Genasys Inc. (filed as LRAD Corporation) — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2019. The filing identifies the registrant as LRAD Corporation, with common stock trading under LRAD. The company operates Hardware (LRAD) and Software (Genasys) segments, selling acoustic hailing and public-safety mass-notification products and services.
Financial performance and position
| Metric | Three months ended March 31, 2019 | Six months ended March 31, 2019 |
|---|---|---|
| Revenue | $10.19 million | $20.37 million |
| Gross profit / margin | $5.19 million / 50.9% | $10.28 million / 50.5% |
| Operating income / margin | $1.44 million / 14.1% | $2.73 million / 13.4% |
| Net income (loss) | $1.18 million; $0.04 per diluted share | $2.22 million; $0.07 per diluted share |
| Operating cash flow | Not separately presented | $(0.88) million |
- Quarter revenue grew 29.5% year over year; six-month revenue grew 31.4%. Product sales were $9.34 million for the quarter and $18.69 million for the half-year.
- At March 31, cash and cash equivalents were $7.72 million; marketable securities totaled $4.80 million. Restricted cash was $0.73 million. Working capital was $22.12 million.
- Total debt was $320,472, of which $286,728 was classified as current. The filing describes the assumed Spanish government loans as interest-free; $269,856 was pledged as collateral.
- Total assets were $40.74 million and stockholders’ equity was $33.77 million at March 31, 2019.
Changes versus prior comparable periods
- Quarterly revenue increased from $7.87 million to $10.19 million, driven principally by acoustic hailing device (AHD) revenue, up 21%, and public-safety mass-notification revenue, up 51%. Quarterly operating income rose from $0.60 million to $1.44 million and net income from $0.46 million to $1.18 million.
- For the six months, AHD sales increased 49%, while public-safety mass-notification systems sales decreased 26%. Genasys segment sales were $1.07 million, versus $0.41 million in the prior-year period; the filing notes Genasys was acquired in January 2018, so the prior-year comparison excludes its first-quarter sales.
- Gross margin declined year over year by 0.4 percentage points for the quarter and 1.1 points for the six-month period. Management attributed pressure partly to higher manufacturing overhead; product and channel mix can also affect margins.
- Six-month operating cash flow shifted from $2.90 million provided in the prior year to $0.88 million used, despite positive net income. The main cash uses included increased receivables and inventory and reduced accounts payable.
- Six-month net income improved from a $1.22 million loss to $2.22 million income. The comparison is materially affected by a $2.47 million discrete tax charge in the prior-year period related to tax reform; 2019 six-month income tax expense was $0.56 million.
Outlook, risks and notable items
- No quantified revenue or earnings guidance was provided. Management said it believes available capital and planned operations are sufficient to fund the next 12 months, but cautioned that changing receipts or expenditures could require additional financing, which may not be available on acceptable terms.
- Management cited uneven government budget and contract-award timing, geopolitical and economic conditions in some international markets, uncertainty around U.S. government priorities and spending, and difficulty predicting whether large opportunities will close. Acceptance of Genasys software and multidirectional products in a competitive market is also uncertain.
- Management expects to continue product development and may increase R&D spending; additional tooling and equipment expenditures were anticipated during the balance of fiscal 2019. Quarterly R&D expense rose 40% year over year, mainly due to product development and testing.
- Customer concentration is significant: two customers represented 56% and 13% of quarterly revenue; at period-end, two customers represented 55% and 11% of receivables. The filing does not identify those customers in the supplied text.
- The company repurchased 788,425 shares for $2.17 million in the six months under a new $5 million program; $4.45 million remained available at March 31. The repurchases contributed to the decline in cash.
- The quarter included $274,144 of noncash income tax expense, which management said reduced the deferred tax asset. The company also recorded $133,259 of inventory-obsolescence provision in the six-month cash-flow reconciliation.
- There were no pending material legal proceedings. Management concluded disclosure controls were effective as of March 31, 2019 and reported no material change in internal control during the quarter.
Important facts for investors to verify
- Whether the sharp rise in receivables and inventory converts into collections and sales, given negative operating cash flow in the first half.
- Customer identities, order timing, and the durability of revenue growth, particularly given concentration and government procurement cycles.
- Whether margins hold up as product mix, manufacturing costs, warranty experience, and channel mix change.
- The assumptions supporting management’s 12-month liquidity assessment and whether planned buybacks and investment remain consistent with that assessment.
- The basis for deferred-tax-asset recoverability and the effect of future tax expense, including the partial valuation allowance.
- The filing’s precise customer-deposit and contract-liability subtotals should be checked against the underlying statements: the supplied text contains figures that do not reconcile cleanly in that disclosure.