Vecima Networks Inc.

Hello, this is the chorus call conference operator. Welcome to BASMA Network's fourth quarter fiscal 2024 earnings conference call and webcast. As a reminder, all participants are in listening 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 and 1 on your touchtone phone. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up the handset before pressing the keys. If you need assistance during the conference call, you may signal an operator by pressing star and 0. Presented today on behalf of Blasphemy Networks are Sumit Kumar, President and CEO, and George Schmidt, Chief Financial Officer. Today's call will begin with executive commentary on BASMA's financial and operational performance for the fourth quarter and year-end 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 fourth quarter and year-end fiscal 2024 results as well as DTM supplemental investor information are posted on VESMA's website at www.vesma.com under the investor relations heading. The highlights provided in this call should be understood in conjunction with the company's audit annual consolidated financial statements and accompanying notes for the years ended June 30th, 2024 and 2023. Certain statements in this conference call and webcast may constitute forward-looking statements within the meaning of applicable security laws, from which PASMA's actual results could differ. Consequently, SMDs should not place undue reliance on such forward-looking statements. All statements other than the statements of historical fact are forward-looking statements. These statements include but are not limited to statements regarding management's intentions, beliefs, 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 a guarantee of future performance and involve risks and uncertainties that are difficult to predict and or are beyond our control. thus not 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 fourth quarter earnings report and press release, as well as its 2024 annual report. Regarding the various facts assumptions and risks that could cause actual results to differ. These documents are available on BASMA's website at www.basma.com under the Investor Relations heading and on CEDAR at www.cedarplus.ca. At this time, I would like to turn the conference over to Mr. Kumar to proceed with his remarks. Please go ahead.

Good morning and welcome everyone. Thank you for joining us. I want to start today by acknowledging and thanking Dale Boot, whose retirement we announced earlier this week. In the 13 years Dale was a part of the Vesma team, including the past five years as our Chief Financial Officer, Dale's been instrumental to our growth and development. As CFO, he helped deliver five years of growth and this past year, the best six months in Vesma's history. Dale made many other contributions to VESMA, including building, managing, and mentoring a strong finance team. One of the outcomes of that team building is that Judd Schmidt, previously our VP Finance and Corporate Controller, is succeeding Dale as Chief Financial Officer. Judd has been a part of VESMA for a total of nine years, including seven directly with VESMA and two years with Concurrent, which we acquired in 2017. He's a highly experienced leader with deep knowledge of VESMA and public company finance. He also has significant management and executive experience, including as CFO with a number of large companies. I'm delighted to welcome Judd to the senior executive team, and you'll hear from Judd directly today as he'll be providing the financial color on today's call. Before we get to that, however, I'm going to start with some commentary on the fiscal year in the fourth quarter. As we expected, fiscal 2024 was a year of two distinctly different halves. During the first six months, the DAA environment was undergoing a transition in which customers caught up on delayed projects and worked through inventory we helped them build through the previous year's supply chain challenges. Those challenges began resolving in the second half as customers started to move forward with their DAA network upgrades, supported by multiple new Vesma product rollouts. With our sales momentum building again, we went on to achieve the best six-month revenue and adjusted EBITDA results in Vesma's history. That included back-to-back record revenue quarters, with Q3 sales climbing to an all-time high of $80.1 million and Q4 taking it up another notch to $87.5 million. In total, we achieved $291 million of sales in fiscal 2024, together with adjusted EBITDA of $53.8 million and adjusted earnings per share of $0.89, despite a slower first half. Our video and broadband solutions segment generated 236.1 million of the full year sales, supported by record segment performance in both the third and fourth quarters. As we expected, ENTRO products accounted for the majority of these results. We benefited from continued strong demand for our ENTRO Optical 10 gig EPON products for fiber to the home as customers broaden those fiber to the home deployments as part of funded rural broadband programs. But it was delivery of new Entra products have provided an even greater contribution. A key highlight of our year was the introduction and ramp of deliveries of our new ERM3 remote PHY devices to our lead customer, Charter. As we've discussed on previous calls, Charter's planning to use our solution for a significant portion of its footprint-wide hybrid fiber coax upgrade. The ERM3 quickly became our top-selling product of fiscal 2024, helping to drive record Q3 and Q4 revenue performance and more than doubling our remote buy sales on a full year basis. In Q4, we also kicked off deployments of another important new product, our EN9000 Generic Access Platform or GAP node, which provides operators with a future-proof path to 10G. We wrapped up manufacturing of this node in preparation for anticipated strong adoption in fiscal 2025. Also in Q4, we initiated shipments of our new ENTRA EXS1610 All Pond Shelf, which enables customers to cost-effectively deploy fiber to the home in any market or hub deployment. And we continue lab trials of our new ENTRA VCMTS, or Virtualized Cable Modem Termination System, with our LEED Tier 1 customer, while securing additional customer engagements for this new ENTRA cloud platform. I want to emphasize that each one of these products represents a major new growth driver for Vecima. Combined, they form a powerful catalyst for growth that promises to propel enter results in fiscal 2025 and future years. I should add that subsequent to the year end, we also paved the way for access to the massive $42.5 billion U.S. Broadband Equity Access and Deployment Fund, or BEAD program, as we commence manufacturing of some of our fiber-of-the-home optical products with a partner in the US. This now enables us to meet Buy America provisions under the program, giving us access to huge new opportunities for our fiber access portfolio in ENTRA. So a very big year for ENTRA developments and deployments that carries on. And it's clearly no surprise that ENTRA was our fastest growing product family again in fiscal 2024, representing 73% of our consolidated sales. In total, our customer engagements for ENTRA climbed to 115 during the year, up from 107 at the start of the year. And 62 of those customers are now purchasing our ENTRA cable and fiber access products for use in the networks. This includes deployments with eight of the top 12 largest cable operators in North America, which provides a strong indicator of ESSIMA's continued leadership in the DAA landscape. Looking now at highlights from our other business segments, Our content delivery and storage segment generated sales of 48.2 million in fiscal 24. While that was 8% lower than the previous year, our results included a 10% increase in higher margin services revenue, reflecting the growing list of customers for a deployed base of media scale IPTV network solutions. This in turn contributed to strong segment gross margin performance of 56.7% for the year, up from 53.1% in fiscal 23. Our CDS results included initial revenue also from the successful launch of our new dynamic ad insertion solution with two US customers in Q4, with further customer additions being expected in fiscal 2025. That's an important new offering for Vesma, one that significantly supports our customers' ability to monetize their video assets. On the innovation front, we released new versions of our media scale origin and dynamic content products, which include additional dynamic ad insertion features along with other important advances in the offering aligned with customer objectives. And we launched a new next-generation recording system for MediaScale Cloud DVR during the year. We also made important strides in our standards-compliant development of the MediaScale OpenCDN open caching platform, which is expected to evolve into a material growth driver for the business in the long term. Once again, open caching allows operators to, for the first time, monetize the millions of OTT streaming video packets crossing their networks for free today, while at the same time greatly increasing viewer quality of experience and reducing caching costs for the streamers. Turning to telematics, we continue to build on the segment's profitable recurring revenue contribution as we advance uptake of our successful movable asset tracking platform. We added 50 new asset tracking customers during the year, and increased the total number of movable assets we monitor to over 68,000, an increase of 20,000 from last year. This, in turn, helped us grow sales in telematics in the fourth quarter by approximately 22% year-over-year, and our telematics segment achieved a strong gross margin of 67.5%. So, overall, a year of across-the-board achievements for Vesma, and we ended in a strong financial position. with 84.9 million of working capital and a $30 million reduction in our short-term borrowings between Q3 and Q4. That was after continuing to invest in working capital, R&D, and organic growth, and returning cash to our investors in the form of our regular dividends of 22 cents per share across the year. Decima is moving forward in an excellent position to capitalize on the significant growth opportunities we see ahead. I'll tell you more about our outlook in just a few minutes, First, though, I'll turn the call over to Judd to provide our fourth quarter financial review. Judd?

Thanks, Sumit, and thank you for the introduction earlier. I just wanted to offer my sincere thanks to Dale, who is not only my boss but my friend, and I certainly wish him well in his retirement. I'm grateful for the opportunity to serve ESIMA as its CFO in what will undoubtedly be an exciting future for the company. Thanks to Sumit, the board, and the rest of the management team for their vote of confidence. Good morning to everyone who's here with us on the call today. I'll be reviewing our fourth quarter financial performance in more detail. And for the purposes of this call, I'll assume that everyone has seen our Q4 and year-end fiscal 24 news release, MD&A, which provides much more detail than what I'll be covering today, and financial statements posted on VESMA's website. As Simba indicated, we had a great quarter to end the fiscal year. Starting with consolidated sales, we achieved a strong close to the year with record fourth quarter revenue of $87.5 million, and that was up 16% year-over-year and 9% on a sequential quarterly basis. Our video broadband solution segment accounted for $74.7 million of these sales, with revenues growing 31% year-over-year and 9% quarter-over-quarter to achieve a new all-time segment height. As we predicted, Entra DAA sales were the key driver of this record performance. Supported by the Entra product rollouts that Sumit discussed earlier, our Q4 DAA sales grew 35% year-over-year and 13% quarter-over-quarter to a new quarterly high of $68.7 million. VBS segment sales also included a $5.9 million contribution from our commercial video products. In our content delivery and storage segment, we continue to experience quarterly revenue fluctuations with Q4 sales of $11.1 million, decreasing from the record quarter we achieved in Q4 of last year, but increasing 8% as compared to Q3 of this year. Each customer's purchasing cycle for CDS products are different. This results in the lumpiness in quarter to quarter CDS revenues that we see. I'm pleased to note, though, that our CDS segment continued to benefit from higher margin services revenues. Services revenues were up 10% year over year. Turning to telematics, this segment turned in another growth quarter with sales of $1.8 million, increasing 22% year over year and 4% quarter over quarter as we continue to achieve gains with our movable asset solution strategies. Turning to fourth quarter operating expenses, the notable changes year over year were as follows. R&D expenses increased by $1.9 million to $11 million. This primarily reflects a targeted decrease in salary and wage costs at the beginning of fiscal 24 and higher capitalized development costs as we continue to invest in future product development. Sales and marketing expenses for the fourth quarter were $700,000 higher at $8.5 million, mostly due to higher salaries and wages, as well as additional expenses aimed at supporting future sales, such as trade show participation. Fourth quarter G&A expenses increased by $600,000 to $8.5 million. This reflects higher staffing costs, as well as expenses aimed at supporting future growth within the organization. Other expenses decreased by $1.4 million to $200,000, reflecting a $2.4 million gain on the sale of our office property in Victoria, partially offset by advisory fees for our failed acquisition of CASA systems and the settlement of third-party support contracts, both non-recurring. In total, our fourth quarter OPEX was lower at $28.5 million, a decrease of $4.2 million year over year. As I just noted, I encourage each of you to read our MD&A for more details in this area. Also, as noted in our past calls, reported R&D expense in a period is typically different than the actual R&D expenditure. That's because certain R&D expenditures are deferred until product commercialization. Adjusting for these deferrals, amortization of deferred development costs and investment tax credits, our actual cash R&D investment increased to $15.6 million or 18% of revenues in the fourth quarter from $15.3 million or 20% of revenues in Q4 of last year. Looking at our bottom line results, fourth quarter operating income was up 125% year-over-year to $12.2 million. This primarily reflects the higher VBS sales partially offset by an overall lower gross margin percentage of 46.5% as compared to 50.5% in the same period last year. The change in gross margin percentage was largely driven by a different product mix in the VBS segment as well as a lower percentage of high margin CDS sales in our overall revenue mix. We recorded a foreign exchange loss of $2 million in the fourth quarter, which compares to a foreign exchange gain of $1.3 million in the same period last year. A weakening Canadian dollar negatively impacted the translation of monetary liability, resulting in this FX loss. As a result, I'm pleased to report we achieved Q4 net income of $8.3 million, or 34 cents a share, which was up sharply from $5.1 million, or 21 cents per share, in the same period of fiscal 23. Our record revenues, together with a tighter control of operating expenses, and despite the foreign exchange loss, helped us increase adjusted EBITDA to $16 million in Q4. That was 5.8% higher than in the same period last year. Turning now to the balance sheet, we ended the fourth quarter with $2.1 million in cash as compared to $2.3 million in the same period last year. Working capital of $84.9 million increased slightly from $83.7 million in Q4 of fiscal 23 and $82.1 million at the end of last quarter. While working capital has remained relatively consistent over the last several quarters, The components of working capital can be subject to significant swings from quarter to quarter. Our product shipments can be lumpy, reflecting 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 fourth quarter increased to $36.1 million from $4.6 million during the same period last year. As a result of this $31.5 million increase in operating cash flows, we were able to pay down our revolving line of credit by $30 million in the fourth quarter, which had peaked at $81.7 million at the end of the third quarter. On a final note, the Board of Directors approved a quarterly dividend of 5.5 cents per common share, payable on November 4th, 2024, to shareholders of record as at October 11, 2024. It's important to note that this dividend will be designated as an eligible dividend for Canadian income tax purposes. So just to summarize, we had an excellent fourth quarter with robust year-over-year sales growth and tight control of operating expenses, helping out to close out the year with a strong bottom-line performance. Now back to Simmons.