Genasys (GNSS) - 2025 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Genasys Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (Unaudited) Presents Genasys Inc.'s unaudited condensed consolidated financial statements and detailed accounting notes for the periods Condensed Consolidated Balance Sheets Details Genasys Inc.'s financial position, including assets, liabilities, and equity, for the specified periods Condensed Consolidated Balance Sheets (in thousands): | Metric | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :----------------- | :--------- | :--------- | | Total Assets | $57,393 | $53,936 | $3,457 | 6.4% | | Total Liabilities | $54,234 | $36,373 | $17,861 | 49.1% | | Total Stockholders' Equity | $3,159 | $17,563 | $(14,404) | -82.0% | | Cash and cash equivalents | $5,339 | $4,945 | $394 | 8.0% | | Short-term marketable securities | $120 | $7,945 | $(7,825) | -98.5% | | Accounts receivable, net | $4,648 | $3,283 | $1,365 | 41.6% | | Inventories, net | $11,426 | $7,313 | $4,113 | 56.2% | | Prepaid expenses and other | $7,458 | $2,559 | $4,899 | 191.4% | | Accounts payable | $7,797 | $4,034 | $3,763 | 93.3% | | Accrued liabilities | $23,473 | $9,030 | $14,443 | 159.9% | | Notes payable, at fair value - short term | $17,050 | $— | $17,050 | N/A | | Warrant liability | $2,080 | $6,640 | $(4,560) | -68.7% | Condensed Consolidated Statements of Operations Details Genasys Inc.'s revenues, expenses, and net loss for the three and nine-month periods Condensed Consolidated Statements of Operations (in thousands, except per share amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Total revenues | $9,857 | $7,167 | $2,690 | 37.5% | | Product sales | $7,001 | $4,576 | $2,425 | 53.0% | | Contract and other revenue | $2,856 | $2,591 | $265 | 10.2% | | Cost of revenues | $7,260 | $3,383 | $3,877 | 114.6% | | Gross profit | $2,597 | $3,784 | $(1,187) | -31.4% | | Selling, general and administrative | $6,422 | $6,649 | $(227) | -3.4% | | Research and development | $2,100 | $2,496 | $(396) | -15.9% | | Total operating expenses | $8,522 | $9,145 | $(623) | -6.8% | | Loss from operations | $(5,925) | $(5,361) | $(564) | 10.5% | | Net loss | $(6,487) | $(6,682) | $195 | -2.9% | | Net loss per common share - basic and diluted | $(0.14) | $(0.15) | $0.01 | -6.7% | Condensed Consolidated Statements of Operations (in thousands, except per share amounts): | Metric | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Total revenues | $23,729 | $17,267 | $6,462 | 37.4% | | Product sales | $14,215 | $9,951 | $4,264 | 42.8% | | Contract and other revenue | $9,514 | $7,316 | $2,198 | 30.0% | | Cost of revenues | $15,344 | $9,827 | $5,517 | 56.1% | | Gross profit | $8,385 | $7,440 | $945 | 12.7% | | Selling, general and administrative | $19,904 | $19,806 | $98 | 0.5% | | Research and development | $6,602 | $7,218 | $(616) | -8.5% | | Total operating expenses | $26,506 | $27,024 | $(518) | -1.9% | | Loss from operations | $(18,121) | $(19,584) | $1,463 | -7.5% | | Net loss | $(16,704) | $(20,344) | $3,640 | -17.9% | | Net loss per common share - basic and diluted | $(0.37) | $(0.46) | $0.09 | -19.6% | Condensed Consolidated Statements of Comprehensive Loss Presents Genasys Inc.'s net loss and other comprehensive income (loss) for the three and nine-month periods Condensed Consolidated Statements of Comprehensive Loss (in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(6,487) | $(6,682) | $(16,704) | $(20,344) | | Unrealized (loss) gain on marketable securities | $— | $1 | $(8) | $8 | | Unrealized foreign currency gain (loss) | $311 | $(26) | $199 | $27 | | Change in fair value of Term Loans related to credit risk | $820 | $— | $820 | $— | | Comprehensive loss | $(5,356) | $(6,707) | $(15,693) | $(20,309) | Condensed Consolidated Statements of Cash Flows Summarizes Genasys Inc.'s cash flows from operating, investing, and financing activities for the nine-month periods Condensed Consolidated Statements of Cash Flows (in thousands) - Nine Months Ended June 30: | Activity | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net cash used in operating activities | $(11,271) | $(20,010) | | Net cash provided by (used in) investing activities | $7,893 | $(4,389) | | Net cash provided by financing activities | $4,025 | $23,916 | | Effect of foreign exchange rate on cash | $82 | $(18) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $729 | $(501) | | Cash, cash equivalents and restricted cash, beginning of period | $5,290 | $9,519 | | Cash, cash equivalents and restricted cash, end of period | $6,019 | $9,018 | - Noncash investing and financing activities for the nine months ended June 30, 2025, included an unrealized loss on marketable securities of $8, and purchases of property and equipment included in accounts payable and accrued liabilities of $2[16] - For the same period in 2024, these activities included an unrealized gain on marketable securities of $8, and significant non-cash items related to the Evertel acquisition, such as obligations to issue common stock ($685), shares issued ($1,924), settlement of contingent consideration in shares ($656), and holdback liability payable ($245)[16] Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations of Genasys Inc.'s accounting policies and other significant financial disclosures 1. OPERATIONS Genasys Inc. provides Protective Communications™ solutions, integrating its software platform with LRAD hardware - Genasys Inc. provides Protective Communications™ solutions, integrating its Genasys Protect™ software platform with Long Range Acoustic Devices ("LRAD") hardware[18] - The platform collects real-time information from various sensors and IoT inputs to create and disseminate alerts, warnings, notifications, and instructions across multiple channels for public safety and enterprise threats[18] 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Outlines Genasys Inc.'s unaudited interim financial statements, prepared under SEC regulations and U.S. GAAP - The financial statements are unaudited and prepared in accordance with Form 10-Q and Article 8 of Regulation S-X, condensing or omitting certain GAAP disclosures[19] - Management believes the statements fairly present the financial position, results of operations, and cash flows, with adjustments being normal and recurring[19] - The Company's consolidated financial statements include seven wholly-owned subsidiaries, with intercompany transactions eliminated[20] - The Company elected the fair value option for its Term Loans to enhance transparency, recording changes in fair value (excluding credit risk) in the statements of operations and comprehensive loss[27][28] - Warrants are classified as liabilities and measured at fair value using a Monte Carlo simulation, with changes recorded in other income[27][28] 3. RECENT ACCOUNTING PRONOUNCEMENTS Genasys Inc. is evaluating new FASB ASUs on segment reporting, income tax, and income statement expenses - The Company is evaluating ASU 2023-07 (Segment Reporting), effective for annual periods beginning October 1, 2024, and interim periods beginning October 1, 2025, which expands disclosures about significant segment expenses[29] - The Company is evaluating ASU 2023-09 (Income Taxes), effective for fiscal years beginning October 1, 2025, requiring disaggregated information on effective tax rate reconciliation and income tax paid[30] - The Company is evaluating ASU 2024-03 (Income Statement Expenses), effective for fiscal years beginning October 1, 2026, and interim periods beginning October 1, 2027, which mandates additional disclosure of specific expense types[31] 4. BUSINESS COMBINATIONS Details Genasys Inc.'s October 2023 acquisition of Evertel, resulting in goodwill and subsequent liability settlements - On October 4, 2023, Genasys Inc. acquired Evertel, a secure and compliant mission-critical collaboration platform for the public safety market[32] Evertel Acquisition Consideration (in thousands): | Component | Amount | | :---------------------- | :----- | | Cash paid | $923 | | Common stock issued | $2,609 | | Contingent consideration | $890 | | Acquisition holdback liability | $230 | | Working capital adjustment | $(15) | | Total | $4,637 | - The acquisition resulted in $2,923 thousand in goodwill, attributable to combining Genasys's existing emergency communications solutions with Evertel's software capabilities and the skill level of the acquired workforce[38] - As of June 30, 2025, both the contingent consideration liability and the acquisition holdback liability were fully settled[41][42][72][74] 5. REVENUE RECOGNITION Genasys Inc. recognizes revenue under ASC 606 from product sales, contracts, and software licenses - Genasys Inc. applies ASC 606, Revenue from Contracts with Customers, using a five-step model to recognize revenue from product sales, contracts, software license fees, and other services[44][45][48] - Product revenue is recognized when products are tendered to a carrier for delivery, transferring control to the customer[46] - Software license revenue, including perpetual and time-based licenses, is recognized over the service period, often bundled with maintenance and support[47] Contract Liabilities (in thousands): | Metric | Customer Deposits | Deferred Revenue | Total Contract Liabilities | | :------------------------------------------ | :---------------- | :--------------- | :------------------------- | | Balance as of September 30, 2024 | $1,606 | $4,012 | $5,618 | | New performance obligations | $22,241 | $6,672 | $28,913 | | Recognition of revenue | $(7,210) | $(7,131) | $(14,341) | | Effect of exchange rate | $— | $(9) | $(9) | | Balance as of June 30, 2025 | $16,637 | $3,544 | $20,181 | | Less: non-current portion | $— | $(294) | $(294) | | Current portion as of June 30, 2025 | $16,637 | $3,250 | $19,887 | - As of June 30, 2025, remaining performance obligations totaled approximately $20,181 thousand, with $14,210 thousand related to the Puerto Rico contract[58] - Approximately 99% ($19,887 thousand) is expected to be recognized as revenue over the next 12 months[58] 6. FAIR VALUE MEASUREMENTS Genasys Inc. categorizes financial instruments into a three-level fair value hierarchy, detailing measurements - The Company's financial instruments, including cash equivalents, marketable securities, Term Loans, and warrant liabilities, are categorized into a three-level fair value hierarchy (Level 1: quoted prices in active markets; Level 2: observable inputs other than quoted prices; Level 3: unobservable inputs)[60][61][64] Fair Value of Cash Equivalents and Marketable Securities (in thousands): | Category | June 30, 2025 Fair Value | September 30, 2024 Fair Value | | :---------------------- | :----------------------- | :------------------------ | | Level 1: Money market funds | $53 | $301 | | Level 2: Municipal securities | $120 | $2,129 | | Level 2: Certificates of deposit | $— | $401 | | Level 2: U.S. government agency bonds | $— | $2,594 | | Level 2: Corporate bonds | $— | $3,222 | | Total | $173 | $8,647 | - Nonfinancial assets such as goodwill and other intangible assets are measured at fair value on a non-recurring basis, primarily during acquisitions or when impairment is recognized[68] - There were no impairments during the nine months ended June 30, 2025 or 2024[69] - The contingent consideration liability from the Evertel acquisition, initially $890 thousand, was fully settled by June 30, 2025, through cash payments and common stock issuance[70][72][73] - The acquisition holdback liability, initially $250 thousand, was also fully paid by June 30, 2025[74] 7. INVENTORIES, NET Genasys Inc.'s net inventories increased by 56.2% to $11,426 thousand, driven by raw materials and work in process Inventories, Net (in thousands): | Category | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :---------------------- | :------------ | :----------------- | :--------- | :--------- | | Raw materials | $7,989 | $5,442 | $2,547 | 46.8% | | Finished goods | $1,870 | $1,377 | $493 | 35.8% | | Work in process | $2,658 | $1,331 | $1,327 | 99.7% | | Inventories, gross | $12,517 | $8,150 | $4,367 | 53.6% | | Reserve for obsolescence | $(1,091) | $(837) | $(254) | 30.3% | | Inventories, net | $11,426 | $7,313 | $4,113 | 56.2% | 8. PROPERTY AND EQUIPMENT, NET Genasys Inc.'s net property and equipment decreased by 9.5% to $1,169 thousand, due to higher accumulated depreciation Property and Equipment, Net (in thousands): | Category | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :----------------- | :--------- | :--------- | | Office furniture and equipment | $1,633 | $1,697 | $(64) | -3.8% | | Machinery and equipment | $1,480 | $1,480 | $0 | 0.0% | | Leasehold improvements | $2,294 | $2,312 | $(18) | -0.8% | | Construction in progress | $139 | $30 | $109 | 363.3% | | Property and equipment, gross | $5,546 | $5,519 | $27 | 0.5% | | Accumulated depreciation | $(4,377) | $(4,228) | $(149) | 3.5% | | Property and equipment, net | $1,169 | $1,291 | $(122) | -9.5% | - Depreciation and amortization expense for property and equipment was $108 thousand for the three months ended June 30, 2025, and $335 thousand for the nine months ended June 30, 2025, remaining consistent with the prior year periods[76] 9. GOODWILL AND INTANGIBLE ASSETS Genasys Inc.'s goodwill increased to $13,451 thousand due to currency, while net intangible assets decreased by 20.9% - Goodwill, primarily from acquisitions of Genasys Spain, Zonehaven, Evertel, and Amika Mobile, increased to $13,451 thousand as of June 30, 2025, from $13,329 thousand at September 30, 2024, mainly due to a $122 thousand currency translation impact[77][79] - No additions or impairments occurred during the nine months ended June 30, 2025[79] Consolidated Intangible Assets (in thousands): | Category | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :---------------------- | :------------ | :----------------- | :--------- | :--------- | | Technology | $14,233 | $14,252 | $(19) | -0.1% | | Customer relationships | $2,063 | $2,081 | $(18) | -0.9% | | Trade name portfolio | $610 | $617 | $(7) | -1.1% | | Patents | $72 | $72 | $0 | 0.0% | | Gross Intangible Assets | $16,978 | $17,022 | $(44) | -0.3% | | Accumulated amortization | $(10,254) | $(8,516) | $(1,738) | 20.4% | | Intangible assets, net | $6,724 | $8,506 | $(1,782) | -20.9% | - Amortization expense for intangible assets was $577 thousand for the three months ended June 30, 2025, and $1,779 thousand for the nine months ended June 30, 2025[81] 10. PREPAID EXPENSES AND OTHER Genasys Inc.'s prepaid expenses and other current assets increased to $7,458 thousand, primarily due to inventory deposits Prepaid Expenses and Other Current Assets (in thousands): | Category | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :------------------------------------------ | :------------ | :----------------- | :--------- | :--------- | | Deposits for inventory | $5,122 | $4 | $5,118 | 127950.0% | | Prepaid insurance | $414 | $288 | $126 | 43.8% | | Puerto Rico Income Tax Retention and Special Contribution Retention | $407 | $— | $407 | N/A | | Spain value-added tax and bank withholdings | $357 | $225 | $132 | 58.7% | | Prepaid professional services | $353 | $595 | $(242) | -40.7% | | Prepaid commissions | $345 | $540 | $(195) | -36.1% | | Dues and subscriptions | $305 | $516 | $(211) | -40.9% | | Trade shows and travel | $94 | $116 | $(22) | -19.0% | | Canadian goods and services and harmonized sales tax receivable | $37 | $69 | $(32) | -46.4% | | Other | $24 | $206 | $(182) | -88.3% | | Total | $7,458 | $2,559 | $4,899 | 191.4% | - Deposits for inventory at June 30, 2025, included $4,728 thousand specifically for the Puerto Rico project[84] 11. ACCRUED AND OTHER LIABILITIES Genasys Inc.'s accrued liabilities increased to $23,473 thousand, driven by customer deposits and accrued contract costs Accrued Liabilities (in thousands): | Category | June 30, 2025 | September 30, 2024 | Change ($) | Change (%) | | :---------------------- | :------------ | :----------------- | :--------- | :--------- | | Customer deposits | $16,637 | $1,606 | $15,031 | 935.9% | | Deferred revenue | $3,250 | $3,643 | $(393) | -10.8% | | Payroll and related | $2,933 | $3,249 | $(316) | -9.7% | | Accrued contract costs | $403 | $— | $403 | N/A | | Short-term provision | $153 | $155 | $(2) | -1.3% | | Acquisition holdback liability | $— | $250 | $(250) | -100.0% | | Warranty reserve | $64 | $76 | $(12) | -15.8% | | Other | $33 | $51 | $(18) | -35.3% | | Total | $23,473 | $9,030 | $14,443 | 159.9% | - Customer deposits at June 30, 2025, included $14,210 thousand for the Puerto Rico project[97] Warranty Reserve (in thousands) - Nine Months Ended June 30: | Metric | 2025 | 2024 | | :------------------ | :--- | :--- | | Beginning balance | $76 | $132 | | Warranty provision | $5 | $(35) | | Warranty settlements | $(17) | $(21) | | Ending balance | $64 | $76 | 12. TERM LOANS AND WARRANT LIABILITIES Genasys Inc. manages Term Loans and Warrant Liabilities at fair value, including a new loan and decreased warrant liabilities - On May 13, 2024, Genasys entered into a $15,000 thousand Close Date Term Loan and issued warrants[101] - On May 9, 2025, the Company secured a First Amendment Term Loan of $4,000 thousand, with an option for an additional $4,000 thousand, which had not been drawn as of June 30, 2025[102] - The Company elected the Fair Value Option (FVO) for both Term Loans, recording them at fair value with subsequent remeasurements[104] - Changes in fair value not related to credit risk are recognized in other income, while credit risk-related changes are in other comprehensive income[104] Term Loan and Warrant Liabilities Fair Value (in thousands): | Metric | June 30, 2025 | September 30, 2024 | | :------------------------------------------ | :------------ | :----------------- | | Close Date Term Loan fair value | $12,420 | $12,010 | | First Amendment Term Loan fair value | $4,630 | $— | | Warrant liabilities fair value | $2,080 | $6,640 | Key Fair Value Assumptions: | Metric | June 30, 2025 | September 30, 2024 | | :------------------------------------------ | :------------ | :----------------- | | Close Date Term Loan Discount Rate | 36.4% | 26.0% | | First Amendment Term Loan Discount Rate | 35.1% | N/A | | Warrant Liabilities Discount Rate | 3.7% | 3.6% | | Warrant Liabilities Volatility | 62.0% | 58.0% | - A loss of $480 thousand was recognized on the issuance of the First Amendment Term Loan, representing the difference between cash received and its fair value at issuance[111] - Warrant liabilities decreased by $4,560 thousand due to changes in fair value, recorded as non-cash income[115] 13. LEASES Genasys Inc. accounts for operating leases under ASC 842, recognizing ROU assets and lease liabilities based on future payments - Genasys Inc. recognizes operating lease Right-of-Use (ROU) assets and lease liabilities based on the present value of future minimum lease payments, using its incremental borrowing rate[117] Operating Lease ROU Assets and Liabilities (in thousands): | Metric | June 30, 2025 | September 30, 2024 | | :-------------------------------- | :------------ | :----------------- | | Operating lease ROU assets | $2,550 | $3,110 | | Operating lease liabilities | $3,540 | $4,290 | | Current portion of operating lease liabilities | $1,075 | $1,021 | | Non-current portion of operating lease liabilities | $2,465 | $3,269 | - As of June 30, 2025, the weighted-average remaining lease term for operating leases was 3.1 years, and the weighted-average incremental borrowing rate was 4.16%[121] - Total lease expense for the nine months ended June 30, 2025, was $690 thousand[122] 14. INCOME TAXES Genasys Inc.'s effective tax rate was -0.5%, resulting in an income tax expense, maintaining a full valuation allowance Income Tax Expense (Benefit) (in thousands): | Period | Effective Tax Rate | Income Tax Expense (Benefit) | | :------------------------------ | :----------------- | :--------------------------- | | Nine Months Ended June 30, 2025 | -0.5% | $79 | | Nine Months Ended June 30, 2024 | 2.3% | $(476) | - The income tax benefit in 2024 was primarily due to the partial release of a $525 thousand U.S. valuation allowance following the Evertel acquisition[124] - The Company maintains a full valuation allowance against its U.S. and foreign deferred tax assets[125] 15. COMMITMENTS AND CONTINGENCIES Genasys Inc. has no pending material legal proceedings, maintaining reserves for potential litigation - Genasys Inc. is not currently a party to any pending material legal proceedings, nor is any of its property subject to such proceedings[126] 16. SHARE-BASED COMPENSATION Genasys Inc.'s 2025 Equity Incentive Plan has outstanding stock options and RSUs, with $1,264 thousand compensation expense - The 2025 Equity Incentive Plan, approved in March 2025, authorizes the issuance of 6,000,000 shares for stock options, restricted stock, RSUs, and performance awards[127] Stock Option Activity (Shares): | Metric | June 30, 2025 | | :-------------------------- | :------------ | | Outstanding September 30, 2024 | 3,695,740 | | Granted | 1,063,250 | | Forfeited/expired | (358,125) | | Exercised | (24,147) | | Outstanding June 30, 2025 | 4,376,718 | | Exercisable June 30, 2025 | 1,383,228 | Share-Based Compensation Expense (in thousands): | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Cost of revenues | $18 | $27 | $55 | $69 | | Selling, general and administrative | $384 | $243 | $1,048 | $1,071 | | Research and development | $57 | $29 | $161 | $129 | | Total | $459 | $299 | $1,264 | $1,269 | - As of June 30, 2025, unrecognized compensation costs were $1,935 thousand for stock options (weighted average period of 1.6 years) and $558 thousand for RSUs (weighted average period of 0.9 years)[132][139] 17. STOCKHOLDERS' EQUITY Genasys Inc.'s stockholders' equity significantly decreased, driven by accumulated net losses and other comprehensive losses Changes in Stockholders' Equity (in thousands, except share amounts) - Nine Months Ended June 30, 2025: | Metric | Shares | Par Value Amount | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | | :------------------------------------------ | :------- | :--------------- | :------------------------- | :------------------ | :-------------------------------------------- | :------------------------- | | Balance as of September 30, 2024 | 44,631,030 | $446 | $125,690 | $(107,792) | $(335) | $17,563 | | Share-based compensation expense | — | $— | $1,264 | $— | $— | $1,264 | | Net loss | — | $— | $— | $(16,704) | $— | $(16,704) | | Other comprehensive income (loss) | — | $— | $— | $— | $1,011 | $1,011 | | Balance as of June 30, 2025 | 45,154,504 | $451 | $126,979 | $(124,496) | $676 | $3,159 | - Common stock activity included the issuance of 986,486 shares for the Evertel acquisition, adding $1,924 thousand to additional paid-in capital, and 236,343 shares for contingent consideration settlement, adding $656 thousand[145][146] - An obligation to issue 270,271 shares related to Evertel also added $527 thousand to additional paid-in capital[146] - The Company's share buyback program, authorized for up to $5,000 thousand, expired on December 31, 2024, with no shares repurchased during the nine months ended June 30, 2025 or 2024[148][150] - No dividends were declared during these periods[151] 18. NET LOSS PER SHARE Genasys Inc. reported basic and diluted net loss per share of $(0.14) for the quarter and $(0.37) for nine months Net Loss Per Share (in thousands, except per share amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(6,487) | $(6,682) | $(16,704) | $(20,344) | | Basic and diluted loss per share | $(0.14) | $(0.15) | $(0.37) | $(0.46) | | Weighted average shares outstanding – basic and diluted | 45,154,504 | 44,598,393 | 45,022,635 | 44,216,602 | | Potentially dilutive securities excluded | 7,752,242 | 6,977,251 | 7,752,242 | 6,977,251 | - Potentially dilutive securities, including options (4,376,718), RSUs (307,342), and warrants (3,068,182), were excluded from the diluted EPS computation for both periods as their inclusion would have been antidilutive due to the net loss[152] 19. SEGMENT INFORMATION Hardware segment revenue increased by 50% for the quarter, while Software revenue grew by 7%, both reporting operating losses - Genasys Inc. operates in two business segments: Hardware and Software, focusing on directed and multidirectional sound technologies, voice broadcast products, and location-based mass messaging software for emergency warning and evacuation management[153] Segment Revenue and Operating Loss (in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Hardware Revenue | $7,656 | $5,108 | $16,966 | $12,053 | | Software Revenue | $2,201 | $2,059 | $6,763 | $5,214 | | Total Revenue | $9,857 | $7,167 | $23,729 | $17,267 | | Hardware Operating Loss | $(2,589) | $(1,920) | $(8,952) | $(7,867) | | Software Operating Loss | $(3,336) | $(3,441) | $(9,169) | $(11,717) | | Total Operating Loss | $(5,925) | $(5,361) | $(18,121) | $(19,584) | Segment Assets (in thousands): | Metric | June 30, 2025 | September 30, 2024 | | :---------------------- | :------------ | :----------------- | | Hardware Long-lived assets | $1,087 | $1,203 | | Software Long-lived assets | $6,806 | $8,594 | | Total Long-lived assets | $7,893 | $9,797 | | Hardware Total assets | $35,291 | $30,216 | | Software Total assets | $22,102 | $23,720 | | Total assets | $57,393 | $53,936 | 20. MAJOR CUSTOMERS, SUPPLIERS AND RELATED INFORMATION Two major customers accounted for 44% and 17% of quarterly revenue, with U.S. revenue significantly increasing - For the three months ended June 30, 2025, two customers accounted for 44% and 17% of total revenues[157] - For the nine months ended June 30, 2025, two customers accounted for 23% and 10% of total revenues[157] Revenues by Geographic Region (in thousands): | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Americas | $8,786 | $6,220 | $19,568 | $12,837 | | Asia Pacific | $455 | $208 | $1,892 | $1,029 | | Europe, Middle East and Africa | $616 | $739 | $2,269 | $3,401 | | Total Revenues | $9,857 | $7,167 | $23,729 | $17,267 | Long-Lived Assets by Geographic Region (in thousands): | Region | June 30, 2025 | September 30, 2024 | | :---------------------------- | :------------ | :----------------- | | United States | $7,799 | $9,644 | | Europe, Middle East and Africa | $94 | $153 | | Total long lived assets | $7,893 | $9,797 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Genasys Inc.'s financial performance, highlighting revenue growth, gross profit decline, business outlook, and liquidity Forward Looking Statements The report contains forward-looking statements about future events, performance, and financial condition, subject to risks - The report contains forward-looking statements regarding future events and performance, including growth strategy, product development, financial performance, liquidity, and market conditions[163][164] - These statements involve risks and uncertainties that could cause actual results to differ materially[165] Overview Genasys Inc. provides Protective Communications™ solutions, integrating its software platform with LRAD hardware products - Genasys Inc. is a global provider of Protective Communications™ solutions, including the Genasys Protect™ software platform and LRAD® hardware products[167] - The unified platform collects real-time emergency information from various sensors and IoT inputs to disseminate alerts, warnings, and instructions through multiple channels[167] - Genasys Protect offers a comprehensive suite of tools for public safety, critical event management, de-escalation, and critical infrastructure protection, serving federal, state, local, and enterprise clients across diverse sectors[168] - LRAD products are leading Acoustic Hailing Devices (AHDs), projecting clear voice messages up to 5,500 meters, used globally in defense, law enforcement, and public safety applications[169][179] - Genasys ACOUSTICS integrates mass notification speaker systems with the Genasys Protect software, providing highly audible voice messaging even during power and network outages[181] Recent Developments Genasys Inc. secured a Puerto Rico contract, new software deals, LRAD orders, and raised capital - Genasys anticipates most revenue from the $75,000 thousand Early Warning System contract for Puerto Rico to be realized in fiscal years 2025 and 2026[186] - The Company secured a four-year contract from Los Angeles County for ALERT mass notification software services and expanded its Board of Directors with R. Rimmy Malhotra[189] - To address cash needs, Genasys completed an $11,500 thousand equity offering in October 2023, and entered into a $15,000 thousand senior secured Term Loan in May 2024, with a $4,000 thousand increase in May 2025[187][189] - The Company received $4,500 thousand in new and follow-on LRAD orders from the U.S. Military and $1,000 thousand in domestic and international energy sector LRAD orders[189] Business Outlook Genasys Inc. anticipates growth in LRADs and mass notification speakers, expanding sales, investing in R&D, and managing costs - Genasys expects increased demand for its LRADs and advanced mass notification speakers, aiming to expand its market leadership in defense, public safety, emergency warning, and critical event management sectors globally[188][191] - The Company plans to grow revenues through increased direct sales to governments and agencies, pursuing further U.S. military opportunities, and expanding into various security and preservation markets[195] - R&D strategy involves incorporating innovations into the Genasys Protect platform, pursuing certifications for government opportunities, and enhancing ALERT, EVAC, and CONNECT software solutions[196] - Value engineering efforts are ongoing to reduce product costs[197] - Genasys is affected by price increases from suppliers, logistics, and inflationary factors like increased salary and labor costs[199] - The Company regularly adjusts sales prices to offset these impacts and monitors tariffs imposed by the U.S. government, which could affect margins and competitive position[200] Critical Accounting Policies Genasys Inc. refers to its Annual Report for critical accounting policies, noting the impact of estimates on financial results - Critical accounting policies are detailed in the Company's Annual Report on Form 10-K for the year ended September 30, 2024[204] - The methods, estimates, and judgments used in applying accounting policies significantly impact reported financial results, and actual results may differ from these estimates[205] Comparison of Results of Operations for the Three Months Ended June 30, 2025 and 2024 Genasys Inc. reported 37.5% revenue growth to $9,857 thousand for the quarter, but gross profit decreased due to project mix Key Financial Highlights (in thousands) - Three Months Ended June 30: | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Total revenues | $9,857 | $7,167 | $2,690 | 37.5% | | Product sales | $7,001 | $4,576 | $2,425 | 53.0% | | Contract and other | $2,856 | $2,591 | $265 | 10.2% | | Cost of revenues | $7,260 | $3,383 | $3,877 | 114.6% | | Gross profit | $2,597 | $3,784 | $(1,187) | -31.4% | | Total operating expenses | $8,522 | $9,145 | $(623) | -6.8% | | Loss from operations | $(5,925) | $(5,361) | $(564) | 10.5% | | Net loss | $(6,487) | $(6,682) | $195 | -2.9% | | Hardware revenue | $7,656 | $5,108 | $2,548 | 49.9% | | Software revenue | $2,201 | $2,059 | $142 | 6.9% | | US Revenue | $8,632 | $6,220 | $2,412 | 38.8% | | International Revenue | $1,225 | $947 | $278 | 29.4% | - The increase in hardware revenue was largely due to $4,333 thousand from initial deliveries to the Puerto Rico customer, recognized using the percentage-of-completion methodology[208] - Software revenue increased primarily due to an 8% rise in recurring revenue[208] - Gross profit decreased due to the impact of percentage-of-completion revenue recognition for the early-stage Puerto Rico project, a less favorable hardware mix, and increased tariff costs on imported components[210] - Selling, general and administrative expenses decreased by 3% due to lower professional services[212] - Research and development expenses decreased by 16% due to the capitalization of Puerto Rico-related software development resources[214] Comparison of Results of Operations for the Nine Months Ended June 30, 2025 and 2024 Genasys Inc. reported 37.4% revenue growth to $23,729 thousand for nine months, with gross profit up 12.7% and net loss improving Key Financial Highlights (in thousands) - Nine Months Ended June 30: | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Total revenues | $23,729 | $17,267 | $6,462 | 37.4% | | Product sales | $14,215 | $9,951 | $4,264 | 42.8% | | Contract and other | $9,514 | $7,316 | $2,198 | 30.0% | | Cost of revenues | $15,344 | $9,827 | $5,517 | 56.1% | | Gross profit | $8,385 | $7,440 | $945 | 12.7% | | Total operating expenses | $26,506 | $27,024 | $(518) | -1.9% | | Loss from operations | $(18,121) | $(19,584) | $1,463 | -7.5% | | Net loss | $(16,704) | $(20,344) | $3,640 | -17.9% | | Hardware revenue | $16,966 | $12,053 | $4,913 | 40.8% | | Software revenue | $6,763 | $5,214 | $1,549 | 29.7% | | US Revenue | $19,095 | $12,837 | $6,258 | 48.7% | | International Revenue | $4,634 | $4,430 | $204 | 4.6% | - Higher revenue was largely due to increased backlog at the start of fiscal year 2025, including $5,563 thousand from the Puerto Rico project[219] - Software revenue increased primarily due to a 31% rise in recurring revenue[219] - Gross profit increased due to higher-margin software revenue, but hardware gross margin was lower due to the percentage-of-completion revenue recognition for early-stage Puerto Rico hardware deliveries[221] - Selling, general and administrative expenses were essentially unchanged, with increased salaries offset by reduced tradeshow and travel costs[223] - Research and development expenses decreased by 9% due to $351 thousand capitalization of Puerto Rico-related software development and lower compensation and outside services costs[225] - Other income, net, was $1,496 thousand, a significant improvement from a $1,236 thousand expense in the prior year, driven by a $4,560 thousand non-cash income from changes in fair value of warrants, partially offset by Term Loan-related expenses[227] Other Metrics Presents Adjusted EBITDA, a non-GAAP measure, to evaluate Genasys Inc.'s core operating performance by excluding non-cash and non-operating items - Adjusted EBITDA is a non-GAAP measure used by management to evaluate core operating performance, excluding other income, income tax expense (benefit), depreciation and amortization, and stock-based compensation[229] Adjusted EBITDA Reconciliation (in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(6,487) | $(6,682) | $(16,704) | $(20,344) | | Other expense (income), net | $554 | $1,363 | $(1,496) | $1,236 | | Income tax expense (benefit) | $8 | $(42) | $79 | $(476) | | Depreciation and amortization | $685 | $733 | $2,114 | $2,193 | | Stock-based compensation | $459 | $299 | $1,264 | $1,269 | | Adjusted EBITDA | $(4,781) | $(4,329) | $(14,743) | $(16,122) | Segment Results Hardware segment revenue increased by 50% for the quarter, while Software revenue grew by 7%, both reporting operating losses Segment Adjusted EBITDA (in thousands) - Three Months Ended June 30: | Metric | Hardware 2025 | Hardware 2024 | Software 2025 | Software 2024 | | :-------------------------- | :------------ | :------------ | :------------ | :------------ | | Revenue | $7,656 | $5,108 | $2,201 | $2,059 | | Operating loss | $(2,589) | $(1,920) | $(3,336) | $(3,441) | | Adjusted EBITDA | $(2,148) | $(1,672) | $(2,633) | $(2,657) | - Hardware segment revenue increased by 50% for the three months ended June 30, 2025, largely due to $4,333 thousand from the Puerto Rico project[233] - Its operating loss increased due to lower gross profit from the project's percentage-of-completion revenue recognition[234] - Software segment revenue increased by 7% for the three months ended June 30, 2025, primarily from an 8% increase in recurring revenue[234] - Its operating loss decreased due to increased revenue and lower compensation and sales and marketing expenses[235] Segment Adjusted EBITDA (in thousands) - Nine Months Ended June 30: | Metric | Hardware 2025 | Hardware 2024 | Software 2025 | Software 2024 | | :-------------------------- | :------------ | :------------ | :------------ | :------------ | | Revenue | $16,966 | $12,053 | $6,763 | $5,214 | | Operating loss | $(8,952) | $(7,806) | $(9,169) | $(11,778) | | Adjusted EBITDA | $(7,703) | $(6,653) | $(7,040) | $(9,469) | - For the nine months ended June 30, 2025, Hardware segment revenue increased by 41%, including $5,563 thousand from the Puerto Rico project[237] - Software segment revenue increased by 30%, driven by a 31% increase in recurring revenue, and its operating loss decreased by $2,609 thousand due to increased revenue, gross margin, and lower operating expenses[239] Liquidity and Capital Resources Genasys Inc. relies on internal and external capital sources, with cash used in operating activities for the nine-month period Cash and Marketable Securities (in thousands): | Metric | June 30, 2025 | September 30, 2024 | | :-------------------------- | :------------ | :----------------- | | Cash and cash equivalents | $5,339 | $4,945 | | Short-term marketable securities | $120 | $7,945 | - Internal liquidity sources include cash, marketable securities, other working capital, and expected future cash flows[241] - External sources include Term Loans and potential future equity offerings[241] - Management believes the Company has sufficient capital to fund operations for the next twelve months, but acknowledges the need for potential additional funds through equity, debt, or credit facilities due to the unpredictable business environment[242] Cash Flows Summary (in thousands) - Nine Months Ended June 30: | Activity | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Operating activities | $(11,271) | $(20,010) | | Investing activities | $7,893 | $(4,389) | | Financing activities | $4,025 | $23,916 | - Operating activities used $11,271 thousand, primarily due to net loss, offset by non-cash expenses and a $3,982 thousand net cash increase from changes in operating assets and liabilities, including a $13,604 thousand increase in accrued liabilities (Puerto Rico project deposit) and a $3,737 thousand increase in accounts payable[245] - Investing activities provided $7,893 thousand, mainly from $8,106 thousand net proceeds from marketable securities maturities[246] - Financing activities provided $4,025 thousand, primarily from $4,000 thousand First Amendment Term Loan borrowings[247] Recent Accounting Pronouncements Refers to Note 3 for details on new accounting pronouncements and their potential impact on financial statements - New accounting pronouncements for future implementation are discussed in Note 3 to the condensed consolidated financial statements[248] Item 3. Quantitative and Qualitative Disclosures About Market Risk Genasys Inc. has minimal direct foreign exchange risk, but U.S. dollar fluctuations could impact pricing and costs - Genasys Inc. considers its direct exposure to foreign exchange rate fluctuations to be minimal, as transactions of its Spanish and Canadian subsidiaries are primarily denominated in Euros and Canadian dollars, respectively, providing a natural hedge[249] - Most other sales and third-party manufacturer arrangements are priced and paid in U.S. dollars[249] - Increases in the U.S. dollar's value could make products more expensive and negatively impact competitiveness, while decreases could lead to suppliers raising prices[249] Item 4. Controls and Procedures Genasys Inc.'s disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control - As of June 30, 2025, Genasys Inc.'s principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level[251][252] - There have been no material changes in internal control over financial reporting during the fiscal quarter ended June 30, 2025[253] - The Company's process for evaluating controls is continuous, focusing on improvement and remediation of deficiencies[253] PART II. OTHER INFORMATION This section covers Genasys Inc.'s legal proceedings, risk factors, equity sales, defaults, and other information Item 1. Legal Proceedings Genasys Inc. has no pending material legal proceedings, though it may engage in ordinary course litigation - Genasys Inc. is not currently involved in any pending material legal proceedings[255] Item 1A. Risk Factors Genasys Inc. faces risks from international trade policies, tariffs, and liquidity challenges - New tariffs and restrictive trade policies may adversely impact Genasys Inc.'s business by raising raw material and component costs, potentially reducing margins, increasing prices, and harming competitive position[257] - Trade disputes and macroeconomic uncertainty can exacerbate inflationary pressures, foreign exchange volatility, and economic downturns, negatively affecting customer demand, expansion opportunities, and the Company's stock price[258] - The Company's short-term liquidity may be materially adversely affected by administrative complexities and delays in fund disbursement for the Puerto Rico Early Warning System project[260] - Puerto Rico's fiscal challenges, political instability, and susceptibility to natural disasters pose risks of regulatory uncertainties, contract delays, payment delays, and disruptions to the Company's ability to deliver contracted services[261][262] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Genasys Inc. reported no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities or use of proceeds during the reporting period[263] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the reporting period[264] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to Genasys Inc. - Mine Safety Disclosures are not applicable to Genasys Inc.[265] Item 5. Other Information No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading arrangements - No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[266] Item 6. Exhibits Lists exhibits filed with Form 10-Q, including Term Loan amendment, officer certifications, and Inline XBRL documents - Exhibits include the First Amendment to Term Loan and Security Agreement (10.4), certifications from the Principal Executive Officer (31.1, 32.1) and Principal Financial Officer (31.2, 32.1), and Inline XBRL documents (101.INS, 101.SCH, 104)[269] SIGNATURES Details the signing of the report by Genasys Inc.'s Chief Financial Officer on August 14, 2025 - The report was signed on August 14, 2025, by Cassandra L. Hernandez-Monteon, Chief Financial Officer (Principal Financial Officer) of Genasys Inc.[271][272][273]