Genasys Inc.

Good afternoon.

Welcome to Genesys' fiscal 2024 fourth quarter and four-year financial results conference call. I am Brian Houcher, SEP, Investor Relations, and Corporate Development for Genesys. Working on the call today are Richard Danforth, our CEO, and Dennis Kahn, 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 describing these forward-looking statements. Factors that might cause these 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, 2023. Other than statements of historical facts, forward-looking statements made on this call are based solely on the information and management's expectations as of today, December 9th, 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 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 measures, please see the table in the press release issued by the company at the closed 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. At this time, it's my pleasure to turn the call over to Genesys' CEO, Richard Danforth.

Richard? Thank you, Brian, and welcome, everyone. As Dennis will detail shortly, from a financial results standpoint, fiscal 2024 was extremely disappointing. While our software results tracked largely in line with our expectations, weak hardware revenues in the fourth quarter and throughout the year and the resulting losses were well below target. That said, fiscal 2024 proved to be a transformational year from a bookings perspective. Though the Puerto Rico contract was the largest factor by far, I am more encouraged by the breadth of our bookings recovery. As many of you know, Genesis International Business eroded nearly completely during COVID. And while we had hoped that it would rebound in fiscal 2023, it wasn't until fiscal 2024 that the international bookings rebounded. International bookings were up 86% year over year, and although they were not quite back to the pre-COVID levels, the rebound came from all regions, and we are well on our way to restoring that portion of our business. Whether it is with European naval customers, African and Middle Eastern militaries, or our traditional APAC customers, each region is contributing to the international growth. This morning's announcement with the Indian Navy is the most recent example of the recovery in the international hardware bookings. Domestically, LRAT systems for law enforcement made a noticeable comeback. The acquisition of EverTel and the improving budget environment for law enforcement drove the improvements year over year. From large metropolitan police departments to small college campuses, our LRAT systems continue to deliver the best-in-class mobile communication solution. Critical infrastructure protection projects like the Hoover Dam, the Port of Houston, and the Alabama Kshuta Tribe are testament to the diverse applications for our LRAT and acoustics equipment. As we add marquee customer sites, our pipeline of new opportunities continues to expand with both public and private sector customers. On the software front, we had a record bookings that were up 46% year over year. with notable wins coming late in our fiscal year. The largest single deal of the year was our statewide EVAC contract with the Oregon Office of Resilience and Emergency Management. Notably, Los Angeles County's addition of Alert to the existing EVAC functionality now utilizes the complete Tennis' Protect platform, making it our largest software customer both on an ARR and a total contract value basis. These two customers are illustrative of two different sales motions that we are replicating across the country. In both cases, we were selected because of the demonstrated uniqueness and value provided by EVAC. In Los Angeles, the most populous county in the United States, EVAC was initially deployed in the urban interface areas, and then coverage was expanded to include the whole county. Rapidly following that implementation, Los Angeles County is moving to implement a work with the intent of bringing all 80-plus communities in the county onto a single communication platform. In Oregon, the initial Genesis EVAC sales were made a year ago in a couple of fire-prone counties. Then, shortly after the Heine tragedy, the state emergency managers took notice and a statewide solution was constructed. Like Los Angeles County, we are actively discussing additional ways for us to enable emergency managers and first responders and Oregon to move to more efficiently respond and protect their constituents. Whether it is starting with a large county and working down to the cities, or with a handful of small counties and expanding towards a statewide engagement, Genesis EVAC is driving a proven sales cycle for Genesis Protect. Our software success has not just been on the West Coast. Significant progress is being made in Arizona, Utah, Colorado, Texas, and, of course, Hawaii. Looking further east, we are making inroads with winds in Florida, North Carolina, New Hampshire, and Massachusetts. This, of course, is in addition to the largest Hennessy's protect wind to date, Puerto Rico. I am pleased to report that the $75 million project with the Puerto Rico Electric Power Authority, PREPA, is progressing well. Since signing the contract with PREPA in August, boat buddies have moved quickly. As many of you know, the 37 dam projects have been divided into seven different groups, each with its own EOC. Each group is unique both in terms of the number of dams, but also the terrain and instrumentation required. The contract specifies after each group design approval, Genesis receives 60% of the sale value of that group. This deposit will allow us to procure all the necessary work in progress inventory, and deliver the components to the island for installation. Each dam within a group will go through an acceptance process that will enable invoicing for the remaining 40% payment on a dam by dam basis. This of course is how the cash will flow, but revenue will be recognized on a percentage of completion basis as is typical with projects of this scope and size. Where we stand today is our designs have been approved on the first three groups of dams. We have invoiced PREPA for the deposits on the first two groups, and after receiving the first deposit checks, we have begun placing orders for materials, staffing up local resources, and are preparing to break ground. The total value of the first three approved groups is just over $35 million. It is our intention to install the emergency warning systems as quickly as possible. Until we get a couple dams under our belt, however, it is impossible to predict exactly how long that will take. Regardless of the exact timing, Puerto Rico is serving as a tremendous example of the power of Genesis Protect as a complete system that combines planning and event management with unified communications including our acoustic systems that operate on power and traditional communication networks failed. Puerto Rico is not unique in its case and we are pursuing similar opportunities both domestically and abroad. Before I turn the call over to Dennis to discuss the financials, I want to provide an update on the AHD CROWS program record. As we have discussed in the past, the AHD CROWS requirement has existed for several years. In fiscal 2024, adding LRES to existing CROWS system was finally funded with an initial program appropriations totaling $20 million. We are actively working with the program office on detailed planning and scheduling We will keep you all apprised of progress as it occurs. Now, I will turn the call over to Dennis to go through the financials and outlook in greater detail.

Dennis? Thank you, Richard. In 2024, we successfully grew our recurring software each quarter. In the fourth quarter of fiscal 2024, recurring software revenue increased 110% year-over-year and 6% sequentially. On the full year, recurring software revenue grew 115% versus the full year 2023. Excluding revenues from Evertel, now known as Connect, fiscal 2024 recurring revenue grew 84%. Revenues for the current fiscal year fourth quarter were $6.7 million, a decrease of 37% for the prior year's quarter. When compared to the same prior year period, Total software revenue increased 92% to $2.1 million. Hardware revenue decreased 52% to $4.6 million in the fourth quarter of fiscal 2024. Gross profit margin was 40.8% in the fiscal fourth quarter, roughly nine points below the prior year quarter, primarily due to the reduced overhead absorption. Quarterly operating expenses were $9.9 million. up from $7.9 million in last year's quarter. On a GAAP basis, our fourth fiscal quarter operating loss was $7.1 million, compared to a loss of $2.6 million in the year-ago quarter. Adjusted EBITDA, which excludes non-tash stock compensation, was a negative $6 million compared to last year's negative $1.7 million. GAAP net loss in this fiscal year's fourth quarter was 11.4 million, including 4.2 million of other expense. This expense includes a $3.5 million non-cash loss on the change in the fair value of the warrants related to a term loan. This compares to last year's net loss of 10.1 million, which included a one-time non-cash deferred tax expense of 7.4 million. Moving to the full fiscal year, For the full fiscal year, total revenue was $24 million, a 49% decrease from fiscal 2023 revenues of $46.7 million. Hardware revenues decreased 61% to $16.7 million compared to fiscal 2023, which benefited from $22 million of revenue from a program of record that was completed last year. On the full fiscal year, gross margins were 42.4%, Though overall gross margins were negatively impacted by the depressed hardware contribution, software gross margins improved throughout fiscal 2024. On the full fiscal year, operating expenses grew $4.2 million to $36.9 million. The year-over-year increase is largely due to incremental spending on professional services and the addition of Evertel. For the full fiscal year, our 24 GAAP operating loss was $26.7 million compared to fiscal 2023's $11 million operating loss. Fiscal 2024 adjusted EBITDA was the negative $22.1 million compared to last year's negative $6.7 million. GAAP net loss for fiscal 2024 was $31.7 million, including $5.4 million of other expenses. Other expense includes expenses relating to securing the term loan, interest expense, and non-cash expense for changes in the valuation of the warrants associated with the term loan and related interest expense. The fiscal 23 debt loss was $18.4 million, including the $7.4 million deferred tax expense. Moving to the balance sheet, cash, cash equivalents, and marketable securities totaled $13.1 million as of September 30, 2024, compared with $10.1 million as of the prior year end. Cash used in operating activities in the fiscal year was $19.5 million. Net cash provided for financing activities, including the equity offering in October of 23, and the senior secured debt financing in May of 2024, was $23.9 million. As Richard mentioned, in the first two months of fiscal year 2025, the company received the deposit from the first group of dams in Puerto Rico. In addition, we invoiced the customer for the deposit from the second group. With our current backlog, including our starting software ARR of 8.3 million and the strong hardware bookings in fiscal 2024, we are substantially better positioned than we were just a year ago. While recurring software revenue growth will likely moderate from the triple-digit levels of the fiscal 2024, we do expect continued improvement throughout the year. Adding the hardware backlog that we do, we are confident that we will deliver substantial growth on the whole year. That said, timing of purchase orders, grants, and uncertainty pertaining to the installation process in Puerto Rico prevent specific financial guidance. And now Richard will make some closing remarks before we open the call for Q&A. Richard?

Thank you, Dennis. As Dennis just detailed, fiscal 2024 was a very disappointing year on a financial basis. We started fiscal 2024 with less than $7 million in total backlog. We were able to book and build 17 million of business in the year. but this was still way short of our expectation, and it was reflected in our bottom line results for the year. Compared to this time last year, our business is looking dramatically better. In fiscal 2024, we booked $111 million in new business. Our 12-month backlog is $40-plus million, and we expect additional bookings and resulting revenue throughout the year. Our software business is starting fiscal 2025 with an ARR of $8.3 million, plus large contracts that have been already awarded but are yet contributing to revenues. It is worth noting again that Genesis Protect Software enabled the $73 million in hardware-related bookings in Puerto Rico. We expect that software will continue to drive hardware sales. In summary, Genesis is starting fiscal 2025 with tremendous momentum aggressively moving to take advantage of our position. We are excited to deliver results that reward the support shareholders have afforded us. I also want to thank the entire Genesis team for its steadfast commitment to delivering a larger, more balanced global business with increasingly predictable revenues and profitabilities. Now I would like to open up the call for Q&A. Operator?

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. And we'll take our first question from Scott Furley from Roth Capital. Please go ahead, Scott.

Hey, good afternoon. Thanks for taking my questions. Nice to see the progress on the Prepper Fund in terms of moving into the third group. Maybe along those lines, Richard, I know you had some comments around PREPA, but the timeline of when we should start to expect the first revenue contribution, is that in the March quarter, given what you're seeing right now? And when would you expect to see some of the deposits coming in, I guess, on the third grouping?

Yes, March quarter is a reasonable expectation, Scott. Tennis mentioned, we've invoiced for the second group. The third group we'll be invoicing for shortly. And the fourth and fifth are scheduled out in, I think, Tennis, the fourth is scheduled out in this fiscal year as well.

It's towards the end.

Yeah, towards the end of the year. Gotcha.

And just in terms of I wonder if you could talk us through some of the elements now that are preventing some of the headwinds. And once you get into a cadence, how should we be thinking about the progress, how quickly you can be installing dams?

Yeah, that's still a bit unknown. There's a lot of variabilities once you get on the island. I would look at it this way, Scott. All of the equipment to support our obligations in Puerto Rico, Almost all of that is going to come right through here. So that's really the easy part of this. And it's also where most of the money is. The installation process is complicated. There's five different owners of the 37 dams, including private owners and municipalities, the water company, the electric company, the Puerto Rico Department of Natural Environmental Resources, and all of them have certain challenges. I'm going to defer to directly answer your question until we get a little more experience with these five different owners. Everybody, I will say, is anxious to get going and get this done as soon as possible.

Let me ask you on that front, though, because the dams were sort of an initial entry point to some potentially larger opportunities, not just for that infrastructure, but other infrastructure throughout the island. Has there been any progress on that front, or have you guys been just so occupied with trying to advance the existing profit contract?

No, we expect an RFP for additional hardware and an unrelated application. later this fiscal year. Gotcha.

And then maybe shifting over to Curls, I know you had some comments on the call. I'm wondering if you expect resolution or revenue at some point this year, and just how the current functionality of the existing government and continuing resolution issues are impacting you or not impacting you.

No, the current CR has no impact, Scott, at this time. As you recall, the current fiscal year 2020 Our federal budget wasn't passed until the March timeframe of last year, and that's, in my opinion, where we're headed this year. The incoming administration seems to be more friendly towards defense, so that leaves us optimistic. Gotcha.

And lastly, if I could... You had some comments about Evertel or Connect now. I'm wondering if there are any other metrics that you guys are willing to share on the front. You're talking about ARR, broadly speaking, on the recurring side of the business, but are there a number of users or subscribers with our first responders and public safety on the Evertel front that you guys would talk about or help us side that business since you guys have acquired it? Thanks.

Yeah, thanks, Scott. So the customer count continues to grow. I think the last number we gave you was a little over 400. There's a huge, huge variance in terms of the size of those customers. At the largest size, obviously, we have Oregon with the entire state as a customer. And then that goes down to your really small law enforcement agencies that might only have one or two sworn officers that have a software license at $5 a month. So the size of the customers vary, and therefore your average revenue per customer varies. is quite different. Also, your traditional metrics for CAC and timing are all over the place. We need to get to more scale before we can start giving you numbers that matter, but we are tracking those, and certainly from a customer account and from an ARR standpoint, they're turning in the right direction.

Okay. Maybe one more, if I could, then on the ARR front. You're at 8.3 million. You've won some other business that hasn't started to contribute yet. I'm wondering if there's a number you feel comfortable with exiting fiscal 25 in terms of what that ARR number will look like. Thanks.

Yeah, we have plans, Scott, and expectations based on bookings and goal lives of where the ARR will end up in 2025. We haven't shared that with anybody at this time, but... We continue to expect to see significant growth in our SaaS business. The pipeline is very good. The closure rates are very good. There's a great deal of optimism in the SaaS side of the world.

Great. Thanks. I'll get back in the queue.

Thank you. And we'll take our next question from Ed Wu from Ascendian Capital. Please go ahead, Ed.

Yeah, congratulations on all your progress. As you guys start to collect from the Puerto Rico contract, which will be a lot of money, your balance sheet is very strong right now. At this time, are you guys considering, you know, financial acquisitions, and what does the acquisition landscape look like right now?

And we don't have any current plans for acquisition, and I think you know this, but all of our acquisitions have been opportunistic. If we come by something that looks like it to significantly add to our product offering, our software offering, and the price is right, then we'll deal with it at that time.

Do you feel that you guys are in a good shape if there are opportunities to take based on completing the integrations of your prior acquisitions?

The integrations are complete. So there's no ongoing integration. There's always software development going on, as you know, but we operate as Genesis as one company.

Great. Thanks for answering my questions, and I wish you guys good luck. Thank you.

Once again, that's star one if you have a question or comment. And we'll take our next question from Mike Lattimore from Northland Capital. Please go ahead, Mike.

Yeah, hi. This is Vijay Deva for Mike Lattimore. Good quarter. A couple of quick questions. On the PREPA, could you just tell me how much is PREPA in your overall backlog as of now?

We're not breaking that down right now. It is obviously the biggest portion of that $40 million in backlog. Also included in there as a sizable portion is the ARR of 8.3 in terms of copper, but we're not going to give you a breakdown on the backlog today.

Understood. And yeah, I think you're not giving the exit AR for software for the fiscal year 25, but do you have any plans for increasing your software sales force for next year?

We do. We have been increasing our SaaS software sales team throughout fiscal 2024. And I think we have five or six additional open recs that we are endeavoring to fill. All right. Yeah.

Thank you.

And there are no further questions at this time. I'd like to turn the floor back to Brian Alger for closing remarks.

Great. Thank you, everyone. Appreciate your attendance. And we look forward to speaking with you again at the next quarterly conference call in early February. Good evening.

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.