Genasys Inc (GNSS) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fiscal first-quarter 2015 financial results conference call. All lines have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation. (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, Dagma. Good afternoon, and welcome to LRAD Corporation's first-quarter fiscal 2015 financial results conference call. I'm Brian Harvey, the Director of Investor Relations 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 fiscal first-quarter financial results, which will be followed by a brief presentation from Mr. Brown. After the 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 of historical fact, 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 materially differ 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, 2014. LRAD Corporation disclaims any intent or obligation to update those forward-looking statements expect as otherwise specifically stated.

I will now turn the call over to Kathy for the first-quarter fiscal 2015 financial results recap. Kathy?

Thanks, Brian. Thanks, everyone, for joining us today. We had a good start to fiscal 2015 with revenues of $4.4 million in the first quarter, a 15% increase over the prior-year first-quarter revenues of $3.8 million. 82% of quarterly revenues were in international markets, including our fourth follow-on order from military police in Asia for $1 million as well as orders for Navy vessels, Coast Guard, crowd control and border applications.

Mass certification revenues grew to 15% of first-quarter net revenues, primarily for follow-on orders for warning systems in Asian municipalities. We delivered our first orders for our recently launched 450-XL and 500-RX products, which were well received. Initial interest is strong for these products, given a louder output in the smaller form factor.

Gross profit for the quarter ended December 31, 2014 was $2.4 million, or 54% of net revenues, compared to $1.9 million, or 51% of net revenues, for the first quarter of the prior year. The increase in gross profit was primarily due to increased revenues for the quarter and favorable channel mix.

Operating expenses for the first fiscal quarter increased $62,000, or 3%, to $1.9 million. The increase was primarily due to $149,000 for accrued bonus, which was not included in the prior year, partially offset by a reduction of $31,000 of salaries and benefits, $23,000 of professional fees and other reductions.

Quarterly net income of $506,000, or $0.01 per diluted share, in the first quarter of fiscal 2015 compared to net income of $132,000, or $0.00 per diluted share, for the first quarter of 2014. Current-quarter net income represents a 12% return on net revenues compared to 3% return on net revenues in the prior year.

On our balance sheet, our cash and cash equivalents as of December 31, 2014 was $20.1 million compared to $23.9 million at September 30, 2014. The decrease of $3.8 million was due in part to invest in $3.1 million in short- and long-term marketable securities.

Working capital remains high at $25.8 million, or $1.9 million lower than September 30, 2014 due to our investment of $2.5 million in long-term instruments offset by $600,000 of working capital generated in Q1.

With that, I'll turn it back to Brian.

Thanks, Kathy. And I'll turn it over to Tom for a brief management presentation.

Okay. Thank you, Brian. Good afternoon. Thank you all for joining our call. As I indicated on our last call, 2015 is off to a good start, the third-best first quarter in Company history. We continue to see strong demand for our products in Asia. First-quarter revenue from Asia was 71% of our total revenue, and we announced new orders totaling $2.4 million from Asia in January. The applications are mass notification, vehicles and vessels. We see continued strength in this market.

We also have had good success in the Middle East. We are working on a number of significant vehicle programs which we hope to close over the next two quarters.

The frustrating thing of doing business in the Middle East and, for that matter, governments in general is the delays. I have talked about a mass notification project in the Middle East on the last two calls. The tender indicated that the award would be made in November 2014, with delivery by April 2015. I indicated on our last call that the award was delayed. We are obviously now in February, and there is still no award.

We, working with our in-country partner, are scheduling a demonstration of our product in their country with key decision makers next month. We have made a very aggressive bid, and now we need to get the product in front of the customer to show our capability. We are still working this, and we will not give up on this project.

In the United States, 2015 budget was approved, and there is a line item in budgeted funds for acoustic handling devices. We've been working on this for many years, and it's finally in the budget.

In the 2015 budget, the ID/IQ program calls for 800 to 1,500 pieces with an overall amount of $37 million spread over a five-year period. In the proposed Department of Defense 2016 budget submitted this week as part of the President's budget, there is funding in 2016, and the budgeted amounts were increased to 2,400 pieces and a total of $48 million. We now anticipate seeing an RFP for this program by this summer.

Also, as I indicated on the last call, we were hopeful of seeing language authorizing acoustic handling devices as product-eligible for NGREA funding. This was also approved. The language was added. We are starting to see some new orders from various National Guard units, and we are working very hard to expand this business.

Another thing that I mentioned was that we were awarded the mass notification installation at Fort Irwin and that the award was protested by another competitor. The RFP was reissued, and we responded last week, and we are awaiting the outcome. We continue to work on developing our mass notification offerings; and, as Kathy indicated, it represented 15% of first-quarter revenues. We expect this to continue to grow in spite of going up against some strong competitors. As I have previously stated, our product is superior.

So we are off to a good start. The budget approval was very rewarding to us. And as we say in all these presentations, the quarters will continue to be lumpy but we are anticipating a very strong 2015.

With that, Brian, let's go to Q&A.

Thank you, Tom. We would now like to open the conference call to questions from 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. Dagma, would you please instruct the callers how to queue up for their questions?

(Operator Instructions) Andrew D'Silva, Merriman Capital.

Just a couple of quick questions. First off, can you give a little color on how things are proceeding in the Middle East? You said there were two projects there previously. I know the timeline is difficult to predict, but do you still feel optimistic or confident on at least winning one of those contracts?

We still feel -- we know that we are still in the mix with the one contract that we had targeted from the beginning. And we definitely want to get our product over there next month and get it in front of the customer. We feel that once we do that, we'll have a better chance of bringing this home. But I can't -- at this point, I'm a little disappointed because we thought we'd have -- at least heard what the results of the award were going to be by this time.

So we are not giving up. We're going to go over there. We're going to present our product. And we know we have a very competitive bid in place. So we are going to give it our best efforts.

Is your stance right now that only one of the projects is still up for grab? Has the other one been awarded yet or just also in the bidding process as well?

As far as we know, there have been no awards. Now, we are dealing with our partner who is in country, and I just spoke to them yesterday. There haven't in any awards to date.

Got it.

And all of the projects we spoke of have been awarded last year.

It's the business you are in; the delays are going to get you. But that's understandable. And are you seeing -- what do you think the major deciding factor is? Obviously, in the US it seems pricing controls a lot of who wins the bid. Is that the same in the Middle East right now? And then are you seeing other countries in the region show interest in mass notification right now as well?

No, we are actually seeing -- there is a pretty strong interest in mass notification across the globe, including the United States. In the Middle East, our bidding process -- it's an open bid, and we were very aggressive pricewise. And we feel we have the best product offering. But when you go into these bidding processes, there's a lot of different unknowns that come into play.

But in terms of the one city that we really targeted, we went in with a very aggressive bid to win one city. We are talking about a very substantial number of units, so we wanted to focus our efforts on getting one city under our belt. So that's what we did.

But we are seeing -- I'm off to Asia next week. We are seeing some strong -- as we indicated, some strong interest in Asia. And also, one of the countries in Asia, Japan, has been very instrumental in getting our mass notification business off the ground, meaning that we have made some very large inroads in Japan, and we continue to do that.

All right.

That's a difficult country to work in, too.

Yes, absolutely. But you would think that that region makes sense, particularly with what happened a couple years ago and the fact that they weren't able to notify the public about issues that were going on around there. So --

I guess the point I would like to make is that Japan is -- they believe in quality. So that's -- that's a little pat on the back.

Got it. All right. Thank you very much, and good luck this quarter.

Josh Nichols, B. Riley.

Yes; regarding the mass notification, it seems like there is a lot of opportunities there. Given that you are already over a quarter into the year, do you still think -- are you still targeting that the mass notification revenues should probably double, the minimum probably around like $5 million a year? Is that still the stance?

That's still what we are targeting. We are looking to continue to grow this space, yes.

Okay. Then any comments you can make about backlog or stuff that's coming up already, things the Company is ready to ship or getting close to at least for the quarter?

Well, as we announced, we received $2.4 million in new orders out of Asia in the beginning of January. We really don't go into backorders or going into forecasting the quarters. But we are in a lumpy business. As I said earlier, we anticipated getting an award or at least hearing about an award on this project in the Middle East back in November. And here we are in February, and we are still waiting.

So our business is very lumpy. When you are dealing with governments, it's very difficult to forecast. These orders get pushed out, and this is common; we're used to it. There's -- the RFP with the Army has been a seven-year process. So it's the nature of our business, unfortunately. But we don't lose anything. We eventually land them. So we keep -- it's patience and persistence.

Yes. Historically, whenever the Company has -- I know the Company has been going through this a long time with some of the $8 million, $10 million Middle East orders. Historically, what have you seen as what kind of delays? It must happen all the time; we are selling something that -- it probably takes six months longer than that or nine months longer than that for something to actually get done. What's your experience on that?

Yes, that's basically it. The problem that we run into is because we are dealing with governments, we sell through budgeting processes. And budget dollars have a way of moving from one pocket to another. So you think you have something lined up, and all of a sudden the budget dollars have been relocated to a new program. But as I said, we eventually bring these programs home. It's just a matter of if they move. They always move.

And last question -- is the drop in oil probably -- any chance that that's a big reason that the budget is getting kicked out or that this project hasn't been funded, given that it's in the Middle East, or no?

There's a little bit of that. There was a project that we are working -- an oil and gas project that we've been working in Southeast Asia that has gotten delayed because of the price of oil. But, again, it's not going to go away. Right now, it's just being pushed out.

Okay. Thank you.

Les Sulewski, Sidoti & Company.

Tom, can you provide us some little bit of a feedback on what are you getting from the new product offerings? And then also, do you phase out some of the older stuff that gets replaced with the new offerings? Is that how it works, or do you hold onto the other things as well?

Well, we haven't phased out anything, Les. Anything is still -- we are still selling the complete product line. As Kathy indicated, the feedback on the new products, the 500-RX and the 450-XL, have been really -- have been really good. It's a louder output in a smaller form factor. And we are starting to -- we've made some sales into the New York National Guard, and we have a couple of other guard units that are looking to pick up the 450-XL. We sold our first couple of 500-RXs into Asia, and they have been well received. And we anticipate seeing some additional business out of Asia in the short term for the 500-RX. It's a -- the lighter-weight unit that actually is a smoother running pan-and-tilt than the 1000-RX. I shouldn't say that, but it is. The feedback has been real good.

And we are selling the 1000-RX. We just received a small order out of Europe for an oil and gas application. We didn't announce it because it's not as significant as recent announcements. But it's a good introduction into a new market for us in Europe in oil and gas.

We don't anticipate cannibalizing any of our products. We anticipate continuing to keep the full product line and add to it.

Thanks for that. Moving into the National Guard, if you can give us the economics of that progress there. Is it a state-by-state sale? And what is the potential there for you with each sale?

It is a state-by-state sale. And we have been out with many of the state guard units. We are getting very good feedback. The product has been used. We do have -- we have sold product into the Guard in the past. They are smaller sales, but they -- there it is 50 units. So it gives us the opportunity to get a number of pieces out there. In the past, we have sold as many as 100 pieces at a time into the Guard. So now that there is funding available through NGREA, we are hopeful that we can tap into some of that money.

And we are getting pretty strong interest from the Guard. We have a number of demonstrations this month with different units, and it has been very, very well received. So the Guard, as I said -- I think I said it on the last call, we anticipate that the Guard could be a very good source of business for us, and I mentioned it again today. It's something that we are working very hard.

Great. Thanks for that, Tom. And I guess the last one from me -- what is the -- what comprises the long-term marketable securities?

I'll let Kathy answer that.

So we are fairly conservative in our investments. Most of our investments are just in -- we've got some cash deposits which are very secure, and those go out a bit. And then also just some government municipalities, (technical difficulty).

Got it. Okay. Thank you for that.

Lloyd Horton, Unique Investments.

Congratulations on (multiple speakers) quarter. Those were very sweet words at the beginning: the best first quarter in history. And I hope that we hear that every year. Those are nice words. Congratulations.

A lot of things have been answered. One thing which I didn't hear about was China. Tell us about China, what's going on.

Well, China continues to be a very good customer for us, Lloyd. We shipped over $1 million of product in the first quarter. We just received an additional order for a little bit less than $1 million. But we continue to grow the Chinese market. We are very pleased with everything that's going on over there. It's slowed down a little. We have some targets for the year. And we just met with our Chinese partners two weeks ago and reconfirmed those targets. And we feel like we are in good shape; we think we will hit them.

What's happening with the mobile unit? Can you give us a little feedback on that?

Well, we had it down at the emergency managers show in San Antonio back in November. We are bringing it to the income group, which is part of the U.S. Army -- a decision-making part of the U.S. Army -- this month for demonstration. We think we've sold our demo unit as of today, but we don't have the PO yet. So it looks like that's going to go out the door. And we are building more units right now, and we have a couple of quotes out.

We anticipate that this product is going to be a little bit of a slow start, like most of our products. But we think eventually it's going to be a very, very good product for us. So we are going to be at the major National Guard show in March; we will have the unit there. And every demonstration that we've made with it has been very successful. It's just a matter of getting the budgeted dollars in place. So we are focusing on National Guard, emergency managers and internationally. We've made some quotes internationally for the product.

I think it's going to turn out to be the most important piece at the Company over time because it's so useful in emergency situations, which seem to happen all over the world every day.

Also, you came out with that automobile security product. Anything going on in that area?

Yes. We sold our first 24 pieces into a branch of the US government. They were deployed. They were actually -- the units that we sold them were mounted on top of the vehicle using a mag mount. And they were deployed, and very successfully, deployed overseas. And they have come back to us. They've decided -- we had done a prototype of building the unit as a stealth form under the wheel wells and inside the vehicle. And they have come back to us and asked us to give them an engineering quote to put these units as -- incorporated in the vehicle, I guess, is the best way to say it. So we are anticipating moving forward with that. And they have roughly 1,000 vehicles under their management. So we think that we have an opportunity -- if we do the first couple of prototypes successfully, the rest could grow.

Is anybody competing with us on a product like this?

Not right now, Lloyd. No. Not that we are aware of.

Well, that's good. Well, anyway, listen, congratulations. And how -- sales people? Any changes in the headcount?

We did have a reduction of one salesperson. But we were looking -- we have been interviewing for additional sales people in different parts of the world. Actually, we are looking for somebody in Asia, somebody over in the Middle East. And we are ongoing. We've interviewed several people, but what we are still looking is the right fit. But my sales team right now -- I'm very pleased with them, Lloyd.

I'm not moving to Asia, so no thank you. One more question --

Beijing, Lloyd, Beijing.

The Chinese -- you say you are seeing it for the second quarter, order from China?

No. We just got one -- we shipped in the first quarter, and we just received another order at the beginning of January. And we hope to get it out the door this quarter. It may drift into April. But we continue to get ongoing orders out of China. (multiple speakers) They are being used on vehicles.

Right. But based upon what you are seeing so far, do you anticipate substantial growth over last year, potentially?

That's our plan, Lloyd. That's what we are working towards.

Okay. Thank you, guys. Congratulations. I'll speak to you soon.

Anne Margaret Crow, Edison.

Congratulations on a very good start to the year. The very good sales say that the 450-X is taking off well after being launched quite recently. I was just wondering about the impact of having the orders like the Middle East ones just dragging on. And -- which is inevitable when you are working in that part of the world and in the business that you are in. Just wondering how you organize your business so that you can cope with quite severe fluctuations in demand for product.

That's a good question. That's a good question. We try to manage our business around orders, so we try to do a build-to-suit. But we do take -- we have forecasts, and we go over our forecasts on a daily basis. And they fluctuate quite a bit. But our sales guys are in contact. We have a lot of in-country partners, and we're talking to them all the time to try to find out where these different orders stand -- or potential orders stand. I talked to our in-country partners.

So we try to manage each order with the lead time so that we can basically build to suit. But we do have some inventory in anticipation, because we have some long lead time parts that we need to manage. But basically, if you look at our balance sheet and you look at our performance, I think we've done a pretty good job of managing the situation. But it's very frustrating when you think that you have something coming in the door and it gets pushed out for six months.

And we have a lot of local manufacturers also that we use to help balance our workload as well. So if there are spikes in volume, we are able to use them to help cushion that.

Thank you. That makes great sense in the circumstances.

Stephen Wagner, Wagner Financial.

Appreciate all your hard work going on there. Most of my questions have been asked and answered. But the one question I did have was with regards to the share buyback program. Can you tell us, in the first quarter, what activity went on there?

We didn't have any repurchases in the first quarter based on where our stock price has been. It's been up pretty high at this point, so it's still -- the program is still active to the end of the calendar year. So depending on the price -- if the price is at a reasonable level, we will do future repurchases. But there weren't any in first quarter.

Okay. Are you able to define what a reasonable level is, Kathy?

You know what? It's decided by our Board. We set the price at the beginning of a period, and then we go into blackout. So we don't change it much during the course of the year. But it's based on what the Board targets and approves.

Okay. All right. Thank you, guys. Appreciate it. Keep up the good work.

Robert Stone, an individual investor.

I just would like to hear if you feel that the strong dollar has had an effect on your bottom line or whether you think it will.

So far --

So much is going on with Asia is the reason I ask that.

Yes. Yes, I understand. Right now, we are doing all of our business in dollars. The Asian markets -- it hasn't had any impact on us. But if it does stay strong, potentially it could. But a lot of our customers, government-based, will make the --. They budget these purchases, so they tend to make the purchases at one point in time. Not when we would like them to make the purchase, but at one point in time.

So I think we haven't seen anything to date. We haven't heard anything to date from our partners. So Asian business has been very strong for us, continues to be strong. So I hope that we can survive the foreign currency fluctuations.

Well, that's good. And thank you very much.

And there aren't any more questions in the queue.

Okay. Well, thank you, everyone, for joining us today on the conference call. If you have any follow-up questions, please feel free to reach out to me. And a replay of this conference call will be available about two hours after we conclude at the webcast link that was provided in the press release. So thank you very much.

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