Galaxy Next Generation

Good afternoon, everyone, and welcome to Galaxy Next Generation's third 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 meanings and securities laws, included in forward-looking statements about future results of operations, business strategies and plans, our relationships 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 10-Q, Form 10-K, and 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 McGehee.

Thank you, Matthew, and good morning, everyone, as we appreciate you joining us on today's shareholder update slash earnings call. This quarter has been another one of growth for us as we not only just reported 123 percent growth in revenue from the same quarter in 2020, but our balance sheet has continued to make great improvements as well, both reported in the earnings report, but also subsequent to March 31st quarter's end. Some key highlights to our operational goals this quarter not only included the increase of the revenue from the $300,000 approximate in last year's quarter to the $800,000 approximate in the quarter just reported, but also included some additions to our staff as well. We added Mr. Brinkman as our Chief Operating Officer, which we have previously announced. We've also added Mr. Tony Grant. As our regional sales manager in the West region, we engaged with a third-party marketing and PR firm to help better assess our brand messaging to our customer base. And subsequent to quarter end, we've also added a director of strategic partnerships to help us better extend our OEM community for products like visual alerts and the future of ROY-B, which I will talk further about later on in the call. While the additions of great employees do typically affect the expenses of the company, it also proves quickly to affect the top line revenues. And so we're looking forward to their efforts becoming reflected moving forward. We also expanded our corporate offices here in Georgia to include several additional office spaces and also a larger warehousing facility. This was done mainly to accommodate for the increase in inventory needed to service our customers. One constant improvement that we're always striving for has been our ability to deliver products quick and when ordered versus the longer lead times that we've seen with some of our competitors. This will assist us in having real-time availability of products to increase our same-day shipping capabilities on some of the smaller orders. Excuse me. One thing that this... is always a challenge for us in our industry is the sell cycle, as we call it. We sometimes receive purchase orders from schools or our resellers, and those cannot be installed for months or so later. On the OEM side, we often still receive orders for builds that we don't receive the deposits for right away. So for a point of clarification, Kind of on our revenue, it's not consumer-driven like most of us are used to seeing. We typically receive a PO, arrange an installation date or an assembly schedule, and then do not report that revenue until that product has been installed and or delivered. There seems to be a little bit of confusion on the press release we put out about our $1 million day and then not reporting that in our earnings. So I felt it imperative to kind of better explain how that sales structure or sales cycle works and when we do report the revenue off of those orders. However, I'm happy to share that subsequent to the quarter end, we have been successful in servicing part of that million dollar day and have secured the installation date for the remaining portion. I'm also happy to report that the purchase orders previously announced from some of our OEM partners are also in assembly with parts secured and we will be proceeding to ship out as much of that product as possible before the end of the fiscal year. Purchase orders have definitely increased. Requests for our product have definitely increased, becoming more and more frequent in terms of receiving requests in. It's exciting for Gary and me to see that increase in visibility for G2. We believe that the increase in our sales staff, which is still increasing, we have two open recs currently, the increase in marketing efforts and the increase in school budgets due to the stimulus packages that were passed here will be an intoxicating combination for us in the upcoming quarters, and we've already begun to see some of that contributions reflect here in the last month or so. Another important highlight to Galaxy's operations, before I jump into financials, is our partnership with Roidy. Roidy is an artificial intelligence education company that has historically focused all their efforts on the consumer market. We're excited about the AI can do for the education market and our schools, and so we've joined forces to make sure that students have that opportunity to be serviced through the supplemental and specific learning needs that students require, whether needing additional assistance for looking for simulation in their learning because of advanced aptitude. We understand that AI can be a touchy subject for some, but in education, it simply boils down to a tool for teachers and educators to use to better respond to the students' needs with a faster evaluation of their progress. I believe strongly that there is more to come from this partnership, and so we look forward to the many evolutions of the product line together. To summarize our sales and operational goals, the many contracts that we've been awarded lately that we've announced, the catalog bids that we've been named to for our products are now available to be sold into these school districts without their bids of their own. really gives us a solid path to sustaining the type of growth that we see coming because it allows us to kind of better plan for those future orders. So lots of good stuff on the news front from our sales and operations team. And I'll take the time now to just dive a little bit further into our financial report. Let's see. As for the top line report, we did mention previously the 123% increase in revenue. Some other important factors to note are the increase in assets quarter over quarter from $5.6 million to $6.6 million, but even more impressive, the asset increase from this quarter last year, which was only $3.9 million, to now the $6.6. As I'm sure most of you recognize, a continual increase in assets assists in many aspects of a business. and has led to our ability to secure more traditional financing, hence the report finally reflecting the zero in convertible debt that we've been discussing previously. There's also been a decrease in liabilities from the $13 million reflected last quarter to the $12 million reflected this quarter, and additional decreases have actually been able to be made subsequent to the quarter end. So, for example, An additional $1 million in liabilities that's classified under legal settlement was able to be paid in April. So there's a decrease of $1 million there. Another example is our PPP loan, which forgiveness has been applied for and we do qualify for, but paperwork has not been fully processed. That will decrease the liabilities by another $300K. There's also a related party note reflecting on the queue that has been recently settled in the amount of $500K. And then we also were able to take care of an aged payable from a previous acquisition of approximately $400,000 that will all be reflected out as a decrease on the liabilities in the next queue. Our derivative liabilities continue to be our largest portion of total liabilities. This is a calculated number. I always joke and say use with some voodoo to come up with some sort of number to attach to and support the preferred stock loans that we have out with some of our officers and affiliates. And so I just wanted to be clear that that derivative liability is related to those preferred stock loans. They're not related to any convertible loans, nor are there any warrant outstanding at this time. And based on the subsequent events shared above, like I said, we should be able to reflect another decrease of at least $2 million in liabilities on our next financial reporting. So our efforts really have been twofold. Increase the top line, which is reflected obviously in revenue assets, deferred revenues, even inventory and backlogs, while simultaneously decreasing the bottom line. We feel that the achievements we have already made in this area are impressive based on where we're at in the calendar year, and we'll continue to make them a priority. Another important note in the financial report is the increase in cash on hand. We reported approximately $750,000 which is a 280% increase from the cash on hand reported this time last year and an increase of $350,000 from just last quarter. Why is this important? Well, for several reasons. Cash is king in all businesses, but in this instance, it gives us the ability to order products and finance our inventory without having to rely on toxic debt lenders. I don't mean to be repetitive here, but I want to make sure our shareholders know that we have held up our end of the bargain. We promised in our last earnings call that we would not return to the market for additional toxic convertible lending, and we have not, and we do not need to do so. I do want to address several communications we've had about the increase in outstanding shares and whether or not the company is being honest about the lack of convertible debt. As you can see in the financial report, we are being honest. We had a convertible debt lender that was eliminated back in December with some of the other convertible debts, and that's when we announced, obviously, the elimination of it all. However, the lender did not have enough of his registered shares to cancel the entire debt of the conversion at that time, and was issued a restricted legend because of it. That restricted legend was released in April, and unfortunately, the company has no influence on whether the previous debt holder would be a long-term shareholder or not. And so those shares were sold quickly into the market when they became eligible, and it reflected poorly on our market at that time. There's been no change in our desires to maintain a cleaner balance sheet and a cleaner cap table for our shareholders. Simply value the concerns that I saw were expressed during that time and wanted to be transparent to you on the activity. Cash is also important as we continue to navigate down our path of uplisting to a national exchange. Many of those requirements have already been met by the company, and the cash within the company will allow us to represent the type of balance sheet needed to continue that plan. So we will focus on that and have been utilizing our equity partner in order to help with that process. All right, so we've discussed revenue, assets, liabilities, cash. Let's look a little bit at the reflection of the AR inventory and our profit loss scenarios. Let's see, as mentioned during the initial opening remarks, accounts receivable is reflected only when the product has been installed or shipped to the customer, not requiring additional install. Our AR reflects only that which is truly collectible, and most of our customers are on a 30-day term policy or less. So our reported AR at March 31 was 1.3 million, and that's an increase of 100,000 from last quarter or an increase of 700,000 from this time last year. The inventory reported here is pretty key for me. This means that we have the ability to fulfill orders in a more timely manner and within the means to report those POs received in a faster window. So we have $2.2 million in inventory, which is an increase of $700,000 from last quarter. It's an increase of $1.3 million from this time last year. So major increase in inventory leading to expansion in business opportunities and faster reporting of revenue. Our ability to secure the inventory and the ship inventory so quickly against AR is mostly contributed to our partnership with the equity investor mentioned earlier. So that investor was secured in the beginning of January. We've been successful in securing the cash needed in a non-toxic and the least harmful manner to the market. The relationship with our equity investor is reflective on our increase in revenue, our increase in assets, the increase in inventory, but you can also see it reflected in our decrease in liabilities. And while we do continue to get a lot of questions about our capital needs and dilution, please keep in mind that we are still an emerging growth company, and we still do require capital to fund our business growth, especially at the rate that we are growing and with the opportunities in front of us that we have. The arrangement we currently have allows us to be flexible and to raise money by issuing equity that we control the timing, pricing, and dollar amounts of. In order to continue our patterns of growth and accelerate them even more, we did raise money with them during this quarter between prices of 02 and 03. Again, we don't consider this harmful to the market as this additional capital is enabling us to grow our revenue and all the other things that I mentioned before and allowing us to approach profitability quicker than anticipated. We will continue to be mindful of our shareholders and make decisions appropriate for the company's growth. but also the value of their shares. And before I conclude today's opening remarks and turn it over for questions, the only last point that I will make is the quarter reported did record a loss of 1.2 million with several increases already mentioned above in terms of operating expenses and personnel costs. However, quarter three reported in 2020, so the same time last year, with just a revenue of 194,000, we reported a loss of 3.9 million. So with a decrease year-over-year of $2.2 million, I am confident on the track that we are currently on, and I look forward to answering your questions.

Thank you ahead of time for your previously submitted questions. The company will do its best to answer all questions possible with the exception of anything forward-looking. From your view and or standpoint, what is your opinion as to the reasoning behind the almost constant negative influence that positive information and or news always seems to have on Gaxi stock's price?

Yeah, I know that everyone gets terribly frustrated with the activity. And, you know, while I'm a company executive, so I would never claim to be a market expert, I think that we'd all be a bit blind not to take into account the increase in attention that the OTC markets in general have saw or saw during the beginning of the year. And then as such, you know, we've seen some major increases, but I think unfortunately we've also seen some major sell-offs after the initial interest into the OTC as a whole. I also previously mentioned the quick sell-off from the earlier convertible debt lender that was holding, and unfortunately it seemed to have a negative impact on our market as well. As an executive, I can only make the decisions that are best for the company with its shareholders. The company's fundamentals are what I have to focus on the most, and I cannot say that they haven't changed because as a reflection on this quarterly report, they have changed. They have only gotten better, and we'll continue to ensure that they do so, and eventually the market will reflect our efforts.

Being a smaller company and only able to handle a certain number of installs at one time in order to recognize the revenue, do you worry that you might miss out on deals because the potential customer feels your install lead times are too long and they can get up and running faster with a bigger company?

Interesting. So being a smaller company is, I think, irrelevant to the install timeline. We are competitive within our market in all cases with our lead times on product and installation availability. Let's also remember that we aren't always responsible for the install. We have a network of resellers throughout the U.S. that sell and distribute our products so that they are then in turn responsible for that install. The last year has proven to be a challenge for sure with global product shortages and logistical nightmares, truck driver shortages, container issues, etc. But we have made adjustments to fulfill our customers' needs as quickly as possible and I'm also committed to hiring more employees when the need arises. So that includes everything from additional executives to additional installers or integration specialists, as we call them. So we will not let revenue be affected by our inability to scale.

It seems like there is a tight window where schools will spend a lot of stimulus money. Are you truly in a position to take advantage of that, not only with your sales team, but with all areas of business?

I believe we are, yeah. It's an interesting sales cycle as previously mentioned. So unlike a consumer-based facility, our customers don't simply receive a stimulus check in the mail. So their window is a bit broader. Schools have been given these grants in order to improve their ability to service their students in all areas. The timeframe on which the money is received, product is ordered, and grants are complete has a bit more bureaucracy, I'll say, around it than one would think. However, we're doing everything in our power to help not just provide product to these customers with their increased availability of funding, but also help educate them on what the money can be spent on, which products and which groups of funds. Our marketing firm has provided great resources for our education customers to rely on to understand each tier of the stimulus bill, when they're able to send it, when will it expire, and what can they send it on. So we've been busy pulling data on key states on specific school budgets and how much money each one was actually awarded and when will they actually get it and have created kind of an entire marketing plan around targeting this school. So the good news is there isn't a single Galaxy product, whether it's under our own G2 brand or under our OEM partner brand, that doesn't qualify for the stimulus funding. So we plan to take as much advantage of it as we possibly can.

Your preliminary results released last week indicated that your revenue is expected to be at $700K, a drop from the previous quarter, even as you have hyped multiple deals that have never seemed to come to a transactional point with customers. Can you explain why revenue is so low and dropping from the last quarter, why backlog is so high, and why losses continue to be massive even as you push the notion Gaxi is growing?

So I mentioned our sales cycle in my opening remarks, but I'll reiterate kind of the concept again here with this question. We have long sales cycles sometimes, and receiving orders doesn't necessarily mean that we get to collect the revenue and claim that income right away. The school can have a specific install time in mind, like summer, when the students aren't there, or may have a specific assembly timeline that we are scheduled into for our builds with our OEM customers. Selling into education is very hard to measure success from one quarter to the next concurrently. We have huge influxes during certain months of the year, typically during the summer, and then the months following summer. So you really kind of are forced to compare quarters to the same quarter from the previous year versus the quarter directly preceding it. So if you measure that success from Q3 of 2020, then that's where you'll see, you know, the huge increase of revenue to 123% and the decrease of operating costs of almost 2 million. So, if we truly assess the situation, Galaxy is growing far greater than most during these weird and unexpected times that we're in.

And currently, Gaxi is operating at a loss quarter over quarter. I know the operating losses have been shrinking, which is encouraging. the timeline to profitability?

So to be very honest, it's encouraging to see the current quarter that we're, as it's playing out, we would need to report about $2 million in revenue to break even on our current operating expense and gross profit margins. If we can continue to manage the operational expenses and are able to collect on the open AR backlog deferred revenue prior to the June 30th, which we intend to do everything we can to make that possible, then we would be able to see that reflected to at least a break-even point. With the highs and the lows in our sales cycle throughout the year from one quarter to the next, we need several consistent quarters in that two to three million dollar revenue range to stay profitable throughout the year. I think this next Q will be the first one to help us show that consistency.

What is the structure of the contracts Galaxy wins with school districts? Example, the Allen School District win, which is roughly the fifth largest school district in Texas by student population. What services and products did they purchase? What is expected revenue now and over the term of the five-year deal?

So that's a great question, yeah. We've won several of these contract bids lately and are very excited to target the specific school districts for our sales team to focus on. We can use Allen as an example that you use. The contract with Allen lists all of our technology products, the interactive panels, software, bell and paging, intercom, et cetera. So they can use the contract to purchase any of it at the negotiated rate we gave them for the bid itself. It is still our sales team responsibility and the type of contracts to market our products to them and to receive as many orders as possible off of the awarded contracts. We currently have some new strategies in place that will assist them with doing what I call the phishing required post award, but definitely puts us in a much better position to capitalize on such a large district like Allen. And we'll continue to kind of go after these contracts bids and filter the leads and the work through our resellers to replicate the success that we've had there.

Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect your lines at this time. Thank you for your participation.