Genasys Inc. (GNSS) Q2 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to today’s webcast. At this time, all lines have been placed on a listen-only mode and we will take questions following the presentation. [Operator Instructions] At this time, it is my pleasure to turn the floor over to Brian Harvey. Sir, the floor is yours.

Thanks you, Dagma [ph]. Good afternoon, everyone, and welcome to LRAD Corporation’s Fiscal Second Quarter 2015 Financial Results Conference Call. I want to apologize first for that – slight delay getting started, we understand that GlobeNewswire had an issue in getting the report out. So hopefully you have seen it by now. On the call with me this afternoon are Tom Brown, LRAD’s President and Chief Executive Officer; and Kathy McDermott, our Chief Financial Officer. Ms. McDermott will recap our fiscal second quarter year financial results, which will be followed by a brief presentation from Mr. Brown. After their presentations, we will open the call to questions. But before I turn the call over to them, I would like to take this opportunity to remind you that during the course of this call, management will make forward-looking statements. Other than statements that are historical facts, statements made during this call that are forward-looking statements are based on our current expectations. During this call, we may discuss the company’s plans, expectations, outlook or forecast for future performance. These forward-looking statements are subject to risks and uncertainties and actual results could differ materially from the views expressed today. For more information regarding potential risks and uncertainties, see the Risk Factors section of the company’s Form 10-K for the fiscal year ended September 30, 2014. LRAD Corporation disclaims any intent or obligation to update those forward-looking statements, except as otherwise specifically stated. I’ll now turn the call over to Kathy for the fiscal second quarter 2015 financial results recap. Kathy?

Thanks Brian and thanks everyone for joining us. LRAD Corporation’s financial results for the first half of fiscal 2015 were comparable to the first half of fiscal 2014. Revenues decreased by $338,000 and net income increased by $139,000 as a result of favorable gross profit margin and lower operating expenses. 85% of first half revenues were generated from international market. In our first half, our mass notification business continued strong generated $1.4 million or 15% of the revenue, primarily in one Asian country with several more cities installing replacement warning system. Also in the first half, we delivered our fourth and fifth order for military police in one Asian country totaling 1.7 million and several follow on orders for Navy vessels and another Asian country totaling 1.4 million. The repeat orders are attribute to the satisfaction of those customers with the capabilities and quality of our products. Service requirements and warranty costs are very low. We continue to sell across many markets including Navy, coast guards, military, wildlife protection and police and public safety. We continue to focus on the U.S. market as well as Tom will discuss shortly. Based on the timing of budget cycles and contract awards in our global markets, we expect our quarters to remain uneven. Revenues for the second fiscal quarter ended March 31, 2015 were $4.5 million, a 17% decrease from $5.4 million reported in the second fiscal quarter of 2014. Revenues for the six months ended March 31, 2015 were $8.9 million, a 4% decrease from $9.2 million reported for the same period in the prior year. Gross profit for the quarter ended March 31, 2015 was $2.3 million or 51.2% of net revenues compared to $2.7 million or 50.7% of net revenues for the second quarter of the prior year. Year to-date gross profit was $4.7 million or 52.5% of net revenues compared to $4.7 million or 50.7% of net revenues in the prior year. The decrease was primarily due to the decreased volume partially offset by favorable product mix. Operating expenses for the second fiscal quarter decreased $171,000 or 8% to $2 million from $2.2 million for the second fiscal quarter of 2014. The decrease was primarily due to $176,000 for accrued bonus, which was accrued year-to-date in the second quarter last year, but which we accrued each quarter in 2015 also reduced travel expenses and other decreases partially offset by small increases in third party commission expense and salaries and benefits. Year-to-date operating expenses decreased 3% to $3.9 million in the first six months of 2015, compared to $4 million for the first six months of the prior year. The decrease resulted from reduced travel, non-cash share based compensation expense and other decreases partially offset by increases in third party commissions in R&D development cost. Quarterly net income of $291,000 or $0.01 per diluted share in the second quarter of 2015, compared to net income of $526,000 or $0.02 per diluted share for the second fiscal quarter of 2014. Year-to-date net income was $796,000 or $0.02 per diluted share, compared to $657,000 or $0.02 per diluted share in the prior year. We have no tax liability year-to-date in the current or prior years and interest income increased by $47,000 year-to-date compared to the prior year. On our balance sheet, our cash and cash equivalent as of March 31, 2015 was $19.1 million compared to $23.9 million at September 30, 2014. The decrease of $4.8 million was due in part to investing $4.5 million in short-term and long-term marketable securities. Working capital remains high at $26 million, but $1.7 million lower compared to $27.7 million at September 30, 2014 due to our investment of $2.8 million in long-term instruments. If these were short-term instruments, our working capital would have increased by $1.1 million. And with that I’ll turn it back to Brian.

Thank you, Kathy. We’ll turn the call over to Tom for a brief management presentation.

Thanks, Brian. Thanks for joining our call. Let me give you a brief update on our business. Let’s start with mass notification. In March, we launched the road show, taking our mass communication trailer first to Oklahoma for various demonstrations, not just of our trailer unit, but also showing the capability of our 360X system for fixed installations. We have since provided a number of codes. In Oklahoma, we were invited to attend the National Guard Domestic Operations Conference in New Orleans. That demonstration has yielded follow-up demonstration of guard units in a number of states scheduled for this months. From New Orleans, we went to Florida, the demonstration setup by our new partner Foley & Lardner. The state-of-art is looking to upgrade their state wide emergency management infrastructure. Then our demonstrations who all received as our product provide superior intelligibility to produce mass communication versus the siren and global messaging from traditional systems. We have several additional demonstration of schedule throughout this month in new locations. The Middle East, as I’ve indicated we’ve been on a major program in the Middle East we are still awaiting to final outcome, our product demonstrations for the minister of interior have been pushed out until the end of this month due to delays in customs and getting our product through customs and current fighting in the area. We were still chasing this opportunity. We have submitted our proposal for Eglin Air Force Base mass notification RFP. The award should be made this month. All the major player is in this space have submitted proposals. Our mass communication business in Asia, as Kathy indicated continues to be strong and continues to expand. Yesterday, we announced the new order from the government – from a government department for sound barriers. Part of that announcement was a small opening order for our 360m to be deployed and in overseas compound. We are hopeful this will open up their market with this department. We are growing mass notification that have made significant investments in product development, tooling, test and certification, software development and marketing. Especially, marketing over the last two months. While still generating positive cash flow and profitability. We’re seeing continued demand for LRAD our directed product in Asia, in the Middle East an increasing demand from both U.S. army and Air National Guard and domestic law enforcement. We feel very good about our business and see mass communication as a significant future growth area for our company. We have a lot in the pipeline and anticipate having a strong second half and ending year on a very positive note. With that Brian, let’s go to the Q&A.

Okay, thank you Tom. We will now open the conference call to questions for management, we encourage callers with questions to queue up with the operator as soon as possible so that there will be minimal lifetime between each caller. Operator, please instruct the callers on how to queue up with their questions. Dagma [ph]?

Thank you. The floor is now for questions. All right and before we go to the phone lines we would like to take it back to Brian I was told he received an email.

Yes, thank you, Dagma. [Indiscernible] builds we didn’t receive an email question about the share repurchase program and how many shares have been bought back year-to-date. I’ll turn that over to Kathy to address the buyback.

So the buyback, we’ve been doing a lot in the past really starting second quarter. Second quarter, we’ve repurchased 69,213 shares on average price of 229. So now in total we’ve repurchased 346,370 and the average purchase price between last year and second quarter this year is 1.95. And then since the end of the quarter, we have been continuing to purchase as well, so there’s been quite a bit of activity in that area.

Great. Thank you. Operator, we’re ready to take the questions from the queue.

Thank you. Our first question comes from Jared Cohen with JM Cohen and Company. Please state your question.

Yes sure. Just curious that we’ve got more interest in your system since what’s been going in this country with the local police forces and all the demonstration because of what’s been going?

Jared, we have and law enforcement has been a very good customer for our LRAD products for the past several years. And right a lot of grant money starts to flow through to law enforcement and we’re getting a lot of inquiries from actually even Maryland came to us yesterday, [indiscernible] department. So we’re seeing renewed interest and this is a good time of the year for us to see law enforcement orders coming in. So, we have been getting good press on the – it depends on which side of the pressure you’re look up, but we’re getting very strong press from law enforcement.

Because actually some several very good videos on YouTube about recent LRAD use by the New York Police Department in Union Square on April 29, really using it for communication purposes to communicate with the 10s of 10,000s people who gathered in Union Square know just that let them know where and what they could do during the protest. So there is a lots of good activity on YouTube and we will be positing that to our site as well.

Okay. I was wondering in Maryland because it didn’t seem they are used in Merland it all.

We were – Baltimore police, I think as you can see the Baltimore is – is they have that whole situation let differently than they handled in other locations, but they did have a product onsite that they borrowed from Montgomery County. We sold into Montgomery County, Maryland. But the police has been used – actually, it seems like the police pretty much sit down through the whole situations.

All right. Just going forward do you think the police would want to use it just not only for communication but even digital spreads are demonstrators, you said tear gas and things like that?

Well actually federal judges come out and notify law enforcement that they need to give that clear intelligible voice messages before they deploy tear gas, rubber bullets or tasers. So we have a web glass how to all the law enforcement community and will see some additional orders that’s we add into the second half. It’s a very popular unit once the police get their hands on.

Okay, alright. And so they know that your product exist and then once they have it and so forth that it’s a usual device?

Yes, actually our smaller unit 100X is a perfect unit for law enforcement and we are modifying that to put in camera capability as they need these body camera is we are also putting camera capability on our product and that will help law enforcement, meet the requirements coming out of Department of Justice.

Okay, all right. Thank you very much.

Thank you.

All right. And we have one more question in the queue. This one comes from Anne Crow with Edison. Please state your question.

All right, thank you very much for taking my call. We’re noticing some great orders coming in and so my question is and please don’t take this question as sort of covered way let me trying to ask you to provide financial guidance for the year because it’s not. But given that perhaps does not the financial framework for assessing, how you’re performing with respect to you’re having expectations I was wondering what your priorities were for the current financial year and what non financial goes you were setting the company.

I think our priorities and/or to continue to grow the business and to we wanted to see growth over the prior year and we also wanted to see continued profitability and continued positive cash flow. And we feel pretty confident that we are going to attain that since we accrued a bonus and the bonus is based on achieving certain financial targets. So we are still feeling very good about the year. As Kathy indicated it’s – we were somewhat lumpy quarter-over-quarter but we have a lot in the pipeline right now and as long as we can get everything close we feel very comfortable – to have a very good year. In terms of non-financial targets we continue to enhance all of our product lineup and we feel all of our emphasis right now, as I indicated we made a lot of, relatively speaking, a lot of investment in mass communication and we see that as the big potential growth engine for the company. So we’re investing in that, we’re working to put a complete package together and we’re working hard to try to get some footprint inside the United States. We have some very good footprint in Asia, but we’re trying to develop that footprint in the U.S. and once we do that, we think we can take off.

Alright. And now it’s very interesting to hear that you’re looking at putting small commerce [ph] inside some of your products. [Indiscernible].

Actually not inside Anne, but we would attach it to the product.

Right.

It will be some part of the product. Yes.

Right, this, one of the comments which I liked on produces a minute raised commerce for that kind of application. Yes, it really does seem to be something that Homeland Security and other public safety bodies are very interested at the moment, guessing real time information and sharing it with people so they can make informed decisions, to be absolutely what is that?

Yes so we will be introducing that within the next month for our smaller units. We have it on our larger units we already – in our RX units we already have a camera built-in, but for the smaller units we’re introducing that as we speak.

Alright. I look forward to seeing that. So thank you and that’s very helpful.

Okay. Thank you, Anne. Appreciate your questions.

Thanks Anne.

Thanks Anne.

Thank you. Alright there don’t appear to be any other question in the queue.

Okay. We’ll give it may be if you want to ask one more time and if not we’ll wrap it up.

Sir actually one came in, one just came in. [Operator Instructions] In the meantime we’ll go to Lloyd Korten with Unique Investments. Please state your question.

Hi, everybody.

Hi.

Hi. Good afternoon, Lloyd.

Good. Less I missed it, did you discussed China at all?

Lloyd as Kathy indicated in the quarter we had revenue of $1.7 million that was directed to China. But China still – is we have a demo going on this week with the Chinese Navy and where we also working to Chinese coast guards so our partner in China has been very active and continue – we continued to see a good growth coming out of China I would like to see more but we are on target to continue to grow that business so.

What was that same quarter a year ago?

I don’t have the year-over-year quarters we’re little over $2 million right now we did $2.7 million for the whole year last year’s so we are well ahead but its – our revenue this year.

Good growth, I mean there is just a lot of news out there that China is certainly growing their military – Naval fleet a new area is entering and I don’t know its we’re going to be part of that or not do you know?

And also China do like we have a unit that’s on a Chinese naval vessel its one of RX units and we did sell the unit into the Chinese coast guard last year an RX unit and number of other RX units have gone into Chinese marathon so we’re working the coast guard is actually as much more vessels than the navy does in China.

All right.

So we’re work with both yes, it takes time but we are making progress.

So it sounds like the American LRADs its going to be talking to the Chinese LRADs one day and I hopes its spend of both?

Yes, LRADs don’t hurt you, so it would be good if that happen and we can also get some of the other navy’s that have purchased they can all communicate on the open seas.

Yes. Also as I know that there is a lot occasions mining is there anything going on or is there anybody focusing on those industries?

Yes, yes we are and we are still working with our partner DeTect, and we have a number of opportunities that we are pursuing together in both mining and in the continued oil operations that we have had some success in the past so we are still working with them and we are also doing some of our own business development in that space and we still see continued opportunities there.

Any revenue this quarter from those industries at all?

Not this quarter. We had some – not this quarter but we have some opportunities they were hoping to close before the end of our fiscal year.

Right and also what company with their port – American port.

We won the bid and they get on the side we won bid but then there was a protest.

Right, I would remember.

They put out the rebid we rebid and they pulled everything and they have decided not to buy anything at this time.

Okay.

So, it’s still potentially down the road but right now they are not buying either anybody’s product.

As Tom indicated we are still going after that market may be just prepared notes, he talked about going after Eglin Air Force Base in Florida and that’s one that we’re going after, we’re hoping to hear on this month. So that continues to be a targeted area for our marketing and we should know soon. And what’s interesting about Eglin is that we did go up against all the major competitors. So it will be a good test case for us.

Great, thank you for all the work you’re doing on our behalf.

Alright, thanks Lloyd.

Bye.

Aright.

Alright and our next question comes from Paul OKeefe with Edge. Please state your question.

Hi, thank you so much. Hello all at LRAD.

Hello.

Hello.

My question, I’ve got a couple of questions. The May 6 announcement for the 300K, how many of the vehicle protection systems were in that order?

We really don’t like to give that quantities because we only give our price information. So it was a several.

Fair enough.

Several.

Okay, is that a new product, because for me it’s a 360Xm, but I don’t know we had anything specific for the vehicles, other than what you were doing with Cronenberg [ph], it picked up on?

With Kongsberg [ph]. But…

Kongsberg [ph], excuse me.

What we have done is – we’ve been working directly with, we don’t want say who he is but with the department inside the U.S. government and we sold them product last year and they successfully deployed the product throughout the world and they’ve come and they’re purchasing more. We’re also looking at working with them on some engineering to, right now the unit that we’re selling is a unit that gets melted on the roof of the vehicle. Now we’re working with them to come up with engineering to make it more of a stealth [ph] product that would be – would not be visible from the street, but it would be a powerful unit that would keep, the main purpose is to try to keep uninvited people away from the vehicle.

Right.

And the feedback has been really strong and we’re looking, once we finalize this product, we’re still making some tweaks to it based on customer feedback and we’re going to take this across the board and start selling it to various customers, because we’re getting some interest internationally as this products roll out.

My last question is just, Katherine was talking about the buyback and we purchased 350,000 shares at about $1.95. The float seems pretty small, if you guys talked at all on the board about a little dividend or something that cause some interest, obviously our cash is holding pretty good. Any thoughts or color on that?

Well we’ve talked about a couple of different –we’ve talked about a couple of different things. We’ve talked about a dividend but the buyback seems to be – we were getting some strong push back from a number of our shareholders, do a buyback and board itself that it was a good utilization of our cash at the price that we’re trading at. So we instituted the buyback. There is restriction on how much we can buyback on a daily basis, so with the low float the number of shares that we can purchase is limited. But nevertheless several days as you can see there’s been a lot more volume in our stock so we can increase the number of shares that we repurchase and that’s occurred. So we’re committed the board and the board is committed to doing the buyback. We setup target and we are starting to execute against that. And as Kathy indicated over 300,000 shares and when we get to the next quarter, I think it’s going to be a much more significant number. And going back to our cash, as you pointed out, if you look at our results in the first six months as Kathy indicated we had a little less than $9 million in revenue, but we generated about $1 million of positive cash flow. And I would like to see the revenue number much higher that that’s still pretty good results based on that number.

I definitely agree. I just take away a buyback, you are basically [indiscernible] people that are trying to sell share I have held LRAD for a long, long time, I believe in the company and the product. I’d like to buy more. Last question, if I can remember it then if I’m a police department in Baltimore and I want to buy an LRAD, I call an order today, how long does it take before I get it?

It depends on what you’re ordering but for the most – the longer the lead time…

Typical police order.

Longest lead time, it would be delivered with if it’s urgent we delivered in a day. When we had an urgent call – we had an urgent call from Panama City, Florida because of the spring break they wanted a unit over the weekend and we delivered over the weekend. So we jump, we don’t wait around. We get an order, we try to deliver it as soon as we can get to help the door. So the longest lead time would be four weeks on an order like that, longer.

Okay, got it. Awesome, thank you so much for your time. I appreciate it.

Thank you.

You’re welcome.

Our next question comes from [indiscernible]. Please state your question.

Yes, gentlemen, in the last couple of conference calls, there it has been mentioned of large proposals in bids that are out there. What is the status of those?

As I indicated, we – and I have been mentioning it for the last two – last two calls. We have a large proposal outstanding in the Middle East to our mass communication and right now, the status is – it hasn’t been finalized we are doing demonstrations of our product this month. We’re still chasing the opportunity, it was suppose to have been close out from what we’re originally told last year, with delivery by April, or in May and it’s still not close up this is typical, we run into this in all of our pretty much everyone of our orders, it takes longer than originally projected. So we’re still pursuing it and hopefully, we’ll find out where we stand by next quarter and I’m hoping to bring, I don’t know, right now, I’m hoping that’s it’s a positive announcement next quarter. But we’re working it hard and we’re not giving up.

How big an opportunity is it?

For us it would be $9 million, which is a pretty big opportunity.

Yes. That certainly would be. Is it there some benefit, isn’t there some benefit with warrants that are outstanding to continue to buy back stock?

There are warrants outstanding may expire next February. There are 267 I don’t know there is no correlation between those in the buyback.

I think from a dilution standpoint, yes…

Yes, absolutely…

Yes, we’re buying back a number of shares. From a dilution standpoint right and yes, we’re hoping that we’re much above that price by next year.

Yes, it will be nice to give them stock that’s cost you $1.95.

Yes.

That’s the benefit of the buyback.

Yes, I agree.

How big is the, how many warrants are outstanding.

It is 1.6 million.

You’re going to get to work buying back the stock. Thank you, gentlemen.

Thanks.

All right, and there are don’t appear to be any other questions in the queue.

Great, well I just wanted to thank everyone for listening and participating in LRAD’s fiscal second quarter 2015 conference call. A replay of the webcast and the call will be available an approximately two hours through the same link issued in our April 30, press release. So thank you very much for joining us.

Thank you, this does conclude today’s webcast. Thank you for your participation, you may disconnect your line at this time. And have a great day.