Genasys Inc (GNSS) 2010 Q3 法說會逐字稿

Good afternoon, and welcome to LRAD Corporation's third-quarter fiscal 2010 conference call. I am Robert Putnam, Investor Relations for the Company. Kathy McDermott, our Chief Financial Officer; and Tom Brown, our Chairman, CEO and President, are also with me on today's call.

After my reading of the Safe Harbor statement, Ms. McDermott will recap fiscal Q3 2010 financial results followed by a brief presentation from Mr. Brown. After his remarks, we will open the call to questions.

Except for historical information contained herein, the matters discussed are forward-looking statements within the meaning of Section 21E of the Securities 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 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 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. LRAD Corporation disclaims any intent or obligation to update those forward-looking statements, except as otherwise specifically stated.

We'll now turn the time over to Kathy.

Thank you, Robert, and thank you all for joining us today. Our revenues for the third fiscal quarter ended June 30, 2010 were not quite what we had hoped for. Over $3 million of contracts from the US Military that we expected earlier in the quarter were received in late June, and only a portion was deliverable during the third quarter. However, we were able to sustain profitability during the quarter despite the lower revenues.

Net income decreased by $68,000 in the quarter, compared to the third quarter last year on a $1.3 million reduction in revenue. Our net revenues for the third fiscal quarter ended June 30, 2010 were $3.1 million, a decrease of 30% from $4.4 million recorded for the same quarter in the prior year due to the timing of orders. Revenue for the nine months ended June 30, 2010 were $12 million, compared to $12.8 million for the same period in the prior year. Year-to-date revenues increased for our HSS product line, due primarily to a program with Cardinal Health pharmacies and decreased in our LRAD and SoundSaber product line.

As we've announced, we are in the process of spinning off our HSS product line. We expect that this spin-off will have little effect on our revenue and it will have a positive effect on our net income as we have historically incurred losses on this product line. Revenues of our HSS product year to date were $512,000 or 4.3% of total revenues. But we will retain the Cardinal Health program through its completion sometime next year based on the terms of the spin-off.

Product margins on this product line are substantially lower than our LRAD product. Gross profit for the third quarter ended June 30, 2010 was $1.5 million or 49% of net revenues, compared to $2 million or 45% of net revenues for the same quarter in the prior year due to a reduction in revenues. Gross profit for the nine months ended June 30 was $6.5 million or 54% of net revenues, compared to $6.2 million or 49% of net revenues for the same period in the prior year. Although gross profit decreased due to the lower sales, we increased that gross profit as a percentage of sales by 4.8 basis points due to lower product costs, lower warranty costs, reduced inventory obsolescence expense, and reduced manufacturing overhead spending.

Operating expenses for the third fiscal quarter decreased by $342,000 or 18% to $1.5 million from $1.9 million for the same quarter in the prior fiscal year. On a year-to-date basis, operating expenses decreased by $1.1 million or 18% to $5 million in the first nine months of 2010, from $6.1 million in the first nine months of 2009. The reductions are primarily due to lower non-cash compensation expense and lower outside sales commissions based on a lower level of commissionable sales.

Net income for the first quarter was $68,000 or $0.00 per diluted share, compared to income of $136,000 or $0.00 per diluted share in the prior-year third quarter. The net income in the second quarter of 2010 includes a non-cash unrealized gain of $74,000 for the revaluation of derivatives related to warrant instruments and a tax provision of $11,000.

Year-to-date net income was $2.1 million or $0.07 per diluted share, compared to net income of $137,000 or $0.00 per share for the first nine months of 2009. The year-to-date net income includes a non-cash unrealized gain of $748,000 for the revaluation of derivatives related to warrant instruments and a tax provision of $107,000. Year-to-date net income included $354,000 of non-cash share-based compensation expense, compared to $1.4 million recorded in the same quarter of the prior year.

On the balance sheet, during the first nine months of fiscal 2010, cash and cash equivalents increased by $565,000 year to date. This increase was a result of our increased net income after adjusting non-cash items and was reduced by increased accounts receivable due to large shipments late in the quarter and a bonus payment made in Q1 for the fiscal 2009 bonus payments. We decreased our cash from the prior quarter by $773,000 as we invested in inventory during the quarter in anticipation of the orders that we are not seeing come through.

Our trade receivables increased $439,000 due to large shipments that went out at the end of the quarter. That caused our DSO to increase to 56 days from 44 at the end of September 30, 2009.

At June 30, 2010, we had working capital of $8.8 million, which is an increase over working capital of $6.9 million at September 30, 2009, primarily due to the increase in cash and receivables.

Now I'll turn it back over to Robert.

Thank you, Kathy. We will now turn the time over to Tom Brown for management's presentation. Tom?

Thank you, Robert. Thank you all for joining the call. As Kathy indicated, we were disappointed with the recorded revenue for the third quarter. We have experienced delays in the contracting process, but on an overall basis, it was an extremely good quarter as we received $3 million in new business in the last two weeks of the quarter from the US Military, including our largest order to date from the US Marines. The Marines ordered a combination of 100 and 300X units for deployment in Afghanistan, and field feedback has been very positive.

In the last six weeks, we have received approximately $8.5 million in new business from the US Navy. The $6.2 million order that we announced this week from the Navy is for our proprietary RX system. This RFP was competitively bid, and in the past three years, we have been engaged in five competitively bid military RFPs and have won them all.

The significance of these awards, aside from the revenue, is that it gives our products tremendous credibility worldwide. The US Military has very strict standards and rigorous testing requirements. To be awarded a contract under these conditions gives our products a valuable stamp of approval.

We are still optimistic about our fourth quarter and feel extremely confident that we will achieve full-year profitability for the first time in the Company's history.

Now with that, we will turn it over to Robert for Q&A.

Thank you, Tom. Operator, you can go ahead and announce how people can queue up.

(Operator Instructions).

While we are waiting for calls to queue up, we have a few questions that came in through e-mail. One question in particular has been asked several times. What is the status of the HSS business spin-off and the distribution of shares?

At this point, the spin-off, known as Parametric Sound Corporation, has filed its Form 10 with the Securities and Exchange Commission, received comments, and responded to the first round of comments. Once the Form 10 has been approved by the Securities and Exchange Commission, a record date will be set for the actual spin-off of the HSS business, as well as the distribution of shares.

Another question that has come in is might it be possible for a scaled-down version of your smallest and least expensive LRAD to market to pleasure boat owners?

Okay, Robert, I'll answer that. Actually, we are trying to develop the market in the yachting business. And we recently received and shipped in the last quarter two of our RX models, not our smallest models, our largest models to the Crown Prince in the UAE for positioning on the world's largest yacht.

So we see opportunities in that space. However, we would like to concentrate on the larger end of the market where our margin -- profit margin is much higher. And so far, we've made some progress in that area.

Thank you, Tom. And one more question we have before we go to the callers. Why did the Company extend the August 2006 warrants for another six months?

Depending on the timing of several large orders that we are working, we anticipate that the next six months could be very good and that this extension gives our warrant holders an opportunity to exercise and the Company to receive cash proceeds at a much higher valuation than where the Company is currently trading.

With that, operator, we are ready for our first question.

I am showing no further questions on the phone lines at this time.

If we have no further questions, we thank you for joining our Q3 fiscal 2010 conference call. And a replay of this will be available in approximately 24 hours. Thank you.