Genasys Inc (GNSS) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's webcast. At this time all lines have been placed on a listen-only mode, and we will take questions following the presentation. (Operator Instructions)

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

Thank you, Dagma. Good afternoon, everyone, and welcome to LRAD Corporation's fiscal second-quarter 2015 financial results conference call. I want to apologize first for the slight delay getting started. We understand that Globe Newswire had an issue in getting the report out, so hopefully you have seen it by now.

On the call with me this afternoon are Tom Brown, LRAD's President and Chief Executive Officer; and Kathy McDermott, our Chief Financial Officer. Mrs. McDermott will recap our fiscal second-quarter 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 forecasts 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 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, except as otherwise specifically stated. I will now turn the call over to Kathy for the fiscal second-quarter 2015 financial results recap. Kathy?

Thanks, Brian, and thanks, everyone, for joining us. LRAD Corporation's financial results for the first half of fiscal 2015 were comparable to the first half of fiscal 2014. Revenues decreased by $338,000, and net income increased by $139,000 as a result of favorable gross profit margin and lower operating expenses.

85% of first-half revenues were generated from international markets. In our first half, our mass notification business continued strong, generating $1.4 million or 15% of the revenue, primarily in one Asian country, with several more cities installing replacement warning systems.

Also in the first half we delivered our fourth and fifth order for military police in one Asian country, totaling $1.7 million; and several follow-on orders for Navy vessels in another Asian country totaling $1.4 million. The repeat orders are a tribute to the satisfaction of those customers with the capabilities and quality of our LRAD products. Service requirements and in warranty costs are very low.

We continue to sell across many markets, including Navies, Coast Guards, military, wildlife protection, and police and public safety. We continue to focus on the US market as well, as Tom will discuss shortly. Based on the timing of budget cycles and contract awards in our global markets, we expect our quarters to remain uneven.

Revenues for the second fiscal quarter ended March 31, 2015, were $4.5 million, a 17% decrease from $5.4 million reported in the second fiscal quarter of 2014. Revenues for the six months ended March 31, 2015, were $8.9 million, a 4% decrease from $9.2 million reported for the same period in the prior year.

Gross profit for the quarter ended March 31, 2015, was $2.3 million, or 51.2% of net revenues compared to $2.7 million or 50.7% of net revenues for the second quarter of the prior year. Year-to-date gross profit was $4.7 million or 52.5% of net revenues compared to $4.7 million or 50.7% of net revenues in the prior year. The decrease was primarily due to the decreased volume, partially offset by favorable product mix.

Operating expenses in second fiscal quarter decreased $171,000 or 8% to $2 million from $2.2 million for the second fiscal quarter of 2014. The decrease was primarily due to $176,000 for accrued bonus, which was accrued year-to-date in the second quarter last year, but which we accrued each quarter in 2015; also, reduced travel expenses and other decreases, partially offset by small increases in third-party commission expense and salaries and benefits.

Year-to-date operating expenses decreased 3% to $3.9 million in the first six months of 2015 compared to $4 million for the first six months of the prior year. The decrease resulted from reduced travel, non-cash share-based compensation expense, and other decreases, partially offset by increases in third-party commissions and R&D development costs.

Quarterly net income of $291,000 or $0.01 per diluted share in the second quarter of 2015 compared to net income of $526,000 or $0.02 per diluted share for the second fiscal quarter of 2014. Year-to-date net income was $796,000 or $0.02 per diluted share compared to $657,000 or $0.02 per diluted share in the prior year. We had no tax liability year-to-date in the current or prior years, and interest income increased by $47,000 year-to-date compared to the prior year.

On our balance sheet, our cash and cash equivalents as of March 31, 2015, was $19.1 million compared to $23.9 million at September 30, 2014. The decrease of $4.8 million was due in part to investing $4.5 million in short- and long-term marketable securities.

Working capital remains high at $26 million, but $1.7 million lower compared to $27.7 million at September 30, 2014, due to our investment of $2.8 million in long-term instruments. If these were short-term instruments, our working capital would have increased by $1.1 million. And with that, I will turn it back to Brian.

Thank you, Kathy. We will turn the call over to Tom for brief management presentation.

Thanks, Brian. Thanks for joining our call. Let me give you a brief update on our business. I'm going to start with mass notification.

In March, we launched a roadshow taking our mass communication trailer first to Oklahoma for various demonstrations -- not just of our trailer unit, but also showing the capability of our 360X system for fixed installations. We have since provided a number of quotes.

In Oklahoma, we were invited to attend the National Guard Domestic Operations Conference in New Orleans. That demonstration has yielded follow-up demonstrations at Guard units in a number of states scheduled for this month.

From New Orleans, we went to Florida for a demonstration set up by our new partner, Foley & Lardner. The state of Florida is looking to upgrade their statewide emergency management infrastructure, and our demonstrations were well received, as our product provides superior intelligibility to produce mass communication versus the siren and garbled messaging from traditional systems. We have several additional demonstrations scheduled throughout this month in new locations.

The Middle East -- as I've indicated, we bid on a major program in the Middle East. We are still awaiting the final outcome. Our product demonstrations to the Minister of Interior have been pushed out until the end of this month due to delays in customs and getting our product through customs and current fighting in the area. We are still chasing this opportunity.

We have submitted our proposal for Eglin Air Force Base mass notification RFP. The award should be made this month. All the major players in this space have submitted proposals.

Our mass communication business in Asia, as Kathy indicated, continues to be strong and continues to expand. Yesterday we announced a new order from a government department for sound barriers. Part of that announcement was a small opening order for our 360m to be deployed in an overseas compound. We are hopeful this will open up that market with this department.

We are growing mass notification and have made significant investments in product development, tooling, test and certification, software development, and marketing -- especially marketing over the last two months -- while still generating positive cash flow and profitability. We are seeing continued demand for LRAD, our directed product, in Asia and the Middle East; and increasing demand from both US Army and Air National Guard and domestic law enforcement.

We feel very good about our business and see mass communication as a significant future growth area for our Company. We have a lot in the pipeline and anticipate having a strong second half and ending the year on a very positive note. With that, Brian, let's go to Q&A.

Okay, thank you, Tom. We will now open the conference call to questions for management. We encourage callers with questions to queue up with the operator as soon as possible so that there will be minimal lag time between each caller. Operator, please instruct the callers on how to queue up with their questions.

(Operator Instructions) Before we go to the phone lines, we'd like to take it back to Brian. I was told he received an email.

Yes, thank you, Dagma. While the queue builds, we did receive an email question about the share repurchase program and how many shares have been bought back year-to-date. I will turn that over to Kathy to address the buyback.

So the buyback -- we've been doing a lot in the past, really, starting second quarter. Second quarter we repurchased 69,213 shares, average price of $2.29. So now in total we have repurchased 346,370, and the average purchase price between last year and second quarter of this year is $1.95. And then since the end of the quarter, we have been continuing to purchase, as well. So there has been quite a bit of activity in that area.

Great, thank you. Operator, we are ready to take the questions from the queue.

Jared Cohen, JM Cohen & Company.

Yes, sure. I'm just curious if you've gotten more interest in your system since what's been going on in this country with the local police forces and all the demonstrations -- because of what's been going on.

Jared, we have. Law enforcement has been a very good customer for all of our products for the past several years. And right now a lot of grant money starts to flow to law enforcement, and we are getting a lot of inquiries from -- actually, even Maryland came to us yesterday, Maryland Sheriff's Department.

So we are seeing renewed interest. And this is a good time of the year for us to see law enforcement orders coming in. So we have been getting good press on the -- depends on which side of the press you're looking at, but we've been getting very strong press from law enforcement.

If I could inject, there is actually some several very good videos on YouTube about recent LRAD use by the New York Police Department in Union Square on April 29, really using it for communication purposes, to communicate with the tens of thousands of people who gathered in Union Square, just to let them know where and what they could do during the protests. So there's lots of good activity on YouTube. And we will be posting that to our site as well.

Okay. I was wondering in Maryland -- because it like did not seem like they used it in Maryland at all.

We were -- yes, the Baltimore police, I think as you can see, Baltimore is -- they handled that whole situation a lot differently than it has been handled in other locations. But they did have a product on-site that they borrowed from Montgomery County -- we sold into Montgomery County, Maryland. But yes, the police didn't use it. Actually, it seems like the police pretty much stood down through the whole situation.

Right. But just going forward, do you think the police would want to use it just -- not only for communication, but even to disperse demonstrators? Instead of tear gas and things like that?

Yes, well, actually a federal judge has come out and notified law enforcement that they need to give out clear, intelligible voice messages before they deploy tear gas, rubber bullets, or tasers. So we have a web blast out to all the law enforcement community. And we will see some additional orders as we head into the second half. It's a very popular unit once the police get their hands on it.

Okay, all right. And so they know that your product exists; and then once they have it, and so forth, that it's useful device.

Yes, actually our smaller unit, the 100X, is a perfect unit for law enforcement. And we are modifying that to put in camera capability. As they need these body cameras, we are also putting camera capability on our product. That will help law enforcement meet the requirements coming out of the Department of Justice.

Okay. All right, thank you very much.

Anne Crow, Edison.

I've been noticing some great orders coming in. So my question is -- and please don't take this question as sort of a covert way of me trying to ask you to provide financial guidance for the year, because it's not. But given that perhaps there is not the financial framework for assessing how you are performing with respect to your own expectations, I was wondering what your priorities were for the current financial year and what nonfinancial goals you were setting the Company.

I think our priorities, Anne, are to continue to grow the business; and we want to see growth over the prior year. And we also want to see continued profitability and continued positive cash flow. And we feel pretty confident that we are going to attain that, since we've accrued a bonus. And the bonus is based on achieving certain financial targets. So we are still feeling very good about the year.

As Kathy indicated, we were somewhat lumpy quarter over quarter, but we have a lot in the pipeline right now. And as long as we can get everything close, we feel very confident we are going to have a very good year.

In terms of nonfinancial targets, we continue to enhance all of our product lineup. And we feel all of our emphasis right now -- as I indicated, we've made a lot of -- relatively speaking, a lot of investment in mass communication. We see that as the big potential growth engine for the Company.

So we're investing in that. We're working to put a complete package together, and we're working hard to try to get some footprint inside the United States. We have some very good footprint in Asia, but we're trying to develop that footprint in the US. Once we do that, we think we can take off.

Right, and I was very interested to hear that you were looking at putting small cameras inside some of your products. I just wonder if it's --

Actually, not inside, Anne, but we would attach it to the product. It would be some part of the product, yes.

Right, right. One of the clients that I write on produces miniaturized cameras for that kind of application, and it really does seem to be something that Homeland Security and other public safety bodies are very interested in at the moment. I'm guessing lifetime information -- real-time information and sharing it with people so they can make informed decisions. Seems to be absolutely where it's at.

Yes, so we will be introducing that within the next month for our smaller units. We have it -- on our larger units, on our RX units, we already have a camera built in. But for the smaller units, we are introducing that as we speak.

Right, I look forward to seeing that. So yes, thank you. That's very helpful.

There don't appear to be any other questions in the queue.

Okay. We'll give it -- maybe if you want to ask one more time, and if not, we'll wrap it up.

One just came in. (Operator Instructions) Lloyd Korten, Unique Investments.

Unless I missed it, did you discuss China at all?

Lloyd, as Kathy indicated, in the quarter we had revenue of $1.7 million that was directed to China. So China is still -- we have a demo going on this week with the Chinese Navy, and we are also working the Chinese Coast Guard. So our partner in China has been very active, and we continue to see good growth coming out of China. I'd like to see more, but we are on target to continue to grow that business. So it's --

What was the same quarter a year ago?

I don't have year-over-year quarters. We a little over $2 million right now. We did $2.7 million for the last for the whole year last year, so we are well ahead. But it's much (multiple speakers)

So it's good growth, yes.

-- our revenue this year.

I mean, there's just a lot of news out there that China is certainly growing their naval fleet. A new era is entering. I don't know if, you know, if we are going to be a part of that or not. Do you know?

That's what we are trying to do, Lloyd. We have a unit that's on a Chinese naval vessel. It's one of our RX units. And we did sell a unit into the Chinese Coast Guard last year, an RX unit. And a number of other RX units have gone into Chinese maritime.

So we are working -- the Coast Guard is actually -- has much more vessels than the Navy does in China. So we are working both. And it takes time, but we're making progress.

It sounds like the American LRAD is going to be talking to the Chinese LRAD one day, and I hope it's instead of bullets.

Yes. LRADs don't hurt you, so it would be good if that happens. And we can also get some of the other navies that have purchased -- they can all communicate on the open seas.

Yes. Also, I know that there is a lot of (technical difficulty) -- birds, mining. Is there anything going on? Or is there anybody focusing on those industries?

Yes, we are. And we are still working with our partner D-tek, and we have a number of opportunities that we are pursuing together in both mining and in the continued oil operations that we've had some success in in the past. So we are still working with them, and we are also doing some of our own business development in that space. And we still see continued opportunities there.

Any revenue this quarter from those industries at all?

Not this quarter. We had some -- not this quarter, but we had some opportunities that we are hoping to close by the end of our fiscal year.

Right. And also, what's happening with that fort -- American fort?

Fort Irwin. We won the bid. And there was -- well, no, it gets worse, Lloyd. We won the bid, but then there was a protest.

Right, I remember.

And they put out the rebid. We rebid, and then they pulled everything. And they have decided not to buy anything at this time. So it's still potentially down the road, but right now they are not buying anybody's product.

As Tom indicated, we are still going after that market. And in his prepared notes, he talked about going after Eglin Air Force Base in Florida. And that's one that we are going after, and we are hoping to hear on this month.

So that continues to be a targeted area for our marketing. And we should know soon. And what's interesting about Eglin is that we did go up against all the major competitors. So it will be a good test case for us.

Yes.

Great. Thank you for all the work you're doing on our behalf.

Paul O'Keefe, Edge.

I've got a couple of questions. The May 6 announcement for the $300,000 -- how many of the vehicle protection systems were in that order?

We really don't like to give out quantities, because then we about price information. So there was several.

Okay. Is that a new product? Because I am familiar with the 360XM, but I didn't know we had anything specific for the vehicles, other than what you are doing with Cronenberg (sic) a while back I picked up on.

With Kongsberg.

With Kongsberg, excuse me.

What we've done is we've been working directly with the -- we don't want to say who it is, but with a department inside the US government. And we sold them product last year, and they successfully deployed the product throughout the world. And they've come back, and they are purchasing more.

We're also looking at working with them on some engineering. Right now the unit that we're selling is a unit that gets mounted on the roof of the vehicle, and we are working with them to come up with engineering to make it more of a stealth product that would be -- it would not be visible from the street, but it would be a very powerful unit that would keep -- the main purpose is to try to keep uninvited people away from the vehicle. The feedback has been really strong.

We are looking, once we finalize this product -- we are still making some tweaks to it based on customer feedback -- we are going to take this across the board and start selling it to various customers, because we are getting some interest internationally as this product rolls out.

My last question is just -- Katherine was talking about the buyback, and we have purchased 350,000 shares at about $1.95. The float seems pretty small. Have you guys talked at all on the Board about a little dividend, or something to cause some interest? Obviously our cash is holding pretty good. Any thoughts or color on that?

Well, we've talked about a couple of different things. We have talked about a dividend. But the buyback seemed to be -- we were getting some strong pushback from a number of our shareholders to do a buyback. And the Board felt that it was a good utilization of our cash at the price that we were trading at. So we instituted the buyback.

There is restrictions on how much we can buy back on a daily basis. So with a low float, the number of shares that we can purchase is limited. But now -- the last several days, as you can see, there has been a lot more volume in our stock. So we can increase the number of shares that we repurchase. And that has occurred.

So we are committed -- the board is committed to doing the buyback. We set a target, and we are starting to execute against that. As Kathy indicated, over 300,000 shares. And when we get to the next quarter, I think it's going to be much more -- a much more significant number.

And going back to our cash, as you pointed out, if you look at our results through the first six months, as Kathy indicated, we had a little less than $9 million in revenue. But we generated about $1 million of positive cash flow and I would like to see the revenue number much higher. That is still pretty good results based on the number.

I definitely agree. I just think with buybacks, you know, you are basically appeasing the people that are trying to sell shares. I've held LRAD for a long, long time. I believe in the Company and the product. I'd like to buy more.

Last question, if I can remember it -- if I'm a police department in Baltimore and I want to buy an LRAD; I call and order it today; how long does it take before I get it?

It depends on what you are ordering, but for the most -- the longest lead time --

Typical police order.

Longest lead time it would be delivered with -- if it is urgent, we would deliver it in a day. We had an urgent call from Panama City, Florida, because of the spring break. They wanted a unit over the weekend, and we delivered over the weekend.

So we jump. We don't wait around. We get an order, we try to deliver it as soon as we can get it out the door. So the longest lead time would be four weeks on an order like that.

Okay, good.

Longest.

Awesome. Thank you so much for your time. I appreciate it.

Michael Martino.

Yes, gentlemen -- in the last couple of conference calls, there has been mention of large proposals and bids that are out there. What is the status of those?

As I indicated, we -- and I've been mentioning it for the last two calls -- we have a large proposal outstanding in the Middle East for mass communication. And right now the status is it hasn't been finalized. We are doing demonstrations of our product this month. We are still chasing the opportunity. It was supposed to have been closed out, from what we were originally told, last year with delivery by April. We are in May, and it is still not closed out.

This is typical. We run into this in all of our -- pretty much every one of our orders. It takes longer than originally projected. So we are still pursuing it. And hopefully we will find out where we stand by next quarter. And I am hoping to bring -- I don't know. Right now I am hoping that it is a positive announcement next quarter. But we are working it hard, and we are not giving up.

How big an opportunity is it?

For us, it would be $9 million, which is a pretty big opportunity.

It certainly would be.

So I'm not going to get --

Isn't there some benefit with warrants that are outstanding to continue to buy back stock?

There are warrants outstanding. They expire next February. They are out there at $2.67. I don't know -- there is really no correlation between those and the buyback.

I think from a dilution standpoint, yes, if we --

Yes, absolutely.

Sure.

If we are buying back a number of shares, from a dilution standpoint, you're right. And, yes, we are hoping that we are much above that price by next year.

Yes, and it would be nice to give them stock that has cost you $1.95.

Yes.

That's the benefit of the buyback.

Yes, agreed.

How big is the -- how many warrants are outstanding?

There is 1.6 million.

Better get to work buying back this stock. (laughter) Thank you, gentlemen.

There don't appear to be any other questions in the queue.

Great, well, I just want to thank everyone for listening and participating in LRAD's fiscal second-quarter 2015 conference call. A replay of the webcast and the call will be available in approximately two hours through the same link issued in our April 30 press release. Thank you very much for joining us.

Thank you. This does conclude today's webcast. Thank you for your participation. You may disconnect your line at this time and have a great day.