Q2 2022 Genasys Inc Earnings Call

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Good day, ladies and gentlemen, and welcome to the farmer Macs.

And welcome to the synthesis.

Fiscal second quarter 2022 conference call all lines have been placed on a listen only mode and the floor will be open for questions and comments following the presentation.

You should require assistance throughout the conference. Please press star zero on your telephone keypad to reach a live operator.

At this time it is my pleasure to turn the floor over to your host Kim Rogers IR ma'am the floor is yours.

Thank you Dana good afternoon, and welcome to Genesis incorporated fiscal first quarter 2022 financial results Conference call I Am Kim Rogers with Hayden IR Investor Relations firm for Genesis with me on the call today from Genesis are Richard Danforth, Chief Executive Officer, and Dennis <unk>.

<unk> 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 involves certain risks and uncertainties. The company's results may differ materially from the projections described in these forward looking statements factors that.

That might cause such differences 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 are 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 the operational metrics, including adjusted EBITDA bookings and backlog, which we believe provide helpful information.

<unk> 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 match.

Tricks 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.

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, Tim and welcome everybody to our call.

We had a terrific second quarter with revenues of $13 2 million up 17% from our prior year Q2.

First half revenues were $23 8 million up 23% from the first half of fiscal 2021.

Gross margins in Q2 were 52, 9%, bringing the first half gross margins to 53%.

Revenue growth and higher gross margins helped lift adjusted EBITDA to a positive 850000 for the quarter.

Bookings for the first half were $12 5 million, yielding a backlog at the end of Q2 up $23 9 million up 73% or $10 1 million from a year ago.

First half cash used was $4 2 million of which $3 2 million was used to purchase inventory and $1 million to repurchase company stock.

As I've mentioned on prior calls we are purposely increased inventory to hedge against the disruption in the worldwide supply chain the increased inventory as planned to turn into revenue this fiscal year.

During Q2 Genesis systems, we used around the world to help keep people informed and safe and Australia Genesis News was used to alert residents and visitors and coastal areas of a potential tsunami. Following the January January 15th volcanic eruption in Tonga.

Also in the quarter and the early morning hours of February 10th after a wildfire broke out in Emerald Cove, California, Laguna Beach emergency personnel activated the city's Genesis integrated mass notification system to broadcast evacuation warnings to residents and visitors.

After the fire Brendan Manning the emergency operations quota for Laguna Beach had this to say and I quote only great things to report using Genesis to facilitate alerts and notifications. We sent out alerts every 10 to 15 minutes residents City Council City leadership and the media all reported.

Positive things on the use of our outdoor warning system end of quote.

Other highlights include the countries Slovenia selecting Genesis news to power its national public warning system.

This system is expected to go live in July .

Earlier this quarter, we announced the formal release of the new <unk> 950, NXT and an order from the Spanish Navy.

There is a worldwide market for this product and more orders are expected this fiscal year the.

The strong performance in high margin contribution of L. Rad hard work continues to serve as the economic engine to fuel the expansion of our software business.

We grew our software pipeline by 40% in the second quarter when compared to the first quarter and signed 10 contracts which include.

The country of Sylvania, three Genesis emergency management contracts and the state of Texas and zone Hemant contracts in Los Angeles, and four additional California counties.

SaaS bookings and a first half of FY 'twenty two are already 67% higher than all of last year further North American Q2, SaaS revenues were double that of our Q4 actuals in FY 'twenty, one and continued growth is expected through this fiscal year and beyond.

We received a $2 million contract from the city of Berkley, California for a jump powered integrated mass notification system.

<unk> bookings through Q2 was strong equaling any prior full year totals with a growing pipeline. We are on track for record integrated mass notification system bookings this fiscal year.

Genesis software and integrated mass notification systems now help safeguard more than 43 million people around the world.

We're adding the resources to substantially increase this number over the next few years.

We continue to invest in sales and engineering development to support the growth of our software business, particularly in the SaaS segment in Q2, we added six people to the software development and sales team.

Year round fire seasons are increasing and increasing natural disasters political and civil unrest active shooter incidents and arm conflict or creating numerous catalysts for genesis growth globally.

Enterprises, and governments are more aware than ever of their responsibility to keep employees in citizens safe and informed.

Zone Haven, as a valuable competitive differentiator to the Genesis software platform and a true greenfield opportunity additional contracts from cities and counties in California, and other states are expected to drive second half Sone hang up zone Haven bookings and revenue growth.

Jim will continue to be a growth catalyst for this fiscal year and beyond important feature differentiator is being added to gym, including full zone Haven integration additional domestic and international gem contracts are expected to close by fiscal year end.

Regarding news in the EU public warning mandate, we still anticipate a June of 2022 deadline to be pushed out and we continue to work multiple contract opportunities with EU member Nations.

Investments in sales offices in the Asia Pacific Region, Europe , and the Middle East are paying off.

Revenue in our Europe , Middle East and Africa sales regions were up last quarter and in the full first half compared to fiscal 2021 periods.

The lesson in Covid impact in the Asia Pacific countries.

Increases our sales opportunity in that region.

<unk> is on track for another strong year of U S and international public safety bar enforcement Homeland security and defense sales.

With large bookings expected in our second half.

We are investing in our high margin software business to capitalize on multiple catalysts software orders and pipeline growth I would expect it to accelerate through this fiscal year and beyond.

Based on our quarter end backlog of $23 2 million and supported by our current supply chain visibility and rapidly growing business pipeline. We are reaffirming our fiscal 2022 outlook of a sixth straight year of revenue growth and a fourth consecutive year of record revenues.

Before I hand, the call over to Denis I would like to thank all the members of our worldwide team for their hard work and commitment to the company's success.

Dennis.

Thank you Richard <unk>.

Revenues for the fiscal 2022 second quarter were $13 2 million up 16, 5% from the prior year quarter.

As compared with the same prior year period, <unk> revenue was $10 6 million up eight.

4%.

<unk> revenue was $1 9 million up 128% and software revenue was 673000 essentially unchanged from the prior year quarter.

Gross profit margin was 52, 9% an increase of 640 basis points compared to 46, 5% in the second quarter of fiscal 2021.

Gross margin percentage was higher due primarily to a shift in product mix.

We continue to expect gross profit margin to be plus or minus 50% for the full year.

Although there may be some fluctuations quarter to quarter.

Operating expenses were $7 5 million up from $4 7 million in the same period a year ago.

The increase was largely due to a 46, 3% increase in SG&A, primarily sales and marketing expenses from the addition of personnel for our future growth.

Creases and noncash expense for amortization and share based compensation and a one.

116% increase in research and development, principally engineers for product development.

As a reminder, our fiscal 2022 business plan includes a year over year increase in operating expenses for strategic growth initiatives targeted materially shifting our revenue mix toward a higher proportion of software revenue and expanding our margins.

Net loss for the quarter was $492000 or a penny per share a decrease from net income of 262000 or a penny per share in the fiscal 2021 second quarter.

The change was mostly due to the increase in operating expenses to support the gross growth initiatives I just discussed.

Adjusted EBITDA for the fiscal 2022 second quarter was 853000.

Paired with $1 2 million in the prior fiscal year second 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 financial results release.

Turning to our first half results.

For the first six months of fiscal 2022 revenues were $23 8 million up 23, 4% from $19 3 million in the same period last year.

Gross profit margin was 58%.

Paired with 46, 5% in the first six months of fiscal 2021.

Gross margin percentage was higher due to a different mix up and higher revenue in the current year to date period.

Operating expenses were $14 2 million up from $9 1 million in the same period last year again, largely due to a 48, 6% increase in SG&A.

Primarily in sales and marketing expenses from the addition of personnel.

Increased trade shows and travel increased noncash expense for amortization and share based compensation compared to the prior year and.

And 84% increase in R&D, specifically engineers for product development opportunities.

Net loss for the first six months was $1 8 million or <unk> <unk> per share compared with a net loss of 357000 or a penny per share in the first six months of fiscal 2021.

This decrease was primarily due to the higher operating expenses, partially offset by the higher gross profit in the current year period.

Adjusted EBITDA for the first six months of fiscal 2022 was 441000.

Paired with 922000 in the prior period prior year period.

Cash cash equivalents and marketable securities totaled $16 4 million as of March 31, 2022.

Compared with $20 7 million as of the prior year end.

Working capital totaled $16 8 million as of March 31, 2022, compared with $18 million as of September 32021.

Cash used in operating activities for the first six months of fiscal year 2022 was $3 1 million.

This compares to cash provided by operating activities of 363000 in the same period last year.

The fluctuation primarily reflects an increase to inventory of approximately $3 2 million to hedge against supply chain challenges.

We expect the inventory increase to convert to revenue through customer shipments this fiscal year.

The company has an authorized share buyback program for up to $5 million through December 31 of 2022.

During the three months ended March 31, 2020 to 142442 shares were repurchased for 557000.

And the first six months 259310 shares were repurchased for $998000.

We may from time to time repurchase shares in the open market transactions, however, investing in our business for future growth remains our primary objective for the allocation of capital.

We would like to now open the call for Q&A.

Operator.

Okay.

Yeah.

Yeah.

Hello, operator.

Yes. Thank you the floor is now open for questions.

You do have a question please correct.

You bet.

Yeah.

Okay.

Yeah.

Our first question.

Hum.

I was on the quarter I know you mentioned, you're going to increase inventory and that's probably going to come to revenue this year.

Do you see the supply chain actually getting better.

The high point.

Or you think it possibly could get worse, if you have to build more inventory as the year continues.

And I don't think we will build inventory beyond its current levels. If everything holds true and we ship everything we intend to ship.

So far the team has kept up with it it's it's.

It has not affect negatively affected our revenue.

And I don't expect it to.

Great and then.

Question on inflation, you think possibly that youre going to have to raise their prices as well or have you guys been able to age the engineering products picked up to maintain the margins.

Yeah.

Well I'll point to Q2 margins 50, nearly 53, what was at 54% Dennis.

72%, so that that's reflective of the cost of our material and labor.

I think we've done a very good job at that we can't obviously reprice that which is in our backlog.

But we do on a regular basis.

Rerun all costs and in pricing.

We historically have done that on an annual basis, we're likely going to do this on a quarterly basis.

Great well, it's definitely get that you guys were able to maintain your 50% gross margin guidance. So congratulations on the quarter and wish you guys. Good luck. Thank you.

Thank you.

Okay.

Our next question comes from Brian Holly Please state your question.

Hi, Richard.

I'm on for Brian Thanks for taking my questions.

Sure go.

Go ahead, yes, I was wondering if you could talk about the pipeline for enterprise customers for the jumps software.

Okay.

My remarks, I told you that the.

The SaaS bookings were already.

64% higher than all of last year and that includes both SaaS and I am sorry includes both Jim and Zone Haven, I don't have it broken out in front of me.

But I believe it's close to 50 50 from a mixed perspective.

Got you Okay I appreciate that.

And then a follow up question.

Are you guys seeing any.

Benefit from disruption from your competitor and are you able to hire any salespeople away from them.

We have hired.

A salesperson away from our competitive edge that you referenced.

We still see them in the marketplace every day and I think that's.

I don't believe that's going to change.

Gotcha. Thank you thanks for answering my questions.

Youre welcome.

Again, ladies and gentlemen, if you would like to ask a question. Please press star one.

At this time, please hold while we poll for questions.

Okay.

Yeah.

Okay.

Okay. Our next question.

Okay.

Yeah.

Again, ladies and gentlemen.

Please press star one if you'd like to ask a question.

Yeah.

Yeah.

Okay. It looks like that was our final question I'll turn it back over to the presenters for closing remarks.

Thank you again joining us.

Alright, it looks like we have one more question.

Stephen do you want to take that question Dana.

Brian Your line is now.

Alright. Thank you sorry, I just had one more question.

I was curious about.

Zone Haven product that you guys have launched recently to Colorado, Oregon, Georgia, Kentucky, Missouri and Texas.

You guys are you guys looking into any other do you have any other states in the pipeline.

I don't have any plans to expand within these current states and you guys plan, increasing any personnel related to those.

I think yes. So every one of those questions. So if you look at the Western States here in the U S from Colorado, New Mexico, Texas, California.

All of them are experiencing significant.

Fires.

And the season is just beginning.

We announced our first win in Oregon, We announced our first win in Colorado.

And I expect you'll see much more of that in the near future.

Awesome alright, thank you.

And that was our final question I'll turn it back over to the speakers for closing remarks.

Thank you again for joining us today, we will be at the LD Micro conference in Westlake, California on June eight if you plan to attend the conference. Please take a one on one meeting for information is at the LD Micro conference website.

We look forward to speaking with you on our third quarter fiscal 2022 earnings call.

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.

Okay.

Okay.