Q1 2022 Genasys Inc Earnings Call
Yeah.
[music].
Good day, ladies and gentlemen, and welcome to the Genesis.
<unk> first quarter 2022 conference call all lines have been placed on a listen only mode and the floor.
We open for questions and comments following the presentation.
If you should require assistance throughout the conference. Please press star zero on your telephone keypad for reach a live operator.
At this time it is my pleasure to turn the floor over to your host Tim Rochford Hayden IR Investor Relations with me.
Ma'am the floor is yours.
Okay.
Thank you Dana.
Good afternoon, and welcome to Genesis incorporated fiscal first quarter 2022 financial results Conference call I'm, Kim Rogers with Hayden IR Investor Relations firm for Genesis.
The call with me today from Genesis are Richard Danforth, Chief Executive Officer, and Dennis Cline, Chief Financial Officer.
During today's call management will make forward looking statements regarding the company's plans expectations outlook and future financial performance that involve certain risks and uncertainties. The company's results may differ materially from the projections described in these forward looking statements factors that might cause such difference.
And other potential risks and uncertainties can be found in the risk factors section of the company's Form 10-K for the fiscal year ended September 32021.
Other than statements of historical facts forward looking statements made on this call are based only on information and managements expectations as of today.
We explicitly disclaim any intent or obligation to update those forward looking statements, except as otherwise specifically stated we will also discuss non-GAAP financial measures and operational metrics, including adjusted EBITDA bookings and backlog, which we believe provide helpful information to investors with respect.
To evaluating the company's performance for a reconciliation of adjusted EBITDA to GAAP financial metrics. Please see the table in the press release issued by the company at the close of the market today.
We consider bookings and backlog, leading indicators of future revenues and use these metrics to support production planning.
Bookings is an internal operational metric that measures. The total dollar value of customer purchase orders executed in a given period, regardless of the timing of related revenue recognition backs.
Backlog is a measure of purchase orders received that are scheduled to ship in the next 12 months.
Finally, a replay of this call will be available in approximately four hours through the Investor Relations page on the company's website.
At this time, it's my pleasure to turn the call over to Genesis Chief Executive Officer, Richard Danforth. Please go ahead Richard.
Thank you, Kevin and welcome everyone.
Fiscal 2022 was off to a solid start with another quarter of strong revenue solid execution and new business developments.
First quarter revenues increased 33% year over year, despite external supply chain challenges that are disrupting businesses globally.
We are managing our supply chain challenges, primarily through reengineering, our hardware components and developing alternative channels for sourcing our materials.
We have taken proactive measures, including managing for longer lead times by building inventory and crucial components to fulfill our customer orders.
And meet our fiscal 2022 growth objectives.
The year has started with good contract award activity with bookings totaling $7 million and progress towards accelerating our software as a service or SaaS business.
We recently announced new SaaS contracts with key wins in Texas, California, and our first European Union public warning system win in the country of Sylvania.
Our unified solutions are now on track to help protect more than 40 million lives globally.
Said another way lives covered globally by Genesis software increased by over 30% in the fiscal first quarter, demonstrating the global expansion, which we are capable of.
We grew our Genesis emergency management or Gem software service business in Texas with new contracts to replace competitors emergency notification services in Madison County, and in the town of let alone.
And in addition to renewing our gem contract with the Texas office of the Attorney General New Gen software sales services were added to the port of Houston.
That's worker and visitor safety.
We had previously install an integrated mass notification system at the port.
The synergies of our suite of software and hardware systems offer key competitive advantages.
Our spring, new and follow on orders and increasing pipeline growth.
The synergies of our software and hardware systems enabled genesis to expand its engagement within Alameda County, with a new mass notification and emergency warning system contract with the city of Berkley.
Amit County launched Zone Haven of emergency evacuation software in public safety resources in June 2021.
Which helped facilitate the new contract to install an integrated mass notification system network that will enable the city to broadcast voice notification with exceptional clarity and coverage.
With our gem software <unk> outdoor speaker raised can perform as a network or individually for citywide are hyper local notifications.
A key differentiator differentiator of this configuration is its ability to continue operating when power or telecommunications infrastructure goes down.
This unique features are examples of additional key competitive differentiator, helping Genesis win New awards.
In addition to our expansion in Alameda County, We recently signed Los Angeles County, and four additional California counties to Zone Haven, SaaS multi year contracts.
A critical evacuation planning alerting and access to real time life safety information now available to first responders and emergency service agencies and more than $8 7 million, California residents under annual recurring revenue contracts.
These contracts have also open the door to additional business opportunities with these and other counties and communities in California and in other states.
In Europe , the country's surveying has selected a national emergency warning system or news to help keep more than 2 million residents and 3 million annual visitors safe and informed during emergencies and critical events.
Genesis News was selected for several reasons, including the platforms advanced architecture and the ability for the public safety agency to send Geo specific alerts to any mobile phone and near real time.
I'd like to congratulate our European team for this excellent work and has Great Award.
<unk> activities for compliance to the mandate has picked up we anticipate continued to anticipate that the mandated June of 2022 deadline will be extended primarily due to the impact of Covid in Europe .
Our ongoing investment in resources to support our growing SaaS business will expand our emergency management platform.
By enhancing and integrating zone Haven, with Jim and IMS.
Phone Haven on early stage startup when we acquired them last June .
Realized they needed a larger partner to fulfill their vision of a nationwide and eventually global build out.
Genesis is making the investments to accelerate and augment zona <unk> unique value proposition.
We look in today's world and see opportunities for Zone Haven software to help safely manage evacuations and re populations.
As a part of our unified multichannel platform Zone Haven is an important growth catalyst for our SaaS offering.
The benefit from larger Jim IMS and Zone Haven, SaaS contributions will be a shift in our revenue mix towards higher margin recurring revenues and an expected increase in the company's market valuation.
Jim Enterprise SaaS contracts opportunities, including major corporations have been identified and are key targets for us in 2022.
Additionally, we have identified opportunities in the United States and internationally with governments cities counties and enterprise as areas of SaaS business growth.
Importantly, we are successfully competing against other solution providers.
Almost all of our multiyear Gem contract awards were announced replaced an incumbent.
I believe we will continue to be successful in winning new enterprise and government businesses as competitive as contracts come up for renewal.
Our <unk> hardware business remains strong even as we continue to manage supply chain challenges.
Our engineering and manufacturing teams have done great work in coming up with alternative solutions to meet <unk> product demand.
In the first fiscal quarter <unk> revenues were up 6% and we also announced international Defense Wildlife Preservation and U S Navy orders totaling $3 7 million.
Demand for critical communication remains robust as government and private enterprises are highly motivated to procure solutions that are readily implemented to help keep their constituencies safe and informed.
We are enthusiastic about the growing market opportunities given the strength of our integrated platform and the unique advantages compatibility and capabilities of our offerings and our levels of active dialogue with an increasing number of potential customers.
Our team is growing providing more sales and technical capabilities to deliver on our strategy to increase SaaS based revenue.
We are reaffirming our fiscal 2022 outlook for another year of record revenue.
Well revenue expectation remains unchanged from our prior earnings release, we remain cautious regarding the ongoing supply chain disruptions.
Our expectations are primarily based on our current backlog was which was nearly 31 million as of December 31 2021.
With a backlog business pipeline and proactive measures, we are taking to mitigate supply chain challenges. We are optimistic on delivering another record year of revenue.
With that I'll turn the call over to Dennis.
Thank you Richard.
Revenues for the fiscal 2022 first quarter were $10 7 million up 33% from the prior year quarter.
Compared to the same prior year period, <unk> revenue was $7 5 million up 6%.
<unk> revenue was $2 6 million up 88%.
Software revenue was $550000 a decrease of 91000 from the prior year quarter due to lower professional services performed in the current year.
By higher recurring revenue.
Gross profit margin was 45, 9% roughly in line with 46, 1% in the first quarter of fiscal 2021.
Gross margin percentage was slightly lower due to higher cost from increased software related personnel added via acquisition and new hires in the prior year to support the growing SaaS business offset by the higher gross profit from the higher hardware revenue in the fiscal 2022 first quarter.
We continue to expect gross profit margin to be plus or minus 50% for the fiscal year.
Operating expenses were $6 5 million up from $4 4 million in the same period a year ago.
The increase is largely due to a 42% increase in sales and marketing personnel over the prior year to support future revenue growth opportunities, including the opening of new sales offices additional personnel, primarily engineers for product development and amortization of intangibles related to the zone Haven acquisition.
As you May recall from our last conference call. Our fiscal 2022 business plan includes a year over year increase in operating expense.
This increase is for strategic growth initiatives targeted targeted at materially shifting our revenue mix towards a higher proportion of SaaS revenue and expanding our margins.
Net loss for the quarter was $1 $3 million or <unk> <unk> per share an increase from a net loss of 619000 or <unk> <unk> per share in the fiscal 2021 first quarter.
The increase was largely due to the increase in operating expenses to support the growth growth initiatives I just discussed.
Adjusted EBITDA for the fiscal 2022 first quarter was a loss of $412000 compared with an adjusted EBITDA loss of 230000 in the prior fiscal year first quarter.
We believe this information and comparisons of adjusted EBITDA enhances the overall understanding and visibility of our business performance.
To that effect a reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release.
Cash cash equivalents and marketable securities totaled $17 5 million as of December 31, 2021, compared with $20 7 million as of the prior year end.
Working capital totaled $15 4 million as of December 31, 2021, compared with $18 million as of June .
The September 32021.
Cash used in operating activities for the first three months of fiscal year 2022 was $2 7 million.
This compares to cash provided by operating activities of $1 3 million in the same period last year.
The fluctuation primarily reflects an inventory increase of approximately $2 8 million to hedge against supply chain challenges.
We expect the inventory increase to convert to cash through customer shipments this fiscal year.
The company has an authorized share buyback program for up to $5 million through December 31, 2022.
During the three months ended December 31, 2021, 116868 shares were repurchased for 441000.
We may from time to time repurchase shares in open market transactions, however, investing in our business for future growth remains our primary objective for the allocation of capital.
We would like we would like to now open the call to Q&A.
Operator.
Thank you the floor is now open for questions.
If you do have a question. Please press star one on your telephone keypad at this time questions will be taken in the order they were anytime.
Any part of your question has been answered you can't remove yourself from the queue by pressing one again, ladies and gentlemen, if you do have a question. Please press <unk>.
Star one on your telephone keypad at this time, our first question comes from Brian Colley. Please state your question.
Hey, good evening guys. Thanks for taking my questions.
I was hoping you guys could just provide some color around the expected annual revenue contribution from the Slovenian countrywide win.
And kind of when do you guys expect that to again.
Yes.
We expect to begin recognizing revenue from that contract.
The revenue recognition will likely begin in.
Our Q3.
And we haven't put out in the public domain, Brian the the economics of it.
Okay got it but in terms of I guess, how it's structured is it.
In the past like they'd be in Australia.
A good portion of it was recognized as services revenue and then the remainder is <unk>.
License revenue any color on.
No.
How it's structured.
Yeah.
There was.
Professional services required upfront, it's not nearly as complex as Australia, However, so where Australia took.
Our full year.
This is only expected to take a handful of months and then it would turn over to a recurring revenue model.
Okay.
Got it that's helpful and do you expect the Slovenia win to lead to additional follow on business with companies and local governments within the country.
I do and I think its throughout Europe that opportunity exists.
Got it and then I'm also curious.
And are there additional countries in the EU that have.
Rfps out right now and you feel pretty confident that you can win additional customers this year in the EU.
Yes, I do.
At least.
Two countries with active Rfps right now and several right behind him, Brian we have seen.
A good uptick in.
Activity in the EU in terms of getting compliant to the directive. So there's an awful lot of RFID and beginning to be an awful lot of RFP activity going on.
Got it okay.
In terms of the guidance.
Is it still your expectation for over 50% SaaS.
Bookings this year.
Addition to the nine to 11 million.
The dollar increase in operating expenses.
Yeah. The Opex was still on track with what we talked about before the 50%.
Sure.
Our bookings for SaaS.
We will substantially exceed 50% it takes some time for that to ramp up as revenue but.
Bookings are expected to go up substantially from what it was at the end of last year.
50% would be year over year growth in the software business.
Okay got it well I'll leave it there thanks for taking the questions guys.
Thank you.
Okay. Our next question comes from Mike Latimore. Please thank you.
Okay.
Great.
Maturations on the results here.
Just in terms of the software pipeline is there.
One category that really stands out and it shouldn't be the later this year with software bookings zone.
Yes.
Enterprise.
What's sort of the I guess potential.
Thanks, a lot for drivers here.
It's it's the SaaS offerings from Zone Haven and Jim.
They have different cycles Mike.
Zona Haven.
Bookings have a.
A much shorter lead time than the gem ones do.
So our pipeline is quite full and getting more full everyday in both areas.
We still enjoy.
No competition kind of scenario, what zone Haven, whereas with Jim there is competition.
But I think those two from a bookings and revenue perspective.
We see substantial improvements this year and as I mentioned a moment ago.
National Emergency warning system, that's being driven out of the EU I think we will see a substantial increase in activity there.
I think the revenue recurring revenue from that those anticipated wins will more likely be in our 2023, then about 2022.
Okay.
And then.
In terms of the zone.
Well I guess first of all you know it's a number of wins recently are those all going to occur those are all going to show up in.
March quarter bookings.
In the first quarter.
Okay.
I don't know what are you referencing Mike.
Well the ones that my remarks.
No just you've announced Slovenia and don't have any plans at all.
I'm just kind of curious are those.
March quarter bookings or are those.
For example, a couple of weeks ago, We released the Los Angeles Zone Haven Award that was a Q1 award.
We needed to get the requisite authority and approvals to put it out in the public domain, which we did receive them, but the award notification went out in Q2.
Yes.
And then you gave us $7 million bookings number was that total bucket.
Yes.
Okay.
And any comment on what percent of that was kind of in the software category.
We haven't put that out there, but it's a much bigger piece than it used to be that's for sure.
Alright.
And then it sounds like Youre guiding to gross margin being about the same this year as it was an install.
One.
I think you said about 50%.
And so you feel good about that despite the supply chain.
Well, we're managing through the supply chain constraints, we're seeing price growth.
Availability issues.
Across the spectrum of parts, but.
So far the team has kept up with it and that's my expectation that they will continue to keep up with it.
50% gross margin Dennis mentioned and its correct is historically, what we're able to do.
And we still believe that 50% is plus or minus is where we're going to end up.
Great and then just last one on Slovenia.
Did you win sort of everything there a meeting of the government.
Government front end all the mobile operators.
And whenever features that they needed.
<unk> location based did you get the kind of the full suite there.
No.
The RFP was issued by the Ministry of Defense.
Our obligation under the contract is for the front end and all of the location based data.
So we won't be able to display where all the phones are in.
In near real time, and how they're how they're moving.
Okay great.
Alright, thank you.
Youre welcome.
Okay. Our next question comes from Martin Yang Thank you.
Austin.
Hi, Good afternoon. Thanks for taking my question first question is can you maybe give us a little more context in Slovenia when what it was.
The competitive situation and how much weight was placed on pricing versus technology.
Yeah.
Martin all the usual suspects were there, including <unk> bridge.
<unk>.
Yes.
Pricing was not the principal.
Award criteria technical was.
Got it thanks.
And also looking into maybe a result came in Jim.
Pipeline and ongoing customer engagement activities.
Would you say is.
There's a little stronger at the moment do you expect that how do you expect this fiscal year to shake out.
Hum.
The respective strengths and customer interest on those software products.
While we've seen a significant uptick in interest for both zone Haven and Jim.
Jim has a longer cycle because of what I mentioned a moment ago.
They're longer because of the competitive nature of them.
When you get into Zone Haven.
There's a there's a recognized urgency to get the systems in place to the counties that we have sold them in.
And that urgency even apps up more as we.
We enter fire season, which.
Now appears to be like 12 months out of the year in California.
You all saw about the new year's Eve fire in Colorado that took down thousands of homes.
In a less than 24 hour period.
Fortunately there was very limited loss of life there.
But given circumstances being just a little bit different.
At night or.
When people were at home.
It could've been a much more significant loss of life and.
That kind of an event really shines a light on the utility and the need for zone Haven. So we see a big uptick in every time, we get events like that that happen.
Thank you our final question.
Opex for the year given that maybe.
<unk> and called it may extend to reopening.
Do you think that the investment do you still expect the same pace of your Opex investments for this year.
Yes.
Got it thank you.
Yeah.
Youre welcome.
Okay. Our next question comes from.
Please state your question.
Thanks for taking my question gentlemen.
I just had one question most of my questions have been answered, but I wanted to ask about your investment and your SaaS offerings.
Is that largely going to be going into expanding headcount.
Engineer engineers or is it more on the sales side.
Both.
Sorry.
40, something percent increased 42% increase in engineering, and our fiscal 2021 marketing sales and marketing what was the engineering.
In the forties as well.
So significant at like a 40% to 45% increase in both sales and marketing and engineering 'twenty one to 'twenty two.
And that growth will continue in this fiscal year.
Okay. Thank you that's all I have.
Okay. Thank you.
Our next question comes from Ed Woo. Please state your question.
Yes, congratulations on the quarter. My question is on M&A opportunities that you guys did a number of acquisitions in the past year are you guys still opportunistic out there.
Yes.
And how is the M&A environment.
And it's all it's up and down but it's as you know we're always active in looking.
Valuations of.
Actually come down a bit, which just makes them more affordable that which is good.
But yes there are.
Important part of our growth levers and we will continue to be opportunistic with additional M&A.
Great is there any particular focus either international or technology or a customer we expect you're looking at or is it just whatever opportunistic will come by.
It's generally.
In the critical communication area of software and recurring revenue focus SaaS focused.
Great well, thank you and good luck.
Thank you.
Our next question comes from Tucker Andersen. Please state your question.
Yes, first let me add my congratulations on the Slovenia, where in a lot of my questions have been answered, but I do have a couple.
With regard to the supply chain disruptions the most of them relate to areas, where semiconductors are in short supply or are there other materials, besides that that youre seeing supply chain problems with.
It's it's beyond just a micro circuits.
Raw materials resins.
Steel.
Even plywood for a while was hard to come by.
So it does.
It covers the gamut, it's nothing's immune to it right now.
Which implies that it's likely to continue for a while.
The other question is with the latest.
Correct, yes.
That is correct.
There is no signs yet tailing off.
The other question is with regard to labor availability and compensation cost pressures could you sort of talk what youre seeing there.
Labor availability, we have been very fortunate both in the U S, Canada and in Spain, particularly.
Particularly Spain, we've substantially increased the head count over there.
Here in the U S. It's been sales and marketing mainly growth and we've been able to attract.
The necessary folks we needed to do to do the job of trying to do and we continue to add to the sales force here in the United States.
So there is upward pressure on the on the the salaries the compensation for sure.
And that extends to the hourly folks building hardware too.
The engineers manufacturing hardware and software and it sort of across the board.
Well once again, congratulations and thank you very much.
Thank you.
Okay. Our next question comes from.
Please state your question.
Thank you for taking my call.
Most of my questions have been answered.
Richard do you feel you guys have enough cash.
Yeah, we have plenty of cash Paul our working capital.
Our cash consumption in Q1. It was two seven I think in total from an operating basis and it's all in inventory.
And that was a.
A tactic.
I think I, even announced we would likely be doing things like that on the last conference call but.
In order for us to hit our revenue we need to secure the material as soon as we can thats made available in it.
That was the consumption of cash for Q1 and that is you know is a temporary thing it'll.
As Dennis mentioned in his remarks turns to cash when we ship the product.
As long as Ive owned Q1 has always been a weaker quarter, but this one seems to be getting up there, but I was just curious.
I like more cash.
Thank you.
Congrats on the quarter and welcome I hope you're going to have a great year.
Thank you.
Okay and our final question is from Brian Colley. Please state your question.
Hey, Thanks for taking the follow up here I was curious on the decline in software revenue.
What drove the.
Year over year step down in services revenue was it just a contract ending and not renewing or was there kind of higher or is that total a year ago, we had a substantial.
Development activity for Australia.
Australia went live on September of last year.
So that's nonrecurring.
Completed and now it's into a recurring revenue model and we had about a year's worth of development work I think it may have been 10 months of development work that started approximately October one of 2020, so the first month or so of our fiscal 'twenty one.
And as Richard said it went live on September one so.
There was quite a bit we had two different cell carriers that we were doing the work for so that's the that's the reason for the decrease in software revenue.
Okay got it.
I mean would it be your expectation for that for software revenue to increase sequentially moving forward.
For the rest of this year.
Yes, it will follow up bookings Bryan So you keep looking at press releases.
We'll try to announce all wins.
We've seen a substantial uptick in rfps and a substantial uptick in software or SaaS bookings.
Got it okay. Thanks for the follow ups.
Youre welcome.
Okay, Richard I'll turn it back over to you for closing remarks.
Dennis will handle those.
We regularly discuss our business at investor conferences throughout the year. This week, we'll be participating in the best ideas virtual Investor Conference additional Investor Conference presentations are planned throughout this fiscal year.
Thank you for participating in today's call. We look forward to speaking with you again next quarter. When we report fiscal second quarter 2022 results.
Thank you.
This concludes today's conference call. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
[music].