Q1 2024 Genasys Inc Earnings Call

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Operator: Like & Subscribe for more addictive games and more being played by me, Timothy Anderson Institute for the shimmer of art Greenwich National Museum Greenwich National Museum of Art Greenwich National Museum of Art Greenwich National Museum of Art Greenwich National Museum of Art Greenwich National Museum of Art Greenwich National Museum of Art Greenwich National Museum of Art Greenwich National Museum of Art Greenwich National Museum of Art Greenwich National Museum of Art Green All lines have been placed on a listen-only mode, and the floor will be open 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, SVP of Investor Relations and Corporate Development. Welcome, Brian. The floor is yours.

Ladies and gentlemen, thank you again for your patience. Please remain on the line we are waiting for the earnings release across the wire for Genesis. Thank you for your patience. Please remain on the line. We're just waiting for the earnings released across the wire. Thank you.

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Brian Alger: Thank you, Karen. Good afternoon, everyone. Welcome to Genasys's first quarter fiscal 2024 financial results conference call. I'm Brian Alger, SVP of investor relations and corporate development for Genasys. Today's earnings release is available on our corporate website and in the investor section, and it should be crossing the wires any moment now. There's been a delay with our filing service, and we apologize for the delay in this call.

Brian Alger: But for those of you looking for the numbers and looking for our commentary, you can find it on the website right now, or it should, as I said, cross the wires here shortly. With me on today's call is Richard Danforth, our CEO, and Dennis Kwan, the company's CFO. 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 30, 2023. Other than statements of historical facts, forward-looking statements made on this call are based only on information and management's expectations as of today, February 13, 2024. We explicitly disclaim any intent or obligation to update these forward-looking statements except as otherwise specifically stated.

Ladies and gentlemen, again, we thank you for your patience as we're just awaiting the earnings release to cross the wire it should be momentarily now thanks again for your patience.

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Brian Alger: 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. For reconciliation of adjusted EBITDA to GAAP financial metrics, please see the table in the press release issued by the company at the close of market today. As I said, it should be coming across at any moment. 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 custom purchase orders executed in a given period regardless of the timing of the related revenue recognition.

Good day, ladies and gentlemen, and welcome to the Genesis fiscal first quarter 2024 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 a live offer.

Richard Danforth: 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 Genasys CEO, Richard Danforth.

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 welcome Brian the floor is yours.

Thank you Karen and good afternoon, everyone welcome to Genesis as first quarter of fiscal 2024 financial results Conference call I'm, Brian Alger SVP of Investor Relations and corporate development for Genesis.

Richard Danforth: Thank you, Brian, and welcome, everyone. The strategic vision of Genasys Protect is being realized. Yesterday's announcement describing the integrated use of Genasys's cloud-based software and hardware for 37 dams in Puerto Rico is only the most recent example of a differentiated approach to protective communication. To recap, Genasys was selected through a competitive solicitation to engineer, procure, and install a comprehensive emergency warning system for 37 dams on the island of Puerto Rico, and it had the highest score, beating the competition in all evaluation

Today's earnings releases available on our corporate website.

In the investors section and it should be crossing the wire is any moment now there's been a delay with our filing service and we apologize for the delay in this call but for those of you looking for the numbers and looking for our commentary and you can find it on the website right now or it should as I said cross wires here shortly.

With me today on today's call is Richard Danforth, our CEO Dennis corn, the company's CFO 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 32023.

Richard Danforth: This project has been fully funded by FEMA and is expected to generate 60 to 70 million dollars of revenue for Genasys. Additionally, more than $50 million of hardware revenue is expected to be installed over the plant's 18-month project timeline. Importantly, all of the sensors, data streams, and communication channels will be managed with the Genasys Protect software.

Other than statements of historical facts are forward looking statements made on this call are based only on the information and managements expectations as of today February 13th 2024.

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 backlog and adjusted net loss, which we believe are.

Richard Danforth: In addition to approximately $1.9 million for a three-year software license, it is expected that we will also provide hardware maintenance services that could generate between $3 million and $10 million, depending on the length of the maintenance agreement. Our investments in developing the Genasys Protect software drove the selection for the Puerto Rico project. As a result, not only will we generate recurring revenues, but we will also be delivering more than a full year's worth of incremental hardware revenue for this project. The selection of Genasys Protect's platform, including both hardware and software for the Puerto Rico Dam Emergency Warning System, is yet another example of the differentiation of our approach to protective communication. Already in fiscal 2024, we have been selected for a multi-year engagement with Los Angeles County, a county with more residents than most states in the Union, the Department of Corrections for the entire state of Utah, and, most significantly, the project I just outlined for the island of Puerto Rico.

Provide helpful information to investors with respect to evaluating the company's performance.

Reconciliation of adjusted EBITDA to GAAP financial metrics. Please see the table in the press release issued by the company at the close of market today as I said, it should be coming across any moment.

We consider bookings and backlog, leading indicators of future revenues and use these metrics to support production planning well. It gives us 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 <unk> CEO, Richard Danforth Richard Thank.

Thank you, Brian and welcome everyone.

The strategic vision of Genesis protect is being realized yesterday's announcement, describing the integrated use of Genesis is cloud based software and hardware about 37 dams in Puerto Rico is only the first.

This is only the most recent example of our differentiated approach to protective communications.

To recap Genesis has been selected through a competitive solicitation to engineer procure and install a comprehensive emergency warning system.

Richard Danforth: Our engagements are getting larger, but they are also becoming more comprehensive as the advantages of our platform approach become more evident. Our transition to a more balanced hardware and software company is well underway. Our software business continues to gain momentum and build scale. Synergies from the acquisition of Evertel are beginning to be realized, and as a result, ARR for our Connect business grew nearly 18 percent sequentially in the first quarter as part of Genasys Protect. Similarly, we are getting significant leverage from our partnership with Ladris, which provides our traffic AI solution. Recurring software revenue grew 85% year over year.

37 dams on the island of Puerto Rico Jenny.

Genesis had the highest score beating the competition in all evaluation categories.

This project has been fully funded by FEMA and is expected to generate $60 million to $70 million of revenue for Genesis.

More than $50 million of hardware as expected hardware revenue is expected to be installed over the planned 18 month project line.

Importantly, all of the census data streams and communication channels will be managed with the Genesis protect software.

In addition to approximately $1 9 million up for a three year software license. It is expected that we will also provide hardware maintenance services that could generate between three and 10 million depending on the length of the maintenance agreement.

Our investments in developing the Genesis protect software drove the selection for the Puerto Rico project.

Richard Danforth: Total realized ARR exiting the fiscal first quarter was $5 million, and we expect to exit our second fiscal quarter with nearly $7 million of ARR. Coming into this year, we had an exceptionally low hardware backlog, and as we communicated in early December, we expected financial results to be heavily weighed towards the second half of the fiscal year. Though quarterly revenues were substantially lower than the prior year, hardware bookings were in line with first quarter historical averages and up nearly 90 percent versus the prior year's quarter. Dennis will provide more detail on the hydro revenues momentarily. As we look out over the remainder of our fiscal 2024, we see a growing need for protective communications in communities, enterprises, and critical infrastructure across the globe. Too many events, including natural disasters, civil unrest, and geopolitical tension, require a more complete solution to protect the various constituents. Mass notification messages and 60-year-old sirens are not adequate.

As a result, not only we would generate recurring revenues, but we will also be delivering more than a full years of incremental hardware revenue for this project.

The selection of Genesis protects platform, including both hardware and software for the Puerto Rico Dam Emergency warning system is yet. Another example of what of the differentiation of our approach to protective communications.

Already in fiscal 'twenty 'twenty four we have been selected for a multi year engagement with Los Angeles County, a county with more residents than most states in the Union.

The department of corrections for the entire state of Utah.

And most significantly the project I just outlined so the island of Puerto Rico.

Our engagements are getting larger but they are also becoming more comprehensive as the advantages of our platform approach became more evident.

Our transition to a more balanced hardware software company is well underway.

Our software business continues to gain momentum and build scale synergies from the acquisition of ever tell are beginning to be realized and as a result Ara for our connect business grew nearly 18% sequentially in the first quarter as part of Genesis protect.

Similarly, we are getting significant leverage from our partnership with ladders, which provides our traffic AI solution.

Recurring software revenue grew 85% year over year.

Total realized a or are exiting the fiscal first quarter was 5 million and we expect to exit our second fiscal quarter with nearly $7 million of a R. R.

Richard Danforth: More is expected and frankly deserved. Internationally, we are finally beginning to see our hardware business recover, and we are also seeing new and growing interest in our software solutions as well. Recent wins and the continuing deal activity and pipeline expansion give us greater confidence in our second half of 24 and our fiscal 2025 outlook. Unchanged from our look in December, we are confident that the software revenues for Fiscal 2024 will at least double over Fiscal 2023.

Coming into this year, we had exceptionally low hardware backlog and as we communicated in early December we expected financial results to be heavily weighted towards the second half of the fiscal year.

So quarterly revenues was substantially lower than prior year. Prior year hardware bookings were in line with first quarter historical averages and up nearly 90% versus the prior year's quarter.

<unk> will provide more detail on the hydro revenues momentarily.

As we look out over the remainder of our fiscal 'twenty 'twenty four we see a growing need for protective communications and communities enterprises and critical infrastructure across the globe.

Dennis: We continue to see a very back-end loaded year for our hardware business, though there remains near-term uncertainty around the timing of the U.S. federal budget approval. Recent bookings and the Puerto Rico selection bolster our confidence in approaching fiscal 2022 levels of hardware revenue, despite the exceptional low performance in the first quarter. Based on our assumptions that the U.S. federal budget is approved in the March time frame, we expect to be profitable on an adjusted EBITDA basis in the second half of 2024. For a full year, we continue to expect to report a negative adjusted EBITDA, though improved quite a bit from fiscal 2023. Now, I will turn the call over to Dennis to go through the financials and outlook in greater detail.

Too many events, including natural disasters civil unrest and geopolitical tension require a more complete solution to protect the various constituents.

Mass notification messages in 60 year old sirens are not adequate more is expected and frankly deserved.

Internationally, we are finally, beginning to see a hardware business recover.

And we are also seeing new and growing interest for our software solutions as well.

Recent wins and the continuing a deal activity and pipeline expansion give us greater confidence in our second half of 'twenty, four and our fiscal 2025 outlook.

Unchanged from our December outlook in December we are confident that the software revenues for fiscal 'twenty 'twenty four well at least double over fiscal 'twenty to 'twenty three we.

We continue to see a very back end loaded year for our hardware business.

Though there remains near term uncertainty around the timing of the U S federal budget approval.

Dennis: Dennis, revenues for the first quarter of this fiscal year were $4.4 million, a decrease of 58% over the prior year's record first quarter revenue. Compared to the same prior year period, total software revenue increased 57% to $1.4 million. And to reiterate, our recurring software revenues were up 34% sequentially and nearly 85% year-over-year. More than offsetting that growth, hardware revenue decreased 72% to $2.9 million. As Richard mentioned, Genasys started fiscal 2024 with exceptionally low hardware backlog. In addition to a low backlog entering the quarter, we also had nearly $1.5 million of revenue that was booked and built during the December quarter, but the U.S. government was unable to pick up the orders until the first week of January. Gross profit margin was 34% in the fiscal first quarter. A decline of 12 percentage points, or $3.4 million, in the prior year period. The drop in gross profit was attributable to lower hardware revenue in this year's quarter and the related reduction in overhead absorption.

Recent bookings and the Puerto Rico selection and bolster our confidence in that and approaching fiscal 'twenty approaching fiscal 2022 levels of hardware revenue. Despite the exceptional well performance in the first quarter.

Based on our assumptions at the U S. Federal budget is approved in the March timeframe, we expect to be profitable on our adjusted EBITDA basis in the second half of 'twenty 'twenty four on a full year. We continue to expect to report a negative adjusted EBITDA, though improved quite a bit from fiscal 2023.

Now I will 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 first quarter of fiscal 2024 pack growth accelerated to 85% year over year.

Revenues for the fifth first quarter of this fiscal year for $4 4 million a decrease of 58% over the prior year's record first quarter revenue.

As compared to the same prior year period total software revenue increased 57% to $1 $4 million.

And to reiterate our recurring software revenues were up 34% sequentially and nearly 85% year over year.

More than offsetting that growth hardware revenue decreased 72% to $2 9 million.

As Richard mentioned Genesis started fiscal 2024 with exceptionally low hardware backlog.

In addition to a low backlog entering the quarter. We also had nearly $1 $5 million of revenue that was booked and built during the December quarter, but the U S. Government was unable to pick up the orders until the first week of January.

Dennis: On a more positive note, software gross margins improved nearly 15 percentage points year-over-year; quarterly operating expenses, including the first quarter of Ebertel expenses, were $8.7 million, up 5% from $8.3 million in the first quarter of fiscal 2023. The increase was primarily tied to the acquisition. On a gap basis, our first fiscal quarter operating loss was $7.2 million, compared to a loss of $3.5 million in the year-ago quarter. Adjusted EBITDA, which excludes non-cash stock compensation, was a negative $6.1 million compared to last year's negative $2.4 million.

Gross profit margin was 34% in the fiscal first quarter, a decline of 12 percentage points or $3 $4 million in the prior year period.

The drop in gross profit was attributable to lower hardware revenue in this year's quarter and the related reduction in overhead absorption.

On a more positive note software gross margins improved nearly 15 percentage points year over year.

Quarterly operating expenses, including the first quarter of ever tell expenses were $8 $7 million up 5% from $8 3 million in the first quarter of fiscal 2023.

The increase was primarily tied to the acquisition.

On a GAAP basis, our first fiscal quarter operating loss was $7 $2 million compared to a loss of $3 5 million in the year ago quarter.

Adjusted EBITDA, which excludes noncash stock compensation was a negative $6 1 million compared to last year's negative $2.4 million.

Operator: The year-over-year decline in adjusted EBITDA was due to lower hardware revenues and subsequent reduced overhead absorption. Cash, cash equivalents, and marketable securities totaled $13.6 million as of December 31, 2023, compared with $10.1 million as of the prior year-end. Cash used in operating activities in the first fiscal quarter was $5.7 million, while working capital increased $1.5 million. As Richard mentioned, we continue to expect software revenues to at least double in fiscal 2024, and hardware revenues should rebound close to fiscal 2022 levels. We continue to expect the Justice-de-Petit loss to improve in fiscal 2024 and fiscal 2023. And now I'd like to open the call to Q&A. Operator?

The year over year decline in adjusted EBITDA was due to the lower hardware revenues and subsequent reduced overhead absorption.

Cash cash equivalents and marketable securities totaled $13 6 million as of December 31, 2023, compared with $10 1 million as at the prior year end.

Cash used in operating activities in the first fiscal quarter was $5 $7 million, although working capital increased $1 5 billion.

As Richard mentioned, we continue to expect software revenues to at least double in fiscal 2024.

Hardware revenue should rebound close to fiscal 2022 levels.

We continue to expect adjusted EBITDA loss to improve in fiscal 2024 and fiscal 2023.

And now I'd like to open the call to Q&A operator.

Operator: Thank you. Ladies and gentlemen, the floor is now open to questions. If you do have a question, please press star 1 on your telephone keypad at this time. Again, that's star 1 if you have a question or comment. And we'll take our first question from Brian Colley from Stevens. Please go ahead, Brian.

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 star one if you do have a question or comment.

And we'll take our first question from Brian Colley from Stephens. Please go ahead Brian.

Scott Searle: And it looks like we've lost Brian, so we will move to Scott Searle from Roth MKM. Please go ahead, Scott. Hey, good afternoon.

Yeah.

And it looks like we lost Brian So we will move to Scott Searle from Roth MK and please go ahead Scott.

Hey, good afternoon. Thanks for taking the questions, maybe just to quickly dive in and the comfort level for the hardware ramp in the second half of this year just wanted to clarify again youre talking about a recovery to the past historic levels. It really implies that backend loaded ramp.

Richard Danforth: Thanks for taking the questions. Hey, maybe just to quickly dive in to the comfort level for the hardware ramp in the second half of this year. Just want to clarify again, you're talking about a recovery to past historic levels. It really implies that back-end loaded ramp, you know, starting in June and September. I think you gave the caveat of U.S. budgetary approval, I think, for the continuing resolution, which is now targeted at March. I was wondering if you could provide a little bit more color around that, the timing of the potential budgetary resolution, and how much of the pipeline and backlog is actually tied to that. Scott, the March date is the third date they've given so far with the extension, so we'll see.

<unk> in June and September I. Thank you.

You gave the caveat of U S. Budgetary approval I think for the continuing resolution, which is now targeted at March I was wondering if you could provide a little bit more color around that.

Timing of the budgetary.

Potential resolution and how much of the pipeline and backlog is actually tied to that.

Scott.

March date, I think is the third date, they've given so far with the extension. So we will see but we have.

Richard Danforth: But, you know, we have a new Army program that we have expectations for revenue in this fiscal year. I don't think we've put out anything about what we thought it would be, not yet, but it's a significant number for us, um... So we'll see. That's the most significant thing.

The Army program that we it is a new army program that we have expectations for.

Revenue in this fiscal year I don't think we've put out have we put out anything about what we thought it would be.

Not yet, but it's a significant number for us.

So well see thats the most significant thing there'll be other ancillary issues, where you know.

Richard Danforth: There'll be other ancillary issues where, you know, there can be no new starts under a CR and we get lots of hardware and software business through grants... no budget will have an effect on that, so yes, it can be a significant hit to us if it doesn't pass. Gotcha. And maybe just to follow up on that, Rick, in terms of the overall opportunity pipeline, it seems like the funnel has been growing. You've given some metrics, I think, on the past call. I'm wondering if you could just indicate what you're seeing sequentially. Have things been growing even though they haven't been coming out the bottom of the funnel?

There can be no new starts under a CR.

And we get lots of of hardware and software business through grants.

No budget will have an effect on that so.

It is.

It can be a significant hit to us if it doesn't pass.

Gotcha.

And maybe just to follow up on that Ricky in terms of the overall opportunity pipeline. It seems like the funnel had been growing you'd given some metrics I think on the past call I'm wondering if you could just indicate what you're seeing sequentially have things been growing even though they haven't been coming out the bottom of the funnel is that getting larger and in Europe.

Richard Danforth: Is that getting larger? And in your opening remarks, you talked a little bit more about civil unrest and geopolitical tensions, which have not necessarily been, I'd say, the core staple of your business. Is that becoming a bigger portion of the pipeline going forward? Civil unrest involves local police; almost every local police agency in the United States has some LRAD, and navies around the world.

<unk> remarks, you talked a little bit more about civil unrest and geopolitical tensions which is not necessarily been like I'd say the core staple of your business.

Is that becoming a bigger portion of the pipeline going forward.

Civil unrest involves local police almost every local police agency in the United States has some L rats.

<unk>.

Navies around the world. It can it can certainly can drive demand, particularly for El Red hardware in terms of your question on the pipeline it continues to grow.

Richard Danforth: It certainly can drive demand, particularly for LRAD hardware. In terms of your question on the pipeline, it continues to grow. When we talk about the pipeline, we don't usually include some of the large opportunities like the one we announced with Puerto Rico, and we continue to see the pipeline grow. We continue to increase a look at our forecast. Some of what had slipped last quarter or last year, all year long, have started to close, and we remain optimistic for the year with an outlook unchanged from our prior conference call. It makes for a big second half.

When we.

Talk about pipeline. We don't usually include some of the large opportunities like the one we announced with the Puerto Rico.

And.

We continue to see that pipeline grow we continue to increase our look at our forecast for bookings.

Some of what had slipped last quarter or last year, all year long has started to close in.

We remain optimistic for the year with an outlook unchanged from our prior conference.

Conference call.

It makes sure second identify those so.

Richard Danforth: The previous pipeline that you guys talked about, though, so it did not reflect Puerto Rico, is that correct? The larger opportunities like that are not having that full amount put into them. And secondly, I wonder if you could just talk a little bit about Evertel and the cross-selling opportunities, how that's being received, and kind of what your outlook is for the second half of this year. Thanks. Yeah, you are correct. The large opportunities are usually kept separate from our pipeline.

The the previous pipeline that you guys had talked about those who did not reflect Puerto Rico is that correct the larger opportunities like that or not having that full amount put into them and secondly, I wonder if you could just talk a little bit about <unk> and the cross selling opportunities how that's being received and kind of what's your outlook is for the second half of this year. Thanks.

Yes.

You are correct. The large opportunities are usually kept separate from our pipeline in terms of ever tell.

Richard Danforth: In terms of Evertel... Evertel has grown their ARR, as I said, by 18 percent. The cross-selling opportunities have begun. We recently re-upped with, I think it was Marin County, for what? For just a re-up for EVAC and sold them Evertel.

Airtel and one quarter has grown.

As I said by 18% are the.

The cross selling opportunities have begun we recently re ups I think it was Marin County isn't Mara for what for just bring you back.

And solve them ever tell so the rehab Dennis correct me, if I'm wrong, but some of it no it wasn't time, Iran.

Richard Danforth: So the re-up, Dennis, correct me if I'm wrong, but some of it... We have, but it was re-upped for EVAC at $250k and then Ladris on top of it for $390k, that kind of a thing. So we're selling to the same people, Scott. Great, thanks. I'll get back in the queue. Thank you, and next, we'll go to Brian Colley from Stevens.

Yes, we were.

But it was re upped for evac.

250, K and then add <unk> on top of it for 390 cats that kind of a thing.

So we're selling to the same people.

Got it.

Great. Thanks, I'll get back in the queue.

Okay.

Thank you and next we'll go to Brian Colley from Stephens. Please go ahead Brian.

Brian Colley: Please go ahead, Brian. Hey guys, Thanks for taking my question. So it seems like the Puerto Rico contract should kind of get you close to hitting your FY26 targets next year. I'm curious if you view that as a new base off of which you can grow or if we should see a decline in the hardware revenue once Puerto Rico rolls off. Puerto Rico will provide substantial revenues in our fiscal 2025 for sure. We'll have to win something like that or build the pipeline even larger with the normal LRAD stuff. So it's hard to replace a $60 million to $70 million one-time order.

Hey, guys. Thanks for taking my question.

So it.

It seems like the Puerto Rico contract should kind of get you close to hitting your FY 'twenty six targets next year I'm curious if you view that as a new base off of which you can grow or if we should see a decline in hardware revenue once Puerto Rica, Puerto Rico rolls off.

Puerto Rico.

Well, we will provide substantial revenues in our fiscal 'twenty 'twenty five for sure.

We will have to win something like that.

Well Bill day.

The pipeline, even larger with the normal alright stuff. So it's hard to replace $60 million to $70 million one time water. However.

Richard Danforth: However, this puts us in a different position in the critical infrastructure protection marketplace, that there are dam projects all around the world, there are dam projects here in San Diego, there are dam projects in South America and Europe that we are chasing, not to the size of Puerto Rico, but it will certainly give us great credentials and a calling card to further the CIP kind of vertical. And then, in terms of the kind of cadence of revenue for Puerto Rico, how should we think about the split between FY25 and this year? I mean, maybe it should be, you know, 80% next year, 20% this year, or more heavily?

However.

This puts us in a different position in the critical infrastructure protection marketplace.

That there are dam projects all around the world, They're a dam project here in San Diego or Dan prizes in South America, and Europe that we're chasing.

Not to the size of Puerto Rico.

But it will certainly give us great credentials and our calling card to a further the CIP kind of vertical.

Got it and then in terms of kind of the cadence of revenue for Puerto Rico.

How should we think about the split between FY 'twenty five and this year I mean, maybe.

Should it be 80% next year, 20% this year or more heavily they'll largely be next year. So the current schedule. Brian is there's a there's a six month process.

Richard Danforth: It'll largely be next year. So the current schedule, Brian, is there's a six-month process to get approval on all of the dam designs. That will put us at the end of our fiscal 2024, and then the vast majority of the revenue will occur in the fiscal 2025. Okay, got it. That's helpful.

To get approval on all of the dam designs.

That will put us at the end of our fiscal 'twenty 'twenty four.

And then the vast majority of the revenue will occur in the fiscal 2025.

Okay got it that's helpful. And then also I was curious if you can provide an update on the gross order and your confidence level in.

Brian Colley: And also, I was curious if you could provide an update on the Crow's order and your confidence level in getting that award. It's pending a DOD budget. So as soon as that goes, Brian, the crowns will go as well.

Getting that award.

It's pending a T O D budget.

So as soon as if that goes Brian.

The Crows will go as well.

Richard Danforth: Got it, okay. And then my last question for you is, I was hoping you could maybe just talk about the software pipeline, how that's trending relative to your expectations, and kind of what the composition of that pipeline looks like between Connect, Alert, and EVAC, and kind of where you're seeing the most demand today. Alert and EVAC represent the biggest dollar volume of our software offerings. The Connect we're just getting started on, and those are lower dollar value software sales. The Ladderus piece, as I mentioned a moment ago... We can have a pretty good uptick in both ARR and revenue from that, as I mentioned, the 390K just for one county. So the pipeline is dominated by alerts and, And I'll be back.

Got it Okay and then last question for me is I was hoping you could maybe just talk about the software pipeline, how that's trending relative to your expectations and kind of what the composition of that pipeline looks like between connect alert and evac.

Where youre seeing them the most demand today.

Alert and evac represent the biggest dollar volume of our software offerings.

The connect we're just getting started on and those are.

A lower vol or lower dollar value.

Software sale.

Hum.

The latter is piece as I mentioned a moment ago.

We can have a pretty good uptick in and both they are our revenue from that as I mentioned, the 390 K just for one county.

So the pipeline is dominated by alert and.

And are you back.

Richard Danforth: But maybe just as a follow-on to that, Brian, and this was in Richard's prepared remarks, the value of the entire platform is becoming more and more real. So where we've already sold EVAC, we are seeing increasing, accelerated, et cetera, interest in our other offerings, whether that's Connect, Alert, Traffic AI, et cetera, and, by the way, also Acoustics. It really should be apparent to everyone that the Genasys Protect platform, which includes both software and hardware, has enormous potential. Puerto Rico is a Genasys Protect win. Without the software, we would not have won that RFP opportunity. It's the software that got us in there, and as a result, you're seeing over $50 million of hardware from one order, thanks to the software differentiation. God, Thank you for the time, gentlemen.

But maybe just as a follow on to that Brian.

And this was in Richard's prepared remarks.

Value of the entire platform is becoming more and more real so where we've already sold evac.

We are seeing increasing accelerated et cetera interest in our other offerings, whether that's connect alert traffic.

Traffic, AI et cetera, and all by the way also acoustics.

It really should be apparent to everyone that the Genesis protect platform that includes both software and hardware.

Has an enormous potential Puerto Rico is a genesis protect win without the software.

We would not have won that RFP opportunity. It's a software that got us in there and as a result, youre seeing over $50 million of hardware from one order.

From the software differentiation.

Got it.

Thank you for the time gentlemen.

Mike Lattimore: And we'll take our next call from Mike Lattimore from Northland Capital. Please go ahead, Mike.

Thank you.

And we'll take our next call from Mike Latimore from Northland Capital. Please go ahead Mike.

Mike Lattimore: All right, great. Thanks. Yeah, on the hardware bookings in the first quarter, can you, did you give a number there? I'm not sure I heard that. Or you said, I think you said I got back to normal, but can you get a little more detail on the hardware bookings in the first quarter? Historically, hardware bookings in Q1 are the lowest quarter.

Alright, great. Thanks.

Hardware bookings in the first quarter can you did you give a number there im not sure I heard that or you said I think you said it got back to normal but can you give a little more detail on the hardware bookings in the first quarter.

Sure historically hardware bookings in Q1 is the lowest quarter.

Richard Danforth: What we achieved in this first quarter is consistent with other first quarters, albeit substantially higher than what we booked in fiscal 23's first quarter. So it's a small win; in fact, it's almost double what we booked in Q1 of 23 versus 24. Okay, I got it. On the CROWS deal, if that's approved or this budget passes, how much of that business would you see this year versus, you know, over multiple years? Well, if you assume a budget gets passed by March 8th, the soonest we probably would see any money flow would be, I don't know, the end of June. So there would only be a couple of months left in our fiscal year at that point. And it is a new program, which means there'll be a start-up phase that we haven't had to deal with in the U.S. Army in many years. So it'll be a little slower at the start and a strong finish.

What we achieved in this first quarter is.

As consistent with other first quarters, albeit substantially higher than what we booked in fiscal 'twenty three first quarter.

So what's a small win in.

In fact, it's almost double what we booked in Q1 of 'twenty three versus 24.

Okay got it.

On the Crows deal if that's approved through this budget passes how much of that business would you see this year versus over multiple years.

Yeah.

Well, if you assume a budget gets passed by March as you know.

Soonest, we'd probably would see any money flow would be.

I don't know end of June.

So that would only be a couple of months left in our fiscal year at that point.

And it is a new program, which means there'll be a start up phase that we haven't had to deal with it for the U S. Army in many years, so it'll be a little slower at the start and a strong finish.

Okay, Mike I remember like our previous program of record each year. There is a new purchase order placed against the program of record. The same is expected to be true for cross.

Richard Danforth: Yeah, okay, makes sense. In terms of your SAT software, or SAT pipeline... How much of the pipeline is a prospect wanting one part of the stack versus sort of the whole software stack? It's a significant mix.

Yes, Okay makes sense.

In terms of your SaaS.

SaaS software SaaS pipeline.

You don't.

How much of the pipeline is.

The prospect wanting one part of the stack versus sort of the full software stack.

Okay.

It's a significant mix.

And as Brian mentioned.

Richard Danforth: And as Brian mentioned, you know, we often get competitive RFPs for Luritz, and we will always answer those introducing EVAC. Um... And as I mentioned in prior calls, there are a couple of large counties where we did that, and after the award of AWARE came, we went into a negotiation with EVAC and subsequently booked those orders. So the cross-selling opportunity is clearly there, and we've achieved it, and it's continued with the Ebertel piece as well. Great

We often get to competitive rfps for alert.

And we will always answer those introducing evac.

And as I mentioned in prior calls as couple of large counties, where we did that in after the award of a where I came we went into a negotiation with the back.

And have subsequently booked those orders so.

Cross selling opportunity is clearly there and we have achieved it and its continued with the.

Do you ever tell piece as well.

Richard Danforth: And then just last on the Puerto Rico deal, said 50 million hardware, so overall, what are you considering gross margin to be, and do you have to add much OpEx to sort of deploy this thing? Um, We'll have OPEX for... Well, we don't have a significant increase in OPEX expected for the island of Puerto Rico. What was the other question? The gross margin. Oh, gross margin. Gross margin on the hardware coming out of the factory in San Diego will be consistent with historical actuals, and the equipment that is. The equipment and services will typically have a lower gross margin than our hardware gross margin, but still a significant contributor to the company.

Okay, Great and then just last on the Puerto Rico deal.

You said 50 million hardware. So overall what are you considering gross margin to be in do you have to add much opex.

Sort of deploy this thing.

Well have opex far.

Well, we don't have a significant increase in opex expected for the island of Puerto Rico.

What was the other question the gross margin gross margin gross margin on the hardware coming out of the factory in San Diego will be consistent with historical actuals.

And the equipment that is there.

The equipment and services would typically be a lower gross margin than our hardware gross margin, but still a significant contributor.

Richard Danforth: Okay, great. Thank you. Thank you, and next, we'll go to Ed Wu from Ascendian Capital. Please go ahead, Ed. Yeah, just a clarification on the gross margin that you mentioned on these bigger deals. Why wouldn't you have much better leverage considering the contracts are that much bigger? Was pricing a big determinant for winning the contract? Yeah, the multiple award criteria price was worth 35%. But don't mistake this.

To the company.

Got it.

Okay great.

Okay.

Yeah.

Thank you and next we'll go to Ed Woo from <unk> capital. Please go ahead Ed.

Yes, just a clarification on the gross margin that you mentioned on these bigger deals why wouldn't you have much better leverage considering the contracts aren't that much bigger was pricing a big determinant for winning contract.

Yes, Hello, multiple Oh, what criteria price was worth 35%.

But don't mistake.

This this order will give significant contribution margin to the company.

Richard Danforth: This order will give a significant contribution margin to the company. $50 million, that's... That's 50 million dollars, Ed, approximately. That's bigger than most years of hardware. So if you have that plus our normal business, you're going to have significant Absorption, gross margins on the balance of the business, and the base to the factory will enjoy the improvement to the contribution margin from normal activity. Great, and you know this win and, obviously, last year's win with Armaco. Should we anticipate much bigger types of deals going forward? Are you guys specifically targeting much bigger deals? Well, the Genasys Protect Platform approach is introducing larger deals to us, in the case of Puerto Rico. If you look at the traditional competitors we face in hardware and software, they weren't in the picture.

Great.

$15 million.

At $50 million at.

Approximately.

Yeah.

That's bigger than most years of hardware. So if you have that plus our normal business you're going to have.

Significant.

Absorption.

Gross margins on the balance of the business balance at the base of the factory will enjoy the improvement.

The improvement of the contribution margin from normal activities.

Great and this win and obviously last year's win with our macro.

We anticipate much bigger type of deals going forward are you guys, specifically targeting much bigger deals.

Well the Genesis for protect.

Protect platform approaches introducing larger deals to us in the case of Puerto Rico. If you look at the traditional competitors, we face in hardware and software.

They werent in the picture.

Richard Danforth: So Genasys as a company was the most qualified to respond to that RFP, and it was reflective in the scores that the customer gave us. So I think, yes, we will continue to pursue larger opportunities and exploit the Genasys Protect platform capabilities around the world. Great, well, thank you, and congratulations again. Thank you. As a reminder, that's star number one, if you have a question or comment. And we'll take our next question from Martin Yang from Oppenheimer. Please go ahead, Martin. The second question first: yes, of course.

So genesis as a company.

What's the most qualified.

To respond to that RFP.

And it was reflective in the scores that the customer gave us. So I think yes, we will continue to pursue larger opportunities to exploit the genesis protect platform capabilities around the world.

Great well, thank you and congratulations again.

Thank you.

As a reminder, that star one if you have a question or comment.

And we will take our next question from Martin Yang from Oppenheimer. Please go ahead Marc.

Hi, Thanks for taking the question I think your answer part.

But the first question I have regarding opex associated with Puerto Rico.

I know, there's not a big increase but if anything.

Change for Opex.

Rico project, what would it be and.

Is it should we assume a major operating leverage coming from the Puerto Rico project.

Richard Danforth: That's what I just, I think I just said, talked about that the contribution margin that it will avail will be significant. And as I said, the base business will also benefit from that increased absorption. From an OpEx perspective, travel will go up, we will, you know, hire more people on the island, but it's, you know, it's a single-digit kind of number, uh...

The second question first yes of course.

That's what I, just I think I, just said talked about that the contribution margin that that it will.

Avail.

It will be significant and as I said the base business will also benefit from that increased absorption from an opex perspective.

Travel will go up.

We will hire.

More people on the island, but it's you know that it's a single digit kind of number.

Richard Danforth: I don't see us adding anybody to the factory; I don't see us adding anybody in purchasing or sales or marketing, so I think it's nominal from a headcount perspective. Thank you. The second question is about your... enterprise customers. Can you maybe give us an update on how you are seeing customer engagement and pipeline regarding your sales into the enterprise? Yeah, for us, it's slides first and the enterprise to be opportunistic. Aramco fell into that, and there have been several others.

I don't see us, adding anybody in the factory I don't see us, adding anybody in purchasing or sales or marketing. So I think it's nominal from a head count perspective.

Got it thank you.

Second question is about you.

Sure.

Enterprise customers can you maybe give us an update.

Are you seeing.

Customer engagement pipeline regarding your sales into the enterprise market.

Yes for us it's slide first in enterprise to be opportunistic Aramco.

<unk> fell into that and there's been several others.

Richard Danforth: I don't think we've released anything on a win with those yet, but you'll see some coming shortly. That's OK. Once again, Star One, if you do have a question or comment. Okay, and there appear to be no further questions at this time. I'd like to turn the floor back over to Brian Alger for closing remarks. All right. Thank you, everyone, for participating in today's call. You should see the press release. It did cross the wire in the middle of our commentary, so you can find it on our website. A replay of the call will be available on our website here shortly. For additional information and up-to-date news and activity regarding Genasys, our products, and the customers we serve, again, I'll strongly recommend that you follow us on our various social platforms, whether that's LinkedIn or X.

I think we've released anything on a on a win with <unk>.

As yet, but you'll see some coming shortly.

Okay. That's it for me.

Okay.

Once again star one if you do have a question or comment.

Yeah.

Okay, and there appear to be no further questions at this time I'd like to turn the floor back over to Brian Alger for closing remarks.

Great. Thank you everyone for participating in today's call you should see the press release, you did cross the wire in the middle of our commentary.

So you can find it on our website a replay of the call will be available on our website here shortly for additional information and up to date news and activity regarding Genesis our products and customers. We serve again I'll strongly recommend that you follow us on our various social platforms, whether that's linked in our X.

Richard Danforth: We actively post and comment, and a number of our customers do the same. So to stay on top of things, I strongly encourage you all to follow us on those social networks. Otherwise, have a great night. We look forward to speaking with you again next quarter when we report our fiscal second quarter 2024 results. Thank you. 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.

We actively policy comment and a number of our customers do the same so to stay on top of things.

<unk> encourage you all to.

A follow.

Follow us on social networks.

And otherwise have a great night, and we look forward to speaking with you again next quarter when reports fiscal second quarter 2024 results. Thank you.

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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