Welcome everyone and thank you for joining today's Genasys Inc. Fiscal First Quarter 2026 Conference Call. As a reminder, all phone lines are in a muted or listen-only mode to reduce background noise. Later, you will have the opportunity to ask questions in our question-and-answer session. To signal for a question, press star and one on your telephone keypad. A reminder, today's session is being recorded. It is now my pleasure to turn the floor over to external Investor Relations representative, Mr. Clay Liolios. Welcome, sir. Good afternoon, everyone. Thank you for participating in today's conference call to discuss Genasys Inc. Fiscal First Quarter 2026 results.

Ended 12/31/2025. Joining us on today's call are the company's Chief Executive Officer, Richard S. Danforth, and Chief Financial Officer, Cassandra Hernandez-Monteon. Before we begin, let me remind everyone of the company's safe harbor disclaimer. Certain portions of our comments today will concern future expectations, plans, and prospects of the company that constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements containing verbs such as aims, anticipates, estimates, expects, believes, intends, plans, predicts, will, may, continue, projects, or targets, and negatives of these words and similar words or expressions. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements. Factors that could affect our actual results include, among others, those that are discussed under the heading Risk Factors in our most recent filed reports with the SEC, including our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. In addition, this call includes discussions of certain non-GAAP financial measures, including adjusted EBITDA. The most directly comparable GAAP measures and reconciliations for non-GAAP measures are available in the earnings release and other documents posted to the company's website under Investor Relations. A replay of the webcast will be available approximately four hours after the presentation through the conference call link on the Events and Presentations page of the company's website. With that, I would now like to turn the call over to Genasys' CEO, Richard S. Danforth.

Thank you, Clay, and welcome, everyone. In the 2026, we built on the strong foundation laid in the back half of fiscal year 2025. We delivered a record quarterly revenue of $17,100,000 and executed several key initiatives. The first of these was the appointment of Cassandra Hernandez-Monteon as a full-time Chief Financial Officer. Cassandra brings eight years of experience at Genasys, having most recently served as interim CFO. Before that, as Vice President of Finance, Cassandra strengthens our financial operations, advances strategic initiatives, and helps navigate the company through significant growth and transformation. Her comprehensive understanding of our business, consistent leadership, and dedication to excellence makes her an ideal fit for this position. We are confident she will continue to provide strong financial stewardship while supporting our long-term vision. Congratulations, Cassandra. Another significant milestone was the full repayment of our $4,000,000 term loan, which we completed while still maintaining a strong cash position of $10,300,000 at the end of the quarter. This action aligns with the objectives we previously communicated and marks meaningful progress in improving our balance sheet and flexibility. Now for an update on our hardware business and the significant momentum we are experiencing. Our LRAD systems continue to gain substantial traction both domestically and internationally, with growing demand across multiple regions and applications. On the international front, we are seeing increased interest and expanded demand build across the Middle Eastern and Asian markets throughout the year. The versatility of our LRADs has attracted attention across diverse use cases, from crowd management and public safety to border security and critical infrastructure protection. Recent real-world deployments have generated valuable third-party validation. News coverage of our products performing exactly as intended, such as in Minnesota, where LRADs were used to safely disperse crowds while simultaneously providing clear communication to inform…

Richard, thank you for the kind words earlier. And I am looking forward to working alongside this team and contributing to the company's continued growth. Now for the first quarter's results. In the 2026, Genasys generated $17,100,000 in revenue, up 146% year over year. Hardware revenues grew roughly 220% from the year-ago period. This included $9,600,000 in contribution from the Puerto Rico project. Total software revenue remained flat at $2,300,000 compared to the year-ago period. That said, sequentially, software revenues increased roughly 5%, and we continue to see strong long-term potential in our offerings. Gross profit margins improved 48% or 220 basis points from the year-ago period. This improvement is primarily due to product mix. Moving forward, we do expect annualized gross margins to be roughly 50%. Operating expenses for the quarter were $8,100,000, a 6% decrease from 2025. The decrease in operating expenses was primarily due to the cost reduction initiatives Genasys completed in 2025. On a GAAP basis, operating loss was negative $400,000 compared to an operating loss of negative $5,900,000 in the prior year. This improvement was primarily due to significant increase in revenue from a year-ago period. Adjusted EBITDA, which excludes non-cash stock compensation, was a positive $700,000 compared to an adjusted EBITDA loss of negative $4,800,000 in the year-ago period. GAAP net loss in the first quarter was negative $800,000 compared to a GAAP net loss of $4,100,000 in 2025. Now to the balance sheet. As Richard mentioned earlier, we ended 12/31/2025 with $10,300,000 in cash, cash equivalents, and marketable securities. During the quarter, we retired the $4,000,000 term loan as planned, and our current cash position reflects the strength of our operating performance. Based on our cash forecast and anticipated cash flows, the company believes it has sufficient capital to serve its debt obligations. The 2026 marked a strong start to the fiscal year. We delivered solid results that set a positive foundation for the remainder of the year. For fiscal 2026, we continue to expect both operating and net income profitability while expanding our margins towards an annualized rate of 50%. We are encouraged by our progress but remain focused on the work. Our priorities center on enhancing operational efficiency and maintaining disciplined cost management as we scale revenues. We are committed to sustaining this momentum and executing our strategic plan to drive long-term profitable growth. Richard, back to you.

Thank you, Cassandra. The first quarter was an encouraging start to fiscal 2026, highlighted by record revenue and marked by continued execution and milestones. Genasys operates at a critical intersection of public and emergency communication in a world where the need for these solutions continues to intensify. We have seen growing demand for our products and services across the globe as governments, organizations, and communities recognize the essential role that reliable communication plays during emergencies and critical events. Looking ahead in fiscal year 2026, we remain confident in our ability to deliver meaningful year-over-year revenue growth while expanding annualized gross margins to 50%. We also expect to achieve both operating income and GAAP net income profitability for the full year. This is an incredibly exciting time for Genasys. Our focus remains on driving brand awareness, expanding our market presence, executing on the significant opportunities in front of us, and ultimately delivering value for our shareholders as we build a stronger, more profitable company. Before moving to Q&A, I would like to take a second to thank all of our employees, partners, customers, and shareholders for your support and trust. With that, we would like to open up the call for Q&A. Operator?

Mr. Danforth, thank you. And to our audience joining today, once again, that is star and one if you would like to ask a question at this time. Pressing star and one will place your line into a queue, and I will open your lines one at a time, and you will be invited to share your questions. We will hear first from the line of Scott Wallace Searle at ROTH Capital.

Hey, good afternoon. Thanks for taking the questions. Nice to see the continued progress on PREPA and it sounds like CROWS is getting ready flow out the door as well. Richard, maybe just to start, could you talk about visibility in the immediate quarter? You referenced the government slowdown. How is that impacting payments and deployment schedules in the current quarter? So as we think about sequentially how revenues progressed, particularly on the PREPA front, and if that is impacted CROWS at all, maybe that is just a starting point in terms of what you are seeing near term.

Sure, Scott. So I mentioned in my remarks, have a 57,000,000 or $8,000,000 backlog. So that certainly insulates us from you know, the budget uncertainties that we have seen in the federal government. From a CROWS perspective, the defense budget for FY 2026 was finally passed. It is unlikely we will see the addition the FY '26 CROWS award in our fiscal year '26. It is just not enough time on the clock left. But I mean, that could happen. But I would not count on that. But again, our backlog, Scott, certainly insulates us significantly.

Gotcha. And Richard, I think that there were a couple of larger deals out there that you had talked about in the past, a larger early warning system, I think, in Latin America. Wondering if there are any updates on that, as well as I think there were some larger naval opportunities that were starting to crop up in the European theater.

Thanks. Now there are several opportunities we are pursuing in Europe from a navy perspective. I think you know, Scott, we have sold units now to the German Navy, the Spanish Navy, the Canadian Navy, the French Navy, and there are three other programs that we are pursuing with European navies that I believe will come to fruition in the next couple of quarters. In my remarks, I did talk about the Middle East, and that has historically not been a great market for us. But we expect to close a couple of very good orders here in the relative short term that I think will be significant for the company.

And Richard, if I could, one last one. On the software front, I think there were some other contracts that had been delayed, SaaS opportunities in municipalities and otherwise, have been delayed in the last couple of quarters. Are those starting now to catch up? And I think you referenced some other deals. I think you said that there were two larger federal contracts out there. I am wondering if you could give us maybe frame the size and the opportunity and timing around some of that. Thanks.

Scott, in my remarks, I mentioned that we are in contracting for five counties and cities and two federal agencies. So they have moved from where they were the last time we spoke, which was very uncertain, to we are working to close them as we speak.

Great. Thanks so much. I will get back in the queue.

Okay. Thank you.

Our next question will come from the line of Edward Moon Woo from Ascendant Capital. Please go ahead. Your line is open.

Yes. Congratulations on the quarter. And also on your backlog or your pipeline, you mentioned that it is very robust, and it has been very strong. Have you seen any changes in the sales cycle that is making it possibly added to your pipeline growing? Or is this has the sales cycle changed at all since, you know, last year?

At the sales cycle, as I mentioned in the last quarter, because of grants being frozen in the federal government, the sales cycle got longer. Now that has begun to get somewhat better, which you know, my remarks talked about what we have in the contracting phase now between counties, cities, and federal government. So I would say it is been longer because of that freezing of funds, but it is starting to thaw.

Great. And my question is also on your gross margin goals of 50%. Is that kind of your goal for this year or a longer-term goal? Because, obviously, it seems like, you know, your hardware would have lower margins, but your software will have higher margin. Do you think that they would balance each other out to kinda stay at that 50% longer term?

We believe we will be at 50% this for this full fiscal year.

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

And ladies and gentlemen, we will pause for another moment to allow our audience the opportunity to signal for a question with star and one. Also a friendly reminder that if you are joining on a speakerphone, please return to your handset to be certain that your signal reaches our equipment. We will take a follow-up from the line of Scott Wallace Searle at ROTH Capital.

Richard, two quick follow ups. On the gross margin front, I know you are targeting 50% for the year. But there is some variability in terms of where we are in the deployment phase of the different dam groups. And so I think, at the start of some of those contracts, tends to be lower gross margin before ramping up. So how are you thinking about gross margins in the immediate March and June quarters? If we start to see Group Four deploy or is that something that would take more in fiscal 2027? And the second question on the software commercial front. Historically, you guys have had some opportunities, but they have not necessarily been larger material. I am wondering if that is changing in terms of the composition of the opportunity pipeline. Is there more going on on the commercial side of the equation, both from a software standpoint and a hardware standpoint? Thanks.

Well, it is definitely still a software, Scott. Definitely still focused in SLED. I will say that deal sizes that we are focused on this year are significantly higher than what we have been focusing, what we had historically focused on. So almost all of the ones we are pursuing, Scott, are needle movers for our SaaS business. In terms of the hardware business, we have seen, you know, an uptick in inquiries and demands largely driven by the events that are going on in the United States and elsewhere that federal agencies in particular are requiring additional LRADs. So we have not booked anything yet with that regard, but we are working on it. And from the gross margin perspective, Scott, you are right. Mix has a lot to do with the gross margin number. I would counsel that 50% is where we expect to be for the year, and so some, like this first quarter, was down a little to that number. And next quarter will probably make up for that.

Great. Thanks so much.

Welcome.

And we will take our next question today from the line of Lloyd Quarton—I am sorry. I believe we lost our caller. Mr. Danforth, I will turn it back to you rather, sir, for any additional or closing remarks that you have.

Well, thank you. Thank you all for attending the meeting, and as you have further questions, just reach out to Clay and myself. Thank you all.

Ladies and gentlemen, this does conclude today's teleconference and we thank you all for your participation. You may now disconnect your lines, and have a great day.