Altigen Communications, Inc.
Q4 2020 Earnings Call Transcript

Published: 3 Dec 2020

[Operator:]

Greetings and welcome to Altigen Communications, Inc. Fourth Quarter and Fiscal Year 2020 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I'd now like to turn the conference over to your host Carolyn David.

[Carolyn David:]

Thank you, Aman . Hello, everyone, and welcome to Altigen Communications' Earnings Call for the fourth quarter of fiscal 2020. Joining me on the call today is Jerry Fleming, President and Chief Executive Officer; Joe Hamblin, Altigen's Chief Operations Officer, Mark Allen, our Chief Technology Officer and I'm Carolyn David, Vice President of Finance.

[Jerry Fleming:]

Okay. Sorry everybody let me learn how to use Teams on my conference call. I guess I was on mute talking away. We've really put in some great results. Let me start over. So thank everyone for joining our call. I need some training. So earlier this afternoon, we reported our fourth quarter and full year results for fiscal 2020. Revenue for the fiscal 2020 fourth quarter was $2.98 million, an increase of 12% compared to the same period a year ago. Revenue for the fiscal 2020 full year was $11.8 million, an increase of 11% over fiscal 2019. So I'll first discuss fiscal 2020 revenue by category and then I'll follow that with an update of our cloud business strategy. So beginning with our one-time product revenue, which represents software license revenue we just purchased by customers for their legacy on premises Altigen systems, in fiscal 2020 our one-time product revenue was $870,000, which was a decrease of 23% compared to fiscal 2019.

[Carolyn David:]

I can hear you. Let's just confirm with the operator that the investors can hear us? Operator can you…

[Operator:]

Yeah the background noise is from Mr. Allen's line.

[Jerry Fleming:]

All right. Sorry about that everybody. Apparently, we have some more internal training to do. It's not just me. So let me pick up where I left off. However, for any given quarter, our services revenues may be up or down based on the timing of the completion of customer deployments and our customization projects. That being said, fiscal 2020 services revenue was $610,000, an increase of 42% compared to fiscal 2019. Now the final category and I think the one folks are most interested in is monthly recurring revenue, which consists of Altigen's various cloud-based software as a service offerings as well as our SIP Trunk communication service. Our monthly recurring revenue for fiscal 2020 was $7.6 million compared to $6.2 million in fiscal 2019, which represents a 23% increase year-over-year.

[Mark Allen:]

Thank you, Jerry and I apologize for the disruption to my office earlier so I’m caught me off guard. But hello, everyone for those of you I have not met, I've been a long time UC industry influencer starting with the creation of the Microsoft voice offering groundwork in 2006 and signing that over to Microsoft in 2007. After that I formed Blue Panda Communications and created CoreInteract and as Jerry nicely described. CoreInteract is a first of its kind digital customer engagement platform specifically designed to extend the capabilities of Microsoft Teams. CoreInteract platform is native serverless Azure application globally scaled to provide advanced communication queuing for Microsoft Teams which improves the company's ability to communicate with their customers while increasing employee productivity. CoreInteract further includes advanced analytics and management reporting to provide organizations with a complete 360 degree view of their customer interactions. CoreInteract adds critical communication features, not natively available on Teams and as such truly enables the company to replace their existing PBX systems with Microsoft Teams sound system. CoreInteract's extensive roadmap includes leveraging AI and cognitive services and advanced machine learning capability to our suite of solutions including customer facing tools for building automated customer engagement and industry benchmarking reports. I'm very excited to be here with Altigen and many great things to come and I'll go ahead turn the call back to Jerry.

[Jerry Fleming:]

Thank you, Mark. My line was muted so I will say that, Mark, we're excited to have you here as well and for the folks on the line obviously you can tell Mark is our CTO with the number of acronyms and Mark’s responsibility here is not only with CoreInteract, but to identify and leverage new technologies for us to drive our company forward. So with that being said, I'd now like to introduce Mr. Joe Hamblin

[Joe Hamblin:]

Thanks Jerry. Good afternoon, everyone. Absolutely my first three months here with Altigen have really been exciting and I am thrilled to be a part of the Altigen leadership team. The organization's energy and enthusiasm has really been refreshing to me especially coming from a long time of some of the challenges I faced at Sprint over the years and some of our financial challenges there, this is really just been a refreshing environment. Since this is my first time joining the earnings call, I thought I would be appropriate for me to give you a brief summary of my background. I’ve spent over 30 years with Sprint in a variety leadership roles most notably as Vice President of Enterprise Services where I was responsible for Sprint entire IT infrastructure and operations ecosystem. Prior to that role I spent nearly 10 years as Director of Sprint's Unified Communications and collaboration organization. In this role, we were able to demonstrate how UC could transform the entire way an enterprise the size of Sprint worked, while at the same time, dramatically reducing our operational expenses.

[Jerry Fleming:]

All right. Thanks Joe and I do have my mute button off this time. So I appreciate your and you already have made a great impact here as has Mark and we're certainly looking forward to work with you guys to continue to accelerate the growth of our business. But at this point, I am going to turn the call over to Carolyn David to review the financials in more detail. Carolyn?

[Carolyn David:]

Great. Thank you, Jerry. Total revenue for the fourth quarter was $2.98 million down 1% sequentially and up 12% from the prior year quarter. For the full year 2020, total revenue grew 11% to $11.8 million. Our COG revenue was $2.1 million in Q4 up 5% from $1.98 million in the preceding quarter and up 30% from $1.6 million in the same quarter last year. Compared to fiscal 2019, fiscal year 2020 cloud revenue increased 23% to $7.6 million. Software license revenue for the quarter was $135,000 down 52% sequentially and down 49% from $265,000 in the comparable period last year. On a 12 month basis, software license revenue decreased 23% to $870,000 in fiscal 2020 compared to $1.1 million over fiscal 2019. Our fourth quarter revenue from software-assurance decreased to $647,000 compared with $655,000 in the previous quarter and compared with $712,000 in the prior year period. Year-over-year software-assurance revenue declined 7% to $2.7 million in comparison to $2.9 million in fiscal 2019. Our professional services and other revenues was approximately $115,000 for the current quarter compared with the preceding and prior-year quarters of the $105,000 and $87,000 respectively. For the full year 2020, professional services and other revenue was $610,000 up 42% compared to fiscal 2019. Now let's turn to the margins, fourth quarter gross margin was 77.2% versus 80.3% in the comparable period last year. Year-over-year, gross margin decreased 440 basis points to 77% compared to the year ago period at 81.4%. The decrease in gross margin was primarily driven by the impact of higher amortization of capitalized software and acquisition-related cost and to a lesser extent a shift in our product mix. GAAP operating expenses for the quarter totaled $1.7 million up 5% from $1.6 million in the prior year quarter. For the full year 2020, GAAP operating expenses increased 8% to $7 million compared to $6.5 million for fiscal year 2019. Both the quarter-over-quarter and the year-over-year increase was primarily related to litigation expenses in connection with the pending CPI claim. On a non-GAAP basis, operating expenses totaled $1.5 million for the fourth quarter of fiscal 2020 compared to the prior year fourth quarter of $1.6 million. Non-GAAP operating expenses totaled $6.6 million for fiscal 2020 compared with $6.3 million over fiscal 2019. For the fourth quarter GAAP net income was $20,000 or $0.00 per diluted share compared to $290,000 of $0.01 per diluted share in the comparable period last year. GAAP net income for the 12 months of fiscal 2020 totaled $1.4 million or $0.06 per diluted share compared with fiscal 2019 GAAP net income of $1.9 or $0.07 per diluted share. I would like to note that our fourth quarter fiscal 2020 financial results include a non-cash tax expense of approximately $549,000 related to the company's income tax rate, which defers from its statutory rate primarily due to expired NOLs and the disallowance of expenses paid with the PPP loan proceeds. Our non-GAAP net income for the current quarter was $873,000 or $0.03 per diluted share compared to $635,000 or $0.02 per diluted share in the same quarter last year. Year-over-year non-GAAP net income was $2.9 million compared with $2.5 million in fiscal 2019 representing an increase of approximately 17%. Now let's turn over to the balance sheet. We ended the quarter with $6.6 million in cash and cash equivalents compared to $6.1 million at the end of the preceding quarter. Our working capital was $4.2 million compared to $4.1 million at the end of the preceding quarter. This now concludes the financial review. I will now turn the call over to Jerry to close out this call. Jerry?

[Operator:]

Mr. Fleming, you line may be on mute again.

[Jerry Fleming:]

This is weird because I didn’t put myself on mute, that's so strange, okay. So let me start again guys. Sorry about that. I don’t know how this is happening. So thank you Carolyn. To summarize Altigen has been diligently working for the past five years or so to migrate our customers to the cloud and in fact to date the majority of our cloud revenues have come from our hosted PBX platform. But for the past 18 months, we've also been working toward accelerating our revenue growth with new cloud solutions for Fiserv and Microsoft Teams. That aspect of our business is now starting to take root. Building upon that, with the pending introduction of our FrontStage contact center and CoreInteract digital customer engagement platforms, we're now in the position to start driving new incremental revenue streams in these new market opportunities. So at this time, I'll leave my mute button off in order to address any questions and I'll now turn the call back to the operator. Omar?

[Operator:]

Our first question is from Ian Castle with MicroCapClub. Ian state your question please.

[Ian Castle:]

Jerry congratulations on the quarter. You seem to be putting a lot of talent around you in the last call it 90 or 120 days and also some technology as well. I am curious when you see all this coming together, could you provide may be some color on when you see these pieces coming together maybe acceleration revenue?

[Jerry Fleming:]

Yes it's a good question, Ian and first of all I do need to point out there are crummy trainers on how to use the mute button on Teams but they're good business guys. So, as it relates to the revenue, since both of these solutions we expect to officially GA and I'd say both these solutions and I am talking now about the FrontStage contact center for Teams as well as the CoreInteract for Teams, to have available to us in calendar Q1. So to the extent that we can get through these what to do as obviously as first time products, we'll have to get through the customer pilots, but we do expect to be either billing or very close to billing in calendar Q1, which of course is our fiscal Q2 and then the wrapping from there. So we will see an impact. I can't say what the impact will be, but we will see a revenue impact from both solutions in FY '21.

[Operator:]

All right, Mr. Fleming it appears we have no further questions. Do you have any closing remarks?

[Jerry Fleming:]

No, I think we're good for now and I appreciate everyone's participation. We will be back soon and we'll be reporting our fiscal Q1 results in January. So we look forward to updating everyone on our next call and thank you very much for participating today.

[Operator:]

All right. Thank you. This concludes today's conference. You may disconnect your lines at this time. Again thank you for your participation. Have a great evening everyone.