UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark one)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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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:
(Exact name of registrant as specified in its charter)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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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.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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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 July 31, 2024 was
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Genasys Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
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June 30, |
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2024 |
September 30, |
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(Unaudited) |
2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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Short-term marketable securities |
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Restricted cash |
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Accounts receivable, net of allowance for credit losses of $ |
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Inventories, net |
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Prepaid expenses and other |
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Total current assets |
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Long-term restricted cash |
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Property and equipment, net |
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Goodwill |
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Intangible assets, net |
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Operating lease right of use assets |
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Other assets |
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Total assets |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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Accrued liabilities |
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Operating lease liabilities, current portion |
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Total current liabilities |
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Notes payable, at fair value |
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Warrant liability |
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Other liabilities, noncurrent |
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Operating lease liabilities, noncurrent |
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Total liabilities |
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Stockholders' equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
$ | $ | ||||||
See accompanying notes
Genasys Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and share amounts)
(Unaudited)
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Three Months Ended |
Nine Months Ended |
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Revenues: |
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Product sales |
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Contract and other |
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Total revenues |
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Gross profit |
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Operating expenses |
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Research and development |
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Total operating expenses |
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Loss from operations |
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Other income (expense), net |
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Loss before income taxes |
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Income tax benefit |
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Net loss |
$ | ( |
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Net loss per common share - basic and diluted |
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Weighted average common shares outstanding: |
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Basic and diluted |
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See accompanying notes
Genasys Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited)
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Three Months Ended |
Nine Months Ended |
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June 30, |
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2023 |
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Net loss |
$ | ( |
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Unrealized gain on marketable securities |
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Unrealized foreign currency (loss) gain |
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Comprehensive loss |
$ | ( |
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See accompanying notes
Genasys Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
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Nine Months Ended |
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June 30, |
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2024 |
2023 |
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Operating Activities: |
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Net loss |
$ | ( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Amortization of debt issuance costs |
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Warranty provision |
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Inventory obsolescence |
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Loss on disposition of fixed assets |
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Stock-based compensation |
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Gain on change in fair value of warrants |
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Loss on change in fair value of Term Loan |
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Defered income taxes |
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Amortization of operating lease right of use asset |
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Accretion of acquisition holdback liability |
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Remeasurement of acquisition contingent consideration |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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Inventories, net |
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Prepaid expenses and other |
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Accounts payable |
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Accrued and other liabilities |
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Net cash used in operating activities |
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Investing Activities: |
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Purchases of marketable securities |
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Proceeds from maturities of marketable securities |
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Cash paid for acquisitions net of cash acquired |
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Cash paid for asset purchase holdback liability |
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Capital expenditures |
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Net cash (used in) provided by investing activities |
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Financing Activities: |
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Proceeds from issuance of Term Loan and warrants, net of issuance cost |
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Proceeds from exercise of stock options |
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Proceeds from offering of common stock, net of issuance costs |
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Payment of contingent consideration |
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Shares retained for payment of taxes in connection with the exercise of stock options |
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Shares retained for payment of taxes in connection with settlement of restricted stock units |
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Net cash provided by (used in) financing activities |
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Effect of foreign exchange rate on cash |
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Net decrease in cash, cash equivalents, and restricted cash |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
$ | $ | ||||||
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Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets: |
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Cash and cash equivalents |
$ | $ | ||||||
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Restricted cash, current portion |
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Long-term restricted cash |
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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)
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Nine Months Ended |
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June 30, |
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2024 |
2023 |
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Noncash investing and financing activities: |
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Change in unrealized loss on marketable securities |
$ | $ | ||||||
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Obligation to issue common stock in connection with the Amika Mobile asset purchase |
$ | $ | ( |
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Initial measurement of operating lease right of use assets |
$ | $ | ||||||
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Initial measurement of operating lease liabilities |
$ | $ | ||||||
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Shares surrendered from stock option exercises |
$ | $ | ||||||
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Obligation to issue common stock in connection with the Evertel acquisition |
$ | ( |
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Shares issued in connection with the Evertel acquisition |
$ | ( |
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Settlement of contingent consideration in shares of common stock |
$ | ( |
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| Holdback liability payable in connection with the Evertel acquisition | $ | ( |
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Accrued term loan and warrant issuance cost not paid |
$ | ( |
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1. OPERATIONS
Genasys Inc. (“Genasys” or the “Company”) is a global provider of Protective Communications™ solutions including its Genasys Protect™ software platform and Genasys Long Range Acoustic Devices (“LRAD”). Genasys’ 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’s customers can use 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, 2023, included in the Company’s Annual Report on Form 10-K, as filed with the SEC on December 7, 2023. The accompanying condensed consolidated balance sheet as of September 30, 2023, has been derived from the audited consolidated balance sheet as of September 30, 2023, 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, Evertel Technologies LLC, and Genasys Inc. (branch) in the United Arab Emirates and currently inactive subsidiary, Genasys America de CV. The condensed 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, 2024, 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, 2024, restricted cash was $
Accounts receivable and allowance for credit losses
The Company adopted Accounting Standards Update (“ASU”) No. 2019-10, Financial Instruments – Credit Losses (“ASC 326”), as of October 1, 2023. This new standard adds to U.S. GAAP an impairment model, known as the current expected credit loss ("CECL") model, that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which is intended to result in the timelier recognition of losses. Under the CECL model, entities estimate credit losses over the entire contractual term from the date of initial recognition of the financial instrument. The standard only impacts the Company’s trade receivables. The Company adopted the accounting standard as of October 1, 2023. There was no cumulative effect adjustment, and the adoption of this standard did not have a material impact on the consolidated financial statements or existing internal controls.
The Company maintains an allowance for credit losses primarily for estimated losses resulting from the inability or failure of individual customers to make required payments. The Company maintains an allowance under ASC 326, based on historical losses, changes in payment history, customer-specific information, current economic conditions, and reasonable and supportable forecasts of future economic conditions. The allowance under ASC 326 is updated as additional losses are incurred or information becomes available related to the customer or economic conditions.
The Company’s allowance for credit losses was $
The Company writes off accounts receivable based on the age of the receivable and the facts and circumstances surrounding the customer and reasons for non-payment. Actual write-offs might differ from the recorded allowance.
Reclassifications
Where necessary, certain prior year’s information has been reclassified to conform to the current year’s presentation.
Term Loan
The Company determined that it is eligible for the fair value option (“FVO”) election in connection with the Term Loan. The Term Loan meets the definition of a “recognized financial liability” which is an acceptable financial instrument eligible for the fair value option under ASC 825-10-15-4 and do not meet the definition of any of the financial instruments found within ASC 825-10-15-5 that are not eligible for the fair value option. The fair value option election was made to enhance the relevance and transparency of information presented related to the features embedded in the Term Loan. At the date of issuance, the fair value of the Term Loan was estimated using a discounted cash flow method. Changes in the fair value of the Term Loan, other than changes associated with the Company's own credit risk, are recorded as gains or losses in the Company’s condensed consolidated statements of operations and comprehensive loss in each reporting period. Changes in fair value attributable to the Company's own credit risk are recorded in other comprehensive income or loss in the Company's condensed consolidated statements of operations and comprehensive loss in each reporting period; there have been no such changes for the three months ended June 30, 2024. Under the fair value option, debt issuance costs are recorded in other expenses in the Company’s condensed consolidated statements of operations and comprehensive loss.
Warrants
The warrants issued in conjunction with the Term Loan are classified as liabilities under ASC 815-40 due to not being indexed to the Company’s stock. The warrants are measured at fair value using Monte Carlo simulation to capture the down-round provision in the warrant agreement. Changes in fair value of the warrants, are recorded as gains or losses in the Company’s condensed consolidated statements of operations and comprehensive loss in each reporting period.
3. RECENT ACCOUNTING PRONOUNCEMENTS
Recently adopted pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued 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 extended the effective date of ASC 326 for certain companies until fiscal years beginning after December 15, 2022. The new standard was effective for the Company beginning October 1, 2023. The adoption of this standard did not have a material effect on the Company’s condensed consolidated financial statements. Refer to Note 2, Basis of Presentation and Significant Accounting Policies, for additional information.
Accounting pronouncements not yet adopted
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, which means that it will be effective for the Company’s annual periods beginning October 1, 2024, and interim periods beginning October 1, 2025. Early adoption is permitted. The Company is currently evaluating the impact the updated standard will have on disclosures within the consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as disaggregated information on income tax paid. The standard is effective for fiscal years beginning after December 15, 2024, which means it will be effective for the Company’s fiscal years beginning October 1, 2025. Early adoption is permitted. The Company is currently evaluating the impact the updated standard will have on the consolidated financial statements.
4. BUSINESS COMBINATIONS
On October 4, 2023, the Company completed the acquisition of all of the membership interests in Evertel Technologies, LLC. (“Evertel”), pursuant to a Membership Interest Purchase Agreement (“Purchase Agreement”) with Word Systems Operations, LLC (“Seller”) and Evertel.
Evertel offers a secure and compliant mission-critical collaboration platform for the public safety market that connects public safety personnel, information, and tools in one space.
The Evertel acquisition was accounted for as a business combination using the acquisition method pursuant to Accounting Standards Codification (“ASC”) Topic 805. As the acquirer for accounting purposes, the Company has estimated the purchase consideration, assets acquired and liabilities assumed as of the acquisition date, with the excess of the purchase consideration over the fair value of net assets acquired recognized as goodwill. The estimated fair value of assets purchased, and liabilities assumed, in certain cases may be subject to revision based on the final determination of fair value.
The consideration consisted of the following:
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Cash paid |
$ |
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Common stock issued |
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Contingent consideration |
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Acquisition holdback liability |
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Common stock to be issued |
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Working capital adjustment |
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The Company funded the cash portion of the total consideration with available cash on hand. The Company also issued
The Company incurred $
The preliminary allocation of the purchase price as of the acquisition date is as follows:
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Assets acquired |
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Accounts receivable |
$ | |||
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Prepaid expenses |
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Intangible assets |
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Goodwill |
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Total Assets |
$ | |||
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Liabilities assumed |
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Accrued commissions |
$ | |||
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Deferred revenue |
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Deferred tax liability |
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Total liabilities |
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Net assets acquired |
$ |
The estimated fair value of identifiable intangible assets acquired and their estimated useful lives are as follows:
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Fair Value |
Est.Useful Life (in years) |
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Developed technology |
$ | |||||||
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Customer relationships |
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Identifiable intangible assets consist of certain technology and customer relationships purchased from Evertel. Identifiable intangible assets are amortized over their estimated useful lives based upon several assumptions, including the estimated period of economic benefit and utilization. The weighted average amortization period for identifiable intangible assets acquired is
The goodwill for Evertel is attributable to combining the Company’s existing emergency communications solutions with the software and software development capabilities of Evertel to enhance product offerings. Goodwill is also attributable to the skill level of the acquired workforce. The Company will continue to analyze the transaction and refine its calculations, as appropriate during the measurement period, which could affect the value of goodwill. Goodwill from the Evertel acquisition will not be deductible for tax purposes.
As of June 30, 2024, $
The Company has included the operating results of Evertel in continuing operations in its unaudited condensed consolidated financial statements since the acquisition date. $
5. REVENUE RECOGNITON
ASC 606, Revenue from Contracts with Customers (“ASC 606”), outlines a 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:
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1. |
Identify the contract(s) with customers |
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Identify the performance obligations |
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Determine the transaction price |
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Allocate the transaction price to the performance obligations |
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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.
Multiple performance obligation arrangements
The Company has entered into a number of multiple performance obligation arrangements, such as the sale of a product or perpetual licenses that may include maintenance and support (included in the 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 performance obligation arrangements, the Company uses either the stand-alone selling price or an expected cost-plus margin approach to determine the fair value of each performance obligation within the arrangement, including software and software-related services such as maintenance and support. In general, performance obligations in such arrangements are also sold on a stand-alone basis and stand-alone selling prices are available.
Revenue is allocated to each performance obligation based on the fair value of each individual performance obligation 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 19, Segment Information and Note 20, 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, 2024 and September 30, 2023, including the change between the periods. There were contract assets as of June 30, 2024 and September 30, 2023. The current portion of contract liabilities and the noncurrent portion are included in “Accrued liabilities” and “Other liabilities, noncurrent”, respectively, on the accompanying condensed consolidated balance sheets. Refer to Note 11, Accrued and Other Liabilities for additional details.
The Company’s contract liabilities were as follows:
|
Customer deposits |
Deferred revenue |
Total contract liabilities |
||||||||||
|
Balance as of September 30, 2023 |
$ | $ | $ | |||||||||
|
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, 2024 |
$ | $ | $ | |||||||||
|
Less: non-current portion |
( |
) | ( |
) | ||||||||
|
Current portion as of June 30, 2024 |
$ | $ | $ | |||||||||
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.
As of June 30, 2024, 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 is 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.
6. FAIR VALUE MEASUREMENTS
The Company’s financial instruments consist principally of cash equivalents, short and long-term marketable securities, accounts receivable, accounts payable, Term Loan debt, and warrant liabilities. 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 on 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 valuation techniques used to measure the Term Loan debt and warrant liabilities were determined based on Level 3 inputs not observable in the market and significant to the instruments’ valuations. Refer to Note 12, Term Loan and Warrant Liabilities, for additional information regarding the valuation techniques and significant inputs used.
Other than the Term Loan and the warrant liabilities, the Company did not have any financial instruments in the Level 3 category as of June 30, 2024. The Company did not have any financial instruments in the Level 3 category as of September 30, 2023. 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. 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, 2024 and September 30, 2023.
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, 2024, and September 30, 2023. 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, 2024 |
||||||||||||||||||||||||||||
|
Cost Basis |
Gross Unrealized Gain |
Gross 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, 2023 |
||||||||||||||||||||||||||||
|
Cost Basis |
Gross Unrealized Gain |
Gross 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 |
$ | $ | $ | ( |
) | $ | $ | $ | $ | |||||||||||||||||||
The Company manages debt investments as a single portfolio of highly marketable securities that is intended to be available to meet current cash requirements. Historically, the gross unrealized losses related to the Company’s portfolio of available-for-sale debt securities were immaterial, and primarily due to normal market fluctuations and not due to increased credit risk or other valuation concerns. Gross unrealized losses on available-for-sale debt securities was $
The following table summarizes the fair value and gross unrealized losses related to available-for-sale debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2024 and September 30, 2023:
|
As of June 30, 2024 |
||||||||||||||||||||||||
|
In loss position < 12 months |
In loss position > 12 months |
Total in loss position |
||||||||||||||||||||||
|
Fair Value |
Gross Unrealized Loss |
Fair Value |
Gross Unrealized Loss |
Fair Value |
Gross Unrealized Loss |
|||||||||||||||||||
|
Certificates of deposit |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
|
U.S. government agency bonds |
||||||||||||||||||||||||
|
Municipal securities |
||||||||||||||||||||||||
|
Corporate bonds |
( |
) | ( |
) | ||||||||||||||||||||
| $ | $ | ( |
) | $ | $ | $ | $ | ( |
) | |||||||||||||||
|
As of September 30, 2023 |
||||||||||||||||||||||||
|
In loss position < 12 months |
In loss position > 12 months |
Total in loss position |
||||||||||||||||||||||
|
Fair Value |
Gross Unrealized Loss |
Fair Value |
Gross Unrealized Loss |
Fair Value |
Gross Unrealized Loss |
|||||||||||||||||||
|
Certificates of deposit |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
|
U.S. government agency bonds |
||||||||||||||||||||||||
|
Municipal securities |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Corporate bonds |
( |
) | ( |
) | ||||||||||||||||||||
| $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||
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, 2024. There were business combinations or indicators of impairment during the twelve months ended September 30, 2023.
|
Fair Value Measurements at June 30, 2024 |
||||||||||||||||||||
|
Carrying Value |
(Level 1) |
(Level 2) |
(Level 3) |
Gain/(Loss) |
||||||||||||||||
|
Intangible assets from Evertel acquisition |
$ | $ | $ | $ | $ | |||||||||||||||
|
Goodwill from Evertel acquisition |
$ | $ | $ | $ | $ | |||||||||||||||
Contingent consideration liability : In connection with the Evertel acquisition, the Company recorded a liability related to future performance criteria. A payment of up to $
As of June 30, 2024, $
The changes in the carrying amount of the contingent consideration liability were as follows:
|
Value as of acquisition date |
$ | |||
|
Remeasurement estimate |
( |
) | ||
|
Settlement of contingent consideration liability |
( |
) | ||
|
Balance as of June 30, 2024 |
$ |
Acquisition holdback liability: In connection with the Evertel acquisition, the Company recorded a holdback liability related to potential future misrepresentations and indemnifications against third-party claims. The holdback liability will be released twelve months from the closing date, subject to amounts withheld for actual, pending or potential claims. 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 consolidated statement of operations. The changes in the carrying amount of the holdback liability is as follows:
|
Balance as of acquisition date |
$ | |||
|
Accretion |
||||
|
Balance as of June 30, 2024 |
$ |
7. INVENTORIES, NET
Inventories, net consisted of the following:
|
June 30, |
September 30, |
|||||||
|
2024 |
2023 |
|||||||
|
Raw materials |
$ | $ | ||||||
|
Finished goods |
||||||||
|
Work in process |
||||||||
|
Inventories, gross |
||||||||
|
Reserve for obsolescence |
( |
) | ( |
) | ||||
|
Inventories, net |
$ | $ | ||||||
8. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
|
June 30, |
September 30, |
|||||||
|
2024 |
2023 |
|||||||
|
Office furniture and equipment |
$ | $ | ||||||
|
Machinery and equipment |
||||||||
|
Leasehold improvements |
||||||||
|
Construction in progress |
||||||||
|
Property and equipment, gross |
||||||||
|
Accumulated depreciation |
( |
) | ( |
) | ||||
|
Property and equipment, net |
$ | $ | ||||||
Depreciation and amortization expense for property and equipment was $
9. GOODWILL AND INTANGIBLE ASSETS
Goodwill is attributable to the acquisitions of Genasys Spain, Zonehaven, Evertel, and the Amika Mobile asset purchase and is due to combining the integrated 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. As of June 30, 2024 and September 30, 2023, goodwill was $
The changes in the carrying amount of goodwill by segment as of June 30, 2024, were as follows:
|
Hardware |
Software |
Total |
||||||||||
|
Balance as of September 30, 2023 |
$ | $ | $ | |||||||||
|
Acquisitions |
||||||||||||
|
Currency translation |
||||||||||||
|
Balance as of June 30, 2024 |
$ | $ | $ | |||||||||
The changes in the carrying amount of intangible assets by segment as of June 30, 2024, were as follows:
|
Hardware |
Software |
Total |
||||||||||
|
Balance as of September 30, 2023 |
$ | $ | $ | |||||||||
|
Acquisitions |
||||||||||||
|
Amortization |
( |
) | ( |
) | ( |
) | ||||||
|
Currency translation |
||||||||||||
|
Balance as of June 30, 2024 |
$ | $ | $ | |||||||||
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 an increase of $
The Company’s consolidated intangible assets consisted of the following:
|
June 30, |
September 30, |
|||||||
|
2024 |
2023 |
|||||||
|
Technology |
$ | $ | ||||||
|
Customer relationships |
||||||||
|
Trade name portfolio |
||||||||
|
Non-compete agreements |
||||||||
|
Patents |
||||||||
|
Accumulated amortization |
( |
) | ( |
) | ||||
| $ | $ | |||||||
As of June 30, 2024, future amortization expense is as follows:
|
Fiscal year ending September 30, |
||||
|
2024 (remaining three months) |
||||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
|
2028 |
||||
|
Thereafter |
||||
|
Total estimated amortization expense |
$ |
Amortization expense was $
10. PREPAID EXPENSES AND OTHER
Prepaid expenses and other current assets consisted of the following:
|
June 30, |
September 30, |
|||||||
|
2024 |
2023 |
|||||||
|
Deposits for inventory |
$ | $ | ||||||
|
Prepaid insurance |
||||||||
|
Dues and subscriptions |
||||||||
|
Prepaid professional services |
||||||||
|
Prepaid commissions |
||||||||
|
Bid guarantee deposit |
||||||||
|
Trade shows and travel |
||||||||
|
Canadian goods and services and harmonized sales tax receivable |
||||||||
|
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 consist of payments made in advance for services such as accounting, consulting 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.
Bid guarantee deposit
The bid guarantee deposit is a contractually required security deposit to ensure the execution of contractual documents and construction commencement within the agreed upon timeline. The deposit is held by the Puerto Rico Electric Power Authority and will be returned to the Company when the final contract is signed.
Trade shows and travel
Trade shows and travel consisted of payments made in advance for trade show events.
Canadian goods and services and harmonized sales tax receivable
The goods and services tax and harmonized sales tax (“GST/HST”) is a Canadian value-added tax that applies to many goods and services. Registrants may claim refundable tax credits for GST/HST incurred through filing periodic tax returns. This GST/HST receivable is a receivable from the Canadian Revenue Agency.
11. ACCRUED AND OTHER LIABILITIES
Accrued liabilities consisted of the following:
|
June 30, |
September 30, |
|||||||
|
2024 |
2023 |
|||||||
|
Payroll and related |
$ | $ | ||||||
|
Deferred revenue |
||||||||
|
Customer deposits |
||||||||
|
Accrued contract costs |
||||||||
|
Warranty reserve |
||||||||
|
Asset purchase holdback liability |
||||||||
|
Acquisition holdback liability |
||||||||
|
Other |
||||||||
|
Total |
$ | $ | ||||||
Other liabilities-noncurrent consisted of the following:
|
June 30, |
September 30, |
|||||||
|
2024 |
2023 |
|||||||
|
Deferred revenue |
$ | $ | ||||||
Payroll and related
Payroll and related consisted primarily of accrued vacation, bonus, sales commissions and benefits.
Deferred revenue
Deferred revenue as of June 30, 2024, included prepayments from customers for services, including extended warranty, scheduled to be performed in the twelve months ending June 30, 2025.
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, 2025.
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, |
|||||||
|
2024 |
2023 |
|||||||
|
Balnce as of September 30, 2023 |
$ | $ | ||||||
|
Warranty provision |
( |
) | ||||||
|
Warranty settlements |
( |
) | ( |
) | ||||
|
Balance as of June 30, 2024 |
$ | $ | ||||||
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.
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. The holdback liability was paid to the seller of the Amika Mobile assets on October 6, 2023. The liability was recorded at fair value as of September 30, 2023.
Acquisition holdback liability
In connection with the Evertel acquisition, the Company recorded a holdback liability related to potential misrepresentation and indemnifications against third-party claims. The holdback liability will be released twelve months from the closing date, subject to amounts withheld for actual, pending or potential claims. The holdback liability was recorded at the present value, which was the fair value at the acquisition date. 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.
Contingent consideration liability
In connection with the Evertel acquisition, the Company recorded a liability related to future performance criteria. The contingent consideration liability was recorded at the fair value at the acquisition date. The liability has and will be adjusted at each reporting period as progress towards the contingent consideration criteria is achieved.
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.
12. TERM LOAN AND WARRANT LIABILITIES
On May 13, 2024, the Company entered into a term loan and security agreement, pursuant to which the Company received $
Term Loan
The principal of the Term Loan is $
The Company determined that the Term Loan was eligible for the FVO and accordingly elected the FVO for the Term Loan. This election was made because of operational efficiencies in valuing and reporting for the Term Loan instrument in its entirety at each reporting date. As a result of electing the FVO, the Term Loan was recorded at fair value with subsequent remeasurements at fair value each reporting period. The Company recognizes the resulting gain or loss related to changes to the fair value of the Term Loan on the condensed consolidated statements of operations within other income (expense). The change in fair value related to the accrued interest components of the Term Loan is also included within other income (expense) on the condensed consolidated statement of operations. Direct costs and fees related to the Term Loan were expensed as incurred within other income (expense) on the condensed consolidated statement of operations.
The Company utilized the discounted cash flow method with reliance on the Monte Carlo simulation model to determine the fair value of the Term Loan at issuance and subsequently at each reporting date. The fair value of the Term Loan was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The significant fair value assumption is the discount rate, which was
A summary of the changes in the fair value of the Term Loan Level 3 rollforward is as follows:
|
Three Months Ended |
||||
|
June 30, 2024 |
||||
|
Beginning Balance |
$ | |||
|
Transfer in |
||||
|
Change in fair value related to non-credit risk in net income |
||||
|
Change in fair value related to credit risk in OCI |
||||
|
Fair value as of June 30, 2024 |
$ | |||
Warrant Liabilities
The Company issued Warrants to the lenders to purchase up to
The Warrants are recognized as liabilities in the condensed consolidated balance sheet and are subject to remeasurement at each balance sheet date from issuance. Any change in fair value is recognized in other income (expense) within the condensed consolidated statement of operations.
The Company utilized the Monte Carlo simulation model to determine the fair value of the warrant liabilities at issuance and subsequently at each reporting date. The fair value of the warrant liabilities is the present value of the warrant payoff at expiration; discounted at the risk-free rate. The fair value of the warrant liabilities was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The following is a summary of the fair value assumptions applied in determining the initial fair value and the subsequent fair value of the warrant liabilities as of each respective date:
|
May 13, |
June 30, |
|||||||
|
2024 |
2024 |
|||||||
|
Discount Rate |
% | % | ||||||
|
Volatility |
% | % | ||||||
A summary of the changes in the fair value of the warrant liabilities Level 3 rollforward is as follows:
| Three Months Ended | ||||
| June 30, 2024 | ||||
| Beginning Balance | $ | |||
| Transfer in | ||||
|
Change in fair value in net income |
( |
) | ||
|
Fair value as of June 30, 2024 |
$ | |||
13. 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.
The tables below show the operating lease ROU assets and liabilities as of September 30, 2023, and the balances as of June 30, 2024, including the changes during the periods.
|
Operating lease ROU assets |
||||
|
Operating lease ROU assets as of September 30, 2023 |
$ | |||
|
Less amortization of operating lease ROU assets |
( |
) | ||
|
Effect of exchange rate on operating lease ROU assets |
||||
|
Operating lease ROU assets as of June 30, 2024 |
$ | |||
|
Operating lease liabilities |
||||
|
Operating lease liabilities at September 30, 2023 |
$ | |||
|
Less lease principal payments on operating lease liabilities |
( |
) | ||
|
Effect of exchange rate on operating lease liabilities |
||||
|
Operating lease liabilities as of June 30, 2024 |
||||
|
Less non-current portion |
( |
) | ||
|
Current portion as of June 30, 2024 |
$ | |||
As of June 30, 2024, the Company’s operating leases have a weighted-average remaining lease term of
|
Fiscal year ending September 30, |
||||
|
2024 (remaining three months) |
$ | |||
|
2025 |
||||
|
2026 |
||||
|
2027 |
||||
|
2028 |
||||
|
Thereafter |
||||
|
Total undiscounted operating lease payments |
||||
|
Less imputed interest |
( |
) | ||
|
Present value of operating lease liabilities |
$ |
For the three months ended June 30, 2024 and 2023, total lease expense under operating leases was approximately $
14. INCOME TAXES
The Company’s effective tax rate for the nine months ended June 30, 2024 and 2023 was
The income tax benefit of $
The Company continues to maintain a full valuation allowance against its U.S. and foreign deferred tax assets.
ASC 740, 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.
15. 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.
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, 2024, 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. The holdback liability was paid to the seller of the Amika Mobile assets on October 6, 2023. The liability was recorded at fair value as of September 30, 2023.
The Company also agreed to issue
Evertel Acquisition
In connection with the Evertel acquisition, the Company recorded a liability related to future performance criteria. A payment of up to $
Also, in connection with the Evertel acquisition, the Company recorded a holdback liability related to potential misrepresentations and indemnifications against third-party claims. The holdback liability will be released twelve months from the closing date, subject to amounts withheld for actual, pending or potential claims. The holdback liability was recorded at the present value which was the fair value at the acquisition date. 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 fair value was $
The Company also agreed to issue
16. SHARE-BASED COMPENSATION
Stock option plans
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, |
||||||||
|
2024 |
2023 |
|||||||
|
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 2024 and did pay a dividend in fiscal 2023.
As of June 30, 2024, there was approximately $
Performance-based stock options
On August 10, 2022, the Company granted performance-based stock options to purchase up to
On October 8, 2022, the Company awarded performance-based stock options to purchase
On March 20, 2023, the Company granted performance-based stock options to purchase up to
The Company did grant any performance-based stock options during the nine months ended June 30, 2024.
Restricted stock units
During fiscal 2021,
On November 1, 2022,
On March 14, 2023, each non-employee member of the Board of Directors received a grant of
Compensation expense for RSUs was $
A summary of the Company’s RSUs as of June 30, 2024 is presented below:
|
Number of Shares |
Weighted Average Grant Date Fair Value |
|||||||
|
Outstanding September 30, 2023 |
$ | |||||||
|
Granted |
$ | |||||||
|
Released |
( |
) | $ | |||||
|
Forfeited/cancelled |
( |
) | $ | |||||
|
Outstanding June 30, 2024 |
$ | |||||||
Stock option summary information
A summary of the activity in options to purchase the capital stock of the Company as of June 30, 2024 is presented below:
|
Number of Shares |
Weighted Average Exercise Price |
|||||||
|
Outstanding September 30, 2023 |
$ | |||||||
|
Granted |
$ | |||||||
|
Forfeited/expired |
( |
) | $ | |||||
|
Exercised |
$ | |||||||
|
Outstanding June 30, 2024 |
$ | |||||||
|
Exerciseable June 30, 2024 |
$ | |||||||
Options outstanding are exercisable at prices ranging from $
The following table summarized information about stock options outstanding as of June 30, 2024:
|
Weighted Average |
Weighted Average |
Weighted Average |
||||||||||||||||||||
|
Range of |
Number |
Remaining |
Exercise |
Number |
Exercise |
|||||||||||||||||
|
Exercise Prices |
Outstanding |
Contractual Term |
Price |
Exercisable |
Price |
|||||||||||||||||
|
$ |
- | $ |
$ | $ | ||||||||||||||||||
|
$ |
- | $ |
$ | $ | ||||||||||||||||||
|
$ |
- | $ |
$ | $ | ||||||||||||||||||
|
$ |
- | $ |
$ | $ | ||||||||||||||||||
| $ | $ | |||||||||||||||||||||
The Company recorded $
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, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Cost of revenues |
$ | $ | $ | $ | ||||||||||||
|
Selling, general and administrative |
||||||||||||||||
|
Research and development |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
17. STOCKHOLDERS’ EQUITY
Summary
The following table summarizes changes in the components of stockholders’ equity during the nine months ended June 30, 2024 and 2023, respectively (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, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
|
Share-based compensation expense |
- | |||||||||||||||||||||||
|
Issuance of common stock upon offering, net of issuance costs |
||||||||||||||||||||||||
|
Issuance of common stock upon vesting of restricted stock units |
||||||||||||||||||||||||
|
Issuance of common stock in business combination |
||||||||||||||||||||||||
|
Obligation to issue common stock |
- | |||||||||||||||||||||||
|
Release of obligation to issue common stock |
||||||||||||||||||||||||
|
Accumulated other comprehensive loss |
- | |||||||||||||||||||||||
|
Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
|
Balance as of December 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
|
Share-based compensation expense |
- | $ | $ | $ | $ | $ | ||||||||||||||||||
|
Issuance of common stock upon vesting of restricted stock units |
||||||||||||||||||||||||
|
Shares retained for payment of taxes in connection with settlement of restricted stock units |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Settlement of contingent consideration in shares of common stock |
||||||||||||||||||||||||
|
Obligation to issue common stock |
- | |||||||||||||||||||||||
|
Accumulated other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||
|
Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
|
Balance as of March 31, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
|
Share-based compensation expense |
- | $ | $ | $ | $ | $ | ||||||||||||||||||
|
Issuance of common stock upon vesting of restricted stock units |
||||||||||||||||||||||||
|
Settlement of contingent consideration in shares of common stock |
||||||||||||||||||||||||
|
Accumulated other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||
|
Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
|
Balance as of June 30, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
|
Accumulated |
||||||||||||||||||||||||
|
Common Stock |
Additional |
Other |
Total |
|||||||||||||||||||||
|
Shares |
Par Value Amount |
Paid-in Capital |
Accumulated Deficit |
Comprehensive Loss |
Stockholders' Equity |
|||||||||||||||||||
|
Balance as of September 30, 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 |
||||||||||||||||||||||||
|
Release of obligation to issue common stock |
||||||||||||||||||||||||
|
Accumulated other comprehensive loss |
- | - | ||||||||||||||||||||||
|
Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
|
Balance as of December 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
|
Share-based compensation expense |
- | $ | $ | $ | $ | $ | ||||||||||||||||||
|
Issuance of common stock upon exercise of stock options, net |
||||||||||||||||||||||||
|
Issuance of common stock upon cashless exercise of stock options, net |
- | |||||||||||||||||||||||
|
Issuance of common stock upon vesting of restricted stock units |
( |
) | ( |
) | ||||||||||||||||||||
|
Shares retained for payment of taxes in connection with settlement of restricted stock units |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Accumulated other comprehensive loss |
- | |||||||||||||||||||||||
|
Net loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||
|
Balance as of March 31, 2023 |
$ | $ | 109,523 | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||
|
Share-based compensation expense |
- | 396 | ||||||||||||||||||||||
|
Issuance of common stock upon exercise of stock options, net |
||||||||||||||||||||||||
|
Issuance of common stock upon cashless exercise of stock options, net |
- | |||||||||||||||||||||||
|
Issuance of common stock upon vesting of restricted stock units |
||||||||||||||||||||||||
|
Retirement of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
|
Shares retained for payment of taxes in connection with net share settlement upon exercise of stock options |
( |
) | ( |
) | (207 | ) | ( |
) | ||||||||||||||||
|
Accumulated other comprehensive income |
- | - | ||||||||||||||||||||||
|
Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
|
Balance as of June 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
Common stock activity
During the nine months ended June 30, 2024, there were exercises of stock options and the Company issued
On October 4, 2023, the Company completed an underwritten public offering of
In connection with the Evertel acquisition, the Company issued
Under the terms of the Purchase Agreement, the Company recorded an obligation to issue
In connection with the Amika Mobile asset purchase, the Company agreed to issue
Share buyback program
In December 2022, the Board of Directors extended the Company’s share buyback program through December 31, 2024. Under the program, the Company was authorized to repurchase up to $
There were shares repurchased during the nine months ended June 30, 2024 and 2023. All repurchased shares have been retired.
Dividends
There were dividends declared in the nine months ended June 30, 2024 and 2023.
18. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per share:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
June 30 |
June 30 |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
|
Basic and diluted loss 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 |
||||||||||||||||
|
Warrants |
||||||||||||||||
|
Total |
||||||||||||||||
19. 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 business segments: Hardware and Software and its principal markets are North and South America, Europe, the Middle East and Asia. As reviewed by the Company’s chief operating decision maker, the Company evaluates the performance of each segment based on sales and operating income. Cash and cash equivalents, marketable securities, accounts receivable, inventory, property and equipment, deferred tax assets, goodwill and intangible assets are primary assets identified by segment. The accounting policies for segment reporting are the same for the Company as a whole.
The following table presents the Company’s segment disclosures:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
June 30, |
June 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Revenue from external customers |
||||||||||||||||
|
Hardware |
$ | $ | $ | $ | ||||||||||||
|
Software |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
|
Intersegment revenues |
||||||||||||||||
|
Hardware |
$ | $ | $ | $ | ||||||||||||
|
Software |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
|
Segment operating loss |
||||||||||||||||
|
Hardware |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
|
Software |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||
|
Other expenses: |
||||||||||||||||
|
Depreciation and amortization expense |
||||||||||||||||
|
Hardware |
$ | $ | $ | $ | ||||||||||||
|
Software |
||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
|
Income tax expense (benefit) |
||||||||||||||||
|
Hardware |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
|
Software |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||
|
June 30, |
September 30, |
|||||||
|
2024 |
2023 |
|||||||
|
Long-lived assets |
||||||||
|
Hardware |
$ | $ | ||||||
|
Software |
||||||||
| $ | $ | |||||||
|
Total assets |
||||||||
|
Hardware |
$ | $ | ||||||
|
Software |
||||||||
| $ | $ | |||||||
20. MAJOR CUSTOMERS, SUPPLIERS AND RELATED INFORMATION
For the three months ended June 30, 2024, revenues from customer accounted for
For the three months ended June 30, 2023, revenues from customer accounted for
Revenue from customers in the United States was $
The following table summarizes revenues by geographic region.
|
Three months ended June 30, |
Nine months ended June 30, |
|||||||||||||||
|
2024 |
2023 |
2024 |
2023 |
|||||||||||||
|
Americas |
$ | $ | $ | $ | ||||||||||||
|
Asia Pacific |
||||||||||||||||
|
Europe, Middle East and Africa |
||||||||||||||||
|
Total Revenues |
$ | $ | $ | $ | ||||||||||||
The following table summarizes long-lived assets by geographic region.
|
June 30, |
September 30, |
|||||||
|
2024 |
2023 |
|||||||
|
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, 2023.
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
We are a global provider of Protective Communications solutions, including our Genasys Protect software platform and LRAD® Long Range Acoustic Devices. Our unified software platform receives information from a wide variety of sensors and IoT inputs to collect real-time information on developing and active emergency situations. Genasys’ customers use 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.
Genasys Protect provides a comprehensive portfolio of Protective Communications software and hardware systems serving federal governments and agencies, state and local governmental agencies, and education (“SLED”); and enterprise organizations in sectors including but not limited to oil and gas, utilities, manufacturing, automotive, and healthcare. Genasys Protect solutions have a diverse range of applications, including emergency warning and mass notification for public safety; critical event management for enterprise companies; de-escalation for defense and law enforcement; critical infrastructure protection; and automated detection of real-time threats such as active shooters and severe weather.
Genasys’ LRAD systems broadcast audible directed voice messages with exceptional clarity from close range out to 5,500 meters. We have a history of successfully delivering innovative systems and solutions in mission critical situations, pioneering the acoustic hailing device (“AHD”) market with the introduction of our first LRAD AHD in 2002 and creating the first multi-directional, voice-based public safety mass notification systems in 2012. Building on our proven, best in class solutions and systems, we offer the first and only unified, end-to-end Protective Communications platform – Genasys Protect.
The platform includes:
Software Products
Genasys Protect
The Complete Protective Communications Platform
Genasys Protect combines the most comprehensive suite of solutions that facilitate preparedness, responsiveness, and analytics to keep people, operations and assets protected against the impacts of natural disasters, terrorism, violent civil unrest, and other dangerous situations, as well as power failures, facility shutdowns, and other non-emergency operational disruptions.
|
1. |
Proven Technology: Genasys solutions have been on the front lines for more than 40 years, providing precision-targeted communications designed to ensure the right people get the right message - right away. |
|
2. |
Modular Suite: Built on open standards, Genasys software and hardware systems are designed to easily integrate, whether using the full Genasys suite or complementing the notification platforms customers already have in place. |
|
3. |
Predictive Simulation: Genasys Protect is designed to assist customers test response plans preemptively with advanced simulation of evacuation-level events, including fires and floods, and their impact on infrastructure, including traffic patterns and perimeter establishment. |
|
4. |
Unified Viewpoint: One common safety operating picture provides real-time visibility into our customers’ people, assets, and environment by combining first-party data from asset / people-management platforms and IoT sensors with vetted third-party data sources, including the Federal Emergency Management Agency (“FEMA”), National Oceanic and Atmospheric Administration, Department of Homeland Security, and more. |
|
5. |
Unmatched Precision: Customized zone mapping enables targeting of mass notifications at the street level, making it easier to sequence response areas from most to least critical. |
|
6. |
Multi-channel: Genasys Protect is designed to empower customers to saturate their notification area by simultaneously alerting people across SMS, voice calls, social media, TV, radio, digital signage, and outdoor acoustic devices to ensure the maximum number of people receive critical notifications. |
|
7. |
Network Effect: Implementation in neighboring municipalities as well as across public and private-sector organizations within the same municipality extends coverage and provides greater precision when notifying people of threats. |
Genasys ALERT
ALERT is an interactive, cloud-based Software as a Service (SaaS) solution that enables SLED and enterprise customers to send critical information to at-risk individuals or groups when an emergency occurs. ALERT 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. ALERT communications to the public can be enhanced via Genasys ACOUSTICS, while ALERT communications among first responders and emergency personnel can be augmented and accelerated with Genasys CONNECT (formerly Evertel). ALERT customers can create and send critical, verified, and secure notifications and messages that are geographically specific and targeted using emails, voice calls, text messages, panic buttons, desktop alerts, TV, social media, and more. Additionally, Genasys is a certified provider of Integrated Public Alert and Warning Systems (“IPAWS”) notifications. IPAWS is the federal public notification platform for the United States, which ALERT customers can use to deliver critical communications in multiple languages to specific populations.
ALERT sends targeted messages based on geographic location, permitting relevant information and instructions to be sent to the appropriate populations. Emergency managers can prepare for natural or man-made disasters by developing evacuation plans that map routes, shelters, traffic control locations, and road closures using ALERT’s extensive public safety resources and mapped zones. This information is easily shared with the public and reduces the time it takes to execute emergency evacuations and conduct orderly repopulations. Auto-Discovery, an innovative feature of the platform, locates and connects with anyone on a wired or wireless network in a fixed area with no opt-in required. When discovered, ALERT anonymizes all recipient information and data. When an emergency occurs, these tools allow at-risk groups or individuals to be notified as quickly as possible without sacrificing their privacy.
In addition to disseminating alerts and notifications, ALERT uses two-way communication tools, including polls and check-ins to receive feedback from targeted populations and first responders. With direct feedback, operators can survey the safety and status of at-risk individuals, learn of developments, update notifications and/or instructions in response to new information, and more.
Similarly, enterprise customers are able to send critical communications to at-risk employees, contractors, visitors, or groups based on geographic location or team status. Operated and controlled via a single dashboard that includes two-way polling, duress buttons, field check-ins and recipient locations, ALERT integrates with various data sources, including sensors, emergency services, active directories, human resources, visitor management, and building control systems to find and deliver safety alerts and notifications to residents, employees, staff, contractors, temporary workers, and visitors.
Genasys EVAC
EVAC empowers responding agencies to react swiftly, make collaborative decisions, and communicate event status in real-time to other agencies, businesses, and the public. EVAC determines and communicates the proper scope of a response or evacuation by replacing guesswork with data-driven intelligence. EVAC enhances safety levels for first responders, communities, and large campuses by providing:
|
● |
intelligent zones to improve evacuation planning and communication. EVAC users can build, edit, and act upon geographical location data, including shelters, facilities, and traffic; |
|
● |
modeling behaviors to plan for effective responses and/or evacuation scenarios covering emergencies that include wildfires, floods, active shooters, hurricanes, and more; |
|
● |
actionable communication through the Genasys Protect mobile app to keep people informed before, during, and after a critical event; |
|
● |
a common operating picture across agencies to reduce response times by 90%; and |
|
● |
targeted alerting across multiple channels, including voice-based mass notification speaker system for timely, efficient evacuation and public safety notifications. |
Genasys CONNECT
CONNECT is a leading cross-agency collaboration platform that streamlines and secures team and one-on-one communications for first responders and public safety agencies. With real-time intelligence sharing that exceeds regulatory privacy requirements for public agencies, CONNECT’s instant communication platform empowers first responders and public safety personnel to collaborate and share information in a single space with text, videos, images, and audio from any location. CONNECT provides a secure space where professionals can exchange information, make decisions, and collaborate with trust in data security. Record retention policies drive compliance that allows agencies and personnel to communicate in confidence.
Enabling public safety professionals to collaborate with other agencies throughout their region, state and country, CONNECT provides real-time interoperability to address critical events and crisis situations more quickly through coordinated efforts. Compliant with all federal and state-level legal requirements for public safety communications, CONNECT data is protected and secured through high-level data encryption within a secure, U.S. based, government-only cloud environment.
Hardware
Genasys ACOUSTICS
ACOUSTICS unites Genasys’ next generation of mass notification speaker systems with Genasys Protect command-and-control software. Most legacy mass notification systems are sirens with limited, if any, voice broadcast capability. ACOUSTICS systems feature the mass notification industry's highest Speech Transmission Index, large directional and omni-directional broadcast coverage areas, and an array of options including solar power, battery backup, and satellite connectivity that facilitate continual ACOUSTICS operation when power and telecommunications infrastructure goes down.
ACOUSTICS gives operators the ability to send critical alerts and notifications from emergency operations centers, and authorized computers or smart phones. Emergency alerts and information can be sent via individual, grouped, or networked ACOUSTICS installations, text messages, emails, IPAWS, desktop alerts, TV, voice calls, and social media. Genasys Protect’s layered redundancy helps to ensure the maximum number of people receive Protective Communications and critical notifications.
LRAD
LRAD is the world’s leading acoustic hailing device (AHD), with the ability to project audible alert tones and voice messages with exceptional clarity in a 30° beam from close range out to 5,500 meters. LRAD systems are used throughout the world in multiple applications and circumstances to safely hail, warn, inform, direct, determine intent, establish large safety zones, de-escalate uncertain situations, alleviate the use of force, and save lives. LRADs have been deployed in numerous defense, law enforcement, public safety, maritime, oil & gas and critical infrastructure security installations, and applications where clear and intelligible voice communications are essential.
Several LRAD models are available in varying audio outputs, communication coverage areas, sizes, and functionalities. Several options and accessories (power pack, searchlights, mounts, and more) are also available to enhance LRAD capabilities.
All LRAD systems are defined by unparalleled audio output and clarity. LRAD systems use Genasys' proprietary XL driver technology, which generates higher audio output in smaller, lighter form factors. The technology also helps ensure voice messages and alert tones cut through background noise and are clearly heard and understood. These competitive advantages, and constant innovation, have made LRAD the de facto standard of the global AHD industry.
Recent Developments
Business developments since September 30, 2023:
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Awarded critical infrastructure project to engineer, procure and build a Genasys Protect for 37 dams in Puerto Rico |
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Expanded Board of Directors to include Bill Dodd, retiring California State Senator, Craig Fugate, former Administrator of the Federal Emergency Management Agency, and Mark Culhane, who served as the Chief Financial Officer of numerous public and private companies |
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Awarded LRAD systems order from Damen Schelde Naval Shipbuilding B.V. (Damen) for the German Navy’s new F-126 frigates, the largest shipbuilding project in the history of the German Navy |
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Received $2.7 million LRAD systems contract from U.S. Navy as part of the Navy’s ongoing replacement of first generation LRADs on surface vessels |
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Entered into $15 million two-year term loan agreement (the “Term Loan”) |
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Partnered with 8 other companies in Project AWARE - a European Union-funded project to extend reception and processing of emergency warning messages from the Galileo Emergency Warning Satellite Service to display panels, indoor warning systems, and ACOUSTICS devices |
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Expanded Genasys EVAC coverage to include all of Los Angeles County, CA under a five-year contract |
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Awarded $2.7 million in initial and follow-on orders under a multi-phase program to deploy LRADs on naval ships and shore installations of a Middle Eastern country |
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Partnered with Ladris Technologies, Inc., an artificial intelligence provider, to deliver comprehensive disaster evacuation modeling solutions across North America and Europe |
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Received $1.0 million contract from the U.S. Army for Common Remotely Operated Weapon Station (“CROWS”) LRAD integration prototypes |
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Completed acquisition of Evertel Technologies, subsequently rebranded as Genasys CONNECT |
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Closed $11.5 million underwritten public offering of common stock |
Revenues for the Company’s third quarter of fiscal 2024, were $7,167, a decrease from $14,262 in the third quarter of fiscal 2023. Software revenue of $2,059 increased $1,121 over the prior year quarter, offset by a decrease of $8,216 in hardware revenue. Third quarter hardware revenue in the prior year included $8,612 from a U.S. Army program of record. Deliveries against this program of record were completed in the fourth quarter of fiscal 2023. Gross profit decreased, compared to the same quarter in the prior year, as a result of lower hardware revenue and reduced overhead absorption, partially offset by an increased higher margin software revenue in this year’s quarter. Operating expenses in the quarter ended June 30, 2024, increased to $9,145, compared with $8,145 in the same period in the prior year. We reported a net loss of $6,682 for the third quarter of fiscal 2024, or $(0.15) per share, compared with a net loss of $1,423, or $(0.04) per share, for the same quarter in the prior year.
In the last six years, the Company has recognized revenue under a $110,000 U.S. Army program of record for Long Range Acoustic Devices. Final deliveries under this program occurred in the fourth quarter of fiscal year 2023. A new, larger multiyear program was approved by Congress in late March 2024, as part of this year’s Defense budget. Due to the timing of the budget passage, and common hurdles in the initial procurement and purchase order process, revenues are not anticipated to begin until after the current fiscal year. Historically, hardware revenue has been characterized by large and inconsistent orders that in aggregate have been a generator of cash for the Company. We continue to be optimistic about our future with the fully funded award of a contract of up to $75,000 to engineer, procure and build an Early Warning System (EWS) for Puerto Rico. We anticipate a majority of revenue from this contract will be realized in our fiscal years 2025 and 2026. In addition, we continue to invest in our Genasys Protect software platform with a significant win this year in Los Angeles County, in addition to wins in other counties in California, Colorado, Utah, and Oregon. The early-stage Software segment continues to generate operating losses; however, revenue continues to grow year over year and segment operating loss has improved incrementally from 2023. With the delay in hardware orders and continued investment in software, the Company’s operating activities have used $21,012 of cash in the first nine months of this fiscal year. To address the ongoing cash needs, the Company completed a follow-on equity offering for $11.5 million in October of 2023, and signed a $15,000, two-year senior secured Term Loan agreement in May. This capital activity is expected to enable the Company to continue operations and return to expected growth in annual revenue and generation of cash from operations through the emergency notification system for Puerto Rico and the new CROWS program for the U.S. Department of Defense.
Business Outlook
Our products, systems, and solutions continue to gain worldwide awareness and recognition through increased marketing efforts, 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, critical event management, enterprise safety, and law enforcement sectors as a result of increasing threats to government, commerce, law enforcement, 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 LRADs and advanced mass notification speakers. We have a reputation for producing quality products that feature industry-leading broadcast area coverage, voice intelligibility, and product reliability. We intend to continue building on our AHD market 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, crisis situations, and civil unrest require technologically advanced, multi-channel solutions to deliver clear and timely protective communications to help keep people safe during critical events. Businesses are also incorporating protective communication and emergency management systems that locate and help safeguard employees and infrastructure 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 enterprise threats.
While the software and hardware mass notification markets are more mature with many established manufacturers and suppliers, we believe that our advanced technology and unified platform provide opportunities to succeed in the large and growing public safety, emergency warning, and critical communications markets.
We intend to continue pursuing domestic and international business opportunities with the support of key representatives and resellers. We plan to grow our revenues through increased direct sales to governments and agencies that desire to integrate our communication technologies into their homeland security and public safety systems. This includes continuing to pursue further U.S. military opportunities. We also plan to pursue domestic and international emergency warning, enterprise and critical event management, government, law enforcement, fire rescue, homeland and international security, private and commercial security, border security, maritime security, critical infrastructure protection, and wildlife preservation business opportunities. In addition to the matters above, we are authorized for the performance of services and provision of goods pursuant to Delaware General Corporation Law.
Our research and development strategy involves incorporating further innovations and capabilities into our Genasys Protect platform to meet the needs of our target markets.
Our Genasys Protect software solutions are more complex 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 ALERT, EVAC, and CONNECT 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.
A large number of LRAD and ACOUSTICS 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 from suppliers in China. It is likely that some of our suppliers source parts in China. Negative impacts on our supply chain could have a material adverse effect on our business.
We have been affected by price increases from our suppliers and logistics as well as other inflationary factors such as increased salary, 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, 2024, 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, 2023. 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.
The following critical accounting policy was not included 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, 2023.
Business Combinations
We apply the provisions of ASC Topic 805, Business Combinations, in accounting for our acquisitions. The acquired assets and assumed liabilities are recorded at their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the fair value of net identifiable assets. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the date of acquisition, as well as any contingent consideration, our estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill. Upon conclusion of the measurement period, or the final determination of values for assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments will be recorded in our consolidated statements of operations.
Accounting for business combinations requires significant judgment, estimates and assumptions at the acquisition date. In developing estimates of fair values at the acquisition date, we utilize a variety of factors including market data, independent experts, historical and future expected cash flows, growth rates and discount rates. The subjective nature of our assumptions increases the risk associated with estimates surrounding the projected performance of the acquired entity.
Comparison of Results of Operations for the Three Months Ended June 30, 2024 and 2023 (in thousands)
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Three Months Ended |
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June 30, 2024 |
June 30, 2023 |
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Amount |
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Amount |
Revenue |
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Revenues: |
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Product sales |
$ | 4,576 | 63.8% | $ | 12,593 | 88.3% | $ | (8,017 | ) | (63.7%) | ||||||||||||||
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Contract and other |
2,591 | 36.2% | 1,669 | 11.7% | 922 | 55.2% | ||||||||||||||||||
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Total revenues |
7,167 | 100.0% | 14,262 | 100.0% | (7,095 | ) | (49.7%) | |||||||||||||||||
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Cost of revenues |
3,383 | 47.2% | 7,567 | 53.1% | 4,184 | 55.3% | ||||||||||||||||||
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Gross Profit |
3,784 | 52.8% | 6,695 | 46.9% | (2,911 | ) | (43.5%) | |||||||||||||||||
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Operating expenses |
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Selling, general and administrative |
6,649 | 92.8% | 6,004 | 42.1% | (645 | ) | (10.7%) | |||||||||||||||||
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Research and development |
2,496 | 34.8% | 2,141 | 15.0% | (355 | ) | (16.6%) | |||||||||||||||||
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Total operating expenses |
9,145 | 127.6% | 8,145 | 57.1% | (1,000 | ) | (12.3%) | |||||||||||||||||
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Loss from operations |
(5,361 | ) | (74.8%) | (1,450 | ) | (10.2%) | (3,911 | ) | 269.7% | |||||||||||||||
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Other income (expense), net |
(1,363 | ) | (19.0%) | 1 | 0.0% | (1,364 | ) | N/A | ||||||||||||||||
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Loss before income taxes |
(6,724 | ) | (93.8%) | (1,449 | ) | (10.2%) | (5,275 | ) | 364.0% | |||||||||||||||
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Income tax benefit |
(42 | ) | (0.6%) | (26 | ) | (0.2%) | 16 | (61.5%) | ||||||||||||||||
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Net loss |
$ | (6,682 | ) | (93.2%) | $ | (1,423 | ) | (10.0%) | $ | (5,259 | ) | 369.6% | ||||||||||||
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Net revenue |
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Hardware |
$ | 5,108 | 71.3% | $ | 13,324 | 93.4% | (8,216 | ) | (61.7%) | |||||||||||||||
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Software |
2,059 | 28.7% | 938 | 6.6% | 1,121 | 119.5% | ||||||||||||||||||
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Total net revenue |
$ | 7,167 | 100.0% | $ | 14,262 | 100.0% | $ | (7,095 | ) | (49.7%) | ||||||||||||||
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US v International Revenue |
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US Revenue |
$ | 6,220 | 86.8% | $ | 13,189 | 92.5% | $ | (6,969 | ) | (52.8%) | ||||||||||||||
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International Revenue |
947 | 13.2% | 1,073 | 7.5% | (126 | ) | (11.7%) | |||||||||||||||||
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Total |
$ | 7,167 | 100.0% | $ | 14,262 | 100.0% | $ | (7,095 | ) | (49.7%) | ||||||||||||||
The table above sets 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 decreased $7,095, or 50%, compared with the third fiscal quarter of the prior year. Hardware revenue decreased $8,216, partially offset by software revenue, which increased $1,121, compared with the prior year quarter. The lower hardware revenue in the third quarter of fiscal 2024 was largely due to the lower backlog at the start of the fiscal year compared with the prior year amount. Third quarter hardware revenue in the prior year included $8,612 from a U.S. Army program of record. Deliveries against this program of record were completed in the fourth quarter of fiscal 2023. A new, similar sized program has been included as part of the Department of Defense fiscal year 2024 authorization. The higher software revenue was primarily due to a 138% increase in recurring 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, 2024, we had aggregate deferred revenue of $343 for extended warranty obligations and software support agreements.
Gross Profit
Gross profit decreased $2,911, or 44%, compared with the same quarter in the prior year. The decrease in gross profit was due to lower hardware revenue and related reduced overhead absorption, partially offset by higher margin software in the current year’s third quarter. Gross profit as a percentage of sales was higher compared with the prior year period primarily due to a better mix of revenue as higher margin software was 29% of total revenue in the third quarter of fiscal 2024.
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 $645, or 11%, over the prior year quarter. The increase was largely due to $753 of higher professional services expense, and an increase of $95 of amortization expense from the Evertel acquisition, offset by a $108 decrease in non-cash share-based compensation expense.
We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the three months ended June 30, 2024 and 2023 of $243 and $351, 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 $355, or 17%, in the fiscal third quarter due to an increase in engineers over the prior year period, including the addition of Evertel software development activities.
Included in research and development expenses for the three months ended June 30, 2024 and 2023, were $29 and $26, 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 fiscal year compared to the prior fiscal year.
Other (Expense) Income , Net
Other expense, net was $1,363 in the third quarter this fiscal year, compared to other income, net of $1 in the prior fiscal year quarter. The expense in the current fiscal period was primarily due to $1,121 of professional expenses related to the $15,000 secured Term Loan agreement, $197 of interest expense from the Term Loan and $103 from the net change in fair value of the Term Loan and related warrants, partially offset by $52 of interest income.
Net Loss
Net loss in the third quarter of fiscal year 2024 was $6,682, compared with a net loss of $1,423 in the third quarter of fiscal year 2023. The increase in net loss was primarily due to the lower revenue in the current year fiscal third quarter. The income tax benefit in the current year period is primarily due to a prior year foreign income tax true-up.
Comparison of Results of Operations for the Nine Months Ended June 30, 2024 and 2023 (in thousands)
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Nine Months Ended |
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June 30, 2024 |
June 30, 2023 |
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Revenue |
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Revenues: |
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Product sales |
$ | 9,951 | 57.6% | $ | 31,651 | 88.0% | $ | (21,700 | ) | (68.6%) | ||||||||||||||
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Contract and other |
7,316 | 42.4% | 4,311 | 12.0% | 3,005 | 69.7% | ||||||||||||||||||
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Total revenues |
17,267 | 100.0% | 35,962 | 100.0% | (18,695 | ) | (52.0%) | |||||||||||||||||
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Cost of revenues |
9,827 | 56.9% | 19,510 | 54.3% | 9,683 | 49.6% | ||||||||||||||||||
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Gross Profit |
7,440 | 43.1% | 16,452 | 45.7% | (9,012 | ) | (54.8%) | |||||||||||||||||
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Operating expenses |
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Selling, general and administrative |
19,806 | 114.7% | 18,443 | 51.3% | (1,363 | ) | (7.4%) | |||||||||||||||||
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Research and development |
7,218 | 41.8% | 6,357 | 17.7% | (861 | ) | (13.5%) | |||||||||||||||||
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Total operating expenses |
27,024 | 156.5% | 24,800 | 69.0% | (2,224 | ) | (9.0%) | |||||||||||||||||
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Loss from operations |
(19,584 | ) | (113.4%) | (8,348 | ) | (23.2%) | (11,236 | ) | 134.6% | |||||||||||||||
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Other expense, net |
(1,236 | ) | (7.2%) | (4 | ) | (0.0%) | (1,232 | ) | N/A | |||||||||||||||
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Loss before income taxes |
(20,820 | ) | (120.6%) | (8,352 | ) | (23.2%) | (12,468 | ) | 149.3% | |||||||||||||||
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Income tax benefit |
(476 | ) | (2.8%) | (18 | ) | (0.1%) | 458 | (2,544.4%) | ||||||||||||||||
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Net loss |
$ | (20,344 | ) | (117.8%) | $ | (8,334 | ) | (23.2%) | $ | (12,010 | ) | 144.1% | ||||||||||||
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Net revenue |
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Hardware |
$ | 12,053 | 69.8% | $ | 33,269 | 92.5% | (21,216 | ) | (63.8%) | |||||||||||||||
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Software |
5,214 | 30.2% | 2,693 | 7.5% | 2,521 | 93.6% | ||||||||||||||||||
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Total net revenue |
$ | 17,267 | 100.0% | $ | 35,962 | 100.0% | $ | (18,695 | ) | (52.0%) | ||||||||||||||
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US v International Revenue |
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US Revenue |
$ | 12,837 | 74.3% | $ | 32,371 | 90.0% | (19,534 | ) | (60.3%) | |||||||||||||||
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International Revenue |
4,430 | 25.7% | 3,591 | 10.0% | 839 | 23.4% | ||||||||||||||||||
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Total |
$ | 17,267 | 100.0% | $ | 35,962 | 100.0% | $ | (18,695 | ) | (52.0%) | ||||||||||||||
The table above sets 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 decreased $18,695, or 52%, for the nine months ended June 30, 2024, compared with the same prior year period, primarily due to the lower backlog as of September 30, 2023, compared with September 30, 2022. Hardware revenue decreased $21,216, partially offset by the $2,521 increase in software revenue. Nine months year to date hardware revenue in the prior year included $19,712 from a U.S. Army program of record. Deliveries against this program of record were completed in the fourth quarter of fiscal 2023. A new, similar sized program has been included as part of the Department of Defense fiscal year 2024 authorization. The higher software revenue was primarily due to a 117% increase in recurring revenue, partially offset by lower professional services performed in the current year nine-month period. The receipt of orders will often be uneven due to the timing of approvals or budgets. As of June 30, 2024, we had aggregate deferred revenue of $343 for extended warranty obligations and software support agreements.
Gross Profit
The $9,012 decrease in gross profit in the nine months ended June 30, 2024, was primarily due to the lower hardware revenue and related reduced overhead absorption, partially offset by higher margin software revenue compared to the prior year period.
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 $1,363 in the nine months ended June 30, 2024, compared with the prior year period. The increase in selling, general and administrative expenses was largely due to an $819 increase in professional services expenses, a $307 increase in commission expense, and an additional $284 of amortization expenses for the Evertel acquisition, partially offset by a $100 decrease in non-cash share-based compensation expense, compared with the prior year to date period.
We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the nine months ended June 30, 2024 and 2023 of $1,071 and $1,171, 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 $861, primarily due to increased compensation-related costs associated with an increase in engineers compared with the prior year period, including the addition of Evertel software development activities.
We incurred non-cash share-based compensation expenses allocated to research and development in the nine months ended June 30, 2024 and 2023 of $129 and $78, 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.
Other Expenses, Net
Other expense, net was $1,236 for the nine months ended June 30, 2024, compared to $4 in the prior fiscal year period. The expense in the current fiscal period was primarily due to $1,121 of professional expenses related to the $15,000 secured Term Loan agreement, $197 of interest expense from the Term Loan, and $103 from the net change in fair value of the Term Loan and related warrants, partially offset by $166 of interest income.
Net Loss
Net loss for the first nine months of fiscal 2024 was $20,344, compared with the prior year period net loss of $8,334. The increase in net loss was primarily attributable to the lower revenue and higher operating expenses in the current year.
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.
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):
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Three Months Ended |
Nine Months Ended |
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June 30, |
June 30, |
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2024 |
2023 |
2024 |
2023 |
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Net loss |
$ | (6,682 | ) | $ | (1,423 | ) | $ | (20,344 | ) | $ | (8,334 | ) | ||||
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Other (income) expense, net |
1,363 | (1 | ) | 1,236 | 4 | |||||||||||
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Income tax benefit |
(42 | ) | (26 | ) | (476 | ) | (18 | ) | ||||||||
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Depreciation and amortization |
733 | 636 | 2,193 | 1,918 | ||||||||||||
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Stock-based compensation |
299 | 396 | 1,269 | 1,329 | ||||||||||||
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Adjusted EBITDA |
$ | (4,329 | ) | $ | (418 | ) | $ | (16,122 | ) | $ | (5,101 | ) | ||||
Segment Results
Segment results include net sales and operating income by segment. Corporate expenses, including various administrative expenses and costs of a publicly traded company, are included in the Hardware segment as per historical financial reporting.
Comparison of Segment Adjusted EBITDA for the Three Months Ended June 30, 2024 and 2023 (in thousands)
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Software |
Hardware |
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Three Months Ended |
Three Months Ended |
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June 30, |
Fav (Unfav) |
June 30, |
Fav (Unfav) |
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2024 |
2023 |
$ |
% |
2024 |
2023 |
$ |
% |
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Revenue |
$ | 2,059 | $ | 938 | $ | 1,121 | 119.5 | % | $ | 5,108 | $ | 13,324 | $ | (8,216 | ) | (61.7 | %) | |||||||||||||||
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Operating loss |
(3,441 | ) | (3,752 | ) | 311 | (8.3 | %) | (1,920 | ) | 2,302 | (4,222 | ) | (183.4 | %) | ||||||||||||||||||
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Reconciliation of GAAP to Non-GAAP |
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Depreciation and amortization |
634 | 539 | 95 | 17.6 | % | 99 | 97 | 2 | 2.1 | % | ||||||||||||||||||||||
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Stock-based compensation |
150 | 99 | 51 | 51.5 | % | 149 | 297 | (148 | ) | (49.8 | %) | |||||||||||||||||||||
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Adjusted EBITDA |
$ | (2,657 | ) | $ | (3,114 | ) | $ | 457 | (14.7 | %) | $ | (1,672 | ) | $ | 2,696 | $ | (4,368 | ) | (162.0 | %) | ||||||||||||
Software Segment
Software segment revenue increased 1,121, or 120%, over the prior fiscal year. This primarily reflects a 138% increase in recurring revenue compared with the prior fiscal year.
Operating loss decreased $311 in the fiscal third quarter of the current year due to increased gross profit generated from higher revenue offset by increased operating expenses, including amortization expense, from the Evertel acquisition.
Hardware Segment
Hardware segment revenue decreased $8,216, or 62%, over the prior year. The decrease was largely due to the lower backlog at the start of this fiscal year compared with the prior year amount. Fiscal third quarter hardware revenue in the prior year included $8,612 from a U.S. Army program of record. Deliveries against this program of record were completed in the fourth quarter of fiscal 2023. A new, similar sized program has been included as part of the Department of Defense fiscal year 2024 authorization.
Operating income decreased $4,222 in the current fiscal year period due to the lower revenue and resultant gross profit and increased professional services expenses.
Comparison of Segment Adjusted EBITDA for the Nine Months Ended June 30, 2024 and 2023 (in thousands)
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Software |
Hardware |
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Nine Months Ended |
Nine Months Ended |
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June 30, |
Fav (Unfav) |
June 30, |
Fav (Unfav) |
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2024 |
2023 |
$ |
% |
2024 |
2023 |
$ |
% |
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Revenue |
$ | 5,214 | $ | 2,693 | $ | 2,521 | 93.6 | % | $ | 12,053 | $ | 33,269 | $ | (21,216 | ) | (63.8% | ) | |||||||||||||||
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Operating (loss) Income |
(11,778 | ) | (11,009 | ) | (769 | ) | 7.0 | % | (7,806 | ) | 2,661 | (10,467 | ) | (393.3% | ) | |||||||||||||||||
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Reconciliation of GAAP to Non-GAAP |
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Depreciation and amortization |
1,900 | 1,622 | 278 | 17.1 | % | 293 | 296 | (3 | ) | (1.0% | ) | |||||||||||||||||||||
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Stock-based compensation |
409 | 321 | 88 | 27.4 | % | 860 | 1,008 | (148 | ) | (14.7% | ) | |||||||||||||||||||||
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Adjusted EBITDA |
$ | (9,469 | ) | $ | (9,066 | ) | $ | (403 | ) | 4.4 | % | $ | (6,653 | ) | $ | 3,965 | $ | (10,618 | ) | (267.8% | ) | |||||||||||
Software Segment
Software segment revenue increased 94% over the prior fiscal year nine-month period. This primarily reflects a 117% increase in recurring revenue compared with the first nine months of the prior fiscal year. Excluding revenue from this year’s acquisition of Evertel, recurring revenue increased 85% over the same prior year nine-month period.
Operating loss increased $769 in the nine-month period of this fiscal year due to increases from the addition of Evertel operating expenses, including amortization expense and higher commission expense from increased revenues.
Hardware Segment
Hardware segment revenue decreased $21,216, or 64%, over the prior year. The decrease was largely due to the lower backlog at the start of this fiscal year compared with the prior year amount. Nine months year to date hardware revenue in the prior year included $19,712 from a U.S. Army program of record. Deliveries against this program of record were completed in the fourth quarter of fiscal 2023. A new, similar sized program has been included as part of the Department of Defense fiscal year 2024 authorization.
Operating income decreased $10,467 compared with the prior fiscal year due to lower revenue and resulting lower gross profit and increased professional services expense.
Liquidity and Capital Resources
Cash and cash equivalents as of June 30, 2024 were $8,672, compared with $8,665 as of September 30, 2023. We had short-term marketable securities of $4,046 as of June 30, 2024, compared with $1,481 as of September 30, 2023.Other than cash and cash equivalents, short term marketable securities, other working capital and expected future cash flows from operating activities in subsequent periods, we have no unused sources of liquidity at this time.
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 the availability of our internally generated funds include:
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ability to meet sales projections; |
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government spending levels; |
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introduction of competing technologies; |
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product mix and effect on margins; |
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release of bid bond associated with Puerto Rico award; |
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ability to reduce and manage current inventory levels; and |
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product acceptance in new markets; |
Principal factors that could affect our ability to obtain cash from external sources include:
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volatility in the capital markets; and |
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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:
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Nine Months Ended |
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June 30, 2024 |
June 30, 2023 |
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Cash provided by (used in): |
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Operating activities |
$ | (20,010 | ) | $ | (12,822 | ) | ||
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Investing activities |
$ | (4,389 | ) | $ | 3,079 | |||
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Financing activities |
$ | 23,916 | $ | (165 | ) | |||
Operating Activities
Net loss of $20,344 for the nine months ended June 30, 2024 was decreased by $3,713 of non-cash items that included depreciation and amortization, share-based compensation, warranty provision, change in fair value of warrants and Term Loan, amortization of operating lease ROU assets, accretion of acquisition related liabilities and inventory obsolescence. Cash used by operating activities in the current year reflected an increase in prepaids and other assets of $3,996, an increase in inventory of $952, and a decrease in accrued liabilities of $641. This was offset by an increase in accounts payable of $1,776 and a decrease in accounts receivable of $434.
Net loss of $8,334 for the nine months ended June 30, 2023 was decreased by $4,080 of non-cash items that included share-based compensation, warranty provision, depreciation and amortization, amortization of operating lease ROU assets, accretion of acquisition holdback liability, and inventory obsolescence. Cash used by operating activities in the current year reflected an increase in inventory of $2,127 and accounts receivable of $3,570, and a decrease in accrued and other liabilities of $5,581, comprised of a decrease in the balances of customer deposits received, payment of the Canadian GST/HST, and payment of incentive compensation earned in fiscal year 2022. This was offset by a $1,755 decrease in prepaid expenses and a $955 increase in accounts payable.
We had accounts receivable of $5,661 as of June 30, 2024, compared with $5,952 as of September 30, 2023. 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, 2024 and September 30, 2023, our working capital was $19,350 and $13,949, respectively. The increase in working capital was primarily due to cash raised through financing activities, offset by Evertel acquisition-related expenses, acquired liabilities and the fiscal year to date net loss.
Investing Activities
Our net cash used in investing activities was $4,389 for the nine months ended June 30, 2024, compared with net cash provided by investing activities of $3,079 for the nine months ended June 30, 2023. In the first nine months of fiscal 2024, we increased our holdings in marketable securities by $2,556, compared with a decrease of $3,308 for the nine months ended June 30, 2023. Cash used in investing activities for acquisition of Evertel was $908 and cash used to pay the Amika holdback liability was $764. The Company also used $161 and $229 for the purchase of property and equipment during the nine months ended June 30, 2024, and 2023, respectively. We anticipate additional expenditures for tooling and equipment during the balance of fiscal year 2024.
Financing Activities
In the nine months ended June 30, 2024, we received $23,916 through financing activities, compared with $165 used by financing activities for the nine months ended June 30, 2023. In the first nine months of fiscal 2024, we received $13,698 in net proceeds from the Term Loan, and $10,449 in net proceeds from an offering of the Company’s common stock and used $12 to settle statutory tax withholding requirements upon vesting of restricted stock units and 219 used to pay contingent consideration. In the first nine months of fiscal 2023, we received $87 from the exercise of stock options and used $45 to settle statutory tax withholding requirements upon vesting of restricted stock units and used $207 to settle statutory tax withholding requirements upon the exercise of stock options.
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 $5,000 of its outstanding common shares. In December 2022, the Board of Directors extended the Company’s share buyback program through December 31, 2024. The previous program expired on December 31, 2018.
There were no shares repurchased during the nine months ended June 30, 2024 and June 30, 2023. All repurchased shares have been retired and as of June 30, 2024 and $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.
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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.
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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, 2024.
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, 2024, 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
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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.
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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, 2023, filed with the SEC on December 7, 2023.
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
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Item 3. |
Defaults Upon Senior Securities. |
None.
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Item 4. |
Mine Safety Disclosures. |
Not Applicable.
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Item 5. |
Other Information. |
During the quarter ended June 30, 2024, of our directors or executive officers adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as that term is used in SEC regulations.
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Item 6. |
Exhibits. |
* 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.
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GENASYS INC. |
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Date: August 6, 2024 |
By: |
/s/ Dennis D. Klahn |
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Dennis D. Klahn, Chief Financial Officer |
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(Principal Financial Officer) |
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