LRAD Corporation TECHNOLOGY/EMERGING TECHNOLOGIES … · 2020. 2. 20. · LRAD is a leader in long...

EQUITY RESEARCH

INITIATION OF COVERAGE

Andrew [email protected]

Martin Yang, [email protected]

Disseminated: July 2, 2019 06:00 EDT; Produced: July 1, 2019 16:36 EDT

July 2, 2019

Stock Rating:

OUTPERFORM12-18 mo. Price Target $5.00LRAD - NASDAQ $3.29

3-5 Yr. EPS Gr. Rate NM52-Wk Range $3.69-$2.08Shares Outstanding 33.1MFloat 23.7MMarket Capitalization $107.2MAvg. Daily Trading Volume 59,023Dividend/Div Yield NA/NMBook Value $1.02Fiscal Year Ends Sep2019E ROE 14.0%LT Debt $0.0MPreferred NACommon Equity $34MConvertible Available No

EBITDA($/mil) Q1 Q2 Q3 Q4 Year Mult.

2017A (0.8) 0.6 (0.7) 1.3 0.5 NM2018A 1.2 0.9 0.1 (2.6) (0.4) NM2019E 1.6A 1.8A 1.5 1.0 5.9 NM2020E -- -- -- -- 8.4 NM2021E -- -- -- -- 11.6 NM

Oppenheimer & Co Inc. 85 Broad Street, New York, NY 10004 Tel: 800-221-5588 Fax: 212-667-8229

For analyst certification and important disclosures, see the DisclosureAppendix.

Stock Price Performance

1 Year Price History for LRAD

4

3.5

3

2.5

07/18 10/18 12/18 03/19 07/19

Company DescriptionLRAD Corporation is engagedin the design, development andcommercialization of directed andmultidirectional sound technologies,voice broadcast products, and location-based public safety mass messagingsolutions for emergency warning andworkforce management.

Andrew Uerkwitz Martin Yang, CFA: 212-667-5316 212-667-7623

TECHNOLOGY/EMERGING TECHNOLOGIES AND SERVICES

LRAD CorporationLong-Term Growth for Long-Range Communication;Initiate at OutperformSUMMARYWe are initiating coverage of LRAD Corp. (LRAD) with an Outperform rating. LRADstands for Long Range Acoustic Distribution. LRAD is a leader in long range voicebroadcast systems and advanced public safety notification. We believe LRAD is inthe middle of a slow, long tail global growth cycle as communities around the worldare updating antiquated alarm notification systems with a combination of a text-based, smartphone system and long range voice notification. We believe these trendscombined with the company’s historical military customer focus will allow it to see alonger-term low double-digit CAGR on the top line. As the company continues to scale,we believe earnings can grow substantially faster. Our price target is $5.

KEY POINTS

■ Military: Starting with updated naval engagement protocols, LRADs have becomeindispensable on military ships. Broader armed force adoption has started inearnest, and is growing substantially as LRADs are being used in convoy safety,checkpoints, and military base entries. We expect military-related revenues toprovide a growing base as the company continues to expand into civilian use cases.

■ Civilian Use: Mass communication is critical before and after natural disasters.Aside from emergency response, LRADs have found usefulness in broader crowdcontrol situations. We believe LRAD's broad portfolio of stationary, mobile solutionsand text-based mass communication fit the critical needs of all communities.Recent wins in fire- and hurricane-stricken areas have validated its strategy.

■ Market Size: We see the mass notification market growing double digits drivenby updating older systems, adding text and smart phone notification support, andvertically integrating with broader emergency response systems. We see LRADrelated product TAM as ~$5B.

■ Valuation: We expect LRAD to be consistently profitable going forward; we seeEBITDA growth outpacing top line as the company reaches a critical leverage level.With bookings and backlog showing strong growth indicating solid long-term TAMopportunities, we believe a peer group EV/EBITDA multiple is substantiated. Usinga median peer multiple of 14x on our 2021E EBITDA, we derive a $5 PT

■ Risks: Unfortunately, in the public safety space, mass communication andemergency response purchases can often be reactive, not proactive. To this end,spending trends may slow or not materialize. Additionally, the source of funding isalways an issue in government-related purchases which may limit LRAD’s growthdespite high quality of technology.

5-YEAR PRICE PERFORMANCE

4

3.5

3

2.5

2

1.5

1Jan-19Jan-18Jan-17Jan-16Jan-15

LRAD

Source: Bloomberg

INVESTMENT THESIS

LRAD is a leader in long range voice broadcast systemsand advanced public safety notification. In our view, LRADis in the center of a slow, long tail global growth cycle. Webelieve communities around the world are updating antiquatedalarm notification systems with a combination of a text-based,smartphone system and long range voice notification.

BASE CASE ASSUMPTION■ We expect revenues to grow a CAGR of over 30% from 2017 to 2021;

revenues from Contract and Other are expected to grow faster thanProduct

■ Expect adjusted EBITDA margin to grow from 14% in 2019 to 20%by 2021

CATALYSTS■ Major orders from US Military■ Major wins for mass notification software solutions■ Acquisitions that expand its access to new geographic areas and

clients

UPSIDE SCENARIO■ New government funding and grants that accelerate the adoption,

replacement, and upgrade of emergency mass notification systems■ Faster than expected adoption of Genasys by tier-1 customers

DOWNSIDE SCENARIO■ Higher than expected investments to fund the growth of Genasys

software may result in slower than expected margin expansion■ Competition in mass notification software market may lead to lower

than expected growth outlook for Genasys■ Municipalities and local public safety agencies may take longer than

expected to upgrade their mass notification systems

PRICE TARGET CALCULATION

We believe FY19 will be a turning point in the business. Not only do we expect LRAD to stay consistently profitable going forward, we alsosee EBITDA growth outpacing top line as the company reaches a critical leverage level. With bookings and backlog showing strong growthindicating solid long-term TAM opportunities, we believe a peer group EV/EBITDA multiple is substantiated. Using a median peer multipleof 14x on our 2021E EBITDA, we believe a $5 price target is fair.

KEY RISKS TO PRICE TARGET

Risks to our price target include slower than expected product adoption and government spending on mass notification solutions,competition, supply chain constraints, and government policy changes.Note: We view LRAD, as a stock trading under $5, as speculative and appropriate for risk-tolerant investors.

2

LRAD Corporation LRAD (OUTPERFORM) - $5.00

2

LRAD: Initiate with Outperform Rating We are initiating coverage of LRAD Corp. (LRAD) with an Outperform rating. LRAD stands

for Long Range Acoustic Distribution. LRAD is a leader in long range voice broadcast

systems and advanced public safety notification. We believe LRAD is in the middle of a

slow, long tail global growth cycle as communities around the world are updating

antiquated alarm notification systems with a combination of a text-based, smartphone

system and long range voice notification.

According to Munich Re, 850 natural disasters occurred in 2018. The firm also estimated

that 10,400 people lost their lives as a result of those disasters. While nature can’t be

controlled, early warning prevention and post disaster coordination and communication is

often the difference between life and death. Current systems are not only old, but also

often ineffective. Prior mass notification systems are siren-based. LRAD’s acoustic hailing

devices are able to broadcast audible voice messages across long distances (5,500

meters covering over 14 square kilometers) with exceptional clarity. Adding mass

messaging (from a January 2018 acquisition), we think LRAD has a 21st century solution.

We believe recent wins in Australia, Puerto Rico, and California are early signs that

change is taking hold. Not only is communication key in natural disasters, it also remains

critical in political unrest, public protests and military applications. We believe LRAD’s

broad product portfolio fits the needs of all communities, public safety institutions, and

militaries. As LRAD expands its sales presence and business development capabilities,

we see the company growing top and bottom line at double digits for the foreseeable

future.

Large Opportunity: We believe the TAM (total addressable market) is large. Since very

early in our civilization, people have needed ways to communicate with mass audiences.

For many centuries, it was church bells. Starting in the late 19th

century and early 20th

century, cities and towns moved to mechanical sirens and eventually to electronic ones.

We believe going forward the market will be made up of three categories: standalone,

portable and IP-based communications. One estimate puts the TAM at $5B and growing

20% over the next five years.

There are many use cases for mass notification—public safety for natural disasters (i.e.

tornado sirens), pre- and post-natural disaster logistics, public safety for mass

demonstrators and many military applications, including checkpoint, vehicle convoy, and

ship-to-ship communications. In recent years there has been a renewed focus on mass

notification driven in part by past failures in natural disasters that have highlighted an

aging infrastructure and lack of new technologies.

Public Safety: Following 9/11, and more recent natural disasters, there has been

renewed interest in better mass notification systems. Some communities dusted off their

1950’s era sirens while other cities focused on electronic communications. The wildfires

of California and recent hurricanes in the Caribbean proved that communities need a

combination of both as part of their critical infrastructure.

Military: What started out as a solution for rogue ship encounters in the Navy, LRAD’s

long distance communication devices are becoming mainstays for military vehicle

convoys, checkpoints, and base-entry systems. With just the US Army, bookings have

grown from $1M in 2016 to $12M in 2018 with a larger amount expected in 2019. Military

is expected to remain an important growth driver as LRAD looks to expand into other US

military applications as well as international armies.

Valuation: We believe FY19 will be a turning point in the business. Not only do we

expect consistent profitability going forward, we also see EBITDA growth outpacing top

3

LRAD CorporationLRAD (OUTPERFORM) - $5.00

line as the company reaches a critical leverage level. With bookings and backlog showing

strong growth indicating solid long-term TAM opportunities, we believe a peer group

EV/EBITDA multiple is substantiated. Using a median peer multiple of 14x on our 2021E

EBITDA, we believe a $5 price target is fair.

Risks: Unfortunately, in the public safety space, mass communication and emergency

response purchases can often be reactionary, not proactive. To this end, spending trends

may slow or not materialize. Additionally, the source of funding is always an issue in

government-related purchases which may limit LRAD’s growth despite high quality of

technology. Lastly, the stock is trading below $5 and can be considered speculative and

only appropriate for risk-tolerant investors.

4


4

Business Overview In October of 2000, the USS Cole was bombed by suicide bombers carrying around 400-

700 lbs of C4 in a small boat. It killed 17 US Navy sailors. Following the incident, the US

Navy reviewed and significantly changed its rules of engagement. In the most basic

terms, the policy was similar to not fire upon unless first fired upon. There was essentially

no protocol for warning incoming vessels that would help assess the level of threat.

After the rules of engagement changed, the US Navy put out a request for a technology

that would allow for the long range communication in clear, highly intelligible voice

messages. Again, in the most basic terms, it allowed the ship to clearly and audibly warn

incoming vessels, and if such vessels ignored the warnings, the ship would be in a better

position to make the correct threat assessment. This request for technology was the

break LRAD needed as the company became a primary supplier to the US Navy for long

range acoustic devices. It was so important to the company, it changed its name to LRAD

Corporation from American Technology Corporation.

Since that time, the product portfolio has expanded to match the many new use cases that

have developed over the last decade. The company remains headquartered in San Diego

and employed 75 people as of September 2018. The company has sold systems and

solutions in over 72 countries and is deployed by the US Army, Navy, Air Force, Marine

Corps, and the Coast Guard. The systems are also seeing use by major municipal police

forces such as New York and London.

Exhibit 1: Select LRAD Products

Source: Company reports, Oppenheimer and Co.

Mobile solution, often for

emergency response

Omni directional warning and voice

broadcast system

Long range directional, often

found on ships

5


Exhibit 2: LRAD Products


In January 2018, LRAD acquired Genasys Holdings, a software provider of advanced

location-based mass messaging solutions. It significantly expanded LRAD’s opportunity

as it allows the company to offer the extensive array of products, especially those RFPs

(request for proposal) that require location-based solutions. The market for mobile

phone-based alert systems is an estimated $4B-plus market. For example, following the

wildfires in California, many towns are taking comprehensive approaches to logistics and

evacuation procedures which include mass media, text message-based solutions, and

long range acoustic devices. In April, LRAD reported it had received orders for all-of-the-

above approach. This one order of approximately $1.1M amounted to more than half of

Genasys’s 2017 standalone revenue.

Genasys’s solutions are also integrated with FEMA’s Integrated Public Alert and Warning

System (IPAWS). Following Hurricane Katrina, there was an emphasis on pre- and post-

Products Description

Genasys Public Safety Notification Systems

LRAD 360XLRAD 360X emitters can be stacked four high to produce audio output up to 143 dB and

can be mounted on buildings and/or standalone poles.

LRAD 360XLThe LRAD 360XL delivers exceptionally clear voice and warning siren broadcasts with

uniform 360° coverage over distances up to 5.3 sq. kilometers.

LRAD 360XL-MIDLRAD’s indoor/outdoor omnidirectional emergency warning and public address system is

housed in a lightweight, compact form factor.

LRAD 360XL-MID Mobile Kit

Comprised of an LRAD 360XL-MID emitter, ruggedized carrying case power amplifier,

hardened control module, all weather push-to-talk mic, tripod and other accessories, the

LRAD 360XL-MID Mobile Kit provides a completely self-contained solution for applications

requiring advanced mobile mass notification.

LRAD 360XT Rapidly deployable, mobile public safety notification system

LRAD DS-60X Horn systems

LRAD DS-60XL Horn systems

LRAD SoundSaber-X line array mass notification speakers

LRAD SS100 public safety line array

LRAD SS300 line array communication

LRAD SS400 All-weather, clear voice, line array communication

Long Range Acoustic Devices

LRAD 100XPowerful, intelligible communication up to 600 meters; 20-30 decibels louder than typical

bullhorns and vehicle-based P.A. systems

LRAD 100X MAG-HS Kit Self-contained, portable voice commuinication with range up to 600 meters

LRAD 300XPowerful, intelligible communication up to 1,000 meters for vehicles, vessels & remote

weapon stations

LRAD 450XL Powerful, intelligible communication up to 1,700 meters

LRAD 500X Powerful, intelligible communication up to 2,000 meters

LRAD 500X MMTHelicopter-monted system (self-powered) that provides voice or warnings tones up to 2,000

meters over wind, engine and rotor wash.

LRAD 1000 Powerful, intelligible communication up to 1,500 meters with application in Maritime

LRAD 1000Xi Powerful, intelligible communication up to 3,000 meters

LRAD 1950XL Powerful, intelligible communication up to 5,000 meters

LRAD 2000XPowerful, intelligible communication up to 5,500 meters with applications targeting

sovereign borders and crtical infrastructure safety

Remotely Operated LRADs

LRAD 500RX

Integrated communication and perimeter security system for power facilities, ports, large

industrial plants and other critical infrastructure, and maritime vessels. Highly intelligible

communication up to 2,000 meters

LRAD 950RXL

A lighter, more compact version of the LRAD 1000RX system. Designed for integrated

applications ranging from small vessels to fixed installation security solutions. Highly

intelligible communication up to 3,000 meters

LRAD 1000RX

Designed for integrated applications ranging from maritime vessels to coastal, border and

port security solutions. It can also be integrated with radar to provide automated intruder

alerts. Highly intelligible communication up to 3,000 meters

6


6

disaster communication. IPAWS is a program focused on modernizing and integrating the

national alert and warning infrastructure. The goal of IPAWS is to allow local authorities to

deliver alerts across multiple communication devices and channels simultaneously. This

renewed focus by the department of Homeland Security combined with recent record

national disasters from Katrina to the Camp fire have given local authorities the

wherewithal to update outdated systems.

Because many of LRAD’s customers’ purchases are made public due to the nature of

being public agencies, we have insight into the who, what, and how much is ordered.

Here’s a selection of orders with detail from the past 12 months that show the diversity,

customers, use cases and products.

Exhibit 3: LRAD Announced Orders in the Past Twelve Months


Date Order Details ProductsAmount

(in $000)

06/20/19International Public Safety Notification and Wildlife

PreservationSoundSaber-X $850

06/11/19 Defense and Homeland SecurityLRAD 100X MAG-HS Kits, LRAD

100X, LRAD 500X, LRAD 100Xi$1,700

05/14/19 Indian Navy AHD Systems Maintenance AgreementFive-year maintenance agreement

for AHDs $4,750

04/30/19 Follow-on Order from Canadian ArmyLRAD 100X, LRAD 450XL systems

and accessories$508

04/16/19Orders The French Navy, The US Navy, and A Navy

in APAC Region

LRAD 950RXL, LRAD 1000Xi,

LRAD 100X$1,200

04/04/19International and Domestic Orders for Genasys

Public Safety Mass Notification SystemsGenasys systems $1,100

12/11/18 Follow-on Order from US Air Force LRAD 500X-RE, LRAD 100X MAG-

HS Kits, and accessories$1,100

11/13/18 The National Guard LRAD 100X MAG-HS Kits $3,200

10/03/18

Mass Notification Orders for One Oil and Gas

Company in Eurasia, the US Army, and One

International Air Base

LRAD 360XT $1,100

09/20/18 Air National Guard, US Air Force, US Army LRAD 500X-MMT $2,400

09/13/18Mass Notification System for FEMA-Funded Critical

Infrastructure ProjectLRAD DS-60XL and LRAD 360XT $1,000

08/23/18 AHD Order from US Army LRAD 500X systems and

accessories$11,000

07/10/18Defense and Public Safety Follow-on Order from

Southeast Asia

LRAD 100X systems and

accessories$3,400

7


Market Mass notification market can be broken down into three segments: outdoor, indoor, and

personal. Outdoor segment consists of mostly fixed outdoor sirens and mobile sirens.

Indoor segment consists of access panels, speakers and strobe lights, fire alarm panels,

and voice evacuation systems. Personal segment consists of consumer devices such as

phones, pagers, and tablets, as well as notification systems for social media, email, and

pop-ups.

According to a third-party research firm Markets and Markets, mass notification system

market (hardware included) is expected to grow from $4.86B in 2017 to $11.87B by 2022,

at a CAGR of 20%. North America is forecasted to hold the largest size with revenue of

$3.8B in 2022.

Also according to Markets and Markets, mass notification software and services market is

projected to reach $4.4B by 2020. The market for distributed recipient software and

services is projected to reach $2.6B by 2020.

Exhibit 4: Architecture of National Alerting System


The most commonly known mass communication device is the civil defense siren, or

commonly known throughout the Midwest as a tornado siren. Prior to WW2, the most

common mass alert system was the church bell. Late 19th century saw work and

inventions on what would become the modern day siren (in the 1940/1950’s). However,

fear of chaos and lack of high quality, clear sound limited the use of sirens. In 1950, Harry

Truman signed the Federal Civil Defense Act. With it came federal funding for a large

systematic outdoor siren, which would be administered and maintained at the local level.

Alerting Authorities

Local

State

Federal

Territorial

Tribal

Alerting Dessemination

Channels

(Private Sector Systems)

Emergency Alert System

(EAS)

NOAA

Wireless Emergency

Alerts (WEA)

State/Local Unique Alerting

Systems

American Public

(Devices)

EAS: all radio and TV

Radio

WEA: mobile phones

Sirens

Message Router (FEMA System)

LRAD Hardware, Software, and Services

8


8

As the cold war waned, most of these sirens have fallen into disrepair or were replaced

with a higher tech, clearer sounding siren. In the Midwest, the sirens were repurposed for

tornado warnings. In rural areas they were repurposed to alert local volunteer fire

departments. The idea of repurposing has been a recurring theme and one that greatly

benefits LRAD. In fact, in 2006 by executive order, President Bush ordered the Homeland

Security department to establish the policy to have an effective, reliable, and integrated

system to alert the American people in situations of war, terrorist attack, natural disaster,

and other hazards to public safety.

Investment in outdoor stationary systems saw a small revival and continues to see one

today. LRAD’s clear voice, long distance solutions have proven effective and the company

sees continued opportunity as antiquated systems get replaced. As the outdoor systems

use cases have evolved over time, so too have ways to mass communicate. Another

growing opportunity is in mobile solutions. In times of crisis, often post catastrophe

logistics, emergency response agencies are finding it critical to have a way to timely and

effectively communicate with the public. LRAD has announced many wins, notably

among fire stricken and hurricane areas. We believe the market opportunity here ranges

from local emergency response teams to police departments to the National Guard.

While the executive order from President Bush in 2006 started a mini-renaissance in

outdoor alert systems, 2006 was also a year that kick-started mobile device mass alert

systems. In response to the WARN Act passed that year, the FCC set the technical

requirements for wireless emergency alerts (WEA). The idea is to send messages (from

the president, imminent threats to safety like national weather service, or AMBER alerts)

directly to mobile devices from a cell tower instead of based on phone number.

Recent news events have shown the ups and downs of this. Hawaii made the news when

a false ballistic missile alert was issued over television, radio, and mobile phones

statewide in January 2018. And the first presidential alert was tested in October of 2018.

Recent complaints to the FCC have forced changes to the targeting of alerts and another

update is expected by 2020.

LRAD acquisition of Genasys affords the company another role in emergency alerts.

Exhibit 4 shows a simplified value chain. Genasys provides the underlying software for

authorities to use to make alerts to mobile device. LRAD’s hardware plays a crucial role in

the “last mile” of alerting the public, or as some emergency responders call it, the failsafe

in local communication. Often post disaster, networks or power grids are not functioning,

and the only way to reach people is the old fashioned way with a loud voice going door to

door…..or with an LRAD system that can audibly send worded messages miles away.

Military Opportunity: There are 800 US military bases worldwide, 490 US navy ships,

approximately 250 Coast Guard Cutters, and thousands of smaller boats in the Army,

marines, and Coast Guard. And there are tens of thousands of armored vehicles in the

armed forces. Needless to say, the National Guard, due to its domestic emergency

response duties, as well as homeland security both have a need for long-range

communication and are current LRAD customers. More recently, LRAD has also engaged

and won several foreign armed forces contracts from countries such as Canada and India.

Military sales have been the revenue backbone and will likely continue to be so for the

foreseeable future. Several engagements are contracts of record with the US Army and

Navy. In FY18, one such contract with the US Army was for approximately $11M and is

expected to exceed that in FY19. An announcement is expected later this year.

We believe the TAM is larger in non-military applications, but given the history and

relationships LRAD has with the military, we expect it to remain a significant portion of the

investment thesis.

9


Competition There have been active mergers and acquisitions in critical communication and mass

notification solutions market. The fragmented nature of the market calls of larger

companies to continue to consolidate smaller players for access to particular market

verticals or geographic regions. For example, a key competitor of LRAD, Everbridge,

acquired two companies in 2Q 2018 alone, Unified Messaging System ASA in Norway

and Respond B. V. in the Netherlands.

Exhibit 5: LRAD Competitors in AHD and Siren


Company Name Product Name

Acoustic Hailing Device

Ultra Electronics HyperSpike

IML Sound Commander

Siren / Loudspeaker

HÖRMANN GmbH NA

Whelen Engineering NA

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10

Exhibit 6: Competitors in mass notification software market


Mass Notification Software/Services

Company Name Product Name

AlertMedia NA

Alertus Technologies Alertus Mass Notification

Aurea Software AlertFind

BlackBerry AtHoc Suite

Blackboard Inc. Blackboard Mass Notification

Call-em-all Call-em-all

Desktop Alert NA

Eaton Corporation ALERiTY and WAVES

Everbridge Everbridge Mass Notification

Honeywell International Instant Alert

Motorola Solutions VESTA Alert

Nuance Communications NA

Omnilert LLC NA

OnSolve Send Word Now, SmartNotice, Telalert

Rave Mobile Safety Rave Alert

Regroup Mass Notification NA

Siemens AG Desigo Mass Notification

Singlewire Software LLC InformaCast

xMatters, Inc. NA

11


Financial Analysis Revenues: Total revenues grew 30% in FY18 driven by stronger domestic sales (up

103% Y/Y). AHD sales grew 24% Y/Y. Genasys acquisition (completed as of January

2018) contributed $1.5M, or 6% to total sales. In FY18, direct and indirect sales into the

US government accounted for 49% of LRAD’s total net sales, up from 15% in FY17. In

FY18, only one customer accounted for 20% of revenues, with no other 10%+ customers.

We expect revenues to grow at a CAGR of over 30% from 2018 to 2021E driven by

growing penetration of Genasys solutions for public safety agencies and local authorities

as well as increasing AHD system sales to the US Department of Defense, foreign

militaries, and large commercial and defense-related companies.

Exhibit 7: Historical and Projected Sales and Adjusted EBITDA


Bookings and Backlog: Although bookings and backlog can vary dramatically between

the quarters, they have been steadily growing in recent years, reflecting a strong outlook

for LRAD’s future business. LRAD management define backlog as purchase orders that

are planning to ship within the next 12 months. As of March 2019, backlog was $14M, up

51% Y/Y from $9.3M in March 2018.

(2.0)

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2016 2017 2018 2019E 2020E 2021E

in $

M

in $

M

Sales Adjusted EBITDA

12


12

Exhibit 8: LRAD Historical Bookings and Backlog


Selling, general and administrative expenses: SG&A expenses grew 24.5% in FY18

due to the addition from Genasys overhead, acquisition-related costs, and other increased

expenses associated with computer, travel, facility, and bad-debt charges.

Research and development expenses: R&D expenses grew 40.9% Y/Y in FY18 due to

increase in salaries as well as software development, and product development and

testing costs. LRAD’s R&D effort will focus on two areas: maintaining its product

leadership of voice broadcast systems and integrating mobile alert solutions into its mass

notification offerings.

Operating leverage: LRAD’s gross margin has fluctuated in the 47-51% range in the past

four years. We expect the company to continue generating operating profit with quarterly

revenue run-rate of over $8M. In general, LRAD’s profit margins benefit from higher sales

volumes, offset slightly by increasing manufacturing overheads and sales commissions.

We expect LRAD to achieve and maintain double-digit operating margin in FY19 and

beyond.

0%

5%

10%

15%

20%

25%

30%

35%

$-

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

2016 2017 2018

in $

M

Total Bookings Backlog % Bookings from U.S. Army

13


Exhibit 9: Historical and Projected Opex and Margin

Source: FactSet (March 2019), Oppenheimer and Co.

Valuation We believe FY19 will be a turning point in the business. Not only do we expect regular

profitability going forward, we see EBITDA growth outpacing top line as the company has

reached a critical leverage level. With bookings and backlog showing strong growth

indicating solid long-term TAM opportunities, we believe a peer group EV/EBITDA is

substantiated. Using a peer median multiple of 14x on our 2021E EBITDA, we believe a

$5 price target is fair.

Exhibit 10: Comparable Company Valuation

Source: FactSet (June 2019), Oppenheimer and Co.

-15%

-10%

-5%

0%

5%

10%

15%

20%

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2016 2017 2018 2019E 2020E 2021E

in $

M

SG&A R&D Operating Margin

Shrs Company Company Price Out. MV EV EV / EBITDA EV / Sales

Symbol 07/01/19 (M) (M) (M) 2019E 2020E 2021E 2019E 2020E 2021E

Motorola Solutions, Inc. MSI $166.89 165 $27,501 $33,547 15.2x 14.0x 13.7x 4.3x 4.1x 3.9x

Zebra Technologies Corp. Class A ZBRA $208.98 54 $11,280 $13,104 13.6x 12.8x 12.4x 2.9x 2.8x 2.7x ShotSpotter, Inc. SSTI $45.08 11 $510 $457 51.0x 28.8x 16.9x 10.2x 7.6x 5.6x

Axon Enterprise Inc AAXN $64.55 59 $3,817 $3,508 42.8x 31.0x 22.1x 7.1x 6.1x 5.2x NAPCO Security Technologies, Inc. NSSC $24.85 18 $459 $545 28.9x 21.2x N/M 5.1x 4.5x N/M

Everbridge, Inc. EVBG $90.09 33 $2,966 $2,723 610.4x 232.5x 85.8x 13.8x 11.0x 8.8x

Sonim Technologies, Inc. SONM $12.89 20 $262 $204 28.7x 12.5x 7.5x 1.2x 0.9x 0.8x Identiv, Inc. INVE $5.32 17 $88 $92 10.8x 8.2x N/M 1.0x 0.9x N/M Median 28.8x 17.6x 15.3x 4.7x 4.3x 4.5x

LRAD Corporation LRAD $3.45 33 $112 $98 16.6x 11.6x 8.4x 0.6x 0.5x 0.4x

14


14

Management Richard Danforth joined the firm in August 2016 with the goal to expand the market

opportunity. Leveraging his vast leadership experience at the world’s largest defense

contractors, Mr. Danforth’s focus is on expanding beyond the US Navy and warship

opportunity. Since 2016, the US Army revenues have grown exponentially. Mr. Danforth

is also focusing on building segments outside of military, where the company is starting to

see significant, regular growth. With the acquisition of Genasys, the company now has a

horizontally integrated solution. We believe his intentions are to work to accelerate growth

rates, and possibly continue to consolidate the market of mass communication

infrastructure.

Exhibit 11: Management


Name Role Description

Richard S. DanforthCEO and

Director

Richard was appointed Chief Executive Officer in August 2016 and elected as a director in March

2017. Prior to joining LRAD, Mr. Danforth founded RsD Aero, Ltd., a consulting firm in the defense,

aerospace, space and transportation industries, in October 2013. Between March 2002 and October

2013, Mr. Danforth served in numerous leadership positions with DRS Technologies, Inc., including

Group President of DRS Integrated Defense Systems & Service between 2013 and 2014, President,

Chief Executive Officer and a director of DRS Defense Solutions between 2008 and 2012 President of

Control & Communication between 2005 and 2008, President of Navy Electronics & Intelligence

Systems between 2004 and 2005, and Executive Vice President of the Electronics Systems Group

between 2002 and 2004. Between 2000 and 2001, Mr. Danforth served as Senior Vice President,

Commercial Aircraft Business at Raytheon Company. Mr. Danforth holds a Masters in Engineering

Management from Western New England College and Bachelor of Science, Industrial Technology

from University of Massachusetts, Lowell.

Dennis D. Klahn CFO

Mr. Klahn has more than 30 years of accounting, finance and operations experience, which includes

serving as Controller or CFO at several publicly traded companies. He was most recently a Group

Controller at Teledyne RD Instruments, a subsidiary of Teledyne Technologies (NYSE: TDY). Prior to

that role, he served as Controller or CFO at several companies including, ISE Corporation, Overland

Storage, Anacomp, and International Lottery & Totalizator Systems. Mr. Klahn began his career as a

Staff Accountant at Coopers & Lybrand after receiving his B.A. in Accounting from St. Ambrose

University.

15


Directors Exhibit 12: Directors


Name Role Description

John G. Coburn

Chairman

of the

Board

John has been a director since July 2013 and was appointed Chairman of our Board of Directors in

March 2015. General Coburn has been Chief Executive Officer and Chairman of VT Systems, Inc., an

engineering group providing solutions and services in the aerospace, electronics, land systems and

marine sectors, since November 2001. Prior to joining VT Systems, General Coburn served in the

United States Army for 39 years in various logistics positions. His last assignment was as

commanding general of the United States Army Material Command (AMC). General Coburn is a

distinguished military graduate of Eastern Michigan University where he was commissioned as a

second lieutenant in the infantry. General Coburn holds a B.A. in Education from Eastern Michigan

University, a master’s degree in Political Science from the University of Kansas, a J.D. from the

University of Missouri, and an honorary Ph.D. from Eastern Michigan University.

Richard S. DanforthCEO and

Director

Richard was appointed Chief Executive Officer in August 2016 and elected as a director in March

2017. Prior to joining LRAD, Mr. Danforth founded RsD Aero, Ltd., a consulting firm in the defense,

aerospace, space and transportation industries, in October 2013. Between March 2002 and October

2013, Mr. Danforth served in numerous leadership positions with DRS Technologies, Inc., including

Group President of DRS Integrated Defense Systems & Service between 2013 and 2014, President,

Chief Executive Officer and a director of DRS Defense Solutions between 2008 and 2012 President of

Control & Communication between 2005 and 2008, President of Navy Electronics & Intelligence

Systems between 2004 and 2005, and Executive Vice President of the Electronics Systems Group

between 2002 and 2004. Between 2000 and 2001, Mr. Danforth served as Senior Vice President,

Commercial Aircraft Business at Raytheon Company. Mr. Danforth holds a Masters in Engineering

Management from Western New England College and Bachelor of Science, Industrial Technology

from University of Massachusetts, Lowell.

Scott L. Anchin Director

Scott has been a director since March 2016. Mr. Anchin is currently a Partner at Cormont Strategic

Services, LLC. Previously Scott served as a Managing Director with Opportune LLP, where he

provided restructuring advisory services to companies and stakeholders in distressed situations. From

2009 to February 2016, Mr. Anchin was employed by Alvarez & Marsal North America, LLC, a global

professional services firm specializing in turnaround and interim management and performance

improvement. He is a non-practicing Certified Public Accountant in the State of New York and holds a

B.S. in Accounting from the Wharton School of Business at the University of Pennsylvania and an

M.B.A. with a concentration in Management from Columbia Business School.

Laura M. Clague Director

Laura has been a director since February 2007. Ms. Clague has over 30 years of financial experience.

Ms. Clague has served as Senior Vice President and Chief Financial Officer of Retrophin, Inc. since

November 2014. From 2012 to October 2014, Ms. Clague served as Chief Financial Officer of the San

Diego and Ohio operations of Amylin Pharmaceuticals, LLC, a wholly owned subsidiary of Bristol-

Myers Squibb. Prior to the acquisition by Bristol-Myers Squibb in 2012, Ms. Clague was the Vice

President, Corporate Controller and Chief Accounting Officer of Amylin for 10 years, and during this

time also served as the CFO of the Amylin/Lilly Collaboration that was responsible for products with

$500+ million in annual net reported revenue. From 1988 to 1999, Ms. Clague was the director of

finance and accounting operations for Sony Electronics, Inc. From 1985 to 1988, Ms. Clague served

as internal audit supervisor at Cubic Corporation. From 1982 to 1985, Ms. Clague held various audit

positions at KPMG. Ms. Clague is a certified public accountant in the State of California, and has a

B.S. in Business Administration from Menlo College.

Daniel H. McCollum Director

Daniel has been a director since March 2016. Mr. McCollum has over 20 years of experience as an

investment banker and institutional investor. Mr. McCollum has served as Deputy Head of

Investments at Hirtle Callaghan & Co. since January 2018. Previously, Mr. McCollum was Managing

Director in the Investment Office of Brown University from July 2013 to January 2018 and Managing

Director of Narragansett Asset Management LP from October 2008 to December 2012. Mr. McCollum

holds a B.A. in Economics from the University of California at Berkeley and an M.B.A. from the

Columbia Business School.

Richard H. Osgood III Director

Richard has been a director since July 2013. Mr. Osgood retired in 2012 after serving as Head of

Equity Capital Markets for Wedbush Securities since January 2009. Mr. Osgood joined Wedbush

Securities when it acquired Pacific Growth Equities, which Mr. Osgood founded in 1991. Mr. Osgood

served in various capacities with Pacific Growth Equities prior to its acquisition, including President,

Chief Executive Officer, Chief Operating Officer, Chairman and Executive Chairman. Prior to founding

Pacific Growth Equities, Mr. Osgood was the Head of Capital Markets, Sales and Trading at Volpe,

Welty and Company, a company he also co-founded in 1986. Previously, Mr. Osgood held senior

positions in institutional sales at Montgomery Securities, Rotan Mosely and Smith Barney. Mr.

Osgood holds a B.A. in Psychology and a B.S. in Biology from the University of the South.

16


16

Ownership Structure

Exhibit 13: Ownership Tables

Source: FactSet (March 2019), Oppenheimer and Co.

Institutional Name% Shares

Outstanding

Position

(000)

1 AWM Investment Co., Inc. 15.2% 4,951

2 Wellington Management Co. LLP 11.3% 3,680

3 Manatuck Hill Partners LLC 9.2% 3,001

4 Iroquois Capital Management LLC 4.3% 1,396

5 BlackRock Fund Advisors 3.8% 1,230

6 The Vanguard Group, Inc. 3.2% 1,030

7 Renaissance Technologies LLC 1.4% 470

8 Essex Investment Management Co. LLC 0.6% 204

9 Geode Capital Management LLC 0.5% 155

10 Boenning & Scattergood, Inc. 0.4% 141

Total 49.9% 16,258

Insider/Stakeholder Name% Shares

Outstanding

Position

(000)

1 Brown Thomas R 0.7% 225

2 Osgood Richard H Iii 0.7% 220

3 Abbe Richard Kenneth 0.6% 197

4 Coburn John G 0.4% 117

5 The Merav Abbe Irrevocable Trust 0.3% 110

Total 2.7% 869

17


Stock prices of other companies mentioned in this report (as of 7/01/19):

Everbridge Inc. (EVBG-NASDAQ, $90.09, Not Covered) Motorola Solutions, Inc (MSI-NYSE, $166.89, Not Covered) NAPCO Security Technologies (NSSC-NASDAQ, $24.85, Not Covered) ShotSpotter, Inc. (SSTI-NASDAQ, $45.08, Not Covered) Zebra Technologies Corporation (ZBRA-NASDAQ, $208.98, Not Covered) Ultra Electronics Holdings plc (ULE-LON, £16.91, Not Covered) BlackBerry Limited (BB-TSE, $9.76, Not Covered) Siemens AG (SIE-ETR, €106.00, Not Covered)

18


LRAD CorporationConsolidated Statement of Income Statement2018 2018 2018 2018 2019 2019 2019 2019

(in $ millions except for per share data) F1Q18A F2Q18A F3Q18A F4Q18A F1Q19A F2Q19A F3Q19E F4Q19E FY FY FY FY (E) FY (E) FY (E)

06/24/19 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 2016 2017 2018 2019 2020 2021

03/31/19 2018 2018 2018 2018 2019 2019 2019 2019

Revenues 7.6 7.9 7.5 3.3 10.2 10.2 11.1 10.6 16.4 20.3 26.3 42.1 50.0 59.1

Product sales 7.3 7.1 6.6 2.5 9.3 9.3 10.3 9.8 15.3 19.2 23.5 38.7 45.1 50.5

Contract and other 0.3 0.7 0.9 0.8 0.8 0.9 0.9 0.9 1.1 1.1 2.8 3.4 4.9 8.5

Cost of revenues 3.7 3.8 3.8 2.2 5.1 5.0 5.6 5.3 8.7 10.0 13.6 21.0 24.9 28.9

Gross Profit 4.0 4.0 3.7 1.0 5.1 5.2 5.6 5.3 7.7 10.3 12.7 21.1 25.1 30.1

Operating expenses - - -

Selling, general and administrative 2.2 2.5 2.9 3.1 2.8 2.5 3.2 3.4 6.9 8.6 10.7 11.8 12.6 13.9

Research and development 0.8 0.9 1.0 0.9 1.0 1.3 1.3 1.3 2.4 2.5 3.5 4.9 5.6 6.2

Total operating expenses 3.0 3.4 3.9 3.9 3.8 3.8 4.5 4.7 9.3 11.1 14.2 16.7 18.2 20.0

Income from operations 1.0 0.6 (0.2) (2.9) 1.3 1.4 1.1 0.6 (1.6) (0.8) (1.5) 4.4 6.9 10.1

Other income 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1

Income before income taxes 1.0 0.6 (0.2) (2.9) 1.3 1.5 1.1 0.6 (1.5) (0.7) (1.4) 4.5 7.0 10.1

Income tax expense 2.7 0.2 (0.1) (0.4) 0.3 0.3 0.2 0.1 (0.2) 0.2 2.4 0.9 1.4 2.0

Net income (loss) (1.7) 0.5 (0.1) (2.4) 1.0 1.2 0.9 0.5 (1.3) (0.9) (3.7) 3.6 5.6 8.1

EPS - Basic ($0.05) $0.01 ($0.00) ($0.07) $0.03 $0.04 $0.03 $0.02 ($0.04) ($0.03) ($0.12) $0.11 $0.17 $0.25

EPS - Diluted ($0.05) $0.01 ($0.00) ($0.07) $0.03 $0.04 $0.03 $0.02 ($0.04) ($0.03) ($0.12) $0.11 $0.17 $0.25

Weighted average common shares outstanding:

Diluted Shares 32.2 33.3 32.3 33.0 33.6 33.1 33.1 33.1 32.0 31.9 32.5 33.2 33.1 33.1

Income from operations 1.0 0.6 (0.2) (2.9) 1.3 1.4 1.1 0.6 (1.6) (0.8) (1.5) 4.4 6.9 10.1

Depreciation and amortization 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.5 0.9 0.9 0.9

Stock-based comp 0.1 0.1 0.1 0.2 0.1 0.2 0.2 0.2 0.6 1.1 0.6 0.6 0.7 0.7

Other charges and discretionary items - - - - - - - - - - - - - -

Adjusted EBITDA 1.2 0.9 0.1 (2.6) 1.6 1.8 1.5 1.0 (0.8) 0.5 (0.4) 5.9 8.4 11.6

Source: Company data, Oppenheimer & Co. Inc. estimates

19


LRAD Corporation

Margins and Ratios

F1Q18A F2Q18A F3Q18A F4Q18A F1Q19A F2Q19A F3Q19E F4Q19E FY FY FY FY (E) FY (E) FY (E)

Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 2016 2017 2018 2019 2020 2021

Margin Analysis

Gross Margin 52% 51% 49% 32% 50% 51% 50% 50% 47% 51% 48% 50% 50% 51%

SG&A, % of Sales 29% 32% 39% 94% 27% 24% 29% 32% 42% 42% 41% 28% 25% 24%

R&D, % of Sales 10% 12% 13% 26% 10% 13% 12% 12% 15% 12% 13% 12% 11% 10%

Operating Margin 13% 8% -2% -88% 13% 14% 10% 6% -10% -4% -6% 10% 14% 17%

Tax Rate 264% 26% 48% 15% 21% 19% 20% 20% 13% -29% -173% 20% 20% 20%

Net Income Margin -22% 6% -1% -74% 10% 12% 8% 5% -8% -4% -14% 9% 11% 14%

Sequential Growth Rates

Product sales 2% -3% -8% -63% 281% 0% 10% -5% -3% 26% 22% 65% 16% 12%

Contract and other 4% 154% 25% -9% -2% 3% 0% 0% 7% 1% 163% 20% 44% 75%

Total Revenue 2% 3% -5% -56% 209% 0% 9% -5% -3% 24% 29% 60% 19% 18%

Gross Profit -10% 2% -8% -72% 386% 2% 7% -5% -10% 34% 24% 66% 19% 20%

Operating Profit -8% -39% -129% 1524% -145% 11% -26% -42% -231% -49% 83% -399% 56% 46%

Net Income -1116% -127% -117% 2945% -143% 13% -26% -42% -113% -32% 327% -196% 55% 46%

EPS -1107% -127% -118% 2879% -142% 14% -26% -42% -114% -31% 319% -194% 55% 46%

WA Shares Outstanding 1% 3% -3% 2% 2% -1% 0% 0% -5% 0% 2% 2% 0% 0%

Year-on-Year Growth Rates

Product sales 172% 30% 71% -66% 27% 31% 56% 298%

Contract and other 22% 174% 236% 202% 184% 15% -8% 1%

Total Revenue 159% 37% 82% -56% 33% 30% 48% 222%

Gross Profit 223% 38% 116% -76% 29% 29% 50% 407%

Operating Profit -175% 39% -82% -367% 30% 138% -700% -121%

Net Income 107% 54% -85% -1574% -162% 156% -1183% -121%

EPS 104% 48% -85% -1526% -160% 157% -1158% -121%

WA Shares Outstanding 1% 5% 1% 3% 4% -1% 2% 0%

Balance Sheet Stats (Annualized)

Number of Quarters 4 4 4 4 4 4 4 4 1 1 1 1 1 1

Assets

Account Receivables as a % of Revenues 19% 18% 22% 21% 21% 21% 21% 21% 21% 28% 11% 22% 22% 23%

Inventory as a % of COGS 36% 36% 35% 75% 43% 43% 43% 43% 55% 52% 50% 43% 43% 47%

Prepaid expenses % SGA 7% 8% 7% 25% 9% 9% 9% 9% 2% 3% 7% 2% 2% 2%

Liabilities

Accounts Payable as a % of total expenses 7% 7% 6% 12% 8% 8% 8% 8% 3% 5% 11% 9% 9% 9%

Accrued as a % of total expenses 7% 12% 11% 13% 6% 6% 6% 6% 8% 12% 12% 6% 6% 6%

Depreciation / PPE 12% 28% 29% 6% 9% 9% 9% 9% 35% 30% 20% 33% 31% 30%


20


LRAD Corporation

Balance Sheet



Current assets:

Cash and cash equivalents 15.1 12.7 12.0 11.1 4.4 7.7 6.3 7.7 13.5 12.8 11.1 7.7 11.0 14.9

Short-term marketable securities 3.6 4.1 3.7 3.6 3.8 3.1 3.1 3.1 2.9 4.4 3.6 3.1 3.1 3.1

Restricted cash - 0.4 0.3 0.4 0.4 0.4 - - - - 0.4 - - -

Accounts receivable, net 5.7 5.7 6.6 2.8 8.7 6.8 9.5 9.1 3.4 5.7 2.8 9.1 10.8 13.8

Inventories, net 5.3 5.4 5.4 6.7 8.7 8.3 9.5 9.1 4.8 5.3 6.7 9.1 10.6 13.6

Prepaid expenses and other 0.6 0.8 0.9 3.1 1.0 0.7 1.1 1.2 0.6 1.0 3.1 1.2 1.2 1.3

Total current assets 30.2 29.2 28.9 27.7 27.0 27.0 29.5 30.1 25.2 29.1 27.7 30.1 36.8 46.6

Long-term marketable securities 1.0 1.0 1.3 1.2 0.9 1.7 1.7 1.7 2.2 0.7 1.2 1.7 1.7 1.7

Long-term restricted cash - 0.1 0.1 0.3 0.3 0.3 - - - 0.0 0.3 - - -

Deferred tax assets, net 5.6 5.5 5.5 6.0 5.7 5.4 5.4 5.4 8.5 8.3 6.0 5.4 5.4 5.4

Property and equipment, net 0.5 0.5 0.5 2.4 2.4 2.5 2.5 2.6 0.5 0.5 2.4 2.6 2.8 2.9

Goodwill - 2.6 2.5 2.4 2.4 2.4 2.4 2.4 - - 2.4 2.4 2.4 2.4

Intangible assets, net 0.1 1.8 1.7 1.6 1.5 1.4 1.4 1.4 0.1 0.1 1.6 1.4 1.4 1.4

Other assets 0.1 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.4 0.2 0.2 0.1 0.1 0.1

Total assets 37.6 40.9 40.6 41.9 40.3 40.7 43.0 43.6 36.8 38.9 41.9 43.6 50.4 60.5

Current liabilities: - - - - -

Accounts payable 1.9 1.9 1.8 3.1 3.0 1.2 3.4 3.4 0.6 1.1 3.1 3.4 3.7 4.5

Accrued liabilities 1.9 3.4 3.5 3.2 2.1 3.3 2.4 2.3 1.5 2.6 3.2 2.3 2.6 3.1

Notes payable, current portion - 0.9 0.5 0.3 0.3 0.3 0.3 0.3 - - 0.3 0.3 0.3 0.3

Total current liabilities 3.8 6.2 5.8 6.6 5.4 4.8 6.0 6.0 2.1 3.7 6.6 6.0 6.6 7.9

Notes payable, less current portion - 0.3 0.2 0.1 0.1 0.0 0.0 0.0 - - 0.1 0.0 0.0 0.0

Other liabilities, noncurrent - - - 1.7 1.9 2.1 2.1 2.1 0.2 - 1.7 2.1 2.1 2.1

Total liabilities 3.8 6.5 6.0 8.4 7.4 7.0 8.2 8.1 2.2 3.7 8.4 8.1 8.7 10.0

Total stockholders' equity 33.8 34.4 34.6 33.5 33.0 33.8 34.8 35.5 34.6 35.2 33.5 35.5 41.7 50.5

Total liabilities and stockholders' equity 37.6 40.9 40.6 41.9 40.3 40.7 43.0 43.6 36.8 38.9 41.9 43.6 50.4 60.5


21


LRAD Corporation

Consolidated Ratios



Profitability Ratios

Annualized ROIC -43% 10% -2% -47% 15% 18% 12% 7% -8% -6% -19% 13% 18% 23%

Annualized Return On Equity -20% 5% -1% -29% 13% 14% 10% 6% -4% -2% -11% 10% 13% 16%

Annualized Return On Assets -18% 5% -1% -23% 10% 12% 8% 5% -3% -2% -9% 8% 11% 13%

Annualized Return On Net Assets -21% 5% -1% -28% 13% 15% 10% 6% -4% -3% -11% 10% 14% 17%

Efficiency Ratios

A/R Days Sales Outstanding 67.0 65.4 78.9 76.1 76.9 59.7 76.9 76.9 75.0 100.7 38.1 77.5 77.9 84.2

A/P Days Sales Outstanding 46.6 42.4 41.8 77.6 38.4 24.0 45.3 62.7 24.3 38.0 73.8 52.4 50.9 50.5

Inventory Turns 7.7 8.5 8.6 4.6 9.4 15.0 8.0 5.7 14.8 9.5 4.9 6.9 7.1 7.1

Days of Inventory 129.0 127.8 127.5 269.6 154.0 149.5 154.0 154.0 197.4 188.6 178.7 156.0 153.6 168.7

Liquidity Ratios

Current Ratio 804% 470% 497% 421% 501% 556% 488% 501% 1212% 792% 421% 501% 558% 594%

Quick Ratio 664% 383% 404% 318% 339% 385% 330% 350% 982% 649% 318% 350% 397% 421%

Net Working Capital 26 23 23 21 22 22 23 24 23 25 21 24 30 39

Cash

Net Cash Per Share $0.61 $0.53 $0.53 $0.48 $0.27 $0.38 $0.33 $0.38 $0.58 $0.56 $0.49 $0.38 $0.48 $0.59

Free Cash Flow 1.7 1.1 (0.8) (1.4) (5.1) 3.9 (2.2) 1.4 (1.3) (0.8) 0.6 (2.0) 3.4 3.8

Source: Company Data, Oppenheimer & Co. Inc. Estimates.

22


LRAD Corporation

Cash Flow Statement



Operating Activities:

Net income (loss) (1.7) 0.5 (0.1) (2.4) 1.0 1.2 0.9 0.5 (1.3) (0.9) (3.7) 3.6 5.6 8.1

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities - - -

Depreciation and amortization 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.5 0.9 0.9 0.9

Provision for doubtful accounts - - - - - - - - - - 0.2 - - -

Warranty provision 0.0 - - (0.0) 0.0 0.0 - - 0.1 (0.1) 0.0 0.0 - -

Inventory obsolescence 0.0 0.0 0.0 0.1 0.1 0.1 - - 0.2 0.0 0.2 0.1 - -

Share-based compensation 0.1 0.1 0.1 0.2 0.1 0.2 0.2 0.2 0.6 1.1 0.6 0.6 0.7 0.7

Deferred income taxes 2.7 0.2 (0.1) (0.4) 0.3 0.3 - - (0.2) 0.2 2.4 0.6 - -

Gains on disposition of fixed asset - - - - - - - - - - 0.0 - - -

Loss on impairment of patents - - - - - - - - - - 0.0 - - -

Changes in operating assets and liabilities: - - -

Accounts receivable, net 0.0 0.4 (0.9) 3.6 (5.9) 1.9 (2.8) 0.4 (1.3) (2.3) 3.1 (6.3) (1.7) (3.0)

Inventories, net (0.0) (0.2) 0.0 (1.4) (2.0) 0.3 (1.2) 0.4 0.0 (0.5) (1.6) (2.5) (1.5) (3.0)

Prepaid expenses and other 0.4 (0.2) (0.0) (2.2) 2.1 0.3 (0.4) (0.1) (0.0) (0.1) (2.1) 1.9 (0.0) (0.1)

Other assets 0.0 (0.1) (0.0) - - 0.1 - - 0.2 0.2 (0.1) 0.1 - -

Accounts payable 0.8 (0.3) (0.1) (0.2) (0.1) (1.8) 2.2 (0.0) (0.1) 0.5 0.2 0.3 0.3 0.7

Payroll and related (1.0) 1.0 0.1 0.1 (1.0) 0.5 - - 0.1 1.5 0.1 (0.6) - -

Warranty settlements (0.00) 0.0 - (0.0) (0.0) (0.0) - - (0.0) (0.1) (0.0) (0.0) - -

Accrued and other liabilities 0.31 (0.3) 0.1 1.5 0.1 0.9 (1.0) (0.0) 0.6 (0.5) 1.5 0.0 0.2 0.5

Net cash (used in) provided by operating activities1.8 1.1 (0.7) (0.9) (5.1) 4.2 (1.9) 1.7 (1.1) (0.7) 1.3 (1.1) 4.4 4.9

Investing Activities:

Purchases of marketable securities (1.7) (0.7) (0.8) (1.7) (0.9) (1.4) - - (0.8) (2.9) (4.9) (2.3) - -

Proceeds from maturities of marketable securities2.1 0.3 0.9 1.9 1.0 1.3 - - - 3.0 5.2 2.3 - -

Capital expenditures (0.1) (0.0) (0.1) (0.5) (0.0) (0.3) (0.3) (0.3) (0.2) (0.2) (0.6) (0.8) (1.0) (1.0)

Patent Costs paid - - - - - - - - (0.0) - - - - -

Acquisitions - (2.2) - (0.2) - - - - - - (2.4) - - -

Net cash provided by investing activities 0.4 (2.7) 0.1 (0.5) 0.1 (0.4) (0.3) (0.3) (1.0) (0.1) (2.8) (0.8) (1.0) (1.0)

Financing Activities:

Proceeds from exercise of stock options 0.2 0.0 0.8 1.4 0.0 0.0 - - 0.0 0.1 2.4 0.0 - -

Repurchase of common stock - - (0.5) (0.2) (1.6) (0.6) - - (1.7) - (0.7) (2.2) - -

Proceeds from unsecured note - 0.1 - (0.0) - - - - - - 0.1 - - -

Payment of unsecured notes - (0.4) (0.4) (0.4) - (0.0) - - - - (1.2) (0.0) - -

Commonstock cash dividends paid - - - - - - - - (1.0) - - - - -

Net cash (used in) provided by financing activities0.2 (0.3) (0.0) 0.8 (1.6) (0.5) - - (2.7) 0.1 0.6 (2.1) - -

Effect of foreign exchange rate on cash - 0.0 (0.0) (0.1) (0.0) (0.0) - - - (0.1) (0.0) - -

Net (decrease) increase in cash, cash equivalents, and restricted cash2.3 (1.9) (0.7) (0.7) (6.7) 3.3 (2.2) 1.4 (4.8) (0.7) (1.0) (4.1) 3.4 3.8

Cash, cash equivalents and restricted cash, beginning of period12.8 15.1 13.2 12.5 11.8 5.2 8.5 6.3 18.3 13.5 12.8 11.8 7.7 11.0

Cash, cash equivalents and restricted cash, end of period15.1 13.2 12.5 11.8 5.2 8.5 6.3 7.7 13.5 12.8 11.8 7.7 11.0 14.9


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Disclosure AppendixOppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.

Analyst Certification - The author certifies that this research report accurately states his/her personal views about thesubject securities, which are reflected in the ratings as well as in the substance of this report. The author certifies that no partof his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views containedin this research report.Potential Conflicts of Interest:Equity research analysts employed by Oppenheimer & Co. Inc. are compensated from revenues generated by the firmincluding the Oppenheimer & Co. Inc. Investment Banking Department. Research analysts do not receive compensationbased upon revenues from specific investment banking transactions. Oppenheimer & Co. Inc. generally prohibits any researchanalyst and any member of his or her household from executing trades in the securities of a company that such researchanalyst covers. Additionally, Oppenheimer & Co. Inc. generally prohibits any research analyst from serving as an officer,director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in coveredcompanies that are required to be specifically disclosed in this report, Oppenheimer & Co. Inc. may have a long positionof less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options,futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoingarrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered byOppenheimer & Co. Inc:Stock Prices as of July 2, 2019Axon Enterprises (AAXN - NASDAQ, $64.55, PERFORM)Identiv, Inc. (INVE - NASDAQ, $5.32, OUTPERFORM)Eaton Corp. plc (ETN - NYSE, $83.18, PERFORM)Honeywell International Inc. (HON - NYSE, $176.81, PERFORM)Nuance Communications Inc. (NUAN - NASDAQ, $16.08, OUTPERFORM)

Rating and Price Target History for: LRAD Corporation (LRAD) as of 06-28-2019

4.00

3.50

3.00

2.50

2.00

1.50

1.002017 2018 2019

Created by: BlueMatrix

All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer & Co.Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price histories,please write to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department,Business Manager.

Oppenheimer & Co. Inc. Rating System as of January 14th, 2008:

Outperform(O) - Stock expected to outperform the S&P 500 within the next 12-18 months.

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Perform (P) - Stock expected to perform in line with the S&P 500 within the next 12-18 months.

Underperform (U) - Stock expected to underperform the S&P 500 within the next 12-18 months.

Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to apotential conflict of interest.

Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008:

Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividendpayments, and/or the ability of the shares to perform better than the leading stock market averages or stocks within itsparticular industry sector.

Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading marketaverages due to a perceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than higher rated companies within its peer group. Our readers should be aware that when a ratingchange occurs to Neutral from Buy, aggressive trading accounts might decide to liquidate their positions to employ the fundselsewhere.

Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weaknessperceived in the company or for valuation reasons, or are expected to perform significantly worse than equities within thepeer group.

Distribution of Ratings/IB Services Firmwide

IB Serv/Past 12 Mos.

Rating Count Percent Count Percent

OUTPERFORM [O] 385 65.48 177 45.97

PERFORM [P] 202 34.35 67 33.17

UNDERPERFORM [U] 1 0.17 0 0.00

Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co.Inc. do not correlate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer& Co. Inc. has assigned buy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratingsto securities rated Underperform.Note: Stocks trading under $5 can be considered speculative and appropriate for risk tolerant investors.

Additional Information Available

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reportsand all Oppenheimer & Co. Inc.-covered companies by logging on to https://www.oppenheimer.com/client-login.aspxor writing to Oppenheimer & Co. Inc., 85 Broad Street, New York, NY 10004, Attention: Equity Research Department,Business Manager.

Other DisclosuresThis report is issued and approved for distribution by Oppenheimer & Co. Inc. Oppenheimer & Co. Inc. transacts business on all principalexchanges and is a member of SIPC. This report is provided, for informational purposes only, to institutional and retail investor clients ofOppenheimer & Co. Inc. and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdictionwhere such offer or solicitation would be prohibited. The securities mentioned in this report may not be suitable for all types of investors.This report does not take into account the investment objectives, financial situation or specific needs of any particular client of Oppenheimer& Co. Inc. Recipients should consider this report as only a single factor in making an investment decision and should not rely solelyon investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of the merits andrisks of investments. The analyst writing the report is not a person or company with actual, implied or apparent authority to act on behalfof any issuer mentioned in the report. Before making an investment decision with respect to any security recommended in this report,

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the recipient should consider whether such recommendation is appropriate given the recipient's particular investment needs, objectivesand financial circumstances. We recommend that investors independently evaluate particular investments and strategies, and encourageinvestors to seek the advice of a financial advisor. Oppenheimer & Co. Inc. will not treat non-client recipients as its clients solely by virtueof their receiving this report. Past performance is not a guarantee of future results, and no representation or warranty, express or implied,is made regarding future performance of any security mentioned in this report. The price of the securities mentioned in this report andthe income they produce may fluctuate and/or be adversely affected by exchange rates, and investors may realize losses on investmentsin such securities, including the loss of investment principal. Oppenheimer & Co. Inc. accepts no liability for any loss arising from theuse of information contained in this report, except to the extent that liability may arise under specific statutes or regulations applicable toOppenheimer & Co. Inc. All information, opinions and statistical data contained in this report were obtained or derived from public sourcesbelieved to be reliable, but Oppenheimer & Co. Inc. does not represent that any such information, opinion or statistical data is accurate orcomplete (with the exception of information contained in the Important Disclosures section of this report provided by Oppenheimer & Co.Inc. or individual research analysts), and they should not be relied upon as such. All estimates, opinions and recommendations expressedherein constitute judgments as of the date of this report and are subject to change without notice. Nothing in this report constitutes legal,accounting or tax advice. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation shouldnot be construed as offering tax advice on the tax consequences of investments. As with any investment having potential tax implications,clients should consult with their own independent tax adviser. This report may provide addresses of, or contain hyperlinks to, Internet websites. Oppenheimer & Co. Inc. has not reviewed the linked Internet web site of any third party and takes no responsibility for the contentsthereof. Each such address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked thirdparty web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web sites or followsuch hyperlinks do so at their own risk.This research is distributed in the UK and elsewhere throughout Europe, as third party research by Oppenheimer Europe Ltd, which isauthorized and regulated by the Financial Conduct Authority (FCA). This research is for information purposes only and is not to be construedas a solicitation or an offer to purchase or sell investments or related financial instruments. This research is for distribution only to personswho are eligible counterparties or professional clients. It is not intended to be distributed or passed on, directly or indirectly, to any other classof persons. In particular, this material is not for distribution to, and should not be relied upon by, retail clients, as defined under the rules ofthe FCA. Neither the FCA's protection rules nor compensation scheme may be applied. https://opco2.bluematrix.com/sellside/MAR.actionDistribution in Hong Kong: This report is prepared for professional investors and is being distributed in Hong Kong by OppenheimerInvestments Asia Limited (OIAL) to persons whose business involves the acquisition, disposal or holding of securities, whether as principalor agent. OIAL, an affiliate of Oppenheimer & Co. Inc., is regulated by the Securities and Futures Commission for the conduct of dealingin securities and advising on securities. For professional investors in Hong Kong, please contact [email protected] for all mattersand queries relating to this report. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consentof Oppenheimer & Co. Inc.

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