GNSS 10-Q
Genasys Inc. (GNSS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number:
GENASYS INC.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| | |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which securities are registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares of Common Stock, $0.00001 par value, outstanding on August 9, 2022 was
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Genasys Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
| June 30, | ||||||||
| 2022 | September 30, | |||||||
| (Unaudited) | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term marketable securities | ||||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| Long-term marketable securities | ||||||||
| Long-term restricted cash | ||||||||
| Deferred tax assets, net | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Operating lease right of use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Notes payable | ||||||||
| Operating lease liabilities, current portion | ||||||||
| Total current liabilities | ||||||||
| Other liabilities, noncurrent | ||||||||
| Operating lease liabilities, noncurrent | ||||||||
| Total liabilities | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $ par value; shares authorized; issued and outstanding | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See accompanying notes
Genasys Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and share amounts)
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues: | ||||||||||||||||
| Product sales | $ | $ | $ | $ | ||||||||||||
| Contract and other | ||||||||||||||||
| Total revenues | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ||||||||||||
| Other income (expense), net | ( | ) | ||||||||||||||
| (Loss) income before income taxes | ( | ) | ( | ) | ||||||||||||
| Income tax (benefit) expense | ( | ) | ( | ) | ||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Net (loss) income per common share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes
Genasys Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Other comprehensive (loss) income | ||||||||||||||||
| Unrealized (loss) gain on marketable securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Unrealized foreign currency translation (loss) gain | ( | ) | ( | ) | ||||||||||||
| Comprehensive (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
Genasys Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Nine Months Ended | ||||||||
|
| June 30, | |||||||
| 2022 | 2021 | |||||||
| Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt issuance costs | ||||||||
| Warranty provision | ||||||||
| Inventory obsolescence | ||||||||
| Stock-based compensation | ||||||||
| Realized loss on foreign currency forward contract | ( | ) | ||||||
| Deferred income taxes | ( | ) | ||||||
| Amortization of operating lease right of use asset | ||||||||
| Accretion of acquisition holdback liability | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Inventories, net | ( | ) | ( | ) | ||||
| Prepaid expenses and other | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued and other liabilities | ( | ) | ||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Investing Activities: | ||||||||
| Purchases of marketable securities | ( | ) | ( | ) | ||||
| Proceeds from maturities of marketable securities | ||||||||
| Cash paid for acquisitions net of cash acquired | ( | ) | ||||||
| Capital expenditures | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Financing Activities: | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Repurchase of common stock | ( | ) | ||||||
| Shares retained for payment of taxes in connection with settlement of restricted stock units | ( | ) | ( | ) | ||||
| Payments on promissory notes | ( | ) | ( | ) | ||||
| Cash paid for debt issuance costs | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of foreign exchange rate on cash | ( | ) | ( | ) | ||||
| Net decrease in cash, cash equivalents, and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| - | - | |||||||
| Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash, current portion | ||||||||
| Long-term restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | $ | $ | ||||||
See accompanying notes
Genasys Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(Unaudited)
| Nine Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Noncash investing and financing activities: | ||||||||
| Change in unrealized loss on marketable securities | $ | ( | ) | $ | ( | ) | ||
| Common stock issued in connection with the purchase of Zonehaven | $ | $ | ( | ) | ||||
| Obligation to issue common stock in connection with the Amika Mobile asset purchase | $ | ( | ) | $ | ( | ) | ||
| Initial measurement of operating lease right of use assets | $ | $ | ||||||
| Initial measurement of operating lease liabilities | $ | $ | ||||||
| Business combinations accounted for as a purchase | ||||||||
| Fair value of net assets acquired | $ | $ | ||||||
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
| 1. | OPERATIONS |
Genasys Inc. (the “Company”) is a global provider of critical communications hardware and software systems designed to alert, inform, and protect. The Company's unified platform receives information from a wide variety of sensors and Internet-of-Things (IoT) inputs to collect real-time information on developing and active emergency situations. The Company uses this information to create and disseminate alerts, warnings, notifications, and instructions through multiple channels before, during, and after public safety and enterprise threats, critical events, and other crisis situations.
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
General
The Company’s unaudited interim condensed consolidated financial statements included herein have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the accompanying financial statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. The condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended September 30, 2021, included in the Company’s Annual Report on Form 10-K, as filed with the SEC on November 23, 2021. The accompanying condensed consolidated balance sheet as of September 30, 2021 has been derived from the audited consolidated balance sheet as of September 30, 2021 contained in the above referenced Form 10-K. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.
Principles of consolidation
The Company has wholly owned subsidiaries, Genasys II Spain, S.A.U. (“Genasys Spain”), Genasys Communications Canada ULC (“Genasys Canada”), Genasys Singapore PTE Ltd, Genasys Puerto Rico, LLC, Zonehaven LLC, and Genasys Inc. (branch) in the United Arab Emirates and currently inactive subsidiaries, Genasys America de CV and LRAD International Corporation. The consolidated financial statements include the accounts of these subsidiaries after elimination of intercompany transactions and accounts.
Cash, cash equivalents and restricted cash
The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. As of June 30, 2022, the amount of cash and cash equivalents was $
The Company considers any amounts pledged as collateral or otherwise restricted for use in current operations to be restricted cash. In addition, the Company excludes from cash and cash equivalents cash required to fund specific future contractual obligations related to business combinations. Restricted cash is classified as a current asset unless amounts are not expected to be released and available for use in operations within one year. As of June 30, 2022, the current portion of restricted cash was $
Reclassifications
Where necessary, certain prior year’s information has been reclassified to conform to the current year presentation.
| 3. | RECENT ACCOUNTING PRONOUNCEMENTS |
New pronouncements pending adoption
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance by requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial assets including trade and other receivables at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (ASC 326), Derivatives and Hedging (ASC 815) and Leases (ASC 842), which extends the effective date of ASC 326 for certain companies until fiscal years beginning after December 15, 2022. The new standard will be effective for the Company in the first quarter of fiscal year beginning October 1, 2023, and early adoption is permitted. The Company has not completed its review of the impact of this standard on its consolidated financial statements. However, based on the Company’s history of immaterial credit losses from trade receivables, the Company does not expect that the adoption of this standard will have a material effect on the Company’s consolidated financial statements.
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (ASC 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU No. 2020-04 provides optional guidance, expedients and exceptions for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update apply to all entities, subject to meeting the criteria, which participate in contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU No. 2020-04 was subsequently amended by ASU No. 2021-01, Reference Rate Reform (ASC 848), Scope, which refines the scope of ASC 848 and permits optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships. The amendments of these updates are available to all entities as of March 12, 2020 through December 31, 2022. The Company intends to adopt this standard when LIBOR is discontinued. The Company does not expect that the adoption of this standard will have a material effect on the Company’s consolidated financial statements.
| 4. | REVENUE RECOGNITON |
ASC 606, Revenue from Contracts with Customers (“ASC 606”), outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized:
| 1. | Identify the contract(s) with customers |
| 2. | Identify the performance obligations |
| 3. | Determine the transaction price |
| 4. | Allocate the transaction price to the performance obligations |
| 5. | Recognize revenue when the performance obligations have been satisfied |
ASC 606 requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services.
The Company derives its revenue from the sale of products to customers, contracts, software license fees, other services and freight. The Company sells its products through its direct sales force and through authorized resellers and system integrators. The Company recognizes revenue for goods including software when all the significant risks and rewards have been transferred to the customer, no continuing managerial involvement usually associated with ownership of the goods is retained, no effective control over the goods sold is retained, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Software license revenue, maintenance and/or software development service fees may be bundled in one arrangement or may be sold separately.
Product revenue
Product revenue is recognized as a distinct single performance obligation when products are tendered to a carrier for delivery, which represents the point in time that the Company’s customer obtains control of the products. A smaller portion of product revenue is recognized when the customer receives delivery of the products. A portion of products are sold through resellers and system integrators based on firm commitments from an end user, and as a result, resellers and system integrators carry little or no inventory. The Company’s customers do not have a right to return product unless the product is found defective and therefore the Company’s estimate for returns has historically been insignificant
Perpetual licensed software
The sale and/or license of software products is deemed to have occurred when a customer either has taken possession of, or has the ability to take immediate possession of, the software and the software key. Perpetual software licenses can include one-year maintenance and support services. In addition, the Company sells maintenance services on a stand-alone basis and is therefore capable of determining their fair value. On this basis, the amount of the embedded maintenance is separated from the fee for the perpetual license and is recognized on a straight-line basis over the period to which the maintenance relates.
Time-based licensed software
The time-based license agreements include the use of a software license for a fixed term, generally one-year, and maintenance and support services during the same period. The Company does not sell time-based licenses without maintenance and support services and therefore revenues for the entire arrangements are recognized on a straight-line basis over the term.
Warranty, maintenance and services
The Company offers extended warranty, maintenance and other services. Extended warranty and maintenance contracts are offered with terms ranging from one to several years, which provide repair and maintenance services after expiration of the original one-year warranty term. Revenues from separately priced extended warranty and maintenance contracts are recognized based on time elapsed over the service period and classified as contract and other revenues. Revenue from other services such as training or installation is recognized when the service is completed.
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
Multiple element arrangements
The Company has entered into a number of multiple element arrangements, such as the sale of a product or perpetual licenses that may include maintenance and support (included in price of perpetual licenses) and time-based licenses (that include embedded maintenance and support, both of which may be sold with software development services, training, and other product sales). In some cases, the Company delivers software development services bundled with the sale of the software. In multiple element arrangements, the Company uses either the stand-alone selling price or an expected cost plus margin approach to determine the fair value of each element within the arrangement, including software and software-related services such as maintenance and support. In general, elements in such arrangements are also sold on a stand-alone basis and stand-alone selling prices are available.
Revenue is allocated to each deliverable based on the fair value of each individual element and is recognized when the revenue recognition criteria described above are met, except for time-based licenses which are not unbundled. When software development services are performed and are considered essential to the functionality of the software, the Company recognizes revenue from the software development services on a stage of completion basis, and the revenue from the software when the related development services have been completed.
The Company disaggregates revenue by reporting segment (Hardware and Software) and geographically to depict the nature of revenue in a manner consistent with its business operations and to be consistent with other communications and public filings. Refer to Note 18, Segment Information and Note 19, Major Customers, Suppliers and Related Information for additional details of revenues by reporting segment and disaggregation of revenue.
Contract assets and liabilities
The Company enters into contracts to sell products and provide services and recognizes contract assets and liabilities that arise from these transactions. The Company recognizes revenue and corresponding accounts receivable according to ASC 606 and, at times, recognizes revenue in advance of the time when contracts give the Company the right to invoice a customer. Sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Subscription related commission costs are deferred and then amortized on a straight-line basis over the period of benefit. The Company may also receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been performed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met. The table below reflects the balances of contract liabilities as of June 30, 2022 and September 30, 2021, including the change between the periods. There were
The Company’s contract liabilities were as follows:
| Customer deposits | Deferred revenue | Total contract liabilities | ||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | |||||||||
| New performance obligations | ||||||||||||
| Recognition of revenue as a result of satisfying performance obligations | ( | ) | ( | ) | ( | ) | ||||||
| Effect of exchange rate on deferred revenue | ( | ) | ( | ) | ||||||||
| Balance as of June 30, 2022 | $ | $ | $ | |||||||||
| Less: non-current portion | ( | ) | ( | ) | ||||||||
| Current portion as of June 30, 2022 | $ | $ | $ | |||||||||
Remaining performance obligations
Remaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations under an original contract with a term greater than one year, which are fully or partially unsatisfied at the end of the period.
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
As of June 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $
Practical expedients
In cases where the Company is responsible for shipping after the customer has obtained control of the goods, the Company has elected to treat these activities as fulfillment activities rather than as a separate performance obligation. Additionally, the Company has elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year. The Company only gives consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year. The Company also utilizes the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value the Company is providing to the customer.
| 5. | FAIR VALUE MEASUREMENTS |
The Company’s financial instruments consist principally of cash equivalents, short and long-term marketable securities, accounts receivable, and accounts payable. The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:
| Level 1: | Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date. |
| Level 2: | Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date. |
| Level 3: | Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation. |
The fair value of the Company’s cash equivalents and marketable securities were determined based on Level 1 and Level 2 inputs. The valuation techniques used to measure the fair value of the “Level 2” instruments were based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data. The Company believes that the recorded values of its other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations. The Company did have any marketable securities in the Level 3 category as of June 30, 2022 or September 30, 2021. There have been no changes in Level 1, Level 2, and Level 3 and no changes in valuation techniques for financial instruments measured at fair value on a recurring basis for the periods ended June 30, 2022 and September 30, 2021.
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
Instruments measured at fair value on a recurring basis
Cash equivalents and marketable securities: The following tables present the Company’s cash equivalents and marketable securities’ costs, gross unrealized gains and losses, and fair value by major security type recorded as cash equivalents or short-term or long-term marketable securities as of June 30, 2022 and September 30, 2021. Unrealized gains and losses from the remeasurement of marketable securities are recorded in accumulated other comprehensive income (loss) until recognized in earnings upon the sale or maturity of the security.
| June 30, 2022 | ||||||||||||||||||||||||
| Cost Basis | Unrealized Loss | Fair Value | Cash Equivalents | Short-term Securities | Long-term Securities | |||||||||||||||||||
| Level 1: | ||||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | $ | - | $ | - | ||||||||||||||||
| Level 2: | ||||||||||||||||||||||||
| Certificates of deposit | ||||||||||||||||||||||||
| Municipal securities | ( | ) | ||||||||||||||||||||||
| Corporate bonds | ( | ) | ||||||||||||||||||||||
| Subtotal | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||
| September 30, 2021 | ||||||||||||||||||||||||
| Cost Basis | Unrealized Gain (Loss) | Fair Value | Cash Equivalents | Short-term Securities | Long-term Securities | |||||||||||||||||||
| Level 1: | ||||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | $ | - | $ | - | ||||||||||||||||
| Level 2: | ||||||||||||||||||||||||
| Certificates of deposit | ||||||||||||||||||||||||
| Municipal securities | ( | ) | ||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||
| Subtotal | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Instruments measured at fair value on a non-recurring basis
Nonfinancial assets: Nonfinancial assets such as goodwill, other intangible assets, long-lived assets held and used, and right-of-use (“ROU”) assets are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination.
Goodwill and intangible assets are recognized at fair value during the period in which an acquisition is completed, from updated estimates during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for intangible assets acquired, were based on Level 3 inputs. The Company estimates the fair value of these long-lived assets on a non-recurring basis based on a market valuation approach, engaging independent valuation experts to assist in the determination of fair value.
The following table presents nonfinancial assets that were subject to fair value measurement during the nine months ended June 30, 2022. Certain intangible assets, operating lease ROU assets and goodwill are subject to foreign currency translation adjustments. There were no business combinations or indicators of impairment for the nine months ended June 30, 2022.
| Carrying Value | Level 1 | Level 2 | Level 3 | Gain/ (Loss) | ||||||||||||||||
| Operating lease ROU asset | $ | $ | $ | $ | ||||||||||||||||
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
Holdback Liability: In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to potential future adjustments to assets and liabilities, misrepresentations and indemnifications against third-party claims. Adjustments of up to () will be deducted from the asset purchase holdback liability for up to years from the closing date. The holdback liability was recorded at the present value which was the fair value at the acquisition date. The Company engaged independent valuation experts to assist in determining the present value of the holdback liability. The expected future payment was discounted using a rate representative of the Company’s payment risk and credit rating. Accretion is recorded in each subsequent reporting period based on the discount factor used to arrive at the original fair value. This change in fair value is recorded in the accompanying condensed consolidated statement of operations. The changes in the carrying amount of the holdback liability is as follows:
| Balance as of September 30, 2021 | $ | ||
| Accretion | |||
| Currency translation | ( | ) | |
| Balance as of June 30, 2022 | $ |
| 6. | INVENTORIES, NET |
Inventories, net consisted of the following:
| June 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Work in process | ||||||||
| Inventories, gross | ||||||||
| Reserve for obsolescence | ( | ) | ( | ) | ||||
| Inventories, net | $ | $ | ||||||
| 7. | PROPERTY AND EQUIPMENT, NET |
Property and equipment, net consisted of the following:
| June 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Office furniture and equipment | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Leasehold improvements | ||||||||
| Property and equipment, gross | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation and amortization expense for property and equipment was $
| 8. | GOODWILL AND INTANGIBLE ASSETS |
Goodwill is attributable to the acquisitions of Genasys Spain and Zonehaven, and the Amika Mobile asset purchase and is due to combining the integrated emergency critical communications, mass messaging solutions and software development capabilities with existing hardware products for enhanced offerings and the skill level of the acquired workforces. The Company periodically reviews goodwill for impairment in accordance with relevant accounting standards.
There were additions to goodwill during the nine months ended June 30, 2022. During the year ended September 30, 2021, the Company added a total of $
The changes in the carrying amount of goodwill by segment for the nine months ended June 30, 2022, were as follows:
| Hardware | Software | Total | ||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | |||||||||
| Currency translation | ( | ) | ( | ) | ||||||||
| Balance as of June 30, 2022 | $ | $ | $ | |||||||||
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
Intangible assets and goodwill related to Genasys Spain are translated from Euros to U.S. dollars at the balance sheet date. The net impact of foreign currency exchange differences arising during the period related to goodwill and intangible assets was a decrease of $
The changes in the carrying amount of intangible assets by segment for the nine months ended June 30, 2022, were as follows:
| Hardware | Software | Total | ||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | |||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ||||||
| Currency translation | ( | ) | ( | ) | ||||||||
| Balance as of June 30, 2022 | $ | $ | $ | |||||||||
The Company’s consolidated intangible assets consisted of the following:
| June 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Technology | $ | $ | ||||||
| Customer relationships | ||||||||
| Trade name portfolio | ||||||||
| Non-compete agreements | ||||||||
| Patents | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
As of June 30, 2022, future amortization expense is as follows:
| Fiscal year ending September 30, | ||||
| 2022 (remaining three months) | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total estimated amortization expense | $ |
Amortization expense was $
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
| 9. | PREPAID EXPENSES AND OTHER |
Prepaid expenses and other current assets consisted of the following:
| June 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Deposits for inventory | $ | $ | ||||||
| Prepaid insurance | ||||||||
| Dues and subscriptions | ||||||||
| Prepaid professional services | ||||||||
| Prepaid commissions | ||||||||
| Trade shows and travel | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Deposits for inventory
Deposits for inventory consisted of cash payments to vendors for inventory to be delivered in the future.
Prepaid insurance
Prepaid insurance consisted of premiums paid for health, commercial and corporate insurance. These premiums are amortized on a straight-line basis over the term of the agreements.
Dues and subscriptions
Dues and subscriptions consisted of payments made in advance for software subscriptions and trade and professional organizations. These payments are amortized on a straight-line basis over the term of the agreements.
Prepaid professional services
Prepaid professional services consisted of payments made in advance for services such as accounting and legal services.
Prepaid commissions
Prepaid commissions represented the current portion of sales commissions paid in connection with obtaining a contract with a customer. These costs are deferred and are amortized on a straight-line basis over the period of benefit, which is typically between and years. Amortization of prepaid commissions is included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.
Trade shows and travel
Trade shows and travel consisted of payments made in advance for trade show events.
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
| 10. | ACCRUED AND OTHER LIABILITIES |
Accrued liabilities consisted of the following:
| June 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Payroll and related | $ | $ | ||||||
| Deferred revenue | ||||||||
| Customer deposits | ||||||||
| Accrued contract costs | ||||||||
| Warranty reserve | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
Other liabilities-noncurrent consisted of the following:
| June 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Deferred extended warranty revenue | $ | $ | ||||||
| Asset purchase holdback liability | ||||||||
| Total | $ | $ | ||||||
Payroll and related
Payroll and related consisted primarily of accrued vacation, bonus, sales commissions and benefits.
Deferred revenue
Deferred revenue as of June 30, 2022, included prepayments from customers for services, including extended warranty, scheduled to be performed in the twelve months ending June 30, 2023.
Customer deposits
Customer deposits represent amounts paid by customers as a down payment on hardware orders to be delivered in the twelve months ending June 30, 2023.
Accrued contract costs
Accrued contract costs consisted of accrued expenses for contracting a third-party service provider to fulfill repair and maintenance obligations required under a contract with a foreign military for units sold in the year ended September 30, 2011. Payments to the service provider will be made annually upon completion of each year of service. A new contract was signed with the customer in May 2019 to continue repair and maintenance services through May 2024. These services are being recorded in cost of revenues to correspond with the revenues for these services.
Warranty reserve
Changes in the warranty reserve and extended warranty were as follows:
| June 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Beginning balance | $ | $ | ||||||
| Warranty provision | ||||||||
| Warranty settlements | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
The Company establishes a warranty reserve based on anticipated warranty claims at the time product revenue is recognized. Factors affecting warranty reserve levels include the number of units sold, anticipated cost of warranty repairs and anticipated rates of warranty claims. The Company evaluates the adequacy of the provision for warranty costs each reporting period and adjusts the accrued warranty liability to an amount equal to estimated warranty expense for products currently under warranty.
Deferred extended warranty revenue
Deferred extended warranty revenue consisted of warranties purchased in excess of the Company’s standard warranty. Extended warranties typically range from to years.
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
Asset purchase holdback liability
In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to potential future adjustments to assets and liabilities, misrepresentations and indemnifications against third-party claims. Adjustments of up to () will be deducted from the asset purchase holdback liability for up to years from the closing date. The liability is recorded at fair value in the condensed consolidated balance sheet.
| 11. | DEBT |
In connection with the acquisition of Genasys Spain, the Company acquired certain debts of Genasys Spain. The carrying value of the acquired debt approximated fair value. The balances of the acquired debt consisted of loans with governmental agencies that were secured with cash collateral. In April 2022, the Ministry of Economy and Competiveness declared the terms of the loan satisfied and the outstanding balance was paid in full using the restricted cash that was pledged as collateral at loan inception as payment of the remaining balance.
The changes in the carrying amount of debt for the nine months ended June 30, 2022, are as follows:
| Balance as of September 30, 2021 | $ | |||
| Payments | ( | ) | ||
| Currency translation | ( | ) | ||
| Balance as of June 30, 2022 | $ |
Revolving line of credit
On March 8, 2021, the Company entered into an agreement with MUFG Union Bank, N.A. for a $
| 12. | LEASES |
The Company determines if an arrangement is a lease at inception. The guidance in ASC 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Operating lease ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. The Company’s leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, the portfolio approach is used in determining the discount rate used to present value lease payments. The ROU asset includes any lease payments made and excludes lease incentives and initial direct costs incurred.
The Company is party to operating leases for office and production facilities and equipment under agreements that expire at various dates through 2028. The Company elected the package of practical expedients permitted under the lease standard. In electing the practical expedient package, the Company is not required to reassess whether an existing or expired contract is or contains a lease, reassess the lease classification for expired or existing leases nor reassess the initial direct costs for leases that commenced before the adoption of ASC 842. The Company also elected the short-term lease exemption such that the lease standard was applied to leases greater than one year in duration. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
During the nine months ended June 30, 2022, the Company added an additional operating lease ROU asset of $
| Operating lease ROU assets | ||||
| Operating lease ROU assets as of September 30, 2021 | $ | |||
| Additional operating lease ROU asset | ||||
| Less amortization of operating lease ROU assets | ( | ) | ||
| Effect of exchange rate on operating lease ROU assets | ( | ) | ||
| Operating lease ROU assets as of June 30, 2022 | $ | |||
| Operating lease liabilities | ||||
| Operating lease liabilities as of September 30, 2021 | $ | |||
| Additional operating lease liability | ||||
| Less lease principal payments on operating lease liabilities | ( | ) | ||
| Effect of exchange rate on operating lease liabilities | ( | ) | ||
| Operating lease liabilities as of June 30, 2022 | ||||
| Less non-current portion | ( | ) | ||
| Current portion as of June 30, 2022 | $ | |||
As of June 30, 2022, the Company’s operating leases have a weighted-average remaining lease term of
| Fiscal year ending September 30, | ||||
| 2022 (remaining three months) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total undiscounted operating lease payments | ||||
| Less imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ |
For the three months ended June 30, 2022 and 2021, total lease expense under operating leases was approximately $
| 13. | INCOME TAXES |
For the nine months ended June 30, 2022, the Company recorded income tax benefit of $
ASC 740, Accounting for Uncertainty in Income Taxes, requires the Company to recognize in its consolidated financial statements uncertainties in tax positions taken that may not be sustained upon examination by the taxing authorities. If interest or penalties are assessed, the Company would recognize these charges as income tax expense. The Company has recorded any income tax expense or benefit for uncertain tax positions.
| 14. | COMMITMENTS AND CONTINGENCIES |
Litigation
The Company may at times be involved in litigation in the ordinary course of business. The Company will, from time to time, when appropriate in the Company’s estimation, record adequate reserves in the Company’s consolidated financial statements for pending litigation. Currently, there are no pending material legal proceedings to which the Company is a party or to which any of its property is subject.
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
Bonus plan
The Company has a bonus plan for employees, in accordance with their terms of employment, whereby they can earn a percentage of their salary based on meeting targeted objectives for orders received, revenue, operating income and operating cash flow. In the nine months ended June 30, 2022, the Company recorded $
Amika Mobile asset purchase
In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to potential future adjustments to assets and liabilities, misrepresentations and indemnifications against third-party claims. Adjustments of up to () will be deducted from the asset purchase holdback liability for up to years from the closing date. The liability is recorded at fair value in the condensed consolidated balance sheet.
The Company also agreed to issue
| 15. | SHARE-BASED COMPENSATION |
Stock option plans
As of June 30, 2022, the Company had two equity incentive plans. The 2005 Equity Incentive Plan (“2005 Equity Plan”) was terminated with respect to new grants in March 2015 but remains in effect for grants issued prior to that time. The Amended and Restated 2015 Equity Incentive Plan (“2015 Equity Plan”) was adopted by the Company’s Board of Directors on December 6, 2016 and approved by the Company’s stockholders on March 14, 2017. The 2015 Equity Plan was amended by the Company’s Board of Directors on December 8, 2020, to increase the number of shares authorized for issuance from
Share-based compensation
The Company’s employee stock options have various restrictions that reduce option value, including vesting provisions and restrictions on transfer and hedging, among others, and are often exercised prior to their contractual maturity.
There were
| Nine months ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Expected term in years | ||||||||
Expected volatility is based on the historical volatility of the Company’s common stock over the period commensurate with the expected term of the options. The risk-free interest rate is based on rates published by the Federal Reserve Board. The contractual term of the options was years. The expected term is based on observed and expected time to post-vesting exercise. The expected forfeiture rate is based on past experience and employee retention data. Forfeitures are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from those estimates. Such revision adjustments to expense will be recorded as a cumulative adjustment in the period in which the estimate is changed. The Company has paid a dividend in fiscal 2022 and did pay a dividend in fiscal 2021.
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
As of June 30, 2022, there was approximately $
Performance-based stock options
On October 4, 2019, the Company awarded a performance-based stock option (PVO) to purchase
The Company did grant any PVO’s during the nine months ended June 30, 2022 and 2021.
Restricted stock units
On March 10, 2020, each non-employee member of the Board of Directors received a grant of
On March 16, 2021, each non-employee member of the Board of Directors received a grant of
On March 15, 2022, each non-employee member of the Board of Directors received a grant of
Compensation expense for RSUs was $
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
A summary of the Company’s RSUs as of June 30, 2022 is presented below:
| Number of Shares | Weighted Average Grant Date Fair Value | |||||||
| Outstanding September 30, 2021 | $ | |||||||
| Granted | $ | |||||||
| Released | ( | ) | $ | |||||
| Forfeited/cancelled | ( | ) | $ | |||||
| Outstanding June 30, 2022 | $ | |||||||
Stock option summary information
A summary of the activity in options to purchase the capital stock of the Company as of June 30, 2022 is presented below:
| Number of Shares | Weighted Average Exercise Price | |||||||
| Outstanding September 30, 2021 | $ | |||||||
| Granted | $ | |||||||
| Forfeited/expired | ( | ) | $ | |||||
| Exercised | ( | ) | $ | |||||
| Outstanding June 30, 2022 | $ | |||||||
| Exerciseable June 30, 2022 | $ | |||||||
Options outstanding are exercisable at prices ranging from $
The following table summarized information about stock options outstanding as of June 30, 2022:
| Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Term | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
| $1.31 | $ | $ | $ | |||||||||||||||||||
| $1.99 | $ | $ | $ | |||||||||||||||||||
| $3.21 | $ | $ | $ | |||||||||||||||||||
| $3.39 | $ | $ | $ | |||||||||||||||||||
| $3.43 | $ | $ | $ | |||||||||||||||||||
| $ | $ | |||||||||||||||||||||
The Company recorded $
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
Share-based compensation
The Company recorded share-based compensation expense and classified it in the condensed consolidated statements of operations as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cost of revenues | $ | |||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| 16. | STOCKHOLDERS’ EQUITY |
Summary
The following table summarizes changes in the components of stockholders’ equity during the nine months ended June 30, 2022 and the nine months ended June 30, 2021 (amounts in thousands, except par value and share amounts):
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional | Other | Total | |||||||||||||||||||||
| Shares | Par Value Amount | Paid-in Capital | Accumulated Deficit | Comprehensive Loss | Stockholders' Equity | |||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options, net | ||||||||||||||||||||||||
| Stock buyback | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Release of obligation to issue commons stock | ||||||||||||||||||||||||
| Accumulated other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options, net | ||||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units | ||||||||||||||||||||||||
| Shares retained for payment of taxes in connection with net share settlement of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Stock buyback | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Accumulated other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options, net | ||||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units | ||||||||||||||||||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional | Other | Total | |||||||||||||||||||||
| Shares | Par Value Amount | Paid-in Capital | Accumulated Deficit | Comprehensive Loss | Stockholders' Equity | |||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options, net | ||||||||||||||||||||||||
| Obligation to issue common stock | - | |||||||||||||||||||||||
| Accumulated other comprehensive income | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Share-based compensation expense | - | $ | $ | $ | $ | $ | ||||||||||||||||||
| Issuance of common stock upon exercise of stock options, net | ||||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units | ||||||||||||||||||||||||
| Shares retained for payment of taxes in connection with net share settlement of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Accumulated other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Share-based compensation expense | - | $ | $ | $ | $ | $ | ||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units | ||||||||||||||||||||||||
| Issuance of common stock in business combination | ||||||||||||||||||||||||
| Release of obligation to issue commons stock | ||||||||||||||||||||||||
| Accumulated other comprehensive income | - | |||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
Common stock activity
During the nine months ended June 30, 2022, the Company issued
In connection with the Amika Mobile asset purchase, the Company agreed to issue
Share buyback program
In December 2018, the Board of Directors approved a share buyback program beginning January 1, 2019 and expiring on December 31, 2020, under which the Company was authorized to repurchase up to $
During the nine months ended June 30, 2022,
Dividends
There were
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
| 17. | NET (LOSS) INCOME PER SHARE |
The following table sets forth the computation of basic and diluted net (loss) income per share:
| Three months ended | Nine months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Basic (loss) income per share | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Diluted (loss) income per share | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average shares outstanding - basic | ||||||||||||||||
| Assumed exercise of dilutive options | ||||||||||||||||
| Weighted average shares outstanding - diluted | ||||||||||||||||
| Potentially dilutive securities outstanding at period end excluded from diluted computation as the inclusion would have been antidilutive: | ||||||||||||||||
| Options | ||||||||||||||||
| RSU | ||||||||||||||||
| Obligation to issue common stock | ||||||||||||||||
| Total | ||||||||||||||||
| 18. | SEGMENT INFORMATION |
The Company is engaged in the design, development and commercialization of directed and multidirectional sound technologies, voice broadcast products, and location-based mass messaging software for emergency warning and evacuation management. The Company operates in
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
The following table presents the Company’s segment disclosures:
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue from external customers | ||||||||||||||||
| Hardware | $ | $ | $ | $ | ||||||||||||
| Software | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Intersegment revenues | ||||||||||||||||
| Hardware | $ | $ | $ | $ | ||||||||||||
| Software | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Segment operating income (loss) | ||||||||||||||||
| Hardware | $ | $ | $ | $ | ||||||||||||
| Software | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| $ | ( | ) | $ | $ | ( | ) | $ | |||||||||
| Other expenses: | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Hardware | $ | $ | $ | $ | ||||||||||||
| Software | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Income tax expense (benefit) | ||||||||||||||||
| Hardware | $ | ( | ) | $ | $ | $ | ||||||||||
| Software | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| $ | ( | ) | $ | $ | ( | ) | $ | |||||||||
| June 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| Long-lived assets | ||||||||
| Hardware | $ | $ | ||||||
| Software | ||||||||
| $ | $ | |||||||
| Total assets | ||||||||
| Hardware | $ | $ | ||||||
| Software | ||||||||
| $ | $ | |||||||
| 19. | MAJOR CUSTOMERS, SUPPLIERS AND RELATED INFORMATION |
For the three months ended June 30, 2022, revenues from customer accounted for
For the three months ended June 30, 2021, revenues from customer accounted for
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
Revenue from customers in the United States was $
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Americas | $ | $ | $ | $ | ||||||||||||
| Asia Pacific | ||||||||||||||||
| Europe, Middle East and Africa | ||||||||||||||||
| Total Revenues | $ | $ | $ | $ | ||||||||||||
The following table summarizes long-lived assets by geographic region.
| June 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| United States | $ | |||||||
| Americas (excluding the United States) | ||||||||
| Europe, Middle East and Africa | ||||||||
| Total long lived assets | $ | $ | ||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion and analysis set forth below should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included under Item 1 of this Quarterly Report on Form 10-Q, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended September 30, 2021.
Forward Looking Statements
This report contains certain statements of a forward-looking nature relating to future events or future performance. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements but are not the only means of identifying forward-looking statements. Prospective investors are cautioned that such statements are only predictions and actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider various factors identified in this report and any matters set forth under Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K, which could cause actual results to differ materially from those indicated by such forward-looking statements.
For purposes of this Quarterly Report, the terms “we,” “us,” “our” “Genasys” and the “Company” refer to Genasys Inc. and its consolidated subsidiaries.
Overview
Genasys is a global provider of critical communications hardware and software systems designed to alert and inform to help keep people safe. Our unified platform receives information from a wide variety of sensors and Internet-of-Things (IoT) inputs to collect real-time information on developing and active emergency situations. Genasys uses this information to create and disseminate alerts, warnings, notifications, and instructions through multiple channels before, during, and after public safety and enterprise threats, critical events, and other crisis situations.
Our multi-channel approach includes:
| • |
Genasys Emergency Management (GEM) is Genasys’ software-based product platform. The GEM product line consists of GEM Software, IMNS, and Zonehaven. |
GEM Software is an interactive, cloud-based SaaS solution that sends critical information to at-risk individuals or groups when an emergency occurs. GEM Software acts as both a communications input and output, receiving information from state-of-the-art sensors and emergency services, and quickly relaying notifications, alerts, and instructions to at-risk populations and first responders. GEM Software operators can create and send critical, verified, and secure notifications and messages using emails, voice calls, text messages, panic buttons, desktop alerts, television, social media, and more.
Integrated Mass Notification System (IMNS) is Genasys’ comprehensive GEM Software and Genasys hardware emergency response solution. IMNS gives operators the ability to communicate critical notifications across platforms using a command and control interface that can be accessed from an emergency operations center, authorized computer, or smart phone. Alerts and notifications can be sent via text messages, emails, IPAWS, desktop alerts, television, voice calls, social media, and Genasys speaker systems. IMNS creates layered redundancy that enables the maximum number of people to receive critical communications.
Zonehaven is a multi-faceted SaaS solution that serves both first responders and the communities they protect. Zonehaven can function as a standalone application or as a GEM software integration. When an incident occurs, the Zonehaven platform maps and simulates the speed and direction of the incident and determines which zones (geographic areas) are at risk and need to be evacuated. As an incident develops, Zonehaven’s real-time incident, evacuation status, and repopulation updates provide emergency agencies and at-risk people current information to help them stay safe.
| • |
National Emergency Warning System (NEWS) software provides multi-channel public safety notifications and instructions to designated areas, groups, or agencies when a crisis occurs. The NEWS platform is cloud-based, geo-redundant, and end-to-end encrypted. When implemented with mobile telecom services, NEWS delivers Location-based SMS and Cell Broadcast alerts and notifications to anyone, anywhere, with no recipient opt-in, registration, or download required. While other SMS alert providers take up to 15 minutes to find the mobile phones of people in at-risk areas, NEWS locates recipients and delivers messages in near real time. NEWS’ data is anonymized to help people stay safe and informed without sacrificing privacy. |
| • |
LRAD is the world’s leading Acoustic Hailing Device (AHD). LRAD systems broadcast siren tones and audible voice messages with exceptional vocal clarity from close range to 5,500 meters. LRAD systems are used throughout the world in multiple applications to safely hail and warn, inform and direct, prevent misunderstandings, determine intent, establish large safety zones, resolve uncertain situations, and save lives. |
Our critical communications systems are being used in more than 100 countries in a range of diverse applications that include public safety, emergency warning, mass notification, defense, law enforcement, border and homeland security, critical infrastructure protection, and many more. We continue to develop new critical ommunications innovations and believe we have established significant competitive advantages in our principal markets.
Business developments in the fiscal quarter ended June 30, 2022:
| • |
Received $15.7 million LRAD order from the U.S. Army under AHD Program of Record |
| • |
Announced GEM government and enterprise software contracts and expanded GEM and Zonehaven software services in multiple cities, counties and states |
| • |
Awarded $1.5 million in LRAD foreign military sales and defense orders |
| • |
Announced next generation IMNS installations in Japan and order from U.S. Army |
| • |
Shipped and received new orders for the LRAD 950NXT, the Company's next generation remotely operated long-range communication system |
Revenues for the Company’s third quarter of fiscal 2022, were $14.2 million, an increase from $12.6 million in the third quarter of fiscal 2021. IMNS revenue ($3.9 million) increased $3,437, offset by decreases of $17 in software revenue ($733) and $1,895 in LRAD revenue ($9.5 million) compared with the prior year quarter. The timing of budget cycles, government financial issues and military conflict in certain areas of the world, often delay contract awards, resulting in uneven quarterly revenue. Gross profit increased compared to the same quarter in the prior year as a result of higher sales. Operating expenses in the quarter ended June 30, 2022, increased 22.2% to $7.2 million, compared with $5.9 million in the same period in the prior year. We reported a net loss of $589 for the third quarter of fiscal 2022, or a loss of $0.2 per share, compared with net income of $290, or $0.01 per share, for the same quarter in the prior year.
Overall Business Outlook
Our products, systems and solutions continue to gain worldwide awareness and recognition through media exposure, product demonstrations, and word of mouth as a result of positive responses and increased acceptance. We believe we have a solid global brand, technology and product foundation, which we continue to expand to serve new markets and customers for greater business growth. We believe we have strong market opportunities for our product offerings throughout the world in the defense, public safety, emergency warning, mass notification, law enforcement, and border and homeland security sectors as a result of increasing threats to government, commerce, homeland security, and critical infrastructure. Our products, systems and solutions also have many applications within the fire rescue, maritime, asset protection, and wildlife preservation business segments.
Genasys has developed a global market and an increased demand for LRAD systems and advanced outdoor mass notification speakers. We have a reputation for producing quality products that feature industry leading broadcast area coverage, vocal intelligibility, and product reliability. We intend to continue building on our AHD leadership position by offering enhanced voice broadcast systems and accessories for an expanding range of applications. In executing our strategy, we use direct sales to governments, militaries, large end-users, system integrators, and prime vendors. We have built a worldwide distribution channel consisting of partners and resellers that have significant expertise and experience selling integrated communication solutions into our various target markets. As our primary AHD sales opportunities are with domestic and international governments, military branches, and law enforcement agencies, we are subject to each customer’s unique budget cycle, which leads to long selling cycles and uneven revenue flow, complicating our product planning.
The proliferation of natural and man-made disasters, emergency events, violent civil unrest and military conflicts require technologically advanced, multi-channel solutions to deliver clear and timely critical communications to help keep people safe during crisis situations. Businesses are also implementing critical communication and emergency management systems that locate and help safeguard employees when crises occur.
By providing the only SaaS platform that unifies sensors and IoT inputs with multi-channel, multi-agency alerting and notifications, Genasys seeks to deliver reliable, fast, and intuitive solutions for creating and disseminating geolocation-targeted warnings, information, and instructions before, during, and after public safety and business threats, critical events, and other life-safety situations.
While the mass notification market is more mature with many established manufacturers and suppliers, we believe that our advanced technology and unified platform provides opportunities to succeed in the large and growing public safety, emergency warning, and critical communications markets.
In fiscal 2022, we are continuing to pursue domestic and international business opportunities with the support of business development consultants, key representatives, and resellers. We plan to grow our revenue through increased direct sales to governments and agencies that desire to integrate our communication technologies into their defense, homeland security and public safety systems. This includes building on fiscal 2021 domestic defense sales by pursuing further U.S. military opportunities. We also plan to pursue emergency warning, public safety and enterprise critical communications, government, law enforcement, fire rescue, homeland security, private and commercial security, border security, maritime security, and wildlife preservation business opportunities.
Our research and development strategy involves incorporating further innovations and capabilities into our GEM, IMNS, Zonehaven, NEWS and LRAD products, systems and solutions to meet the needs of our target markets.
Our GEM, IMNS, Zonehaven and NEWS software solutions represent more complex, integrated offerings. We are pursuing certain certifications, which are often required when bidding on government and mass notification opportunities. We intend to invest engineering resources to enhance our GEM, IMNS, Zonehaven and NEWS software solutions to compete for larger emergency warning and critical communications business opportunities. We are also configuring alternative solutions to achieve lower price points to meet the needs of certain customers or applications. We also engage in ongoing value engineering to reduce the cost and simplify the manufacturing of our products.
In March 2020, the World Health Organization ("WHO") classified the COVID-19 outbreak as a pandemic. While the impact of the COVID-19 pandemic did not have a material adverse effect on our financial position or results of operations for the nine months ended June 30, 2022, we monitor the developments and assess areas where there is potential for our business to be impacted. A significant portion of our sales force is working remotely, which could, among other things, negatively impact our ability to engage in sales-related initiatives, or efficiently conduct day-to-day operations. Businesses and governments with which we engage may be operating under restrictions and experiencing disruptions, which may create obstacles in the coordination of business activities, including the negotiation and fulfillment of orders. Disruptions in the supply chain could negatively impact our ability to source materials or manufacture and distribute products. While we do not currently anticipate a material reduction in demand for our commercialized products, we could experience a decrease in new orders, which could negatively impact our revenues and reduce our liquidity and cash flows. Growth in revenue could also be impeded by these factors. The financial markets have been subject to significant volatility that could impact our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing activities. We have $11.7 million in cash and cash equivalents as of June 30, 2022, which we believe provides sufficient capital to fund our operations for at least the next twelve months and withstand the potential near-term consequences of the pandemic, although liquidity constraints and access to capital markets could adversely impact our liquidity and warrant changes to our investment strategy. While we have not yet experienced a material impact, the full magnitude of the pandemic cannot be measured at this time, and therefore, any of the aforementioned circumstances, as well as other factors, may cause our results of operations to vary substantially from year to year and quarter to quarter.
Based on various standards published to date, we believe the work our associates perform is critical, essential and life sustaining. We are taking a variety of measures to promote the safety and security of our employees while ensuring the availability and functionality of our critical infrastructure. We are following Center for Disease Control and local guidelines regarding COVID-19 safety in the workplace. In addition, the following events related to the COVID-19 pandemic could result in lost or delayed revenue to the Company: limitations on the ability of our suppliers to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic, or local, state or federal orders requiring employees to remain at home; limitations on the ability of carriers to deliver our products to customers; unforeseen deviations from customers or foreign governments restricting the ability to do business; and, limitations on the ability of our customers to pay us on a timely basis, if at all.
A large number of components and sub-assemblies manufactured by outside suppliers within our supply chain are produced within 50 miles of our facility. We do not source component parts directly from suppliers in China, however, it is likely that some of our suppliers source parts in China. The COVID-19 pandemic has adversely impacted worldwide supply chains and the ability to obtain sufficient amounts of component parts, including semiconductor chips and integrated circuits, resins, coating and other equipment and components. Negative impacts on our supply chain could have a material adverse effect on our business. We are in contact with our suppliers and evaluating what impact may result from COVID-19.
We have been affected by price increases from our suppliers and logistics as well as other inflationary factors such as increased labor and overhead costs. We regularly review and adjust the sales price of our finished goods to offset these inflationary factors. Although we do not believe that inflation has had a material impact on our financial results through June 30, 2022, sustained or increased inflation in the future may have a negative effect on our ability to achieve certain expectations in gross margin and operating expenses. If we are unable to offset the negative impacts of inflation with increased prices, our future results could be materially affected.
Critical Accounting Policies
We have identified a number of accounting policies as critical to our business operations and the understanding of our results of operations. These are described in our consolidated financial statements located in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, 2021. The impact and any associated risks related to these policies on our business operations is discussed below and throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported and expected financial results.
The methods, estimates and judgments we use in applying our accounting policies, in conformity with U.S. generally accepted accounting principles, have a significant impact on the results we report in our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The estimates affect the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Comparison of Results of Operations for the Three Months Ended June 30, 2022 and 2021 (in thousands)
| Three Months Ended |
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| June 30, 2022 |
June 30, 2021 |
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| Total |
Total |
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| Amount |
Revenue |
Amount |
Revenue |
Amount |
% |
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| Revenues: |
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| Product sales |
$ | 12,904 | 91.2 | % | $ | 10,719 | 84.9 | % | $ | 2,185 | 20.4 | % | ||||||||||||
| Contract and other |
1,248 | 8.8 | % | 1,908 | 15.1 | % | (660 | ) | (34.6 | %) | ||||||||||||||
| Total revenues |
14,152 | 100.0 | % | 12,627 | 100.0 | % | 1,525 | 12.1 | % | |||||||||||||||
| Cost of revenues |
7,572 | 53.5 | % | 6,206 | 49.1 | % | (1,366 | ) | (22.0 | %) | ||||||||||||||
| Gross profit |
6,580 | 46.5 | % | 6,421 | 50.9 | % | 159 | 2.5 | % | |||||||||||||||
| Operating expenses |
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| Selling, general and administrative |
5,502 | 38.9 | % | 4,776 | 37.8 | % | (726 | ) | (15.2 | %) | ||||||||||||||
| Research and development |
1,707 | 12.1 | % | 1,125 | 8.9 | % | (582 | ) | (51.7 | %) | ||||||||||||||
| Total operating expenses |
7,209 | 50.9 | % | 5,901 | 46.7 | % | (1,308 | ) | (22.2 | %) | ||||||||||||||
| (Loss) income from operations |
(629 | ) | (4.4 | %) | 520 | 4.1 | % | (1,149 | ) | (221.0 | %) | |||||||||||||
| Other income (expense), net |
9 | 0.1 | % | (2 | ) | (0.0 | %) | 11 | (550.0 | %) | ||||||||||||||
| (Loss) income before income taxes |
(620 | ) | (4.4 | %) | 518 | 4.1 | % | (1,138 | ) | (219.7 | %) | |||||||||||||
| Income tax (benefit) expense |
(31 | ) | (0.2 | %) | 228 | 1.8 | % | 259 | 113.6 | % | ||||||||||||||
| Net (loss) income |
$ | (589 | ) | (4.2 | %) | $ | 290 | 2.3 | % | $ | (879 | ) | (303.1 | %) | ||||||||||
| Net revenue |
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| Hardware |
$ | 13,419 | 94.8 | % | $ | 11,877 | 94.1 | % | 1,542 | 13.0 | % | |||||||||||||
| Software |
733 | 5.2 | % | 750 | 5.9 | % | (17 | ) | (2.3 | %) | ||||||||||||||
| Total net revenue |
$ | 14,152 | 100.0 | % | $ | 12,627 | 100.0 | % | $ | 1,525 | 12.1 | % | ||||||||||||
The tables above set forth for the periods indicated certain items of our condensed consolidated statements of operations expressed in dollars and as a percentage of net revenues. The financial information and the discussion below should be read in conjunction with the condensed consolidated financial statements and notes contained in this report.
Revenues
Revenues increased $1,525, or 12.1%, compared with the same quarter in the prior year. IMNS revenue ($3,894) increased $3,437, while software revenue ($733) decreased $17 and LRAD revenue ($9,525) decreased $1,895, compared with the prior year quarter. Higher revenue in the third quarter of fiscal 2022 was largely due to the larger backlog at the start of the fiscal year compared with the prior year amount. Software revenue was essentially unchanged, reflecting lower professional services performed in the current quarter, offset by higher recurring software revenue. The receipt of orders is often uneven due to the timing of budget cycles, government financial issues and military conflict. As of June 30, 2022, we had aggregate deferred revenue of $1,340 for extended warranty obligations and software support agreements.
Gross Profit
The increase in gross profit compared with the same period in the prior year was due to higher hardware revenue in this year’s quarter. Gross profit as a percentage of sales was lower compared with the prior year period primarily due to higher costs of components in this year’s quarter.
As our products have varying gross margins, product mix may affect gross profits. In addition, our margins vary based on the sales channels through which our products are sold in a given period. We continue to implement product updates and changes, including raw material and component changes, that may impact product costs. We have limited warranty cost experience with product updates and changes and estimated future warranty costs can impact our gross margins. We do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $726, or 15.2%, over the prior year quarter. The increase was largely due to $242 of increased amortization expense, $263 from higher travel, sales and marketing activities, and $124 from higher professional services in the current year period.
We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the three-months ended June 30, 2022 and 2021 of $327 and $424, respectively.
We may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize potential opportunities. Commission expenses will fluctuate based on the nature of our sales.
Research and Development Expenses
Research and development expenses increased $582, or 51.7%, this year as we have more engineers and more engineering time was incurred to increase the features and functionality of our software offering, including the expansion and integration of Zonehaven into the GEM software platform, as compared with the prior year when more time was devoted to professional service contracts.
Included in research and development expenses for the three months ended June 30, 2022 and 2021, was $18 and $12, respectively, of non-cash share-based compensation costs.
Research and development costs vary period to period due to the timing of projects, and the timing and extent of using outside consulting, design and development firms. We seek to continually improve our product offerings, and we expect to continue to expand our product line with new products, customizations and enhancements. Based on current plans, we may expend additional resources on research and development in the current year compared to the prior year.
Net Loss
Net loss in the third quarter of fiscal year 2022 was $589, compared with net income of $290 in the third quarter of fiscal year 2021. The decrease was primarily due to the increased operating expenses resulting from additional engineering, sales and marketing employees.
Comparison of Results of Operations for the Nine Months Ended June 30, 2022 and 2021 (in thousands)
| Nine Months Ended |
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| June 30, 2022 |
June 30, 2021 |
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| Amount |
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Amount |
Revenue |
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| Revenues: |
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| Product sales |
$ | 34,328 | 90.3 | % | $ | 27,800 | 87.0 | % | $ | 6,528 | 23.5 | % | ||||||||||||
| Contract and other |
3,669 | 9.7 | % | 4,156 | 13.0 | % | (487 | ) | (11.7 | %) | ||||||||||||||
| Total revenues |
37,997 | 100.0 | % | 31,956 | 100.0 | % | 6,041 | 18.9 | % | |||||||||||||||
| Cost of revenues |
19,315 | 50.8 | % | 16,556 | 51.8 | % | (2,759 | ) | (16.7 | %) | ||||||||||||||
| Gross Profit |
18,682 | 49.2 | % | 15,400 | 48.2 | % | 3,282 | 21.3 | % | |||||||||||||||
| Operating expenses |
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| Selling, general and administrative |
16,133 | 42.5 | % | 11,931 | 37.3 | % | (4,202 | ) | (35.2 | %) | ||||||||||||||
| Research and development |
5,314 | 14.0 | % | 3,089 | 9.7 | % | (2,225 | ) | (72.0 | %) | ||||||||||||||
| Total operating expenses |
21,447 | 56.4 | % | 15,020 | 47.0 | % | (6,427 | ) | (42.8 | %) | ||||||||||||||
| (Loss) income from operations |
(2,765 | ) | (7.3 | %) | 380 | 1.2 | % | (3,145 | ) | (827.6 | %) | |||||||||||||
| Other income (expense), net |
12 | 0.0 | % | 59 | 0.2 | % | (47 | ) | (79.7 | %) | ||||||||||||||
| (Loss) income before income taxes |
(2,753 | ) | (7.2 | %) | 439 | 1.4 | % | (3,192 | ) | (727.1 | %) | |||||||||||||
| Income tax (benefit) expense |
(367 | ) | (1.0 | %) | 506 | 1.6 | % | 873 | 172.5 | % | ||||||||||||||
| Net loss |
$ | (2,386 | ) | (6.3 | %) | $ | (67 | ) | (0.2 | %) | $ | (2,319 | ) | 3461.2 | % | |||||||||
| Net revenues |
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| Hardware |
$ | 36,041 | 94.9 | % | $ | 29,889 | 93.5 | % | 6,152 | 20.6 | % | |||||||||||||
| Software |
1,956 | 5.1 | % | 2,067 | 6.5 | % | (111 | ) | (5.4 | %) | ||||||||||||||
| Total net revenues |
$ | 37,997 | 100.0 | % | $ | 31,956 | 100.0 | % | $ | 6,041 | 18.9 | % | ||||||||||||
Revenues
Revenues increased 18.9% for the nine months ended June 30, 2022, compared with the same prior year period primarily due to the larger backlog as of September 30, 2021 compared with September 30, 2020. LRAD revenue was $27,652 for the current year nine-month period, down $638, or 2.3%, IMNS revenue was $8,389, up $6,790, and software revenue was $1,956, down $111 or 5.4% compared with the same prior year period. The receipt of orders will often be uneven due to the timing of approvals or budgets. As of June 30, 2022, we had aggregate deferred revenue of $1,340 for extended warranty obligations and software support agreements.
Gross Profit
The increase in gross profit in the nine months ended June 30, 2022 was primarily due to higher sales volume. Gross profit as a percentage of revenue was higher compared to the prior year period primarily due to higher revenue and a better mix of revenue in the current year.
Our products have varying gross margins, so product mix may affect gross profits. In addition, our margins vary based on the sales channels through which our products are sold in a given period. We continue to implement product updates and changes, including raw material and component changes that may impact product costs. With such product updates and changes we have limited warranty cost experience and estimated future warranty costs can impact our gross margins. We do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $4,202, or 35.2%, in the nine months ended June 30, 2022 compared with the prior year period. The increase in selling, general and administrative expenses was largely due to a $1,679 increase in compensation related costs due to a 20% increase in personnel over the prior year, $973 increase in amortization expense, $849 in higher sales and marketing activities and travel, and a $445 increase in commission expense.
We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the nine months ended June 30, 2022 and 2021 of $1,544 and $904, respectively.
We may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize potential opportunities. Commission expenses will fluctuate based on the nature of our sales.
Research and Development Expenses
Research and development expenses increased $2,225, or 72%, as we increased our engineering team and increased engineering time was utilized to increase software functionality and features, including the expansion and integration of Zonehaven into the GEM software platform.
We incurred non-cash share-based compensation expenses allocated to research and development in the nine months ended June 30, 2022 and 2021 of $53 and $28, respectively.
Research and development costs vary period to period due to the timing of projects, amount of support provided on customer projects, and the timing and use of outside consulting, design, and development firms. We continually improve our product offerings, and we expect to continue to expand our product line with new products, customizations, and enhancements. Based on current plans, we may expend additional resources on research and development in the current year compared to the prior year.
Net Loss
Net loss was $2,386 for the first nine months of fiscal 2022 compared with a $67 net loss in the prior year period. This decrease was primarily due to the higher operating expenses, partially offset by the higher revenue and gross profit in the current year period.
Other Metrics
We monitor a number of financial and operating metrics, including adjusted EBITDA, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Our business metrics may be calculated in a manner different than similar other business metrics used by other companies (in thousands):
Adjusted EBITDA
Adjusted EBITDA represents our net income before other income, net income tax expense (benefit), depreciation and amortization expense, and stock-based compensation. We do not consider these items to be indicative of our core operating performance. The items that are non-cash include depreciation and amortization expense and stock-based compensation. Adjusted EBITDA is a measure used by management to understand and evaluate our core operating performance and trends, and to generate future operating plans, make strategic decisions regarding allocation of capital, and invest in initiatives focused on cultivating new markets for our solutions. In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis. Adjusted EBITDA is not a measure calculated in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. Nevertheless, use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are: (1) although depreciation and amortization are non-cash charges, the intangible assets that are amortized and property and equipment that is depreciated, will need to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacement or for new capital expenditure requirements; (2) adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (3) adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (4) adjusted EBITDA does not reflect tax payments or receipts that may represent a reduction or increase in cash available to us; and (5) other companies, including companies in our industry, may calculate adjusted EBITDA or similarly titled measures differently, which reduces the usefulness of the metric as a comparative measure. Because of these and other limitations, you should consider adjusted EBITDA alongside our other U.S. GAAP-based financial performance measures, net income and our other U.S. GAAP financial results.
The following table presents a reconciliation of adjusted EBITDA to net income, the most directly comparable U.S. GAAP measure, for each of the periods indicated (in thousands):
| Three months ended |
Nine months ended |
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| June 30, |
June 30, |
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| 2022 |
2021 |
2022 |
2021 |
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| Net (loss) income |
$ | (589 | ) | $ | 290 | (2,386 | ) | (67 | ) | |||||||
| Other (income) expense, net |
(9 | ) | 2 | (12 | ) | (59 | ) | |||||||||
| Income tax (benefit) expense |
(31 | ) | 228 | (367 | ) | 506 | ||||||||||
| Depreciation and amortization |
638 | 401 | 1,920 | 953 | ||||||||||||
| Stock-based compensation |
355 | 446 | 1,650 | 956 | ||||||||||||
| Adjusted EBITDA |
$ | 364 | $ | 1,367 | $ | 805 | $ | 2,289 | ||||||||
Liquidity and Capital Resources
Cash and cash equivalents as of June 30, 2022 was $11,723, down $1,444 compared with $13,167 as of September 30, 2021. We had short-term marketable securities of $5,270 as of June 30, 2022, compared with $5,686 as of September 30, 2021. We had long-term marketable securities of $2,004 as of June 30, 2022, compared with $1,875 as of September 30, 2021. In addition to cash and cash equivalents, short and long-term marketable securities, other working capital and expected future cash flows from operating activities in subsequent periods, we have a $10 million revolving line of credit available as a source of liquidity.
Although there is uncertainty related to the impact of COVID-19 on the Company’s future results, we believe our efficient business model and strong balance sheet keep us positioned to manage our business through this crisis as it continues to unfold. We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships and developing new opportunities for growth.
Principal factors that could affect our liquidity include:
• ability to meet sales projections;
• government spending levels;
• introduction of competing technologies;
• product mix and effect on margins;
• ability to reduce current inventory levels;
• product acceptance in new markets;
• value of shares repurchased;
• value of dividends declared;
• supply chain disruptions;
• inflation;
• conflict between Russia and Ukraine;
• impact of COVID-19 on global market conditions; and
• impact of COVID-19 on customers’ ability to pay.
Principal factors that could affect our ability to obtain cash from external sources include:
• volatility in the capital markets; and
• market price and trading volume of our common stock.
Based on our current cash position, and assuming currently planned expenditures and level of operations, we believe we have sufficient capital to fund operations for the twelve-month period subsequent to the issuance of the interim financial information. However, we operate in a rapidly evolving and unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that we may not be required to raise additional funds through the sale of equity or debt securities or from credit facilities. Additional capital, if needed, may not be available on satisfactory terms, or at all.
Cash Flows
Our cash flows from operating, investing and financing activities, as reflected in the condensed consolidated statements of cash flows, are summarized in the table below:
| Nine months ended |
||||||||
| June 30, 2022 |
June 30, 2021 |
|||||||
| Cash provided by (used in): |
||||||||
| Operating activities |
$ | (571 | ) | $ | 8,314 | |||
| Investing activities |
14 | (16,237 | ) | |||||
| Financing activities |
(1,092 | ) | (27 | ) | ||||
Operating Activities
Net loss of $2,386 for the nine months ended June 30, 2022 was decreased by $4,006 of non-cash items that included share-based compensation, depreciation and amortization, amortization of operating lease ROU assets, an increase to deferred income taxes, warranty provision and inventory obsolescence. Cash used by operating activities in the current year reflected an increase in inventory of $2,563, and a decrease in accrued liabilities and other of $3,012, comprised of a decrease in the balances of customer deposits received, and payment of incentive compensation earned in fiscal year 2021. This was offset by a $1,964 decrease in accounts receivable, a $1,049 decrease in prepaid expenses, and a $371 increase in accounts payable.
Net loss of $67 for the nine months ended June 30, 2021 was offset by $3,257 of non-cash items that included depreciation and amortization, share-based compensation, operating lease ROU asset amortization, warranty provision, inventory obsolescence, both realized and unrealized loss on a foreign currency forward contract, and a reduction to deferred income taxes. Cash provided by operating activities for the prior year reflected an increase of $1,134 in accounts payable, primarily for inventory related purchases, and a $5,988 increase in accrued and other liabilities, primarily from a $7,410 increase in customer deposits resulting from increased hardware orders, received in the prior fiscal year offset by a $630 reduction to accrued contract costs. Cash used in operating activities for the nine months ended June 30, 2021, reflected a $788 increase in inventory, a $636 increase in prepaid expense, and a $574 increase in accounts receivable.
We had accounts receivable of $5,691 as of June 30, 2022, compared with $7,682 as of September 30, 2021. Terms with individual customers vary greatly. We regularly provide thirty-day terms to our customers if credit is approved. Our receivables can vary dramatically due to overall sales volume, quarterly variations in sales, timing of shipments to and receipts from large customers, payment terms, and the timing of contract payments.
As of June 30, 2022 and September 30, 2021, our working capital was $17,613 and $18,019, respectively. The decrease in working capital was primarily due to the net loss this period, change in the short-term/long-term mix of marketable securities, and the use of cash to repurchase shares of Company stock.
Investing Activities
Our net cash provided by investing activities was $14 for the nine months ended June 30, 2022, compared with net cash used in investing activities of $16,237 for the nine months ended June 30, 2021. In the nine months of fiscal 2022, we decreased our holdings in short and long-term marketable securities by $205 compared with an increase of $208 for the nine months ending June 30, 2021. Cash used in investing activities for the purchase of property and equipment was $191 and $181 for the nine months ended June 30, 2022, and 2021, respectively. We anticipate additional expenditures for tooling and equipment during the balance of fiscal year 2022. During the first nine months of fiscal 2021, $15,848 was used for acquisitions.
Financing Activities
In the nine months ended June 30, 2022, we used $1,092 for financing activities compared with $27 for the nine months ended June 30, 2021. In the first nine months of fiscal 2022 we received $253 from the exercise of stock options and used $998 to repurchase shares of our common stock, $70 to settle statutory tax withholding requirements upon vesting of restricted stock units and $277 in the repayment of promissory notes upon the certification of completed projects by goverenment agencies in Spain. In the first nine months of fiscal year 2021, we received $170 from the exercise of stock options, which was offset by $141 of cash used to settle statutory tax withholding requirements upon vesting of restricted stock awards, $18 in payments on promissory notes, and $38 of cash paid in connection with the establishment of our $10 million line of credit.
In December 2018, the Board of Directors approved a share buyback program beginning January 1, 2019, under which the Company was authorized to repurchase up to $5 million of its outstanding common shares. In December 2020, the board voted to extend this program’s expiration date to December 31, 2022. During the nine months ended June 30, 2022, 259,310 shares were purchased for $998. No shares were repurchased during the nine months ended June 30, 2021. All repurchased shares have been retired and as of June 30, 2022, $3.0 million was available for share repurchase under this program.
Recent Accounting Pronouncements
New pronouncements issued for future implementation are discussed in Note 3, Recent Accounting Pronouncements, to our condensed consolidated financial statements.
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk. |
Foreign Currency Risk
We consider our direct exposure to foreign exchange rate fluctuations to be minimal. The transactions of our Spanish subsidiary are denominated primarily in Euros and the transactions of our Canadian subsidiary are denominated primarily in Canadian dollars, which is a natural hedge against foreign currency fluctuations. All other sales to customers and all arrangements with third-party manufacturers, with one exception, provide for pricing and payment in U.S. dollars, and, therefore, are not subject to exchange rate fluctuations. Increases in the value of the U.S. dollar relative to other currencies could make our products more expensive, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our suppliers raising their prices to continue doing business with us. Fluctuations in currency exchange rates could affect our business in the future.
| Item 4. |
Controls and Procedures. |
We are required to maintain disclosure controls and procedures designed to ensure that material information related to us, including our consolidated subsidiaries, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of our disclosure controls and procedures as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our fiscal quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies, which may be identified during this process.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PART II. OTHER INFORMATION
| Item 1. |
Legal Proceedings. |
We may at times be involved in litigation in the ordinary course of business. We will also, from time to time, when appropriate in management’s estimation, record adequate reserves in our consolidated financial statements for pending litigation. Currently, there are no pending material legal proceedings to which the Company is a party or to which any of its property is subject.
| Item 1A. |
Risk Factors. |
There have been no material changes to the risk factors described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, filed with the SEC on November 23, 2021, except for those noted below:
The conflict between Russia and Ukraine and the related implications may negatively impact our operations.
In February 2022, Russia invaded Ukraine. As a result, the U.S. and certain other countries have imposed sanctions on Russia and could impose further sanctions, as well as potential retaliatory actions by Russia, that could damage or disrupt international commerce and the global economy. It is not possible to predict the broader or longer-term consequences of this conflict or the impact of sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Such geopolitical instability and uncertainty could have a negative impact on our ability to sell, ship products, collect payments, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, supply disruptions, and logistics restrictions including closures of air space, and could increase the costs, risks and adverse impacts from supply chain and logistics challenges.
The potential effects of the conflict between Russia and Ukraine also could impact many of the other risk factors described in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. Given the evolving nature of this conflict, the related sanctions, potential governmental actions and economic impact, such potential impacts remain uncertain. While we expect the impacts of conflict between Russia and Ukraine could have an effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time.
Risks related to global economic instability, including global supply chain issues, inflation, labor costs, and fuel and energy costs, may affect the Company’s business.
The increasingly volatile global economic environment has created market uncertainty. A slowdown in the financial markets or other economic conditions including but not limited to global supply chain issues, inflation, fuel and energy costs, freight costs, lack of available credit, interest rates, and tax rates, may adversely affect the Company’s growth and profitability. Fluctuation of prices and availability of commodities and materials used in the manufacture of our products may affect the cost of operations. In addition, increasing wage inflation and challenges hiring qualified personnel may impact our ability to meet customer demand.
The potential effects of market uncertainty and inflation could also impact many of the other risk factors described in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. While we expect the impacts of market uncertainty and inflation could have an effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time.
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
| Item 3. |
Defaults Upon Senior Securities. |
None.
| Item 4. |
Mine Safety Disclosures. |
Not Applicable.
| Item 5. |
Other Information. |
None.
| Item 6. |
Exhibits. |
| 31.1 |
|
| 31.2 |
|
| 32.1 |
|
| 101.INS |
Inline XBRL Instance Document* |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document* |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document* |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document* |
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document* |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document* |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
* Filed concurrently herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| GENASYS INC. |
||
| Date: August 11, 2022 |
By: |
/s/ Dennis D. Klahn |
| Dennis D. Klahn, Chief Financial Officer |
||
| (Principal Financial Officer) |
||