Altigen Technologies (ticker: ATGN) has reported a 4% increase in revenue to $3.4 million for the second quarter of fiscal year 2024, despite a decline in revenue from legacy products. The company is undergoing a transformation to focus on cloud-based UCaaS and CCaaS solutions, with new AI initiatives under the Core Insights brand in development. These initiatives are expected to generate significant new monthly revenue from Fiserv (NYSE:FI)'s bank and credit union customers. However, Altigen experienced a decrease in gross margin and an increase in net loss compared to the previous year, alongside a reduction in cash reserves.
Key Takeaways
- Altigen's revenue increased by 4% to $3.4 million, with new cloud-based solutions gaining traction.
- Gross margin decreased to 61%, with a GAAP net loss of $236,000.
- Cash reserves fell by 20% to $1.6 million.
- Altigen is focusing on AI initiatives, including conversational AI for IVR platforms.
- The company expects new AI solutions to substantially increase monthly revenue.
- Consulting services revenue grew by 15%, largely due to work with the Connecticut Department of Transportation.
Company Outlook
- Altigen plans to migrate Fiserv's customers to its new cloud-based solutions.
- A soft launch of a conversational AI IVR solution is planned for October.
- Altigen is working on reducing expenses by $1 million through cost-saving measures.
- The company is developing new AI solutions, including Core Insights dashboards for customer insights.
Bearish Highlights
- Declining revenue from legacy products continues to impact overall earnings.
- A decrease in gross margin by 200 basis points from the previous year.
- An increase in net loss from $140,000 in the previous year to $236,000 this quarter.
- A 20% reduction in cash and cash equivalents from the previous quarter.
Bullish Highlights
- Altigen's transformation into a technology solutions provider is underway with new AI initiatives.
- Expected revenue growth from new AI solutions targeting Fiserv's customers.
- Growth in consulting services business unit by 15%.
- Potential doubling of revenues from the new AI initiatives with Fiserv's customers.
Misses
- Gross margin and net loss did not meet the previous year's performance.
- Cash reserves have decreased, indicating a potential need for careful financial management.
Q&A Highlights
- Altigen expects an average revenue of $500 to $1,000 per month for each of Fiserv's 1,500 customers using the new AI solutions.
- The company is planning to release a customer prototype of their AI-based web chat solution, CoreInteract AI.
- New AI solutions are expected to roll out over the next six to nine months.
- The next quarterly earnings call is scheduled for the end of July.
Altigen Technologies is strategically navigating through a period of transformation, aiming to capitalize on the growing demand for AI-enhanced technology solutions. With several new products in the pipeline and a clear focus on expanding their customer base, the company is positioning itself for potential growth in the coming quarters. However, the management team will need to address the challenges of declining legacy product revenues and recent reductions in gross margin and cash reserves to maintain financial stability. Investors and stakeholders will likely watch the next earnings call at the end of July for updates on the company's progress and financial health.
InvestingPro Insights
Altigen Technologies (ATGN) has been navigating a transformative phase, shifting its focus to cloud-based solutions and AI initiatives. As the company prepares for the launch of its Core Insights brand, investors may find value in assessing the company's financial health and market performance. Here are some key insights based on InvestingPro data and tips:
- ATGN's market capitalization stands at a modest $19.81 million, reflecting its position in the market. The company's P/E ratio is currently negative at -5.6, indicating that it has not been profitable over the last twelve months. This aligns with the reported increase in net loss and is a crucial metric for investors considering the company's future earnings potential.
- Despite the lack of profitability, Altigen's revenue has grown by 15.05% over the last twelve months as of Q4 2023, signaling potential in its new strategic direction. However, revenue did see a slight quarterly decrease of 2.49% in Q4 2023.
- The company's gross profit margin remains strong at 63.21%, which could provide some cushioning against the decrease in gross margin reported in the recent quarter. This indicates that while there are challenges, the company retains a measure of operational efficiency.
InvestingPro Tips for Altigen Technologies highlight some promising aspects as well as areas of concern:
1. Altigen holds more cash than debt on its balance sheet, which could offer some financial flexibility as it continues to invest in new technologies.
2. The company's liquid assets exceed short-term obligations, suggesting that it has the liquidity to meet its immediate financial needs.
5. It's worth noting that Altigen does not pay a dividend, which may influence the investment decisions of income-focused shareholders.
For investors seeking a deeper dive into Altigen's financials and strategic outlook, InvestingPro offers additional tips. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and find out more about how the company's large price uptick over the last six months and high return over the last decade could play into its future performance. Currently, InvestingPro lists a total of 6 tips for ATGN that could provide further insights into the company's potential.
Full transcript - Altigen Com (ATGN) Q2 2024:
Operator: Good day and welcome to the Altigen Technologies Second Quarter Fiscal Year 2024 Results Conference Call. At this time, all participants are in a listen-only mode and the 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 Carolyn David. Ma'am, the floor is yours.
Carolyn David: Thank you, Ali. Good morning, everyone, and welcome to Altigen Technologies Earnings Call for the Second Quarter Fiscal 2024. Joining me on the call today is Jerry Fleming, President and Chief Executive Officer; Joe Hamblin, Chief Digital and Transformation Officer; and I'm Carolyn David, Vice President of Finance. Earlier this morning, we issued an earnings release reporting financial results for the period ended March 31st, 2024. This release can be found on our IR website at www.altigen.com. We have 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 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 annual report for the fiscal year ended September 30th, 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 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 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. And now let me turn the call over to Jerry Fleming for opening remarks. Jerry?
Jeremiah Fleming: Thank you, Carolyn. Hello, everyone. Thanks for joining us this morning for the call. I'll begin with a review of our second quarter results, followed by a brief business update. I'll then hand the call to Joe Hamblin, our Chief Digital and Transformation Officer for a deeper discussion of our business execution strategies. Subsequent to Joe's discussion, Carolyn will provide a detailed review of our second quarter 2024 financials. Earlier this morning, we reported fiscal 2024 Q2 revenue of $3.4 million, with a GAAP net loss of $236,000 and a non-GAAP net loss of $72,000. Compared to fiscal 2024 Q1, second quarter revenues increased by 4%. GAAP net loss decreased by 32% and non-GAAP net loss decreased by 54%. Our second quarter results are a direct reflection of the improvements we've been making in our business. While we have work to do, we are progressing toward our primary objective of growing revenues and returning to profitability by the end of this fiscal year. I'll now turn to a brief update on the state of the business. Starting with our legacy on-premises PBX business, revenues were essentially flat quarter-over-quarter. That being said, we do expect to see gradual declines in this business, given our focus on our new cloud-based UCaaS, Unified Communications as a Service, and CCaaS, Contact Center as a Service, solutions going forward. Regarding those new UCaaS and CCaaS solutions, revenues are growing quarter-over-quarter. However, those revenues are not yet to the point at which they can replace the declining revenue from our legacy products. We are expecting that situation to improve over the course of the next several quarters as we continue to deploy more customers on the new platforms. Moving to Fiserv. Fiscal Q2 revenues increased by 3% compared to fiscal Q1. And next month, after a lengthy planning process, Fiserv will begin migrating their legacy hosted PBX and contact center customers to our new UCaaS and CCaaS solutions. As those customers adopt the new digital media capabilities in the FrontStage CCaaS platform, we will begin to see incremental revenue contributions. Following this, in our fiscal fourth quarter, Fiserv will commence a soft launch of the new conversational AI IVR solution. A full product launch is planned for October of this year. Regarding our Teams solutions, quarter-over-quarter revenues declined by just over 10%. This was primarily a function of migrating customers from CoreInteract, which we are no longer selling as a voice platform to the new FrontStage core UCaaS platform. This resulted in the cessation of billing for CoreInteract customers while billing for FrontStage core had not yet commenced, simply because the majority of those customers migrating from CoreInteract are still in the evaluation phase for FrontStage core. However, now that FrontStage core is available for Microsoft (NASDAQ:MSFT) Teams, that issue is largely behind us, and we do expect to see FrontStage core revenue begin to build. Transitioning to our consulting services business unit, we saw a quarter-over-quarter revenue increase of approximately 15%, principally due to continued expansion of our business with Connecticut Department of Transportation, or CT DOT. We are anticipating continued growth in our services business fueled by CT DOT new custom development projects and ultimately via our planned AI-managed services offerings. Overall, we made solid progress on a number of fronts. The foundation is solidly in place. It's now time for execution and monetization. This concludes my review of the quarter. At this time, I'll turn the floor over to Joe for additional commentary. Joe?
Joe Hamblin: Thanks, Jerry. Good morning, everyone. Today marks my 71st calendar day as Altigen Technologies' Chief Digital and Transformation Officer. The last two months have been extremely active as we addressed issues impacting our product delivery and our financial performances, continuing to execute on our business transformation plans. We're laser-focused on three key areas of the operational excellence as follows. The first is the implementation of our new operational readiness plan. Our number one objective here is to achieve operational efficiencies through automation. Taking this head on, we're currently in the process of implementing a new billing system, migrating to a new more cost-effective underlying SIP Trunk provider and building a new ordering, provisioning and management portal. With these important operational business support systems, the company or excuse me without these important operational business support systems, the company cannot scale. This initiative also involves streamlining our organizational structure to better align with our business opportunities as well as topgrading our technical talent. Much of the efforts has been centered on our product development organization as we have not done a good job of delivering on our product commitments in the past. With many of these changes now being implemented, we're starting to see early indications of improvement in producing of these new initiatives. Second is our focus on driving costs out of the business. As I'm sure you will recall, during our fiscal first quarter earnings call, I provided a high-level outline of activities we would take on to reduce our OpEx by nearly $1 million in annual spend. Towards that end, in 2Q 2024, we achieved a total of $250,000 in expense reductions on an annualized basis, including headcount reductions, data center associated, data center and associated licensing consolidations and migration to a lower cost underlying SIP Trunk carrier. For the second half of the fiscal year, we are targeting another $750,000 in annualized expense reductions, targeting significant savings on our office lease expenses, additional data center consolidations and the completion of the migration of our SIP Trunks to a lower cost provider. The third of our operational readiness pillars and plan is to move products out of the development phase and into the launch phase in order to add new incremental revenue streams. This begins with growing the revenue from MaxCS customer base, which are the initial targets of our new MaxCloud UCaaS platform. MaxCloud is now ready for general availability for both Altigen and our Fiserv customers. We also plan to increase our cloud revenue velocity with sales of our new product and services solutions FrontStage for MaxCloud, FrontStage for Teams and our new Teams phone migration service, all of which are now entering the launch phase. Regarding Fiserv, we've now successfully released new speech recognition, call authentication and biometrics capabilities that will continue to ratchet up our security posture of our IVR solutions for banks and credit unions. In addition, we'll soon be introducing new text-to-speech capabilities for the IVR platform, which enables customers to interact with their bank by phone applications using common natural language transaction phrases. Both sets of solutions will be marketed to the 1,500 Fiserv customers currently using the Altigen IVR platform. It is important to note that nearly all of our current revenues come from our legacy solutions. As these solutions are fully as the new solutions are fully launched, we expect them to make the significant impact to our top line revenues. In addition, there's also a substantial opportunity for our consulting service business unit. As previously discussed, the business opportunities with our largest customer, Connecticut Department of Transportation continues to grow. In actuality, there are many more opportunities in the enterprise space to deliver technology consulting services that Altigen has yet to exploit. These include AI consulting services, application modernization, cloud migrations and related IT MSP services. As we discussed on last quarter's call, we brought in Sharique Shaikh to run the consulting services business. And we've already seen massive improvements in the process's monthly billing and new opportunities. Sharique and I spent years partnering at Sprint, T-Mobile on several large-scale strategic development solutions. Given our shared success, I'm confident that we'll continue to expand this segment of our business. I'm excited about the journey and the opportunities to drive Altigen's growth alongside this talented team and looking forward to the future. With that I'll turn it over to Carolyn for the financial review. Carolyn, take it away.
Carolyn David: Great. Thank you, Joe. For our 2024 fiscal second quarter, we reported total revenue of $3.4 million, the same for Q2 2023. Total cloud services revenue for Q2 was approximately $1.8 million, down roughly 4% compared to $1.9 million in Q2 last year. Our services revenue increased $1.2 million from $1 million in the prior year quarter, representing an increase of approximately 15%. Gross margin was 61% compared to 63% in Q2 last year. This represents a decrease of approximately 200 basis points. The decrease was primarily the result of a mix shift towards higher professional services revenue. GAAP operating expenses for the quarter totaled $2.3 million, the same for the comparable period last year. On a non-GAAP basis, operating expenses totaled approximately $2.3 million for Q2, roughly 2% higher compared to Q2 2023. GAAP net loss for Q2 was $236,000 or negative $0.01 per share compared to GAAP net loss of $140,000 or negative $0.01 per share in the prior year quarter. On a non-GAAP basis, net loss was $71,000 or negative $0.01 per share compared to non-GAAP net income of $96,000 or breakeven diluted EPS for Q2 of the prior year. Now let's turn to liquidity. We ended Q2 with $1.6 million in cash and cash equivalents, down approximately 20% compared to the preceding quarter. The decrease in cash was primarily impacted by the timing of collections of receivables. From time-to-time, we may experience routine fluctuations in our accounts receivables that may be significant in amounts. Our working capital was $1.8 million compared to $1.9 million in the prior year quarter, representing a decrease of roughly 5%. With that, this concludes the financial summary. I will now turn the call back over to Jerry. Jerry?
Jeremiah Fleming: Okay. Thanks again, Carolyn. We are continuing down the path of transforming Altigen from a PBX company to a true technology solutions provider. The many improvements we've made in the business are a testament to our progress. Now at this time, I'll provide a brief update regarding our new AI initiatives on the product road map. As discussed earlier, we are in the final stages of adding conversational AI to the current interactive voice response, or IVR, platform sold by Fiserv. This new fee-based solution will be offered by Fiserv to its bank and credit union customers using the Altigen IVR starting in October. While it's difficult to project the adoption rate, we do know that our average revenue will be between $500 and $1,000 per month for each of the 1,500 current customers. Depending on the adoption and how quickly that goes, this alone has the potential to double Altigen's revenues. We also have a number of new and exciting AI solutions in our development pipeline, which will be marketed under the brand name Core Insights. There will be four distinct versions of Core Insights, each offering a set of AI-based dashboards, providing business executives with previously unavailable insights into customer transactions, intents and behaviors. The first is Core Insights IVR, enabling financial institutions to optimize their IVR-based customer service capabilities. Next up will be Core Insights Web, which allows organizations to analyze their webchat customer interactions to improve customer service as well as customer conversions. Following that is Core Insights CCE standing for Contact Center Edition, which analyzes customer conversations with live contact center agents to improve both agent performance and customer service. Last but not least, will be Core Insights CRA, which uses AI to process call recordings in order to identify customer sentiment, customer intent and overall customer satisfaction. Each of these Core Insight solutions will initially target Fiserv's bank and credit union customers, all 5,000, leveraging the integrations that we've built for the Fiserv core processor applications, which automate the operations of financial institutions. Now in addition to the Core Insights application, we're close to releasing a customer prototype of our new AI-based automated web chat solution, which we're going to call CoreInteract AI. Using intelligent chatbot technology and delivered as a managed service, we will first target all banks and credit unions as we have a large base of customers and the deep industry expertise required to build and maintain knowledge bases for financial institutions. Our plans are to roll these solutions out over the course of the next six to nine months. As is the case for the new solutions Joe discussed, we expect the new AI solutions to also add substantial new incremental monthly revenue as they become available. On that note, I'll now conclude my session and turn the call back to the operator for questions. Operator?
Operator: Thank you. At this time, we will be conducting our question-and-answer session. [Operator Instructions] Okay. As we have no questions on the lines at this time, I will hand it back to Mr. Fleming for any closing remarks you may have.
Jeremiah Fleming: Okay. Thanks, operator, and thank you, everyone, for participating in the call today. We look forward to updating you on our next quarterly call, which will be towards the end of July. Thank you very much.
Carolyn David: Thank you, everyone.
Operator: Thank you. This concludes today's conference call and you may disconnect your lines at this time. We thank you for your participation.
End of Q&A:
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