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spk01: Good day, ladies and gentlemen, and welcome to the Genesis, Inc. Fiscal Year 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 of Hayden IR. Ma'am, the floor is yours.
spk00: Thank you, Dagma. Good afternoon and welcome to Genesis Incorporated fourth quarter and fiscal year 2022 financial results conference call. I'm Kim Rogers with Hayden IR, the investor relations firm for Genesis. With me on the call today 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, as 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 ended September 30th, 2021 and 2022. 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 also discuss non-GAAP financial measures and operational metrics, including adjusted EBITDA, bookings, and backlogs. which we believe provide helpful information to investors with respect to evaluating the company's performance. For a 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. Booking is an internal operational metric that measures the total dollar value of customer purchases orders executed in a given period, regardless of the timing of the related revenue recognition. Backlog is a measure of purchase orders received that are scheduled to ship in the next 12 months. Finally, a replay of this call will be available in approximately four hours through the investor relations page on the company's website. At this time, It's my pleasure to turn the call over to Genesys Chief Executive Officer, Richard Danforth. Please go ahead, Richard.
spk02: Thank you, Kim, and welcome to everybody. Fiscal 2022 was an exceptional year for Genesys. We delivered 15% growth in revenue and a positive adjusted EBITDA while accelerating our strategic shift towards a higher margin recurring revenue model. Our investments in software sales and support led to key contract wins fueled expansion in existing markets, and paved the way for entry into new markets and geographies. We expanded our SaaS platform into seven countries, 19 states, and 21 California counties. We self-funded more than $9 million in SaaS platform investments and still generated $1 million in cash from operations in the quarter and $468,000 for the year. These investments are creating a strong economic engine that will meet the growing demands for our SaaS solutions. After repurchasing approximately $1 million in company stock, we ended the year with no debt and $19.9 million in cash, cash equivalents, and marketable securities. The cash generating power of our core business and the strength of our balance sheets continue to provide us with the resources and flexibility to execute our long-term growth strategy. Fiscal 2022, we delivered 15% growth in revenue and a positive adjusted EBITDA in spite of the numerous global supply chain challenges we faced this year. We want to thank the team for their hard work and dedication in achieving these notable accomplishments. They work relentlessly to meet customer commitments by engineering products, second sourcing, or building critical components inventory to avoid unforeseen changes or shortages. At an executive level, we continued making strategic investments to accelerate our SAS revenue. We added new enterprise, sled, and utility customers and significantly increased our SAS coverage in the United States beyond our strong foothold in California by expanding into 19 other states. These gains are directly related to our investment in sales, software development, and customer success teams. We also hired a chief revenue officer, Dennis Walsh, who brings extensive enterprise SAS experience and relationships. We offer SAS solutions for numerous verticals, including utilities, enterprise, stadiums, and campuses, as well as the private sector. In the fourth quarter, we closed three new SAS contracts in the utility sector, which included Golden State Water Company, Florida Municipal Power Agency, and Northwest Natural in Washington State. In addition to providing accurate real-time safety alerts and notification throughout multiple channels, Golden State Water and Florida Municipal Power Agency will use GEM, our mass notification platform, to inform utility customers of service outages, system maintenance, and other customer-related communications. To give you an idea of that potential of this vertical, the Golden State Water Company contracts covers more than 260,000 customers. The Florida Municipal Power Agency, GEM, or Mass Notification Co-op Agreement, covers over 2.7 million home and business customers throughout Florida. Northwest Natural is deploying GEM to deliver alerts and internal communication to workers, staff, and contractors. An enterprise success to highlight, which closed at the end of our fourth quarter, is a multi-year enterprise SaaS contract win with Volvo, the second global automaker to select GEM to replace a competitive system and better safeguard their domestic and international workforce. The GEM platform features real-time situational awareness in a single dashboard, offers duress buttons, field check-ins, and recipient locations to help keep employees and everyone onsite, informed, and safe in a crisis. Healthy pipeline activity in our SAS products is increasingly converting to wins across end markets and geographies, including recent key wins in the enterprise utilities and state and local sector. CHEM and Zonehaven can be purchased separately as a comprehensive offering and or bundled with IM&S, our integrated emergency warning system. Investments throughout fiscal year 2022 have improved our sales productivity, lead generation, as we continue to grow our SaaS pipeline. Increasingly, customers who purchase one SaaS or hardware product are adding our other offerings to maximize the benefit of our emergency notification, crisis management, and evacuation solutions. To date, 13 California counties have purchased multiple Genesys software and hardware offerings. five of which have purchased all Genesis offerings. IMNS, Integrated Mass Notification System, Mass Communication Software, and Evacuation Software. Another four counties have purchased Mass Communication Software and our Integrated Mass Notification Systems, and another four purchased Mass Notification and Evacuation Software. As the only company offering a unified communication platform, upselling, and cross-selling within our growing customer base are further key growth initiatives for our SaaS platform. Turning to our international business, with the EU, Middle East, Africa, and Asia Pacific regions reopened after COVID, we expect stronger sales and revenue contributions from all of our international sales regions in fiscal 2023. We anticipate continued revenue growth in our fiscal 2023. Our hardware business will start from a lower backlog than the previous year due to timing of orders carrying over from fiscal 2022 to fiscal 2023. Fiscal fourth quarter bookings were 6 million, bringing total bookings for fiscal 2022 to 38.2. 18 million in previously expected fiscal 2022 bookings are now anticipated to close in fiscal 2023. Our fiscal 2022 bookings result in a backlog of $22 million that we expect to deliver in the fiscal 2023. The carryover of orders, stronger international sales, continued acoustic hailing device deliveries, and increased software service sales are anticipated to augment fiscal 2023 bookings and backlogs. Further, we are building a strong base of annual recurring revenue from our software business, and it will represent a larger portion of our revenue in fiscal 2023. Last year, we discussed a $9 to $11 million increase in operating expenses to support our SaaS business growth. The increase in fiscal 2022 was $6.4 million, and we anticipate operating expenses to increase by approximately $5 million in fiscal 2023, reflecting our continued confidence and excitement in our SaaS business. Through our investments to date, we have proven our SaaS business model by replacing competitors and landing contracts with global automobile manufacturing, professional sports organizations, sled, utility, and enterprise customers. Our strategic shift towards a higher margin recurring revenue model is gaining momentum, as evidenced by the strong performance of our SaaS offerings. Fiscal 2022 strategic investments led to key wins and fueled expansion in existing markets and entry into new markets and geography. That momentum has continued in the first quarter of fiscal 2023 with the previously mentioned Volvo and the three utility contracts, as well as major gem awards in San Diego County and further expansion of Zone Haven into Riverside and four additional California counties. Further orders are expected this quarter. Our SaaS platform investments are creating a strong economic engine that will meet the growing demand for critical communication systems that help keep people safe. The cash-generating power of our core business and the strength of our balance sheet continue to provide us with the resources and flexibility to execute our long-term growth strategy. With a robust pipeline, current bookings and backlogs, the carryover of anticipated orders, stronger international sales, continued acoustic hailing rights deliveries, and increasing SAS sales, we expect continued revenue growth in fiscal 2023. The entire Genesis team looks forward to an exciting FY23. And with that, I'll turn it over to Dennis.
spk03: Thank you, Richard. Revenues for the fiscal 2022 fourth quarter were $16 million, up 7% from the prior year quarter. As compared to the same prior year period, AHD revenue was $11.8 million, down 15%. IM&S revenue was $3 million, five times greater than last year. And software revenue was $1.1 million, up 63%. Within that software, recurring SAS revenue from the Americas increased 231% over the prior year quarter. Gross profit margin was 47.8%, compared with 51.2% in the fourth quarter of fiscal 2021. Gross profit as a percentage of revenue was lower due to an increase in software costs and higher product costs. Operating expenses were $20.4 million, up from $7 million in the same period a year ago, largely due to a non-cash $13.2 million goodwill impairment charge associated with the software reporting unit. The non-cash impairment charge was taken to reduce the company's goodwill assets. due to sustained declines in major stock market indices since the beginning of the year, resulting in a decrease in SAS market multiples from 15.5 to 5.5 times annual revenues. We evaluate goodwill for impairment on an annual basis in our fiscal fourth quarter. As a result of the impairment analysis, The company recorded the impairment loss on Goodwill at $13.2 million associated with the software reporting unit for the three and 12 months ended September 30, 2022. Excluding the impairment charge, operating expenses in the quarter were $7.3 million, a 4% increase compared to the prior year period. Net loss for the quarter was $13.8 million, or $0.38 per share, compared with net income of $8.8 million in the fiscal 21 fourth quarter. The decrease was largely due to the non-cash $13.2 million goodwill impairment charge, lower gross profit margin on higher sales, and a non-cash income tax expense of $1 million related to a valuation allowance against deferred tax assets. Revenues for the full fiscal year 22 were $54 million, a 15% increase over the prior year. As compared to the same prior year period, IMNS revenue grew 457% to $11.4 million, and software revenue grew 11% to $3.1 million. These increases were partially offset by a 6% decrease in AHD revenue to $39.5 million. The increase in software revenue was largely due to growth in software-as-a-service revenue which increased 427% over the prior year, partially offset by a 38% decrease in professional services revenue. Gross profit margin was 48.7% for the full year, compared with 49.8% in fiscal 21. Gross profit as a percentage of revenue was lower compared to the prior year, primarily due to increased cost associated with continued investment in personnel to support the growth of our software revenue and higher product cost in the second half of fiscal 2022. Operating expenses for the total year were $41.9 million, up from $22.3 million in fiscal 2021, largely due to the non-cash $13.2 million goodwill impairment charge that I mentioned in the discussion of the fourth quarter results. Excluding the goodwill impairment, total year operating expenses were $28.7 million, The increase in operating expenses was also driven by the planned increases in SG&A and research and development over the prior year to support SAS revenue growth. These increases in SG&A and R&D were largely driven by additional employee-related costs associated with increases in sales, administration, engineering, and software development personnel over the prior year to support software revenue growth opportunities. In addition, Amortization expense and marketing-related expenses increased over the prior year. Net loss for fiscal year 2022 was $16.2 million or $0.44 per share, compared with net income of $0.7 million or $0.02 per diluted share in fiscal 2021. This decrease is primarily due to the, as we discussed, the non-cash $13.2 million impairment charge, non-cash income tax expense of $1 million, related to evaluation allowance against deferred tax assets, and an increase in operating expenses of $6.4 million. Adjusted EBITDA for fiscal 2022 was a positive $2.4 million compared with $4.1 million in the prior fiscal year. We believe this information and 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. Our balance sheet remains strong, and our business continues to generate strong cash from operations that's enabling reinvestment for future growth. Cash, cash equivalents, and marketable securities totaled $19.9 million on September 30, 2022, compared with $20.7 million on September 30, 2021. The $800,000 decrease is the net result of repurchasing approximately $1 million of common stock in open market transactions. Working capital totaled $20.3 million on September 30, 2022, compared with $18 million a year ago. We generated $486,000 of cash from operating activities in fiscal year 2022-2022. after reinvesting approximately $9 million into the software business to support the growth opportunities we foresee. We are diligently managing the allocation of our capital to remain debt-free, while also advancing the strategic shift in our business towards higher margin software services. With that, we'd like to open the call to Q&A. Operator, could you start the Q&A session?
spk01: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad. Again, ladies and gentlemen, that's star 1 on your telephone keypad if you would like to ask a question at this time. Our first question comes from Ed Wu with Ascendant Capital. Please state your question.
spk04: Yeah, congratulations on the quarter. My question is, have you noticed any change with either the macro environment in terms of, you know, these government willing to sign contracts?
spk02: No, what we've seen on a macro level, Ed, as I mentioned in my remarks, the international is opening up finally. The APAC region was probably the slowest to to come back open as a result of the COVID plague. But they are fully opened right now, as well as other international markets. So no, I haven't is the direct answer to your question.
spk04: Great. And any issues with supply chain? Has it improved, got back to normal? Are you having a lot of high inflation? How is that impacting your business, especially your hardware business?
spk02: Yeah, the team here has managed that throughout the pandemic, and they will continue to manage it. Inflation is a real thing, and that is impacting our gross margins. Our gross margins for the year of 2022 was down 1.1 percentage points, actually improved in Q4 over Q3. So we do have the opportunity to reprice our products, which we've done two or three times during fiscal 2022. Now, of course, backlog doesn't get the impact of that, but new bookings do. So, yes, we are challenged a bit with the inflation growth that the world is seeing.
spk04: Very well. Thanks for answering my questions, and I wish you guys good luck. Thank you.
spk02: Thank you.
spk01: Our next question comes from Mike Lattimore with Northland Capital. Please state your question.
spk09: Hey, thanks. Yeah. And congrats on the great year here. In the, I think you talked about 6 million of bookings in the fourth quarter. How much of that was in the software category?
spk02: Do we disclose that? We don't disclose that, Mike. You'll see in the reports the the total revenues in software, but not the bookings.
spk09: Okay. And then can you remind me how many software sales people you have now?
spk02: We do. We have 31 sales and marketing people. In addition to that, we have approximately 69 in the software development group.
spk09: Okay. How about a number of like quarter carrying sales people?
spk02: It's in the 31. It's most of the 31. There are some pre-sales people as well.
spk09: Got it. And then over the longer term, as your software business scales, what kind of gross margins have you envisioned there?
spk02: 60% to 80%. Okay. Great.
spk09: And then Zone Haven seems to be doing really well. Can you give a little update there in terms of, you know, I think you're trying to map zones in other states, you know, progress there, and also just the opportunity maybe, you know, on the East Coast as opposed to the West Coast?
spk02: Sure. The momentum for SAS, both GEM and Zone Haven, was very, very good in our fiscal 22. If you've been reading our press releases recently, you'll see we've added four more California counties to Zone Haven. We added San Diego with our mass notification GEM software. We added Riverside County with Zone Haven. We announced utilities in California, Florida, and Washington, all of which has just been released in the last I don't know, eight weeks, seven weeks. We have completed the build-out of zones in the state of California, near completion in the state of Colorado, and then working on other states to complete throughout this fiscal year. In terms of the East Coast and South, the Gulf Coast areas, We have begun to prosecute states like Florida or states like Massachusetts, Texas, Louisiana, for both Zone Haven and GEM. We expect to close awards in our fiscal 2023 in several of those areas. Okay, great. Thank you. Thank you.
spk01: Our next question comes from Brian Colley with Stevens. Please state your question.
spk08: Hi, this is Hassan on for Brian. Thanks for taking my question. So you mentioned that you guys have a robust pipeline for, a healthy pipeline for actually free SaaS products. I wonder if you can discuss your growth outlook for both hardware and software in fiscal year 23, and When should we expect to see software revenue ramp up more meaningfully?
spk02: Hassan, we don't give guidance yet on that. As you know, the nature of SAS and, you know, three-year kind of contracts, you know, it does take some time before you have a meaningful flow of revenue. I have mentioned in the past that we will likely begin to report on our ARR and our SaaS software bookings when we hit $5 million of ARR, which we have not done yet. And I expect that will happen in our fiscal 2023. Gotcha.
spk08: Thanks. And then a question on just your long-term revenue targets. Are you guys still looking at that $80 million? Is that still intact? We will update that model. increase that okay thanks and then I guess just one more question can you talk about some of the initiative initiatives and insights that the your new chief revenue officer has brought into our organization and what his key priorities are for this upcoming year his key priority is a SAS SAS bookings building out a marketing group for SAS
spk02: He brings a lot of experience in this area, and he's got a lot to accomplish, and we all have great confidence in his abilities. Okay. Thanks. Appreciate it. Thank you.
spk01: Our next question comes from Martin Yang with Oppenheimer. Please state your question.
spk05: All right. Good afternoon. Thanks for taking the question. Can you maybe break out or give us more details on the incremental OPEX investment you will make in fiscal 23? Is it more on sales marketing? Is it more on R&D? Any details? It's appreciated. Thank you.
spk03: It'll be pretty evenly spread across sales and marketing and R&D. We've got A number of the chief revenue, Dennis Walsh, has a number of positions that he's looking to fill to fill out both the sales team. Now that I think about it, maybe it is going to be slightly skewed more towards sales and marketing, looking for additional marketing folks to be able to help drive lead generation and spread the word and get us a bigger market presence visibility. Engineering, we will continue to add to our software team as we continue to integrate and expand the capabilities of both the Zone Haven and the GEM software.
spk05: Got it. Thank you. My second question is regarding your utility wins. Is there any important takeaways from those Golden State and Florida wins And how do you plan to target that vertical more efficiently in the coming years?
spk02: The importance of it is it's a new vertical for us, for our SAS products. We hadn't been in the utility market. We now are. And you know how many utilities there are just here in the United States. So it's a great opportunity for further expansion of our SAS products.
spk05: Got it. Thank you very much. Thank you.
spk01: Okay. Our next question comes from Chris Tuttle with Blue Caterpillar. Please state your question.
spk06: Yeah, I had a couple of questions. Thanks, guys, for taking them. Just one thing. You talked about sales productivity, and I wanted to ask, you know, in the coming fiscal year, do you expect to be able to increase quotas to be able to get, you know, higher sales? higher yield from your existing sales staff?
spk02: Yes, they already have those quarters. Okay.
spk06: My next question is just on competition. It's been a few quarters now that you guys have been kind of on a roll, able to replace some competition in your core areas. And I'm wondering, you know, have you seen any kind of reaction from those competitors, either in terms of pricing or, you know, different tactics, or is it just a case where you're still below the radar and they haven't really felt the need to respond yet?
spk02: The sales cycles are typically long, so seeing a reaction is delayed. I would argue that we are definitely on their radar screen for certain. We're definitely winning, winning more, winning a higher percentage. And that's all our mass communication software at GEM product line. In the evacuation SAS product, you know, we enjoy a position that we're the only provider of that right now. And I'll highlight this again, but the cross-selling and up-selling of mass communication software, integrating the evacuation software, and then also into the integrated mass notification system. We saw a lot, as I mentioned in my remarks, 13 counties in California alone that were able to upsell and no other company can do that. Got you.
spk06: And my last question for now is just a little bit longer term. We've seen some interesting things happening in the prediction of some of these natural disasters, particularly in California on the earthquake side. And, you know, disaster planning is a well-worn area that people have to engage in. And I'm just wondering, you know, what kind of thoughts do you have and what expectations might investors have around, you know, partnerships that you all might – look to forge in kind of a disaster planning, more forward-looking, you know, kind of area where, you know, getting in front of these things can be a major help in saving lives and making things turn out better.
spk02: Yeah, we have several partnerships in place now. I think you'll see, I know you'll see some additions of significant providers that will also be on our platform. And you'll also see that, at least here in the state of California, we have an initiative going with the ShakeAlert system. So I think we'll continue to grow on that.
spk06: Okay. Well, great. Thanks a lot, guys, and congratulations.
spk02: Thank you.
spk01: Okay, and our next question comes from William Brenner with Bankless Capital. Please take the question.
spk07: Yes, hi. Good evening, Richard, Dennis. Hi there. First one, Richard, can you give us a little color on the initiative on utilities? Nice to see we signed three. Is this a real focus? Because given geographic regions, There are definitely some areas that historically have had massive issues, and I see a tremendous opportunity for you there. Then I have a blocking and tackling question for Dennis thereafter.
spk02: Sure. As I mentioned, Bill, it's always hard to get your first win in a new vertical, and we did that and followed it up quickly with two more. Right. So you can expect, this is one of the verticals along with large-scale manufacturing and others that are a focus of not only me, but our CRO and our entire sales and marketing staff. Okay, great.
spk07: Dennis, if my math is correct on this fourth quarter, if I back out the impairment pre-tax, It seems as though we have about, you know, approximately a 400,000 profit. Is that correct? And would you happen to have an adjusted figure to provide?
spk03: That is correct. It would have been about $400,000, about 396. Okay, great. Okay.
spk07: That would have been appreciated.
spk02: I'd also point out, Bill, that it was a quarter that we generated a million dollars in operating cash. Absolutely. I see that as well. $400K in operating income.
spk07: No, I completely agree with you, Richard. As a material shareholder, this has been a transformational year. The foundation, in my opinion, is built, and I look forward to 2023 and 2024. Terrific.
spk02: Thank you for the kind words.
spk01: And that was our final question. I'll turn it back over to Dennis for closing remarks.
spk03: Thank you. We regularly meet with investors at conferences throughout the year. We will be at the Imperial Capital 2022 Security Investor Conference with a presentation and one-on-one meetings on December 15. Please visit the Imperial Securities website to register for the conference and book a meeting. Thank you for participating in today's call. We look forward to speaking with you again next year when we report fiscal first quarter 2023 results. On behalf of everyone at Genesis, we wish you and your families a happy, healthy holiday season.
spk01: 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.
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