Genasys Inc (GNSS) 2011 Q4 法說會逐字稿

Welcome to LRAD Corporation fiscal year 2011 conference call. I'm Robert Putnam, Investor Relations for the Company. Kathy McDermott, our Chief Financial Officer, and Tom Brown, our Chairman, CEO, and President are also on today's call. Ms. McDermott will recap our fiscal year 2011 financial results, followed by a brief presentation from Mr. Brown. After his remarks, we will open the call to questions.

Before we begin, please note that other than statements as to historical facts, statements made on this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on our current expectations. Words such as expects, anticipates, intends, believes, estimates, and variations of such words and similar expressions are intended to identify such forward-looking statements. All of these statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the press release we issued yesterday for a description of factors that could cause actual results to differ materially from those forecast. Any forward-looking statements made on today's call 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, see the Risk Factors section of the Company's Form 10-K for the fiscal year ended September 30, 2011. LRAD Corporation disclaims any intent or obligation to update those forward-looking statements except as otherwise specifically stated.

I will now turn the call over to Kathy for the fiscal year financial results recap. Kathy?

Thanks Robert. Hi, everyone, and thanks for joining our year-end review.

We closed our fiscal 2011 with a strong fourth quarter of $6.4 million in revenue and a total year of $26.5 million in revenue, a 59%, or $9.8 million increase over the prior year. We reported net income of $5 million for the second consecutive year of profitability in the Company's history. We began the year with a $13 million backlog, primarily for a foreign government order which was delivered in the second fiscal quarter, but we were challenged with reduced US defense spending, due to the lack of a fiscal 2011 federal budget. We did benefit from some end-of-year military orders which helped us to close out strong, but we still resulted in a $3.7 million reduction in US military spending in 2011.

Our balance sheet was strengthened during the year with an increase in working capital from $10.1 million to $19 million. Our net revenues for the fourth fiscal quarter ended September 30, 2011 was strong at $6.4 million, a 23% increase over $5.2 million reported for the same quarter in the prior year. The increase was primarily driven by sales to the US Navy as well as large orders for bird control and detection, to secure offshore oil platforms and US Air Force order as we previously announced. Our revenues will continue to fluctuate on a quarter-to-quarter basis based on the nature of our business and customer base. For the fiscal year ended September 30, 2011, our net revenues were $26.5 million, a 59% increase over revenues of $16.7 million for the prior year ended September 30, 2010. The increase was primarily driven by a $12.1 million order to a military service of a foreign government.

Gross profit for the fourth quarter was $3.2 million, or 49% of net revenue compared to $2.8 million, or 55% of net revenue for the same quarter in the prior year. Gross profit for the fiscal year ended September 30, 2011 was $15.9 million, or 60% of net revenue compared to $9.2 million, or 55% of net revenue for the prior fiscal year. The improvement in gross margin is due to the increased revenues, increased fixed cost absorption and lower product cost due to higher volume purchases, partially offset by higher manufacturing overhead spending and amortization of prepaid expenses to support the large foreign government sale in the quarter ended March 31, 2011.

Operating expenses for the fourth fiscal quarter increased by $970,000, or 52%, to $2.8 million from $1.9 million for the same quarter in the prior fiscal year. The increase is primarily due to bonus expense for the fourth quarter, as well as an increase as result of meeting a higher level EPS target that we had been accruing for in the first three quarters. Operating expenses for the year ended September 30, 2011, were $10.9 million, an increase of $4.2 million over the prior-year expenses of $6.7 million. The increase over the prior year was primarily attributed to increases of $2.8 million for a sales commission, primarily related to the large foreign government sale, $1.1 million for bonus expense based on meeting a higher target level than the prior year, and $385,000 for salary and consulting expense, primarily related to increased business development staffing.

Net income for the fourth quarter was $351,000, or $0.01 per diluted share, compared to net income of $941,000, or $0.03 per diluted share in the prior-year fourth quarter. Net income for the fiscal year ended September 30, 2011 was $5 million, or $0.15 per diluted share compared to net income of $3 million, or $0.10 per diluted share in the prior fiscal year. Fiscal 2010 includes a non-cash unrealized gain of $748,000 for the revaluation of derivatives related to warrant instruments which contributed $0.02 per diluted share. We did not have a similar benefit in fiscal 2011.

On the balance sheet, cash and cash equivalents increased by $8.4 million in fiscal 2011. $4 million was provided by operating activities, $4.5 million was provided by the exercise of common stock warrants and stock options, and $60,000 was used for the purchase of equipment and patents. In fiscal 2010, the Company increased cash and cash equivalents by $319,000, including $370,000 provided by operating activities, $30,000 provided by stock option exercises, and investing $82,000 in tooling and patents. Net inventory remained essentially flat compared to the prior year end.

Our trade receivable increased at year-end due to our strong revenues in the fourth quarter of 2011 compared to the prior year's fourth quarter. Our trade receivable balance was $5.1 million at year-end, or 73 days, compared to $4.2 million, or 74 days, at the end of fiscal 2010. We had no reserve for bad debt at year-end, as these receivables are all deemed flexible. At September 30, 2011 we had working capital of $19 million, which is an increase of $8.9 million over September 30, 2010. With that, I will turn back over to Robert.

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

Thank you, Robert. Thank you all for joining on our call.

As Kathy indicated, 2011 was our best performance ever. It was a great year in difficult global economic conditions. We enter 2011 with a lot of promise. The US Army released an RFI for 6,350 acoustic hailing devices which we responded to. We expected an RFP to follow. However, Congress did not pass a budget, and the RFP was not issued. Fortunately, the demand for this product is still there, and the US Army has recently reissued the RFI for 6,350 acoustic hailing devices for the 2013 budget year which begins October 1, 2012. This will still require Congressional budget approval, so as a result, we have placed strong emphasis on growing new markets and new geographies. We are pursuing a number of International opportunities, and if we can close them -- they usually take a little longer time to close -- we're going to have a good year. If the US Congress can finalize its budget, we will have a very good year.

We enter 2012 cautiously optimistic. We have a good pipeline of international business. We are working on some new product offerings for new markets, and we still have strong demand from the US military and law enforcement. While our quarterly results will continue to be uneven, we expect 2012 to be our third consecutive profitable year as we continue to build this business. With that, Robert, let's get some Q&A.

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 lag time between each caller. Operator, please instruct the callers how to queue up with their questions.

Thank you. (Operator Instructions)

To allow time for callers to queue up, we will begin with some questions submitted previously by e-mail. The first question we received is -- we've seen LRAD show up at some of the Occupy events. Have law enforcement sales increased because of the media coverage?

From our perspective, we have received not only continual interest from law enforcement, not only from the Occupy, but after the G20 summit in Pittsburgh two years ago. Then also, earlier this year when we had a rash of sheriffs that were killed serving warrants at the doors, we had opportunities with law enforcement there. So, law enforcement opportunities have been out there. I think the media coverage gives LRAD an opportunity to talk about what we can do differently with communication rather than door knocks, and also some of the non-lethal ways that police deal with the protesters that we've seen in these Occupy movements.

We've had a lot of press coverage right before Thanksgiving holiday. We continue to receive media interest and expect other articles to come out between now and the end of the year. This continues our trend of receiving outsized media exposure that doesn't cost us anything but allows us to get our message out, and it leads to further marketing of LRAD -- branding and sales opportunities which we think are very important. Then, we couple these also with e-mail blasts where we focus -- in particular, we had an event last Saturday in Stillwater after Oklahoma State beat their archrival, and we had a stampede of fans go on to the field, resulting in some critical injuries. So, what we do with these type of events is put together short e-mails that we send to targets like college presidents and campus security, local law enforcement -- letting them know how LRAD can help them through our long-range, powerful, highly intelligible communication calm crowds and regain control.

I'd say, Robert, fortunately we have been pioneering these different applications, and with this media coverage, it is giving us additional exposure because the media coverage is international; it is not just in the US. And, we are seeing some significant interest in the product. Crowd control is an area that we can definitely add an enhanced solution.

Another question we had is which LRAD unit is being adopted by police?

In this case, primarily our 100X because it is a manual unit that can be carried from patrol car to patrol car, but also, they are also using the 500X. We've seen that being utilized in different locations, including Canada and in some of the major US cities. The 500 and the 100 have been the two primary units that people are using, and the one thing that we introduced this year is a new wireless version of the 100X. That wireless version has been very successful. It is been adopted by a number of law-enforcement organizations and also by the military. You can utilize the unit without cords, and you can stand as far away from it as you would like. Let that unit capture [songs] and whatever other things people might be throwing at it while keeping the unit operator out of harm's way.

Another question we've received is -- what can you share in terms of the LRAD 2000X and its adoption?

The 2000X was just completed and released as a new product. We are looking to take this unit out to some trade shows after the first of the year. It is our most powerful unit. The performance of the unit has been very impressive. We have already received some interest from the US military because it has the ability to reach out, and we're estimating it could reach out in a clear, intelligible voice over 5 miles which makes a very attractive for a vessel. And, we anticipate some different applications, and we have some interest -- the reason that we drove this 2000X product is because we had interest from foreign customers based in the Middle East, based in Asia, that were looking for a more powerful unit that they could utilize. So, we've come up with the 2000X, and the initial trials have been well received. But probably up to the first of the year, we will get enough trade show exposure so that we can start to see some revenue coming from the unit.

Great. Operator, please give us the first caller as soon as you're ready.

Thank you. We have a question from the line of Bill [Clearabelli]. Please go ahead.

Gentlemen, how are you doing today?

Good, Bill.

Hello. My question is concerning on compensation for you. A little frustrated as a shareholder that the stock is down over 40% this year. Yet, you continue to take care of yourselves internally, and the shareholders are the ones that get hurt. It is a four-part question that you can answer, and I'm going to list all four questions. They should be pretty simple. Question one is, who is on the compensation committee? Two is, what were the 2011 goals? What are your 2012 goals that you are setting? And also, how many shares have you issued to Management this past year? And, at what strike price? Thank you.

The compensation committee is made up of three independent Board members. There are three independent members plus Tom Brown on the Board, and the compensation committee is comprised of the independent members. Our 2011 goals, while we don't provide the actual targets, it is based on earnings per share which is the same thing that our investors are interested in. So, our goals are the same as your goals. We are targeting different levels of earnings per share and different targets based on what levels are achieved. 2012 is based on that same methodology with increased targets. We have increased our targets over the prior years. Each year try and improve those bases and make it more challenging for us. We continually raise the bar, so to speak.

There have been no shares issued to Management. We've had a few stock options, but the stock options, again, are only a benefit if the share price goes up and they are exercised.

How many options has that been? And, at what strike price, please?

We've issued, I think, to Management probably about 100,000. And, it was at -- it was higher than we are today.

Actually, I think it was 250,000 at a strike price -- I think, of $2.15.

So, you're saying now -- you don't actually give out the goals which I find to be a little shocking. But --.

I don't think anybody does, Phil.

Okay, so, but 2012 has to be above 2011?

Yes, it does.

You have to make more than $0.15?

We're going to have to achieve -- there's different levels of the bonus plan. But, in order for us to achieve the maximum target -- yes, we have to achieve a higher level. We've raised the bar every year. For five years.

Okay.

We put in an incentive-based compensation scheme five years ago. We've given out very little salary increases over the last five years. We put all of our employees on an incentive-base -- to help drive this business. This was a losing business.

My only suggestion to you, and I've mentioned this to Robert before on the phone, is it would be nice to see Management support the stock a little bit. The only people supporting your stock are your major shareholders, and I know you are compensating yourselves pretty well. And, to not see 5,000, 10,000, 15,000 shares of purchases by insiders to support your stock, for one. To show the idea that you believe the business is doing well, and I'm a little surprised, to be honest with you.

Actually, Phil, we've done compensation studies in the area, and our compensation is much below market in the San Diego area. We're not looking to enrich ourselves. We are looking to grow a business. We are looking to put incentives -- an incentive scheme in place that can help drive this business, and we've done that. Five years of consecutive double-digit growth, three years of positive cash flow, two years of profitability, and the performance this year is the best we've ever had.

Except for your stock is down 40%.

Yes, but, I can control the performance, not the stock price.

You can go out there and support your stock on the insider basis. I would probably say 99.9% of companies do that when their stock is depressed. You're the only Company that I know that has never filed a Form 4 buy in my entire universe of companies. It is a little shocking, I will have to be honest with you. And I will leave it at that.

We appreciate your comments, Phil. Thank you. Next caller please, Operator.

Thank you. We have a question from the line of Jared Cohen. Please go ahead.

Just a few questions. One -- start with gross margin. I know you mentioned the percentage of gross margin, 49%. Can you just go into a little bit of detail again of why it was down from the prior quarters a little bit? I know it is the end of the year, but just go into a little bit of detail?

Sure. Part of that is based on the customer base. We did have a higher level of Navy sales. Our US military, through the bidding process and through the volume purchases that they do, the pricing tends to be a little bit more competitive, a little bit lower. So, we do have a little bit lower margins with that customer. So, based on the mix in the quarter, that's a big piece of it.

We do have some prepaid amortization costs that we're now incurring as result of our military sales in the second quarter -- our foreign military sale, that we will be spreading over the life of that sale. We have a seven-year maintenance contract. We do have some cost associated with setting up service centers, repair centers in helping to service that customer.

I know that, but I guess the question is, how much -- how is that different than, say, the third quarter were you had less sales and so forth? That's why --.

It is mainly mix. It's mainly the customer base, and the fact that the US military -- we have a contract. And, it is, as Kathy indicated, a large volume contract. Their pricing structure is lower than --.

That's -- partly that affected that. Okay, and then, besides the -- I guess you mentioned in terms of getting into the detail -- the operating expenses because of the incremental expenses. I know, again, it is year-end. The 1.8 -- you mentioned something of $300,000 of consulting fees. Can you just go into a little bit more, again, the detail?

Actually, that's the full-year amount, and that was actually not so much in the way of consulting fees. We do have some software consulting. We are working on some software integration of our RX product lines so we have an outside consultant who does some software work for us. But, the primary piece of that -- our new business development people that we put on board at the beginning of the year. We are looking to continue to add some new business development.

Okay. I can understand that. I just wanted to understand the difference between -- take the third quarter and the fourth quarter. Just so I can understand the incremental margins a little bit. How they were different. Because I would've expected a little bit more, again, profitability this quarter given the incremental revenue.

I think, one of the sticking points of the previous caller is that we did accrue some significant bonus dollars in the fourth quarter because through nine months, we were behind our targets, and we weren't accruing based on that. But, in the fourth quarter, numbers came into place, and we booked the additional bonus accrual.

Okay, I missed that. How much of the catch-up was that?

It was over -- Kathy, has the exact number. It was over $1 million.

In the quarter, we booked about $1.3 million. In the fourth quarter.

$1.3 million, okay. All right. Thank you very much.

Thank you.

Thank you. We have a question from the line of Jerry [Twuttle]. Please go ahead.

Hi, it seems like eons ago when present Management came in there was objectives stated. Two goals. Number one, to turn the operation around from a hobby into a real business. And, there's no question you've achieved that. The other was to get the stock from being a toddler, I think you called it, up to being a teenager. And, there's no question we are sadly lacking in that. I'm just wondering, you must be having some conversations with interested institutional investors whether they invest or not. What seems to be the main problem? I know the obvious one is you have a spotty revenue stream that comes and goes, but what are we going to do to get the thing up to be even close to a teenager?

I think the only thing that we can do from a Management standpoint is continue to drive this business and continue to perform. If you look at us, we've continued to grow. We are making money. We are profitable. We are continuing to be profitable. We're looking at 2012 as a profitable year. We are expanding our business internationally. We've expanded our brand name. This LRAD brand name has value. It is recognized around the globe.

In terms of -- we have $0.15 per share earnings, and in terms of trying to continue to grow the business, that's what we are focused on. We are focused on trying to grow new markets. So, my stated goals were to make this a real business. Grow it at a year-over-year base, and make it profitable. We've achieved that. My new goal is to continue to make it a profitable business and continue to grow it. They haven't changed, and we've performed.

One of the challenges -- to your point is -- one of the challenges that we do have is the unsteady revenue quarter-over-quarter. Meeting with institutional investors -- obviously, they'd like to see some kind of a forecastable business. It is very difficult to do that with the nature of our customer base. That does become a challenge for us. We've increased our meetings with investors and hoping to improve that as we go forward, but it is definitely a challenge because it is difficult to forecast our revenue.

As opposed to the way that, maybe, many companies and maybe even this Company might have operated in terms of over-promising and under-delivering -- we try to under-promise and over-deliver. That's been our focus.

Thank you, Jerry. Operator, next question, please.

Thank you. Our next question is from the line of [Mike Secos.] Please go ahead.

Hello. Mike here.

Hi Mike.

I wanted to ask you, regarding the gross margins. I'm sorry if I missed this. I tuned in a little late. But fourth quarter versus fourth quarter fiscal 2010, why the decline? Is that just based on the customers and the products you are serving?

So, it is primarily -- the margin, the customer base. So, we had a higher level of military sales in the fourth quarter which tends to have lower margins. That's kind of the biggest piece of it.

Okay. And then, one of the things that I saw in the K, and I might be just focusing on this a little too much. But, there was a line saying there might be pricing pressure that you're facing from competition. I wanted to know -- one, what kind of pricing pressure is it that you are actually seeing if you're seeing anything? Because I know this is still a market that's developing. And secondly, the competitors that you rub up against?

I think that's probably within one of the risks. But, in terms of pricing pressure, we have significantly reduced the pricing of LRAD over the past several years. But, at the same time, we've been able to improve our margins over the last several years. So, we are very competitive on a price basis and our margins are improving, but when we run into a larger contract offering, we need to be very competitive. So, when we are dealing with the military, we try to be very competitive when it comes to our US military sales. So, there is always pricing pressure from everyone. The customer is mainly driving that pricing pressure. But, as we continue to grow our volume, we can keep our costs down and keep our margins at very high levels.

Okay. And then, with regard to the R&D expense. Now that you have the 2000X developed and out on the market, are we expecting to see a drop in that? Or, is that going to maintain as a percent of revenue? How do you look at that figure?

We intend to maintain our R&D expense throughout the year. It may drop off slightly, but we intend to maintain the team that we have in place, and we are doing a number of tests. We have to test and certify the products. So, there's some additional outside costs that we'll incur. But, R&D is what drives this Company. We're developing some new products. We have some new products on the drawing board. So, we are looking to continue to spend roughly around that level.

Okay. All right, thanks a lot for your help.

Thank you, Mike. Next question, Operator.

Thank you. We have a question from the line of Jonathan [Manela]. Please go ahead.

Hello. Just a quick question on the CROWs device. I've know we've been looking for a small order -- an initial order to come in. Hasn't happened as of yet. Is there any visibility on that is one part of the question. And, the second is, I know that there were some other improvements that the Company was looking to make. Have we seen any of those orders come in for any of the other improved pieces to think that the LRAD component has just been eliminated from the program? Or, has everyone just been pushed on the sideline?

Jonathan, in terms of the CROWs system, we are still working with Kongsberg, and unfortunately, we run into the same situation that we have with that RFI. And, that there is the -- budget becomes an issue. The funding is an issue. But, we have been at number of trade shows this year with Kongsberg, and we are working with them as we speak to try to get our units out fielded on a small basis. But, funding has been the issue for both sides.

On a positive note, we just received an order this month from Northrop Grumman to put our 300X on their CROWs system because they are getting ready to go after -- there was a big RFI that was introduced at the beginning of the year for new CROWs systems. Northrop Grumman is putting a package together and are including escalation of force kit just like Kongsberg is doing. And, they're including the LRAD 300X. And, we're also working with another integrator whose also putting a CROWs package together. So, it still out there. Unfortunately, this Congressional situation -- the way the politics is going, the budget is the issue. There's a demand, but we need funding to make it happen. We are as frustrated as everybody else is because we were anticipating some very, very large orders, but we are still working it. It is a matter of being persistent and being patient in this crazy environment.

Right. All right, the second quick question here, and it sounds like a couple of other people may have expressed frustration. It sounds like you could appreciate shareholder frustration. Not that business isn't going well. The frustration is despite the environment, business is going extremely well. But, the stock price isn't going well. I know there are only certain controllables that you perceive you have, but at some point, we could find ourselves in a situation in a year from today where business grew by 25%. You had another year-over-year revenue growth. Best profitable year ever. We could be sitting with the stock price exactly where we are today. It doesn't mean just because the business grows that the stock will appreciate in value. If that's the case, at some point, Tom, would you be willing -- or do you from time to time consider re-looking at the approach of just focusing on growing the business to improve shareholder value?

What other options do you have for me, Jonathan?

I think the other thing, too, let me leap in here on this -- is that we are getting the message out there and talking to institutional investors, Jonathan. But, they see this like everybody else. What we began your question with is also tied to what the future, which is what the stock value is always looked at -- what's coming in next for the Company, not what's in back of it. I think we put the foundation in, and that's what's going on with US military. There is no secret that those opportunities are the largest opportunities we have currently in front of us. We've got other things that we are working with, but they are the ones that would bring stability as far as multi-year contracts, significant revenue to the Company. And until that clears up, that's the main impediment for anybody to jump in in a large way and do what we all want which is appreciate the stock price. So, I think we're kind of tied together with that. Other things -- yes, you can do those. But without that piece, that's the main ammunition that all of us need to move forward.

Jonathan, I've been working on this CROWs system for four and a half years. It is my baby. I'm trying to make this thing happen. Along with the RFI. That was that we won an RFP in back in 2007 which is the basis for that RFI so we are very, very frustrated that both of these situations are hanging out there, and we are still waiting on a budget. But, I think if we can see some light of day on either one of those orders, then a lot of our shareholders would be very happy. But, we are working very hard to make this thing happen, and we've taken a Company that was pretty dysfunctional and turned into a real business. And, we are growing it.

I think there's no question about it, from an operated -- as an operator, you have done an incredible job. Just -- you asked if there was any suggestions. You're starting to accumulate a very nice cash position at this point, there might be opportunities to start looking at putting some of that cash to work from an investment standpoint into more businesses that are aligned with yours, but have better visibility -- at least create some excitement around the Company as the brand has improved.

We have started to look at other opportunities that are out there. Unfortunately, a lot of these opportunities -- I've looked at one or two companies in the past year, and neither one of them was that attractive after you scratch the surface. But, it is something that we are open to, and if we can continue to grow our business, continue to improve our cash position, we're definitely interested in seeing what else we can bolt on to this business.

Okay. You had mentioned some international opportunities that are outside of this RFI -- or the CROWs. Are those opportunities in line with the large one that we saw a year ago? Around that size? Bigger? Smaller? And, approximately how many opportunities would you say are in your pipeline at this point?

We have a couple of significant opportunities that we are working in the Middle East and in Asia. We are working in a couple of different countries. I would say that there are five opportunities that we are looking to close this year. None of them are -- at this stage -- none of them are as large as the single opportunity that we brought in this year. But combined, they are all pretty significant. Would definitely give us, if we could bring them all in -- definitely give us a very good year. We don't anticipate that we can bring them all in, but we are working on a couple that will still make us a healthy little Company.

Okay. Listen, I appreciate your efforts and just continue to grow, and I guess we will get there.

Thank you Jonathan.

Thanks.

Thank you. We have a question from the line of Aaron Martin. Please go ahead.

Hello. I apologize if you covered some of this stuff because I dropped off in the middle. I lost coverage. What is the ASP roughly on the new 2000X?

The selling price -- we are still kicking it around a little bit and trying to get some customer feedback. But, probably the base unit will go for $56,000, and the mount, which is a very sophisticated mount because this is a very large -- it's a two-piece unit. The mount will probably go for between $12,000 and $15,000. It's priced in between our 1000X and our RX unit. We are also looking at possibly turning this into a pan and tilt unit also.

Understood. And then, getting back to the pan and tilt, it will be closer to the RX.

Actually, the pricing will be higher than the RX because it is a much more expensive and much more powerful unit.

Okay, and the gross margin we're targeting here is 50%-plus along with all the others?

Yes. That's my baseline.

Okay. Then, in terms of gross margin, you mentioned that the military gets -- how low does it go in the military? Low 40s? Where does it go?

Again, it depends on the mix, and it depends on -- we have different pricing for different product lines. But, roughly, it is in the low 40s.

In the low 40s. Okay. In terms of the large order that we had for the overseas military, the total in the order was $5 million service, how much of that $5 million have we already recognized? And then, what's the timeframe on the rest?

We haven't recognized any of that service revenue. It won't kick in until April of 2012, and it will be spread over a seven-year period. It will be -- it is not a large amount of money.

Understood. On the bonus -- I want to make sure I heard this correctly, none of that -- where did that come in on the P&L? It wasn't in the cost of goods, right? None of them?

It's spread -- it's in cost of goods. It is in selling and general administration, and it's in R&D. Everybody in the Company participates in the bonus plan.

So, just looking specifically at cost of goods, what was the margin effect just looking at the bonus?

The margin effect --.

In the fourth quarter was about $230,000.

It's very small in the cost of goods.

About $1.3 million in operating expenses.

Okay, fine. Wasn't -- it wasn't that much of a mover on the margin. It really was the military piece?

Yes.

Obviously, things are -- if we look out over the whole year, can we grow again this year?

We're going to try. We're going to try. If -- it would be -- I could answer that easier if we had a budget in place for the US government because that still our biggest customer, as Robert indicated before. But, we are working other opportunities so our goal is to achieve profitability and to achieve growth, and we are going to work hard to do both.

Understood. In terms of -- in the fourth quarter, we had some military ordering coming back, and that was obviously due to the end of the year which helps. Has that just dropped off afterwards? Or, are we seeing some sort of sustained level there?

It has pretty much dropped off. It was end of the year money. They spent it. We are going to ship some additional orders this quarter that we received at the end of last quarter to the US Navy. But, I don't anticipate seeing a pickup in orders until there is some kind of clarity on the budget side. It probably will -- we'll probably have to wait until the year progresses a little more before we see some pickup in orders from the military.

And then, in terms of -- with, obviously, these multiple large opportunities that you're looking at overseas. And, specifically the customer -- that one customer with the $12 million order. Any possibility of another order coming out of there? Even if it is not that size, but at some size?

We are working that customer right now. We are hoping for a follow-on order from that customer. They're very -- the feedback we received on the initial order has been very positive. There's some interest there. Again, it is going to be timing.

Understood. I'm not talking about which quarter it is going to be in. Obviously, that's not the way this business runs. Do you know how much of the initial order they have deployed already? Have they deployed all of it? Any insight there?

From what we understand, they've deployed a good portion of it. They haven't deployed 100%, but they've deployed a good portion. And as I said, the feedback has been good. We've done some training with them.

Is good portion -- a majority?

At this point, I would say majority of it has been deployed.

Okay.

Just to reiterate on that follow-up, too, Aaron -- that was to a foreign government for one of their defense organizations. So, follow-up business doesn't necessarily follow it would be with that same military organization from that foreign government.

Okay, it would be from another --.

There is more opportunities within that country than just this one military branch.

It seemed to me that would be -- this would be a [Z] application. So, we are saying that -- which would mean that even within that application, there would be a lot more room. You're saying that really we shouldn't be looking at that same application, we're looking at --.

We're just saying there's a lot of opportunity within that, it's not -- it doesn't follow necessarily that it's just a follow-on order from the same military organization within that foreign government. There's a lot more business opportunities there with them.

Okay. Thanks. I think that's it for me.

Thank you.

Thank you. (Operator Instructions) We have a follow-up question from the line of Jared Cohen. Please go ahead.

My question was answered. Thank you.

Thank you. (Operator Instructions) I'm showing no other questions at this time.

Thank you. And, thank you all for listening to and participating in LRAD Corporation's fiscal 2011 conference call. A replay of this webcast will be available in approximately 24 hours through the same link issued in our November 29 press release.