What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-17 compared with 2022-02-09 · 44 added, 46 removed, 56 unchanged (62% of the section changed)

30 unchanged sentences

therefore, sales of these products historically peak in the period April 1 through June 30, the Company’s fiscal fourth quarter, and are reduced in the period July 1 through September 30, the Company’s fiscal first quarter.

Recurring service revenues, which comprise approximately 33.2% of the current fiscal year to date revenues, are not affected by seasonality.

In addition, demand for our products is affected by the housing and construction markets.

Deterioration of the current economic conditions may also affect this trend.

Our results for fiscal 2021 and the first two quarters of fiscal 2022 reflected the increase in customer demand after the challenging business environment resulting from the COVID-19 pandemic.

Our results for fiscal 2021 and the first three quarters of fiscal 2022 reflected the increase in customer demand after the challenging business environment resulting from the COVID-19 pandemic.

While the Company believes this recovery will continue, there can be no assurances that it will do so in the event of a return to building and construction restrictions that might result from a return to higher levels of COVID-19 cases.

3 unchanged sentences

Results of Operations

Three months ended December 31,

Six months ended December 31,

Three months ended March 31,

Nine months ended March 31,

(dollars in thousands)

11 unchanged sentences

Provision for income taxes

Net Sales for the three months ended December 31, 2021 increased by $6,203,000, or 22.8%, to $33,408,000 as compared to $27,205,000 for the same period a year ago.

Sales for the six months ended December 31, 2021 increased by $14,081,000, or 28% to 64,459,000 as compared to 50,378,000 for the same period a year ago.

The increase in sales for the three months ended December 31, 2021 was due primarily to increased recurring communication service revenues ($2,839,000) and sales of intrusion and access products ($2,532,000) and door-locking products ($832,000).

The increase in sales for the six months ended December 31, 2021 was due primarily to increased recurring communication service revenues ($5,788,000) and sales of intrusion and access products ($5,003,000) and door-locking products ($3,290,000).

Overall gross profit for the three months ended December 31, 2021 increased to $11,443,000 or 34.3% of sales as compared to $11,403,000 or 41.9% of sales for the same period a year ago.

Gross profit on equipment sales for the three months ended December 31, 2021 decreased to $1,809,000 or 8.1% of equipment sales as compared to $4,417,000 or 23.2% of equipment sales for the same period a year ago.

Overall gross profit for the six months ended December 31, 2021 increased to $24,889,000 or 38.6% of sales as compared to $22,095,000 or 43.9% of sales for the same period a year ago.

Gross profit on equipment sales for the six months ended December 31, 2021 decreased to $6,464,000 or 15% of equipment sales as compared to $9,008,000 or 25.8% of equipment sales for the same period a year ago.

The decrease in gross profit on equipment sales and gross profit as a percentage of equipment sales for the three and six months was primarily due to continued inflation of freight and component part costs relating to the current, world-wide supply chain problems, an unfavorable shift in product mix to the Company’s Starlink radio products (products which lead to the more profitable recurring service revenues) as well as more aggressive promotional pricing of these radios and the Company’s other equipment products in order to increase the Company’s market share of these products.

Gross profit on service sales for the three months ended December 31, 2021 increased to $9,634,000 or 87.4% of service sales as compared to $6,986,000 or 85.3% of service sales for the same period a year ago.

Gross profit on service sales for the six months ended December 31, 2021 increased to $18,435,000 or 86.7% of service sales as compared to $13,087,000 or 84.6% of service sales for the same period a year ago.

The increase in gross profit on service sales was due primarily to the 34.7% and 37.4% increases in sales of these services for the three and six months ended December 31, 2021, respectively, as compared to the same periods a year ago.

The increase in gross profit on service sales as a percentage of service sales was due primarily to the continued shift in sales of the company’s fire radio services, which typically have a higher margin than those for intrusion radio services.

Research and development expenses for the three months ended December 31, 2021 increased $94,000 to $1,978,000, or 5.9% of net sales, as compared to $1,884,000, or 6.9% of net sales, for the same period a year ago.

Research and development expenses for the six months ended December 31, 2021 increased $136,000 to $3,909,000, or 6.1% of net sales, as compared to $3,773,000, or 7.5% of net sales, for the same period a year ago.

Net Sales for the three months ended March 31, 2022 increased by $7,677,000, or 27.2%, to $35,905,000 as compared to $28,228,000 for the same period a year ago.

Sales for the nine months ended March 31, 2022 increased by $21,758,000, or 27.7% to $100,364,000 as compared to $78,606,000 for the same period a year ago.

The increase in sales for the three months ended March 31, 2022 was due primarily to increased recurring communication service revenues ($3,139,000) and sales of intrusion and access products ($3,712,000) and door-locking products ($826,000).

The increase in sales for the nine months ended March 31, 2022 was due primarily to increased recurring communication service revenues ($8,927,000) and sales of intrusion and access products ($8,714,000) and door-locking products ($4,117,000).

The increase in hardware sales are due, in part, to the increase in customer demand after the decline that resulted from the COVID-19 pandemic.

Overall gross profit for the three months ended March 31, 2022 increased to $15,033,000 or 41.9% of sales as compared to $12,910,000 or 45.7% of sales for the same period a year ago.

Gross profit on equipment sales for the three months ended March 31, 2022 decreased to $4,539,000 or 19.0% of equipment sales as compared to $5,261,000 or 27.2% of equipment sales for the same period a year ago.

Overall gross profit for the nine months ended March 31, 2022 increased to $39,932,000 or 39.8% of sales as compared to $35,005,000 or 44.5% of sales for the same period a year ago.

Gross profit on equipment sales for the nine months ended March 31, 2022 decreased to $11,003,000 or 16.4% of equipment sales as compared to $14,269,000 or 26.3% of equipment sales for the same period a year ago.

The decrease in gross profit on equipment sales and gross profit as a percentage of equipment sales for the three and nine months was primarily due to continued inflation of freight and component part costs relating to the current, world-wide supply chain problems, an unfavorable shift in product mix to the Company’s Starlink radio products (products which lead to the more profitable recurring service revenues) as well as more aggressive promotional pricing of these radios in order to increase the Company’s market share of these products.

Gross profit on service sales for the three months ended March 31, 2022 increased to $10,494,000 or 87.2% of service sales as compared to $7,649,000 or 86.0% of service sales for the same period a year ago.

Gross profit on service sales for the nine months ended March 31, 2022 increased to $28,929,000 or 86.9% of service sales as compared to $20,736,000 or 85.1% of service sales for the same period a year ago.

The increase in gross profit on service sales was due primarily to the 35.3% and 36.7% increases in sales of these services for the three and nine months ended March 31, 2022, respectively, as compared to the same periods a year ago as well as the continued shift in mix to the company’s fire radio services, which typically have a higher margin than those for intrusion radio services.

Research and development expenses for the three months ended March 31, 2022 increased $107,000 to $2,009,000, or 5.6% of net sales, as compared to $1,902,000, or 6.7% of net sales, for the same period a year ago.

Research and development expenses for the nine months ended March 31, 2022 increased $243,000 to $5,918,000, or 5.9% of net sales, as compared to $5,675,000, or 7.2% of net sales, for the same period a year ago.

The increase was due primarily to increased payroll while the decrease as a percentage of net sales was due primarily to the increase in net sales.

Selling, general and administrative expenses for the three months ended December 31, 2021 increased 40.1% to $8,195,000 from $5,850,000 for the same period a year ago.

Selling, general and administrative expenses as a percentage of net sales increased to 24.5% for the three months ended December 31, 2021 as compared to 21.5% for the same period a year ago.

Selling, general and administrative expenses for the six months ended December 31, 2021 increased 29.5% to $15,541,000 from $11,999,000 for the same period a year ago.

Selling, general and administrative expenses as a percentage of net sales increased to 24.1% for the six months ended December 31, 2021 as compared to 23.82% for the same period a year ago.

The increase in selling, general and administrative expenses was due primarily to increased sales incentive compensation relating to the increase in net sales as discussed above, as well as an increase in stock-based compensation expense relating to the granting of stock options as described in Note 9 to the condensed consolidated financial statements.

Other income (expense) for the three months ended December 31, 2021 increased $61,000 to income of $58,000 as compared to expense of $3,000 for the same period a year ago.

Other income (expense) for the six months ended December 31, 2021 increased $3,988,000 to income of $3,979,000 as compared to expense of $9,000 for the same period a year ago.

The change in Other income (expense) was due primarily to the gain from the extinguishment of the Company’s $3,904,000 in PPP loans, which were forgiven by the SBA during the six months ended December 31, 2021.

The Company’s provision for income taxes for the three months ended December 31, 2021 decreased by $178,000 to $291,000 as compared to $469,000 for the same period a year ago.

The Company’s provision for income taxes for the six months ended December 31, 2021 decreased by $159,000 to $639,000 as compared to $798,000 for the same period a year ago.

The decrease in the provision for income taxes for the three and six months was primarily due to lower taxable income in the U.S, as compared to income in the DR.

The Company’s effective rate for income tax was 21.9% and 12.8% for the three months ended December 31, 2021 and 2020, respectively.

The increase in the Company’s effective rate for income taxes for the three months was primarily due to higher taxable income in the U.S, as compared to income in the DR.

The Company’s effective rate for income tax was 6.8% and 12.6% for the six months ended December 31, 2021 and 2020, respectively.

The decrease in the Company’s effective rate for the six months ended December 31, 2021 was due primarily to the income recognized as a result of the PPP loan forgiveness being non-taxable.

Net income for the three months ended December 31, 2021 decreased by $2,160,000 to $1,037,000 or $0.03 per diluted share as compared to $3,197,000 or $0.09 per diluted share for the same period a year ago.

The decrease in net income for the three months ended December 31, 2021 was primarily due to the items described above.

Net income for the six months ended December 31, 2021 increased by $3,273,000 to $8,789,000 or $0.24 per diluted share as compared to $5,516,000 or $0.15 per diluted share for the same period a year ago.

The increase in net income for the six months ended December 31, 2021 was primarily due to the items described above.

Selling, general and administrative expenses for the three months ended March 31, 2022 increased 41.2% to $8,442,000 from $5,980,000 for the same period a year ago.

Selling, general and administrative expenses as a percentage of net sales increased to 23.5% for the three months ended March 31, 2022 as compared to 21.2% for the same period a year ago.

Selling, general and administrative expenses for the nine months ended March 31, 2022 increased 33.4% to $23,983,000 from $17,979,000 for the same period a year ago.

Selling, general and administrative expenses as a percentage of net sales increased to 23.9% for the nine months ended March 31, 2022 as compared to 22.9% for the same period a year ago.

Other income (expense) for the three months ended March 31, 2022 decreased $133,000 to expense of $177,000 as compared to expense of $44,000 for the same period a year ago.

Other income (expense) for the nine months ended March 31, 2022 increased $3,855,000 to income of $3,802,000 as compared to expense of $53,000 for the same period a year ago.

The change in Other income (expense) was due primarily to the gain from the extinguishment of the Company’s $3,904,000 in PPP loans, which were forgiven by the SBA during the first quarter of fiscal 2022.

The Company’s provision for income taxes for the three months ended March 31, 2022 increased by $508,000 to $1,132,000 as compared to $624,000 for the same period a year ago.

The Company’s provision for income taxes for the nine months ended March 31, 2022 increased by $349,000 to $1,771,000 as compared to $1,422,000 for the same period a year ago.

The increase in the provision for income taxes for the three and nine months was primarily due to higher taxable income in the U.S, as compared to income in the DR.

The Company’s effective rate for income tax was 12.8% and 12.6% for the nine months ended March 31, 2022 and 2021, respectively.

Net income for the three months ended March 31, 2022 decreased by $1,087,000 to $3,273,000 or $0.09 per diluted share as compared to $4,360,000 or $0.12 per diluted share for the same period a year ago.

The decrease in net income for the three months ended March 31, 2022 was primarily due to the items described above.

Net income for the nine months ended March 31, 2021 increased by $2,186,000 to $12,062,000 or $0.33 per diluted share as compared to $9,876,000 or $0.27 per diluted share for the same period a year ago.

The increase in net income for the nine months ended March 31, 2022 was primarily due to the items described above.

Liquidity and Capital Resources

During the six months ended December 31, 2021, the Company utilized a portion of its cash generated from operations ($811,000 of $7,800,000) to purchase property, plant and equipment ($711,000) and marketable securities ($40,000).

During the nine months ended March 31, 2022, the Company utilized a portion of its cash generated from operations ($1,247,000 of $8,413,000) to purchase property, plant and equipment ($1,189,000) and marketable securities ($58,000).

The Company believes its current working capital, cash flows from operations and its revolving credit agreement will be sufficient to fund the Company’s operations through the next twelve months.

Accounts receivable at December 31, 2021 decreased by $4,550,000 to $23,531,000 as compared to $28,081,000 at June 30, 2021.

This decrease is primarily the result of the higher sales volume of equipment during the quarter ended June 30, 2021, which is typically the Company’s highest, as compared to the quarter ended December 31, 2021.

Inventories at December 31, 2021 increased by $5,288,000 from June 30, 2021.

This increase is primarily the result of the Company level-loading its production output throughout the year, whereas the Company’s sales are typically highest in the fourth quarter as well as the continued increase in purchases of certain components that have become difficult to source during the world-wide supply chain problems.

Accounts payable and accrued expenses other than accrued income taxes increased by $3,241,000 as of December 31, 2021, as compared to June 30, 2021.

Accounts receivable at March 31, 2022 decreased by $3,872,000 to $24,209,000 as compared to $28,081,000 at June 30, 2021.

Inventories at March 31, 2022 increased by $10,978,000 from June 30, 2021.

This increase is primarily the result of the Company level-loading its production output throughout the year, whereas the Company’s sales are typically highest in the fourth quarter as well as the continued increase in component unit costs and increased volume of purchases of certain components that have become difficult to source during the world-wide supply chain problems.

Accounts payable and accrued expenses other than accrued income taxes increased by $5,264,000 as of March 31, 2022, as compared to June 30, 2021.

This increase was due primarily to the increase in component part purchases as described above.

As of December 31, 2021, the Company maintained a revolving credit facility of $11,000,000 which expires in June 2024.

As of December 31, 2021, the Company had no outstanding borrowings and $11,000,000 in availability under the revolving credit facility which is described more fully in Note 8 to the condensed consolidated financial statements.

As of March 31, 2022, the Company maintained a revolving credit facility of $11,000,000 which expires in June 2024.

As of March 31, 2022, the Company had no outstanding borrowings and $11,000,000 in availability under the revolving credit facility which is described more fully in Note 8 to the condensed consolidated financial statements.

The facility contains various restrictions and covenants including, among others, restrictions on borrowings and compliance with certain financial ratios, as defined in the agreement.

As of December 31, 2021 the Company had no material commitments for capital expenditures or inventory purchases other than purchase orders issued in the normal course of business.

As of March 31, 2022 the Company had no material commitments for capital expenditures or inventory purchases other than purchase orders issued in the normal course of business.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis