Genasys - Earnings Call - Q1 2025

Executive Summary

• Q1 FY2025 showed clear sequential and year-over-year improvement: revenue rose 59% YoY to $6.9M, gross margin expanded to 45.8% (from 33.9% YoY; 40.8% in Q4), operating loss narrowed to ($5.9M), and GAAP EPS improved to ($0.09) from ($0.15) YoY and ($0.26) QoQ.
• Backlog remains ~$40M, with ARR at $8.8M; management expects Puerto Rico EWS revenue to begin in Q2 (March quarter) with a larger ramp in the June quarter and a heavier H2 contribution under percentage-of-completion accounting, driving the 2025 inflection narrative.
• Los Angeles wildfires were a high-profile proof point for Genasys Protect; management cited unprecedented inbound interest that should convert into bookings over “the next several months,” a potential catalyst for software and hardware demand.
• Cash and marketable securities increased to $13.9M, aided by ~$8.3M in deposits received for the first Puerto Rico dam group (plus $2.2M post-quarter), though supply chain lead times remain the primary gating factor for installation timing.
• No formal numeric guidance was provided; qualitative outlook maintained: sequential improvement in software revenues and ARR through FY2025 (at slower rates than FY2024), with revenue recognition weighted to H2 as PR EWS progresses.

What Went Well and What Went Wrong

What Went Well

• Gross margin expanded to 45.8% (vs. 33.9% YoY; 40.8% QoQ) on higher hardware volume (better overhead absorption) and ~9ppt YoY improvement in software margins; adjusted EBITDA improved to ($4.8M) from ($6.1M) YoY and ($6.0M) QoQ.
• Puerto Rico execution advanced: ~$8.3M deposit received in-quarter and $2.2M post-quarter; first milestone completed (50kW generator), with initial revenue recognition expected in Q2 and a larger step-up in the June quarter under POC accounting.
• LA County incident showcased platform scale and performance, with “over 183,000 requests per second” processed at peak and “app users jumped 5x” in January, driving “unprecedented” inbound interest that management expects to convert to bookings.

Quotes:

• “Fiscal 2025 is rapidly shaping up to be a year of dramatic improvement.” — CEO Richard Danforth.
• “Initial revenues will be recorded this quarter with more significant revenue recognition coming in the June quarter...” — CFO Dennis Klahn.
• “Genasys servers were processing over 183,000 requests per second.” — CEO Richard Danforth.

What Went Wrong

• No numeric guidance; timing remains uncertain due to long lead-time materials; management highlighted that delivery schedules are the primary determinant for installation commencement.
• Supply chain constraints persist; management is “managing through” but acknowledged gating effects on project timelines, reinforcing H2 revenue weighting.
• Operating expenses rose YoY (to $9.1M vs. $8.7M) driven by SG&A (professional services tied to Puerto Rico); profitability still negative though losses narrowed QoQ.

Transcript

Operator (participant)

Good day, ladies and gentlemen, and welcome to the Genasys Fiscal Q1 2025 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.

Brian Alger (SVP of Investor Relations and Corporate Development)

Good afternoon. Welcome to Genasys' Fiscal 2025 Q1 Results Conference Call. I am Brian Alger, SVP, Investor Relations and Corporate Development for Genasys. 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-K for the fiscal year ended September 30th, 2024.

Other than statements of historical facts, forward-looking statements made on this call are based on the information and management's expectations as of today, February 11th, 2025. 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 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 a customer's purchase orders executed in a given period, 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 the company's website. Now, at this time, it's my pleasure to turn the call over to Genasys' CEO, Richard Danforth. Richard?

Richard Danforth (CEO)

Thank you, Brian, and welcome, everyone. We are pleased to report that Fiscal 2025 is off to a good start, substantially better than the prior year's quarter. Before we get into the results of the quarter, I want to spend some time discussing Genasys' involvement and role during January's historic fires in Southern California. These fires made national and international news. I am sure that all of you are aware that in the second week of January, Los Angeles County experienced a dangerous but not uncommon weather event, creating very high winds combined with extremely low humidity. Days before anything occurred, notices were issued by various weather services, and as a result, we and our customers were ready. What did happen, however, was far greater than anything previously experienced.

Several different fires ignited across the county, requiring an unprecedented amount of coordination and communication across a plethora of agencies. The sheer scale of the response was unprecedented. Emergency teams across the Western United States descended upon Los Angeles as part of a comprehensive mutual aid engagement to fight the fires and keep people safe. What stood out was not just the scale of the fires, but the technological advancements that enabled first responders from across Southern California and beyond to work together. Unfortunately, fast-moving and devastating wildfires are not uncommon. We can all recall the images from the Paradise, Tubbs, and Lahaina fires, all driven by very high winds devastating communities near urban interface areas.

The lesson learned from those prior tragedies led to Genasys developing in Los Angeles County to purchase our Genasys Protect solution. Though the images of the devastation to the homes and properties of the communities across Los Angeles County are eerily similar to Paradise, Glen Ellen, and Lahaina, what is demonstrably different is the toll on human life. Utilizing Genasys Protect, L.A. County and its partners successfully safely evacuated hundreds of thousands of citizens. Without question, countless lives were saved through the timely use of the Genasys Protect platform. As we all know, the fire events of Los Angeles lasted for several days, and over the course of that time, emergency managers and first responders were in continuous communication with the community.

Over 400 zone status changes were communicated over just two weeks. Throughout the countywide event, Genasys personnel were on-site, sitting side by side with county, state, and federal emergency management. Lessons learned from this extreme experience are being implemented in the Genasys Protect development and customer success protocols. From a platform standpoint, Genasys Protect proved to be incredibly resilient, scaling up capacity orders of magnitude during peak traffic. At one point, Genasys servers were processing over 183,000 requests per second, and Genasys' website drew more than 2 million active users in the month of January, and the number of Genasys app users jumped 5x during that month.

Not only did Genasys enable emergency managers to get the word out, but Genasys also continuously informed the hundreds of thousands of impacted residents, families, and loved ones around the country with the official and most accurate information on the fires and the impacted zones. It is impossible to overstate how proud we are of the team and the performance of Genasys Protect in such a critical and high-profile event.

Recently, at the California Fire Chiefs Operational Technology Summit, where fire operations chiefs from across the state joined emerging technology partners servicing fire and EMS industries with the goal of improving operations and firefighter safety, Genasys presented a minute-by-minute account of the response and communication by San Diego County for the Bernardo Fire two weeks ago. We were able to show the logs from our software that confirmed an incredibly fast response. Residents received evacuation warnings and orders in less than eight minutes after first responders arrived on scene. In rapidly changing emergencies, where time of response equates to lives at risk, the speed and accuracy of the notifications that the Genasys Protect platform provides enables first responders to accomplish their primary mission of protecting the community and saving lives.

While Genasys was supporting customers in Southern California in January, we were also making meaningful headway with the project in Puerto Rico. When we last spoke, we had received the first deposit of approximately $8 million, and recently, we have received the second deposit of $2 million, and we have received written approval of the design on the third group of dams. Procurement of hardware is well underway, and our engineers are working with local teams to coordinate the installation of various components on the first two groups. Importantly, we recently completed a first major milestone, the provisioning of a 50 kW generator. As a result, our first revenues for Puerto Rico will be recorded in our second fiscal quarter. The December quarter results largely reflect the year-on-year improvement on hardware backlog and software ARR.

Importantly, both gross margins and operating expenses improved sequentially. In the quarter, we realized an increase in gross profit of $400,000 and a decrease in operating expenses of $770,000. Looking forward over the balance of this fiscal year, we expect to see continued improvement in both our Hardware and Software business. While the Puerto Rico project is certainly going to drive the greatest impact, international law enforcement demand for our traditional LRAD products continues to rebound towards pre-COVID levels. Additionally, the value proposition of acoustics for critical infrastructure protection and public safety is becoming increasingly more apparent and is significantly expanding our pipeline for opportunities.

Finally, our work with the U.S. Department of Defense across the branches continues to be robust. Recently, we received a follow-on order for two mobile communication trailers for the United States Army, and we are regularly supporting the United States Navy with spares and equipment. We continue to see progress with the AHD-CROWS program. As most of you are aware, funding was put in place for this in FY24 and is yet to be put under contract. I am certain the program will get underway and expect the timing of the award to become more clear in the coming months.

In summary, Fiscal 2025 is steadily ramping up, and we are eager to realize the acceleration in our business over the next several months. Beyond 2025, the outlook continues to improve with a broadening pipeline and increased visibility and predictability coming from our software offerings. Now, I'll turn the call over to Dennis to go through the financial and outlook in greater detail. Dennis.

Dennis Klahn (CFO)

Thank you, Richard. In the Q1 of fiscal 2025, we generated significant revenue growth over the prior year quarter. In the Q1 of fiscal 2025, recurring software revenue increased 69% year-over-year. Total software revenue in the quarter grew 64% year-over-year, including from an additional Genasys ALERT order from Los Angeles County. Hardware revenue grew 57% year-over-year. Gross profit margin was 45.8% in the December quarter, up nearly 12 percentage points versus the year-ago period. This quarter's results reflect the benefit of higher revenue in both the Hardware and Software segments and a favorable mix of revenue this quarter. Software margins continue to increase as a percentage of sales as recurring Software revenue increases, plus Hardware this quarter reflects a two percentage point benefit from a sale through a favorable sales channel.

Conversely, last year's quarter included an order that was a two-point drag on the margin. Quarterly operating expenses were $9.1 million this quarter versus $8.7 million in last year's Q1. The primary increase was in SG&A for professional services, including planning-related costs related to the Puerto Rico project. We anticipate quarterly operating expenses will be similar or slightly higher throughout the remainder of this fiscal year. On a GAAP basis, our first fiscal quarter operating loss was $5.9 million compared to an operating loss of $7.2 million in the year-ago quarter. Adjusted EBITDA, which excludes non-cash stock compensation, was a negative $4.8 million, a significant improvement from the negative $6 million in the Q1 of fiscal 2024.

GAAP net loss in this fiscal year's Q1 was $4.1 million, including $2.2 million of other income related to the quarterly adjustment to the fair value of warrants issued with the term loan last May. This compares to the net loss of $6.7 million in Fiscal 2024's Q1. Cash, cash equivalents, and marketable securities totaled $13.9 million as of December 31, 2024, compared with $13.1 million as of the prior fiscal year-end. Cash provided by operating activities in the Q1 of this fiscal year was $900,000, including an $8 million deposit received for the first group of dams in Puerto Rico. Subsequent to the end of the quarter, we received a second deposit for $2.1 million. Recently, we received written approval for the designs on the third group of dams. The expected deposit for the third group is nearly $11 million.

We will receive the remaining 40% of the purchase price upon a customer acceptance of each of the 19 dams in these three groups. Now, I'd like to update everyone on our current expectations for how the project in Puerto Rico will flow through the financials. As we have seen, the cash for the group deposits are being received in advance of the work on each group of dams. This is allowing us to procure the necessary inventory and materials to deliver against the installation and implementation plans of each group. Our current expectation is that we will utilize the percentage of completion methodology for revenue recognition on the most significant elements of the Puerto Rico project.

As Richard indicated, we've achieved our first milestones with the project, and initial revenues will be recorded this quarter, with more significant revenue recognition coming in the June quarter when deliveries of hardware and implementation of the first group get underway. While the details of the POC accounting are still being finalized, we don't expect to recognize significant revenues until the second half of this fiscal year. Once revenue recognition begins, we anticipate a relatively steady contribution through project completion. With a backlog that has grown to $40 million, including ARR of $8.8 million, and an expanding pipeline of opportunities, Genasys' financial turnaround is well underway.

Brian Alger (SVP of Investor Relations and Corporate Development)

Thank you, Dennis. Now, Operator, we are ready to open up the call for Q&A.

Operator (participant)

Thank you. Ladies and gentlemen, the floor is now open for questions. If you do have a question, please press star one on your telephone keypad at this time. Again, that's star one if you do have a question or comment. We will take our first question from Mike Latimore from Northland Capital. Please go ahead, Mike.

Mike Latimore (Managing Director)

All right, great. Thanks very much. Yeah, maybe just a little bit more clarity on the deployment timeframes in Puerto Rico. You said a little bit more revenue, I think, in the June quarter and then bigger in the second half. I guess, how many dams do you expect to get to be deployed? Or maybe there's some other metrics that are important from a Rev Rec standpoint, but a little more detail on kind of the pattern of dam deployment this year would be great.

Richard Danforth (CEO)

Mike, the process has begun on the island. The first group will be the most challenging, of course, like every new thing. The second and third group will begin in parallel with the first one, just staggered a little bit. I think the lion's share of the revenue from the work being done on the island, we expect to substantially get through those three groups. Now, there's less than that, Mike, but that's what we're running to at this point.

Mike Latimore (Managing Director)

Okay, that makes sense. You talked about getting cash on the third group that could be $11 million eventually. Do you think you would see a cash receipt on the fourth group by fiscal year-end?

Richard Danforth (CEO)

Unlikely. It's not that we won't try, but that's a ways off, Mike, so let's answer that as we go through.

Mike Latimore (Managing Director)

Got it. You touched a little bit on the acoustic opportunity sort of generally. I guess, can you elaborate on that a little bit? Is there even opportunities for that in the L.A. area or Southern California area?

Richard Danforth (CEO)

There is. The inbound, since the fires occurred, the inbound traffic we're getting on our website through emails, TV, and all is huge. I think we'll see much more opportunities from an LRAD and a software perspective as a consequence of what's gone on in the L.A. fires.

Mike Latimore (Managing Director)

Okay. Thanks very much.

Operator (participant)

Once again, star one if you do have a question or comment. We'll take our next question from Ed Woo from Ascendiant Capital. Please go ahead, Ed.

Ed Woo (Director of Research and Senior Analyst)

Yeah, congratulations on all the progress. Did you disclose what the backlog was after the Q1?

Richard Danforth (CEO)

Dennis did. Dennis?

Dennis Klahn (CFO)

It's $40 million in hardware.

Ed Woo (Director of Research and Senior Analyst)

Okay. Thank you. My question is, as you're getting a lot more visibility, and obviously, congratulations on the success that you had during an LA fire during what was a very chaotic time. Have you noticed any increase in potential competition or people who are seeing this as a potential market to enter?

Richard Danforth (CEO)

No. No, we haven't. If that happens, Ed, it's probably a little too soon to see it, but no, we haven't.

Ed Woo (Director of Research and Senior Analyst)

All right. That's all the questions I have. Congratulations on the quarter. Thank you.

Richard Danforth (CEO)

Thank you.

Operator (participant)

As a reminder, that's star one if you do have a question or comment. We will take our next question from Scott Searle from Roth Capital. Please go ahead, Scott.

Scott Searle (Managing Director and Senior Research Analyst)

Hey, good afternoon. Thanks for taking my questions. Nice to finally start to see PREPA rolling out. Hey, Richard, maybe to start, from a high level, could you kind of help us understand the supply chain issues? There had been constraints initially with PREPA. How you guys are prepared for that now, if that is still a gating factor going forward? Just in terms of the change of administrations, is that having a positive, negative impact, or no impact in terms of not only the ability to secure business, but the ability to have funds released against those projects?

Richard Danforth (CEO)

All right, Scott, the answer to the first question is supply chain. There are issues in the supply chain. We're managing through them. Frankly, they gate our beginning, but then catch up very quickly. From a change of administrations, it will affect us. I think it's going to affect everybody, but I think the business we're in from a public safety perspective is something, and an increase in defense spending is something we're more likely to see from this administration than perhaps the past.

Scott Searle (Managing Director and Senior Research Analyst)

Okay. Maybe if I could, to follow up on the California wildfires, I guess two questions. First is, did you quantify at all the inbound opportunity in terms of what you're seeing? I'd be curious in terms of the number of counties or the number of POPs that might be represented in terms of the activity that that's created. Also, despite the very strong performance of the Genasys Protect system, if we look at past incidents, whether it was there's high-profile false alerts that occurred in Florida, same thing in the Carolinas when there were events. There was some press out about some, I guess, faulty alerts that were provided. I'm wondering if you could provide some context in terms of what happened or in terms of the magnitude of it as well.

Because unlike some other events that were relatively well contained for a shortened period of time, this went on for it's gone on for multiple weeks, right? I am wondering if you could give us some thoughts and updates on how to view those comments.

Richard Danforth (CEO)

There's been a lot of negative press, Scott, on the L.A. County's response to the fires, and I'll get back to that in a moment. But there was an alert that went out on the Genasys system, a WEA alert. The WEA alert is part of the National IPAWS system. An alert across multiple channels went out. All of them were received in the geography that was intended except the WEA channel, and that defaulted to the entire county. It was a warning. It wasn't an evacuation. In less than three minutes, it was canceled. That's what happened with Genasys. We've subsequently put a couple of software changes in place to help alleviate that from ever happening again. That was the one issue that we experienced here at Genasys.

There have been thousands of messages that have been received, in some cases, days after they were sent. All of that noise centers around the cellular infrastructure, which, like most major catastrophic events, the networks are going to be overwhelmed, and they certainly were in L.A. As to the performance of the Genasys Protect system, from a perspective of saving lives, Scott, if you look at this fire that lasted two weeks, there were seven fires, over tens of thousands of acres, over tens of thousands of homes burned to the ground. We have seen 28 or 29 loss of life. If you compare that to other fires that are much smaller and much shorter in duration and just parametrically measured what would potentially happen in L.A. County, it would likely be in the thousands.

The L.A. first responders and Office of Emergency Management did a terrific job of keeping people safe and out of harm's way. I'll remind everybody, images of people passed away and burnt in their car in recent fires and past fires. Nobody died in their car in these L.A. fires. The performance was terrific on behalf of L.A. County and the Genasys Protect platform.

Scott Searle (Managing Director and Senior Research Analyst)

Great. Very helpful. Richard, is there a way to quantify the opportunity or, I'll call it, intermediate opportunity that's arising as a result of the performance of the Genasys Protect system in terms of inbounds and otherwise? What that potentially represents as we start to think about 2026 and 2027?

Richard Danforth (CEO)

There is, Scott. I don't have that in front of me, but including in LA counties, even cities and communities want their own platform. So when the smoke clears, so to speak, I think we'll be in a better position to quantify that as we move into the next quarter.

Scott Searle (Managing Director and Senior Research Analyst)

Gotcha. Lastly, if I could, just I wanted to go back to CROWS in terms of the current expected timeline of when you could start to see resolution on that front and it starting to impact the P&L.

Richard Danforth (CEO)

Oh, that's two questions. I think there is, as I mentioned in my remarks, there are some very positive signs. The exact timing, I think, will become more evident in the coming months. Yeah, in the coming months. That's all I can really say about that for now.

Scott Searle (Managing Director and Senior Research Analyst)

Great. Very helpful. Thanks so much.

Richard Danforth (CEO)

Thank you.

Operator (participant)

Once again, that's star one if you do have a question or comment. There appear to be no further questions at this time. I'd like to turn the floor back to Brian Alger for closing remarks.

Brian Alger (SVP of Investor Relations and Corporate Development)

Great. Thank you, everyone, for participating in today's call. A replay of the call will be available on the company's website here shortly. I want to give you all a heads-up that throughout the day tomorrow, February 12th, Genasys will be participating in one-on-ones at the AGP Virtual Tech Conference. In March, on March 17th and 18th, we'll also be participating in the Annual Roth Conference in Dana Point. For additional information and up-to-date news and activity regarding Genasys, our products, and the customers we serve, we strongly recommend that you follow the company and Genasys Protect on your social networks, particularly LinkedIn and X, where we actively post and comment on events as they are happening. We look forward to speaking with you again next quarter when we report fiscal Q2 2025 results. Good night.

Operator (participant)

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect at this time and have a great day.