Good day, ladies and gentlemen, and welcome to Farmer Mac -- and welcome to the Genasys Inc. Fiscal Second Quarter 2022 Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Kim Rogers IR. Ma'am, the floor is yours.

Thank you, Dagna. Good afternoon, and welcome to Genasys Inc. fiscal first [ph] quarter 2022 financial results conference call. I'm Kim Rogers with Hayden IR, the Investor Relations firm for Genesis. With me on the call today from Genesis are Richard Danforth, Chief Executive Officer; and Dennis Klahn, Chief Financial Officer. During today's call, management will make forward-looking statements regarding the company's plans, expectations, outlook and future financial performance that involve certain risks and uncertainties. The company's results may differ materially from the projections described in these forward-looking statements. Factors that might cause such differences and other potential risks and uncertainties can be found in the Risk Factors section of the company's Form 10-K for the fiscal year ended September 30, 2021. The other than statements of historical facts, forward-looking statements made on this call are based only on information and management's expectation as of today. 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 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 related revenue recognition. Backlog is a measure of purchase orders received that are scheduled to ship in the next 12 months. Finally, a replay of this call will be available in approximately 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 Genesis' Chief Executive Officer, Richard Danforth. Please go ahead, Richard.

Thank you, Kim, and welcome, everybody, to our call. We had a terrific second quarter with revenues of $13.2 million, up 17% from the prior year Q2. First half revenues were $23.8 million, up 23% from the first half of fiscal 2021. Gross margins in Q2 were 52.9%, bringing the first half gross margins to 50.3%. Revenue growth and higher gross margins helped lift adjusted EBITDA to a positive $850,000 for the quarter. Bookings for the first half were $12.5 million, yielding a backlog at the end of Q2 of $23.9 million, up 73% or $10.1 million from a year ago. First half cash used was $4.2 million, of which $3.2 million was used to purchase inventory and $1 million to repurchase company stock. As I've mentioned on prior calls, we have purposely increased inventory to hedge against the disruption in the worldwide supply chain. The increased inventory is planned to turn into revenue this fiscal year. During Q2, Genasys systems were used around the world to help keep people informed and safe. In Australia, Genasys news was used to alert residents and visitors in coastal areas of a potential tsunami following the January 15 volcanic eruption in Tonga. Also in the quarter, in the early morning hours of February 10, after a wildfire broke out in Emerald Cove, California, Laguna Beach emergency personnel activated the city's Genasys Integrated Mass Notification system to broadcast evacuation warnings to residents and visitors. After the fire, Brendan Manning, the emergency operations coordinator at City of Laguna Beach had this to say, and I quote. "Only great things to report using Genasys to facilitate alerts and notifications. We sent out alerts every 10 to 15 minutes. Residents City Council, City leadership and the media, all reported positive things on the use of our outdoor…

Thank you, Richard. Revenues for the fiscal 2022 second quarter were $13.2 million, up 16.5% from the prior year quarter. As compared with the same prior year period, LRAD revenue was $10.6 million, up 8.4%. IMNS revenue was $1.9 million, up 128% and software revenue was $673,000, essentially unchanged from the prior year quarter. Gross profit margin was 52.9%, an increase of 640 basis points compared to 46.5% in the second quarter of fiscal 2021. Gross margin percentage was higher due primarily to a shift in product mix. We continue to expect gross profit margin to be plus or minus 50% for the full year, although there may be some fluctuations quarter-to-quarter. Operating expenses were $7.5 million, up from $4.7 million in the same period a year ago. The increase was largely due to a 46.3% increase in SG&A, primarily sales and marketing expenses from the addition of personnel for future growth, increases in noncash expense for amortization and share-based compensation and a 116% increase in research and development, principally engineers for product development. As a reminder, our fiscal 2022 business plan includes a year-over-year increase in operating expenses for strategic growth initiatives, targeted materially shifting our revenue mix toward a higher proportion of software revenue and expanding our margins. Net loss for the quarter was $492,000 or $0.01 per share, a decrease from net income of $262,000 or $0.01 per share in the fiscal 2021 second quarter. The change was mostly due to the increase in operating expenses to support the growth initiatives I just discussed. Adjusted EBITDA for the fiscal 2022 second quarter was $853,000 compared with $1.2 million in the prior fiscal year second quarter. We believe this information and comparisons of adjusted EBITDA enhances the overall understanding and visibility of our business performance. To that effect,…

Hello, operator?

Yes. [Operator Instructions] Thank you. The floor is now open for questions. Our first question comes from Ed Woo. Please state your question.

Congratulations on the quarter. I know you mentioned you're going to increase inventory, and that's probably going to turn to revenue this year. Do you see the supply chain actually getting better that you the high point? Or you think you possibly could get worse? Do you have to build more inventory as the year continues?

And I don't think we'll build inventory beyond its current levels if everything holds true and we ship everything we intend to ship. So far, the team has kept up with it. It's -- it has not negatively affected our revenue, and I don't expect it to.

Great. And then a quick question on inflation. Do you think possibly that you're going to have to raise your prices as well? Or have you always been able to manage the engineering your products to get -- to maintain the margins?

Well, I'll point to Q2 margins at of 50 -- nearly 53 what was it, 54%, Dennis?

52%.

So that's reflective of the cost of our material and labor. So I think we've done a very good job at that. We can't obviously reprice that, which is in our backlog, but we do, on a regular basis, we run all costs and pricing. We historically have done that on an annual basis. We're likely going to do this on a quarterly basis.

Great. Well, it's definitely good that you guys were able to maintain your 50% gross margin guidance. So congratulations on the quarter and I wish you guys good luck. Thank you.

Thank you.

Thank you.

Our next question comes from Brian Colley. Please state your question.

This is Hassan Salem on for Brian. Thanks for taking my questions.

Sure. Go ahead.

I was wondering if you could talk about the pipeline for our enterprise customers for the GEM software.

In my remarks, I told you that the SaaS bookings were already 64% higher than all of last year. And that includes both SaaS and -- sorry, includes both GEM and Zonehaven. I don't have it broken out in front of me, but I believe it's close to 50-50 from a mix perspective.

Got you. Okay. Appreciate that. And then a follow-up question. Are you guys seeing any benefit from disruptions from your competitors? And were you able to hire any sales people away from those?

We have hired a salesperson away from our competitor that you referenced. We still see them in the marketplace every day, and I think that's -- I don't believe that's going to change.

Got you. Thanks for answering my questions.

[Operator Instructions] It looks like that was our final question. I'll turn it back over to the presenters for closing remarks.

Thank you again for joining us today.

I'm sorry. It looks like we have one more question from Stephens, if you want to take that question, Dagna?

Sorry, I just had one more question. I was curious about the Zonehaven products that you guys have launched recently into Colorado, Oregon, Georgia, Kentucky, Missouri and Texas. Do you guys -- are you guys looking to any other -- do you have any other states in the pipeline? And do you guys have any plans to expand within these current states? And are you guys planning on increasing any personnel related to this?

I think, yes to every one of those questions. So if you look at the Western states here in the U.S., from Colorado, New Mexico, Texas, California, all of them are experiencing significant fires, and the season is just beginning. We announced our first win in Oregon. We announced our first win in Colorado, and I expect you'll see much more of that in the near future.

Awesome. All right, thank you.

And now with our final question. I'll turn it back over to the speakers for closing remarks.

Thank you again for joining us today. We will be at the LD Micro Conference in Westlake, California on June 8. If you plan to attend the conference, please take a one-on-one meeting. For information, visit the LD Micro conference website. We look forward to speaking with you on our third quarter fiscal 2022 earnings call.

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time, and have a great day.