LRAD Corporation (now identified in the request as Genasys Inc.) — Q1 FY2016 Form 10-Q
Reporting period: Three months ended December 31, 2015. The filing registrant is named LRAD Corporation. The company develops directed and omnidirectional acoustic communication and warning products, including LRAD-X and ONE VOICE.
Financial results
| Metric | Q1 FY2016 | Q1 FY2015 |
|---|---|---|
| Revenue | $2.82 million | $4.39 million |
| Gross profit / margin | $1.30 million / 46.0% | $2.36 million / 53.8% |
| Operating income (loss) / margin | $(723,000) / (25.6%) | $479,000 / 10.9% |
| Net income (loss) | $(380,000) | $506,000 |
| Operating cash flow | $(394,000) | $(601,000) |
- Revenue declined 35.7% year over year, primarily due to customer-order timing and delayed contract awards. Product sales fell 38.2%; contract and other revenue increased 7.7%.
- Gross margin declined 7.8 percentage points. Management attributed lower gross profit mainly to reduced revenue and lower fixed-overhead absorption; it said product margin on units shipped was comparable.
- Operating expenses rose 7.5% to $2.02 million, reflecting higher headcount, consulting, and development costs, partly offset by lower bonus accruals.
- The $310,000 income tax benefit reflected the prior-quarter partial release of the deferred-tax valuation allowance. The company continued to maintain a $12.175 million valuation allowance.
Financial position and cash flows
- At December 31, 2015, cash and cash equivalents were $15.58 million; short- and long-term marketable securities totaled $4.92 million. Combined cash and securities were approximately $20.50 million.
- Working capital was $23.90 million, down from $25.60 million at September 30, 2015. Current liabilities were $1.93 million; total liabilities were $2.08 million. The company reported no debt.
- Cash declined $2.73 million during the quarter. Operating activities used $394,000; investing activities used $696,000, including $624,000 invested in marketable securities; financing activities used $1.64 million for share repurchases.
- Inventory was $5.21 million, up from $4.93 million at fiscal year-end. Receivables were $1.94 million, equivalent to approximately 63 days of revenue, versus 44 days at September 30.
Changes, outlook, and risks
- The company reported a loss compared with prior-year income as lower sales and higher operating expenses outweighed other income and the tax benefit.
- Management cited approximately $5.2 million of backlog scheduled for delivery during FY2016, including a $710,000 order for a Latin American prison system. It cautioned that quarterly revenue would remain uneven and said delayed orders were believed achievable.
- A U.S. Navy contract amendment allows the U.S. Army to purchase units under that contract, avoiding a new request-for-proposal process. Management also described strong demand and continued market development, but provided no numerical revenue or earnings guidance.
- Management expected R&D spending to remain comparable to the prior year and believed available capital was sufficient for the next 12 months, subject to uncertainty in receipts and expenditures. It cautioned that additional financing might be needed and might not be available on acceptable terms.
- Key risks highlighted include delayed government budgets and contract awards, geopolitical and economic conditions, uncertain U.S. military spending, product mix and margins, inventory levels, competition, and whether omnidirectional products gain acceptance in a competitive mass-notification market.
- The board authorized a new 2016 share-repurchase program of up to $4 million. The company repurchased 1,031,208 shares for $1.64 million in the quarter and declared a $0.01-per-share dividend, payable January 29, 2016. No material pending legal proceedings were reported.
Important facts for investors to verify
- Whether the $5.2 million scheduled backlog converted into shipments and cash during FY2016, and how much remained subject to timing or cancellation risk.
- Whether revenue recovery improved operating performance and gross margins, given the quarter’s operating loss and negative operating cash flow.
- Cash use, inventory levels, receivable collection timing, and the company’s ability to fund operations without external financing.
- The assumptions supporting deferred-tax-asset realization and the continued valuation allowance.
- Customer and contract concentration: two customers generated 16% and 11% of quarterly revenue; three customers represented 55% of period-end receivables.
- The effects of the new buyback authorization and dividend on liquidity, share count, and future capital allocation.