Genasys Inc. (NASDAQ: GNSS) reported Q2 EPS of ($0.14), $0.02 worse than the analyst estimate of ($0.12). Revenue for the quarter came in at $6.9 million versus the consensus estimate of $8.51 million.

Business Outlook

Genasys has begun the implementation phase of the Puerto Rico Early Warning System project, and we have a final understanding of how revenue recognition over the course of the project is going to be recorded. Planning, design, permitting and material procurement is underway for the first three groups of dams. As expected, initial revenues were recorded in the fiscal second quarter for the delivery and installation of a large generator. In the June quarter, we expect to record limited revenues from material being shipped to the island. Importantly, hardware shipment revenues will be recorded at cost. Installations will then enable profits on the material to be realized on a Percent Of Completion (POC) basis for the labor associated towards completion of each dam. Because of this accounting treatment, gross profit margins on the project will be initially suppressed, before eventually reflecting the profitability of each dam’s value upon completion.

Based on the current production and delivery schedules, and installation timelines, Genasys now expects to realize between $15 million and $20 million in Puerto Rico related revenue in fiscal 2025. While revenue recognition is different than we initially expected, the operational implementation and expected cash flows are no different than our original assessment

Despite funding uncertainty at the federal level, hardware Bookings continue to improve year over year with bookings through March up 48% versus the prior year period. Our current hardware backlog, excluding the Puerto Rico project, is over $12 million. Additionally, we expect to receive the first production purchase order under the AHD-CROWS program in the second half of fiscal 2025.

Software bookings slowed in the March quarter. Though the software pipeline is up over 100% since the beginning of this fiscal year, current uncertainty at the federal level has begun to affect State and local level procurements.

Operating Expenses in the second quarter were down roughly 3% both sequentially and year over year. Going forward, we expect quarterly operating expenses to remain near the second fiscal quarter 2025 levels.

The bridge financing and access to additional capital that we are announcing today is expected to provide Genasys the necessary capital to move through the Puerto Rico implementation and to begin profit realization on the project. Additionally, substantial contracts for both hardware and software are being negotiated that are expected to provide further support of the overall business prospects beyond fiscal 2025.

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