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- LRAD Corporation (LRAD) – NASDAQ November 17, 2014
Business Model
LRAD Corporation develops and delivers highly intelligible, directed acoustic products that beam, focus and control
sound over short and long distances. By placing sound only where needed, it not only enhances many typical speaker
applications, but offers novel sound applications that conventional speakers cannot achieve.The company offers a
variety of directional sound products, which meet a broad range of requirements from communicating with and
deterring threats over distances up to 300 meters with the hand-held LRAD 100X to distances in excess of 3,500
meters with the LRAD 2000X. Since 1996, LRAD has been at the forefront developing new acoustic innovations to
project, focus, shape and control sound and has established a significant competitive advantage in its principal
markets. In 2007, the company completely redesigned its LRAD products, introducing the LRAD-X product line, with
improved quality and functionality. Through increased focus and investment in worldwide sales and marketing
activities, the Long Range Acoustic Device ® or LRAD pioneered a new worldwide market, selling into over 70
countries, for directional long-range acoustic hailing devices (“AHDs”).
Recent Accomplishments
Revenues in the quarter ended June 30, 2014, were $8,004,088, compared to $2,157,644 in the quarter ended June
30, 2013. The increase in revenues was primarily driven by a $4 million order for LRAD-2000X and other units for
perimeter and border security in the Middle East, a $760,000 order for LRAD-500X and LRAD-1000X model units for
internal security and police in Northern Africa, a $763,000 order for bird mitigation for an international mining concern
and other orders for police and public safety, international defense and Navy, mass notification, perimeter security
and maritime applications. International revenues continue to drive growth. The company continues to pursue funding
opportunities for products with the U.S. Army as the 2014 U.S. Department of Defense (“DOD”) appropriations bill is
being finalized and the 2015 DOD appropriations bill is being developed. Gross margin was very strong at 63% of net
revenues in the quarter ended June 30, 2014, compared to 42% of net revenues in the prior year’s third quarter. The
increased margin was partially offset by increased commission expense reported in operating expenses as a larger
share of revenues were commissionable. Operating expenses increased by $1.1 million or 53%, primarily due to an
increase in commissions and bonus expense, partially offset by a decrease in legal expenses due to a lawsuit in the
prior year. On a quarter over quarter basis, revenues are expected to remain uneven.
During the most recent quarter to be reported on November 20, 2014, the company has issued press releases
disclosing over $3.5 million in new orders.
Financial Fitness
LRAD has no long term debt and as of its last filing had over $31 million in assets and just under $4 million in
liabilities. The company has $21 million or 64 cents per share in cash and equivalents. The current trailing P/E is 16,
well below the industry average of 27, and has a forward P/E below 20. The company has surprised to the upside on
earnings in all four of the last reported quarters and beyond. In the last four quarters, the company has doubled or
tripled the earnings estimates.
Over the last four years, shareholder equity has been steadily climbing quarter after quarter and year after year, from
around $10 million to where it was at the last quarterly report, $27 million. During this time the number of shares
outstanding has barely budged from 30.6 million to 33 million.
The stock price has been very solid over the past five years with plenty of volatility but no major sign of weakness.
The stock has dipped below a dollar briefly twice, and has climbed as high as $3 twice as well, with the most recent
climb breaking through that $3 barrier for the first time since October of 2007.
Risks
Because this company has created its own market, many industry and sector wide risks do not apply, but some risks
unique to its customer base do. One such risk has to do with legislation involved with military and other government
spending, as such legislation is often delayed or amended depending on which way the wind is blowing that day in
Washington.
Our Trading Strategy
We believe this stock could experience a fairly good sized jump when earnings are released later this month, however
we would not be basing a trade on this. This may be more of an investment in a solid company that we believe has a
very high potential for short and long term growth, and may currently be a bit undervalued. Should the stock continue
to climb to higher heights over time, we would consider adding to the position, rather than selling for a quick profit.
We would think that it would be unusual to see poor stock performance over the next few quarters, and should that
occur, we would initiate a tight stop loss.