Altigen Communs Inc

Greetings. Welcome to the Altogen Technologies third quarter and fiscal year 2025 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 keypad. As a reminder, this conference call is being recorded. Now, I would like to turn the call over to your host, Gary Stone, CFO of Altagen Technologies. Please go ahead.

Good afternoon, everyone, and welcome to Altagen Technologies' earnings call for the third quarter fiscal 2025. Joining me on the call today is Jerry Fleming, President and Chief Executive Officer, Joe Hamblin, Chief Digital and Transformation Officer, and I am Gary Stone, Chief Financial Officer. Earlier today, we issued an earnings release reporting financial results for the period ended June 30th, 2025. 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. This 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 over the counter market Specifically, the company's audited annual report for the fiscal year ended September 30, 2024, and the most recent unaudited quarterly report for the quarter ending March 31, 2025, 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 our 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. With that, I'll turn the call over to Jerry Fleming for opening remarks. Jerry?

Great. Thank you, Gary. Good afternoon, everyone, and thank you for joining us today. I'll start with a high-level overview of our third quarter results, followed by the current state of the business. Then I'll hand the call to Joe Hamblin, our Chief Digital and Transformation Officer, to walk you through our operational achievements. Our CFO, Gary Stone, will dive into the financial details behind this quarter's performance. Earlier today, we released our fiscal Q3 results, and I'm pleased to report another strong quarter. Revenue came in at just over $3.5 million, marking a 7% increase year over year. Operating income grew to $125,000 compared to $6,000 to $9,000 in Q3 of last year. To put our strategy into perspective, 18 months ago, we announced a rebranding of the company from Altogen Communications to Altogen Technologies. At the time, we stated that this wasn't just a name change. It signaled our transformation from a traditional communication software company into a next generation provider of customer experience solutions and digital transformation services. In that announcement, we underscored our vision to lead with innovation harness the power of emerging technologies, and embed artificial intelligence into everything we do. Fast forward to today, and I'm proud to say that the new Altogen is no longer a vision. It's a reality with the tangible results of a transformation beginning to take hold. As evidence, over the past 12 months, we delivered revenue of $14.1 million and operating income of $680,000 compared to $13.4 million in revenue and $475,000 operating loss in the prior 12-month period. This turnaround is not coincidental. It is a direct result of the strategic initiatives that we put in place, our commitment to innovation, and focused execution by our team. Now, with that context, let's take a look at the current state of the business. One of the key elements of our business transformation strategy has been to completely reinvent our technology platforms. Our legacy systems simply couldn't deliver the innovative features and scale we needed to drive our business forward. We are now fully engaged in the replacement of our legacy PBX and contact center platforms as we've begun the rollout of the next generation UCaaS and CCaaS solutions built for the long term. Our next-gen UCaaS platform, MaxCloud v2, is designed for small to mid-sized businesses and delivers a cost-effective, integrated, unified communication suite, including phone calls, SMS, instant messaging, web conferencing, and mobile apps, making it a very feature-rich solution for that target market. The migration of our legacy PBX customers to this new platform is well underway, with nearly 50 customers now deployed on MaxCloud v2 Our goal remains to transition our entire cloud and on-premises customer base to the new MaxCloud platform within the next 18 months. It's also important to point out that when customers are forced to make a change, some will inevitably decide to go in a different direction. However, once we complete the migration of MaxCloud, customer churn should be at a minimum. Plus, the addition of legacy on-premises customers moving to the cloud for the first time should contribute to incremental revenue growth. Turning to CCaaS, we have launched CoreEngage, one of the few native Microsoft Teams contact center solutions available today. CoreEngage purpose-built for the Microsoft Cloud ecosystem is offered as a fully managed service. A key benefit of our managed service offering is that it enables our Microsoft partners, most of which do not have deep voice expertise, to sell an enterprise-grade contact center solution, but are able to rely on Altogen to provide all the necessary migration, deployment, and support services. It's a powerful win-win. Partners are able to grow their Microsoft-related revenues while Altogen expands our CCaaS footprint across the Microsoft Teams customer base. Today, we've contracted with approximately 10 customers for Core Engage. And due to migration planning and setup times, deployments can take several months, so only about half of the CoreEngage customers are currently deployed and billable. As we complete the migrations and move customers into production, we will experience continued growth in monthly recurring revenues. In addition to increasing our CoreEngage contracted revenue, the new opportunity pipeline has grown nearly five-fold in the past three quarters. While this doesn't yet reflect contracted revenue, A growing pipeline is a key leading indicator of future performance. Moving to an update on our strategic partnership with Fiserv, we are in the midst of quite a few initiatives. Starting with the contact center, we're working through Fiserv's security requirements in order to get CoreEngage certified to be sold through the Fiserv sales organization. We expect to complete this process over the course of the next few months while we're simultaneously working directly with Fiserv customers for core engaged opportunities that need to be deployed prior to a certification date. I also want to highlight just a couple of the new AI-based solutions we're planning to introduce in conjunction with Fiserv. First, our new conversational AI front end for the Altogen IVR, which, by the way, is in use by over 1,500 Fiserv bank and credit union customers, is now ready for customer preview. This natural language AI solution will modernize customer interactions, reduce operational costs, and provide increased revenue for Altogen. And this is just the first phase in the evolution of the Altogen IVR from a bank-by-phone application to a complete omni-channel, 24-7, AI-powered customer self-service platform. This quarter, we'll also launch our Core Insights Customer Preview Program. Core Insights, as our new NextGen AI Customer Engagement Analytics Platform. This platform uniquely synthesizes IVR transaction and customer demographic data to provide valuable insights into how and why specific customer demographic groups and individual customers are engaging with the bank or credit union. Armed with this data, banks and credit union executives will be able to understand predict and deliver improved customer service, personalized customer experiences, and increased cross-selling of additional products and services. These solutions represent just a few of the AI-powered solutions that are in various stages of our product development lifecycle. We're also broadening our scope to target both Fiserv customers as well as all other banks and credit unions in the U.S. and U.K. markets. And while we've invested a great deal in terms of time, money, and effort in the development of these products, we are closing in on the monetization zone. Today, we're generating approximately $350,000 in revenue per month from our financial institution customers. Looking out over the next few years, each of the solutions that I've mentioned has the realistic opportunity to generate $350,000 or more in monthly recurring revenue per all primarily driven by the new AI capabilities. I'll shift my discussion now to the Altogen Consulting Services Division, which has done a great job of expanding our business relationship with the Connecticut Department of Transportation, or CTDOT. This quarter, we are beginning a new AI project with CTDOT, which has been funded by the federal government. While we're not in a position to disclose the specific objectives for this project, I can say that we expect the deliverables deliverables to be applicable to most state departments of transportation. Toward that end, we're actively engaging with a handful of other DOTs with the objective of leveraging our success that we've had with CTDOT. Just as importantly, the knowledge and expertise we gained from our current AI projects on the services side will also carry over to the AI solutions we're offering on the software side of our business. Although the AI solutions offered by our software division are more packaged in nature, customers typically don't have an abundance of AI expertise on staff to effectively manage those AI solutions. So they often need to rely on the vendor to provide that expertise, which we at Altogen are uniquely able to do through our consulting services division. With that, I'll turn the call over to Joe Hamblin for an operational update. Joe?

All right. Thank you, Jerry. Good afternoon, everyone. Over the past 15 months, we've executed a comprehensive transformation of the company, rebuilding nearly every aspect of our operations, systems, and solutions. From outsourcing accounts, payable and receivable processes, to replacing outdated products with modern platforms like CoreEngage, MaxCloud, UC, V2, we've reset the foundation of Altogen for long-term success. At the same time, We've driven out approximately $1.5 million in annualized operating costs through aggressive system automation, vendor consolidation, and operational streamlining. While we continue to focus on operational excellence, we will now enter the next phase of our transformation, revenue growth. To position our sales organization for success, we've launched several strategic go-to-market initiatives. We're not just bringing a full suite of next-generation solutions to the market. We're relaunching the Altogen brand. The first step in this process was to bring in a strategic marketing partner to drive our digital marketing strategy. In partnership with our new marketing firm, Brafton, we've undertaken a comprehensive brand overhaul, including SEO, pay-per-click campaigns, and a new CoreEngage product infomercial, along with a targeted outreach program. Our initial focus is on 1,700 regional banks and credit unions, each with over $500 million in assets under management. We believe this renewed focus on our brand visibility, digital engagement will enable both our direct sales teams and our partners to more effectively compete and win. Now turning to our product development. On the Altogen solution side of our business, we've completed the development of our secure SIP ID solution, which combines phone number validation, voice biometrics, and our AI-powered banking IVR routing platform to help prevent fraud. This solution will be jointly marketed with our partners at Fiserv starting in Q4. As a reminder, we currently support over 1,500 financial institutions already on our IVR platform. each of whom are eligible to adopt this enhanced security offering. To support expansion into larger enterprises and regulated industries, we've initiated the process to acquire our SOC 2 Type 2 certification with expected completion in the January 26 timeframe. This will be a critical enabler for us to compete for secure, larger, more complex revenue opportunities. Additionally, we've completed the development of Core Insights, our new data analytics platform, which is now ready for the first customer evaluation in Q4. Core Insights integrates transaction and demographics data to provide actionable insights and will soon include generative AI capabilities to uncover even deeper patterns in business opportunities. In anticipation of future growth, We've also made significant investments in our platform scalability and customer enablement. Our solutions delivery portal has been enhanced with new provisioning capabilities, enabling large enterprise customers to self-manage their Microsoft Teams PSTN environments at scale. More self-service and automation features will follow to support the evolving market demands. Turning to our consulting services division, this team continues to operate at a high level, anchored by our strategic partnership with the Connecticut Department of Transportation. In Q3, we were honored to attend the AIDC Conference in Harrisburg, Pennsylvania, alongside CTDOT, to share our digital transformation success story with other states' Department of Transportations. That event has already led to follow-up engagements with several interested states. We'll continue this momentum with the participation in the State of Oklahoma State Expo this month, followed by IHEAP conference in Myrtle Beach in October, one of the largest highway and infrastructure tech events of the year. Strategically, we also signed a partnership agreement with Krista, a leading AI provider. The partnership enables us to white label Krista's offering under favorable reseller terms and become a preferred integration partner of Krista's direct to customer projects. The benefits are by twofold, recurring platform revenue, services revenue from the implementation and ongoing support. This is also a high-value partnership that complements both the consulting and the platform strategies. In summary, we stabilized the business, modernized our technology, and made strategic investments in our go-to-market capabilities. Now we're focused on execution, growing our customer base, increasing recurring revenue, and driving sustainable long-term growth. With that, I'll turn the call over to our Chief Financial Officer, Gary Stone, to review our financial performance. Gary?

Thank you, Joe. All right. As Jerry mentioned, for our 2025 fiscal third quarter, we reported total revenue of $3.5 million compared to $3.3 million for Q3 2024. That's a 7% increase. Total cloud services and legacy recurring revenue for the third quarter of 2025 was approximately $1.95 million. down slightly from the $2.03 million in the same period last year. Meanwhile, our services and other revenue increased 25% to $1.56 million from $1.25 million in the prior year's quarter. Gross margin for the quarter was 63% compared to 61% in the same period last year. Gap operating expenses for the quarter totaled $2.1 million, reflecting an 11% increase compared to $1.9 million in the same period last year. I do want to point out that our Q3 operating expenses included approximately $300,000 in one-time accrued severance expenses related to our business transformation initiatives that we've talked about quite a bit. Gap net income for Q3 was $111,000 or zero cents per diluted share compared to the gap net income of $62,000 or zero cents per diluted share in the prior quarter. Looking at our liquidity, we closed the quarter with $3.5 million in cash and cash equivalents up 25% compared to the $2.8 million in the prior quarter. This increase was due to our large government customer who elected to accelerate payments prior to their fiscal year end. As a result, working capital is $2.5 million compared to $1.9 million in the previous quarter, a 32% increase. Our EBITDA adjusted for legal severance and other one-time costs was $645,000 compared to $314,000 in the prior year quarter. Now let me turn the call back over to Jerry for our closing remarks. Jerry?

Thanks again, Gary. To wrap up our prepared remarks, Q3 2025 marked another solid step forward in our transformation journey financially, operationally, and strategically. We're building real momentum in terms of five consecutive quarters of profitable growth, new platforms gaining market traction, new high-impact AI solutions under development and close to deployment, a strengthened and emerging strategic partnership portfolio, and an energized team driving it all forward. With that, I'll turn the call back to the operator for Q&A. Operator?

Thank you. The floor is now open for questions. If you would like to join the queue to ask a question at this time, please press star 1 on your telephone keypad. 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 telephone 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 we have a question from Michael Zimba. Michael, your line is live. Please go ahead.

Yeah, thank you for taking my call here. And I just want to preface this by saying I was in the security business for a while, and I've listened to lots of conference calls. So the job, you guys, I love your little company. I mean, the way you save money and just pay as you go. And listening obviously on top of it with the projections and you talk revenue growth a lot and we grew up about three or four of us I'm not the technology guy but what I want is when we're going to have our first number over with revenue starting over four in other words to start to get some of the significant growth you talk about uh

Yeah, that's a good question. I'm not trying to dodge your question. We're not presently giving guidance, but I tell you what, we are a little bit laser focused on getting there as quickly as possible. I do expect that we're going to see that in FY26, but I can't give you an exact quarter at the moment. We're not trying to grow by 5K a quarter, right? We need to get it going. We understand that. That's our objective.

And that's what I'm saying, yeah, to start to get a little more significant in the revenue growth. And I know it takes time, as I say. I've been involved with companies. But that was kind of it. It seems like everything's, you know, set up with what you're doing. And also with the Connecticut, I thought by now you might have other states or other parts that's your software business. obviously is compatible with, would be compatible with other operations. And you mentioned how it's going. It sounds like you're on the verge of growth there too.

Yeah, and I will say with what we've done, extremely pervasive custom project management system, billing, et cetera, that we've built for them. And that becomes a little more difficult because it's such a large integrated platform that to take a piece of that and fit it into another Department of Transportation. And everybody's doing something today. And that's been a bit of a challenge, right, trying to extend what we've done in that regard. With the AI piece, that's a totally different ballgame because we are now retrieving disparate information, so I can at least share this, disparate information from all sorts of different data sources that these folks need to have, you know, whether it's engineering drawings or bids or proposals or cost estimates and cost overruns, those sorts of things to provide the management team with the information they need to run that aspect of the business. That is applicable to the other DOTs, and we certainly are, I think, optimistic about our opportunities to penetrate additional. And it doesn't have to be State Departments of Revenue, but that's the low-hanging fruit because that's what we're doing. We'll start there and take it out further from there.

question. I think I know the answer you're going to ask. Joel, you're happy you came back. I know it's been about a year. I understand you were away and then came back to help with the operation.

Yeah, I am. Actually, I'm enjoying myself, starting to see the progress. Maybe the pendulum's starting to turn in our favor. So I'm really enjoying what I'm doing, and I'm very, very optimistic. I don't want to come across wrong ways. I don't want to accidentally give any false hope, but I'm optimistic personally that we're getting this thing turned in the right direction.

Yeah, I think so. What can I say? We love the little company. Like I say, so many of the little ones are dilute and spend more money than They've got coming in, so you guys have been very responsible on that thing. And now I think $0.60 a share with only 25 million shares, we need a little revenue growth, and we can have a multiple of what we're at now.

Yeah, absolutely. That's the game plan, and we do plan on getting there and generating some real value for our shareholders.

Okay, and thanks a lot for taking my call.

You're welcome. Thank you.

Yeah, thanks for listening. We appreciate it.

Thank you. And as a reminder, if you wish to join Q at this time to ask a question, you may press star 1 on your keypad at this time. And there are no further questions in Q at this time. This does conclude our question and answer session. I would now like to turn the floor back to Jerry Fleming, CEO of Altogen Technologies, for closing remarks.

Thanks, Operator, and thank you, everyone, for participating in our call today. We look forward to updating you on our progress on our year-end call, which will be later in the calendar year, and we'll do our best to achieve Michael's objective as quickly as we can. Thank you very much.

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