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Edited Transcript of GAXY.PK earnings conference call or presentation 12-Nov-20 9:30pm GMT

·17 min read

Q1 2021 Galaxy Next Generation Inc Earnings Call SHELBYVILLE Nov 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Galaxy Next Generation Inc earnings conference call or presentation Thursday, November 12, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Magen McGahee Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, everyone, and welcome to Galaxy Next Generation's First Quarter Fiscal Year 2021 Earnings Conference Call. This call is being webcast and is available for replay. In our remarks today, we will include statements that are considered forward-looking within the meanings of securities laws, including forward-looking statements about future results of operations, business strategies and terms, or 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, uncertainties, and 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 10-Q, Form 10-K and in other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. And with that, I will now hand the call over to Galaxy Next Generation's Chief Financial Officer, Magen McGahee. -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [2] -------------------------------------------------------------------------------- Thank you, Paul, and good afternoon, everyone, and we appreciate you joining us on today's call. As Paul mentioned, today's purpose of the call is to go over and update from our quarter 1 earnings that were released earlier today. We're extremely proud of the start to our fiscal year 2021. We continue to demonstrate impressive 89% growth on our income for our core technology segment of the business and the introduction of our new line of Cov-Shield protective products. Interesting reflection for me is most of our revenue collected before 9/30 was actually from our interactive panel and software line, showing a growth on that product alone from approximately $400,000 in June 30, Q4, to $1.2 million in this reported quarter. Our fiscal year first quarter revenue, deferred included, equaled just over $2.8 million. This is, in total, more than we generated all of last year in revenue, which was reported as $2.3 million. So a huge proud moment for the company and where we're at as of today. I'm going to go ahead and break down the financial report. So let's take a quick dive into the Q itself. As mentioned a while ago, revenue, $1.2 million; deferred revenue, $1.6 million; leaving gross profit a little over $350,000; net operating loss a little over $1 million. Net operating improvement over the last few quarters is reflected there in the MD&A. We've improved by about $500,000 over the last couple of quarters to this quarter in our general and administrative expenses. In fact, if we break down the collected revenue numbers with the deferred revenue, again that's that $2.8 million number, bringing our average gross profit, if we base it off of the 30% margin, to $840,000, narrowing that net loss to only $200,000. As reflected on the balance sheet portion of the report, we've increased our total assets to $5.2 million, an increase of $700,000 from our June report, but more impressively an increase of $1.2 million in assets since our March 31 report. We will continue to build on the asset portion of the balance sheet. This is evidenced too with our recent purchase of CTS, Classroom Technology Solutions, which closed on October 15 and will be reflected in our current quarter numbers posted in February. While our growth has had an effect on both our revenue numbers and our balance sheet assets, it also had an effect on our general sales pipeline and backlog. Backlog is currently sitting at a little over $2 million and we're working very hard to make sure that that product gets built and out the door before the end of the fiscal year. All right. Let's continue kind of along the same lines and compare some of the financial advances reflected in our recorded liabilities. We were able to bring down our accounts payables from $1.8 million reflected at June 30 to approximately $1.2 million at this past quarter's close. Our traditional bank line of credit has been formally renewed at this point for another 12 months and therefore shows a $0 current liability at September 30, which was reflected at over $1 million on June 30. If we reflect on the remaining debt or liabilities of the company, our convertible notes payable at September 30 was $1.1 million compared to the $3.1 million this time last year. And since September 30, another $400,000 of that $1.1 million has been resolved. In terms of other notes payable, if you break down note 8 of the financial statements, these notes are reflective of $1 million -- $3 million in debt, but there are monies invested into the company by either advisory board members or executives of the corporation, which shows our confidence level in the company's future growth. The company also inherited a large net operating loss from the theater company that we merged into as Galaxy when we went public in 2018. We've been fortunate enough to carry over that net operating loss on our books and we'll continue to, and plan to benefit from that NOL when profitability is achieved. So let's discuss, outside of the financials, some brief general business highlights from this quarter. We did add the manufacturing facility in Arizona in this quarter to increase the production and sales, specifically to our OEM partners, and have hired 2 new employees in that facility as well. There was a big partnership announced with the 7th largest school district in the nation out of Florida to provide some of our new Cov-Shield line of products to. We are proud of that connection and obviously have used it for marketing purposes to try to break into even larger school districts across the nation. We are awarded a new contract for a product that was released last quarter, our cloud-based intercom and paging solution as part of our Phoenix brand. That was $172,000 for an upgrade service of a previous existing customer. We received a commitment from a school District in Texas, again related to our Cov-Shield line of products for over $600,000. We received a new purchase order in this quarter for $1.5 million from a -- under our supply agreement with one of our OEM customers here in the U.S. This is in addition to the almost $1 million PO that we already had, in which we anticipate completely filling both of those before the end of the year. I'm looking forward to our new adventure with Technology Core in Australia and that is something that came out of this quarter, and we're ramping up and starting to look forward to exporting our audio solution to them as well. Basically, in summary, our deferred revenue and backlog continue to increase and remain strong. This is a good indicator of our future revenue trend. Our capital structure has improved with each passing quarter and we have a goal over the next 12 months still to uplift to a U.S. national exchange. We believe this is just the beginning of that major turnover cycle in the K-12 education market. As we all know, the last several months have been a crazy turn of events with the COVID-19 pandemic. And such, because of that, we feel like the whole K-12 market has had to rebank the way that our student learning environment continues to evolve. We look forward to being a major participant in that evolution, not only in our current line of technology hardware and software, but also in our new liner protective gear. So with that, I'll turn it back over to Paul, the operator, and open it up for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you ahead of time for your previously-submitted questions. The company will do its best to answer all of the questions possible with the exception of any forward-looking. Okay, here we go. Are you going to implement a stock buyback plan and/or do a reverse stock split? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [2] -------------------------------------------------------------------------------- So we've gotten this question quite frequently lately. And we've consistently stated for the past several months that our biggest focus is on ramping up our business and building shareholder value. As a small emerging growth company, a better use of our cash is to reinvest that into the business, into inventory and into product and increase our revenues. This will, though, in return create more value on the company and therefore, our shareholders. At this time, the reverse stock split is on the table. -------------------------------------------------------------------------------- Operator [3] -------------------------------------------------------------------------------- Okay. How much revenue does CTS contribute? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [4] -------------------------------------------------------------------------------- So as I mentioned just a minute ago, CTS, the purchase of their assets closed on October 15. So we're still working on the audited numbers to provide some outlook into their past year. CTS's great value to us, to Galaxy, is the relationships and the buying power that they're bringing to the company from some of our imported products. So I think as previously mentioned on the shareholder update call we had a few weeks ago, they've already assisted us in increasing sometimes 50% profit margins in several of our products. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- Okay. The next question, do you plan on uplisting to a major U.S. exchange? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [6] -------------------------------------------------------------------------------- Yes. Galaxy does plan and it's a top priority for us in 2021. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Okay. And are you trying to sell into the military? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [8] -------------------------------------------------------------------------------- So this is kind of a new avenue for us. It's been on our plate for a year or so now. It's a little bit difficult to do when you have a lot of import in your product line. However, the purchase of CTS did come along with some state contract work and has kind of Made-in-America stamp on a lot of its products will allow us to push into that avenue a little bit harder than we had in the past. There's several military contracts that, of course, require U.S.-based manufacturing and we have positioned ourselves to be in that place now and plan to attack that as a vertical moving forward. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Okay, great. And can you provide a list of resellers? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [10] -------------------------------------------------------------------------------- So we don't provide our customer list for a couple of reasons, competitive reasons obviously. We don't want other companies get on hold of our customer, but we've also had an overly aggressive shareholder situation of calling into our customers and resellers. So for that reason, we'll continue to hold it close to the vest. But we have grown to over 30 resellers in the U.S. and we have 2 international distributors at this point. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Okay. And the next question, how does the company explain the increase in total outstanding shares of $17 million to $2.6 billion from period September 30, 2019 to 2020? What plan does it have to fix the company's share structure? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [12] -------------------------------------------------------------------------------- So a large portion of the increase in outstanding shares is still due to capital raising for the company to get to the revenue and potential profitability that we've shown in this quarter. We will continue to make sure that we're analyzing the situation from a quarter-to-quarter growth perspective. And if there becomes a need to address anything within the share structure, we will make the best decision possible at that time. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Okay. Are you expanding points of contact, for example, distributors or sales reps in more territories within the USA? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [14] -------------------------------------------------------------------------------- Yes. So part of our kind of ongoing business plan is actively hiring additional sales reps in those regions where we don't have in the field support yet. In fact, as of this week, we have brought a new consultant on board. It's actually someone I've previously worked with in the past who has 30, 40 years of sales management, channel management and directorship and large sales channels. So we're excited to welcome him on board and hope that his direction and influence can assist with this particular question on getting some new sales reps on board. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Okay, great. Do you have a strategy to better control expenses in the coming quarters? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [16] -------------------------------------------------------------------------------- So one of the reflections, when we were looking through this, this quarter's number is the fact that we have improved our admin expenses and just general operating expenses. I think I mentioned earlier, they've kind of on average gone down about $500,000 a quarter and has gotten us to that $1 million number that we're at now. So we continue to look at that kind of expenses where we can. In a growth company, obviously, as we continue to expand our revenues, expenses will expand with that. But the idea, of course, is that the margin of difference becomes even more together as we move forward into the next quarter and the one beyond. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Okay. Magen, what are the Cov-Shield products being sold at per unit and breakdown of price points? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [18] -------------------------------------------------------------------------------- This one would fall under kind of the same competitive disclosure issues with resellers. I'm comfortable, I guess, to say that we sell our Cov-Shield products anywhere from $30 to $200 a unit and totally depends on shape, size, quantity being ordered. We average about 40% profit margins on that product line. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- And what are the interactive panels being sold out? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [20] -------------------------------------------------------------------------------- So same disclosure as before, but they sell anywhere from $1,000 to $10,000 a unit, depends on the size, the features, the software that's bundled with it. And again, the quality -- or I mean, sorry, quantity that's going out to the one particular customers. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- Okay, great. There was mentioned on the last call of marketing dollars being spent in lieu of less conventions. What are some of those other forms of marketing and/or advertising? Are there ads in any educational trade magazines currently? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [22] -------------------------------------------------------------------------------- So I think the question was in relation to something mentioned in the last call about trade shows and exhibitions, not really being an option at the moment due to COVID-19, and we have re-established those funds into other marketing efforts. Those have included e-mail campaigns, direct mailing campaigns, more on-site visits with resellers for training purposes, Webex, Zoom, whatever we can do to reach those people while we're limited on our travel. We do not currently invest in educational trade magazines. We found that it's -- our dollars are better spent in social media platforms: Linkedin, Facebook, even Instagram. We've upped our web page design situation that is an ongoing design process currently and will continue to be for the next month or so. In our current situation, magazines sent to schools are not being opened and read. And therefore, of course, the return on investment is not worth it for that side of the marketing side. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- Okay. Are there any new products being introduced in lieu of some of the new acquisitions? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [24] -------------------------------------------------------------------------------- Yes. So the general answer to this question would be yes. I think just over the past year, we -- or 2 years I'll say, we've grown our product line from really 1 product, about 10 part numbers, to 100 products and 300 part numbers. Because of this acquisition though, it will allow us to kind of ramp up some of those products that we have in our road map and actually have a couple of new ones being launched, already soft launch being hard launched to our customer base within the next few weeks. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Okay. So separate from schools, can you share what segments or percentage of software is being utilized by other industries, for example, police, fire, the government sector, if there's any data on growth? -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [26] -------------------------------------------------------------------------------- So this question kind of, I guess, begs mean to explain our company products a little bit better. We do have a software that is targeted specifically for visual alerts and what we call emergency management in the class room. This is one of the new products that we actually just launched this year. So that particular software is definitely forge for fire and police, fire, government, all of the above, all verticals. And I think we've mentioned before that we definitely have a focus to branch outside of schools. I mentioned earlier that edtech has become a broader spectrum than that and kind of includes all of these different verticals and segments within that. So that is part of the marketing plan. It's also part of the sales plan. We'll have to kind of build out our resale channels to include specific companies that target the types of entities versus just schools. But we have the products that flow across from all verticals and we do intend to tailor them to these and start marketing them there as well. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- Okay. And the final question we have today, big T trades are coming and have noticed that there's continuous selling from past few weeks, and it looks to be ever ending. Initially, we have understood that there are some offering mentioned in recent S1 and start realizing that there is something else we are missing. -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [28] -------------------------------------------------------------------------------- So I guess I'll addressed this question by saying we did have the S1 from the most recent raise of financing from an institutional investor effective on October 30. Under their terms, that institutional investor is held to a limitation on the dollar amount that they can convert per month. And as of today, that investor has converted their limit on the month of November. So I think that's probably the best way to answer that question. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Okay. Thank you. And that's all the questions we have today. I'll now hand the call back to Magen McGahee to make any closing remarks. -------------------------------------------------------------------------------- Magen McGahee, Galaxy Next Generation, Inc. - COO, CFO, Secretary & Director [30] -------------------------------------------------------------------------------- Thank you, Paul, and I appreciate you moderating the questions. The only opening -- I mean, the only closing remarks, obviously, for us again is we're very excited about this quarter. Our revenue impressed us. And we've been fighting hard, obviously, to keep that 100% growth on quarter-on-quarter going. We have some really large things in the pipeline in terms of contracts that have already been announced and fall under kind of our deferred backlog and accounts receivable numbers. So we're excited to about where we're at now and we will continue to be more communitive towards our shareholder base and do these calls like we have new things to share and a new quarterly earnings to report. So we appreciate you guys all joining the call today. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- Okay. Thank you. Ladies and gentlemen, this does conclude today's conference call and webcast. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.