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Good day, ladies and gentlemen, and welcome to the Genasys Inc. Fiscal Third Quarter 2025 Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Brian Alger, SVP of Senior (sic) [ Investor ] Relations and Corporate Development. Sir, the floor is yours.

Good afternoon. Welcome to Genasys' Fiscal 2025 Third Quarter Results Conference Call. I am Brian Alger, SVP, Investor Relations and Corporate Development for Genasys. With me on the call today are Richard Danforth, our CEO; and Cassandra Monteon, the company's Interim CFO. During today's call, management will make forward-looking statements regarding the company's plans, expectations, outlook and future financial performance that may involve certain risks and uncertainties. The company's results may differ materially from the projections described in these forward-looking statements. Factors that might cause such differences and other potential risks and uncertainties can be found in the Risk Factors section of the company's Form 10-K for the fiscal year ended September 30, 2024. Other than statements of historical facts, forward-looking statements made on this call are based only on the information and management's expectations as of today, August 14, 2025. We explicitly disclaim any intent or obligation to update those forward- looking statements, except as otherwise specifically stated. We will also discuss non-GAAP financial measures and operational metrics, including adjusted EBITDA, bookings and backlog, which we believe provide helpful information to investors with respect to evaluating the company's performance. For a reconciliation of the adjusted EBITDA to GAAP financial metrics, please see the table in the press release issued by the company at the close of the market today. We consider bookings and backlog leading indicators of future revenues and use these metrics to support production planning. Bookings is an internal operational metric that measures the total dollar value of customer purchase orders executed in a given period regardless of the timing of the related revenue recognition. Backlog is a measure of purchase orders received that are scheduled to ship within the next 12 months. Finally, a replay of this call will be available in approximately 4 hours through the Investor Relations page on the company's website. At this time, it's my pleasure to turn the call over to Genasys' CEO, Richard Danforth. Richard?

Thank you, Brian, and welcome, everyone. Fiscal Q3 revenues reflect the first material impact of the Puerto Rico early warning system project. Total revenues were $9.9 million in the quarter, inclusive of $4.3 million from Puerto Rico. Our software pipeline is at an all-time high and is rapidly growing in response to our sales efforts and increased awareness of our offerings due to the L.A. Fires, Signal Gate and more recently, the floods in Texas. International and domestic LRAD bookings continue to rebound, resulting in a growing 12-month backlog of business that for Genasys as a whole amounted to more than $60 million at the end of June. As you are aware, after invoicing the customer in March of this year, we received a partial payment for the deposit on the third group of dams in Puerto Rico in May. The remaining portion has finally been transferred today. We believe the root cause of the payment delays has been identified and resolved and future payments are now expected to be made in a timely manner similar to the first 2 groups deposits. The CROWS-AHD effort, part of the CROWS 2 tech refresh program of record saw initial research and development funding in fiscal 2022 and 2023. The first production funding was included in the 2024 federal budget and following the successful completion of the design, test and qualification of the LRAD 450XL-RT. The U.S. Army issued an RFQ in July of 2025. The RFQ has since closed and a purchase order of $8 million to $8.5 million is being finalized. Genasys expects many more years of continued CROWS-related revenue. The temporary funding freeze of the urban area security initiatives and the Homeland Security Grant Program as well as the cancellation of FEMA's hazard mitigation programs building resilience infrastructure and communities that occurred at the beginning of this calendar year has delayed, disrupted and in some cases, eliminated more than $2 billion in annual funding that state and local agencies rely on. This has resulted in a slowdown of our software bookings. As we detailed in our earnings release earlier today, more than $9 million of software bookings are currently awaiting funding from various federal programs that flow down to state and local jurisdictions. Recent indications are that public safety and hazard mitigation grants are being solidified and funding is slowly starting to move, but it would be naive to think that everything will change instantaneously. Acknowledging this reality, we have recently completed a number of actions to reduce our operating expense levels while maintaining a strong sales effort for Genasys Protect. Included in those actions was a targeted headcount reduction. We expect to save $2.5 million annually as a result of the actions taken. It is important for all of us to understand that despite the recent slowdown in software bookings, our traction and momentum are growing. As I've already mentioned, our pipeline of software business is at an all-time high, and our geographic footprint is expanding. Historically, Genasys has seen most of its success west of the Rockies. However, with new product feature sets and targeted sales effort, we have seen a massive improvement in the pipeline of business east of the Rockies, so much so that more than 25% of the software pipeline added in the past 12 months comes from the customers located east of the Rocky Mountains. In our CRM system, many details in our software pipeline are labeled pending funding. These deals range from cities within L.A. County looking for their own EVAC licenses to large regional emergency managers eager for precise zone-based solutions to even federal agencies interested in Genasys unique and differentiated Genasys Protect. Though the recently reported top line results don't reflect this activity, our deal count, diversity of customers and increasing deal size gives us increasing confidence that Genasys Protect meets the market demands. I would now like to spend a little time detailing our progress in Puerto Rico. As you know, this is a $75 million contract with PREPA that is fully funded by FEMA. The project covers 37 dams across the island of Puerto Rico that have been broken down into 7 distinct groups. The first 2 groups, which have a total of roughly $17 million are well underway. Within the first 2 groups, there are 9 dams. Each dam has unique sensor and communication equipment requirements. Across the first 2 groups, 58 poles, 69 solar panels kits, 51 sensors, 35 cameras and nearly 400 LRAD speakers will be installed. As of this week, construction is underway on all 9 dams and essentially all of the equipment necessary to complete the installations for the first 2 groups is on the island. Moreover, the sign-off on the first dam and the early warning system software has already been received. The significance of this acceptance cannot be overstated. The software and hardware development and integration is complete and operational on the first dam. The third group is the largest of the 7 groups, including installations at 10 dams valued with a value of $18 million to Genasys. Upon receipt of the remainder of the deposit, we will rapidly seek permits and finalize the production of the equipment and begin construction necessary to complete this group as quickly as possible. With tropical storm Erin tracking down towards Puerto Rico this week, we're reminded that the installation schedules are sometimes subject to forces outside our control. Thus far, the construction project has been going very well, and we will -- we are tracking very close to plan. There is no guarantee that the weather will continue to cooperate. But regardless, we aim to complete the installations across all 7 groups as quickly as possible. Whether it is natural disasters, geopolitical unrest or macroeconomic change, a lot of uncertainties continue to arise around the world which, in many cases, creates new and evolving opportunities for Genasys Solutions. Genasys delivers products all over the world that save lives from Africa to Singapore, to Florida, Central Florida, Genasys software and hardware is making a difference in protecting lives throughout the world. We know that we have products that the market wants. Exiting the June quarter, Genasys has over $60 million in its 12-month backlog. This does not include the $650,000 of ARR associated with Puerto Rico nor anything related to CROWS. While not a guarantee of outcome, the existing backlog and the growing pipeline of additional business provides us with confidence in the business and the strategic value of the company. In summary, fiscal 2025 has been challenging on a number of levels. However, with an extremely strong backlog, growing pipeline and differentiated product portfolio, Genasys is in position to reap the rewards of its investments over the next several years. Now I will turn the call over to Cassandra to go through the financial outlook in greater detail. Cassandra?

Good afternoon, everyone. In the third quarter of fiscal 2025, Genasys generated $9.9 million of revenues, up 42% sequentially and up 38% on a year-over-year basis. Hardware revenues grew approximately 50% year-over-year, reflecting the $4.3 million of revenue from the Puerto Rico project Richard already discussed. Total software revenues in the quarter grew 7% year-over-year but was flat sequentially as the limited bookings were offset by our slight churn. Gross profit margins for June quarter came in at 26.3%, which is lower than both the prior year and the previous quarter. This decline is primarily due to the percentage of completion accounting applied to our initial revenues from Puerto Rico, a less favorable hardware mix and higher tariff costs on certain imported components. As mentioned earlier in today's earnings release, we expect gross margins to improve as the Puerto Rico project progresses, owing to the delayed recognition of profits under the percentage of completion method. Operating expenses for the quarter came in at $8.5 million, down from $8.9 million in March of 2025 quarter and $9.1 million in the same quarter last year. This year-over-year and sequential improvement reflects our continued focus on cost discipline and the absence of certain legal and professional service fees. In light of the dynamics Richard just outlined in our software business, we've recently completed a set of targeted cost reductions. These are expected to reduce our annualized operating expenses by $2.5 million beginning in the first quarter of fiscal 2026. As part of these actions, we made the difficult decision to reduce headcount by 19 full-time employees, including 10 in Spain. On a GAAP basis, our third fiscal quarter operating loss was $5.9 million compared to a loss of $5.4 million in the prior year quarter and a loss of $6.3 million in the March 2025 quarter. Adjusted EBITDA, which excludes noncash stock compensation, was a negative $4.8 million, a sequential improvement from the negative $5.1 million in the second quarter of fiscal 2025, but down slightly from the negative $4.4 million in June of 2024 quarter. GAAP net loss in this financial year's third quarter was $6.5 million, which compares to last year's third quarter net loss of $6.7 million and last quarter's $6.1 million net loss. Cash and cash equivalents and marketable securities at the end of June quarter totaled $5.5 million, down sequentially from $7.2 million on March 31, 2024. During the third fiscal quarter, cash used in operating activities was $5.9 million, which included a $750,000 use of cash resulting from changes in operating assets and liabilities. To help offset the impact of our net loss and working capital shifts, we secured $4 million through the first amendment to our term loan finalized just ahead of our last earnings call. Looking forward, in the fiscal fourth quarter, we anticipate a significant increase in both revenue and profit contributions from Puerto Rico. While some variables remain, we continue to project $15 million to $20 million in total revenues from Puerto Rico for fiscal 2025. Additionally, we expect to report improving gross margins with operating expenses remaining consistent with those from the third quarter. Factoring in our installation schedule in Puerto Rico, the remaining LRAD backlog and our software ARR of $8.7 million, we ended June 2025 with a 12-month backlog totaling $61 million. This positions us well for continued momentum heading into the next fiscal year. Now we would like to open up the call for Q&A. Operator?

And our first question comes from Scott Searle from ROTH Capital.

Maybe to dive right in on PREPA, Richard, it sounds like now we'll finally start to get some revenue recognition that goes along with it. Could you give us some high-level thoughts in terms of gross margins as we look out into the September quarter and beyond? We've had, I think, 0% gross margins in the first 2 quarters of the early PREPA rev. Could you remind us what gross margins look like over the course of the $75 million contract and what we should be expecting over the next quarter or 2? And along with that, maybe help us understand cash flow from operations with the give and takes of inflows as we move into the group 3 and some more payments on that front.

That's a lot, Scott. So if I miss one, ask me again. But from a total contract perspective, gross margin expectation on Puerto Rico, it is higher than normal LRAD gross margins. Normally, our hardware gross margins are in the 50%, plus or minus. Puerto Rico is likely going to be better than that. As per Q3 and Q4, there was actually some margin recorded on the Puerto Rico revenue in Q3. It was approximately -- do you know the number?

27, I think.

No, the absolute number.

Oh, total?

Yes.

26...

No. But to answer your question, as we finish more work on the island, that's the trigger to bring the margin and the revenue and record it. In Q1, we were 4-plus -- in Q3, excuse me, we were $4-plus million in revenue and approximately $700,000 in gross margin that was recorded. Q4 should be substantially better than that. As Cassandra mentioned, our revenue expectation in Q4 is substantially higher than our revenue expectation in Q3.

Got you. And Richard, just the -- from a cash flow perspective, it's pretty complicated. You received a fair amount, I think, for group 1 and group 2. How does that flow with group 3? And where are we in terms of the planning phases for the additional groups?

All 3 groups planning, engineering is done. The first 2 groups, as I said in my remarks, represent 9 dams and construction is in process on all 9. In fact, one has been accepted by the customer, which is also the software -- the overall software license was accepted as well. The third group, we just received today the wire for the balance of the deposit they owed us. So we will begin in earnest to work on group 3. So from a cash flow perspective, Scott, as we complete dams, that will generate cash. As we kick off the third group, that will generate cash. So I think from that perspective, the cash flow from operations should be very healthy as compared to historically.

And just as a reminder, Scott and others on the call, the way the contract was originally written and is being executed, the customer will be paying us 60% of each group's value upfront as a deposit. And that's obviously what we just received the final payment on or at least we got notice of today. As we complete each dam, and we're talking cash accounting, not accrual accounting that we have with GAAP, but on a cash accounting basis, we are invoicing the customer on a dam-by-dam basis as each dam's completion is accepted by the customer.

Got you. Very helpful. And 2 more, if I could just follow up on CROWS, it's exciting to see that finally happening. Could you -- what is the outlook in terms of the September quarter? Will some revenue from CROWS in that initial award potentially sneak into the September quarter? And I think the number you talked about in this initial tranche was $8 million to $8.5 million. Is that the annual run rate that we should be thinking about? Or does the number change potentially get larger as we look out into '26 and '27?

I think it will get larger. Our historic numbers for the old program of record were between $10 million and $15 million. As to your question regarding the revenue expectations for the fourth quarter, I think you're going to see the CROWS revenue in our fiscal '26 first half.

Got you. And lastly, just from a macro standpoint in terms of federal budgets, the impact that, that's pushing down on to local municipalities and spending. Certainly, it seems like it slowed up the first half of this year. And it doesn't seem like you're forecasting any sort of a major recovery on that front. But I'm wondering, is there a steady-state level of business we should be thinking about that's relatively immune to federal funding and those sources that have been constrained?

Scott, most of our revenue is generated from state and local governments. So there isn't an immunity from the -- sometimes chaos that we see in Washington, D.C. Did we lose you, Scott?

I think you can Go ahead and finish.

We do, however, have some resilience against that chaos in as much as a current active backlog, 12-month backlog of over $60 million.

Our next question comes from Ed Woo from Ascendiant Capital.

Yes. There was some major weather flood event recently. What is your flood product? And have you noticed any increases in people's interest in that type of product?

We have. As I mentioned in my remarks, Ed, the east of the Rockies has grown -- the interest in our product has grown a lot recently. We have teamed with a company named FloodMapp, and we have their flood prediction models on our Genasys Protect platform. And simply put, we can look at the current weather, forecasted weather and forecast when a river will go over or when a dam might breach and then be able to draw live geographic representations of where that water will go and get messages to everybody that might be in harm's way. So that's gotten traction on the East Coast. It's gotten traction in a lot of areas, particularly what we're seeing with the floods in North Carolina and in Texas.

To add on that, Ed, the value of having FloodMapp integrated with our products, especially EVAC allows for a very targeted, very precise message to be sent out to those that are being impacted. So if you think about what we just saw in California with the tsunami watches, instead of alerting all of Sonoma County, which goes quite a ways inland, utilizing FloodMapp, emergency managers could very easily segment the coastal regions that may or may not be impacted and send messages to only those people along the coastline. The same would be true of somebody in a river basin, for instance. And that's part of the new feature set that our product team brought to the market this year is that layering capability within EVAC itself.

That's a great product. I got a tsunami warning in L.A. and I was 20 miles in then.

[Operator Instructions] There appear to be no further questions at this time. I would now like to turn it back to management for any closing remarks.

Great. Thank you, Kat. Thank you, everyone, for participating in today's call. A replay of the call will be available on our website shortly. For additional information and up-to-date news and activity regarding Genasys, our products and the customers we serve, we strongly recommend that you follow the company and Genasys Protect on your social networks, particularly LinkedIn and X, where we actively post and comment on events that are happening and those that are happening around the world. We look forward to speaking with you again next quarter when we report fiscal fourth quarter and full year 2025 results. Until then, good night.