Genasys Inc.

Good day, ladies and gentlemen, and welcome to today's Genesis Financial First Quarter 2020 Conference Call. All lines are in listen-only mode. It is my pleasure now to turn the floor over to Sasha Kalera. Sir, the floor is yours.

Thank you. Thank you, Dagmar. Good afternoon, everyone. Welcome to Genesis Fiscal First Quarter 2021 Financial Results Conference Call. I'm Satya Chilada, Investor Relations for Genesys. With me on the call today are Richard Danforth, Chief Executive Officer, and Dennis Klom, Chief Financial Officer of Genesys. Before we begin, I would like to take this opportunity to remind you that during the course of this call, management will make forward-looking statements. Other than the statements of historical facts, statements made during this call that are forward-looking statements are based on current expectations. During this call, we may discuss company's plans, expectations, outlook, or forecast for future performance. These forward-looking statements are subject to a number of risks and uncertainties, including the consequences of COVID-19 outbreak and other risks and uncertainties. many of which involve factors or circumstances that are beyond the company's control. These forward-looking statements are based on information and management expectations as of today. Future results may differ materially from our current expectations. For more information regarding potential risks and uncertainties, please refer to the risk factors section of the company's Form 10-K for the fiscal year ended September 1st. Genesis disclaims any intent or obligation to update those forward-looking statements except as otherwise specifically stated. We may also discuss non-GAAP operational metrics of bookings and backlog, which we believe provide helpful information to investors with respect to evaluating the company's performance. 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 the 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 our website. At this time, it's my pleasure to turn over the floor to Genesis CFO, Dennis Klon. Dennis?

Thank you, Satya, and welcome, everyone. I will open today's call with a recap of the fiscal first quarter 2021 financial results. Richard will then provide an update on the business. Afterward, we will open the call for questions. Revenues for the first quarter of fiscal 2021 were $8 million, down from $8.8 million in the prior year quarter due to the delayed shipment of an order because the customer-required payment had not yet been received prior to the quarter end. Had the payment been made on time, revenue would have been essentially in line with Q1 of the prior year. The delayed payment was subsequently received and the order shipped in early January. Gross profit was $3.7 million, or 46.1% of revenue. Gross profit decreased from the first quarter in fiscal 2020 due to lower hardware shipments, a 95% increase in software engineering personnel over last year from the recent addition of Amica Mobile and additional employees to support the Australia, European Union, and enterprise software initiatives, and additional engineering charges resulting from a more precise process to charge engineering expenses to cost of sales. Excluding this additional cost, gross profit as a percentage of sales would have been 51% compared with 52.4% in the prior year. Operating expenses were $4.4 million, an increase from $3.9 million in the same period a year ago. The growth was largely due to a 50% increase in sales and marketing personnel over the prior year period to support future revenue growth opportunities. Net loss for the quarter was $600,000, or two cents per share, compared with net income of $600,000, or two cents per share, in the first quarter of fiscal 2020. The change was due primarily to the lower revenue and increased engineering, sales, and marketing expenses. We generated $1.3 million in cash from operating activities in spite of the lower revenue and increased operating expenses. Our balance sheet remains strong. Cash, cash equivalents, and marketable securities totaled $27.5 million on December 31, 2020, down from $31.4 million on September 30, 2020, principally due to the acquisition of AmicaMobile. Working capital totaled 25.6 million on December 31, 2020, compared to 29.8 million on September 30, 2020. With that, I'd like to turn the call over to Richard.

Thank you, Dennis, and good afternoon to everybody on the call. During our last call, I mentioned that despite record revenues in fiscal year 2020, bookings had been impacted by the worldwide pandemic as governments, communities, and businesses were were adapting to the new normal. We saw this play out as fiscal 2021 first quarter bookings were a record 12.2 million, 43% higher than the first six months of fiscal 2020. Backlog at December 31st, 2020 was 21.5 million, down slightly from the period fiscal year's quarter. A strong business pipeline bookings and expected backlog in the fiscal second quarter positioned the company for another year of record revenues. Last quarter we completed the acquisition of Amica Mobile, booked a $5.1 million U.S. Army follow-on order, successfully completed an EU public warning system initiative pilot program for a large European country, and responded to RFPs from several European countries and experienced a surge in software business activity in North America, giving us a strong start to fiscal 2021. To help meet the growing domestic and international demand for Genesys systems and solutions, we have added 16 more people to our sales force in the last four quarters, stood up international offices in Singapore and Dubai, and appointed business development professionals with extensive regional sales experience in the Asia Pacific, the Middle East, Africa, Central Asia, and Latin America. The technology and personal investment we continue to make are significantly increasing business opportunities for Genesys mass messaging software, enterprise safety and emergency management software, and integrated solutions. Many of these opportunities include governments and communities that are moving ahead with planned emergency warning initiatives to better protect citizens and workers as part of a reopening and adjusting to the new normal. Our Australian Emergency Alerting Awards and the pandemic have increased interest and awareness of the national emergency warning solution for the European Union National Public Warning System Directive. RFPs are underway as many EU member states plan to allocate EU COVID funds to fulfill the directive that mandates that every EU country implement a public warning system that can send emergency alerts to the mobile phones of residents and visitors alike. We are currently participating in several RFPs with multiple countries and mobile network operators and recently completed a successful pilot program with a large EU country and its mobile telecom providers. The pilot program demonstrated our news, cell broadcast, location-based SMS, genesis speaker arrays, and performance across 2G, 3G, 4G, and 5G networks. To give some additional content around these opportunities, there are between two and five mobile network operators per EU member state, all of which will likely deploy a software platform similar to news that features SMS, cell broadcasts, or a combination of both. The integration and rollout of our enterprise safety software is quickly progressing. Government agencies and business enterprises are evaluating software systems that help ensure the safety and productivity of the many staff members and employees that continue to work from home. Many agencies and businesses are adapting to and even encouraging this growing work from home trend. In addition to professional sports teams, stadiums, Canadian and U.S. government agencies, and large North American companies who currently use Genesis software, we are working to close multi-year recurring revenue contracts with cities, universities, and additional government agencies and businesses in several U.S. states and Canada. While the enterprise safety software market forecasts to grow exponentially this decade, Genesis is in an extremely strong position to win first-time contracts and replace license renewals with our unified multi-channel solutions. After approving our emergency management software and implementing integrated safety systems in Laguna Beach, Mill Valley, and Newport Beach over the last two years, we are now on track to land additional integrated solutions contracts. in addition to the ongoing expansion of Laguna Beach's citywide early warning system and enhancing the installation in Mill Valley and Newport Beach. Contracts from other cities and communities in California and elsewhere are expected this fiscal year. We are also competing for integrated software and hardware contracts that include national tsunami and earthquake early warning systems, regional public safety systems, and visitor contact tracking for areas with large tourism-based economies. As the only provider of a unified platform that includes emergency management software, industry-leading voice broadcast speaker arrays, and multi-channel alerting solutions, we anticipate substantial growth in this emerging area of our business. While much uncertainty related to COVID-19 remains, to date we have managed through the disruptions caused by this worldwide pandemic. Genesys team members around the world continue to do terrific work in moving our key business initiatives forward, despite many of them continuing to work from home due to the local COVID restrictions. Our manufacturing facility remains open and fulfilling orders for our central communication systems that help keep people safe. This fiscal year, we are continuing to pursue additional synergistic acquisitions as part of our strategy to expand the company's business grow revenues, and maximize shareholder value. We also anticipate several integrated public safety mass notification system awards and another large U.S. Army program of record award for the LRAD 450 XLs. Our multi-year contracts and awards in Australia and the many recent and expected requests for proposals from the European Union Initiative and from North America for our enterprise software solutions have us well positioned for a record software bookings and revenue. In summary, I'm very optimistic about the future and the growing software and hardware business opportunities. With record fiscal first quarter bookings and strong bookings and backlog growth expected in our fiscal second quarter, Genesys is on pace for another year of record revenues. With that, I'll turn the call back over to the operator for Q&A.

Operator?

Thank you. The floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. Questions will be taken in the order they were received. If at any time your question has been answered, you can remove yourself from the queue by pressing 1. Again, ladies and gentlemen, if you do have a question, please press star 1 on your telephone keypad. Okay, our first question comes from Mike Lattimore. Please state your question.

The bookings look very strong there. Congratulations on that. So just wanted to touch on a little bit of the, I guess, first the European trial. You said, I think you said it was complete. I guess, any more clarity you can provide there? You know, what would be the next step? And if so, when would that next step be?

Next step would be RFPs, and they're in process now, Mike.

Okay. Then you also said you responded to, I think you said multiple country RFPs. I guess, are you responding to countries specifically, or is it countries and MNOs? And then kind of are you seeing sort of everybody wanting cell broadcasts and SMS, or are some wanting kind of one or the other to start?

Several countries, as well as network operators within those countries, front end and back end, SMS and cell broadcast, all of the above. Okay.

And when you say country, do you mean a government entity within the country or the mobile operator in the country?

No, it will be the government entity for the front end and the mobile operators for the back end.

Okay. Great. And then are they giving you any indication on how long before they make some decisions?

They are. They are stating that it could be within the next couple of months, but like all these things, they take longer than anybody ever expects.

And is that a little bit more near term than you? I mean, I think originally you were talking about, I think mid-year or maybe second half of the year. So is that a little bit sooner than expected?

It is, but I'm going to stick with what I said before, Mike. I think the principal revenue will begin in our fiscal 2022. Sure. Okay.

And then just last on the sales force hires, I think you said you've added 16 people I can't remember, is there more to go beyond that, and if so, when do you think that'll be done?

Yes, so far in our second quarter, we've added five additional, and we still have more to go.

Okay. And it should be, the hiring, do you think it'll be complete in the next couple quarters then?

Yes. Okay. All right, thank you. Thank you, Mike.

Okay. Next call, please. Our next question comes from Ed Wu with Ascendient Capital. Please state your question.

Yeah, thank you. My question is on the Amiga acquisition. Have you guys feel like you guys have fully integrated, you know, the team and the salespeople?

Yeah, the team and the salespeople we have, Ed. We're still completing the integration of the software platforms, and that will continue throughout this fiscal year. But, yeah, the sales team is integrated and the engineering team are integrated.

Great. And then you did mention that you guys are still on the hunt for additional acquisitions. How is the M&A opportunities market valuation out there looking?

I think there's plenty out there, Ed. As you're well aware, the companies that operate in the SaaS market are Multiple demands are very high. So that's the challenge we face through all of this if we're going to buy in the SAS world.

Great. And then my last question, you know, you mentioned that, you know, there was a big order right at the end of the quarter that got pushed out, you know, and a part of it was due to the new normal with the pandemic. Is that something we should be expecting, you know, for the next couple of quarters as well? No.

It can happen, but this was a particularly complicated transaction in a foreign country.

All right, great. Well, thanks for the caller, and I wish you guys good luck. Thank you.

Thank you. Thank you, Ed. Operator, next call, please.

Okay, our next question comes from Ryan McWilliams with Stevens, Inc. Please state your question.

Question. So just on the software side of the house, can you talk about some of the conversations you're having in the enterprise along with the state and local market? And do you think demand for emergency communications in these markets could actually be stronger this year versus last year?

I do think they already are stronger, Ryan. And to your first question, we're seeing cities, counties, enterprise, private enterprise business, colleges, townships, so municipalities and large businesses.

That's great. And then are you seeing more demand in the U.S. and Canada? Perfect. And then are you seeing more demand from these large enterprises and as their workforces are now remote. Do they feel a need for a new solution to protect their employees now that those employees are more distributed and not in a central hub or headquarters?

Yes. That's absolutely driving demand. So two things are happening in the industry. There's still a great deal of people that are working from home or working partially from home and partially from in the office on different days and different shifts within days. So The coordination of all of that is something that the enterprise is looking for, and we're doing our best to prosecute the opportunities.

Excellent. Yeah, I definitely think duty of care for those more distributed employees is going to be a theme this year. I have two questions on public warning, if you don't mind. Just to start, as you're having these conversations for public warning systems, Generally, are you bidding on the front end and the back end at the same time, or do you think the back end is generally still going to be a separate bidding process with the mobile network operator?

It will absolutely be a second bidding process. So there will be an RFP for the front end, typically from the – not typically, but from the country government. And then whether it's location-based SMS or cell broadcast, it would be the individual carriers.

Do you think those mobile network operator discussions, they could follow through beyond the June 2022 deadline? It's just the countries that really need to have the system in place beforehand or the deal in place to implement the system beforehand?

I don't believe the June 2022 deadline is going to be met, Ryan. I mean, it was probably unrealistic to begin with, and then you throw the worldwide pandemic, and it only moves things to the right, so. You know, I think while we have begun to see the RFPs flow, and I think we'll see that all through, you know, at least the first half of next year. So, you know, it's going to be a 2022, late 2022, 2023 kind of notional implementation process.

Perfect. Last question for me, and thanks for the time once again. is I like to see that, you know, you're expanding your sales distribution globally, but in many countries that aren't covered under this EU opportunity. I'd love to hear your thought process on some of those new offices opening up and, like, why you think of public warning as a global opportunity.

Thanks. I've mentioned this on a prior call, I believe, but In terms of international business development, historically we had conducted that from here in the United States. Having a global presence, an office, banking capabilities in the region, and a presence that can reach out to the customer base despite the pandemic and the multiple time zone differences that we face, adds. It just adds in our ability to close on public safety systems. increases in public safety systems from both the integrated systems like Laguna Beach and others, as well as the SMS and cell broadcast in both the Asia Pacific and the Middle East regions particularly. So I think, Ryan, it's just following the track of increased demand for public safety systems around the world.

Excellent. Appreciate the call. Thanks, guys.

Thank you, Ryan. Next call. Yeah, go ahead, please.

Our next question comes from Rick Neaton with River Shore Investments. Please state your question.

Hi. Good afternoon, gentlemen. Most of my questions have been asked and answered, but in looking at the prospect of exponential increases in opportunities in emergency management and software as a service, we should be looking at these in 2022 through 2024. Is that the timeframe we should be looking at for this exponential increase?

Yes.

Okay. Thanks. Everything else has been asked, answered, and covered in your prepared remarks, so thank you for being so thorough.

You're welcome. Thanks, Rick.

You're welcome.

Next call, please.

Okay. Our next question comes from Robert Smith. from the Center for Performance. Please state your question.

Mr. Good afternoon. Thanks for taking my questions. Looking at the EU mandate opportunities, is there a way to come up with a figure as to what the total market possibility is there, opportunity?

Mr. There is, Robert, but I have not commented on that publicly. It would lead to potential, you know, pricing disclosures. There is public data that's out there that gives an opinion on the overall size of the market in the EU.

Okay. Thank you. And so your comments about the year touch upon top-line revenue, but there's no comment about the bottom line, so to speak. Is that a reflection of a margin question or just that's You don't want to say anything about them?

No, I'd be happy to say something. We expect our gross margins to be in line with historical averages for year over year. We expect in our experience, and I've been talking about it for several quarters, that we are experiencing an increase in expenses associated with particularly sales and marketing to support our growth initiatives, and that that expense will be higher in our fiscal 21 than it was in 2020. We still expect the company to record record revenues, be profitable, and be a positive cash generator in our fiscal 2020. Okay. Thanks so much. Okay.

Okay, and our next question comes from Lloyd Corton with Unique Investments. He made your question.

Hi, gentlemen. Just one question. The comment you just made on what's out there publicly on the size of the potential market, can you tell me what that number is?

No, I'll point you to where to go to find it, and it's out there. Even Ryan, who was talking earlier, has published things on the size of that market.

Where do I go for it?

Lloyd, I can get – I will point you to a site that will have it. I just don't have that info sitting here right now, but I'll send it to you.

Thank you so much.

Bye. Bye. Bye.

Okay, our next question comes from Will Hamilton with Man at the Kill. Please state your question.

Hey, guys. Just a question on the sales force. Can you give us a sense as to what are the productivity targets for reps that you hire? I mean, obviously not in year one, but once they mature, what kind of revenue do you expect these guys or women to bring in?

different depending on the flavor of product systems and software they're selling. So it's much different in Europe for the EU initiative than it is in the enterprise market here in the U.S. I won't give you a specific number, Will, but I'll tell you that the EU initiatives by country is in the millions. And you can get a small city here in the United States or Canada for $25,000. So it's all over the map.

Right. How many of the 20 you've hired or so are dedicated towards Europe versus U.S. or other markets?

The 16 we hired last year, Dennis has a chart, included four in Europe, I believe. Five in Europe, sorry. And of the 16, therefore 11 would be in the enterprise suite here in the U.S. And that includes the three or so that joined us as part of the acquisition.

Okay. And then one question just on cadence of revenue. I think previously you talked about maybe a 40-60 split this year. I'm not sure if I'm wrong, but is that what you're still thinking in terms of the cadence of the revenue between first half, second half?

It'll be similar to that, Will.

Okay, thank you.

You're welcome.

Okay, and it doesn't look like we have any further questions. Again, ladies and gentlemen, if you would like to ask a question, please press star 1.

Bruce Janigian, and I have a question about the Navy research contract. Could you give us a little information about that?

Sure, Bruce. We competed in one for a Phase I SBIR with the United States Navy to do some research on next-generation long-range acoustic device technology.

Is there a payment associated with that, or how does it go forward?

The first phase is approximately a 240K development project. There will be an evaluation and reports submitted by us to the Navy. The Navy will then make a decision to go on to a Phase II SBIR. The limits on Phase II SBIRs are right around $1 million. And if it gets through Phase II and moves on to Phase III, it's at a point where the product will be commercialized.

Great.

And the IT will be owned by the company.

Great. Thank you.

You're welcome.

Again, ladies and gentlemen, if you would like to ask a question, please press star 1. Okay, we have a question from Robert Smith. Please state your question.

Yeah, just a thought. If this contract had not been pushed into the subsequent quarter, what might the numbers have looked like for the reporting period?

Dennis?

It would have been – so revenue would have been flat compared to the prior year, and it would have been significant – the loss would have been probably cut in half or a little bit more than that. Okay.

Thank you. Ladies and gentlemen, that's all the time we have right now.

Okay. There are no further questions. I'll turn the call back over to the speaker for any closing remarks.

Thank you. We regularly discuss our business at investor events during the year. We invite you to join us for these events. Thank you for participating in today's call. We look forward to speaking with you again in a few months when we report fiscal 2021 second quarter results.

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time, and have a great day.