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spk00: Hello, this is the Chorus Call Conference Operator. Welcome to Vesima Network's first quarter fiscal 2024 earnings conference call and webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Analysts and institutional investors who wish to join the question queue simply press star then 1 on your touchtone phone. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up the handset before pressing any keys. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. Presenting today on behalf of Decima Networks are Sumit Kumar, President and CEO, and Dale Booth, Chief Financial Officer. Today's call will begin with executive commentary on Decima's financial and operational performance for the first quarter of fiscal 2024 results. Lastly, the call will finish with a question and answer period for analysts and institutional investors. The press release announcing the company's first quarter fiscal 2024 results as well as detailed supplemental investor information were posted on BESIMA's website at www.besima.com under the investor relations heading. The highlights provided in this call should be understood in conjunction with the company's unaudited, interim, condensed, consolidated financial statements and accompanying notes for the year's end of September 30th 2023, and 2022. Certain statements in this conference call and webcast may constitute forward-looking statements within the meaning of applicable securities laws. All statements other than statements of historical fact are forward-looking statements. These statements include but are not limited to statements regarding management's intentions, belief, or current expectations with respect to market and general economic conditions, future sales and revenue expectations, future costs, and operating performance. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict and or are beyond our control. A number of important factors could cause actual outcomes and results to differ materially from those expressed in these forward-looking statements. These factors include but are not limited to the current significant general economic uncertainty and credit and financial market volatility, including the impact of COVID-19 and the distinctive characteristics of Bessima's operations and industry and customer demand that may have a material impact on or constitute risk factors in respect of Bessima's future financial performance. I set forth under the heading Risk Factors in the company's annual information form dated September 21, 2023, a copy of which is available at www.cedar.com. In addition, although the forward-looking statements in this earnings call are based on what management believes are reasonable assumptions, such assumptions may prove to be incorrect. Consequently, attendees should not place undue reliance on such forward-looking statements. In addition, these forward-looking statements relate to the date on which they are made. BESIMA disclaims any intention or obligation to update or revise any forward-looking statements as a result of new information, future events, or otherwise, except as required by law. At this time, I would like to turn the conference over to Mr. Kumar to present with his remarks. Please go ahead, sir.
spk02: Thank you. Good morning and welcome, everyone. Thank you for joining us. We achieved solid performance and positive operating results in the first quarter, even as we navigated an expected short-term transition in entro DAA deliveries. I'll start today with some of our key financial and business highlights for the quarter. Dale will follow with more details on our Q1 financial performance, and then I'll return to talk about our outlook going forward. Our results for the first quarter of fiscal 2024 were in line with our expectations and included sales of $61.5 million, a gross margin percentage of 47%, adjusted EBITDA of $8.1 million, and adjusted earnings per share of $0.09. As we discussed with you last quarter, we started this year with an approaching short-term transition in the DAA macro environment. Our customers are now busy catching up and wrapping project rollouts that have been delayed by various lagging labor, permitting, utility make-ready, and other project requirements that are typical of very large-scale network build-outs, along with supply chain challenges outside of SMA's product lines. As a result, in Q1, they temporarily shifted from building up their product pipelines to managing the rollouts and deployment activity using the inventories that we successfully unlocked for them during last year's supply chain challenges. Correspondingly, and as provided in our prior outlook, intro deliveries in the quarter pulled back from recent highs, after the very high growth we had in intro sales over the last two years. When combined with a softer quarter for commercial video products, this resulted in video broadband solution segment sales of $44.1 million. I want to emphasize that while customer inventory rebalancing translated into reduced product uptake in the quarter, the activity occurring behind the scenes only accelerated as customers focused on both increasing the velocity of network upgrade projects and preparing for new material programs. Our customer engagements grew to 108 during the quarter. That compares to 95 in the same period last year. And not only have we added new engagements, but the depth and breadth of our existing customer relationships are growing as well. Throughout the period, we were actively working with some of the world's largest tier one operators as they prepare for and execute wide scale DAA network deployments. This included Charter, who will be rolling out our ERM3 next generation remote Pi devices as part of their planned multi-year cable access network evolution. We expect our solution will be used for a substantial portion of Charter's footprint-wide cable access network upgrade to DAA. Another major movement is broad adoption of our 10G fiber access solutions that are being leveraged by some of the world's largest operators again to expand their networks to cover underserved rural homes with fiber to the premise. As you're probably aware, governments are investing heavily to close the rural-urban divide for high-speed internet access. and Entra fiber access products are an integral part of that solution. We've also been preparing to launch our new generic access platform and other DAA forever nodes. The GAP node, as one example, sets a new industry standard for unified access with a future-proof modular platform that can spend multiple generations of cable and or fiber access across a fully flexible and standards-based evolution and migration pathways. Subsequent to the quarter end, we also announced a new win with Orion Cable, where we'll support this operator's broadband expansion with our remote MACFI cable access solution. One of the many architecture options our broad DAA portfolio in ENTRA allows us to flexibly serve by matching and meeting any customer's unique needs. Considering the 158 individual program opportunities for ENTRA cable and fiber access across 108 customers, The overall scope of SMA DEA is playing a leading role in transforming networks and connectivity to the multi-gigabit future. We have multiple new products and programs and project expansions that will begin to layer as our fiscal year progresses. And together, we expect that to drive a new wave of venture momentum, which in turn we expect will have an increasingly positive impact of our results in the second half, with more to follow in fiscal 2025. Overall, it continues to be an intensely busy and exciting time on the Entra front, and we're very pleased to again experience the market enthusiasm firsthand at the SCT Cable Tech Expo, which we attended a few weeks ago. Vesma's presence at the event highlighted and demonstrated not only our recent, but also our combined and accumulated innovations in the full suite of Entra cable and fiber access solutions and media-scale IPTV platforms. It'd be hard to overstate the volume of interest, the following we had, and the enthusiasm of response to our offerings. The entire exhibit was packed throughout with customer visits, demonstrations, meetings, and the bustle of doing business. This industry transition at D8A is happening. Investment is a recognized industry leader. Whether it's our dominant role in fiber and cable access products or our industry-leading work helping the tier ones migrate to the 10G network, we're clearly a customer's We're clearly a company that customers are looking to and relying on for the most important technology they'll deploy in a generation. Turning now to our content delivery and storage segment, fiscal 2024 got off to a great start with sales up 43% year over year to 15.7 million. This reflects both the growing base of customers for our IPTV solutions and expansions we undertook with a number of those customers during Q1. Again, operator customers are broadening their network footprints to give larger subscriber bases access to state-of-the-art live linear, on-demand, and Cloud DVR streaming on the IPTV fabric, while further migrating away from legacy QAM set-top-based video. Subsequent to the quarter end, we also announced a new program with Blue Ridge Communications, which has engaged Vesma to support its video streaming expansion, along with professional services that are aimed to monitor the live IPTV network and maximize their operational efficiency. I should add the CDS also turned to strong margin performance, reflecting a strong mix that included media scale cash expansion. So a great start to the year for the CDS segment. Turning to telematics, that segment achieved a 14% increase in sales both year over year and quarter over quarter, helping to get the year off to a strong start. We added 14 new movable asset customers during the quarter, which combined represent nearly 700 new Telematics subscriptions. And we significantly increased the number of movable assets being monitored to over 57,000 units. We've almost tripled the number of movable assets on the system in just one and a half years. Telematics also continues to be highly profitable as a part of our business, with the segment achieving an adjusted EBITDA margin of 34% in the first quarter. Overall, it was a quarter of ongoing and exciting progress in VBS and excellent results from both our CDS and telematics segments. And across all of our operations, we continue to focus on tightly managing the business and, in some cases, lowering operating costs to achieve greater efficiency. At the same time, we continue to advance our technologies with robust R&D investment, and that is further advancing our leadership in preparation for the major opportunities we see ahead. I'll tell you more about our view going forward in just a few minutes. But first, I'll pass the call over to Dale to provide more detail on our Q1 financial results. Dale?
spk04: Thank you, Sumit. For the purposes of this call, we assume that everyone has seen our first quarter fiscal 2024 news release, MD&A, and financial statements posted on Bessema's website. I will present the relevant numbers in discussions around overall results, market segments, operational expenses, and the balance sheet. Starting with consolidated sales, for the three months ended September 30th, 2023, we generated sales of $61.5 million. This was a decrease of 19% over the $75.5 million in Q4 of fiscal 2023 and a 16% decrease from the $73.4 million in Q1 last year. The year-over-year change reflects the anticipated temporary slowdown in video and broadband solution product orders, partially offset by stronger year-over-year performance from the content delivery and storage and telematics segments. Within the video and broadband solution segment, first quarter sales for fiscal 2024 were 44.1 million. This was down 28% from the 61 million in Q1 last year and 23% lower than the $57 million in sales last quarter. Next generation DAA products contributed first quarter entry revenue of $38.8 million, down 27% from $53 million in Q1 fiscal 2023, and down 23% from $50.7 million in Q4 fiscal 2023, as anticipated. reflecting challenges experienced by our customers from a labor and permitting perspective, which has caused a temporary delay in large-scale network build-outs, and as they utilize the inventory, we successfully unlock for them in the previous year. We anticipate a resurgent of demand momentum in the second half of fiscal 2024 as we begin to launch major DAA rollouts with key customers. In all, Entra DAA platforms are now being sold to 51 operators across six continents. Commercial video product sales were $5.3 million for the current quarter, a decrease of 27% from the $7.3 million in Q1 fiscal 2023, and 15% lower than the $6.3 million generated in Q4 fiscal 2023. The year-over-year change reflects the transition to next-generation platforms, and the impact of some of our newer DAA-driven commercial video solutions being accounted for as part of intra-family sales. Content delivery and storage segment sales grew 43% to $15.7 million in Q1 fiscal 2024, from the $11 million in the same period last year, and 4% lower than the record $17.1 million achieved in Q4 fiscal 2023. The significant year-over-year increase in CDS sales reflects a broader customer base following last year's new business wins, as well as expansions within existing customers. Segment sales for the Q1 fiscal 2024 period included $9.9 million of product sales and $5.8 million in services revenue. As always, we note that quarterly sales variances are typical for the CDS segments. Turning to the telematics segment, sales in the first quarter were 1.6 million. This was 14% higher than the 1.4 million generated in both Q1 and Q4 of fiscal 2023. Gross margin for the first quarter of fiscal 2024 was at 46.9% with a gross profit of 28.8 million. A decrease of 15% from the 33.7 million in Q1 fiscal 23 and 25% from last quarter's $38.1 million, reflecting lower consolidated sales partially offset by a higher gross margin percentage. We target a gross margin percentage of 45% to 49%. Gross margin is now impacted by non-cash warrant expense, as warrants issued to a customer are recorded as sales incentives under IFRS accounting. Adding back the $0.6 million in warrant expense in the quarter, adjusted gross margin is 47.9%. Gross margin was up from the 45.9% achieved in Q1 fiscal 2023 and down from the 50.5% last quarter. The improvement in gross margin year over year reflects an increased proportion of higher margin CDS sales in our overall product mix. Video and broadband solution segments gross profit for Q1 fiscal 24 was 18.6 million, 31% lower than the 26.8 million achieved in Q1 of fiscal 23, and 33% lower than the 27.9 million achieved in Q4. Gross profit margin of 42.1% for the first quarter was lower compared to 43.9% in Q1 last year, and 48.9% in Q4 fiscal 23. The year-over-year decrease in gross profit reflects lower segment sales combined with the non-cash warrant expense recorded in the current period. Gross profit in the content delivery and storage segment for Q1 increased by 53% to 9.2 million from the 6 million in the same period last year and CDS gross margin of 58.5% for the quarter was also higher than the 54.5% gross margin for the same period last year and the 53.8% generated in Q4 fiscal 23. The year-over-year increase in CDS gross profit reflects the higher sales together with the stronger gross margin. On a sequential quarterly basis, CDS gross profit for the current quarter was consistent with the $9.2 million generated in Q4 fiscal 23, reflecting stronger gross margin performance offset by lower quarter-over-quarter sales. In the telematics segment, gross profit in the first quarter increased slightly to $1.1 million with a gross margin of 64.9% from the $1.0 million in gross profit and 66.1% gross margin in Q1 fiscal 23. and the gross profit of 1 million last quarter, but lower than the Q4 fiscal 23 gross margin of 72.4%. The year-over-year improvement in gross profit was mainly the result of increased customer deployments and higher sales in the current quarter. Turning to first quarter operating expenses, the notable changes year-over-year were as follows. R&D expenses decreased to 10.3 million in the current quarter from 10.7 million in Q1 fiscal 23, primarily reflecting an increase in capitalized development costs partially offset by higher prototyping materials, software, and licensing costs. We continue to invest in research and development to support the launch of new products. Until these new products are commercialized, development costs are deferred to future periods. Sales and marketing expenses for the first quarter increased to $7.4 million from $6.3 million in the same period last year. The year-over-year increase in sales and marketing expense primarily reflects an increase in non-cash inventory allowances, combined with higher staffing costs partially offset by lower trade show expenses. G&A expenses increased to $8 million in Q1 fiscal 24 from $5.6 million in Q1 fiscal 23. The year-over-year increase primarily reflects additional staffing, professional fees, software licenses, and training costs in support of realized and planned sales growth. Other expenses less than $0.2 million in Q1 fiscal 24 compared to zero in Q1 fiscal 2023. Total OpEx in Q1 fiscal 24 increased to $26.1 million from $22.7 million during the same period last year, and down from $32.7 million in Q4 fiscal 23. The year-over-year increase primarily reflects the ramp-up of growth-related support costs over fiscal 22 and 23, partially offset by strategic cost reduction initiatives implemented in the fourth quarter of fiscal 2023. Video and broadband solutions operating expenses for the current quarter increased to $18.3 million from $15.3 million in Q1 fiscal 2023, but decreased from the $23.8 million in Q4 fiscal 2023. The $3 million year-over-year increase primarily reflects additional expenses for research and development, sales and marketing, general administrative activities, and staffing in preparation for anticipated sales growth. Content and delivery and storage operating expenses were higher at $7 million in Q1 fiscal 24 as compared to $6.6 million in Q1 fiscal 23, but lower than the $8 million in Q4 of fiscal 2023. The 0.4 million year-over-year increase reflects higher expenditures on general administrative costs to support sales growth, partially offset by the shifting of sales and marketing expenses to be more in line with segment revenue generation. The quarter-over-quarter decrease was primarily attributable to the shift in sales and marketing expenses, as outlined above, combined with lower stock-based compensation. I note that reported R&D expense in a period is typically different than the actual expenditure. That's because certain R&D expenditures are deferred until product commercialization. Adjusting for deferrals, amortization of deferred development costs and income tax credits. Actual R&D investment for the current quarter decreased to 13.4 million or 22% of sales from 13.5 million or 18% of sales in the same period last year, and down from the 15.3 million or 20% of sales in Q4 fiscal 23, representing the restructuring that occurred in June. The slight decrease year over year reflects cost savings initiatives undertaken in the fourth quarter of fiscal 23, partially offset by increased costs for software licensing and prototyping in the current year quarter. as our next generation products move closer to commercial development. In our operating results, we reported an operating income of $2.7 million in Q1 as compared to $11 million in Q1 of last year. The year-over-year decrease in operating income was primarily due to lower sales in the BBS segment, partially offset by higher sales and margins in the CDS segment. Adjusted debit decreased to $8.1 million this quarter from $17.2 million in the prior year quarter and $15.1 million last quarter. Foreign exchange loss was $0.6 million in Q1 fiscal 2024 as compared to a foreign exchange gain of $1.3 million in the prior year period. Net income from continuing operations for the quarter was $1.1 million or $0.07 per share from a net income of 9.5 million or 41 cents per share in Q1 fiscal 23. Turning to the balance sheet, we ended the fourth quarter of fiscal 23 with 2.3 million in cash as compared to 12.9 million in the same period last year. Working capital increased to 79 million in the current quarter from 66.8 million in Q1 last year but decreased from the $83.7 million in Q4 fiscal 23. We note that working capital balances can also be subject to significant swings from quarter to quarter. Our product shipments are lumpy, reflecting the requirements of our major customers. Other timing issues, like contracts with greater than 30-day payment terms, also affect working capital, particularly if shipments are back-end weighted for a quarter. Lastly, cash flow provided by operations for the first quarter increased to $8.4 million as compared to cash flow used in operations of $7.2 million during the same period last year. The $15.6 million change reflects a $28.6 million increase in cash flow from non-cash working capital, partially offset by a $13 million decrease in operating cash flow. On a final note, in terms of the quarterly dividend, the Board of Directors approved a quarterly dividend of 5.5 cents per common share payable on December 18, 2023 to shareholders of record at November 24, 2023. It is important to note that this dividend will be designated as an eligible dividend for Canadian income tax purposes. So just to summarize, Another solid quarter with sales, gross margin, and adjusted EBITDA as expected. Now back to Sumit.
spk02: Thank you, Dale. As we look ahead to the balance of the year, Vesma is on the cusp of a major new phase of growth and development. Around the globe, MSOs are planning significant capital investments to upgrade their broadband and IPTV networks. This is essential as service providers worldwide continue to grapple with competitors and invest in their core broadband business to both protect and enhance their market share while expanding their footprints. We're exceedingly well positioned in this large and growing market. As a core broadband supplier for the global industry with unrivaled DAA and IPTV product portfolios and a very strong market position, Vesimo is poised to realize our share of this far-reaching opportunity ahead. In our video and broadband solution segment, we are moving closer to major rollouts with key customers and we see multiple pathways to growth. While the exact timing of these various rollouts will always be customer dependent and by their nature, the program should be thought of on the overall trend versus quarter to quarter. We see our momentum trend building strongly in the second half of fiscal 2024. In our content delivery and storage segment, we expect growing demand for our IPTV and open caching solutions will contribute to solid year-over-year growth in fiscal 24. On a full year basis, we're anticipating CDS sales gains in the low double digits. And over the longer term, we continue to see robust future growth potential as IPTV and OTT streaming services markets continue to expand. Finally, in our telematics business, we expect consistent incremental growth from the fleet tracking market and increasing demand for our new removable asset tracking services. The latter has become an important driver of segment differentiation and gains in recent quarters. Overall, we continue to anticipate respectable full-year consolidated sales growth for Vespa in fiscal 24, with notable gains in our run rate in the third and fourth quarters. Longer term, our outlook is highly compelling. We're continuing to demonstrate the full deployment potential of our technologies as we support our customers' wide-scale network transformations. and we're repeatedly breaking new ground in ultra-high-speed connectivity. Our leadership position is growing, and we remain highly confident in both our market position and Invesimo's ability to capture the major multi-year opportunities in the captivating DAA and IPTV markets. That concludes our formal comments for today. We'd now be happy to take questions. Operator? Thank you.
spk00: We will now begin the question and answer session for analysts and institutional investors. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Jim Byrne of Acumen Capital. Please go ahead.
spk03: Thanks, guys. I just wonder if I could get your thoughts on Charter's comments recently about just their rollout of the rural broadband versus maybe delaying some of their upgrade of their HFC.
spk02: Yeah, no, thanks, Jim. I think, as you noticed, and if you picked up on some of the commentary they provided, I think it reflects that these adjustments are very normal and immaterial in terms of timing. What they're doing, they're looking at as a total package of network evolution and expansion between the cable access and the fiber access. So they're working towards this converged gigabit connectivity solution. as they call it, and that involves investment in capital in both the cable network and the fiber network that they're growing with the rural broadband funding. So when we think about it, again, reflects nothing out of the normal, modest timing shifts and emphasis shifts between those two investment areas for them. They've got 55 million passings. They're adding 1.5 million plus passings on rural fiber to the home. So they'll trade off when they need to do this work on the cable access network or the fiber access network. In either case, that's all well aligned with our thoughts on the long-term programs.
spk03: Okay, that's great. And then just thinking about some of the cost-saving initiatives that you implemented, are you kind of done there? You kind of right-sized the investment on R&D and the team on the R&D side for what you see for the future?
spk02: Yeah, I think we do feel well-modeled as we stand today. You know, I want to emphasize that, you know, we always look at that efficiency. It was largely, you know, program alignment driven in terms of the programs we want to invest in. rather than, you know, purely OPEX driven, of course, we gained some OPEX efficiency. And that positions us well. And we've seen that, you know, reflected in generating solid EBITDA in the first quarter of, you know, the 8.1 million and positioning us, you know, for what we see happening when we carry on with this momentum in the second half. So we feel good about where we position the model that allows us to invest, of course, as we continue to work at this long-term growth opportunity that remains the case based on our, you know, exiting run rate in fiscal 24. We want to maintain a solid footing on investment and, you know, maintain and grow this market share leadership we've built in both DAA and cable and fiber access. So, you know, it's a balance point and we feel comfortable with it.
spk03: Okay, it's perfect. And then maybe one for you, Dale. Just big building inventories in the quarter, I noticed. Just give us an idea of what the working capital might look like over the course of the fiscal year.
spk04: Well, I would say that with the changes you had mentioned and as we build up for our new charter deployment, we will see some additional inventory build up that will occur in Q2, Q3. But after that peak, we're expecting that our working capital will start to draw down on the inventory levels as we ramp up our sales in Q3 and Q4.
spk03: Okay, that's perfect. Thanks, guys. Thanks, Jim.
spk04: Thanks, Jim.
spk00: Once again, analysts and institutional investors who would like to ask a question should press star then one under touchstone phone. We will pause for a moment so any additional callers may join the queue.
spk01: So our next question is from Jim Byrne of Acumen Capital.
spk00: Please go ahead.
spk03: Yeah, sorry, I'll just jump back on here. So maybe just give us an idea, but I know we don't typically talk about kind of some of the products and the advantages at length, but maybe just looking at this gap node, you know, what need does that fulfill and, you know, what does that opportunity look like in the future?
spk02: Sure, no, I appreciate that, Jim. I think, you know, if you look at the cable access network historically, it's evolved through many migrations from analog to digital video to the first broadband, now moving to the gigabit broadband. And in the course of so doing, you know, the industry has, you know, gotten to this point where there's a lot of, you know, variation in the hardware that's out in the field. That has its challenges in terms of maintenance and support, in terms of how the field techs manage those many different SKUs. And these old, you know, we always talk about these old analog nodes, moving them to distributed access digital nodes. And, you know, that is a major transformation of the network. And in parallel with that, you know, we see operators moving to a more unified hardware ecosystem that's more modular, that's a single line. You know, some of these largest tier one operators have have dozens and dozens of different variants of hardware in their network. So we built a modular platform. It's migratable. It's upgradable. We can put today, of course, thinking about putting DAA DOCSIS 3.1.4.0 modules in it for cable access. We can migrate modules in that same housing with the same power supplies to fiber to the home over time. We can even look at adding some wireless line cards or some compute line cards. So it gives them a future-proof platform and takes them away from this fragmentation they've had in the network in the past. And in so doing, that's expected to improve their quality and their serviceability of their network.
spk03: Okay, that's great.
spk01: Thank you. Thanks, Jim.
spk00: As there appears to be no further questions, this concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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