Genasys Inc (GNSS) 2012 Q4 法說會逐字稿

Welcome to LRAD Corporation's fiscal-year 2012 conference call. I am Robert Putnam, Investor Relations for the Company. Kathy McDermott, our Chief Financial Officer, is also on today's call. At the request of some of our key business partners, Tom Brown, our Chairman, CEO and President, was called away late last week to attend international meetings with prospective customers. Rather than delay the release of our fiscal-2012 results and this call for his return, we are proceeding as scheduled, at his request. Ms. McDermott will recap our fiscal-2012 financial results, followed by a brief presentation that Mr. Brown prepared and asked that I give. After the presentation, we will open the call to questions.

Other than statements as to historical facts, statements made during this call are forward-looking statements, and are based on our current expectations. During this call, we may discuss the Company's plans, expectations, outlook or forecast for future performance. These forward-looking statements are subject to risks and uncertainties that actual results could differ materially from the views expressed today. For more information regarding potential risks and uncertainties, see the Risk Factors section of the Company's Form 10-K for the fiscal year ended September 30, 2012, filed yesterday with the SEC. 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-2012 financial results recap. Kathy?

Thanks, Robert. And thanks, everyone, for joining us today. We finished our year with a strong fiscal fourth quarter. Revenues in the fourth quarter were $5.6 million, compared to quarterly revenues of $2.4 million to $3.6 million in the first three quarters, primarily due to a number of year-end US military orders that were received and shipped during the fourth quarter. Revenues for the fiscal year were $14.8 million, compared to last year's revenues of $26.5 million. Revenues in 2011 included a $12.1 million foreign military order, which wasn't repeated in 2012. And we continued to struggle with ongoing military spending constraints, and the uncertain domestic and international economic environments. We continue to build new markets for our LRAD systems, and pursue other avenues to increase revenue.

We are seeing growth in select international markets. And we've been increasing our sales into US municipalities, as our LRAD systems are being increasingly deployed for many law enforcement applications. In addition, we have opened new markets with the initial sales of both our 2000X and 360X new products, which are performing well for our initial customers. We expect follow-on orders for both products in fiscal 2013.

We are reporting net income of $1.5 million this year. And we have a strong balance sheet with $13.9 million of cash, and $21 million of working capital. We are optimistic about our business opportunities for fiscal 2013.

Our net revenues for the fourth quarter ended September 30, 2012 were $5.6 million, compared to $6.4 million for the fourth quarter of the prior year. Net revenues for the fiscal year were $14.8 million, compared to $26.5 million reported for the prior fiscal year, primarily due to the $12.1 million sale to a foreign military customer in 2011. Our revenues will continue to fluctuate on a quarter-to-quarter basis based on the nature of our business and customer base.

Gross profit for the quarter ended September 30, 2012 was $2.8 million, or 51% of net revenues, compared to $3.2 million, or 49% of net revenues, for the fourth quarter of the prior year. Gross profit for the fiscal year ended September 30, 2012 was $7.5 million, or 51% of net revenues, compared to $15.9 million, or 60% of net revenues for fiscal 2011. The decrease was primarily due to the decreased revenues, lower fixed-cost absorption, and a full year of amortization of prepaid expenses to support repair and maintenance required for the foreign military sale last year. This was partially offset by a decrease in manufacturing overhead cost for freight and bonus expense, and lower warranty expense.

Operating expenses for the fourth fiscal quarter decreased $1.2 million, from $2.8 million to $1.6 million, primarily due to a reduction in bonus expense. Operating expenses for the full 2012 fiscal year decreased by $4.7 million, from $10.9 million in fiscal 2011, to $6.2 million. The decrease in annual expenses was primarily due to a $3.1 million reduction in sales commissions, primarily related to the large foreign military sale in the prior year, and a $1.9 million reduction in bonus expense, based on not meeting targeted performance goals, partially offset by a $266,000 increase in non-cash share-based compensation expense.

Net income for the fourth quarter was $1.2 million, or $0.04 per diluted share, compared to $351,000 or $0.01 per diluted share for the fourth quarter of 2011. Net income for the year ended September 30, 2012 was $1.5 million, or $0.04 per diluted share, compared to net income of $5 million, or $0.15 per diluted share in the prior year. Our balance sheet remains strong, with a cash and cash equivalents balance of $13.9 million at year end, essentially the same as the prior year. Working capital increased by $2.3 million to $21.3 million at September 30, 2012.

With that, I will turn it back over to Robert.

Thank you, Kathy. I will now give Mr. Brown's presentation.

In fiscal 2012, we were able to achieve approximately 10% net income, and a 12% increase in working capital, in spite of difficult global economic and defense industry conditions -- real accomplishments in this environment. Fiscal 2013 is shaping up to be another difficult year for our industry, as uncertainty continues to surround the US budget process, resulting in military spending being curtailed. The international picture remains cloudy, but we are seeing signs of improvement in a few key regions.

Based on this outlook, fiscal 2013 will be another challenging year. However, based on expanding AHD markets, and a growing pipeline of domestic and international business opportunities, we anticipate our fiscal-year 2013 financial results will improve over fiscal 2012. In particular, we are working on several international opportunities that show promise. As I have indicated before, the international procurement process is even slower than in the US. So, timing remains a concern, but the opportunities are real.

Since we transformed our business, and totally redesigned and reengineered our product family, we have generated four years of positive cash flow, and three years of profitability in an adverse economic environment. Aside from the improved financial performance, we have established LRAD as an international brand, having sold our products into more than 60 countries as we continue to be the world's AHD market pioneer and leader. With the introduction of the LRAD 360, and its ability to broadcast highly intelligible voice messages uniformly over distances up to two miles, we have new market opportunities in the emergency warning mass notification market. We anticipate more trial installations and significant orders as we begin to penetrate this market in fiscal 2013.

In the US, we are hoping to see some form of a budget agreement in calendar 2013 that will normalize military funding. While we are hopeful that this will occur, we continue to work on growing our commercial business and building new markets for our products. Our particular focus in fiscal 2013 is increasing international business, and domestic business where government funding is available.

With that, 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 a minimal lag time between each caller.

Operator, please instruct the callers how to queue up with their questions.

(Operator Instructions).

While we're waiting for questions to queue up, we have received some questions previous to today's call that we are going to go ahead and answer. The first question that we received is -- what is the status of the lawsuit filed in July?

We responded to the complaint and filed a motion to dismiss in early October, as we believe the plaintiffs' claims are without merit. The plaintiff filed an amended complaint in mid-November, which we will be responding to this month. After reviewing the amended complaint, we believe the plaintiffs' claims continue to be without merit, and we intend to vigorously defend against them. Item 3 in our Form 10-K filed yesterday with the SEC, contains more information regarding this legal proceeding.

Another question that we received is -- with the stock price hovering around $1, and close to $14 million in cash, why won't the Company implement a stock buyback?

As we stated on our August conference call, the Board was evaluating a stock buyback plan until it and the Company were served in July with the aforementioned lawsuit. Our counsel in this matter has advised the Board and the Company to work through the lawsuit before reconsidering a buyback.

Another question we received is -- what effect did the November election have on the large military opportunities management has discussed on previous conference calls?

The threat of sequestration and the prolonged absence of a federal budget continue to fuel defense spending uncertainties that will probably continue into calendar 2013. In fiscal 2012, we successfully identified areas where grant money was flowing from the federal government, as demonstrated by the increase in our domestic law enforcement business. In fiscal 2013, we are continuing to focus on these and other areas where we believe government funding is available for agencies wanting to order LRADs. Regarding some of our large domestic military opportunities, we are awaiting the awarding of the US Navy RFP we responded to in June. And we continue to work with assets in Washington DC to obtain the status of the November 2011 US Army RFI. Regarding the Kongsberg CROWS Escalation of Force Kit opportunity, since our August conference call, we have held a new round of meetings with US Army officials, and conducted another major demonstration for them. We continue to work this opportunity with Kongsberg and the US Army.

Another question we received is -- what's happening with the international business?

Our response is -- a lot. Especially evidenced by Tom being called away by some key business partners for vital meetings in a region we anticipate will place significant orders. Over the last three fiscal years, excluding the $12.1 million foreign military order that we received in fiscal 2011, we have averaged between $5 million and $6 million per year in revenues derived from international business. With LRAD systems now deployed in over 60 countries, and based on the ground work that has been done over the last three years, and the growing pipeline of business opportunities, we anticipate our international business will be much improved in fiscal 2013 over fiscal 2012.

And then the last question we received before the call -- what is the Company doing to create more markets for its product?

Answer -- earlier this calendar year, we shipped our first LRAD 2000X systems for a trial international border installation. As with most government-related trials, testing can last several months. However, based on the feedback to date, we anticipate receiving follow-on orders in fiscal 2013. And in June, we shipped our first omni-directional LRAD 360, for a trial earthquake and tsunami warning installation in Asia. Partner and customer feedback to date has been excellent. The LRAD 360 allows us to now compete in the established emergency warning mass notification market. By providing highly intelligible voice messages uniformly over distances up to 2 miles, the LRAD 360 gives emergency warning systems a clear voice to warn and provide potentially life-saving instructions to local populations in areas prone to natural disasters. Because of recent weather-related catastrophes, we are seeing a surge of domestic and international interest in funding for disaster preparedness that could help accelerate our efforts to establish LRAD in this market.

Operator, please give us the first caller as soon as you are ready.

[Michael Sicose].

Just a couple of questions regarding the questions you were just answering. First question, I know that we are saying that you guys are not going to address the buyback until the lawsuit has been addressed, correct?

That's right.

There was a complaint filed, you responded to it, the plaintiff filed an amended complaint. Do you have a time line for when you expect to get your latest response in?

No, we are scheduled to respond later this month before the holidays. Then they will respond again back in January. It's a long course of action. We expect their response, then, from that back the middle of January or so. Then we will respond back late in January. And then start with oral proceedings and court decision. It could drag out into March time frame.

Okay. And with the lawsuit itself, with the proceedings and the responses going back-and-forth, could this potentially drag out until 2014?

I hope not. It seems pretty straightforward from our perspective. We would hope it would settle out within that timeframe. Be resolved within that timeframe, by March, would be our hope.

All right. As far as the international sales versus domestic sales, do you guys actually break that out on a quarterly basis?

We don't report it on a quarterly basis. We get so much fluctuation between them, again depending on the orders that come through. So, we don't report that.

It is broken out in the 10-K.

Okay. And then my last question for you was, during the fourth quarter, because I know that you had said operating expenses had declined year-over-year, because of $3.1 million in sales commissions, $1.9 million. That's on an annual basis, right -- the $1.9 million in bonus expense?

Right. But we booked a significant portion of that in the fourth quarter because of hitting a higher target level.

Can you give the Q4 numbers, then, for the declines that we saw in sales commissions and bonus expense?

It's probably half that. It's probably about, I would say, $1.2 million.

For the commissions or the bonus?

The commissions would have been in the quarter that the product shipped. So it would have been second quarter. So there might have been some small commissions, but the one related to the foreign military sale would have been in second quarter last year. The bonus expense, probably more like about $1.5 million would have been booked in fourth quarter.

$1.5 million. Okay. All right, terrific. That's all I have here. Thanks, guys.

Jared Cohen.

How many police forces here in the US are using your devices, just out of curiosity?

At this point, we have counted over 100 municipalities, counties and states that to date have ordered and deployed LRAD systems. And that number continues to grow.

Out of how many major cities, would you say that is out of?

Major cities, I think we still have more that don't have LRADs than those that do. So there's certainly more market growth opportunities for us.

Okay. And I know you've mentioned in the past, but just because it's come up recently. Any new news on where you might be -- or probably no new news -- in terms of airports? Just because, I know last week there were some issues in, say, Fort Lauderdale with two planes having accidents with birds and having their emergency landings.

Yes, that continues to be a real focus of ours. As we have addressed on previous calls, Jared, our problem is, is that we are working with not only local, but regional and then federal aviation agencies. Then beyond that, you have the environmental concerns at the various stages. You have to pull all that together to get something done. We continue to do trials, small installations mostly, on an international basis, to prove how LRAD can be effective, especially coupled with avian radar. And we continue to work those areas. We would hope to have a breakout in that later in calendar 2013.

Okay. All right. Thank you very much.

[Jonathan Manella].

I missed the first 30 seconds of the call. Where's Tom?

He was called away last week by some key business partners for some international meetings in a region of the world that we have been working for several years. So, rather than delay the earnings release, and delay the call, we decided to go ahead with that.

He didn't want to dial in?

Where he is at, it's a whole different time zone than where we are at.

I got you. Okay. Next question -- I just want to confirm something. Because you had mentioned, as it relates to this buyback, something on this call which is in contradiction to something that Tom mentioned either on the last conference call or the one before that. Maybe Kathy could speak to this. You had mentioned that the Board was evaluating, implying that it was in the process of evaluating a buyback. Tom had stated clearly that the Board evaluated and deemed it to be favorable for shareholders to move forward with a buyback. Then the lawsuit came and counsel advised to hold off. Could you just clarify what the events were? Maybe, Kathy, that would be better for you, since you are on the Board?

Yes, I think that's the same as what we said today. I think the only difference is you are distinguishing that we had made a decision. We were leaning toward it. We were moving in that direction, yes.

Tom said it clearly. One is, no decision, and we've not made a decision. One is, we discussed it and thought it was a good idea, but then decided not to do it. So, it's the latter, correct?

We hadn't transacted anything yet, if that's what you're --.

Of course you haven't transacted, but the community of people on the Board had made a decision that, yes, this was in the best interest of shareholders. That is what he said.

Yes

Okay. My question, then, would be, because we know that there's been a lot of advice provided to Tom over the last couple of years by different experts and different professionals that he did not follow. Why is he following this advice, even though the Board thinks that it would be in the best interest of shareholders to buy back stock? Why is he following the advice of whomever is providing him advice, to not do it? I'm sure there would be many legal experts that would contradict that advice.

What specifically are you referring to in the first part of your question? You set your question up with saying that he hasn't followed advice. What are you talking about?

Over the last couple of years, people have provided advice to Tom that he just didn't follow.

Who?

That he went on his own to make a decision. As Chairman of the Board, CEO of the Company, he can make the decision to not follow advice of counsel, and proceed with the stock buyback, because he and the Board felt that it was in the best interest of shareholders. Clearly, they felt it was the best interest of shareholders. Why are they not moving forward with a stock buyback, if it's in the best interest of shareholders? Instead of that, he has decided to follow the advice of this attorney. I just want to know why. Obviously he's not here to answer that. Maybe someone else could.

Yes, he's not here to answer that. Plus, I don't know what specific people that you are talking about, a professional that he hasn't followed, Jonathan.

The decision to do a buyback is based on all the circumstances within the Company. We listen to advice from all of our shareholders. But the decisions are based on business facts and circumstances and discussion with the Board in making those decisions. While we always consider input, the decisions are made based on the current circumstances. And in this case, a lawsuit puts us in jeopardy if we were to move forward on it. We would certainly not want to do that in the interest of the --.

Who would be put in jeopardy?

Again, we're just --.

I just want to know from Kathy, if that's okay. Kathy, please, you are on the Board.

I'm not actually on the Board. It's legal counsel that advises, as far as any lawsuit. As I'm sure you may or may not have been involved in. But legal counsel certainly would put on hold any other business decisions at this point in time. So, that's what we are following. Will we address it? Hopefully if the lawsuit is settled quickly we will readjust it at that point.

Okay. Very good. I appreciate it. Thanks guys.

Bob Stone.

I haven't ever asked a question before. I've listened to a number of these. But I have a question for you that maybe doesn't need an answer today. But I would like somebody to find some examples of where stock buybacks have been advantageous to companies. I've been an investor for a long time. I've read a lot about these sorts of buybacks. And there's not a lot of evidence that it helps anybody. I don't understand the anxious questions about when are we going to do this buyback thing. I'd much rather see this Company sit with cash that it can use for emergencies. This is a volatile stock. And you could spend an awful lot of money buying stock and then have some hedge fund just decide -- I'm going to cash in now because I don't like the way somebody parts their hair. And you've lost all the advantage of that buyback and you don't have your $13 million anymore.

So, my question is a rhetorical one. Think about what I've said. I would like somebody to tell me all of the great things that have happened from stock buybacks because I haven't seen them. That is a heckuva question. It doesn't need an answer, it's just a statement. Anyway, I like everything else you guys are doing. Good luck with the lawsuit. And thank you.

Thanks, Bob.

We have no further callers at this time.

(Operator Instructions)

Thank you for listening to and participating in LRAD Corporation's fiscal year 2012 conference call. A replay of this webcast will be available in approximately two hours through the same link issued in our November 20 press release. Thank you for your participation.

Ladies and gentleman, that does conclude today's webcast We thank you for your participation. You may now disconnect your lines. And have a great day.