Genasys Inc. (GNSS) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen, and welcome to Today's Genasys Financial First Quarter 2021 Conference Call. All lines are in listen-only mode. It is my pleasure now to turn the floor over to Satya Chillara. Satya, the floor is yours. Satya Chillara: Thank you. Thank you, Dagmar . 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. Dennis Klahn: 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. Afterward, 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 then 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. Richard Danforth: 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 first 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 periods 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 at $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. Satya Chillara: Operator? Operator: Thank you. The floor is now open for questions. Our first question comes from Mike Latimore. Please state your question. Mike Latimore: Hey, guys. The bookings look very strong there. Congratulations on that. So I just wanted to touch on a little bit of I guess, first is European trial. I think you said it was complete. 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: Next step would be RFPs and they are in process now, Mike. Mike Latimore: Okay. Then you also said you responded to -- I think you said multiple country RFPs. Are you responding to a country specifically? Or is it countries and M&Os? Are you seeing sort everybody wanting cell broadcast and SMS? Or are some wanting one or the other to start? Richard Danforth: Several countries as well as network operators within those countries, frontend and backend SMS and cell broadcast -- all of the above. Mike Latimore: Okay. And when you say country, do you mean a government entity within the country? Or the mobile operator in the country? Richard Danforth: No, it will be the government entity for the frontend and the mobile operators for the backend. Mike Latimore: Okay, all right. Great. And then are they giving you any indication on how long before they make some decisions? Richard Danforth: They are stating that it could be within the next couple of months, but like always, they take longer than anybody ever expects. Mike Latimore: And is that a little bit more near term than you -- I think originally, you're talking about mid-year or maybe second half of the year? So is that a little bit sooner than expected? Richard Danforth: It is, but I'm going to stick with what I said before, Mike. I think the principal of revenue will begin in our Fiscal 2022. Mike Latimore: Sure. Okay. And then just last on the salesforce 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: Yes. So far in our second quarter we've added five additional and we still have more to go. Mike Latimore: Okay. And the hiring, do you think it will be complete in the next couple of quarters then? Richard Danforth: Yes. Mike Latimore: Okay. Got it. All right, thank you, Richard Danforth: You're welcome. Satya Chillara: Thank you, Mike. Operator, next call, please. Operator: Our next question comes from Ed Woo with a Ascendiant Capital. Please state your question. Edward Woo: Yes, thank you. My question is on the Amika acquisition. Have you guys feel like you had fully-integrated the team and sales people? Richard Danforth: Edward Woo: Great. And then, you did mention that you guys are still on the hunt for additional acquisitions. How does the M&A opportunities market valuation out there looking? Richard Danforth: I think there is 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. Edward Woo: Great. And then my last question, you mentioned that results, big order at the right at the end of the quarter that got pushed out, a part of it was due to new normal with the pandemic. Is that something we should be expecting for the next couple of quarters as well? Richard Danforth: No. It can happen, but this was a particularly complicated transaction in a foreign country Edward Woo: All right, great. Well, thanks for the color and wish you guys, good luck. Thank you. Richard Danforth: Thanks. Satya Chillara: Thank you, Ed. Operator, next call please. Operator: Okay. Our next question comes from Ryan MacWilliams with Stephens Inc. Please state your question. Ryan MacWilliams: 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 the demand for emergency communications in these markets could actually be stronger this year versus last year? Richard Danforth: They already are stronger, Ryan. And to your first question, we're seeing cities, counties, enterprise, private enterprise, business, colleges, townships, municipalities and large businesses. Ryan MacWilliams: That's great. And then are you more in demand in the U.S. and Canada? -- perfect. And then, are you seeing more demand from these large enterprises as their workforces are now remote? 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: 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 in 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: Excellent. Yes. I definitely think duty of care for those more distributed 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 and the backend at the same time? Or do you think the backend is generally still going to be a separate bidding process with the mobile network operator? Richard Danforth: It will absolutely be a second bidding process. So, there will be an RFP for the frontend from the country government and then whether it's location-based SMS, or cell broadcast, it would be the individual carriers. Ryan MacWilliams: And do you think those -- with 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 before then or the deal in place to implement the system before then? Richard Danforth: I don't believe the June 2022 deadline is going to be met, Ryan. 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 the first, at least the first half of next year. So, it's going to be a late 2022-2023 kind of notional implementation process. Ryan MacWilliams: Perfect. And then last question from me -- and thanks for the time again -- is I'd 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 get your thought process on some of those new offices opening up and like why you think of public warning as a global opportunity? Thanks. Richard Danforth: 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 and office banking capabilities in the region and a presence that it can reach out to the customer base despite the pandemic and the multiple time zone differences that we face, adds -- it just adds in our ability to close on public safety systems. 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: Excellent. Appreciate the color, Thanks guys. Satya Chillara: Thank you, Ryan. Next call. Yes, go ahead please. Operator: Our next question comes from Rick Neaton with Rivershore Investments. Please state your question. Rick Neaton: Hi, good afternoon, gentlemen. Most of my questions have been asked and answered, but in looking at the prospective exponential increases in opportunities in Emergency Management, in the software as a service, where we should be looking at these in the 2022 through 2024? Is that the timeframe we should be looking at for this exponential increase? Richard Danforth: Yes. Rick Neaton: Okay. Thanks. Everything else has been asked, and answered and covered in your prepared remarks. So, thank you for being so thorough Richard Danforth: You're welcome. Satya Chillara: Thanks, Rick. Rick Neaton: You're welcome. Satya Chillara: Next call please. Operator: Okay. Our next question comes from Robert Smith from the Center for Performance. Please state your question. Robert Smith: Yes. All right, good afternoon. Thanks for taking my questions. Looking at the EU-mandated opportunity, is there a way to come up with a figure as to what the total market possibility is there? Opportunity? Richard Danforth: 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: Okay, thank you. So, your comments about the year that touched upon top-line revenue, but there is no comment about the bottom line, so to speak. Is that a reflection of a margin question? Or you don't want to say anything about them? Richard Danforth: We expect our gross margins to be in-line with historical averages for year-over-year. We expect in our experience and that I've 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 2021 than it was in 2020. We still expect the company to record record-revenues, be profitable and a be positive cash generator in our Fiscal 2021. Robert Smith: Okay, thanks so much. Richard Danforth: Okay. Operator: Okay. And our next question comes from Lloyd Korten with Unique Investment. State your question. Lloyd Korten: Yes. Hi, gentlemen. Just one question. The comment you just made on what's out there publicly on the size of potential market, can you tell me what that number is? Richard Danforth: No. I'll point you to where to go to find it and it's out there. Even Ryan was talking earlier as published things on that size of that market. Lloyd Korten: Where do I go for it? Richard Danforth: Lloyd, I will point out point you to a site that will have it. I just don't have that if I was sitting here right now but I'll send it to you. Lloyd Korten: Thank you so much. Bye. Richard Danforth: Bye. Operator: Okay. Our next question comes from Will Hamilton with Manatuck Hill. Please state your question. Will Hamilton: Hey guys. Just a question on the salesforce. 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: Different depending on the flavor of products 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: Right. How many of the 20 you've hired or so are dedicated towards Europe versus U.S. or other markets? Richard Danforth: The 16 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: Okay. 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 during first half-second half? Richard Danforth: It will be similar to that, Will. Will Hamilton: Okay, thank you. Richard Danforth: You're welcome. Operator: Okay. And it doesn't look like we have any further questions. Unidentified Analyst: Bruce Carnegie and I have a question about the Navy Research contract. Could you give us a little information about that? Richard Danforth: Sure, Bruce. We competed in one for our Phase I SBIR with the United States Navy to do some Research on next generation Long Range Acoustic Device technology. Unidentified Analyst: Is there a payment associated with that? How does it go forward? Richard Danforth: The first phase is approximately a $240,000 development project. There will be an evaluation and reports submitted by us to the Navy. The Navy will then make a decision to go onto a Phase II SBIR. The limits on Phase II SBIRs are right around $1 million and if it gets through Phase II and moves on to Phase III, it's at a point where the product will be commercialized. Unidentified Analyst: Great. Richard Danforth: And the IT is owned by the company. Unidentified Analyst: Great, thank you, Richard. Great, thank you. Richard Danforth: You're welcome. Operator: Okay. We have a question from Robert Smith. Please state your question. Robert Smith: Just thought, if this contract has not been pushed into the subsequent quarter, what might the numbers have looked like for the reporting period? Richard Danforth: Dennis? Dennis Klahn: The revenue would have been flat compared to the prior year and it would have been significant. The loss would have been probably cut in half or a little bit more than that. Robert Smith: Okay, thank you. Satya Chillara: Dagmar, that's all the time we have right now. Operator: Okay. There are no further questions, I will turn the call back over to the speaker for any closing remarks. Richard Danforth: 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: Thank you, this concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time and have a great day.GNSS Ratings Summary
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Genasys Inc Shares Dropped 14% Despite Strong Q4 Results
Genasys Inc. (NASDAQ:GNSS) shares closed more than 14% lower on Tuesday, despite the company’s reported strong Q4 results, with record revenue of $15 million, which represents an 8% year-over-year growth. The revenue came in better than the consensus estimate of $14.23 million. Backlog grew to $36.1 million. Management remains very bullish on its software revenue growth outlook, expecting 50% growth in 2022.
The reason for the sharp decline in the stock price is probably the management’s note on rising prices and growing lead times for its components into 2022, and the company’s plans on passing this price increase to its commercial customers. Given a tightening in the supply chain in Q4, visibility for 2022 sales and bookings are trending lower.
