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spk04: Good afternoon, ladies and gentlemen, and welcome to the Oxygen Communications second quarter fiscal year 2022 results conference call. At this time, all participants have been placed on a listen-only mode, but we will open the floor for your questions after the presentation. If you would like to join the queue at any time to ask a question, you may press star 1 on your telephone keypad. Should your question be answered and you wish to remove yourself from the queue, you may press star 2. It is now my pleasure to turn the floor over to your host, Carolyn David, Vice President of Finance. Carolyn, the floor is yours.
spk00: Thank you, operator. Hello, everyone, and welcome to Altogen Communications earnings call for the second quarter fiscal 2022. Joining me on the call today is Jerry Fleming, President and Chief Executive Officer, Ryan Day, our new Chief Strategy Officer, Trent Rowley, Altogen's new Chief Operating Officer, and I'm Carolyn David, Vice President of Finance. Earlier this afternoon, we issued an earnings release reporting financial results for the period ended March 31, 2022. This release can be found on our IR website at www.Othogen.com. Please note that we have added some supplementary tables with new revenue breakouts and matrix. We believe this will help improve transparency into our business and we will continue to evaluate additional matrix as our new products begin to contribute to our results. We have also arranged the tape replay of this call, which may be accessed by phone. This replay will be available approximately one hour after the call's completion and remain in effect for 90 days. The call can also be accessed from the investor relations section of our website. As a reminder, today's call may contain forward-looking information regarding the future events and future financial performance of the company. We wish to caution you that such statements are just predictions and actual results may differ materially due to certain risks and uncertainties that pertain to our business. We refer you to the financial disclosures filed periodically by the company with the OTC over-the-counter market specifically the company's audited annual report for the fiscal year ended September 30, 2021, as well as the safe harbor statement in the press release the company issued today. These documents contain important risk factors that could cause actual results to differ materially from those contained in the company's projections or forward-looking statements. Altogen assumes no obligation to revise any forward-looking information contained in today's call. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results. A reconciliation of GAAP to non-GAAP measures and additional disclosures regarding these measures are included in today's press release. Now, it is my pleasure to turn the call over to Jerry Fleming, President and CEO of Altogen, for opening remarks. Jerry?
spk03: Thank you, Carolyn, and good afternoon, everyone. Thanks for joining us for today's call. So, we have quite a few updates for you today, and we'll begin with a brief summary of our numbers for our fiscal second quarter. Carolyn will then return a little bit later in the call to review the financials in detail after commentary from Ryan and Trent. For our fiscal 2022 second quarter, we reported revenue of $2.5 million, down about 5%, which was not totally unexpected compared to the year-ago period. Now, despite the top-line performance, our non-GAAP net income increased 43%, and our adjusted EBITDA was up 44%. Our total cloud service revenue for the second fiscal quarter increased by 1.3% compared to the same period a year ago. I can succinctly describe the revenue during the quarter. Top line revenue during the quarter is more of the same. However, as we discussed during our investor day presentation on March 8th, that is about to change. We finally started to roll out many of our new UCAS customer experience as a service and CCAS products. As a result, While we're still in the early days, because these products are sold on a monthly recurring software-as-a-service basis, it will take a few quarters for those products to ramp up and start contributing meaningful revenue streams. But we are now finally in a position in which we can start building upon our existing revenues. So I'll take a few moments to look at those products and their current status. And the first is Corner Act. The latest version of Corner Act contains much of the functionality that our customers were requesting, And actually when we introduced it, they wanted more functionality, even though this had most of what they wanted, they wanted more functionality versus the initial product that we introduced. And strangely enough, they're willing to pay more for that functionality. So as a result, we had to more or less fast track two additional applications to meet those requirements that I'll briefly describe. The first was Workgroup Insights, which is a real-time reporting application built on top of Core Interact. Now, Workgroup Insights, is a unique enterprise application that displays key workgroup and individual KPIs for managers and supervisors. This is particularly useful for the large companies we're targeting with distributed workforces to supervise the business managers with a real-time view of their employees' activity and performance, regardless if they're in the office or working from home. The second application we introduced was CoreEngage. And this is a truly exciting and one-of-a-kind end-user desktop productivity application, which is also built on CoreEngage. CoreEngage presents users with a 360-degree view of their customers, which includes all customer interaction activity in a single consolidated view. This includes things such as phone calls, voicemails, instant messages, emails. Any interaction with that customer will be displayed in that single view. CoreEngage CoreEngage, I'm sorry, further integrates with a company's backend systems such as CRM, customer service systems, order management systems, and the like, and presents just the relevant data a user needs to see when a customer contacts them in order to best serve that customer. CoreEngage is really the cornerstone application for our strategy of taking the contact center to the enterprise. As such, the CoreInteract application suite, which includes CoreInteract, CoreEngage, WorkerBinSites, corner application suite both improves a company's customer engagement capabilities and increases employer productivity at a fraction of the cost of today's contact center solutions. Another new unique product is Core Attendant. This is an operator console for Microsoft Teams, which enables company operators and receptionists to quickly answer and transfer phone calls to an individual or department. It may not sound exciting, but Microsoft does not have an operator console for Teams. And pretty much every company needs at least one operator console in their business. So this is a great opportunity for us to offer core attendant on our Framium model. In this case, we offer the first instance for free and then charge for additional instances to generate revenue on that site. But we're doing this because there is no published list of companies that have deployed Microsoft Teams phone system, so it's very resource intensive to try to build such a list. By offering one copy free of Core Attendant via download from the Microsoft Teams store, we can quickly identify those companies using Teams phone system and then target those companies with our additional applications and services. Moving to the contact center, we are somewhat disappointed that the front stage admin channel contact center for Microsoft Teams is still in customer preview stage. There have been a number of enhanced requests from our customers that need to be incorporated into the FrontStage product, so it will likely be next quarter when those are completed and we can truly start taking customer orders. The good news is that the version of FrontStage for our MaxCloud UCaaS solution is ready to go and customer pilots are in process now that our new MaxCloud UC app is going through the customer acceptance testing. We do expect to launch the full MaxCloud UC platform with with the FrontStage Contact Center over the next month. Also provide a brief update on the status of our FinTech solutions. So our full suite of solutions consists of Altogen SIP trunk service that now include both caller verification and voice biometrics for secure account access. Also includes our interactive voice response or bank by phone application, our new MaxCloud UCaaS platform, and the FrontStage Omnichannel CCAS solution, all integrated into Fiserv's bank and credit union core processing platforms. As I briefly mentioned, most of these solutions are now in the customer pilot phase, and revenues will be kicking in as soon as Fiserv begins to roll these products out. I'll now turn to a topic that I'm sure is in the minds of everyone, and that is our acquisition of Zack Consulting. To briefly recap, last year we engaged an M&A firm specializing in the technology sector to identify a Microsoft systems integration partner having deep expertise in the Microsoft technology stack, and specifically Microsoft Azure and Microsoft Teams. We were not interested in resellers. It was important to find a systems integration organization which had the technical skill sets required by enterprise customers, had an enterprise customer base, and were a profitable growing company. Zach Consulting was the only company that met these stringent requirements. We had many, many meetings with the Zach executive team, and as we worked through the potential combination, the synergies between our two companies became crystal clear, essentially addressing, in which case our companies essentially addressed the same types of business challenges, Zach from a custom development and services perspective, Altogen from a software perspective, and all focused on Microsoft Azure and Microsoft Teams. As a result of the combination, along with their own product development efforts, we now uniquely have world-class solutions and services which leverage Microsoft Teams and Azure. Clearly, Teams is an important platform for us to focus on due to the tremendous growth it has seen, and it will continue to experience. Azure is equally important, not only because all of our Teams customers rely on Azure cloud services, but also because we can support an Azure deployment anywhere in the world. In fact, our development and support teams are not only in the US, but also in the UK, Taiwan, and Nepal. So we have support operations around the globe, which is really quite uncommon for a company of our size. Many of you are also aware that Altogen has historically, outside of Fiserv, largely focused on the SMB market. This is only because we did not have solutions suitable for enterprise customers. It has been our objective for some time to move up to the enterprise space, and now we have the solutions and service capabilities enabling us to do so. I should also point out that most of the Altogen people and all of the ZAC people come from enterprise backgrounds, so we are well-versed in what it takes to sell, service, and support enterprise customers, and the combination of Altogen and ZAC as well positioned to become a lead provider of teams, solutions and services. Now at this time, I'd like to turn the call over to Ryan Day, founder and CEO of Zach Consulting and now Altogen's Chief Strategy Officer. Ryan?
spk01: Thank you, Jerry, and good afternoon everyone. It's certainly my pleasure to join the call today. I'd like to spend a few minutes talking about my perspective on Altogen acquiring Zach Consulting. As has been noted on several occasions, I was not looking for a company to acquires act. Altogen really impressed me with the type of business it was. And I thought there was a great fit for existing employee base from a culture and focus perspective. After several discussions with the executive team at Altogen and doing some research on my own, I decided to move forward with the transaction. Jerry and his team's understanding of the communication side of Microsoft and their firm grasp on where the future of Microsoft is headed, which in my opinion is Teams, was a very attractive proposition. And they've been very accommodating to ensure that our team feels comfortable and that we fit in with the existing organization. Now that we are fully closed and acquired, it's time to roll up our sleeves and get to work on the integration. We are one company that can use all the information, connections, experience, and abilities to move us all forward at an accelerated pace. As Chief Strategy Officer, my goals are to focus on our partnership with Microsoft and to help us work with large key clients. With Microsoft, we realize that we not only need to be acquainted with the Microsoft teams in the field, but we need to have some significant insight in relationships with leaders in Redmond and other areas. These relationships and ensuring that we are in lockstep with Microsoft is what I have been tasked to do at Altagen. I'm currently meeting with local Microsoft contacts looking for introductions and advice on how to grow our partnership. I've also found that many Altogen employees have great relationships with Microsoft, and I plan on tapping into that to help our cause. One of the items we want to work on quickly is to become a managed partner with Microsoft, something that Zach has experience doing. To us, this is a stepping stone to becoming a larger, bigger player with Microsoft in all we need to do. As far as working with key clients, we have found great success in helping large enterprise customers utilize Zach's consulting depth to leverage Microsoft products for internal business process automation. When we combine this with Eldogen's Teams products, we feel like we can be a very strategic company in working in both areas with the clients. Already, we have had several combined demos with existing clients, and there have been significant interest in learning and engaging more with the combined offerings. Now I'd like to introduce Trent Rowley, ZEC's President and COO, and Eldigen's new Chief Operating Officer. Trent?
spk02: Thanks, Ryan. And hello, everyone. I'm excited to be on the call today and to make everyone's acquaintance. My excitement for being here centers mostly around the main ideas that Jerry and Ryan have presented thus far, specifically the combined opportunities we can now bring to clients and our collective employee base that will drive shareholder value. Over the years, ZACT has been successful at tackling technical business systems projects for large clients centered mostly around Microsoft technologies and in optimizing per customer revenue and profit. However, we have not had our own product portfolio to complement our custom development and to offer an alternative delivery model to our clients that will generate reoccurring revenue for our company. Conversely, Altagen, has a highly successful reoccurring revenue-based product offering, which has served clients focused on a specific need, but they have lacked the customization capabilities that ZACT brings to the table. Today, and together, we will be able to maximize per customer revenue and profit potential, bring a higher level of service to our customers, provide a desirable company for current and potential employees, and an attractive opportunity for investors. As the President and COO of ZACT, I focused on driving company efficiency to ensure a competitive and desirable offering in the marketplace, to maximize company value and stability, and to ensure our ability to hire and retain top talent in a competitive employment market. As the Chief Operating Officer of Altagen, my focus will be similar, with an initial efforts being focused on the following, integrating the two companies' systems people and processes, keeping the best and essential parts of both companies and ensuring current activities continue successfully. This includes identifying and improving areas of inefficiency and or ambiguity to drive more revenue per employee to better our ability to exceed customer expectations and to allow for the information to drive management decisions. If we execute on this successfully, we can drive company growth and profitability by setting definable, reachable, and measurable contribution targets across the company and provide employees the support to succeed while holding them accountable to these targets. Ultimately, my efforts are designed to increase shareholder value by ensuring Altagen delivers sustainable growth and profits. Thank you for your time today. Now I'll turn the time back over to Carolyn David, Altagen's VP of Finance. Carolyn?
spk00: Thank you, Trans. Total revenue for the quarter was $2.5 million, down approximately 5% on a year-over-year basis. This decline in total revenue was driven primarily by decrease of roughly 26% in our legacy products revenue. Legacy products are primarily comprised of perpetual software licenses and software assurance revenue. As discussed on our previous calls, We expect this trend to continue until we start to ramp revenue from our new product lines in the coming quarters. Gross margin was 70% compared to 73% in Q2 last year, representing a decrease of approximately 300 basis points. The decrease in gross margin was primarily driven by higher amortization costs for capitalized software and a shift in our product mix. Gap net income and EPS for the current quarter was $65,000 and break even compared to gap net loss of $336,000 or negative one cent per diluted share in the prior year quarter. On a non-gap basis, net income increased 43% to $300,000 or one cent per diluted share. and adjusted EBITDA increased 43.7% to roughly $300,000. Turning to the balance sheet, we continue to generate cash this quarter. We ended the quarter with $7.2 million in cash and cash equivalents, up 6% compared to the preceding quarter. Working capital was $6.1 million compared to $5.8 million in the prior year quarter, representing an increase of approximately 4%. This concludes the financial review summary. I will now turn the call back over to Jerry. Jerry?
spk03: Thank you, Carolyn. And I guess I have two messages I'd like to make sure I impart today. One, we finally have a very significant number of new solutions that are finally coming to fruition, all focused on the enterprise market. And number two, those new products combined with our new enterprise services capability with Zach puts us in a great position to start really gaining traction in the market. And stay tuned on future earnings calls where we can update you further. So at this point, I'm going to turn the call back to the operator for questions. Operator?
spk04: Thank you. Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question at this time, you may press star 1 on your telephone keypad. to enter the queue. If listening on speakerphone today, we ask that you please pick up your handset to provide optimal sound quality. Once again, ladies and gentlemen, please press star 1 on your telephone keypad now if you would like to enter the queue to ask a question. Please hold a moment while we poll for questions. And your first question today is coming from . , your line is live. Please announce your affiliation and then pose your question.
spk05: Hey, Jerry, thanks for taking a few questions here. Great to see the products finally out the door in March. Can you talk a little bit about the pipeline today? What has the early response been? And maybe what are the range of opportunities you're seeing in terms of seats?
spk03: Yeah, thanks for the question, Neil, and thanks for joining. That's a good question. I'm going to really focus on Core Interact. Core Interact, as I mentioned, is the cornerstone of our growth strategy. And as you know, that's a fairly new product with the new application. So we have right now in our pipeline for coordinator act, and I'll just round it off to around 30 customer opportunities that are, when I say opportunities, these are customers evaluating our product, moving to a pilot phase, moving to some sort of a proof of concept, but in some sort of evaluation process, the total seats represented by those customers is in excess of 4,500. So now, Can I give you a forecast and say how many are we going to close or how quickly they're going to close? No, but I think this certainly signifies the, let's say, the reception in the market we're getting with Core Interact. There's nothing else like it. There's nothing like Core Engage. And I think it will serve as a good benchmark, right, for future revenues to come.
spk05: All right, thanks. I know you've talked in the past about some of these opportunities being – I don't know, as small as 100 seats, but as large as several thousand seats. You mentioned 30 opportunities, 4,500 seats. Is there a bit of a land and expand dynamic here? How should we think about the seat number you gave and what we might see from you starting to get engagements with some of these entities?
spk03: That's a good question. Some of these companies are, let's say, Small and mid-sized companies, 200, 300 employees, something like that, and some are over 5,000, 10,000, 20,000 employees. And so, yes, the numbers I gave is a fairly broad range. Now, for those very large companies, I'm giving you sort of the early forecast because we do expect to have a land and expand. And hard to say right now, Neil, given some numbers on prior calls and investor days, I think that anybody using a CRM product in one of these companies is a target for us, and that's lots and lots of users in excess typically of 20% of the employees. Now, can we hit that? We're going to find out, but I think that's the realistic potential. We're looking at a total number of employees and our total opportunity, but we've got to prove our ROI first and work it up from there.
spk05: Okay. 30 opportunities. Have you guys had any bookings yet? And if so, can you maybe quantify, you know, what you expect the sales cycle to look like and what the number of bookings have been?
spk03: I'll have to defer to Carolyn on bookings. I know it's probably some small bookings at this point where most of the people are proof of concept because they've been waiting for the core engage and work with insights applications. So, you know, it's probably not, if there is much, it's not much, which is why I don't know what it is. Or else it would know, but, um, and so what was the second part of your question on that one?
spk05: Uh, the second part was how long do you expect the sales cycle to be? Uh, you've got 30 opportunities moving into pilot proof of concept. Um, you know, how long might that, that pilot phase need to be?
spk03: Sure. And that's kind of a tricky question because it really depends on where you catch the customer in the sales cycle and some don't do anything. So I don't know how to calculate that number. But normally what we'd expect to see, you know, with a core interact is if there's really an active project, not to exceed 90 days start to finish. Some can be a lot quicker. It's kind of tough to do faster than 30 days just because there's a corporate paperwork. But so I think you could say 60, but, you know, I'd be more comfortable saying as a, you know, probably 90 is a little safer number. Okay.
spk05: So some minimal bookings thus far, which isn't a surprise. The product launched in March. but you're seeing great traction. And it sounds like it's fair to say that when you report next, you'll probably be able to talk in much greater detail about the bookings behavior, you know, in the current quarter. Is that fair?
spk03: I think so. Yes, it is fair. And just to maybe provide a little more color, so we're coming out, the base Core Interact product is $15 a user. It's an additional $15 for Core Engage. That's for voice. And the next phase, and you've heard Mark Allen give his phase one, two, and three. When we get to the next phase, we'll be adding SMS and email and some other capabilities in. Those are all $15 as well per user. So we're going to be at this range somewhere between the very base license of $15 up to probably a bundle around $60 or $75, depending on how deep somebody goes in. So what we'll see over time is not only increased number of users, but we should also see ARPU going up. So early on, you know, it'll start with the base stuff. We only have two licenses out right now. But over time, you know, we're going to be able to grow up both ways. So I think at least we'll be an indicator, you know, of how we're doing at the end of this quarter when we can report some numbers for you guys. Okay.
spk05: And then one quick question about ZACT and their customer base. What is the opportunity or what might the opportunity be with the companies they're already working with? Can you tell us anything about those companies or, you know, the profile of them? And is that something that may be some, I don't know, low-hanging fruit for you guys?
spk03: I can. I'm going to defer to either Trent or Ryan. I do know the answer to that, but I'm going to refer to the experts here because they have been involved with the introductions of Altogen to some of their larger customers, and I think they can probably give you a better picture, Trent or Ryan, if you guys could jump in on that one.
spk02: Yeah. sure i can uh jump in so yep no problem at all um so generally speaking we work with a uh enterprise level mid mid-sized enterprise level clients we've actually already introduced altogen into a very large non-profit agency we've introduced them into one of the largest credit unions in the in the country and then as well as some of our other clients so That process of integration is already happening as far as the clientele that we have currently. I don't know if we want to go into any more detail than that. I will say that our client base, because we do focus on the larger clients, it's not as many clients, but each client has the potential of larger and more complex projects and needs.
spk05: Thanks. That's a helpful color. I'll step back and let some others ask, but I appreciate everyone's time. Thank you. Thanks, Neil.
spk04: Thank you. And there are no further questions in queue at this time. I would like to pass the floor back to management for closing remarks.
spk03: Okay, well I'd like to thank everyone for joining our call and it was a busy week this week with some folks at the industrial conferences. We certainly appreciate your participation and we look forward to updating you on our next quarterly call. Thank you very much.
spk00: Thank you everyone.
spk04: Thank you ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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