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spk02: Good day, ladies and gentlemen, and welcome to the Genesis Inc. Fiscal First Quarter 2022 Conference Call. 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 on your telephone keypad to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Kim Rogers, Hayden IR, Investor Relations for Genesis. Ma'am, the floor is yours.
spk00: Thank you, Dagma. Good afternoon, and welcome to Genesis Incorporated's fiscal first quarter 2022 financial results conference call. I'm Kim Rogers with Hayden IR, the investor relations firm for Genesis. On the call with me today from Genesis are Richard Danforth, chief executive officer, and Dennis Klon, chief financial officer. 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 factor section of the company's Form 10-K for the fiscal year ended September 30th, 2021. 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. 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, and backlog, 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 the 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 customer 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. At this time, it's my pleasure to turn the call over to Genesis Chief Executive Officer, Richard Danforth. Please go ahead, Richard.
spk03: Thank you, Kim, and welcome, everyone. Fiscal 2022 is off to a solid start with another quarter of strong revenue, solid execution, and new business developments. First quarter revenues increased 33% year over year, despite external supply chain challenges that are disrupting businesses globally. We are managing our supply chain challenges primarily through reengineering our hardware components and developing alternative channels for sourcing our materials. We are taking proactive measures, including managing for longer lead times by building inventory and crucial components to fulfill our customer orders and meet our fiscal 2022 growth objectives. The year has started with good contract award activity with bookings totaling seven million and progress towards accelerating our software as a service or SaaS business. We recently announced new SaaS contracts with key wins in Texas, California and our first European Union public warning system win in the country of Slovenia. Our unified solutions are now on track to help protect more than 40 million lives globally. Said another way, lives covered globally by Genesis software increased by over 30% in the fiscal first quarter, demonstrating the global expansion which we are capable of. We grew our Genesis Emergency Management, or GEM, software service business in Texas with new contracts that replace competitors' emergency notification services in Madison County and in the town of Little Elm. In addition to renewing our GEM contract with the Texas Office of the Attorney General, new GEM software services were added to the Port of Houston to enhance worker and visitor safety. We had previously installed an integrated mass notification system at the port. The synergies of our suite of software and hardware systems offer key competitive advantages that are spurring new and follow-on orders and increasing pipeline growth. The synergies of our software and hardware systems enable Genesis to expand its engagement within Alameda County with a new mass notification and emergency warning system contract with the city of Berkeley. Alameda County launched Zone Haven emergency evacuation software and public safety resources in June 2021, which helped facilitate the new contract to install an integrated mass notification system network that will enable the city to broadcast voice notification with exceptional clarity and coverage. With our GEM software, IM&S outdoor speaker arrays can perform as a network or individually for citywide or hyperlocal notifications. A key differentiator of this configuration is its ability to continue operating when power or telecommunications infrastructure goes down. These unique features are examples of additional key competitive differentiating helping Genesys win new awards. In addition to our expansion in Alameda County, we recently signed Los Angeles County and four additional California counties to Zone Haven SAS multi-year contracts. Our critical evacuation planning, alerting, and access to real-time life safety information are now available to first responders, emergency service agencies, and more than 8.7 million California residents under annual recurring revenue contracts. These contracts have also opened the door to additional business opportunities with these and other counties and communities in California and in other states. In Europe, the country of Slovenia selected a National Emergency Warning System, or NEWS, to help keep more than 2 million residents and 3 million annual visitors safe and informed during emergencies and critical events. Genesis News was selected for several reasons, including the platform's advanced architecture and the ability for the Public Safety Agency to send geospecific alerts to any mobile phone in near real time. I'd like to congratulate our European team for this excellent work and this great award. EU activities for compliance to the mandate has picked up. We continue to anticipate that the mandated June of 2022 deadline will be extended primarily due to the impact of COVID in Europe. Our ongoing investment in resources to support our growing SaaS business will expand our emergency management platform by enhancing and integrating ZoneHaven with GEM and IM&S. ZoneHaven, an early-stage startup when we acquired them last June, realized they needed a larger partner to fulfill their vision of a nationwide and eventually global buildup. Genesis is making the investments to accelerate and augment Zonehaven's unique value proposition. We look in today's world and see opportunities for Zonehaven software to help safely manage evacuations and repopulations. As a part of our unified multi-channel platform, Zonehaven is an important growth catalyst for our SaaS offering. To benefit from larger GEM, IM&S, and Zonehaven SaaS contributions, will be a shift in our revenue mix towards higher margin recurring revenues and an expected increase in the company's market valuation. GEM Enterprise SaaS contracts opportunities, including major corporations, have been identified and are key targets for us in 2022. Additionally, we have identified opportunities in the United States and internationally with governments, cities, counties, and enterprise as areas of SaaS business growth. Importantly, we are successfully competing against other solution providers. Almost all of our multi-year GEM contract awards were announced replaced an incumbent. We believe we will continue to be successful in winning new enterprise and government businesses as competitive contracts come up for renewal. Our LWRAD hardware business remains strong, even as we continue to manage supply chain challenges. Our engineering and manufacturing teams have done great work in coming up with alternative solutions to meet LRAD product demand. In the first fiscal quarter, LRAD revenues were up 6%, and we also announced international defense, wildlife preservation, and US Navy orders totaling 3.7 million. Demand for critical communication remains robust as government and private enterprise are highly motivated to procure solutions that are readily implemented to help keep their constituencies safe and informed. We are enthusiastic about the growing market opportunities, given the strength of our integrated platform and the unique advantages, compatibility, and capabilities of our offerings, and our levels of active dialogue with an increasing number of potential customers. Our team is growing, providing more sales and technical capabilities to deliver on our strategy to increase SaaS-based revenue. We are reaffirming our fiscal 2022 outlook for another year of record revenue. While revenue expectation remains unchanged from a prior earnings release, we remain cautious regarding the ongoing supply chain disruptions. Our expectations are primarily based on our current backlog, which was nearly 31 million as of December 31st, 2021. With our backlog, business pipeline, and proactive measures we are taking to mitigate supply chain challenges, we are optimistic on delivering another record year of revenue. With that, I'll turn the call over to Dennis.
spk10: Thank you, Richard. Revenues for the fiscal 2022 first quarter were $10.7 million, up 33% from the prior year quarter. As compared to the same prior year period, LRAD revenue was $7.5 million, up 6%. IM&S revenue was $2.6 million, up 88%. and software revenue was $550,000, a decrease of $91,000 from the prior year quarter due to lower professional services performed in the current year offset by higher recurring revenue. Gross profit margin was 45.9%, roughly in line with 46.1% in the first quarter of fiscal 2021. Gross margin percentage was slightly lower due to higher cost from increased software-related personnel added via acquisition and new hires in the prior year to support the growing SaaS business, offset by the higher gross profit from the higher hardware revenue in the fiscal 2022 first quarter. We continue to expect gross profit margin to be plus or minus 50% for the fiscal year. Operating expenses were $6.5 million, up from $4.4 million in the same period a year ago. The increase is largely due to a 42% increase in sales and marketing personnel over the prior year to support future revenue growth opportunities, including the opening of new sales offices, additional personnel, primarily engineers for product development, and amortization of intangibles related to the Zone Haven acquisition. As you may recall from our last conference call, our fiscal 2022 business plan includes a year-over-year increase in operating expense. This increase is for strategic growth initiatives targeted at materially shifting our revenue mix towards a higher proportion of SAS revenue and expanding our margins. Net loss for the quarter was $1.3 million, or 4 cents per share, an increase from a net loss of $619,000, or 2 cents per share, in the fiscal 2021 first quarter. The increase was largely due to the increase in operating expenses to support the growth initiatives I just discussed. Adjusted EBITDA for the fiscal 2022 first quarter was a loss of $412,000 compared with an adjusted EBITDA loss of $230,000 in the prior fiscal year first quarter. We believe this information in comparisons of adjusted EBITDA enhances the overall understanding and visibility of our business performance. To that effect, a reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release. Cash, cash equivalents, and marketable securities totaled $17.5 million as of December 31, 2021, compared with $20.7 million as of the prior year end. Working capital totaled $15.4 million as of December 31, 2021, compared with $18 million as of September 30, 2021. Cash used in operating activities for the first three months of fiscal year 2022 was $2.7 million. This compares to cash provided by operating activities of $1.3 million in the same period last year. The fluctuation primarily reflects an inventory increase of approximately $2.8 million to hedge against supply chain challenges. We expect the inventory increase to convert to cash through customer shipments this fiscal year. The company has an authorized share buyback program for up to $5 million through December 31 of 2022. During the three months ended December 31, 2021, 116,868 shares were repurchased for $441,000. We may from time to time repurchase shares in open market transactions. However, investing in our business for future growth remains our primary objective for the allocation of capital. We would like to now open the call to Q&A. Operator?
spk02: 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 at this time. Our first question comes from Ryan Coley. Please state your question.
spk04: Hey, good evening, guys. Thanks for taking my questions. I was hoping you guys could just provide some color around the expected annual revenue contribution from the Slovenia countrywide win. And when do you guys expect that to begin, expect to begin recognizing revenue from that contract?
spk03: The revenue recognition will likely begin in our Q3. And we haven't put out in the public domain, Brian, the economics of it.
spk04: Okay, got it. But in terms of, I guess, how it's structured, is it, I think in the past, like maybe in Australia, a good portion of it was recognized as services revenue and then the remainder as license revenue. Any color on, you know, how it's structured?
spk03: Yeah, there was professional services required up front. It's not nearly as complex as Australia, however, so Where Australia took a full year, this is only expected to take a handful of months, and then it would turn over to a recurring revenue model.
spk04: Okay. Got it. That's helpful. And do you expect the Slovenia win to lead to additional follow-on business with companies and local governments within the country?
spk03: I do, and I think it's throughout Europe that opportunity exists.
spk04: Got it. And I was also curious, are there additional countries in the EU that have RFPs out right now? And do you feel pretty confident that you can win additional customers this year in the EU?
spk03: Yes, I do. And there's at least two countries with active RFPs right now and several right behind them. Brian, we have seen a good uptick in activity in the EU recently. in terms of getting compliant to the directive. So there's an awful lot of RFI and beginning to be an awful lot of RFP activity going on.
spk04: Got it, okay. In terms of the guidance, is it still your expectation for over 50% SAS bookings this year in addition to the $9 to $11 million increase in operating expenses?
spk03: Yeah, the OPEX is still on track with what we talked about before. The 50% will – our bookings for SAS will substantially exceed 50%. It takes some time for that to ramp up as revenue. But, you know, bookings in ARR are expected to go up substantially from what it was at the end of last year.
spk10: Yeah, the 50% would be year-over-year growth in the software business.
spk04: Right. Okay. Okay. Got it. Well, I'll leave it there. Thanks for taking the questions, guys. Thank you.
spk02: Okay, our next question comes from Mike Lattimore. Please state your question.
spk05: Thanks. Yeah, congratulations on the results here. Just in terms of the software pipeline, is there... one category that really stands out and should be the leader this year in software bookings? Is it Zone Haven? Is it the EU stuff? Is it enterprise? What's sort of the biggest potential software driver this year?
spk03: It's the SaaS offerings from Zone Haven and GEM. They have different cycles, Mike. The Zone Haven bookings have a much shorter lead time than the GEM ones do. So our pipeline is quite full and getting more full every day in both areas. We still enjoy a no competition kind of scenario with Zonehaven, whereas with GEM there is competition. But I think those two, from a bookings and revenue perspective, will see substantial improvements this year. And as I mentioned a moment ago, the national emergency warning systems being driven out of the EU, I think we'll see a substantial increase in activity there. I think the revenue, recurring revenue from that, those anticipated wins, will more likely be in our 2023 than in our 2022. Okay.
spk05: And then in terms of the Zone Haven business, well, I guess, first of all, you announced a number of wins recently. Are those all going to show up in, you know, March quarter bookings, or were some of those booked in the first quarter?
spk03: I don't know. What are you referencing, Mike?
spk05: Oh, the ones in my remarks? No, just you've announced Slovenia and Zone Haven wins and all that. I'm just kind of curious. Are those, you know, March quarter bookings, or are those –
spk03: For example, a couple weeks ago, we released the Los Angeles Zone Haven Award. That was a Q1 award. We needed to get the requisite authority and approvals to put it out in the public domain, which we did receive, but the award notification went out in Q2. Yep.
spk05: And then you gave a $7 million bookings number. Was that total bookings?
spk03: Yes.
spk05: And any comment on what percent of that was kind of in the software category?
spk03: We haven't put that out there, but it's a much bigger piece than it used to be. That's for sure.
spk05: Great. And then it sounds like you're guiding the gross margin being about the same this year as it was in fiscal 21. I think you said about 50%. And so you feel good about that despite the supply chain constraints?
spk03: We're managing through the supply chain constraints. We've seen price growth and availability issues across the spectrum of parts, but so far the team has kept up with it, and that's my expectation that they will continue to keep up with it. 50% gross margin, Dennis mentioned, and it's correct. It's historically what we're able to do, and we still believe that 50% plus or minus is where we're going to end up.
spk05: Great. And then just last one on Slovenia. Did you win sort of everything there, meaning the government business, the government front end, all the mobile operators, and whatever feature sets they needed, you know, cell broadcast, location-based stuff? Did you get kind of the full suite there?
spk03: No. The RFP was issued by the Ministry of Defense. Our obligation under the contract is for the front end and all of the location-based data. So we will be able to display where all the phones are in near real time and how they're moving. Okay.
spk02: Thank you.
spk03: You're welcome.
spk02: Okay. Our next question comes from Martin Yang. He states your question.
spk08: Hi, good afternoon. Thanks for taking the question. First question is, can you maybe give us a little more context on the Slovenia when, what was the competitive situation and how much weight was placed on pricing versus technology?
spk03: Martin, all the usual suspects were there, including Everbridge. Pricing was not the principle. award criteria, technical was.
spk08: Got it. Thanks. And also, looking into maybe your zone payment and GEM pipeline and ongoing customer engagement activities, which would you say is a little stronger at the moment and do you expect that, you know, how do you expect this fiscal year to shake out? the respective strength and customer interest on those software products.
spk03: Well, we've seen a significant uptick in interest for both Zone Haven and GEM. GEM has a longer cycle because of what I mentioned a moment ago. They're longer because of the competitive nature of them. When you get into Zone Haven, There's a recognized urgency to get the systems in place to the counties that we have sold them in. And that urgency amps up more as we enter fire season, which now appears to be like 12 months out of the year in California. You know, you all saw about the New Year's Eve fire in Colorado that took down thousands of homes in a less than 24-hour period. And fortunately, there was a limited loss of life there. But given circumstances, be it just a little bit different, albeit at night or when people weren't home, there could have been a much more significant loss of life. And that kind of an event really shines a light on the utility and the need for Zone Haven. So we see a big uptick every time we've got events like that that happen.
spk08: Todd, thank you. A final question on OPEX for the year. Given that maybe Omicron and COVID may extend the reopening pace, do you think that the investment, do you still expect the same pace of your OPEX investments for this year? Yes. Got it. Thank you. You're welcome.
spk02: Okay. Our next question comes from Aman Gulani, please state your question.
spk06: Thanks for taking my question here, gentlemen. And I just have one question. Most of my questions have been answered. But I wanted to ask about your investment in your SaaS offerings. Is that largely going to be going to, like, expanding headcount for engineers, or is it more on the sales side?
spk03: Both. You know, we saw a 40-something percent increase, 42% increase in engineering in our fiscal 2021. Sales and marketing. Sales and marketing. What was engineering? It was in the 40s as well. So we had a significant, like a 40 to 45% increase in both sales and marketing and engineering, 21 to 22. And that growth will continue in this fiscal year.
spk08: Okay. Thank you. That's all I have. Okay, thank you.
spk02: Our next question comes from Ed Wu. Please state your question.
spk07: Yeah, congratulations on the quarter. My question is on, you know, M&A opportunities. You know, you guys did a number of acquisitions in the past year. Are you guys still opportunistic out there?
spk03: Yes.
spk07: And how's the M&A environment?
spk03: Ed, it's up and down, but as you know, we're always active and looking. You know, valuations have actually come down a bit, which makes them more affordable, which is good. But, yeah, they're an important part of our growth levers, and we'll continue to be opportunistic with additional M&A.
spk07: Great. Is there any particular focus, either international or technology- or customer reach that you're looking at, or is it just whatever opportunistic will come by?
spk03: It's generally in the critical communication area, software and recurring revenue focused, SAS focused.
spk07: Great. Well, thank you, and good luck.
spk03: Thank you.
spk02: Our next question comes from Tucker Anderson. Please state your question.
spk01: Yes, first let me add my congratulations on the Slovenia win, and a lot of my questions have been answered, but I do have a couple. With regard to the supply chain disruptions, do most of them relate to areas where semiconductors are in short supply, or are there other materials besides that that you're seeing supply chain problems with?
spk03: It's beyond just microcircuits. Raw materials, resins, steel, Even plywood for a while was hard to come by. So it covers the gambit. Nothing's immune to it right now.
spk01: Which implies that it's likely to continue for a while. The other question is with regard to labor.
spk03: That's absolutely correct. That is correct. There's no science yet for tailing off. Yeah.
spk01: The other question is with regard to labor availability and compensation cost pressures. Could you sort of talk what you're seeing there?
spk03: Labor availability, we've been very fortunate, both in the U.S., Canada, and in Spain. Particularly Spain, we've substantially increased the headcount over there. Here in the U.S., it's been sales and marketing, mainly growth, and we've been able to attract... the necessary folks we needed to do the job we're trying to do, and we continue to add to the sales force here in the United States. So there is upward pressure on the salaries, the compensation, for sure, and that extends to the hourly folks building hardware, to the engineers manufacturing hardware and software, and sort of across the board.
spk01: Well, once again, congratulations, and thank you very much. Thank you.
spk02: Okay, our next question comes from Paul O'Keefe. Please state your question.
spk09: Hey, thank you for taking my call. Most of my questions have been answered. Richard, do you feel you guys have enough cash?
spk03: Yeah, we have plenty of cash, Paul. Our working capital. If you look at our cash consumption in Q1, it was 2.7, I think, in total from an operating basis, and it's all in inventory. And that was a tactic. I think I even announced we would likely be doing things like that on the last conference call. But in order for us to hit our revenue, we need to secure the material as soon as it's made available, and that was the consumption of cash for Q1. And that, as you know, is a temporary thing. As Dennis mentioned in his remarks, it turns to cash when we ship the product.
spk09: Hey, as long as I've owned, Q1 has always been a weaker quarter, but this one seems to be getting up there. But I was just curious. I like more cash. Okay. Thank you. Congrats on the quarter. You're welcome. I hope you're going to have a great year. Thank you.
spk02: Okay, and our final question is from Brian Coley. Please state your question.
spk04: Hey, thanks for taking the follow-up here. I was curious on the decline in software revenue, what drove the year-over-year step down in services revenue? Was it just a contract ending and not renewing, or was there kind of higher work time?
spk03: Yes, it was that. So a year ago, we had a substantial development activity for Australia. Australia went live on September of last year. So that non-recurring completed, and now it's into a recurring revenue model.
spk10: And we had about a year's worth of development work. I think it may have been 10 months of development work that started approximately October 1 of 2020. So the first month or so of our fiscal 21, and as Richard said, it went live on September 1. So There was quite a bit. We had two different cell carriers that we were doing the work for. So that's the reason for the decrease in software revenue.
spk04: Okay. Got it. I mean, would it be your expectation for software revenue to increase sequentially moving forward for the rest of this year?
spk03: Yes. It will follow our bookings, Brian. So you keep looking at press releases. We'll try to announce all wins. We're seeing a substantial uptick in RFPs and a substantial uptick in SaaS bookings.
spk04: Got it. Okay. Thanks for the follow-ups.
spk03: You're welcome.
spk02: Okay, Richard, I'll turn it back over to you for closing remarks.
spk03: Dennis will handle those.
spk10: We regularly discuss our business at investor conferences throughout the year. This week, we'll be participating in the Best Ideas Virtual Investor Conference. Additional investor conference presentations are planned throughout this fiscal year. Thank you for participating in today's call. We look forward to speaking with you again next quarter when we report fiscal second quarter 2022 results. Thank you.
spk02: 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.
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