Genasys Inc. (GNSS) — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2020; unaudited. The company designs and sells directed and multidirectional acoustic systems, emergency-warning and mass-notification products, and related software. It rebranded from LRAD Corporation to Genasys Inc. in October 2019.
Financial performance
| Metric | Three months ended March 31, 2020 | Year-over-year change | Six months ended March 31, 2020 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $8.28 million | Down 18.8% | $17.06 million | Down 16.3% |
| Gross profit / margin | $4.01 million / 48.4% | $5.19 million / 50.9% previously | $8.61 million / 50.5% | $10.28 million / 50.5% previously |
| Operating income | $0.33 million | Down 77.1% | $1.03 million | Down 62.4% |
| Net income | $0.30 million; $0.01 per diluted share | Down 74.4% | $0.92 million; $0.03 per diluted share | Down 58.6% |
| Cash used in operating activities | Not separately stated for the quarter | $2.13 million | $0.88 million used in prior-year period |
Quarterly revenue declines reflected lower acoustic hailing device (AHD) sales and public safety mass notification (PSMN) systems sales, alongside timing of deliveries from backlog. For the quarter, AHD revenue was $7.30 million, down about 20%, and PSMN revenue was $0.98 million, down about 11%. Management attributed the lower gross margin in the quarter mainly to sales volume and $77,000 of engineering costs newly classified in cost of revenues. Six-month gross margin was unchanged year over year.
- Expenses: Quarterly operating expenses were $3.68 million, down 2.0%. SG&A rose $257,000, largely from sales, marketing and Spanish-office costs; R&D fell $331,000. For six months, SG&A increased $327,000 and R&D decreased $295,000.
- Cash and liquidity: At March 31, cash and cash equivalents were $16.40 million, short- and long-term marketable securities totaled $5.11 million, and working capital was $25.51 million. Cash, cash equivalents and restricted cash totaled $17.06 million. Management said available capital was expected to fund operations for at least 12 months, subject to business conditions and planned expenditures.
- Balance sheet and debt: Total assets were $52.17 million and stockholders’ equity was $36.59 million. Notes payable totaled $298,000, including $281,000 current; the acquired Spanish-government loans are interest-free. Operating lease liabilities totaled $7.47 million, recognized following adoption of the lease accounting standard; they are not equivalent to funded borrowing.
- Cash flow and capital allocation: Six-month investing cash use was $144,000 and financing cash use was $198,000. The company repurchased 156,505 shares for approximately $398,000 during the six months; $4.1 million remained available under its $5 million repurchase authorization.
Changes, outlook and risks
- Six-month revenue fell in both hardware and software; hardware remained the large majority of sales. Operating income and net income declined more sharply than revenue, while six-month gross margin held at 50.5%.
- The company reported receiving $1.8 million in international homeland-security and critical-infrastructure orders, announcing $1.5 million in international naval and port-security orders, and receiving $1.2 million in defense and mass-notification orders during the quarter. Orders are not the same as recognized revenue.
- Management described government budget cycles, approval timing and delivery schedules as causes of uneven quarterly revenue. It planned to pursue domestic and international government, defense, public-safety and commercial opportunities, expand sales channels, and continue product and software development. No numerical revenue or earnings guidance was provided.
- COVID-19 had not materially adversely affected the quarter’s reported financial position or results, according to management, but its duration and business effects were uncertain. Risks cited include delayed or reduced orders, customer payment delays, supplier or carrier disruption, employee and operating constraints, and weaker access to financing. Some suppliers and sub-suppliers are connected to China; many component suppliers are located near the company’s facility.
- One customer generated 64% of quarterly revenue and 63% of six-month revenue. Two customers represented 63% and 15% of accounts receivable at March 31, 2020, creating customer-concentration and collection exposure.
- There were no pending material legal proceedings. Management reported disclosure controls were effective as of March 31, 2020, with no material change in internal control over financial reporting during the quarter.
Key investor verification points
- Whether delivery timing and government procurement delays resolve, and whether reported orders convert to shipments and revenue.
- The impact of COVID-19 on order intake, supply availability, production, customer collections and liquidity after March 31, 2020.
- Continuity of the major customer relationship and collection of receivables concentrated among two customers.
- Drivers of lower quarterly gross margin, including product mix and the $77,000 engineering-cost classification change.
- Cash-flow conversion: operating activities used $2.13 million in the first six months despite reported net income of $0.92 million, primarily amid working-capital movements.
- Lease commitments, share repurchases, and any changes to management’s stated expectation that cash resources would fund at least 12 months of operations.