Filing Summary
Business context and reporting period
This is LRAD Corporation’s unaudited Form 10-Q for the fiscal quarter and nine months ended June 30, 2015, filed August 6, 2015. LRAD develops and sells directed and omnidirectional acoustic communication and mass-notification products. The request identifies Genasys Inc., but the filing names LRAD Corporation; verify the issuer and filing identity.
Financial performance
| Metric | Three months ended June 30, 2015 | Prior-year quarter | Nine months ended June 30, 2015 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $3.51 million | $8.00 million | $12.38 million | $17.21 million |
| Gross profit and margin | $1.70 million; 48.5% | $5.05 million; 63.1% | $6.36 million; 51.4% | $9.72 million; 56.5% |
| Operating income (loss) | $(105,076) | $1.94 million | $635,545 | $2.59 million |
| Net income (loss) | $(63,947) | $1.94 million | $732,198 | $2.60 million |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $(622,671) | $5.93 million |
Quarterly revenue fell 56.2% year over year; nine-month revenue declined 28.1%. Management attributed the decline chiefly to customer-order timing and delayed contract awards, including the absence of a prior-year $4 million Middle East security order. Lower revenue and fixed-overhead absorption reduced gross margins. Quarterly operating expenses fell 41.9%, mainly due to lower commissions and bonus accruals, but did not offset the revenue decline.
Liquidity, debt and cash flows
At June 30, 2015, cash and cash equivalents were $17.78 million and marketable securities were $4.74 million, totaling about $22.52 million. Current assets were $28.14 million, current liabilities $2.50 million, and working capital $25.64 million. Total liabilities were $2.64 million; the company reported no debt. Cash declined $6.11 million from September 30, 2014. Nine-month investing outflows were $5.02 million, including $4.74 million of securities purchases; financing outflows were $470,640, including $965,474 of share repurchases.
Operating cash flow was negative despite nine-month net income, primarily reflecting a $2.99 million decline in accrued and other liabilities, including payment of prior-year bonuses, and a $1.22 million inventory increase. Management stated that existing capital was expected to fund operations for at least twelve months under current plans, while cautioning that additional capital might be needed and might not be available on satisfactory terms.
Outlook, risks and unusual items
- Management expected a strong fiscal fourth quarter but anticipated uneven quarterly revenue; it gave no quantified revenue or earnings guidance.
- Risks cited include delayed government budgets and contract awards, U.S. defense-spending uncertainty, international economic and geopolitical conditions, product mix and margins, inventory levels, and uncertain conversion of large opportunities.
- Management reported continued product demand and growth opportunities in international government and military markets and mass notification. Mass-notification sales were 18% of quarterly revenue and 16% of nine-month revenue, versus 3% and 5%, respectively, in the comparable 2014 periods.
- Three customers represented 42% of quarterly revenue; two customers represented 54% of accounts receivable at quarter-end. This creates customer-concentration exposure.
- No pending material legal proceedings were reported. The company maintained a full valuation allowance against deferred tax assets and reported no debt.
- The share-repurchase program was authorized up to $4 million and extended through December 31, 2015. The company repurchased 404,495 shares for $965,474 during the nine months.
Important facts for investors to verify
- Confirm the filing’s issuer: the supplied document is for LRAD Corporation, not Genasys Inc.
- Review subsequent results against management’s expectation of a strong fiscal fourth quarter and its explanation that revenue declines were primarily timing-related.
- Track operating cash conversion, inventory accumulation, receivable collection periods and the impact of customer prepayments and bonus payments.
- Assess customer concentration, government and international-market exposure, and the sustainability of gross margins given changing sales mix and overhead absorption.
- Verify the remaining authorization and subsequent activity under the share-buyback program.