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Q1 2024 Altigen Communications Inc Earnings Call

Participants

Carolyn David; VP of Finance & IR Officer; Altigen Communications, Inc.

Jerry Fleming; President & CEO; Altigen Communications, Inc.

Joe Hamblin; Chief Digital and Transformation Officer; Altigen Communications, Inc.

Presentation

Operator

Good day, everyone, and welcome to the AltiGen Communications First Quarter Fiscal Year 2024 results. At this time, all participants have been placed on a listen-only mode. And we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Carolyn David, Ma'am, the floor is yours.

Carolyn David

Thank you, Matthew. Hello, everyone, and welcome to oxygen Technologies Earnings Call for the First Quarter Fiscal 2024. Joining me on the call today is Jerry Fleming, President and Chief Executive Officer, Joe Hamlin, Chief Digital and Transformation Officer, and I'm Carolyn David, Vice President of Finance.
Before we get started, I'm sure you may have seen our press release announcing our new name change. Altigen Communications has rebranded as AltiGen technologies. This strategic name change signifies the company's evolution from a communications software developer. We are a leading innovator of next-generation customer experience, solutions and services. The Company's legal, May and stock ticker symbol ATGN. remain unchanged.
Earlier this afternoon, we issued an earnings release reporting financial results for the period ended December 31st, 2023. This release can be found on our IR website at www.altigen.com. We have also arranged a taped replay of this call, which may be accessed by phone. The replay will be available approximately one 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 our website.
Before we begin our formal remarks, we need to remind everyone 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 ended September 30, 2023, 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. Our forward-looking statements AltiGen assumes no obligation to revise any forward-looking information contained in today's call.
In addition, during today's call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures help investors to gain a more complete understanding of results. A reconciliation of GAAP to non-GAAP measures and additional disclosures regarding these measures are included in today's press release.
Now let me turn the call over to chair, Jerry Fleming for opening remarks. Jerry?

Jerry Fleming

Thanks, Carolyn, and hello, everyone. Thanks for joining us for today's call. And I'll start the call today with a brief review of our fiscal first quarter results, followed by a more detailed business update. I'll then turn the call over to Joel Hatlen, our new Chief Digital and Transformation Officer, to provide more color on our execution strategies. Following Joe's commentary, Carolyn will provide a detailed review of our first quarter 24 financial results. Earlier today, we reported revenue of $3.2 million in fiscal Q1, resulting in a GAAP net loss of $346,000 compared to a non-GAAP net loss of $156,000. These financial results, particularly on the expense side were impacted by a number of factors, including investments in new internal systems, organizational realignment and some minor delays in product availability. Those issues are now largely behind us although I do expect some spillover in the current quarter after that, I'm anticipating a return to profitability with a target of being both cash flow positive and profitable for the full fiscal year. With that, I'll provide an update on the state of the business.
Starting with our services business, revenues were down quarter over quarter, primarily due to a transition to new leadership in our Services Division, which resulted in both an increase in expenses and lower than anticipated billings. The expense increase was primarily due to the hiring of a new Director of Technology Consulting, Sherri Sheikh, who comes to us via Sprint, T-Mobile, where he ran a very large services organization. On a positive note, the increased expenses are behind us just as importantly, our monthly buildings are now on the increase as we are experiencing the impact of the new contract we signed with the Connecticut Department of Transportation or CT. dot that contract is for $12 million over five years. However, there's also an additional $6 million funding which comes from previously contracted, but unused funds plus a new federal grant in actuality, the total funding available to us for CT. dot projects is more than $18 million for the next five years outside of CT. dot. We're also picking up the pace in terms of expanding our services offerings and adding new customer logos. To date, most of our services revenue has been based on custom development services. We're now extending our services offerings to include cloud technology consulting, Microsoft Teams, migration services and a consulting services, which will be delivered in conjunction with our new AI solutions. These services add value to and are much more synergistic with our cloud software solutions.
Turning to the clouds offer solutions. During the quarter, we made the decision to merge the capabilities of core interact with our front stage contact center in order to provide an entry level contact center solution, which we call front stage core, the primary reason for merging the products that customers were requesting more and more contact center features to be incorporated into core interact to the point that there was becoming too much overlap between the products by merging the capabilities of core interact with front stage.
We now have a single C cash platform Contact Center as a Service, which is natively integrated with Microsoft Teams that is able to meet the entire spectrum of customer requirements from simple to sophisticated. In addition, this also frees up development resources that can now be redeployed for our new AI solutions.
Finally, we are in the process of both migrating the core direct customers and targeting new opportunities with the front stage core application.
Regarding our max cloud, UC UCaaS platform, we've been dealing with several constraining issues, not the least of which has been to meet Fiserv's stringent stringent security standards for solutions that are deployed and their data centers. That objective has now been met with Fiserv planning to start their customer migrations to Max, you see in April.
Looking ahead to our new AI solutions, we've been working on a number of innovative applications, all targeting, at least initially the financial services vertical market. We started on these new AI. based fintech solutions by extending our interactive voice response or IVR solution to become a complete customer self-service platform. Toward this end, we're incorporating into the platform conversational AI, which is based on Microsoft Azure open AI services. This capability enables customers to use natural language speech to perform a multitude of transactions on a 24/7 basis without the need to engage in live customer service agents. This will be a new fee based solution offered by Fiserv to their 1,500 bank and credit union customers using the AltiGen IVR, we expect a solution which is easily cost justified by improved customer service and cost savings associated with eliminating the need for human intervention to be launched early next quarter.
We also have several new and exciting AI solutions in our development pipeline, targeting the same 1,500 banks and credit unions using the AltiGen IVR will initially deliver a first of its kind AI. executive dashboard, which we're calling core analytics, IVR, current IVR analytic solutions only report on call base transactional or usage statistics. Core Analytics adds color specific demographic data which we are able to uniquely access via our integrations with the Fiserv core processing platforms with core analytics, IVR banks and credit union executives will have a real-time view of transactional data, which will correlate with customer demographic data, which will then display not only transactions performed, but more importantly, which customers are performing. Those transactions. This unique view provides business executives with previously unavailable actionable insights, which are used to customize the IVR options selections and offers presented to each unique caller based on our customer demographic information. As a result, core analytics will enable financial institutions to optimize their customer service capabilities by delivering a personalized experience to each and every customer. We're also working on a version of core analytics for contact centers, which provides analytics when customers interact with a live customer service agent, core analytics, CCE. stands for contact center addition will correlate traditional contact center KBI. data with caller specific demographic data to provide unique insights into individual customer transactions. You also use hey, I monitor the conversations and provide valuable insights showing customer intent, sentiment of the call call quality and even score the agent's interaction with the customer, thus providing a 360 degree view of every customer interaction.
Finally, we're also actively working on the introduction of a web-based conversational AI solution using intelligent chat bot technology delivered as a managed service will first deploy knowledge bases, specifically tailored to an individual bank or credit union's requirements. The solution called crayon of then process customer chats using AI to appropriately respond essentially functioning as a 24/7 virtual customer service agent, again, increasing customer service while reducing the costs of servicing those customers as I mentioned, our AI solutions will initially be targeting the financial services vertical where we have the greatest expertise. While we will be offering these solutions through Fiserv will also be directly providing the core AI solution to customers as part of the managed AI service. By the way, for those of you not familiar with Fiserv at $17 billion in revenue they are the world's largest financial services solutions provider. They currently white label AltiGen's. And you can see cash and IVR solutions along with our secure SIP fraud prevention service, adding AltiGen's AI solutions to the mix provides Fiserv with a comprehensive and much larger portfolio of customer engagement solutions than they have ever had from AltiGen with Pfizer having over 5,000 bank and credit union customers. The a business opportunity is nothing short of massive.
That concludes my initial review. At this time, I'll hand the call over to Joe for additional commentary. Joe?

Joe Hamblin

Thank you, Jerry. Good afternoon, everyone. I promise to keep my comments brief today. However, I want to start off by saying how great it is to be back here at AltiGen technologies working with Jerry and the entire leadership team, the discussions leading up to my return have been taking place for some time now and to finally be able to get started is really exciting as many of you understand, transforming and evolving a company with a rich history such as AltiGen is no easy task. And we have we have our set of challenges, but we also have a lot of opportunities ahead of us.
Jerry, I've spent a lot of evenings and weekends laying out the opportunities and challenges in developing a set of strategies aimed at protecting both our base while at the same time setting us up for future growth.
With my return today being announced today, we are now ready to move to the execution part of the plan. There's three major areas I'll be focused on over the next two quarters. First is operational readiness for several key products and initiatives headlined by front stage Jerry's already talked about when I started reviewing AltiGen status and preparation for my return, it was the progress of front stage that really stood out to me the advancements in capabilities that have been added into the product along with the user experience, buoys and graphics, looking at a sales pipeline and additional positive partner and customer feedback are very optimistic. We can be extremely competitive in the CK. UCaaS market and look forward to seeing that area grow as we move forward.
Second, we'll be focused on some cost reduction efforts, including data center and trunk optimization efforts that will help us improve our financial efficiencies and our bottom line performance. We currently have line of sight to about $100,000 of monthly operational savings that will allow us to not only expand, but also put that back into our bottom line.
And then finally, and third is talent optimization and acquisition for both our cloud solutions and our consulting services pillars of our business. Jerry talked about the recruitment of Shark shake to lead our consulting division. This is one example of the areas that we're already focused Shark and I spent years partnering at Sprint, T-Mobile together on several strategic custom develop solutions. And I'm really looking forward to working with him closely to expand that portion of our business and one of the areas I will look to fully leverage as we progress is tapping into my network of colleagues and business associates to find and attract even more talent to help us grow and expand our services even further.
So a lot to go what's going on here, and we got a lot of activities. We got a lot of optimism on. I'm excited. I think we have a bright future, but we have a lot of work to do so happy to visit with you more in the future but with that, I'll turn it over to turn the floor back over to Carolyn for the financial review. Carolyn?

Carolyn David

Thank you, Joe, and great to have you back.

Joe Hamblin

Thank you.

Carolyn David

For our 2024, fiscal first quarter, we reported total revenue of $3.2 million, down 6% compared to Q1 2023. Total cloud services revenue for Q1 was approximately $1.9 million, up 4% compared to $1.8 million in Q1 last year. Our services revenue decreased $1 million from $1.2 million in the prior year quarter. Gross margin decreased to [60%] compared to 64% in Q1 last year, representing a decline of approximately 350 basis points. The decrease in gross margin resulted from lower revenues and an unfavorable shift in product mix.
Gaap operating expenses for the quarter totaled $2.3 million, roughly 4% lower than the comparable period last year. On a non-GAAP basis, operating expenses totaled $2.3 million for Q1, the same for Q1 last year. Gaap net loss for Q1 was $346,000 or negative $0.01 per share compared to GAAP net loss of $187,000 or negative $0.01 per share in the prior year quarter. On a non-GAAP basis, net loss was $157,000 or $0.01 per share compared to non-GAAP net income of $44,000 or $0.01 per diluted share in the prior year quarter. The quarter over quarter change both on a GAAP and a and on a non-GAAP basis was mostly due to the was the result of lower revenues.
Now let's turn to liquidity. We ended the quarter with $2 million in cash and cash equivalents. Working capital was $1.9 million compared to $2.1 million in the prior year quarter.
This completes the financial summary. And now I'd like to turn the call back over to Jerry. Jerry?

Jerry Fleming

Thanks again, Carolyn. For the past several years, we've been focused on transforming our business from a PBX company to a technology solutions provider, not without its challenges. However, we've made a lot of progress in that business transformation, particularly over the course of the past couple of quarters to the point of driving us to change the company name from AltiGen Communications to Altigen technologies.
The final piece of the puzzle now is to improve our ability to execute, which exact, which is exactly what Joe is here. I'm confident that we now have all of the pieces in place that we need in order to grow the business and to do so on a profitable basis.
I look forward to updating everyone on our progress on our next quarterly call. So at this time, we'll turn the call back to the operator for questions.

Question and Answer Session

Operator

Certainly, everyone, at this time, we'll be conducting a question and answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if listening on speaker phone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we poll for questions. There are no questions in the queue. At this time. I'll now hand the conference back to Jerry Fleming for closing remarks.
Please go ahead.

Jerry Fleming

All right. Thank you, Matthew, and thank you again, everyone look forward to talking to you on our next call.

Carolyn David

Thank you everyone.

Operator

Thank you, everyone for today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.

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