Vecima Networks Inc.

Hello, this is the Coruscall Conference Operator. Welcome to Vesama Network's second quarter fiscal 2026 results 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 and one on your touch-tone phone. You will hear a tone acknowledging your request. If you're using a speakerphone, Please pick up your handset before pressing any keys. Should you need assistance during the conference call, you may signal the operator by pressing star and zero. Presenting today on behalf of Wesserman Edwards, Wesserman Kumar, President and CEO, and Judge Smith, Chief Financial Officer. Today's call will begin with aggregated commentary on Wesserman's financial and operational performance for the second quarter fiscal 2026 results. Lastly, the call will finish with a question and answer period of analysts and institutional investors. The press release announcing the company's second quarter fiscal 2026 results, as well as the detailed 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 unaudited, interim, condensed, consolidated financial statements and accompanying notes for the three and six months entered December 31st, 2025 and 2024. Certain statements in this conference call and webcast may constitute for relevant statements within the meaning of applicable securities law, from which listeners actual results could differ. Consequently, Attendee 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 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 guarantees of future performance and involve risks and uncertainties that are difficult to predict and or are beyond our control. Nasima disclaims any intention or obligation to update or revise any further 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 second quarter earnings report and press release at Cisco 2026 as well as its annual information form dated September 25th, 2025, regarding the various factors, assumptions, and risks that could cause actual results to differ. These documents are available on WESMA's website at www.wesma.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. In our earnings release today, we announced that Vesma is nearing the cusp of major growth inflection. I'm going to start today's call with some comments on this outlook and our expectations for the next 12 months before moving on to an overview of our second quarter highlights. Judd will provide our financial review and then I'll return to wrap up before we open the call for questions. As you know, the global cable and broadband industries have been preparing for a full-scale transition to next-generation DAA technology for several years now. It's something we've described as a once-in-a-generation technology transition, fundamental to how networks will be built and operated and requiring major multi-year capital investment by operators. From the start, Vesma made a deliberate decision to lead this transition through sustained investment in a comprehensive portfolio of next-generation solutions. It's a strategy that's positioned Vesma as a global leader in DAA technologies, and it's already driven meaningful growth. But we've always recognized that the true scale of the opportunity would depend on customers moving to full-scale adoption and deployment. While it's taking time to reach this point, that critical new phase of adoption is approaching. On the broadband side, our lead Tier 1 customer is now preparing to expand wide-scale deployment and have shared their anticipated product needs and expected timing with us. Based on that outlook, we anticipate a sharp rise in demand for our entire remote PI products, including the N9000 GAP platform and ERM3 and 4 RPDs beginning in the fourth quarter. This is a major multi-year upgrade program. Now with it underway and expanding, we expect it will provide sustained benefits to Vesima over an extended period. On the commercial video side of our portfolio, we also announced today that our lead North American tier one customer has selected our next generation TerraceIQ platform to underpin the wholesale upgrade of its commercial video network nationally. This includes upgrades to thousands of our customers' existing commercial account properties, as well as ongoing rollouts to service new commercial video contracts. And it represents another multi-year opportunity for Vecima. These two developments, combined with continued strong demand for our high-margin fiber access products and the traction building for new products like our EN3400, are providing excellent forward visibility. Based on customer indications, on a next 12-month basis, we're now estimating revenue growth of between 20% to 30% as compared to the last 12 months. The anticipated demand profile also positions adjusted EBITDA margin for the same period to break through 20% as our product mix expands with higher margin offerings and as we make gains in operating efficiency. Paired with the top-line growth expectation, this translates to an anticipated 70% to 85% increase in next 12-month adjusted EBITDA compared to calendar 2025. I want to note that we continue to see some third quarter timing lumpiness related to recent industry consolidation activity. We discussed this on our last call, but we now expect the impact to be modest and further mitigated by a favorable Q3 product mix. By the fourth quarter, we expect to see demand ramping up sharply. The developments announced today paved the way for renewed and sustained growth, and they follow on another rewarding quarter for Vesma in Q2. So turning to our second quarter results, I'm pleased to report that we achieved solid year-over-year revenue growth of 3.5%, paired with a significantly stronger gross margin percentage of 44.9%. The 850 basis point, the 850 basis point year-over-year improvement in our gross margin reflects an expected return to a more typical and higher margin product mix, as well as continued improvement in our operating efficiencies. We also generated adjusted EBITDA of 10.6 million in Q2 with an adjusted EBITDA margin of 14.4%. In our video and broadband solutions segment, we turned in a productive quarter marked by steady sales performance, improved profitability, and important product and customer advances. We continue to seed the market with our EN9000 platform, the industry's only gap node, which is gaining deep adoption with customers. We expect the N9000 platform will continue to pay many short and long-term dividends as it widely seeds broadband networks with a modular, standardized, and future-proof platform that's capable of being upgraded with multiple successive generations of DOCSIS or fiber-to-the-home technology for years to come. We also commenced deliveries of our new EN3400 gap node, which is a more compact and condensed version of the EN9000, specifically targeted to multi-dwelling unit and enterprise applications. Our innovative new power holdover modules, which provide ENTRA platforms with protection from power fluctuations in the field, also gained traction in Q2. Both the EN3400 and power holdover modules provided meaningful contributions to our Q2 results and VBS product mix. In our EntraCloud portfolio, we continue to expand VCMTS trials with our lead customer, while also expanding our engagement with additional customers. We view VCMTS as a major long-term growth driver for Vecima, supporting an addressable market estimated to be worth $315 million by 2029. I also want to highlight that contribution from VCMTS sales is not yet a significant factor in current revenues or within the strong projected growth for the next 12 months. meaning the BCMTS remains a major incremental growth opportunity for the business. On the fiber access side of the portfolio, Q2 was another successful quarter with ongoing strength in ENTRA optical sales. We also secured our first customer for XGS PON in the U.S. and closed an order for a new ENTRA EXS1610 all PON platform with a European customer. All in all, an excellent quarter for VBS, and our customer engagements for Entra increased to 147 from 123 a year ago. To date, 70 of those customers have purchased Entra products from Vesima. Looking at our other business segments, our content delivery and storage segment achieved another strong quarter with revenues of $12.3 million, growing sharply both year-over-year and quarter-over-quarter, and gross margin climbing to a very robust 65.1%. These results were supported by increased demand for immediate scale managed IPTV solutions as customers continue to migrate their networks from QAM to IPTV, while also expanding their subscriber basis on IPTV. The second quarter also brought further contribution from our newer dynamic ad insertion products. DAI is providing a compelling use case for operators that are seeking to increase their video ARPUs without having to increase their rates to customers. So as such, it's a highly effective way for our customers to increase their monetization of video while retaining and building their subscriber base. And we view it as an important growth driver for CDS. Turning to Telematics, we achieved another highly profitable quarter with year-over-year revenue growth and an exceptionally strong gross margin of 71.4%. During the quarter, Telematics added 11 new customers and booked 345 new subscriptions for our narrow asset tracking platform. This brought the number of asset tags under management to over 106,000. So, a very successful second quarter for Bessema across all three of our business segments. And we're moving forward with a very exciting outlook as some of our largest customers advance to wider scale adoption. I'll return to talk more about what we see ahead in just a few moments. But first, I'll pass the call to Judd to provide our Q2 financial review. Judd?

Thanks, Sumit. Good morning to everyone with us on the call today. I'll be reviewing our second quarter financial performance in more detail. And for the purposes of this call, I'll assume that everyone has seen our Q2 fiscal 2026 news release, MD&A, and financial statements posted on Vesma's website. We had another solid quarter of financial results. Starting with consolidated sales, revenue grew to $73.7 million in the second quarter, increasing 3.5% year over year, and 3.7% quarter over quarter. Our video and broadband solutions segment accounted for $59.6 million of our revenues, with VBS sales increasing slightly year over year and up 2.8% sequentially compared to Q1. Next generation Entra DAA products were the key driver of our VBS segment results. At $56.3 million, Entra sales were steady year over year and up 2.3%, on a sequential quarterly basis. Commercial video sales added $3.2 million to the VBS results, and we're up 8.7% from Q2 fiscal 25 and 12% from Q1 fiscal 26. In our content delivery and storage segment, second quarter revenues of $12.3 million climbed a sharp 20.7% year over year, and we're up 9.7% from the first quarter of fiscal 26. This growth reflects significant IPTV installation and expansion activity, including a 39% increase in product sales and slightly higher services revenue year over year. We continue to note that quarterly sales variations are typical for the CDS segment. In our telematics segment, second quarter sales of $1.8 million grew 5% year over year, but were 3% lower than last quarter. the year-over-year gains reflect the increase in the number of tags and assets now being monitored. As we expected, gross margin rebounded in Q2 with gross margins climbing to 44.9%. That compares very favorably to 36.4% in the same period last year and 42.1% in Q1 of 26. After normalizing for inventory reserves and warrant expense, our adjusted gross margin also increased sharply to 46.4% from 35.6% last year and 43.9% in Q1 of fiscal 26. The improvements in gross margin and adjusted gross margin primarily reflect the return to a higher margin product mix in our VBS segment and accretive contributions from our CDS segment as well. Turning now to our second quarter operating expenses, these increased slightly to $29.8 million from $29.3 million in Q2 last year. On a quarter-over-quarter basis, operating expenses were $1.8 million higher. Notable year-over-year changes are as follows. G&A expenses were lower at 6.7 million, or 9% of sales, as compared to 7.3 million, or 10% of sales, in the same period last year. This $600,000 improvement reflects decreased expenses for legal fees, other professional services, training and development costs, offset by higher expense for salary, wages, and benefits. Sales and marketing expenses increased to 9.4 million or 13% of sales from 7.3 million or 10% of sales last year. reflecting lower finished goods inventory allowance recoveries of $100,000 in the current period compared to $1.7 million in QQ of fiscal 25. R&D expenses for the second quarter increased to $13.2 million, or 18% of sales, from $11.3 million, or 16% of sales, last year. This is primarily a result of higher amortization of our deferred development costs along with lower capitalized labor development costs. As we note each quarter, we defer some of our R&D expenditures to future periods until our products begin commercialization. And so reported R&D expense in a period is typically different than the actual cash expenditure. Adjusting for this, our actual cash R&D investment was $16.8 million, or 23% of revenues in the second quarter, up from $15.9 million or 22% of revenues in Q2 of last year, as we continue to emphasize our investment in future product developments and building our innovation pipeline. Also included in OPEX for Q2 of last year were $2.8 million in restructuring charges related to our workforce reduction at that time. We continue to monitor and control our operating expenses contributing to our bottom line results and do not foresee any significant OPEX increases in the near term. Now looking at bottom line results, second quarter operating income increased significantly to $3.3 million from an operating loss of $3.4 million in the same period last year. The $6.7 million improvement primarily reflects VBS's higher margin product mix, as well as the increase in CDS sales, which typically carry accretive gross margins, and the $2.8 million restructuring charge taken in last year's Q2. Lastly, net income for the second quarter increased to $100,000, or zero per share, from a net loss of $7.9 million or a 32 cents loss per share in the same period of fiscal 25. Additionally, adjusted earnings per share for the second quarter grew to 4 cents from an adjusted loss per share of 30 cents in the same period last year. Turning to the balance sheet, working capital of $49.3 million decreased from $51.2 million at the end of June of 25. As we discussed in our MB&A, the components of working capital can be subject to swings from quarter to quarter. Product shipments can be lumpy as they reflect the fluctuating requirements of our customers. Contract timing issues like those with greater than 30-day payment terms also affect working capital, particularly if shipments are back and waiting for the quarter. Lastly, cash flow provided from operations for the second quarter decreased to $6.8 million from $15.2 million during the same period last year, primarily related to the changes in working capital. Our net debt position as a whole remains conservative, however, and stood at $66.9 million at the end of the second quarter, down from a peak of $92 million in Q3 of fiscal 24. We had forecasted a slight increase in our net debt position for Q2 and continue to focus our efforts on paying down our debt. On a final note, the Board of Directors approved a quarterly dividend of $0.055 per common share, payable on March 23, 2026, to shareholders' record as of February 27, 2026. It's important to note that this dividend will be designated as an eligible dividend for Canadian income tax purposes. Now back to Simit.