Altigen Communs Inc

Greetings. Welcome to the Altogen Communications fourth quarter and fiscal year 2023 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Carolyn David. You may begin.

Thank you, John. Hello, everyone, and welcome to Altogen Communications earnings call for the fourth quarter fiscal 2024. Joining me on the call today is Jerry Fleming, President and Chief Executive 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 September 30th, 2023. This release can be found on our IR website at www.altigen.com. 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. Before we begin our formal remarks, we need to remind everyone that today's call may contain forward-looking information regarding 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 OTCQB over the counter market. specifically the company's audited annual report for the fiscal year ended September 30, 2022, 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. Oxygen 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 for opening remarks. Jerry?

Thank you, Carolyn. Hello, everyone. Thanks for joining us on today's call. I'm first going to review our fiscal 2023 results, and then I'll proceed with an update on our business plans and opportunities. After that, I'll turn the call back to Carolyn for a detailed review of our Q4 and full-year FY2023 financials. So earlier today, we reported revenue of $13.7 million for our fiscal 2023 year. That was a 15% increase compared to our fiscal 2022 performance. On a P&L basis, we reported a gap loss of approximately $3.3 million, largely due to the non-cash tax-related expense of expiring NOLs. On a non-GAAP basis, we recorded a net profit of $300,000 for fiscal 2023. Our FY2023 cloud revenues were essentially flat compared to FY22. This can primarily be attributed to the relatively late in the quarter release dates of our new solutions. As a result, we did not experience substantial revenue contribution from those solutions in FY23. We do expect that to change and realize a much more significant revenue contribution in FY24. Our FY23 services revenue increased by 117 percent versus FY22, which was largely a function of our acquisition without consulting in FY22 and not contributing to the Altogen full revenue picture for that year on a comparative basis. I'll now move to a discussion of Altogen's current state of business. Our legacy on-premises MaxCS PBX business declined year over year due to new releases now only available via our cloud solutions. As such, many customers not wanting to move to the cloud have opted not to continue to pay for their software assurance or software maintenance programs. Since we no longer offer on-premises solutions, we expect to continue to experience a decline to zero in this business. but it is a business model that we can no longer profitably maintain. Moreover, we expect much, if not all, of that decline to be offset as the majority of those on-premises customers migrate to our new cloud-based UCaaS solutions. Regarding our legacy-hosted MaxCS PBX business, we've also been facing headwinds as one of our resellers has been migrating legacy-hosted MaxCS customers to a non-altogen cloud solution. The impact of this, which has been going on for quite a few quarters, is diminishing each quarter and should largely be behind us in the next handful of quarters. As many of you know, we've been working on the introduction of a new UCaaS platform called MaxCloud, which will replace both the legacy MaxCS on-premises and hosted products. While we haven't yet gone into full launch mode, we have been actively putting initial customers on the new MaxCloud platform. To date, we have 20 customers representing approximately 600 subscribers on the Numax cloud platform. A full launch is planned for calendar Q1, in which we'll target initially our approximately 500 on-premises customers that still remain, which collectively have roughly 15,000 active users, as that customer segment represents the largest incremental revenue opportunity for Altagent. will secondarily target for migration to MaxCloud our current 300 plus hosted MaxCS customers. We'll prioritize those based on their need and desire to adopt a full unified communication solution. Transitioning to Fiserv, which is our largest business partner at 17 billion in revenues and the world's premier financial services solution provider, our cloud business with Fiserv grew approximately 10% in FY23 versus FY22, all based on customer ads for a new UCaaS solution and the front stage contact center. Fiserv also has a base of approximately 90 legacy Mac CS customers, both on-prem and in the cloud, who are targeted for migration to the new Mac's cloud platform and front stage. However, meeting Fiserv's restrictive security requirements has proven to be quite an arduous task and has delayed the start of that migration process. However, we are now very close to resolution of those issues, and this will enable Fiserv to soon begin the migration of their legacy Altagene customers to our new cloud solutions. Once this happens, we will realize additional incremental from those customers from the new MEXcloud platform. Continuing with Fiserv, the first customer has now gone live on our new secure SIP customer, our new secure SIP service, which both authenticates the device a caller is using to access an account and uses voice biometrics to confirm the caller's identity. Together, these technologies are highly effective at preventing fraudulent access to customer accounts. The revenue to Altagen from the first customer is approximately $7,500 per month. This is right in line with our expectations for the average secure SIP customer to generate revenue between $5,000 and $7,500 per month. To provide some context on the revenue opportunity, Fiserv plans to target all 1,500 bank and credit union customers using our IVR with the new secure SIP service. Finally, turning to the services side of our business, we acquired a Microsoft Gold partner, Zach Consulting, about 18 months ago. Now that we've fully integrated ZACT into the Altogen business, we're in the position to start driving growth. On our previous earnings call, I referenced the fact that a State Department of Transportation customer recently extended our current contract with them for an additional year to the tune of $3.5 million. That same state agency further awarded a bid to Altogen for a new long-term contract in the amount of $12 million over five years. Just last week, we received the contract for that bid for signature. We're now just waiting on a counter-signature from the state agency to formalize the agreement and get started work on that new agreement. To further drive our services business forward, last month we hired a new director of consulting services who has extensive experience in software development, project management, and IT consulting. He initially will be focused on managing and growing the opportunity with our State Department of Transportation customer, but will also be targeting new customer logos in targeted vertical segments in order to accelerate growth in our overall services business. Unfortunately, due to confidentiality, I can say that requirements, I am precluded from disclosing more information at this time on that topic, but I do hope to be able to do so on our next earnings call. On that note, I'd like to spend a few minutes on Altogen's future state. We've made a number of adjustments in our business model and in the organization structure to prepare for some exciting new opportunities which will accelerate our business growth. From a practical perspective, UCaaS and CCaaS solutions are fast becoming commoditized. As an example, for Microsoft Teams alone, 38 vendors have either had their CCaaS solutions certified by Microsoft or they are currently going through that process. Of course, Altogen will continue to offer both UCaaS and CCaaS solutions as companies are still in need of those solutions and we do have a SysMul customer base to maintain. However, In order to truly accelerate growth, we need solutions that offer a unique customer value proposition, are easily cost justified, and can address markets which have a revenue potential to Altagen of a minimum of $50 million in annual revenue. With that in mind, given that our number one vertical market is financial services, and our number one partner is a $17 billion market leader, we are going to focus our initial efforts on Fiserv. On top of the AI capabilities we're adding to the IVR solution, we will fast follow with web chat-based conversational AI leveraging Azure OpenAI and Azure AI Services, otherwise known as ChatGPT. Now, unlike most vendors who position their AI solutions in this space as essentially 24 by seven customer service assistance. Because of our backend integration to Fiserv core banking software, Altogen will also be able to offer the ability for banks and credit union customers to increase sales of their financial products via conversion of website visitors, all based on the new AI technologies that we'll be introducing. We're targeting calendar Q1 for prototypes of the new AI service with the first preview customers coming on board in calendar Q2. Since the requirements are virtually the same for all banks and credit unions, as we gain traction with Fiserv customers, we will make the new AI service available to all 9,000 plus banks and credit unions in the US. We're further developing plans to offer a series of interrelated but independent web-based AI analytics solutions targeted at the financial services vertical. These new applications are being designed for customer self-service, meaning bank and credit unions can sign up via the web and get started without Altogen having to go through extended sales cycles. Clearly, this model is designed for scale. Assigning context to the opportunity for these new AI FinTech solutions, the price points for each unique application will be in the range of $500 to $1,000 per customer per month. So doing the math, every 1,000 customers for each application will be expected to generate $500,000 to $1 million per month in revenue to Altogen. Now, that concludes my review.