Genasys Inc (GNSS) 2009 Q4 法說會逐字稿

Good afternoon and welcome to American Technology Corporation's fiscal year 2009 conference call. I am Robert Putnam, Investor Relations for American Technology. With me on the call today are our President and CEO, Tom Brown, and our Chief Financial Officer, Kathy McDermott. After the reading of the Safe Harbor statement, Ms. McDermott will recap fiscal Q4 and fiscal year 2009 financial results, followed by a brief management presentation by Mr. Brown. After Tom's remarks, we will open the call to questions.

Except for historical information contain herein, the matters 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 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 that could cause actual results to differ materially from those suggested in the forward-looking statements, including but not limited to, the performance of our management team, market acceptance of our directed sound technologies and products, entry of competitors, the possibility our intellectual property protections 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 expectations as of the date hereof. 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, 2009. American Technology Corporation disclaims any intent or obligation to update those forward-looking statements except as otherwise specifically stated.

We'll now turn the call over to Kathy.

Hi, everyone, and thanks for joining us today. Our financial results for fiscal 2009 were very respectable. Compared to fiscal 2008, revenues increased by 41%, gross profit as a percentage of revenues increased almost 8 points. Operating expenses decreased by 22%, our net loss decreased by 84%, and we increased cash balance by $2.4 million.

Our LRAD X products that were launched in fiscal 2008 as well as new products launched in fiscal 2009 have been well received by our customers, and allowed us to better serve some new markets. With an expanded sales network and free publicity from the extensive press coverage we continue to receive, most recently from the G20 Summit in Pittsburgh and the Maersk Alabama pirate attack, we have increased the awareness and understanding of the capabilities of our product from military applications as well as commercial opportunities in maritime shipping, bird deterrence, and law enforcement. This has helped to stimulate interest and orders.

Our net revenues for the fourth fiscal quarter ended September 30, 2009, were lower than normal at $3.1 million, a decrease of 21% from $3.9 million reported for the same quarter in the prior year. The decrease was primarily at our LRAD product line due to timing of delivery to the US Army Reserves which was delayed until this quarter and has since shipped. As we continue to reiterate, the timing of our revenues fluctuates on a quarterly basis but our overall annual trend continues to improve.

For the fiscal year ended September 30th, 2009, our net revenues were $15.8 million, a 41% increase over revenues of $11.2 million for the prior year ended September 30, 2008. The increase was in our LRAD product lines offset by reductions in our HSS and SoundSaber product lines. LRAD sales represented 91% of the total year revenues, with 5% contributed from SoundSaber and 4% from HSS products.

Gross profit for the fourth quarter was $1.2 million or 39% of net revenues, compared to $1.5 million or 38% of net revenues for the same quarter in the prior year. Gross profit for the fiscal year ended September 30th, 2009, was $7.5 million or 47% of net revenues, compared to $4.4 million or 39% of net revenues for the same period in the prior year. The improvement in gross margin is due to the increased revenues, lower product costs in our LRAD X products, following higher start up costs in fiscal 2008 when the product was launched, and broader absorption of our fixed overhead expenses as a result of the higher revenues. The fourth quarter gross profit also included a bonus expense of $242,000 based on meeting company performance targets for the year.

Operating expenses for the fourth fiscal quarter decreased by $177,000 or 7% to $2.3 million, from $2.5 million for the same quarter in the prior fiscal year. The fourth quarter included bonus expense of $844,000 based on meeting company performance targets for the year. This was offset by reduction of $417,000 of non-cash share-based compensation expense, $319,000 of lower third-party sales commissions due to lower revenue in the fourth quarter, $172,000 due to reduced staffing levels and other savings.

Operating expenses for the year ended September 30, 2009 were $8.5 million, a decrease of $2.4 million or 22% from the prior year expenses of $10.9 million. The reduction from the prior year was primarily due to $819,000 in reduced staffing levels, $765,000 in lower product development costs following our investment in LRAD X product line in 2008, $750,000 from reduced non-cash share-based compensation expense. $416,000 in reduced professional fees, $281,000 from reduced patent impairments, $260,000 from lower marketing expenses. And other savings of $290,000. These savings were partially offset by the bonus expense of $844,000 which was not incurred in the prior year, and a $337,000 increase in third-party sales commissions.

We have expanded our network of outside reps and resellers to provide us with broader reach in our various markets. Our product development was primarily conducted using in-house talent, which was effective and more cost beneficial for us. We continue to closely manage our operating expenses and expect them to remain in line with the current level of fiscal 2010, with the exception of commission expenses which will be variable with sales levels.

Net loss for the fourth fiscal quarter was $1.2 million or $0.04 per share, compared to a loss of $1 million or $0.03 per share in the prior year fourth quarter, a decline of $194,000 or 20%. The net loss in the fourth quarter includes a provision for income taxes of $50,000. Net loss for the fiscal year ended September 30th, 2009, was $1 million or $0.03 per share, compared to a net loss of $6.4 million or $0.21 per share in the prior fiscal year. Fiscal 2009 includes $1.5 million of non-cash share-based compensation expense compared to $2.3 million in the prior year.

On the balance sheet, cash and cash equivalents increased by $2.4 million in fiscal 2009. $2.6 million was generated through operating activities and $181,000 was reinvested in the purchase of tooling and patents. In fiscal 2008, the Company reduced cash and cash equivalents by $3.7 million, using $3.4 million for operating activities and $310,000 for investing activities. Net inventory increased by $177,000 during the year, primarily to support current LRAD orders that delivered early in fiscal 2010.

We build much of our product based on orders to try to minimize working capital requirements. Our trade receivables decreased by $747,000 in fiscal 2009, due to reduced revenues in the fourth quarter compared to the fourth quarter of fiscal 2008. Our year end receivables represents 44 days of revenue compared to 53 at the end of fiscal 2008. At September 30th, 2009, we had working capital of $6.9 million which is an increase over working capital of $6.1 million at September 30, 2008. We're very pleased with our results and optimistic going into fiscal 2010.

And with that, I'll turn it back over to Robert.

Thank you, Kathy. We'll now turn the time over to Tom Brown for a brief management presentation. Tom?

Thank you, Robert. Good afternoon. Kathy has reviewed our financial results. I just want to touch on the highlights.

The first highlight is we increased our revenue by 41% to $15.8 million. A record achievement due to increasing LRAD sales. We improved our gross margin to 47% of revenue, we continue strong cost control, reducing operating expenses by $2.4 million, while increasing our revenue by 41%. We lowered net loss to $1 million, however on a non-GAAP basis, taking our net loss and adding back the cost of non-cash share-based compensation we achieved a non-GAAP profit of approximately $500,000 for the year. And the most important measure, we generated approximately $2.6 million of positive operating cash flow. So as Kathy said, we had a very good year.

Operationally we continue to expand our LRAD product offerings, introducing the 300X this year and several new accessories. And we continue to expand our business into new markets and new applications. Specifically, law enforcement, homeland security, and wildlife preservation and asset protection, are new markets that we have penetrated and are looking to expand. With the expansion of wind farms and solar power, we feel these markets offer a significant opportunities to both protect assets and keep wildlife, particularly birds, away from danger.

We have had two successful deployments of LRAD in this area, and we are looking to expand this business in 2010. We added some new distribution partners in 2009, and we will continue this effort as the LRAD continues to gain international recognition. We have rounded out our product offerings from the 100X to the RX, and all categories are seeing increased sales.

And we have made significant progress in approving our sales into the US Army organizations. Since June 2009, we have booked $3.3 million in new orders, and we expect this business to be strong in 2010. This is an important part of our business expansion. The Army has been an area that we have lacked sales in over the last couple of years, so getting back into the army is very important for our future.

So fiscal 2010 is off to a strong start. Our first quarter is looking very good. And we are very confident that 2010 will be our best performance year ever. So we expect to grow revenues, improve cash flow, and achieve profitability in 2010. Robert?

Thank you, Tom. Operator, you can begin to queue up the calls, and while you're doing that, we're going to take a few questions that came in previous to the conference call.

First question comes regarding the LRAD and the Company says you have a fascinating company, but to date the future always seems to be around the corner. Well, honestly this is a niche business and we're pioneers in this niche business. So we have gained a lot of traction over the last three years and our results are evidence that this has been a painful struggle, but we're growing and heading in the right track and we feel that 2010 will be another year that will continue to grow this space. We have had very good success this past year, in getting into new markets and we hope to expand those markets.

I think from our perspective, when we brought the LRAD X product line out in 2008 that was the turning point for the Company, and we believed that this year kind of begin to validate that with the financial results.

Another question from the same e-mailer is there today a better match with your products and associated technologies and the marketplace? And I think based on what Tom just talked about, with the different markets, many people believed early on that LRAD was fit for military and commercial security, but was also seen as opportunity in law enforcement, wildlife presentation, and some of these areas like renewable energy, that looked to be matches for our product and we continue to look for other areas where LRAD can be of benefit.

Another question, has the visibility of future demand improved?

The visibility of future demand has improved, actually. We have better visibility, at least into our short-term visibility has improved but still the long-term visibility is still going to be -- still going to be a rough ride on a quarterly basis because as Kathy indicated, we had -- we received an order at the end of the quarter that we expected to receive a month earlier. So when you're dealing with bureaucracies, orders take time. They sit on desks and we're still going to go through that process of expecting an order and having it received a month later. But the good news is that we're not losing any orders, so that's the very positive thing.

Nothing could gain our visibility as far as what we feel as far as confidence of the future which is the last part of the question which is the Company's confidence level for the future. We feel confident about what we have doing. We're still saying with what we have been stating over the last two or three years, that on an annual basis we will grow the Company, but on a quarterly basis it will be uneven. But we still see, with these new markets we are going into as well as gaining track into some of the military commercial security markets, we see a very bright future for the Company. At this point, we are very confident of the future. Operator, we're are we're ready for our first question if you could go ahead and give that to us.

(Operator Instructions). We have a question from Robert Smith.

Yes, hello?

Hi, Robert.

Hi. The introduction of 30,000 troops , additional troops into Afghanistan, what might that mean for you?

Well, our hope is that we made our first sales into the US Army the product is being deployed in Afghanistan right now, so the hope is that we can continue to expand our business into Afghanistan as NATO puts in additional forces.

Okay. Thank you.

Thank you .

Next question, please.

There are no further audio questions in queue. (Operator Instructions). It looks like we have a follow-up from Mr. Robert Smith.

Yes, I couldn't let you go so quickly. Can you give us some color in the other areas that you mentioned about prospective business?

Well, I think on the law enforcement side we saw the coverage that we got from the G20 Summit in Pittsburgh. We have received a ton of interest from law enforcement not only here, but abroad, based upon how Pittsburgh law enforcement deployed LRAD during the protests and we're seeing a dramatic surge of interest from these law enforcement agencies, and to use LRAD not so much for protest situations, but in large crowds in outdoor gatherings, and also in SWAT operations or emergency responders, and we had reports of LRAD being used to talk people off of bridges, being deployed in SWAT operations to get people to get people to come out without using tear gas, rubber bullets, and at the same time notifying the neighbors of what was going on so everybody remained in their homes.

On the wildlife protection and control, Tom touched on it, we've had two successful deployments of LRAD at wind farms, kind of the dirty secret of wind farm is that they're chopping up hundreds of thousands of birds every year. And what LRAD does in conjunction with an avian radar system is allow you to keep the birds away from the blades to prevent damage to the assets as well as protecting the birds. We're also seeing opportunities in solar farms for perimeter protection as well as keeping birds away from the solar panels, and there are other areas that we're looking at we've already previously announced, mining concerns we'reusing LRAD to keep birds away from tailing ponds, and there are other areas in agricultural fisheries that are looking at employing LRAD in those areas.

Also with the continuing escalation of piracy threats, we are seeing more and more interest from maritime security. The recent deployment, again, by the Maersk Alabama highlighted the importance of having LRAD on board and deploying it at range to be able to determine intent and use it as a part of a layered defensive strategy. So we're seeing a lot of opportunities out there for LRAD and we believe there are other markets beyond these out there.

How many ships do you own actually at the moment?

We don't give that number out, especially with the maritime security and the cruise line industry, they are loathe to tell the world that they have LRAD, they want to keep that to themselves, and at this point we're not giving that information out.

Okay. Are there units in the backlog now?

Yes.

Yes. As I said, Robert , the first quarter is looking very strong.

And there was some publicity about Vancouver, is there anything further on that?

Vancouver purchased an older LRAD model up there, and we do see opportunities for other LRAD sales into there before the Olympics. Again, I think the Vancouver Police Department is just trying to stay on top of being able to communicate to the large crowds and outdoor our venues if the need arises.

And the two units in wind farms, can you tell me where they are?

We haven't given that information out, but they're just not here in the US. They're all sold and deployed internationally.

Got you. Looks like we have a real Company here. When you say you're going to reach profitability in 2010, for the entire year will you be profitable?

For the entire year is what we're measuring ourselves on, Robert. As we indicated, quarterly basis it's still going to be up and down, but from a full-year standpoint just like we've been doing for the last three years, year-over-year growth, we're going to continue that and this year we feel confident that we can achieve profitability on a GAAP basis. We feel we've achieved profitability this year on a non-GAAP basis, but next year we're looking forward to being profitable on a generally accepted accounting basis.

Good luck, guys.

Our next question from the phones is from the line of [Tom Willard].

Guys, quick question. This may be a very basic question. But how aggressively are you guys marketing the LRAD device to airports and that sort of thing, you know, with some of the bird-strike issues there? Is it a feasible solution? And of course just the general marketing of device to foreign countries, as well as the military services?

Well, in the airport issue we have several trials going on right now, coupled with avian radar systems both here and abroad. The issue with getting those turned into orders, though, is that you have a lot of red tape you have to work through. Not only do you have federal aviation agencies, but you also have local government agencies that are a part of this, and we do see this as a real opportunity, but we also realize it is going to be a long-term venture to get these things deployed in areas that will prevent, potentially prevent bird strikes on airport runways. So we look at that as an important market, albeit a limited market, but it could be very lucrative once we get out there.

I think, you know, on an international basis we've been expanding our international rep network over the past several years. And we continue to expand it, and I think Robert put out a press release recently indicating that, LRADs are on basically almost every Navy in the world, on the Japanese Navy, Singapore Navy, the Australian Navy, the US Navy, and we're expanding that business. So internationally for a very small company with very limited resources, we are expanding our business pretty well on an international basis.

Great. Thank you very much.

Thank you .

Thank you. Our next question is from the line of Polly Taylor.

This is actually Orin Hirsh with NITH Investment Partners. Can you give us a little more color. We're well through the quarter and you announced some orders in the quarter. Just give us some more color on this current quarter and if you're building any backlog for next quarter.

For the current quarter I guess, the most color I can say at this point is that it's going to be a very strong quarter. We're looking at a quarter that will be, you know, one of our -- one of our best quarters that we've had as a Company. And we will have some backlog going into the second quarter of our fiscal year, and at the end of it. So we're feeling very good right now about the business.

Okay. And two additional questions and one of them may be repetitive, but just in terms of the US Army, what has to happen in terms of the orders beginning to step up in a much bigger way. You're getting meaningful orders now finally, et cetera, but what really has to happen?

We have to get deployed. Once we get our product out in the field, usually what has happened, it's happened with the Navy, once we get deployed and the feedback comes back in a very positive way, which we have gotten very positive feedback already, because we received a couple of repeat orders from the customer, we'll continue to grow this thing. Orin, it takes a while. It is a slow process, one of the things tying us up is last night's presentation by the President. Up until then there has been a slow process inside the procurement offices, and now that he has given a go-forward on moving into Afghanistan, we're hoping that the procurement offices start sending out POs on a much faster basis.

What would it take to get a blanket order for a multi-year order from the Army let's say for a Humvee mount?

Well, we've been working that. We won an RFP with the US Army. The RDEC team has been in Picatinny, they're the R&D group inside the Army. They've been testing our product and once we get final, final signoff by them, and we continue to sell product right now, hopefully that will lead to something longer term. But right now, I am honestly very happy to be receiving POs from the Army, because we had sold some product into the US Army back in about 2004 and 2005 time frame and unfortunately that product was not up to customer expectations, and we had a hard time getting product back into the Army. And now we're back in the door and the feedback we're getting from the customer is very good. We're working very closely on some customizations for the customer, so we feel like we can build a relationship and hopefully get to the point where you're asking me to get to.

Okay. Thank you.

Thank you .

We have another follow-up from the line of Robert Smith.

All right. Could you tell me something about the current R&D effort, and how much funding that sector might have in 2010?

Well, we're anticipating that the current R&D effort will be comparable to at this point, comparable to what we have in terms of dollars to what we have spent in 2009. But in terms of projects, we have a number of projects that we're working on. We continue to enhance the existing LRAD line, the LRAD X line. It is still relatively new, and we're getting, as I just mentioned to the previous caller, getting customization requests from different customers and we're working on those.

And once you start doing customizations, that does lead to additional business down the road and makes you much closer to the customer. So that's -- that will be our main focus this year. We do have a couple of new products on the drawing board that we're working on, too early for us to go into, but they're still LRAD-based and based on some customer requests and hopefully we can get those products completed and announce them towards the middle or end of 2010. But right now the current product line is doing well and we want to continue to enhance it, continue to market it and continue to expand the business from it.

I guess what is most exciting given the last year or two, versus previous years, is the feedback that we are getting from our customers in the direction that we're taking our R&D. In the past it was basically all internally driven, based on what we thought the customer would want, and now it's coming the other direction, and with their feedback and also and input we're able to direct our R&D efforts into things that turn into orders.

Are you guys looking at anything that you might use new technologies?

At this point no. At this point I would say that we're just continuing to enhance the existing LRAD technology. We have, and as Robert mentioned, in 2008, we basically totally redesigned and redeveloped LRAD. The previous LRAD, we took the concept of LRAD, but we completely redesigned and redeveloped it. If you compare the two pieces of product, there's no comparison between an LRAD X and an old LRAD. The current product is much more ruggedized. It is a much more highly intelligible. It is a louder product. And that effort, we still need to work it through, but our efforts are going to be continuing to continue this business of LRAD in the short term.

We believe we have just begun to scratch the surface here, Robert. There is more to come.

What about Naris' role in the Company now?

Woody has become an outside board member and that's -- his day-to-day role is -- there is no more day-to-day roll for Woody in the Company but he is a board member and he still is a major shareholder in the Company.

Thanks again.

Thank you.

Thank you, sir. There are no further questions in queue.

All right. Thank you very much. We appreciate everyone's attendance on our fiscal year 2009 conference call. A replay of this conference call will be available in approximately 24 hours.