Thomas Brown - President and CEO Katherine McDermott - CFO Brian Harvey - Director, IR

Josh Nichols - B. Riley Les Sulewski - Sidoti & Company Lloyd Korten - Unique Investments Anne Margaret Crow - Edison Steven Wagner - Wagner Financials Robert Stone - Individual Investor

Good day, ladies and gentlemen, and welcome to the Fiscal First Quarter 2015 Financial Results Conference Call. All lines have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Brian Harvey. Sir, the floor is yours.

Thanks you, Diane. Good afternoon and welcome to LRAD Corporation’s first quarter fiscal 2015 financial results conference call. I’m Brian Harvey, the Director of Investor Relations for LRAD. And on the call with me this afternoon are Tom Brown, our Chairman, President and CEO; and Kathy McDermott, our Chief Financial Officer. Mrs. McDermott will recap our fiscal first quarter financial results, which will be followed by a brief presentation from Mr. Brown. After their presentations, we will open the call to questions. But before I turn the call over to them, I would like to take this opportunity to remind you that during the course of this call, management will make forward-looking statements. Other than statements that are historical facts, statements made during this call that are forward-looking statements are based on our current expectations. During this call, we may discuss the company's plans, expectations, outlook or forecast for future performance. These forward-looking statements are subject to risks and uncertainties and actual results could differ materially from the views expressed today. For more information regarding potential risks and uncertainties, see the Risk Factors section of the company's Form 10-K for the fiscal year ended September 30, 2014. LRAD Corporation disclaims any intent or obligation to update those forward-looking statements, except as otherwise specifically stated. I will now turn the call over to Kathy for the first quarter fiscal 2015 financial results recap. Kathy?

Thanks, Brian and thanks everyone for joining us today. We had a good start to fiscal 2015 with revenues of $4.4 million in the first quarter, a 15% increase over the prior year first quarter revenues of $3.8 million. 82% of quarterly revenues were international markets including our fourth follow on order for military [police] in Asia for $1 million as well as orders for Navy vessels, coast guards, crowd control and border applications. Mass notification revenues grew to 15% of first quarter net revenues primarily for follow on orders for warning systems in Asian municipalities. We delivered our first orders for our recently launched 450XL and 500RX products, which were well received. [Indiscernible] for these products gives a louder output in a smaller form factor. Gross profit for the quarter ended December 31, 2014 was $2.4 million, a 54% of net revenues compared to $1.9 million or 51% of net revenues for the first quarter of the prior year. The increase in gross profit was primarily due to increased revenues for the quarter favorable channel mix. Operating expenses for first fiscal quarter increased $62,000 or 3% to 1.9 million, the increase was primarily due to $149,000 for accrued bonus which was not accrued in the prior year, partially offset by reduction of 31,000 salaries and benefits, 23,000 of professional fees and other reductions. Quarterly net income of 506,000 or $0.01 per diluted share in the first quarter of fiscal 2015 compared to net income of 132,000 or $0.00 per diluted share for the first quarter of fiscal 2014. Current quarter net income represented 12% return on net revenues, compared to 3% return net revenues in the prior year. On the balance sheet, our cash and cash equivalents as of December 31, 2014 was 20.1 million compared to 23.9 million at September 30, 2014. The decrease of 3.8 million was due in part to investing 3.1 million in short and long-term marketable securities. Working capital remains high at 25.8 million or 1.9 million lower than September 13, 2014 due to our investment [audio break] 2.5 million in long term instruments offset by 600,000 of working capital generated in Q1. With that I will turn it back to Brian.

Thanks, Kathy. And I will turn it over to Tom for brief management presentation.

Thank you, Brian. Good afternoon. Thank you all for joining our call. As I indicated in our last call, 2015 is off to a good start, the third best first quarter in the company history. We continue to see strong demand for our products in Asia. First quarter revenue from Asia was 71% of our total revenue and we announce new orders following 2.4 million from Asia in January. The application and math quantification, vehicles and vessels. We see continued strength in this market. We also had a good success in the Middle East. We are working on a number of significant vehicle programs which we hope to close over the next two quarters. The frustrating thing of doing business in the Middle East and for that matter governments in general is the delays. I have talked about mass notification project in the Middle East on the last two calls. The tender indicated that the award would be made in November 2014 with delivery by April 2015. I indicated in our last call that that the award was delayed. We are obviously now in February and there is still no award. We working with our end country party, by scheduling a demonstration of our product in their country with key decision makers next month. We have made a very aggressive bid and now we need to get product in front of customer to show our capability. We are still working it and we will keep fund this project. In the United States, 2015 budget was approved and there is a line item and budgeted funds for [indiscernible] devices. We have been working on this for many years and it’s finally in the budget. In the 2015 budget, the IDIQ program calls for 800 to 1500 pieces with an with an overall amount of $37 million spread over a five-year period. In the proposed Department of Defense 2016 budget submitted this week as part of the President's budget, they are funding in 2016 and the budgeted amounts were increased to 2400 pieces in a total of $48 million. We now anticipate RFP for this program by the summer. Also as I indicated on the last call, we are hopeful of seeing language authorizing acoustic [indiscernible] devices as product eligible for the degree of funding. This was also approved and the language was added. We are assigned to see some new orders in various national guard units and we are working very hard to expand its business. Another thing that I mentioned was that we were awarded the [indiscernible] installation at Fort Erwin and that the award was protested by another competitor. ERP was reissued and we responded last week we are with awaiting the outcome. we continue to work on developing our mass notification offerings and as previously indicated or represented 15% of first-quarter revenues. We expect this to continue to grow in spite of going up against some strong competitors. As I have previously stated our product is superior. So we are off to a good start. The budget approval is a very, very rewarding to us and as we saying all these presentations the quarters will continue to be lumpy, but we're anticipating a very strong 2015. Let’s go to Q&A.

Thank you, Tom. We now like to open the conference call to question for management. We encourage callers with questions to queue up with the operator as soon as possible so that there will be minimal lag time between each caller. [indiscernible] would you please instruct the callers how to queue up with their questions.

Thank you. The floor is now open for questions. [Operator Instructions] first question comes from Andrew [indiscernible] please state your question.

Good afternoon. Thanks for taking my call. Just a couple of quick questions. First off, can you give a little color on how things are preceding in the Middle East. You said there were two projects there previously and know another timeline is difficult to predict but you still feel optimistic, or confident on at least winning one of those contracts?

We know that we are still in the mix with the one contract that targeting from the beginning. Then we definitely want to get our product over there next month, get it in front of the customer and we feel that once we do that will have a better chance of bringing it home, but I can't -- at this point I am a little disappointed because we felt that we would have at least heard what the results of the - or who is going to by this time. So we are not giving up we are going over there, we are going to present our product and we know we have a very competitive bidding in place. So we are going to give our best efforts.

Is your sense right now that only one of the project is still up for grab and the other one awarded yet or they are still seeing at the bidding process as well. As far as we know, there have been no awards. We are dealing with the partnership was in county and I just spoke to him yesterday and there haven’t been any awards today. And [indiscernible] last year.

That's understandable. And are you seeing what do you think that major deciding factor is obviously in the U.S., it seems near pricing can shows a lot of who wins the bidder, is that the same in the Middle East right now and then are you seeing, are there countries in the region show interest in mass notification right now as well.

No, we are actually seeing -- there is pretty strong interest in mass notification across the globe including United States. The Middle East our bidding process, it has an open bid and we were very aggressive price wise and we feel we have the best product to offering but when you go up to this bidding processes, there is a lot of different unknowns that come into play but in terms of the one city that we really targeted we went in with a very aggressive bid to win one city. We are talking about very substantial number of units. So we wanted to focus our efforts on getting one city under our bell. So that's what we did but we are seeing I am off to Asia next week. We are seeing some strong as we indicated some strong interest in Asia and also one of the countries is in Asia, Japan has been very instrumental in getting our mass notification business off the ground. We made some very large inroads in Japan and we continue to do that.

Alright.

That’s the difficult country to work in too.

Yes absolutely. But, you would think that that region makes sense particularly with what happened couple of years ago and the fact they weren’t able to notify the public about issues that were going on around there?

I guess the point I would like to make is that Japan is - they believe in quality. So that's a little pat on the back.

Got it. Alright. Well thank you very much and good luck this quarter.

Great. Thank you Andrew.

Our next question comes from Josh Nichols from B. Riley. Please state your question.

Yes, regarding the mass notification it seems like there is a lot of opportunities there given that you already over a quarter into the year do you still think, are you still targeting in for the mass notification revenue should probably double minimum probably around like $5 million for the year, is that still kind of the stands?

Yes that still we are targeting. We are looking to continue to grow the space. Yes.

Okay. Then any comments you would make about backlog or stuff that you are coming up already things company has already shipped or even close to at least for the quarter?

As we announced, we received $2.4 million in new orders automation beginning of January. We really don't go into back orders or going into forecasting the quarter. But we are in a lumpy business. As I said earlier we anticipated getting an award or at least hearing about an award on this project in the Middle East back in November and here we are in February and we are still waiting. SO, our business is very lumpy when you are dealing with governments, it's very difficult to forecast which these orders get pushed out and this is common, we’re used to it. The RFP with the army has been seven year process. So it's the nature of our business unfortunately. But we don't lose anything. We don't - we eventually land them. So we keep patience and persistent.

Yes, historically whenever the company I know companies have been going through this a long time with some of the $8 million, $10 million at least orders. Historically what have you kind of seen as far as what kind of delays I mean, it must happen all the time where someone said something it probably takes six months longer than that or nine months longer than that before something actually gets done just kind of what's your experience on that?

Yes, that’s basically update. The problem that we run into is because we are dealing with government we sell through budgeting processes and budget allocation have a way of moving from one pocket to another so you think you have something lined up and all of a sudden the budget dollars have been reallocated to a new program. But, as I said we eventually bring these program home, it’s just the matter of they move, they always move.

And last question, is the drop in oil probably any chance if that’s the big reason to that the budget came late and kicked out of it, this project hasn’t funding given those released or no?

There is a little bit of that and there was the project that we were working in oil and gas project that we have been working in South East Asia that has gotten delayed because of the price of oil but again it's not going go away right now it's been pushed out.

Okay. Thank you.

Thank you, Josh.

Alright. Our next question comes from Les Sulewski with Sidoti & Company. Please state your question.

Hi guys, thanks.

Hi Les.

Can you provide us little bit of the feedback on what you are getting from the new product offerings and also I mean do you phase out some of the older stuff that gets replaced with the new offerings is that kind of how it works or do you hold on to the older things as well?

Well we haven’t phased out anything. Everything is still - we are still selling the complete product line. As Katherine indicated the feedback on the new products the 500RX and the 450XL have been really - have been pretty good. It's a later output in the smaller form factor and we are starting to - we have made some sales into New York National Guard and we have a couple of other guards units that are looking to pick up the 450XL. We sold our first couple of 500RX into Asia and they have been well received and we anticipate seeing some additional business out of Asia in short term for the 500RX. It's - so either way units that actually is a smoother run in [indiscernible] and the 1000RX, but it is. And the feedback has been real good. And we’re still selling the 1000 RX we just received small order out of Europe for oil and gas application. We didn’t announce it because it's not a significant as recent announcement but it's a good introduction into a new market for us in Europe in oil and gas. We don't anticipate cannibalizing any of our products. We anticipate continuing full product line and add to it.

Thanks for that. Moving into National Guard if you can give us kind of the economics of that progress there, I mean, is it state by state sale and what's the potential there for you with each sale?

It is state by state sale. And we have been out with many of the state guard units. We are getting very good feedback. Product has been used. We do have - we have sold products into the guard in the past and there are smaller sales but there is 50 unit so it gives us the opportunity to get a number of pieces out there. And in the past we have sold as many as 100 pieces at the time into the guard so now that there is funding available through [indiscernible] we’re hopeful that we can tap into some of that money and we are getting pretty strong interest in the guard. We have number of demonstration this month for different units and that has been very well received. So guard I think I said in the last call we anticipate that the guards to be a very good source of business for us and I mention it again today something we are working very hard.

Great. Thanks for that Tom. I guess last one from me, what comprises the long term marketable securities?

I will let Katherine answer that.

So, we were fairly conservative in our investments. Most of our investments are just on cash deposits, which are very secure and go out of it and also just some government municipalities.

Got it. Okay. Thank you for that.

Our next question comes from Lloyd Korten from Unique Investments. Please state your question.

Hi everybody. Congratulations on quarter. There was very sweet words at the beginning, the best first quarter in history and I hope that we had over the year. Those were nice words congratulations. A lot of things have been answered. One thing which I didn’t hear about was China. Tell us about China what's going on?

China continues to be a very good customer for us Lloyd. We shipped over million dollar of product in the first quarter. We just received an additional order for little bit less than a million dollars, but we continue to grow the Chinese market. We are very pleased with everything that’s going on over there. It's slowed down a little bit. We have some targets for the year and we just met with our Chinese partners two weeks ago and reconfirmed those targets and we feel like we are in good shape. We think we will hit them.

What’s happening with the mobile unit? Can you give us a little feedback on that?

Well, we had it down as the emergency manager show in San Antonio back in November. We are bringing it to the income group which is part of the U.S. Army, a decision making part of the US Army this month for demonstration. We think we have sold our demo unit as of today but we don't have the PO yet. So, it looks like that's going to go outdoor and we are building more units right now and we have a couple of quotes out, we anticipate that this products is going to be a little bit of slow start like most of our products, but we think eventually it's going to be a very good product for us. So, we are going to be at the major National Guard show in March. We will have the unit there and every demonstration that we have made with it has been very successful. It's just the matter of getting the budget dollars in place. So, we are focusing on National Guard, emergency managers and internationally, we have some quotes internationally for the product.

I think it's going to turn out to be the most important piece that the company over time because it's so useful as it merges the situation which seemed to be happening all over the world every day. Also you came out with that automobile security product, anything going on in that area?

Yes. We sold our first 24 pieces into a branch of the U.S. government. They were deployed. They were actually the units that we sold in was mounted on top of the vehicle using our mag mount and they were deployed and very successfully deployed overseas and they have come back to us. We had done a proto type of building the unit and the self performance under the wheel worlds and inside the vehicle and they have come back to us and asked us to give them an engineering quote to put these units as the incorporated in the vehicle I guess is the best way to say it. So, we are anticipating moving forward that they have roughly a thousand vehicles under their management. So we think that we have an opportunity if we do the first couple of proto type successfully.

Is anybody competing with us on the product life?

No, not right now Lloyd. No, not that we are aware of.

That's good. Anyway listen congratulations and how sales people, any changes you have seen in the headcount?

We do have reduction of one sales person. But we are looking, we have been interviewing for additional sales people in different parts of the world. Actually we are looking somebody in Asia, somebody over in the Middle East. And we are ongoing. We have interviewed several people bit we are still looking for the right fit. My sales team right now is very pleased with them. We are -

I am not moving ages, no thank you. One more question, the Chinese you say, you see for the second quarter order from China?

No, we just got one - we shipped in the first quarter and we just received the another order at the beginning of January, we hope to get out the door this quarter, may drift into the April but we continue to get on going orders out of China. Being used on vehicles.

Right. Based upon what you’re seeing so far, do you anticipate substantial growth over the last year potentially?

That's our plan Lloyd that’s what we are working towards.

Okay. Thank you guys. Congratulations. Speak to you soon.

Thank you Lloyd.

Alright and our final question comes from Anne Margaret Crow from Edison. Please take your question.

Congratulations on a very good start to the year.

Thank you Anne.

On the very good sale side that the 450X is taking off well after having been launched quite recently. I am wondering about the impact of having the orders like the Middle East, so I am just dragging on. And which is now difficult, when you are working in that part of the world and in the business that you are in. I just wondered how you organize your business so that you can cope with quite severe fluctuation in demand for product?

That’s a good question. Yes, we try to manage our business around orders so we try to do a bill to suit, but we do take - we have forecast and we go over our forecast on a daily basis, and they fluctuate quite a bit, but our sales guys are in contact, we have a lot of in country partners. We are talking to them all the time. So try to find out where these different order stands or potential orders stand. I talk to in country partners, so we try to manage each order with the lead time so that we can basically bill to suit, but we do have some inventory in anticipation as we have some long lead time part so we need to manage. But basically if you look at our balance sheet and you look at our performance, I think we have done a pretty good job of managing the situation. It's very frustrating when you think that you have something coming in the door and it get pushed off for six months.

Yes.

And we have a lot of local manufacturers also that we use to help balance our workload as well. So it's price and volume we are able to use them to help cushion that.

Thank you, that makes great sense in this circumstances.

Okay. And we actually just had another question coming in the queue. This is from Steven Wagner with Wagner Financial. Please state your question.

Good afternoon gentlemen. I appreciate all your hard work going on there. Most of my question have been answered. The one question I didn’t answered as the regard to the share buyback program. And you tell us in the first quarter what activity went on there?

We didn’t have any repurchases in the first quarter based on where stock price has been. It's been a pretty high at this point. So it's still the program is still active to the end of the calendar year. So, depending on the price, the prices on a reasonable level we will do future repurchases but there weren’t any in first quarter.

Okay. Are you able to define what a reasonable level is Kathy?

It's decided by our board, we set the price at the beginning of our period and then we go into blackout so we don't change it much during the course of the year. But it's based on what the board targets and approves.

Okay. Alright. Thank you guys. I appreciate you keep up the work.

Thank you, Steve.

Okay one question just came in the queue this is from Robert Stone, he is an individual investor. Please state your question.

Hi, I will guess would like to hear a few field of the strong dollar has had an effect on your bottom line or where do you think it will?

So far -

So much is going on with Asia is the reason I ask that.

Yes, I understand. Right now we are doing all of our business in dollars. The Asian markets it hasn’t had any impact on us but if it does stay strong potentially it could but lot of our customers are government based will make the budget these purchases so they tend to make the purchases at one point in time not when we would like them to make a purchase but one point a time. So I think we haven’t seen anything today. We haven’t heard anything today from our partners so Asia business has been very strong for us continues to be strong so I hope that we can survive the foreign currency fluctuations.

Well that's good and thank you very much. A - Speaker Thank you Robert.

Okay there aren’t any more questions in the queue. A -Brian Harvey: Okay. Well thank you everyone for joining us today on the conference call. If you have any follow-up questions please feel free to reach out to me and replay of this conference call will be available about two hours after we conclude at the webcast link that was provided in the press release. Thank you very much.

Thank you. This does conclude today's conference call. We thank you for your participation. You may disconnect your lines at this time and have a great day.