Genasys Inc. (then LRAD Corporation) — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2019. The filing registrant is LRAD Corporation; its businesses were reported as Hardware (LRAD) and Software (Genasys). Figures are in U.S. dollars.
Financial performance
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue, 2019 | $8.86 million | $29.23 million |
| Revenue, 2018 | $7.51 million | $23.01 million |
| Revenue growth | 18% | 27% |
| Gross profit / margin, 2019 | $4.60 million / 51.9% | $14.88 million / 50.9% |
| Operating income / margin, 2019 | $686,461 / 7.7% | $3.41 million / 11.7% |
| Net income (loss), 2019 | $638,041 | $2.86 million |
| Diluted EPS, 2019 | $0.02 | $0.09 |
| Operating cash flow, 2019 | Not separately presented | $2.41 million |
- Quarterly revenue growth reflected higher public safety mass notification sales, up 66% ($1.59 million); AHD revenue declined 5% ($238,053). Gross margin increased from 49.2% to 51.9%.
- For the nine months, AHD revenue was $22.63 million, up 33%; public safety mass notification revenue was $6.60 million, up 11%. Operating margin improved from 6.2% to 11.7%.
- Quarterly operating expenses were nearly flat year over year; R&D increased, partly offset by lower SG&A. YTD R&D rose $866,000, primarily from product development and compensation.
- The prior-year nine-month net loss included a $2.474 million discrete tax charge from deferred-tax-asset remeasurement after tax reform. 2019 nine-month tax expense was $675,457, with a 20.03% effective rate.
Financial position and liquidity
- At June 30, cash and cash equivalents were $11.29 million; marketable securities totaled $4.48 million; restricted cash was $804,211. Working capital was $23.89 million, versus $21.09 million at September 30, 2018.
- Accounts receivable rose to $6.81 million from $2.79 million; management attributed the balance to shipment and collection timing. Receivables represented about 70 days of revenue, versus 78 days at September 30.
- Nine-month operating cash flow was $2.41 million, versus $2.15 million in 2018. Investing provided $30,000, compared with $2.29 million used in 2018, which included the Genasys acquisition. Financing used $2.13 million, mainly for $2.17 million of share repurchases.
- Total debt was $324,767, principally interest-free Spanish government loans; $290,571 was classified current. The filing says $273,472 of cash was pledged as collateral and expected to be released following repayment.
- Management believed available capital and planned operations were sufficient for at least 12 months after issuance, while cautioning that changed operating conditions could require additional financing. The company reported no other unused liquidity sources.
Outlook, risks and notable items
- No quantified revenue or earnings guidance was provided. Management cited market opportunities across public safety, defense, maritime, security and wildlife applications, and planned further product development and international expansion.
- Management warned that government budget cycles, geopolitical and economic conditions, contract-award timing, customer acceptance, competition, product mix and manufacturing costs could cause uneven results. Large opportunities may be delayed or may not close; historical gross margins should not be treated as predictive.
- Quarter developments included a $4.75 million maintenance agreement for AHDs deployed by the Indian Navy, announced defense and homeland security orders of $1.7 million, and international public-safety and wildlife orders of $850,000. These announcements do not necessarily represent revenue recognized in the quarter.
- One customer represented 30% of quarterly revenue. Two customers represented 43% and 11% of nine-month revenue; three customers represented 55% of period-end receivables combined.
- The company had $2.01 million of remaining performance obligations at June 30, of which $1.41 million was expected to be recognized within 12 months. Current deferred revenue was $1.09 million.
- The new 54,766-square-foot facility lease runs through August 2028, with scheduled rent increasing over time. Management expected adoption of lease accounting rules to recognize a right-of-use asset and lease liability.
- No pending material legal proceedings were reported. Disclosure controls were assessed as effective; no material change in internal control was reported. The filing noted no material impact from adopting ASC 606.
Investor verification priorities
- Check the timing, terms and revenue recognition for the $4.75 million Indian Navy maintenance agreement and other announced orders.
- Monitor collection of the increased receivables and customer concentration, especially the customer responsible for 30% of quarterly revenue.
- Assess whether operating cash flow remains adequate as sales, receivables and working-capital needs fluctuate.
- Track the performance of public safety/software sales against AHD revenue, product-development spending and management’s stated market-acceptance risks.
- Verify repayment and collateral release for the Spanish government loan, and the balance-sheet effect of lease accounting adoption.