Business context and reporting period
LRAD Corporation’s Form 10-Q covers its fiscal first quarter ended December 31, 2013, with comparisons to the three months ended December 31, 2012. The filing describes a business developing and selling directed-acoustic products for government, military, public-safety, security, commercial, and mass-notification markets. The issuer is identified in the filing as LRAD Corporation.
Financial performance and position
| Metric | Quarter ended Dec. 31, 2013 | Prior-year quarter / comparison |
|---|---|---|
| Revenue | $3.82 million | $2.98 million; up 28.3% |
| Gross profit / margin | $1.94 million / 50.9% | $1.49 million / 49.9% |
| Operating income (loss) | $126,466 / 3.3% of revenue | $(108,573) / (3.6%) |
| Net income (loss) | $131,563 | $(100,376) |
| Cash from operations | $2.31 million | $2.34 million |
| Cash, Dec. 31, 2013 | $18.09 million | $15.81 million at Sept. 30, 2013 |
| Working capital | $24.04 million | $23.70 million at Sept. 30, 2013 |
Operating expenses rose 14.0% to $1.82 million, primarily reflecting investment in business development and selling efforts; research and development spending declined. Cash increased $2.28 million during the quarter, with operating cash generation driven largely by collection of receivables. Investing activities used $124,873 and financing activities provided $93,467. The company reported no debt. Current liabilities were $1.81 million and total liabilities were $1.96 million at quarter-end.
Material changes and operating developments
- Revenue growth was attributed mainly to sales for oil platforms and vessels and to public-safety and security orders. Gross margin improved by about 1 percentage point.
- A $1.3 million order for a Southeast Asian national police force was delayed from the first to the second fiscal quarter because of a supply issue.
- Accounts receivable declined to $1.90 million from $4.96 million at September 30, 2013, following collections; inventory increased to $5.34 million from $4.59 million.
- The company repurchased 52,808 shares for $99,597, at an average $1.89 per share, under a program authorized for up to $4 million through December 31, 2014.
Outlook, risks, and other matters
Management expected uneven quarterly revenue and said it had sufficient capital for the next 12 months based on its current cash position, planned spending, and operating levels. It planned to expand international sales efforts and develop the mass-notification market, including through its LRAD 360X products. Management cited uncertainty in U.S. military spending, international economic and geopolitical conditions, and difficulty predicting whether or when large opportunities will close. No revenue or earnings guidance was provided.
Risks and other notable items include varying product and channel margins, sales concentration and lumpy order timing, product acceptance in newer markets, competition, inventory levels, and potential dependence on additional financing if conditions change. Four customers represented 31%, 19%, 11%, and 10% of receivables at quarter-end; one customer provided 11% of quarterly revenue. Approximately $17.8 million of cash deposits exceeded applicable FDIC/SIPC insured limits. The company reported no pending material legal proceedings. It maintained a full valuation allowance against deferred tax assets; reported income tax expense was $100. Management said adoption of a recently issued tax-accounting standard was not expected to have a material impact. Disclosure controls were deemed effective, and no material changes in internal control were reported.
Important facts for investors to verify
- Whether the delayed $1.3 million order shipped in the second fiscal quarter and whether other large orders converted to revenue.
- How customer concentration, receivable collection timing, and the large uninsured cash balance changed after quarter-end.
- Whether U.S. defense-budget uncertainty, international conditions, or product mix affected subsequent sales and gross margins.
- Cash use, inventory levels, and progress against management’s stated 12-month liquidity outlook.
- Share repurchases, option and warrant dilution, and any material legal, tax, or supply developments after the reporting date.