Genasys Inc.

Ladies and gentlemen, thank you for your patience. Please remain on the line. Your conference will begin momentarily. Again, we do appreciate your patience. Please remain on the line. Your conference will begin shortly. Thank you. Good day, ladies and gentlemen, and welcome to the Genesis Incorporated Fiscal First Quarter 2023 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, Kimberly Rogers. Ma'am, the floor is yours.

Thank you, Kat. Good afternoon, and welcome to Genesis Incorporated Fiscal 2023 Conference first quarter 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, 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 factors section of the company's Form 10-K for the fiscal year ended September 30, 2022. Other than statements of historical facts, forward-looking statements made on this call are based only on information and management 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 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 Genesis Chief Executive Officer, Richard Danforth. Please go ahead, Richard.

Thank you, Kim, and welcome to everybody. If you look on our website, you'll see The earnings release, as well as a press release that has been hung up on the wire service, but likely come out during this call, announcing the win of a large enterprise SaaS award to a company called Aramco, which happens to be the largest company in the world from a market cap basis. So with that, we are off to a strong start in fiscal 23 with our largest SaaS booking quarter to date. Our software business continues to gain momentum, as evidenced by the 6.1 million in SaaS bookings in the first fiscal quarter of this year. The strong bookings include an enterprise award from, as I mentioned a moment ago, Aramco, the largest market cap company in the world, and the California counties of San Diego, where they bought GEM, Riverside, where they bought Zonehaven. Subsequently, they had bought GEM and IM&S, San Mateo, which bought Zonehaven, and Monterey County, which bought both Zone Haven and GEM. These results, along with our rapidly growing SaaS pipeline, further reinforce our strategy of investing in software development, sales, marketing, and customer support. The addition of the world's largest oil and gas company in large California counties to our global automobile manufacturing and regional critical infrastructure customer base elevates our SaaS profile and demonstrates our ability to successfully close, cross-sell, and support large enterprise and public safety clients. Our international results were also robust this quarter, as our strategy to rationalize business development by establishing sales offices in APAC Europe and the Middle East have proven successful. During the first fiscal quarter, 50% of our bookings were international, and APAC revenue more than doubled year over year as the entire region emerges from COVID-related lockdowns. With the world economy picking up, we are seeing pipeline growth across all of our international sales regions. We expect strong fiscal year bookings in APAC Europe in the Middle East, driven primarily by hardware orders, as well as developing pipeline of SaaS opportunities. Total bookings for the quarter were 8.6 million, up 23% year over year. Hardware bookings for the quarter were 2.5 million, as pending orders moved into our fiscal second quarter. Fiscal second quarter hardware bookings through January were already 40% higher than the total first quarter hardware bookings We expect fiscal 2023 bookings to follow our typical pattern with a large step up in fiscal Q3. Driven by international, hardware bookings in fiscal 2023 are expected to substantially exceed fiscal 2022 hardware bookings. In what is typically our slowest quarter, fiscal first quarter revenue was $10.5 million, slightly lower than the prior year quarter and in line with our expectations. Following the usual pattern, we expect sequentially quarterly revenue to increase in the fiscal second quarter and then strengthen in fiscal Q3 and Q4, putting us on a solid footing for the seventh consecutive year of revenue growth. Inflation resulted in increased hardware component cost and product mix was a factor in the decreasing first quarter gross margin to 43.3%. We expect our gross margin to return to more normal levels in the second half of fiscal 23. As we discussed on our fiscal fourth quarter conference call, continued investment in our SaaS business drove a 10.5 percent sequential quarterly increase in operating expenses, in line with our expectations. Given the confidence in these investments to accelerate our SaaS business growth, we anticipate operating expenses in fiscal 23 to increase by approximately 5 million year over year. While SaaS bookings and revenue are growing, hardware continues to be a majority of our business, representing 90 percent of the total revenues in the fiscal first quarter. Our commanding competitive position as the de facto global supplier of long-range acoustic devices gives our hardware business a compelling economic profile. We continue to diligently manage and dedicate resources to growing our global hardware business. Recent attacks and increasing threats to critical infrastructure, particularly electrical substations, are generating large business opportunities for our remotely operated LRAD 950 NXT system. The NXT uses our proprietary technology to identify and respond to potential threats. Since the NXT launch last April, we have received orders from international navies and critical infrastructure orders for dams, data centers, ports, and electrical substations. Large NXT critical infrastructure and international defense sales are expected to be a major contributor to hardware revenue this fiscal year and beyond. Our hardware bookings are typically lumpy. We currently have a large number of hardware opportunities expected to close this fiscal year. The U.S. Army program of record and international orders are anticipated to drive bookings growth and substantially lift hardware backlog in the second half. Hardware will continue to be the economic engine that powers the self-funding of our SaaS business development in the future. Our priority focus is fully integrating our SaaS solution and increasing the capabilities of our data-driven protective communication platform. Our SaaS system suite is evolving with the integration of GEM, Zonehaven, and IM&S into a seamless platform expanding our capabilities, and empowering Genesys to address a much larger scope of enterprise and public safety crises. New platform features, including flood and traffic modeling, continue to expand our platform's multi-hazard capabilities for use during hurricanes, storm surges, tsunamis, avalanches, flooding, debris flow, wildfires, chemical plumes, active shooter, and other natural and man-made disasters. Some of our new capabilities were deployed during the recent atmospheric river condition that inundated Northern California. Our protective communication platform was used in many counties to communicate the location and extent of flooding, avalanches, debris flows, road closures, hazard condition, and recovery resources. During the surveyor weather events, hundreds of thousands of residents accessed the Genesis Aware site to check the evacuation status of their neighborhoods and for other life-saving information. Our land and expand strategy continues to grow our footprint with government public safety customers. Increasing demand for our protective communication platform has 16 California jurisdictions now using multiple Genesis platform elements with three counties using the entire platform. Riverside, one of California's largest and most populous counties, recently purchased Zone Haven to integrate with the previously purchased GEM services and IM&S installations. As we announced earlier this month, the City of Laguna Beach is a notable example of how the performance of our IM&S network created another upselling opportunity. The successful use of IM&S during two wildfires last year led the Laguna Beach City Council to prioritize the further expansion of its Genesis network. In Marin County, California, we have provided emergency warning services for the city of Mill Valley since 2019. In 2021, IMS installation equipment with solar power and battery backup were positioned in other areas within the county. The follow-on order announced last week further expands the county's IMS network. We have also expanded our footprint in Alameda County with UC Berkeley's purchase of IMS which will be integrated with the city of Berkeley's Genesis Network. As we announced last week, the extended network and the county's use of our Zone Haven evacuation platform will expand emergency warning coverage and notification channels during public safety threats for more than 45,000 students, staff, and facility. We expect additional California jurisdictions to join Alameda, Marin, and Riverside counties in adopting the full Genesis platform this fiscal year. In the enterprise market, the addition of Aramco along with previously announced global auto manufacturers and critical infrastructure elevates our SaaS profile and demonstrates our ability to successfully close large enterprise customers. Extending the capabilities of our software platform further differentiates us and opens doors for new and follow-on business opportunities. Our approach to the vast enterprise sector is to target key verticals where we can reference our proven execution. We have spoken before about our ongoing investment in the SaaS platform and SaaS sales growth. Since late 2021, we've expanded our software development, sales marketing, and customer support teams, and added new personnel with the skill set needed to achieve our revenue goals. To build brand awareness and accelerate platform growth, we have recently appointed Avnita Gulati as Vice President of Marketing. Avnita is a highly successful enterprise marketing executive with extensive experience leading revenue-based marketing organizations. She has implemented global go-to-market strategies and led customer acquisition programs for leading companies in the software, semiconductor, medical, and financial markets. Avnita is a key addition to our leadership team who will help us drive scale and growth. The whole team here is energized and psyched by the increasing adoption of our software SaaS platform and the burgeoning opportunities fueling growth in our pipeline. Our pipeline of qualified SaaS opportunities is now 25% greater than it was just a few months ago. The SaaS bookings we delivered in the first quarter further validates the investments we are making in our protective communication platform, and we believe are a strong indicator of its potential. With Genesys software now in use in 23 states and seven countries, soon to be eight with the addition of Aramco, we are gaining traction in new markets and building our software footprint globally. We are reiterating our expectations for continued revenue growth in 23 with strong international sales, continuing LRAD deliveries to U.S. military, and increased software services, sales, and significant SaaS revenue growth. With that, I'll turn it over to Dennis.