Q3 2023 Genasys Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to the Genesis incorporated fiscal third quarter of 2023 conference call. All lines have been placed in a listen only mode.
For will be opened for questions and comments following the presentation.
If you should require assistance throughout the conference. Please press star zero to reach a live operator.
This time it is my pleasure to turn the floor over to your host Brian Alger S V. P of Investor Relations and corporate development, Sir the floor is yours.
Thank you Karen.
Good afternoon.
I'll come to Genesis as fiscal 2023 third quarter financial.
<unk> Conference call I am Brian Alger, SVP Investor Relations and corporate development for Genesis with me on the call today are Richard Danforth, Chief Executive Officer, and Doug Kahn, Chief Financial Officer. During today's call management will make forward looking statements regarding the company's plans expectations outlook and future financial performance and 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 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 32022.
Other than statements of historical facts are forward looking statements made on this call are based only on the information and management's expectations as of today August 10, 2023, 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 operating operational metrics, including adjusted EBITDA.
Bookings.
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 to be linear indicators of future revenues and use those 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 the 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.
Now at this time, it's my pleasure to turn the call over to Genesis The CEO Richard Danforth, Richard Thank you, Brian and welcome everyone.
As expected financial results for the fiscal third quarter improved significantly sequentially in revenues were in line with the prior year's quarter.
Software bookings and revenue were in line with expectation while hardware bookings once again saw delays our hardware pipeline, including approximately $25 million of bookings that have shifted from fiscal 'twenty to 'twenty three 'twenty four continues to expand.
Third quarter recurring revenue was up 47% year over year and a year to date software bookings are up 180%.
While hardware revenues have been difficult to forecast the steady growth and expansion of our software our recurring revenue is gaining momentum.
Recent competitive wins in Colorado, Texas, and the East coast of the United States.
Further demonstrate the value we are delivering with Genesis protect.
Based on existing orders and orders currently in contracting we have secured over $5 million of a R. R unless in eight quarters.
Earlier this week, we launched our new corporate identity, and the Genesis product Genesis protect platform.
Genesis protect combines the most comprehensive preparedness response and analytical solution to keep people assets and operations protect against the impacts of natural and man made disasters.
We expect the efforts made to date combined with the rollout of the new Genesis protect sales and marketing initiatives to further accelerate software revenue growth next fiscal year.
Genesis is the leader in protective communication, we are the only provider with a complete solution of emergency planning notification and management offerings.
Genesis protects enables our customers to be ready for any what if scenario.
Freddie means organizations and enterprises have the confidence that comes from knowing their response plans had been fully tested.
Ready means aggregating a wealth of trusted data sources that give our customers unmatched real time visibility into their people their assets and their environment.
Ready means tapping robust modeling and simulation of critical events before they occur to test to validate the validity response plans.
Ready means filtering out false alarms and reacting to real threats faster ready means being able to handle handle any situation from.
From predictable disruptions to large scales unexpected events, even when multiple events are happening at the same time.
Ready means up holding a duty of care to keep everybody safe and informed.
By delivering the right message to the right people at the right time.
Ready means constantly evolving using data and insights from one incident response.
To drive better more efficient outcomes in the next.
As natural disasters extreme weather, social and political unrest crime infrastructure failures increase in severity and frequency.
Have responded by consolidating our portfolio of products to help our customers be ready when it matters.
If you haven't been on our website recently I strongly suggest you go to explore the details on our solutions and numerous customer customer testimonials and our resource pages.
As I mentioned at the top of my remarks, we have seen a strong software momentum with numerous competitive wins in the domestic public sector outside of California, including the replacement of an incumbent system for a whole state.
Like most of our contracts in California. Each of these recent wins were competitive and against much larger incumbents.
We believe our customer first philosophy demonstrated by our product innovation and customer success practices has been a key deciding factors.
Last month Genesis responded to an RFP from the state of Florida for a statewide notification system supporting its 24 million residents and visitors.
The process is intensely competitive though relatively quick by the time. We report next quarter's results. We will know if we have been selected or not.
Needless to say, we believe we have the best and most complete offering for our friends from the Sunshine State.
As we enter August fire season is becoming more intense and the need for comprehensive solutions that enable planning and real time emergency management is increasingly evident.
Already this year there have been major fires that started in California and spread into Nevada.
Fire burned more than 100000 acres.
So the fire was largely in the remote and lightly populated Mojave Desert region in California.
That is not always the case as it has been yet another reminder of the perennial dangers that exists as we saw this week in Maui.
Our Hearts go out to the family and friends of the dozens of people that have lost their lives or have been injured in this unprecedented fire.
Genesis protect offers an unmatched capacity for our customers to not just notified constituents about emergency and non emergency incidents.
To use our data modeling planning and simulation functionality to support the full lifecycle of any crisis before during and after.
The momentum we have built thus far is impressive and we expect to see an acceleration in software bookings and revenue as more customers become aware of a differentiation.
On the <unk> front, we will continue our industry leading position.
Our hardware offerings are an important differentiator in our communication channels for Genesis customers.
I want to provide a little color on the hardware activity as I mentioned earlier, there was over $25 million of hardware bookings linked to four separate opportunities. We've already been selected for or are the only known <unk>.
Option.
That are now expected to book in fiscal 2024.
Beyond that our hardware pipeline continues to grow new opportunities, including the recently announced $900 million <unk> from the United States Air Force <unk>.
Genesis is one of 70 companies that were included in that award.
Additionally, there are other opportunities for the U S army that have yet to be quantified through task orders.
Now I'd like to turn the call over to Dennis to go through the financials and outlook in greater detail.
Thank you Richard.
Revenues for the fiscal 2023 third quarter were $14 2 million, an increase of 1% over the prior year quarter.
As compared to the same prior year period software revenue increased 28% to 938000 and hardware revenue decreased 1% to $13 3 million.
Recurring revenue grew 47% compared to last year's quarter.
In the June quarter, we recognized our first months of revenues associated with the Aramco contract announced earlier this year.
As previously noted there was a period of time between booking software win and win.
Our begins that is associated with configuration and implementation.
That said, our visibility and predictability of revenues after booking the orders is very high.
Given the contracting discussions currently underway and the bookings recorded to date.
Expect to surpass our internal fiscal 2023 software bookings target driving us past, our $5 million in our target by the end of this calendar year.
Gross profit margin was 46, 9% this quarter compared to 48, 5% in the prior year quarter.
As has been the case for a full year now the gross margin percentage was negatively impacted by inflationary pressures on material cost against pricing in backlog established before inflationary impacts as.
As well as installation costs.
This has been partially offset by the increasing software revenues that carry higher gross margins.
With component inflation now fully reflected in our bookings and backlog pricing, we expect hardware gross margins to continue to improve towards the historical 50% range.
Operating expenses were $8 1 million up from $7 5 million and down from $8 3 million in the third quarter of fiscal 2022, and second quarter of fiscal 2023, respectively.
The year over year increase is directly tied to the planned investments to grow and accelerate our software business.
On a GAAP basis, our third fiscal quarter operating loss was $1 5 million compared to six 629000 in the year ago quarter.
Excluding stock compensation, and depreciation and amortization our quarterly adjusted EBITDA was a negative 418000 compared to last year's positive 364000.
The difference in both cases relates to the intentional investments and improving and focusing our software offerings and marketing strategy.
Cash cash equivalents and marketable securities totaled $6 8 million as of June 32023.
Compared with $19 9 million as of the prior year end.
Cash used in operating activities in the third quarter was $5 7 million.
Included in that number was an increase in accounts receivable of $6 7 million, owing to the timing of shipments and collections in the June quarter.
Since quarter end significant collections have been made and as of last Friday August four our cash balance was approximately $9 million.
With our current backlog and forecasted bookings, we expect fiscal 2023 to be down from fiscal 2022.
With fourth quarter revenues, approximately 5% below the prior quarter.
Software revenues are expected to be up more than 20% on the full year. However.
In the September quarter, we expect sequential improvement in gross margins to be offset by higher operating expenses associated with the rebranding efforts Richard discussed earlier.
Combined we anticipate the September quarter adjusted EBITDA to also be below the third quarters result.
On the full year. This implies a full year adjusted EBITDA loss of just over $6 million.
Reflecting the $5 million of planned incremental investment and the lower hardware revenues versus the prior year.
Before opening up the call for questions I'd like to note that in addition to filing our 10-Q.
In the coming weeks, we will also be filing a new S. Three now.
He will replace our existing U S III expires this month.
Now, we'd like to open the call to questions and answers.
Operator.
Thank you ladies and gentlemen, the floor is now open for questions.
I have a question. Please press star one on your telephone keypad at this time again Thats Star one if you do have a question or comment please hold as we poll for question.
And we will take our first question from Brian Colley from Stephens. Please go ahead Brian .
Hey, guys. Thanks for taking my question, So I wanted to ask about.
Your business with the U S. Army can you just kind of talk about what's in the pipeline there and how you how do you expect.
Revenue hardware revenues from the army to kind of play out next year, and maybe even longer than that in terms of future growth opportunities there.
Sure Brian .
In my remarks, I mentioned that there are additional army opportunities U S Army opportunities.
One of those opportunities as a.
Program to expand the use of <unk> with Crows unit. So earlier. This year, we took a small I think it was 150 K contract to do some research work of getting.
The <unk> integrated with the Crows unit.
We've completed that activity.
Now expecting another contract very shortly.
Several hundred thousand dollars.
To get through the prototyping stage.
And subsequent to that in FY 'twenty four we expect.
Production to begin.
The potential right Bryan for the size of this contract is very similar to the other program of record that we won back in 2018.
And in addition to that there are other things that are.
Percolating around the army beyond the Crows unit that we.
We expect to yield additional.
Additional bookings for those items in our fiscal 'twenty four.
Got it.
That's helpful. Thank you and then I also wanted to ask about.
<unk>.
The commentary from your press release.
We're realigning our resources appropriately if you could just talk about kind of what youre doing on the cost front to kind of.
How 'bout unprofitability that'd be helpful.
Yes, we've taken some actions and cost reductions to reflect.
Where are we where we are where we think we're going to end the year.
There's been some some reductions in force and tightening of the belt from an expense perspective, which I will continue the balance of this year.
Got it.
Dennis one for you.
Just from a cash perspective.
Do you think.
I mean, just looking out to next year not.
Not necessarily looking for guidance, but do you think.
You guys will need to take on that anything can be cash flow positive over the next 12 months.
Based upon the pipeline and our recurring revenues that we've discussed we believe we have adequate resources to manage the business and achieve profitability.
Moving forward.
The cash.
As I noted was balance was down but if you take a look at cash plus the accounts receivable balance at the end of June compared to the end of March that's actually increased by $2 million. So.
The reality of things is that we've had a number of orders that came in at the end of the quarter.
Once we've collected up.
Collected those which we.
<unk> been where we are we should be adequately financed.
Alright, well, thank you for the time gentlemen.
Youre welcome. Thank you.
Our next question from Ed Woo from <unk> Capital. Please go ahead Ed.
Okay.
Yes, congratulations on the quarter. My question is with all of these high profile of fires have you seen any new competition in the market or new entrants.
No.
The Genesis protect platform.
Combines all of what Genesis had from AR.
Mass notification evacuation planning and execution of Repopulation, even the acoustic devices.
There's nobody else out there that can offer that comprehensive of a safety solution for both.
Sled customers state and local governments as well as enterprises.
In my remarks, I mentioned it.
Acceleration in <unk>.
Borders and pipeline are reflective of that.
Yeah.
Great. Thank you for taking my question and I wish you guys. Good luck. Thank you.
Thank you.
As a reminder, that star one if you do have a question or comment.
Take our next question from Mike Latimore from Northland Securities. Please go ahead Mike.
Hi, This is mohit on for Mike. Thanks for taking my question.
Could you guys talk about without any macro effects, you're seeing on your software business like smaller deal sizes are longer sales cycles.
No I'd say, it's quite the opposite it's not smaller deals it's larger deals I mentioned, a whole state and.
I mentioned that the state of Florida, those are both significantly sized deals.
<unk>.
Yes, the cycle time, you know that there's always frustratingly long Logan.
Particularly with the state and local governments.
I haven't seen a change in that dynamic.
Yeah.
But it takes longer than anybody would like from time of.
Contract win too.
<unk> contract award.
Can sometimes take months.
Thank you that's helpful.
And then can you guys give us any updates on the aramco deploy that or any like customer feedback you've received so far.
Up and running.
And extraordinarily happy customer base we.
We have begun the discussion with them about.
Expansion inside of ramp co.
Inside Saudi Arabia, and other countries.
Perfect. Thanks for taking my question.
Thank you.
Do you have a new question or a follow up question. Please press star one.
And we'll take our next question from.
Someone within the Q button pressed one.
Once again star one if you do have a question or comment or follow up question.
Yeah.
And we will take our next question from Lloyd Korten from unique investments. Please go ahead Lloyd.
Hey, guys Hello nice to.
Get on with you again.
I've got a few questions.
I'm just curious.
Disaster in Hawaii.
We've added benefit with them and how.
Yes.
I should quantify that void.
Not an expert on what exactly is happening and in Malawi, Obviously I've seen the same news reports you have.
Our platform would have made a difference and that's about all I can say without getting into the details of what's actually going on and happening on the ground.
Okay.
We've in the past you've had some corporate wins.
BMW et cetera, et cetera, any more of those come through or are you expecting any.
Yes, we have as I mentioned in my remarks.
Growing pipeline.
That includes both enterprise and state and local covenants.
Okay.
You say there was a.
We want to state contract a full state.
That's correct can.
Can you say what stadium.
We can't yet we've been awarded the contract and waiting.
For the.
<unk> of that contract at that state capital.
You can't mention it yet.
Hi, Jeff.
Uh-huh is it sizable.
It is.
Well, that's good news nice to hear.
Is it East Coast City is that also a secret.
Okay.
Yes, we can't talk about it but we have won it and we were up and live and hopefully here shortly can.
Be more open about it.
Are those numbers in our in our revenue.
This past quarter.
No.
Well that's good news.
Show up.
In fiscal Q4.
Okay also.
Did you mentioned backlog yet.
I have not.
So we have a backlog and its fit.
Yes, so the backlog 12 month backlog at September 30 was $10 $3 million.
And the total.
Total backlog is $19 9 million so $20 million.
How does that compare to the past.
So.
10 months or 12 months or rather a year ago was $30 million. So that difference is we talked about the $25 million in pipeline.
In particular for orders that just been pushed out.
That makes up the delta there.
The $25 million I'm, a little confused with that could you go into a little bit what that means the 25 million has been pushed out.
I'll take that Dennis yes, there's four opportunities two of which the majority of the dollars that were in our pipeline and our forecast.
Two.
The awarded and then.
Generate revenue this fiscal year.
They have slipped slipped out of fiscal 'twenty three 'twenty four.
So they are not in backlog, yet, but we as Dennis mentioned.
We expect to book those in fiscal 2024.
Increasing our backlog reflective at that $25 million.
Got it okay.
Also.
Could you.
An estimate as to when you feel that and I understand that we've been burning money on on the.
Building the software and on the.
Van Count.
Any estimate as to when we're going to be start to make profits per quarter.
Yes, we do we have a detailed.
Schedule as you might expect Lloyd with.
Forecast for hardware and software and improvements in gross margins and EBITDA.
Okay.
Yes.
That in our Investor presentation.
Okay.
I think.
I think that's all I have thank you it sounds like some great news as Kevin and thanks for all your efforts.
Thank you. Thank you.
And there are no further questions at this time I will turn the floor back over to Brian Alger for closing remarks.
Thank you everyone for participating in today's call. We look forward to speaking with you in a couple of months when we report our fiscal fourth quarter and full year 2023 results.
And with that have a good night. Thank you.
Thank you ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may disconnect at this time and have a great.
Okay.
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