LRAD Corporation Aktie

Good day, everyone, and thank you all for joining us for today's Genasys Inc. Fiscal Second Quarter 2026 Conference Call. [Operator Instructions]

To get us started with opening remarks and introductions today, it is my pleasure to turn the floor over to External Investor Relations and Representative, Clay Liolios. Welcome, sir.

Good afternoon, everyone. Thank you for participating in today's conference call to discuss Genasys Inc.'s Fiscal Second Quarter 2026 results ended March 31, 2026. Joining us on today's call are the company's Chief Executive Officer, Richard Danforth; and 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 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. 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 like to turn the call over to Genasys' CEO, Richard Danforth.

Thank you, Clay, and thank you all for joining us today. Before we get into our second quarter, as some of you have probably seen, we filed an 8-K today announcing a 60-day extension for the repayment of our debt. Currently, we are owed approximately $13 million related to the Puerto Rico project. While payments in Puerto Rico have been slower than expected, we remain confident that the outstanding receivables will be collected. Over the past month, I personally traveled to Puerto Rico and met with our partners and had productive discussions regarding the project and payment process. In fact, we received payment of $1.8 million last week and anticipate receiving the remaining balances shortly. The receivables from the Puerto Rico project are expected to be used to retire our debt.

Now let's move on to our strong second quarter. This quarter represented a meaningful inflection point for Genasys. We delivered GAAP net income profitability and strong gross margins, reflecting the impact of disciplined execution, operational rightsizing and improved sales execution across the organization. Equally important, these results demonstrate that the foundational work completed over the past few years is translating into a more durable and scalable business. Genasys is operationally sound, financially disciplined and positioned to grow across both our software and hardware platforms.

On the software side, demand for our solution continued to expand as states, counties and enterprise prioritize reliable, compliant and secure communication. We're seeing sustained inbound interest across both Evertel and Genasys Protect with pipeline growth supported by recent wins in new geographies. These wins validate our value proposition and create long-term opportunities for expansion within those customers. Genasys Protect continues to displace legacy emergency warning systems by combining mass notification with integrated situational awareness and mapping. This capability differentiates us in the market and allows operators to deliver highly targeted time-efficient alerts during critical events.

Our hardware business is also delivering strong performance this quarter, supported by global demand and increasing focus on critical infrastructure protection. We continue to engage with customers across defense, energy and utilities, where LRAD products provide a proven nonlethal layer of security. As investments in infrastructure and capacity expansion accelerates, we see this as a multiyear tailwind. The everyday demand for our hardware, combined with the rising global military budgets and the accelerating AI infrastructure build-out continues to generate steady tailwinds for our hardware business. The data center and energy infrastructure expansion currently underway across the United States is a great example. We recently completed the installation of 4 LRAD 950 NXTs on a critical substation for a large U.S. utility. This was the first substation of many that will be equipped with LRAD 950 NXTs. We expect to receive orders for 26 additional NXT for this very utility.

Now let's take a deeper look at the second quarter and some updates on key initiatives, projects and opportunities. In the second quarter, we delivered $15.5 million in revenue, underscored by a 63.3% gross margin. Out of the $15.5 million, $10.3 million was associated with the Puerto Rico Dams Early Warning System project. The Puerto Rico project is on schedule. We have successfully completed Groups 3, 5 and 6 with Group 1 on pace to finish in June of this year. As mentioned, all technical risks associated with the project have been retired, and the focus remains on executing the remaining groups. Success in Puerto Rico is a testament to our entire team and reflects Genasys' ability to execute complex large-scale multiyear projects.

We also began production under the $9 million CROWS-AHD technology refresh program and expect to complete that initial order within this fiscal year. This program represents a meaningful long-term opportunity given the installed base requiring modernization. With roughly 5,000 CROW units in need of this technology refitting, the addressable market for this program could be $175 million. We expect to receive additional production orders in the second half of this fiscal year. Backlog ended Q2 at $58 million, reflecting both strong execution and continued replenishment from new bookings. Overall, we are encouraged by the momentum across the business and the expanding scope of our opportunities ahead.

With that, I will turn the call over to Cassandra for a review of the financial results. Cassandra?

Thank you, Richard. Now for the second quarter results. In the second quarter of fiscal 2026, Genasys generated $15.5 million in revenue, up 124% year-over-year. Hardware revenue grew roughly 180% from a year ago period. This included $10.3 million in contribution from the Puerto Rico project. The total software revenue increased 6% to $2.4 million compared to the year ago period. Sequentially, the software revenues increased roughly 5%. The remaining revenue was associated with hardware orders across a multitude of customers. Gross profit margin increased significantly to 63.3%. This improvement is due to several factors, including product mix, recognition of revenue associated with the Puerto Rico project and the increase of software sales.

Looking ahead, we expect to deliver gross margins over 50% on an annualized basis. Operating expenses for the quarter were $8.5 million, a 4% decrease from the second quarter of 2025 and remaining flat sequentially. We expect operating expenses to normalize around this level as the organization is rightsized and well equipped to execute on our projects and further scale. On a GAAP basis, operating net income was $1.3 million compared to an operating loss of $6.3 million in the prior year period. Adjusted EBITDA, which excludes noncash stock compensation, was $2.5 million compared to a negative $5.1 million in the year ago period. The increase was driven by revenue and gross margin improvements.

GAAP net income in the second quarter was $600,000 compared to a GAAP net loss of $6.1 million in the second quarter of 2025. To echo Richard, returning to net income profitability is a significant milestone that reflects on the disciplined execution and structural improvement that the company has undergone over the past few years. We are well positioned to build durability from here.

Now to the balance sheet. We ended March 31, 2026, with $1 million in cash, cash equivalents and marketable securities. As Richard mentioned, our term loan maturity was extended to the date of July 13, 2026. This was a step to better align the maturity with our current expected cash receipts that have been earned and are due to Genasys. The company is confident that they will receive the receivables before the extended maturity date and has ample cash for the day-to-day operations.

Overall, the second quarter marked a clear inflection point for Genasys. Revenue was strong across both hardware and software products and the 63% gross margin reflects the disciplined pricing, favorable product mix and operating leverage we've been building towards over the past several quarters. Beyond the headline results, the business continues to improve with increased visibility from backlog and a growing contribution from reoccurring software revenue, while near-term performance remains driven by our Puerto Rico program.

We are continuing to build pipeline across both hardware and software with several meaningful opportunities advancing through late-stage discussions and expect to support continued growth as they convert. Importantly, the extension of the debt maturity reflects timing, not performance as the underlying business continues to demonstrate improving profitability and increasing visibility into cash generation.

With that, Richard, back to you.

Thank you, Cassandra. In summary, this was a pivotal quarter for Genasys. We delivered net income profitability, achieved significant gross margins and remained on pace for a record revenue in fiscal 2026. These results validate the strategic investment we've made and demonstrate our ability to capture and execute on the opportunities that are in the protective communications space. Perhaps even more exciting than the quarter itself is the depth of the opportunities that we continue to see across all of our business lines. From LRADs to Evertel, our pipeline has never been stronger, and we're engaging with customers from all over the world.

Looking ahead, we remain confident in our ability to deliver meaningful year-over-year revenue growth while expanding annualized gross margins over 50%. We also expect to achieve both operating income and GAAP net income profitability for the year. The second half of the year is shaping up to be a defining stretch for Genasys. With a rightsized organization and a leadership team aligned around our growth priorities, we are entering this period from a position of operational strength. Our pipeline continues to expand across our hardware and software segments, reflecting the growing global demand for integrated protective communication solutions and validating the strategic investments we have made over the past several years.

We believe Genasys is uniquely positioned to capitalize on this momentum. Our life-saving software platforms, combined with the depth of our hardware portfolio and scale of customer relationships give Genasys a differentiated value proposition. As we execute against our pipeline in the coming quarters, we expect to convert these opportunities into sustained growth, continued financial improvement and meaningful long-term value for our shareholders. The foundation is in place, and we look forward to delivering what we believe will be a strong second half of the 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'd like to open up the call for Q&A. Operator?

[Operator Instructions] Our first question today will come from the line of Scott Searle at ROTH Capital Partners.

Congrats on achieving profitability in the quarter, Richard. Maybe just to dive in, start with CROWS. You had some shipments this quarter. I'm wondering if you could quantify that for us and what you're expecting over the second half of the year. And then there have been some larger opportunities, I think, within the pipeline that were sizable, some comparable to PREPA types of opportunities. I wonder if you could kind of walk through what you've got in the pipeline right now and the timing associated with some of those larger potential opportunities?

Sure. The first question relative to CROWS. CROWS, we began the production of that in our Q2. Deliveries will happen largely -- expected to happen largely in Q3 and Q4. The larger Puerto Rico like opportunities, one is at the final stage from an award perspective. It's competitive, it's international. We expect to hear on that within the coming days.

Great. Very helpful. And if I could just real quickly on the gross margins. It was a record quarter, I believe. Looking forward to the second half of this year, I know that's related to some mix issues and some software as well. But what should we be expecting over the course of the third and the fourth quarter? And then as part of that, just sequentially, from a top line perspective, how should we be thinking about the June quarter and the September quarter?

First, on gross margins, our current gross margin for the first 2 quarters equals 55.3%. Scott, as I think I've mentioned in the past, I think mix has a lot to do with it. Puerto Rico, as you know, the hardware when it leaves this building goes out with 0 margin. So as we complete the dams, we collect all that margin with no cost associated with it. So it's really going to be mix. I wouldn't move too much further than where you are right now. We'll see how Q3 goes.

And just the sequential cadence of the top line, how we should be thinking about that in June and September?

I think Q3 will probably be higher than Q2 from a revenue perspective and then maybe a little lower in Q4.

Our next question will come from Jaeson Schmidt at Lake Street Capital Markets.

You called out 5 new wins in California. Just curious how we should think about the sales cycle that you had with each of those geographies. And just trying to get a sense of what you're seeing from a sales cycle perspective overall today.

Yes. Jaeson, the -- a little bit of background, the 5 new wins, they all reflect coming out of Santa Clara County. Santa Clara County provided the Genasys Protect software to all of the communities inside the county. They stopped doing that, and each county has come back to us to buy their own Genasys Protect. So 5 of those -- those 5 are all in Santa Clara County. So they're not new customers, but they were -- they're repeat customers.

Understood. And what are you seeing from a sales cycle perspective just across the total business in the software portion?

The pipeline is very good. Our sales folks are focusing on the larger deals because those can really move the needle a lot. The larger the deal, the longer the sales cycle. But I believe we will see some closure on those in our second half.

Got you. And then just going back to your prepared remarks around sort of the energy and utilities markets and seeing some traction there. How big of a piece of the pie is -- are those sectors today?

Relatively small. So the utility I mentioned, that booking, that revenue was probably $2 million. And if you do the math, the balance of what we expect to book from that same utility would be substantially higher than that.

Next, we'll hear from Ed Woo at Ascendiant.

Congratulations on all the progress. My question is on the competitive landscape. Have you noticed any change or new competitors competing against you guys for these bids?

No, Ed. I don't. From a system perspective, like Puerto Rico, it's typically has been a construction company, which puts us in a good competitive position, of course. From an LRAD perspective, not much at all. And then from a Genasys Protect perspective, it is a unique offering. And then from an Evertel perspective, that's also a unique and differentiated offering. So I think we're in a good position from where we place our products in the market.

And presently, we have no further signals from our audience. Mr. Danforth, I'll turn it back to you, sir, for any additional or closing remarks that you have.

No, I think I've done the closing remarks already, Jim.

All right. Very good. Ladies and gentlemen, this does conclude today's Genasys Inc. Fiscal Second Quarter Conference Call. We thank you all for your participation. You may now disconnect your lines.

Welcome, everyone, and thank you for joining today's Genasys Inc. Fiscal First Quarter 2026 Conference Call. [Operator Instructions] 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.'s Fiscal First Quarter 2026 results ended December 31, 2025. Joining us on today's call are the company's Chief Executive Officer, Richard Danforth; and 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 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 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. Thank you, Clay, and welcome, everyone.

In the first quarter of fiscal 2026, we built on the strong foundation laid in the back half of fiscal year 2025. We delivered a record quarterly revenue of $17.1 million and executed several key initiatives. The first of these was the appointment of Cassandra Monteon as our full-time Chief Financial Officer.

Cassandra brings 8 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 help 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're confident she'll continue to provide strong financial stewardship while supporting our long-term vision. Congratulations, Cassandra.

Another significant milestone was the full repayment of our $4 million term loan, which we completed while still maintaining a strong cash position of $10.3 million 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 financial flexibility.

Now for an update on our hardware business and the significant momentum we're 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 to 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 people of the situation. This organic media exposure has been instrumental in accelerating awareness and driving qualified interest from potential customers worldwide.

Our LRAD products are designed with a clear mission to save lives and keep people safe through effective long-range communication. These systems provide authorities with the tool to deescalate potentially dangerous situation, deliver critical emergency information across vast distances and maintain public safety without resorting to physical force.

Moving to software. Interest in our solutions is expanding, supported by engagements across municipalities, states and government entities. In Q2, we are in contracting with 5 cities/counties and 2 federal agencies. Sequentially, our software revenue increased 5%, and our pipeline continues to expand as more prospects recognize our software platform as the leading solution in terms of safety and technical superiority.

While government budget cycles and funding time lines have created some near-term conversion challenges, we remain confident in the trajectory. As these constraints become resolved in the coming months, we expect this momentum to accelerate. We view software as a critical growth vertical and a cornerstone of Genasys future.

Now turning to some of our key projects. In the first quarter of fiscal 2026, we recognized $9.8 million in revenue from Puerto Rico. The project continues to display strong engagement across all stakeholders with the first 2 dam groups completed. The third group, which is the largest with 10 dams, 50 speaker arrays and over 100 sensors is currently under construction with all the equipment on site in Puerto Rico.

Following the receipt of a multimillion-dollar deposit, site surveys and engineering designs have begun for the fourth group of 8 dams located in the mountainous west-central interior. The project remains on track for 2027 completion.

Now turning to the CROWS initiative. As a reminder, in late September, we announced a $9 million production order, representing the first contract for the tech refresh effort under the CROWS-AHD program. This milestone followed the successful 2024 qualification of our LRAD 450XL-RT model for integration with the common remotely operated weapon station system.

The broader program presents significant multiyear revenue potential for Genasys. With roughly 5,000 CROWS units in need of this technological refit and our solutions priced around $35,000, the total addressable market for this program exceeds $175 million. As additional production orders are awarded, this program is positioned to become a substantial revenue stream for the company over the coming years. We continue to expect initial revenue contribution from CROWS-AHD program in the second half of this fiscal year.

Before passing it to Cassandra, I want to briefly touch on our backlog and pipeline. Our 12-month backlog at the end of fiscal Q1 was $58 million. Regarding our pipeline, it has never been stronger as more people become aware of our company and recognize the real value that our products deliver. We're seeing steady pipeline growth. We continue to actively pursue several large-scale projects and remain engaged in the bidding process for these contracts. We're optimistic about the quality and the breadth of opportunities ahead of us and believe we're well positioned to capitalize them as they develop.

Now I'd like to pass the call over to Cassandra for an update on the first quarter financial performance. Cassandra?

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 first quarter of fiscal 2026, Genasys generated $17.1 million in revenue, up 146% year-over-year. Hardware revenues grew roughly 220% from the year ago period. This included $9.6 million in contribution from the Puerto Rico project.

Total software revenue remained flat at $2.3 million 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 $8.1 million, a 6% decrease from the first quarter of 2025. The decrease in operating expenses was primarily due to the cost reduction initiatives Genasys completed at the end of 2025. On a GAAP basis, operating loss was a negative $0.4 million compared to an operating loss of negative $5.9 million in the prior year. This improvement was primarily due to significant increase in revenue from a year ago period.

Adjusted EBITDA, which excludes noncash stock compensation, was a positive $0.7 million compared to an adjusted EBITDA loss of a negative $4.8 million in the year ago period. GAAP net loss in the first quarter was negative $0.8 million compared to a GAAP net loss of $4.1 million in the first quarter of 2025.

Now to the balance sheet. As Richard mentioned earlier, we ended December 31, 2025, with $10.3 million in cash, cash equivalents and marketable securities.

During the quarter, we retired the $4 million 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 first quarter of 2026 marked a strong start to the fiscal year. We delivered solid results that sets 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're encouraged by our progress but remain focused on the work ahead. Our priorities center on enhancing operational efficiency and maintaining disciplined cost management as we scale revenues. We're 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 safety and emergency communication in a world where the need for these solutions continues to intensify. We've seen growing demand for our product 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 '26, 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'd like to open up the call for Q&A. Operator?

[Operator Instructions] We'll hear first from the line of Scott Searle at ROTH Capital.

Nice to see the continued progress on PREPA, and it sounds like CROWS is getting ready to 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 progress, particularly on the PREPA front and if that's impacted CROWS at all, maybe that is just a starting point in terms of what you're seeing near term.

Sure, Scott. So I mentioned in my remarks, we have a $57 million or $58 million backlog. So that certainly insulates us from the budget uncertainties that we've seen in the federal government.

From a CROWS perspective, the defense budget for FY '26 was finally passed. It's unlikely we'll see the addition -- the FY '26 CROWS award in our fiscal year '26. There's just not enough time on the clock left. But I mean that could happen, but I wouldn't count on that. But again, our backlog, Scott, certainly insulates us significantly, $58 million.

Got you. 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.

There's several opportunities we're pursuing in Europe from a Navy perspective. I think you know, Scott, we've sold units now to the German Navy, the Spanish Navy, the Canadian Navy, the French Navy. And there's 3 other programs that we're 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, just on the software front. I think there were some other contracts that had been delayed, some SaaS opportunities in municipalities and otherwise that 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 2 larger federal contracts out there. I wonder if you could give us maybe frame the size and the opportunity and timing around some of that.

Scott, in my remarks, I mentioned that we're in contracting for 5 counties and cities and 2 federal agencies. So they have moved from where they were the last time we spoke, which was very uncertain to -- we're working to close them as we speak.

Our next question will come from the line of Ed Woo from Ascendant Capital.

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

Ed, 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 my remarks talked about what we have in the contracting phase now between counties, cities and federal government. So I'd say it's been longer because of that freezing of funds, but it's starting to fall.

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 your hardware would have lower margins, but your software will have higher margin. Do you think that they would balance each other out to kind of stay at that 50% longer term?

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

[Operator Instructions] We'll take a follow-up from the line of Scott Searle at ROTH Capital.

Richard, two quick follow-ups. On the gross margin front, I know you're targeting 50% for the year, but there's 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 tend 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 4 deploy? Or is that something that would take place more in fiscal '27?

And the second question on the software commercial front. Historically, you guys have had some opportunities, but they haven't necessarily been larger material. I'm wondering if that's changing in terms of the composition of the opportunity pipeline. Is there more going on in the commercial side of the equation, both from a software standpoint and a hardware standpoint?

Well, it's definitely still software, Scott, definitely still focused in SLED. I will say the deal sizes that we're focused on this year are significantly higher than what we've been focusing -- what we had historically focused on. So there's almost all of the ones we're pursuing, Scott, are needle movers for our SaaS business.

In terms of the hardware business, we've seen an uptick in inquiries and demand, 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 haven't booked anything yet with that regard, but we're working on it.

And from the gross margin perspective, Scott, you're 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, we'll probably make up for that.

And we'll take our next question today from the line of [ Lloyd Quarton ]. I'm sorry. I believe we lost our caller.

Mr. Danforth, I'll 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 if you have further questions, just reach out to Clay or 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.

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 Lilis. ] Please go ahead, sir.

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 [indiscernible] 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 in 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 reconciliation 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?

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 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 of build 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 and helping agencies keep people safe, deliver clear communications, and manage critical events effectively. And as the government funding begins to ramp back up, we are confident that our software solutions will be a significant beneficiary given the critical role it plays 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 7 distinct groups. The Puerto Rico EWS projects 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 and with the majority of the work taking place in 2026. We expect to complete group 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 AHD under the CRO program following the qualification of the LRAD RT model. We expect this contract to generate multiyear revenues while enhancing CROWS operators' ability to communicate with potential threats before employing legal 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 position 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?

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 was 50.3%. The increase is primarily due to more favorable Hardware mix. We expect margins to normalize around 50% moving forward.

Operating expenses for the quarter was $7.3 million in Q4, a 26% or $2.6 million decrease from the fourth quarter of 2024. The decrease in operating expenses are 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 prior-year periods. 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 noncash 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, 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 a 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 was 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 2/3 of the year and was partially offset by a more favorable Hardware mix in the fourth quarter. As mentioned earlier, we do 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 noncash 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 serve 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.

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 technology 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 a 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, we'd 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 Instructions] We'll go first to Scott Searle from Roth Capital.

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?

I'll answer that question first, Scott. CROWS will be -- 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.

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.

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 in 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, timing of some of those opportunities.

Well, we haven't put size or timing on those opportunities out in the public, Scott, but the -- 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, the FY '25, there was no budget. It was a continuing resolution. So far in fiscal year '26, it remains a another continuing resolution. The current one is expected to expire the end of January, as I recall. With that said, Scott, it's -- 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.

Got you. Maybe 2 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? And kind of 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?

Yes. So 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 LRAD during these current times. .

The next question comes from [ Jared Cohen from J.M. Cohen & Company. ]

Yes, I just have a few questions. Well, you mentioned, I'll start off with different types of projects. Can you give us an idea of what type of projects might be in the pipeline? Beside -- are they like what you've done in Puerto Rico? Or can you just...

Very much so -- very much so. Puerto Rico, of course, as you know, is 37 dams or countries that don't actually -- 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.

Okay. This is more financial related. You talked about -- could you give us an idea of what -- 2026, what you're looking in terms of revenue growth? And/or is it possible that total 2026, are you looking for the company to be on an operating basis profitable?

We expect to be profitable in FY '26, yes. And from a revenue perspective, we don't comment on -- we don't give out forward-looking guidance, but I would point you to $60 million of addressable backlog -- 12-month addressable backlog without condition as we entered this fiscal year. .

Okay. So -- but on an operating basis, profitable, but even on a net income basis, even being profitable?

Yes.

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 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.

It's not going to be this year, Jared, as we exit the following fiscal year. I would think we have a shot to make it there. Pipeline has grown by more than 100% from the same period last year. We are prosecuting some large SaaS software opportunities that we expect to close in this fiscal year. As you're well aware, fiscal '25 was disappointing from a SaaS bookings perspective, principally driven by the lack of funding in the grant process, the review process for grants, which seems to be moving along now. So our expectations for SaaS bookings and resulting ARR are very high for fiscal '26.

[Operator Instructions] Next is Ed Woo, Ascendiant Capital.

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 or [indiscernible] you're competing with as you pitch out these projects? .

No, neither in Software or Hardware or systems.

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

Within the government customer base, Ed, you -- although we don't provide any cost and pricing data. We are subject to -- we -- if we -- if our price goes up too much, then we're subject to having to justify the price growth. Now in some cases, we were able to justify it, and we do increase the price to be more reflective of not only the cost but improvements in profitability. But it's not like you can just charge them anything you want. Past practice is the barometer by which determine whether they think the price is too high or not. Competitive solicitation at no cost and pricing. It's up to us that did what we want giving us -- keeping in mind we have to win.

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 a project is expected to remain the same as well?

Yes.

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

Richard and Cassandra, good job. Good to see a lot of the very positive wording in the press release. It's music to our ears to see the profitability in the fourth quarter and particularly some of the positive comments on the debt service.

My first question is regarding the debt service. And that is what expectations do investors have that the debt will be greatly reduced or eliminated over the course of this fiscal year that we're in, '26?

And then beyond that, the other question that I have is a frustration with the -- it feels like there's been a lack of accolades given Genasys in light of the enormous amount of life that was saved in the historic and devastating L.A. fires. They have 31 people die is -- was a massive win for humanity. And yet it seems like all we've [indiscernible] negativity. Is there any -- is there any embeds? Is there any program on the part of the company to highlight how and why Genasys is able to save the lives that they did in L.A.?

And a quick follow-on to that is what kind of outreach have you guys had in light of all of this? Because I'm sure other states, municipalities, fire departments, et cetera, counties, they know how well your software performed, and I'm sure they want it. So I'll stop there.

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 was 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 go 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? .

The first question was regarding the debt service.

Cassandra said, we expect cash flow receipts and disbursements to support paying off the entire debt on time.

Is there another question?

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.

Good day, ladies and gentlemen, and welcome to the Genasys Inc. Fiscal Third Quarter 2025 Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Brian Alger, SVP of Senior (sic) [ Investor ] Relations and Corporate Development. Sir, the floor is yours.

Good afternoon. Welcome to Genasys' Fiscal 2025 Third Quarter Results Conference Call. I am Brian Alger, SVP, Investor Relations and Corporate Development for Genasys. With me on the call today are Richard Danforth, our CEO; and Cassandra Monteon, the company's Interim CFO. During today's call, management will make forward-looking statements regarding the company's plans, expectations, outlook and future financial performance that may 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, 2024.

Other than statements of historical facts, forward-looking statements made on this call are based only on the information and management's expectations as of today, August 14, 2025. We explicitly disclaim any intent or obligation to update those forward-looking statements, except as otherwise specifically stated. We will also discuss non-GAAP financial measures and operational metrics, including adjusted EBITDA, bookings and backlog, which we believe provide helpful information to investors with respect to evaluating the company's performance. For a reconciliation of the 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 within the next 12 months.

Finally, a replay of this call will be available in approximately 4 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' CEO, Richard Danforth. Richard?

Thank you, Brian, and welcome, everyone. Fiscal Q3 revenues reflect the first material impact of the Puerto Rico early warning system project. Total revenues were $9.9 million in the quarter, inclusive of $4.3 million from Puerto Rico. Our software pipeline is at an all-time high and is rapidly growing in response to our sales efforts and increased awareness of our offerings due to the L.A. Fires, Signal Gate and more recently, the floods in Texas. International and domestic LRAD bookings continue to rebound, resulting in a growing 12-month backlog of business that for Genasys as a whole amounted to more than $60 million at the end of June.

As you are aware, after invoicing the customer in March of this year, we received a partial payment for the deposit on the third group of dams in Puerto Rico in May. The remaining portion has finally been transferred today. We believe the root cause of the payment delays has been identified and resolved and future payments are now expected to be made in a timely manner similar to the first 2 groups deposits. The CROWS-AHD effort, part of the CROWS 2 tech refresh program of record saw initial research and development funding in fiscal 2022 and 2023. 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. The RFQ has since closed and a purchase order of $8 million to $8.5 million is being finalized. Genasys expects many more years of continued CROWS-related revenue.

The temporary funding freeze of the urban area security initiatives and the Homeland Security Grant Program as well as the cancellation of FEMA's hazard mitigation programs building resilience infrastructure and communities that occurred at the beginning of this calendar year has delayed, disrupted and in some cases, eliminated more than $2 billion in annual funding that state and local agencies rely on. This has resulted in a slowdown of our software bookings.

As we detailed in our earnings release earlier today, more than $9 million of software bookings are currently awaiting funding from various federal programs that flow down to state and local jurisdictions. Recent indications are that public safety and hazard mitigation grants are being solidified and funding is slowly starting to move, but it would be naive to think that everything will change instantaneously. Acknowledging this reality, we have recently completed a number of actions to reduce our operating expense levels while maintaining a strong sales effort for Genasys Protect.

Included in those actions was a targeted headcount reduction. We expect to save $2.5 million annually as a result of the actions taken. It is important for all of us to understand that despite the recent slowdown in software bookings, our traction and momentum are growing. As I've already mentioned, our pipeline of software business is at an all-time high, and our geographic footprint is expanding. Historically, Genasys has seen most of its success west of the Rockies. However, with new product feature sets and targeted sales effort, we have seen a massive improvement in the pipeline of business east of the Rockies, so much so that more than 25% of the software pipeline added in the past 12 months comes from the customers located east of the Rocky Mountains.

In our CRM system, many details in our software pipeline are labeled pending funding. These deals range from cities within L.A. County looking for their own EVAC licenses to large regional emergency managers eager for precise zone-based solutions to even federal agencies interested in Genasys unique and differentiated Genasys Protect.

Though the recently reported top line results don't reflect this activity, our deal count, diversity of customers and increasing deal size gives us increasing confidence that Genasys Protect meets the market demands.

I would now like to spend a little time detailing our progress in Puerto Rico. As you know, this is a $75 million contract with PREPA that is fully funded by FEMA. The project covers 37 dams across the island of Puerto Rico that have been broken down into 7 distinct groups. The first 2 groups, which have a total of roughly $17 million are well underway. Within the first 2 groups, there are 9 dams. Each dam has unique sensor and communication equipment requirements. Across the first 2 groups, 58 poles, 69 solar panels kits, 51 sensors, 35 cameras and nearly 400 LRAD speakers will be installed.

As of this week, construction is underway on all 9 dams and essentially all of the equipment necessary to complete the installations for the first 2 groups is on the island. Moreover, the sign-off on the first dam and the early warning system software has already been received. The significance of this acceptance cannot be overstated. The software and hardware development and integration is complete and operational on the first dam.

The third group is the largest of the 7 groups, including installations at 10 dams valued with a value of $18 million to Genasys. Upon receipt of the remainder of the deposit, we will rapidly seek permits and finalize the production of the equipment and begin construction necessary to complete this group as quickly as possible. With tropical storm Erin tracking down towards Puerto Rico this week, we're reminded that the installation schedules are sometimes subject to forces outside our control.

Thus far, the construction project has been going very well, and we will -- we are tracking very close to plan. There is no guarantee that the weather will continue to cooperate. But regardless, we aim to complete the installations across all 7 groups as quickly as possible. Whether it is natural disasters, geopolitical unrest or macroeconomic change, a lot of uncertainties continue to arise around the world which, in many cases, creates new and evolving opportunities for Genasys Solutions.

Genasys delivers products all over the world that save lives from Africa to Singapore, to Florida, Central Florida, Genasys software and hardware is making a difference in protecting lives throughout the world. We know that we have products that the market wants. Exiting the June quarter, Genasys has over $60 million in its 12-month backlog. This does not include the $650,000 of ARR associated with Puerto Rico nor anything related to CROWS.

While not a guarantee of outcome, the existing backlog and the growing pipeline of additional business provides us with confidence in the business and the strategic value of the company. In summary, fiscal 2025 has been challenging on a number of levels. However, with an extremely strong backlog, growing pipeline and differentiated product portfolio, Genasys is in position to reap the rewards of its investments over the next several years.

Now I will turn the call over to Cassandra to go through the financial outlook in greater detail. Cassandra?

Good afternoon, everyone. In the third quarter of fiscal 2025, Genasys generated $9.9 million of revenues, up 42% sequentially and up 38% on a year-over-year basis. Hardware revenues grew approximately 50% year-over-year, reflecting the $4.3 million of revenue from the Puerto Rico project Richard already discussed. Total software revenues in the quarter grew 7% year-over-year but was flat sequentially as the limited bookings were offset by our slight churn.

Gross profit margins for June quarter came in at 26.3%, which is lower than both the prior year and the previous quarter. This decline is primarily due to the percentage of completion accounting applied to our initial revenues from Puerto Rico, a less favorable hardware mix and higher tariff costs on certain imported components. As mentioned earlier in today's earnings release, we expect gross margins to improve as the Puerto Rico project progresses, owing to the delayed recognition of profits under the percentage of completion method.

Operating expenses for the quarter came in at $8.5 million, down from $8.9 million in March of 2025 quarter and $9.1 million in the same quarter last year. This year-over-year and sequential improvement reflects our continued focus on cost discipline and the absence of certain legal and professional service fees. In light of the dynamics Richard just outlined in our software business, we've recently completed a set of targeted cost reductions. These are expected to reduce our annualized operating expenses by $2.5 million beginning in the first quarter of fiscal 2026.

As part of these actions, we made the difficult decision to reduce headcount by 19 full-time employees, including 10 in Spain.

On a GAAP basis, our third fiscal quarter operating loss was $5.9 million compared to a loss of $5.4 million in the prior year quarter and a loss of $6.3 million in the March 2025 quarter. Adjusted EBITDA, which excludes noncash stock compensation, was a negative $4.8 million, a sequential improvement from the negative $5.1 million in the second quarter of fiscal 2025, but down slightly from the negative $4.4 million in June of 2024 quarter.

GAAP net loss in this financial year's third quarter was $6.5 million, which compares to last year's third quarter net loss of $6.7 million and last quarter's $6.1 million net loss. Cash and cash equivalents and marketable securities at the end of June quarter totaled $5.5 million, down sequentially from $7.2 million on March 31, 2024.

During the third fiscal quarter, cash used in operating activities was $5.9 million, which included a $750,000 use of cash resulting from changes in operating assets and liabilities. To help offset the impact of our net loss and working capital shifts, we secured $4 million through the first amendment to our term loan finalized just ahead of our last earnings call.

Looking forward, in the fiscal fourth quarter, we anticipate a significant increase in both revenue and profit contributions from Puerto Rico. While some variables remain, we continue to project $15 million to $20 million in total revenues from Puerto Rico for fiscal 2025. Additionally, we expect to report improving gross margins with operating expenses remaining consistent with those from the third quarter.

Factoring in our installation schedule in Puerto Rico, the remaining LRAD backlog and our software ARR of $8.7 million, we ended June 2025 with a 12-month backlog totaling $61 million. This positions us well for continued momentum heading into the next fiscal year.

Now we would like to open up the call for Q&A. Operator?

And our first question comes from Scott Searle from ROTH Capital.

Maybe to dive right in on PREPA, Richard, it sounds like now we'll finally start to get some revenue recognition that goes along with it. Could you give us some high-level thoughts in terms of gross margins as we look out into the September quarter and beyond? We've had, I think, 0% gross margins in the first 2 quarters of the early PREPA rev. Could you remind us what gross margins look like over the course of the $75 million contract and what we should be expecting over the next quarter or 2? And along with that, maybe help us understand cash flow from operations with the give and takes of inflows as we move into the group 3 and some more payments on that front.

That's a lot, Scott. So if I miss one, ask me again. But from a total contract perspective, gross margin expectation on Puerto Rico, it is higher than normal LRAD gross margins. Normally, our hardware gross margins are in the 50%, plus or minus. Puerto Rico is likely going to be better than that. As per Q3 and Q4, there was actually some margin recorded on the Puerto Rico revenue in Q3. It was approximately -- do you know the number?

27, I think.

No, the absolute number.

Oh, total?

Yes.

26...

No. But to answer your question, as we finish more work on the island, that's the trigger to bring the margin and the revenue and record it. In Q1, we were 4-plus -- in Q3, excuse me, we were $4-plus million in revenue and approximately $700,000 in gross margin that was recorded. Q4 should be substantially better than that. As Cassandra mentioned, our revenue expectation in Q4 is substantially higher than our revenue expectation in Q3.

Got you. And Richard, just the -- from a cash flow perspective, it's pretty complicated. You received a fair amount, I think, for group 1 and group 2. How does that flow with group 3? And where are we in terms of the planning phases for the additional groups?

All 3 groups planning, engineering is done. The first 2 groups, as I said in my remarks, represent 9 dams and construction is in process on all 9. In fact, one has been accepted by the customer, which is also the software -- the overall software license was accepted as well. The third group, we just received today the wire for the balance of the deposit they owed us. So we will begin in earnest to work on group 3. So from a cash flow perspective, Scott, as we complete dams, that will generate cash. As we kick off the third group, that will generate cash. So I think from that perspective, the cash flow from operations should be very healthy as compared to historically.

And just as a reminder, Scott and others on the call, the way the contract was originally written and is being executed, the customer will be paying us 60% of each group's value upfront as a deposit. And that's obviously what we just received the final payment on or at least we got notice of today. As we complete each dam, and we're talking cash accounting, not accrual accounting that we have with GAAP, but on a cash accounting basis, we are invoicing the customer on a dam-by-dam basis as each dam's completion is accepted by the customer.

Got you. Very helpful. And 2 more, if I could just follow up on CROWS, it's exciting to see that finally happening. Could you -- what is the outlook in terms of the September quarter? Will some revenue from CROWS in that initial award potentially sneak into the September quarter? And I think the number you talked about in this initial tranche was $8 million to $8.5 million. Is that the annual run rate that we should be thinking about? Or does the number change potentially get larger as we look out into '26 and '27?

I think it will get larger. Our historic numbers for the old program of record were between $10 million and $15 million. As to your question regarding the revenue expectations for the fourth quarter, I think you're going to see the CROWS revenue in our fiscal '26 first half.

Got you. And lastly, just from a macro standpoint in terms of federal budgets, the impact that, that's pushing down on to local municipalities and spending. Certainly, it seems like it slowed up the first half of this year. And it doesn't seem like you're forecasting any sort of a major recovery on that front. But I'm wondering, is there a steady-state level of business we should be thinking about that's relatively immune to federal funding and those sources that have been constrained?

Scott, most of our revenue is generated from state and local governments. So there isn't an immunity from the -- sometimes chaos that we see in Washington, D.C. Did we lose you, Scott?

I think you can Go ahead and finish.

We do, however, have some resilience against that chaos in as much as a current active backlog, 12-month backlog of over $60 million.

Our next question comes from Ed Woo from Ascendiant Capital.

Yes. There was some major weather flood event recently. What is your flood product? And have you noticed any increases in people's interest in that type of product?

We have. As I mentioned in my remarks, Ed, the east of the Rockies has grown -- the interest in our product has grown a lot recently. We have teamed with a company named FloodMapp, and we have their flood prediction models on our Genasys Protect platform. And simply put, we can look at the current weather, forecasted weather and forecast when a river will go over or when a dam might breach and then be able to draw live geographic representations of where that water will go and get messages to everybody that might be in harm's way. So that's gotten traction on the East Coast. It's gotten traction in a lot of areas, particularly what we're seeing with the floods in North Carolina and in Texas.

To add on that, Ed, the value of having FloodMapp integrated with our products, especially EVAC allows for a very targeted, very precise message to be sent out to those that are being impacted. So if you think about what we just saw in California with the tsunami watches, instead of alerting all of Sonoma County, which goes quite a ways inland, utilizing FloodMapp, emergency managers could very easily segment the coastal regions that may or may not be impacted and send messages to only those people along the coastline. The same would be true of somebody in a river basin, for instance. And that's part of the new feature set that our product team brought to the market this year is that layering capability within EVAC itself.

That's a great product. I got a tsunami warning in L.A. and I was 20 miles in then.

[Operator Instructions] There appear to be no further questions at this time. I would now like to turn it back to management for any closing remarks.

Great. Thank you, Kat. Thank you, everyone, for participating in today's call. A replay of the call will be available on our website shortly. For additional information and up-to-date news and activity regarding Genasys, our products and the customers we serve, we strongly recommend that you follow the company and Genasys Protect on your social networks, particularly LinkedIn and X, where we actively post and comment on events that are happening and those that are happening around the world. We look forward to speaking with you again next quarter when we report fiscal fourth quarter and full year 2025 results. Until then, good night.

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.