Business context and reporting period
This is LRAD Corporation’s unaudited Form 10-Q for the fiscal quarter and nine months ended June 30, 2017. The company designs and sells directed and omnidirectional acoustic products, including LRAD-X and ONE VOICE systems, for public safety, defense, security and commercial uses. The filing names LRAD Corporation, not Genasys Inc.; investors should verify the company and filing identity associated with the request.
Financial results
| Metric | Three months ended June 30, 2017 | Year-over-year change | Nine months ended June 30, 2017 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $4.13 million | Down 18.1% | $12.81 million | Up 11.8% |
| Gross profit / margin | $1.71 million / 41.4% | Down from $2.44 million / 48.4% | $5.87 million / 45.8% | Up from $5.37 million / 46.8% |
| Operating income (loss) | $(1.00) million | Prior-year income of $0.24 million | $(1.89) million | Prior-year loss of $1.73 million |
| Net income (loss) | $(0.53) million; $(0.02) per share | Prior-year income of $0.28 million | $(1.04) million; $(0.03) per share | Prior-year loss of $0.77 million |
| Operating cash flow | Not presented separately for the quarter | — | $0.99 million provided | Compared with $0.18 million provided |
Quarterly operating expenses rose 23% to $2.71 million, including higher bonus accruals and share-based compensation. For the nine-month period, operating expenses increased 9.3% to $7.76 million. The company recorded income tax benefits of $0.44 million for the quarter and $0.75 million year to date.
Financial position and liquidity
- At June 30, 2017, cash and cash equivalents were $14.38 million and marketable securities totaled about $5.02 million. Current assets were $26.70 million and current liabilities $3.70 million; reported working capital was $23.01 million.
- Total liabilities were $3.76 million. The balance sheet reports no debt balance; investors should check related disclosures for any obligations not classified as debt.
- Cash increased $0.91 million from September 30, 2016. Nine-month investing cash use was $0.08 million; there was no financing cash flow. The company paid no dividends and repurchased no shares in the period.
- Inventory rose to $5.71 million from $4.76 million. Accounts receivable declined to $2.38 million from $3.41 million.
Material changes and management commentary
- Quarterly revenue fell mainly because Asia Pacific shipments were lower, despite a $1.9 million shipment to the region; Americas revenue rose, primarily on a $525,000 U.S. Navy order. Year-to-date revenue growth was driven in part by mass-notification orders.
- Management attributed lower quarterly gross margin to reduced shipments, foreign-navy maintenance-contract costs and higher manufacturing overhead. Year-to-date gross profit increased with sales volume, while gross margin edged down.
- Backlog was $6.5 million at June 30, scheduled to ship within 12 months. Orders received during the quarter included a $1.6 million ONE VOICE mobile system order, a $528,000 Canadian mining-site order, $1.7 million in Southeast Asian public-safety orders and $1.0 million in international acoustic-hailing-device orders.
- Management said demand remained strong but revenue would be uneven quarter to quarter. It believed cash and expected operating cash flows were sufficient for the next 12 months under planned spending and operating assumptions. No specific revenue or earnings forecast was provided.
- Two customers represented 47% and 13% of quarterly revenue. Two customers accounted for 41% and 25% of accounts receivable at quarter end, creating customer-concentration exposure.
Risks, contingencies and unusual items
- Management cited uncertain international economic and geopolitical conditions, government-budget timing, competing technologies, product acceptance in the mass-notification market and the difficulty of closing large opportunities. U.S. defense-spending prospects were uncertain.
- The company said it had no pending material legal proceedings. It reported a $745,900 accrual for fiscal 2017 bonuses and related payroll taxes during the nine months.
- A $12.11 million valuation allowance remained against deferred tax assets. Management said it continued to weigh negative evidence about realizing those assets.
- Management disclosed no material changes to internal control over financial reporting and concluded disclosure controls were effective as of June 30, 2017.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is for LRAD Corporation, although the request identifies Genasys Inc.
- Assess whether the $6.5 million backlog shipped as scheduled and whether major customer orders recur; reported customer concentration is significant.
- Monitor gross-margin recovery, inventory levels and cash conversion, including the effect of product mix and manufacturing overhead.
- Review the assumptions supporting management’s 12-month liquidity assessment and the recoverability of deferred tax assets.