Vecima Networks Inc.

Hello, this is the Chorus Call conference operator. Welcome to Vesima Networks' fourth quarter and full year fiscal 2026 results conference call and webcast. As a reminder, all participants are in a 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 touchstone phone. You will hear a tone acknowledging your request. If you are 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 and zero. Presenting today on behalf of Vesima Networks are Sumit Kumar, President and CEO, and Judd Schmid, Chief Financial Officer. Today's call will begin with executive commentary on Vesima's financial and operational performance for the fourth quarter and full year fiscal 2026 results. Lastly, the call will finish with a question and answer session period for analysts and institutional investors. The press release announcing the company's fourth quarter and full year fiscal 2026 results, as well as detailed supplemental investor information, are posted on Vesima's website at www.vesima.com under the Investor Relations heading. The highlights provided in this call should be understood in conjunction with the company's audited annual consolidated financial statements and accompanying notes for years ended June 30, 2026 and 2025. Thank you for watching. 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. Fessima disclaims any intention or obligation to update or revise any forward-looking statements. As a result of new information, future events are otherwise except as required by law. Please review the cautionary language in the company's fourth quarter and full year fiscal 2026 earnings report and press release, as well as its annual information form dated September 24, 2026, regarding the various factors, assumptions, and risks that could cause actual results to differ. These documents are available on Vesima's website at www.vesima.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.

Good morning and welcome, everyone. Thank you for joining us. We closed out Vesma's fiscal 2026 year with a breakthrough fourth quarter that included our best ever quarterly financial results and another increase to our outlook. I'll start today with an overview of our Q4 highlights and of course some of the high-level achievements all through the past year. Judd will provide our fourth quarter financial review and then I'll return to discuss the significant growth we see out ahead before opening the call to your questions. As a result of the divestiture of the telematics business in July, our remarks today are going to focus on the remaining continuing operations of our VBS and CDS segments only. Fourth quarter was the strongest in Vesma's history. As wide-scale DAA rollouts gained momentum, our Q4 consolidated revenues climbed 36% year-over-year to a record $91 million and 45% sequentially quarter-over-quarter. Q4 adjusted EBITDA more than tripled year-on-year to an all-time high of $18.9 million, achieving adjusted EBITDA margins of 20.8% in the quarter. These were deeply satisfying results, but I want to emphasize that they reflect just the early returns on Vesma's long-term strategy. As you know, broadband operators worldwide have been preparing for a once-in-a-generation technology transition to distributed access architecture and DOCSIS 4.0 for many years now they've been preparing. Vesma has played a key role in this evolution, leveraging our deep experience and technical strengths and partnering closely with customers to provide them the innovative interoperable technologies that underpin these network transformations. It's taken sharp focus, significant investment and an unwavering strategy to build the industry's most comprehensive portfolio of DAA cable broadband and fiber to the home broadband access platforms. And today we've emerged as a leading global force in the next generation broadband access as wide-scale rollouts of these network upgrades. Those wide-scale rollouts translate into a ramp in demand for our solutions. And that's part of a wave that is really just starting to build. In our video and broadband solution segment, fourth quarter revenue climbed to a record $80.1 million, up 38% year-over-year, as demand and sales for our next-gen EnterDAA products accelerated. This was driven in part by a significant wrap-up of deliveries to Target Communications as we supported the expansion of their DAA rollout under our multi-year cable and fiber agreement with this leading Tier 1 operator customer. It also reflects our growing relationships with a large and ever-expanding base of operators worldwide. By year-end, we have broadband engagements with 150 customers, an increase of more than 100 customers over just a few short years. The expansion and deepening of our customer base also contributed to very strong sales for our intra-optical products, led by our SF4x optical line terminals for fiber to the home. Vecima was already the number one global market leader for remote OLT terminals, so this further builds on our position. And it underscores Vecima's increasingly important role as a critical supplier in the fiber to the home space, supported by our 10 gig plus fiber broadband capabilities. Shipments of our new ERM3 remote PHY modules also rose sharply in the quarter as we supported our customers' ongoing network upgrades, and demand continued to grow for our highly successful EN9000 gap notes. As we've discussed previously, the EN9000 provides operators with a flexible foundation that supports evolving DOCSIS and fiber-to-the-home technologies while reducing the need for future hardware replacements. So this underscores a significant network incumbency advantage that our very broad footprint of deployed access platforms is now established. Combined, Entra platforms are now providing multi-gigabit broadband connections to tens of millions of homes. And we expect this increasingly deep footprint to evolve through multiple generations of further broadband investment, allowing Vesma to monetize our widely deployed base of Entra platforms for years to come. Keep in mind that while achieving all-time record results from our existing enterprise portfolio in Q4, we're also advancing new technologies that we expect will become a major new growth series of growth engines for Vesma. We made significant progress with our VCMTS solution in Q4, progressing trials with our lead Tier 1 customer, while also signing new agreements with additional major customers, including Videotron, a large Tier 1 operator in Canada. We now count seven VCMTS wins, including two Tier 1s so far, with many new customers engaged, including several more Tier 1s, 2s, and 3s. In our commercial video portfolio, our next-gen TerraceIQ solution has also been gaining broad traction. Subsequent to year end, a major North American Tier 1 operator selected TerraceIQ for a broad commercial video network modernization spanning thousands of locations and properties. In just the last year, we secured multiple new design wins for TerraceIQ and other customers as well, including three Tier 1s and an additional Tier 2. Taken together, these achievements are setting the stage for sustained growth in the VBS segment, both in the near and the long term, and we fully expect to build further on the all-time highs we just produced. I'll talk more about that a little later in the call. Turning to content delivery and storage, The segment generated double-digit Q4 revenue growth, both year-over-year and quarter-over-quarter, as uptake of managed IPTV installations expanded. We also made excellent progress with our targeted dynamic ad insertion solution as we continued to deploy Phase 2 with our lead customer, Hotwire Communications. DAI enables operators to deliver targeted personalized advertising experiences, increasing video ARPUs without having to increase the rates to customers. Overall, it was an outstanding quarter for Vesima, one that marked a major milestone as we now embark on a significant new phase of growth. To ensure that we're positioned to take advantage of the exciting opportunities ahead, we've also undertaken some important strategic initiatives in recent months. In July, we divested our telematics business, enabling us to sharpen our focus on the fast-growing broadband access and streaming video businesses, while also boosting our balance sheet. and in August, we announced two executive leadership appointments that will help support us on our path forward. While I'll remain, of course, the CEO of Vesma, we've elevated Clay McCreery to President and Chief Operating Officer, focused on Vesma's strategic performance and long-term growth. And Ryan Nicometo, who previously led our VBS segment as GM, has been promoted to the newly created Chief Product Officer role, where he's focused on executing the unified product strategy all across our platforms. So these appointments not only strengthen our leadership structure, they also recognize the important contributions Clay and Ryan have made to Vesma for many years now. Now I'll turn the call over to Judd to discuss our fourth quarter results, financials in more detail. Judd.

Thanks, Sumit. Good morning, everyone. I'll walk through our fourth quarter financial performance in more detail. For the purposes of this call, I'll assume that everyone has seen our key four fiscal 26, News release, MD&A, and financial statements posted on VESMA's website. Please refer to today's news release and our MD&A for definitions and reconciliations of the non-IFRS financial measures I'll be referencing. As we've said over the past few months, we expected the fourth quarter of fiscal 26 to mark the start of an accelerated growth period for VESMA, and that's exactly what played out. This quarter's results came in as we anticipated. and, as Sumit noted, the results I'll be discussing today reflect the continuing operations of our BBS and CDS segments. Results from our telematics segment, which we sold in July 2026, are reported as discontinued operations and are not part of my commentary today. Starting with consolidated sales, fourth quarter revenue grew sharply to a record $91 million, an increase of 36% year-over-year and 45% quarter-over-quarter. Our video and broadband solutions segment contributed a record $80.1 million of this revenue, up 38% year-over-year and 53% higher than in Q3. Our next-generation Entra DAA products remain the key revenue driver in our VBS segment, with Entra sales record entry sales of $77.3 million, growing 42% year-over-year and 57% on a sequential quarterly basis. Commercial video sales added another $2.8 million to our VBS results in the quarter, reflecting the continued transition to next-generation platforms, as well as some of our newer DAA-driven commercial video products now included in our entry family revenues. In our content delivery and storage segment, Fourth quarter revenues came in at $10.8 million, up 26% from the same period last year, and 1% higher than in Q3. Fourth quarter CDS revenue included $4.9 million in product sales and $5.9 million in service revenues. As we typically note, quarterly fluctuations are typical for the CDS segment. Gross margin improved significantly in the fourth quarter to 45.4%, up from 26.3% in the fourth quarter last year. And adjusted gross margin rose to 45% in Q4, up from 36.7% in the fourth quarter of fiscal 25. That strong year-over-year improvement largely reflects the absence of last year's significant inventory write-down and unfavorable product mix. along with a greater proportion of higher margin intra-optical at software sales in this year's mix. Sequentially, both gross margin and adjusted gross margin were somewhat lower than in Q3, reflecting a modestly less favorable product mix. Turning now to fourth quarter operating expenses, on a year-over-year basis, OpEx of $29 million was down $5.7 million year-over-year, and on a sequential basis increased slightly by $600,000 from Q3. R&D expenses for the fourth quarter increased to $12.6 million or 14% of sales from $11.7 million or 18% of sales last year. This was primarily a result of higher amortization of deferred development costs as more of our development investments moved into commercial production. This is offset by higher capitalized development costs related to our future product offerings. As we mention 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 outlay. Adjusting for this, our actual cash R&D investment was $16.9 million, or 19% of revenues in the fourth quarter, up from $15.3 million or 23% of revenues a year ago as we continue to prioritize our investment in future product development and our innovation pipeline. Sales and marketing expenses decreased slightly to $9.2 million or 10% of sales from $9.4 million or 14% of sales last year, reflecting operating leverage in our sales and marketing cost base and continued discipline in variable selling costs. And G&A expenses of $6.7 million or 7% of sales were up from $6.2 million or 9% of sales in the same period last year. We remain focused on closely monitoring our operating expenses and we don't anticipate significant OPEX increases in the near term. continue discipline on our OpEx is a key part of how we get to our bottom line financial goals. We continue to incur interest expense related to our revolving line of credit, other debt, and accounts receivable factoring programs. With debt levels expected to come down and cash flow continuing to improve, we anticipate lower interest expense in 2027. A quick note on taxes. Our effective tax rate of 41% is higher than usual, primarily due to the write-offs of the BC generated investment tax credits in Canada related to our telematics business and provision to return adjustments in both Canada and the US. That being said, we pay virtually no cash taxes in fiscal 26, thanks to our substantial bank of tax attributes in Canada. and also changes to the U.S. tax laws regarding the deductibility of R&D expenses. We may see some cash taxes in the U.S. in fiscal 27, depending upon how results come in, but we expect our effective tax rate to be much lower than this past quarter. Turning to the bottom line, we significantly strengthened fourth quarter operating income to $12.3 million compared with a loss of $17.1 million in the same period last year. The $29.4 million improvement primarily reflects higher VBS segment sales combined with lower impairment expense and inventory allowances as compared with a year ago. Net income also improved this quarter coming in at $5.4 million or 22 cents a share from a net loss of $13.3 million or 55 cents loss per share in the fourth quarter of fiscal 25, a huge improvement. Adjusted earnings per share for the fourth quarter grew to 21 cents per share from a loss of 6 cents per share last year. Turning to the balance sheet, working capital continues to improve with working capital being $62.9 million at June 30th, 2026, which increased from $51.2 million at June 30th, 2025, reflecting our efforts to pay down our debt. Cash flow provided by operations for the fourth quarter increased to $24.8 million from $18.9 million during the same period last year, driven mainly by current period results rather than changes in working capital. Finally, our net debt position, defined as total debt, less cash, and lease liabilities, continues to improve. At year end, our total net debt stood at $40.7 million, which is down from 54.4 million at the end of Q3. Going forward, we'll keep focusing on strengthening our balance sheet to further debt reductions. On a final note, the board of directors approved a quarterly dividend of five and a half cents per common share payable on November 9th to shareholders of record as of October 16th, 2026. It's important to note that this dividend will be designated as an eligible dividend for Canadian income tax purposes. And back to Sumit.