Genasys Inc. (identified in this filing as LRAD Corporation) — Q1 FY2015 Form 10-Q
Reporting period: Three months ended December 31, 2014; comparisons are with the three months ended December 31, 2013 unless otherwise stated. The filing describes a developer and seller of directed-sound and mass-notification products. Financial statements are unaudited.
Financial performance
| Metric | Q1 FY2015 | Q1 FY2014 | Change |
|---|---|---|---|
| Revenue | $4.39 million | $3.82 million | Up 14.7% |
| Gross profit / margin | $2.36 million / 53.8% | $1.94 million / 50.9% | Margin up 2.9 percentage points |
| Operating expenses | $1.88 million | $1.82 million | Up 3.4% |
| Operating income | $479,432 | $126,466 | Up 279.1% |
| Net income | $505,634 | $131,563 | Up 284.3% |
| EPS, basic / diluted | $0.02 / $0.01 | $0.00 / $0.00 | |
| Operating cash flow | $(601,494) | $2.31 million | Turned negative |
Product sales rose 16.6% to $4.15 million, while contract and other revenue declined 10.2% to $239,356. Management attributed higher revenue mainly to international sales and said gross profit benefited from higher volume, favorable channel mix, and lower costs for a foreign military maintenance contract. Selling, general and administrative expense edged down; research and development expense increased 21.4%.
Liquidity, balance sheet, and cash flow
- At December 31, 2014, cash and cash equivalents were $20.09 million; short- and long-term marketable securities totaled $3.12 million. Cash plus securities therefore totaled approximately $23.21 million.
- Working capital was $25.84 million, down from $27.68 million at September 30, 2014. The company reported no debt and no unused external liquidity sources.
- Cash declined $3.80 million during the quarter. Operating cash use of $601,494 and investing cash use of $3.20 million—primarily purchases of marketable securities—were not offset by financing cash flows.
- Operating cash flow was pressured by a $2.82 million reduction in accrued and other liabilities, primarily payment of fiscal 2014 bonuses, and a $494,000 increase in inventory. Receivables fell by $1.80 million, supporting cash collections.
- Total liabilities were $2.37 million at quarter-end. Management said current cash and expected operating cash flows should fund operations for the next 12 months, subject to business conditions and spending.
Changes, outlook, and risks
- International markets generated 82% of quarterly revenue. Three customers represented 23%, 15%, and 13% of revenue; two customers accounted for 38% and 24% of accounts receivable, respectively.
- Management expects uneven quarterly revenue because of customer budget cycles, shipment timing, and the still-developing markets for the company’s products. It gave no specific revenue or earnings guidance.
- The company plans to pursue international growth, including in the Middle East and South America, and expand its omnidirectional products in mass notification. Management noted uncertainty about U.S. military spending, geopolitical and economic conditions in some regions, long sales cycles, and competition in mass notification.
- The company stated that product mix, sales channels, product changes, and limited warranty experience can affect margins; it cautioned that historical gross margins may not predict future margins.
- A fiscal 2015 employee bonus plan pays according to specified EPS targets; $170,279 was accrued during the quarter. The share-repurchase authorization was extended through December 31, 2015, but no shares were repurchased in the quarter.
- The company reported no pending material legal proceedings. It recorded no income tax provision for the quarter and maintained a full valuation allowance against deferred tax assets. Management said disclosure controls were effective as of December 31, 2014.
Important facts for investors to verify
- Confirm the registrant identity and corporate-name relationship: this 2015 filing names LRAD Corporation, while the request identifies Genasys Inc.
- Assess whether customer concentration and the 82% international revenue mix persist, and monitor collections from the two customers comprising 62% of receivables.
- Track cash generation excluding marketable-security purchases and the timing of accrued-liability payments; management’s 12-month liquidity assessment depends on planned spending and operating performance.
- Monitor order conversion, U.S. defense funding, mass-notification product acceptance, margin variability, and inventory levels; the filing provides no quantified forward guidance.
- Review the bonus plan’s EPS thresholds, outstanding equity awards and warrants, and the remaining share-repurchase authorization for potential effects on compensation expense and dilution.