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spk02: hey ladies and gentlemen and welcome to the genesis incorporated fiscal third 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 0 to reach a live operator at this time it is my pleasure to turn the floor over to your host brian alger SVP of Investor Relations and Corporate Development. Sir, the floor is yours.
spk00: Thank you, Karen. Good afternoon. Welcome to Genesis' fiscal 2023 third quarter financial results conference call. I am Brian Alger, SVP, Investor Relations and Corporate Development 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 the information and management expectations as of today, August 10, 2023. We explicitly disclaim any intent or obligation to update those forward-looking statements except as otherwise specifically stated. We'll also discuss non-GAAP financial measures and operational metrics, including adjusted EBITDA bookings. 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 on the press release issued by the company at the close of the market today. We consider bookings and backlog to be leading indicators of future revenues and use those 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. Now, at this time, it's my pleasure to turn the call over to Genesis' CEO, Richard Danforth. Richard?
spk01: Thank you, Brian, and welcome, everyone. As expected, financial results for the fiscal third quarter improved significantly sequentially, and revenues were in line with the prior year's quarter. Software bookings and revenue were in line with expectation, while hardware bookings once again saw delays. Our hardware pipeline, including approximately $25 million of bookings that have shifted from fiscal 2023 to 2024, continues to expand. Third quarter recurring revenue was up 47% year over year, and a year-to-date software bookings are up 180%. While hardware revenues have been difficult to forecast, the steady growth and expansion of our software recurring revenue is gaining momentum. Recent competitive wins in Colorado, Texas, and the East Coast of the United States further demonstrate the value we are delivering with Genesys Protect. Based on existing orders and orders currently in contracting, we have secured over $5 million of ARR in less than eight quarters. Earlier this week, we launched our new corporate identity and the Genesys Protect platform. Genesys Protect combines the most comprehensive preparedness, response, and analytical solution to keep people, assets, and operations protected against the impacts of natural and manmade disasters. We expect the efforts made to date, combined with the rollout of the new Genesys Protect sales and marketing initiatives, to further accelerate software revenue growth next fiscal year. Genesys is the leader in protective communication. We are the only provider with a complete solution of emergency planning, notification, and management offerings. Genesys Protect enables our customers to be ready for any what-if scenario. Ready means organizations and enterprises have the confidence that comes from knowing their response plans have been fully tested. Ready means aggregating a wealth of trusted data sources that give our customers unmatched real-time visibility into their people, their assets, and their environment. Ready means tapping robust modeling and simulation of critical events before they occur to test the validity response plans. Ready means filtering out false alarms and reacting to real threats faster. Ready means being able to handle any situation from predictable disruptions to large-scale unexpected events, even when multiple events are happening at the same time. Ready means upholding a duty of care to keep everybody safe and informed by delivering the right message to the right people at the right time. Ready means constantly evolving, using data and insights from one incident response to drive better, more efficient outcomes in the next. As natural disasters, extreme weather, social and political unrest, crime, infrastructure failures, increase in severity and frequency, we have responded by consolidating our portfolio of products to help our customers be ready when it matters. If you haven't been on our website recently, I strongly suggest you go to explore the details on our solutions and numerous customer testimonials in our resource pages. As I mentioned at the top of my remarks, we have seen a strong software momentum with numerous competitive wins in the domestic public sector outside of California, including the replacement of an incumbent system for a whole state. Like most of our contracts in California, each of these recent wins were competitive and against much larger incumbents. We believe our customer first philosophy demonstrated by our product innovation and customer success practices has been a key deciding factor. Last month, Genesis responded to an RFP from the state of Florida for a statewide notification system supporting its 24 million residents and visitors. The process is intensely competitive, though relatively quick. By the time we report next quarter's results, we will know if we have been selected or not. Needless to say, we believe we have the best and most complete offering for our friends from the Sunshine State. As we enter August, fire season is becoming more intense and the need for comprehensive solutions that enable planning and real-time emergency management is increasingly evident. Already this year, there have been major fires that started in California and spread into Nevada. The York fire burned more than 100,000 acres. Though the fire was largely in the remote and lightly populated Mojave Desert region in California, that is not always the case. as it has been yet another reminder of the perennial dangers that exist as we saw this week in Maui. Our hearts go out to the family and friends of the dozens of people that have lost their lives or have been injured in this unprecedented fire. Genesis Protect offers an unmatched capacity for our customers to not just notify constituents about emergency and non-emergency incidents, but to use our data modeling planning, and simulation functionality to support the full lifecycle of any crisis before, during, and after. The momentum we have built thus far is impressive, and we expect to see an acceleration in software bookings and revenue as more customers become aware of our differentiation. On the LRAD front, we will continue our industry-leading position. Our hardware offerings are an important differentiator in our communication channels for Genesys customers. I want to provide a little color on the hardware activity. As I mentioned earlier, there is over 25 million of hardware bookings linked to four separate opportunities we have already been selected for or are the only known option that are now expected to book in fiscal 2024. Beyond that, our hardware pipeline continues to grow, new opportunities including the recently announced $900 million IDIQ from the United States Air Force. Genesis is one of 70 companies that were included in that award. Additionally, there are other opportunities for the U.S. Army that have yet to be quantified through task orders. Now I'd like to turn the call over to Dennis to go through the financials outlook in greater detail.
spk03: Thank you, Richard. Revenues for the fiscal 2023 third quarter were $14.2 million, an increase of 1% over the prior year quarter. As compared to the same prior year period, software revenue increased 28% to $938,000, and hardware revenue decreased 1% to $13.3 million. Recurring revenue grew 47% compared to last year's quarter. In the June quarter, we recognized our first month of revenues associated with the Aramco contract announced earlier this year. As previously noted, there was a period of time between booking a software win and when ARR begins that is associated with configuration and implementation. That said, our visibility and predictability of revenues after booking the orders is very high. Given the contracting discussions currently underway and the bookings recorded to date, we expect to surpass our internal fiscal 2023 software bookings target, driving us past our $5 million in ARR target by the end of this calendar year. Gross profit margin was 46.9% this quarter, compared to 48.5% in the prior year quarter. As has been the case for a full year now, the gross margin percentage was negatively impacted by inflationary pressures on material costs against pricing and backlog, established before inflationary impacts, as well as installation costs. This has been partially offset by the increasing software revenues that carry higher gross margins. With component inflation now fully reflected in our bookings and backlog pricing, we expect hardware gross margins to continue to improve towards a historical 50 percent range. Operating expenses were $8.1 million, up from $7.5 million and down from $8.3 million in the third quarter of fiscal 2022 and second quarter of fiscal 2023, respectively. The year-over-year increase is directly tied to the planned investment to grow and accelerate our software business. On a gap basis, our third fiscal quarter operating loss was $1.5 million, compared to $629,000 in the year-ago quarter. excluding stock compensation and depreciation and amortization, our quarterly adjusted EBITDA was a negative 418,000 compared to last year's positive 364,000. The difference in both cases relates to the intentional investments in improving and focusing our software offerings and marketing strategy. Cash, cash equivalents, and marketable securities totaled $6.8 million as of June 30, 2023, compared with $19.9 million as of the prior year end. Cash used in operating activities in the third quarter was $5.7 million. Included in that number was an increase in accounts receivable of $6.7 million, owing to the timing of shipments and collections in the June quarter. Since quarter end, significant collections have been made, and as of last Friday, August 4th, our cash balance was approximately $9 million. With our current backlog in forecasted bookings, we expect fiscal 2023 to be down from fiscal 2022 with fourth quarter revenues approximately 5% below the prior quarter. Software revenues are expected to be up more than 20% on the full year, however. In the September quarter, we expect sequential improvement in gross margins to be offset by higher operating expenses associated with the rebranding efforts Richard discussed earlier. Combined, we anticipate the September quarter adjusted EBITDA to also be below the third quarter's result. On the full year, this implies a full year adjusted EBITDA loss of just over $6 million, reflecting the $5 million of planned incremental investment in the lower hardware revenues versus the prior year. Before opening up the call for questions, I would like to note that in addition to filing our 10Q, in the coming weeks, we will also be filing a new S3 that will replace our existing S3 that expires this month. Now, we'd like to open the call to questions and answers. Operator?
spk02: Thank you. Ladies and gentlemen, the floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. Again, that's star one. If you do have a question or comment, please hold as we pull for questions. And we'll take our first question from Brian Colley from Stevens. Please go ahead, Brian.
spk04: Hey, guys. Thanks for taking my question. So I wanted to ask about your business with the U.S. Army. Can you just kind of talk about what's in the pipeline there and, you know, how do you expect people revenues, hardware revenues from the Army to kind of play out next year and maybe even longer than that in terms of future growth opportunities there?
spk01: Sure, Brian. In my remarks, I mentioned that there are additional Army opportunities, U.S. Army opportunities. One of those opportunities is a program to expand the use of LRADS with Crow's unit. So earlier this year, We took a small, I think it was 150K contract, to do some research work of getting the LRAD integrated with the CROWS unit. We've completed that activity and are now expecting another contract very shortly of several hundred thousand dollars to get through the prototyping stage. And subsequent to that, in FY24, we expect production to begin. The potential, Brian, for the size of this contract is very similar to the other program of record that we won back in 2018. And in addition to that, there are other things that are, you know, percolating around the Army beyond the CROWS unit that we expect to yield additional bookings for those items in our fiscal 24.
spk04: Got it. That's helpful. Thank you. And then I also wanted to ask about the commentary from your press release, just that you're realigning your resources appropriately. If you could just talk about kind of what you're doing, you know, on the cost front to kind of help out on profitability, that'd be helpful.
spk01: Yeah, we've taken some actions and cost reductions to reflect where we are, where we think we're going to end the year. There's been some reductions in force and tightening of the belt from an expense perspective, which will continue the balance of this year.
spk04: Got it. And Dennis, one for you. Just from a cash perspective, do you think I mean, just looking out to next year, not necessarily looking for guidance, but do you think you guys will need to take on debt or do you think you can be cash flow positive over the next 12 months?
spk03: Based upon the pipeline and the recurring revenues that we discussed, we believe we have adequate resources to manage the business and achieve profitability moving forward. You know, the cash, as I noted, the balance was down. But if you take a look at cash plus the accounts receivable balance at the end of June compared to the end of March, that's actually increased by a million dollars. So, you know, the reality of things is that we've had a number of orders that came in at the end of the quarter. But once we've collected those, which we've mostly been where we are, we should be adequately financed.
spk04: Great. All right. Well, thank you for the time, gentlemen.
spk06: You're welcome.
spk02: Thank you. And we'll take our next question from Ed Wu from Accedient Capital. Please go ahead, Ed.
spk06: Yeah, congratulations on the quarter. My question is, with all these high-profile fires, have you seen any new competition in the market or new entrants?
spk01: No. You know, the Genesis Protect platform, combines all of what Genesis had from mass notification, evacuation planning and execution and repopulation, even the acoustic devices. There's nobody else out there, Ed, that can offer that comprehensive of a safety solution for both SLED customers, state and local governments, as well as enterprises. In my remarks, I mentioned, you know, we've seen acceleration in borders and pipeline reflective of that.
spk06: Great. Thank you for answering my question, and I wish you guys good luck. Thank you. Thank you.
spk02: As a reminder, that's star one. If you do have a question or comment, then we'll take our next question from Mike Lattimore from Northland Securities. Please go ahead, Mike.
spk05: Hi, this is Logan on for Mike. Thanks for taking our question. Um, can you guys talk a little about any macro effects you're seeing on your software business, like smaller deal sizes or longer sales cycles? Thanks.
spk01: No, I'd say it's quite the opposite. It's not smaller deals. It's larger deals. I mentioned, you know, a whole state and I mentioned the state of Florida. Those are both significantly sized deals. Um, Yeah, the cycle time, you know, that's always frustratingly long, Logan, particularly with the state and local governments. I haven't seen a change in that dynamic, but it takes longer than anybody would like. From time of contract win to contract award can sometimes take months.
spk05: Thank you. Yeah, that's helpful. And then could you guys give us any updates on the Aramco deployment or any customer feedback you've received so far?
spk01: Up and running and extraordinarily happy customer base. We have begun the discussion with them about expansion inside of Aramco, inside Saudi Arabia, and other countries.
spk05: Perfect. Thanks for taking my question. Thank you.
spk02: If you have a new question or a follow-up question, please press star 1. And we'll take our next question from someone within the queue, but he pressed 1. Once again, star 1 if you do have a question or comment or a follow-up question. And we'll take our next question from Lloyd Corton from Unique Investments. Please go ahead, Lloyd.
spk07: Hey, guys. Hello. Nice to get on with you again. I got a few questions. I'm just curious. The disaster in Hawaii, would that have benefited them, and how?
spk01: Yes. I mean, I should quantify that, Lloyd, I'm not an expert on what exactly is happening in Maui. Obviously, I've seen the same news reports you have. Our platform would have made a difference, and that's about all I can say without getting into the details of what's actually going on, happening on the ground.
spk07: Okay. You know, in the past, you've had some corporate wins with BMW, et cetera, et cetera. Any more of those come through or expecting any?
spk01: Yes. As I mentioned in my remarks, we have a growing pipeline that includes both enterprise and state and local governments. Okay.
spk07: You say we won a state contract, a full state?
spk01: That's correct.
spk07: Can you say what state it is?
spk01: We can't yet. We've been awarded the contract and waiting for the administration of that contract at that state capital.
spk07: Oh, you can't mention it yet?
spk01: Not yet.
spk07: Uh-huh. Is it sizable? It is. Well, that's good news. Nice to hear. Also, is it East Coast City? Is that also a secret?
spk03: We can't talk about it.
spk01: Yeah, we can't talk about it, but we have won it, and we're up and live, and Hopefully here shortly you can be more open about it.
spk07: Are those numbers in our revenue this past quarter?
spk01: No.
spk07: Well, that's good news, too.
spk01: No, they will begin to show up in fiscal Q4.
spk07: Okay. Also, did you mention backlog yet?
spk01: I have not.
spk03: Do we have a backlog?
spk01: No.
spk03: Yeah, I mean, so the backlog, 12-month backlog at September 30 is $10.3 million.
spk01: And the total?
spk03: And total backlog is $19.9 million, so $20 million. How does that compare to the past? So 10 months, or 12 months, rather, a year ago was $30 million. So that difference is, we talked about the $25 million in pipeline of in particular, four orders that have just been pushed out, that makes up the delta there.
spk07: The $25 million that's been – I'm a little confused with that. Could you go into a little bit what that means, the $25 million that's been pushed out?
spk01: I'll take that, Dennis. Yeah, there's four opportunities, two of which are the majority of the dollars, that were in our pipeline in our forecast to be awarded and then – generate revenue this fiscal year. They have slipped, slipped out of fiscal 23 to 24. So they're not in backlog yet, but we, as Dennis mentioned, we expect to book those in our fiscal 2024, increasing our backlog reflective of that $25 million.
spk07: I got it. Okay. And also, Is there an estimate as to when you feel that – I understand that we've been burning money on building the software and on man count. Any estimate as to when we're going to start to make profits per quarter?
spk01: Yeah, we do. We have a detailed schedule, as you might expect, Lloyd, with forecasts for hardware and software and improvements in gross margins and EBITDA. Yeah, and you can see that in our investor presentation. Okay.
spk07: I think that's all I have. Well, anyway, thank you. Sounds like some great news is coming. And thanks for all your efforts. Thank you.
spk02: Thank you. And there are no further questions at this time. I'll turn the floor back over to Brian Alger for closing remarks.
spk00: Thank you, everyone, for participating in today's call. Look forward to speaking with you in a couple of months when we report our fiscal fourth quarter and full year 2023 results. And with that, have a good night. Thank you.
spk02: Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect at this time, and have a great day.
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