Good day, ladies and gentlemen, and welcome to the Genasys Inc. Fiscal Third Quarter 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. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Brian Alger, SVP of Investor Relations and Corporate Development. Welcome, Brian. The floor is yours.

Thank you, and good afternoon, everyone. Welcome to Genasys’ third quarter fiscal 2024 fiscal financial results conference call I’m Brian Alger, SVP of Investor Relations and Corporate Development for Genasys. The earnings release should be hitting momentarily. For those of you looking for the financials, you can reference our 10-Q, which is already on file at the SEC website under EDGAR under the company’s ticker. We’ll be discussing the results on the call and hopefully the earnings release will hit momentarily. 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 section of the company’s Form 10-K for the fiscal year-ended September 30, 2023. Other than statements of historical facts, forward-looking statements made on this call are based only on information and management’s expectations as of today, August 6, 2024. We explicitly disclaim any intent or obligation to update these forward-looking statements, except as otherwise specifically stated. We will also discuss non-GAAP financial measures and operational metrics, including adjusted EBITDA, bookings and backlog, which we believe provide helpful information to investors with respect to evaluating the company’s performance. For reconciliation of adjusted EBITDA to GAAP financial metrics, please see the table in the press release issued by the company at the close of the market today. We consider bookings and backlog leading indicators of future revenues and use these metrics to support production planning. Bookings is an internal operational metric that measures the total dollar value of customer purchase orders executed in a given period, regardless of timing of the related revenue recognition. Backlog is a measure of purchase orders that are received and scheduled to ship within the next 12 months. Finally, a replay of this call will be available in approximately four hours through the Investor Relations website – company’s website sorry. At this time, it’s my pleasure to turn the call over to Genasys’ CEO, Richard Danforth. Richard?

Thank you, Brian, and welcome everyone. I am in Puerto Rico working through the final items for the PREPA agreement. As we finalize the contract negotiations and with documentation largely out of the way, we now look forward to moving into the implementation phase of the project. To recap, the Puerto Rico Dam project is fully funded by FEMA and is expected to result in $75 million worth of revenue for Genasys. Importantly, cash inflows will precede revenue recognition. While timing of precise revenue recognition is not yet known, we do expect to recognize most of the revenues in our fiscal 2025 and 2026. The significance of the Puerto Rico Early Warning System goes beyond the favorable financial implication. This project is the most significant and public demonstration of how Genasys protects software is able to unlock and enable much larger hardware opportunities. With a growing pipeline of critical infrastructure protection opportunities, we believe the Puerto Rico Dam project is just the beginning of Genasys is realizing a significant return on the deliberate software investments we have made over the past three years. Since our last earnings call, we announced further EVAC coverage in California with the addition of Santa Barbara County and the activation of San Diego County. Tragically, 2024 is shaping up to have another intense fire season with many of our customers throughout the western U.S. actively using our system as I speak today. Importantly, Genasys Protect EVAC is helping emergency managers and first responders across the country plan for and manage evacuations much more efficiently and safely. In Northern California, the nearly two-week old park fire is only 35% contained and has burned over 400,000 acres and more than 600 structures have been destroyed. Thankfully, the residents have been able to get out of harm’s way…

Thank you, Richard. In the third quarter, we continued to see strength in our software business with year-over-year growth of 120%, recurring revenues growing 138% over the same time period. Revenues for the third quarter of this fiscal year were $7.2 million, a decrease of 50% over the prior year’s third quarter revenue, which benefited from approximately $8.6 million from the prior program of record completed in 2023. Excluding the Army Program of Record sales in the June quarter of 2023 fiscal Q3 2024, hardware sales increased 8% year-over-year. Software revenue this quarter was $2.1 million, reflecting 138% annual growth in recurring revenues. More than offsetting that growth, hardware revenue decreased 62% to $5.1 million. It is important to remember that Genasys started fiscal 2024 with exceptionally low hardware backlog. Excluding the program of record completed in 2023 hardware bookings in the first nine months of the fiscal year 2024 are up over 40%. Within those bookings, international hardware bookings are up approximately 117% over the same time frame. Gross profit margin was 53% in the fiscal third quarter, a six percentage point improvement, largely due to the mix of revenue in this year’s quarter. Gross profit declined $2.9 million from the prior year period due to lower hardware revenue partially offset by the improved software revenue. Quarterly operating expenses were $9.1 million, up 12% from $8.1 million in the third quarter of fiscal 2023. SG&A increased 11%, while R&D increased 17% over the prior year period, the difference being largely attributable to the addition of Evertel related expenses. On a GAAP basis, our third fiscal quarter operating loss was $5.4 million compared to a loss of $1.4 million in the year ago quarter. Adjusted EBITDA, which excludes non-cash stock compensation, was a negative $4.3 million compared to last year’s…

Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] And we’ll take our first question from Mike Latimore from Northland Capital. Please go ahead, Mike.

Hey. Hi, this is Vijay Devar for Mike Latimore. Yes, look at the press release. I just have this sub now the 10-Q open in front of me. If you could quickly talk about the Puerto Rico project once again, I think I missed a little bit. In terms of the visibility and the revenue expected for this fiscal year.

We’re not in a position to give guidance at this point, which is consistent with what we discussed in the last quarter.

Okay. And in terms of the ARR, do you have any visibility into what will be the exit ARR for the year ending, let’s say fiscal year 2025?

Our expectation is that it will at least be double last year’s.

And in terms of the hardware bookings, we expect a healthy hardware bookings quarter in the fourth quarter.

Richard, do you want to take that? I have lost Richard. Yes. The expectation for bookings in the fourth quarter of this fiscal year is expected to be exceptionally strong. With the inclusion of Puerto Rico, of course, we expect that negotiation to conclude rapidly and for the orders from Puerto Rico to be added to our backlog as we exit this fiscal year. Excluding the Puerto Rico opportunity. However, as both Dennis and Richard said, international is seeing a significant uptick from the prior year, up 117% for the first three quarters of this year. That’s an important recovery for us, as since COVID international bookings have been exceptionally weak. And to see that come back and diversify our revenue base has been encouraging.

Okay. All right. And a little hypothetical question. If you were to kind of enter recession. I mean tough to argue, but if we enter a recession, what do you think in terms of the impact on the demand or the timing of deployments?

Brian, I’ll take that. I don’t see that a significant recession is going to have a big difference in our business. Our best revenue years occurred during COVID. So we’re very resilient.

All right. Yes, I think I’m good. Thank you. Thanks a lot.

[Operator Instructions] And we’ll take our next question from Scott Searle from Roth Capital. Please go ahead, Scott.

Good afternoon. Thanks for taking my questions. I apologize I’m a little late to the call, so I hope I’m not redundant, but I just want to dive in Rich quickly on PREPA. We’ve got the approvals. It sounds like it’s still a little fluid at the current time. I’m wondering, as we get into the December quarter, what’s the cadence of the number of dams per quarter that we should be thinking about?

I can’t comment on that yet. What I said in the remarks, Scott, was that we expect most of the revenue for the Puerto Rico order to occur in our 2025 and 2026. And the granularity of by dam, we need more work with PREPA before we can comment on that.

Okay, fair enough. And then, on CROWS as well, it sounds like that is also starting to ramp up for an impact in 2025. I’m wondering if you could frame the size, kind of the worst case scenario, best case scenario of what that contract could look like and how we should think about it on an annualized basis going forward beyond 2025?

To answer the last one first, I think sizing it on a go forward basis of $10 million to $15 million a year is reasonable. And the FY 2024 budget, defense budget for the AHD for CROWS, there’s $15 million in that budget for that.

Okay, great. And lastly, if I could, we continue to see weather related events, whether it’s wildfires in California, hurricanes, tornadoes, et cetera, that continue to increase as well as then other first person shooter events. So is there a way, have you been quantifying the pipeline of opportunities for CONNECT and EVAC? Is there some way that you could help us understand the magnitude of the opportunity there, be it in terms of pop coverage, subs or otherwise? Thanks.

I don’t think we’ll put that data out, Brian, or Dennis, if you could help me with that.

Yes, Scott, we’ve talked about this before, where the opportunity set and the TAM of the opportunity becomes very hard to calculate because in many cases we’re selling to the same population base multiple times. The example that we’ve used often is the case of Berkeley. Right. Where we have the University of California at Berkeley. We have the town of Berkeley, California, and we have the county of Alameda County, all buying each of our software solutions as well as our acoustics, hardware systems. And against that same population base, you see a very large revenue contribution. Right. It’s very different from the early customer that we might have, say, where we’re opening up a new territory like, say, in Colorado, where we maybe are only selling to that group with the EVAC solution today. Our intention, of course, is to sell all of our suite and to sell the hardware, equipment as well. In aggregate, you’re talking hundreds of millions of dollars for our Genasys Protect software suite. But when you look at critical infrastructure, as Puerto Rico illustrates, it’s a much bigger number on a global basis, billions of dollars for critical infrastructure protection.

Thanks. That’s very helpful, Brian. And if I could just follow up with Everbridge being acquired by Thoma Bravo, I think it closed in the last several weeks. I’m wondering how that’s impacting the competitive landscape, if at all, I know they’d shifted their focus more towards the enterprise side of the equation. So I’m wondering what you’re seeing in general and then what you’re seeing in terms of some of the enterprise opportunities for Genasys? Thanks.

Scott. You’re right. Everbridge, I think, focuses more on enterprise than state and local government, and our focus on state and local government. So I don’t see any impact right now as consequence of their acquisition.

Great, thanks.

[Operator Instructions] And next, we’ll take a question from Ed Woo from Ascendiant Capital. Please go ahead, Ed.

Yes, thank you. And following up on the prior question, what is your pipeline international look like?

It’s been growing significantly, and as I mentioned, and I think Brian mentioned that for the first time since COVID we expect, to be back to levels of bookings from international customers to reach more normal levels that were pre pandemic, and we expect to do that this year.

Great. Well, thank you for answering my question, and I wish you guys good luck. Thank you.

Thank you.

And we’ll take any follow up questions at this time. Okay. I’d like to turn the floor back over to Brian Alger for closing remarks.

Great. Thank you, everyone, for tuning in tonight. And again, apologies for the delayed release, which is on the wires at this point in time. Look forward to meeting with all of you over the next couple of months, and we look forward to presenting our fourth quarter and financial, fiscal full year results in early December. Thank you and good night.

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.