Galaxy Next Generation

Good afternoon, everyone, and welcome to Galaxy Next Generation's second quarter fiscal year 2022 conference call. The press release was distributed to the Newswire early this afternoon. In our remarks today, we will include statements that are considered forward-looking with the meanings of securities laws, including 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, 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'll now hand the call over to Galaxy Next Generation's Chief Financial Officer, Megan McGehee.

Thank you, and welcome to Galaxy's Q2 2022 earnings call. This is for our quarter ended December 31, 2021. Before we discuss the financials covering both the three-month and the six-month periods ending December 31st, I'd like to highlight some of our most recent achievements. In conjunction with the launch of G2 Secure, our one-touch, three-pronged approach to school safety, we have received many accolades for our product innovation, including new product awards from Spaces for Learning, Christian School Products, The Journal, and Campus Technology Publications. We've also been recognized via Campus Security and Life Safety Magazine with a publication titled Seven Steps to Effective Communication, Emergency Communication, and Response. This paved way to invitations to be interviewed for several podcasts, including Teaching, Learning, and Leading K-12, hosted by Lifetime Educator and Georgia Department of Ed leader, Dr. Stephen Mileto. We have been able to maintain the majority of our product development and engineering in-house, which creates a nimble ability to adapt to the fast-paced ed tech industry. This led to the release of G2 Link, our classroom audio amplification system, subsequent to the quarter end. G2 Link's capability to fully integrate into G2 Secure gives the teachers in the classroom an additional layer of communication options and gives them that third option for contact during an emergency situation to the front office or those first responders. Both of these products were very well received at the recently attended trade shows, FETC and TCEA, two of the largest ed tech shows in the U.S. market. We were beyond excited to get back to in-person conferences and lead generation. Our sales team saw a big shift in excitement when clients were able to see the products in live action. We're anticipating a positive impact in the upcoming quarters because of this. The brand recognition of G2 is truly starting to shape up as well, and our products and team members are seeing the shift we've been expecting from both new partner opportunities and end-user sales. So now let's take a look at our Q2 consolidated financial statements and the comparative data from Q2 of last year. In terms of the condensed consolidated balance sheet, we're proud to report that we have reached positive shareholder equity for the first time in company history, with a reduction of over $1.3 million in the shareholder deficit that we reported on June 30th. Our assets are now greater than our liabilities due to some major reductions over the past several months. Overall liabilities were reported at $4.8 million compared to $8.7 million at our June 30 year end. Liabilities were still reported at $7.9 million in quarter one, which ended September 30th. So in just three short months, we were able to eliminate an additional $3 million in liabilities, leading us to that positive shareholder equity. The 3 million decrease was mainly due to the elimination of our derivative liabilities, which were a result of three related party notes for which the debt was exchanged for preferred stock. The preferred series is eligible to convert into common at 37 cents per share. The notes themselves eliminated 1.8 million in liabilities, with the remaining decrease coming from the derivative calculation. Sticking with the balance sheet, we did see a decrease in assets as well, albeit still maintaining positive equity. This decrease was mainly recognized in inventory due to a write down recorded to address older or obsolete inventory that was deemed end of life and removed from warehousing. This also had an adverse effect on our reported cost of goods for the quarter, which we will take a look at here shortly. Overall, the improvements on the balance sheet have had a major impact across the board and are reflected greatly in our consolidated statement of cash flow, as reported for the six months ended December 31, 2021, as compared to the same queue in 2020. Our overall net loss was reduced by approximately $18 million from $20.9 million at 12-31-2020 to only $2.8 million at 12-31-2021. Net cash used in operating activities also decreased from 4.5 million in comparative six months 2020 to 1.3 million in this reported 10Q. We did end the six months with a reduction in cash, which was mainly contributed to the reduction in accounts payable, the reduction of overall debt, and the increase in expenses related to our product development. In terms of sales, revenues did increase for the three and six months increased on the three months to $900,000 from $790,000. They also increased for a six-month period from $1.9 million in 2020 to $2.6 million in this reported 10Q. Pulsive sales was impacted, as previously mentioned, by an impairment to inventory, and therefore profit margin was affected for the three-month period. We still maintain standard profit margins for the six-month period with gross profit of $720,000. Other income or expense, in our scenario was also dramatically decreased for the six-month comparative period from $16 million in 2020 to an expense of only $950,000 in 2021. This is a testament to our continued commitment to reduce the interest expenses related to stock issuances and derivatives related to convertible notes. Net loss for the period was 2.4 million as compared to the net loss of 7.8 million for the three months ended December 31st, 2020. Net loss was even more impressive when comparing six months period. Net loss for six months 2021 was 2.8 million compared to the loss of 20.9 million in 2020 as previously mentioned in regards to cash flow. The company often does use non-GAAP adjusted EBITDA numbers To measure the strength of the underlying operations of our business, non-GAAP adjusted EBITDA shows us a loss of only $450,000 for the three-month period compared to $6.6 million in the comparative three-month period from last year. For the six-month period, we show a non-GAAP adjusted EBITDA loss of $400,000 for this year as compared to $12.7 million in 2020. With Q2 normally representing our least favorable quarter due to the seasonality of our business with schools being closed surrounding the holidays, we are very pleased with the financial results and our continued execution of our business plan and those strategies that surround it. So with that, I will stand for questions.

Okay, great, Megan. Can you hear me, Megan?

I can, yep.

Okay, great. We had a handful of questions come in over the past week. Question one, what are you doing during 2022 to boost results in the year and 2023 and beyond?

Yeah, so I think, I mean, well, our revenue has been growing, right? 31% as reported in the past six months. But no amount of growth is going to ever be enough, so we continue to add sales reps. Most recently, an additional rep in Texas who came to us from a competitor in the audio space. This rep is in addition to the one that we've already hired last year in Texas, which is one of the fastest growing territories due to those educational budgets that they have. We also plan to expand to new territories with additional hires and reseller growth as well, and we'll continue to seek new partnerships. and potential strategic acquisitions to keep up with that growth expectation. Our business strategy and plan has been working with each passing quarter. However, it is our goal to expedite the plan to reach our goals in the fastest way possible while still keeping the integrity of what the G2 brand stands for.

OK, great. Are there areas of the country or certain states that you are predominantly selling in now? If so, can you state where some of those areas are? And also specify maybe some states that you'd like to expand to over the next 12 months?

Sure, yeah. Historically, most of our sales... have come out of the southeast region of the U.S. I think, you know, for a couple reasons. That's where the company was founded. It's also still where our corporate headquarters remains. Since we acquired a couple of companies back in 2019, though, our footprint in Colorado and some of these surrounding western states have become a close second in terms of overall revenue. And then this past year, we added additional sales staff in Texas, as I mentioned, but also in the northeast. and given more focus to states like Florida. So I certainly feel like that's going to help spread the sales out across the other territories. And as I mentioned previously, it still remains a focus of ours in order to gain a larger footprint.

Great. Are you considering any acquisitions to accelerate additional growth above and beyond your organic growth to make this an even bigger business?

I mean, the short answer to that question is yes. And if when those discussions reach, you know, a level of intent to purchase, then we will make that information public at that time.

Okay, understood. Do you have an expectation for growth over the next five years?

So unfortunately, we can't provide any forward-looking guidance at this time for that.

What investments have you planned and what will be those investments forward towards over the upcoming months?

I think most of the investments that we're making internally at the moment are all related to research and development. We did successfully launch two products just in the last few months. We continue to invest in both our existing product line, but also new product development. We have a unique opportunity to capture some market share with our classroom audio solution since we manufacture it and plan to put some additional investment into that product line so that we can increase our value add into the school market for it.

Great. And, you know, a question came in, I was delighted by the news when the company decided to, I guess, return the treasury 50 million shares. Can you share a little bit more about what that was about? And can we expect other positive kind of capital market news over the next foreseeable future?

Yeah, I mean, in terms of what it was about, you know, it's just, it's the company trying its best to focus on our business plan and our growth and keep our shareholders in mind. I apologize, I can't comment on any future news, obviously, at this time, but we're executing well on our business plan. Hopefully, as you can see, by revenue growth, our reduced operating losses, the positive shareholder equity that we're able to report. I'm personally excited about how far the company has come in the past six months and thoroughly look forward to the second half of our fiscal year.

Okay, that's all for the question and answer section. Megan, we'll pass it back to you for closing remarks.

Thank you. And I do appreciate everyone that dialed into today's call. It surely has been an exciting first half of the year. We will continue to Make advancements on both the financial side and the operations of the business and look forward to keeping you updated on our next earnings call.