Good day, ladies and gentlemen, and welcome to the Genasys Inc. Fiscal Year 2021 Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Kim Rogers, from Hayden IR. Ma'am, the floor is yours..

Thank you. Good afternoon, and welcome to the Genasys Inc. forth quarter and fiscal year 2021 financial results conference call. I'm Kim Rogers with Hayden IR, the Investor Relations firm for Genasys. With me on the call today from Genasys are Richard Danforth, Chief Executive Officer; and Dennis Klahn, Chief Financial Officer.

During today's call, management will make forward-looking statements regarding the company's plans, expectations, outlook and future financial perform that involve certain risk and uncertainties.

The company's results may differ materially from the projections described in these forward looking statements, factors that might cause such differences in other potential risks and uncertainties can be found in the risk factor section of the company's form 10-K for the fiscal year ended September 30, 2021.

Other than statements of historical facts forward-looking statements made on this call are based only on information and management expectations as of today. 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 reconciliation of adjusted EBITDA to GAAP financial metrics, please, 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 order executed in a given period, orders regardless of the timing of 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 four hours through the investor relations page on our website. At this time, it's my pleasure to turn the call over to Genesis Chief Executive Officer, Richard Danforth, please go ahead, Richard..

Thank you, Kim and welcome, everybody. Fiscal 2021 was a year of solid performance combined with a significant level of investment to position us for future growth in our emerging software as a service business.

Our fiscal first fourth quarter revenue grew by 8% to $15 million and full year revenue grew 9% to $47 million continuing our track record of consistent revenue growth over the last five years. Fiscal fourth quarter bookings were $4.1 million bringing our total bookings for fiscal 2021 to $64 million, which exceeds any prior fiscal year total.

From these bookings, we have a record $12 month backlog of $36 million. Backlog grew year over year by 217%. The company posted another quarter of positive cash provided by operating activities. Over our last four fiscal years, we have generated $24.2 million in positive operating cash, including $6.2 million this fiscal year.

This performance is impressive given that we opened offices in Dubai and Singapore and expanded our software development team as well as software sales and support team globally. Importantly, strong cash generation from our core hard work business supports these investments as well as two software acquisitions.

At the end of September, we had nearly 160 employees worldwide, seven global offices and Genasys software now provides critical communication coverage for over 35 million people worldwide. In fiscal year 2021, we achieved our goals for record bookings, backlog and revenue.

Genasys is an excellent position to deliver another year of backlog and revenue growth in 2022. We have seen a resounding positive reaction to our SaaS solutions as evidence by the announced contract awards and fiscal year 2021.

In the past 12 months, the Genasys SaaS platform was launched in the United States, Canada and Mexico, providing lifesaving information for over 10 million people. We are now pursuing a wide range of global opportunities across multiple industry sectors and are excited about the growth that lies ahead.

With our strategic investments, including the acquisitions of Zonehaven and Amika Mobile Genasys has created the industry's only unified hardware and software critical communication platform. As a result, we are evolving from a pure hardware business towards an increasingly SaaS model.

As we execute our strategy, we will continue to make key upfront investments in staffing and resources that will increase our operating expenses in fiscal 2022. This growth investment is expected to materially shift our revenue mix to a highest SaaS contribution with SaaS bookings anticipated to grow year over year by over 50%.

The acquisitions are catalyst for [indiscernible] SaaS and Integrated Mass Notification hardware and software businesses. Now with Zonehaven, we have three paths to selling this platform, continuing to offer Zonehaven software as a standalone solution, integrating it in with our gem enterprise software and offering as a layer in our IMNS solutions.

This combination gives Genasys three competitive advantages for securing local, regional and national emergency management and warning contracts. Additionally, other large IMNS projects are expected to finalize and announce this fiscal year.

The combination of Zonehaven evacuation management with IMNS is rapidly filling our business pipeline with opportunities from California and elsewhere in the United States.

Our Genasys SaaS business is gaining momentum as evidenced by the expansion of our software services contract with a global automaker to its facilities outside North America, and will continue to expand internationally. We also landed a gem award in Riverside County here in California, and this is expected to expand in 2022.

Our investments in sales, marketing, and software development of building a growing SaaS pipeline. Gem SaaS contracts with other major corporations are in the pipeline for 2022. Additionally opportunities exist in the United States and internationally with governments, cities, counties and departments, a part of the robust and growing SaaS pipeline.

We recently announced that country -- counties, excuse me, in five states here in the US entered multiyear gem contracts and all, but one of these were replaced in incumbent.

The investments in sales with new offices in Dubai and Singapore expand our geographic presence and adds experienced sales leaders and sales support press personnel in targeted regions. We have begun to see traction in these regions and announced a new distribution partner in Africa and Middle East.

The strategic partnership will focus on government and enterprise opportunities in this region where countries are experienced crisis related to climate events, civil unrest and security incidents. Our team in Europe supports Genasys expectation for contract wins related to the EU mandated national emergency warning systems.

While we remain optimistic about the EU opportunities, the progress has been slower than expected due to the global pandemic. We now expect a mandated deadline of June of 2022 to be extended by at least one year. To date, the awards have been dominated by cell broadcasting and low price.

Although most awards to date have been cell broadcast, public warning systems, location based SMS system based RFPs are expected in 2022. With our strategic investments, including acquisitions Genasys has created the industry's only unified hardware and software critical communication platform.

As a result, we're evolving from a pure hardware business towards an increasingly SaaS model. As we execute our strategy, we will make key upfront investments in staffing and resources that will increase our operating expenses in fiscal year 2022.

This growth investment is expected to materially shift our revenue mix to a higher SaaS contribution with SaaS bookings anticipate to grow year over year by 50%.

We expect another year of revenue growth for fiscal year 2022, operating expenses of forecasted to increase year over year by $9 million to $11 million, reflecting the additional strategic growth spending to accelerate SaaS revenues.

As our business grows, our model can deliver increasing SaaS revenue and margin expansion, once we are past the frontloaded investments to support our future growth. Having laid the groundwork for in demand high margin SaaS business, we focus on the execution of our game plan.

Genasys addresses a growing global need for our unique products and solutions, putting us on track to achieve our goals.

Our team is committed to our strategy of continuing to build on our base of hardware customers while rapidly increasing the SaaS based contribution that brings attractive recurring revenues, higher margins and increasing shareholder value. With that, I'll turn the call over to Dennis..

Thank you, Richard. Revenues for the fiscal 2021 fourth quarter were $15 million up 8% from the prior year quarter, at compared to the same prior year period, LRAD revenue was $42.2 million up 12%, software revenue was up $2.8 million up 71% and IMNS revenue was $2.1 million down 44%.

The increase in software revenue was primarily from the addition of Amika and Zonehaven plus increased professional services. Gross profit margin was 51.1% compared with 54% in the fourth quarter of fiscal 2020.

Gross profit is a percentage of revenue was lower in the fiscal 2021 fourth quarter due to a 58% increase in engineering personnel, primarily software related.

Higher software expenses were due to the recent additions of Amika mobile to our Canadian subsidiary, Genasys communications Canada and Zonehaven and additional employees and resources for the Australia, EU and GEM software initiatives.

Operating expenses were $7 million up from $4.5 million in the same period a year ago, largely due to a 74% increase in sales and marketing personnel over the prior year to support few future revenue growth opportunities, including opening sales offices in Singapore, the UAE and Puerto Rico plus higher amortization expense resulting from acquisitions completed this fiscal year.

Net income for the quarter was $771,000 or $0.02 per share a decrease from $9.4 million in the fiscal 2020 fourth quarter. The decrease was largely due to non-cash income tax benefit in the fiscal 2020 fourth quarter of $7.1 million from the release of a portion of the valuation allowance against deferred tax assets.

For the full fiscal year 2021, revenues were $47 million up 9% from $43 million in fiscal 2020. Gross profit margin was 49.8% for the full year compared with 52.6% in fiscal 2020.

Gross profit as a percentage of revenue was lower compared to the prior year, primarily due to continued investment in additional personnel to support the growth of our software products. Operating expenses were $22.3 million up from $16.6 million in fiscal 2020.

The increase was largely due to a 45% increase in sales and market expenses from the increase in sales and marketing personnel over the prior area period, to support future growth opportunities, as well as the new sales offices, plus higher amortization expense resulting from acquisitions completed this fiscal year.

Net income for fiscal year 2021 was $704,000 or $0.02 per diluted share compared with $11.9 million or $0.35 per diluted share in fiscal 2020.

This decrease was primarily due to an increase in operating expenses of $5.7 million as well as the $7.1 million non-cash income tax benefit in fiscal 2020 mentioned in my discussion of the fourth quarter results. Adjusted EBITDA for fiscal 2021 was $4.1 million compared with $7.8 million in the prior fiscal year.

We believe this information and comparisons of adjusted EBITDA enhances the overall understanding and visibility of our business performance. To that effect a reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release. Our balance sheet remains strong.

Cash, cash equivalence and marketable securities, totaled $20.7 million on September 30, 2021 compared to $31.4 million in the prior year. Working capital totaled $18 million on September 30, 2021 compared to with $29.8 million on September 30, 2020.

The decrease in working capital is primarily due to the use of cash for the Amika Mobile asset purchase and Zonehaven acquisition in the first and third quarters of fiscal year 2021, respectively. We generated $6.2 million of cash from operating activities in fiscal year 2021, to provide you with some additional context.

Our business has generated more than $24 million in cash from operating activities over the past four years. An important metric that underscores the health of our business and is supporting investments as we strengthen our software profile. With that, we'd like to open all to Q&A.

Operator, could you start the Q&A session?.

[Operator instructions] Our first question comes from Mike Latimore. Please state your question..

So you've hired several people, sales people year, I guess. How are they ramping, are they hitting productivity guidelines along the way here you again, how is product productivity trending for your kind of software sales force.

It's trending up? We had a sales force that we had developed principally for the US and Canada with the acquisition of Zonehaven. We trained all of those sales folks on the Zonehaven platform and they're out actively pursuing opportunities for Zonehaven, as well as Gen. We saw a record year for Gen and Zonehaven are SaaS bookings.

And we expect that to continue to grow significantly in our 2022 and beyond..

And what is it kind of a normal timeline to get the full productivity say nine to 12 months about that?.

Yeah, I think Mike, we started this in fiscal 2020 fiscal 2020, which was the midst of the COVID year, but we were successful at adding a whole bunch of sales folks. So the first were real opportunity to sell was in our fiscal 2021.

And they went from a standstill to a significant number and again, I think it'll grow substantially from 2022 and beyond..

I think a, a substantial number, the additional salesperson didn't come on board until probably our second fiscal quarter.

Makes sense. You touched on the demand for sell broadcast in the EU, I guess, any sort of high level thoughts on why some of the countries are leading with that as opposed to something maybe a little more valuable in location based SMOs for both at the same time,.

I think speed was part of it. Some broadcast for a country you can bring up a short of fashion than that, which requires in depth integration into the network carriers, but I wouldn't overlook too much or put much on what that fact that silver broadcast has more prevalent.

It's only been four announcements and none have gone live yet and the EU and as I said, remarks, Mike, I expect RFPs in our fiscal 2022 twos would be those that include both the location base two and SMS and cell broadcast..

Got it.

And then just last on the OpEx forecasts for the year, is it large of marketing or is there a, reasonable percent of R&D in there as well?.

It it's both for sure..

Sort of evenly mixed there or….

Well, we've seen, if you take a look at quarterly increase in OpEx throughout fiscal year '21 Q4 OpEx was up to about just under $7 million. So a lot of that came in through selling and marketing throughout the year. Therefore that's -- we didn't have a full year, those costs in fiscal '21.

So a lot of that will roll over and be in there for a full year for '22. There's going to be a fair, probably increased number of engineering type folks that we would look forward to adding to the team in fiscal '22..

Okay, excellent. Thank you..

Our next question comes from Brian Coley [ph]. Please state your question..

Hey guys, thanks for taking the question. I'm curious if you could just talk about what the mix of bookings were in the quarter between software and hardware, and if you could give us any sense for that same number, maybe for the full year of FY '21, like what the actual hard number was for software bookings.

Just so we can have a number for FY '22 to go of..

I don't think we've made that data public Brian, correct me if I'm wrong..

No, we have not. .

Got it. That, that's fine. I was just curious if that was something, in terms of software revenue for FY '22, I think last quarter, you may have mentioned that you expected it to exceed 10% of total revenue.

Is that still the case? As we sit here today?.

Yes..

Got it.

And then as you kind of look at the pipeline of software opportunities today, I'm curious, where you're seeing the most traction and the most deals between Gen and Zonehaven and which of those three do you think will be the biggest driver to biggest growth in FY '22?.

It'll clearly be Zonehaven and Gen. Those are pure SA opportunities Brian, they go live in a relatively short period once contract has been signed.

If you look at the national emergency warning systems, be it cell broadcast or location based SMS, there's a, what can be a lengthy non-recurring activity which is a revenue generating professional service, but a lengthy time before you get to the SaaS piece of that. So given that I believe that the Gen and Zonehaven SaaS will grow at a faster pace..

Okay. That's helpful.

And then just thinking about the you know, you guys are expecting record revenue and FY '22, is there any quantification around kind of the magnitude of total growth there that you'd be willing to provide this time?.

I think it'll be a double digit kind of number, but, we are it's facing the parts of this worldwide material shortage issue. We have been able to manage through that without any negative impact on our revenue stream. But lead times have been going up substantially.

So it's not just a matter of is the material available it's when is it available? So that puts a little bit of caution. Coming into the year with a $36 million backlog we did $46 million in all of last, in fiscal 2022 for revenue '21, excuse me. So it should, it should be north of that.

And notwithstanding any supply chain issues, it would be further north of what you've seen here in fiscal 2021..

Got it. All right. Great. That's helpful. I appreciate the time today..

Our next question comes from Martin Yang. Please state your question..

Hi, good afternoon. Thank for taking my question. So my first question is on increase.

Do you expect any catch up investments for the regional offices for your fiscal '22?.

We would look to expand the parts of the world are still in pretty hard lockdowns and so they are haven't fully opened up yet. But we, as we get out have the opportunity to have our sales team meet with more customers. Yes, we would expect to provide additional supporting assistance to those sales efforts..

To add to that a bit. Europe has opened up and now in a lot in some countries shutting back down again. The Middle East has largely opened. The APAC region has been, I think the region hardest locked down through this pandemic and is slowly beginning to open up and I expect notwithstanding a spike in the infection rate.

I would expect the APAC region to largely be open at the beginning of our next calendar year here the month of January, which should facilitate more business as you in that region that has been locked down for nearly two years..

Got it. Thank you.

And, when you look at the strength or the demand for Gen would you able to say if you know, any size either the enterprise customers or are the accounting and the municipalities are stronger do you see more demand coming from the enterprise customers?.

I see it across the board, so it's not hard to get to a market size of over half a billion dollars here in North America.

And that comes up from a recompete every, it depends on the term, but on average three years, and I think this past year has shown that our strategy in whether the enterprise or governments a conviction that our strategy worked, Riverside was a terrific example of that. And the large automobile manufacturer was also a great testament to that..

Just a follow of that is there. So when you think about the average three years of a renewal cycle, is there any year where you see a more concentrated contract that are up for renewal..

That hasn't been yet? I think our name's getting out there much more in all market areas for Gen and Zonehaven and we're getting more inquiries on an increasing pace every week..

Got it. Thank you so much..

Okay. Our next question comes from Ed Woo. Please state your question..

Yeah, congratulations on the court. I just wanted to clarify you say that operating expense will be up $9 million and to $11 million from the $22 million this year..

Yes. So if you look at Q4 spending, which reflects a full quarter of Zonehaven, that was just under $7 million. So annualizing that it's $28 million and we believe there'll be a couple of million dollars more investment in the year..

Great. Thank you. And then thanks for answering or giving us information about the inventory shortages touching on that.

Has there been any impact on inflation on any of your components and will that possibly impact your margins?.

We have seen prices increase. We will be reflecting our price changes to reflect our cost going up as well. So yes, we have seen a pressure on our pricing that we're paying in the marketplace. I don't think it was a significant, our relevant impact on gross margins this past year.

So far we've been able to manage through it through redesign and lots of effort within the operations and the engineering organizations here at Genasys..

Just a clarify question, when you announced these orders, is it for a set price over delivery of several years, or do you get some leeway of cost plus type pricing?.

No, we almost never have a cost plus kind of contract. However, typically with our, particularly with our hardware, we deliver from time of order to delivery is typically measured in months not years. Software is quite a bit different. That can be, we took one this past year for five years.

Now, as you know, the delivery of that service, the cost to develop that service is already in the actuals. It's what that upfront cost I mentioned in my remarks. So I don't think inflation or supply chain has much if any of an impact in our SaaS business know so an overall software business..

Great. Well, thanks for understanding my question. Wish you guys good luck and fiscal '22..

Thank you..

That was our final question. I'll turn it back over to you for closing remarks..

We regularly discuss our business at Investor conferences throughout the year. On December 8, we are participating in the Barclays Technology Media and Telecom Conference. The following week, we will be at the Imperial Security conference with a presentation in one-on-one meetings on December 15.

Please contact your representative at these firms to book a meeting. Thank you for participating in today's call. We look forward to speaking with you again next year, when we report fiscal first quarter 2022 results. On behalf of everyone at Genasys, we wish you and your families a happy, healthy holiday season..

Thank you. This comes today's conference call. We thank you for your participation. You may disconnect your life at this time and have a great day..