What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-03 compared with 2024-11-04 · 65 added, 34 removed, 68 unchanged (59% of the section changed)

17 unchanged sentences

We are dedicated to developing innovative technology and producing the next generation of reliable security solutions that utilize remote communications and wireless networks.

Highlights from the quarter ended September 30, 2024 compared with the comparable quarter in fiscal 2023 included:

● Net sales for the quarter increased 6% to a record $44.0 million.

● Recurring service revenue (“RSR”) for the quarter increased 22% to $21.1 million.

● Gross margin for recurring service revenue increased to 91% as compared to 90%.

● Gross margin for equipment revenue was 24% as compared to 28%.

● Net income increased 7% to a first quarter record $11.2 million.

Highlights from the three and six months ended December 31, 2024 compared with the comparable periods in fiscal 2024 included:

● Net sales decreased 9.7% to $42.9 million and 2.6% to $86.9 million, for the three and six months.

● Recurring service revenue (“RSR”) increased 14.4% and 18.1% to $21.2 and $42.3 million for the three and six months.

● Total gross profit margin increased from 52.6% to 57.0% and 53.2% to 56.5% for the three and six months.

● Gross margin for RSR increased to 91.3% and 91.2% as compared to 89.9% and 89.8% for the three and six months.

● Generated $25.5 million in cash flows from operations for the six months ended December 31, 2024 as compared to $18.7 in fiscal 2024.

Industry Trends

16 unchanged sentences

Results of Operations

Three months ended September 30,

Three months ended December 31,

Six months ended December 31,

(dollars in thousands)

equipment revenues

10 unchanged sentences

Provision for income taxes

Net Sales for the three months ended September 30, 2024 increased $2,327,000 to $44,003,000 as compared to $41,676,000 in the comparable period.

Net equipment revenues for the three months ended September 30, 2024, decreased $1,474,000 to $22,917,000 as compared to $24,391,000 in the comparable period.

Three Months Ended December 31, 2024:

Net sales for the three months ended December 31, 2024 decreased $4,614,000 to $42,933,000 as compared to $47,547,000 in the comparable period.

Net equipment revenues for the three months ended December 31, 2024, decreased $7,282,000 to $21,725,000 as compared to $29,007,000 in the comparable period.

The decrease in net equipment sales was primarily due to decreases in intrusion and access alarm products of $3,702,000 and door locking devices of $3,580,000.

Net service revenues for the three months ended September 30, 2024, increased $3,801,000 to $21,086,000 as compared to $17,285,000 in the Comparable period.

The increase in net service revenues was primarily due to an increase in our cellular (radio) communication device activations.

Overall gross profit for the three months ended September 30, 2024 increased $2,203,000 to $24,616,000, or 55.9% of net sales, as compared to $22,413,000, or 53.8% of net sales, for the comparable period.

The reduction is attributable to reduced sales by two of the Company’s larger distributors, one of which reduced all purchases to reduce existing inventory levels, and a second distributor who was completing a management restructuring which resulted in reduced purchases.

In addition, the timing of project work has impacted sales of custom door locking devices.

Net service revenues for the three months ended December 31, 2024, increased $2,668,000 to $21,208,000 as compared to $18,540,000 in the Comparable period.

The increase in net service revenues was due to an increase in the number of our cellular (radio) communication devices put into service and activated.

Six Months Ended December 31, 2024 :

Net sales for the six months ended December 31, 2024 decreased $2,287,000 to $86,936,000 as compared to $89,223,000 in the comparable period.

Net equipment revenues for the six months ended December 31, 2024, decreased $8,756,000 to $44,642,000 as compared to $53,398,000 in the comparable period.

The decrease in net equipment sales was primarily due to decreases in intrusion and access alarm products of $3,936,000 and door locking devices of $4,821,000.

In addition, the timing of project work has impacted sales of custom door locking devices.

Net service revenues for the six months ended December 31, 2024, increased $6,469,000 to $42,294,000 as compared to $35,825,000 in the comparable period.

The increase in net service revenues was due to an increase in the number of our cellular (radio) communication devices put into service and activated.

Three Months Ended December 31, 2024

Overall gross profit for the three months ended December 31, 2024 decreased $523,000 to $24,489,000, or 57.0% of net sales, as compared to $25,012,000, or 52.6% of net sales, for the comparable period.

Gross profit from equipment sales was $5,119,000, or 23.6% of equipment sales, as compared to $8,351,000, or 28.8% of net equipment sales, for the comparable period.

The decrease in gross profit percentage from equipment sales is primarily a result of product mix.

Door locking products historically result in higher margin percentages as compared to access alarm products and specifically cellular (radio) communicator devices, which also result in future increases in recurring alarm communication services revenue.

The decrease in gross profit percentage from equipment sales is primarily a result of product mix and lower absorption of fixed overhead costs.

In addition, door locking products historically result in higher margin percentages as compared to access alarm products and specifically cellular (radio) communicator devices, which also result in future increases in recurring communication services revenue.

Gross profit on service revenues was $19,370,000, or 91.3% of net service revenues, as compared to $16,661,000, or 89.9% of net service revenues, for the comparable period a year ago.

The increase in gross profit percentage was a result of renegotiation of royalty arrangements and volume rebates received from carriers.

Six Months Ended December 31, 2024 :

Overall gross profit for the six months ended December 31, 2024 increased $1,680,000 to $49,105,000, or 56.5% of net sales, as compared to $47,425,000, or 53.2% of net sales, for the comparable period.

Gross profit from equipment sales was $10,526,000, or 23.6% of equipment sales, as compared to $15,245,000, or 28.5% of equipment sales, for the comparable period.

The decrease in gross profit percentage from equipment sales is primarily a result of

product mix and lower absorption of fixed overhead costs.

Gross profit on service revenues was $38,579,000, or 91.2% of net service revenues, as compared to $32,180,000, or 89.8% of net service revenues, for the comparable period a year ago.

The increase in gross profit percentage was a result of renegotiation of royalty arrangements and volume rebates received from carriers.

Research and Development

Research and development expenses for the three months ended September 30, 2024 increased by $620,000 to $3,057,000, or 6.9% of net sales, as compared to $2,437,000, or 5.8% of net sales, for the comparable period.

Research and development expenses for the three months ended December 31, 2024 increased by $565,000 to $3,107,000, or 7.2% of net sales, as compared to $2,542,000, or 5.3% of net sales, for the comparable period.

The increase in research and development expenses was primarily a result of annual compensation increases and hiring of additional resources.

Research and development expenses for the six months ended December 31, 2024 increased by $1,185,000 to $6,164,000, or 7.1% of net sales, as compared to $4,979,000, or 5.6% of net sales, for the comparable period.

The increase in research and development expenses was primarily a result of annual compensation increases and hiring of additional resources.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2024 increased by $1,282,000 to $9,703,000 as compared to $8,421,000 for the comparable period.

Selling, general and administrative (“SG&A”) expenses for the three months ended December 31, 2024 increased by $1,546,000 to $10,211,000 as compared to $8,665,000 for the comparable period.

The increase in SG&A expenses was primarily attributable to compensation increases and hiring of additional staff, increases in advertising and insurance costs, partially offset by decreases in professional fees.

Selling, general and administrative (“SG&A”) expenses for the six months ended December 31, 2024 increased by $2,828,000 to $19,914,000 as compared to $17,086,000 for the comparable period.

Other Income (Expense)

Interest and other income, net for the three months ended September 30, 2024 increased by $704,000 to income of $1,144,000 as compared to income of $440,000 for the comparable period.

Interest and other income, net for the three months ended December 31, 2024 increased by $192,000 to income of $921,000 as compared to income of $729,000 for the comparable period.

The increase in income was primarily due to an increase in interest income on short-term investments as a result of higher interest rates and larger deposit balances.

The Company’s provision for income taxes for the three months ended September 30, 2024 increased by $298,000 to $1,815,000 as compared to $1,517,000 for the same period a year ago.

The increase in the provision for income taxes for the three months was primarily due to higher taxable income in the U.S.

The Company’s effective rate for income tax was 14.0% and 12.6% for the three months ended September 30, 2024 and 2023 respectively.

The Company’s effective tax rate for the three months ended September 30, 2024 increased as a result of higher non-deductible stock based compensation.

Interest and other income, net for the six months ended December 31, 2024 increased by $896,000 to income of $2,065,000 as compared to income of $1,169,000 for the comparable period.

The increase in income was primarily due to an increase in interest income on short-term investments as a result of higher interest rates and larger deposit balances.

The Company’s provision for income taxes for the three months ended December 31, 2024 decreased by $299,000 to $1,625,000 as compared to $1,924,000 for the same period a year ago.

The decrease in the provision for income taxes for the three months was primarily due to lower taxable income in the U.S.

The Company’s effective rate for income tax was 13.4% and 13.2% for the three months ended December 31, 2024 and 2023 respectively.

The Company’s effective tax rate for the three months ended December 31, 2024 increased as a result of higher non-deductible stock based compensation.

The Company’s provision for income taxes for the six months ended December 31, 2024 of $3,440,000 remained consistent as compared to $3,441,000 for the same period a year ago.

The Company’s effective rate for income tax was 13.7% and 13.0% for the six months ended December 31, 2024 and 2023 respectively.

The Company’s effective tax rate for the six months ended December 31, 2024 increased as a result of higher non-deductible stock based compensation.

Liquidity and Capital Resources

Our cash and cash equivalents increased by $20,255,000 during the quarter ended September 30, 2024, and our cash and cash equivalents and short-term investments as of September 30, 2024 was $96,522,000.

Our cash and cash equivalents increased by $20,678,000 during the six months ended December 31, 2024, and our cash and cash equivalents and short-term investments as of December 31, 2024 was $99,195,000.

We believe that our projected cash flow from operations, combined with our cash and short-term investments, will be sufficient to meet our projected working capital requirements, contractual obligations, and other cash flow needs for the next twelve months.

As of September 30, 2024, the Company’s available revolving credit line was $20,000,000, which expires in February 2029, none of which has been drawn.

As of December 31, 2024, the Company’s available revolving credit line was $20,000,000, which expires in February 2029, none of which has been drawn.

The Company has no outstanding debt.

A summary of the cash flow activity for the periods ended September 30, 2024 and 2023 is as follows:

A summary of the cash flow activity for the six months ended December 31, 2024 and 2023 is as follows:

Cash Flows from Operating Activities

Net cash provided by operating activities was $12.0 million for the period ended September 30, 2024 and was due to net income of $11.2 million and increase in cash flow from changes in operating assets and liabilities of $1.3 million, partially offset by adjustments for non-cash items of $.4 million.

The changes in operating assets and liabilities were largely attributable to increases in accounts receivables and decreases in inventories and accounts payable and accrued expenses.

Net cash provided by operating activities was $11.2 million for the period ended September 30, 2023 and was due to net income of $10.5 million and adjustments for non-cash items of $1.7 million, partially offset by a decrease in cash flow from operating activities due to changes in operating assets and liabilities of $1.0 million.

The changes in operating assets and liabilities was largely attributable to a decrease in accounts receivable and an increase in and accounts payable and accrued expenses offset by an increase in inventories.

Net cash provided by operating activities was $25.5 million for the six months ended December 31, 2024 and was due to net income of $21.7 million and increase in cash flow from changes in operating assets and liabilities of $4.0 million offset by adjustments for non-cash items of $.2 million.

The changes in operating assets and liabilities were largely attributable to decreases in accounts receivables, inventories and prepaid expenses partially offset by increases in income tax receivable and decreases in accounts payable and accrued expenses.

Net cash provided by operating activities was $18.7 million for the six months ended December 31, 2023 and was due to net income of $23.1 million and adjustments for non-cash items of $.9 million, partially offset by a decrease in cash flow from operating activities due to changes in operating assets and liabilities of $5.3 million.

The changes in operating assets and liabilities was largely attributable to a decrease in accounts receivable and inventories partially offset by an increase in and accounts payable and accrued expenses.

Cash Flows from Investing Activities

The net cash provided by investing activities of $15.5 million during the period ended September 30, 2024 was primarily attributable to the redemption of other investments ($16.3 million) partially offset by expenditures used for capital expenditures ($.7 million) and purchase of investments ($.1 million).

The cash used in investing activities of $0.6 million during the period ended September 30, 2023, was primarily attributable to expenditures used for capital expenditures and purchase of investments.

The change in use of cash for investing activities from 2023 to 2024 was a reduction in investments in term deposits (other investments).

The net cash provided by investing activities of $17.7 million during the six months ended December 31, 2024 was primarily attributable to the redemption of other investments ($27.3 million) partially offset by expenditures used for capital expenditures ($1.8 million) and purchase of investments ($7.6 million).

The cash used in investing activities of $1.4 million during the six months ended December 31, 2023, was primarily attributable to expenditures used for capital expenditures and purchase of investments.

The change in use of cash for investing activities from 2023 to 2024 was a increase in the redemption of investments in term deposits (other investments).

Cash Flows from Financing Activities

The cash used in financing activities of $7.2 million for the period ended September 30, 2024 was primarily related to the purchase of treasury shares.

The cash used in financing activities of $2.9 million for the period ended September 30, 2023 was primarily related to the payment of stockholder dividends.

The cash used in financing activities of $22.6 million for the six months ended December 31, 2024 was primarily related to the purchase of treasury shares.

The cash used in financing activities of $5.9 million for the six months ended December 31, 2023 was primarily related to the payment of stockholder dividends.

Contractual Obligations and Commitments

As of September 30, 2024, 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 December 31, 2024, the Company had no material commitments for capital expenditures or inventory purchases other than purchase orders issued in the normal course of business.

On April 26, 1993, the Company's foreign subsidiary entered into a 99-year land lease of approximately 4 acres of land in the Dominican Republic, on which the Company’s principle manufacturing facility is located, at an annual base rent of approximately $235,000 and $105,000 in annual service charges.

1 unchanged sentence

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