Genasys Inc. (NASDAQ: NASDAQ:GNSS) reported its fiscal fourth-quarter earnings, revealing a larger-than-expected loss with an EPS of -$0.26 against a forecast of -$0.11. The revenue also fell short, coming in at $6.7 million compared to expectations of $9.03 million. Despite the disappointing financial results, the company's stock remained unchanged in the aftermarket session, reflecting a cautious investor stance.
Key Takeaways
- EPS missed forecasts by $0.15, highlighting financial challenges.
- Revenue declined by 49% year-over-year, with hardware sales down 61%.
- Software (ETR:SOWGn) revenue surged by 93%, indicating strong growth potential.
- Stock price remained steady in aftermarket trading despite earnings miss.
Company Performance
Genasys faced a challenging fiscal year, with total revenue dropping by 49% compared to FY 2023. The decline was primarily driven by a significant decrease in hardware sales, although software revenue showed robust growth. The company is expanding its software offerings, which could help offset hardware losses in the future.
Financial Highlights
- Revenue: $24 million (49% decrease from FY 2023)
- Earnings per share: -$0.26 (missed forecast of -$0.11)
- Gross margins: 42.4%
- GAAP operating loss: $26.7 million
- Adjusted EBITDA: -$22.1 million
- Cash and equivalents: $13.1 million (up from $10.1 million)
Earnings vs. Forecast
Genasys reported an EPS of -$0.26, missing the forecast by $0.15. This significant miss, coupled with a revenue shortfall, underscores the financial pressures the company faces. The earnings miss is notable, given the recent downward revision in EPS forecasts.
Market Reaction
Despite the earnings miss, Genasys shares remained unchanged in the aftermarket session, suggesting that investors are taking a wait-and-see approach. The stock is currently trading at $3.9, near its 52-week high of $4.04, indicating some resilience in investor confidence.
Company Outlook
Genasys is optimistic about its software business, starting FY 2025 with an annual recurring revenue (ARR) of $8.3 million. The company is focused on expanding its market presence in emergency management and communication systems, with significant projects like the Puerto Rico dam project expected to drive future growth.
Executive Commentary
"Fiscal 2024 was extremely disappointing from a financial results standpoint," said CEO Richard Danforth, acknowledging the challenges faced. However, he emphasized the potential of the software business, stating, "Our software business is starting fiscal 2025 with an ARR of $8,300,000."
Q&A
During the earnings call, analysts inquired about the PREPA contract, which is expected to contribute revenue in the March quarter. There were also questions about potential opportunities in Puerto Rico and continued optimism about software growth.
Risks and Challenges
- The significant decline in hardware revenues poses a risk to overall financial stability.
- Ongoing profitability issues, as reflected in the GAAP operating loss, remain a concern.
- Market saturation and competition in the emergency communication sector could impact future growth.
- Macroeconomic pressures and supply chain disruptions may further affect performance.
Full transcript - Genasys Inc (GNSS) Q4 2024:
Teleconference Operator: Good day, ladies and gentlemen, and welcome to the Genesis Inc. Fiscal Year 2024 Conference Call. All lines have been placed on a listen only mode and the floor will be open for questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host, Brian Alger, SVP, Investor Relations and Corporate Development. Welcome, Brian.
The floor is yours.
: Good
Brian Alger, SVP, Investor Relations and Corporate Development, Genesis Inc.: afternoon. Welcome to Genesis' fiscal 2024 Q4 and full year financial results conference call. I am Brian Alger, SVP, Investor Relations and Corporate Development for Genesis. With me on the call today are Richard Danforth, our CEO and Dennis Klahn, the company's CFO. During today's call, management will make forward looking statements regarding the company's plans, expectations, outlook and future financial performance that 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 ks for the fiscal year ended September 30, 2023. Other than statements of historical facts, forward looking statements made on this call are based solely on the information and management's expectations as of today, December 9, 2024. 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, backlog and adjusted net loss, which we believe provide helpful information to investors with respect to evaluating the company's performance.
For a reconciliation of adjusted EBITDA to GAAP financial metrics, please see the table in the press release issued by the company at the close of 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 Genesis' CEO, Richard Danforth. Richard?
Richard Danforth, CEO, Genesis Inc.: Thank you, Brian, and welcome, everyone. As Dennis will detail shortly, from a financial results standpoint, fiscal 2024 was extremely disappointing. While our software results tracked largely in line with our expectations, weak hardware revenues in the Q4 and throughout the year and the resulting losses were well below target. That said, fiscal 2024 proved to be a transformational year from a bookings perspective. Though the Puerto Rico contract was the largest factor by far, I am more encouraged by the breadth of our bookings recovery.
As many of you know, Genesis International Business eroded nearly completely during COVID. And while we had hoped that it would rebound in fiscal 2023, it wasn't until fiscal 2024 that the international bookings rebounded. International bookings were up 86% year over year. And although they were not quite back to the pre COVID levels, the rebound came from all regions and we are well on our way to restoring that portion of our business. Whether it is with European naval customers, Africa and Middle Eastern militaries or our traditional APAC customers, each region is contributing to the international growth.
This morning's announcement with the Indian Navy is the most recent example of the recovery in the international hardware bookings. Domestically, LRAD Systems for law enforcement made a noticeable comeback. The acquisition of EVERTEL and the improving budget environment for law enforcement drove the improvements year over year. From large metropolitan police departments to small college campuses, our LRAD systems continue to deliver the best in class mobile communications solution. Critical infrastructure protection projects like the Hoover Dam, the Port of Houston and the Alabama Cushoota Drive are testaments to the diverse applications for our LRAD and acoustics equipment.
As we add marquee customer sites, our pipeline of new opportunities continues to expand with both public and private sector customers. On the software front, we had a record bookings that were up 46% year over year with notable wins coming late in our fiscal year. The largest single deal of the year was our statewide EVAC contract with the Oregon Office of Resilience and Emergency Management. Existing EVAC functionality now utilizes the complete Genesis Protect platform, making it our largest software customer, both on an ARR and a total contract value basis. These two customers are illustrative of 2 different sales motions that we are replicating across the country.
In both cases, we were selected because of the demonstrated uniqueness and value provided by Evac. In Los Angeles, the most populous county in the United States, EVAC was initially deployed in the urban interface areas and then coverage was expanded to include the whole county. Rapidly following that implementation, Los Angeles County is moving to implement ALERT with the intent of bringing all 80 plus communities in the county onto a single communication platform. In Oregon, the initial Genesis EVAC sales were made a year ago in a couple of fire prone counties. Then shortly after the Lahaina tragedy, the state emergency managers took notice and a statewide solution was constructed.
Like Los Angeles County, we are actively discussing additional ways for us to enable emergency managers and first responders in Oregon to move to more efficiently respond and protect their constituents. Whether it is starting with a large county and working down to the cities or with a handful of small counties and expanding towards a statewide engagement, Genesis Evac is driving improving sales cycle for Genesis Protect. Our software success has not just been on the West Coast. Significant progress is being made in Arizona, Utah, Colorado, Texas and of course, Hawaii. Looking further east, we are making inroads with wins in Florida, North Carolina, New Hampshire and Massachusetts.
This of course is in addition to the largest Genesis Protect wind to date, Puerto Rico. I'm pleased to report that the $75,000,000 project with the Puerto Rico Electric Power Authority, PREPA, is progressing well. Since signing the contract with PREPA in August, both bodies have moved quickly. As many of you know, the 37 dam projects have been divided into 7 different groups, each with its own EOC. Each group is unique both in terms of the number of dams, but also the terrain and instrumentation required.
The contract specifies after each group design approval, Genesis receives 60% of the sale value of that group. This deposit will allow us to procure all the necessary work in progress inventory and deliver the components to the island for installation. Each dam within a group will go through an acceptance process that will enable invoicing for the remaining 40% payment on a dam by dam basis. This of course is how the cash will flow, but revenue will be recognized on a percentage of completion basis as is typical with projects of this scope and size. Where we stand today is our designs have been approved on the first three groups of dams.
We have invoiced PREPA for the deposits on the first two groups and after receiving the first deposit checks, we have begun placing orders for materials, staffing up local resources and are preparing to break ground. The total value of the first three approved groups is just over $35,000,000 It is our intention to install the emergency warning systems as quickly as possible. Until we get a couple of dams under our belt, however, it is impossible to predict exactly how long that will take. Regardless of the exact timing, Puerto Rico is serving as a tremendous example of the power of Genesis Protect as a complete system that combines planning and event management with unified communications, including our acoustic systems that operate when power and traditional communication networks fail. Puerto Rico is not unique in its case, and we are pursuing similar opportunities both domestically and abroad.
Before I turn the call over to Dennis to discuss the financials, I want to provide an update on the AHD CROES program of record. As we have discussed in the past, the AHD CROES requirement has existed for several years. In fiscal 2024, adding LRADs to existing CROWS system was finally funded with an initial program appropriations totaling $20,000,000 We are actively working with the program office on detailed planning and scheduling. We will keep you all apprised of progress as it occurs. Now, I will turn the call over to Dennis to go through the financials and outlook in greater detail.
Dennis?
Dennis Klahn, CFO, Genesis Inc.: Thank you, Richard. In 2024, we successfully grew our recurring software each quarter. In the Q4 of fiscal 2024, recurring software revenue increased 110% year over year and 6% sequentially. On the full year, recurring software revenue grew 115% versus the full year 2023. Excluding revenues from EVERTEL, now known as Connect, fiscal 2024 recurring revenue grew 84%.
Revenues for the current fiscal year Q4 were $6,700,000 a decrease of 37% over the prior year's quarter. Compared to the same prior year period, total software revenue increased 92 percent to $2,100,000 Hardware revenue decreased 52% to $4,600,000 in the Q4 of fiscal 2024. Gross profit margin was 40.8 percent in the fiscal 4th quarter, roughly 9 points below the prior year quarter, primarily due to the reduced overhead absorption. Quarterly operating expenses were $9,900,000 up from $7,900,000 in last year's quarter. On a GAAP basis, our 4th fiscal quarter operating loss was $7,100,000 compared to a loss of $2,600,000 in the year ago quarter.
Adjusted EBITDA, which excludes non cash stock compensation was a negative $6,000,000 compared to last year's negative 1,700,000 dollars GAAP net loss in this fiscal year's Q4 was $11,400,000 including $4,200,000 of other expense. This expense includes a $3,500,000 non cash loss on the change in the fair value of the warrants related to a term loan. This compares to last year's net loss of $10,100,000 which included a one time non cash deferred tax expense of 7,400,000 dollars Moving to the full fiscal year. For the full fiscal year, total revenue was $24,000,000 a 49% decrease from fiscal 2023 revenues of 46,700,000 dollars Hardware revenues decreased 61 percent to $16,700,000 compared to fiscal 2023, which benefited from $22,000,000 of revenue from a program of record that was completed last year.
Richard Danforth, CEO, Genesis Inc.: Thank you, Brian, and welcome, everyone. As Dennis will detail shortly, from a financial results standpoint, fiscal 2024 was extremely disappointing.
Brian Alger, SVP, Investor Relations and Corporate Development, Genesis Inc.: That's wrong.
Richard Danforth, CEO, Genesis Inc.: While our software results tracked largely in line with our expectations, weak hardware revenues in the Q4 and throughout the year are resulting in Ready
Brian Alger, SVP, Investor Relations and Corporate Development, Genesis Inc.: to read, Richard. Sure.
Dennis Klahn, CFO, Genesis Inc.: For the full fiscal year, gross margins were 42
Teleconference Operator: Mr. Alger, the floor is now yours.
Brian Alger, SVP, Investor Relations and Corporate Development, Genesis Inc.: Hi, everyone. Sorry about that. We obviously had some mistakes with the splicing of the recording. Dennis is going to pick up where we are leaving off. Dennis, can you go ahead?
Dennis Klahn, CFO, Genesis Inc.: Thanks, Brian. I'll start. With the full fiscal year, total revenue was $24,000,000 a 49% decrease from fiscal 2023 revenues of $46,700,000 Hardware revenues decreased 61% to $16,700,000 compared to fiscal 2023, which benefited from $22,000,000 of revenue from a program of record that was completed last year. This was partially offset by a 93% increase in software revenue, which included the addition of EVERTEL known as Connect and significant new customers that went live this year, including Los Angeles County, San Diego County, Santa Barbara County and the states of Oregon and New Hampshire. On the full fiscal year, gross margins were 42.4%.
So overall gross margins were negatively impacted by the depressed hardware contribution, software gross margins improved throughout fiscal 2024. On the full fiscal year, operating expenses grew $4,200,000 to $36,900,000 The year over year increase is largely due to incremental spending on professional services and the addition of EVERTEL. For the full fiscal year, our 24 GAAP operating loss was $26,700,000 compared to fiscal 2023's $11,000,000 operating loss. Fiscal 2024 adjusted EBITDA was a negative $22,100,000 compared to last year's negative $6,700,000 GAAP net loss for fiscal 2024 was $31,700,000 including $5,400,000 of other expense. Other expense includes expenses related to securing the term loan, interest expense and non cash expense for changes in the valuation of the warrants associated with the term loan and related interest.
The fiscal 2023 GAAP net loss was $18,400,000 including the $7,400,000 deferred tax valuation allowance. Moving to the balance sheet. Cash, cash equivalents and marketable securities totaled $13,100,000 as of September 30, 2024 compared with $10,100,000 as of the prior year end. Cash used in operating activities in the fiscal year was $19,500,000 Net cash provided by financing activities, including the equity offering in October of 2023 and the senior secured debt financing in May of 2024 was $23,900,000 As Richard mentioned, in the 1st 2 months of fiscal year 2025, the company received the deposit on the 1st group of dams in Puerto Rico. In addition, we invoiced the customer for the deposit on the second group of dams.
With our current backlog, including our starting software ARR of 8,300,000 dollars and the strong hardware bookings in fiscal 2024, we are substantially better positioned than we were just a year ago. Our recurring software revenue growth will likely moderate from the triple digit levels of fiscal 2024, we do expect continued improvement throughout the year. Having the hardware backlog that we do, we are confident that we will deliver substantial growth on the full year. That said, timing of purchase orders, grants and uncertainty pertaining to the installation process in Puerto Rico prevent specific financial guidance. Now Richard will make some closing remarks before we open the call for Q and A.
Richard Danforth, CEO, Genesis Inc.: Richard? Thank you, Dennis. As Dennis just detailed, fiscal 2024 was very disappointing year on a financial basis. We started fiscal 2024 with less than $7,000,000 in total backlog. We were able to book and bill $17,000,000 of business in the year, but this was still way short of our expectation and it was reflected in the bottom line results for the year.
Compared to this time last year, our business is looking dramatically better. In fiscal 2024, we booked $111,000,000 in new business. Our 12 month backlog is $40 plus 1,000,000 and we expect additional bookings and resulting revenue throughout the year. Our software business is starting fiscal 2025 with an ARR of $8,300,000 plus large contracts that have already been awarded but not yet contributing revenues. It is worth noting again that the Genesis Protect software enabled the $73,000,000 in hardware related bookings in Puerto Rico.
We expect that software will continue to drive hardware sales. In summary, Genesis is starting fiscal 2025 with tremendous momentum, aggressively moving to take advantage of our position. We are excited to deliver results that rewards the support shareholders have afforded us. I also want to thank the entire Genesis team for its steadfast commitment to delivering a larger, more balanced global business with increasingly predictable revenues and profitability. Now, I would like to open up the call for Q and A.
Operator?
Teleconference Operator: Thank And we'll take our first question from Scott Searle from ROTH Capital. Please go ahead, Scott.
Scott Searle, Analyst, ROTH Capital: Hey, good afternoon. Thanks for taking my questions. Nice to see the progress on the PREPA front in terms of moving into the 3rd group. Maybe along those lines, Richard, could you give some more color? I know you had some comments around PREPA, but the timeline of when we should start to expect the 1st revenue contribution, is that in the March quarter given what you're seeing right now?
And when would you expect to see some of the deposits and coming in, I guess, on the 3rd grouping?
Richard Danforth, CEO, Genesis Inc.: Yes. March quarter is a reasonable expectation, Scott. And Dennis mentioned, we've invoiced for the 2nd group. The 3rd group will be invoicing for shortly. And the 4th and 5th are scheduled out and I think Dennis, the 4th is scheduled out in this fiscal year as well.
Dennis Klahn, CFO, Genesis Inc.: Towards the end of it.
Richard Danforth, CEO, Genesis Inc.: Yes, towards the end of the year.
Scott Searle, Analyst, ROTH Capital: Got you. Helpful. And just in terms of the lead times, I'm wondering if you could talk us through some of the elements now that are presenting some of the headwinds. And once you get into a cadence, how should we be thinking about the progress? How quickly you can be installing dams?
Richard Danforth, CEO, Genesis Inc.: Yes, that's still a bit unknown. There's a lot of variabilities once you get on the island. I would look at it this way, Scott. All of the equipment to support our obligations in Puerto Rico, Almost all of that is going to come right through here. So that's really the easy part of this.
And it's also where most of the money is. The installation process is complicated. There's 5 different owners of the 37 dams, including private owners and municipalities, the water company, the electric company, the Puerto Rico Department of Natural and Environmental Resources, and all of them have certain challenges. So I'm going to defer to directly answer your question until we get a little more experience with these 5 different owners. Everybody I will say is anxious to get going and get this done as soon as possible.
Scott Searle, Analyst, ROTH Capital: Sure, Drew. Let me ask you on that front though, because the dams were sort of an initial entry point to some potentially larger opportunities, not just for that infrastructure, but other infrastructure throughout the island. Has there been any progress on that front? Or have you guys been just so occupied with trying to advance the existing PREPA contract?
Richard Danforth, CEO, Genesis Inc.: No, we expect an RFP for additional hardware on an unrelated application later this fiscal year.
Scott Searle, Analyst, ROTH Capital: Got you. And then maybe shifting over to Kuros, I know you had some comments on the call. I'm wondering if you expect resolution or revenue at some point this year and just how the current functionality of the existing government and continuing resolution issues are impacting you or not impacting you?
Richard Danforth, CEO, Genesis Inc.: Now the current CER has no impact, Scott, at this time. As you recall, the current fiscal year 2024's federal budget wasn't passed until the March timeframe of last year. And that's in my opinion, where we're headed this year. The incoming administration seems to be more friendly towards defense. So that leaves us optimistic.
Scott Searle, Analyst, ROTH Capital: Got you. And lastly, if I could, you had some comments about EVERTEL or Connect now. I'm wondering if there are any other metrics that you guys are willing to share on the front. You're talking about ARR broadly speaking on the recurring side of the business, but are there a number of users or subscribers with our first responders and public safety on the Avotel front that you guys would talk about or help us size that business since you guys have acquired it? Thanks.
Brian Alger, SVP, Investor Relations and Corporate Development, Genesis Inc.: Yes. Thanks, Scott. So the customer count continues to grow. I think the last number we gave you was a little over 400. There's a huge variance in terms of the size of those customers.
At the largest size, obviously, we have Oregon with the entire state as a customer, right? And then that goes down to your really small law enforcement agencies that might only have 1 or 2 sworn officers that have a software license at $5 a month, right? So the size of the customers vary and therefore your average revenue per customer is quite different. Also your traditional metrics per CAC and the timing are all over the place. We need to get to more scale before we can start giving you numbers that matter, but we are tracking those and certainly from a customer account and from an ARR standpoint, they're trending in the right direction.
Scott Searle, Analyst, ROTH Capital: Okay, helpful. And maybe one more if I could then on the ARR front, you're at $8,300,000 you've won some other business that hasn't started to contribute yet. I'm wondering if there's a number you feel comfortable with exiting fiscal 'twenty five in terms of what that ARR number will look like? Thanks.
: Yes, we have
Richard Danforth, CEO, Genesis Inc.: plans, Scott, and expectations based on bookings and go lives of where the ARR will end up in 2025. We haven't shared that with anybody at this time, but we continue to expect to see significant growth in our SaaS business. The pipeline is very good. The closure rates are very good. There's a great deal of optimism in the SaaS side of the world.
Scott Searle, Analyst, ROTH Capital: Great, thanks. I'll get back in the queue.
Teleconference Operator: Thank you. And we'll take our next question from Ed Woo from Ascendiant Capital. Please go ahead, Ed.
: Yes, congratulations on all your progress. As you guys start to collect from the Puerto Rico contract, which will be a lot of money and your balance sheet is very strong right now, is it time that you guys considering potential acquisitions and what does the acquisition landscape look like right now?
Richard Danforth, CEO, Genesis Inc.: Ed, we don't have any current plans for acquisition and I think you know this, but all of our acquisitions have been opportunistic. If we come by something that looks like it to significantly add to our product offering, our software offering, and the price is right, then we'll deal with it at that time.
: Do you feel that you guys are in a good shape if they're opportunistic based on completing the integrations of your prior acquisitions?
Richard Danforth, CEO, Genesis Inc.: The integrations are complete. So there's no ongoing integration. There's always software development going on as you know. We operate as Genesis as one company.
: Great. Thanks for answering my questions and I wish you guys good luck.
Dennis Klahn, CFO, Genesis Inc.: Thank you.
Teleconference Operator: And we'll take our next question from Mike Latimore from Northland Capital. Please go ahead, Mike.
Vijay Devar, Analyst, Northland Capital: Yes. Hi. This is Vijay Devar for Mike Latimore. Good quarter. A couple of quick questions.
On the PREPA, could you just tell me how much is PREPA in your overall backlog as of now?
Brian Alger, SVP, Investor Relations and Corporate Development, Genesis Inc.: We're not breaking that down right now. It is obviously the biggest portion of that $40,000,000 in backlog. Also included in there as a sizable portion is the ARR of 8.3 in terms of software, but we're not going to give you a breakdown on the backlog today.
Vijay Devar, Analyst, Northland Capital: Understood. And yes, I think you're not giving the exit ARR for software for the fiscal year 2025. But do you have any plans for increasing your software sales force for the next year?
Richard Danforth, CEO, Genesis Inc.: We do. We have been increasing our software SaaS software sales team throughout fiscal 2024. And I think we have 5 or 6 additional open reqs that we are endeavoring to fill.
Vijay Devar, Analyst, Northland Capital: Got it.
Dennis Klahn, CFO, Genesis Inc.: Yes. Thank you. And there
Teleconference Operator: are no further questions at this time. I'd like to turn the floor back to Brian Alger for closing remarks.
Brian Alger, SVP, Investor Relations and Corporate Development, Genesis Inc.: Great. Thank you, everyone. Appreciate your attendance. And we look forward to speaking with you again after the next quarterly conference call in early February. Good evening.
Teleconference Operator: Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.
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