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Edited Transcript of ATGN earnings conference call or presentation 19-Apr-17 9:00pm GMT

Thomson Reuters StreetEvents

Q2 2017 Altigen Communications Inc Earnings Call

SAN JOSE Apr 20, 2017 (Thomson StreetEvents) -- Edited Transcript of Altigen Communications Inc earnings conference call or presentation Wednesday, April 19, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeremiah J. Fleming

AltiGen Communications, Inc. - Chairman of the Board, CEO and President

* Philip M. McDermott

AltiGen Communications, Inc. - CFO, Principal Accounting Officer, IR Officer, Secretary and Director

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Presentation

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Operator [1]

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Greetings, and welcome to the AltiGen Communications Second Quarter Fiscal Year 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Phil McDermott. Thank you, Mr. McDermott. You may begin

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Philip M. McDermott, AltiGen Communications, Inc. - CFO, Principal Accounting Officer, IR Officer, Secretary and Director [2]

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Thank you. Good afternoon, everyone, and thank you for joining us today for AltiGen Communications Second Quarter Fiscal 2017 Conference Call. On line today are Jerry Fleming, President and Chief Executive Officer; and myself, Phil McDermott, Chief Financial Officer.

Earlier this afternoon, AltiGen issued a news release reporting financial results for its fiscal 2017 second quarter ended March 31, 2017. This release can be accessed from the Investor Relations section of AltiGen's website at www.altigen.com. We have also arranged for a tape 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. These can both be accessed from the Investor Relations section of AltiGen's website.

Before we begin, let me note that today's call may contain forward-looking information regarding future events and the future financial performance of the company. We wish to caution you that such statements are just predictions and actual results may differ materially as a result of risk and uncertainties that pertain to our business.

We refer to you to the document the company files periodically with the OTCQB over-the-counter market, specifically the company audited financial report for fiscal year ended September 30, 2016, as well as the safe harbor statement in the press release the company issued today. These documents contain important risk factors that 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.

With that said, I will now turn the call over to Jerry Fleming, President and CEO of AltiGen. Jerry?

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Jeremiah J. Fleming, AltiGen Communications, Inc. - Chairman of the Board, CEO and President [3]

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Thanks, Phil, and good afternoon, everyone. Thank you for joining us for the call today.

So I'll begin with the results we reported earlier today for our fiscal 2017 second quarter. For the second quarter ended March 31, 2017, revenue was $2 million compared to $2.2 million for the same period a year ago. Net loss of $16,000 on a GAAP basis compares to $11,000 profit on a non-GAAP basis for the current period and a net profit of $35,000 on a GAAP basis and a net profit of $115,000 on a non-GAAP basis for the prior quarter -- prior-year quarter. As we've discussed, due to our strategic decision to exit the relatively low-margin hardware business, our hardware sales have continued to decline. Consequently, our second quarter hardware sales represented approximately $30,000 of our total revenue compared to hardware sales of approximately $217,000 in the same period a year ago, impacting quarterly top line revenue by $187,000 on a comparative basis. We actually recorded $147,000 in hardware sales for the first half of fiscal 2017, but have virtually depleted our hardware inventory and expect little-to-no hardware revenue going forward. As a result, we are now at the point of establishing new quarterly baseline revenue figures, which no longer include hardware sales, thus laying a foundation to start building quarterly revenue growth based on sales of software and services.

Our fiscal second quarter results also reflect our transition from our historical model of up-front product purchases to a monthly software-as-a-service cloud-based recurring revenue model. In the second quarter, our total cloud and SaaS revenue represented approximately 36% of our overall revenues versus 20% in the same period a year ago. From a Cloud subscriber growth perspective, our total number of Cloud subscribers at the end of the second quarter increased by approximately 74% compared to the same period a year ago, with a corresponding 70% increase in quarterly Cloud revenue. We are continuing to demonstrate solid progress toward our goal of transitioning to a cloud-based business model, and we'll continue to drive our business fully toward a recurring revenue model.

In addition to AltiGen's own Cloud PBX solution, we also now offer a cloud version of Microsoft's Skype for Business, which we've integrated with our contact center application, MaxACD, which we deliver as a fully managed service. During the quarter, MaxACD received a designation from Microsoft as a certified Skype for Business application, becoming only one of a handful of contact center products to achieve this designation. This designation informs customers that MaxACD has passed Microsoft's vigorous testing standards, while providing AltiGen with marketing awareness by being listed on Microsoft's website.

With that, I'll now turn the call over to Phil to review the financials in more detail. Phil?

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Philip M. McDermott, AltiGen Communications, Inc. - CFO, Principal Accounting Officer, IR Officer, Secretary and Director [4]

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Thanks, Jerry. Revenue for fiscal 2017 second quarter was $2 million compared to $2.1 million in the preceding quarter. We recorded revenue of approximately $0.9 million this [ph] quarter, the same as we recorded for our software support program in the previous quarter.

Our deferred revenue for this recurring revenue stream as at March 31, 2017, was $1.7 million, up from $1.6 million for the previous quarter and down from $1.9 million for the same quarter last year.

Gross margin for the second quarter at 84.9% was down from 85% for the preceding quarter.

Operating expenses at $1.7 million for this quarter was the same as the previous quarter. Net loss for the second quarter was $16,000 or $0.00 per share compared to a net profit of $85,000 or $0.00 per diluted share in the preceding quarter.

These results reflect the effects of FASB 123R expensing of share-based compensation in the amounts of approximately $5,000 for each quarter. This is a GAAP requirement and has no impact on the company's cash position. On a non-GAAP basis, our net profit of $11,000 for the current quarter compares to a profit of $90,000 for the preceding quarter.

Looking at the balance sheet, our cash position, including short-term investments, at $3.8 million as of March 31, 2017, compares to $3.8 million last quarter.

Inventories were 0 and down from the previous quarter of $6,000. Net accounts receivable of $309,000 was down from the preceding quarter of $367,000, while DSO at 14 days was down from last quarter's DSO of 16 days.

And with that, I'll now turn the call back to Jerry.

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Jeremiah J. Fleming, AltiGen Communications, Inc. - Chairman of the Board, CEO and President [5]

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Thanks, Phil. To summarize our progress in transitioning our business to a software and services recurring revenue model, our total recurring revenue, which consists of Cloud, software-as-a-service and software assurance accounted for approximately 79% of our overall revenues in the second quarter compared to 64% in the same period a year ago. And, for the first time, our total Cloud revenues have exceeded revenues for upfront product purchases.

We view this as an important inflection point which indicates future revenue growth. We will continue to focus on migrating our current customers to the Cloud, and drive new revenue growth with our cloud UC solutions with the objective of generating profitable growth and long-term shareholder value.

Now in order to address any questions, I will 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) At this time, we have no questions over the audio portion of the conference. I would now like to turn the conference back over to management for closing remarks.

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Jeremiah J. Fleming, AltiGen Communications, Inc. - Chairman of the Board, CEO and President [2]

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Okay. Thank you, operator. And thank you, everyone, for your participation on our call. We look forward to updating you on our next quarterly call.

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Operator [3]

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This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your day.