Altigen Communs Inc

Greetings. Welcome to the Altogen Technologies fourth quarter and fiscal year 2024 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. Thank you, John. Good afternoon, everyone, and welcome to Altogen Technologies' earnings call for the fourth quarter fiscal 2024. Joining me on the call today is Jerry Fleming, President and Chief Executive Officer, Jill Hamlin, Chief Digital and Transformation Officer, and I'm Carolyn David, Vice President of Finance. Earlier today, we issued an earnings release reporting financial results for the period ended September 30th, 2024. 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 OTCQP over-the-counter market. specifically the company's audited annual report for the fiscal year ended September 30, 2023, 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 projection or forward-looking statements. Altogen assumes no obligation to revise any forward-looking information contained in today's call. In addition, during today's call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or replacement for the comparable GAAP measures. However, 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. With that, I'll turn the call over to Jerry Fleming for opening remarks. Jerry?

Thank you, Carolyn, and good afternoon, everyone. We appreciate you joining us for today's call. Today, we're pleased to share our financial results as well as provide updates on our progress across key areas of the business. Following my remarks, Joe Hamblin, our Chief Digital and Transformation Officer, will discuss our strategic execution and operational initiatives, followed by Carolyn, who will provide a detailed review of our financial results. Earlier today, we announced our fiscal Q4 and full-year 2024 financial results. While the full-year revenue remained relatively flat compared to the prior year, our fiscal Q4 revenue of $3.7 million marked a 14% increase over the prior quarter and a 7% increase year-over-year. Notably, this was our highest quarterly revenue in over a decade. Fiscal 2024 net income was approximately $1.6 million, which included a one-time accounting adjustment of $1.8 million related to accrued tax liabilities. And while we incurred gap losses earlier in the year, in Q4, we generated operating income of approximately $223,000 representing our second consecutive profitable quarter. While we recognize there's still significant work ahead, we are pleased with the direction the business is heading. Let me now provide an update on our key business transformation initiatives. Beginning with our legacy MaxCS PBX business, we continue to focus on migrating our legacy on-premises and hosted PBX customers to our cloud unified communications or UCaaS platform. To date, we've transitioned approximately 30 customers to this platform with plans to migrate the remaining 400 or so legacy PBX customers over the next 18 to 24 months. We're also planning for a major upgrade to our UCaaS platform, which is scheduled for release in fiscal Q2 2025. This new version will offer significantly enhanced functionality and allowing us to accelerate migrations and reverse declining revenues in our legacy business, and ultimately driving moderate growth in our UCAS division. Transitioning to Fiserv, in a similar fashion to our PBX migration plans, we're working closely with Fiserv to accelerate the migration of their legacy MaxCS PBX customers to the cloud, as well as to increase the adoption of our UCAS platform across their 5,000 customer base. Additionally, we're making advances in Altogen's new contact center solution, CoreEngage, which is offered under the Fiserv brand. The new contact center enhancements include streamlined call center agent and supervisor desktop applications, full omni-channel support, and by that I mean phone calls, web chats, SMS, emails, and social media all processed on the same platform, And we also will offer this along with aggressive new price points. We're in the planning phase with Fiserv now regarding the rollout of CoreEngage with more details to follow on subsequent quarterly calls. Finally, we're continuing to collaborate with Fiserv on the development and launch of our new AI-based conversational IVR solution, which will be offered by Fiserv as their standard IVR solution. For the 1,500 current IVR customers, the new IVR will be offered as a fee-based upgrade. Originally scheduled for release in October, the launch date has been moved to this coming April, but the good news is that Fiserv is marshalling their resources to launch the product in a big way. Collectively, these initiatives have the potential to drive tens of millions of dollars in new incremental revenue for Altagen, course, based on achieving our customer adoption targets. We will continue to provide updates on a quarterly basis going forward. Moving to our solutions for Microsoft Teams, our Microsoft Teams line of business was relatively flat in FY24, primarily as a result of delays in the delivery of our planned Teams contact center solution. We addressed that issue in fiscal Q3 and paving the way for the Q4 launch of our new contact center platform for Teams, CoreEngage. The early customer adoption is promising, with five customers now live on the CoreEngage platform, with a number of additional opportunities in our business pipeline. We're also pleased to announce our approval as a vendor for British Telecom, now known simply as BT, CoreEngage has been selected by BT as part of their solutions portfolio for Microsoft Teams. Additionally, BT has chosen to include CoreEngage in the BT Customer Experience Center, a location in which they demonstrate how leading-edge technology solutions can drive digital transformation for their customers. BT has just deployed their first CoreEngage customer and has plans to roll out the solution to their enterprise sales team in calendar Q1. Shifting to AI, artificial intelligence is one of the hottest topics in enterprise IT today. To address this opportunity, we've had a key focus on developing a comprehensive AI platform designed to deliver an end-to-end trusted AI solution for the B2B market. Our new Ensembl AI Platform is a scalable multi-tenant solution enabling our customers to manage and utilize data securely, access multiple AI backend engines, and deliver insights tailored to the unique needs of that customer. The first iteration of Ensembl AI is our new Core Engage AI chatbot, which provides 24-7 web-based customer self-service. We're also integrating core AI capabilities into our Fiserv IVR solution to deliver actionable insights for financial institution executives, aiming to enhance customer experiences and drive incremental revenues. Our future plan is to integrate core Engage AI directly with our AI IVR solution, which will enable seamless customer interactions across digital and voice channels, all without the need for live customer service agents. Regarding our consulting services division, under the leadership of Sharik Shaikh, Altagen Consulting Services, or ACS as we call it, has demonstrated consistent growth. Much of our current success stems from the expanded business partnership with the Connecticut Department of Transportation. We're now in the position of gearing up to go after new customer logos focused on our AI and digital transformation consulting services. We're also leveraging synergies between our consulting services and software engineering teams to provide customers with AI solutions tailored to their unique business needs, while also building recurring revenues through a managed service delivery model. To summarize, we've made meaningful progress in transforming the Altigen business, achieving our second consecutive profitable quarter, and laying the groundwork for sustainable growth across our lines of business. I'll now turn the call over to Joe Hamblin, who will provide additional insights into our business progress. Joe?

All right. Thank you, Jerry. Good afternoon, everyone. As I've done in previous earning calls, I want to begin by providing updates on our three key operational excellence initiatives that serve as a foundation for Altogen Technologies' ability to scale and compete in the years ahead. Those areas are operational efficiencies, financial stewardship, and our favorite, product delivery. Let's dive into each area and give you a recap. For operational efficiencies, our ongoing efforts remain the same. That's to modernize, optimize, and automate, and those remain as a central focus as we position altogen technologies for long-term growth. Our overarching mission is simple, to make altogen technologies easy to do business with. A significant milestone in this regard is the successful launch of our solutions delivery platform. The first iteration allows customers to order and provision SIP services and Teams direct trunk routing seamlessly. Looking ahead, we will anticipate rolling out significant services, additions, and enhancements to the portal over the next six months. On the financial stewardship front, again, our focus on modernization, optimization, and automation continues to yield tangible results. I'm pleased to report that the Altogen Technologies team has successfully reduced fiscal 2024 operating expenses by over $1 million as we head into fiscal year 2025. We still have opportunities to improve, specifically with the continued customer migration to our modern SIP services platform. To date, we've transitioned over 12,000 lines of nearly 31,000 lines in service. and we remain on track to complete the migration during our fiscal Q2. The results in an annualized savings of $150,000 of additional savings. As I've mentioned before, financial stewardship will always be part of our core DNA. Turning to product delivery, the most critical pillar of our transformation and the enabler of our future revenue growth for Altogen Technologies, I want to remind everyone last quarter, Jerry and I committed to the successful launch of our team's omnichannel contact center solution, CoreEngage. I'm excited to share that we have delivered on that promise. Since the soft launch in late September, we've already implemented five successful customer deployments. And as someone who reviews our sales pipeline daily, I can confidently say that while it's still early, customer feedback and interest we've received make me very optimistic. It's important to understand the strategic value of CoreEngage. With CoreEngage, we are positioned to provide our customers with a comprehensive full stack journey with the Microsoft Teams environment. From early adoption with our PBX migration service, to cost containment by leveraging our competitively priced Teams direct trunk routing, to enabling simple support functions with Microsoft Teams call queues. And finally, with our advanced capabilities with our team's native omni-channel contact center solution, Altogen Technologies has the solutions and expertise to help our customers navigate the Microsoft ecosystem. Additionally, we've expanded CoreEngage's capabilities with out-of-the-box integrations for solutions such as Salesforce, Zoho, ServiceNow, Facebook, WhatsApp, SMS, and the list goes on. On another key product front, MaxCloud UC. Jerry mentioned we are preparing for a major platform upgrade in fiscal Q2. This update will address existing feature and capability gaps. While the product itself is ready, our remaining task prior to launch is the completing of the BSS integration, the ordering, provisioning, billing automation functions. This will be done no later than the end of January. This will enable two critical initiatives. First, the migration and retirement of our legacy MAX CS PBX systems, which currently support over 400 customers. This effort will be completed over the next 18 to 24 months. And second is the acquisition of new customers to further fuel our growth. Lastly, I'd like to highlight the ongoing success of our consulting services practice. This team continues to deliver exceptional results. as evidenced by the consistent quarter-over-quarter growth and the positive feedback from our customers, including the Connecticut Department of Transportation. Our next goal remains the same, and that is to capitalize on the success of the ACS team by finding and attracting new customer opportunities. To that end, given the operational improvements that we have achieved, we are now reaching a point where we're comfortable reallocating portions of our OpEx savings into areas that support new top-line revenue. through new customer engagements. In closing, during my last update, I shared that the headwinds we faced were beginning to fade. Keeping with that same analogy, today I'm pleased to say that all indications are that our journey is beginning to enter calmer waters. However, the effort to constantly improve our operational excellence will never be complete. Each and every day, we always strive to make our business more efficient. That said, I believe our operational foundation is solidifying, and we are well positioned to begin the next phase of our transformation, which is to capitalize on new growth opportunities. With that, I'll turn it over to Carolyn for the financial review. Carolyn?

Great. Thank you, Joe. For our 2024 fiscal fourth quarter, we reported total revenue of $3.7 million compared to $3.5 million for Q4 2023. Total cloud services revenue for Q4 was approximately $1.7 million, down 15% from $2 million in the same period last year. Meanwhile, our services revenue increased 57% to $1.7 million from $1.1 million in the prior year quarter. Gross margin for the quarter was 63.9% compared to 62.4% in the same period last year, reflecting an increase of approximately 100 basis points year over year. Gap operating expenses for the quarter totaled $2.2 million, reflecting a 2% increase compared to the same period last year. On a non-gap basis, operating expenses totaled $2 million for Q4, down from $2.1 million in the prior year quarter, representing a 4% reduction. Gap net income for Q4 was $2.1 million or $0.08 per diluted share compared to gap net loss of $2.8 million or negative $0.11 per share in the prior year quarter. As Jerry mentioned earlier, our Q4 FY24 results include a non-cash tax benefit of $1.8 million from the release of the valuation allowance for deferred tax assets. In contrast, our fiscal 2023 fourth quarter results include a non-cash tax expense of approximately $2.7 million, primarily driven by differences between the company's income tax rate and the statutory rate due to expired net operating losses. On a non-GAAP basis, net income was $493,000 or one cent per diluted share compared to $145,000 or one cent per diluted share in the same quarter of the prior year. Turning to liquidity, we closed the year with $2.6 million in cash and cash equivalents, a 29% increase compared to the prior quarter. Working capital grew $2.1 million from $2 million in the previous quarter, reflecting a modest 2% increase. Now let me turn the call over back to Jerry for closing remarks. Jerry?

Thanks again, Carolyn, and obviously your frugalness on expenses is paying off. Good job. So before we open the call for questions, I just want to reiterate that we do believe we successfully stabilized and strengthened the UltragenCorp business. while making significant progress towards transforming the company. Our major focus now is on improving the monetization of our new software and AI solutions in order to fully realize the returns from the strategic investments we've made. That being said, we are confident that our efforts and accomplishments have set the stage for us to generate increasingly improved financial results. With that, I'll now turn the call over to the operator, for questions. John?

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, please press star one if you have a question or a comment.

Once again, please press star 1 if you have a question or a comment.

Okay, we currently have no questions in queue. I'd like to turn the floor back to... Oh, we do have a question that just popped in from Maj Soudan with GEO Investing. Maj, please proceed.

Hey, thanks. Hi, Jerry. Really one quick question for you. Is there any way you could Tell us more about the British Telecom, the BT kind of reseller partnership or what that could mean. I know it might be tough, but maybe any numbers around that or the reach they have. Just maybe explain that a little bit. I'm wondering beyond British Telecom or what other kind of reseller arrangements does this new kind of launch have?

open up for you too not just these guys sure that's a good question and i apologize the we did tell the operator cut you off before you could answer your question this time once again but you got through so i'll go ahead and answer much and um it was a good question uh yeah bt is a that's a very significant deal we've been working with them actually there's a um retired BT executive that presented for us at one of our conferences, Mike Kazak, that really helped us navigate the waters with BT as a huge organization. So we have been, initially we were working with BT in Ireland for a couple of their customers and that spread over to the UK and then to Germany. And yeah, we were, I think, very fortunate to, as a small company, to be able to pass their, you know, very difficult standards to deliver solutions to their customers. So they're actually quite pleased with the CoreEngage solution, clearly pleased enough to bring it into their customer experience center. And this is a huge deal. This is a beautiful building in central London on the top floor where they bring their best customers in and demonstrate technologies. And Contact Center is one of those key technologies. And we've trained their people. It's not us doing the demo. It's BT, technical people, doing the demo. We've trained them up so they can – spew out the appropriate wording and put the product in its best light. And so that's just the starting point. But that's a huge thing. I mean, most vendors that work with BT are not in their customer experience center. I mentioned during my remarks that BT does plan for us to roll out the training. It'll be online training to their 200 salespeople across the UK and Europe. So as we do that, We do expect to see a number of opportunities coming in because they were looking for, in their terms, a cost-effective, fully functional mid-market contact center for Microsoft Teams. That's where we fit. They have some high-end solutions for those very particular, extremely large customers that are expensive, complex solutions. And they have a low-end solution, but that middle of the market where really all the business is, They had a gaping hole, and we've addressed that with CoreEngage. So I think it'll be quite interesting. The opportunity will be quite interesting. I can't specifically forecast how much revenue we'll do, but we do expect to do a lot. We are in a number of opportunities that they brought us into, so we're engaged with opportunities in Ireland, in the U.K., in the U.S., and in Germany, just already with them just getting out of the gates. And this was without their salespeople even knowing it, so this is just coming through the corporate contacts. Yeah, it's a huge deal. Now, how many more of those can we get, Maj? You know, these are very difficult, right? These are multiple years in the process to get in there, but certainly the validation by having a BT, you know, as representing the altigen solutions is huge, and that should help us. I mean, you've got between BT and Fiserv, you now have two $20 billion organizations that are representing your solutions. And it's our job first, I'll be honest with you, let's drive a lot more business for those $20 billion organizations. And then second, of course, and this is a fast follow, let's, let's get some more of those.

And how are you? Yeah. Thanks a lot, man. Yeah. It was awesome. Um, what about your legacy customers? And you have not a new product rollout happening here. It looks like, and your legacy customers, I mean, is there, um, how are you attacking, you know, that now? Right. And, stopping any kind of churn that might be happening there. Does this help you do that now? And what does the sales kind of strategy look like for that?

Yeah, it's a very, I have to say, it's a very, using an old Bill Gates word, it's a very bifurcated environment, Maj, with our Teams business and our legacy PBX or now UCAS business. And the reason I say that is that the Teams business is generally larger customers. and it's generally more of the smaller SMB to mid-market customers on the legacy PBX. But the new solution that we're rolling out and the new capabilities we're rolling out, it just makes it even easier for the customer to deploy and adopt the solution. And we've also changed up our licensing so customers in that space now will be able to license pretty much everything available. I say everything available. It's the phone system. It's the mobile app, the video conferencing, call recording, contact center, all for a single price. And so that will really help us, I think, get the customers over the hump. And we're not trying to kid ourselves here. And Maj, you've asked many questions over the years. The UCAS space is extremely competitive and extremely crowded. This is not where we're going to make our mark. This is the cash cow for Altagym where we want to be able to service our customers with a good solution where we can make good margins. But the real, let's say the hockey stick, the big opportunity for us is in, quote, unquote, more proprietary solutions where we can add unique value to the customer that we aren't competing with 50 other vendors, and then we can clearly demonstrate the ROI on the solutions we deliver. And that's really what we're focused on. But we need to keep our cash cow business. These are very important customers to us. But it's a different element of the strategy than the team's business.

Thank you. And I have one last question. Maybe it's for Joe or you. I don't know. You said you've done a great job in cutting some expenses to get to adjusted profitability. And Joe might have answered this. Maybe I missed it already. But what inning are you in terms of those first level of cuts? I mean, how much more do we got left there?

If you want to take that inning. I've been subject to Maja's innings before, Joe, so I'm happy to address that.

Yeah, if you want to take that, go ahead, Jerry. I think we're aligned, but I'll let you lead, Bob.

Yeah, Joe's getting, I'm saying we're at least in the bottom of the seventh, Maj, right? We've made most of the changes that we're going to make. So, you know, on that one, and we're sitting here maybe top of the first, bottom of the first in terms of these new solutions. So what we're focused on now, I think Joe did allude to it in his commentary that We've cut our way to, let's say, stability, and now it's all about monetization. And that's what we're focused on. Monetization means we will strategically invest in new resources, sales and technical, as we build momentum. Yeah.

And I was going to say exactly the seventh inning, Jerry, on the optimization side. I agree completely. Modules still find opportunities to optimize and tweak and negotiate better rates, whether it's upstream or downstream in our ecosystem. But we've got a lot of the heavy lift done, but we will always look to find opportunities to clean up our books and make sure that we are operating efficiently. Okay.

And as you grow revenue, I'm assuming if we look at your – kind of last couple of quarters, you know, optics and stuff. If, as you're growing the, like the X stuff, that's where any kind of additional office would come from probably, or where, where would the topics maybe as you start growing here more aggressively?

That's a good question. I think for sure that, you know, to grow, uh, on the Zach side or now altogen consulting services, as we're really keeping that at the forefront, the, um, As we secure new agreements, there will be immediate outbacks. Actually, it'll show up in cost of sales, actually, because that's where the headcount generating that revenue will show up there. But overall, it's an OPEX expense. But on the other side of the business, on the traditional software side of the business, we have more capacity with our current team. We have not been as productive as we need to be or as we could have been because we haven't had the solutions we need to go drive that revenue. So There'll be more of a lag there. We can generate a lot more revenue with the current team before we bring on new resources, right, to further expand that. So it's not going to be a linear relationship. We're not going to have to spend 80 cents to get a buck's worth of revenue. All right, great.

All right, thanks, guys.

Yep, thank you, Mosh.

The next question comes from Chris Sherber with Express North. Please proceed. Thank you.

Um, congrats on a pretty good fourth quarter. I just have some questions for the team regarding the million dollar cutback in your expenses. Um, I'm assuming that's from, can you get a little bit more specific? Like I, I just, I read your filings. It looks like the leases up were up in Utah, Taiwan and California. I'm curious, what have you done with those locations, and can you just further expand on the expense cuts, please?

Yeah, sure, Chris. Thanks for that question. Let me first give you the macro-level answer, then I can drill down on some of your more specific items that you brought up. The million-dollar savings was we sort of made those cuts, if you will, during the course of FY24. So our operating expense budget going forward is a little bit more than a million dollars less than it was how we finished in FY24. So that's where you're going to see that million-dollar savings. For the California office, yes, we didn't renew that lease. We actually took a lease out with a smaller facility since we have so much work from home now. The Utah lease, we did renew, and that's still where we have a bunch of our core people that are working on the Connecticut Department of Transportation account And then with Taiwan office, we're not going to renew that lease, Carolyn, but I don't think we've actually not done that yet.

Yeah, we've actually accepted that. Oh, sorry, go ahead.

Yeah, sorry. So that one will show up. I think the savings, it's not a tremendous amount of savings, but that savings will show up in, guys, January?

Going forward, yes.

Yes, going forward, thanks.

Okay. And then just on this major platform upgrade, that sounds exciting. How much of that has already been paid for and how much do you expect to spend on that? I want to go forward.

Yeah, sure. For the, you're talking about the UCAS platform?

Yeah. We mentioned you had a major platform upgrade.

Yeah, we kind of did with both the contact center and the UCAS. So that's why I was, I know, I don't remember what words we use, Chris, but yeah, so. I think we use the word major more specifically as it related to the UCAS platform and getting that out of the gate and getting our customers migrated. And, yes, we have a little bit of expense that will be capitalized, you know, 50K, you know, give or take. Well, actually take. It's not quite 50K. And then the rest will simply be operating expenses. But that platform also we're not hosting in our data center and, we are going to offset the majority of that additional cost with cost savings from what we're doing today. So it's going to be pretty much a wash. In other words, in the financials, I don't expect any negative impact at all on our gross margins. It might be slightly positive.

Last question. So the consulting group, we've got Connecticut. You've got 49 other states out there. Do we think it's possible to start breaking some of those down?

We do.

Walls down?

Yeah, and we've had this discussion on, let's say, the legacy part of that business is to completely write a whole system for them that integrated all sorts of pieces related to from bid through completion of a contract for their construction work and for that transportation work. There are companies that have off-the-shelf software that we compete with on that one. And so that really, even though it's a fantastic opportunity with CTDOT, that isn't necessarily directly transferable to other departments of transportation. However, what we're working on with them now, and this is with our AI, and I don't think that we mentioned this on the call, in January we will start an AI project with CTDOT It started as just a proof of concept. It's only a $100,000 project, but that was funded by the federal government. That piece, and we're going to do some very interesting things. We'll report more in our next earnings call. We're going to start doing some interesting things. That piece is 100% transportable to other departments of transportation, whether they be state, federal groups, or even muni groups that are large enough. So, yeah, we're going to be able to start leveraging the fruits of our labor for sure with this new piece.

Okay, good. Thank you very much.

You're welcome.

Okay, we currently have no further questions in queue. I'd like to turn the floor back to management for any closing remarks.

All right, thanks, John, and thank you, everyone, for participating in today's call. We will update you on our next call that will be either at the end of January or early February. So thanks again, and Merry Christmas, everyone.

Thank you, everyone.

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.