Genasys Inc (GNSS) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the LRAD fiscal first-quarter 2016 financial results conference call. (Operator Instructions) At this time it is my pleasure to turn the floor over to Brian Harvey. Sir, the floor is yours.

Thank you, Angelica. Good afternoon, everyone, and welcome to LRAD Corporation's fiscal first-quarter 2016 financial results conference call. I am Brian Harvey, Director of Investor Relations and Capital Markets for LRAD.

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 first-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 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 the potential risks and uncertainties, please refer to the risk factors section of the Company's Form 10-K for the fiscal year ended September 30, 2015. 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 a fiscal first-quarter financial results recap. Kathy?

Thanks, Brian; and thanks, everyone, for joining us. LRAD Corporation's first fiscal quarter revenues are typically lower than our other quarters, and this quarter ended December 31, 2015, followed suit. Our revenues for the quarter were $2.8 million, a 36% decrease from $4.4 million reported in the first fiscal quarter of 2015.

We had a number of nice orders this quarter, including several energy security orders for the Hoover Dam, a power plant in Texas, and a DoE renewable energy facility in Colorado. We delivered our sixth order for police vehicles to an Asian customer. We had several State Department orders totaling $248,000 for various overseas applications. We had numerous US Coast Guard orders that will be used for ship-to-ship communications on cutters in the Pacific and Middle East.

We also announced two orders that we received at the end of the quarter for future quarters for $710,000 for a Latin American prison and $735,000 for two orders for perimeter security and public safety in Asia and for a Southeastern US utility installation. This past week we announced an order for $1.1 million for Southeast Asian public safety.

We have a healthy backlog of $5.2 million at the end of Q1, deliverable in fiscal year 2016, which is before the $1.1 million order that we just received. We are glad to see that some opportunities are starting to close. Our quarters will continue to be uneven due to the timing of approvals or budgets.

Gross profit for the quarter ended December 31, 2015, was $1.3 million or 46% of net revenues compared to $2.4 million or 53.8% of net revenues for the first quarter of the prior-year. The decrease was primarily due to the decreased volume and the resulting lower absorption of our fixed overhead costs.

Our operating expenses for the first fiscal quarter increased by 7.5% from $1.9 million in the first fiscal quarter of 2015 to $2 million in the first fiscal quarter of 2016. The increase was primarily for staffing and consultants; for business development, marketing, and engineering personnel; testing and prototype expenses for product development; bank fees related to the repurchase of shares; and tradeshow expenses, partially offset by a decrease for accrued bonus, as the Company did not meet their targets for the quarter.

The Company reported a net loss of $380,000 or $0.01 per share for the first fiscal quarter compared to net income of $506,000 or $0.01 per diluted share for the first fiscal quarter of the prior year. The reduction resulted from the lower revenues and higher operating expenses, partially offset by interest income on investments and a $310,000 income tax benefit.

On our balance sheet, our cash and cash equivalents as of December 31, 2015, was $15.6 million compared to $18.3 million at September 30, 2015. The $2.7 million decrease was primarily due to the use of $1.6 million to repurchase shares of common stock and the movement of $624,000 from cash equivalents to short- and long-term marketable securities. Working capital was $23.9 million at December 31, 2015 compared to $25.6 million at September 30, 2015, due to the decrease in cash and cash equivalents and an increase in liabilities due to the dividend declared during the quarter.

During the first quarter we purchased over 1 million shares of stock at an average price of $1.59. In total we repurchased $3.7 million of the total $4 million approved for this program. As announced last quarter, the Board has approved a new share repurchase program for calendar year 2016 for an additional $4 million.

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

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

Thanks, Brian, and thanks for joining our call. In our first quarter, the most important transaction that occurred was the U.S. Army and the U.S. Navy working together and modifying the IDIQ contract that we have with the U.S. Navy to now allow the U.S. Army to procure our product. We worked with groups from both the Army and the Navy to make this happen.

A little history lesson: since 2007, when we won our initial RFP with the U.S. Army to provide prototypes, we have been working this potential award. We responded to two subsequent RFIs issued by the U.S. Army in 2010 and 2011. But since the government was operating off of continuing resolutions during that period, no new programs could be awarded, as new program funding didn't exist.

In the Ryan-Murphy budget that was approved in 2015, funding for this program was appropriated and put into the budget. As a result, and as I indicated on previous calls, we were anticipating seeing an RFP in 2015. This modification effectively is an award to LRAD Corporation. We will see initial orders against our contract in the second half of this year and very significant orders next year. This is a major game-changer, as it finally appears that military spending is increasing.

Along these lines, we responded to an RFI in January in response to a U.S. Army request for an Escalation of Force Kit. This is another program that we have been working since 2008. Originally it was Kongsberg, but now the Army is looking to deal directly with kit providers. The Escalation of Force Kit includes a laser dazzler, high-powered light, and an Acoustic Hailing Device; and all are mounted on a CROWS system.

Presently there are roughly 11,500 CROWS on MRAPs in operation. If you look at our website, you will see a picture of a CROWS unit with our LRAD 300X, which we have effectively demonstrated many times to the U.S. Army. We understand that there is funding for this program, and hopefully an RFP will be issued this fiscal year.

As previously indicated, we responded to a U.S. Navy RFP for remotely operated acoustic devices and expect to see the U.S. Navy make an award sometime in April. We are working on a number of programs with various governmental agencies. As Kathy indicated, the State Department has continued to purchase our Sound Barrier units for vehicles and has begun to purchase mass notification and remotely operated units. The U.S. Coast Guard made some purchases in the last quarter of 2015, and we are working with them on additional orders.

Currently our most promising opportunity in this area is with custom and border patrol. We have an ongoing demonstration with the border patrol that has been very successful. Our product is very effective in deterring migrants from crossing the border at a distance. The feedback on this ongoing demonstration has been very positive.

Internationally, while being hurt by a strong dollar, our business continues to grow, both with our omnidirectional business and our directional business -- as you can see by the press release we issued this week and recent mass notification orders that we have received. So we feel very positive about our business with the recent changes with the US military programs and our continued work with the US government agencies.

On that note, Brian, I'll open it up for questions.

Great. Thank you, Tom. We'd now like to 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.

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

(Operator Instructions)

And Angelica, while the queue builds, we did receive an emailed question about the proxy statement filing. Tom, could you please provide an update on the proxy status?

Right now, our Board is working directly with the shareholders to file the proxy, and we have nothing to report at this time. It is still an ongoing discussion.

And with that, we'll take questions.

Lloyd Quinnapin.

Okay, I think with the shareholders have been looking for is some sort of continuity growth. And I very much appreciate as a shareholder these new target customers that have started to give you some orders; and actually, every call we hear about great potential and very positive projections. Unfortunately, from a year ago, our revenues have dropped, and we still have the best products in our field.

Tom, where do you see that -- where we can count on some definite growth? And why, where, who and how? Thank you.

Lloyd, we still feel very positive about this year. We've said from day one, we are not a quarterly play, because basically our quarters fluctuate significantly. We're tied into government sales, and we have to play into budgets, and budget dollars get moved around. There is -- as I mentioned, a major thing that occurred with the modification to the U.S. Navy contract that now allows the U.S. Army to make purchases off of that contract. We have been working that since 2007.

And originally it was going to be a very, very significant piece of business for this Company; and we believe it still will be, but it is going to take a little bit of time. Everything takes a little bit of time. But basically, we think that this is going to be a very good year. And quarter over quarter, we're going to be up and down; but when we get to the end of the year, we have to look at our business on a year-over-year basis.

So we have a lot of things that we thought we were going to close last year that have fallen into this year, and we are still on target to try to get them closed. But they -- typically second half is when most of our business walks in the door. So if you look at the history, the second half is usually our strongest half. The first half, especially the first quarter, is always a little difficult. But as we get into the second half, you will see some improvement.

So we feel -- as I said, we feel very positive. And this U.S. Army deal is a game-changer, because the original budget that was approved in 2015 called for a total amount of $36 million. The budget that came out in 2016 was up to $48 million. The President's budget gets released next week; we anticipate there will be some increases in that budget. So we feel really good that this thing is going to provide us with a base of business on a go-forward basis, not so much this year, but definitely next year.

Okay. Can you fill us in on the status of our salespeople -- more, less, new, et cetera, worldwide?

The sales team we added -- at the end of last year we added people that are fully dedicated to us, one that is based in Europe, one that is based in Southeast Asia. And we've added a new member on the mass notification team of an individual who has been in the industry for many years and has a very good -- he's got a very good Rolodex, and actually the couple of pieces of business that Kathy had mentioned earlier were his responsibility; he brought those in the door.

And we continue to look at -- Lloyd, as you and I have spoken before, we continue to look at sales reps. And we are -- I am going to Washington, DC, next week to sign up a new rep who has very strong ties in Northern Africa.

So we are continuing to bring on new reps. We just brought on a new rep in France, and we have been working to strengthen our rep in Germany. So we are making some small progress, but we are trying to keep within our budget also. So we're adding new people, we're adding new reps; but we're also trying to keep our costs in line.

Right. China -- can you give us a quick -- on what is going on in China?

China is good. China -- we had good business in the first quarter. We are working on a couple of new opportunities in China right now. Unfortunately, Chinese New Year is coming up. I was hoping to get the orders in before the New Year. But we anticipate getting some good orders from China. It continues to be a good piece of our business, and so is Southeast Asia.

The international business -- as I said, we're getting hurt a little bit by the stronger dollar, but we still see some really good opportunities, especially in Asia and Southeast Asia. We will -- we are just rolling out something next week, we just received a small order but a nice opening order in the Middle East that we'll put out a press release on.

China is building a Navy. And I would much rather they communicate with us by LRAD than bullets. Haven't we penetrated their Navy?

We do have a unit on one of their ships. They have put one of our RX, our remotely operated units, on one of their ships. They are trying them out. So, yes, we are working the Navy. And we also have a couple of units on their Coast Guard. So we have been working -- our rep has been very effective in trying to get us into both the Navy and Coast Guard.

That is good news and good potential. All right. That's it for the moment. Thank you, guys, and I hope you have a great year.

Jared Cohen.

I will start off with the first question: if you are not going to give us quarterly guidance, can you give us an idea of annual guidance? Because basically the sales have been stagnant looking at it for, now, I think it is going to be six years. And you know, it is getting tired of really excuses, whether it is from the military, or from commercial, or anything, because I am just getting tired of this.

So can you give us an idea of -- because there seems to be potential for this product, and it just does not seem to lead to anywhere. So can you give us an idea of what the annual projection could be at least from a revenue standpoint?

Well, Jared, our product is sold 99% into governments. And we are subject to --.

Well, you have been trying -- but you have also been trying to get into the commercial area for the last four or five years, also. I will give you an idea -- like into the airports. And then in the last week or so, LaGuardia and Kennedy airports are going to now use people to shoot birds to clear the space so planes do not get disturbed by that.

So that has been a potential for your product. So why haven't we been going to those types of areas? You've been talking about that for years.

Well, we've been doing it. We have been going after --.

I know! But then why haven't you gotten into that? Sold? BD -- that's an easy place for you. I know part of it is usually coordinating with the radar, but it seems to be cheaper to use your product than having people trying to shoot the birds, particularly with the environmentalists complaining about that.

We have had some success internationally with the airports. US --.

I know, and Beijing -- but then again, we haven't heard about Beijing for a long time also.

That has been sold. But in terms of --.

Well, we never got a press release about that. But, again, here -- I'm looking -- in 2010 you did $16.7 million in revenue; 2015, that's what you did. So basically there's been no growth in this Company over the last five years.

Same thing on net income. And I'm just asking, again, for -- you talk about the potential, so I'm asking. I'm not asking for quarterly or anything; just for the potential for the years. And you keep talking about the orders and so forth, so --.

Jared, as I said at the last call --.

I know, that's what you keep talking about -- the last call. That's what we've heard for -- I've been on these calls for five or six years, or seven years, and that's all I hear.

Jared, on the last call I mentioned that we set our bonus targets much higher than it was -- than the previous year. We missed our targets last year, but we are setting higher targets this year.

I know, well, by now you were supposed to be up to around $30 million. You're not there yet. But I'll leave that for another.

The second question I'm asking for is: I saw that you want to go from five directors to four directors. Now, isn't that against NASDAQ rules?

No. And actually, that's the nominating committee. I'm not a member of the nominating committee.

But I thought in terms of -- how can you have independent directors? Because aren't you a director and Kathy McDermott a director? And do you vote for the Company -- so I thought you need to have at least three independent directors.

We have three independent directors plus me in the proposal. And the Board is open to looking at new directors, but as I said before, I'm not an independent director; that's the nominating committee of the Company. And it's their decision, not my decision.

Okay. All right, thank you.

Stephen Wagner.

Boy, I'll tell you, it's been crazy. This market is crazy; I think our world is going insane at times. But you know, its -- hopefully people settle out in the oilfield.

And let's just start out with that. In the last conference call, you guys talked about -- Tom, you mentioned that you had some pretty substantial orders. I think you mentioned a couple of them that needed to be pushed out, for obvious reasons, into this fiscal year and perhaps even calendar year. Can you give us an update on what the time frame of those might be now?

Yes. Well, we're still working them, Steve, and they haven't gone away. But there is a little bit of hesitation on spending money. But we are still in the queue. The queue has been pushed out a little bit. We were hopeful that we'd see something, as I said on the last call, in the beginning of this year. And right now I have nothing to report other than we are still in the mix.

Okay. Well, that's -- I mean, it's better than nothing, that's for sure. (multiple speakers)

The last call was pretty optimistic about that, and I was kind of hoping we'd see something closer to the beginning of the year. It's a little distressing to hear that the second half is going to be better than the first half, because what that does is it kind of -- at least in the investor's mind, I mean, people like myself, and my clients, and obviously other investors -- the feeling, is oh, my God. They just bought themselves six months. You know what I'm saying?

And what we are interested in is -- and I think the tenor of I think the last questioner in particular, who I don't know, but I can understand his frustration, because it's our frustration as well. And as you know, Tom I'm a financial advisor; I work with clients every day. We have quarterly reviews. And even though LRAD is a small position in each of our client portfolios, it takes up 99% of the conversation.

And of course, I go to the fundamentals; I go to the dividend; I go to the buyback; I go to all of these things that are very positive, including your website, which demonstrates the outstanding products that you have. And you know what the resounding response is I get from my clients? It is: my goodness, this is amazing, and the stock should be significantly higher.

And so we all get excited about it. But then quarter after quarter after quarter after quarter, we get the same refrain. And that is: hey, it's uneven -- which I get. We are working on it -- which I get. But my goodness, if we've got the best stuff out there on the street, and I do believe that we do. Not only on the government side; we're really the only game in town there. But even on the commercial side, I'm led to believe, as I understand from my own independent research, that we have the very best products. They may not be the most economical in every application, but they are the best products.

And so I think the frustration is that -- forget about the military; we understand what the potential is there, and it's very exciting, particularly for next year. But the commercial side of things -- we are living in this world that is more dangerous, not less; more scattered, more frantic, more anxiety-ridden. It seems to demand our products.

And I think this is the frustration that we have. Can you just address that for a moment?

So we share the frustration. But Steve, I've been doing this now for many years, and we run up against budgets. And even on the commercial side, we run up against budgets. Actually, dealing with these oil and gas companies, their budgeting is worse than the government, because they've got to make their results look good to their shareholders. So they hold up on things.

But as I mentioned, and you know this: since 2007 we've been working the Army deal. Finally, this is a big thing, and we can't emphasize that enough -- but finally we brought this thing home. And it took us eight years to get there, but we finally brought this thing home. So that's a big deal.

And congratulations, congratulations on that. That is a big deal, and you guys deserve credit for that. There's no question.

And this Escalation of Force kit that came out -- we've been working that, as I've mentioned so many times about Kongsberg; but now, actually the US Army is looking to go direct, as I said, to the kit providers, which is -- one of them is us. And that's another significant piece of business. Hopefully, we'll see an RFP this year.

But you know, these things -- they take a long time. And even though we have very, very good products, it takes a long time to get them fielded and then they start buying. We've been very successful -- as Kathy mentioned earlier, we had our sixth order out of China for a vehicle -- it's for their Chinese police, but it's their vehicle order.

So once we get some momentum, they keep buying. But it's a long, tough process, and we're working very hard to bring these -- to close these deals. And we're pretty confident that this is going to be a very good year. But you always run into these situations where money gets moved to a different place, and right now, the world economy -- there's a lot of question marks around it.

But I do agree with you on the fact that the terrorist situation, the border situation -- that's why we feel very good about this customs trial that we're doing. Actually, we've lent the unit to the US Customs Agency and Border Patrol here in San Diego. They've come back, asked for another unit. We are giving them another unit. They really appreciate it; they like it. And the feedback has finally made its way back to Washington in a very positive way. So hopefully we can move this along.

But to your point --.

Maybe that demo could be wheeled over to the Donald Trump campaign, and he could start talking about LRAD as his wall? Then we'd have a stock price increase that would make us all very happy. (laughter)

I agree with that. Trump himself doesn't need an LRAD. He's pretty loud.

Yes. Well, this is -- well, yes, I get you on that, that's for sure. But it certainly would be better than a wall. Obviously, we would have our sound wall is what we would have on the border, and that makes most sense. So we're glad that you're working on that.

I did have a question, though. In the last transcript that I've got in front of me hear from last quarter, in it one of the questioners talked about the Middle East deal that was lost. But you mention in your response to him that you were working on a couple of other opportunities. Are you able to give us any updates on those?

Yes, we brought in -- as I mentioned earlier, we brought in -- it's small order, but what we're trying to do is get product on the ground so that we have some product in countries, so that they can compare our product versus what they're buying in other areas.

And we received our first order today. So we put out a press release, because it's a good press release. And we're going to name -- normally, we don't name the customer, but we're going to name the customer this time, because this is a commercial customer, and also they have a number of sites. So this is the first site that -- we're getting in on the ground floor. And there are a number of other sites in-country.

So we'll put out a press release probably next Tuesday. Again it's not big dollars, but it does get us a footprint into that country that we've been working on for quite some time.

Well, that's good news. Every little bit helps. Thank you for that update.

And speaking of updates, I'd like to get a little bit of an update on Karen Bowling. I know that was something you guys announced -- I think was it -- mid last year in terms of someone that may have some influence with various heads of emergency departments in the various states. What progress is she making? Are you guys happy with her performance? What is she adding to the entire LRAD picture so far?

So we hired Karen as a Vice President of Marketing. She's in charge of the marketing organization. And we have been working the emergency management group, not just in the United States, but we've also -- we're working some of the international EMS groups.

And she's working hard, but she's running into a lot of the same frustrations that we all run into in that it takes a long time. It's not something that you just walk in the door and get an order. It takes a long time to build that. But she has some very good contacts, especially in the Southeast. And we are working those contacts.

And this is budget time, where states start putting their budgets together, and we are doing a number of demonstrations. We bring our trailer out on the road, and we're in front of these EMS people. Of course, the feedback on the trailer has been extremely positive, but we have to turn that positive feedback into budgeted dollars. And that's what she's working on with the support of my sales team and myself.

All right, very good. In the news recently has been Iroquois. I know the other caller was likely referring to that, and I was a little distracted in part of his questioning. I know you talked a little bit about independent directors. Do you guys have any comments, response? Is there any -- and I know you guys are going to be getting out proxy materials. Are these new directors going to be -- potential directors -- are they going to be up for nomination? Are you able to comment on that?

Right now, Steve, the independent members of the Board are working directly with them, and they are in discussions. So I don't have anything to report at this time. I'm not involved.

Okay, fair enough. All right. And Brian, question to you, if you could take just one last question; I'll go back into the queue.

Obviously, there's a lot of activity. I know our conversations in times past regarding analyst coverage was that sometimes there's strings attached to them wanting to be analysts. But have you been able to look at other avenues to get our story out more in the mainstream? Is there any chance that that's going to happen now that there's some visibility with regard to revenue, even though you're able to give numbers, or won't give numbers, because of the Army deal, because of that change to the Naval contract? Is there any chance that there is some reason now to really work at getting the story out to a much broader audience? I guess that's my question.

Yes, sure, Steve. We've -- and I've personally explored a number of these different avenues. And what it comes down to for the sell side generally is: there is limited bandwidth that a lot of these analysts can cover. So a lot of them get marching orders from above that they want to cover things where they can -- where there's a capital raise, where they can monetize the relationship. And so that's been a significant headwind with the sell side.

We have explored other avenues. There's a lot of paid research offers that we get regularly, but that's not something I think is really viable, as it's not independent in any way. So we continue to look at that. We're putting together our calendar for roadshows and for conferences. And we are attending B. Riley in May; I'm trying to get into some others here in March. And Tom and I are hitting the road in the near term.

So we continue to try to get that exposure. And we have had some success. The conferences we've attended, we've been able to get a new institutional investor at nearly every single conference we have presented at. So that's been a good avenue for us. But as far as additional exposure with Wall Street analysts, it's been very difficult, because there's not a capital raise that's tied to it.

Sure. And the reason I bring it up is, in looking at the report, it was both gratifying to see that you purchased the number of shares that you purchased in the first quarter, along with distributing the dividend; thank you guys very much for that. But it's also disheartening from the standpoint that the stock basically fell from the end of the year to now, and over this period of time has gone nowhere, which tells me as a fairly experienced investor that without the support of LRAD, I'm afraid to even fathom what our stock would be at.

And I think that at the end of the day the answer is obviously more revenue, more sales but also new eyeballs to the story. If people can look past the next six months or a year as we move into getting the big revenue deals from the military side of things, this could be a very exciting story.

But between now and then, I've got to answer to my shareholders; you have to answer to your shareholders. And I'm getting grayer and grayer every day doing it, quite frankly. (laughter) So the pressure is on, folks. That's all I can tell you.

And we are well aware of that, Steve. Thanks for the input, though.

Okay, fair enough. Thank you, guys.

Bill Church.

Thanks for taking my call. I have three or four question/comments. I'll just rapid-fire through them, and you can decide which ones to respond to.

First, as I listened to the comments, it sounds like we are optimistic that we can have a better year this year than we had last year. That's the first thing.

Second thing, thinking about the border patrol, wonder if we have any more color on that? Are we looking at 15 months, 18 months? Just with the early stages, typically how long do those sorts of contracts take? Because it is sort of a headliner, in a way, thinking about the gentleman before me talking about Donald Trump and so forth. It's sort of a headliner that grabs people's attention, even though it might be for smaller dollars and then other things.

Third, just thinking internationally, where Mace is flying off the shelf in Germany -- other people in other countries are trying to find ways to protect themselves, or protect their towns, and so forth -- if we are doing anything with regard to local defense or local protection in some of these foreign countries.

And then the last one has to do with kind of dissident activist shareholders who -- and I'm not speaking for the gentlemen, because I don't know them, but many times it's the first box to check, stock buybacks. Second box to check, let's cut costs. I'm in this stock for growth, not stock buybacks. And a number of times you've said, well we're trying to stick within our budget. And I certainly don't want to see cash running out of the Company at a fast rate, but an extra $ 1 million to be spent for trying to advance a marketing or a selling effort rather than necessarily stock buybacks -- I know it's a balancing act, but I certainly am looking for growth opportunities, not retrenchment.

And those are my comments and questions. And feel free to respond or just move on to the next one. Thanks.

Bill, let me -- I think I have some of your questions there, but let me respond. Internationally, we'll talk about Europe. Europe has been a very difficult nut for us to crack, because it's -- they've been very opposed to any type of deterrent. But recently we're starting to see a pickup in business.

Now, we're getting small orders. We've gotten some small orders in Eastern Europe, places that would never buy before. And we've got some small orders in Germany and in France. So it's starting to pick up, and we're working it hard, because this situation that they are going through is opening up the door for our product, and we're walking through it. So we feel good about that.

In terms of the buyback and the dividend, you know, we've looked at our cash requirements. We've also looked at our cash flow. We've had positive cash flow for the last six years, and we're trying to stay within that. If you look at the dividend, we generated profit of about $1.3 million last year. And that's basically how the Board based the dividend. So we're paying that out.

But we are sitting with cash. We do have investments, and cash is king. So we watch that very carefully. And we feel confident that we can still manage our cash and also go through these programs.

So we feel good about the business. But it's a long, long, long selling cycle, and I think our shareholders have to understand that. We're not losing money. Even if we have an off year on the revenue side, we still make money, and we still generate positive cash flow. And our intention as these deals -- they are lumpy, but when we close them, they are very good. And this Army deal is a big deal.

And then the border.

Border.

Oh, the timing of the border? The border -- yes, we finally -- we've been working the border for a number of years, like everything. We're working everything for a number of years. We don't let anything to go unapproached.

But we finally have support in Washington. In the past we've been working the local border patrol; they like the product, but there was always a roadblock in DC to get funding. But we finally have cracked that DC group, and we have daily feedback from the local border patrol here back to DC. My salesperson who handles that is in Washington right now. He has a meeting with the border patrol. So we're getting very good feedback, and this is a bottoms-up approach. We're trying to get guys out the field to push the guys in DC to make something happen.

So we anticipate it's going -- as typical with the government, it's going to take probably 15 to 18 months. But there is a requirement right now. They're asking for more demo units, and I'm providing them, because I want to get as many in their hands and get them wanting them as much as possible. And they've used it on the border between San Diego and Mexico with very great results.

So it's been very positive. We feel really good about it. This could be a really -- this could be a very big opportunity for this Company.

Yes, I agree. Okay, thank you very much.

Thanks for the call.

Jonathan Manela.

My questions sort of revolve around two buckets. The first, I know there's been a good amount of talk about sort of a growing sales team. And obviously, we're not seeing a lot of follow-through in sales. I'm just trying to wrap my head around -- so a couple questions on this. Do you guys know sort of what the breakout is of sales that are coming from the sales team versus the resellers?

We do, but our sales teams -- the way that we've structured the sales team, Jonathan, is they work directly with -- you know, they manage a lot of the resellers. And on large orders they'll go in and support the reseller with the end user.

So we've broken the sales team down into geographic areas. And they work in, one, supporting reseller; two, doing direct end-user sales; and, three, trying to find new and better resellers. In some cases, we have some territories where the reseller has been in place for a while, and he is not performing. So we're working to find some new resellers. The one thing, Jonathan --.

Sounds like sort of a wholesaling-type relationship, where -- are there -- so it's like the salesman sort of manages the reseller. Okay, so are the salesmen paid like the reseller?

Salesmen are paid based on a base pay, and they get a bonus. If the Company performs, they get a bonus. In terms of the reseller network, we've sold into over 71 countries. So we are making -- and we're adding to that each year.

So using limited resources, mostly outsourced resources for sales, because in these different foreign countries you need to have a local rep. Very difficult for one of my team to walk in and do a direct deal with the military or with the government of that nation, unless they have a local presence.

Who hires the sales -- the salespeople are all W-2 employees of the Company? They're not out selling for other products? They're not 1099 people that have other sales-type relationships with other similar businesses?

W-2. Our sales team is W-2. The resellers carry other products, but they carry products that -- our product fits into their bag.

Okay. Who hires -- who is in charge of the sales team?

Who is in charge? I am.

Okay.

Then I have different people with different -- you know, who handle different parts of the sales organization. I have one person who handles all of the international group; I have one person who handles all of the mass notification people. And then I have the US sales team.

Okay. So I'm going to wrap up. I just want to a make a comment. And, you know, we in business consult in the wealth management space who predominantly are sort of sales-type, sort of growth-oriented people. As a long-term shareholder, sort of suffering through like many others on the call, one thing I could reflect objectively is: we've, over all these years, have never heard about issues where products have been shipped and then there's been issues with them falling apart or not working. So it seems like the manufacturing capability are intact.

There's never really been issues in terms of the financial security and well-being, and how you and Kathy have been stewards of that. It seems like operationally things are pretty strong.

And when I look at the website and I read your bio, Tom. Mr. Brown brings over 30 years of executive-level operational and financial management experience to LRAD, having been President of North American Manufacturing Operations for Sony -- sort of speaks to your experience and Kathy's experience and the things that are going well.

Where you guys lack experience, arguably have no experience, revolves around sales and execution. And you guys are hiring the sales team. I think an objective bystander could make the argument that -- how are you even able to determine who is or isn't qualified for that role? And yet that seems to be the area where the Company is really struggling, has struggled consistently. It's always about not closing business. It's always about sales. It's always about not reading or having visibility as to why deals do or don't close.

And it's perfectly clear to me -- not that the people in position at the business aren't great at what they should be great at; there lacks that person to really lead the business in growth, because no one in leadership has that experience. And I just -- I don't understand. There's so much pressure.

Wouldn't life just be easier for you, Tom? You know, you've done so many good things. Wouldn't life just be easier to bring in a killer CEO, give the guy 1.5 million options, a great salary, keep yourself in a great role, and let someone take this business to $100 million who has the experience for 30 years of doing just that?

It's the clear frustration everyone has. It's objectively where the Company is weak. It's obvious with the skill sets. And I don't understand why there's so much friction around it? It makes no sense.

Okay. Thanks for your comments there, Jonathan.

Craig Brod.

Thanks for taking my call. I'll try and keep it brief. First, just a quick word of congratulations -- you know, with all of the frustration expressed here, I'd like to make it clear that your progress is noted and really appreciated.

I do have one question, though, about the capital structure. Why buy back shares at all, and why so many -- such a large percentage of the float -- when liquidity is, frankly, a difficult situation already? Why not just double the dividend? Thanks.

That's a good question. In terms of the buyback situation, again, that's a Board call. The Board of Directors made the decision to do the buyback, and also the Board of Directors makes the decision to do the dividends. And that's basically, it's looking at -- as I said earlier, looking at our cash flow situation and looking at share price, we felt it was a good time for us to invest in our own stock and put our money to use, and also to pay our shareholders back with the dividend. Because we do have cash that is not required on a day-to-day basis. And we continue to grow cash. We will this year. So we're trying to make use of the cash in the best way.

And we've looked at acquisitions, but frankly we're making the investment in this mass notification space using our internally generated funds. So we feel we have available cash. And the Board looked at it very carefully and made a very careful decision to move forward with that. And we did.

Okay, I think that just basically restates the official line. And I appreciate that. But as a shareholder, as an investment advisor on behalf of clients, it seems to me buying back nearly 10% of the float simply just decreases the number of shares outstanding, increases the earnings per share, and the bonus potential; whereas the dividend is just back for shareholders.

Also, I don't have to worry about whether you're in front of me or behind me on an order. So please consider that for next time. And thank you, by the way, for declaring the dividend again, and congratulations.

Thank you. And I will now turn it back to Brian Harvey.

Great. Thank you, Angelica. And thank you all for listening and participating in LRAD Corporation's fiscal first-quarter 2016 conference call. A replay will be available in approximately four hours through the same link issued in our January 27 press release. Thank you again.

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