Galaxy Next Generation

Good afternoon, everyone. Welcome to Galaxy Next Generation's third quarter fiscal year 2022 conference call. The earnings released that accompanies today's call was distributed to the newswire earlier this morning. In our remarks today, we will include statements that are considered forward-looking within the meaning 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 and are subject to certain risks and uncertainties that may cause the actual results to differ materially from the forward-looking statements. Detailed discussion of such risks and uncertainties are contained in our most recent Form 10Q, Form 10K, and other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. With that, I'll hand the call over to Galaxy Next Generation's Chief Financial Officer, Megan McGady. Megan?

Thank you, Brooks, and good morning, everyone. I'm glad that we all were able to finally make it. If you're listening live, and experience some of the same technical difficulties as we did trying to join this morning. I apologize on behalf of our vendor who supports these calls. And as a reminder, the recording will be distributed and hopefully we'll reach those who are unable to join due to the last minute time change. We do thank you for joining our call today to discuss our financial and operational results for our third quarter of fiscal year 2022, ended March 31, 2022. We continue to experience momentum across our business during the quarter. driven by execution from our sales team and the growing demand for our innovative solutions from our customer base. Our continued success in the K-12 education market is a result of our ability to increase penetration within our existing regional markets while adding additional sales channels as well. We continue to expand our presence in the central U.S., where we have added new reseller partnerships, strengthened our sales team, and further developed our existing client relationships. We recently partnered with Master Audio Visual and EP TechWorks to accelerate our growth in Texas, which has over 1000 school districts in the state and where we are seeking additional opportunities in the commercial, healthcare, and government sectors. We also secured a partnership with NCARE K-12, a nationally recognized ed tech company that has designed and implemented distance learning solutions instructional technology, and fully integrated security systems to over 3,000 schools across multiple states. In the Northeast, we are working with CNC Tech Group to leverage their network of resellers. The Northeast is a region that presents a substantial growth opportunity for us. We are also thrilled with the recent launch of our e-commerce platform, which enables consumers and smaller businesses to purchase select G2 technology products directly through our website. In addition to creating a modernized sales process for our accessory or box products, our e-commerce platform will also allow to broaden our customer reach beyond the traditional customers in the education sector. Our in-house product development and engineering teams enable Galaxy to be at the forefront of the ed tech industry. We launched G2 Link, our classroom audio amplification system, in January. G2 Link includes our patented and award-winning multi-input audio amplifier. It's configured with a customizable speaker system and is fully integrated into our G2 Secure platform to bring controlled communication during emergency situations into the classroom. G2 Link has been met with a resounding positive response from our demonstration of the solution at industry trade shows, and we have successfully started to secure purchase orders for this product. We expect the product to be a key success driver in the coming quarters. Our intuitive systems are designed to streamline technology use for teachers and students, which ultimately result in increased student engagement and achievement. As the modernization process for learning environments continues to accelerate, Galaxy is strongly positioned for industry leadership by being an early provider of the best and most modern school technology available. I will now provide an overview of the financial and operational results for the three and nine-month periods ended March 31, 2022. Revenues increased 63% to $1.2 million in the quarter compared to $777,000 in the same prior year quarter. Revenues increased 40% to $3.9 million in the nine-month period compared to $2.8 million in the same prior year period. The increase in sales was driven by our expanded customer base for interactive panels, an increase in interest of G2 Communicator, our rail paging and intercom solution, as well as additional revenues from our OEM customers. Gross profit of $252,000 in the quarter compared to gross profit of $421,000 in the same prior year quarter. Gross profit was affected this quarter primarily by an inventory adjustment we made to write off absolute obsolete inventory of one of our previous acquisitions, as well as amortization of product development costs, shipping and supply chain delays, and higher freight costs. The gross profit of $1 million in the nine-month period compares to the gross profit of $1.1 million in the prior year period. General and administrative expenses decreased 29% to $1.2 million in the quarter, compared to $1.7 million in the prior year quarter. G&A expenses decreased 47% to 3.8 million in the nine-month period compared to 7.1 million in the prior year period. Other expenses also substantially decreased to 125,000 in the quarter compared to 1.6 million in the prior year quarter. Other expenses decreased to 1.1 million for the nine-month period compared to 17.8 million in the prior year period. This improvement to our income statement showcases our ability to operate efficiently while servicing our debt obligations and the elimination of interest carrying conversion notes. Net loss of 1.1 million in the quarter was an improvement from the net loss of 2.9 million for the same prior year quarter. Net loss for the nine-month period of 3.9 million was a dramatic improvement from the net loss of 23.8 million in the prior year period. The company often uses non-GAAP adjusted EBITDA numbers to measure the strength of the underlying operations of our business. Non-GAAP adjusted EBITDA was a loss of 953,000 in the quarter compared to a loss of 980,000 in the same prior year quarter. Important to note the significant decrease in stock compensation in the quarter. resulted in a large reduction in the adjustment to net loss in the adjusted EBITDA figure. This is a direct reflection of our commitment to manage dilution, which we will continue to employ going forward. For the nine-month period, we showed a non-GAAP adjusted EBITDA loss of $1.4 million compared to a loss of $13.8 million in the same prior year period. Turning over to our balance sheet, we reduced our shareholder deficit by approximately 1.1 million compared to our fiscal year end June 30, 2021. We reported total liabilities of 5.3 million, reflecting a reduction of 40% compared to 8.8 million at our June 30 fiscal year end. The 3.5 million decrease was mainly due to the elimination of our derivative liabilities that I discussed last quarter. which were a result of three related party notes for which the debt was exchanged for preferred stock. And as a reminder, that preferred stock is eligible to convert into common at 37 cents per share. We did see a decrease in total assets, which was primarily recognized in inventory due to the adjustment of obsolete inventory that I mentioned earlier. Cash and cash equivalents totaled approximately $480,000 as of the end of the quarter compared to approximately $540,000 at the end of fiscal year. We are focused on diligently managing our balance sheet, and as we ramp up our sales efforts through new channels and regional penetration, Galaxy is fundamentally well positioned for substantial growth over the long term. And with that, I will open the call up for your question and answer session.

Thanks, Megan. So can you expand further on the recent partnerships you've announced? Namely, how does Galaxy allocate funding or make profits from these partnerships? Are you selling Galaxy products or is Galaxy selling theirs? And can you break the percentage split between those?

Yeah, sure. So most of the recent announcements that we've made have all been surrounding new reseller partners. And I think one of them was the new manufacturers reference CNC tech group. Our distribution channel consists of 37 approximately resellers across the US who primarily sell our products to the commercial and educational market. So they act as an extension to our internal sales team. This allows us to augment our direct sales model with established industry partners that already have extensive industry relationships, allowing us to have a broader customer base. Each partnership is structured differently, but we always ensure that it's mutually beneficial. So in short, we're selling our products to these new partners or resellers and they are then in turn selling it out to their pool of end users or school districts. We do not set our reseller margins. However, we do have a suggested end user price. And our margins are not affected by what they sell our products for, only for what we sell our products to the reseller at. And that often varies depending on the product requested and the scope of the opportunity.

Thanks. Another one we received. Could you provide an overview of Galaxy's organizational structure, you know, for those that are newer to the company?

Sure. So Galaxy Next Generation Inc., that is our public company, and it became so by a reverse merger into an existing public company in 2018. And at the time of that merger, we held one subsidiary, Galaxy MS, which was the original company that my co-founder and current CEO owned and operated in the ed tech industry for years. And then through other acquisitions in 2019, we also operate two additional subsidiaries, Interlock Concepts and Ellert Solutions Group, that are audio design and manufacturing companies focused in the K-12 ed market. Our financial and operational results encompass all of those subsidiaries on a consolidated basis, and we do not account for revenue separately. So all operational agreements and financials flow through Galaxy NextGen as the parent company.

Thank you. The next question, how does the board determine compensation for management?

The Board actually reviews compensation structures for all management on an annual basis to ensure the agreements that we have in place incentivize the team to meet our profitability and revenue growth goals. So further details on the actual executive compensation can be found in our annual filings on Form 10-K.

How is management thinking about devolution going forward, particularly given the reverse stock split earlier in March?

Yeah, sure. So, you know, as some of you know, in order for us to achieve the growth in revenue and product expansion over the last year, we raised money from various lenders that in turn converted their loans into common stocks. Without those loans and the equity that we did raise, we would not have been in a position to realize the growth reflected that we have in the last three quarters performance. The reverse split allowed us to have a share structure that's beneficial for business development with our current customer and prospective customers, but it also gives us a better structure as we plan out potential acquisition prospects. And if you look at why our adjusted EBITDA was relatively flat on a comparative nine-month basis, it is due to the stock compensation being so low in the current quarter. So it wasn't adjusted from the net loss. This reflects, you know, our approach to managing our capital structure with respect to dilution on a go-forward basis. And we expect, you know, to continue to drive our revenue growth through our multi-pronged sales strategy. And we do have access to the capital markets, accounts receivable lending, purchase order financing, and other options for traditional type financing if needed.

Thanks. And last question received here. What are your thoughts on just the volatility in the market? You know, just given, you know, Galaxy's continued growth, you know, is the company able to, you know, take any action to have the stock price move towards fair value?

So obviously we can't comment on the volatility in our stock price just because it's affected by the external market. That said, we're focused on fundamentally improving our business and are taking steps to be aligned with our shareholders for the long-term success of the company. And regardless of how the broader market performs or is performing, Galaxy is ultimately well positioned for market leadership.

Great. Thank you. Well, that concludes the Q&A portion of today's call. And with that, I'll turn it back over to you, Megan, for closing remarks.

Thanks, Brooks. And thank you all for joining us on our call today. And I do, again, apologize for the inconvenience of the last-minute time change. We encourage you to come and continue to track our progress as we will continue to execute on our growth strategy. And I look forward to speaking with you all in the upcoming quarters.