Good afternoon, and welcome to the Genasys Inc.'s Fiscal Third Quarter 2020 Financial Results Conference Call. [Operator Instructions]. At this time, it is my pleasure to turn the floor over to Satya Chillara, Investor Relations for Genasys. Sir, the floor is yours..

Thank you, Jess. Good afternoon, everyone, and welcome to Genasys Fiscal Third Quarter 2020 Financial Results Conference Call. I'm Satya Chillara, Investor Relations for Genasys. With me on the call today are Richard Danforth, Chief Executive Officer; and Dennis Klahn, Chief Financial Officer of Genasys.

Before we begin, I would like to take this opportunity to remind you that during the course of this call, management will make forward-looking statements other than statements of historical facts. Statements made during this call that are forward-looking statements are based on our current expectations.

During this call, we may discuss company's plans, expectations, outlook or forecast for future performance.

These forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, the failure of the proposed Amika Mobile transaction to close on the expected time line or at all, the effect of Amika Mobile announcement of the transaction on customer relationships and operating results, the ability to meet all closing conditions to the Amika Mobile transaction, the consequences of the COVID-19 outbreak, other pandemics and other risks and uncertainties, many of which involve factors or circumstances that are beyond the company's control.

These forward-looking statements are based on information and management's expectations as of today. Future results may differ materially from our current expectations. For more information regarding potential risks and uncertainties, please refer to the Risk Factors section of the company's Form 10-K for the fiscal year ended September 30, 2019.

Genasys disclaims any intent or obligation to update those forward-looking statements, except as otherwise specifically stated. We may also discuss non-GAAP operational metrics of bookings and backlog, which we believe provide helpful information to investors with respect to evaluating the company's performance.

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 the 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 in the next 12 months. Finally, a replay of this call will be available in approximately 4 hours through the Investor Relations page on our website. At this time, it is my pleasure to turn over the -- turn the floor over to Genasys CFO, Dennis Klahn.

Dennis?.

Thank you, Satya, and welcome, everyone. I will open today's call with a recap of fiscal third quarter 2020 financial results. Richard will then provide an update on the business. Afterward, we will open the call for questions.

Revenues for the third quarter of fiscal year 2020 were $12 million, the highest revenue for any third quarter in the company's history. This compares with revenues of $8.9 million in the third fiscal quarter of 2019.

The 35% increase in revenues was due to a larger backlog at March 31, 2020, as compared to March 31, 2019, and strong acoustic hailing device revenues in the current year period. Gross profit was $6.5 million or 54.1% of revenue.

The increase in gross profit margin compared to last year was largely due to the additional leverage of fixed overhead costs gained on the higher revenues. Operating expenses in fiscal Q3 were $4.5 million, an increase from $3.9 million in the same period a year ago.

The increase was primarily due to higher selling, general and administrative expenses to support our higher revenue and future revenue growth opportunities. With higher revenues and gross margin, we generated net income of $1.5 million or $0.04 per diluted share in the fiscal third quarter.

This compares with net income of $600,000 or $0.02 per diluted share in the same quarter last year. Cash generated from operating activities in the quarter was $5.8 million. Our balance sheet remains strong.

Cash and cash equivalents totaled $20.7 million on June 30, 2020, up from $16.4 million on March 31, 2020, and $18.8 million on September 30, 2019. The $4.3 million increase in cash and cash equivalents from the last quarter was due to cash provided by operating activities.

Working capital increased by $1.4 million to $26.9 million at June 30, 2020, compared to $24.8 million at September 30, 2019. The increase in working capital was primarily due to the net income from operations and cash received from the exercise of stock options in the first 9 months of fiscal year 2020.

With that, I would like to turn the call over to Richard..

Thank you, Dennis, and good afternoon to everybody on the call. Thanks to the outstanding work of the Genasys team and the support of our suppliers and service providers during this unprecedented pandemic, fiscal third quarter revenues were a record for any third quarter.

These results were in line with the outlook provided on prior calls where I said revenues in the second half of fiscal 2020 were expected to be much stronger than fiscal first half revenues. Fiscal third quarter bookings were $22.7 million, up 118% from the same period last year. U.S.

Army and Navy orders as well as other domestic and international defense, maritime, law enforcement, border and homeland security orders generated the majority of the fiscal third quarter bookings. Backlog at June 30, 2020, was $26.4 million, an increase of 26% from the same period a year ago.

Our strong bookings and backlog keep the company on track for another fiscal year of record revenues. As discussed on our last call, as an essential provider of critical communication systems and solutions, Genasys has stayed open and the production floor remains busy, building and shipping products and systems.

Our supply chain continues to deliver the pods needed to build our industry-leading hardware and public safety mass notification systems for a growing customer base. Ongoing civil unrest and COVID-19 communication applications have increased demand for the hardware and software communication systems from law enforcement and public safety agencies.

The crowd noise generated by large and boisterous protesters overpowers bullhorns and vehicle PA systems. LRAD systems ensure voice communications are clearly heard from safe standoff distance to provide police and first responders more time to assess and properly deescalate dangerous situations.

We designed our LRAD voice communication systems to help safeguard the public and protect officers. Police departments in New York City, Chicago, Portland, San Jose, Colorado Springs, Phoenix, Columbus, Charleston, Fort Lauderdale, Rapid City and other cities are deploying LRAD systems for everyday duties and elevated risk operations.

More than 450 U.S. cities now use LRAD voice broadcast systems for a variety of public safety applications. We continue to make significant progress in enhancing and building out our critical communication platform.

The mass notification is industry's only multichannel platform that unifies hardware and software systems for national, regional, local and enterprise application. With the acquisition of enterprise software provider, Amika Mobile, we are expanding our SaaS business into several large vertical markets.

The integration of Amika Mobile's critical event situational awareness, communications and control technology and products will accelerate our software business growth as we empower companies, government entities, communities and educational and medical institutions to improve safety and security for employees, residents, students and staff and alleviate potential threats from disasters, critical events and other crisis situation.

Our enhanced critical communication platform will be fully scalable for small businesses or large deployments with millions of users. As we announced in today's financial results press release, we are pursuing additional acquisition as part of the strategy to expand the company's revenue.

Navigating today's business currents from a strong financial position with the objective of accelerating revenue growth, companies possessing complementary products, services and technology that may lack the financial strength to weather a prolonged period of disruption provide us with favorable M&A opportunities.

To facilitate further M&A efforts, we are augmenting our June 30, 2020, total of $28.1 million of cash, cash equivalents and marketable securities by filing a $100 million shelf registration. As you are aware, many companies file an S-3 shelf registration and keep it on file. It is considered good corporate strategy to have available.

Although we do not intend to utilize the S-3 immediately, having a shelf registration in place offers the company the greatest flexibility in attracting and closing acquisitions that we believe will substantially enhance our business by expanding our addressable markets and maximizing shareholder value.

Regarding our business in Australia, using the location-based SMS text alert functionality of our National Emergency Warning System, or NEWS, thousands of bush fire notifications were delivered by Australian emergency services to mobile phones of at-risk populations during a severe 2019-2020 fire season.

Since the implementation of NEWS, emergency services in Australia have used it to deliver more than 150 million emergency SMS text through 2 of the nation's 3 large telecoms. Genasys submitted proposals to the telecom providers for the country's 2020 tender.

Award announcements have continued to move to the right, but I do expect the announcements this quarter. In June, we hosted 2-well attended European webinars that detailed why Genasys and NEWS provide the best solutions for the EU member state to fulfill the June 2022 EECC national public warning system directive.

As a reminder, the directive mandates to every EU member state implement a public warning system that can send emergency alerts to the mobile phones of residents and visitors in the case of disaster or other critical events.

The system must include geo-targeted emergency communications and be able to notify residents and visitors of emergencies without having to opt in.

NEWS provides unparalleled, situational and geo-spatial data on population density and movements during a disaster or critical event, while integrating with network feeds to offer active and passive location data in real-time geofencing. The Genasys NEWS platform is cloud-based, geo-redundant and end-to-end encrypted.

NEWS features top-level reliability and security by employing no single point of failure and geo-redundant architecture. All location data is depersonalized, allowing users to stay safe and informed without giving up their privacy.

With more than 50 years of industry experience, the Genasys engineering team excels in the customization deployments, developing new feature sets and solving challenges dynamically.

Based on our years of experience and success in Australia, locating the mobile phones of at-risk individuals and delivering emergency alerts through telecom providers with industry-leading speed and reliability, we anticipate receiving RFPs from the European Union member nations later this calendar year and early 2021.

Our multichannel critical communication platform includes NEWS, it includes PSS or Personal Safety Service, it includes TSM or Team Safety Management and the industry's best voice broadcast mass notification systems.

By unifying the delivery of emergency alerts and potentially life-saving information through multiple communication channels, Genasys provides a reliable, redundant and resilient platform that ensures critical communications are delivered to help keep people safe during public safety threats and enables enterprise and government organizations to send information to groups or individual before, during and after critical events.

With the political unrest, COVID-19, future pandemics and other natural and man-made disasters continuing to increase throughout the world, Genasys systems and solutions are providing essential -- proving to be essential to help keep people safe. In closing, we had an exceptional Q3 and are on track for a record performance in fiscal 2020.

With our robust balance sheet, backlog and business pipeline, we are also well positioned to deliver record revenues in the coming fiscal year. With that, I'll turn it back over to the operator for Q&A..

[Operator Instructions]. We'll go first to Ed Woo at Ascendiant Capital..

Congratulations on the quarter. My question is on M&A with Amika.

Do you feel that you can take on additional acquisitions broadway? Or do you need to digest this acquisition first?.

No, I think we can do more than one thing at a time, Ed. So we're not stopping. We're continuing..

That sounds great.

And then in terms of -- obviously, with the disruption with what's going on with COVID, has that changed any of your business at all, either manufacturing, supply chain or even for request for proposals from customers?.

It's had an impact, yes. As I mentioned, all of the cities that have been ordering product mainly, so orders have -- order volume has certainly gone up. The size of the orders, however, have not been huge. They're buying 1s and 2s and 3s. We have seen an increase in demand for Genasys products and services and software.

But we see a slowness in the communities, the governments getting the RFPs out and awarded. But -- so the long term, I see this as proving to create more demand for Genasys. Short term, we might have to fight some slower bookings..

We'll take our next question from Ryan MacWilliams at Stephens..

Congrats on the Amika Mobile contract. I think it really fills out your product suite with your leading hardware platform, your fully featured public warning product and now an enterprise mass notification-oriented product.

Just in terms of the recent acquisition, how do you plan to build out the go-to-market to support this function? And is there any individual company vertical you'll try to target initially? Like a second vertical?.

Ryan, to answer your first question, we are establishing a sales force for North America for the feature sets that Amika brings as well as the feature sets that Genasys had. So we will be hiring salespeople that will be geographically dispersed throughout North America. So that's how we're going to go after it.

In terms of -- what was your second question, Ryan? It was first verticals? Oh, verticals, yes, okay. What Amika brings to us is verticals that include for both the U.S.

and Canadian government veterans administration, cities, states, so I think they will provide to us the credentials and the backdrop of those credentials that we did not currently have in the enterprise world..

Perfect. And one more for me.

Just on the Amika Mobile acquisition again, how do you feel this expands your addressable market on the software side? And then down the line, do you think you could see your installed base of hardware customers leading to public-warning opportunities and then within those covered geographies, leading to additional mass notification opportunities within enterprises or local state governments with the Amika Mobile deal?.

I do. So the first question is the size of the market. You know that at least as good as I do. And it's -- worldwide, it's in the billions of dollars. I think our hardware sales will beget software sales here in the United States, and I think the software sales will beget some hardware sales in the EU.

And I think the enterprise solution that Amika provides is another vertical that we were just barely scratching into. And this will, as I mentioned in my remarks, substantially accelerate that growth..

We'll go next to Rick Neaton at Rivershore Investment..

And congratulations on a record quarter. In terms of the Amika Mobile acquisition, your press release suggests that this is a cash acquisition.

Is that right?.

We haven't disclosed the terms yet, Rick. We come to an agreement with Amika, and the close is subject to some Canadian government approvals and some contractual activity that we need to get through between now and closing.

At close -- when we finish the closing, we obviously will report the financial terms, but there'll be no borrowing of any money, if that's what you're thinking of. It's -- it will be paid for out of cash..

Okay. Yes, that's what I was thinking of. In terms of what additional resources Amika brings to you, is that going to help you better compete in the U.S.

for Genasys or software wins in counties and states that are having their contracts up for renewal?.

Yes. But it's not their people. They have a great group of software developers, much like we have in Madrid. What Amika brings to us is 20 years of history and credentials. And that was a shortcoming in the enterprise market for Genasys, and Amika fills that void..

[Operator Instructions]. We'll go next to Scott Billeadeau of Walrus Partners..

Several of them have been answered. Good quarter. Just wanted to -- as you file the S-1, buy Amika in, is there a focus for the M&A activity going forward? Will it be more software-based vis-à-vis hardware-based? I don't know if you've got any color for us, that would be great..

No, not really, Scott. I mean software is more interesting to us at this time given our position from a hardware perspective in award marketplace, but I won't discount anything without looking at it. So I think we're wide open..

Okay. And maybe just a follow-up. Are there some -- from a business development perspective, you guys showing your books, do you have -- you're kind of developing yourself. You got a formal process for BD.

I mean you've been -- you've done a couple of deals here, but just trying to figure out how formal the business -- that BD process will be for you, guys..

Well, the process to identify and then prosecute potential M&As is right now still all done internally..

Okay. Good. Great. One last quick question.

In terms of M&A, is it domestic focus, international focus? Or just, hey, where there's a good synergy? Any thoughts at this particular point in time?.

The world. I mean the two acquisitions we've done so far have been Madrid, and we're now prosecuting on Amika in Canada..

Canada?.

Yes..

The next is Lloyd Corton [ph]..

Richard and crew, terrific quarter, obviously. A few questions. No particular order here.

Homeland security, what's going on with them? And what can we look forward to potentially?.

Well, as you know, homeland security, Department of Homeland Security has been a -- not a great contributor to Genasys' bookings. We've seen a change in that in the last quarter where interest and demand from DHS and ICE has turned to be real.

So I think it's the environment we're currently living in across the world, as shown -- as I mentioned in my remarks, showing the need for more Genasys hardware and software. And DHS is finally coming to the play..

That would be wonderful. Can you -- you had an announcement a couple of weeks ago about Esri.

Can you explain that to me or us what that's about?.

Sure. Esri is perhaps the best mapping software company in the world. A couple of weeks ago, we announced -- a couple more than that, but we announced a partnership with Esri. So our GIS platforms that we sell will be powered by Esri. Esri brings with it feature sets, deep feature sets that can then be resold by Genasys. It's a terrific thing to come..

Okay. So potential revenue for us.

Yes?.

Yes. Absolutely..

Okay.

Also, with the -- what's going on physically all over the country today between states and cities and counties with financial headaches brewing with lack of revenue, how is that affecting us? And what are you hearing?.

Well, as I mentioned, I believe we -- as I said all year, I believe the second half revenues would be much stronger than the first half, and that proved to be the case in Q3, and it will be the case in Q4 as well. I see our backlog and demand as we look forward to fiscal year '21 to continue to show growth..

Are you finding any headwinds with the municipalities upgrading their systems to us these days?.

Yes. The municipalities have largely been not working, as you know, for months. And that has delayed things. But they're coming back to work around the globe now, and activity is picking back up..

And with no other questions holding, I'll turn the conference back to management for any additional or closing comments..

We regularly discuss our business at investor events during the year. We invite you to join us for these events. Thank you for participating in today's call. We look forward to speaking with you again in a few months when we report fourth quarter and fiscal year 2020 results..

And ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect your phone line at this time. And have a great day..