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Edited Transcript of ATGN earnings conference call or presentation 23-Jan-19 10:00pm GMT

Q1 2019 Altigen Communications Inc Earnings Call

SAN JOSE Jan 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Altigen Communications Inc earnings conference call or presentation Wednesday, January 23, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carolyn David

AltiGen Communications, Inc. - VP of Finance & IR Officer

* Jeremiah J. Fleming

AltiGen Communications, Inc. - Chairman, President & CEO

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to AltiGen Communications First Quarter Fiscal Year 2019 Earnings Call. (Operator Instructions) At this time, it is my pleasure to turn the floor over to your host, Carolyn David. Ma'am, the floor is yours.

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Carolyn David, AltiGen Communications, Inc. - VP of Finance & IR Officer [2]

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Thank you, operator. Good afternoon, ladies and gentlemen. Welcome to AltiGen's conference call to review financial results for the first quarter of fiscal 2019 as well as recent corporate developments. On today's call will be Jerry Fleming, President and Chief Executive Officer; and I'm Carolyn David, Vice President of Finance.

Earlier this afternoon, AltiGen issued a news release reporting financial results for its fiscal 2019 first quarter ended December 31, 2018. This release can be accessed from the Investor Relations section of AltiGen's website at www.altigen.com. We have also arranged a taped replay of this call, which may be accessed by phone. This replay will be available approximately 1 hour after the call's completion and remain in effect for 90 days. The call can also be accessed from the Investor Relations section of AltiGen's website.

As usual, before I commence the review, I would remind all participants that today's call may contain forward-looking information regarding future events and future financial performance of the company. We wish to caution you that such statements are just predictions, and actual results may differ materially due to certain risks and uncertainties that pertain to our business. We refer you to the financial disclosures filed periodically by the company with the OTCQB over-the-counter market, specifically the company's audited annual report for the fiscal year September 30, 2018, as well as the safe harbor statement in the press release the company issued today. These documents contain important risk factors that could cause actual results to differ materially from those contained in the company's projections or forward-looking statements. AltiGen assumes no obligation to revise any forward-looking information contained in today's call. I would also like to note that during this call, we will provide financial information that has not been prepared in accordance with generally accepted accounting principles in addition to our GAAP results. Management uses these non-GAAP financial measures internally to analyze our financial results and believe they are useful to investors as a supplement to GAAP measures in evaluating the company's ongoing operational performance. Please refer to today's press release for a reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures.

Now it is my pleasure to turn the call over to AltiGen's President and CEO, Jerry Fleming.

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Jeremiah J. Fleming, AltiGen Communications, Inc. - Chairman, President & CEO [3]

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Thanks, Carolyn, and good afternoon, everyone. Thank you for joining us for today's call. Earlier today, we reported our fiscal 2019 first quarter results. Revenue for the first quarter was $2.8 million, up 4% from $2.7 million in the previous quarter and compared to $2.3 million in the same period a year ago, an increase of 20%. GAAP net income for the quarter was $612,000, up 84% from $332,000 in the previous quarter and compared to GAAP net income of $338,000 from the prior year quarter, a year-over-year increase of 81%.

As we discussed on prior calls, we do track our revenue by solution category as follows: product and services, this is our perpetual license sales of our software plus deployment services and custom application development services; second is our software assurance. This is our software maintenance and support program that customers purchase along with those perpetual licenses and which is an annual recurring revenue model; finally, our cloud solutions, this is our hosted PBX contact center and Hosted Skype for Business along with SIP Trunk services, all of which are sold on a monthly recurring revenue basis.

Most importantly, our cloud solutions revenue grew 27% year-over-year and now accounts for 53% of our revenue. And combined with software assurance, our recurring revenue now stands at 81% of overall revenues. I think it's safe to say that we've now made the transition to a cloud solutions provider with the goal of continuing to drive recurring cloud-based revenues.

Now at this time, I will turn the call back over to Carolyn to review the financials in greater detail. Carolyn?

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Carolyn David, AltiGen Communications, Inc. - VP of Finance & IR Officer [4]

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Great. Thank you, Jerry. Overall, our revenue for the first quarter was $2.8 million, up 4% from $2.7 million in the previous quarter and up 20% from $2.3 million in the same period a year ago.

Our cloud revenue for this quarter was $1.5 million compared to $1.4 million in the previous quarter and $1.1 million in the same period a year ago.

Software assurance revenue for this quarter was approximately $778,000 compared to $760,000 in the preceding quarter and compared to $852,000 in the comparable period last year.

Products and services revenue for the first quarter of 2019 was $540,000 compared to $526,000 in the previous quarter and compared to $315,000 in the prior year quarter.

Turning to margins. First quarter gross margin was 82.9% compared to 83.1% in the preceding quarter and compared to 82.9% in the comparable period last year. The slight decrease in gross margin was driven by a shift of our product mix. GAAP operating expenses for this quarter totaled $1.7 million compared to $1.9 million in the preceding quarter, a slight decrease of $197,000 or 10%.

Compared to the same period a year ago, GAAP operating expenses increased approximately 7% from $1.6 million. On a non-GAAP basis, our operating expenses for this quarter totaled $1.7 million compared to $1.6 million in the previous quarter and compared to $1.6 million in the same period in 2018. Net income on a GAAP basis was $612,000 or $0.02 per diluted share versus $9 million or $0.36 per diluted share in the preceding quarter and $338,000 or $0.01 per diluted share in the comparable period last year.

As discussed on our last call, as a result of our continued profitability and projected future taxable income, we reserved some of the valuation allowance against our tax deferred assets during the fourth quarter of fiscal 2018, which resulted in the recognition of a onetime income tax benefit of approximately $8.7 million.

On a non-GAAP basis, net income was $648,000 or $0.03 per diluted share compared to $614,000 or $0.02 per diluted share in the previous quarter and $352,000 or $0.01 per diluted share in the same quarter last year.

Note the difference between GAAP and non-GAAP results is the elimination of depreciation and amortization expenses, stock compensation expense and other nonrecurring charges that may arise from time to time that we do not consider to be directly related to core operating performance.

Turning to the balance sheet. We ended the quarter with $4.8 million in cash, cash equivalents and restricted cash compared to $3.1 million at the end of the preceding quarter.

Working capital was $2.8 million at December 31, 2018, representing a 20% increase from $2.3 million at September 30, 2018. Now I'll turn the call over to Jerry.

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Jeremiah J. Fleming, AltiGen Communications, Inc. - Chairman, President & CEO [5]

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Thank you, again, Carolyn. Over -- so I'm going to take 20 minutes to provide an update on AltiGen's overall cloud business strategy. We essentially have 3 cloud delivery models, all leveraging AltiGen's applications and SIP services. First is our own MaxCS IP PBX, which we host in our data centers and delivers a fully managed cloud service primarily to our reseller partners. Second, our certified cloud solution provider partners host our MaxCS in their data centers, delivering cloud PBX services to their end customers, which they then license from AltiGen on a monthly SaaS basis.

We also host Microsoft Skype for Business in our data centers integrated with AltiGen's contact center applications, which we deliver directly and through Microsoft partners.

In addition to these solutions, Microsoft has been evolving their cloud communication strategy, recently announcing the availability of Microsoft Teams phone system. We're also in the process of integrating our cloud solutions both our contact center applications and a new direct routing SIP Trunk service directly to Microsoft Teams.

As Microsoft continues to gain market share with Teams phone system, our plan is to leverage this platform with our own integrated suite of solutions and services to capture this emerging market opportunity. In fact, we've recently launched a new website specifically targeting Microsoft Teams customers and partners with our new Teams solutions. Please feel free to visit that website at www.voiceforteams.com to see more information on our solutions for Teams.

AltiGen's various cloud business models uniquely enables us to target S&Bs through large enterprises with the most appropriate communication solutions to meet those customer business requirements, while at the same time differentiating AltiGen from the plethora of hosted PBX providers, which are not able to leverage the Microsoft stack. As such, our plans are to continue to be very much focused on Microsoft technologies with our current solutions as well as to bring the market additional value-add hosted communications applications, including such cloud services as web chat, social media integration, SMS and others. We remain committed to growing our base of customers and subscribers, adding new reseller partners and increasing our average revenue per user and customer.

So at this time, in order to address any questions, I'll turn the call back to the operator. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And there appear to be no questions at this time.

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Jeremiah J. Fleming, AltiGen Communications, Inc. - Chairman, President & CEO [2]

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Okay. And thank you, operator. So I will just tell our audience here my objective was to try to explain our strategy to provide further clarification of what we're doing, not to eliminate all questions. So hopefully I accomplished that objective and didn't confuse folks, but many of you who are on the call, you have my number, and please feel free to contact me after the call if you have any questions.

I'd certainly like to thank everyone for joining us on the call, and we look forward to updating you on our next call in April. Thank you very much.

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Carolyn David, AltiGen Communications, Inc. - VP of Finance & IR Officer [3]

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Thank you, everyone.

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Operator [4]

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Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.