Q2 2025 Genasys Inc Earnings Call
Speaker Change: Good day ladies and gentlemen and welcome to the Genesys Fiscal Second Quarter 2025 Results Conference call.
Speaker Change: Finally, a replay of this call will be available approximately four hours through the Investor Relations page on the company's website.
Speaker Change: Now at this time, it's my pleasure to turn the call over to Genesis <unk> CEO Richard Danforth.
Speaker Change: Richard.
Speaker Change: Thank you, Brian and welcome everyone.
Fiscal 2025 is turning out to be an exceptional year. So genesis.
Speaker Change: On our February call, we discussed how the January fires MLA.
Speaker Change: Our global attention to the use of Genesis protect so managing.
Speaker Change: Response and evacuation notifications.
Speaker Change: As we have stated multiple times the Genesis protect platform proved to be incredibly resilient ineffective and saving lives.
Speaker Change: So the March quarter progressed, largely as expected the one meaningful <unk> order that was expected to close move through our fiscal third quarter.
Speaker Change: Since last November we have known that the second half of fiscal 2025 was going to see tremendous growth and acceleration in our hardware business.
Throughout the March quarter, and continuing into our third fiscal quarter design planning and procurement for the Puerto Rico project has been progressing well.
Speaker Change: Recently, we began implementation and installation work on the first of 19 dance currently approved.
Speaker Change: Substantially all of the materials for the first three groups have either been received or are on order.
Speaker Change: In Puerto Rico since the final week of March quarter, we have been expecting the down payment for the third group of Dash. The designs have been approved our invoices for the down payment had been delivered and approved.
Speaker Change: All of the authorizations for the payment has been made.
Speaker Change: We have not yet received the deposit however.
Speaker Change: To be clear this has absolutely nothing to do with sema or anything else occurring in Washington D. C.
Speaker Change: The FEMA money fund the development and installation of the early warning system for the identified 37 dams in Puerto Rico was funded in early 2024.
We have received multiple assurances from our customers that the payment will be made shortly.
Speaker Change: Management and the board made the decision to obtain additional capital to maintain momentum and enabled genesis to capture the opportunity at our doorstep.
Speaker Change: Because of the timing and various provisions within our existing secured debt agreement with.
Speaker Change: Signed a 4 million dollar first amendment to the term loan with our creditor white box <unk>.
Speaker Change: This small alone comes at the same interest rate as the original debt, but is intended to be very short term in fact that expires at the end of this calendar year <unk>.
Speaker Change: Additionally, the agreement comes with a statements for the availability of an additional $4 million to be made at Genesis request.
Speaker Change: Suffice it to say, yes. So you had received the down payment for the third group, we would not have to source the bridge capital.
Speaker Change: We continue to drive to an aggressive timeline that delivers all of the hardware for the first three groups to the island by the end of this fiscal year with installation schedules already underway.
Speaker Change: Dennis will go into the revenue recognition in much greater detail, but hitting the schedule as it stands today resulted in record quarterly revenue of fourth quarter This fiscal year.
Speaker Change: Beyond the projects in Puerto Rico bookings for our <unk> business continued to track ahead of our last year.
Speaker Change: Driving further improvements in our 12 month backlog.
Speaker Change: This is in spite of a handful of opportunities slipping, including the one I just referenced.
Speaker Change: International and domestic demand continues to improve for both critical infrastructure as well as military needs.
Speaker Change: Use cases continue to emerge like a recent article that describe the use of our AD units on autonomous surface vessels in Singapore or the.
Speaker Change: Operating a physical security systems like the one we recently announced the Sep 14, electrical substation here in the U S.
Speaker Change: Looking out a bit further the project award in Puerto Rico is providing a meaningful proof point and a number of countries looking to provide citizens with reliable emergency communications.
Speaker Change: Finally, I want to take a moment to talk about Crows AHD program.
Speaker Change: Its predecessor. This program is expected to span multiple years with eventual deliveries of thousands of our AD units.
Speaker Change: Based on our conversations with the Army program office.
Expect to receive the initial production order under this program this fiscal year.
Speaker Change: That we don't yet have the purchase order we cannot state. So that's certainly the size of the order nor our ability to complete deliveries against that order this fiscal year.
However, the importance of this milestone as critical as it should serve as Dallas to our AD business for the next several years.
Speaker Change: Look forward to updating you further purchase order is issued.
Speaker Change: Now I would like to shift gears and speak a little about our software business. As you. All are aware, we had a major proof point this past January.
Speaker Change: Well that one convert and so instant lift in revenues. It has contributed to a number of opportunities.
Speaker Change: Since the fires and then La County alone we are in various stages of discussion with three separate communities implementation of APAC and acoustic systems.
Speaker Change: <unk> the performance of the system during the L. A complex of fires as well as the high profile events in Oklahoma, North Carolina, New Jersey, and even long island contributing to an expanding pipeline.
Speaker Change: There's still a ways from closing and being converted to revenue. This pipeline measurement has increased more than 100% since the beginning of fiscal 2025.
Speaker Change: Many of you are aware of Congressman Garcia has recently released a report regarding lessons from the Kennedy fire false alerts.
Speaker Change: Is that highlighted a breakdown and alert targeting that originated from within a complex environment of rapidly evolving conditions overlapping systems and highest state decision, making darn it store disaster.
Speaker Change: Importantly, but has not been covered by this investigation nor in any media reports the dramatic improvements Genesis software enabled and quickly disseminated evacuation notices to the public.
Speaker Change: During previous devastating wildfires the lag.
Speaker Change: The time from first responder requesting evacuations, two evacuation alerts being issued averaged 40% to 60 minutes.
Speaker Change: Using the Genesis protect platform La County reduced the average time to six minutes.
Speaker Change: This significantly significant improvement likely saved hundreds and possibly thousands of lives.
Speaker Change: What we witnessed was more than just technology at work. It was a combination of dedication preparation and coordination across multiple agencies.
Speaker Change: Emergency team sent over 400 zone status changes to critical lifesaving situations through Genesis.
Speaker Change: <unk> in record time.
Speaker Change: As the report mentioned a local network level disruption interfered with data transfer to a federal alerting backbone high cost <unk>.
Eric: Eric was correctly configured by the operator and properly localized across all channels.
Eric: Instrument network issue prevented the targeted area from registering and one channel resulted in resulting in a broader than intended one.
Eric: This wasn't a software failure.
Eric: A breakdown of connectivity in the middle of a crisis networks are strained with the unprecedented condition around Los Angeles County.
Eric: Since that initial incident.
Eric: We have taken the following actions implementing new safeguards strengthening cross channel validation and introducing sales sites to ensure the geo targeting data is fully aligned.
Eric: Any alerts.
Eric: These enhancements will live within 48 hours of the original occurrence.
Eric: Our <unk> technology remains the most widely deployed multichannel learning platform in California and continues to expand nationwide.
Eric: We remain a trusted targeted communications partner to agencies, a clop across 39 states with Genesis protect and we are expanding rapidly.
Eric: Our platform is stronger smarter and more resilient because of what we've learned and are only accelerating from here.
Eric: In addition to the tailwind for evac that have come in the wake of the fires are connect software is rapidly gaining traction with even greater awareness being fueled by the signal gate disclosures.
Eric: Most connect deals are relatively small from a revenue standpoint recently, however, we have been engaged with a number of larger organization.
Eric: One is the federal agency. Another is a combination of regional agencies and one of the highest populated cities in the United States. Each of these opportunities are currently in trial and are expected to progress to contract.
Eric: As strongest on momentum and growth in our pipeline is we do have to acknowledge that a few deals fewer deals are closing.
Eric: The opportunity is not going away, but rather being delayed this is particularly true at the state level, where access to federal grant money isn't question.
Eric: While some deals are closing many of the larger genesis protect deals, including those with acoustics have slowed.
Eric: Up until last Monday grant payments from the 553 billion urban areas Security initiative.
Eric: And the 374 billion state Homeland Security program were frozen.
Eric: Our expectation is the debt funding becomes more certain deals that are further and our pipeline will accelerate through closing.
With that said, we still expect sequential growth in our software business over the remainder of fiscal 2025.
Eric: At the macro level Genesis is not being impacted by the ongoing tariff and trade negotiations.
Eric: The administration's rapid pace of change is affecting procurement processes and that introduces uncertainty into an already complicated process of securing funding is not only do federal decisions affect federal agencies, but many state budgets rely heavily on the funds from the federal government, thus affecting state appropriation prior.
Eric: <unk>.
Eric: In summary fiscal 2025 is challenging to forecast them precisely predict but it is still on course for substantial growth and improvement in profitability, particularly in the fiscal fourth quarter.
Eric: Beyond 2025, the outlook continues to improve with a broadening pipeline for both our hardware and software offerings ultimately delivered delivering increased visibility and predictability.
Dennis: Now I will turn the call over to Dennis to go through the financials and outlook in greater details Dennis.
Dennis: Thank you Richard before I begin to review the operational and financial details of the quarter I would like to speak about my decision to retire.
Dennis: I've been fortunate to work with companies doing exciting things and learn something new in every organization I served in my 45 year career.
Dennis: Genesis has been an amazing opportunity both personally and professionally with rapid organic growth multiple acquisitions worldwide expansion and essentially growing new software company out of a hardware company.
Dennis: Genesis has a great team of passionate hardworking and dedicated employees that have made it a joy to come to the office every day.
Speaker Change: I want to thank Richard the board and the Genesis team for the opportunity to serve as Genesis CFO for the past eight years.
Speaker Change: I have some travel plans this year, but I'm available to assist the new CFO as needed to ensure that there's a smooth and orderly transition.
Speaker Change: In the second quarter of fiscal 2025, Genesys generated roughly flat revenues sequentially and 21% growth compared to the prior year quarter.
Speaker Change: Hardware revenues grew slightly sequentially and were up 17% year over year.
Speaker Change: Total software revenue in the quarter grew 29% year over year or down, 3% or $64000 sequentially as a few customers chose not to renew their expiring agreement.
Speaker Change: Gross profit margin was 37, 7% in the March quarter.
Speaker Change: Effectively flat with the prior year's period, but down nearly eight points from parts of December.
Speaker Change: Sequentially, primarily due to a mix of lower margin hardware revenue and a significantly higher volume network and messaging cost linked to software platform usage train the law fire event.
Speaker Change: Quarterly operating expenses were $8 9 million versus $9 1 million in the December quarter, and $9 2 million in last year's second quarter.
Speaker Change: Sequentially the improvement is seen in SG&A.
Speaker Change: On a year over year comparison, R&D is down slightly.
Speaker Change: On a GAAP basis, our second fiscal quarter operating loss was $6 3 million.
Speaker Change: Compared to a loss of $7 million in the year ago quarter, and a loss of $5 9 million in the December 2024 quarter.
Speaker Change: Adjusted EBITDA, which also excludes noncash stock compensation was a negative $5 1 million.
Speaker Change: An improvement from the negative $5 7 million in the second quarter of 2024, but down slightly from the $4 8 million in the December 22004 quarter.
Speaker Change: GAAP net loss in this fiscal year's second quarter was $6 1 million, which.
Speaker Change: Which compares to last year's second quarter net loss of $7 million in the first quarter of fiscal year, 2020, fives $4 $1 million net loss.
Speaker Change: Which benefited from $2 2 million of noncash other income related to the quarterly adjustment to the fair value of the warrants issued with the term loan last may.
Speaker Change: Cash cash equivalents and marketable securities at the end of March 31 2025.
Speaker Change: <unk> totaled $7 2 million.
Down from $13 9 million at December 31, 2024.
Cash used in operating activities in the second fiscal quarter was $6 3 million, including a $973000 use of cash from changes in operating assets and liabilities.
Speaker Change: Subsequent to quarter end, we had expected to receive the deposit for the third group of Puerto Rico dams.
Speaker Change: The receipt is believed to be eminent management and the board of directors chose to shore up the balance sheet to the $4 million bridge loan announced in the earnings release today.
Speaker Change: With a bridge financing in place and the third deposit expected. Shortly we look forward to delivering on the growth investors have been waiting for.
Speaker Change: Third quarter revenues are expected to recognize additional ship initial shipments of materials to Puerto Rico as well as improved other orad orders.
Speaker Change: As it pertains to the Puerto Rico project percentage of completion accounting requires that we record mature hardware material revenues initially at cost and then only after installation and the profit on the material be recognized.
Speaker Change: Gross margins will initially be compressed before accelerating through installation and implementation of the systems.
Speaker Change: Initially cash will precede revenue and profit recognition during the Puerto Rico project.
Speaker Change: At March 31, 2025, we have received a net $9 $7 million of customer deposits net of local taxes and revenue recognized to date for the first two groups of Dan's on this project.
Speaker Change: The final 40% of cash is expected to be received.
Speaker Change: Upon customer acceptance of each dam.
Speaker Change: As Richard indicated we achieved our first milestones with the project at initial revenues were recorded in the second fiscal quarter with more significant revenue recognition coming in the June quarter, and the broader deliveries and implementation on the first group gets underway.
Speaker Change: As we have stated from the beginning of this fiscal year, we expect to recognize significantly more revenues in the second half of this fiscal year and the first.
Speaker Change: Once revenue recognition on the completion of dams begins we anticipate relatively steady contribution through project completion.
Speaker Change: With a 12 month backlog that has grown to $50 million, including a R. R of $8 6 million and an expanding pipeline of opportunities Genesis financial turnaround is well underway.
Richard Danforth: Now I'd like to turn the call back to Richard for some final remarks.
Richard Danforth: Thank you Dennis on behalf of myself the board of directors and all of the employees of Genesis I would like to express heartfelt gratitude for all you have done far Genesis over the past eight years.
Richard Danforth: You have been instrumental in transforming this company from a small hardware business with 45 employees to a much more diversified technology leader with more than 200 employees and customers spanning the globe.
Richard Danforth: Although we are all saddened by your retirement after 45 years that his well deserved I wish you all the best as you went through this next phase and thank you for all you've done for me personally and for Genesis.
Richard Danforth: Now I would like to open it up for Q&A operator.
Richard Danforth: Thank you.
Speaker Change: Ladies and gentlemen, the floor is now open for questions.
Richard Danforth: Question.
Richard Danforth: Star one on your telephone keypad at this time again that star one if you do have a question or comment please hold as we poll for questions.
Speaker Change: And we will take our first question from Scott Searle from Roth Capital. Please go ahead Scott.
Scott Searle: Hey, good afternoon, thanks for taking the questions Dennis Congratulations and good luck on your retirement.
Speaker Change: Thank you.
Speaker Change: Maybe just to dive in quickly to start on PREPA.
Speaker Change: Rev wreck issues or it sounds like it's a change but in terms of things progressing it seems on track.
Speaker Change: Just want to make sure I understand a couple of things for starters that the initial material shipment, we're basically at cost and we're looking at zero gross margin before we start to see the Rev. Rec kick in and then much much higher gross margins on the remaining portion of the contract as you hit those installed milestones is that correct.
Speaker Change: Yes, I mean, the theory is that.
Speaker Change: The materials.
Speaker Change: Part of the solution, but the only way to really measure the percentage of completion of the project is by the level of installation cost than ours.
Speaker Change: Have already been expanded against but the total project.
Speaker Change: Damn by dam is anticipated to be.
Speaker Change: Got you, Okay, and then moving beyond the first three groups I think there are seven groups in total I'm wondering what the progress is.
Speaker Change: On group's four to seven at this point in time.
Richard Danforth: Scott. This is Richard the third group has been approved that means all the designs have been signed off and we're ready to go.
Richard Danforth: Notwithstanding the deposit hasn't arrived yet.
Richard Danforth: The next group of dams, we will begin the detailed design process.
Richard Danforth: Here shortly.
Richard Danforth: And then continue that until the fourth group and I'm sorry, the seventh group is complete.
Richard Danforth: Gotcha, Okay and.
Richard Danforth: Moving on to the impact of.
Richard Danforth: Our federal budgets in terms of what they contribute to your state agencies and state customers I'm wondering if there is a number in terms of that.
Opportunity pipeline.
Richard Danforth: It is dependent on those federal funds.
Richard Danforth: Just kind of a number of ballpark in terms of percentage then I'm not sure. If you provided a total for the opportunity pipeline other than saying it was it was growing pretty significantly.
Richard Danforth: Yes, I don't think we can put an absolute on it Scott in terms of your first question.
Richard Danforth: It's all over the map.
Richard Danforth: I can't give you a specific percentage but.
Richard Danforth: Uh huh.
Particularly in our software world.
Richard Danforth: They are.
Richard Danforth: Frequently dependent on grants.
Richard Danforth: Okay.
Richard Danforth: And moving over to Crows. It sounds like you don't have an order in hand, yet, but you're getting close I think in terms of how you size the opportunity before in terms of thousands of vehicles that the crows opportunity would be larger than it historically represented before the old program expired I'm wondering if that still holds.
Richard Danforth: And you would expect this to annualize out at some point in time of $10 million to $15 million or so a year.
Richard Danforth: That's exactly right.
Richard Danforth: Got you.
Richard Danforth: And finally, and then I'll jump back in the queue.
Richard Danforth: It seems like there's a lot of announcements that they go outside of I'll call. It your traditional core base in terms of.
Richard Danforth: Local state and federal agencies, starting to see more utilities, we also announced a quake product in the last week or so.
Richard Danforth: Wondering if you could just give us a quick update in terms of what's going on in those non traditional markets and opportunities. If you are starting to gain some momentum on that front. Thanks.
Speaker Change: So Scott much like Puerto Rico.
Richard Danforth:
Richard Danforth: The software enabled us to secure a 73 million dollar hardware opportunity.
Speaker Change: Shake our thing that were released is a similar kind of deal that.
Speaker Change: When all else fails the acoustic devices will work and we'll be able to have.
Speaker Change: Emergency messages go out when traditional channels no longer work.
Speaker Change: So I think.
Software piece is driving us into different markets for hardware.
Speaker Change: And let me just throw one lesson supply chain I know you had some comments on tariffs not being meaningful but there were some long lead time items in terms of Poles and other things as it related to the proper contract I'm just wondering if you're seeing any other pressures on that front. Thanks.
Speaker Change: No. It's the simple answer on the Poles.
Speaker Change: The polls are moving their way to Puerto Rico as we speak.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: And we will take our next question from Mike Latimore from Northland Capital. Please go ahead Mike.
Mike Latimore: Alright, great. Thank you.
Mike Latimore: Congratulations and great great working with you over several years here.
Mike Latimore: Thank you.
Speaker Change: I guess just on the.
Speaker Change: Supplies for the Puerto Rico deal I think you said you have received and some are on order can you just kind of give an update on what percent of the total amount you've received.
Speaker Change: What percent on order and for those that are on order when do you expect to receive them.
So 100% does either on or received for the three groups all of those materials are expected to deliver to the island before the end of this fiscal year.
Speaker Change: Okay.
Speaker Change: Is that different I thought they were there was a large.
Speaker Change: Tranche and the supposed to be in mid May here.
Speaker Change: Materials, starting to flow to the island.
Speaker Change: To date, the large numbers will happen.
Speaker Change: Later in our third quarter and into our fourth.
Speaker Change: Okay got it.
Speaker Change: When you're talking about recognizing the hardware.
Speaker Change: At class in the third quarter.
I assume the there's a similar dynamic in the fourth quarter as well given you'll get some of that hardware suppliers in the fourth quarter, how do we think about the balance there.
Speaker Change: Yeah, that's correct I mean, there will be a similar.
Speaker Change: As we start new dams in the fourth quarter. Those materials. Initially will go in at cost. However, the materials that are shipped in the third quarter.
Speaker Change: Presumably there will be installation costs and implementation dams will start to be completed so has that at.
Speaker Change: <unk> installation.
Speaker Change: <unk> of installation.
Speaker Change: Increases that's when we will be picking up more margin. So there should be more.
Speaker Change: A higher level of margin and.
Speaker Change: And the cost.
Speaker Change: Once you get over that initial material cost at <unk>.
Speaker Change: Revenue at cost.
Speaker Change: Okay.
Speaker Change: And then over the course of this.
Speaker Change: Program do you still expect the same level of EBITDA and cash flow.
Speaker Change: Yes, yes that has not changed.
Speaker Change: Okay great.
Speaker Change: Thank you.
As a reminder, that star one if you do have a question or comment.
Speaker Change: Our next question from Ed Woo from <unk> capital. Please go ahead.
Speaker Change: Yes, I also would like to congratulate you Dennis Hope you enjoy retirement. My question is you mentioned that in the U S. Because of some of the federal budget issues have you noticed any.
Speaker Change: Longer lead times with any international opportunities.
Speaker Change: No you know address international opportunities, usually take longer by its very nature, but.
Speaker Change: No we're not experiencing any additional.
Speaker Change: Increase.
Speaker Change: Time to close.
Speaker Change: Great well, that's all the questions I have I wish you guys. Good luck and congratulations again, Dennis good luck.
Dennis Hope: Thank you Ed.
Dennis Hope: Once again star one.
Dennis Hope: A question or comment.
Dennis Hope: And there appear to be no further questions at this time I'd like to turn the floor back to Brian Alger for closing remarks.
Dennis Hope: Thank you everyone and thank you for participating in today's conference call a replay of the call will be available on our website shortly.
Speaker Change: All information company as an activity regarding our products and.
Dennis Hope: And the customers that we're currently estimating followed.
Dennis Hope: The company and Genesis of that.
Dennis Hope: Particularly we are again actively opposing comment you mentioned that are happening as we saw yesterday keep an eye on our website for blog posts.
Dennis Hope: We often respond to breaking news as it happens we look forward to speaking with each of you again next quarter. When we report fiscal third quarter 2025 results and with that good luck.
Dennis Hope: Okay.
Dennis Hope: 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.
Dennis Hope: [music].
Dennis Hope: Okay.