Galaxy Next Generation

Q2 2021 Earnings Conference Call

2/16/2021

spk00: appreciated please hold the line and we'll be right back with you Thank you for holding. We look forward to talking with you soon. Please hold the line and we'll be right back with you.
spk01: Good afternoon, everyone, and welcome to the Galaxy Next Generation's second quarter fiscal year 2021 conference call. This call is being webcast and is available for replay. In our remarks today, we will include statements that are considered forward-looking within the meaning of security laws, including forward-looking statements about future results of operations, business strategies, and plans, our relationship with our customers, market and potential growth opportunities, In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today and are subject to certain risks and uncertainties and may cause the actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties are contained in our most recent Form 10Q, Form 10K, and in other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. And with that, I will now hand the call over to Galaxy Next Generation's Chief Financial Officer, Megan McGahee.
spk03: Thank you, John, and good afternoon, everyone. As always, we appreciate you joining our call today to discuss our second quarter, financial and business results. Of course, the quarter ended on December 31st. I will take a moment for those of you that are new to the call to give a brief overview of who Galaxy Next Generation is. We are in the educational technology segment. We provide products anywhere from interactive flat panel displays to intercom paging, visual alerts. We took an opportunity in an unknown world and launched a coaxial line of products for protective gear for students in the classroom and really have just kind of created an entire product offering to span classroom, school, and enhancing the learning environment while keeping our students safe. We do primarily sell into the school market, the K-12 higher ed market, but we do have customers In other verticals that we will provide equipment to, it's obviously not our major focus and takes up a small percent of our current market share. While we did experience several challenges in our second quarter, there was an election going on in our country. COVID had additional lockdown measures in place. We are proud to present that we actually did have an increase in revenue on the six months that were represented at December 31st. Several key business highlights that I'd like to go through before we dive too far into the financial side. Of course, in that report period, we did close the acquisition of Classroom Technology Solutions. We enhanced our relationship with our first OEM partner by actually shipping off of their purchase order into us quite a bit. We added new resellers and territories that we had not sold into historically. We added Cogeshield customers everywhere from Pennsylvania to California, Texas, and several in between. We did expand our relationship with Technology Corps, who is a distributor in the Australian market. We made a partnership with Stand for Kind, which is a nonprofit anti-bullying coalition. Again, just reiterating our message that our total business strategy is to protect our customers which we see as the end user of the student. We've launched several products both in the quarter and announced since. Adjust them out line of carts and mounts to make the accessibility of our product easier for students in the classroom. We also announced our visual alert product, which is basically a visual a text message that can be sent to any device within the school district, whether it's interactive panels, simple windows, tablets, PCs, iPads, the list goes on. That product has been a key feature also in our safety line, not just our technology line, as it's a quick way to get emergency response messaging out into the school district in case of the need to do so. So again, lots of things going on. Historically, this quarter has been Our hardest quarter, just given kind of the seasonal rotation of revenues from school districts, November we have Thanksgiving, December we have Christmas. This year kind of posed even additional challenges, but we seem to have overcome them and have continued to grow in both a positive revenue stature and also a positive operational and debt stature. So I will take the time now to kind of dive into the financial results themselves. So in terms of revenue, we did increase about 32% from the six months reported last year at this time to today. We also still reported a deferred revenue of $1 million. Our deferred revenue is typically considered installs that are not 100% complete or product that is waiting on the school to be open in order to install. So it is sold revenue that has not been considered to be unreceivable yet. Product gross margin still maintains 50%. We've seen a little bit of an influx from a logistics side in terms of freight costs. COVID has caused a little shortage in truck drivers and shipping opportunities. So even maintaining the increase on our freight in the US here Our gross margins are still about 34%. So giving us a little bit of flexibility in terms of growing and adding new people to the company. So having said that, it's kind of a direct reflection on our reduction in quarterly operating loss. We did have an increase in revenue and a reduction in loss. So with the addition of two offices this six months, we added an office in Jacksonville. We had an office in Arizona. We added five new full-time employees, three consultants, and still were able to show that decrease in loss and the increase in revenue. So I think it's truly a testament to kind of the evolution that we've seen ourselves in and turning the corner and making sure that both of those worlds eventually meet in the middle in order to show that profit. If we kind of look at the breakdown between the first half of this year, which again is our fiscal year 2021 and the first half of our fiscal year 2020, we didn't see a major increase from 2019 to 2020. In fact, we were pretty flat. But that increase from that same time period to this time period, we did see that increase of 32%. So as we continue to evolve into this quarter and next quarter, which typically are or more historic revenues for us, last quarter really gave us an opportunity to take a step back and make some changes that would put us into a quicker advancement on that front. So we did bring on, this past quarter, a chief operating officer. And I think that that will have the biggest influence on our bottom line as he continues to build out the team. We have three open requisitions for regional sales managers one of which I believe we may have filled today and the other two are still being interviewed and trying to find the best candidate for it so simple things on the balance sheet to look for in this quarter accounts receivables were up to 1.2 million from our audited period of 700 so not quite doubling but to be able to to have accounts receivable and inventory of just under $3 million, I think we're at $2.7 million on both of those combined, and an account payable only at $1.3 million, you know, that yields a positive to the company in a reflection of these earnings of almost $1.4 million. You also see several things listed on the earnings report in relation to convertible debt. I think we had previously announced and have also announced in our earnings report that we have eliminated all of that convertible debt. A couple of things that will be important to note in this earnings report is you'll still see reflections of that convertible debt on the balance sheet in terms of liability and stock issuances that are non-cash related. So when we really break down both the income statement and the balance sheet, we get to be mindful of the elimination of that debt moving forward. and be proud that the next earnings will reflect obviously a true liability number based around those derivatives. So a couple of other key highlights that I'll point out. We've also increased our assets once again this quarter. So we've added another $1.2 million in assets to the balance sheet. Our backlog currently sits at about 2 million, and I will point out that our backlog is different than deferred revenue. Our backlog is basically orders that we have received but are not in process. So deferred means that they're in process, we just haven't fulfilled them all to turn them into receivable. Backlog would be orders received that have not yet shipped. So we, you know, if we look at the big picture, of where we're at at December 31st, and I'll talk a little bit about where we've come since then before we turn it over to questions. We have assets sitting, hard assets of accounts receivable and inventory of over $3 million. Removing the liabilities of the convertible debt and everything related to that, we do have accounts payable of 1.3, some long-term notes payable. So when we talk about the debt under that related left on the book, all of the debt that currently sits out there is either based around PPP loans that the company received or SBA loan during the COVID disaster that were received, or they sit under that related party note payable, which means that either an executive officer or affiliate owns that debt. So the positioning of where we are at now is basically we know who owns the money and where the money is at. And it's a true testament of kind of where our growth is able to go moving forward. In this past quarter in terms of subsequent events, we also talked about the new financing that has come down the path. So hate to harp on it, but for us the elimination of that convertible debt was extremely important. And since then we have moved not only into new traditional banking, but also a higher level of institutional equity funds. And so what that means is that we now have a true bank line of credit in place that we use from an operational, weekly salary type standpoint. We have accounts receivable financing in place, which obviously is eligible for up to 1.2 at this point based on that. And now we also have this equity investor that really to Gary and I, and to explain it kind of in layman's terms, has given us a cushion or a backstop for the company to be able to jump into a much larger producing company so that we don't have the financial constraints of having to rely on top-set financing. So as we move forward, we will use and rely on some of those traditional manners and also the equity lines. and it's not our intention at this time or in the near future to bring on any additional convertible debt. So I think that kind of summarizes where we're at. I'll answer some additional questions and probably will reflect back to some of the numbers in the financial statements or some of the other catalysts. But I think it's a pretty good summary at this point. I don't want to rattle on forever, so I'll turn it back over to you, John, and we can open it up for Q&A.
spk01: Thank you. Thank you ahead of time for your previously submitted questions. The company will do its best to answer all of the questions possible, with the exception of anything forward-looking. Okay, the first question. Do you or will you have sales beyond just K-12?
spk03: So the K-12 market, you know, it's a multibillion-dollar market. I would say that right now that is our focus. To answer your question directly, do we? Yes, we do have sales outside of the K-12 schools, specifically higher ed, community schools, vocational schools, even local, state, government, police stations, hospitals. The list kind of goes on and on. But when we look at it from the entire umbrella perspective, it's definitely worth our resources to invest more into that K-12 market than to the other verticals. at this time. I, for one, would be pleased if we could take the majority of that billion-dollar market share.
spk01: Okay, the next question is, do you have any sales outside of U.S.?
spk03: We do. We have a Canadian partnership that does bring in sales, and we also have the most recent announced partnership with Australia.
spk01: How many sales reps and distributors do you currently have?
spk03: So this one changes every day right now, actually. Currently, we have about seven sales reps. Some of them wear other hats, but seven people that are focused on sales internally. We have, I think I mentioned a while ago, when bringing on Mr. Brinkman as chief operating officer, one of the things that he was tasked with immediately is getting additional sales team, sales members added to the team. so that we could obviously expand our brand much quicker. And he has started the interview process. We do have one person that we believe is the right fit to bring on board, and we will continue to interview for those two other open recs to get them on board as quickly as we possibly can.
spk01: Do you have any sales to the government?
spk03: So this question for me is a little difficult to answer. You know, education... is government funded. So I think if the question, do we have a relationship directly with Washington and are we selling into state and local government? We have before, especially our interactive panels and our code shield products. But for us, our end user is contacting through our distributor channels, through our resellers, those schools and school districts directly, which in turn, are funded typically by the government, whether it's federal or state.
spk01: What is your business relationship with BoxLight?
spk03: So, BoxLight is a company that's a partner in the ed tech industry. As you can imagine, most partnerships come with confidentiality agreement. BoxSight, in my opinion, is an outstanding company and we wish them much success. We believe that their success is a direct correlation to our own success.
spk01: Are you still committed to a NASDAQ listing in 2021?
spk03: So the NASDAQ or National Exchange listing is definitely still one of our goals for 2021. We are intimately knowledgeable of all of the requirements in order to uplift, and we keep ourselves educated on those requirements. With it just being February, I would say at this point, having met the majority of those requirements, I'm feeling very confident about accomplishing that goal.
spk01: Will there be a reverse stock split?
spk03: This question's been asked quite a bit and many times before, and Again, no reverse stock split has been authorized at this time. If any discussions have taken place of recapitalization internally with executives, it would be only in conjunction with an uplift if that requirement was not met at that time.
spk01: What is the next winning product from Galaxy Next Generations?
spk03: Well, I hope that everyone can appreciate this question is a little challenging to answer from a competitive landscape. We don't typically announce new products until we're ready to do that into the market. But I can give kind of a general product roadmap response. Our biggest focus on development internally has been building out the new visual alert product, which we find to be instrumental. We've also added that product into our commercial segment, which is our OEM division, so we do plan to offer it to other companies in order to rebrand it. We will continue to build out our Bell intercom and paging system. We brought it to the cloud, so to speak, this year, and there are some new features that doing that will allow us to really enrich what we're doing with that product. Our remote learning software that's bundled with our interactive panels is in constant development. And there has been kind of a major focus on growing additional OEM partners to replicate what we've had success previously on the commercial side. So, you know, while I can't say at this time which product in the product roadmap will be our next winning one, there are several, and we continue to make advances of those every day.
spk01: Who are your emerging competitors for 2021?
spk03: This question is also going to have to be broken down, I guess, into segments. I mean, we do so much. We have competitors, of course, on the interactive panel line. We have competitors in the intercom and paging and the visual alerts line. And we have products, of course, on mounts and carts. And for us, we don't try to measure our success on our competition. We have set it I think, or maybe I have said it historically, that one of our goals is to actually turn our competition into customers. And so, you know, when we look at any new people, new companies coming into the ed tech sector, we look at them as potential revenue because of the products that we're able to offer under other brands. And so we try not to measure our success upon any emerging companies in 2021.
spk01: What part of the business is giving you the most trouble now?
spk03: So I think as we've grown to the level that we have, our biggest challenge is marketing and branding. We have the products. Our products are outstanding. They've won awards. They hold patents. All the kind of list that goes on and on. But there's certain geographical areas still in the U.S. that don't know Galaxy as a household name in education. And that's something that we're trying to change Again, not to add additional pressure to Mr. Brinkman, but bringing him on as COO and having him build out that team is really going to assist us to have local support in some of these areas to push that brand. We also have increased our marketing. So what we see is, I guess, our biggest challenge. We've already kind of addressed it in a lot of ways. We've launched a new website. We have new product videos being built. We are trying to develop our messaging of, of really creating a safe environment that enhances learning for the students. And we'll continue to kind of harp on that until the mainstream customer or consumer understands our messaging and who we are and how much we can actually provide to them. The other, of course, ongoing issue with the business, and we've always viewed it as an opportunity, is the current situation between kids getting back to school and kids staying home. I think we've also addressed that. We've created a plethora of products that not only support students going back to school, which as we know seems to be the biggest push as of now with the new stimulus package being released. Fortunately for us, we've already seen some increase in the current quarter of quoting and orders related on schools expecting that March 15th funding is the date that we've been given. You know, the two kind of, I think, the two largest challenges for our business, both people knowing who we are and getting that message out there, and then also the limitation of schools kind of being in limbo as to do we go back, do we stay home, and where are we getting this money from? Both of those issues have been addressed. And so, you know, while we're reporting on December 31st, I think it's important to note that we've had 45 days of additional business Since then, and for those long shareholders that have been with us for a while that have seen the ups and downs, they're aware or you're aware just how much we can accomplish in 45 days. So we're pretty excited of the direction that it's heading, even giving those challenges that we've experienced.
spk01: And we have one final question. What catalysts will affect the stock going forward?
spk03: So I do apologize. As much as I'd love to, I cannot comment on stock price questions.
spk01: Okay, there are no more submitted questions.
spk03: Okay, well, in summary, I'll just say thank you, John, obviously, for hosting the call. We did exceed our expectations in quarter two as a company, both financially and catalyst that we wanted to hit to set ourselves up for future goals. I feel good about where we sit. This is, you know, a heavy investment for me personally, and Gary and I co-founded this company several years back. We've taken it through many evolutions, and I feel like the next few evolutions that we intend to go through are our greatest yet, and so we appreciate all the support, obviously, that we've had over the past few months, some of you over the past few years. So we'll continue to make sure that we're keeping our promises on our end and making this drive that we need to strive. And again, thank you guys for dialing in to the call today.
spk01: Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your
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