Genasys Q3 2026 Earnings Call: Complete Transcript

On Thursday, Genasys (NASDAQ:GNSS) discussed third-quarter financial results during its earnings call. The full transcript is provided below.

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Access the full call at https://app.webinar.net/Yer0OY4owvP

Summary

Genasys Inc. reported fiscal third quarter 2026 revenue of $7.3 million, down from $9.9 million in the prior period, due to timing issues related to supply chain constraints and paused projects in Puerto Rico, both of which are now resolved.

The company anticipates a record year in both revenue and profitability, supported by a growing pipeline and a 12-month backlog of $69 million.

Software revenue increased by 21% year-over-year and 12% sequentially, driven by new contracts and renewals, including a significant contract with Ada County, Idaho.

Gross margins improved significantly to 57.1% from 26.3% due to a favorable revenue mix, particularly from software.

Operational highlights include a $2.4 million order for critical infrastructure protection and strategic software integrations aimed at enhancing emergency alert and public safety platforms.

Genasys Inc. extended its term loan maturity, enhancing financial flexibility and supporting its growth strategy.

Management remains optimistic about future growth, citing strong demand across both software and hardware segments, particularly in critical infrastructure and defense markets.

Full Transcript

Krista, Operator

Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time I would like to welcome everyone to Genasys third quarter 2026 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star, then the number one on your telephone keypad and if you'd like to withdraw your question again, press star one.

Thank you. I would now like to turn the conference over to Clay Liallos, Investor Relations. Please go ahead.

Clay Liallos, Investor Relations

Good afternoon everyone. Thank you for participating in today's conference call to discuss Genasys Inc.'s fiscal third quarter 2026 results ended June 30, 2026. Joining us on today's call are the Company's Chief Executive Officer Richard Danforth and Chief Financial Officer Cassandra Moncion. 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 measure and reconciliations for non-GAAP measures are available in the earnings release and other documents posted on the Company's website under Investor Relations. A replay of the webcast will be made 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 like to turn the call over to Genasys CEO Richard Danforth.

Richard Danforth, CEO

Thank you, Clay, and welcome everyone. Revenue for the fiscal third quarter was $7.3 million compared to $9.9 million in the prior year period. The decrease was driven by two timing-related factors. The first was a supply chain constraint associated with the CROWS program. The constraint has now been resolved. Production on this initial $9 million order is underway and we expect to complete delivery within the fiscal year. Importantly, this was a timing issue rather than a demand issue.

The second factor was a deliberate pause in our work in Puerto Rico. We elected to suspend work until customer payments resumed. Following quarter end, collections began flowing again and we have since remobilized project activities on the island. Even with the temporary pause, we expect the work scheduled for the fiscal year to remain unchanged. With both of these timing factors now moving in the right direction and with gross margins remaining above 50%, we continue to expect fiscal 2026 to be a record year for both revenue and profitability.

Staying on the top line, we are seeing meaningful progress and growing demand for our software offerings. Recent wins include a large multi-year Genasys Protect contract with Ada County, Idaho. Home to more than 550,000 residents and over 3 million annual visitors, Ada County is the second Idaho county to replace its incumbent emergency alert provider with our platform. That displacement trend is encouraging. Agencies are moving away from legacy providers because Genasys delivers better outcomes when it really matters.

We also continued to expand our platform. In June, we announced a partnership with Entera and CAL FIRE to connect the CAL FIRE Aware platform and Genasys Protect. This connection gives the public another trusted source for real-time emergency updates. Now any alert issued through Genasys Protect instantly spreads across the state. Separately, we integrated Genasys Evertel with the public safety data and analytics platform called Peregrine. They are a leading crime data and intelligence software used by real-time crime centers and fusion centers.

This was tested and verified by the Vacaville, California Police Department, pushing real-time crime center intelligence directly to officers in the field rather than through manual distribution. It is worth noting that there are approximately 80 fusion centers and 800 real-time crime centers across the USA. Integrations like these accomplish two important objectives. They extend the reach of our software into the platforms agencies already rely on every day, and they make Genasys Protect increasingly difficult to displace once it becomes embedded in mission-critical workflows.

We are seeing steadily increasing interest from strategic partners looking to build similar connections and we expect that to be a durable contributor to our software growth. Earlier this week we announced a software milestone we are especially proud of. Genasys Protect now covers approximately 15% of the U.S. population and 20% of the country's land area, making it the nation's leading platform for zone-based emergency alerting, evacuation management and secure real-time communication.

That level of adoption is a testament to our technology and its ability to help keep people safe and save lives. While we are proud of this milestone, we believe there remains substantial opportunity to expand our footprint across the rest of the country. On the hardware side, momentum continues to build, particularly in critical infrastructure. Over the past several months, we have seen a steadily expanding pipeline for our LRAD 950 NXT systems as a security layer for unmanned sites such as electrical substations, dams, ports and data centers.

Last week we announced a $2.4 million critical infrastructure protection order from one of the largest utilities in the United States. The order expands a deployment that began with a single substation installation and was followed by a $2 million order. This is a customer that continues to expand its deployment as it sees the system perform. The 950 NXTs are integrated with the substation's physical security infrastructure and multi-sensor perimeter intrusion detection systems.

They address a full range of physical security requirements to detect, assess, communicate, respond, delay and deter threats. In short, they transform passive monitoring into immediate intervention. Critical infrastructure remains one of our strongest growth opportunities. The pipeline continues to build and we expect the market to be a meaningful driver of our hardware growth going forward. At the same time, longstanding defense and security customers remain active, the U.S. Army continues to be an important partner and demand from international navies and defense agencies continues to strengthen as governments increase spending on force protection, maritime security and critical infrastructure resilience. Overall, our pipeline continues to grow across both hardware and software and our focus remains on converting those opportunities into signed contracts and recognized revenue. Turning to the balance sheet, in July we extended the maturity of our term loan, providing additional working capital flexibility and reducing our dependence on the timing of payments from any single customer.

We view our lenders' willingness to extend the facility as further validation of the strength of our backlog, the opportunities within our pipeline and our long-term outlook. Overall, the fiscal third quarter was affected by timing, not by any change in underlying demand. Our backlog remains strong, our pipeline continues to grow and the factors that delayed revenue recognition during the quarter are now being resolved. We entered the fourth quarter with improved operating leverage, greater financial flexibility and strong visibility into the work ahead.

As a result, we remain confident in delivering a record year of revenue and profitability. With that, I'll turn the call over to Cassandra.

Cassandra Moncion, CFO

Thank you, Richard, and thank you everyone for joining for the third quarter results. In the third quarter of fiscal 2026, Genasys Inc. generated $7.3 million in revenue. This included only $1.3 million in contribution from the Puerto Rico project due to our deliberate decision to halt work on the island until customer payment resumes. As Richard mentioned, collections restarted after quarter end and we have begun re-mobilizing activities. We expect Puerto Rico to be a meaningful contributor to fourth quarter revenue as project activities continue to ramp through the remainder of our fiscal year.

Total software revenue for the fiscal third quarter was $2.7 million, representing a 21% increase year over year and a 12% increase sequentially. During the quarter we generated approximately $2.5 million in software bookings, including both new customer wins and contract renewals. We exited the quarter with 12-month backlog of approximately $69 million compared to $58.2 million at the end of the second quarter. While the increase reflects both continued order activity and the timing of certain programs, the backlog provides meaningful revenue visibility and supports our view that the third quarter revenue shortfall was primarily a timing issue rather than a reduction in customer demand. Gross profit margin in the quarter was 57.1% compared to 26.3% in the fiscal third quarter of 2025. This improvement was driven primarily by the revenue mix. The prior year period included a large contribution from the Puerto Rico project which carried lower margins under the percentage-of-completion revenue recognition methodology, while the current quarter benefited from higher portions of software revenue.

Operating expenses decreased 3.8% to $8.2 million from $8.5 million in the prior year period. Selling, general and administrative expenses decreased 4.6% to $6.1 million, while research and development expenses decreased 1.2% year over year to $2.1 million. These reductions reflect actions taken during the quarter to better align spending with the Company's cash flow profile and near-term operating priorities. GAAP net loss for the quarter was $4.7 million or a loss of $0.10 per share, basic and diluted, compared with a GAAP net loss of $6.5 million or a negative $0.14 per share in the third quarter of fiscal 2025.

Adjusted EBITDA improved to a loss of $3.1 million from a loss of $4.8 million in the prior year period, primarily reflecting improved gross margins and disciplined expense management. Now onto the balance sheet. Cash, cash equivalents and marketable securities totaled $3.1 million as of June 30, 2026, compared to $8 million at September 30, 2025. As Richard mentioned earlier, in July we completed the third amendment to our Term Loan and Security Agreement, extending the maturity date to July 2027 and providing additional financial flexibility as we execute against our backlog and pipeline.

We believe the revised structure is better aligned with the operating cash flow profile of the business and supports execution of our growth strategy. In summary, while a meaningful portion of revenue shifted beyond the third quarter, the underlying business fundamentals remained solid. Gross margins exceeded 57%, 12-month backlog increased to approximately $69 million and collections in Puerto Rico resumed following the quarter end. We also took action during the quarter to better align spending with our cash flow profile while improving financial flexibility through the extension of our term loan.

We remain focused on executing against our backlog, generating cash flow and improving flexibility. With that, Richard, back to you.

Richard Danforth, CEO

Thank you, Cassandra. We sit in a strong position. Our software products are beginning to get the recognition they deserve and our hardware business is bringing in a steady flow of new orders. The demand environment across both sides of our business is as robust as it has ever been and the work we have done this year has put us in a position to meet it. With the progress we have made on the balance sheet and the cost structure, we enter the fourth quarter with real momentum.

The term loan extension gives us working capital flexibility and reduces our dependencies on the timing of customer payments. We remain on pace for a record year in both revenue and profitability, backed by our $69 million backlog and a pipeline that continues to grow. I want to thank our employees for their work this quarter and our shareholders for their continued support. With that, we'd like to open it up for Q&A, operator.

Krista, Operator

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, again press star one. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Ed Wu with Ascendient Capital. Please go ahead.

Ed Wu, Analyst at Ascendient Capital

Yeah, congratulations on the progress, despite the Q3, but glad that there's momentum heading into Q4. My question is on the Idaho win. You said you displaced legacy systems. Have you seen any big changes in competition out there, or do you feel that it's easier, that you guys are gaining momentum to be able to displace with more of your other systems and competitors out there?

Richard Danforth, CEO

Ed, I think Ada County is an evacuation customer, and they love it, and they like the simplicity and the intuitiveness of it, and our communication software, alert software, is equally the same. So they like the ease of use of the platform, and I think when the contract runs out with their existing supplier, not only in Ada, but in counties all across the country, they will switch to Genasys.

Ed Wu, Analyst at Ascendient Capital

And you mentioned, I think you said that was the second county in Idaho to do that. Is it much easier now for you to spread to the rest of the state and obviously to other countries or other states?

Richard Danforth, CEO

Ada is the largest county in the state with over half a million people, but yes. So we already cover most of the people in the state, and our intention is to land the whole state.

Ed Wu, Analyst at Ascendient Capital

Great. Then my last question is back on the Puerto Rico contract. You mentioned that you had a pause for a little bit, then you're restarting now as collection is going. Does that impact the overall timing of when you're going to complete the project? And also does that affect your overall profitability as well?

Richard Danforth, CEO

Second one first. No, it doesn't have anything to do with our profitability in Puerto Rico. It remains to be very good. And I think you know this, Ed, but we had not scheduled any work on the island for our fiscal fourth quarter when we came into this fiscal year, principally to stay away from hurricane season. So we are now going to be doing work in the fourth quarter in Puerto Rico. There will be some challenges based on weather, I'm sure, but right now we've begun and, yeah, we're going to get as much done on the island as possible in this fourth quarter.

Ed Wu, Analyst at Ascendient Capital

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

Richard Danforth, CEO

You too. Thank you.

Krista, Operator

Your next question comes from the line of Luke Fingerson with Lake Street Capital Markets. Please go ahead.