Vecima Networks Inc.

Hello, this is the Course Call Conference Operator. Welcome to Vesima Network's third 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 one on your touchstone 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 the operator by pressing star, then zero. Presenting today on behalf of Vesima Networks are Sumit Kumar, President and CEO, and Dale Booth, Chief Financial Officer. Today's call will begin with executive commentary on Vesima's financial and operational performance for the third 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 third quarter fiscal 2024 results as well as detailed supplemental investor information are posted on Bessema's website at www.bessema.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 three and nine months ended March 31st, 2024. Certain statements in this conference call and webcast may constitute forward-looking statements within the meaning of applicable securities laws from which VESIMA's actual results could differ. Consequently, attendees should not place undue reliance on such forward-looking statements. All statements other than statements of historical fact are forward-looking statements. These statements include and are not limited to statements regarding management's intentions, 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. 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. Please review the cautionary language in the company's third quarter earnings report and press release as well as its 2023 annual report regarding the various factors, assumptions, and risks that could cause actual results to differ. These documents are available on Decima's website at www.decima.com under the Investor Relations heading and on CDAR at www.cdarplus.ca. At this time, I would like to turn the conference over to Mr. Kumar to proceed with his remarks. Please go ahead, sir.

Thank you. Good morning and welcome, everyone. Thank you for joining us. The third quarter brought the start of the major growth wave we've been anticipating, and with it, record financial performance, including a new high watermark for quarterly revenue and adjusted EBITDA. I'm going to begin today with an overview of our Q3 highlights and achievements Dale will follow more details on our financial performance, and then I'll return to talk about our outlook going forward. Starting with consolidated results, I'm thrilled to report that we beat our all-time quarterly revenue record with sales of $80.1 million in the third quarter. That represents almost 29.5% sequential growth from Q2. We paired this with strong gross margin percentage of 46.9%, which, in turn, helped us achieve the record adjusted EBITDA of $17.2 million and adjusted EBITDA margin of 21.5%. Earnings performance was also very robust, with adjusted earnings per share increasing to $0.31. That's up 72% from a year ago and more than double what we achieved last quarter in Q2. In particular, the third quarter was another breakout and record quarter for our video and broadband solutions segments. with sales of 68.2 million climbing 39% quarter-over-quarter from Q2. This growth was, of course, driven by our Entra DAA products as a planned ramp in the second half related to major DAA rollouts got underway, just as we expected, following the brief transition period in the first half. This included a sharp ramp in ERM3 remote-fired deliveries to Charter as part of their hybrid fiber coax upgrade initiative. As we mentioned previously, Charter intends to use our solution for a substantial portion of their footprint-wide cable access network upgrade to DAA. And as such, it represents a major multi-year revenue opportunity for Bessema, and that's only just beginning. Demand was also very strong for our inter-optical 10-gig pond products in Q3, as customers continued to broaden fiber-to-the-home deployments as part of funded rural broadband programs. So while significantly wrapping product deliveries into customer roll-up programs, we're also making major strides with new products during the quarter. Looking first at our EN9000 GAP node, I'm pleased to report that we achieved certification for this new Entra platform with a leading Tier 1 customer in Q3. The EN9000 is a powerful and future-proof solution that enables customers to easily transition to 10G and DOCSIS 4.0 technologies while protecting current network investments that they're making. We also completed lab trials and initiated field trials for our ENTRA EXS1610 all pond shelf. That's another innovative ENTRA solution that provides maximum flexibility for customers by enabling them to cost-effectively deploy fiber to the premises in any market or hub deployment configuration. Additionally, we unveiled our new ENTRA virtualized cable modem termination system platform during the quarter. So this is a natural next step marking Vestibule's move into the fast-growing VCMTS market, and it further adds to our already expansive Entra DAA offering for customers. As part of the Entra Cloud platform, our VCMTS solution leverages software that's underpinned by the common engine of our leading DAA intellectual property. Today, within our remote MACPy platform, that software already powers several multi-gig DAA deployments at our customers. We've now initiated BCMTS lab trials with a leading Tier 1 operator, and we expect field trials to commence in the fourth quarter of calendar 2024. Also on the entry front, early in the third quarter, we entered a U.S. manufacturing agreement for some of our fiber access products to ensure they meet Buy America requirements related to the U.S. BEAD program for fiber. The BEAD program is this major $42.5 billion U.S. initiative designed to bring high-speed broadband to underserved or unserved areas of the United States. We see vast opportunities for our fiber access products flowing from it, and this agreement helps ensure we can capitalize on them. Combined, these new products and programs are adding fuel to the already powerful intra-DAA growth engine that we have. We now have multiple pathways of growth converging, just as the industry demand for DAA is starting to accelerate. At the same time, the customer base for our Entra DA solutions is continuing to expand. By the end of the third quarter, engagements for Entra cable and fiber access are now approaching 200 unique program opportunities across 113 operators globally, with 58 customers ordering product today. That's up from 106 customer engagements and 50 ordering product a year ago, adding to the wave of demand that's now building for our Entra technologies and solutions. So, a phenomenal quarter for our BBS segment and ANTRA, with much more yet to come. Turning now to our content delivery and storage segment, sales of $10.2 million were lower year-over-year and quarter-over-quarter. Lumpy quarters are normal for this segment, as we've indicated before, mostly reflecting the timing of customer project rollouts and stepwise capacity expansions. CDS service revenues were very strong, growing 10% year-over-year, and contributing to strong Q3 gross margin results for the segment. Our solid service revenue performance reflects a steadily growing deployed base of media scale IPTV networks in the market. And we continue to grow that base in Q3, and we continue to grow that base in Q3 as we undertook further IPTV expansions with multiple customers. Turning to telematics, that segment also turned in record quarter with revenues of 1.7 million, up 3% year over year. We added another 10 new customers for our NERO asset tracking platform during the quarter, which in turn increased the number of movable assets we now monitor to over 64,000 units. We also received an order for approximately 300 additional Telematics subscriptions from an existing municipal government customer. Telematics also continues to be a highly profitable part of the business, with the segment achieving strong gross margin of 67.8% in the quarter. Overall, it was a simply excellent quarter for Vesma, and all across our operations, we continue to execute very successfully on our growth strategy. At this point, I'll turn the call over to Dale to provide more color on our Q3 results. Dale?

Thank you, Sumit, and thank you all for joining us today. For the purposes of this call, we assume that everyone has seen our third quarter fiscal 2024 news release, MD&A, and financial statements posted on Vesma's website. Starting with consolidated sales, we generated third-quarter revenue of $80.1 million, which was up 2% year-over-year and 29% quarter-over-quarter. The video and broadband solutions segment accounted for $68.2 million of these sales. That was an increase of 5% year-over-year and 39% quarter-over-quarter and reflects the ENTRE DAA sales momentum Sumit discussed. EAA sales as a whole accounted for 60.9 million of VBS sales. While not quite a match for the all-time high results of a year ago, they were 39% higher on a sequential quarterly basis. VBS segment sales also benefited from a strong contribution from our commercial video products as our lead customer increased orders for legacy TC600E products. This helped boost commercial video sales to 7.2 million. up 244% from a year ago, and 37% from Q2 of this year. While we're pleased with our strong Q3 commercial video results, overall, we view them as temporary. This part of our business continues to transition to next-generation platforms, and increasingly, our newer DAA-driven commercial video solutions are being accounted for as part of intra-family sales. Our content delivery and storage segments saw continued quarterly revenue fluctuations with sales of 10.2 million, decreasing 13% year-over-year and 9% quarter-over-quarter. This mostly reflects timing of orders, and as Sumit noted, quarterly sales variances are typical for this segment. Turning to telematics, this segment turned in another good quarter with sales of 1.7 million, increasing 3% year-over-year and 4% quarter-over-quarter. Gross margin for VESMA as a whole increased up 46.9%, up 340 basis points from 43.5% in the same period last year. This reflects improved margin performance from all three of our business segments, much of it related to an improved supply chain environment and lower expediting costs. It also reflects a very strong gross margin performance of 59.8% from our CDS segments. reflecting the increase in higher margin services revenues year over year. Turning to third quarter operating expenses, the notable changes year over year were as follows. R&D expenses decreased by 0.8 million to 11.3 million. This primarily reflects a targeted decrease in salary and wage costs and higher capitalized development costs, partially offset by increased costs for software and licensing. Sales and marketing expenses for the third quarter were $0.2 million lower at $6.7 million, mostly due to reduced trade show and promotion costs. Third quarter G&A expenses decreased by $0.5 million to $7.9 million. This reflects lower ERP program implementation costs year over year, as well as lower staffing costs. Other expense increased by $1 million to $1.3 million, reflecting a one-time $1.3 million advisory fee related to M&A activity in the third quarter. In total, our third quarter OpEx was $27.5 million, a decrease of $0.4 million year over year, but $2.6 million higher quarter over quarter. As we mentioned in our last call, operating expenses in the second half of this year were expected to be higher than in the first half as we support the ramp up of our sales. In the video and broadband solution segments, third quarter operating expenses were down 0.4 million year over year, reflecting a combination of lower G&A and sales and marketing expense, partially offset by the one time advisory fees related to M&A activity in the third quarter. Content delivery and storage operating expenses were generally flat year over year at 7.4 million. And in our telematics segment, operating expenses of 0.9 million were in line with prior year results. 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 decreased to 14.6 million or 18% of sales in the third quarter from 15.4 million or 20% of sales in Q3 last year. Looking at our bottom line results, third quarter operating income was up 64% year over year to 10.1 million. This primarily reflects the higher VVS sales and an overall stronger gross margin percentage year-over-year. We generated record third quarter adjusted EBITDA of $17.2 million, a year-over-year increase of $5.5 million, or 47%. This primarily reflects our higher gross margins as well as lower operating expenses. On a quarter over quarter basis, adjusted EBITDA increased by 4.7 million or 38%. We recorded a foreign exchange loss of 1.2 million in the third quarter, which compares to a foreign exchange gain of 0.2 million in the same period last year. This reflects a weakening Canadian dollar negatively impacting the translation of our monetary liabilities. That income from continuing operations for the quarter increased to $5.8 million or $0.24 per share as compared to $4.5 million or $0.18 per share for the same period of fiscal 2023. Turning to the balance sheet, we ended the third quarter with $3.3 million in cash up from $2.3 million in the same period last year. Working capital of 82.1 million decreased slightly from 83.7 million in Q4 fiscal 2023 and up slightly from 80.4 million at the end of Q2 fiscal 2024. We note that working capital balances can be subject to significant swings from quarter to quarter. Our product shipments are lumpy, reflecting the requirement 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 used in operations for the third quarter was $28.6 million as compared to cash provided by operations of $3.8 million during the same period last year. The $32.4 million increase in cash flow used in operations reflects a $35.6 million decrease in cash flow from non-cash working capital. partially offset by a $3.1 million increase in operating cash flow. On a final note, the Board of Directors approved a quarterly dividend of 5.5 cents per common share, payable on June 17, 2024, to shareholders of record as at May 24, 2024. It is important to note that this dividend will be designated as an eligible dividend for Canadian income tax purposes. So just to summarize, an excellent quarter with robust sales growth and tight control of operating expenses translating to a very strong profitability. Now back to Sumit.