Altigen Communs Inc

and welcome to the Altogen Technologies first quarter fiscal year 2025 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. Should you wish to join the queue to ask a question at any time, you may press star 1 on your telephone keypad. Should you wish to remove yourself from queue, please press star 2. It is now my pleasure to turn the floor over to Gary Stone, Chief Financial Officer at Altagen Technologies. Gary, the floor is yours.

Good afternoon, everyone, and welcome to Altagen Technologies' earnings call for the first quarter of fiscal 2025. Joining me on the call today is Jerry Fleming, President and Chief Executive Officer, Joe Hamblin, Chief Digital and Transformation Officer, and as mentioned, I am Gary Stone, Chief Financial Officer. Earlier today, we issued an earnings release reporting financial results for the period ended December 31, 2024. This release can be found on our IR website at www.altagen.com. We've 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 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 the 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 30th, 2024, 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. Altagen 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 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. And with that, I'll turn the call over to Jerry Fleming for our opening remarks. Jerry?

Thanks, Gary, and good afternoon, everyone.

Thank you for joining us for today's call. I'll begin the call with a brief summary of our first quarter 2025 performance, followed by an update on the state of the business. Joe Hamblin will then review our progress toward our goal of achieving operational excellence. Following Joe's comments, Gary Stone will present more details regarding our first quarter financials. As Gary mentioned earlier today, we announced our fiscal first quarter financial results. As a brief summary, our fiscal Q1 revenue of $3.4 million represented a 4% increase compared to the same period a year ago. Net income for the first quarter was approximately $87,000 versus a loss of $346,000 in the year-ago quarter. Gary will provide further color during his commentary, but I do want to point out we are continuing to make progress. Now I'll spend the next few minutes discussing our key business initiatives. First of all, during the quarter, we outsourced the majority of our accounting department to Arminino, which is a top 25 accounting, consulting, and technology firm. This decision was driven by both cost considerations and our desire to modernize our legacy accounting systems. As a result, Carolyn David, our former Vice President of Finance, is no longer with the company. During her 18-plus years at Altagen, Carolyn always worked extremely hard at her job, always put the company first, and always had a pleasant demeanor. We certainly wish her the best in her future endeavors. As part of that transition, we brought in Gary Stone as our Chief Financial Officer. Gary has a strong background in financial accounting and many years of experience as a CFO, particularly in the high-tech industry. But perhaps more importantly, Gary brings unique perspectives as it relates to driving shareholder value. Joe and Gary will provide further details on our accounting transition during their commentaries. Turning to Altagen products and services, for the past several years, we've expended considerable effort attempting to get our white label UCaaS platform feature ready for our target markets. Consequently, last quarter, we made the decision, after years of waiting, to replace that white label platform with a new modern UCaaS solution, which offers significantly enhanced functionality compared to the old platform. We're now finally in the position to accelerate the migration of our legacy base of PBX customers with our new MaxCloud UC solution. We have an aggressive goal of migrating all legacy PBX customers to MaxCloud UC in the next 15 months. This migration strategy is designed to preserve primarily our existing customer base. For net new revenues, we're also going to soon begin offering, excuse me, MaxCloud UC as a service to managed IT service providers. Commonly referred to as MSPs, these organizations provide complete outsourced IT resources, often including the phone system, to small and mid-sized businesses. Our value proposition to the MSPs is very competitive price points, strong margins, and Altogen's historical white glove support model. Today, a small handful of MSPs carry Altogen solutions in their portfolios. Now that we have the proper solution available with MaxCloud UC, we expect to be able to begin generating new incremental revenues in the UCaaS space through these MSP partners. Transitioning to Fiserv, as many of you know, Fiserv is a $20 billion global fintech and payments company. They're also a longtime strategic partner of ours, delivering Altagen's UCaaS, CCaaS, and customer self-service solutions to their 10,000 bank and credit union customers. As such, we're working closely with Fiserv on a number of key initiatives, including migrating Fiserv's legacy Altogen PBX customers to our new MaxCloud UC platform, increasing the adoption of Altogen's new core engaged contact center solution, which leverages Microsoft Teams, planning for expanded sales and marketing efforts focused on our secure SIP, fraud prevention services. And finally, we're closing in on the full launch of our new AI-based conversational IVR platform, which will be offered by Fiserv as a standard IVR solution. Fiserv will be providing the new AI capabilities as a fee-based upgrade to their 1500 bank and credit union customers currently using the Altogen IVR. With the advancements we've made in our UCaaS and CCaaS solutions, along with the recent organizational enhancements made by Fiserv, we're more excited than ever about the prospects of the business opportunities this partnership will bring. Moving to our solutions for Microsoft Teams, as discussed last quarter, we recently introduced CoreEngage. This is our new contact center platform for Microsoft Teams. Adoption of CoreEngage continues to grow. This includes new logos as well as expansion within current customers. This expansion is typically from a single CoreEngage contact center deployment to multiple contact center deployments throughout various parts of the organization. As a case in point, one of our new CoreEngage customers is among the top five largest school districts in the United States. This customer is expanding their initial rollout of CoreEngage in a single contact center to 12 different departments. collectively resulting in revenue to Altagen of approximately $18,000 per month. We're also seeing continued expansion in the opportunities driven by British Telecom, which is now known simply as BT. As we discussed on last quarter's call, CoreEngage has been selected by BT to be included in their voice solutions portfolio, as well as a featured product showcased in the BT Customer Experience Center located in their London headquarters. We've been engaged by BT in a number of opportunities, generally for their multinational customers. And since BT targets larger companies, their average deal size is in the $10,000 per month range, which is approximately 10 times Altogen's current average revenue per customer. Given BT's global reach and the fact that they have more than 1.6 million users on their hosted UCaaS platforms, the opportunity with BT is absolutely massive. Shifting to AI, it's important to point out that virtually every executive wants to leverage AI in their business, but most companies don't have the expertise or resources to implement an AI solution. And with so many different AI technologies available, it's also quite daunting for these executives to understand which technology is best suited to meet their business requirements. This is where Altogen comes in. Our strategy has been to first develop a trusted AI platform, which we call Ensemble AI, then deliver applications tailored to a particular use case built on the Ensemble AI platform. Customers benefit by having the ability to deploy a single AI platform to address multiple use cases in their company for AIs. Ensemble AI also enables Altogen to use any AI engine on the backend. So we're not locked into a particular AI technology. Today, we lead with Microsoft Azure OpenAI as our AI engine of choice. But if a customer prefers Gemini from Google or Bedrock from Amazon or any number of other LLMs, we can just as easily utilize those AI models in our Ensembl AI platform. Using this best-of-breed approach, we are building AI applications across four key business areas in which we see the greatest opportunity for AI to add value to our customers. First is our AI-enabled Core Engage Contact Center, for which we've added several AI capabilities, including language translation, which will soon be available for messaging applications, including live agent web chat. And this technology converts text from the web chat user's language to the agent's language and vice versa, which eliminates the need for organizations to hire multilingual web chat agents, which can also be a challenge to find. We've also added conversation summary to CoreEngage, which uses AI to automatically summarize a conversation between a customer and a contact center agent then stores that summary in the customer's CRM for later retrieval and for reporting purposes. Finally, we've incorporated sentiment analysis into CoreEngage, which uses AI to determine whether the emotional tone of a particular customer interaction is positive, negative, or neutral. Now, with sentiment analysis, rather than requiring a contact center supervisor to evaluate every single interaction, a customer can use the sentiment analysis to flag only those interactions that need further attention. As a fast follow to the new AI-enabled contact center capabilities I just mentioned, we're also introducing CoreEngage Chatbot, which leverages AI to provide a 24x7 web-based customer self-service. Our future plan is to integrate CoreEngage AI with our AI IVR solution, which will enable seamless customer interactions across digital and voice channels without the need for live customer service agents to be engaged. After that, our next initiative is Core Insights, which is a planned new solution that provides KPI dashboards integrated with AI analytics. Our initial target market is Pfizer's 1,500 altigen bank and credit union customers using the IVR. Core Insights will deliver unique, actionable insights and AI recommendations for these financial institution executives which are designed to enhance the customer experiences and help them drive new revenues. All of these AI capabilities are delivered as out-of-the-box applications with the ability for the customer or for Altogen Professional Services to customize the applications as needed. Our final AI initiative involves leveraging our Ensemble AI platform to deliver a complete end-to-end custom AI solution. These solutions are typically targeted at large-scale enterprise projects and are performed by the AlterGene Consulting Services Division for these enterprise customers. So let me, with that, lead into an update on our consulting services business. Our primary focus today continues to be the Connecticut Department of Transportation, or CTDOT, with whom we've enjoyed a great partnership. We are continuing to expand our engagement with CTDOT particularly as it relates to new AI projects. In fact, we've just begun a project funded by the federal government for CTDOT to develop a custom AI solution to retrieve, assimilate, and present data to departmental executives in order to improve decision-making and streamline business processes. We believe this is just the tip of the iceberg with many more opportunities to leverage. We've also just begun ramping our sales and marketing efforts in our consulting services division with the objective of adding new customers focusing on our AI and digital transformation services. To summarize, we feel like we now have the proper foundation in place in terms of product, services, and internal systems that collectively enable us to improve execution and to deliver increasingly better results. With that, I'll turn the call over to Joe Hamblin to provide additional insights into our business transformation. Joe?

Thank you, Jerry, and good afternoon, everyone. This earnings call marks my one-year anniversary as Altogen's Chief Digital and Transformation Officer. While I'm proud of the progress we have made with our transformation efforts, we still have opportunities for improvement. During our last earnings call, one of our longtime supporters asked a baseball analogy question. Specifically, what ending of the game would you say our transformation effort was in? The answer at that time was most likely the seventh inning. If we use that same analogy today, almost three months later, I would say we're still in the seventh inning. However, we're now on offense and beginning to have some very productive at-bats. To further highlight our ongoing transformation efforts, I want to provide a brief state of the business overview based on both the tail and headwinds we still face. Starting with our tailwinds, one of the key highlights is achieving an $800,000 of annualized savings year over year from our OPEX cost reductions. This was achieved using several operational levers, such as a data center consolidation, human resource optimization, SIP trunk migrations to our new SIP services solutions. Plus, we performed a line item by line item cost analysis to eliminate unnecessary expenses. We also conducted a successful launch of Voltagen Technologies' native Teams contact center solution, CoreEngage. With several successful customer implementations completed, including the Dallas Independent School District, which is the second largest school district in Texas and the seventh largest in the United States, we're well on our way to achieving customer success. In addition to these first initial sets of successful CoreEngage deployments, as Jerry mentioned, both Fiserv and British Telecom, BT, are now embracing this solution to address their customer opportunities. This will provide us with the market visibility needed to help accelerate the growth of our Microsoft Teams practice. Kerry also mentioned we have successfully delivered a major upgrade to the MaxCloud UCaaS platform, and we're now in the early migration phases of moving customers from our legacy platforms to this new system. The significance of this accomplishment is it demonstrates advancements in our technology roadmap, and it enables us to protect our existing customer base. In addition, this upgrade will enable us to capture new revenue through new MSP partnerships, as well as existing and long-standing partnerships. Now let's discuss the Altagen Consulting Services and the work that Sharik and team are doing by highlighting the ongoing partnership with the Connecticut Department of Transportation. I had the pleasure of meeting with the ct.leadership team earlier this week and received excellent performance feedback, along with high praise of the individuals that work on the ACS team. It is customer compliments such as this that help validate the organizational progress we are making. On the operations business side, we've made significant improvements. First, we outsourced our accounting functions to Armenia. This will allow us to reduce our operating costs as well as enhance our ability to access and analyze financial data at a faster pace. Next, we consolidated our human resources with Stratus HR to allow us to have a single source for our HR solutions versus the two that we were using in the past. Process automation and customer portal enhancements to reduce manual tasks associated with many of our back office and customer ordering process has also been completed. All of these enhancements are laying the foundation that will allow us to access company data at the speed of business, enabling the Altogen leadership team to make more informed decisions. We will continue to refine these areas in the coming months. Lastly, I want to emphasize our AI strategy and how well our approach is resonating with our customers and the potential it has to unlocking new opportunities. One of our first POCs is currently in the design and development process at the Connecticut Department of Transportation, and when delivered, should open the door to an untold number of additional use cases. Now let's shift your attention to our headwinds. Like many companies that undergoes a significant transformation effort, it takes time to identify and address all the areas of the business that require modernization. A lot of heavy lifting has been done. However, we are always seeking ways to improve and support our business to make Altogen easy to do business with. At the top of the list of our headwinds is talent acquisition. Finding the right talent, particularly in sales, AI development, customer integrations, remains our priority. We continue to explore both onshore and offshore solutions to address these needs. Marketing is next, closely related to sales, but with our renewed product success, we must now find new ways to innovate and invent ways to amplify our message. Again, we will look both internally and externally for opportunities to improve our marketing position. Now we move on to the sales and new revenue growth. Now that we have a competitive products and services, our focus must be on filling the sales pipeline. This includes strengthening both internal sales force and also our partner channels. Then finally, restoring shareholder confidence. We must continue to demonstrate that we have not only stabilized the business, but we have also developed the right strategic plan to drive sustainable growth. In short, we have to deliver significant measurable results. Now with that, I'd like to turn the call over to our new Chief Financial Officer, Gary Stone. Gary, it's great to have you on board. Take it away, buddy.

Great. Thank you, Joe. For our 2025 fiscal first quarter, we reported total revenue of 3.4 million compared to 3.2 million for Q1 2024. Total cloud services revenue for Q1 was approximately 1.7 million down 9% from the 1.9 million in the same period last year. However, sequentially, cloud services revenue increased 2.5%. Meanwhile, our consulting services revenue increased 37% to 1.4 million from 1.9 million in the prior year's quarter. Gross margin for the quarter was 63% compared to 60% in the same period last year. Gap operating expenses for the quarter totaled $2.1 million, reflecting a 9% decrease compared to the $2.3 million in the same period last year. Gap net income for Q1 was $87,000, or just less than a penny per diluted share compared to the gap net loss of $346,000, or a loss of one penny per diluted share in the prior year's quarter. Let's look at our liquidity. We closed the quarter with $2.2 million in cash and cash equivalents, down 15% compared to the $2.6 million in the prior quarter. It's worth noting that the decreasing cash and related increase in accounts receivable is attributed to a large customer's payment of approximately $700,000 that arrived in the beginning of January. Working capital was $1.9 million compared to $2.1 million in the previous quarter, reflecting a 10% decrease. The decrease is primarily attributed to the increase in accounts payable during the transition of our new accounting and payment platforms. Thankfully, it has subsequently returned to our historical levels. Now let me turn the call back over to Jerry for our closing remarks. Jerry?

Thank you, Gary. Appreciate it.

Before we turn the call over for Q&A session, I do want to provide a brief summary that we feel confident that we're continuing to make progress in our business transformation, diligently working to lay the foundation for future growth. As we're closing in on achieving our operational objectives, as Joe outlined, we're also now focusing on top line growth. We're confident that our strategy is solid, our new solutions are spot on, and our ability to execute have positioned Altogen for sustainable performance and long-term success. With that, I'll now turn the call over to the operator to open the floor for questions. Tom?

Certainly. Ladies and gentlemen, the floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star 1 on your telephone keypad to join the queue. We do ask if listening on speakerphone today that you pick up your handset while asking your question to provide optimal sound quality. Once again, please press star 1 on your keypad at this time if you wish to join the queue to ask a question. Please hold a moment while we poll for questions.

And just a reminder once again,

please press star 1 at this time if you wish to join the queue to ask a question. That'll be star 1 on your telephone keypad.

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I would now like to turn the floor back to Jerry Fleming.

All right. Thanks, Tom. And thank you, everyone. I'm going to attribute no question to Gary's stellar job of providing details on the financial results. So, Gary, once again, thank you. And for everyone on the call, we do look forward to updating you on our next quarterly conference call in April.

Thank you very much. Thank you.

This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.