Altigen Communs Inc

Good afternoon, ladies and gentlemen, and welcome to the Altogen Communications third quarter fiscal year 2022 results conference call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Brian Siegel. The floor is yours.

Thank you. Hello, everyone, and welcome to Altogen Communications earnings call for the third quarter fiscal 2022. Joining me on the call today is Jerry Fleming, President and Chief Executive Officer, Trent Raleigh, Altagen's Chief Operating Officer, and Carolyn David, VP of Finance. Earlier this afternoon, we issued an earnings release reporting financial results for the period ended June 30, 2022. This release can be found on our IR website at www.altagen.com. Please note that we have added some supplementary tables with new revenue breakouts and metrics. We believe this will help improve transparency into our business, and we will continue to evaluate additional metrics as our new products begin to contribute to our results. We have also arranged a 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 future events, and the 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. Refer you to the financial disclosures filed periodically by the company with the OTCQB over-the-counter market, specifically the company's audited annual report for the fiscal year ended September 30th, 2021, as well as the safe harbor statement and 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 the results. Reconciliation of GAAP to non-GAAP measures and additional disclosures regarding these measures are included in today's press release. Now I'd like to turn the call over to Jerry Fleming for opening remarks. Jerry?

Thanks, Brian, and good afternoon, everyone. Thank you for joining us for today's call. So I'll start off the call today with a brief update on our various business initiatives. Following that, Trent will speak about the integration of our recent acquisitions at consulting with Altogen. Then he'll turn over the call to Carolyn to review the financials. So as a reminder, over the past 20 years or so, we have transformed from an on-premises, hardware-centric company to an on-premises, all software-centric solution with our products, and ultimately to a hosted cloud solution. However, as unified communications technology has evolved, and advanced, customer needs have also evolved. Therefore, our older MaxCS, very PBX-centric technology, is no longer state-of-the-art. And while our hosted MaxCS products still represent the vast majority of our cloud revenues, it became clear that we needed a more modern architecture to drive growth and enhance margins. Our solution to that was to introduce MaxCloud, a new geo-redundant, multi-tenant, complete UCaaS platform. Not only does MaxCloud overcome the challenges we were experiencing with MaxCS, more importantly, it gives us the opportunity to grow our UCaaS business based on the MaxCloud enhanced architecture, integrated UC functionality, and new mobile applications. MaxCloud will be formally released next month and will be sold through our strategic partnership with fintech giant Fiserv and through Altogen's legacy channel partners. Fiserv integrates our products into its core account processing platforms, and exclusively hosts those products in its own data centers sold under the Fiserv branded Converge IT name to its financial services clients. Fiserv currently has about 100 legacy on-premise and hosted Mac CS customers, with the latter accounting for about one-third of these customers. In total, there are about 3,500 seats, that Fiserv plans to migrate to the new MaxCloud platform, initially targeting the migration of existing hosted MaxCS Cloud customers. Well, this is good news in and of itself. Most of these customers also have the requirement for our new front stage contact center platform. Additionally, due to the heightened security risks for banks and credit unions, our secure access SIP trunk solution, which includes color authentication and voicemail metrics is also a very appealing add-on to most Fiserv customers. So as these customers migrate to the new MaxCloud platform, we see the potential for significant upselling opportunities. Now to quantify this opportunity today, because many Fiserv customers deploy our full solution suite, the average revenue from those customers as they migrate to the cloud is roughly 10 times what we see from an on-premise customers. And as the Fiserv customers adopt MaxCloud, what we're seeing on average is that a smaller customer would spend approximately $3,000 per month on an altogen solution, while a midsize customer can be expected to spend about $8,000 per month on the altogen solution. And then the larger customers typically look to be spending an average of $20,000 or more for the altogen full suite of solutions. Again, these numbers still can go up, fairly significantly due to ups on the front stage and other ancillary products. In addition to its plan to migrate current MaxCS customers to MaxCloud, of course, Fiserv is also targeting its broader base of approximately 5,000 banks and credit unions that are Fiserv customers that do not currently use the MaxCS system. And of course, pitching the entire MaxCloud and Altagen solution suite to those customers. During our third quarter, and as part of an advanced deployment, Fiserv rolled out their first customer on the combined MaxCloud and FrontStage platforms. This particular customer is a regional bank with $4 billion in assets and is a net new customer for Altogen. To date, the feedback has been very positive from both Fiserv and the bank for the new solution. In addition to this customer, Fiserv has either secured or submitted quotes for another dozen contracts with their customers, So there is truly movement from Fiserv with our new fintech solutions as we're seeing good progress here. In summary, the opportunity with Fiserv is tremendous, and we believe that as Fiserv transitions existing MaxCS customers to the MaxCloud and front-stage platforms, as well as adds net new customers, the partnership will drive mid- to long-term revenue growth opportunities for both Fiserv and Altagym. The next sales channel that I'd like to address is our legacy MaxCS customer base, many of which have been sold to and are supported by our longtime channel partners, which we tend to call legacy channel partners. Today, we have roughly 500 on-premises customers that have not yet migrated to a cloud solution, which are our initial targets to upgrade to MaxCloud since they represent the greatest risk. We also have another 350 or so MaxCS Cloud customers, which we plan to migrate to the new MaxCloud platform. In total, these two customer bases, one on-premise, one in the cloud, have about 32,000 potential subscribers and certainly weighted a little bit more heavily on the on-premise customers, but we're targeting all of them to convert to MaxCloud. I should also point out that converting our on-premises customers brings the biggest bang for our buck as we estimate the incremental revenue per customer on our on-premises customer I'm talking about to be about $400 per month from what they're currently spending. As a secondary benefit, these customers will help scale a more efficient cloud architecture, essentially lowering our cost per customer as we bring them onto the platform. Additionally, Given that our existing hosted MaxCS customers are already cloud customers, we really don't expect a significant revenue boost here. But the opportunity with these customers is really about the margin enhancements by moving them onto our newer, much more cost-effective architecture, which is MaxCloud. To date, we have signed seven contracts for MaxCloud with early adopters. including five existing customers that will transition from Mac CS on premise to the cloud and to net new customers. A typical small business customer for Altagen has between 20 and 50 seats or subscribers. Well, the average sizes course a little bit toward the higher end of that range. Two of the seven customers that I've just mentioned are fully deployed. Two are in the deployment process and the remaining customers will deploy fairly soon. Overall, we do expect it will take somewhere around 18 months, perhaps 24 months, to migrate all of our current MaxCS customers onto the new MaxCloud platform. But that being said, clearly now the MaxCloud train has left the station and the momentum is building. So with things progressing nicely with our UCaaS platform, which is MaxCloud, and our CCaaS platform, which is FrontStage, let me now provide an update on our Microsoft Teams solutions. So I'm first going to discuss the overall market opportunity with Microsoft Teams. The most recent data we have from Microsoft is that there are approximately 275 million monthly active Teams users. Microsoft has further reported that more than 100 organizations have more than 100,000 Teams users and nearly 3,000 companies have more than 10,000 Teams users. Now, interestingly, these numbers have tripled just since 2019. The specific opportunity for Altogen is with Microsoft Teams phone system, which we enhance and extend with our suite of Teams applications. As I previously mentioned, and as it still stands today, we believe Altogen has the most comprehensive suite of Teams phone system solutions on the market anywhere. While Microsoft does not publish the number of Teams phone system users, There was a very informative article published by No Jitter this past June entitled Why 80 Million Microsoft Teams Users is Just the Beginning. In the article, the author extrapolated the number of Teams phone system users based on the various data presented by Microsoft. The number he came out with equates to between 27 and 54 million Teams phone systems licenses, which are roughly in line with our own internal estimates and certainly demonstrate the massive potentials of this team's market opportunity. Let me just repeat those numbers. 27 million to 54 million Teams phone system licenses, those are organizations using Teams as their phone system or users using Teams as their phone system compared to the 275 monthly active users. So we'll call it anywhere from 10% to 20% of those users now have probably migrated to Teams phone system, giving us the market opportunity. And as we discussed previously, the real home run opportunity for Altagene is Core Interact, which is our digital customer engagement platform for Teams phone system. Now, to brief for the review, Core Interact is actually comprised of three integrated applications. First is the base Core Interact product, which includes the engine for routing and queuing customer requests along with a systems administration module. Second, a tightly integrated application is Workgroup Insights, which is a desktop reporting application for line of business managers and supervisors, which displays real-time performance statistics for either a workgroup or an individual in that workgroup for the supervisor. This is actually particularly important in a distributed workforce and work-from-home environment, as Workgroup Insights provides managers and supervisors with critical KPI information that simply isn't available otherwise. The third application is Core Engage. Now, this is a new application that integrates with Core Interact on the back end and presents users with a 360-degree view of their customers in a single consolidated screen. Core Engage also integrates with a company's CRL or other business applications to display relevant customer data from those systems along when a phone call is answered. So I want to take a moment to explain the significance of this. Virtually every midsize to large organization has deployed some type of CRM solution. CRM, by the way, stands for customer relationship management. And every such organization has deployed a business phone system, which we can consider to be both an internal and customer communications platform. Obviously, it's used for both. Today, outside of a contact center, there is typically little integration between a company's customer relationship management platform, or CRM, and the company's customer communications platform, or phone system. Now, why is that? The primary reason is that organizations are simply not willing to pay the $200 to $500 per user per month charged by the contact center vendors to integrate the communications platform into for a company's dozens or hundreds or even thousands of CRM users. Just doesn't, isn't gonna happen. Core Engage, along with Core Interact, integrates these two platforms so that every communication with a customer is inextricably linked to the customer's CRM record, all accessed and displayed within the Core Engage application, which, by the way, is a native Teams application. This is all accomplished for $30 to $60 per user per month. which depends on the customer's requirements, compared to the $200 to $500 a month that a customer would spend for a contact center solution. This creates the opportunity for Altogen in the enterprise. Now, there are tens of millions of users of customer relationship management systems, and as discussed, tens of millions of Teams phone system users available for us to target to deliver our integrated solution on a highly cost-effective basis. Regarding our progress with the core Interact solution suite, to date, we have about a dozen paying customers. We've also provided approximately 50 new quotations to prospective customers, which generally range in size from 10 users to 250 users. While we don't have enough empirical data yet to project our quotation-to-close ratio, we do expect that a reasonable percentage of these quotations will result in closed business. Over time, we also plan to execute a land and expand strategy to add new departments with an existing core Interact customer to drive further revenue opportunities. And we'll certainly keep you posted on our progress on each of these quarterly calls. Moving to front stage for teams, as I discussed earlier, we are building momentum with front stage on the MaxCloud platform. However, the Teams version is still not quite ready for general release, and realistically, it will be available sometime in calendar Q4 before we can truly start selling the product. Now, before I turn the call over to Trent to discuss our consulting and professional services business, I do want to remind everyone that we did not acquire ZACT for their current business, which is large project-oriented custom development services, but instead for their broad technical expertise on the Microsoft platforms. These skills are absolutely required to deploy Altogen's new enterprise solutions. I'm sure Trent will talk about this more. So, Trent?