Q4 2023 Genasys Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to the Genesis fiscal year 2023 conference call all lines have been placed on a listen only mode.
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 a live operator at 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.
Or is yours.
Thank you Karen.
Good afternoon.
To Genesis fiscal 'twenty, three 2023 fourths quarter and full year financial results Conference call I'm, Brian Alger SVP Investor Relations of.
And corporate development for Genesis with me on the call today are Richard Danforth, our CEO and Dennis <unk> the company's CFO during.
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 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 30th 2022, or the 10-K, there's going to be filed later today.
Other than the statements of historical facts are forward looking statements made on this call are based only on the information and managements expectations as of today December seven 2023, we explicitly disclaim any intent or obligation to update those forward looking statements, except as otherwise specified specifically stated.
We will also discuss.
non-GAAP financial measures and operational metrics, including adjusted EBITDA bookings backlog and adjusted net loss, which we believe provide helpful information to investors with respect to evaluating the company's performance 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 can 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 the related revenue recognition.
Backlog is a measure of purchase orders received that are scheduled to ship within 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 as CEO Richard Danforth Richard.
Thank you, Brian and welcome everyone.
Before we get into discussing the results of last fiscal year and our outlook for fiscal year 2024, and beyond I want to take a moment to thank our shareholders that have been incredibly supportive and resilient through our transition to a more balanced hardware and software company.
The investments we have made over the past two years are beginning to bear fruit and I have increasing confidence that these investments will not only are well made.
But will yield substantial returns in a not too distant future.
Using the balance sheet and profits from the hardware business in less than two years, we have incubated a strategic software business that has already generated a recurring revenue stream in excess of $5 million with a clear line of sight to roughly double in 2024.
We appreciate your support and we look forward to delivering the results to generate the return you are patients deserves.
Moving on as expected, we exited fiscal year 'twenty to 'twenty, three with over $10 million in cash and no debt.
However, finishing out the quarter, we correctly assessed that the federal government was likely to once again delay approving a D O D budget.
And as such FY 'twenty four orders from this U S government would be delayed.
This is a further complication to the numerous order delays that we experienced throughout fiscal 2023.
With this in mind through pursued and closed on a follow on equity offering of 575 million common shares raising net proceeds of approximately $10 6 million to protect the investments that we have been made to date and to assure that we remain positioned to capture the opportunities before us.
Moving on as it is worth noting that.
The statewide RFP for Florida that we discussed on last quarter's call resulted in a no award decision and earlier this week the state issued a new RFP that we plan on responding to before the end of this month.
As was the case in August we continue to believe we have the best and most complete offering for the state of Florida and as visitors and residents.
Now onto the financial discussions as we announced in mid December financial results for the fiscal fourth quarter were below expectations due to hardware opportunities that slipped out of the quarter and into fiscal 'twenty 'twenty four.
Software bookings and revenue were in line with expectation with recurring revenues, achieving a new company record.
As we discussed in our September announcement, both our hardware and software pipelines are rapidly expanding.
Not including the $25 million of hardware bookings that slipped from fiscal 'twenty to 'twenty three today.
Today's hardware pipeline is more than 150% higher than it was at the same time last year.
For software in addition to growing our software bookings more than 100% in fiscal 'twenty twenty-three.
Both the number of deals and the dollar value of the software opportunities has never been higher.
Fourth quarter recurring revenue was up 43% year over year, and 21% quarter over quarter.
As most of you are aware there is typically a one to two quarter between when we book a software order until initial revenue recognition.
Which means we have already one recurring revenue beyond what we report in any given period.
Including those additional contracts are a R. R has increased roughly 20% since our conference call in August not including the contributions of every town.
In early October just after the fiscal year ended we completed the acquisition of <unk>.
<unk> fully compliant cross agency communication application enables an unparalleled quality of response when paired with Genesis protect.
Ever ever tell has been rebranded Genesis protect connect.
And we have integrated their go to market and positioning with our own when.
When we purchased ever tell their Ara was approximately $800000.
And the two months since the acquisition, we have already begun to realize sales synergies between our respective customer bases.
We have over 200 customers with nearly 20000 paying subscriptions of connect.
For anyone interested in learning more about connect ever tells Cofounded, Jeff Hall, stead will be hosting a webinar on December 14th with two of our customers to discuss how they each used a solution today.
To register for this event just go to the connect section of our solutions page at Genesis Dot Com.
In addition to acquiring ever tell where recently announced two strategic partnerships that we believe further differentiate our protective communication platform from legacy mass notification offerings. The first was with tablet command a must have software solution found in the front seat of fire trucks across the country.
Free and on over 30001st responders mobile devices.
By integrating our evac software with tablet command first responders now have the ability to deploy and manage resources on a single plane of glass in concert with emergency managers throughout a critical event.
We also extended the capabilities of Genesis protect with a newly announced relationship with Lazarus AI.
I'll address is software brings AI driven near real time traffic modeling to the Genesis protect platform to determine the most efficient way to get large populations out of a given area.
Further differentiating Genesis protect is our acoustics systems.
As the disaster in Lahaina, Hawaii catastrophically demonstrated.
Sell radio and Internet based communications are not adequate and rapidly changing and fast moving emergencies.
Moreover, the inherent limitations of siren technology actually inhibited emergency management manages communications efforts in Lahaina.
As many of you know genesys as voice quality acoustic systems are not reliant on the power grid and are equipped with satellite communication channels that naval emergency manages to clearly and concisely communicate to those in harm's way, even when the power and traditional communication lines have been compromised.
In the wake of the global attention created in Hawaii, We received a number of inbound inquiries from customers looking to augment their software offerings with Genesis protect acoustics.
Combined we believe the Genesis protect platform with the additional capabilities of connect tablet command and ladders is the most complete and technologically advanced protective communications offering available.
And its study released earlier this week Forrester ranked Genesis as a strong performer and is broad based critical event management wave.
Analysis.
Net based on current orders contracting activity and pipeline. We are confident that the software revenues for fiscal 'twenty 'twenty four will at least double over fiscal 2023.
As we have discussed on last quarter's call 2023 hardware bookings and revenue.
Were abnormally difficult to register.
Since I arrived at this company, we have seen steady growth in our hardware revenues six out of the last seven fiscal years with a CAGR through fiscal 2022 over 20%.
2023 was the one year, where multiple opportunities pushed out of the revenue declining year over year.
So it would be convenient to point to a global politics or economics to explain the slippage there is no one thing.
That is consistent among the various deals that had been delayed.
None of the deals that were delayed have been canceled or awarded to a competitor.
Looking at our forecast and plan for fiscal 2024, we see enormous potential for a significant rebound in our hardware business.
That said certainty and the timing on a number of significant significant deals is not going to come before federal budget is approved.
Others are progressing but could be further delayed by the government shutdown.
As a result, we expect that 'twenty 'twenty four hardware revenues.
To be even more backend loaded than our typical seasonality has indicated.
It is important to note that we still expect a rebound in our hardware business in fiscal 'twenty 'twenty four approaching the levels of 2022 up material materially from the abnormal twenty-twenty three results.
A number of large opportunities that could positively impact the 'twenty 'twenty four results.
There was a large critical infrastructure protection opportunity that requires all of the Genesis protect platform, including significant acoustics.
Our revenue as well as recurring software revenue from the Genesis protects suite of solution.
On October 10th we announced that we were awarded a $1 million contract for the Crows AHD program.
With a fiscal 'twenty 'twenty four D O deep budget in place we expect to receive initial production orders in our fiscal 2024.
As we discussed on last quarter's call. The Crows AHD program is expected to be of similar size to the prior army program of record.
Pending grant approval, we have already secured a multimillion dollar acoustic award that will augment existing genesis protect software customers.
Bottomline Genesis has enough opportunities for growth.
Summarizing the business as we enter fiscal 2024, we have a burgeoning software business with over 400 customers journey generating meaningful a R. R. That is expense is expected to roughly double in the next 12 months.
Supporting this growth is a rebounding hardware business that historically has seen high teen adjusted EBITDA margins.
Our balance sheet fortified by the recent public offering has no debt and adequate resources to not only weather the current storm.
But to also facilitate the growth of our business back to a positive cash flow and beyond.
In closing I want to express my gratitude and appreciation for the shareholders that have remained supportive of the company over the past couple of years of transition.
Myself and the entire Genesis team is committed to completing our objective to build a larger more balanced business that operates globally selling both hardware and software, resulting in more predictable revenue and considerably higher profit margins.
Now I'll turn the call over to Dennis to go through the financials and outlook in greater detail Dennis.
Thank you Richard in 2023, we successfully grew our recurring software revenues each quarter.
In the fourth quarter of fiscal 'twenty, three recurring software revenues were up 43% year over year and 21% sequentially.
On a full year recurring software revenues grew 44% versus the full year 2022.
Revenues for the fiscal 'twenty three fourth quarter were $10 7 million a decrease of 33% over the prior year's record revenue quarter.
Compared to the same prior year period total software revenue declined 3% to $1 1 million due to a decline in professional services.
Hardware revenue decreased 36% to $9 6 million for all the reasons Richard discussed earlier.
For the full fiscal year total revenue was $46 7, million% to 14% decrease from fiscal 2022 revenues of $54 million.
Software revenues for fiscal 'twenty, three increased 23% to $3 8 million.
While hardware revenues decreased 16% to $42 9 million in fiscal 2023.
Gross profit margin was 49, 6% in this year's fiscal fourth quarter.
With the prior year quarter.
For most of fiscal 2023, the gross margin percentage was negatively impacted by inflationary pressures.
This has been partially offset by the increasing software revenues that carry higher gross margins.
Quarterly operating expenses were $7 9 million up from $7 5 million, excluding the $13 1 million goodwill impairment charge in the fourth quarter of fiscal 2022.
On the full fiscal year operating expenses grew $3 1 million to $32 7 million.
The year over year increase is directly tied to the planned investments to grow and accelerate our software business.
On a GAAP basis, our current fiscal year fourth quarter operating loss was $2 6 million.
<unk> two <unk> $396000 profit in the year ago quarter, excluding the one time goodwill impairment charge.
Adjusted EBITDA, which excludes noncash stock comp was a negative $1 7 million compared to last year's positive $1 6 million.
On the full fiscal year 'twenty.
2023 GAAP operating loss was $11 million compared to fiscal 2020, twos $2 4 million operating loss, excluding the goodwill impairment charge.
Fiscal 2023, adjusted EBITDA was a negative $6 8 million compared to last year's positive $2 4 million.
GAAP net loss for the fourth quarter and fiscal year, 2023 was $10 1 million and $18 4 million respectively.
Excluding this year's $7 4 million noncash.
Tax expense in last year's $13 1 million goodwill impairment charge for the fourth quarter.
And full year net loss for 2023.
$2 7 million and $11 million, respectively compares to $664003 1 million net losses, the same periods in fiscal 2022.
Cash cash equivalents and marketable securities totaled $10 1 million as of September 32023.
Paired with $19 9 million as of the prior year end.
Cash used in operating activities in the fiscal year was $9 $6 million.
Since the fiscal year end. The company has completed the acquisition of ever tell and closed on the sale of $5 75 million common shares.
The net cash proceeds from those two subsequent events was $9 6 million.
With our current backlog and forecasted bookings, we expect fiscal 2024 to be up materially of fiscal 2023.
As Richard mentioned, we expect software revenues to at least double in hardware revenues should rebound close to fiscal 2022 levels.
We do expect hardware revenues to be significantly skewed to the second half of fiscal 'twenty four with numerous opportunities pending budget approval appropriation at the federal level.
Including the addition of ever tell we expect fiscal 2020 for cash operating expenses to increase between 10 and 15% over year over year.
Adjusted EBITDA loss should improve in fiscal 'twenty four versus fiscal 'twenty three.
Now I'd like to open the call to Q&A operator.
Thank you ladies and gentlemen, the floor is now open for questions.
Question. Please press star one on your telephone keypad at this time again star one if you have a question or comment please hold as we poll for questions.
And we will take our first question from Brian Colley from Stephens. Please go ahead.
Hey, guys. Thanks for taking my question here.
So.
Dennis I'm curious just if we can put a finer point on the expectations for EBITDA here.
FY 'twenty four from what I can tell in the investor deck and kind of looks like illustrative chart that you have in there as you around breakeven is that kind of how we should think about it.
Okay.
For the full year, no I don't think Thats.
As the back end is is more heavily weighted with revenue and.
That's more likely in the back half of the year, but not for the talking here Hey, Brian. This is Brian Alger the slide you're referring to is a legacy slide from last quarter, we will be updating the slide deck, probably overnight bear in mind. We do we do have costs that came on board and we refer to them on the operating expense side come.
From the acquisition of <unk>.
Got it Thats helpful.
And then any sense you can give me for the magnitude of how much the revenue the hardware revenues will be skewed first half versus second half, where we are we talking about 70% of hardware revenues in the back half or.
Then that Brian if you had any if you look at a typical year for us.
Substantially more than 50% of the hardware. The correct me. If you think I'm wrong revenue is in the second half yeah over the last three years its been right around 60%.
<unk>, 40%, 60% it'll likely be more skewed too.
30, 70 kind of thing.
Okay, that's very helpful.
And then I wanted to ask about ever tell so you know you.
You now have a much more comprehensive unified platform with Genesis protect.
With Gemzar Haven, an ever tell kind of under the same roof now how.
How should we think about like the incremental uplift uplift.
From Upselling Zone Haven, and also upselling ever.
Ever tell to like existing gym customer that I'm, not necessarily asking for a pricing number but I'm just kind of curious like what the ASP uplift looks like from up selling those additional solutions.
But we'll see but that's certainly one of the reasons, we bought them in the two months, we've had them well.
We're probably seen there are I'll go up by 20%.
And.
No.
The use of ever tell historically has been in police forces.
But the application is there for first responders and fire, which we have.
Large install base with other hardware and software solution. So.
Our expectations are very high that there'll be a lot of up and cross selling.
Awesome.
At the time I'll leave it there.
Thank you.
Oh, Yeah, and we will take our next question from Mike Latimore from Northland Capital. Please go ahead Mike.
Yeah.
Congrats on the strong software growth.
I guess just on your last commentary that are already up 20% at <unk> is that because you guys have brought in new customers or is it just stuff they've deployed or like what's driving that and some others. Some of it was what was in their pipeline. Some of it as a consequence of you know we've put together a five person sales team for <unk>.
You know.
What was what Salesforce ever tell had was two people.
And right now there's five.
And again.
We have a very large installed base as I mentioned.
Over 400 customers combined.
So these calls are not called cold calls their calls to existing customers.
Got it.
And then I think I know the answer to this but you are expecting your software business to at least double year over year I assume that's both reported revenue as well.
Sure.
Yes.
Okay and then.
Yeah.
On the 25 million of hardware business that slipped out of 'twenty three.
How much of that is U S versus international.
Approximately 70, 30 U S inter.
International.
Got it okay.
And then just lastly, I know the Maui fire has prompted a lot of states.
Reach out to you guys.
Do you feel like there's a good chance that they will be making decisions. Some of these other states this fiscal year.
I'd say I'm hopeful for that Mike. It's whenever there is an emergency there's an initial spike of interest and concern and it tends to.
Wayne pretty quickly.
I think if the world saw what happened in Lahaina.
And.
That will result in additional business for Genesis.
Not clear to me at all on the timing of that quite yet.
Okay.
Very good thanks, a lot. Thank you.
And we'll take our next question from Scott <unk> from Roth. Please go ahead Scott.
Good afternoon, and thanks for taking my questions.
Maybe to dig in first on the hardware front, certainly looks like a backend loaded year.
There were a couple of numbers that you threw out there was a 150% number I wasn't clear to me that there was pipeline or backlog I was wondering if you can clarify that it also gives us an idea of what the coverage ratio looks like in terms of.
That pipeline given that we're talking about recovering to the $45 $48 million in terms of hardware sales big ramp in the second half and also I believe the gross margins had been under pressure in the hardware front I thought they were expected to come back it looks like that's sort of embedded in the results I was wondering if you could provide some more color on that front.
Scott I'll do my best if I forgot one of your questions, though you'll remind me, but the pipeline question I mentioned in my remarks.
It's up 150% from this time last year without consideration of the 25 million. That's also moved.
So if you put that in there it would be even a higher pipeline.
Opportunity for us.
From a gross margin perspective, the fourth quarter gross margins were.
We're 49, 6%.
Bringing the year to 46, 6%. So we saw a significant uptick you know Q2 was 43.9 Q3 was $46 nine in Q4 was $49 six.
So historically.
Gross margin on our hardware business it toggles.
Plus or minus 50% and we saw that in Q4.
In terms of backlog.
For fiscal year 'twenty four is down considerably from the backlog going into fiscal year, 'twenty, three which was reflective of the the poor bookings.
In fiscal year 2023, our revenue was ahead of our backlog, which means we baked into our revenue was ahead of our bookings, which means we ate into our backlog.
Okay, and then maybe moving over to the software side of the equation it looks like Youre looking for.
Sales to double this year conservatively.
One clarification is ever tell built into that expectation because it seems like youre seeing some early momentum on that front and then what is tablet come in in <unk> in terms of the revenue opportunity in fiscal 'twenty four.
All right what was the first question.
Tableau commit Umberto and cloud, yes ever tellers included in the remarks on our expected annual growth.
Our software revenue.
Tablet command is a co sharing kind of thing, it's not necessarily a revenue generating relationship as much as it is.
Where first responders using tablet command have access to our <unk> Oh APAC layer.
Other firefighters and counties and cities and states.
Be able to see the utility of having that and it will help enlightened them and get them interested in and the Genesis protect platform. So you can think of that as more of a is it a marketing kind of thing than a revenue generating thing Lazarus is in fact, the revenue generating things. So <unk> is an AI driven.
Hum.
Platform for modeling.
How do I get a lot of people out of harm's way in times of emergency. So it allows a community or a large enterprise.
To set up scenarios and then run the model.
If you needed to evacuate a large stadium for example.
And you.
Using the existing road infrastructure, how long would it take for that stadium to be evacuated well that might come back and say, it's going to take four hours, which is three hours too long.
What the first responders can do in advance of this is then.
Practice with well what if we shut down this road what if we open that road up to two way traffic or one way traffic.
And do all of that in advance of a catastrophic event.
So it it's a very useful utility.
Particularly when there's a lot of people involved.
So Richard will that be integrated into <unk>.
It's separate right now.
Oh, Scott, but overtime I would believe we would integrate it.
Okay, and then just on the opportunity pipeline it seems like Theres been a lot of inbounds.
You look at things like Florida, They got pushed out, but still kind of in that opportunity pipeline it sounds like.
At record levels and the deal sizes are increasing I'm wondering if you could provide a little bit more color in terms of what that translates to in terms of potential revenue or or connected users.
How should we be thinking about that.
I think I'll go back to what I said, Scott that we expect software revenue in a or at a double.
In this fiscal year.
And there's opportunities beyond that as well, but the pipeline is robust.
The inbound opportunities as you pointed out is.
It was very good.
Great and then lastly, if I could the enterprise market I think you announced something earlier. This week in terms of some energy wins I was wondering if you could specifically address that.
In terms of the interest level, there, what youre seeing kind of sales cycles close rates.
Are these kind of one off or is this something that we should expect to see more of in the future.
More in the future. So a vertical we focus on is critical infrastructure protection that the orders you're referencing are.
Two nuclear power plants here in the United States. The order was well or the opportunity is for a total of four two of which were booked in two more will likely book and our fiscal year 2025.
But beyond that we have in our forecast and pipeline power plants.
Large distribution centers.
Anywhere there's a lot of people.
As you know the utility of our hardware and software.
Is realized.
Great. Thanks, so much.
Thank you.
Thank you and we'll take our next question from Ed Woo from Sandy and capital. Please go ahead Ed.
Yes, congratulations on the outlook for software. My question is on active shooter. It seems like there's news every day about some active shooting somewhere in the U S.
Are you going to possibly focused on that what are your opportunities in that area.
Our evacuation platform has been used in cases of active shooters.
The Genesis protect platform allows first responders to send emergency messages to very specific.
Geographic areas.
In fact, we just went live in the county of San Diego for that.
The other thing it does the connect the former <unk> connect allows.
The first responders to.
To be able to communicate privately you.
You mentioned.
Active shooters and if I think it was in the state of Maine, not too long ago.
There was an active shooter situation and I can tell you from my personal experience I'm watching the national news and the reporters on the National News.
Listening to H F radios, and saying Oh, the active shooter must be in this town.
And panics everybody in the area at one point the.
The reporter said.
There was a parking garage behind them with our scale, while that was open and police were going to the top floor. So we reported assura has got to be up there.
So a lot of misinformation out there and that misinformation as a consequence of the chaos during any one of these the catastrophic events. The connect platform is private.
It's not subject to.
Being listened to by the public or the or anybody else that could use that information against them. So.
Both the.
This highly geographic based messaging and connect it to very good applications. When you have an active shooter.
Great. Thanks for answering my questions and I wish you guys. Good luck. Thank you.
Thank you.
As a reminder, that star one if you do have a question and we'll take our next question from Martin Yang from Oppenheimer. Please go ahead Martin.
Thank you for taking the question.
So my one question is about the inbound requests you have regarding the acoustic systems.
Given the recent interests are you actively investing in more outreach effort to accounts or regions, where there might be a potential interest, but they have not accurately inquired about acoustics to combined with kinder protect.
Well Martin we've recently aligned the Genesis acoustic <unk>.
Systems underneath the Genesis protect platform.
There are several customers, particularly here in California that have bought all of our software and hardware systems.
That's a slightly different approach than we have in the past where the.
The hardware acoustic systems were sold.
Principally through the <unk> channels.
Our expectations is for some significant uptick in the Genesis acoustics.
As we channel through our SaaS group.
This third leg of this of the Genesis protect stool.
Got it. Thank you I don't have any more questions.
Alright, thank you.
That was our last question I'd like to turn the floor back to Mr. <unk> for closing remarks.
Great. Thanks.
Thank you for participating in the call Tonight, a replay of the call will be available on our website shortly for additional information and up to date news and activity regarding Genesis our products and the customers. We serve I highly recommend that you follow the company and Genesis protect on your social networks, particularly linked in an X, where we actively posting comment on events as they are happening.
We look forward to speaking with you again next quarter. When we report the fiscal first quarter of 2024 results. Thank you.
Right.
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.
Yeah.
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