Genasys Inc (GNSS) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the LRAD Q4 and FY14 financial results conference call. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to your host, Brian Harvey. Sir, the floor is yours.

Thank you, Catherine. Good afternoon, everyone, and welcome to LRAD Corporation's fiscal-year 2014 financial results conference call. My name is Brian Harvey. I'm the Director of Investor Relations and Capital Markets for LRAD.

On the call with me this afternoon are Tom Brown, our Chairman, President, and CEO, and Kathy McDermott, our Chief Financial Officer. Mrs. McDermott will recap our fourth-quarter and fiscal-year financial results, which will be followed by a brief presentation from Mr. Brown. After their presentations, we will open the call to questions.

But before I turn the call over to them, I would like to take this opportunity to remind you that during the course of this call, management will make forward-looking statements. Other than statements as to historical facts, statements made during this call that are forward-looking statements 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 and actual results could differ materially from the views expressed today.

For more information regarding potential risks and uncertainties, see the risks factors section of the Company's Form 10-K for the fiscal year ended September 30, 2014. 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 2014 financial results recap. Kathy?

Thanks, Brian. Thanks, everyone, for joining us today. Fiscal 2014 was a very successful year for us. After sluggish revenues in the first two quarters of fiscal 2013, we ended the fourth quarter of 2013 with one of our strongest revenue quarters at the Company and have continued to report strong revenues through fiscal 2014.

While our revenues for the fourth quarter of 2014 of $7.4 million was down from the prior year, our total year revenues for fiscal 2014 were $24.6 million, a 44% increase over the prior year.

Our quarterly revenues have continued to fluctuate based on the timing of deliveries. US defense spending constraints reduced our military revenues to less than 10% of total revenues this year compared to almost half of our revenues just a couple of years ago. But strong efforts to expand our international revenues has more than compensated for the decline.

We have added new partners and began selling into a number of new countries in Western Asia and in Africa, where crowd control and border and perimeter security are a priority.

We've also continued to increase revenues in already established countries, based on increased requirements for Navy and Coast Guard ships, military vehicles, public safety, emergency notification, bird mitigation, and oil and gas. Revenues into China more than doubled in fiscal 2014 as a result of establishing a new partner there in 2013.

We launched a number of new products in fiscal 2014, including an expansion of our omnidirectional line, which has and will continue to help expand revenues into the mass notification market. We developed new sound technology to help us to produce louder, lighter, and smaller products, which we've incorporated into our new LRAD 450XL product, which we just launched in October. In, combination the international expansion and our new products will help us to expand our business in fiscal year 2015.

Revenues for the quarter ended September 30, 2014, were $7.4 million compared to revenue of $8.8 million for the quarter ended September 30, 2013. Fiscal 2014 revenues were $24.6 million, a 44% increase over $17.1 million in fiscal 2013.

Gross profit for the quarter ended September 30, 2014, was $4 million, or 55% of net revenues, compared to $4.5 million, or 51% of net revenues, for the fourth quarter of the prior year. A decrease in gross profit was primarily due to the decreased revenues for the quarter, partially offset by favorable product mix.

Gross profit for the year ended September 30, 2014, was $13.8 million, or 56% of net revenues, compared to $8.2 million, or 48% of net revenues for the prior year. The increase in year-to-date gross profit was primarily due to the increased revenues and favorable product and channel mix.

Operating expenses for the fourth quarter increased $1.5 million: from $1.8 million to $3.3 million. The increases in spending included $1.6 million for accrued bonus from meeting established performance targets, which were not met in the prior year, and $384,000 of professional fees as a result of truing up final insurance reimbursement recorded in the prior year fourth quarter pertaining to the derivative lawsuit.

These increases were partially offset by a decrease of $367,000 for commission expense for international sales reps and other decreases.

Fiscal 2014 operating expenses increased $3.2 million: from $7.3 million to $10.4 million. Increases in spending include $2.5 million for accrued bonus, $639,000 for staffing and consultants, primarily for business development, $396,000 for sales commissions, and $160,000 for increased international travel. This was partially offset by a decrease of $361,000 for professional fees primarily related to the derivative suit last year and $156,000 for non-cash share-based compensation expense.

In the fourth quarter of fiscal 2013, we recognized a one-time adjustment to other income of $271,000, related to a terminated license agreement which was not repeated in fiscal 2014. We reported quarterly net income of $727,000, or $0.02 per diluted share, in fourth quarter compared to net income of $2.9 million, or $0.09 per diluted share, for the fourth quarter of 2013.

For the year ended September 30, 2014, we reported net income of $3.3 million, or $0.10 per diluted share, compared to net income of $1.3 million, or $0.04 per diluted share, for the fiscal year ended September 30, 2013.

On our balance sheet, our cash balance as of September 30, 2014, was $23.9 million, an increase of $8.1 million from September 30, 2013. The cash was generated primarily through net income adjusted by non-cash expenses, increase in accrued liabilities primarily related to the bonus accrual, and decreases in accounts receivable and inventory.

The accrued bonus will be paid in Q1 of fiscal 2015. Working capital at September 30, 2014, was $27.7 million compared to $23.7 million at September 30, 2013.

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

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

Thank you, Brian. Thanks for joining our call. I keep bringing this up, but I need to once again mention that since we made changes to our sales organization, over the last five quarters, we have generated over $33 million in revenue and over $6 million in net income.

Again, that is over five quarters, but still excellent performance. We are extremely pleased with the team we have assembled and we feel confident we can further grow our business in 2015.

As Kathy indicated, briefly looking back at 2014, we increased revenue by 44% and our bottom line by 164%. We increased our working capital by approximately $4 million or more than 15% of revenue -- the second-best financial performance in Company history.

As we say on all calls, we cannot be evaluated on quarterly performance as we are subject to government budgets and government delays. We need to be measured year over year.

Our first quarter is usually our worst. However, in 2015, we are off to a good start. For 2015, we see continued growth for our LRAD business, both internationally and with the new Republican Congress, we are anticipating an increase in the US defense budget.

The current continuing resolution expires on December 11. Either an extension or the so-called omnibus budget will be decided at that time. Once a budget gets signed and we are not under a continuing resolution, we anticipate that an RFP from the U.S. Army should be issued, because as I previously stated in previous calls, there is a line item for acoustic hailing devices in all three budget submissions -- Presidents, House, and Senate.

US military demand for our product is still there, as evidenced by approximately $1 million of new orders received and shipped to Afghanistan in our fourth quarter. We feel the budget deadlock should finally be broken with the new Congress and funding should be made available.

Internationally, we will ship an LRAD order for $1 million this quarter to China. China remains a strong customer, as Kathy indicated, and we look to continue to expand our business there as well as in Southeast Asia.

We also continue to see good growth potential in the Middle East and Africa. We are working on a number of good-sized LRAD programs internationally that we hope to close after the first of the new year.

Mass notification, while still small -- less than 10% of our 2014 revenue -- we grew it by 100% year over year and we achieved our target that we set at the beginning of the year. We were recently awarded our first US military-based contract for mass notification at Fort Irwin, here in California.

Unfortunately, a protest was filed and the award was rescinded. Our product met the spec, but the protester, who did not meet the spec, was low bidder. So currently, Fort Irwin is revising the RFP, which should be issued in December and we will rebid.

We are pursuing other larger domestic-based opportunities, including the National Guard, and we are conducting a mass notification product demonstration to Army Brass today. I will find out the results when I get off this call.

As I mentioned on our last call, we have submitted two bids for major products for two cities in the Middle East. I indicated that an award would be made in November, December timeframe. My latest update is that awards should be made in December or January, with delivery within six months of the award.

These dates tend to slip, but we are still confident that we are in the final group of vendors and still feel good about our chances of being awarded one of the two cities.

We also announced and will ship a $600,000-plus mass notification order to Asia this quarter and we are anticipating receiving an $800,000-plus quarter in December, January from the same customer, as we continue to successfully expand our mass notification installations in that country.

For 2015, we are anticipating year-over-year revenue growth. Our first quarter is off to a good start. Our pipeline is the largest ever, with significant opportunities that we hope to close after the start of the new year.

We introduced the LRAD 450XL in October. It is the world's most powerful acoustic hailing device for its size and weight. We also introduced a number of new products in our mass notification lineup in 2014.

We will continue new product development and introductions in 2015. We anticipate a defense budget and a U.S. Army RFP in early 2015. And we plan to concentrate on and expand our mass notification business, which we feel offers us the most significant revenue opportunities and growth for our business.

So with that, Brian, we will turn it over for Q&A.

Catherine, we will open it up for Q&A, please.

(Operator Instructions)

Josh Nichols, B. Riley.

Yes. Looking at the mass notification market, it may be a small percentage of total revenue, but you mentioned it had doubled year over year. Looking forward for this fiscal year, is that type of growth rate you think something that might be achievable as well?

Josh, we feel that's achievable. Actually, we are hoping to grow it at a much larger rate than that. We have a number of opportunities that we have submitted bids on. And if we are successful, you will see significant growth in that area.

And we feel that's the biggest opportunity for us to grow our business. The LRAD business will continue to grow. We expect increased revenue in that area, but mass notification offers us some pretty significant business opportunities and significant revenue opportunities.

Right. And then looking here, I saw that there was a contract -- there was one, but contested. Are you seeing in the market as a whole that that's kind of more a continuing trend and becoming more prevalent than what it maybe used to be?

It is a continuing trend. When we won our first RFP with the U.S. Navy back in 2007, that was also protested and eventually it worked out to our favor. There is in this mass notification space, especially with military bases, there's one or two competitors that will protest everything.

So we'll go through that process, but we feel very confident since we met the spec and the spec also requires not just our mass notification product, but also our LRAD product. And I think we are the only guys who can provide LRADs right now. So we feel pretty confident that we'll go back, rebid, and hopefully see this resolved by January.

Okay. And then looking here, the new product seems to be some pretty big improvements here with the 450XL. I would think because if it's smaller and also lighter weight, are you also expecting better margins on this product?

We are expecting good margins. Yes.

Okay.

It's a great product. We just demoed it at the JIP, which is a joint industry program with the government yesterday, and it was very well received by Border Patrol and by the U.S. Army. So it was a nice, successful demonstration.

Sounds good. Thanks a lot. I appreciate it.

Les Sulewski, Sidoti.

Can you guys talk a little bit more about the -- especially when you mentioned in your press release about the addition of channel partners. I'm not sure if you are referring to a partner in China or others. If you could just give a little bit more color on that, that would be helpful?

As far as additional channel partners? Is that what you said?

Yes.

Les, we added a couple of new partners. We are adding some new partners in Southeast Asia. China, we added back in 2012, 2013, and got them off the ground really in 2013.

But in terms of channel partners, we are always looking at the performance of the current existing channel partners and looking at other partners that we can add to our list. We are in the process of looking at partners in Africa and also in Europe and constantly going through that process, because if the current partner is not performing to the level that we expect, then we are looking to replace them.

Because right now, our product is pretty well demanded in all the territories across the world. We've sold into over 70 countries and this past year, we have a long list of countries where we made sales.

So we are always looking at new channel partners. We did add some significant new channel partners, mostly in Southeast Asia, this past year.

Thank you. That's helpful. Looking at perhaps some of the OpEx spending, maybe if you can perhaps give us a little bit of a better breakdown on SG&A and R&D kind of run rates -- what we will expect?

I know that you had some new products coming out recently. I don't know if you are spending more in 2015 to get something [more] -- I'm not sure if you can talk more about it, but as far as modeling purposes, if you can guide us towards that, that would be helpful.

So SG&A is always going to be -- fluctuate based on whether we sell a product direct or we have a reseller or a rep involved. If we have a rep, we pay a commission, so that will impact our SG&A.

But in terms of the overhead organization on the SG&A side, we probably will add one, maybe two new business development people during the year. So there will be some slight upticks in spending, but we probably won't add them until after the first of the year.

In terms of R&D, we will have some increased R&D spending because we are looking to expand some software applications for our mass notification package. We need to do some software upgrades and we also need to do some tooling costs.

We will introduce a number of new products, but basically, our R&D spending, while it will increase, it's not going to increase significantly. We manage our costs pretty well.

And as I have said before on these calls, we can significantly increase revenue without adding too much on our overhead base. So we are hopeful that we can continue to grow the topline in 2015, which we feel confident we will. We can pretty much keep most of our spending intact.

Okay. One more for me, I guess. I'm not sure if you mentioned during your prepared remarks, but did you have a breakdown of US and international sales? What was the percentage of international for the fourth quarter?

Kathy can give you that.

Yes. Yes, so our international sales were 78% of our total.

78%. Okay. Thank you.

Mike Davis, Millennium.

I've got a few questions, if you don't mind. Congratulations, first of all, on a tremendous year. And just by the way, to start off, wasn't that the analyst that downgraded your shares not too long ago?

I think that was.

I just wanted to throw that out there. You know, I'm not really sure, but -- thought it was important to mention that. But is there any way you could somehow give the Street some information about the bid backlog for 2015? Maybe you can't say the full amount, but is there any type of number you could release that you think you might get business from?

Backlog that we reported in our 10-K is $5.5 million for the next 12 months. So we do report that in total. And those are orders, that's not just forecast -- those are actual purchase orders received that are deliverable in the next year.

Right. What about the potential bid backlog of business, which is the number I'm trying to get at? Is it $50 million, is it $75 million, is it $100 million? You guys are the pioneers, so I just -- what can we get excited about as far as a potential number that you could get business from?

We never give out any guidance. But I think the thing that you can get excited about is that we are going to grow this business pretty significantly in 2015. We feel pretty confident that we are going to -- we are at a good tipping point for making this Company to grow.

I will say -- I'll give you one bid that we have in the Middle East on a city -- it's roughly between $8 million to $10 million.

Okay.

If we are successful there -- and we should know hopefully within the next couple months. Problem is when you are dealing with these international governments, stated dates always slip. But we should feel pretty confident about that. Hopefully we will have that before the end of our -- before the next earnings call.

Right. That's great. Also, I believe you mentioned on a last conference call another significant potential contract -- somewhere $10 million to $15 million. Wasn't there another one besides that that you mentioned?

No, that's the one that we've been -- that's the one that we've been working on. We are in two cities, so there's two bids out there. But we, as I said in the last earnings call, and I feel confident in this call that it's one that we are really chasing after.

Now, that being said, there are three cities behind this -- all of equal size -- that we'll find out if we are successful on the first city, there will be three more RFPs coming after in that country in the June/July timeframe. And if we are successful on one, we feel pretty confident we can grab one or two of the following ones.

Okay. That's very helpful. That's great. Let me ask you this, also. You mentioned competitors. Who -- you guys are the pioneers still, right? Of course. But who are these competitors that you mentioned that perhaps gave you a problem with the RFP. They protested that one. Can you mention who they are or is it --?

We haven't -- the Army didn't clearly explain who the protester was. But in terms of the LRAD business -- we have two businesses here, so in terms of LRAD, we don't really -- we have competitors, but we own more than 90% of the worldwide market.

So LRAD is one piece. And we have a number of small competitors, but we are pretty confident when we go in and try to win a piece of business, we are going to win it.

In terms of mass notification, we are the new kid on the block. In mass notification, there is a lot of long-term players in this space -- big companies. Federal Signal, Wieland, Siemens, Cooper.

So there's a bunch of big companies, but most of their systems are siren-based, whereas ours is a very clear, highly intelligible voice. And we can also put out a siren that is louder than the sirens that they are emitting.

So we are the new kids. We feel we have a better product and we also feel, once we start to land one or two of these larger deals, word-of-mouth will spread and we'll start to take some market share. And that's our plan.

That's great. And can you make any other comments about the stock buyback plan that you've initiated and you've also extended throughout 2015? Is there any -- do you plan on doing a full buyback? Is there a plan for that or are you just waiting for if there is a potential pullback? What's the management strategy with that?

Well, we instituted the buyback last year, the Board approved it, and we made some small purchases. Fortunately, our stock went up pretty significantly over the course of the year, so we have increased the buyback point.

We feel very confident that -- and we have done it for six years in a row -- that we can continue to generate positive cash flow and we have a healthy balance sheet with no debt. So if the stock pulls back a little bit, yes, we will be buying some shares.

Right. That's great. And also you do have a significant cash balance. So is there any potential acquisition that you could possibly make or do you have any type of poison pill that can prevent someone else taking you out?

No real poison pill, but in terms of -- we have looked at a number of acquisitions, smaller companies that are somewhat in our space. Honestly, there is a lot of baggage.

So what we decided to do is take our LRAD product -- the clarity of the LRAD product -- and bring it into this mass notification space, which is growing pretty much in leaps and bounds across the globe. And if you look at all the different rags that are out there, they'll explain that they see some significant growth in this space.

So we decided to use our internal resources, our internal engineering team, which we are expanding by bringing in some software engineers, to get into this space. So our acquisition is actually growing into this new market of mass notification with a real good product.

And what is -- since it is a new market for you, the mass notification market, is there any type of number out there, what the market could possibly -- or what it is currently at now and then what the potential is in the future?

I'll let Brian give you that information, because he's been following it.

Sure, Mike. There's a number of research reports out there, market research reports, that show that the market is going to grow from about $2.5 billion at its current state to over $6 billion over the next few years. And a lot of that is going to be driven by an upgrade cycle, as people replace old siren-based systems with new ones that allow for better communication rather than just a blaring siren.

So that's why we are very excited about it and see that really the next big opportunity for this Company is to really start taking market share from an entrenched competitor base into a what's a huge market for us.

The one thing I need to add, Mike, is that that $6 billion total includes a complete turnkey solution -- not just the speaker component, but also includes the installation cost and the permanent fixtures that are put into an installation -- poles and all the other paraphernalia.

But it is a growing market and the bid at Fort Irwin that we want won is a replacement. So Brian is right, there is a lot of replacement going on, because a lot of these systems that are out there are old and not performing.

That's a tremendous amount of opportunity for you. And no wonder why you guys are so excited about that type of market now. And the final question would be regarding this contract that you said, if we could just go back, the $8 to $10 million order, you are saying within the first quarter, possibly, or maybe in the second quarter is when we could see something there?

Well, we were hoping it would be in our first quarter, but I -- in contact with the people this week, I was told that it could stretch into January before a final award is made. So hopefully we'll hear something.

If you are new to our business, this is not uncommon for us to hurry up and wait. And when you're dealing with governments, they tend to go very slowly, not at the same pace as a corporation.

But we are hopeful that we will hear something by January. And obviously as soon as we do, that will be a nice announcement. Hopefully a nice announcement and not a bad announcement.

Right. Okay, well, thank you very much. I appreciate your time and keep up the great work.

Andrew Grone, Dougherty & Company.

Hi, guys. Congrats on a great year. Most of my questions have been answered, so I'll keep this brief. Just hoping for maybe a little bit of additional color on a couple.

So you did talk a little bit about SG&A expenses and how it is difficult to predict as a percent of sales, as it depends on the avenue that the sales come through. But we didn't see any leverage this year -- I think SG&A as a percent of sales went up around 60 basis points. Do you have a target range that you shot for as you continue to scale the business for SG&A as a percent of sales?

The one thing -- Andrew, the one thing that you will see that we lost leverage in the current year versus prior year was the bonus. And the bonuses, we don't always know until we get into the year where we will end up on what those expenses will be.

So last year, we didn't pay out a bonus as a zero expense, and this year, we paid out a nice -- we are accruing a bonus. So that piece is kind of a big question mark, often times, when you are trying to model it.

We run pretty much on an incentive pay structure here. We keep our base pay low and we have an incentive plan in place that if the Company hits the targets that are established and approved by the Board, then we have a chance to get a bonus.

Now in the past couple of years, we have not received a bonus. Even though we have been profitable, we missed our targets, but this year, we were successful in achieving those targets. So that has skewed our SG&A, but on a -- the base SG&A -- my plan is to keep it as flat as possible. And if you look at it over the years, we have done that.

Okay. That's helpful. Yes, there was definitely significant leverage in some of the other metrics, in terms of gross margins and R&D. So that's helpful. In terms of backlog, I do believe in one of the questions, you did just quantify that is around $5.5 million. Could you just provide any color on how that compares to last year, what we are looking at year over year here?

Last year, it was a little bit over $4 million -- I think it was around $4.5 million, so it has increased a little bit. But our backlog, as Kathy indicated, unlike most companies, this is true POs that we have in-house that will actually get out the door.

It's not a pipeline base.

What's an average delivery timeframe within that backlog?

I would say that the average delivery time should be about 45 days. We have one order in there that will take -- will be spread out over 12 months, because it's going to be put on naval vessels and those need to be built before they take the LRAD order. But for the most part, we'll see some of these orders going out the door this quarter.

Okay. That's helpful. Thank you. Last one from me here. So in terms of the mass notification market, specifically domestic, what application are you most focused on or most excited about?

We've talked about FEMA purchasing a few in the past. I think there were some pilots at couple universities that you've talked about in previous calls. So maybe just an update on some of the different applications domestically and where you think the biggest opportunity is?

Right now, we think that one of our big opportunities is going into the military bases and putting in upgrades of mass notification at different bases. So this Fort Irwin award, which we are very excited about, and then we had the award rescinded after the protest was put out there. Would have been a nice opening salvo to get into that space.

We still feel that we have some good opportunities there. We are doing a demo today exactly for those opportunities with the Army. We were this week at the International Emergency Management show in San Antonio, Texas, with our trailer, which is a mobile mass notification -- complete mobile mass notification setup and the reception was extremely good. And this is an area that we also want to push domestically.

So we did sell some trailers in the past into FEMA. We've upgraded the trailer. It's a much better system than what had been originally put out there. You always improve your product as you go along.

And we think that we have some good opportunities to move the trailer business, because bringing quality mass notification, quality sound to where you need it is very important and it's not so readily available in this country. We have a lot of natural disasters and usually when those disasters occur, somebody is out there with a bullhorn and nobody understands what's being said.

So we think that we have opportunity there. But these military bases are intriguing and we think we have some good opportunity to get in and get some good business from them.

Okay. Great. Thank you so much for the time, guys.

Richard Abbe, Iroquois Capital.

Tom, congratulations. You guys are doing a great job. Most of my questions were answered. I just wanted to ask you, on the mass notification, with everything that's going on in Ferguson and today what happened in Florida State with the shooting, are you seeing any pickup from universities? Or are they just so far behind that they haven't woke up to thinking about it?

Well, we just made it couple of bids -- some quotes to the universities here in California. Unfortunately, with most of our product, we need to have an event like a shooting or some kind of a problem to get some interest. We will follow up with Florida State and we are following up in the university area.

We've made some quotes and we think that there's opportunity, but a lot of these universities are underfunded and don't want to spend the money, to be very honest. So the Army bases we think offer some bigger opportunities in the short term.

Okay. I understand. I would think that the Ivy League schools, though, that are overendowed would be probably a good place to start.

I will follow up on one of your recommendations on one of those Ivy League schools. We do have our trailer now -- we have it out there, so we are going to drive it around, bring it to the campuses, do some demonstrations. And that's where you get the interest. Once you demo the product, people start saying yes, that's pretty cool.

Correct. Are the margins different on that product versus that first LRAD product?

No, the margins are pretty good. Right now, I would say that the margins are pretty comparable -- a little bit lower than an LRAD, but pretty comparable. But if we could start getting some volume in that space, yes, we will have some nice margins there.

Okay. Great. Well, listen, you guys are doing a great job. Congratulations and thanks again.

Lloyd Korten, Unique Investments.

Hey there, Tom, Kathy, and Brian. Congratulations on a nice year of growth. A few -- could you -- obviously, China is intriguing and it has a tremendous potential for growth.

Can you give us some more color on China? What they are buying and where do you see it a year from now? I know that the bid business doubled this year -- what are the numbers [to come]?

What we are selling into China, Lloyd, is pretty much LRAD product right now. We haven't tried to promote the mass notification space. We have been selling our complete product line right now. We've sold all the way from 100X up to an RX and we have an order in-house that we probably -- I don't know if we are going to get it out the door this quarter our next quarter, but for our RX products for some Chinese Coast Guard vessels.

And we have already successfully deployed some units on their vessels. So it's a repeat order. China is tough, though. China is a tremendous opportunity, but it's tough because there's a lot of little knockoffs over there.

And that's why we decided to partner with a local company to try to make some inroads against those guys. And we are being pretty successful. As Kathy indicated, we grew our business by --

We went from [$1.4 million] to [$2.7 million], so we almost doubled.

So one thing I am going to do, Lloyd, is I am going to donate a mass notification speaker. Our partner has a building in Beijing with a roof and we are going to put the speaker up on the roof, because I want to start to promote mass notification.

Because China doesn't really have much in the way of mass notification systems in the country. They have some old sirens, but we want to start promoting that product and we think that there's big opportunities there.

We also expect the LRAD business to continue to grow in China. As I said, we have $1 million going out the door this quarter and we think that there is good opportunity there. So China has been a very good customer and we think we can continue to grow. But like I said, with the Chinese, there is going to be some knockoffs and we just have to overcome that.

Okay. This Fort Irwin order, can you talk about how big an order it is? Or can you?

Well, the Fort Irwin order -- I really can't say the amount because we are in this protest and it's a bid, but it's not an open bid. So I don't want to give the price. It's an entry-level position -- it's not a large fort. There are larger forts in the United States that we would like to chase after this, but it's a good-sized order for us and it's a good start. And more importantly than that the dollar amount, it gets us in the door and that's really what we want.

Right. Also, what are we up against first quarter last year? What was our revenue?

We did $3.8 million in the first quarter last year.

Actually, last year -- and that was one of our better first quarters, if you look back over history. First quarter is usually a bad quarter for us, but last year, we did $3.8 million and a little bit -- a small profit.

And you are anticipating beating that for this quarter?

We are hopeful, Lloyd. We are hopeful. We get these orders in and we get these orders out. You know, I hate to give any guidance. We are hopeful.

All right. Well, anyway, listen, most everything else was answered. Good luck for 2015. And if the budget gets through, which -- I don't know -- nothing's changed.

Well, we are hopeful that this whole thing with immigration is going to be a little bit of a roadblock, I think. But we are sort of hopeful that the Republican Congress will come together and get a budget passed that the President will sign. Once that happens, we feel pretty confident we will see an Army RFP.

I hope we get washed in, because I'm sure there's pretty of companies knocking on their door to get the budget done.

Yes. I think you are right. It's been a long time. We keep on going through the continuing resolutions.

Right. Thank you, guys.

[Steven Senski], Private Investor.

I have a question about local municipalities here in the United States. What kind of sales and marketing do you have planned for large metropolitan areas across the country? Thank you.

Okay. We have already been selling into a number of law enforcement groups across the United States. A number of large cities, a number of small cities. We continue to go after that business.

It's been very successful for us. They are not large-scale orders. They are usually ones and twos, but we appreciate that business and we have direct sales into those customers.

We also have a very large group that handles the eastern part of the country and a group that handles the western part of the country. They go after both law enforcement and fire. We are going after fire group pretty well. We had the fire people here yesterday. We are talking about trying to sell them some LRADs.

So we think that there's opportunities there. Law enforcement municipal budgets are tight, but there is grant money and when the grant money comes in, we tend to get some orders. Usually it comes in around towards the end of our fiscal year, but we have been very successful.

And there is a number of major metropolitan areas that have our product. And you'll probably - if there is rioting in Ferguson, you are probably going to hear us on TV.

Okay. Thank you.

Jared Cohen, J.M. Cohen & Company.

Just two questions, please. One, just a financial question. I just noticed that the share count was up quarter to quarter about 200,000 shares on a diluted basis. I was just curious why? Does that have to do with bonuses, in terms of options given out, or since there have been buybacks over the last year or so?

Well, on the -- overall, the shares outstanding, we had some exercises and we bought some back. We bought some shares back over the year. But the diluted shares is really based on what your share price is at at the end of the quarter on how you calculate the diluted shares.

Okay. And just secondly, is there anything new, just in terms of in the commercial area -- dealing with commercial airports? Because I know you are in New York minor, but there was something with dealing with LaGuardia with birds.

And then I looked it up and I know they are in the process of upgrading the radar system. And I noticed with the company they are dealing with, it turns out -- I forget the name of it -- but you have some partnership with it?

DeTect?

Yes.

DeTect has an avian radar. We are working with DeTect on a number of opportunities right now. And DeTect usually gets the radar installation and then will bring us in later. Some of the airports, they get a little concerned about putting -- because they are near residential areas -- a little concerned about putting loud noise out there.

But we've been very effective and we are working very closely with DeTect. So we think that we will see some business from them in the near term. They are working on a number of good projects and we've been good partners with them. They've been good partners with us for the last couple of years.

But nothing in the near horizon? Like, I guess, sort of nothing --?

Well, we are talking about -- they are threatening to buy some product from us. Until I see a PO, I don't count on it.

Okay. All right. Thank you.

Paul O'Keefe, Edge.

Congrats on a great year, guys. I just have one question -- I believe it's to Miss McDermott. Can you break out the percentage of sales by channel and reseller and direct for me, please?

We don't actually track that. That not something that we report.

Okay.

I would say, though, if you look at our overall revenues, probably three-quarters of it maybe goes through resellers -- does that make sense, Tom? And about a quarter maybe direct.

When we did more business with the US military, that would've boosted up our direct sales, but internationally, it's kind of a mix, but probably more through resellers.

Yes, to sell internationally, you need a local partner in these countries. That's why we establish the rep and reseller network throughout these different countries, because you need to have that local presence.

And I would agree with Kathy -- more than three-quarters of our revenue this year was through the rep reseller network. And the business that we sell through the military can sometimes go through a third party also, because they have the contracting vehicle to make that happen. But our sales team is out there side-by-side with the local resellers and reps, helping to get that product sold.

Thank you.

Eli Grogg, Independent.

Hi, guys. In terms of the mass market -- and I only have one question. In terms of the mass market, you guys say that you have a pretty dominant product. And obviously there's some longer-term contracts. Are you guys thinking maybe about making some strategic partnerships with some of the guys that have a longer-term contract, so that you can kind of combine your great technology with maybe their connections to make the whole process a little bit easier?

Eli, we are working with a couple of software companies that offer a package of text messaging, other software solutions for mass notification, in addition to putting in speakers. So we are looking at partnering with some of the integrators that already have established business. And we are working with one right now that has pretty good established business within the US military.

But when it comes to partnering with other competitors, we want to beat them -- I'm not looking to partner with them. I have a better product and I'm going to go out there and beat them.

Right. I mean, it just may make sense. Listen, obviously, you guys know your business 1,000 times more than I do. I mean, I know that you guys want to beat them, but it just may make sense. Like at some point, if someone had said hey, listen, we will partner with you. You guys keep X, we will keep X.

And then, you know, sort of everybody is happy and instead of having maybe like a 3-, 4-, 5-, 6-month, 12-month, maybe something in the future, maybe things get sped up a little faster. I mean, I don't know -- I just want to hear your thoughts on it. Thanks, guys.

My thought is we are chasing a couple of good opportunities and if we land those opportunities, we have a door. If somebody wants to knock on that door, we will open it and hear what they have to say. But in terms of right now, we are looking to land the opportunities that we are after and then this business will start to -- from my view, will start to take off.

Okay, guys. Thanks so much.

John Grimley, Private Investor.

Hi, guys. Congrats on a great fiscal 2014. Just a couple quick questions. First off, you guys mentioned a competitor kind of low-cut a bid and couldn't fulfill the order and you guys are resubmitting RFP.

Can you disclose kind of a rough range what size that RFP is? What size that deal might be?

I mentioned that before, John. The thing is I don't want to say the amount, because it was a -- we both put a bid in. We know that they were a lower bid, but I don't want to say the amount because we are going to rebid this thing.

Got it. But is it a meaningful -- a meaningful piece of business? Would it be material to your quarter or fiscal year?

It's a good-sized piece of business for us, yes. It would be something that we would definitely announce because it's an announcable piece of business for us. But more importantly, as I said before, more importantly, it's a door opener. It gets us into the Army bases, which we are targeting this year.

And once you get one and you do a very good installation, then that word-of-mouth travels. And I know a number of bases that are looking to upgrade some of their systems, so we are trying to get this first foot in the door.

Got it. And then just capacity utilization -- that might not be the best way to ask it, but you guys are going after such big markets. You've got cash on the balance sheet now.

How much investment would you need to make it if you -- if the next couple years are well above your expectations in your internal model? Where are you at from a capacity standpoint?

Well, from a capacity standpoint -- from a production standpoint, we're fine. We can always expand our production base and if need be, we can figure out if we need to outsource some of our components. But that's a problem I would like to have.

From a financial standpoint, we are modeling in, in this year's plan, some additional expenditures in the mass notification space, but we are okay. We can manage with existing cash, with existing cash flow, and we expect to, if we land a few of these pieces of business, we expect to generate positive cash flow and profitability once again.

Thanks. And last question -- you touched on this in some of the other questions. You guys do have a very strong balance sheet. You said you would at least reauthorize the share buyback. Can we assume that you would probably raise the level, given the stock is higher than it was a year ago?

And then you said you are going to invest in new products and mass notification. Is there any chance for a dividend? Or does that not make sense at this point?

Not at this point. But in terms of the share price, the Board approved an increase in the buyback price, but in terms of the dividend, let's land a few of these big deals and then we can consider that.

But right now, we are going to need some of this cash. We will replenish it once we placed the order and do the installation. But we are going to need some cash to get some of this product in the door, built, and out the door and then our receivables are going to go up pretty significantly if we are successful.

That's my last question. Thank you. And congrats on a good year -- a great year and also a lot of hard work over the years. So congrats on getting to where you are at and looking forward to 2015.

Jonathan [Malanga], [Wayne Maygrove Associates]

First of all, great year, guys. I think more importantly, it wasn't spoken about much on this call, but I think management has really, really come leaps and bounds from where you guys were a couple of years ago in terms of shareholder friendliness and that sort of thing, so I appreciate that.

Looking forward 14 months, I think the last caller kind of touched on it, you responded a little bit, but I wanted to dig in. 14 months from now, if things go just in line with your expectations, there will be an additional $4.5 million cash coming into the Company, plus the cash flow from this year. You guys will be sitting on $35 million, maybe $40 million of cash and there's certainly an opportunity to create value from that.

It sounds like that's probably more than you'll need to support future orders. Is there any discussion happening amongst the management team or the Board about being a little bit more opportunistic or at least starting to think that way?

There's been a little bit of discussion, Jonathan, and that's why we decided okay, we are looking at the year. We feel it's going to be another good year. We feel we are going to generate positive cash flow, so we are keeping the buyback in place and we've raise the targets on the buyback, so we will see how that goes.

Hopefully -- I would rather see the stock price go up instead of buying back stock. And I think if we can bring in a few of these nice deals, that could happen. But I can't control the stock price. All I can do is perform.

And we feel very positive. We've always been friendly, Jonathan. The thing is -- very positive -- when you have good results -- and we have a good team now. If you listen to my tone over the last five calls, we have a real good team now, so we feel really good about our business. And we feel really good about the opportunities that we are chasing.

And things have improved. And it takes some time when you are a small company. When I came in, we had no product. Now we have some really good products. We have a good team that can get out in the field and sell them. We feel really good about our business right now.

There's a lot more to talk about.

So one other question -- and I think it's come up again. I heard it asked a few times on this conference call. You know, I keep contemporaneous notes from prior conference calls in terms of opportunities.

And I could tell you, it's becoming very difficult to really follow all the things you are saying in terms of opportunities, size of opportunities, RFPs -- they come, they go -- they pop back up. Some were the same from prior, some are brand-new. Mass notification, China, Asia.

There was definitely two large ones, now there's one large one. Maybe one large one got kicked into first quarter, then there's three behind that. Is there a way to try to do something to streamline for shareholders -- as one person put it -- so that we could stay excited about looking forward 12 to 24 months in terms of at least large opportunities?

Let me try -- I tried to do that, Jonathan. Before I make a presentation, I go back and make sure that what I've said before and usually what I say we deliver on, but what I've said before is consistent with -- consistent.

So in the last call -- if you go back to the last call and you look at a transcript, you will find that we were always targeting one of these cities in the Middle East. We can't be too greedy. If we are focused on one, we have a good chance of winning that one city. If we try to do a shotgun approach, in my view, we are going to come up a loser.

And we feel pretty confident about that one city. But again, we are in the Middle East. It's an international way of doing business. We feel like we are in a good position and we have been told that consistently that we are in a good position, so hopefully we can bring that home.

But I hear you. In terms of these RFPs, they come out all the time. I'll try to work with Brian. We will see if we can come up with a better trail for everybody. But it's a changing environment. And the RFP now with the Army -- we've been chasing this thing for -- since -- first RFI that came out was in 2007. We won that first RFP with the Army for small units that they tested the hell out of over the next couple of years.

And then in 2010, if you remember, RFI came out -- big program. Went unfunded. 2011, RFI came out -- big program -- unfunded. This time, the RFI that came out, it is still our product. This time, it looks like there is going to be some funding.

So we are feeling like this could turn into an RFP early next year. We've been chasing it for seven years. We are not going to give up and we are going to win it. We are very confident that we are finally going to see something come out.

But I'll try to work with Brian and try to give a better -- we try to give you guys as much information as we can. And I think if you've been following me for years, it's not (expletive) -- we are trying to bring this stuff across the board.

Listen, it used to be much easier to follow, because there wasn't as many opportunities. So I guess that's a good thing. But that would be great -- even if it was just top five opportunities.

People understand that you don't win everything. In fact, you probably don't win most and that's fine. But if there's a way to stay current with the story, I think it's a healthy thing and certainly something that becomes attractive in terms of following the story.

So let me work with Brian and we will try to make that --

All right. I appreciate it. Have a great year.

Walter Ramsley, Walrus Partners.

Thank you. I got a couple of questions for Kathy. One of the other callers referred to it, but I couldn't track it down myself. Could you just tell me what the diluted share count for the fourth quarter all by itself was?

Just for the fourth quarter?

Yes.

We were at 33,231,708 is the diluted shares.

That was for the year or for the quarter?

For the quarter -- the end of the quarter. So it's -- 32,635 is the shares outstanding. And then we've got 596,000 diluted shares. So the total diluted share base is 33,231,708.

Okay. Thank you. And the stock options?

I'm sorry -- I correct myself. I looked at the wrong column. So it's 33,720 is the diluted shares for fourth --

Okay. Okay. Thanks. And the stock option expense for the fourth quarter, all by itself -- do you have that one?

Yes. The stock option for fourth quarter in total is about 97,000.

Okay. So that's it -- okay. So that was lower than it had been in previous quarters?

Right.

Okay. And do you think that's the number going forward? I know that's a tough calculation.

Well, we do annual grants. Part of it is it based on that and what the price is at the time of grants and that kind of thing. So it's kind of a hard thing to forecast. But it will probably increase back up.

We've had some that are -- the Company fully vested, so it drops off. And then as new ones are granted, it will come back up. So it will probably increase a little bit over the next year.

Okay. And I don't know if you were planning to do it, but just hypothetically, if the Company was to create a deferred tax asset out of its NOLs and start reporting a tax rate for financial purposes, what would the normalized tax rate be?

Well, the normal tax rate would be the full rate, would be our 34% for federal and 8 3/4% for state. Right now, we've got net operating losses; we've got R&D credits that are offsetting those. We've got a little bit of AMT for state that we are reporting right now. But our tax liability right now is pretty low.

No, I understand for real, it's low. I'm just curious what the normalized rate would be, assuming you burned up all of NOLs and you had to start paying. Like, what the normal rate would be?

So it sounds like it would be 37%, maybe, after you pull down the R&D credits. I'm not sure how much that would be, but is that 35%, 37% -- is that a normal -- a realistic way to look at it?

Yes, that's about right.

Okay.

We've got quite a bit of R&D credit out there yet, but yes.

Okay. And then I got a question for Brian. I don't know how detailed the market research is, but the $2.5 billion that he was commenting on as the potential market for the mass notification, can you break that down into international, domestic -- what sort of industries or applications are the biggest areas. Is there any (multiple speakers)?

We don't have specifics of that breakdown. I can try to find that out for you, but we don't have it offhand.

Okay. All right. Well, anyway, congratulations. It looks great. So if you were to -- I got a question for Tom, I guess, but I don't know if he will answer it. If you were to exclude that big order in the Middle East and just kind of put that off to the side and look at the regular business, is a 20% growth rate a realistic target?

Well, we don't give out any guidance, but our target, from a target standpoint, yes, we are targeting that kind of growth.

Okay. That's good enough for me. Thank you. Okay. Thanks a lot. Congratulations.

Is that all, Catherine?

Lloyd Korten, Unique Investments.

Hi, guys. Couple more things real quick. You made an announcement about the automobile installation. Do you see that as a potentially growing lucrative business for you?

And also the other question is you also did a test on a highway -- like work zone, which I thought was brilliant. And I'd like to know what is happening with that end-of-year business.

The auto business, Lloyd, we shipped our first product. It was, again, a small buy by a government agency. They've deployed the product and feedback is very, very positive.

And actually, one of our business development people was meeting with that group today in Washington to get some follow up. We think that that business does have some potential and we think it can be expanded. So our initial feedback has been really good.

But it takes a little bit of time to grow that market, because it's a totally new business. It's dealing with government agencies again. But the initial feedback is positive.

In terms of the Department of Transportation, our trials were extremely good. We ran into some protesters -- some environmental protesters that were complaining. So the Department of Transportation and the state of Missouri decided to delay any further demonstrations.

But it actually worked very well. And we thought that it was going to lead to a lot of business. But protesters have a loud voice, so they delayed it.

I know there's a -- if you look at the numbers of deaths from workers on the highways in the country -- I would think that it's compelling, unless somebody comes up with a better way to warn people.

We agree.

We agree completely, Lloyd. It was a very successful test and we hope the resumption -- for the resumption in Missouri at some point. But again, these things take on a life of their own. Especially with all this going on in Missouri with regards to LRAD these days.

Great. I'm glad to see so much interest in the Company on this call. And have a great year. Thank you.

Great. Thank you, Lloyd. And thank you, everyone, for participating and listening to our conference call. A replay will be available in approximately 2 hours at the same webcast link that was issued in our November 11 press release. Thank you.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.