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. OverviewGenasys is 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. TheGenasys critical 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. Genasys
partners 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 Genasys next 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.
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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 andhomeland 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 newU.S. states
? 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
? Received
Record
? 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
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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, 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, 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 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 security and 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 theU.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
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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 . Goodwill is 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.
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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 areNorth and South America ,Europe ,Middle East andAsia . 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
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Comparison of Results of Operations for Fiscal Years Ended
and 2021
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 $ 48,637 90.0 % $ 41,602 88.5 % $ 7,035 16.9 %
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
1.5 %
Net revenues Hardware$ 50,938 94.3 %$ 44,233 94.1 % 6,705 15.2 % Software 3,097 5.7 % 2,770 5.9 % 327 11.8 % Total net revenues$ 54,035 100.0 %$ 47,003 100.0 %$ 7,032 15.0 % Revenues Revenues increased$7.0 million , or 15%, in the fiscal year endedSeptember 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 ofSeptember 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 endedSeptember 30, 2022 , increased$2.9 million or 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 million of 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 million over 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 million and$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
sales.
Goodwill Impairment As a result of the annual goodwill impairment analysis, we recognized a$13.2 million non-cash goodwill impairment charge in our Software segment for the year endedSeptember 30, 2022 . For more information, refer to Note 2, Basis of Presentation and Significant Accounting Policies and Note 8,Goodwill and Intangible Assets.
Research and Development Expenses
R&D expenses increased by
million
staffing from 79 to 96.
Included in R&D expenses for the year endedSeptember 30, 2022 was$70 thousand of non-cash share-based compensation expenses, compared to$40 thousand for the year endedSeptember 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 million for fiscal 2022 was a decrease of$16.9 million compared to fiscal year 2021. This was primarily due to a$13.2 million goodwill impairment charge taken in the fourth quarter of fiscal 2022. Pretax income in fiscal year 2022 was$16.9 million less than the prior year primarily due to a$13.2 million goodwill impairment charge and$3.5 million increase in operating expenses. Income tax expense increased in fiscal year 2022 primarily due to a$1.0 million non-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 inthe 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 underU.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 otherU.S. GAAP-based financial performance measures, net income, and our otherU.S. GAAP financial results. 31
-------------------------------------------------------------------------------- The following table presents a reconciliation of adjusted EBITDA to net income, the most directly comparableU.S. GAAP measure, for each of the periods indicated (in thousands): Years ended September 30, 2022 2021 Net (loss) income$ (16,212 ) $ 704 Other 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 $ 4,105 Segment 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 $ 326 11.8 %$ 50,938 $ 44,232 $ 6,706 15.2 % 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 $ 2,063 21.6 % 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 million in the current fiscal year due to a$13.2 million goodwill impairment charge,$1.0 million in 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 ofSeptember 30, 2022 were$12.7 million , compared with$13.2 million as ofSeptember 30, 2021 . In addition, we had$6.4 million in short-term marketable securities as ofSeptember 30, 2022 , compared with$5.7 million as ofSeptember 30, 2021 , and long-term marketable securities of$0.8 million and$1.9 million as ofSeptember 30, 2022 and 2021, respectively. We also had restricted cash of$0.9 million as ofSeptember 30, 2022 and$1.4 million as ofSeptember 30, 2021 . In addition, we have a$10 million line of credit withMUFG Bank . As ofSeptember 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 ofSeptember 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
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Principal factors that could affect the availability of our internally generated
funds include:
• 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
sources include:
• volatility in the capital markets; and • market price and trading volume of our common stock. InDecember 2018 , the Board of Directors approved a share buyback program beginningJanuary 1, 2019 , under which the Company is authorized to repurchase up to$5 million of its outstanding common shares. InDecember 2020 , the Board of Directors extended the buyback program untilDecember 31, 2022 . Based on our current cash position, our order backlog, and assuming the accuracy of our currently planned expenditures, we believe we have sufficient capital to fund planned levels of operations for at least the next twelve months. However, we operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that we may not be required to raise additional funds through the sale of equity or debt securities or from credit facilities. Additional capital, if needed, may not be available on satisfactory terms, if at all. Cash Flows Our cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the table below (in thousands): Years ended September 30, 2022 2021 Cash provided by (used in): Operating activities$ 468 $ 6,150 Investing activities (89 ) (15,554 ) Financing activities (1,063 ) 13 Operating Activities Net loss of$16.2 million for the fiscal year endedSeptember 30, 2022 , included a$13.2 million goodwill impairment charge and$6.7 million of 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 million increase in accounts payable and a$4.6 million decrease 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 million decrease in prepaid expenses and other, which includes deposits paid on inventory purchases, prepaid rent and prepaid insurance, and a$0.8 million decrease in accounts receivable. Net income of$0.7 million for the fiscal year endedSeptember 30, 2021 , included$4.6 million of 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 million increase in accounts payable and a$4.9 million increase 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 million increase in prepaid expenses and other, which includes deposits paid on inventory purchases, prepaid rent and prepaid insurance, a$2.1 million increase in accounts receivable that resulted from higher current year fiscal fourth quarter shipments, and a$0.8 million increase in inventory. 33 -------------------------------------------------------------------------------- We had accounts receivable of$6.7 million and$7.7 million as ofSeptember 30, 2022 and 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 ofSeptember 30, 2022 and 2021, our working capital was$20.2 million and$18.0 million , respectively. The increase in working capital was largely the result of a decrease in customer deposits of$3.9 million offset by a$0.8 million decrease in accounts receivable and a$0.2 million decrease in prepaid expenses. Investing Activities In the fiscal year endedSeptember 30, 2022 , we used$6.8 million of cash to purchase short and long-term marketable securities, compared with using$5.1 million to purchase short and long-term marketable securities in the fiscal year endedSeptember 30, 2021 . In the fiscal year endedSeptember 30, 2022 , we had proceeds from maturities of available for sale marketable securities of$7.1 million , compared with$5.6 million in fiscal year 2021. In the fiscal year endedSeptember 30, 2021 , we used$15.8 million in 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 million and$0.2 million in the fiscal years endedSeptember 30, 2022 and 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
InDecember 2018 , the Board of Directors approved a share buyback program beginningJanuary 1, 2019 and expiring onDecember 31, 2020 , under which the Company was authorized to repurchase up to$5 million of its outstanding common shares. InDecember 2020 , the Board of Directors extended the buyback program untilDecember 31, 2022 . The previous program expired onDecember 31, 2018 . During the year endedSeptember 30, 2022 , 259,310 shares were repurchased for$1.0 million . There were no shares repurchased during the year endedSeptember 30, 2021 . As ofSeptember 30, 2022 , all repurchased shares were retired. As ofSeptember 30, 2022 ,$3.0 million was 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 endedSeptember 30, 2022 and 2021, the Company recorded$1.7 million and$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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