The discussion and analysis set forth below should be read in conjunction with the information presented in other sections of this Annual Report on Form 10-K, including "Item 1. Business," "Item 1A. Risk Factors," and "Item 8. Financial Statements and Supplementary Data." This discussion contains forward-looking statements which are based on our current expectations and industry experience, as well as our perception of historical trends, current market conditions, current economic data, expected future developments and other factors that we believe are appropriate under the circumstances. These statements involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements. Overview
Genasysis a global provider of critical communications hardware and software solutions designed to alert, inform, and protect people. Our unified software/hardware 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 Genasyscritical communications platform uses this information to create and disseminate alerts, warnings, notifications, and instructions to at-risk individuals and populations through multiple channels before, during, and after public safety and enterprise threats, critical events, and other crisis situations.
Our unified critical communications platform includes:
Software GEM Public Safety GEM Public Safety is an interactive, cloud-based SaaS solution that enables State, Local and Education ("SLED") customers to send critical information to at-risk individuals or groups when an emergency occurs. GEM acts as both a communications input and output, receiving information from state-of-the-art sensors and emergency services, and quickly relaying notifications, alerts, and instructions to at-risk populations and first responders. GEM customers can create and send critical, verified, and secure notifications and messages using emails, voice calls, text messages, panic buttons, desktop alerts, television, social media, and more. GEM Enterprise GEM Enterprise empowers businesses and organizations 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, GEM Enterprise solutions integrate with data sources, including active directories, human resources, visitor management, and building control systems to find and deliver safety alerts and notifications to employees, staff, contractors, temporary workers, and visitors. Zonehaven Zonehaven is a multipronged SaaS application that serves both first responders and the jurisdictions they protect. Emergency services agencies can prepare for natural or man-made disasters by developing evacuation plans that map routes, shelters, traffic control locations, and road closures using Zonehaven'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. NEWS NEWS provides multichannel public safety notifications and instructions to designated areas, groups, or agencies when a crisis occurs. The NEWS platform is cloud-based, geo-redundant, and end-to-end encrypted. NEWS is a SaaS product that requires mobile telecom services for installation and integration.
Genasyspartners with mobile telecom networks to provide the channels to deliver NEWS SMS and CBC alerts and notifications that can be sent to anyone, anywhere, with no recipient opt-in, registration or download required. Hardware IMNS The IMNS product line unites Genasysnext generation of mass notification speaker systems with GEM command-and-control software. Most legacy mass notification systems sound sirens, but have limited, if any, voice broadcast capability. Genasys'advanced mass notification systems feature the industry's highest STI, large directional and omni-directional broadcast coverage areas, and an array of options that enable the systems to continue to operate when power and telecommunications infrastructure goes down. 24 --------------------------------------------------------------------------------
LRAD The LRAD is the world's leading AHD. Projecting alert tones and audible voice messages with exceptional vocal clarity in a 30° beam from close range to 5,500 meters, LRADs are used throughout the world in multiple applications and circumstances to safely hail, warn, inform, direct, prevent misunderstandings, determine intent, establish large safety zones, resolve uncertain situations, and save lives. LRADs have been deployed on military vehicles, at corporate headquarters, in hostage negotiations, aboard private yachts, and in numerous other situations where clear and intelligible voice communications are essential. Our critical communications platform is being used in more than 100 countries to help safeguard millions of people in a range of diverse applications that include public safety, emergency warning, mass notification, defense, law enforcement, border and
homeland security, critical infrastructure protection, and many more. We continue to develop new critical communications innovations and believe we have established significant competitive advantages in our principal markets. Recent Developments
In the fiscal year ended
? Validated SaaS platform and business model ? Accelerated momentum in software service sales
? Received multi-year enterprise SaaS contract from a second global automaker
? Landed new SaaS contracts in the Utility sector ? Captured 10 cross-selling opportunities ? Expanded geographic reach in 19 new
? Significantly increased the number of customers for
suite of public safety, emergency warning, and evacuation solutions
? Announced GEM government and enterprise software contracts and expanded GEM
and Zonheaven software services in multiple cities, counties, and states
? Awarded NEWS contract to power
? Grew hardware sales by 15% due to a 457% increase in Integrated Mass Notification System revenue
? Announced GEM government and enterprise software contracts and expanded GEM
and Zonehaven software services in multiple cities, counties, and states
? Awarded NEWS contract to power
? Announced next generation IMNS installations in
order ? Received and shipped orders for the new LRAD 950NXT, the Company's next generation remotely operated long-range communications system Business Outlook Our products, systems, and solutions continue to gain worldwide awareness and recognition through media exposure, product demonstrations, and word of mouth as a result of positive responses and increased acceptance. We believe we have a solid global brand, technology, and product foundation, which we continue to expand to serve new markets and customers for greater business growth. We believe we have strong market opportunities for our product offerings throughout the world in the defense, public safety, emergency warning, mass notification, critical event management, 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 control and preservation business segments. 25 -------------------------------------------------------------------------------- Genasyshas 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, vocal 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, emergency events, and civil unrest require technologically advanced, multi-channel solutions to deliver clear and timely critical communications to help keep people safe during crisis situations. Businesses are also incorporating critical communication and emergency management systems that locate and help safeguard employees when crises occur. By providing the only SaaS platform that unifies sensors and IoT inputs with multichannel, multiagency alerting and notifications, Genasysseeks 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 provides opportunities to succeed in the large and growing public safety, emergency warning and critical communications markets. In fiscal 2023, we intend to continue pursuing domestic and international business opportunities with the support of business development consultants, 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 securityand public safety systems. This includes building on fiscal 2022 domestic defense sales by pursuing further U.S.military opportunities. We also plan to pursue emergency warning, enterprise and critical event management, government, law enforcement, fire rescue, homeland and international security, private and commercial security, border security, maritime security, and wildlife preservation and control 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 GEM, Zonehaven, NEWS, IMNS and LRAD products, systems, and solutions to meet the needs of our target markets. Our GEM, Zonehaven, and NEWS 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 GEM, Zonehaven, and NEWS software solutions to compete for larger emergency warning and critical communications business opportunities. We are also configuring alternative solutions to achieve lower price points to meet the needs of certain customers or applications. We also engage in ongoing value engineering to reduce the cost and simplify the manufacturing of our products. A large number of components and sub-assemblies manufactured by outside suppliers within our supply chain are produced within 50 miles of our facility. We do not source component parts from suppliers in China. It is likely that some of our suppliers source parts in China. The aftermath of the COVID-19 pandemic continues to impact worldwide supply chains and the ability to obtain sufficient amounts of component parts, including semiconductor chips and integrated circuits, resins, coating and other equipment and components. Negative impacts on our supply chain could have a material adverse effect on our business. We communicate with our suppliers regarding measures to alleviate ongoing worldwide supply chain issues. 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 September 30, 2022, sustained or increased inflation in the future may have a negative effect on our ability to achieve certain expectations in gross margin and operating expenses. If we are unable to offset the negative impacts of inflation with increased prices, our future results could be materially affected.
Critical Accounting Policies and Estimates
We have identified the policies below as critical to our business operations and to understanding our results of operations. Our accounting policies are more fully described in our consolidated financial statements and related notes located in "Item 8. Financial Statements and Supplementary Data." The impact and any associated risks related to these policies on our business operations are discussed in "Item 1A. Risk Factors" and throughout "Item 7. 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 generally accepted accounting principles in the
U.S., 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. These estimates affect the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. 26 --------------------------------------------------------------------------------
Revenue Recognition Accounting Standards Codification 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: 1. Identify the contract(s) with customers 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations 5. Recognize revenue when the performance obligations have been satisfied ASC 606 requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. We derive our revenue from the sale of products and services to customers, contracts, license fees, other services, and freight. The Company sells its products and services 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 our 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. Our customers do not have a right to return product unless the product is found defective and therefore our 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
We offer 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 contracts are recognized on a straight-line basis over the warranty period and maintenance contracts are recognized based on time elapsed over the service period. Revenue from other services such as training or installation is recognized when the service is completed. Warranty, maintenance and services are classified as contract and other revenues.
Multiple element arrangements
The Company has entered into a number of multiple element arrangements, such as when selling a product or perpetual licenses that may include maintenance and support (included in the price of the perpetual licenses) and time-based licenses (that include embedded maintenance and support, both of which may be sold with software development services, training, and other product sales). In some cases, the Company delivers software development services bundled with the sale of the software. In multiple element arrangements, the Company uses either the stand-alone selling price or an expected cost plus margin approach to determine the fair value of each element within the arrangement, including software and software-related services such as maintenance and support. In general, elements in such arrangements are also sold on a stand-alone basis and stand-alone selling prices are available. 27 -------------------------------------------------------------------------------- Revenue is allocated to each deliverable based on the fair value of each individual element and is recognized when the revenue recognition criteria described above are met, except for time-based licenses, which are not unbundled. When software development services are performed to customize 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. We currently disaggregate revenue by reporting segment (Hardware and Software) and geographically to depict the nature of revenue in a manner consistent with our business operations and to be consistent with other communications and public filings. Refer to Note 18, Segment Information and Note 19, Major Customers, Suppliers and Related Information for additional details of revenues by reporting segment and disaggregation of revenue. Share-Based Compensation. We account for share-based compensation in accordance with the provisions of
Financial Accounting Standards Board("FASB") Accounting Standards Codification ("ASC") 718, "Compensation-Stock Compensation" ("ASC 718") which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants and directors based on estimated fair values. ASC 718 requires the use of subjective assumptions, including expected stock price volatility and the estimated term of each award. We estimate the fair value of stock options granted using the Black-Scholes option-pricing model, which is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. This model also utilizes the fair value of our common stock and requires that, at the date of grant, we use the expected term of the share-based award, the expected volatility of the price of our common stock over the expected term, the risk-free interest rate and the expected dividend yield of our common stock to determine the estimated fair value. We determine the amount of share-based compensation expense based on awards that we ultimately expect to vest, reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Allowance for doubtful accounts. Our products are sold to customers in many different markets and geographic locations. We estimate our bad debt reserve on a case-by-case basis due to a limited number of customers. We base these estimates on many factors, including customer credit worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Our judgments and estimates regarding collectability of accounts receivable have an impact on our financial statements. Valuation of Inventory. Our inventory is comprised of raw materials, assemblies and finished products. We must periodically make judgments and estimates regarding the future utility and carrying value of our inventory. The carrying value of our inventory is periodically reviewed and impairments, if any, are recognized when the expected future benefit from our inventory is less than its carrying value. Valuation of Intangible Assets. Intangible assets consist of technology, customer relationships, trade name portfolio, and non-compete agreements acquired in the acquisitions of Genasys Spain and Zonehaven and the Amika Mobile asset purchase and patents and trademarks that are amortized over their estimated useful lives. We must make judgments and estimates regarding the future utility and carrying value of intangible assets. The carrying values of such assets are periodically reviewed and impairments, if any, are recognized when the expected future benefit to be derived from an individual intangible asset is less than its carrying value. This generally occurs when certain assets are no longer consistent with our business strategy and whose expected future value has decreased. Valuation of Goodwill. Goodwillis recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets acquired. We evaluate goodwill for impairment on an annual basis in our fiscal fourth quarter or more frequently if indicators of impairment exist that would more likely than not reduce the fair value of a single reporting unit below the carrying amount. We assess qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. The qualitative factors evaluated by management include: macro-economic conditions of the local business environment, overall financial performance, and other entity specific factors as deemed appropriate. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit's fair value is less than the carrying amount, a two-step impairment test is performed. For reporting units where we perform the quantitative goodwill impairment test, an impairment loss is recorded to the extent that the reporting unit's carrying amount exceeds the reporting unit's fair value. An impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit. Derivatives. We use derivative financial instruments to manage risk related to changes in foreign currency exchange rates. We do not hold derivative financial instruments of a speculative nature or for trading purposes. We record all derivatives on the consolidated balance sheet at fair value using available market information and other observable data. See Note 5, Fair Value Measurements for further discussion. 28 -------------------------------------------------------------------------------- Accrued Expenses. We establish a warranty reserve based on anticipated warranty claims at the time product revenue is recognized. This reserve requires us to make estimates regarding the amount and costs of warranty repairs we expect to make over a period of time. Factors affecting warranty reserve levels include the number of units sold, anticipated cost of warranty repairs, and anticipated rates of warranty claims. Warranty expense is recorded in cost of revenues. We evaluate the adequacy of this reserve each reporting period. We use the recognition criteria of ASC 450-20, "Loss Contingencies" to estimate the bonus amount when it becomes probable a bonus liability will be incurred and we recognize expense ratably over the service period. We accrue bonus expense each quarter based on estimated year-end results, and then adjust the actual in the fourth quarter based on our final results compared to targets. Deferred Tax Asset. We evaluate quarterly the realizability of the deferred tax assets and assess the need for a valuation allowance. We record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Utilization of the net operating loss ("NOL") carryforwards in future years could be substantially limited due to restrictions imposed under federal and state laws upon a change in ownership or control. Included in the NOL carryforwards are deductions from stock options that, if recognized, will be recorded as a credit to additional paid-in capital rather than through our results of operations. In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. These estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the ability to recover deferred tax assets. The Company will continue to evaluate the ability to realize its net deferred tax assets on an ongoing basis to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the ability to realize deferred tax assets and will adjust the valuation accordingly.
Recent Accounting Pronouncements
New pronouncements issued for future implementation are discussed in Note 3,
Recent Accounting Pronouncements, to our consolidated financial statements.
Segment and Related Information
We are engaged in the design, development, and commercialization of critical communications hardware and software solutions designed to alert, inform and protect people. The Company operates in two business segments: Hardware and Software and its principal markets are
North and South America, Europe, Middle Eastand 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 and transactions between the two operating segments are eliminated in consolidation. Refer to Note 18, Segment Information, in our consolidated financial statements for further discussion. 29
Comparison of Results of Operations for Fiscal Years Ended
The following table provides for the periods indicated certain items of our consolidated statements of operations expressed in thousands of dollars and as a percentage of net sales. The financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this Annual Report. Years ended September 30, 2022 September 30, 2021 % of % of Total Total Fav(Unfav) Amount Revenue Amount Revenue Amount % Revenues: Product sales
$ 48,63790.0 % $ 41,60288.5 % $ 7,03516.9 % Contract and other 5,398 10.0 % 5,401 11.5 % (3 ) (0.1 %) Total revenues 54,035 100.0 % 47,003
100.0 % 7,032 15.0 %
Cost of revenues 27,693 51.3 % 23,577 50.2 % (4,116 ) (17.5 %) Gross Profit 26,342 48.7 % 23,426
49.8 % 2,916 12.4 %
Operating expenses Selling, general and administrative 21,688 40.1 % 17,424 37.1 % (4,264 ) (24.5 %) Goodwill impairment 13,162 24.4 % - 0.0 % (13,162 ) (100.0 %) Research and development 7,023 13.0 % 4,918 10.5 % (2,105 ) (42.8 %) Total operating expenses 41,873 77.5 % 22,342
47.5 % (19,531 ) (87.4 %)
(Loss) income from operations (15,531 ) (28.7 %) 1,084
2.3 % (16,615 ) (1532.7 %)
Other income, net 60 0.1 % 54 0.1 % 6 11.1 % (Loss) income before income taxes (15,471 ) (28.6 %) 1,138 2.4 % (16,609 ) (1459.5 %) Income tax expense 741 1.4 % 434 0.9 % (307 ) (70.7 %) Net loss
$ (16,212 )(30.0 %) $ 704
Net revenues Hardware
$ 50,93894.3 % $ 44,23394.1 % 6,705 15.2 % Software 3,097 5.7 % 2,770 5.9 % 327 11.8 % Total net revenues $ 54,035100.0 % $ 47,003100.0 % $ 7,03215.0 % Revenues Revenues increased $7.0 million, or 15%, in the fiscal year ended September 30, 2022. Current fiscal year AHD revenue was $39.5 million, IMNS revenue was $11.4 million, and software revenue was $3.1 million. This represented increases of $9.4 million, or 457%, for IMNS and $0.3 million, or 11%, for software, offset by a decrease of $2.7, or 6%, for AHD revenue compared with the prior year. The receipt of orders is often uneven due to the timing of government budgets or approvals. The increase in software revenue in this fiscal year is largely due to growth in SaaS revenue, partially offset by lower professional services revenue on new software contracts. As of September 30, 2022, we had aggregate deferred revenue and prepayments from customers in advance of product shipment of $6.8 million. The receipt of orders will often be uneven due to the timing of customers' approval or budget cycles. Gross Profit Gross profit for the year ended September 30, 2022, increased $2.9 millionor 12.4% compared to fiscal year 2021. This was primarily due to higher sales volume, offset by increased costs associated with continued investment in personnel to support the growth of our software products and higher product costs in the second half of fiscal year 2022. Gross margin as a percentage of sales was 48.7% this year, compared to 49.8% in the prior year. Our products have varying gross margins, so product mix may affect gross profits. In addition, our margins vary based on the sales channels through which our products are sold in a given period. We continue to implement product updates and changes, including raw material and component changes that may impact product costs. With such product updates and changes we have limited warranty cost experience and estimated future warranty costs can impact our gross margins. We do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins. 30 --------------------------------------------------------------------------------
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by
$4.3 million, or 24.5%. The increase was primarily due to $1.9 millionof additional employee related costs, largely associated with our 13% increase in sales and administration personnel over the prior year to support software revenue growth opportunities. In addition, amortization expense increased $1.0 million, and marketing related, and travel expenses increased $1.2 millionover the prior year. We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses for fiscal 2022 and 2021 of $2.1 millionand $1.3 million, respectively.
We may expend additional resources on the marketing and selling of our products
in future periods as we identify ways to optimize potential business
opportunities. Commission expense will fluctuate based on the nature of our
Goodwill Impairment As a result of the annual goodwill impairment analysis, we recognized a
$13.2 millionnon-cash goodwill impairment charge in our Software segment for the year ended September 30, 2022. For more information, refer to Note 2, Basis of Presentation and Significant Accounting Policies and Note 8, Goodwilland Intangible Assets.
Research and Development Expenses
R&D expenses increased by
staffing from 79 to 96.
Included in R&D expenses for the year ended
September 30, 2022was $70 thousandof non-cash share-based compensation expenses, compared to $40 thousandfor the year ended September 30, 2021. Other Income, net
Other income, net, increased by
and realized gains and losses on foreign currency translation.
Net (Loss) Income The net loss of
$16.2 millionfor fiscal 2022 was a decrease of $16.9 millioncompared to fiscal year 2021. This was primarily due to a $13.2 milliongoodwill impairment charge taken in the fourth quarter of fiscal 2022. Pretax income in fiscal year 2022 was $16.9 millionless than the prior year primarily due to a $13.2 milliongoodwill impairment charge and $3.5 millionincrease in operating expenses. Income tax expense increased in fiscal year 2022 primarily due to a $1.0 millionnon-cash charge related to a valuation allowance against deferred tax assets. For additional details, refer to Note 13, Income Taxes, in our consolidated financial statements. Other Metrics We monitor a number of financial and operating metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Our other business metrics may be calculated in a manner different than similar other business metrics used by other companies (in thousands): Adjusted EBITDA Adjusted EBITDA represents our net income before other income, net, income tax expense (benefit), depreciation and amortization expense and stock-based compensation. We do not consider these items to be indicative of our core operating performance. The items that are non-cash include depreciation and amortization expense and stock-based compensation. Adjusted EBITDA is a measure used by management to understand and evaluate our core operating performance and trends and to generate future operating plans, make strategic decisions regarding allocation of capital, and invest in initiatives that are 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. 31
-------------------------------------------------------------------------------- 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): Years ended September 30, 2022 2021 Net (loss) income $ (16,212 ) $ 704Other income, net (60 ) (54 ) Income tax (benefit) expense 741 434 Depreciation and amortization 2,556 1,597 Impairment of goodwill 13,162 - Stock-based compensation 2,227 1,424 Adjusted EBITDA $ 2,414 $ 4,105Segment Results Segment results include net sales and operating income by segment. Corporate expense including various administrative expenses and costs of a publicly traded company are included in the Hardware segment as per historical financial reporting. Software Hardware Years ended September 30, Years ended September 30, 2022 2021 $ % 2022 2021 $ % Revenue $ 3,097 $ 2,771 $ 32611.8 % $ 50,938 $ 44,232 $ 6,70615.2 % Operating (loss) income (24,791 ) (6,787 ) (18,004 ) 265.3 % 9,260 7,871 1,389 17.6 % Reconciliation of GAAP to Non-GAAP Goodwill impairment 13,162 - 13,162 100.0 % - - - 0.0 % Depreciation and amortization 2,176 1,222 954 78.1 % 380 375 5 1.3 % Stock-based compensation 244 110 134 121.8 % 1,983 1,314 669 50.9 % Adjusted EBITDA $ (9,209 ) $ (5,455 ) $ (3,754 )68.8 % $ 11,623 $ 9,560 $ 2,06321.6 % Software Segment
Software segment revenue increased 11.8% over the prior fiscal year. This
reflects a 427.3% increase in recurring revenue in the
41.8% decrease in professional services and licensing revenue compared to the
prior fiscal year.
Operating loss increased
$18.0 millionin the current fiscal year due to a $13.2 milliongoodwill impairment charge, $1.0 millionin additional intangible asset amortization, the inclusion of a full year of Zonehaven operations, and increases in payroll and benefits costs due to increased hiring to support software development and sales. Hardware Segment Hardware segment revenue increased $6.7 million, or 15.2%, over the prior year. The increase was largely due to the higher backlog at the start of this fiscal year compared to the prior year amount.
Operating income increased
revenue and lower professional services expenses offset by higher non-cash
compensation, higher computer related expenses and increased travel expenses
Liquidity and Capital Resources
Cash and cash equivalents as of
September 30, 2022were $12.7 million, compared with $13.2 millionas of September 30, 2021. In addition, we had $6.4 millionin short-term marketable securities as of September 30, 2022, compared with $5.7 millionas of September 30, 2021, and long-term marketable securities of $0.8 millionand $1.9 millionas of September 30, 2022and 2021, respectively. We also had restricted cash of $0.9 millionas of September 30, 2022and $1.4 millionas of September 30, 2021. In addition, we have a $10 millionline of credit with MUFG Bank. As of September 30, 2022, the Company had no outstanding balances against the line of credit. The credit agreement requires the Company to comply with various financial and operating covenants and as of September 30, 2022, the Company was in compliance with these covenants. Other than cash and expected future cash flows from operating activities in subsequent periods and the line of credit, we have no other unused sources of liquidity at this time. 32
Principal factors that could affect the availability of our internally generated
• ability to meet sales projections; • government spending levels; • introduction of competing technologies; • product mix and effect on margins; • ability to reduce and manage inventory levels; and • product acceptance in new markets.
Principal factors that could affect our ability to obtain cash from external
• volatility in the capital markets; and • market price and trading volume of our common stock. In
December 2018, the Board of Directors approved a share buyback program beginning January 1, 2019, under which the Company is authorized to repurchase up to $5 millionof its outstanding common shares. In December 2020, the Board of Directors extended the buyback program until December 31, 2022. Based on our current cash position, our order backlog, and assuming the accuracy of our currently planned expenditures, we believe we have sufficient capital to fund planned levels of operations for at least the next twelve months. However, we operate in a rapidly evolving and often 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, if at all. Cash Flows Our cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the table below (in thousands): Years ended September 30, 2022 2021 Cash provided by (used in): Operating activities $ 468 $ 6,150Investing activities (89 ) (15,554 ) Financing activities (1,063 ) 13 Operating Activities Net loss of $16.2 millionfor the fiscal year ended September 30, 2022, included a $13.2 milliongoodwill impairment charge and $6.7 millionof other non-cash items including share-based compensation expense, deferred income taxes, operating right of use lease amortization, depreciation and amortization, inventory obsolescence, and a provision for warranty. Cash provided by operating activities reflected a $0.2 millionincrease in accounts payable and a $4.6 milliondecrease in accrued and other liabilities, which included customer deposits, accrued payroll, deferred revenue, and operating lease liabilities. This was partially offset by a $0.2 milliondecrease in prepaid expenses and other, which includes deposits paid on inventory purchases, prepaid rent and prepaid insurance, and a $0.8 milliondecrease in accounts receivable. Net income of $0.7 millionfor the fiscal year ended September 30, 2021, included $4.6 millionof non-cash items including share-based compensation expense, deferred income taxes, operating right of use lease amortization, unrealized loss on a foreign currency forward contract, depreciation and amortization, inventory obsolescence, and a provision for warranty. Cash provided by operating activities reflected a $0.6 millionincrease in accounts payable and a $4.9 millionincrease in accrued and other liabilities, which included customer deposits, accrued payroll, deferred revenue, and operating lease liabilities. This was partially offset by a $1.6 millionincrease in prepaid expenses and other, which includes deposits paid on inventory purchases, prepaid rent and prepaid insurance, a $2.1 millionincrease in accounts receivable that resulted from higher current year fiscal fourth quarter shipments, and a $0.8 millionincrease in inventory. 33 -------------------------------------------------------------------------------- We had accounts receivable of $6.7 millionand $7.7 millionas of September 30, 2022and 2021, respectively. Terms with individual customers vary greatly. We often offer net thirty-day terms to our customers. Our receivables can vary dramatically due to overall sales volume and quarterly variations in sales and timing of shipments to and receipts from large customers. As of September 30, 2022and 2021, our working capital was $20.2 millionand $18.0 million, respectively. The increase in working capital was largely the result of a decrease in customer deposits of $3.9 millionoffset by a $0.8 milliondecrease in accounts receivable and a $0.2 milliondecrease in prepaid expenses. Investing Activities In the fiscal year ended September 30, 2022, we used $6.8 millionof cash to purchase short and long-term marketable securities, compared with using $5.1 millionto purchase short and long-term marketable securities in the fiscal year ended September 30, 2021. In the fiscal year ended September 30, 2022, we had proceeds from maturities of available for sale marketable securities of $7.1 million, compared with $5.6 millionin fiscal year 2021. In the fiscal year ended September 30, 2021, we used $15.8 millionin cash to complete the Amika Mobile asset purchase and Zonehaven acquisition in the first and third quarters of fiscal year 2021. We also used cash in investing activities for the purchase of product tooling, computer equipment, and leasehold improvements for our operating facilities. Cash used for capital expenditures was $0.4 millionand $0.2 millionin the fiscal years ended September 30, 2022and 2021, respectively. We anticipate additional expenditures for capital expenditures in fiscal year 2023 as we continue to invest in new products and technologies. Financing Activities
In the years ended
exercise of stock options of
December 2018, the Board of Directors approved a share buyback program beginning January 1, 2019and expiring on December 31, 2020, under which the Company was authorized to repurchase up to $5 millionof its outstanding common shares. In December 2020, the Board of Directors extended the buyback program until December 31, 2022. The previous program expired on December 31, 2018. During the year ended September 30, 2022, 259,310 shares were repurchased for $1.0 million. There were no shares repurchased during the year ended September 30, 2021. As of September 30, 2022, all repurchased shares were retired. As of September 30, 2022, $3.0 millionwas available for share repurchase under this program. Commitments
We are committed for our facility lease through
described in Note 12, Leases, in our consolidated financial statements.
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. All of the Company's key employees are entitled to participate in the bonus plan. During the years ended
September 30, 2022and 2021, the Company recorded $1.7 millionand $2.6 million, respectively, in bonus expense, and related payroll tax expense in connection with the bonus plans. Bonus related expense is included in "Accrued liabilities" on the Consolidated Balance Sheet. The Company is party to an employment agreement with our chief executive officer that provides for severance benefits, including twelve months' salary and health benefits, a pro-rata share of his annual cash bonus for the fiscal year in which the termination occurs to which he would have become entitled had he remained employed through the end of the fiscal year, and vesting of a portion of stock options held by at the time of termination. The agreement also has a change in control clause whereby the chief executive officer would be entitled to receive specific severance and equity vesting benefits if specified termination events occur.
There were no other employment agreements with executive officers or other
employees providing future benefits or severance arrangements.
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