Altigen Communs Inc

Greetings and welcome to the Altogen Technologies first quarter fiscal 26 results conference call. At this time all participants are placed on a listen-only mode and 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. And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Gary Stone, Chief Financial Officer for Altogen. Sir, you may begin.

Thank you. Good afternoon, everyone, and welcome to Altogen Technologies earnings call for the first quarter fiscal 2026. Joining me on the call today is Jerry Fleming, Chairman and Chief Executive Officer, Joe Hamblin, President and COO, and I am Gary Stone, Chief Financial Officer. Earlier today, we issued an earnings release reporting financial results for the period ended December 31, 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. 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 expectations and or beliefs 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 30th, 2025, as well as the safe harbor statement in the press release the company issued earlier 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. In addition, during today's call, we will also be referring to certain non-GAAP financial measures, such as adjusted EBITDA. 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 our results. With that, I'll turn the call over to Altagen's CEO, Jerry Fleming, for opening remarks. Jerry?

Thank you, Gary, and hello, everyone. As Gary mentioned, earlier today we reported our fiscal 2026 first quarter results. We delivered $3.2 million in revenue and $100,000 in net income, marking our seventh consecutive profitable quarter. Revenue declined sequentially from Q4, which is typical for our first fiscal quarter due to customer holiday schedules. We also experienced elevated churn tied to customers migrating off of our legacy platforms. This, however, was anticipated as part of our transition to our new technology platforms. We believe the majority of that churn is now behind us with only a modest residual tail remaining. I'll note here that we are evolving how we communicate with investors to provide greater clarity around our business strategy and execution. I'll be focusing on strategic direction and priorities. Gary will provide details on our financial performance and and Joe will update you on our operational performance and business progress. As it relates to our business strategy, we've completely transformed our business over the course of the past two years, repositioning the company from a PBX provider serving the SMB market to a cloud-based customer experience solutions and services company targeting mid-market and larger enterprise customers. Just 24 months ago, we did not have the infrastructure in place to scale our business. We did not have any of the solutions that now comprise our customer experience suite. And we did not have the technical expertise to deliver AI solutions and services. Today, those elements are all largely in place. To level set, our first priority in our business transformation was to build a scalable operating foundation. Over the past two years, we've modernized our internal business systems across ordering, provisioning, billing, accounting, and service management, and realigned the organization around a cloud-first business model. As a result, we reduced annual operating expenses by 9% year-over-year, we maintained gross margins of over 60%, we increased our investments in AI development, and we remained debt-free. This has created meaningful operating leverage as our business scales. With the operational foundation in place, we turned our focus to our product strategy in support of our positioning as a leading provider of cloud-based customer experience and service solutions and services built on the Microsoft platform. To accomplish this objective, we determined that we needed to replace every Altogen legacy solution in our portfolio, PBX, Contact Center, and IVR with new modern cloud solutions. This also meant that we must contemplate a clear build versus buy strategy. What we decided was that for commoditized markets, such as UCaaS and CCaaS, white labeling best-in-class platforms was the best choice as they provide superior time to market and operating efficiency. On the other hand, where we see opportunities for uniquely differentiated solutions, particularly through AI, will build. This build versus buy approach enabled us to not only balance time to market and financial performance, but also to continue to deliver 60% plus gross margins, consistent profitability, and a debt-free balance sheet. Regarding our buy strategy, approximately 18 months ago, we selected a white-label CCaaS platform that powers CoreEngage, our native Teams contact center solution. In addition, just over a year ago, We selected Crescendo's NetSapiens white label UCaaS platform, which we market as MaxCloud UC. For both solutions, we wrap around products and services to make them uniquely Altogen. On the build side, our investment focus is on AI-driven solutions that expand our addressable market, increase average deal sizes, and improve customer retention. As such, we are nearing completion on two internally developed platforms. First, an AI-powered 24-7 customer self-service solution, and second, Core Insights, an AI-driven customer engagement analytics platform. Both are designed to labor across our UCaaS and CCaaS deployments, creating incremental, high-margin recurring revenue opportunities. We expect to release customer preview versions of both platforms within the next 90 days, with revenue contribution expected to begin later in fiscal 2026. Regarding our strategic product roadmap, our goal is to deliver an integrated Microsoft-centric, cloud-based customer experience platform that supports the entire customer journey. This includes four key solutions, AI-powered customer self-service, UCaaS, or Microsoft Teams Phone. Core Engage, our native Teams CCaaS solution, and finally Core Insights, which delivers closed-loop customer interaction analytics. On the consulting side, Altagene Consulting Services, or ACS, is also gaining traction as it relates to custom AI services. Historically, this group has been focused on developing custom business applications based on the Microsoft technology stack, which will continue to perform. But the core growth opportunity for ACS is applying agentic AI to solve real-world business problems. We're currently involved in several AI projects with a number of companies, including CTDOT, the first of which is a good example of the practical application of AI along with the benefits it can deliver. For CTDOT, using agentic AI, we are automating a high volume of IT support tickets, significantly reducing the manual workload on their technical support teams. In this instance, an AI agent monitors all incoming tickets submitted through their JIRA trouble ticketing system and independently resolves issues using its accumulated knowledge, all without human intervention. When an issue falls outside of the AI agent's current capabilities, it automatically escalates the ticket to a human technician, captures the resolution, and incorporates that into its knowledge base so it can autonomously handle similar issues in the future. The result is faster resolution times, reduced support costs, and the ability for technical staff to focus on higher value work while the AI system itself continuously improves over time. There are many other AI capabilities we can deliver, but this example should serve to demonstrate the power of AI to solve problems and improve business processes. In summary, we've completed the most difficult phase of our business transformation. We now have scalable infrastructure, a lower-cost business operating structure, strong margins, and a compelling AI-powered customer experience solutions portfolio. Our focus moving forward is disciplined execution, accelerating revenue growth, and progressing towards sustained profitable business growth. With that, I'll now turn the call back to Gary to provide additional details on our financial results.

Gary?

Thanks, Jerry.

Okay, for our 2026 fiscal first quarter, which is October to December, we reported total revenue of $3.2 million with gap net income of $101,000 or zero cents per share. That compares to the prior year's quarter revenue of $3.4 million with gap net income of $87,000 and also zero cents per share, because technically it's half a penny. per share. Total cloud services for the first quarter was approximately 1.4 million, down 17% from the 1.7 million last year. Meanwhile, our services and other revenue increased 7% to 1.5 million from 1.4 million in the prior year. Gross margin for the quarter was 62% compared to 63% in the same period last year. Gap operating expenses for the quarter totaled $1.9 million, reflecting a 9% decrease from the $2.1 million in the same period last year. Looking at our liquidity, we closed out the quarter with $2.55 million in cash and cash equivalents, down from $2.75 million last September 30, 2025. Despite positive EBITDA and positive cash flow from operations, Our cash will continue to fluctuate due to the timing of payments from some of our larger customers and the timing of our accounts payable, which for this quarter was down $400,000 compared to Q1-25. Working capital was $2.9 million compared to the same $2.9 million that was reported at the end of September. Our EBITDA adjusted for legal severance and other one-time costs was $257,000 compared to 291,000 in the prior year's quarter. Now, let me turn the call over to Joe for a discussion of our operating performance. Joe?

Thank you, Gary, and good afternoon, everyone. As part of our continued effort to improve transparency and investor understanding, beginning this quarter, we are providing more detailed insights into the performance of our four primary lines of business, Altagen Consulting Services, Max platforms, IVR, and our teams-based UCaaS platform, CoreEngaged. Our goal with this approach is to provide clear, meaningful data points that allow investors to track performance and trends in execution progress over time. So let's start with Altogen Consulting Services, which continues to be an important driver in business revenue and a strategic differentiation for us. In Q4, fiscal 2025, ACS revenues reached 1.55 million. That was a new high watermark for us. This outperformance was driven by a customer requested acceleration of the delivery of several one-time projects. In Q1, fiscal 2026, ACS revenues normalized back to the run rate of approximately 1.47 million. Due to the reduced holiday billings, While this was consistent with our expectations for the quarter, we do expect to see growth going forward as we bring on new customers to the platform or to the business. During the quarter, ACS also signed a new customer in the commercial power industry to deliver a custom-developed ticketing solution. Due to the security-sensitive nature of this customer's operations, we are permanently restricted from publicly disclosing their identity. The first project we're doing for them is estimated at $150,000. Since the start of this initial project, the same customer has identified additional opportunities they would like us to estimate. I mention this because successful project delivery often leads to additional opportunities with the same customer. In addition, we currently have several other new customer engagements, many driven by AI-related requirements in various stages of discovery and estimation. moving over to our cloud business particularly the max platform space revenue for one queue was 3.2 million compared to 3.4 the same period a year ago decline was primarily driven by seasonal lower activities during the holiday period along with customer churn it's important to note that the majority of the churn as jerry referenced has come from partner transitions where several long-term partners elected to move to alternative platforms prior to the adoption of the Crescendo Net Sapien platform for MaxCloud UC. We continue to pursue targeted win-back strategies to recover as many of those partnerships as possible. At the same time, we continue to manage anticipated churn in our legacy Max business through a combination of customer migration programs, partner incentives, and direct engagement strategies. To drive new growth, we recently launched a new MSP program that provides IT managed service providers with white labeled, white glove UC solutions to resell into their existing customer base. On an ongoing forward basis, we will report quarterly updates on two key metrics, customer migrations and new net customer additions. As the end of Q1, we have over 100 customers active and billing on the MaxCloud UC platform representing over 4,000 seats. Additionally, we have 40 contracted customers representing more than 1,700 seats that are fully configured and scheduled to go live within the next four months. Next on our list of opportunities is several thousand on-premise subscriber seats that remain in our current installed base. Converting these customers to cloud remain a key growth and also a modernization initiative. Moving to our IVR solutions, which are white labeled by Fiserv have produced a stable foundation of revenue streams for the past several years. We expect this to accelerate in the latter half of fiscal 2026 based on several new AI enabled capabilities we're adding to the platform, including conversational AI to enhance customer self-service experience, Core Insights Analytics, customer engagement dashboard reporting solution, and Core Insights AI, which provides deep business outcome analytics. Finally, turning to our teams-based UCaaS platform, Core Engage, where we're beginning to see signs of market momentum, Currently six customers representing more than 200 users are actively billing. We have an additional contracted customers in various stages of the deployment representing approximately 500 users expected to begin billing by the end of Q3. And from a pipeline perspective, CoreEngage continues to show a solid momentum with an estimated 500 additional seats currently in advanced discussions. On the strategic partnership front, In December, Fiserv approved CoreEngage as its preferred Teams contact center. In addition, we have agreed to a partnership under which Fiserv will recommend Microsoft Teams Phone to its customers with Altogen providing the migration services from the legacy PBX platform to Teams. Under this model, Altogen will capture both migration services revenue and ongoing monthly recurring revenue from our direct SIP trunk routing and premier support services. Fiserv is currently developing a comprehensive marketing program that will include featuring Altogen solutions on their website, developing joint marketing materials, inviting Altogen to participate in two upcoming Fiserv user conferences, and providing sales training for approximately 205 serve account managers responsible for selling the Altogen solutions. Last week, we also announced a licensing and collaboration agreement with Crescendo, the leading provider of hosted unified communications as a service. This agreement allows Altogen to concentrate our delivery expertise squarely on exceeding customer expectations. through a streamlined cloud communications offering that combines platform innovations with operational scale. In closing, we continue to make strong progress. Our churn levels are declining while subscriber additions are increasing, and we expect these trends to intersect and turn positive by physical Q3. Going forward, we will continue to provide structured updates on each line of business along with additional key performance indicators to help investors track our progress and execution. We welcome investor feedback on the new format as we refine how we can better communicate our results and trends.

With that, I'll turn the call back over to Jerry for his concluding remarks. Jerry? I'll find my mute button here. Thank you, Joe.

So in closing, Altogen's customer experience strategy is at the core of our business transformation. With AI at the center, we're building a scalable, differentiated business designed for sustainable growth and profitability. So with that, I'll turn the call back to the operator for questions.

Operator? Operator?

Thank you, sir. At this time, we will be conducting our 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. And you may press star 2 if you would 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. Thank you. We have a question from Tim Clarkson with Van Clemens Capital. Your line is live.

Hey, guys. I've been following your stock now for a couple of years and I'm intrigued with the high gross margins and the fact that good balance sheet and now you're making money. So those are all really good things. I guess the question I have is this. who's your typical end user and what are the benefits that they get from this new technology?

That's a good question, Tim.

And it really depends on the solutions, right? We mentioned four different solutions. Three of those are out there today. So in the UCAS world, so this might be a little bit of a long answer, but we want to make sure we provide full transparency. In the UCAS world, our users are typically SMBs, anywhere between, let's say, 10 employees and 100 employees, and those are on our MaxCloud platform. As Joe mentioned in his section, we're changing our go-to-market strategy with our UCaaS platform. Instead of calling on individual customers, the 10 in our average revenue per customer is about $300 to $500 per month. We're flipping that now because we have the infrastructure in place to do this, to call on MSPs who have their customers and who are trusted advisors to their customers. And those MSPs are worth, I should say, what their spend is typically $3,000 to $5,000 per month. So we'll still address that same SMB market, but we're going to take a different tack that should be far more profitable and contribute to our growth. If we look at our IVR solutions that Joe was talking about, those are all banks and credit unions, and the IVR is white-labeled through Fiserv. So typically, these banks and credit unions fall into the category of midsize organizations, and there's 1,500 of those customers today, and that number is growing, and we will leverage those 1,500 customers with the new AI capabilities that we're adding to the platform. And then finally, we have our core engaged solution, which is our integrated contact center for Microsoft Teams. Those customers tend to be larger, so they're mid-market to enterprise customers. And so in that regard, customers normally are in the couple of hundred users at the low end to several thousand at the high end. I think our largest customer, at least the largest customer that we're working with right now to deploy is upwards of 50,000 employees. So it's a totally different market depending on which solution that we're talking about.

Okay, so let's go back to the banks and credit unions. I was actually talking to somebody the other day and they were complaining about how they had a fraud issue with their credit card and they were trying to get a hold of their credit union and they went through two, three people and they're on hold for half an hour with one and they had to come back and They got a new customer, and it was just kind of a nightmare. So, I mean, how does – I assume that your technology would be involved in helping, you know, mitigate those problems and executing better solutions.

Yeah, absolutely. And so we have our baseline product that's been out there for a while that we're adding conversational AI capabilities to, which will certainly improve the customer experience. Our next-generation platform – is going to take that a step further because not only can it respond to requests, check my account balance transfer funds, it can also determine intent. So if someone's got a credit card fraud issue and it can not only respond and take the customer through in an agentic AI fashion, quote unquote, fill out the form, which you need to do to cancel your card, we can also, depending on the customer's orientation, escalate to a live agent and get to the right person. So we're not talking to two or three people. Our AI can escalate to the appropriate person in the fraud department. So yeah, I think with AI, we'll definitely improve that customer experience if that customer is a Fiserv customer.

Okay, one last question. What's the big deal about moving all this stuff to the cloud? How does that benefit the end user?

Well, for the end user, that means there's actually several benefits. The financial benefit is they go from capex to opex. Instead of laying out $50,000 or $100,000 for a contact center product, they're going to spend a few thousand dollars a month. From an infrastructure perspective, and this is really huge, they don't have to spend money on their own hardware, and they don't have to maintain all of the systems as, let's say, I'll call it the old days when we sold on-premises software. and somebody had to physically install the software and maintain it and apply updates, et cetera. There's a tremendous amount of manual effort going into supporting a platform that's all handled automatically by us as a cloud solution.

Okay, that makes sense. Thanks. I'm done with those great answers. Thank you.

Yeah, thank you.

Thank you. Ladies and gentlemen, if there would be any further questions, please indicate so now by pressing star 1 on your telephone keypad. Okay, as we have no further questions on the lines at this time, I would like to turn the call back over to Mr. Fleming for any closing remarks.

Okay, thanks, Operator, and thank you, everyone, for joining the call today. We're getting close here to turning the corner, so we look forward to updating you on our next call, which will be in April, and updating you on our performance going forward as well as all of the operational details that we gave today.

So thank you very much.

Thank you, ladies and gentlemen. This does conclude today's conference, and you may disconnect your lines at this time. We thank you for your participation.