Altigen Communications, Inc. (PNK:ATGN) Q2 2025 Earnings Call Transcript

Altigen Communications, Inc. (PNK:ATGN) Q2 2025 Earnings Call Transcript April 29, 2025

Operator: Greetings. Welcome to Altigen Technologies’ Second Quarter and Fiscal Year 2025 Results Conference Call. At this time, all participants have been placed on listen only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Gary Stone, CFO at Altigen. Gary, you may begin.

Gary Stone: Thank you. Good afternoon, everyone and welcome to the Altigen Technologies’ earnings call for the second quarter fiscal 2025. Joining me on the call today is Jerry Fleming, our President and Chief Executive Officer; Joe Hamblin, our Chief Digital and Transformational Officer; and I am Gary Stone, Chief Financial Officer. Earlier today, we issued an earnings release reporting financial results for the period ended March 31, 2025. This release can be found on our IR website at www.altigen.com. We’ve also arranged a replay of this call, which may be accessed by phone. This 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 the 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 30th, 2024, and the unaudited quarterly report for the quarter ending December 31st, 2024, 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. 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 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. With that, I’ll turn the call over to Jerry for opening remarks. Jerry?

Jerry Fleming: Thank you, Gary and hello everyone. Thank you for joining today’s call. I’ll begin by providing a brief summary of our second quarter 2025 results, after which I’ll provide an update on the state of the business. I’ll then turn the call over to Joe Hamblin, our Chief Digital & Transformation Officer, to discuss our operational performance. Gary Stone will come back on, our Chief Financial Officer, to present the detailed numbers behind our second quarter results. As Gary mentioned earlier today, we announced our fiscal second quarter financial results. Revenue for the quarter was $3.5 million, representing an increase of approximately 3.5% compared to our fiscal first quarter. Net income for the second quarter was $287,000 versus $87,000 in the prior quarter, an increase of 230% compared to our first quarter.

Q&A Session

This quarter marks our fourth consecutive profitable quarter, which is a directly — which is directly attributable to our business transformation objectives and achievements. As I say in our railroad business, we are on the right track. I’ll spend the next few minutes reviewing the current state of our business and our progress. Starting with solutions and services, as I discussed last quarter, we had to make the tough decision to completely overhaul our legacy technology platforms. The solutions that we had simply weren’t sufficient to take our business to the next level. As a result, over the course of the past six months, we replaced our legacy platforms with all new UCaaS or Unified Communications-as-a-Service and CCaaS or Contact Center-as-a-Service solutions.

Our new UCaaS platform, which we call MaxCloud V2, offers small to midsized companies a complete cost-effective business communication solution, which includes phone calls, SMS, instant messaging, web conferencing, and integrated mobile application. Although MaxCloud has been available for only a few months, we’ve already migrated approximately 30 customers to the new platform with the objective of migrating all of our legacy cloud and on-premise customers to MaxCloud V2 in the next 18 months. We’re also revamping our go-to-market strategy with MaxCloud. While we will continue with our historical model of working with our reseller partners to acquire new customers, we’re in the process of launching a new program targeting managed service providers, or MSPs. MSPs provide outsourced IT services such as Microsoft 365, security, cloud hosting, and other related cloud services to their customers.

Those we’re targeting have hundreds of customers and thousands of endpoint devices under management, and most of them do not offer a UCaaS solution today. With our new white glove MSP program, this enables MSPs to offer UCaaS to their customers on a platform that’s fully managed by Altigen. MSPs benefit from a new revenue stream and high margins without the need to have phone system expertise or the need to hire additional technical resources as that’s the white glove service that’s provided by Altigen. From the Altigen perspective, these MSPs are the trusted supplier to their customer base. As such, they’re in the ideal position to recommend MaxCloud. In this model, each MSP that we onboard brings the potential to add thousands of UCaaS subscribers on the Altigen MaxCloud platform.

Turning to CCaaS, our new CoreEngage solutions targets Microsoft Teams customers and partners with one of the few native Teams Contact Center solutions on the market. We do distribute primarily through Microsoft partners and we deliver CoreEngage as a fully managed service. This enables partners with or without telephony or contact expertise to sell CoreEngage to their customers with Altigen providing all of the technical expertise and after the sales support on behalf of our partners. Moving to Fiserv, I’ve been discussing this opportunity for quite some time. It’s important to note, however, that Fiserv is a $20 billion organization. And unfortunately, it takes time and in some cases, a lot of time to work through the technical complexities associated with installing solutions in Fiserv’s data centers as well as to gain the required approvals from multiple sources in such a large organization.

As a result, many of the new business initiatives that I’ve been discussing have not materialized quite as quickly as we planned. But rest assured, these initiatives are continuing to move forward and once we get there, the potential payoff is huge. That being said, we also continue to work with Fiserv to bring several new solutions to market. This includes our secure SIP fraud prevention solution, which in itself has provided quite a few technical challenges, but is also now — that are also now on the brink of resolution. For the past year, we’ve been building a new conversational AI front end to the Altigen IVR, for which Fiserv has 1,500 customers today. A fee-based offering, conversational AI replaces the traditional bank by phone touchtone telephone user interface with true natural language conversation capabilities.

This enables financial institutions to both improve customer service and reduce costs. We’re also developing a new AI-based customer engagement analytics solution, which we plan to preview at the end of this month, called Core Insights. It uniquely combines customer transaction details with customer demographic data. This not only allows bank and credit union executives to personalize the experiences for their customers, it also allows them to better target their customers for new products and services. Finally, we’re in the process now of getting Fiserv set up with our new UCaaS and CCaaS solutions. As a Microsoft partner and Teams customers themselves, Fiserv plans to lead with CoreEngage and our team’s direct routing SIP Trunk service for the majority of their customers.

For the smaller customers, MaxCloud will be the product of choice. It’s difficult to predict the actual launch date for these products since we’re in the midst of the approval and certification processes as we speak, but we will keep you posted regarding our progress. Transitioning to AI, as most everyone knows, there’s a tremendous amount of interest from business executives across all industries to leverage AI in their organizations. But with so many different AI technologies being advocated by so many vendors, is nearly impossible for the executives to determine which AI technology best suits their business requirements. Altigen’s approach is different. We don’t make the underlying AI technology engines. Instead, we add capabilities to those engines to make them work for each customer’s specific needs.

We’re doing this by first developing a trusted AI platform, which is both robust and flexible enough to adapt to a variety of customer use cases. We’ve been prototyping this platform, which we call Ensemble AI for more than a year. I’m pleased to report that we’ve recently begun formal development of the Ensemble AI platform. As I discussed last quarter, one of the elements — key elements of flexibility with the platform that Ensemble AI generates is the ability for Altigen to use any AI engine to deliver our solution. So, rather than being locked into a particular AI technology, we are able to take a best-of-breed approach depending on our customers’ specific business requirements. Out of the gates, we’ll be launching Ensemble AI based on Microsoft’s Azure OpenAI platform as our AI engine of choice.

Down the road, if a customer prefers to use Google, Amazon, IBM, or others, we can just as easily utilize those AI models. Last quarter, I discussed in some details, the areas in which we’ll see the greatest opportunity for AI to add value for our customers and revenue to our top line. I’ll briefly summarize those solutions that we’re working on. First, is AI enablement of our CoreEngage Contact Center, adding several new capabilities, including language translation, automatic conversation summary, customer sentiment analysis, and AI chatbot. Next is Core Insights, which is built on the Altigen IVR and that provides KPI dashboards integrated with predictive AI analytics. The final piece is Ensemble advisers built on the Ensemble AI platform, which utilizes AI technology to provide a team of subject matter expert bots that have a deep understanding of specific content, such as HR policies, legal and compliance data, et cetera.

These bots work together to analyze the data and provide accurate results and insightful recommendations to business executives. All these solutions are being built on the Ensemble AI platform, enabling Altigen to deliver everything from simple out-of-the-box AI applications to fully custom sophisticated AI solutions. Now, regarding our customer service and consulting business, our number one customer continues to be the Connecticut Department of Transportation, or CTDOT. We’re continuing to grow our partnership with CTDOT, particularly in the area of AI. Leveraging our successes with CTDOT, we’re also ramping our sales and marketing efforts in our Consulting Services division. While we have the expertise to offer a broad range of technology consulting services, our focus is clearly on our AI and digital transformation services.

We feel that this approach will give us the best opportunity to secure new revenue and new customers. Turning to business transformation. As Joe Hamblin has been reporting for the past year, we’ve been working toward our goal of achieving operational excellence. Toward that end, we’ve made a number of operational improvements, including business systems automation, streamlining internal processes, vendor consolidation, eliminating non-compulsory expenses and implementing many organizational enhancements. Not only have these improvements made us a stronger organization, they have also now resulted in a net reduction of approximately $1.5 million in annualized expense savings. With that, I’ll turn the call over to Joe to provide additional deep details.

Joe, take it away.

Joe Hamblin: Thank you, Jerry and good afternoon everyone. We’re pleased to share that Altigen continues to make meaningful strides in our transformation journey. In the second quarter of our fiscal year, we achieved significant milestones with the successful launch of the MaxCloud UC V2 platform. All of our existing customers have been seamlessly migrated from the legacy V1 to the new platform. With that transition complete, the legacy V1 environment has been shut down and is scheduled for full decommissioning by May 1st, resulting in an annualized cost savings of $34,000 in data center expenses. Our CoreEngage platform continues to gain strong traction across both the sales and marketing channels. To further enhance its value proposition, we’ve expanded support for third-party integrations with a number of CRM solutions such as Salesforce, Zoho, ServiceNow as just a couple of examples.

We have also enabled SMS, MMS, and WhatsApp, meeting customer demand for multichannel communications on today’s most popular messaging platforms. In addition, we’ve taken a major step forward in the — by integrating our trusted AI agent directly into the CoreEngage user interface. This enables frontline teams to quickly access reliable company knowledge, empowering them to better deliver faster service to their customers. From an internal perspective, we’ve continued to evolve our business systems solution and automation strategy. This quarter, we introduced Microsoft Teams Direct Trunk Routing and Dynamic E91 provisioning capabilities through our solutions delivery portal. These features provide our customers and partners with enhanced self-service tools to manage their Microsoft Teams environment independently.

We also finalized the outsourcing and modernization of our accounting systems and services, resulting in a near real-time visibility into our financial operations and the reduction in annual operating expenses. As a result of these efforts, we’ve also identified an additional $66,000 in annualized savings by streamlining unused subscriptions and vendor services. Another strategic move in Q2 was the execution of two offshore development partnerships in India. These partnerships give us the flexibility of on-demand development resources, while ensuring Altigen retains full ownership of all design and intellectual property. This positions us well for continued development of our future analytics and AI product offerings. Looking ahead to Q3, we have a strong execution plan.

In the business systems and automation space, we’ll launch MaxCloud UC V2 self-service features in our solutions delivery portal, further advancing our goal of making Altigen easy to do business with. We’ll also deliver SMS, MMS collaboration capabilities on MaxCloud V2, along with our first CRM integrations. For our Fiserv banking customers, we’ll roll out our secure SIP services, including enhanced IVR features, trust ID number validation, biometrics verification, and one-time pass codes for onboarding and additional security services. Finally, to support our push into the enterprise market, we’re initiating the process to achieve SOC 2 Type 2 certification. While the full certification will take approximately six months to complete, we will be able to use an attestation letter from our auditing partner in the interim to help meet the enterprise customers’ requirements.

In summary, we’ve made considerable progress this quarter, optimizing operations, enhancing our product suite, and building a solid foundation for the next phase of our growth. We’re excited about the momentum and the path ahead. Now, I’ll hand it over to our Chief Financial Officer, Gary Stone, to review our financial performance. Gary?

Gary Stone: Great. Thanks Joe. For our 2025 fiscal second quarter, we reported total revenue of $3.5 million compared to $3.4 million in Q2 2024, a 4% increase. Total cloud services revenue for Q2 was approximately $1.7 million, down about 8% from the $1.8 million in the same period last year. Meanwhile, our services revenue increased 31% to $1.6 million from $1.2 million in the prior year’s quarter. Gross margin was 62% compared to the 60% in the same period last year. GAAP operating expenses for the quarter totaled $1.9 million, reflecting an 18% decrease compared to the $2.3 million in the same period last year. GAAP net income for Q2 was $287,000 or $0.01 per diluted share compared to the GAAP net loss of $236,000 or a net loss of 0.01 or $0.01 per share in the prior quarter — prior year’s quarter, excuse me.

Looking at our liquidity, we closed the quarter with $2.8 million in cash and cash equivalents, up 27% compared to the $2.2 million in the prior quarter. Working capital was $2.3 million compared to $1.9 million in the previous quarter, reflecting a 21% increase. So, now I’ll turn the call back over to Jerry for our closing remarks. Jerry?

Jerry Fleming: Thank you, Gary. And a great job in your short-term here as our CFO. As I said, we’ve made a lot of changes in the organization, I think Joe certainly echoed those comments. We feel like we’re positioned for growth and what you can expect from us now that we really feel like the house is in order. We will start investing in sales and marketing, focusing on our top line revenue growth going forward. And with that, I’m going to turn the call back to the operator to open the floor up for Q&A. Paul?

Operator: Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] The question is coming from Tim Clarkson from Van Clemens. Tim, your line is live.

Tim Clarkson: Hey guys. Good results. I’ve been following the company now for a year and have been accumulating some chairs personally and for my clients. So, very happy with the results. I noticed that under the line item service and other revenue, that increased 31% to $1.6 million. Would you say the gross margins on that are higher or lower than the average gross margins on the rest of the business?

Jerry Fleming: Yes, Gary, do you want to take that, or you want me to address that? Go ahead.

Gary Stone: Yes, I could start it. Yes, I mean, typically, those margins from our services are in that 50% range. So, they’re going to be a little bit lower than software, which you typically would expect to be higher.

Tim Clarkson: Right. Now what’s the connection between your relationship with Connecticut and the service revenues? Or are they not connected?

Gary Stone: Yes, go ahead, Jerry.

Jerry Fleming: Let me go ahead and address that one, Gary, the history. So, in this quarter, the — much of the increase was due to deployment services revenue with Fiserv. Our business with State of Connecticut continues to steadily grow, but the jump up was primarily Altigen professional services, which is, of course, in the services category for deployments that we’ve done, not just for Fiserv, but also on our CoreEngage contact center solution.

Tim Clarkson: And so what’s the functional value of these services? What does it bring to the customer.

Jerry Fleming: Still there, we’ll have to put those into two separate buckets. One are the deployment services when we sell a product and this is today, mostly on the contact center solution that requires deployment. These deployments can take anywhere from 30 to 90 days and carry with them a decent amount of services revenue. You can expect something in order of about $1,000 per agent, if you will, for deployment services. So, 50-agent contact center would probably be roughly $50,000 in deployment services, and that’s necessary, obviously, to get the customer up and running. On the other side, we look at the — most of our revenue coming from CTDOT and that’s for the custom application development that we’re doing for them for their project management system.

We do expect to see increased services revenues in the AI space on both sides of the house and I’ll say one side being Altigen Consulting Services, where we’re doing custom projects for customers; and the other is the Altigen or Altigen Technology Solutions side of the house, where as we deploy AI solutions, there’s a lot of work to be done to get access to all the data the customer wants to see and get that engine tuned. So, we’re producing the results that they need to have. So, it’s — services really is a critical part of the business going forward as an enablement both as a revenue driver and enablement for our solutions.

Tim Clarkson: Right. Okay. On a big picture basis, what percentage of your business would you describe as being kind of repeatable? And what percentage of your business is kind of one-time stuff?

Jerry Fleming: Yes, it’s about — right now, it’s about two-thirds recurring and about one-third — roughly one-third we’ll call it one-time. It’s — that depends. I am lumping all the CTDOT business and all the consulting services as one-time revenue. We recognize that as we perform the services. The rest is the cloud — our cloud services business.

Tim Clarkson: Great. Yes, just on a —

Jerry Fleming: Just truly build every single–.

Tim Clarkson: Yes. Just on — just a basic investor basis, I mean, is there interest on Altigen out in California, or typically, where is the investor interest coming from?

Jerry Fleming: In terms of our shareholder community?

Tim Clarkson: Yes, yes.

Jerry Fleming: Yes, I would say it’s all over the country, but honestly, we probably have more larger shareholders in the New York City area than any other part of the country.

Tim Clarkson: Doesn’t surprise me. I’m becoming a larger shareholder and really encouraged with your results and keep doing what you’re doing. And I’d like to visit you at some point when I get out there.

Jerry Fleming: Absolutely. Thank you, Tim.

Operator: Thank you. [Operator Instructions]

Operator: And there were no other questions from the lines at this time. This concludes the Q&A session and it also concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.