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spk00: Good day, ladies and gentlemen, and welcome to the Genesis Fiscal Year 2023 Conference Call. All lines have been placed on the 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 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.
spk03: Thank you, Karen. Good afternoon. Welcome to Genesys' fiscal 2023 fourth quarter and full year financial results conference call. I'm Brian Alger, SVP, Investor Relations and Corporate Development for Genesys. With me on the call today are Richard Danforth, our CEO, and Dennis Klon, the company's CFO. 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, or the 10-K that's going to be filed later today. Other than the statements of historical fact, Forward-looking statements made on this call are based only on the information and management's expectations as of today, December 7th, 2023. 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 backlog, and adjusted net loss, 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 within 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.
spk01: Richard? Thank you, Brian, and welcome, everyone. Before we get into discussing the results of last fiscal year and our outlook for fiscal year 2024 and beyond, I want to take a moment to thank our shareholders, that have been incredibly supportive and resilient through our transition to a more balanced hardware and software company. The investments we have made over the past two years are beginning to bear fruit, and I have increasing confidence that these investments were not only well made, but will yield substantial returns in the not too distant future. Using the balance sheet and profits from the hardware business in less than two years, we have incubated a strategic software business that has already generated a recurring revenue stream in excess of $5 million with a clear line of sight to roughly double in 2024. We appreciate your support and we look forward to delivering the results to generate the return your patients deserves. Moving on, as expected, we exited fiscal year 2023 with over $10 million in cash and no debt. However, finishing out the quarter, we correctly assessed that the federal government was likely to once again delay approving a DOD budget, and as such, FY24 orders from this U.S. government would be delayed. This is a further complication to the numerous order delays that we experienced throughout fiscal 2023. With this in mind, we pursued and closed on a follow-on equity offering of 5.75 million common shares, raising net proceeds of approximately 10.6 million to protect the investments that we have been made to date and to assure that we remain positioned to capture the opportunities before us. Moving on, it is worth noting that the statewide RFP for Florida that we discussed on last quarter's call resulted in a no-award decision. And earlier this week, the state issued a new RFP that we plan on responding to before the end of this month. As was the case in August, we continue to believe we have the best and most complete offering for the state of Florida and its visitors and residents. Now on to the financial discussions. As we announced in mid-December, financial results for the fiscal fourth quarter were below expectations due to hardware opportunities that slipped out of the quarter and into fiscal 2024. Software bookings and revenue were in line with expectation, with recurring revenues achieving a new company record. As we discussed in a September announcement, both our hardware and software pipelines are rapidly expanding. Not including the $25 million of hardware bookings that slipped from fiscal 2023, today's hardware pipeline is more than 150% higher than it was at the same time last year. For software, in addition to growing our software bookings more than 100% in fiscal 2023, both the number of deals and the dollar value of the software opportunities has never been higher. Fourth quarter recurring revenue was up 43% year over year and 21% quarter over quarter. As most of you are aware, there is typically a one to two quarter between when we book a software order until initial revenue recognition. which means we have already won recurring revenue beyond what we report in any given period. Including those additional contracts, our ARR has increased roughly 20% since our conference call in August, not including the contributions of Evertel. In early October, just after the fiscal year ended, we completed the acquisition of Evertel. Evertel's fully compliant cross-agency communication application enables an unparalleled quality of response when paired with Genesis Protect. Evertel has been rebranded Genesis Protect Connect, and we have integrated their go-to market and positioning with our own. When we purchased Evertel, their ARR was approximately $800,000. In the two months since the acquisition, we have already begun to realize sales synergies between our respective customer bases. Today, we have over 200 customers with nearly 20,000 paying subscriptions of Connect. For anyone interested in learning more about Connect, Evertel's co-founder Jeff Halstead will be hosting a webinar on December 14th with two of our customers to discuss how they each use the solution today. To register for this event, just go to the Connect section of our solutions page at genesis.com. In addition to acquiring Evertel, we recently announced two strategic partnerships that we believe further differentiate our protective communication platform from legacy mass notification offerings. The first was with Tablet Command, a must-have software solution found in the front seat of fire trucks across the country and on over 30,000 first responders' mobile devices. By integrating our EVAC software with Tablet Command, first responders now have the ability to deploy and manage resources on a single plane of glass in concert with emergency managers throughout a critical event. We also extended the capabilities of Genesis Protect with a newly announced relationship with Ladris AI. Ladris' software brings AI-driven near real-time traffic modeling to the Genesis Protect platform to determine the most efficient way to get large populations out of a given area. Further differentiating Genesis Protect is our acoustic systems. As the disaster in Lahaina, Hawaii, catastrophically demonstrated, Cell, radio, and internet-based communications are not adequate in rapidly changing and fast-moving emergencies. Moreover, the inherent limitations of siren technology actually inhibited emergency management managers' communications efforts in Lahaina. As many of you know, Genesis's voice-quality acoustic systems are not reliant on the power grid and are equipped with satellite communication channels that enable emergency managers to clearly and concisely communicate to those in harm's way, even when the power and traditional communication lines have been compromised. In the wake of the global attention created in Hawaii, we received a number of inbound inquiries from customers looking to augment their software offerings with Genesys Protect acoustics. Combined, we believe the Genesys Protect platform with the additional capabilities of Connect, Tablet Command, and Ladris is the most complete and technologically advanced protective communication offering available. In its study released earlier this week, Forrester ranked Genesys as a strong performer in its broad-based critical event management wave analysis. Nat, based on current orders, contracting activity, and pipeline, we are confident that the software revenues for fiscal 2024 will at least double over fiscal 2023. As we have discussed on last quarter's call, 2023 hardware bookings and revenue were abnormally difficult to register. Since I arrived at this company, we have seen steady growth in our hardware revenues six out of the last seven fiscal years. with a CAGR through fiscal 2022 over 20%. 2023 was the one year where multiple opportunities pushed out of the revenue declining year over year. Though it would be convenient to point to global politics or economics to explain the slippage, there is no one thing that is consistent among the various deals that have been delayed. None of the deals that were delayed have been canceled or awarded to a competitor. Looking at our forecast and plan for fiscal 2024, we see enormous potential for a significant rebound in our hardware business. That said, certainty in the timing on a number of significant deals is not going to come before federal budget is approved. Others are progressing, but could be further delayed by a government shutdown. As a result, we expect that 2024 hardware revenues will be even more back-end loaded than our typical seasonality has indicated. It is important to note that we still expect a rebound in our hardware business in fiscal 2024, approaching the levels of 2022 up materially from the abnormal 2023 results. A number of large opportunities could positively impact our 2024 results. There is a large critical infrastructure protection opportunity that requires all of the Genesys Protect platform, including significant acoustics revenue, as well as recurring software revenue from the Genesys Protect suite of solution. On October 10th, we announced that we were awarded a $1 million contract for the Crows AHD program. With a fiscal 2024 DOD budget in place, we expect to receive initial production orders in our fiscal 2024. As we discussed on last quarter's call, the CROWS AHD program is expected to be of similar size to the prior Army program of record. Pending grant approval, we have already secured a multimillion-dollar acoustic award that will augment existing Genesys Protect software customers. Bottom line, Genesys has enough opportunities for growth. Summarizing the business as we enter fiscal 2024, we have a burgeoning software business with over 400 customers generating meaningful ARR that is expected to roughly double in the next 12 months. Supporting this growth is a rebounding hardware business that historically has seen high teen adjusted EBITDA margins. A balance sheet fortified by the recent public offering has no debt and adequate resources to not only weather the current storm, but to also facilitate the growth of our business back to a positive cash flow and beyond. In closing, I want to express my gratitude and appreciation for the shareholders that have remained supportive of the company over the past couple of years of transition. Myself and the entire Genesis team is committed to completing our objective to build a larger, more balanced business that operates globally, selling both hardware and software, resulting in more predictable revenue and considerably higher profit margins. Now I'll turn the call over to Dennis to go over through the financials and outlook in greater detail. Dennis?
spk06: Thank you, Richard. In 2023, we successfully grew our recurring software revenues each quarter. In the fourth quarter of fiscal 23, recurring software revenues were up 43% year over year and 21% sequentially. On the full year, recurring software revenues grew 44% versus the full year of 2022. Revenues for the fiscal 23 fourth quarter were 10.7 million, a decrease of 33% over the prior year's record revenue quarter. As compared to the same prior year period, total software revenue declined 3% to 1.1 million due to a decline in professional services. Hardware revenue decreased 36% to $9.6 million for all the reasons Richard discussed earlier. For the full fiscal year, total revenue was $46.7 million, a 14% decrease from fiscal 2022 revenues of $54 million. Software revenues for fiscal 23 increased 23% to $3.8 million, while hardware revenues decreased 16% to $42.9 million in fiscal 2023. Gross profit margin was 49.6% in this year's fiscal fourth quarter, consistent with the prior year quarter. For most of fiscal 2023, the gross margin percentage was negatively impacted by inflationary pressures. This has been partially offset by the increasing software revenues that carry higher gross margins. quarterly operating expenses were $7.9 million, up from $7.5 million, excluding the $13.1 million goodwill impairment charge in the fourth quarter of fiscal 2022. On the full fiscal year, operating expenses grew $3.1 million to $32.7 million. The year-over-year increase is directly tied to the planned investment to grow and accelerate our software business. On a GAAP basis, Our current fiscal year fourth quarter operating loss was $2.6 million compared to a $396,000 profit in the year-ago quarter, excluding the one-time goodwill impairment charge. Adjusted EBITDA, which excludes non-cash stock comp, was a negative $1.7 million compared to last year's positive $1.6 million. On the full fiscal year, our 2023 GAAP operating loss was $11 million compared to fiscal 2022's 2.4 million operating loss, excluding the goodwill impairment charge. Fiscal 2023 adjusted EBITDA was a negative 6.8 million compared to last year's positive 2.4 million. GAAP net loss for the fourth quarter in fiscal year 2023 was 10.1 million and 18.4 million, respectively. Excluding this year's $7.4 million non-cash deferred tax expense and last year's $13.1 million goodwill impairment charge for the fourth quarter and full-year net loss for 2023 of $2.7 million and $11 million, respectively, compares to $664,000 and $3.1 million net losses for the same periods in fiscal 2022. Cash, cash equivalents, and marketable securities totaled $10.1 million as of September 30, 2023, compared with $19.9 million as of the prior year end. Cash used in operating activities in the fiscal year was $9.6 million. Since the fiscal year end, the company has completed the acquisition of Evertel and closed on the sale of 5.75 million common shares. The net cash proceeds from those two subsequent events was $9.6 million. With our current backlog in forecasted bookings, we expect fiscal 2024 to be up materially from fiscal 2023. As Richard mentioned, we expect software revenues to at least double And hardware revenues should rebound close to fiscal 2022 levels. We do expect hardware revenues to be significantly skewed to the second half of fiscal 24, with numerous opportunities pending budget approval and appropriation at the federal level. Including the addition of Evertel, we expect fiscal 2024 cash operating expenses to increase between 10 and 15% over year over year. Thus, adjusted EBITDA loss should improve in fiscal 24 versus fiscal 23. Now, I'd like to open the call to Q&A. Operator?
spk00: 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 1 if you have a question or comment. Please hold as we poll for questions. And we'll take our first question from Brian Colley from Stevens. Please go ahead.
spk09: Hey, guys. Thanks for taking my question here. So, Dennis, I'm curious just if we can put a finer point on the expectations for EBITDA here in FY24. From what I can tell in the investor deck, it kind of looks like the illustrative chart that you have in there has you around breakeven. Is that kind of how we should think about it?
spk06: I don't, for the full year, no. I don't think that's, the back end is more heavily weighted with revenue and that's more likely in the back half of the year, but not for the total year.
spk03: Hey Brian, this is Brian Alger. The slide you're referring to is a legacy slide from last quarter. We'll be updating the slide deck probably overnight. Bear in mind, we do have costs that came on board, and we refer to them on the operating expense side coming from the acquisition of Evertel.
spk09: Got it. That's helpful. And then any sense you can give me for the magnitude of, you know, how much the hardware revenues will be skewed, you know, first half versus second half? Are we talking, you know, 70% of hardware revenues in the back half or more than that?
spk01: Brian, if you look at our – a typical year for us, substantially more than 50% of the hard, correct me if you think I'm wrong, revenue is in the second half.
spk06: Yeah, over the last three years, it's been right around 60%.
spk01: 40%, 60%, it'll likely be more skewed to 30, 70 kind of thing. Okay, that's very helpful. And then I wanted to ask about Evertel. So
spk09: you know, you now have a much more comprehensive, you know, unified platform with Genesis Protect, with GEM, Zone Haven, and Evertel kind of under the same roof now. How should we think about, like, the incremental uplift from upselling Zone Haven and also, you know, upselling Evertel to, like, existing Jim customers. I'm not necessarily asking for, you know, a pricing number, but I'm just kind of curious, like, what the ASP uplift looks like from upselling those additional solutions.
spk01: Well, we'll see, but that's certainly one of the reasons we bought them. In the two months we've had them, you know, we've probably seen their ARR go up by 20%. And, you know, the use of Evertel historically has been in police forces. But the application is there for first responders and fire, which we have a large installed base with other hardware and software solutions. So our expectations are very high that there'll be a lot of up and cross-selling.
spk09: Awesome. Well, I appreciate the time. I'll leave it there. Thank you.
spk00: Thank you. And we'll take our next question from Mike Lattimore from Northland Capital. Please go ahead, Mike.
spk08: Great. Thanks. Yeah. Congrats on the strong software growth. I guess just on your last comment there that ARR is already up 20% at Evertel. Is that because you guys have brought in new customers, or is it just stuff they've deployed, or what's driving that?
spk01: Some of it was what was in their pipeline. Some of it is a consequence of we've put together a five-person sales team for Ebertel. What Salesforce Ebertel had was two people, and right now there's five. And again, we have a very large installed base. I mentioned over 400 customers combined. So these, the calls are not cold calls. They're calls to existing customers.
spk02: Got it.
spk08: And then I think I know the answer to this, but you're expecting your software business to at least double year over year.
spk02: I assume that's both reported revenue as well as ARR?
spk01: Yes.
spk02: Okay. And then, um,
spk08: On the 25 million of hardware business that slipped out of 23, how much of that is U.S. versus international?
spk01: Approximately 70-30 U.S. international.
spk08: Got it. And just last, I know the Maui fires prompted a lot of states to reach out to you guys.
spk02: Do you feel like there's a good chance that they will be making decisions from these other states this fiscal year?
spk01: I'd say I'm hopeful for that, Mike. Whenever there's an emergency, there's an initial spike of interest and concern, and it tends to wane pretty quickly. I think if you... The world saw what happened in Lahaina, and that will result in additional business for Genesis. Not clear to me at all on the timing of that quite yet.
spk02: Very good. Thanks a lot. Thank you.
spk00: Thank you. And we'll take our next question from Scott Cirelli from Ross. Please go ahead, Scott.
spk07: Good afternoon. Thanks for taking my questions. Maybe to dig in first on the hardware front, certainly looks like a back-end loaded year. There were a couple of numbers that you threw out. There was a 150% number. It wasn't clear to me if that was pipeline or backlog. I was wondering if you could clarify that and also give us an idea of what that coverage ratio looks like in terms of that pipeline, given that we're talking about recovering to about 45, 48 million in terms of hardware sales, a big ramp in the second half. I believe the gross margins had been under pressure on the hardware front. I thought they were expected to come back. It looks like that's sort of embedded in the results. I was wondering if you could provide some more color on that front.
spk01: Scott, I'll do my best. If I forgot one of your questions, you'll remind me. But the pipeline question, I mentioned in my remarks, it's up 150% from this time last year without consideration of the $25 million that's also moved. So if you put that in there, it would be even a higher pipeline opportunity for us. From a gross margin perspective, the fourth quarter gross margins were 49.6%, bringing the year to 46.6%. So we saw a significant uptick. Q2 was 43.9, Q3 was 46.9, and Q4 was 49.6. So historically... Our gross margin on our hardware business toggles plus or minus 50%, and we saw that in Q4. In terms of backlog, our backlog going into fiscal year 24 is down considerably from the backlog going into fiscal year 23, which was reflective of the poor bookings in fiscal year 2023, our revenue was ahead of our backlog, which means we paid into a revenue was ahead of our bookings, which means we ate into a backlog.
spk02: Okay. And then maybe moving over to the software side of the The first question.
spk01: Tablet command? Evertel included. Yes, Evertel is included in the remarks on expected annual growth, growth of ARR and software revenue. Tablet command is a co-sharing kind of thing. It's not necessarily a revenue-generating relationship as much as it is where first responders using tablet command have access to our EVAC programs other firefighters in counties and cities and states will be able to see the utility of having that, and it will help enlighten them and get them interested in the Genesis Protect platform. So you can think of that as more of a marketing kind of thing than a revenue-generating thing. Ladris is, in fact, a revenue-generating thing. So Ladris is an AI-driven platform platform for modeling how to get a lot of people out of harm's way in times of an emergency. So it allows a community or a large enterprise to set up scenarios and then run the model. If you needed to evacuate a large stadium, for example, and you're using the existing road infrastructure, how long would it take for that stadium to be evacuated? That might come back and say it's going to take four hours, which is three hours too long. What the first responders can do in advance of this is then practice with, well, what if we shut down this road? What if we open that road up to two-way traffic or one-way traffic? And do all of that in advance of a catastrophic event. So it's a very useful utility, particularly when there's a lot of people involved.
spk07: So, Richard, will that be integrated into EVAC then?
spk01: It's separate right now, Scott, but over time I would believe that we would integrate it.
spk07: Okay. And then just on the opportunity pipeline, it seems like there have been a lot of inbounds. You know, you look at things like Florida that got pushed out but still kind of in that opportunity pipeline. It sounds like it's at record levels and the deal sizes are increasing. I'm wondering if you could – provide a little bit more color in terms of what that translates to in terms of potential revenue or connected users? How should we be thinking about that?
spk01: I think I go back to what I said, Scott, that we expect software revenue and ARR to double in this fiscal year. And there's opportunities beyond that as well, but the pipeline is robust and the inbound opportunities, as you pointed out, is is very good. Great.
spk07: And last, if I could, the enterprise market, I think you announced something earlier this week in terms of some energy wins. I was wondering if you could specifically address that in terms of the interest level there, what you're seeing kind of sell cycles, close rates, you know, are these kind of one-offs or, you know, is this something that we should expect to see more of in the future?
spk01: More in the future. So a vertical we focus on is critical infrastructure protection. The orders you're referencing are two nuclear power plants here in the United States. The order was, or the opportunity is for a total of four, two of which were booked, and two more will likely book in our fiscal year 2025. But beyond that, we have in our forecast and pipeline power plants, large distribution centers, anywhere there's a lot of people is, you know, the utility of our hardware and software is realized.
spk02: Great. Thanks so much. Thank you.
spk00: Thank you. And we'll take our next question from Ed Wu from Ascendian Capital. Please go ahead, Ed.
spk04: Yeah, congratulations on the outlook for software. My question is on active shooters. It seems like there's news every day about some active shootings somewhere in the U.S., Are you going to possibly focus on that? What are your opportunities in that area?
spk01: Our evacuation platform has been used in cases of active shooters. The Genesis Protect platform allows first responders to send emergency messages to very specific geographic areas. In fact, we just went live in the county of San Diego for that. The other thing it does, the Connect, or the former EverTel, the Connect allows the first responders to be able to communicate privately. You mentioned active shooters, Ed. I think it was in the state of Maine not too long ago. There was an active shooter situation. And I can tell you from my personal experience, I'm watching the national news, and the reporters on the national news are are listening to HF radios and saying, oh, the active shooter must be in this town and panics everybody in the area. At one point, the reporter said there was a parking garage behind him with a stale well that was open and police were going to the top floor. So we reported the shooter's got to be up there. So a lot of misinformation out there and that misinformation is a consequence of the chaos during any one of these catastrophic events. The Connect platform is private. It's not subject to being listened to by the public or anybody else that can use that information against them. So both the highly geographic-based messaging and Connect are two very good applications when you have an active shooter.
spk02: Great.
spk04: Thanks for answering my questions, and I wish you guys good luck. Thank you. Thank you.
spk00: As a reminder, that's star 1 if you do have a question. And we'll take our next question from Martin Yang from Oppenheimer. Please go ahead, Martin.
spk05: Thank you for taking the question. So my one question is about the inbound requests you have regarding the acoustic systems. Given the recent interest, are you actively investing in more outreach effort to accounts or regions where there might be a potential interest, but they have not actively inquired about acoustics to combine with Genesys Protect?
spk01: Well, Martin, we've recently aligned the Genesys acoustic systems underneath the Genesys Protect platform. There are several customers, particularly here in California, that have bought all of our software and hardware systems. That's a slightly different approach than we have in the past, where the hardware acoustic systems were sold principally through the LRAD channels. Our expectations are for some significant uptick in the Genesis acoustics, as we channel through our SAS group this third leg of the Genesis Protect stool.
spk02: Got it. Thank you. I don't have any more questions. All right. Thank you.
spk00: That was our last question. I'd like to turn the floor back to Mr. Alger for closing remarks.
spk03: Great. Thank you for participating in the call tonight. A replay of the call will be available on our website shortly. For additional information and up-to-date news and activity regarding Genesis, our products, and the customers we serve, I highly recommend that you follow the company and Genesis Protect on your social networks, particularly LinkedIn and X, where we actively post and comment on events as they're happening. We look forward to speaking with you again next quarter when we report the fiscal first quarter of 2024 results. Thank you. Good night.
spk00: Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.
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