Financial Performance Overview

Liberty Defense Holdings, Ltd. reported a decline in year-over-year revenue for the first quarter of fiscal year 2024, primarily driven by lower volume on ongoing programs within the Secure Networks segment. However, the Company saw growth in TSA PreCheck revenue.

Gross margins contracted to 37.0% in Q1 2024 from 38.3% in Q1 2023, largely due to increased amortization of software development costs. Operating expenses decreased due to lower stock-based compensation and restructuring expenses compared to the prior year period. This resulted in a reduced operating loss of $8.4 million in Q1 2024 versus $13.0 million in Q1 2023.

Other income declined by $1.2 million year-over-year, attributable to a one-time gain on early debt extinguishment in Q1 2023. The Company posted a net loss of $7.4 million in the first quarter of 2024.

Revenue and Profit Trends

Financial Metric	Q1 2024	Q1 2023	Change
Revenue	$29.6 million	$35.2 million	-15.9%
Gross Profit	$11.0 million	$13.5 million	-18.5%
Gross Margin	37.0%	38.3%	-130 bps
Operating Loss	-$8.4 million	-$13.0 million	35.4%
Net Loss	-$7.4 million	-$10.7 million	30.8%

The year-over-year revenue decline in Q1 2024 was primarily attributable to lower volumes on ongoing programs within the Secure Networks segment, which saw a 28.9% decrease. This was partially offset by 5.7% growth in the Security Solutions segment driven by increased TSA PreCheck volumes.

Gross margin compression resulted largely from increased amortization expenses related to capitalized software development costs. This indicates potential future benefits from the R&D investments as products come to market.

The reduced operating loss and narrower net loss in the most recent quarter can be credited to Liberty Defense’s efforts to streamline operations. Specifically, SG&A expenses fell by 31.3% due to $6.1 million lower stock-based compensation and the absence of $1.2 million in restructuring charges.

Segment Analysis

Security Solutions

Financial Metric	Q1 2024	Q1 2023	Change
Revenue	$18.6 million	$19.8 million	-5.7%
Gross Profit	$8.6 million	$10.3 million	-16.0%
Gross Margin	46.3%	52.0%	-570 bps

• TSA PreCheck revenue growth partially offset declines in other programs
• Margin contraction primarily due to increased software amortization expenses

Secure Networks

Financial Metric	Q1 2024	Q1 2023	Change
Revenue	$11.0 million	$15.4 million	-28.9%
Gross Profit	$2.3 million	$3.2 million	-27.2%
Gross Margin	21.3%	20.8%	+50 bps

• Revenue decrease driven by ramp down of multiple programs
• Slight gross margin improvement due to favorable program mix

Balance Sheet and Liquidity

Liberty Defense maintains a healthy balance sheet, ending Q1 2024 with $93.9 million in cash and cash equivalents. Working capital stood at $92.7 million. The Company has access to a $30 million revolving credit facility, providing additional liquidity if needed.

Management states that existing cash resources and access to credit are sufficient to meet expected operating, investing and financing needs over the next 12 months. Liberty Defense places strong emphasis on liquidity management to maintain flexibility for capital deployment.

Cash Flow

In the first quarter of 2024, Liberty Defense used $0.4 million in cash for operations compared to $0.1 million in the prior year period. Cash used in investing activities declined slightly to $4.1 million, while cash used for financing fell to $0.8 million primarily due lower tax payments related to equity awards.

Outlook

Liberty Defense is impacted by shifts in government defense spending and the competitive climate for security solutions. However, increased threats globally ensure steady baseline demand with potential for further growth.

The Company aims to leverage its specialized capabilities in emerging areas like artificial intelligence and machine learning applied to threat detection. Focus areas including weapons screening for public spaces and critical infrastructure protection align with pressing security needs.

If Liberty Defense succeeds in commercializing products under development, it may enjoy improved growth and profitability. With careful cost management and strengthening demand drivers, the Company appears positioned to see improved financial performance over the longer term.