Earnings Call Transcript - GNSS Q4 2025

Operator, Operator

Good day, everyone, and welcome to Genasys' Fourth Quarter and Fiscal Full Year-End Results Call. At this time, I would like to hand the call over to Mr. Clay Liolios. Please go ahead, sir.

Clay Liolios, Investor Relations

Good afternoon, everyone. Thank you for participating in today's conference call to discuss Genasys' fiscal fourth quarter and full year results ended September 30, 2025. My name is Clay Liolios and I'm with the Gateway Group, the company's third-party investor relations firm. Joining us on today's call are Genasys Chief Executive Officer, Richard Danforth; and Interim Chief Financial Officer, Cassandra 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 recently 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 on the company's website under Investor Relations. Additionally, a replay of the webcast will be available approximately 4 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 Danforth. Richard?

Richard Danforth, CEO

Thank you, Clay, and welcome, everyone. We finished fiscal 2025 on a very strong note. For the first time in 7 quarters, we delivered both positive operating income and adjusted EBITDA. Additionally, we saw over 153% year-over-year revenue growth in the fourth quarter, underscored by a 50% gross margin. This success reflects the foundation we've built over the prior quarters, and we are now beginning to realize the benefits of all that work. Additionally, as of September 30, 2025, we had a backlog of more than $60 million. The close of our fiscal year was not only defined by executing on major backlog orders but by replacing them with new customers and new projects. This quarter marked a turning point for Genasys, allowing us to shift our focus towards the future and position the company for sustained growth. From an operational perspective, we believe we have rightsized, efficient, and strategically aligned to execute our existing backlog while simultaneously capturing new business opportunities. These two initiatives are also becoming increasingly synonymous. By this, I mean, as we deliver on these large projects, we earn meaningful credibility in the market, hence growing the pipeline and the brand. For example, over the past several months, we have been approached by multiple countries and government agencies expressing interest in Puerto Rico-like deployments for our technology. This strong inbound demand for similar large-scale projects not only represents a significant growth opportunity for us but also underscores the quality of our technology and its implementation. This increased credibility is opening new opportunities, growing our pipeline and further establishing us as a leader in the protective communications space. Moreover, our hardware continues to display its utility in various end markets as illustrated by several of our last announcements, including the $1 million nuclear security follow-on order and the $1 million order for wildlife preservation. There are countless applications for our products, and we are committed to driving new business and expanding access to our critical communications technologies. On the software side, we are seeing meaningful traction built across both law enforcement and government agencies. Genasys Protect is best-in-class, and we are committed to expanding this technology as demand for advanced safety and communication solutions continues to grow. In a world confronted with frequent emergencies and large-scale disasters, the need for reliable, proven protective technology has never been greater. Our solutions are recognized as industry-leading in helping agencies keep people safe, deliver clear communications, and manage critical events effectively. And as government funding begins to ramp back up, we are confident that our software solutions will be a significant beneficiary, given the critical role they play to ensure safety and operational efficiencies. Furthermore, to strengthen our reach and deepen our relationship with these agencies, we partnered with Julie Parker Communication, a leading expert in public safety communication strategy. This partnership enhances our ability to support agencies, broaden our awareness and position our software within key decision-making circles. We expect continued penetration of the software market, driven by our proprietary technology and growing customer relationships. I would now like to spend some time providing updates on our large projects, starting with Puerto Rico. As a reminder, the Puerto Rico project is a $75 million contract with PREPA and is fully funded by FEMA. The project covers 37 dams across the island, which all report into seven distinct groups. The Puerto Rico EWS project is beginning to hit its stride. In fiscal 2025, we recognized $13.2 million in revenue from this project. Looking at the next several phases, we expect the project to be completed in 2027 with the majority of the work taking place in 2026. We expect to complete groups 5 and 6 this month and are actively working on group 3 and have been approved to proceed on group 1. Next, an update on the CROWS initiative. The CROWS-AHD effort, part of the tech refresh program of record, saw our initial funding in fiscal '22 and fiscal '23. The first production funding was included in the 2024 federal budget. And following the successful completion of the design, test and qualification of the LRAD 450XL-RT, the U.S. Army issued an RFQ in July of 2025. In late September, we announced that we won the $9 million order. This marks the first production contract for AHDs under the CROWS program following the qualification of the LRAD-RT model. We expect this contract to generate multi-year revenues while enhancing CROWS operators' ability to communicate with potential threats before employing lethal force. In summary, while fiscal 2025 presented its share of challenges, the fourth quarter marked a strong and encouraging step forward, reinforcing our momentum and setting the stage for an exciting year ahead. The progress we made in these final months positions us to enter the new year with confidence and renewed energy. Before speaking on our 2026 outlook, I want to hand the call over to Cassandra to speak in more depth of the financials.

Cassandra Hernandez-Monteon, Interim CFO

Thank you, Richard, and good afternoon, everyone. We will start with the fiscal fourth quarter and then move into our full year results. In the fourth quarter of fiscal 2025, Genasys generated $17 million in revenue, up 73% sequentially and up 153% year-over-year. It is worth noting this is the largest revenue quarter in Genasys history. Gross profit margins for the quarter were 50.3%. The increase is primarily due to a more favorable hardware mix. We expect margins to normalize around 50% moving forward. Operating expenses for the quarter were $7.3 million in Q4, a 26% or $2.6 million decrease from the fourth quarter of 2024. The decrease in operating expenses is primarily due to a $1.2 million decrease in professional services and a $1 million employee tax credit. On a GAAP basis, operating income was $1.3 million compared to an operating loss of $7.1 million in the prior-year period. This is largely due to our increased revenue, of which $7.6 million came from the Puerto Rico project and $2 million from the U.S. Navy. Adjusted EBITDA, which excludes non-cash stock comp, was also positive, coming in at $2.4 million compared to an adjusted EBITDA loss of $6 million in the year-ago period. GAAP net loss in the fourth quarter was $1.4 million compared to a GAAP net loss of $11.4 million in the fourth quarter of 2024. The fourth quarter was a turning point for Genasys, as we are beginning to see the hard work and efforts of our team materialize into our financial results, and we are excited to continue this positive progress into 2026. Now shifting to the full year results. In fiscal 2025, Genasys generated $40.8 million in revenue, up roughly 70% from 2024. Hardware revenues grew over 91% in fiscal 2024. This included $13.2 million in revenue related to the Puerto Rico project. Excluding Puerto Rico, revenues from our hardware business also grew at over 12% this year, signaling strength in our other core offerings. Our products are continually garnering interest from multiple customers across the world, and we expect to continue driving similar growth in our hardware business into 2026. Total software revenue in 2025 grew 21% compared to 2024. We believe our software segments remain a large growth driver for Genasys, and as government investments pick back up, we anticipate our software programs will capture substantial upside. Gross profit margins for the year were 41.6% in fiscal 2025 compared to 42.4% in fiscal 2024. The slight decrease in gross margin was largely due to the percentage of completion accounting methodology applied to the Puerto Rico project in the first two-thirds of the year and was partially offset by a more favorable hardware mix in the fourth quarter. As mentioned earlier, we believe gross margin will stabilize at around 50% levels we witnessed in Q4. Operating expenses for the year were down roughly 8% or $3.1 million to $33.8 million in fiscal 2025. Genasys had a reduction of professional services for the year of $1.2 million, a $1 million tax credit, and a reduction of travel and marketing expenses for $800,000. On a GAAP basis, operating loss in fiscal 2025 was a negative $16.8 million compared to an operating loss of $26.7 million in fiscal 2024. This improvement was largely due to the growth in both our hardware and software revenues and was propelled by cost-cutting initiatives we implemented throughout the year. Adjusted EBITDA, which excludes non-cash stock compensation, was negative $12.4 million compared to a negative $22.1 million in fiscal 2024. GAAP net loss for the year was a negative $18.1 million compared to a negative $31.7 million in fiscal 2024. Before handing it back to Richard to speak more on the company's momentum and outlook, I did want to touch base on our balance sheet. As of September 30, 2025, cash, cash equivalents, and marketable securities totaled $8 million as of September 30, 2025, compared with $13.1 million as of September 30, 2024. Based on our current cash forecasted receipts and disbursements, the company believes we have sufficient capital to service the debt. While there is still more work and growth ahead, I am encouraged by the progress that we've made in 2025, and I am confident in our ability to deliver meaningful financial improvements in 2026. Richard, back to you.

Richard Danforth, CEO

Thank you, Cassandra. The close of fiscal 2025 laid a strong foundation for Genasys, demonstrating our ability to execute on major projects and deliver results. This momentum positions the company to enter 2026 with confidence, setting the stage for growth and new opportunities. We expect to drive significant year-over-year revenue growth in both hardware and software businesses. Additionally, we expect to deliver margins of 50% throughout the year. As we all know, the world faces no shortage of natural disasters and emergencies that demand reliable protective communication systems. Our technologies save lives across the globe. Genasys' systems are making a real difference in protecting people during some of their most vulnerable moments. The need for our products is clear, and we will continue to deliver the solutions that agencies and communities depend on to keep their citizens safe. Overall, 2025 was a pivotal year for Genasys, finishing with a significant step in the right direction. Supported by current momentum, a strong backlog, and deep customer adoption, we will enter fiscal 2026 with real excitement and a clear commitment to improving our operational and financial results while delivering meaningful value to our shareholders. Before moving over 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'd like to open up the call for Q&A.

Operator, Operator

We'll go first to Scott Searle from ROTH Capital.

Scott Searle, Analyst

Cassandra, maybe just to start, I'm not sure if I heard it, but what was Software mix in the quarter? And then, Richard, on the CROWS front, I'm wondering if we saw any contribution in the September quarter and what you're expecting in terms of linearity and follow-ons throughout the course of the year for CROWS.

Richard Danforth, CEO

I'll answer that question first, Scott. CROWS will likely be a second-half revenue generator. So all of it will likely happen in Q3 and maybe a little in Q4, but Q3 is more likely.

Cassandra Hernandez-Monteon, Interim CFO

And in Q4, our Software revenue was roughly around $2.2 million. It was pretty flat compared to last quarter, but we would expect to see an increase in revenue going forward for Software.

Scott Searle, Analyst

Got you. And Richard, just to follow up on CROWS. I think it's expected to be part of a larger decade-long contract that could be $100 million to $150 million. This is the initial order. Are you seeing visibility to the follow-ons there? And then as it relates to the pipeline, I wonder if you could discuss it a little bit more in detail. Last quarter, there were a couple of larger contracts that you called out specifically related to flooding and tsunami opportunities in international markets. I wonder if you could just provide some color in terms of size, magnitude, and timing of some of those opportunities.

Richard Danforth, CEO

Well, we haven't put size or timing on those opportunities out in the public, Scott, but none of what I mentioned last quarter from these larger opportunities has closed. One has reached a point where we submitted the proposal. One is a proposal to be submitted later this month and the third is further down than that. Relative to the CROWS question, CROWS-AHD is part of a program of record that has a line item in the defense budget. As you're well aware, in FY '25, there was no budget. It was a continuing resolution. So far in fiscal year '26, it remains another continuing resolution. The current one is expected to expire at the end of January, as I recall. With that said, Scott, the visibility into the annual awards is part of that budgeting process. So as they conclude with that, we'll know precisely what will be in there.

Scott Searle, Analyst

Got you. Maybe two quick follow-ups then, Richard. And just in terms of government engagement and opportunities in general, given the shutdown, has momentum returned on that front in terms of other RFPs domestically? Are you seeing some momentum on that front? Or how would you characterize it? And then also on the commercial front, the nuclear opportunity seems like it was a nice win. Are there other commercial or enterprise opportunities that you're starting to see build in the pipeline?

Richard Danforth, CEO

Yes to everything you said. So from an LRAD hardware perspective, Scott, we had a very good bookings quarter. You mentioned the nuclear opportunities. There's more nuclear opportunities. If we look internationally, substantial increase in opportunities in the APAC region, we expect to close some of those here shortly. In the Middle East, which historically hasn't been a great market for us, our expectations are quite keen on some significant bookings in this fiscal year. And even Europe has shown more promise from an LRAD perspective. So no is the answer to your direct question, I haven't seen a significant decrease. In fact, I've seen an increase in demand for LRADs during these current times.

Operator, Operator

The next question comes from Jarrod Cohen from JM Cohen & Company.

Jarrod Cohen, Analyst

Yes, I just have a few questions. I'll start with the different types of projects. Can you give us an idea of what type of projects might be in the pipeline? Are they similar to what you've done in Puerto Rico? Can you provide some details?

Richard Danforth, CEO

Very much so, Jarrod. Very much so. Puerto Rico, of course, as you know, is 37 dams or countries that don't actually have dams but have large numbers of basins that tend to flood. And so it's the same principles of what we're doing in Puerto Rico, just a slightly different application.

Jarrod Cohen, Analyst

Okay. This is more financially related. Could you provide an idea of what you're anticipating for revenue growth in 2026? Additionally, is there a possibility that the company will be operating profitably on a total basis by 2026?

Richard Danforth, CEO

We expect to be profitable in fiscal year '26. While we don't provide forward-looking revenue guidance, I can highlight a $60 million addressable backlog for the next 12 months as we enter this fiscal year.

Jarrod Cohen, Analyst

Okay. So on an operating basis, we are profitable, but can we still consider it a net income profit?

Richard Danforth, CEO

Yes.

Jarrod Cohen, Analyst

Okay. And my last question, just related to the Software business, you have about over 50 million users or something like that. And the Software business, I know it takes a long time to grow, and it's been up and down over the last few years. And you mentioned this past quarter it was what, you did revenue of about, what, $2.2 million or $2.3 million. When do you think that business could be basically on a breakeven-type basis in terms of cash flow-wise?

Richard Danforth, CEO

It's not going to be this year, Jarrod. As we exit the next fiscal year, I believe we have a chance to reach that point. Our pipeline has increased by over 100% compared to the same period last year. We are pursuing some significant SaaS Software opportunities that we expect to finalize this fiscal year. As you know, fiscal '25 was disappointing in terms of SaaS bookings, mainly due to issues with funding in the grant review process, which seems to be progressing now. Therefore, we have high expectations for SaaS bookings and resulting annual recurring revenue in fiscal '26.

Operator, Operator

Up next is Ed Woo from Ascendiant Capital.

Edward Woo, Analyst

Congratulations on all the progress. My question is, as you guys get more interest in your products, have you noticed any change in competition? Have you noticed any new entrants you're competing with as you pitch out these projects?

Richard Danforth, CEO

No, neither in Software or Hardware, Ed, or systems.

Edward Woo, Analyst

All right. Then my next question is, if you guys are kind of like the main player and as building these better reputations, do you see yourself having better pricing power or being able to price higher?

Richard Danforth, CEO

Within the government customer base, although we don't provide any cost and pricing data, we are required to justify any significant price increases. In some instances, we can justify a price rise, reflecting not only our costs but also improvements in profitability. However, we can't charge just anything we want. Their past experience serves as a benchmark for determining whether they consider our prices excessive. In competitive solicitation, without disclosed costs and pricing, we have the flexibility to propose our bids, but we must keep in mind that we need to win the contracts.

Edward Woo, Analyst

That sounds good. And then my last question is on overall for Puerto Rico. The revenue number of about $75 million is about the same, has your cost or overall profitability on that project expected to remain the same as well?

Richard Danforth, CEO

Yes.

Operator, Operator

The next question is from Stephen Wagner, Integrity Wealth Advisors.

Stephen Wagner, Analyst

Richard and Cassandra, great job. It's encouraging to see so much positive language in the press release. It's reassuring to note the profitability in the fourth quarter, especially the positive comments regarding debt service. My first question concerns expectations around debt reduction or elimination within this fiscal year, '26. Additionally, I'm frustrated that Genasys hasn't received more recognition given the significant lives saved during the historic L.A. fires. Losing 31 lives is a considerable achievement for humanity, yet it feels like we've only faced negativity. Is there a plan in place to showcase how Genasys managed to save those lives in L.A.? Furthermore, what outreach efforts have you undertaken regarding this performance? I'm sure other states, municipalities, and fire departments are aware of how effective your software was and would be interested in it. I'll pause there.

Richard Danforth, CEO

All right. Well, I may not remember every question, but let me address the last one first. There was a lot of bad press put out regarding the L.A. fires across the board, negative press on Genasys, negative press on the county itself. The negative press on Genasys was walked back. There were third-party independent reviews of what happened out there. And they came to the same conclusion, Steve, that you just brought up. And the people that use the software, the people that are in that industry know quite well how well it performed. And it is leading to not only additional business to existing customers but to new customers as well. And what was the first question you asked, Steve?

Stephen Wagner, Analyst

The first question was regarding the debt service...

Richard Danforth, CEO

The debt. Cassandra said, we expect cash flow receipts and disbursements to support paying off the entire debt on time. Is there another question?

Operator, Operator

And everyone, that does conclude our question-and-answer session. That also concludes our conference for today. We would like to thank you all for your participation. You may now disconnect.