Genasys Inc. (filed as LRAD Corporation) — Form 10-Q
Reporting period: Fiscal first quarter ended December 31, 2018; comparisons are with the quarter ended December 31, 2017. The filing identifies LRAD Corporation as the registrant and reports Hardware (LRAD) and Software (Genasys) segments.
Financial performance
| Metric | Q1 FY2019 | Q1 FY2018 |
|---|---|---|
| Revenue | $10.18 million | $7.63 million |
| Gross profit / margin | $5.09 million / 50.0% | $3.96 million / 51.9% |
| Operating income / margin | $1.29 million / 12.7% | $0.99 million / 13.0% |
| Net income (loss) | $1.05 million; $0.03 per diluted share | ($1.68 million); ($0.05) per diluted share |
| Operating cash flow | ($5.09 million) | $1.75 million |
Revenue increased 33.4%. Product sales were $9.35 million and contract and other revenue was $0.83 million. LRAD segment revenue was $9.66 million; Genasys contributed $0.52 million. AHD revenue rose $3.86 million, or 45%, while MN systems revenue declined $1.31 million. Gross profit grew with sales, but the gross margin contracted 1.9 percentage points. Operating expenses rose 28.1% to $3.80 million, reflecting Genasys expenses, compensation and development costs.
Balance sheet, liquidity and cash flow
At December 31, 2018, cash and cash equivalents were $4.42 million, short- and long-term marketable securities totaled $4.68 million, and restricted cash was $0.74 million. Working capital was $21.57 million, versus $21.09 million at September 30, 2018. Total assets were $40.35 million and stockholders’ equity was $33.00 million.
Total notes payable were $0.34 million, including $0.29 million current; the acquired Spanish government loans are interest-free. Operating cash use reflected a $5.92 million increase in receivables and a $2.03 million inventory build, partly offset by a $2.14 million reduction in prepaid expenses. Financing cash use included $1.62 million for share repurchases. Cash, cash equivalents and restricted cash declined $6.65 million during the quarter.
Changes, outlook and risks
The prior-year net loss included a $2.47 million discrete tax expense from remeasurement of deferred tax assets following U.S. tax reform. Q1 FY2019 tax expense was $0.28 million; management said it maintained a partial valuation allowance because it was not sufficiently confident deferred tax assets would be recovered. The company adopted ASC 606 on October 1, 2018, with no material impact or opening deficit adjustment.
Management stated that available capital and expected operating cash flows should fund operations for 12 months after issuance, assuming planned spending and current operations, but cautioned that additional financing may be needed and may not be available on acceptable terms. No specific financial guidance was provided. Management cited uneven government contracting and budget timing, geopolitical and economic uncertainty, competition in mass notification, product acceptance, product mix and margins, inventory reduction, and the timing or conversion of large opportunities as risks. It intends to pursue international mass-notification growth and expects potentially higher R&D spending.
Customer concentration is material: one customer represented 60% of quarterly revenue and 64% of receivables at quarter-end. The company reported no pending material legal proceedings. It repurchased 588,425 shares in the quarter and authorized a new $5 million repurchase program for January 2019 through December 2020.
Important facts to verify
- The cover page marks “No” for whether all required Exchange Act reports were filed during the preceding 12 months; confirm the reason and any filing-status implications.
- Reconcile the share-repurchase amount: the cash flow and equity statements report $1,621,022, while Part II reports $1,632,791 for 588,425 shares.
- Assess the customer concentration and collection exposure, particularly the 64% receivables concentration, and the sustainability of operating cash flow given the working-capital build.
- Confirm the liquidity outlook, including assumptions behind management’s 12-month funding assessment and the potential effect of further buybacks or operating cash use.
- Evaluate whether the decline in MN systems revenue, lower gross margin, and stated competitive and contract-timing risks affect the growth outlook.