Business context and reporting period
LRAD Corporation (now associated with Genasys Inc.) filed this Form 10-Q for its fiscal first quarter ended December 31, 2017. The company designed and sold directed acoustic hailing devices and omnidirectional mass-notification systems. Unless noted otherwise, comparisons are with the quarter ended December 31, 2016.
After quarter-end, on January 18, 2018, LRAD acquired Genasys Holdings, S.L. and subsidiaries for approximately €3.1 million (about $3.8 million), including assumed debt of approximately €1.2 million (about $1.5 million). The purchase was funded from cash on hand; acquisition accounting was still being assessed.
Financial performance and position
| Metric | Q1 FY2018 | Q1 FY2017 |
|---|---|---|
| Revenue | $7.63 million | $2.94 million |
| Gross profit / margin | $3.96 million / 51.9% | $1.22 million / 41.6% |
| Operating income (loss) | $0.99 million | $(1.33) million |
| Net loss | $(1.68) million | $(0.81) million |
| Net loss per share | $(0.05) | $(0.03) |
| Operating cash flow | $1.75 million | $1.43 million |
Revenue rose 159%, driven by higher acoustic hailing device and mass-notification sales. Gross margin improved 10.3 percentage points, reflecting greater sales and fixed-overhead absorption. Operating expenses increased 16% to $2.97 million, including higher incentive compensation, IT costs, engineering and sales staffing.
Net loss widened mainly because of a $2.47 million noncash deferred-tax-asset remeasurement following U.S. tax-rate changes; reported income-tax expense was $2.71 million. Before this discrete tax charge, the company reported pretax income of $1.03 million.
At December 31, cash and cash equivalents were $15.12 million, with marketable securities of $4.61 million. Working capital was $26.49 million; total liabilities were $3.76 million, with no borrowings shown on the balance sheet. Operating cash flow was positive, while investing activities provided $0.40 million and financing activities provided $0.16 million. Cash increased $2.31 million during the quarter.
Material changes, outlook and risks
- LRAD cited a larger opening backlog as a key driver of revenue growth. Acoustic hailing device revenue increased 128% and mass-notification revenue increased 297% year over year.
- Management reported several orders, including U.S. military orders and follow-on orders for Southeast Asian border and maritime security and Eurasian oil-and-gas applications.
- No numerical revenue or earnings guidance was provided. Management expected to continue product development and potentially increase R&D spending, while noting that large opportunities may take time to close or may not materialize.
- Management said it believed available capital and expected operating cash flows were sufficient for the next 12 months under planned operations, but cautioned that changing conditions could require additional financing, which might not be available on acceptable terms.
- Risks highlighted include uneven government and military procurement cycles, geopolitical and economic conditions, product mix and margins, inventory levels, competition, and uncertainty about acceptance of mass-notification products. Two customers represented 57% of quarterly revenue, and one customer represented 42% of period-end receivables.
- The Tax Cuts and Jobs Act reduced the federal corporate tax rate to 21%; the company described its deferred-tax remeasurement as provisional and subject to refinement. There were no pending material legal proceedings. Disclosure controls were deemed effective; the filing uses scaled smaller-reporting-company risk-factor disclosure.
Important facts for investors to verify
- Confirm the entity and reporting-period mapping: this filing is under LRAD Corporation and covers the quarter ended December 31, 2017; the Genasys acquisition closed afterward.
- Track the acquisition’s final purchase accounting, assumed debt, and effect on liquidity and results.
- Assess whether strong quarterly revenue and margin gains persist given contract timing, customer concentration and product mix.
- Reconcile the tax charge, deferred-tax valuation allowance and any subsequent measurement-period adjustments.
- Monitor operating cash generation, inventory, receivables and the company’s stated 12-month liquidity assumptions.