Earnings Call Transcript - GNSS Q1 2023

Operator, Operator

Good day, everyone, and welcome to the Genasys Incorporated Fiscal First Quarter 2023 Conference Call. All lines are currently in listen-only mode, and we will open the floor for questions and comments after the presentation. Now, I am pleased to hand it over to your host, Kim Rogers. Kim, please go ahead.

Kim Rogers, IR Representative

Thank you, Cath. Good afternoon and welcome to Genasys Incorporated fiscal 2023 first quarter financial results conference call. I'm Kim Rogers with Hayden IR, the Investor Relations firm for Genasys. With me on the call today are Richard Danforth, Chief Executive Officer; and Dennis Klahn, Chief Financial Officer. 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 30, 2022. 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. We explicitly disclaim any intent or obligation to update those forward-looking statements, except as otherwise specifically stated. We 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 a 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 the timing of the 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. At this time, it's my pleasure to turn the call over to Genasys' Chief Executive Officer, Richard Danforth. Please go ahead, Richard.

Richard Danforth, CEO

Thank you, Kim, and welcome to everybody. If you look on our website, you'll see the earnings release as well as a press release that has been sent out on the wire service, announcing the win of a large enterprise SaaS award to a company called Aramco, which happens to be the largest company in the world based on market capitalization. So with that, we are off to a strong start in fiscal 2023. With our largest SaaS booking quarter to date. Our software business continues to gain momentum, as evidenced by the $6.1 million in SaaS bookings in the first fiscal quarter of this year. The strong bookings include an enterprise award from, as I mentioned a moment ago, Aramco, the largest market cap company in the world, and from California counties like San Diego, where they purchased GEM, Riverside, where they bought Zonehaven; and San Mateo, which bought Zonehaven, along with Monterey County which purchased both Zonehaven and GEM. These results, along with our rapidly growing SaaS pipeline, further reinforce our strategy of investing in software development, sales, marketing, and customer support. The addition of the world's largest oil and gas company, along with large California counties to our global automobile manufacturing and regional critical infrastructure customer base, elevates our SaaS profile and demonstrates our ability to successfully close, cross-sell, and support large enterprise and public safety clients. Our international results are also robust this quarter, as our strategy to rationalize business development by establishing sales offices in APAC, Europe, and the Middle East has proven successful. During the first fiscal quarter, 50% of our bookings were international, and APAC revenue more than doubled year-over-year as the entire region emerges from COVID-related lockdowns. With the world economy picking up, we are seeing pipeline growth across all of our international sales regions. We expect strong fiscal year bookings in APAC, Europe, and the Middle East, driven primarily by hardware orders, as well as the developing pipeline of SaaS opportunities. Total bookings for the quarter stood at $8.6 million, up 23% year-over-year. Hardware bookings for the quarter were $2.5 million as pending orders moved into our fiscal second quarter. Fiscal second quarter hardware bookings through January are already 40% higher than the total first quarter hardware bookings. We expect fiscal 2023 bookings to follow our typical pattern, with a large step up in fiscal Q3, driven by international hardware bookings, which are expected to substantially exceed fiscal 2022 hardware bookings. In what is typically our slowest quarter, fiscal first quarter revenue came in at $10.5 million, slightly lower than the prior year quarter and in line with our expectations. Following the usual pattern, we expect sequentially, quarterly revenue to increase in the fiscal second quarter and then strengthen in fiscal Q3 and Q4, putting us on a solid footing for the seventh consecutive year of revenue growth. Inflation resulted in increased hardware component costs, and product mix was a factor in the decreasing first quarter gross margin to 43.3%. We expect our gross margin to return to more normal levels in the second half of fiscal 2023. As we discussed on our fiscal fourth quarter conference call, continued investment in our SaaS business drove a 10.5% sequential quarterly increase in operating expenses, in line with our expectations. Given the confidence in these investments to accelerate our SaaS business growth, we anticipate operating expenses in fiscal 2023 to increase by approximately $5 million year-over-year. While SaaS bookings and revenue are growing, hardware continues to be a majority of our business, representing 90% of total revenues in the fiscal first quarter. Our commanding competitive position as the de facto global supplier of Long Range Acoustic Devices gives our hardware business a compelling economic profile. We continue to diligently manage and dedicate resources to growing our global hardware business. Recent attacks and increasing threats to critical infrastructure, particularly electrical substations, have generated large business opportunities for our remotely operated LRAD 950NXT system. The NXT uses a proprietary technology to identify and respond to potential threats. Since the NXT's launch last April, we have received orders from international navies and critical infrastructure orders for various installations including data centers, ports, and electrical substations. Large NXT critical infrastructure and international defense sales are expected to be a major contributor to hardware revenue this fiscal year and beyond. Our hardware bookings are typically lumpy. We currently have a large number of hardware opportunities expected to close this fiscal year. The U.S. Army's program of record and its international orders are anticipated to drive bookings growth and substantially lift hardware backlog in the second half. Hardware will continue to be the economic engine that powers the self-funding of our SaaS business development in the future. Our priority focus is fully integrating our SaaS solution and increasing the capabilities of a data-driven protective communication platform. Our SaaS system suite is evolving with the integration of GEM, Zonehaven, and IMNS into a seamless platform, expanding our capabilities and empowering Genasys to address a much larger scope of enterprise and public safety crises. New platform features, including flood and traffic modeling, continue to expand our platform's multi-hazard capabilities for use during hurricanes, storm surges, tsunamis, avalanches, flooding, debris flow, wildfires, chemical plumes, active shooter situations, and other natural and manmade disasters. Some of our new capabilities were deployed during the recent atmospheric river conditions that inundated Northern California. Our protective communication platform was used in many counties to communicate the location and extent of flooding, avalanches, debris flows, road closures, hazard conditions, and recovery resources. During these severe weather events, hundreds of thousands of residents accessed the Genasys aware sites to check the evacuation status of their neighborhoods and for lifesaving information. Our land and expand strategy continues to grow our footprint with government public safety customers. Increasing demand for our protective communication platform will see 16 California jurisdictions now using multiple Genasys platform elements, with three counties utilizing the entire platform. Riverside, one of California's largest and most populous counties, recently purchased Zonehaven to integrate with the previously purchased GEM services and IMNS installations. As we announced earlier this month, the city of Laguna Beach is a notable example of how the performance of our IMNS network created another upselling opportunity. The successful use of IMNS during two wildfires last year led the Laguna Beach City Council to prioritize the further expansion of its Genasys network. In Marin County, California, we have provided emergency warning services for the city of Mill Valley since 2019. In 2021, IMNS installation equipment was solar-powered and battery backup was positioned in other areas within the county. The follow-on order announced last week further expands the county's IMNS network. We have also expanded our footprint in Alameda County with UC Berkeley's purchase of IMNS, which will be integrated with the city of Berkeley's Genasys network. As we announced last week, the extended network and the county's use of our Zonehaven evacuation platform will expand emergency warning coverage and notification channels during public safety threats for more than 45,000 students, staff, and facilities. We expect additional California jurisdictions to join Alameda, Marin, and Riverside counties in adopting the full Genasys platform this fiscal year. In the enterprise market, the addition of Aramco, along with previously announced global auto manufacturers and critical infrastructure clients, elevates our SaaS profile and demonstrates our ability to successfully close large enterprise customers. Extending the capabilities of our software platform further differentiates us and opens doors for new and follow-on business opportunities. Our approach to the vast enterprise sector is to target key verticals where we can reference our proven execution. We have spoken before about our ongoing investment in the SaaS platform and SaaS sales growth. Since late 2021, we've expanded our software development sales, marketing, and customer support teams and added new personnel with the skill set needed to achieve our revenue goals. To build brand awareness and accelerate platform growth, we have recently appointed Avnita Gulati as Vice President of Marketing. Avnita is a highly successful enterprise marketing executive with extensive experience leading revenue-based marketing organizations. She has implemented global go-to-market strategies and led customer acquisition programs for leading companies in the software, semiconductor, medical, and financial markets. Avnita was a key addition to our leadership team, and she will help us drive scale and growth. The whole team here is energized and excited by the increasing adoption of our software SaaS platform and the burgeoning opportunities fueling growth in our pipeline. Our pipeline of qualified SaaS opportunities is now 25% greater than it was just a few months ago. The SaaS bookings we delivered in the first quarter further validate the investments we are making in our protective communication platform, and we believe these are strong indicators of its potential. With Genasys software now in use in 23 states and seven countries, soon to be eight with the addition of Aramco, we are gaining traction in new markets and building our software footprint globally. We are reiterating our expectations for continued revenue growth in 2023, with strong international sales, continuing LRAD deliveries to the U.S. military, and increased software services sales and significant SaaS revenue growth. With that, I'll turn it over to Dennis.

Dennis Klahn, CFO

Thank you, Richard. Revenues for the fiscal 2023 first quarter were $10.5 million, which is 2% less than the prior year quarter. Compared to the same prior year period, LRAD revenue increased 19% to $9.3 million, while software revenue increased 39% to $903,000. However, this was offset by a $2.3 million decrease in IMNS revenue, which totaled $300,000 in this year's quarter. IMNS revenue throughout fiscal 2022 benefited significantly from a single $10 million order from the U.S. Army. Recurring SaaS revenue from North America increased 87% compared to last year's quarter. Gross profit margin was 43.3% this quarter compared to 48.2% in the prior year quarter. The gross margin percentage was impacted by inflationary pressures on product costs, the mix of revenue this year, and increased software costs to support software revenue growth. We expect the Q2 gross profit margin to be similar before improving to closer to our historical margins in the second half of this year. Operating expenses were $8 million, up from $6.5 million in the same period a year ago. The planned increase is largely due to greater sales, marketing, and related travel expenses, plus additional compensation expenses this year, including a 14% increase in our engineering staff. The net loss for the quarter was $3.5 million or $0.10 per share, compared to a net loss of $1.3 million or $0.04 per share in fiscal 2022 first quarter. The increased loss was largely due to the lower gross profit this year and the planned increase in operating expenses to support the software growth initiatives. Adjusted EBITDA for the fiscal 2023 first quarter was a loss of $2.4 million compared with an adjusted EBITDA loss of $412,000 in the prior fiscal year first quarter. We believe this information and comparisons of adjusted EBITDA enhance the overall understanding and visibility of our business performance. To that effect, a reconciliation of our GAAP results to non-GAAP figures has been included in our earnings release. Cash, cash equivalents, and marketable securities totaled $15.1 million as of December 31, 2022, compared with $19.9 million as of the prior year end. Working capital totaled $17.4 million at December 31, 2022, compared to $20.7 million at September 30, 2022. Cash used in operating activities for the first three months of fiscal year 2023 was $4.9 million. This compares to cash used in operating activities of $2.7 million in the same period last year. The fluctuation primarily reflects the higher negative adjusted EBITDA in this year's quarter. We'll now open the call to Q&A. Operator?

Operator, Operator

Thank you. The floor is now open for questions. Our first question comes from Brian Colley from Stephens. Go ahead.

Brian Colley, Analyst

Congratulations, first off on the Aramco deal. I'm curious if there's any numbers you could provide around that contract, or just any qualitative information you can provide us with to help us size that up.

Richard Danforth, CEO

It was the largest SaaS booking we've ever taken. By a lot, Brian. I think our largest one prior to that, Dennis, was Riverside at $1.20 million or $1.50 million. So this was substantially higher than that. I could give a little color on it. It was a competitive solicitation. There were competitors from the United States, from the U.K., and from Europe. And they selected Genasys, which was terrific—it's a testament to the team. We've got a team here in the United States and the team in Europe, and it's just a stunning win for us. We've mentioned in the last call, Brian, we're going to focus more on enterprise as well as continue our current strategy. And we were able to go out and win the largest enterprise in the world, so that was terrific. We have a lot of work to do between now and when we go live, but we're all very, very pleased.

Brian Colley, Analyst

Absolutely, definitely an impressive win. I'm curious when do you expect to go live on that contract?

Richard Danforth, CEO

It was booked in Q1. We signed the contract on December 27, I think. It's been an extended period of approvals by releasing the press release we received earlier today. The approvals finally came through. They've had the process ongoing since early January, which took over a month to get their approval. It surprised us that it showed up this morning, so we scrambled a little bit to make sure we could get it out there as quickly as possible. We're currently saying the plan is that they go live internally at the end of March, but won't begin to use it in a public forum for about 60 days after that, just for training and practice.

Brian Colley, Analyst

Got it. And this is just for the GEM software?

Richard Danforth, CEO

Yes.

Brian Colley, Analyst

And is it all SaaS?

Richard Danforth, CEO

It's all SaaS. It had an incumbent system, Brian, that was on-prem. So this is a big deal for Aramco; holding the stuff up on the network.

Brian Colley, Analyst

Was the incumbent provider one of the other large competitors like an Everbridge, or OnSolve? Any color you can provide there?

Richard Danforth, CEO

Yes. It was one of those.

Brian Colley, Analyst

I'm curious what you're seeing from your competitors more recently. I mean, by the looks of this deal, it seems like your win rates are improving. But obviously, Everbridge and OnSolve kind of have some other stuff going on at the companies. Everbridge is going through some restructuring, so I'm curious just if you're benefiting at all from, call it maybe some distractions from your competitors.

Richard Danforth, CEO

I can't speak to that, Brian. I know we've picked up a handful of salespeople that have been laid off by those companies, particularly Everbridge. We booked $6.1 million in SaaS in our first quarter, which was the biggest we've ever done, and it was obviously driven by Aramco. But we also picked up several counties here in California. I mentioned in my remarks we're currently selling our software in 23 states in the union, and now seven countries, soon to be eight. And I also mentioned our pipeline has grown by 25% over the last handful of months, so it's behaving the way we expected it to. With all due respect to the competitors here in the United States, they might struggle some—they are still formidable competitors.

Brian Colley, Analyst

Right. That makes sense. One last one, and I'll see the floor here. But I'm curious, Dennis, if you could provide any color on kind of why the outsized movement in gross margins this quarter? And I guess in the back half, you're expecting them to get closer to the 50% range, is that correct?

Dennis Klahn, CFO

Yes, we are. The quarter-over-quarter decrease, as we saw over the last half of last year's fiscal year, the margin has decreased last year as well. They picked up in the fourth quarter of last year, but that was because of the volume. If you take a look at $16 million of revenue in the fourth quarter of last year versus $10.5 million in this quarter, you pick up several points of just additional absorption based upon that volume of revenue. So once we get probably through, mostly through the second quarter, we should see that the orders that we'll be shipping will be based upon our chances that the orders that we have booked from the higher list prices of our products. We have repriced it; it just takes time to get into the system and be part of the backlog.

Brian Colley, Analyst

Understood. Okay. Thank you for the time today, gentlemen.

Operator, Operator

And our next question comes from Mike Latimore from Northland Capital. Go ahead, Mike.

Mike Latimore, Analyst

Congrats on strong SaaS bookings there. That's exciting news for sure. Just to be clear, is $6.1 million annual contract value or total contract value?

Dennis Klahn, CFO

It's the total contract value.

Mike Latimore, Analyst

Got it. And then, it doesn't seem like you guys have seen really any sort of macro effects on sales cycles or something like that. I mean, sounds like things are going on very strongly. But any—have you seen any kind of elongation in the sales cycles in the enterprise market or public sector for that matter? I guess it doesn't really seem like it, but just want to check because so many other SaaS companies have seen that.

Richard Danforth, CEO

I'd say no, from a SaaS perspective. From our hardware—I’d probably put a little color on that, Mike, given where we came from with a very low number. We've been able to grow it very nicely. From our hardware perspective, the international bookings had been most affected by COVID-related issues. APAC, the Middle East, and even Europe were poor over the last three years. They began to recover prior to that. So, on a positive note, we see pipeline growth in all of our international markets, and we expect significant uptick in international bookings this fiscal year, as I mentioned in my remarks.

Mike Latimore, Analyst

Yes. Okay, that's great. In terms of the Aramco win, which was competitive and a replacement, are there one or two things that stand out here as to why you won the deal from a technical perspective?

Richard Danforth, CEO

I can't answer that. I have my own opinion, but I don't have the information from the Aramco folks. We're just getting started with them. Part of it, Mike, is from a technical perspective, our team in Madrid has been working to put together network providers around the world since the early 2012 timeframe, so they're very comfortable with the large network providers. We put a compelling technical case together, and they selected us. I'm sure we'll get more color from them as we continue to work with them over the coming months.

Mike Latimore, Analyst

Yes. And just last, it sounds like the pipeline growth has been great. If you look at that pipeline, is there a way to rank order the applications in terms of their representation in that pipeline? One clearly has a bigger chunk of the pipeline than another here among the three main ones.

Richard Danforth, CEO

Yes. Well, if you look at the three being GEM, Zonehaven, and IMNS, IMNS by its nature will drive higher revenue but lower SaaS. GEM and Zonehaven, as I mentioned in my remarks, have been combined, and we've seen many counties now buy both. They have one and buy both. As I mentioned, Monterey bought both to begin with. And that's significant for us from a revenue perspective. So if you look at SaaS combined, both SLED and enterprise, it's a great opportunity for us.

Operator, Operator

And our next question comes from Ed Woo from Ascendiant Capital. Go ahead, Ed.

Ed Woo, Analyst

Yes. Congratulations on the quarter. My question is on the increasing operating expenses of $5 million. How much of that is in sales and marketing versus development? And when can you really begin to leverage the revenue growth on your margins?

Richard Danforth, CEO

I don't have it sitting here in front of me what was more R&D or sales and marketing. Dennis, what’s your take?

Dennis Klahn, CFO

I can't give you a breakdown. My sense would be that it's more sales and marketing oriented than strictly R&D development. We've added, since a year ago, our first Chief Revenue Officer, and, as Richard announced, we have a Vice President of Marketing. So they're leading and building out their teams. It's probably going to be—we've added a substantial number of sales and marketing folks already this fiscal year, so it's more likely sales and marketing.

Richard Danforth, CEO

And in terms of when the lever starts to hit, our revenue, Dennis remarked, our revenue for Q1 was up significantly.

Dennis Klahn, CFO

It was up to $900,000.

Richard Danforth, CEO

Yes. That's a significant percentage. But as we book more opportunities, it's a curve that will begin to improve certainly by the end of this year.

Ed Woo, Analyst

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

Operator, Operator

And our next question comes from Kris Tuttle from IPO. Go ahead.

Kris Tuttle, Analyst

Hey, thanks for taking my question. Actually, I have a couple of them. Just out of curiosity, what was the time from when you first started selling your marketing on the Aramco deal to the close? What was the chronological time on that?

Richard Danforth, CEO

It was shockingly quick, particularly for the Middle East. Just a rough order of magnitude, Chris. Our Dubai office became aware of the opportunity in the fall. There were multiple demonstrations and responses to RFIs. A proposal was submitted in December, and the award was made on December 27. So that's shockingly fast for an enterprise of any size. Notwithstanding, this was the largest enterprise in the world, so they were determined to get it under contract. I think they have some issues with their existing system that were the impetus to sort of fast track this. But it was, again, a great team win.

Kris Tuttle, Analyst

Yes. That's helpful. And that is for an enterprise sale, that's a big deal. One other question, just in terms of the overall business. You talk a lot about the strength in APAC, Europe, and the Middle East. It kind of begs the question, did you see some weakness or a slow ramp or any kind of delay pattern in the U.S. where deals maybe needed longer approvals? Or you cited all the other geos, except for the U.S. in terms of strength? So I'm just curious what your observations are.

Richard Danforth, CEO

International, I mentioned a moment ago, has been poor for the last handful of years, and most recently, driven by COVID shutdowns. So our bookings from international have been down substantially. I see them returning to normal levels beginning this year. Domestic orders have historically been somewhat lumpy, and they remain somewhat lumpy, where the second half is typically substantially stronger than the first half, and that's what we're seeing. So I think the U.S. is following the pattern it usually follows, and international is improving a lot.

Kris Tuttle, Analyst

Okay. And then I had two questions on the technology side. One of them is, I know we've talked a little bit in the past about kind of a unified product category and name. Can you provide any kind of insight on where that is on the priority spectrum? And what kind of timing there might be in terms of an upgraded unified product and branding around the software business?

Richard Danforth, CEO

Sure. We are endeavoring to do that. I've mentioned in some of my remarks, the unified protective communication platform—that's what we're calling it. That will include all the functionality of GEM, Zonehaven, and IMNS. We will be rolling out a campaign on this late spring, early summer.

Kris Tuttle, Analyst

Okay. And then one other question on the technology side, and I'll hop off. One of the bigger names in the space, Everbridge, has been around for a while. So my question is about interoperability. Like them, love them, they're failing, they're succeeding, whatever. They signed a lot of large contracts with governments and states to provide emergency notifications. I'm wondering, is there an opportunity for Genasys on the interoperability side to come in and say, well, they won this award, you can't walk away from it because it'd be embarrassing. But we could provide some of the functions that you need now in terms of evacuation and other sorts of deeper software and data services. What level of interoperability do you have with them? And is that a legit opportunity? Or does it not really hit your radar screen?

Richard Danforth, CEO

We have a handful of states in our—I'll call it—not in our backlog yet. But we are pursuing multiple states across the union.

Kris Tuttle, Analyst

And so you'd be able to be interoperable with them, or they'd have to replace them?

Richard Danforth, CEO

But we still don't want to replace them. But our system can operate the Everbridge channel, the Everbridge mass notification channel. In many cases, we've installed our IMNS systems here in California and other states, and counties and cities may in fact have Everbridge or OnSolve. So it becomes a channel that's accessible on the GEM platform.

Kris Tuttle, Analyst

I see. All right. I get it. Thanks very much. That helps. All right. Thanks, guys. Talk to you soon.

Operator, Operator

Our next question comes from Brian Colley from Stephens. Please go ahead, Brian.

Brian Colley, Analyst

Thanks for taking the follow-up. I'm curious if you could just talk about your visibility to returning to revenue growth from a hardware perspective in the second quarter through the fourth quarter? It seems like you have enough backlog to do that. But I'm just kind of curious how we should think about the growth trajectory of hardware.

Richard Danforth, CEO

The second half should be higher than the first half, for sure. Our first quarter revenue, by the way, was the second largest in company history. In my remarks, I told I think Q2, Brian, will be higher than Q1. We are recovering very nicely in the second half.

Brian Colley, Analyst

Got it. And when you mentioned in the press release that you expect continued growth—does that include year-over-year, like including 2Q, correct?

Richard Danforth, CEO

The comment is full year to full year.

Brian Colley, Analyst

Okay. Got it. I wanted to ask about just the go-to-market strategy for software, and maybe some of the initiatives that Dennis Walsh is working on? Are you looking more at kind of partnering with any type of resellers or channel partners to help you extend your sales reach without needing to hire additional sales reps, or just kind of curious what you're doing from a channel perspective? And also what initiatives that Dennis has put in place that might be working so far?

Richard Danforth, CEO

International channels for sure. And domestically, I think we have one. So it's not a big piece of anything we do right now, but it's something we are certainly looking to pursue. In terms of strategy from an enterprise perspective, it’s narrowing it down. We've been frankly taking a shotgun approach, Brian, going after everything. But necking that down to very specific verticals. I mentioned we've hired a VP of Marketing. Our marketing efforts will be then more pinpointed at large manufacturing, for example, with the automobile wins we've had, and now Aramco. We will be focusing on a handful of verticals as opposed to everything.

Brian Colley, Analyst

Got it. That's super helpful. And I wanted to ask lastly about Zonehaven and the progress you're making just on expanding beyond California, but also internationally and how the integration with GEM is going.

Richard Danforth, CEO

The integration with GEM is ongoing. As I said to the prior caller, it's an initiative that we've called protective communication. That will include all the functionality of mass notification and evacuation. We've recently released software feature sets that include flood modeling and traffic modeling, which further enhance the platform and enable first responders to determine which zones they want to evacuate by running the fire model to see when the fire will hit and how long it will take for all the cars in that community to get out. If the answer comes back that the fire will be there in three hours and it takes four hours to evacuate, that doesn't work. We've continued to put software feature sets that we think are very, very helpful to first responders in both the GEM and Zonehaven platforms, and we expect that platform to be combined and come out into the market as protective communication.

Brian Colley, Analyst

Okay. Got it. Then just one last thing. I mean, for the Aramco deal, are there any startup costs or anything? Any expenses we should expect to hit the model over the next quarter or so, as that deal goes live? Or is it just kind of turning it on with SaaS?

Richard Danforth, CEO

We're not hiring anybody else to prosecute the Aramco deal, but it will be a significant focus of our software development team for the next handful of months for sure. As part of the contract, there was a relatively small upfront fee that they pay us. But most of the upfront work will be, as we typically do in our SaaS model.

Brian Colley, Analyst

Okay. Got it. Perfect. Well, appreciate all the time today, and congratulations on the big win.

Operator, Operator

And our next question comes from Martin Yang from Oppenheimer. Go ahead, Martin.

Martin Yang, Analyst

I have got another question on Zonehaven. Can you maybe outline a longer-term vision for Zonehaven and the sales process? Do you think that it will be in the future sold more as a feature of GEM, as opposed to a standalone software?

Richard Danforth, CEO

The combined platform will be our go-to-market approach, Martin. It's a process to redefine what mass notification is. It's not just about getting notifications, but also about providing relevant information on where and when threats are coming from, whether it's from a hurricane, river flooding, or the disastrous events we've seen in California with the atmospheric rivers. Recently, during the atmospheric rivers, communities were using it for warning and evacuating people for avalanches, debris flow, the location of sandbags, and the location of fresh water. The utility of the GEM and Zonehaven platform was on display here in California during that horrifying weather event that took about two weeks. So the application of the combined platform is not just for forest fires—it's any emergent situation where many people's lives may be at risk.

Martin Yang, Analyst

Got it. That's very clear. Thank you. Another question on account sales process—are they currently sold in different ways and supported by the same team, or do they have slightly different sales processes between Zonehaven and GEM?

Richard Danforth, CEO

No, it's the same. So when the SaaS sales team goes out, they are demonstrating the combined platform. In the case of Monterrey, they bought the combined value platform with both functions of GEM and Zonehaven. In Riverside, as I mentioned, they bought everything but at three different times. So they have GEM, they have Zonehaven, and they have IMNS. As I said in my remarks, I think we'll see more and more of that out of the installed base as an upsell and cross-sell opportunity. And if I showed you the picture of the State of California, you'll see that I think we're in 34 of the 58 counties, and four more are in the contracting phase. Those counties that have GEM and not Zonehaven, and not IMNS, are all an opportunity.

Martin Yang, Analyst

Got it. Thank you. That's all for me.

Operator, Operator

At this time, there are no further questions. I would now like to turn it back to management for any closing remarks.

Kim Rogers, IR Representative

Thank you. We regularly discuss our business at Investor Conferences throughout the year. Later this month, we will be participating in the Winter Wonderland Best Ideas Virtual Investor Conference. Additional investor conference presentations are planned throughout this fiscal year. Thank you for participating in today's call. We look forward to speaking with you again next quarter, when we report fiscal second quarter 2023 results.

Operator, Operator

Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time and have a wonderful day.