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spk01: Ladies and gentlemen, thank you for your patience. Please remain on the line as we wait for the earnings released across the wire for Genesis. We appreciate your patience. Please remain on the line as we wait for the earnings released across the wire. Thank you. Thank you. Ladies and gentlemen, thank you again for your patience. Please remain on the line. We are waiting for the earnings released across the wire for Genesis. Thank you for your patience. Please remain on the line. We're just waiting for the earnings released across the wire. Thank you. you Ladies and gentlemen, again, we thank you for your patience. As we're just awaiting the earnings released across the wire, it should be momentarily now. Thanks again for your patience. Thank you. So, Thank you. Good day ladies and gentlemen and welcome to the Genesis fiscal first quarter 2024 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 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. Welcome, Brian. The floor is yours.
spk04: Thank you, Karen. Good afternoon, everyone. Welcome to Genesys' first quarter fiscal 2024 financial results conference call. I'm Brian Alger, SVP of Investor Relations and Corporate Development for Genesys. Today's earnings release is available up on our corporate website and in the investor section, and it should be crossing the wires any moment now. There's been a delay with our filing service, and we apologize for the delay in this call. But for those of you looking for the numbers and looking for our commentary, you can find it on the website right now, or it should, as I said, cross the wires here shortly. With me on today's call is 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, 2023. Other than statements of historical facts, forward-looking statements made on this call are based only on the information and management's expectations as of today, February 13, 2024. 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 the 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 closing market today. As I said, it should be coming across any moment. 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. Now, at this time, it's my pleasure to turn the call over to Genesis' CEO, Richard Danforth.
spk03: Richard? Thank you, Brian, and welcome, everyone. The strategic vision of Genesys Protect is being realized. Yesterday's announcement describing the integrated use of Genesys' cloud-based software and hardware for 37 dams in Puerto Rico is only the most recent example of our differentiated approach to protective communications. To recap, Genesys has been selected through a competitive solicitation to engineer, procure, and install a comprehensive emergency warning system for 37 dams on the island of Puerto Rico. Genesis had the highest score, beating the competition in all evaluation categories. This project has been fully funded by FEMA and is expected to generate $60 to $70 million of revenue for Genesis. More than $50 million of hardware revenue is expected to be installed over the planned 18-month project line. Importantly, all of the sensors, data streams, and communication channels will be managed with the Genesis Protect software. In addition to approximately $1.9 million for a three-year software license, it is expected that we will also provide hardware maintenance services that could generate between $3 and $10 million, depending on the length of the maintenance agreement. Our investments in developing the Genesis Protect software drove the selection for the Puerto Rico project. As a result, not only will we generate recurring revenues, but we will also be delivering more than a full years of incremental hardware revenue for this project. The selection of Genesys Protect's platform, including both hardware and software for the Puerto Rico Dam Emergency Warning System, is yet another example of the differentiation of our approach to protective communication. Already in fiscal 2024, we have been selected for a multi-year engagement with Los Angeles County, a county with more residents than most states in the union. The Department of Corrections for the entire state of Utah. And most significantly, the project I just outlined for the island of Puerto Rico. Our engagements are getting larger, but they're also becoming more comprehensive as the advantages of our platform approach became more evident. Our transition to a more balanced hardware software company is well underway. Our software business continues to gain momentum and build scale. Synergies from the acquisition of Evertel are beginning to be realized, and as a result, ARR for our Connect business grew nearly 18% sequentially in the first quarter as part of Genesys Protect. Similarly, we are getting significant leverage from our partnership with Ladris, which provides our traffic AI solution. Recurring software revenue grew 85% year over year. Total realized ARR exiting the fiscal first quarter was 5 million, and we expect to exit our second fiscal quarter with nearly 7 million of ARR. Coming into this year, we had exceptionally low hardware backlog, and as we communicated in early December, we expected financial results to be heavily weighed towards the second half of the fiscal year. Though quarterly revenues were substantially lower than prior year, Hardware bookings were in line with first quarter historical averages and up nearly 90% versus the prior year's quarter. Dennis will provide more detail on the hardware revenues momentarily. As we look out over the remainder of our fiscal 2024, we see a growing need for protective communications in communities, enterprises, and critical infrastructure across the globe. Too many events, including natural disasters, civil unrest, and geopolitical tension, require a more complete solution to protect the various constituents. Mass notification messages and 60-year-old sirens are not adequate. More is expected and, frankly, deserved. Internationally, we are finally beginning to see our hardware business recover, and we are also seeing new and growing interest for our software solutions as well. Recent wins and the continuing deal activity and pipeline expansion give us greater confidence in our second half of 24 and our fiscal 2025 outlook. Unchanged from our outlook in December, we are confident that the software revenues for fiscal 2024 will at least double over fiscal 2023. We continue to see a very back-end loaded year for our hardware business. Though there remains near-term uncertainty around the timing of the US federal budget approval, Recent bookings and the Puerto Rico selection bolster our confidence in approaching fiscal 2022 levels of hardware revenue, despite the exceptional low performance in the first quarter. Based on our assumptions that the US federal budget is approved in the March timeframe, we expect to be profitable on our adjusted EBITDA basis in the second half of 2024. On a full year, we continue to expect to report a negative adjusted EBITDA, though improved quite a bit from fiscal 2023. Now I will turn the call over to Dennis to go through the financials and outlook in greater detail. Dennis?
spk10: Thank you, Richard. In 2023, we successfully grew our recurring software revenues each quarter. In the first quarter of fiscal 2024, that growth accelerated to 85% year over year. Revenues for the first quarter of this fiscal year were $4.4 million, a decrease of 58% over the prior year's record first quarter revenue. As compared to the same prior year period, total software revenue increased 57% to $1.4 million. And to reiterate, our recurring software revenues were up 34% sequentially and nearly 85% year over year. More than offsetting that growth, hardware revenue decreased 72% to $2.9 million. As Richard mentioned, Genesys started fiscal 2024 with exceptionally low hardware backlog. In addition to a low backlog entering the quarter, we also had nearly $1.5 million of revenue that was booked and built during the December quarter, but the U.S. government was unable to pick up the orders until the first week of January. Gross profit margin was 34% in the fiscal first quarter, a decline of 12 percentage points, or $3.4 million, from the prior year period. The drop in gross profit was attributable to lower hardware revenue in this year's quarter and the related reduction in overhead absorption. On a more positive note, software gross margins improved nearly 15 percentage points year over year. Quarterly operating expenses, including the first quarter of EverTel expenses, were $8.7 million, up 5% from $8.3 million in the first quarter of fiscal 2023. The increase was primarily tied to the acquisition. On a gap basis, our first fiscal quarter operating loss was $7.2 million, compared to a loss of $3.5 million in the year-ago quarter. Adjusted EBITDA which excludes non-cash stock compensation, was a negative 6.1 million compared to last year's negative 2.4 million. The year-over-year decline in adjusted EBITDA was due to the lower hardware revenues and subsequent reduced overhead absorption. Cash, cash equivalents, and marketable securities totaled 13.6 million as of December 31, 2023, compared with 10.1 million as of the prior year-end. Cash used in operating activities in the first fiscal quarter was $5.7 million, while the working capital increased $1.5 million. As Richard mentioned, we continue to expect software revenues to at least double in fiscal 2024, and hardware revenues should rebound close to fiscal 2022 levels. We continue to expect adjusted EBITDA loss to improve in fiscal 2024 and fiscal 2023. And now I'd like to open the call to Q&A. Operator?
spk01: 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 do have a question or comment. And we'll take our first question from Brian Colley from Stevens. Please go ahead, Brian. And it looks like we lost Brian, so we will move to Scott Searle from Roth MKM. Please go ahead, Scott.
spk06: Hey, good afternoon. Thanks for taking the questions. Hey, maybe just to quickly dive in, in the comfort level for the hardware ramp in the second half of this year, just want to clarify again, you're talking about a recovery to past historic levels. It really implies that back-end loaded ramp, you know, starting in June and September will I think you gave the caveat of U.S. budgetary approval, I think, for the continuing resolution which is now targeted at March. I was wondering if you could provide a little bit more color around that, the timing of the budgetary potential resolution and how much of the pipeline and backlog is actually tied to that.
spk03: Scott, the March date, I think, is the third date they've given so far with the extension, so we'll see. But, you know, we have an Army program that we, it is a new Army program that we have expectations for revenue in this fiscal year. I don't think we've put out, have we put out anything about what we thought it would be? Not yet. But it's a significant number for us. So we'll see. That's the most significant thing. There'll be other ancillary issues where, you know, there can be no new starts under a CR. And we get lots of hardware and software business through grants. No budget will have an effect on that. So it can be a significant hit to us if it doesn't pass.
spk06: Gotcha. And maybe just to follow up on that, Rick, in terms of The overall opportunity pipeline, it seems like the funnel had been growing. You've given some metrics, I think, on the past call. I'm wondering if you could just indicate, you know, what you're seeing sequentially. Have things been growing, even though they haven't been coming out the bottom of the funnel? Is that getting larger? And in your opening remarks, you talk a little bit more about civil unrest and geopolitical tensions, which has not necessarily been, I'd say, the core issue. staple of your business. Is that becoming a bigger portion of the pipeline going forward?
spk03: Civil unrest involves local police. Almost every local police agency in the United States has some LRADs. It certainly can drive demand, particularly for LRAD hardware. In terms of your question on the pipeline, it continues to grow. When we Talk about pipeline, we don't usually include some of the large opportunities like the one we announced with Puerto Rico. And we continue to see the pipeline grow. We continue to increase a look at our forecast for bookings. Some of what had slipped last quarter or last year, all year long, have started to close. And we remain optimistic for the year with an outlook unchanged from our prior conference call.
spk06: Just to clarify, though, so the previous pipeline that you guys had talked about, though, so did not reflect Puerto Rico. Is that correct? The larger opportunities like that are not having that full amount put into them? And secondly, I wonder if you could just talk a little bit about Evertel and the cross-selling opportunities, how that's being received, and kind of what your outlook is for the second half of this year. Thanks.
spk03: Yeah, you are correct. The large opportunities are usually kept separate. from our pipeline. In terms of Evertel, Evertel in one quarter has grown their ARR, as I said, by 18%. The cross-selling opportunities have begun. We recently re-upped, I think it was Marin County. Was it Marin?
spk06: For what?
spk03: Just to re-up for EVAC and sold them Evertel. So the re-up, Dennis, correct me if I'm wrong, but some of it... No, it wasn't Marin, but We have. But it was re-upped for EVAC at $250K and then add Ladris on top of it for $390K, that kind of a thing. So it was selling to the same people, Scott.
spk02: Great, thanks. I'll get back in the queue.
spk01: Thank you. And next we'll go to Brian Colley from Stevens. Please go ahead, Brian.
spk05: Hey, guys. Thanks for taking my question. So, it seems like the Puerto Rico contract should kind of get you close to hitting your FY26 targets next year. I'm curious if you view that as a new base off of which you can grow or if we should see a decline in the hardware revenue once Puerto Rico rolls off.
spk03: Well, Puerto Rico will provide substantial revenues in our fiscal 2025 for sure. We'll have to win something like that or build the pipeline even larger with the normal LRAT stuff. So, it's hard to replace a, you know, a $60 to $70 million one-time order. However, this puts us in a different position in the critical infrastructure protection marketplace. There are dam projects all around the world. There are dam projects here in San Diego. There are dam projects in South America and Europe that we're chasing, not to the size of Puerto Rico, but it will certainly give us great credentials and a calling card to further the CIP kind of vertical.
spk05: Got it. And then in terms of kind of the cadence of revenue for Puerto Rico, how should we think about the split between FY25 in this year? I mean, maybe should it be, you know, 80% next year, 20% this year, or more heavily?
spk03: It'll largely be next year. So the current schedule, Brian, is there's a six-month process to get approval on all of the dam designs. That will put us at the end of our fiscal 2024. And then the vast majority of the revenue will occur in the fiscal 2025.
spk05: okay got it that's helpful and then also i was curious if you could provide an update on the crows order and your confidence level and getting that award it's pending a dod budget so as soon as if that goes brian the crows will go as well got it okay and then last question for me is I was hoping you could maybe just talk about the software pipeline, how that's trending relative to your expectations, and what the composition of that pipeline looks like between Connect, Alert, and EVAC, and kind of where you're seeing the most demand today.
spk03: Alert and EVAC represent the biggest dollar volume of our software offerings. The Connect we're just getting started on, and those are – a lower dollar value software sale. The Ladris piece, as I mentioned a moment ago, we can have a pretty good uptick in both ARR revenue from that, as I mentioned, the 390K just for one county. So the pipeline is dominated by Alert and EVAC.
spk04: Maybe just as a follow-on to that, Brian, and this was in Richard's prepared remarks, the value of the entire platform is becoming more and more real. So where we've already sold EVAC, we are seeing increasing accelerated, et cetera, interest in our other offerings, whether that's Connect, Alert, Traffic AI, et cetera. And oh, by the way, also acoustics. It really should be apparent to everyone that the The Genesis Protect platform that includes both software and hardware has an enormous potential. Puerto Rico is a Genesis Protect win. Without the software, we would not have won that RFP opportunity. It's the software that got us in there, and as a result, you're seeing over $50 million of hardware from one order from the software differentiation.
spk05: Got it. Thank you for the time, gentlemen. Thank you.
spk01: And we'll take our next call from Mike Lattimore from Northland Capital. Please go ahead, Mike.
spk07: All right, great. Thanks. On the hardware bookings in the first quarter, did you give a number there? I'm not sure I heard that. I think you said I got back to normal, but can you give a little more detail on the hardware bookings in the first quarter?
spk03: Sure. Historically, hardware bookings in Q1 is the lowest quarter. What we achieved in this first quarter is consistent with other first quarters, albeit substantially higher than what we booked in fiscal 23 first quarter. So it's a small win. In fact, you know, it's almost double what we booked in Q1 of 23 versus 24. Okay, I got it.
spk07: On the CROWS deal, if that's approved or this budget passes, how much of that business would you see this year versus over multiple years?
spk03: Well, if you assume a budget gets passed by March 8th, as soon as we probably would see any money flow would be, I don't know, end of June. So there would only be a couple of months left in our fiscal year at that point. And it is a new program. which means there'll be a start-up phase that we haven't had to deal with for the U.S. Army in many years. So it'll be a little slower at the start and a strong finish.
spk04: Mike, remember, like our previous program of record, each year there's a new purchase order placed against the program of record. The same is expected to be true for CROWS.
spk07: Yeah, okay, makes sense. In terms of your... SAAT software or SAAT pipeline, you know, how much of the pipeline is a prospect wanting one part of the stack versus sort of the full software stack?
spk02: It's a significant mix.
spk03: And as Brian mentioned, you know, we often get competitive RFPs for Aluric. And we will always answer those introducing EVAC. And as I mentioned in prior calls, there's a couple of large counties where we did that. And after the award of AWARE came, we went into a negotiation with EVAC and subsequently booked those orders. So the cross-selling opportunity is clearly there and we've achieved it. And it's continued with the Evertel piece as well.
spk07: Great. And then just last on the Puerto Rico deal, you said 50 million hardware. So overall, what are you considering gross margin to be, and do you have to add much OPEX to sort of deploy this thing?
spk03: We'll have OPEX for – well, we don't have a significant increase in OPEX expected for the island of Puerto Rico. What was the other question? The gross margin. Oh, gross margin. Gross margin on the hardware coming out of the factory in San Diego will be consistent with historical actuals. And the equipment that is – the equipment and services will typically be a lower gross margin than our hardware gross margin, but still a significant contributor to the company.
spk02: Okay, great. Thank you.
spk01: Thank you. And next we'll go to Ed Wu from Ascendian Capital. Please go ahead, Ed.
spk09: Yeah, just a clarification on the gross margin that you mentioned. On these bigger deals, why wouldn't you have much better leverage considering the contracts are that much bigger? Was pricing a big determinant for winning the contract?
spk03: Yeah, the multiple award criteria price was worth 35%. But don't mistake this order will give significant contribution margin to the company.
spk02: Great.
spk03: At $50 million, Ed, approximately, that's bigger than most years of hardware. So if you have that plus our normal business, you're going to have significant absorption. Gross margins on the balance of the business, balance of the base to the factory, will enjoy the improvement, the improvement to the contribution margin from normal activities.
spk09: Great. And, you know, this win and obviously last year's win with America, should we anticipate much bigger type of deals going forward? Are you guys specifically targeting much bigger deals?
spk03: Well, the Genesys Protect platform approach is introducing larger deals to us. In the case of Puerto Rico, if you look at the traditional competitors we face in hardware and software, they weren't in the picture. So Genesys, as a company, was the most qualified to respond to that RFP and was reflective in the scores that the customer gave us. So I think, yes, we will continue to pursue larger opportunities to exploit the Genesys Protect platform capabilities around the world.
spk02: Great. Well, thank you and congratulations again. Thank you.
spk01: As a reminder, that's star one if you have a question or comment. And we'll take our next question from Martin Yang from Oppenheimer. Please go ahead, Martin.
spk08: I think you answered part of the first question I have regarding OPEX associated with Puerto Rico. I know there's not a lot of big increase, but if anything changed for OPEX, for Puerto Rico project, what would it be? And should we assume a major operating leverage coming from the Puerto Rico project?
spk03: Well, the second question first, yes, of course. That's what I just, I think I just said, talked about that. The contribution margin that it will avail will be significant. And as I said, the base business will also benefit from that increased absorption. From an OpEx perspective, you know, travel will go up. We will, you know, hire more people on the island, but it's a single digit kind of number. I don't see us adding anybody in the factory. I don't see us adding anybody in purchasing or sales or marketing. So I think it's nominal from a headcount perspective.
spk02: Got it. Thank you.
spk08: The second question is about your enterprise customers. Can you maybe give us an update on how are you seeing customer engagement and pipeline regarding your sales into the enterprise market?
spk03: Yeah, for us, it's slide first and enterprise to be opportunistic. Aramco fell into that, and there's been several others. I don't think we've released anything on a win with those yet, but you'll see some coming shortly.
spk02: Thank you. That's it for me. Okay. Once again, Star 1, if you do have a question or comment.
spk01: Okay, and there appear to be no further questions at this time. I'd like to turn the floor back over to Brian Alger for closing remarks.
spk04: Thank you, everyone, for participating in today's call. You should see the press release. It did cross the wire in the middle of our commentary. So you can find it on our website. A replay of the call will be available on our website here shortly. For additional information and up-to-date news and activity regarding Genesis, our products, customers we serve, again, I'll strongly recommend that you follow us on our various social platforms, whether that's LinkedIn or X. We actively post and comment, and a number of our customers do the same. So to stay on top of things, I'd strongly encourage you all to follow us on those social networks. Otherwise, have a great night. We look forward to speaking with you again next quarter when we report fiscal second quarter 2024 results. Thank you.
spk01: 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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