Genasys Inc.GNSSEarnings & Financial Report
Nasdaq · Consumer Discretionary · Household Audio & Video Equipment
Genasys Inc. is based in San Diego, California. Its long-range acoustic device (LRAD) products are used for long-range acoustic hailing and mass notification. Its software-as-a-service products Genasys Protect and Evertel are used for zone-based multi-channel communication and secure messaging and collaboration, respectively. Genasys Acoustics are integrated speakers used to send long range voice broadcasts. The company was previously named American Technology Corporation (ATC) until 2010 and...
What changed in Genasys Inc.'s 10-K — 2023 vs 2024
Top changes in Genasys Inc.'s 2024 10-K
113 paragraphs added · 430 removed · 49 edited across 2 sections
- Item 1A. Risk Factors+107 / −242 · 49 edited
- Item 6. [Reserved]+6 / −188
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
49 edited+58 added−193 removed86 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
49 edited+58 added−193 removed86 unchanged
2023 filing
2024 filing
These factors include: ● our ability to develop and supply sound reproduction components to customers, distributors or original equipment manufacturers (“OEMs”) or to license our technologies; ● market acceptance of and changes in demand for our products or products of our customers; ● gains or losses of significant customers, distributors or strategic relationships; 19 ● unpredictable volume and timing of customer orders; ● delays in funding approval by U.S. and foreign government and military customers; ● the availability, pricing, and timeliness of delivery of components for our products and OEM products; ● fluctuations in the availability of manufacturing capacity or manufacturing yields and related manufacturing costs; ● the timing of new technological advances, product announcements or introductions by us, by OEMs or licensees, and by our competitors; ● production delays by customers, distributors, OEMs, or by us or our suppliers; ● increased competition in this market; ● the conditions of other industries, such as military and commercial industries, into which our technologies may be sold; ● general electronics industry conditions, including changes in demand and associated effects on inventory and inventory practices; ● general economic conditions that could affect the timing of customer orders and capital spending and result in order cancellations or rescheduling; and ● general political conditions in this country and in various other parts of the world that could affect spending for the products that we offer.
These factors include: 22 • our ability to develop and supply sound reproduction components to customers, distributors or original equipment manufacturers (“OEMs”) or to license our technologies; • market acceptance of and changes in demand for our products or products of our customers; • gains or losses of significant customers, distributors or strategic relationships; • unpredictable volume and timing of customer orders; • delays in funding approval by U.S. and foreign government and military customers; • the availability, pricing, and timeliness of delivery of components for our products and OEM products; • fluctuations in the availability of manufacturing capacity or manufacturing yields and related manufacturing costs; • the timing of new technological advances, product announcements or introductions by us, by OEMs or licensees, and by our competitors; • production delays by customers, distributors, OEMs, or by us or our suppliers; • increased competition in this market; • the conditions of other industries, such as military and commercial industries, into which our technologies may be sold; • general electronics industry conditions, including changes in demand and associated effects on inventory and inventory practices; • general economic conditions that could affect the timing of customer orders and capital spending and result in order cancellations or rescheduling; and • general political conditions in this country and in various other parts of the world that could affect spending for the products that we offer.
If these disruptions occur, or if we experience quality problems with suppliers, then our production schedules could be significantly delayed or costs significantly increased, which would have a material adverse effect on our business, liquidity, results of operations, and financial position. 18 Although we assemble our products internally, we have some sub-assemblies and components produced by third party manufacturers.
If these disruptions occur, or if we experience quality problems with suppliers, then our production schedules could be significantly delayed or costs significantly increased, which would have a material adverse effect on our business, liquidity, results of operations, and financial position. Although we assemble our products internally, we have some sub-assemblies and components produced by third party manufacturers.
For example, we expect to continue to be impacted by the following supply chain issues, due to economic, political and other factors largely beyond our control: increased input material costs and component shortages; supply chain disruptions and delays and cost inflation, all of which could continue or escalate in the future.
For example, we expect to continue to be impacted by the following supply chain issues, due to economic, political and other factors largely beyond our control: increased input material costs and component shortages; supply chain disruptions and delays 21 and cost inflation, all of which could continue or escalate in the future.
These risks include: ● changes in tariff regulations; ● political instability, war, terrorism, and other political risks; ● foreign currency exchange rate fluctuations; ● establishing and maintaining relationships with local distributors and dealers; ● lengthy shipping times and accounts receivable payment cycles; 17 ● import and export control and licensing requirements, particularly in connection with sales and licensing to foreign governments and other customers; ● compliance with a variety of U.S. laws, including the Foreign Corrupt Practices Act, by us or key subcontractors; ● compliance with a variety of foreign laws and regulations, including unexpected changes in taxation and regulatory requirements; ● greater difficulty in safeguarding our technology, proprietary data, and intellectual property in international jurisdictions than in the U.S.; and ● difficulty in staffing and managing geographically diverse operations.
These risks include: • changes in tariff regulations; • political instability, war, terrorism, and other political risks; • foreign currency exchange rate fluctuations; • establishing and maintaining relationships with local distributors and dealers; 20 • lengthy shipping times and accounts receivable payment cycles; • import and export control and licensing requirements, particularly in connection with sales and licensing to foreign governments and other customers; • compliance with a variety of U.S. laws, including the Foreign Corrupt Practices Act, by us or key subcontractors; • compliance with a variety of foreign laws and regulations, including unexpected changes in taxation and regulatory requirements; • greater difficulty in safeguarding our technology, proprietary data, and intellectual property in international jurisdictions than in the U.S.; and • difficulty in staffing and managing geographically diverse operations.
The issuance of shares of common stock upon the exercise of outstanding options and the release of outstanding restricted stock units could cause substantial dilution to holders of our common stock, and the sale of those shares in the market could cause the market price of our common stock to decline.
The issuance of shares of common stock upon the exercise of outstanding options and warrants and the release of outstanding restricted stock units could cause substantial dilution to holders of our common stock, and the sale of those shares in the market could cause the market price of our common stock to decline.
We do not maintain “key person” life insurance on any of our executive officers. The loss of one or several key employees could seriously harm our business. We cannot assure that employees will not leave and subsequently compete against us. We are also dependent on our ability to retain and motivate high quality personnel, especially sales and skilled engineering personnel.
We do not maintain “key person” life insurance on any of our executive officers. The loss of one or several key employees could seriously harm our business. We cannot ensure that employees will not leave and subsequently compete against us. We are also dependent on our ability to retain and motivate high quality personnel, especially sales and skilled engineering personnel.
Although we maintain insurance in respect of these types of events, available insurance proceeds may not be adequate to compensate us for damages sustained due to these events. 16 We could incur additional charges for excess and obsolete inventory. While we strive to effectively manage our inventory, rapidly changing technology and uneven customer demand may result in short product cycles.
Although we maintain insurance in respect of these types of events, available insurance proceeds may not be adequate to compensate us for damages sustained due to these events. 19 We could incur additional charges for excess and obsolete inventory. While we strive to effectively manage our inventory, rapidly changing technology and uneven customer demand may result in short product cycles.
The loss or reduction of sales of this product category could have a material adverse effect on our business, results of operations, financial condition, and liquidity. We may not successfully penetrate the mass notification market. The mass notification market is substantial in size and projected to grow globally over the next five years.
The loss or reduction of sales of this product category could have a material adverse effect on our business, results of operations, financial condition, and liquidity. We may not successfully penetrate the mass notification market. The mass notification market is substantial and projected to grow globally over the next five years.
Our margins could be impacted as we expand into the emergency response and mass notification market. Our sales strategy for fiscal year 2024 and beyond is to increase our share of the growing emergency response and mass notification market with our Protective Communications solutions. A number of large companies currently have a substantial share of the market.
Our margins could be impacted as we expand into the emergency response and mass notification market. Our sales strategy for fiscal year 2025 and beyond is to increase our share of the growing emergency response and mass notification market with our Protective Communications solutions. A number of large companies currently have a substantial share of the market.
We have previously experienced, and may in the future experience, reductions in sales of older generation products as customers delay or defer purchases in anticipation of new product introductions. We have established reserves for slow moving or obsolete inventory of $0.8 million as of September 30, 2023.
We have previously experienced, and may in the future experience, reductions in sales of older generation products as customers delay or defer purchases in anticipation of new product introductions. We have established reserves for slow moving or obsolete inventory of $0.8 million as of September 30, 2024.
This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. While our management has concluded that our internal control over financial reporting was effective as of September 30, 2023, it is possible that material weaknesses will be identified in the future.
This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. While our management has concluded that our internal control over financial reporting was effective as of September 30, 2024, it is possible that material weaknesses will be identified in the future.
Any inability to satisfy customer quality and reliability standards or comply with industry standards and technical requirements may adversely affect demand for our products and our results of operations. We must expand our customer base in order to grow our business.
Any inability to satisfy customer quality and reliability standards or comply with industry standards and technical requirements may adversely affect demand for our products and our results of operations. We must expand our customer base to grow our business.
These claims or perceptions, which we believe are unsubstantiated, could reduce our product sales. 15 A significant portion of our revenue is derived from our core product category. We are dependent on our core directional product category to generate our revenues.
These claims or perceptions, which we believe are unsubstantiated, could reduce our product sales. 18 A significant portion of our revenue is derived from our core product category. We are dependent on our core directional product category to generate our revenues.
Whether we will be able to sell more of our products will depend on a number of factors, including: ● our ability to design and manufacture reliable products that have the features that are required by our customers; ● the global economy; ● our ability to expand relationships with existing customers and to develop relationships with new customers that will lead to additional orders for our products; ● our ability to develop and expand new markets for directed sound products, mobile mass messaging services, and integrated solutions; and 14 ● our ability to develop international product distribution directly or through strategic partners.
Whether we will be able to sell more of our products will depend on several factors, including: • our ability to design and manufacture reliable products that have the features that are required by our customers; • the global economy; • our ability to expand relationships with existing customers and to develop relationships with new customers that will lead to additional orders for our products; • our ability to develop and expand new markets for directed sound products, mobile mass messaging services, and integrated solutions; and • our ability to develop international product distribution directly or through strategic partners.
We may become a party to litigation, disputes, and claims in the normal course of our business. Litigation is by its nature uncertain and unpredictable and there can be no assurance that the ultimate resolution of such claims will not exceed the amounts accrued for such claims, if any. Litigation can be expensive, lengthy, and disruptive to normal business operations.
We may become a party to litigation, disputes, and claims in the normal course of our business. Litigation is uncertain and unpredictable and there can be no assurance that the ultimate resolution of such claims will not exceed the amounts accrued for such claims, if any. Litigation can be expensive, lengthy, and disruptive to normal business operations.
While there are a number of large companies already established in this market, we believe our unique SaaS systems and solutions, the clear, intelligible voice capability of our Genasys speaker products, and our unified software/hardware platform provide us with competitive advantages.
While there are several large companies already established in this market, we believe our unique SaaS systems and solutions, the clear, intelligible voice capability of our Genasys speaker products, and our unified software/hardware platform provide us with competitive advantages.
Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. 20 Failure to maintain an effective system of internal control over financial reporting could harm stockholder and business confidence in our financial reporting, our ability to obtain financing, and other aspects of our business .
Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected. 24 Failure to maintain an effective system of internal control over financial reporting could harm stockholders and business confidence in our financial reporting, our ability to obtain financing, and other aspects of our business .
Our future success depends on our ability to execute our business strategy, and to continue to innovate and improve our existing products as well as design and produce new products to provide protective communications solutions.
Our future success depends upon our ability to execute our business strategy, to continue to innovate and improve our existing products as well as design, develop, and produce new products to provide protective communications solutions .
System disruptions and security threats to our computer networks, including breach of our or our customers ’ confidential information, could have a material adverse effect on our business and our reputation .
System disruptions and security threats to our computer networks, including breach of our or our customers’ confidential information, could have a material adverse effect on our business and our reputation .
In fiscal years 2023 and 2022, revenues outside of the U.S. accounted for approximately 22% and 15% of net revenues, respectively. The risks inherent in international trade may reduce our international sales and harm our business and the businesses of our customers and our suppliers.
In fiscal years 2024 and 2023, revenues outside of the U.S. accounted for approximately 30% and 22% of net revenues, respectively. The risks inherent in international trade may reduce our international sales and harm our business and the businesses of our customers and our suppliers.
A slowdown in the financial markets or other economic conditions, including but not limited to global supply chain issues, inflation, fuel and energy costs, freight costs, lack of available credit, interest rates, and tax rates, may adversely affect the Company’s growth and profitability.
The volatile global economic environment has created market uncertainty. A slowdown in the financial markets or other economic conditions, including but not limited to global supply chain issues, inflation, fuel and energy costs, freight costs, lack of available credit, interest rates, and tax rates, may adversely affect the Company’s growth and profitability.
In fiscal year 2023, direct and indirect sales to the U.S. government accounted for approximately 59% of our total net sales, compared with 71% of our total net sales in fiscal year 2022, and 68% in fiscal year 2021. Changes in defense spending could have an adverse effect on our current and future revenues.
In fiscal year 2024, direct and indirect sales to the U.S. government accounted for approximately 29% of our total net sales, compared with 59% of our total net sales in fiscal year 2023. Changes in defense spending could have an adverse effect on our current and future revenues.
Further, even if we do obtain new customers, we cannot guarantee that those customers will purchase from us in sufficient quantities or at product prices that will enable us to recover our costs in acquiring those customers and fulfilling those orders.
We cannot guarantee that we will be able to increase our customer base. 17 Further, even if we do obtain new customers, we cannot guarantee that those customers will purchase from us in sufficient quantities or at product prices that will enable us to recover our costs in acquiring those customers and fulfilling those orders.
We are competing against a number of large competitors in the mass notification market, and we need to establish our product offerings as competitive to win awards against these competitors, increase our customer base and gain market share. We cannot guarantee that we will be able to increase our customer base.
We are competing against a number of large competitors in the mass notification market, and we need to establish our product offerings as competitive to win awards against these competitors, increase our customer base, and gain market share.
While we expect the impacts of market uncertainty and inflation could have an effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time. We may need additional capital for growth. We may need additional capital to support our growth.
While we expect the impacts of market uncertainty and inflation could have an effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time.
We also sell extended repair and maintenance contracts with terms ranging from one to several years, which provide repair and maintenance services after expiration of the original limited warranty. As of September 30, 2023, we had a warranty reserve of $0.1 million.
We also sell extended repair and maintenance contracts with terms ranging from one to several years, which provide repair and maintenance services after expiration of the original limited warranty. As of September 30, 2024, we had a warranty reserve of $76 thousand.
In addition, the acquisition of Genasys Spain, Amika Mobile, Zonehaven, Evertel and any future businesses could result in the incurrence of additional debt and related interest expense, contingent liabilities, and amortization expenses related to intangible assets, as well as the issuance of our common stock, which could have a material adverse effect on our financial condition, operating results, and cash flow.
In addition, acquisitions could result in the incurrence of additional debt and related interest expense, contingent liabilities, and amortization expenses related to intangible assets, as well as the issuance of our common stock, which could have a material adverse effect on our financial condition, operating results, and cash flow.
We purchase a number of key components and sub-assemblies from foreign suppliers. Consequently, we are subject to the impact economic conditions can have on such suppliers and fluctuations in foreign currency exchange rates.
We are unable to predict the likely effects that negative economic conditions will have on our business and financial condition. We purchase a number of key components and sub-assemblies from foreign suppliers. Consequently, we are subject to the impact economic conditions can have on such suppliers and fluctuations in foreign currency exchange rates.
We have historically had a high concentration of revenues from a limited number of customers. We expect to continue to be dependent on a limited number of customers. In fiscal year 2023, one customer accounted for 54% of revenues and no other customers accounted for more than 10% of revenues.
We expect to continue to be dependent on a limited number of customers. In fiscal year 2024, one customer accounted for 18% of revenues and no other customers accounted for more than 10% of revenues.
Failure to successfully integrate Genasys Spain, Amika Mobile, Zonehaven, Evertel, or any other acquired business in the future may result in reduced levels of anticipated revenue, earnings, or operating efficiency than might have been achieved if we had not acquired such businesses.
Failure to successfully integrate acquired businesses may result in reduced levels of anticipated revenue, earnings, or operating efficiency than might have been achieved if we had not acquired such businesses.
Risks Related to Our Capital Stock Sales of common stock issuable on the exercise of outstanding options, may depress the price of our common stock. As of September 30, 2023, we had outstanding options granted to our employees, consultants, advisors, and directors to purchase 2,904,522 shares of our common stock and we had 379,597 restricted stock units outstanding.
Risks Related to Our Capital Stock Sales of common stock issuable on the exercise of outstanding options and warrants, may depress the price of our common stock. As of September 30, 2024, we had outstanding options granted to our employees, consultants, advisors, and directors to purchase 3,695,740 shares of our common stock and we had 288,059 restricted stock units outstanding.
We do not have the ability to predict future operating results with any certainty. Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.
Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.
Our ability to successfully implement our business plan and achieve targeted financial results and other benefits including, among other things, greater market presence and development, and enhancements to our product portfolio and customer base, is dependent on our ability to successfully identify, consummate and integrate acquisitions, including Genasys Spain, Amika Mobile, Zonehaven and Evertel, as well as other businesses we may acquire in the future.
Our ability to successfully implement our business plan and achieve targeted financial results and other benefits including, among other things, greater market presence and development, and enhancements to our product portfolio and customer base, is dependent on our ability to successfully identify, consummate and integrate acquisitions.
The information on our website is not incorporated by reference into this report nor is it part of this report. Item 1A. Risk Factors An investment in our company involves a high degree of risk. In addition to the other information included in this report, you should carefully consider the following risk factors in evaluating an investment in our company.
Item 1A. Ri sk Factors An investment in our company involves a high degree of risk. In addition to the other information included in this report, you should carefully consider the following risk factors in evaluating an investment in our company. You should consider these matters in conjunction with the other information included or incorporated by reference in this report.
Any tightening of credit in financial markets may adversely affect the ability of commercial customers to finance purchases and operations and could result in a decrease in orders and spending for our products as well as create supplier disruptions. Reductions in tax revenues, rating downgrades and other economic developments could also reduce future government spending on our products.
These economic developments affect businesses like ours in a number of ways. Any tightening of credit in financial markets may adversely affect the ability of commercial customers to finance purchases and operations and could result in a decrease in orders and spending for our products as well as create supplier disruptions.
Compliance costs and the unavailability of raw materials could have a material adverse effect on our results of operations. We continually evaluate and monitor developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs.
We continually evaluate and monitor developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs.
Global economic and political uncertainties and foreign currency rate fluctuations could adversely influence demand for our products leading to reduced levels of investments, reductions in government spending and budgets and changes in spending priorities and behavior.
Global economic and political uncertainties and foreign currency rate fluctuations could adversely influence demand for our products leading to reduced levels of investments, reductions in government spending and budgets and changes in spending priorities and behavior. 14 Risks related to global economic instability, including global supply chain issues, inflation, labor costs, and fuel and energy costs, may affect the Company’s business.
Similar issues apply to sales to international governments. We have no assurance that military interest in communication devices to minimize unnecessary use of force will continue or will provide future growth opportunities for our business. Worldwide armed conflicts and the related implications may negatively impact our operations.
Similar issues apply to sales to international governments. We have no assurance that military interest in communication devices to minimize unnecessary use of force will continue or will provide future growth opportunities for our business. Disruption and fluctuations in financial and currency markets could have a negative effect on our business.
Our results of operations or financial condition could be seriously harmed, and the trading price of our common stock may decline due to any of these or other risks. 12 Risks Related to Our Business and Industry General economic and political conditions may adversely affect our business, operating results and financial condition Our operations and performance depend significantly on worldwide economic and political conditions and their impact on levels of capital investment and government spending.
General economic and political conditions may adversely affect our business, operating results and financial condition. Our operations and performance depend significantly on worldwide economic and political conditions and their impact on levels of capital investment and government spending.
Governments have taken unprecedented actions intended to address these market conditions. It is difficult to assess the extent to which these conditions have impacted our business, and the affect this has had on certain of our customers and suppliers. These economic developments affect businesses such as ours in a number of ways.
Financial markets in the U.S., Europe, and Asia have experienced extreme volatility and uncertainty in recent years. Governments have taken unprecedented actions intended to address these market conditions. It is difficult to assess the extent to which these conditions have impacted our business, and the effect this has had on certain of our customers and suppliers.
Our stock price is volatile and may continue to be volatile in the future. The market price of our common stock has fluctuated significantly to date.
The potential dilution from these shares could negatively affect the terms on which we could obtain equity financing. Our stock price is volatile and may continue to be volatile in the future. The market price of our common stock has fluctuated significantly to date.
Our board of directors may determine the terms of future preferred stock offerings without further action by our stockholders. If we issue preferred stock, it could affect the rights or reduce the value of our common stock.
We may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of your common stock. We are authorized to issue up to 5,000,000 shares of preferred stock in one or more series. Our board of directors may determine the terms of future preferred stock offerings without further action by our stockholders.
Increases in our cost of purchasing these items could negatively impact our financial results if we are not able to pass these increased costs on to our customers. We have current government contracts, and our future growth is dependent, in large part, on continued sales to U.S. and international governments and businesses that sell to governments.
If any of these events were to occur, our business, results of operations and financial condition could be materially adversely affected. 16 We have current government contracts, and our future growth is dependent, in large part, on continued sales to U.S. and international governments and businesses that sell to governments.
There can be no assurance that there will not be further volatility and uncertainty in financial markets, which can then lead to challenges in the operation of our business. We are unable to predict the likely effects that negative economic conditions will have on our business and financial condition.
Reductions in tax revenues, rating downgrades, and other economic developments could also reduce future government spending on our products. There can be no assurance that there will not be further volatility and uncertainty in financial markets, which can then lead to challenges in the operation of our business.
Furthermore, there can be no assurance that the Genasys Spain, Amika Mobile, Zonehaven and Evertel businesses or any other acquired business, product, or technology will be profitable or achieve anticipated revenues and income. Our failure to manage our acquisition and integration strategy successfully could have a material adverse effect on our business, results of operations, and financial condition.
Acquisitions involve a number of risks, some or all which could have a material adverse effect on our acquired businesses, products or technologies. Furthermore, there can be no assurance that these businesses, or any other acquired business, product, or technology will be profitable or achieve anticipated revenues and income.
In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with or sell our assets to a third party. These terms may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions.
If we issue preferred stock, it could affect the rights or reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to 25 restrict our ability to merge with or sell our assets to a third party.
We may not be able to successfully integrate acquisitions in the future, and we may not be able to realize anticipated cost savings, revenue enhancements, or other synergies from such acquisitions. On January 18, 2018, we acquired all of the issued and outstanding shares of capital stock of Genasys Holding S.L.
We may not be able to successfully integrate acquisitions in the future, and we may not be able to realize anticipated cost savings, revenue enhancements, or other synergies from such acquisitions. Since early 2018, we have completed several acquisitions, including Genasys Spain, Amika Mobile, Zonehaven and most recently Evertel.
There can be no assurance that we will be able to successfully integrate the Genasys Spain, Amika Mobile, Zonehaven or Evertel businesses or any other acquired businesses, products or technologies without substantial expenses, delays or other operational or financial problems.
We may not realize the intended benefits of these acquisitions, or the acquisition of other businesses in the future as rapidly as, or to the extent, anticipated by our management. There can be no assurance that we will be able to successfully integrate these businesses, products or technologies without substantial expenses, delays or other operational or financial problems.
While we expect to generate these funds from operations, we may not be able to do so.
If our expectations regarding future sales are inaccurate, we may be unable to reduce costs in a timely manner to adjust for sales shortfalls. We may need additional capital for growth. We may need additional capital to support our growth. While we expect to generate these funds from operations, we may not be able to do so.
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Item 1A. Risk Factors ” of this Annual Report on Form 10-K, which could cause actual results to differ materially from those indicated by such forward-looking statements. For purposes of this Annual Report, the terms “ we, ” “ us, ” “ our ” “ Genasys ” and the “ Company ” refer to Genasys Inc. and its consolidated subsidiaries.
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Our results of operations or financial condition could be seriously harmed, and the trading price of our common stock may decline due to any of these or other risks. Risks Related to Our Business and Industry We have historically had a high concentration of revenues from a limited number of customers.
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Item 1. Business. Overview We are a global provider of Protective Communications™ solutions, including our Genasys Protect™ software platform and Genasys Long Range Acoustic Devices® (“LRAD®”). Our unified software 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.
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Actual or perceived failures or breaches of our information and security systems, or those of our customers, suppliers or business partners, could expose us to losses. We rely on computer systems, hardware, software, technology infrastructure and online sites and networks (collectively, “IT Systems”) for both internal and external operations that are critical to our business.
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Genasys uses this information to create and disseminate alerts, warnings, notifications, and instructions through multiple channels before, during, and after public safety and enterprise threats, critical events, and other crisis situations.
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We own and manage some of these IT Systems but also rely on third parties for a range of IT Systems and related products and services. We have experienced cybersecurity incidents in the past, though none have materially impacted our Company, including our operations or financial condition.
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Genasys Protect provides a comprehensive portfolio of Protective Communications software and hardware systems serving federal governments and agencies; state and local governmental agencies, and education (“SLED”); and enterprise organizations in sectors including but not limited to oil and gas, utilities, manufacturing, automotive, and healthcare.
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There can be no guarantee that future cyberattacks or incidents will not materially impact our Company generally or our IT Systems or data or that of critical service providers specifically. We face numerous and evolving cybersecurity risks that threaten the confidentiality, integrity and availability of our IT Systems and data.
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Genasys Protect solutions have a diverse range of applications, including emergency warning and mass notification for public safety; critical event management for enterprise companies; de-escalation for defense and law enforcement; critical infrastructure protection; and automated detection of real-time threats such as active shooters and severe weather.
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Those risks include data security incidents, cybersecurity events, data breaches, ransomware attacks or other compromises of the IT Systems that we or our vendors use to provide services or process data on our behalf, which may lead to compromised network security and misappropriation or compromise of our information, our customer’s information or that of third parties, to system disruptions or to shutdowns.
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Genasys LRAD systems provide directed audible voice messages with exceptional, intelligible vocal clarity from close range out to 5,500 meters.
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Cyberattack actors include criminal hackers, hacktivists, state-sponsored intrusions, and may involve industrial espionage, employee malfeasance and human or technological error. Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently induce employees, customers and other third parties to disclose information or unwittingly provide access to systems or data.
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We have a history of successfully delivering innovative systems and solutions in mission critical situations, pioneering the acoustic hailing device (“AHD”) market with the introduction of our first LRAD AHD in 2002 and creating the first multidirectional voice-based public safety mass notification systems in 2012.
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The risk of such attacks includes attempted breaches not only of our own products, services and systems, but also those of customers, contractors, business partners, vendors and other third parties.
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Building on our proven, best in class and reliable solutions and systems, we are launching the first and only unified, end-to-end Protective Communications platform.
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Our products, services and systems may be used in critical company, customer, government or other third-party operations, or involve the storage, processing and transmission of sensitive data, including valuable intellectual property, classified information, other proprietary or confidential data, regulated data and personal information of employees, customers and others.
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Background Genasys entered the Protective Communications market following the October 2000 attack on the USS Cole, which led to the development of the LRAD, an AHD capable of communicating to and determining the intent of potential threats from a safe distance.
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In our command-and-control software systems, we process, store and transmit data provided by our customers, which is vital to our customer’s businesses and operations and may include sensitive and personal data. We also manage, store, transmit and otherwise process various sensitive personal or confidential data related to our company and our employees in the regular course of business.
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Genasys LRAD systems broadcast audible alert tones and exceptionally intelligible voice messages in a focused 30° beam over long distances to specific targets. LRADs were quickly embraced by the U.S. Navy and then other domestic military branches, federal agencies, and police departments, and then throughout the world.
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Successful breaches, employee malfeasance or human or technological error could result in, for example, unauthorized access to, disclosure, modification, misuse, loss or destruction of company, customer, government or other third party data or systems; theft of sensitive, regulated, classified or confidential data including personal information and intellectual property; the loss of access to critical data or systems through distributed denial-of-service attacks, denial-of-service attacks, ransomware attacks, supply chain attacks, destructive attacks or other means; and business delays, service or system disruptions or denials of service.
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By using long-range communication to better manage the escalation of force, LRAD continues to provide a non-kinetic, non-lethal solution for resolving potentially dangerous or hostile situations.
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Further, hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could interfere with the operation of such systems.
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With a device capable of broadcasting audible alerts and notifications with exceptional vocal clarity over long distances, Genasys engineers enhanced the Company's Protective Communications technology to innovate a new generation of mass notification speaker systems. Most legacy mass notification systems use sound sirens, but have limited, if any, voice broadcast capability.
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Given the nature of complex systems, software and services like ours, and the scanning tools that we deploy across our networks, infrastructure and products, we regularly identify and track security vulnerabilities.
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Genasys' advanced mass notification systems feature the industry's highest Speech Transmission Index (“STI”), large directional and omni-directional broadcast coverage areas, and an array of options that are designed to enable the systems to continue operating when power and telecommunications infrastructure goes down.
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We are unable to comprehensively guarantee patches or confirm that measures are in place to mitigate all such vulnerabilities, or that patches will be applied before vulnerabilities are exploited by a threat actor.
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Realizing that integrating software with the mass notification speakers would provide further technology options and additional functionality, Company engineers developed the Genasys Emergency Management (“GEM”) command-and-control software.
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If attackers are able to exploit critical vulnerabilities before patches are installed or mitigating measures are implemented, significant compromises could impact our and our customers’ systems and data.
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In addition to remotely activating and controlling Genasys advanced speaker systems, which feature satellite connectivity and solar power options, GEM facilitates the dissemination of alerts, warnings, notifications, information and instructions through multiple channels, including location-based Short Message Service (“SMS”), Cell Broadcast Center (“CBC”) mobile push, text, email, social media, TV, radio, and digital displays.
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The information technology systems we and our vendors use are vulnerable to outages, breakdowns or other damage or interruption from service interruptions, system malfunction, natural disasters, terrorism, war, and telecommunication and electrical failures. For example, in July 2024, a software update by CrowdStrike Holdings, Inc.
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These systems are used by government emergency services, schools, universities, and businesses to send emergency information and instructions to people at risk before, during, and after public safety and enterprise threats. 1 Today, the fastest most direct way to share vital information is often through cell phones and computers.
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Item 6. [Reserved]
Selected Financial Data — reserved (removed by SEC in 2021)
0 edited+6 added−188 removed0 unchanged
Item 6. [Reserved]
Selected Financial Data — reserved (removed by SEC in 2021)
0 edited+6 added−188 removed0 unchanged
2023 filing
2024 filing
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Item 6. Reserved Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations. 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.
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ITEM 6. Reserved 28 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 41 ITEM 8. Financial Statements and Supplementary Data 41 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 41 ITEM 9A. Controls and Procedures 42 ITEM 9B.
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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.
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Other Information 42 ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 42 PART III ITEM 10. Directors, Executive Officers and Corporate Governance 43 ITEM 11. Executive Compensation 43 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 43 ITEM 13. Certain Relationships and Related Transactions, and Director Independence 43 ITEM 14.
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These statements involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements. 23 Overview We are a global provider of Protective Communications solutions including our Genasys Protect software platform and Genasys LRAD.
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Principal Accountant Fees and Services 43 PART IV ITEM 15. Exhibits and Financial Statement Schedules 44 Consolidated Financial Statements F- i Signatures PART I Forward Looking Statements This Annual Report on Form 10-K contains forward-looking statements relating to future events or the future performance of our company.
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Our unified software platform receives information from a wide variety of sensors and IoT inputs to collect real-time information on developing and active emergency situations. Genasys uses this information to create and disseminate alerts, warnings, notifications, and instructions through multiple channels before, during, and after public safety and enterprise threats, critical events, and other crisis situations.
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Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements but are not the only means of identifying forward-looking statements. Such statements are predictions; actual events or results may differ materially.
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Genasys Protect provides a comprehensive portfolio of Protective Communications software and hardware systems serving federal governmental and agencies, SLED and enterprise organizations in sectors including but not limited to oil and gas, utilities, manufacturing, automotive, and healthcare.
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In evaluating such statements, you should specifically consider various factors identified in this report, including the matters set forth below in “Item 1A. Risk Factors” of this Annual Report on Form 10-K, which could cause actual results to differ materially from those indicated by such forward-looking statements.
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Genasys Protect solutions have a diverse range of applications, including emergency warning and mass notification for public safety; critical event management for enterprise companies; de-escalation for defense and law enforcement; and automated detection of real-time threats such as active shooters and severe weather.
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For purposes of this Annual Report, the terms “we,” “us,” “our” “Genasys” and the “Company” refer to Genasys Inc. and its consolidated subsidiaries.
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Genasys LRAD systems provide directed audible voice messages with exceptional, intelligible vocal clarity from close range out to 5,500 meters.
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We have a history of successfully delivering innovative systems and solutions in mission critical situations, pioneering the AHD market with the introduction of our first LRAD AHD in 2002 and creating the first multidirectional voice-based public safety mass notification systems in 2012.
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Building on our proven, best in class and reliable solutions and systems, we are launching the first and only unified, end-to-end Protective Communications platform.
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Our unified Protective Communications platform includes: Software Genasys Protect The Complete Protective Communications Platform Genasys Protect combines the most comprehensive suite of solutions enabling preparedness, responsiveness, and analytics to keep people, assets, and operations protected against the impacts of natural disasters, terrorism, violent civil unrest, and other dangerous situations, as well as power failures, facility shutdowns, and other non-emergency operational disruptions. 1.
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Proven Technology: Genasys solutions have been on the front lines for more than 40 years, providing precision-targeted communications designed to ensure the right people get the right message - right away. 2.
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Modular Suite: Built on open standards, Genasys software and hardware systems are designed to easily integrate, whether using the full Genasys suite or complementing the notification platforms customers already have in place. 3.
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Predictive Simulation: Genasys Protect is designed to permit customers to test response plans preemptively with advanced simulation of evacuation-level events, including fires and floods, and their impact on infrastructure, including traffic patterns and perimeter establishment. 4.
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Unified Viewpoint: One common safety operating picture provides real-time visibility into our customers’ people, assets, and environment by combining first-party data from asset / people-management platforms and IoT sensors with vetted third-party data sources, including the FEMA, NOAA, DHS, and more. 5.
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Unmatched Precision: Customized zone mapping enables targeting of mass notifications at the street level, making it easier to sequence response areas from most to least critical. 6. Multi-channel: Genasys Protect is designed to allow customers to saturate their notification area by simultaneously alerting people across SMS, voice calls, social media, TV, radio, digital signage, and outdoor acoustic devices. 7.
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Network Effect: Implementation in neighboring municipalities as well as across public- and private-sector organizations within the same municipality extends coverage and enables greater precision when notifying people of threats. Genasys Protect ALERT ALERT is an interactive, cloud-based SaaS solution that enables SLED and enterprise customers to send critical information to at-risk individuals or groups when an emergency occurs.
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ALERT 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.
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ALERT communications with the public can be enhanced via Genasys Protect ACOUSTICS, while ALERT communications among first responders and emergency personnel can be augmented and accelerated with Genasys Protect CONNECT (formerly Evertel).
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ALERT customers can create and send critical, verified, and secure notifications and messages that are geographically specific and targeted using emails, voice calls, text messages, panic buttons, desktop alerts, TV, social media, and more. Additionally, Genasys is a certified provider of IPAWS notifications.
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IPAWS is the federal public notification platform for the United States, which ALERT customers can use to deliver critical communications in multiple languages to specific populations. Similarly, enterprise customers are able to send critical communications to at-risk employees, contractors, visitors, or groups based on geographic location or team status.
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Operated and controlled via a single dashboard that includes two-way polling, duress buttons, field check-ins and recipient locations, ALERT integrates with various data sources, including sensors, emergency services, active directories, human resources, visitor management, and building control systems to find and deliver safety alerts and notifications to residents, employees, staff, contractors, temporary workers, and visitors. 24 ALERT sends targeted messages based on geographic location, permitting relevant information and instructions to be sent to the appropriate populations.
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Emergency managers can prepare for natural or man-made disasters by developing evacuation plans that map routes, shelters, traffic control locations, and road closures using ALERT’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.
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Auto-Discovery, an innovative feature of the platform, locates and connects with anyone on a wired or wireless network in a fixed area with no opt-in required. When discovered, ALERT anonymizes all recipient information and data. When an emergency occurs, these tools allow at-risk groups or individuals to be notified as quickly as possible without sacrificing their privacy.
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In addition to disseminating alerts and notifications, ALERT uses two-way communication tools, including polls and check-ins to receive feedback from targeted populations and first responders. With direct feedback, operators can survey the safety and status of at-risk individuals, learn of developments, update notifications and/or instructions in response to new information, and more.
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Genasys Protect EVAC EVAC enables responding agencies to react swiftly, make collaborative decisions, and communicate event status in real-time to other agencies, businesses, and the public. EVAC determines and communicates the proper scope of a response or evacuation by replacing guesswork with data-driven intelligence.
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EVAC enhances safety levels for first responders, communities, and large campuses by providing: ● intelligent zones to improve evacuation planning and communication.
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EVAC users can build, edit, and act upon geographical location data, including shelters, facilities, and traffic; ● modeling behaviors to plan for effective responses and/or evacuation scenarios covering emergencies that include wildfires, floods, active shooters, hurricanes, and more; ● actionable communication through the Genasys Protect mobile app to keep people informed before, during, and after a critical event; ● a common operating picture across agencies to reduce response times by 90%; and ● targeted alerting across multiple channels, including intelligible, outdoor speakers for timely, efficient evacuation and public safety notifications.
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Genasys Protect CONNECT CONNECT is a leading cross-agency collaboration platform that streamlines and secures team and one-on-one communications for first responders and public safety agencies.
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With real-time intelligence sharing that exceeds regulatory privacy requirements for public agencies, CONNECT’s instant communication platform empowers first responders and public safety personnel to collaborate and share information in a single space with text, videos, images, and audio from any location. CONNECT provides a secure space where professionals can exchange information, make decisions, and collaborate with trust in data security.
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Record retention policies drive compliance that allows agencies and personnel to communicate in confidence. Enabling public safety professionals to collaborate with other agencies throughout their region, state and country, CONNECT provides real-time interoperability to address critical events and crisis situations more quickly through coordinated efforts.
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Compliant with all federal and state-level legal requirements for public safety communications, CONNECT data is protected and secured through high-level data encryption within a secure, U.S. based, government-only cloud environment. Hardware Genasys Protect ACOUSTICS ACOUSTICS unites Genasys’ next generation of mass notification speaker systems with Genasys Protect command-and-control software.
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Most legacy mass notification systems are sirens with limited, if any, voice broadcast capability. ACOUSTICS systems feature the industry's highest STI, large directional and omni-directional broadcast coverage areas, and an array of options including solar power, battery backup, and satellite connectivity that enable the systems to continue to operate when power and telecommunications infrastructure goes down.
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ACOUSTICS gives operators the ability to send critical alerts and notifications from emergency operations centers, and authorized computers or smart phones. Emergency alerts and information can be sent via individual, grouped or networked ACOUSTICS installations, text messages, emails, IPAWS, desktop alerts, TV, voice calls, and social media.
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Genasys Protect’s layered redundancy helps to ensure the maximum number of people receive Protective Communications and critical notifications. 25 Genasys LRAD LRAD is the world’s leading AHD, with the ability to project alert tones and audible voice messages with exceptional vocal clarity in a 30° beam from close range to 5,500 meters.
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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.
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LRADs have been deployed on military vehicles, at corporate headquarters, in hostage negotiations, aboard private yachts, and in numerous installations and applications where clear and intelligible voice communications are essential. Several LRAD models are available in varying audio outputs, communication coverage areas, sizes, and functionalities.
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Several options and accessories (cameras, searchlights, mounts, and more) are also available to enhance LRAD capabilities. All LRAD systems are defined by their unparalleled audio output and clarity. LRADs use Genasys' proprietary XL driver technology, which generates higher audio output in a smaller, lighter form factor.
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The technology also helps ensure voice messages and alert tones cut through background noise and are clearly heard and understood. These competitive advantages, and constant innovation, have made LRAD the de facto standard of the global AHD industry.
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Recent Developments In the fiscal year ended September 30, 2023, we accomplished the following: ● Completed the integration of legacy GEM, Zonehaven, NEWS, and IMNS solutions into our unified Genasys Protect platform. ● Executed branding relaunch with new website, go-to-market and product User Interface (“UI”). ● Expanded coverage to 16% of Colorado with Genasys Protect in Boulder County. ● Won first statewide contract for Genasys Protect in New Hampshire. ● Displaced a key competitor in Boston, MA with Genasys Protect ALERT. ● Expanded relationship with San Diego County, CA to encompass entire Genasys Protect platform.
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San Diego County joins Riverside County, CA, Marin County, CA, Alameda County, CA, and other jurisdictions in adopting the complete Genasys Protect platform. ● Announced a Genasys Protect ACOUSTICS implementation with a large outdoor tourist destination. ● Received $10.7 million LRAD order from the U.S.
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Army under AHD Program of Record. ● Assisted first responders to protect more than 17 million California residents with Genasys Protect EVAC during atmospheric river events. ● Expanded Genasys Protect coverage of California to 37 of 58 counties. ● Awarded and installed Genasys Protect for Aramco, one of the world’s largest industrial companies.
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At the time of booking, this was the largest Genasys Protect multi-year order in the Company’s history. Business Outlook Our products, systems, and solutions continue to gain worldwide awareness and recognition through increased marketing efforts, product demonstrations, and word of mouth as a result of positive responses and increased acceptance.
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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.
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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, enterprise safety, and law enforcement sectors as a result of increasing threats to government, commerce, law enforcement, homeland security, and critical infrastructure.
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Our products, systems, and solutions also have many applications within the fire rescue, maritime, asset protection, and wildlife control and preservation business segments. 26 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.
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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.
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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.
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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.
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The proliferation of natural and man-made disasters, crisis situations, and civil unrest require technologically advanced, multi-channel solutions to deliver clear and timely protective communications to help keep people safe during critical events. Businesses are also incorporating protective communication and emergency management systems that locate and help safeguard employees and infrastructure when crises occur.
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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.
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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.
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In fiscal 2024, 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.
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This includes building on fiscal 2023 domestic defense sales by pursuing further U.S. military opportunities. We also plan to pursue domestic and international 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.
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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 Genasys Protect platform to meet the needs of our target markets. Our Genasys Protect software solutions are more complex offerings.
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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 ALERT, EVAC, and CONNECT software solutions to compete for larger emergency warning and critical communications business opportunities.
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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.
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A large number of LRAD and ACOUSTICS 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.
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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.
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We regularly review and adjust the sales price of our finished goods to offset these inflationary factors.
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Although we do not believe that inflation has had a material impact on our financial results through September 30, 2023, 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.
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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.
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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.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations” when such policies affect our reported and expected financial results. The methods, estimates, and judgments we use in applying our accounting policies, in conformity with generally accepted accounting principles in the U.S., have a significant impact on the results we report in our financial statements.
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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.
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Actual results may differ from these estimates under different assumptions or conditions. 27 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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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