Genasys Inc. — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended March 31, 2022. Genasys provides critical-communications hardware and software for public safety, emergency warning, defense and enterprise uses. Financial figures below are in U.S. dollars; amounts are shown in millions unless noted.
Financial performance
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Revenue | $13.17 | $11.30 | $23.85 | $19.33 |
| Gross profit / margin | $6.96 / 52.9% | $5.25 / 46.5% | $12.10 / 50.8% | $8.98 / 46.5% |
| Operating income (loss) | ($0.53) | $0.55 | ($2.14) | ($0.14) |
| Net income (loss) | ($0.49) | $0.26 | ($1.80) | ($0.36) |
| Adjusted EBITDA | $0.85 | $1.15 | $0.44 | $0.92 |
| Operating cash flow | Not provided by quarter | Not provided by quarter | ($3.11) | $0.36 |
- Q2 revenue rose 16.5%, driven by LRAD revenue of $10.62 million, up $0.82 million, and IMNS revenue of $1.88 million, up $1.05 million. Software revenue was $0.67 million, approximately flat year over year. Management attributed the revenue increase largely to a larger opening backlog.
- For the six-month period, revenue increased 23.4%; hardware revenue rose 25.6% to $22.62 million, while software revenue declined 7.1% to $1.22 million.
- Q2 operating expenses increased 59.3% to $7.49 million. SG&A rose 46.3%, with higher personnel, commissions, amortization, travel and marketing costs; R&D more than doubled as engineering expanded the software platform, including Zonehaven integration.
- Adjusted EBITDA is a company-defined non-GAAP measure. It declined year over year in both the quarter and six-month period.
Balance sheet, liquidity and debt
- At March 31, cash and cash equivalents were $8.98 million; short- and long-term marketable securities totaled $7.47 million. Restricted cash was another $1.36 million. Working capital was $16.84 million, down from $18.02 million at September 30, 2021.
- Cash, cash equivalents and restricted cash declined $4.19 million over the six months. The company used $3.11 million in operating activities, $0.15 million in investing activities and $0.92 million in financing activities. Inventory rose $3.29 million; accrued and other liabilities fell $4.41 million, including lower customer deposits and payment of prior-year incentive compensation.
- Total liabilities were $20.59 million, including $6.17 million of operating lease liabilities. Notes payable were $0.27 million, secured by restricted cash; in April 2022, the associated loan was paid in full using that cash. The $10 million revolving credit facility had no borrowings at quarter-end and matures March 31, 2023.
- Management said available capital was sufficient to fund operations for at least the next 12 months under planned expenditures and current operating assumptions, while noting additional financing might be needed and may not be available on satisfactory terms.
Changes, outlook and risks
- Revenue growth and improved gross margin were outweighed by higher operating costs, and the company moved from Q2 FY2021 net income to a Q2 FY2022 net loss. For the six months, the net loss widened to $1.80 million from $0.36 million.
- Management gave no specific revenue or earnings guidance. It described plans to pursue domestic and international opportunities, invest in software and product development, and continue sales and marketing efforts. Government budget timing, approval cycles and military conflict can make awards and quarterly revenue uneven.
- Reported business developments included selection of Genasys NEWS for Slovenia’s nationwide warning system, expansion of Zonehaven services in California, a $1.97 million City of Berkeley contract and other software and public-safety awards.
- Customer concentration is significant: two customers represented 63% and 13% of Q2 revenue; one customer represented 65% of six-month revenue. Two customers accounted for 56% and 17% of accounts receivable at quarter-end.
- Management said COVID-19 had not materially affected results to date, but identified potential impacts from supply-chain disruption, customer payment delays and restrictions on business activity. It cited supply constraints, including semiconductor components, and added Russia-Ukraine conflict and related sanctions, logistics and market uncertainty as risks. Other factors include inflation, competing technologies, product mix and government spending.
- The company repurchased 259,310 shares for $0.998 million during the six months; $3.0 million remained available under its buyback program. Amika Mobile-related obligations included 139,128 shares still subject to issuance and a $0.72 million holdback liability. No material litigation was pending.
- Deferred revenue and customer deposits totaled $7.03 million at quarter-end; the company expected to recognize $6.72 million, or 96%, of remaining performance obligations over the next 12 months.
Important facts for investors to verify
- Whether revenue growth, backlog conversion and software sales can continue despite uneven government procurement cycles and customer concentration.
- Whether operating expenses—especially sales, marketing and software R&D—produce growth sufficient to improve operating profitability and cash generation.
- Inventory levels, supplier availability and working-capital trends, given the six-month operating cash outflow and inventory increase.
- The assumptions behind management’s 12-month liquidity assessment, and compliance with the revolving credit facility’s liquidity and leverage covenants.
- The effects of Russia-Ukraine-related restrictions, supply-chain disruption, inflation and COVID-19 on orders, deliveries and collections.
- The reported GAAP results alongside adjusted EBITDA, which is non-GAAP and excludes items including stock-based compensation, depreciation and amortization, taxes and other income or expense.