Galaxy Next Generation

and welcome to galaxy next generation's 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 or 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. with detailed discussion of such risks and certainties are contained in our most recent form 10K and other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. With that, I'm going to hand the call over to Galaxy Next Generation's Chief Financial Officer, Megan McGate. Megan, the floor is yours.

Thank you, Brooks, and good morning, everyone. Thank you for joining our call today to discuss our financial and operational results for our fiscal year ended June 30, 2022. Fiscal 2022 was an important year for Galaxy as the educational landscape continued to evolve to favor learning environments that foster collaboration and are also flexible. We laid the foundation of our business to position us for leadership in the interactive classroom technologies market. which is growing rapidly due to the recognition of these technologies' importance in the modern classroom. Importantly, organizations in the public and private sector have increased budget allocations for innovative solutions, and our competitive value proposition has allowed us to capitalize on this emerging opportunity. In addition, our new entry into the school safety and security market has given us the opportunity to reengage with existing customers to offer additional products that are in support of their safety initiatives. It has also opened the door for additional funding sources. With the recent passing of the new security stimulus, schools will receive an additional $1 billion in funds for student health and safety. To prepare our organization for this increased demand, we made investments in our sales and marketing functions with the goal of broadening our presence in new markets, as well as those in which we have existing customers. In addition to our new regionally focused sales managers, we recently announced the addition of Todd Eddy as our Chief Revenue Officer to lead sales growth and customer success at the executive level. We are thrilled to have a veteran in technology sales leading these efforts, and we are confident in his ability to effectively grow our customer base. During the year, we secured 19 new reseller partnerships with nationally renowned and regional specialists which we believe is a key component to effectively capturing market share with local school systems. This dual approach has enabled us to quickly expand our footprint throughout the Southeastern, Northeastern, and Western U.S., which collectively account for many thousands of target school districts. While we continue to focus predominantly on the K-12 education space, we have identified other verticals, such as the commercial, healthcare, and government sectors, as potential growth areas in the coming years. And our new partnerships have allowed us to begin cultivating important relationships within these industries. To summarize our success in fiscal 2022, we launched 2 new product categories. G2 Link and G2 Secure and added G2 ACHAT to the G2 Secure product line. We have continued to diversify ourselves from just the interactive flat panel product line to the higher margin products of G2 Communicator. our digital intercom platform that offers both flexibility and scalability throughout the integration process. Our competitive position is being recognized by the education industry, and we are proud to have our G2 Secure and recently launched G2 Link classroom audio system each win platinum awards from Spaces for Learning, a leading publication for education institutions. G2 Secure also won a 2021 Campus Technology New Product Award, from the leading industry media brand, The Journal. To protect the value of our underlying technology, we have prioritized creating a robust IP moat for our platforms as a critical part of our growth strategy. With our most recent patent granted to support the integration of G2 Communicator and G2 Link platforms, we're pleased to now have two patents issued and two others pending issuance. We believe each of our solutions contribute to a more positive learning environment. And above all, we recognize the safety of teachers and students is paramount to achieving this. At a time when school violence is rising in the US, we felt compelled to leverage our proprietary solutions to make an immediate impact. We made the decision to offer a complimentary subscription to our G2 visual alert security solution to every school and school district in the US. We were pleased to be able to assist our communities in these challenging times And we do urge every school to take advantage of our offer. Put simply, the modernization process for learning environments is centered around increasing student engagement and achievement. We have designed our systems with that primary goal and believe that our approach to developing our holistic product fleet is our core differentiator and driver of our success. I will now provide an overview of our financial and operational results for the fiscal year ended June 30, 2022. For the fiscal year 2022, revenues did increase 4% to approximately 4 million compared to 3.8 in the prior year with an additional 200,000 in deferred revenue at year end. The increase in annual revenue was driven by our expanded customer base for interactive panels and an increase in interest of G2 Communicator, G2 Secure, and G2 Link. Gross profit of 550,000 in fiscal year 2022 compared to gross profit of 1.7 in the prior year. Important to note, our gross profit in fiscal year 2022 was affected primarily by an inventory adjustment we made to write off 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. General and administrative expenses. were 5.3 million in fiscal 2022, an improvement of 33% compared to 7.9 million in the prior year. Other expenses decreased significantly to 1.5 million in fiscal year 2022, an improvement of 92% compared to 18.3 million in the prior year. We remain focused on more efficiently managing our operations while servicing our debt obligations and the elimination of interest-carrying conversion notes, which is reflected in the substantial decrease to the other expenses. Net loss of 6.3 million for fiscal year 2022 was a dramatic improvement from a net loss of 24.4 million in the prior year. The company often uses non-GAAP-adjusted EBITDA numbers to measure the strengths of the underlying operations of our business. For the fiscal year 2022, we showed a non-GAAP adjusted EBITDA loss of $5.7 million compared to $3.4 million in the prior year. The adjusted EBITDA has begun to align more closely with our GAAP net loss, which is a testament to our effort to no longer issue dilutive equity in lieu of cash. Turning to our balance sheet, we ended the fiscal year with a shareholder deficit of approximately $2.2 million. As we move forward, we are working diligently to reduce our deficit further. We reported total liabilities of 6.8M, reflecting a 22% decrease from 8.8M in the 2021 fiscal year end. The 2M decrease was mainly due to the elimination of our derivative liabilities, which were a result of 3 related party notes for which the debt was exchanged for preferred stock. As a reminder, the preferred series is eligible to convert into common at 37 cents per share. The adjustment to obsolete inventory I previously mentioned was primarily recognized in inventory which contributed to the decrease in total assets at 2022 fiscal year end compared to the prior year. And cash and cash equivalents totaled approximately $300,000 as of fiscal year end compared to $540,000 as of the end of the fiscal year 2021. And finally, on the topic of guidance that we issued in today's earnings release for fiscal year 2023, We expect our annual revenues to be at least $6 million, which represents year-over-year growth of at least 50% from fiscal 2022. As our expanded sales team and partnerships execute on their strategies for increased revenue, we are working to strengthen our balance sheet in preparation for our long-term growth and short-term operational goals. And with that, I will open the call up for our question and answer session.

So our first question here, so you mentioned that you launched two new products this year, G2 Link and G2 Secure. Can you elaborate a little more on what G2 Secure is and how it helps support the need for a safer school environment?

Yeah, sure. So G2 Secure is a module or a dashboard within G2 Communicator, which is our full intercom bell paging system. It's a user interface within there that allows the emergency lockdown type alerts to be issued. They can be issued from any device, including a cell phone through our G2 Activator app. Once the initial alert is issued, it's sent out to every computing device enrolled in the school's ecosystem. So student Chromebooks, iPads, interactive panels, regular Windows machines, whatever it is, receives this alert, which is a visual take over the screen image that initiates a lockdown is necessary. Once that is sent, it also triggers the G2A chat window to populate, which is real-time communication to all those that have the correct credentials and also to include law enforcement and first responders. The instant chat feature helps streamline the communication so that once law enforcement does arrive on scene, they have as much information about the crisis situation as possible. The G2 Secure Dashboard does operate with an open API, so we can also integrate and monitor certain door locks, access control systems, you know, really kind of whatever the school deems important for their safety plan. And so when we were doing our market research on new product development, I think that concise communication during emergencies was nearly an untouched market, but one that all of our customers expressed a need for. And so we feel that this product does have the most potential of all the other G2 products on the line card to gain the most traction in the coming years.

Thanks. The next question, with the hire of new chief revenue officer, can you expand on what initiatives they plan to put forth in sales and marketing and what impact you foresee this person and position in general having on the top line revenue?

Yeah, sure. So Todd comes to Galaxy with over 20 plus years in the ed tech and enterprise industries. He's worked both in manufacturing, distributing, and reselling, and spent several years running the sales team at one of the top three ed tech reseller companies in the United States. This experience brings a whole wealth of knowledge to what we're trying to achieve with our revenue goals. And although he's only been with us now for three, four weeks, I believe, he's already prepared to launch a whole new marketing campaign with the strategy of building one cohesive message, interact, communicate, secure. And this will help unify company messaging to tie all products, including the interactive flat panels, into that G2 communicate and G2 secure ecosystem. On the sales side, he will champion the move from our current light channel model into 100% channel or reseller sales model in order to quickly scale top line revenue. utilizing a channel of resellers that already have established name branding and present state and local contracts, bid teams, integration capabilities, provide us, you know, with an immediate national reach and broader market coverage versus, you know, us trying to go at it with our internal sales team. And Todd has already secured relationships for us with three of the top 10 ed tech resellers in the nation. So we're definitely excited to see his strategy roll out further and what effect that will have on that top line number.

Excellent. Next question, looking forward into fiscal year 2023, what can we expect in terms of additional new products or new product features without, you know, giving away any industry trade secrets?

Most of our product roadmap is really centered now around G2 Secure and bringing the other products such as G2 Link and the interactive panels underneath that safety and security umbrella. The goal being that all of our Galaxy products are acting as one fluid entity to foster that engagement, which increases student achievement. And we want to do it while developing a peace of mind during that process by creating that safer learning environments. With most of our development still being handled in-house by our own team of engineers, software developers, we are able to be nimble and quick when new ideas come to fruition. And so we intend to use this to our advantage and create opportunities where we're first to market with these new innovative technologies.

Great. The next question relates to the 1.3 million in purchase orders and contracts received after fiscal year end. Can you provide just a little more color on how you expect that 1.3 million to be recognized as go-forward revenue? And then, you know, kind of going off that, what other assumptions are baked into the fiscal year 2023 guidance issued this morning?

Uh, yeah, of course, so we have seen an uptick in orders filling the pipeline since the return of school August September timeframe and this has created a pretty solid outlook for us into the next 2 quarters. And in some cases, even beyond that, we currently have a backlog that exceeds 2Million, which we intend to complete deliver. On that in the near future, pending any unforeseen supply or shipping delays that we are still. Seeing from time to time and dealing with outside of the backlog, we do have a decent insight into our pipeline that the education buying cycle is often a very long 1. the guidance issued in this morning's earnings really. And based around the assumption that these opportunities we see in front of us are met with completion and their product delays are created. This guidance is based on the company's current business operations as well and does not account for any additional resources such as new reseller relationships or significant cash infusions that would allow for us to ramp up sales in an even faster or larger manner.

Thank you. Next question. You previously mentioned that Galaxy's new partnerships are allowing you to evaluate other potential sectors outside of education, namely healthcare, commercial, and government. What's the strategy for entering these new verticals, and do you foresee these markets to be meaningful additions to the revenue mix relative to education in the future? Thanks.

Yeah, so we've already seen some success into the commercial or what we refer to sometimes as enterprise markets with our new partnership with CNC Tech Group in the Northeast and our joint relationship with them and the WISE component. So the enterprise market will most likely be the one we focus on tapping into first. I think that the other verticals do help alleviate, you know, the seasonality that we see with educational buying cycle. However, from an ROI, return on investment perspective, education sales will still rank much higher. In the enterprise world, you know, we're able to install a couple of panels, maybe some of the communicator secure products into an office building. While with a school building, you know, we're able to install 30 to 50 panels, 30 to 50 audio systems, and fully integrated intercom solution, including that secure. So, you know, in comparison to an education sale, maybe upwards of 100,000 plus on enterprise sale, you know, maybe closer to 10,000. But we will continue to invest mainly, you know, in that K-12 ed tech market from marketing and sales perspective, but do understand the need to have the ability to transfer into other verticals. And, you know, we'll continue to find the right partners like CNC and WISE to help us achieve that goal moving forward.

Makes sense. Thank you. Final question here. It's great to see such dramatic improvements in the operating and net loss lines. Is the bulk of, you know, these cost improvement initiatives behind you now, or is there, you know, more room for containment as you approach toward, you know, profitability?

Yeah, I mean, we do definitely have more room for improvement. I think a company should always seek additional improvements to operating expenses. Our growth has definitely come with a lot of overhead, not just in R&D, but in legal and accounting and audit fees. And I think as we start to reach our higher top line revenue goal, we will also be able to finish cleaning up some of that lingering debt and or liability obligations, which will allow us to operate in a more streamlined fashion you know one example is we currently use accounts receivable financing to assist in filling in some of the gaps between payment terms from our customers on larger orders but this type of financing carries you know high interest rates when we reach a time of more consistent revenue we'll be able to cut back on the interest expenses related to these type of transactions this is just one example of course of an area that we'll seek out for improvements. But, you know, profitability is our focus, and we do seek it out with that two-prong approach of top-line increases and bottom-line, you know, improvements.

Okay. That concludes the Q&A portion of today's call. With that, I'll turn it back over to you, Megan, for closing remarks.

Great. Thanks, Brooks. And thank you all for joining us on our call today. Thank you to our employees, partners, and shareholders for your unwavering support. We're excited to build upon our momentum in fiscal year 2023 and hope you continue to track.