Genasys Inc (GNSS) 2025 Q1 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the Genasys Inc fiscal first quarter 2025 conference call. (Operator Instructions) And the floor will be open for questions and comments, following the presentation. At this time, it is my pleasure to turn the floor over to your host, Brian Alger, SVP Investor Relations and Corporate Development. Welcome, Brian. The floor is yours.

Good afternoon. Welcome to Genasys' fiscal 2025 first quarter results conference call. I'm Brian Alger, SVP, Investor Relations, and Corporate Development for Genasys.

With me on the call today are Richard Danforth, our CEO; and Dennis Klahn, 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 involves 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 ending September 30, 2024.

Other than statements of historical facts, forward-looking statements made on this call are based on the information and management's expectations as of today, February 11, 2025. 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 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. 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 a customer's purchase orders executed in a given period regardless of the timing of related revenue recognition. Backlog is a measure of purchase orders received that are scheduled to ship in the next 12 months.

Finally, a replay of this call will be available in approximately four hours through the Investor Relations page on the company's website. Now, at this time, it's my pleasure to turn the call over to Genasys' Chief Executive Officer, Richard Danforth. Richard?

Thank you, Brian. And welcome everyone. We are pleased to report that fiscal 2025 is off to a good start, substantially better than the prior year's quarter.

Before we get into the results of the quarter, I want to spend some time discussing Genasys involvement in role during January's historic fires in Southern California. These fires made national and international news.

I am sure that all of you are aware that that in the second week of January, Los Angeles County experienced a dangerous but not uncommon weather event, creating very high winds combined with extremely low humidity.

Days before anything occurred, notices were issued by various weather services. And as a result, we and our customers were ready. What did happen, however, was far greater than anything previously experienced.

Seven different fires ignited across the county, requiring an unprecedented amount of coordination and communication across a plethora of agencies. The sheer scale of the response was unprecedented. Emergency teams across the Western United States descended upon Los Angeles as part of a comprehensive mutual aid engagement to fight the fires and keep people safe.

What stood out wasn't just the scale of the fires, but the technological advancement that enabled first responders from across Southern California and beyond to work together. Unfortunately, fast moving and devastating wildfires are not uncommon.

We can all recall the images from the Paradise tubs in Lahaina fires, all driven by very high winds, devastating communities near urban interface areas. The lesson learned from those prior tragedies led to Genasys developing in LA County to purchase our Genasys Protect solution.

Though the images of the devastation to the homes and properties of the communities across Los Angeles County are eerily similar to Paradise, Glen Ellen, and Lahaina, what is demonstrably different is the toll on human life.

Utilizing Genasys Protect, LA County and its partners successfully, safely evacuated hundreds of thousands of citizens. Without question, countless lives were saved through the timely use of the Genasys Protect platform.

As we all know, the fire events of Los Angeles lasted for several days. And over the course of that time, emergency managers and first responders were in continuous communication with the community. Over 400 zone status changes were communicated over just 2 weeks.

Throughout the country -- countywide event, Genasys personnel were on site, sitting side by side with county, state, and federal emergency management. Lessons learned from this extreme experience of being implemented in the Genasys Protect development and customer success protocols.

From a platform's standpoint, Genasys Protect proved to be incredibly resilient, scaling up capacity orders of magnitude during peak traffic. At one point, Genasys servers were processing over 183,000 requests per second. And Genasys's website drew more than 2 million active users in the month of January. And the number of Genesys app users jumped 5x during that month.

Not only did Genasys enable emergency managers to get the word out. But Genasyss also continuously informed the hundreds of thousands of impacted residents, families, and loved ones around the country with the official and most accurate information on the fires in the impacted zones.

It is impossible to overstate how proud we are of the team and the performance of Genasys Protect in such a critical and high-profile event.

Recently at the California Fire Chiefs Operational Technology Summit, where fire operations chiefs from across the state join emerging technology partners servicing fire and EMS industries with the goal of improving operations and firefighter safety.

Genasys presented a minute-by-minute account of the response and communication by San Diego County for the Bernardo fire two weeks ago. We were able to show the logs from our software that confirmed an incredibly fast response. Residents received evacuation warnings and orders in less than eight minutes after first responders arrived on scene.

In rapidly changing emergencies, where time of response equates to lives at risk, the speed and accuracy of the notifications that the Genasys Protect platform provides, enables first responders to accomplish their primary mission of protecting the community and saving lives.

Well, Genasys was supporting customers in Southern California in January. We were also making meaningful headway with the project in Puerto Rico. When we last spoke, we had received the first deposit of approximately $8 million.

And recently, we have received the second deposit of $2 million. And we have received written approval of the design on the third group of dams. Procurement of hardware is well underway. And our engineers are working with local teams to coordinate the installation of various components on the first two groups.

Importantly, we recently completed the first major milestone, the provisioning of a 50-kilowatt generator. As a result, our first revenues for Puerto Rico will be recorded in our second fiscal quarter.

The December quarter results largely reflect the year-on-year improvement on hardware backlog and software ARR. Importantly, both gross margins and operating expenses improved sequentially.

In the quarter, we realized an increase in gross profit of $400,000 and a decrease in operating expenses of $770,000. Looking forward over the balance of this fiscal year, we expect to see continued improvement in both our hardware and software business.

Well, the Puerto Rico projects are certainly going to drive the greatest impact. International and law enforcement demand for our traditional LRAD products continues to rebound towards pre-COVID levels.

Additionally, the value proposition of acoustics for critical infrastructure protection and public safety is becoming increasingly more apparent and is significantly expanding our pipeline for opportunities. Finally, our work with the US DOD across the branches continues to be robust.

Recently, we received a follow-on order for two mobile communication trailers for the United States Army. And we are regularly supporting the United States Navy with spares and equipment. We continue to see progress with the AHD CROW's program.

As most of you are aware, funding was put in place for this in FY24 and is yet to be put under contract. I am certain the program will get underway and expect the timing of the award to become more clear in the coming months.

In summary, fiscal 2025 is steadily ramping up. And we are eager to realize the acceleration in our business over the next several months.

Beyond 2025, the outlook continues to improve with a broadening pipeline and increased visibility and predictability coming from our software offerings. Now, I'll turn the call over to Dennis to go through the financial and greater -- and an outlook in greater detail. Dennis?

Thank you, Richard. In the first quarter of fiscal 2025, we generated significant revenue growth for the prior year quarter. In the first quarter of fiscal '25, recurring software revenue increased 69% year over year.

Total software revenue in the quarter grew 64% year over year, including from an additional Genasys alert order in Los Angeles County. Hardware revenue grew 57% year over year. Gross profit margin was 45.8% in the December quarter, up nearly 12 points versus the year ago period.

This quarter's results reflect the benefit of higher revenue in both the hardware and software segments and a favorable mix of revenue this quarter.

Software margins continue to increase as a percentage of sales as recurring software revenue increases, plus hardware this quarter reflects a 2-point benefit from the sale through a favorable sales channel.

Conversely, last year's quarter included an order that was a 2 point drag on the margin. Quarterly operating expenses were $9.1 million this quarter versus $8.7 million in last year's first quarter. The primary increase was in SG&A for professional services, including planning-related cost related to the Puerto Rico project.

We anticipate quarterly operating expenses will be similar or slightly higher throughout the remainder of this fiscal year. On a GAAP basis, our first fiscal quarter operating loss was $5.9 million compared to an operating loss of $7.2 million in the year ago quarter.

Adjusted EBITDA, which excludes non-cash stock compensation, was a negative $4.8 million, a significant improvement from the negative $6 million in the first quarter of fiscal 2024.

GAAP net loss in this fiscal year's first quarter was $4.1 million, including $2.2 million of other income related to the quarterly adjustment to the fair value of warrants issued with the term loan last May. This compares to the net loss of $6.7 million in fiscal 2024's first quarter.

Cash, cash equivalents, and marketable securities totaled $13.9 million as of December 31, 2024, compared with $13.1 million as of the prior fiscal year end. Cash provided by operating activities in the first quarter of this fiscal year was $900,000 including an $8 million dollar deposit received for the first group of dams in Puerto Rico.

Subsequently to the end of the quarter, we received a second deposit for $2.1 million. Recently, we received written approval for the designs on the third group of dams. The expected deposit for the third group is nearly $11 million.

We will receive the remaining 40% of the purchase price upon a customer acceptance of each of the 19 dams in these three groups.

Now, I'd like to update everyone on our current expectations for how the project in Puerto Rico will flow through the financials. As we have seen, the cash for the group deposits are being received in advance of the work on each group of dams.

This is allowing us to procure the necessary inventory and materials to deliver against the installation and implementation plans of each group. Our current expectation is that we will utilize the percentage of completion methodology for revenue recognition on the most significant elements of the Puerto Rico project.

As Richard indicated, we've achieved our first milestones with the project. And initial revenues will be recorded this quarter with more significant revenue recognition coming in the June quarter when deliveries of hardware and implementation of the first group gets underway.

While the details of the POC accounting are still being finalized, we don't expect to recognize significant revenues until the second half of this fiscal year. Once revenue recognition begins, we anticipate a relatively steady contribution through project completion.

With a backlog that has grown to $40 million, including ARR of $8.8 million, and expanding pipeline of opportunities, Genasys' financial turnaround is well underway.

Thank you, Dennis. Now, operator, we're ready to open up the call for Q&A.

Thank you. Ladies and gentlemen, the floor is now open for questions. (Operator Instructions)

Mike Latimore, Northland Capital.

All right. Great. Thanks very much. Yeah, maybe just a little bit more clarity on the deployment time frames in Puerto Rico.

You said a little bit more revenue I think in the June quarter and then bigger in the second half, I guess. How many dams do you expect to get to to be deployed or maybe there's some other metrics that are important from a [rev rex] standpoint? But a little more detail on kind of the pattern of dam deployment this year would be great.

Mike, the process has begun on the island. The first group will be the most challenging, of course, like every new thing. But the second and third group will begin in parallel with the first one, just staggered a little bit.

So I think the lion's share of the revenue from the work being done on the island, we expect to substantially get through those three groups. Now there's a lot with that mic. But that's what we're running to at this point.

That makes sense. You talked about getting cash on the third group that could be $11 million, eventually. Do you think you would see a cash receipt on the fourth group by fiscal you're in?

Unlikely, it's not that we won't try. But that's a way off, Mike, so let's answer that as we get closer.

Got it. And then, you touch, you touched a little bit on the acoustic opportunities sort of generally I guess, can you elaborate on that a little bit? Are there even opportunities for that in the LA area, Southern California?

There is, the inbound since the fires, occurred. The inbound traffic we're getting on our website through emails, TV, and all is huge. So this, I think we'll see much more opportunities from an LRAD and a software perspective as a consequence of what's going on in the LA fires.

Oh, okay. Thanks a lot.

(Operator Instructions) Ed Woo, Ascendiant Capital.

Yeah. Congratulations on all the progress. Do you disclose what the backlog was after the first order?

Dennis did. Dennis. It's $40 million in hardware.

Okay. Thank you. And then, my question is as you're getting a lot more visibility and obviously, congratulations on the success that you had in -- during an alley fire during what was a very chaotic time. Have you noticed any increase in potential competition of people who are seeing this as a potential market to enter?

No, we haven't. It's a little too if that's if that happens that it's probably a little too soon to see it. But no, we haven't.

All right. Yeah, that's all the questions I have. And congratulations on the quarter. Thank you.

Thank you.

(Operator Instructions)

Scott Searle, Roth Capital.

Hey, good afternoon. Thanks for taking my questions. Nice to finally start to see PREPA rolling out. Hey, Richard, maybe to start from a high level, could you kind of help us understand the supply chain issues?

There had been constraints initially with PREPA, how you guys are prepared for that now, if that is still a gating factor going forward? And then just in terms of the change of administrations, is that having a positive, negative impact, or no impact in terms of not only the ability to secure business, but the ability to have funds released, against those projects?

Alright Scott, the answer to the first question is supply chain. There are issues in the supply chain we're managing through them. Frankly, the gate our beginning. But then catch up very quickly.

From a change of administrations, well, it'll affect us. I think it's going to affect everybody. But I think the business we're in from a public safety perspective is something and an increase in defense spending is something we're more likely to see from this administration than perhaps the past.

Okay. And maybe if I could follow up on the California wildfires, I guess two questions. First is, did you quantify at all the inbound opportunity in terms of what you're seeing? I'd be curious in terms of the number of counties or the number of pops that might be represented in terms of the activity that that's created.

But also, despite the very strong performance of the Genasys Protect system, if we look at past incidents, whether it was there -- there's high-profile false alerts that occurred in Florida, same thing, in the Carolinas when there were events.

There was some press out about some, I guess, faulty alerts that were provided. I'm wondering if you could provide some context in terms of what happened or in terms of the magnitude of it as well.

Because unlike some other events that were relatively well contained, for a shortened period of time, this went on for -- it's gone on for multiple weeks, right? So I wonder if you could give us some thoughts and updates on how to view those comments?

There's been a lot of negative press, Scott, on the LA county's response to the fires. And I'll get back to that in a moment. But there was an alert that went out on the Genasys system, a WEA alert.

The WEA alert is part of the national iPod system, so an alert across multiple channels went out. All of them were received in the geography that was intended except the WEA channel, and that defaulted to the entire county in less than -- and it was a warning. It wasn't an evacuation. In less than 3 minutes, it was canceled.

So that's what happened with Genasys, was subsequently put a couple of software changes in place to help alleviate that from ever happening again. So that was the one issue that we experienced here at Genasys. There have been thousands of messages that have been received, in some cases, days after they were sent.

And all of that noise set -- settle, centers around the cellular infrastructure, which like most major catastrophic events, the networks are going to be overwhelmed. And they certainly were in LA.

As to the performance of the Genasys Protect system from a perspective of saving lives. Scott, if you look at this fire that lasted two weeks, there were seven fires over tens of thousands of acres, over tens of thousands of homes burned to the ground. We have seen 28 or 29 losses of life.

And if you compare that to other fires that are much smaller and much shorter in duration and just parametrically measured what would potentially happen in LA County, it would likely be in the thousands. So the LA first responders and Office of Emergency Management did a terrific job of keeping people safe and out of harm's way.

I'll remind everybody images of people, passed away and burnt in their car in recent fires and past fires. Nobody died in their car in these LA fires. So the performance was terrific on both the behalf of LA County and the Genasys Protect platform.

Great, very helpful. And Richard, is there a way to quantify the opportunity? Or I'll call it intermediate opportunity that's arising as a result of the performance of the Genasys Protect system in terms of inbounds and otherwise, what that potentially represents as we start to think about '26 and '27?

There is, Scott. I don't have that in front of me, but we -- it is including in LA counties, even cities, and communities want it their own platform. So when the smoke clears, so to speak, I think we'll be in a better position to quantify that as we move into the next quarter.

Got you. And lastly, if I could just -- I wanted to go back to CROWS in terms of the current expected timeline of when you could start to see resolution on that front and it's starting to impact the P&L.

So that's 2 questions I think there is, as I mentioned in my remarks there are some very positive signs. And the exact timing I think will become more evident in the coming months. Yeah. In the coming months, that's all I can really say about that for now.

Great, very helpful. Thanks so much.

Thank you.

(Operator Instructions)

There appear to be no further questions at this time. I'd like to turn the floor back to Brian Alger for closing remarks.

Great. Thank you, everyone, for participating in today's call. A replay of the call will be available on the company's website, here shortly. I want to give you all a heads up that throughout today, tomorrow, February 12, Genasys will be participating in one on ones at the A.G.P. Virtual Tech Conference. And in March, on March 17 and 18, we'll also be participating in the Annual Roth Conference in Dana Point.

Traditional information and up-to-date news and activity regarding Genasys, our products and the customers we serve, we strongly recommend that you follow the company and Genasys Protect on your social networks, particularly LinkedIn and X, where we actively post and comment on events as they are happening.

We look forward to speaking with you again next quarter when we report fiscal second quarter 2025 results. Good night.

Thank you, ladies and gentlemen. This does conclude today's teleconference. We thank you for your participation. You may disconnect at this time. And have a great day.