Genasys Inc. Common Stock (GNSS) Q1 2021 Earnings Call Transcript

Genasys Inc. Common Stock (NASDAQ: GNSS)
Q1 2021 Earnings Call
Feb 09, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to today's Genasys financial first-quarter 2021 conference call. [Operator instructions] It is my pleasure now to turn the floor over to Satya Chillara. Sir, the floor is yours.

Satya Chillara -- Investor Relations Officer

Thank you. Thank you, Dagma. Good afternoon, everyone. Welcome to Genasys' fiscal first-quarter 2021 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 the statements of historical facts, statements made during this call that are forward-looking statements are based on 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 the consequences of COVID-19 outbreak 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 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 2020. 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 four hours through the investor relations page on our website. At this time, it's my pleasure to turn over the floor to Genasys' CFO, Dennis Klahn.

Dennis?

Dennis Klahn -- Chief Financial Officer

Thank you, Satya, and welcome, everyone. I will open today's call with a recap of the fiscal first-quarter 2021 financial results. Richard will then provide an update on the business. Afterwards, we will open the call for questions.

Revenues for the first quarter of fiscal 2021 were $8 million, down from $8.8 million in the prior year quarter due to the delayed shipment of an order because the customer required payment had not yet been received prior to the quarter end. Had the payment been made on time, revenue would have been essentially in line with Q1 of the prior year. The delayed payment was subsequently received and the order shipped in early January. Gross profit was $3.7 million or 46.1% of revenue.

Gross profit decreased from the first quarter in fiscal 2020 due to lower hardware shipments, a 95% increase in software engineering personnel over last year from the recent addition of Amika Mobile and additional employees to support the Australia, European Union and enterprise software initiatives. And additional engineering charges resulting from a more precise process to charge engineering expenses to cost of sales. Excluding this additional cost, gross profit as a percentage of sales would have been 51% compared with 52.4% in the prior year. Operating expenses were $4.4 million, an increase from $3.9 million in the same period a year ago.

The growth was largely due to a 50% increase in sales and marketing personnel over the prior year period to support future revenue growth opportunities. Net loss for the quarter was $600,000 or $0.02 per share compared with net income of $600,000 or $0.02 per share in the first quarter of fiscal 2020. The change was due primarily to the lower revenue and increased engineering, sales and marketing expenses. We generated $1.3 million in cash from operating activities in spite of the lower revenue and increased operating expenses.

Our balance sheet remains strong. Cash, cash equivalents and marketable securities totaled $27.5 million on December 31, 2020, down from $31.4 million on September 30, 2020, principally due to the acquisition of Amika Mobile. Working capital totaled $25.6 million on December 31, 2020, compared to $29.8 million on September 30, 2020. With that, I'd like to turn the call over to Richard.

Richard Danforth -- Chief Executive Officer

Thank you, Dennis, and good afternoon to everybody on the call. During our last call, I mentioned that despite record revenues in fiscal year 2020, bookings had been impacted by the worldwide pandemic as governments, communities and businesses were adapting to the new normal. We saw this play out as fiscal 2021 quarter bookings were a record $12.2 million, 43% higher than the first six months of fiscal 2020. Backlog at December 31, 2020, was $21.5 million, down slightly from the period fiscal year's quarter.

A strong business pipeline, bookings and expected backlog in the fiscal second quarter, positioned the company for another year of record revenues. Last quarter, we completed the acquisition of Amika Mobile, booked a $5.1 million U.S. Army follow-on order, successfully completed an EU public warning system initiative pilot program for a large European country and responded to RFPs from several European countries and experienced a surge in software business activity in North America, giving us a strong start to fiscal 2021. To help meet the growing domestic and international demand for Genasys systems and solutions, we have added 16 more people to our sales force in the last four quarters.

Stood up international offices in Singapore and Dubai and appointed business development professionals with extensive regional sales experience in the Asia Pacific, the Middle East, Africa, Central Asia and Latin America. The technology and personal investment we continue to make a significantly increasing business opportunities for Genasys mass messaging software, enterprise safety and emergency management software and integrated solutions. Many of these opportunities include governments and communities that are moving ahead with planned emergency warning initiatives to better protect citizens and workers as part of a reopening and adjusting to the new normal. Our Australian emergency alerting awards and the pandemic have increased interest and awareness of the national emergency warning solution for the European Union national public warning system directive.

RFPs are under way as many EU member states plan to allocate EU COVID funds to fulfill the directive that mandates that every EU country implemented public warning system that can send emergency alerts to the mobile phones of residents and visitors alike. We are currently participating in several RFPs with multiple countries and mobile network operators, and recently completed a successful pilot program with a large EU country and its mobile telecom providers. The pilot program demonstrated our NEWS, cell broadcast, location-based SMS, Genasys speaker arrays and performance across 2G, 3G, 4G and 5G networks. To give some additional content around these opportunities, there are between two and five mobile network operators per EU member state, all of which will likely deploy a software platform similar to NEWS that features SMS, cell broadcast or a combination of both.

The integration and rollout of our enterprise safety software is quickly progressing. Government agencies and business enterprises are evaluating software systems that help ensure the safety and productivity of the many staff members and employees that continue to work from home. Many agencies and businesses are adapting to and even encouraging this growing work-from-home trend. In addition to professional sports teams, stadiums, Canadian and U.S.

government agencies, and large North American companies who currently use Genasys software, we are working to close multiyear recurring revenue contracts with cities, universities and additional government agencies and businesses in several U.S. states and Canada. While the enterprise safety software market forecast to grow exponentially this decade, Genasys is in an extremely strong position to win first time contracts and replace license renewals with our unified multichannel solutions. After approving our emergency management software and implementing integrated safety systems in Laguna Beach, Mill Valley and Newport Beach over the last two years, we are now on track to land additional integrated solutions contracts.

In addition to the ongoing expansion of Laguna Beach's citywide early warning system and enhancing the installation in Mill Valley and Newport Beach, contracts from other cities and communities in California and elsewhere are expected this fiscal year. We are also competing for integrated software and hardware contracts that include national tsunami and earthquake early warning systems, regional public safety systems, and visitor contact tracking for areas with large tourism-based economies. As the only provider of a unified platform that includes emergency management software, industry-leading voice broadcast speaker arrays and multichannel alerting solutions, we anticipate substantial growth in this emerging area of our business. While much uncertainty related to COVID-19 remains, to date, we have managed through the disruptions caused by this worldwide pandemic.

Genasys team members around the world continue to do terrific work and moving our key business initiatives forward, despite many of them continuing to work from home due to the local COVID restrictions. Our manufacturing facility remains open, and fulfilling orders for our essential communication systems that help keep people safe. This fiscal year, we are continuing to pursue additional synergistic acquisitions as part of our strategy to expand the company's business, grow revenues and maximize shareholder value. We also anticipate several integrated public safety mass notification system awards and another large U.S.

Army program of record award for the LRAD 450XLs. Our multiyear contracts and awards in Australia and the many recent and expected request for proposals from the European Union initiative and from North America for our enterprise software solutions, have us well positioned for a record software bookings and revenue. In summary, I'm very optimistic about the future and the growing software and hardware business opportunities, with record fiscal first quarter bookings and strong bookings and backlog growth expected in our fiscal second quarter, Genasys is on pace for another year of record revenues. With that, I'll turn the call back over to the operator for Q&A.

Operator?

Questions & Answers:

Operator

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

Mike Latimore -- Northland Securities -- Analyst

The bookings look very strong there. Congratulations on that. So I just wanted to touch on a little bit of first the European trial. I think you said it was complete.

I guess, any more color that you can provide there? What would be the next step? And if so, when would that next step be?

Richard Danforth -- Chief Executive Officer

Next step would be RFPs, and they're in process now, Mike.

Mike Latimore -- Northland Securities -- Analyst

OK. Then you also said you responded to, I think, you said, multiple country RFPs. I guess, are you responding to country specifically? Or is it countries and MNOs? And then kind of are you seeing sort of everybody wanting cell broadcast and SMS or are some wanting kind of one or the other to start?

Richard Danforth -- Chief Executive Officer

Several countries, as well as network operators within those countries, front end and back end, SMS and cell broadcast, all of the above.

Mike Latimore -- Northland Securities -- Analyst

OK. And when you say country, do you mean a government entity within the country or the mobile operator in the country?

Richard Danforth -- Chief Executive Officer

No, it will be the government entity for the front end and the mobile operators for the back end.

Mike Latimore -- Northland Securities -- Analyst

OK. All right. Great. And then are they giving you any indication on how long before they make some decisions?

Richard Danforth -- Chief Executive Officer

They are. They are stating that it could be within the next couple of months, but like all these things, they take longer than anybody ever expects.

Mike Latimore -- Northland Securities -- Analyst

And is that a little bit more near-term than you. I think originally, you were talking about, I think, midyear or maybe second half of the year. So is that a little bit sooner than expected?

Richard Danforth -- Chief Executive Officer

It is, but I'm going to stick with what I said before, Mike. I think the principal revenue will begin in our fiscal 2022.

Mike Latimore -- Northland Securities -- Analyst

Sure, sure. OK. And then just last on the sales force hires. I think you said you've added 16 people, I can't remember.

Is there more to go beyond that? And if so, when do you think that will be done?

Richard Danforth -- Chief Executive Officer

Yes. So far in our second quarter, we've added five additional, and we still have more to go.

Mike Latimore -- Northland Securities -- Analyst

OK. And the hirings you think will be complete in the next couple of quarters then?

Richard Danforth -- Chief Executive Officer

Yes.

Mike Latimore -- Northland Securities -- Analyst

Thank you.

Operator

Our next question comes from Ed Woo with Ascendiant Capital. Please state your question.

Ed Woo -- Ascendiant Capital -- Analyst

My question is on the Amika acquisition. Have you guys feel like you guys have fully integrated the team and the salespeople?

Richard Danforth -- Chief Executive Officer

Yes, the team and the salespeople we have, Ed, we're still completing the integration of the software platforms, and that will continue throughout this fiscal year. But yes, the sales team is integrated and the engineering team are integrated.

Ed Woo -- Ascendiant Capital -- Analyst

Great. And then you did mention that you guys are still on the hunt for additional acquisitions. How is the M&A opportunities, market valuation out there looking?

Richard Danforth -- Chief Executive Officer

I think there's plenty out there, Ed. As you're well aware, the companies that operate in the SaaS market, the multiple demands are very high. So that's the challenge we face through all of this, if we're going to buy in the SaaS world.

Ed Woo -- Ascendiant Capital -- Analyst

All right. Great. And then my last question, you mentioned that there was a big order right at the end of the quarter that got pushed out. And part of it was due to new normal to the pandemic.

Is that something we should be expecting for the next couple of quarters as well?

Richard Danforth -- Chief Executive Officer

No. It can happen, but this was a particularly complicated transaction in a foreign country.

Ed Woo -- Ascendiant Capital -- Analyst

All right. Great. Thanks for the color. Wish you guys good luck.

Thank you.

Operator

Our next question comes from Ryan MacWilliams with Stephens, Inc. Please state your question.

Ryan MacWilliams -- Stephens, Inc. -- Analyst

Questions. So just on the software side of the house, can you talk about some of the conversations you're having in the enterprise, along with the state and local market? And do you think demand for emergency communications in these markets could actually be stronger this year versus last year?

Richard Danforth -- Chief Executive Officer

I do. I think they already are stronger, Ryan. And to your first question, we're seeing cities, counties, enterprise, private enterprise business, colleges, townships, so municipalities and large businesses.

Ryan MacWilliams -- Stephens, Inc. -- Analyst

That's great. And then are you seeing more demand in the U.S. and Canada? And then are you seeing more demand from these large enterprises as their workforces are now remote? Like do they feel a need for a new solution to protect their employees now that those employees are more distributed and not in a central hub or headquarters?

Richard Danforth -- Chief Executive Officer

Yes. That's absolutely driving demand. So two things are happening in the industry. There's still a great deal of people that are working from home or working partially from home and partially from in the office on different days and different shifts within days.

So the coordination of all of that is something that the enterprise is looking for, and we're doing our best to prosecute the opportunities.

Ryan MacWilliams -- Stephens, Inc. -- Analyst

Excellent. Yes, I definitely think duty of care for those more attribute employees is going to be a theme this year. I have two questions on public warning, if you don't mind. Just to start, as you're having these conversations for public warning systems, generally, are you bidding on the front end and the back end at the same time? Or do you think the back end is generally still going to be a separate bidding process with the mobile network operator?

Richard Danforth -- Chief Executive Officer

It will absolutely be a second bidding process. So there'll be an RFP for the front end, from the country government. And whether it's location-based SMS or cell broadcast, it would be the individual carriers.

Ryan MacWilliams -- Stephens, Inc. -- Analyst

And do you think those mobile network operator discussions, they could follow through beyond the June 2022 deadline. It's just the countries that really need to have the system in place beforehand or a deal in place to implement the system beforehand?

Richard Danforth -- Chief Executive Officer

I don't believe the June 2022 deadline is going to be met, Ryan. I mean it was probably unrealistic to begin with and then you throw the worldwide pandemic, and it only moves things to the right. So I think while we have begun to see the RFPs flow, and I think we'll see that all through at least the first half of next year. So it's going to be late 2022, 2023 kind of notional implementation process.

Ryan MacWilliams -- Stephens, Inc. -- Analyst

Perfect. And last question for me is I like to see that you're expanding your sales distribution globally. But in many countries that aren't covered under this EU opportunity. I just wanted to hear your thought process on some of those new offices opening up and like, why you think of public warning as a global opportunity?

Richard Danforth -- Chief Executive Officer

I've mentioned this on the prior call, I believe. But in terms of international business development, historically, we had conducted that from here in the United States. Having a global presence, an office banking capabilities in the region and a presence that can reach out to the customer base despite the pandemic and the multiple time zone differences that we face, it just adds in our ability to close on public safety systems. So I see increases in public safety systems from both the integrated systems like Laguna Beach and others as well as the SMS and cell broadcast in both the Asia Pacific and the Middle East regions, particularly.

So I think, Ryan, it's just following the track of increased demand for public safety systems around the world.

Ryan MacWilliams -- Stephens, Inc. -- Analyst

Excellent.

Operator

Our next question comes from Rick Neaton with Rivershore Investments. Please state your question.

Rick Neaton -- Rivershore Investments -- Analyst

Hi good afternoon gentlemen. Most of my questions have been asked and answered, but in looking at the prospect of exponential increases and opportunities in emergency management and software as a service, where we should be looking at these in 2022 through 2024, is that the time frame we should be looking at, for this exponential increase?

Richard Danforth -- Chief Executive Officer

Yes. Yes.

Rick Neaton -- Rivershore Investments -- Analyst

OK. Everything else has been asked answered and covered in your prepared remarks. So thank you for being so thorough.

Operator

Our next question comes from Robert Smith from The Center for Performing Arts. Please state your question.

Robert Smith -- The Center for Performing Arts

Yes. Looking at the EU mandate opportunity, is there a way to come up with a figure as to what the total market possibility is there opportunity?

Richard Danforth -- Chief Executive Officer

There is, Robert, but I have not commented on that publicly. It would lead to potential pricing disclosures. There is public data that's out there that gives an opinion on the overall size of the market in the EU.

Robert Smith -- The Center for Performing Arts

OK. And so your comments about the year, touch upon top line revenue, but there's no comment about the bottom line, so to speak. Is that a reflection of a margin question or just that you don't want to say anything about them?

Richard Danforth -- Chief Executive Officer

No, I'd be happy to say something. We expect our gross margins to be in line with historical averages for year over year. We expect and our experience, and I have been talking about it for several quarters that we are experiencing an increase in expenses associated with, particularly sales and marketing to support our growth initiatives. And that expense will be higher in our fiscal '21 than it was in 2020.

We still expect the company to record revenues, be profitable and the positive cash generator in our fiscal 2020.

Robert Smith -- The Center for Performing Arts

OK. Thanks.

Richard Danforth -- Chief Executive Officer

OK.

Operator

OK. And our next question comes from Lloyd Korten with Unique Investments. Please state your question.

Lloyd Korten -- Unique Investments -- Analyst

Hi gentlemen, just one question. The comment you just made on the what's out there publicly on the size of the potential market. Can you tell me what that number is?

Richard Danforth -- Chief Executive Officer

No. I will point you to where to go to find it. And it's out there. Even Ryan was talking earlier, has published things on that size of that market.

Lloyd Korten -- Unique Investments -- Analyst

Where do I go for it?

Richard Danforth -- Chief Executive Officer

Lloyd, I will point you to a site that will have it. I just don't have that info sitting here right now, but I'll send it to you.

Lloyd Korten -- Unique Investments -- Analyst

Thank you so much. Bye.

Richard Danforth -- Chief Executive Officer

Bye.

Operator

OK. Our next question comes from Will Hamilton with Manatuck Hill. Please state your question.

Will Hamilton -- Manatuck Hill Partners -- Analyst

Hey guys. Just a question on the sales force. Can you give us a sense as to what are the productivity targets for reps that you hire? I mean, obviously, not in year one, but once they mature, what kind of revenue do you expect these guys or women to bring in?

Richard Danforth -- Chief Executive Officer

Different, depending on the flavor of product systems and software they're selling. So it's much different in Europe for the EU initiative than it is in the enterprise market here in the U.S. I won't give you a specific number, Will, but I'll tell you that the EU initiatives by country is in the millions. And you can get a small city here in the United States or Canada for $25,000.

So it's all over the map.

Will Hamilton -- Manatuck Hill Partners -- Analyst

Right. How many of the 20 you've hired or so are dedicated toward Europe versus U.S. or other markets?

Richard Danforth -- Chief Executive Officer

There are sixteen we hired last year, Dennis has a chart included, five in Europe. And of the 16, therefore 11, would be in the enterprise suite here in the U.S., and that includes the three or so that joined us as part of the acquisition.

Will Hamilton -- Manatuck Hill Partners -- Analyst

OK. And then one question just on cadence of revenue. I think previously, you talked about maybe a 40-60 split this year. Correct me if wrong, but is that what you're still thinking in terms of the cadence of the revenue between first half, second half?

Richard Danforth -- Chief Executive Officer

It will be similar to that, Will.

Will Hamilton -- Manatuck Hill Partners -- Analyst

Good. Thank you.

Richard Danforth -- Chief Executive Officer

Welcome.

Operator

OK. And it doesn't look like we have any further questions. [Operator instructions]

Unknown speaker

Bruce. And I have a question about the Navy research contract. Could you give us a little information about that?

Richard Danforth -- Chief Executive Officer

Sure, Bruce. So we competed in one for a Phase-1 SBIR with the United States Navy to do some research on next-generation long-range acoustic device technology.

Unknown speaker

Is there a payment associated with that? Or how does it go forward?

Richard Danforth -- Chief Executive Officer

Yes. The first phase is approximately a $240,000 development project. There'll be an evaluation and reports submitted by us to the Navy. The Navy will then make a decision to go on to a Phase-2 SBIR.

The limits on Phase-2 SBIRs are right around $1 million. And if it gets through Phase-2 and moves on to Phase-3, it's at a point where the product will be commercialized. And then I think it would be owned by the company.

Unknown speaker

Thank you.

Richard Danforth -- Chief Executive Officer

You're welcome.

Operator

[Operator instructions]. We have a question from Robert Smith. Please state your question.

Robert Smith -- The Center for Performing Arts

Yes. Just a thought, if this contract had not been pushed into the subsequent quarter, what might the numbers have looked like for the reporting period?

Richard Danforth -- Chief Executive Officer

Dennis?

Dennis Klahn -- Chief Financial Officer

So revenue would have been flat compared to the prior year, and it would have been significant loss would have been probably cut in half or a little bit more than that.

Satya Chillara -- Investor Relations Officer

That's all the time we have right now.

Operator

OK. There are no further questions. I'll turn the call back over to the speaker for any closing remarks.

Richard Danforth -- Chief Executive Officer

Thank you. 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 fiscal 2021 second-quarter results.

Operator

[Operator signoff]

Duration: 33 minutes

Call participants:

Satya Chillara -- Investor Relations Officer

Dennis Klahn -- Chief Financial Officer

Richard Danforth -- Chief Executive Officer

Mike Latimore -- Northland Securities -- Analyst

Ed Woo -- Ascendiant Capital -- Analyst

Ryan MacWilliams -- Stephens, Inc. -- Analyst

Rick Neaton -- Rivershore Investments -- Analyst

Robert Smith -- The Center for Performing Arts

Lloyd Korten -- Unique Investments -- Analyst

Will Hamilton -- Manatuck Hill Partners -- Analyst

Unknown speaker

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