Genasys Inc (GNSS) 2009 Q1 法說會逐字稿

Good morning. Welcome to American Technology Corporation's first quarter fiscal 2009 conference call and web cast. I am Robert Putnam, Investor Relations, for the Company. Also present on the call today are Tom Brown, President and CEO, of the Company and Kathy McDermott, our Chief Financial Officer. Following brief presentations by Kathy and Tom we will open the lines for our Q&A session.

Before we begin, except for historical information contained herein, the matters discussed are forward-looking statements within the meaning of section 21E of the Securities and Exchange Act. You should not place undue reliance on these statements. We base these statements on particular assumptions that we have made in light of our industry experience, the stage of product and market development, as well as our perception of historical trends, current market conditions, current economic data, expected future developments and other factors that we believe are appropriate under the circumstances. These statements involve risks and uncertainties and could cause actual results to differ materially from those suggested in the forward-looking statements, including but not limited to, the performance of Management team, market acceptance of our directed sound technologies and products, entry of competitors, the possibility our intelectual property protection will prevent-- will not prevent others from marketing products similar to or competitive with our products, potential technical or manufacturing difficulties that could delay product deliveries or increase warranty costs and other risks identified and discussed in our filings with the Securities and Exchange Commission.

These forward-looking statements are based on information and Management's expectation as of the date here of. Future results may differ materially from our current expectations. For more information regarding other potential risks and uncertainties, please see the risk factors section of the Company's Form 10-K for the fiscal year ended September 30, 2008. American Technology Corporation disclaims any intent or obligation to update those forward-looking statements except as otherwise specifically stated. Now to begin we'll turn the time over to Kathy McDermott. Kathy.

Good morning, everyone and thank you for joining us today. Our first quarter financial performance shows some good improvement over prior year. Our sales performance was flat but we don't focus on individual quarters due to timing of orders. However our margins remain consistent and our operating expenses decreased substantially resulting in a net loss that was reduced by almost half. Our net revenues for the first fiscal quarter ended December 31st, 2008 were $2.5 million, comparable to the $2.5 million reported for the same quarter in the prior year. We also had shipments totaling $144,000 that were shipped in December that we recognize in Q2 due to shipping terms. First quarter net revenue of our LRAD product was $2.1 million or 84% of total net revenue compared to $2.2 million or 86% of total net revenues for the prior year. Gross profit for the first quarter was $1.1 million or 46% of net revenues, which was comparable to prior year. Gross profit will vary from quarter-to-quarter based on product mix.

Operating expenses for the first fiscal quarter decreased by $800,000 to $2 million from $2.8 million for the same quarter in the prior fiscal year. The decrease in expenses was primarily due to a $253,000 reduction in audit fees due to a change in our auditor last year, $241,000 of reduced product development expense due to the development of our LRAD-X product line last year and reduced staffing level which saved $237,000 of expense compared to the prior year. We have been closely managing our operating expenses and expect them to remain within line with the current level for the balance of the year with the exception of commission expenses which will be variable with the sales levels. Net loss for the first fiscal quarter was $881,000 or $0.03 per share compared to a loss of $1.7 million or $0.06 per share in the prior year first quarter, a reduction of 49%. The $881,000 loss in the current quarter includes $568,000 of noncash share-based compensation expense compared to $547,000 for the first quarter of 2008. The prior year also includes $109,000 for liquidated damages to the late filing of our 10-K last year which we did not incur this year.

On balance-- on the balance sheet, cash and cash equivalence decreased by $254,000 in the first fiscal quarter to a balance of $2.3 million at December 31st, 2008. Net inventory is flat at $2.9 million. The level of trade receivables decreased by $383,000 in Q1 due to lower sales levels in Q1 compared to our fourth quarter. This represents 72 days of revenues, which is comparable to the DSO for our fourth quarter. At December 31st, 2008 we had working capital of $5.8 million compared to working capital $6.1 million at September 30th, 2008. Overall we believe we're making some good progress. And with that I'll turn it back over to Robert.

Thank you, Kathy. At this time, we'll turn it over to Tom Brown, our President and CEO, for a brief presentation. Tom.

Thank you, Robert. As Kathy indicated we reported revenue of $2.5 million in the quarter which is comparable to the first quarter of last year. However the reported loss last year was $1.7 million versus $881,000 this year. Now when you take the noncash charges out of the current loss of the $881,000, it becomes approximately $212,000. So we're getting closer to our breakeven on a cash loss basis, which is one of our main goals this year. The other positive result in the first quarter is that we received new orders in excess of $5.5 million, which follows recorder revenue of $3.9 million in the fourth quarter of 2008. Most of these new orders were received at the end of December and will be shipped this quarter. As a result our second quarter and first half are looking very positive. We are continuing to expand our product offerings into new markets per mitigation working with a partner DTECH, piracy prevention and obviously our main market the military.

Our business is growing because over the last 18 to 24 months, we have been investing in product development. As I previously stated, we have totally redesigned the overhead product offering and we have the best acoustic (inaudible) device in the market today. We continue to enhance the product, we will launch the 100X this month, we've already received orders and sold more than $100,000 of this product in a prerelease to military and law enforcement. We are introducing another product offering in the fourth quarter this year which is based on some customer input, and that looks very positive. So we are feeling very positive about our product, very positive about our business opportunities and we look forward to a very strong first half.

Thank you, Tom. Operator, if you would go ahead and start queue people up for the Q&A session. We've had a few questions that were submitted prior to this meeting so we'll go ahead and take those while people are queueing up. The first question is, while you're making progress, when is ATC going to be profitable?

Well we're told that many business to be profitable and that's been our goal for the last two years. But first, first we needed to improve the organization, we have too much overhead in this business for the size of the revenue that we were generating. And also we needed to improve the product offering because the product that we had was not the product that was going to make us a successful Company, so that's been our focus. And we're getting closer and closer to that cash breakeven and cash profit and as long as we get everything shipped in the current quarter, we might see a cash profit this first half.

Thank you. Next question, how you expect to control cost and inventory and also grow the business?

Well I think our track record has been that we've been controlling our costs extremely well, we continue to reduce cost as Kathy indicated, we reduced cost year-over-year operating cost by $800,000 which is pretty significant when you look at the base of those costs. And inventory we are-- we have gone to more of a build-to-order model so our inventory is very much under control. And we feel our costs are under control. Our top line is starting to grow, so we feel very good about our business. And we think there is a lot of, a lot of earnings calls this time of the year where everybody is moaning and groaning, but actually we feel positive and look forward to this year.

Thank you. Next question. Does the Company have enough cash to survive the year or will we have to raise more money?

Well, as I just stated, the cash burn as Kathy also indicated the cash burn for the quarter was a little bit over $200,000, that's still unacceptable but it's getting a lot closer to a breakeven point. And that's our goal since I arrived to get to a breakeven point and then step forward. So we're getting closer and closer and we feel very positive that we're going to see that cash positive situation in the near term.

Thank you.

So we're not, let me reiterate, we're looking to raise any money at this time. We feel we have enough working capital to survive and to continue to grow this business.

Thank you, Tom. Operator we're ready for our first question.

(Operator Instructions) Okay, we do have our question. Our first question comes from [Robert Smith], your line is now open.

Hi. Good morning or good afternoon I guess. My question centers on the handheld LRAD, can you give us some color on this and describe the product, what it looks like, it's size? And do you see it and also the market as you see it. What is the market potential?

Well, we're hoping that the market potential is very large. The unit itself is a self contained unit and it has a lithium ion battery in the unit. That battery has a life of about 2 hours running continuously, which would be rare for the operator to do. But the unit is 12 pounds in weight and it puts out 135db, which is very, very loud. And the initial market that we're chasing is the military market because we've been working in conjunction with the military, the US military, on the design of the product. They have specific designs that they are looking for us to incorporate into the product. We've been working with them. And also the law enforcement market we feel that there is a big opportunity in first responders, law enforcement, fire and also other areas of first responders. So we are modifying the product to meet those market requirements. And as I said we received, without any fanfare, we received over $100,000 of new orders and we're shipping those new orders. We will officially launch the product this month. There will be some-- in certain trade magazines we will have articles and also some advertisements. And we are very positive on this product because the initial response has been very, very favorable.

I think I'd also like to add that this product has probably had more input from customers, more testing, more field trials than any product we ever put out there. So we're feeling pretty good about it.

That's what we've been trying to do lately is work with the customer base because you can build a product and think you have a market and the market never comes to fruition. But we're trying to work with our customers and build a product that they want and that's why we're getting a lot of repeat orders from our customer base, which is the time that the acceptance of the product in the market is very good.

Is any of the initial order for law enforcement or is it all military?

It's both. It's both. And actually not just in the US, we've also had orders from Asia and also Europe. So we've been out demonstrating the product to the customer base, we're getting a lot positive feed back and like I said, we-- our first production run this month is already sold out.

What is the cost of one unit?

Well we're selling the unit-- we're selling-- the list price on the unit is $6500. And we're selling the unit in volume at prices a little bit lower than that. The margin on the product are very good. And we're looking to tweak the product slightly, we have some military connectors, some-- a military mp3 player with the product right now that's very expensive. We're looking at maybe reducing that military piece and creating a piece for law enforcement today, so it would be priced at a much lower price.

And we all know the trend towards miniaturization and less weight, so what is the ultimate objective with the device?

If we can keep this device at 12 pounds and have 135db of output that's the objective. And so far the response for that size product has been very good because the next step up in our product line is the LRAD 500X, it's about 49 pounds, it's a much more powerful unit but it's 49 pounds as opposed to 12 pounds. So 12 pounds is our attempt at miniaturization.

Okay.

Thank you.

Thanks.

Next question, please.

Our next question comes from Michael Ciarmoli, your line is now open.

Hey guys, thanks for taking my question. I guess Kathy on the-- looking at the financials and some of the expense line items, are these sustainable levels going forward that you guys can kind of operate with this level of SG&A and keep making the necessary product enhancements with these levels of R&D?

That's saying tag, we've got a good team on board right now. We're lean and mean but we've got the right key people in place. A lot of the reduction had to do more so with the some of the development cost that we incurred last year we made investments in the R&D. Some of that, or a portion of that that was more costly was done outside using outside development which can be more expensive that using our in-house folks. But our in-house folks should be able to maintain it going forward for most of the things that we've got in the plan. So the intention would be to try and maintain expenses at the current level. We'll have spikes maybe for some commission expense, but that's all good.

And if you guys really crack in to some of these military markets, secure an order of magnitude, do you have enough internal resources to ramp volumes and kind of get up to speed on the manufacturing that would be required to deliver units out there?

We do. We do. Actually we have a number of outside partners-- that we do final assembly here. We have a number of outside partners who have a lot of capability and ramping up as I said in past calls is not an issue.

Okay. Looking at the defense budgetary environment, certainly it looks like there's going to be more funding for some of the nonlethal weapons out there in kind of broad funding. Are you guys-- do you have a confidence level, do you expect any headwinds from the administration changes, too early to tell, can you give us a sense maybe how things are progressing with the Army and the Navy in terms of are you getting closer to some really meaningful kind of consistent orders?

Well we just, Michael, we just received an order of $2.7 million in the first quarter from the US Navy.

Right.

And we-- right now, right now I think it's kind of hard to determine which direction this administration is heading. But we're feeling pretty confident that our business with the US military will continue to grow this year. But we're not basing our business growth on just the US military, we're looking to expand into farm militaries which we've made some recent inroads. In this first and second quarter, we sold our first product into a couple of farm militaries, and we see that area offering us some opportunities. So we don't want to have one customer as our major customer we want to spread this as much as we can. And that's our-- that's what we're working on.

Okay. Fair enough. Thanks, guys.

Thanks Michael. Next question, please.

Our next question comes from [Deed Hadley], your line is now open.

Hi, I'm trying to get a feel for the size of the Company and the resources. How many full time equivalents do we have?

We're very small, as Kathy indicated, we're a very lean organization right now we have 35 full time equivalents.

Thank you, that gives me an idea.

Thank you. Next question, please.

Our next question comes from [Gary Grobel], your line is now open.

Good afternoon, Robert and hello, Tom. On this bird situation, that's presently come in to the news in a dramatic and miraculous way, have we sold yet even one combination unit from [airtool] and [zoomet] for an airport anywhere?

We-- Gary we have not. And we've been working this base for a while, but sometimes you need a dramatic event to put attention on the requirement. And we just sold -- coincidentally the day of the US air flight in the Hudson we had just made our first sale in combination with DTECH to a mining operation in Canada, they're putting the units around a mining area for bird mitigation. And we have done some demos with a number of airports, we do have a big demo coming up with DTECH with a number of the major airports in the United States and also a couple of foreign airports. And right now there's a lot of interest on this space, we think we have a proven technology, and we think we have a proven technology. We have, if you look at our web site, you look at the DTECH web site, you'll see birds being mitigated by using the LRAD and the advantages we do not injury the birds we just keep them away from an area. And we see this as a good opportunity to grow into that market, we've been trying to penetrate the market as I said, but sometimes you need positive results coming out of the US air flight but you need that type of a situation to help generate some interest in the market.

I think the main take away, Gary, is we talk about the long sales cycles for LRAD, this is another industry where that's going to also be the case. You're dealing with Federal, state, county governments, airport authorities and everything else, things don't get done quickly. But what happened on the US Airway flight and what people continue to report on bird strikes is definitely heating the space up and we expect that we will get business out of this.

All right, so hypothetically if we took an airport let's say the size of DTW where I am. I think we have four runways, it might be more, but they're obviously placed in different ways for wind and traffic flow. When you're going to do one-- you indicated you have a trial coming up shortly, how many LRADs would have to be placed at a decent size airport, let's say the size of DTW, to free all runways from this type of bird congestion?

Well, it really depends on the geography of the airport, it depends on the birds, where the bird infestation is located. We're talking to a major airport right now, and they're talking-- a very large airport with approximately six runways and we're talking about six LRAD RXs, which is our automated device on a pan and tilt, coupled with one piece of radar, so the opportunities are for us pretty significant.

Okay. Could you repeat that number again that you indicated you ended up the first quarter with entering the second quarter, I thought I heard $5.9 million.

No, actually we-- our orders in the first quarter were in excess of $5.5 million.

All right.

And we recorded revenue of $2.5 million and we're carrying over some orders into the second quarter which we'll ship out with second quarter orders and we're looking at a pretty good second quarter and first half.

Okay, last question. You indicated that you started to make some headway overseas--

Yes.

In some of the militaries, the EU would be an obvious target, you can sell in 18 or 20 countries, obviously almost one way. Do we have field or market reps for various geographical areas out there? Are we doing this out of the home office? How can we get our presence out there to have it really well known with basically probably 75 to 80 militaries in the world that could find our products useful?

Gary that's been our biggest, or one of our biggest headaches, and one of our biggest efforts has been trying to develop a distribution network around the globe, trying to find the right partners to sell our product, represent our product around the globe. We do have partners in Europe, we have recently demonstrated our product in NATO and we're looking forward to hopefully our first order from NATO. We do have partners that we've established in Asia, we're picking up some traction. But that's still one of the areas that we have to continually work on and that is developing a strong reseller rep network around the globe. We're making progress, we're seeing positive results but we're still not where we need to be, and that's still an effort.

Is that a matter of resources?

Well, honestly part of it is resources, definitely. But the other part is we have a very-- we have a niche product, and we're going after a niche market and most of the people that sell into the militaries are selling weapons, selling armour, armored products, and nonlethal up until recently hasn't been as popular and now there's more and more-- more and more focus on the nonlethal market as the last caller indicated. So we're starting to see some swings upward and we're getting some more resellers interested in trying to rep the product. So it's still a very slow process, we'd like it to happen faster but we're making progress. That's all I have to say.

I will just comment that this nonlethal aspect I think is something that is beginning as a small wave I think it's going to grow here, both here in North America and elsewhere, especially in the EU, I think it's a great place for us to sell into. I think you're going to find more and more interest there if we can get, if we can get our reps in place and get our-- enough resources out there in the field to start snagging some of this. I have another question but I'll go back in queue to let someone else in.

So Gary, let me just say I fully agree with you and that's what we're doing.

Thank you.

Next question, please.

Our next question comes from Robert Smith, your line is now open.

So how many airports would you say are potentially available to you domestically?

Offhand I can't give you a number but I can tell you that it's many. And most airports are built either near water or near a garbage dump and both attract birds. So if you look at the opportunities, there are many, and we're trying to focus on working with our partner trying to focus on getting as many of those airports to a demonstration as we can and hopefully we can start to make some sales together.

Is-- what is the raw material cost of the product as far as its selling price?

Well roughly, as Kathy indicated, we have about a 46%, 47% margin on most of our product line.

So is most of it-- most of the cost goods sold in raw materials?

Of the cost structure of the product, yes most of it is material. Our labor cost is very, very low.

So we should be looking at commodity prices as a meaningful basis of looking at the product going forward?

We have -- we're not a commodity product. We're a very specialized type of a product, so--.

No I understand that, I mean-- but I mean the materials input to the products cost, that's the basic part of the price.

Yes, the material costs-- we're using a lot of different types of material for the product right now, we're using fiber glass, we're using some other composites because they're much more rugged in a marine environment and much more rugged in a land environment. So we haven't seen a significant reduction in our material costs. If we do obviously it would show up in our results. But right now our cost structure is pretty much consistent period-over-period.

And again just circling back, you said that you-- there wasn't much of an opportunity to reduce the 12-pound weight?

At this point there is not. And actually the 12-pound weight has been very well received by the customer. But again it'll be -- we'll take input from our customer base to determine whether that product is meeting all the requirements. And that's something that we hadn't done in the past, we hadn't really consulted with customers when we built a product. But now we're working very closely with the customer base so we build the right product that meets their needs.

Okay and just finally (inaudible), Tom is this the year where you can make bottom line more money than Sony?

We may, we may, I think we'll do that.

Okay.

At least we won't lose as much as they will.

Right, okay. Best of luck to you guys.

Thank you.

Next question, please.

(Operator Instructions) Our next question comes from Gary Grobel, your line is open.

Gentlemen, just one more question on this bird thing, I'm not trying to beat to it death, but if you succeed through all the regulations both local, regional and national at an airport of size, do you think that you're going to have to jump through all those hoops again each different state or an airport in the same state? In other words, if you get through all the rules and regs to get placed at a significant airport of size, do you feel that you're going to have to keep going through the same procedures and processes to get placed at any other airport or do you think a lot of that will be out of the way once we're allowed in to a significant airport?

I think once we get an airport installation in place, we'll be fine. The thing that we've determined is that really the individual port authorities have responsibility over what goes into their facility. So once we can build one installation and show a positive impact from that, just like the rest of our business, we need to put one or two units out there, let the customer work with it, they get satisfied then they buy more, word of mouth will help spread this business and I think there's a going to be a lot of passengers that are going to be a little leery about hopping on planes where their airport is near a bird infestation. So I think there might be some passenger outrage also that will help develop this market for us.

Can you get into the trade magazines that go on these airlines?

We haven't pursued that. We have been-- one of our focuses this last six months has been get into more of the trade magazines, mostly focused on the maritime space, because we see a lot of business opportunities in piracy prevention. But that is something that we'll take a look at.

Yeah, I think the passenger aspect in terms of passengers clambering for this type of a safety precaution would -- if we could just get the ball started I think they would take it and go with it. I'm all done, thank you.

All right. Thank you, Gary.

Our next question comes from [Eric Panzik], your line is now open.

Yes, good morning. Revenues, as I heard it, were 85% derived from the LRAD line, can you speak to any life still in SoundSaber and HSS?

Well SoundSaber business-- actually as we indicated last year, SoundSaber business was-- grew on a percentage basis very well and actually in first quarter SoundSaber sales were also pretty strong relatively speaking. So we see SoundSaber performing very well, the margins are good on that product, we improved the product. So we're also working with a couple of good partners in that space. ADT is one of our main partners, they're putting out mass notification systems, so that product is alive and I would say well. HSS product line is-- has been struggling. And the markets where HSS are I would say pretty drying up, although we are working with a couple of Asian partners who same to have some opportunities, we're pursuing those opportunities with those partners, however, at this point we really have nothing, nothing to report.

As a team, as an engineering team and as a management team and as a sales team, our focus is really on continuing to develop the overhead product line because thats where we see our biggest opportunities. And we still have emphasis in the other areas but the LRAD product line is what I've been trying to focusing on since I arrived here.

Okay and at some point there was some product that was supposedly integrated or was being resold or you had an agreement with Harman to-- maybe that was a derivation of the HSS that was supposed to go to automobiles or something.

No that was the (inaudible) plan or now known as SoundSaber at a nonexclusive license with Harman for automotive use.

Okay. And has that been replaced in the market place with a competitor and that's now off the table?

I think Harman is still the colossus of the automobile sound systems and they have several lines including their own that they feed into that, (inaudible) remains a fractional part of what they offer.

Okay, great. Well thank you very much.

Next question, please.

We have another question from Robert Smith, your line is now open.

Could you just tell me what the fully diluted Cap is, number of shares?

The earnings per share is a $0.03 loss for the quarter.

No, no I mean the number of shares outstanding, fully diluted, if they were fully diluted?

We know the shares outstanding didn't change at all from a year-over-year, it's still $30.5 million. And fully diluted my best guess right now would probably be right around $35 million.

Okay, great. Thanks so much again.

Thank you. Next question.

(Operator Instructions) I'm showing no further questions.

Thank you, operator and thank you, everyone for participating in our fiscal Q1 2009 conference call. And we look forward to our next conference call in the upcoming months, thank you.

Ladies and gentlemen, this concludes our conference. Thank you for your participation, you may now disconnect