the GAAP treasury stock method.

Conference Call and Webcast
Lantronix will host a conference call and webcast today at 2:00 p.m. Pacific Time (5:00 p.m. ET) to discuss its second quarter fiscal 2012 financial results. Those wishing to participate in the live call should dial 866-362-5158 (international dial-in 617-597-5397) using the passcode 19172596.  A telephone replay of the call will be available through February 16, 2012 by dialing (888) 286-8010 (international dial-in 617-801-6888) and entering passcode 17177530.

About Lantronix
Lantronix, Inc. (NASDAQ: LTRX) is a global leader of secure communication technologies that simplify access and communication with and between virtually any electronic device. Our smart connectivity solutions enable sharing data between devices and applications to empower businesses to make better decisions based on real-time information, and gain a competitive advantage by generating new revenue streams, improving productivity and increasing efficiency and profitability. Easy to integrate and deploy, Lantronix products remotely and securely connect electronic equipment via networks and the Internet. Founded in 1989, Lantronix serves some of the largest medical, security, industrial and building automation, transportation, retail/POS, financial, government, consumer electronics/appliances, IT/data center and pro-AV/signage entities in the world. The company’s headquarters are located in Irvine, Calif.
For more information, visit www.lantronix.com. The Lantronix blog, https://www.lantronix.com/blog, features industry discussion and updates.

Forward-Looking Statements
This news release contains forward-looking statements, including statements concerning our future business plans, future financial position, future results of operations and future product development strategies and schedules. These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that could cause actual reported results and outcomes to differ materially from those expressed in the forward-looking statements. Factors that could cause our expectations and reported results to vary, include, but are not limited to: our ability to raise additional capital when and to the extent necessary; final accounting adjustments and results; quarterly fluctuations in operating results; our ability to identify and profitably develop new products that will be attractive to our target markets, including products in our device networking business and the timing and success of new product introductions; our ability to implement the planned cost reduction program; changing market conditions and competitive landscape; government and industry standards; market acceptance of our products by our customers; pricing trends; actions by competitors; future revenues and margins; changes in the cost or availability of critical components; unusual or unexpected expenses; and cash usage including cash used for product development or strategic transactions; and other factors that may affect financial performance. For a more detailed discussion of these and other risks and uncertainties, see our SEC filings, including our Annual Report on Form 10-K for the year ended June 30, 2011 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011, and December 31, 2011 and our Annual Report on Form 10-K for the year ended June 30, 2011. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and the Company undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances. If the Company does update or correct one or more of these forward-looking statements, investors and others should not conclude that the Company will make additional updates or corrections.

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