Good day, ladies and gentlemen, and welcome to the LRAD Corporation's Fiscal First Quarter 2019 Financial Results Conference Call. All lines have been placed on a listen-only mode. The floor will be open for live questions at the end of today's presentation. [Operator Instructions] At this time, it is my pleasure to turn the floor over to Brian Harvey. Sir, the floor is yours.

Thank you, Jane. Good afternoon, everyone, and welcome to LRAD Corporation's fiscal first quarter 2019 financial results conference call. I'm Brian Harvey, the Director of Capital Markets and Investor Relations for LRAD. On the call with me this afternoon are Dennis Klahn, LRAD's Chief Financial Officer; and LRAD's Chief Executive Officer, Richard Danforth. In just a moment, Mr. Klahn will open today's call with a recap of our fiscal first quarter 2019 financial results. Mr. Danforth will then provide an update on our business; and afterward, we will open the call to questions. But before I turn the call over to Dennis, 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 as to historical facts, statements made during this call that are forward-looking statements are based on our current expectations. During the 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, please see the Risk Factors section of the company's Form 10-K for the fiscal year ended September 30, 2018. LRAD Corporation disclaims any intent or obligation to update those forward-looking statements, except as otherwise specifically stated. We may also discuss non-GAAP operational metrics of bookings and backlog, which we believe provide helpful information to investors with respect to evaluating the company's performance. We consider bookings and backlog leading indicators of future revenues and use these metrics to support production planning. Bookings is an internal operational metric that measures the total dollar value of customer purchase orders executed during a period, regardless of the timing of the related revenue recognition. Backlog is a measure of the purchase orders received that have not been shipped, but are planned to ship within the next 12 months. I would now like to turn the call over to LRAD Chief Financial Officer, Dennis Klahn. Dennis?

Thank you, Brian, and good afternoon to everyone on the call. LRAD's fiscal 2019 started with a record first quarter with $10.2 million of revenue, an increase of 33% over the $7.6 million recorded in the first quarter of 2018. Gross profit for the first quarter of fiscal 2019 was $5.1 million or 50% of revenues compared to $4 million or 51.9% of revenues for the first quarter of the prior fiscal year. Operating expenses in this year's first quarter were $3.8 million, an increase of $833,000 or 28% over the first fiscal quarter of 2018. The increase is primarily due to the addition of Genasys, increased investment in product development and additional personnel primarily in sales and engineering. Pretax income increased 30% or $300,000 to $1.3 million in the first fiscal quarter of this year compared to $1 million in pretax income in the prior year first quarter. LRAD generated $1 million of net income in the first quarter of fiscal 2019 compared to a net loss of $1.7 million in the prior year quarter. In the first quarter of 2019, we generated earnings per share of $0.03 compared to a loss of $0.05 per share in the prior year. The balance sheet remained strong. Cash and cash equivalents at December 31, 2018 were $4.4 million compared to $11.1 million at September 30, 2018. The $6.7 million decrease in cash and equivalents was due to increased working capital requirements to support increased sales in the fiscal first quarter and anticipated sales in fiscal 2019. In addition, we used $1.6 million for stock repurchases in the quarter. Working capital increased $500,000 in the quarter to $27.6 million compared to September 30, 2018. With that, I'd like to turn the call over to Richard.

Thank you, Dennis, and good afternoon to everybody. Record fiscal 2019 first quarter revenues of $10.2 million were up 33% over the record revenues were reported in fiscal Q1 of 2018. Bookings in the quarter were $6.9 million, up slightly from the same period last year, $5.6 million or 82% of these bookings were from the U.S. Air Force and National Guard. Backlog at December 31, 2018 was $20 million, an increase of 75% compared to the same period last year. We expect all of the December 31 backlog to ship this fiscal year. Cash used in fiscal Q1 to support the quarter's record revenues have been replenished by $7.4 million in receivables collected in January. Record bookings and backlog, our strong balance sheet and robust pipelines provide increased visibility into the company's future. This insight led to the repurchase of more than 588,000 of our shares in fiscal Q1. Based on our capital needs the market price of our common stock and general market conditions, we plan to continue repurchasing shares under the new $5 million share buyback plan we mentioned at last quarter's call. Our outlook on the $4.7 million in the late fiscal 2018 shipments to Southeast Asia remains unchanged. We expect those orders to ship this year in fiscals Q2 and Q3. Today, we're announcing the rebranding of our mass notification business as public safety notification under our Genasys brand. We are rebranding our public safety notification business after the recent completion and launch of our Command and Control software, which integrates and manages LRAD's voice broadcast systems and Genasys messaging SaaS software. The LRAD brand is known throughout the world and is well-suited for the defense and law enforcement applications. Our Genasys brand better addresses the school and campus safety, emergency warning and public safety notification markets, and better positions the company's business of hardware system sales and SaaS-based recurring revenues. Genasys public safety notification systems include our proprietary hardware and software systems. It's all IT-based, providing geo-specific safety related information delivered by our industry-leading voice broadcast systems and advanced software-as-a-service messaging solutions. Remotely monitored and activated, Genasys systems are the most flexible and easily configurable public warning and notification systems available. Genasys' emergency messaging software has delivered over 150 million SMS messages to date for our largest user, the country of Australia. The wildfires that devastated several California towns and neighborhood just a few months ago, underscore the necessity of having full-featured public safety warning system, with multiple redundancies and several notification delivery methods. As a result of requested public safety notification demonstrations for the fire officials in California last quarter, we are working several public safety business opportunities in the state. Installation of the first phase of the FEMA funded public safety notification order announced last year is scheduled to begin next quarter. The installation is the first integrated Genasys public safety notification system consisting of voice broadcast hardware and control software. The system is solar powered with satellite connectivity. This ensures continuous system operation when the power or communication infrastructure fails. This competitively won award as the first phase of an expected multiphase program to provide public safety notification for this region's populated areas. We are also making progress on obtaining the necessary certifications to launch a new line of indoor voice broadcast systems. The indoor systems will further expand the addressable market of our Genasys public safety systems. With a rapidly growing pipeline of domestic and international system opportunities, including country-wide installations, our rebranded Genasys public safety business is well-positioned for bookings and revenue growth this fiscal year. The successful deployment of acoustic hailing devices by the U.S. Customs and Border Patrol special response teams at the California port of entry discussed on our call last, have resulted in some initial orders. We also received excellent feedback from the special response team officers regarding LRAD's effectiveness. We are continuing to build our domestic defense business. In the past two years, we've booked $6.4 million in National Guard orders including a $3.2 million order last quarter. Those orders are for both acoustic hailing devices and Genasys public safety systems. In the last two quarters, we received $11.7 million in U.S. Army orders after delivering the remainder of those orders announced last year we will have fulfilled approximately 20% of the acoustic hailing device program requirement. We are leveraging our U.S. Army and National Guard business with international armed forces by implementing the same strategy we developed to grow LRAD's U.S. Navy business from initial deliveries to deployments throughout the U.S. fleet and 25 international navies. In addition to expected sales increase to U.S. military organization including larger Army orders in this and subsequent fiscal years, we anticipate international defense order growth to accelerate. Of note, bookings for the Canadian Army through fiscal Q1 of 2019 totaled $1.5 million, with another $1.5 million expected from the exercise of pending order options. Extensive pipeline growth in both our acoustic hailing device and Genasys public safety business segments, strong bookings and a robust backlog have the company on track for fiscal year profitability and record revenues. With that, I'll turn it back to Brian.

Thank you, Richard. We would now like to open the conference call to questions. 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. Operator, please instruct the callers on how to queue up with their questions.

Thank you. The floor is now open for questions. [Operator Instructions] And our first question comes from Aman Gulani from B. Riley. Please state your question.

Thank you and congratulations on the quarter. So, yeah, my question is regarding Genasys sales. So of the $521,000 was that still mostly international? Are you starting to see some domestic sales for Genasys?

Mostly international. In the order we announced last quarter, Aman, includes Genasys. But as I said, most of it was international.

Got it. Okay. And then, can you give me a bit more color on the border and public safety business in California? I mean, are you able to maybe quantify that opportunity and what the timeline for that might be?

Not really, I mean, there are two questions, say, the border. Who knows what's going to happen with that. There is still not a budget from FY 2019. We'll see what happens at the end of this week, where one may or may not be passed. In terms of the fires that I mentioned, there is a fair amount of activity, both politically on the state level and from the federal government level to improve public safety notification. We're involved with several demonstrations in affected areas over the last quarter and are working a handful of proposals to improve the public safety in those areas, so more to follow on that, Aman.

Got it. Okay. And, yet, for operating costs, they are a little elevated this quarter. Do you expect that trend to continue for the rest of the year? Or do you expect that to sort of come down as you progress through the rest of the year?

I don't think it's up. Dennis, you want to comment on that?

Yeah. It's relatively flat. There weren't - there has been changes in - we have new expanded facilities. Some of those costs are obviously been more - higher than they have been in prior quarters. But computer expenses were lower this period than they have been in the past. So in general, I think that they should be in line with this. Fluctuations could always arise depending on the sales channel used for future sales. So if you have sales through a reseller, you could have higher commission expense than what we experienced in this past quarter.

Got it. And then, what about for product development and testing costs, it's like - do you expect that to sort of come down as you progress through the year or is that going to sort of stay in level?

No. That will stay about the same. I don't see us growing that expense this quarter - this year. But you won't to see a substantial reduction throughout the year either.

Got it. Okay. That's helpful. And then last question for me, are you seeing any headwinds related to tariffs and/or the government shutdown?

No.

Thank you. I'll pass it on.

The only headwind if you will is again DHS CVT [ph] still don't have budgets for - we're in the month of February, the budget was supposed to be in place in October. And the shutdown that occurred for them and the other agencies - because there is no budget in place there was no impact. The shutdown had no impact. In terms of any tariffs, I think you're probably referring to China, and there has been no substantial impact from the China tariffs.

Got it. Okay. Very helpful.

Right. Thank you, Aman.

Thank you. Our next question comes from [Jerry Chong] [ph] with JM Cohen & Company. Please state your question.

Yeah, Jarrod Cohen. Just a simple question, because I noticed even though you bought back shares that your share count actually went up about 500,000 - by about 500,000 shares quarter-to-quarter? So…

So there were a lot of exercises of options last year and that was the big reason for a year-over-year change.

Okay. Year-over-year, but even it was quarter-over-quarter even, just noticing it from your fourth quarter to the quarter you just reported.

That's correct. And it was - again, as Dennis noted, it was from option exercise.

Oh, that's it, exercise. Okay. All right, thank you.

Thank you, Jarrod.

Thank you. Our next question comes from Gregory Weaver Gregory Lever from Invicta. Please state your question.

Afternoon, gentlemen. Question on the Genasys figure that you have in the release, Dennis, is it - the $521,000 is that just the required Genasys, not all the mass notification?

Correct. That is just the required Genasys, the traditional business of Genasys.

Right. Then on the gross margin, are there any onetime items from your move? You mentioned overhead and whatnot. But, I mean, overhead, you got the biggest run rate, second biggest quarter ever in the company's history. So, I mean, how much added overhead is from the move?

Maybe $100,000. I mean, it's going to be a higher run rate, just because we had - the lease was five years. And then the prior facility, that's on a straight line lease expense and the new lease is - the market rates have gone up for more expensive part of - just the economy in general. But also we got a 75% larger facility. So those expenses have increased, but it's not huge.

So what should we think about gross margin on a go-forward basis here? That seems to be the ticket to getting more earnings, given that you said the OpEx is going to stay at this level on a go-forward basis pretty much. And I assume the top-line is, after this big jump, isn't going to go up much from here.

Our gross margin, I think, 50% is historically what we have said is what our run rate is. Last year was a bit higher in the first quarter. We had a very favorable mix, because even for the total year the gross margin last year was about 48.4%. So 50% is not - is a very reasonable rate to expect.

Okay. And just in terms of growth, can you remind us again roughly what the mass notification revenue was in fiscal 2018?

Hang on a second, Greg. I'll pull that up.

So the 26 you did.

Hold on a second, Greg. I'm just looking it up.

Yeah, I guess, the most of the backlog is acoustic hailing devices?

Yes. That's a fair statement.

All right, while you're digging up that number…

Okay, Greg. We'll get back to you on that. I thought they had a slide on it. But we'll get that and get that number back to you.

I can look it up if it's in the 10-K. But I was just trying to get a sense of what's your thoughts over for growth on mass notification in the coming year, given you're just rolling out this new integrated platform. It sounds like the pipeline is pretty robust. Any thoughts there…?

We expect growth, Greg. the backlog has about $3 million to $4 million of mass notification in it now when we ended last quarter. And I have mentioned to you in the past and others that the proposals we're pursuing in mass notification are - there's lots of them and some of them are very high. We need to close one or two of those this year and we'll see the step function improvement in the bookings, and then leading indicator for revenues in the mass notification or the public safety markets.

And what's a typical - remind us the cycle time from, say, when you book something to when you're revenueing it on mass notification?

The public safety stuff takes longer than the acoustic hailing stuff. It is generally a non-recurring activity that occurs with engineering. This installation, this travel, this - usually, this permitting, it's much longer than acoustic hailing devices. So the order we announced last year - last quarter, Greg, which was multi-phase program, the first phase is about $1 million. Through the last three months or four months, it's been in the development cycle. Installations will begin next quarter and probably finish towards our third and fourth quarter. So it's approaching a year.

Okay. So say like these California wildfires, so you book a few jobs in that area in the next three to four months, that's probably not a fiscal 2019 revenue scenario.

That probably would be. That's not as complicated, and individually not as big.

Okay. And I guess, just last question for me. On the sales force, could you talk a little bit about that? You cited that is an OpEx adder, kind of how we are there in terms of headcount and remind us again how you're dividing that up between the two groups, mass notification and acoustic hailing?

Yeah. We added three more sales folks. They're scattered around the world and here in the United States. They cross-sell into both the public safety markets and the acoustic hailing devices, as do our resellers.

Everyone then, okay.

Yeah. We train them all.

Got you. All right. Thank you. I appreciate the questions.

Yeah.

Thank you, Greg.

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

Hey, congratulations, Richard and your team, really nice quarter and great surprise. A few things…

Thank you.

The Asian business that wasn't booked, is that part of the backlog right now? Or is that separate?

It's part of the backlog.

It's part of the $20 million, okay. Yes, on Genasys, I mean, I'm not there, you guys are there, how close do you think we are on getting something that's fairly significant?

I believe we'll see bookings certainly within this fiscal year.

Okay. That would be nice. Also, the Canadian business is - was that our first business with them the 1.5 and now another 1.5?

It was with the Canadian Army. We've had some sales in the country of Canada, specifically to the oil companies. But this was the first order to the Canadian Army.

Through the government?

Yes.

Okay. Also you mentioned 25 navies, can you elaborate on that a little bit?

It's the - LRAD in its current configuration got a start with U.S. Navy orders. The entire surface combatant fleet in the United States Navy is outfitted with two to five LRADs. Subsequent and during that deployment of the LRADs to all the new U.S. navies, we began marketing around the world and have sold and installed LRADs to - of 25 Navies around the world. So it's that game plan with the armies, now that we're firmly entrenched with U.S. Army to expand that to Canada and beyond.

Got you. And I didn't know that we had been deployed with 25 navies, actually that outfitted them. That's nice to hear.

Yeah, the Navy - international navies and coast guards.

Right, got you. And I think that's it. Anyway, I look forward to a [a ban a] [ph] year. And thank you for your efforts on our behalf.

Thank you, Lloyd. Jane, why don't we poll one more time, and then we'll - if there is no further questions we'll wrap up.

Of course, no problem. [Operator Instructions] Okay. There seems to be no further questions at this time.

Okay. Well, everyone, thank you for participating in LRAD - I'm sorry, say that again.

It seems that we have no more questions at this time.

Okay. Well, again, thank you everyone for participating in LRAD's fiscal first quarter 2019 financial results conference call. A replay will be available in approximately four hours through the same link issued on our January 29th press release. Thank you. Have a good afternoon.

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