Q3 2022 Genasys Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Genesys, Inc. Fiscal third quarter 2022 conference call. All lines have been placed on a listen only mode and the floor will be opened for questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press star zero to reach out.
Operator at this time it is my pleasure to turn the floor over to your host Kim Rogers Investor Relations for Genesis Ma'am the floor is yours.
Thank you Karen.
Afternoon, everyone and welcome to the Genesis incorporated fiscal third quarter 2022 financial results Conference call I'm, Kim Rogers with Hayden IR VP Investor Relations firm for Genesis with me on the call are Richard Danforth, Chief Executive Officer, and Dennis <unk> Chief financial.
Officer of Genesis.
Today's call management will make forward looking statements regarding the company's plans expectations outlook and the 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.
They 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 Matt.
<unk> expectations as of today.
We explicitly disclaim any intent or obligation to update those forward looking statements access.
Otherwise specifically stated we will also discuss non-GAAP financial measures and other 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 it.
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.
<unk> 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.
Thank you, Kevin and welcome everybody.
We had another terrific quarter with strong Q3 revenues, leading to a nine month record revenues, our operating activities generated more than $2 $5 million in cash further strengthening our balance sheet with the capital to fund our growth investments bookings for the quarter were nearly $20 million.
Growing up backlog $6 million to a total of $30 million exiting Q3, keeping us on track for.
Revenue expectations for the year.
Our bookings remained strong and more than $20 million for the quarter fiscal year law enforcement and public safety bookings are already at a record level for the third consecutive year.
Genesis software services, where us numerous times to deliver flash flood warnings and evacuation notice during the eastern Australia and floods in April and in late June and early July during the new South Wales floods that displaced more than 85000 people.
First responders and emergency management agencies deploy Genesis software evacuation resources during 12 wildfires in June alone in Northern California.
During these times is more than 250000 new user.
New users access the Genesis, one Haven community website for real time evacuation alerts and Repopulation notification.
During the ongoing Mckinney fire near the California, Oregon border. The performance of the Zone Haven aware platform has been exceptional users have access to site more than 400000 times for updated fire evacuation and re population information.
Many California counties made zone Haven are key elements in their 2022 emergency preparedness campaigns encouraging residents to memorize his own numbers and bookmark. The zone Haven community website for faster access to vital information throughout wildfires and other public safety threats.
For the second time this year Laguna Beach emergency personnel activated the city's Genesis integrated mass notification system to alert residents and broadcast evacuation warnings during the may 11th coastal fire.
The coastal fire, Brian just south of Laguna Beach, destroying 20 homes and damaging 12, others in neighboring Laguna Niguel.
Two weeks after the coastal fire the Laguna Beach City Council discuss the further expansions of the city's outdoor warning systems, Berkeley, California selected the first five installation sites for the city's Genesis emergency warning network that we have.
It was announced earlier this year 10 additional sites will also be selected for the system that will alert residents to fires earthquakes tsunamis and other life safety hazards like broadcasting audible hyperlocal warnings and notification.
Under our contract with Alameda County, Berkeley, first responders and residents have access to the zone Haven evacuation resources.
Nine month revenues for mass notification hardware integrated with Gem software increased 425% to $8 4 million compared to $1 6 million in the first nine months for fiscal 2021.
We received new SaaS contracts some cities counties universities in enterprise software customers in 12 States, which include our first contracts in Colorado, Georgia, Indiana, Oklahoma, Oregon in New York.
Genesis has replace competitive software service in most all of our SaaS contracts to date Genesis software and integrated mass notification systems and now helping safeguard millions of people in several countries in 20 states.
SaaS revenue has nearly doubled year over year in SaaS bookings in the first nine months increased 27% over the same period last year, reflecting the growing momentum of our Gen <unk> Zone Haven solution.
Jim <unk> Zone Haven, providing excellent cross selling and upselling opportunities as we expand our critical communication and public safety resources in North America and throughout the World.
Last year, we made the strategic decision to invest globally and SaaS critical communication platform in response to the large and growing opportunity to help keep people safe in a world that is becoming increasingly dangerous.
We continue to add personnel and other resources essential to executing our SaaS growth strategy.
As we announced last week the hiring a 25 year software veteran Dennis Walsh as our Chief revenue Officer is one of these important resources Dennis his experience building and running successful SaaS technology companies makes him the ideal choice to serve as our CRO and lead our sales and marketing team is built in.
Led high performing sales marketing and support organizations spearheaded sales for new SaaS business applications to many worldwide Corporation and significantly increased revenues for our companies in which you serve we welcome Dennis and his extensive global experience driving software revenue growth.
It's also important to note that the growth investments, we are making making continue to be funded by our operating activities, providing us the capital to fund our initiatives and the current economic environment.
At an Investor Conference in June I shared an updated long term model for Genesis, we expect the revenue drivers for the next few years will be one a macro backdrop that is increasing the need for critical communications to a growing pipeline for our higher margin suffer opportunities three the zone Haven Greenfield.
Attunity in the United States and internationally and for the synergies of our software solutions and our hardware systems and.
In addition to these drivers this week's announcements of our commercial security order from a global Enterprise company is one of several business opportunities. We are working in this sector.
Government and enterprises are accrued acutely aware of the escalating the security risk to employees citizens critical infrastructure facilities additional commercial and critical infrastructure security orders are expected this quarter and next fiscal year.
After a 425% increase in year over year revenues for the first nine months the outlook for our gem integrated mass notification system is extremely positive.
Beyond installations currently underway in the city of Berkley, Southern Marin County, Puerto Rico, Japan, and other locations multiple <unk> projects that are in the pipeline with several anticipated to close in coming quarters.
As reflected by our recent Jim a partnership with the Boston Red Sox SaaS.
SaaS orders and pipeline growth are expected to accelerate through the end of the fiscal year and beyond.
We are continuing to replace competitors offerings by providing superior comprehensive life saving services for governments commercial enterprise and other entities.
Based on our $30 million quarter end backlog and supported by our rapidly growing business pipeline, we are well positioned for a six year of revenue growth.
With that I'll now turn it over to Dennis and he'll detail the fiscal third quarter and nine months financial results Dennis.
Thank you Richard revenues for the fiscal 2022 third quarter were $14 2 million up 12% from the prior year quarter.
The revenue increase was driven by the $3 9 million from <unk> shipments up 756% from the prior year quarter.
North American SaaS revenue in the third quarter was 144% greater than the fourth quarter of fiscal year 2021.
Gross margin was 46, 5% a decrease of 440 basis points compared to 59% in the third quarter of fiscal 2021.
Lower gross margin percentage was largely due to higher cost of components and this year's quarter. We continue to expect gross margin to be plus or minus 50% for the full year, although there may be some fluctuations quarter to quarter.
Operating expenses were $7 2 million up from $5 9 million in the same period a year ago.
The increase was due to a 15% increase in SG&A related to strategic growth spending to accelerate SaaS revenue and a 52% increase in research and development spending with a significant increase in SaaS development.
As a reminder, our fiscal 2022 business plan includes a year over year increase in operating expense for strategic growth initiatives targeted at materially shifting our revenue mix toward a higher proportion of software revenue and expanding our margins.
Net loss for the quarter was 589000 or <unk> <unk> per share a decrease from net income of 290000 or a penny per share in the fiscal 2021 third quarter.
The change was due to the increase in operating expenses, which I just discussed.
Adjusted EBITDA for the fiscal 2022% third quarter was 364000 compared with $1 4 million in the prior fiscal year third 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 year to date results for the first nine months in fiscal 2022 revenues were $38 million up 19% from $32 million in the same period last year.
Gross margin was 49, 2% up 100 basis points from the first nine months of fiscal 2021.
Operating expenses were $21 4 million up from $15 million in the same period last year again due to 35% increase in SG&A related to strategic growth spending to accelerate SaaS revenue and a 72% increase in research and development spending.
Net loss for the first nine months was $2 4 million or <unk> <unk> per diluted share compared with a net loss of 67000 or zero.
Per share in the first nine months of fiscal 2021.
This decrease was due to the higher operating expenses, partially offset by higher revenues in the current year period.
Adjusted EBITDA for the first nine months of fiscal 2022 was 805000 compared with $2 3 million in the prior year period.
Our balance sheet remains strong with cash cash equivalents and marketable securities totaling $19 million as of June 32022, compared with $20 7 million as of the prior year and <unk>.
<unk> capital totaled $17 6 million as of June 32022, compared with $18 million as of September 32021.
Cash used in operating activities for the first nine months of fiscal year 2020 to 600000.
This compares to cash provided by operating activities of $8 3 million in the same period last year.
The fluctuation primarily reflects this year's higher net loss, a lower balance in customer deposits and higher inventory on hand, compared with the same period last year.
We expect a higher inventory balance to convert to revenue through customer shipments this fiscal year.
The company has an authorized share buyback program to repurchase shares valued at up to $5 million through December 31, 2022. During the three months ended June 32022, no shares were repurchased.
Fiscal year to date 259310 shares were repurchased for approximately $1 million.
We may from time to time as market conditions warrant repurchase shares in open market transactions. However, investing in our business for future growth remains our primary objective by the allocation of our capital.
The $1 $7 million change in our cash position from $20 7 million at the end of last fiscal year to $19 million as of June 32022 is largely attributable to share repurchases.
This affirms the strong underlying cash engine that is supporting the strategic investments, we are making to fuel our next phase of growth.
We will now open the call for Q&A.
Thank you ladies and gentlemen, the floor is now open for questions. If you do have.
Have a question. Please press star one on your telephone keypad at this time, if youre using a speakerphone, we asked that while posing your question you pick up your handset to provide favorable sound quality once again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time please hold.
As we poll for questions.
And our first question comes from Brian Colley from Stephens. Please go ahead.
Hi, guys. Thanks for taking my questions.
So I apologize if I missed it but.
Did you disclose the but the software revenue was for the quarter.
We did not.
Okay.
Not in total.
No in total.
Will be disclosed in the 10-Q and I believe that it's.
Little over $700000 for the quarter now that's a mix of.
It has grown its a mix that has changed year over year.
Last year had a fair amount of professional services involved however, this year the.
The SaaS based recurring revenue has grown.
Essentially enough to offset the reduction in professional services.
Got it okay. That's helpful. Thank you.
And then I also wanted to ask just about recent demand trends as it relates to weaker and weaker economic backdrop I presume you are relatively well insulated given the nature of your products and customer base being in the government and sled verticals, but have you seen any softening in demand for either hardware or <unk>.
Were related to recent macro uncertainty, whether it's lengthening sales cycles are more budget scrutiny.
No Brian .
Quite the opposite when it comes to the SaaS offerings.
The amount of activity is amped up.
Substantially in the last three months for us. So that's very good from a hardware perspective, you're right, we're somewhat insulated from from the <unk>.
The economics of the inflation in that kind of thing.
Given what's going on in the World. There is an increasing demand for our software our hardware in our system solutions.
So right now the answer to your question is no we don't see an impact from it.
Understood.
Encouraging to hear.
<unk>.
Lastly, I wanted to ask about.
New Chief revenue Officer Dennis.
I know, it's still brand into the job, but can you talk about any early strategy or view on his plans to expand your software business.
What that might entail.
He has been here a week to week in two days.
So we're going to give them a little more time to lay that out but you can.
Rest assure that thats in process and we will talk about that when it's more complete.
Got it okay.
If I could sneak one last question and here I'm curious how much you all are leveraging channel partners today for your software business and is expanding channel ecosystem as an opportunity that you're actively pursuing.
It is we have one channel partner I think at this time Brian .
It's not been tapped into hugely yet most of our software sales are direct.
But certainly as we expand.
Particularly outside the United States the likely been.
Much higher use of channel partners.
Okay got it well I appreciate the time today guys.
Thank you.
And next we'll take a question from Ed Woo from MS. Sandy <unk> capital. Please go ahead.
Yes, congratulations on the quarter in terms of supply chain inflation. It looks like it impacted the quarter. What is your visibility is getting better and what's your visibility into the next.
Next six months.
The supply chain from an availability is as I said last quarter is manageable.
And we have been managing it we have seen an increase in pricing that's reflected in a slightly lower gross margin for the quarter.
Although the gross margin for the nine months is actually ahead of where we were last year. So I think that I'd put that in the same category we are managing that.
We expect our gross margin.
Historically, you have to be plus or minus 50%.
And again the supply chain.
We have delivered record revenues over three years with the supply chain challenges.
I think that will continue.
Great well, thanks for answering my questions and I wish you guys. Good luck. Thank you.
Thank you.
Thank you and our next question comes from Mike <unk> from Northland Capital. Please go ahead.
And we think on for Mike Latimore.
My first question is what percent of bookings was soft spot in the quarter.
Yeah.
We don't disclose that yet that will be something we'll likely do as we enter our next fiscal year.
Okay.
Okay and then so can you just tell me how many salespeople do you have.
Okay.
The number grows every day almost so I don't know what the number is rates they are talking to but we can get that and get it over to you.
Okay any approximate numbers.
So the United States, It's 20.
Okay.
The mid Slovenia go live in July so how is that operating.
Any color on that.
Yes sure. It went live on schedule in July and it's operating as we speak today.
Cool last my last question is that do you have any European beams in the pipeline for this calendar year.
Yes.
Okay.
Okay. That's it from my side. Thanks, Thanks, Brian .
Youre welcome.
Once again Thats Star one if you do have a question or comment.
And next we'll go to Chris Tuttle from Soundview capital. Please go ahead.
Okay. Thank you.
I just had a couple on the on the newer business.
Deals that you announced with the Red Sox.
Did they have any kind of existing system in place and.
In general.
Do you find that.
Sports teams in large arenas have something already in place or is it more of a greenfield opportunity for you.
It's both the case of the Red Sox there wasn't incumbent that.
We took out.
Theres been other sports arenas sports stadiums that was one where there hasnt been an incumbent but it does go Chris to any place a large gathering of people will be.
Has a need for the gem platform.
We've sold it out of the Red Sox are the Green Bay Packers to Metlife.
And theres others in the pipeline.
Okay.
And one other question just related to that you know the historical the outlet business. I mean, you guys announced a I think I got $15 million ish order.
With the army.
Whats the timeframe for delivery of.
That kind of order.
There'll be some in our Q4 and the balance in our fiscal 'twenty three.
Okay. So like next 12 to 16 months something like that it will be fulfilled.
Likely in the next 12 months.
Okay and could you give us I mean, what's your.
At least qualitatively quantitatively.
Yes.
Looking at the <unk>.
The branches of the service.
The installed base of the older <unk> systems does this represent sort of like the army you'll be.
Fully upgraded with their older systems or.
In general like Theres, a lot more to go in terms of the upgrade opportunity for the <unk>.
The current program of record Chris is not a replacement of <unk>.
Previously purchased.
Alright products. It has three very specific use cases.
And we continue to deliver on those use cases as we had as we are.
Cultivate new use cases for the United States Army.
And other armies around the world but.
The United States Army will continue for a long time to be a very good customer of Genesis.
Okay.
And then I had one last question.
Just on the demand for these kind of emergency response systems.
I have been told that in particular.
State and local municipalities in more rural States have.
Radio's police radios that are designed more to function outdoors and indoors and that has led to some <unk>.
Indication issues inside large buildings like schools.
I'm just wondering have you all seen.
An increase in demand or any.
Any sign of demand from those.
Those kind of those kind of municipalities looking to change change out their older.
Radio systems that are more designed for outdoor use then inquiries.
We have I mentioned, Jim in the demand.
The demand for Jim.
Amping up quite a bit and that's across the state and local governments as across to colleges and universities and large enterprises. So.
The gem platform can can put geo specific messages to your phone to a desktop to a laptop to digital signs to radio to TV.
And HFF radio is just one channel.
With the gem platform will use VHF radios or many of the other channels like I just mentioned.
Okay got it alright, well, thanks very much guys appreciate it.
All of them.
Thank you.
And we will take another question from Brian Colley from Stephens. Please go ahead.
Hey, Thanks for taking the follow up.
I was curious if you could provide an update on public warning activity in the EU.
Rich mentioned earlier this week that there were 12 different countries with Rfps and RFID is out there right now are there any countries you feel particularly strongly about your ability to win.
<unk>.
Market is still seeing highly competitive pricing.
It certainly is with respect to cell broadcast.
Europe is in the month of August and not a lot happens in the month of August but.
There are countries.
Network providers.
There are active RFID in Rfps and I as I said earlier I believe Brian some of those will close before the end of this calendar year.
Okay got it.
And then on the software side it seems like most of the growth that youre pursuing.
As with new customers I'm curious as upselling existing no thats not.
I am sorry to interrupt you Brian but.
The software the SaaS, we're selling.
The gems SaaS, we're selling is almost always replacing an incumbent in.
In the case of the Zone Haven software.
There is no incumbent so that's always going to be new frequently it is the same people that.
Our buying jam.
So there is no incumbent to replace with Sirona Haven, certainly as with Jim and.
I'll say it again, it almost always we're replacing an incumbent.
Got it yeah, I guess I meant more so you are adding new customers, whether it's you're.
You're replacing.
And I come that are not new.
New customers to you I'm curious if you get them up selling your existing customer.
Our customer base.
That is your software customer base additional solutions represents.
It represents a meaningful growth driver as well.
Jim in Zone Zone Haven have add on functionality to make up selling kind of a key priority there.
It certainly does so it actually goes three different ways, Brian . So Jim is pulling zone havens Zonate is pulling jem and the integrated mass notification system is pulling both of them.
There are several counties and communities.
Yes.
In the United States that have been a gem customers that have up sold zone Haven, and vice versa, and where we've had integrated mass notification systems are.
Selling them.
<unk> communication platform as well as his own Haven software.
It is showing great promise.
Okay, that's encouraging.
And then lastly.
As it relates to the international expansion opportunity Zone Haven win.
Are you already kind of pursuing that opportunity today or are you kind of going after.
Other states in the U S first and if.
The latter is the case I'm curious when you might start to pursue the international opportunity with Southern Haven.
We will begin first in Europe and plans are underway now.
Okay got it well I'll leave it at that thank you for the time today.
Thank you.
Once again star one if you do have a question or comment.
And there appear to be no further questions at this time I'd like to turn the floor back over to Dennis <unk> for closing remarks.
Thank you.
We regularly discuss our business at investor events during the year and you are invited to join us for these events.
We are participating in the Windy city Microcap rodeo in Chicago on October 13th contact the event organizer to schedule a one on one meeting.
We will also be at the LD Micro main event on October 25, you can register for the conference in Boca meeting through the LD Micro web site in.
In mid November we are participating in the Stephens annual investment conference contact with Stephens representative for more information.
Thank you for participating in today's call. We look forward to speaking with you again later this year when we report our fourth quarter and fiscal year 2022 results.
Thank you ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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