Galaxy Next Generation, Inc. (GAXY) Q4 2022 Earnings Call Transcript

Galaxy Next Generation, Inc.  (OTCMKTS: GAXY) Q4 2022 earnings call transcript Sep. 23, 2022

Corporate Participants:

Brooks Hamilton — Investor Relations

Magen McGahee — Chief Financial Office

Presentation:

Good afternoon, everyone, and welcome to Galaxy Next Generation’s Fiscal Year 2022 Conference Call. The earnings release that accompanies today’s call was distributed to the Newswire earlier this morning. In our remarks today, we will include statements that are considered forward-looking within the meaning of Securities Laws including forward-looking statements about future results for our operations, business strategies and plans, our relationships with our customers, market and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions.

Forward-looking statements are based on management’s current knowledge and expectations as of today and are subject to certain risks and uncertainties that may cause the actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties are contained in our most recent Form Form 10-K, and other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements.

With that, I’ll now hand the call over to Galaxy Next Generation’s Chief Financial Officer, Megan McGehee. Megan, floor is yours.

Magen McGahee — Chief Financial Officer

Thank you. Brooks, and good morning, everyone. Thank you for joining our call today to discuss our financial and operational results for our fiscal year ended June 30, 2022. Fiscal 2022 was an important year for Galaxy as the educational landscape continued to evolve to favor learning environment that foster collaboration and are also flexible. We laid the foundation of our business to position us for leadership in the interactive classroom technologies market which is growing rapidly due to the recognition of these technologies importance in the modern classroom. Importantly, organizations in the public and private sector have increased budget allocations for innovative solutions and our competitive value proposition has allowed us to capitalize on this emerging opportunity.

In addition, our new entry into the school safety and security market has given us the opportunity to reengage with existing customers to offer additional products that are in support of their safety initiatives. It has also opened the door for additional funding sources. With the recent passing of the new security stimulus, schools will receive an additional $1 billion in funds for student health and safety. To prepare our organization for this increased demand, we made investments in our sales and marketing function with the goal of broadening our presence in new markets as well as those in which we have existing customers.

In addition to our new regionally focused sales managers, we recently announced the addition of Todd Eddie as our Chief Revenue Officer to lead sales growth and customer success at the executive level. We are thrilled to have a veteran in technology sales leading these efforts and we are confident in his ability to effectively grow our customer base.

During the year, we secured 19 new reseller partnerships with nationally renowned and regional specialists, which we believe is a key component to effectively capturing market share with local school systems. This dual approach has enabled us to quickly spread our footprint throughout the Southeastern, Northeastern and Western U.S. which collectively account for many thousands of target school districts. While we continue to progress predominantly on the K-12 education space, we have identified other verticals such as the commercial, healthcare, and government sectors as potential growth areas in the coming years. And our new partnerships have allowed us to begin cultivating important relationships within these industries.

To summarize our success in fiscal 2022, we launched two new product categories, G2LINK and G2 SECURE and added G2 aChat to the G2 SECURE product line. We have continued to diversify ourselves from just the interactive flat panel product lines to the higher margin products of G2 Communicator, our digital Intercom platform that offers us flexibility and scalability throughout the integration process.

Our competitive position is being recognized by the education industry and we are proud to have our G2 SECURE and recently launched G2LINK classroom audio system each win Platinum Award from Spaces4Learning, a leading publication for education institutions. G2 SECURE also won a 2021 Campus Technology New Product Award from the leading industry media brand, The Journal.

To protect the value of our underlying technology, we have prioritized creating a robust IP moat for our platforms as a critical part of our growth strategy. With our most recent patent granted to support the integration of G2 Communicator and G2LINK platforms, we’re pleased to now have two patents issued and two others pending issuance.

We believe each of our solutions contribute to a more positive learning environment, and above all, we recognize the safety of teachers and students is paramount to achieving those. At a time when school violence is rising in the U.S., we felt compelled to leverage our proprietary solutions to make an immediate impact. We made the decision to offer a complementary subscription to our G2 visual alert security solution to every school and school district in the U.S. We are pleased to be able to assist our communities in these challenging times and we do urge every school to take advantage of our offer.

Put simply, the modernization process for learning environment is centered around increasing student engagement and achievement. We have designed our systems with that primary goal and believe that our approach to developing our holistic product suite is our core differentiator and driver of our success.

I’ll now provide an overview of our financial and operational results for the fiscal year ended June 30, 2022. For the fiscal year 2022, revenues did increase 4% to approximately $4 million compared to $3.8 million in the prior year with an additional $200,000 in deferred revenue at year-end. The increase in annual revenue was driven by our expanded customer base for interactive panels and an increase in interest of G2 Communicator, G2 SECURE and G2LINK.

Gross profit of $550,000 in fiscal year 2022 compared to gross profit of $1.7 million in the prior year. Important to note our gross profit in fiscal year 2022 was affected primarily by inventory adjustment, we made a write-off obsolete inventory of one of our previous acquisitions as well as amortization of product development costs, shipping and supply chain delays and higher freight costs.

General and administrative expenses were $5.3 million in fiscal 2022, an improvement of 33% compared to $7.9 million in the prior year. Other expenses decreased significantly to $1.5 million in fiscal year 2022, an improvement of 92% compared to $18.3 million in the prior year. We remain focused on more efficiently managing our operations while servicing our debt obligations and the elimination of the interest carrying conversion notes, which is reflected in the substantial decrease to the other expenses.

Net loss of $6.3 million for fiscal year 2022 was a dramatic improvement from a net loss of $24.4 million in the prior year. The company often uses non-GAAP adjusted EBITDA numbers to measure the strength of the underlying operations of our business. For the fiscal year 2022, we showed a non-GAAP adjusted EBITDA loss of $5.7 million compared to $3.4 million in the prior year. The adjusted EBITDA has begun to align more closely with our GAAP net loss which is a testament to our efforts to no longer issue dilutive equity in lieu of cash.

Turning to our balance sheet, we ended the fiscal year with the shareholder deficit of approximately $2.2 million. As we move forward, we are working diligently to reduce our deficit early. We reported total liabilities of $6.8 million, reflecting a 22% decrease from $8.8 million in the 2021 fiscal year end. The $2 million decrease was mainly due to the elimination of our derivative liabilities, which were a result of three related party notes for which the debt was exchanged for preferred stock. As a reminder, the preferred series is eligible to convert into common at $0.37 per share.

The adjustment for obsolete inventory I previously mentioned was primarily recognized in inventory, which contributed to the decrease in total assets at 2022 fiscal year-end compared to the prior year. Cash and cash equivalents totaled approximately $300,000 as of fiscal year-end compared to $540,000 as of the end the fiscal year 2021.

And finally, on the topic of guidance that we issued in today’s earnings release for fiscal year 2023, we expect our annual revenues to be at least $6 million which represent year-over-year growth of at least 50% from fiscal 2022. As our expanded sales team and partnerships execute on their strategy for increased revenue, we are working to strengthen our balance sheet in preparation for our long-term growth and short-term operational goals.

With that, I’ll open the call up for our question-and-answer session.

Questions and Answers:

Brooks Hamilton — Investor Relations

So our first question here. So you mentioned that you launched two new products this year, G2LINK and G2 SECURE. Can you elaborate a little more on what G2 SECURE is and how it helps support the need for a safer school environment?

Magen McGahee — Chief Financial Officer

Yeah, sure. So G2 SECURE is a module or dashboard with MGQ [Phonetic] communicator, which is our full Intercom bell paging system. It’s the user interface within there that allows the emergency lockdown type alert to be issued, they can be issued from any device including cellphone through our G2 activator app. Once the initial alert is issued, it’s then out to every computing device enrolled in the school’s ecosystem, so student Chromebook, iPads, interactive panels, regular Windows machines, whatever it is receives this alert, which is a visual take over the screen image that initiates a lockdown as necessary.

Once that is done, it also triggers the G2 aChat window to populate which is real-time communication to all those who have the correct credentials and also to include law enforcement and first responders. The instant chat feature helps streamline the communication, but once as law enforcement does arrive on scene, they have as much information about the crisis situation as possible. The G2 SECURE dashboard does operate with an open API, so we can also integrate and monitor certain door locks, access control systems, really kind of whatever the school deems important for their safety plan. And so when we were doing our market research on new product development and staying back at site communication during emergencies, it was nearly an untouched market, but one that all of our customers expressed the need for and so we feel that this product does have the most potential of all the other G2 products from a line card to getting the most traction in the coming years.

Brooks Hamilton — Investor Relations

Thanks. The next question, with the hire of new Chief Revenue Officer, can you expand on what initiatives they plan to put forth in sales and marketing and what impact do you foresee this person and position in general having on the top line revenue?

Magen McGahee — Chief Financial Officer

Yeah, sure. So Todd comes to Galaxy with over 20 plus years in the ed tech and enterprise industries, he has worked in both manufacturing, distributing and reselling and spent several years running the sales team at one of the top three ed tech reseller companies in the United States. This experience brings a whole wealth of knowledge to what we’re trying to achieve with our revenue goals and although he’s only been with us now for three, four weeks, I believe, he has already prepared to launch a whole new marketing campaign with the strategy of building one cohesive message, interact, communicate, secure and this will help unify company messaging to tie all products including the interactive flat panels into that G2 communicate and G2 SECURE ecosystem. On the sales side, he will champion the mood from our current light channel model into 100% channel or reseller sales model in order to quickly scale top line revenue utilizing a channel of resellers and already have established name and name brand being and in presence, state and local contracts, big teams, integration capability provided with an immediate national reach and broader market coverage versus us trying to go at it with our internal sales team and Todd has already secured relationship for us with three of the top 10 ed tech resellers in the nation, so we are definitely excited to see his strategy roll out further and what affect that will have on that top line number.

Brooks Hamilton — Investor Relations

Excellent. The next question, looking forward into fiscal year 2023, what can we expect in terms of additional new products or new product features without giving away any trade secrets?

Magen McGahee — Chief Financial Officer

Most of our product roadmap is really centered now around G2 SECURE and bringing the other products such as G2LINK and the interactive panels underneath that safety and security umbrella. The goal being that all of our Galaxy products are acting as one fluid entity, the faster that engagement which increases achievement and we want to do it while developing increased demand during that process by creating that Cipher learning environment. With most of our development still being handled in-house by our own team of engineers, software developers, we are able to be nimble and [indecipherable] ideas come to fruition. And so we intend to use this to our advantage and create opportunities where we’re first to market with these new innovative technologies.

Brooks Hamilton — Investor Relations

The next question relates to the $1.3 million in purchase orders and contracts received after fiscal year-end. You provide just a little more color on how you expect that $1.3 million to be recognized as go-forward revenue and then kind of going up that what other assumptions are baked into the fiscal year 2023 guidance issued this morning?

Magen McGahee — Chief Financial Officer

Yeah, of course, we have seen an uptick in orders filling the pipeline since the return to school. August, September timeframe and this has created a pretty solid outlook for us into the next two quarters, and in some cases even beyond that. We currently have a backlog that exceeds $2 million, which we intend to complete deliver on that in the near future, pending any unforeseen supplier or shipping delays that we are still seeing from time to time and dealing with. Outside of the backlog, we do have a deeper insight into our pipelines that the education buying cycles develop in a very long one. The guidance issued in this morning’s earnings release is based around the assumption that these opportunities we see in front of us are met with completion and their product delays are created. This guidance is based on the company’s current business operations as well and does not account for any additional resources, such as being a new reseller relationship or significant cash infusion, so it would allow for us to ramp up sales in an even faster or larger manner.

Brooks Hamilton — Investor Relations

Excellent. Thank you. Next question. You previously mentioned that Galaxy’s new partnerships are allowing you to evaluate other potential sectors outside of education, in healthcare, commercial and in government. What’s the strategy for entering these new verticals and do you foresee these markets to be meaningful additions to the revenue mix relative to education in the future? Thanks.

Magen McGahee — Chief Financial Officer

Yeah, so we’ve already seen some success into the commercial or what we refer to sometimes as enterprise market with our new partnership with BNP tech group in the Northeast. And our joint relationship with them in the [indecipherable] component, so the enterprise market will most likely be the one we focus on tapping into first. I think that the other verticals do help alleviate the seasonality that we see with educational buying cycle, however, from an ROI return on investment perspective, education sales will still rank much higher, in the enterprise world, we’re able to install a couple of panels, maybe some of the communicator SECURE products into an office building while at the school building we’re able to install 30 to 50 panels, 30 to 50 audio systems and fully integrated Intercom solution including about SECURE, so in comparison to an education sale, maybe upwards of 100,000 plus while in enterprise sale maybe closer to 10,000, but we will continue to invest mainly in that K-12 ed-tech market from marketing and sales perspective. But do understand the need to have the ability to transfer into other verticals and we’ll continue to find the right partners like CMC and Wise [Phonetic] to help us achieve that goal moving forward.

Brooks Hamilton — Investor Relations

Makes sense. Thank you. Final question here, it’s great to see the dramatic improvements in the operating and net loss lines, is the bulk of these cost improvement initiatives behind you now or is there more room for containment as you approach toward profitability?

Magen McGahee — Chief Financial Officer

Yeah, I mean we do definitely have more room for improvement. I think the company should always make additional improvements for operating expenses, our growth has definitely come with a lot of overhead, not just in R&D but in legal, in accounting and audit fees and I think as we start to reach our higher top line revenue goal, we will also be able to finish cleaning up some of that lingering debt and-or liability obligation which will allow us to operate in a more streamlined fashion. One example is we currently use account receivable financing to assist in filling in some of the gaps between payment terms from our customers of larger orders but this type of financing carries your high interest rate. When we reach a time of more consistent revenue, we’ll be able to cut back on the interest expenses related to these types of transactions. And just one example of course of an area that we’ll take out for improvement but profitability is our focus and we do seek it out with that two-pronged approach top line increases and bottom line improvement.

Brooks Hamilton — Investor Relations

Okay. That concludes the Q&A portion of today’s call. With that, I will turn back over to you. Magen for closing remarks.

Magen McGahee — Chief Financial Officer

Great. Thanks, Brooks, and thank you all for joining us on our call today. Thank you to our employees, partners and shareholders for your unwavering support. We’re excited to build upon our momentum in fiscal year 2023 and hope you continue to track our progress as we work to leverage our competitive value proposition to expand our market leadership. I look forward to speaking with you all in the upcoming quarters and we’ll turn my focus to wrapping up our Q1 which is ending just next week on September 30. Thank you all.