Altigen Communications, Inc. (ATGN) Earnings Call Transcript

Greetings. Welcome to the Altigen Technologies Third Quarter and Fiscal Year 2026 Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Corey, our AI agent. You may begin.

[AI Agent] Good afternoon, and welcome to the Altigen Technologies Fiscal Third Quarter 2026 Earnings Call. My name is Corey, and I am Altigen's AI developed communications agent, built on the same core Interact AI platform that powers Altigen's customer engagement solutions. I am a fitting demonstration of what we're building. Before we get started, let me cover a few housekeeping items. This call is being recorded and will be available for replay on the Investor Relations section of Altigen's website at altigen.com. A copy of today's prepared remarks will be made available following the conclusion of this call. This replay will be available 1 hour after this call's completion and remain in effect for 90 days. At this time, I'd like to read Altigen's safe harbor statement. Certain statements made during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements regarding Altigen's business strategy, expected financial performance, product road map, customer pipeline and market opportunities. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. These risks include, but are not limited to, dependence on a limited number of customers and partners, rapid technological change in the communications and AI markets, competition from companies with significantly greater resources, Altigen's ability to develop, market and deliver new and enhanced products and services, the company's reliance on third-party vendors and platform partners and general economic conditions. Altigen cautions that these factors are not exhaustive. Additional risks and uncertainties are described in Altigen's most recent filings with the OTCQB, including its annual report on Form 10-K for the fiscal year ended September 30, 2025. In addition, during today's call, we will also be referring to certain non-GAAP financial measures such as adjusted EBITDA. These non-GAAP measures are not superior to or a replacement for the comparable GAAP measures, but we believe these measures help gain a more complete understanding of our results. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today's date. Altigen undertakes no obligation to update any forward-looking statements to reflect new information, future events or otherwise. Thank you. Joining us today is Jerry Fleming, Chief Executive Officer; Joe Hamblin, President and Chief Operating Officer; and Gary Stone, Chief Financial Officer. With that, I'll turn the call over to Jerry.

Thank you, Cory, and good afternoon, everyone. Thanks for joining us for today's call. Earlier today, Altigen reported third quarter fiscal 2026 revenue of $3 million our ninth consecutive profitable quarter, which demonstrates the financial discipline we've maintained while transforming our business. Today, I'll discuss our strategic direction, our expanding solutions portfolio and business growth opportunities. Joe will follow with a business and operational update, then Gary will come on with a detailed review of our financial results. So let me begin with the quarter's most important development. Newly contracted cloud revenue exceeded the cloud revenue loss through our legacy customer churn. This is a critical inflection point for Altigen. During the company's transformation initiatives, churn from our legacy business outpaced revenue gains from our new cloud solutions. That equation is now beginning to change. We believe most of the legacy churn is behind us, positioning Altigen to move from managing a revenue transition to generating sustainable revenue growth. Our new solutions are gaining traction. Our average revenue per customer continues to grow, and our revenue mix is increasingly shifting towards larger strategic opportunities. In short, our transformation efforts are now beginning to yield results. The key strategic element of our business transformation has been our focus on building all new cloud-native AI-powered customer engagement solutions. These solutions, which target midsized enterprise organizations, combine AI-first customer service, AI-enabled contact center and AI-driven customer analytics into an integrated customer engagement suite. CornerAct is our AI first virtual agent customer service platform. As the enterprise digital front door, CornerAct engages customers 24 hours a day across voice and digital channels resolving the majority of issues without ever needing to engage a live agent. Our objective is not to simply create a better chatbot, is to provide a first contact resolution solution for our customers, any customer, any communications channel any time of day. In some circumstances, human assistance is inevitable. In these instances, Cornec seamlessly transfers the customer, along with the full context of the conversation to core engage our Microsoft Teams based contact center solution. CoreEngage picks up where Cornec leaves off, allowing live agents to efficiently and cost-effectively manage voice and digital customer interactions within their familiar Microsoft Teams environment, resulting in higher employee productivity, increased leverage of an organization's investment in Microsoft Technologies and lower operating costs. The third and final component to Altigen's new customer engagement suite is CoreInsights, which analyzes customer interaction and transactional data to create a complete 360-degree view of the customer. CoreInsights further applies AI to identify trends, detect issues and recommend actions, turning customer interactions into intelligence executives can use to make better informed decisions to improve business outcomes. Together, these solutions create a complete customer engagement platform powered by AI. With Cornec utilizing AI to resolve customer issues, CoreEngage empowering live agents with AI customer assistance and CoreInsights transforming every customer interaction into actionable business intelligence. The new platform designed for mid-market and enterprise organizations enables us to secure customers that have larger contract values, longer retention periods and significantly greater expansion potential than our historical small business customer base. These dynamics are changing the economics of Altigen's business, resulting in a stronger cloud business model, improved operating leverage and more sustainable long-term growth. AI is also creating opportunities for Altigen's Consulting Services division, ACS. Midsize and enterprise organizations are increasingly evaluating AI to automate processes, improve customer engagement and reduce costs, but they often lack the in-house expertise or internal resources to deploy a successful AI project. ACS assist those customers in identifying AI projects having the highest ROI potential than designs, deploys and managing -- manages the AI solution for that customer. Many of these AI projects are done in conjunction with our customer engagement solutions, enabling Altigen to deliver real-world AI solutions that most of our competitors are simply not equipped to provide. Today, Altigen is fundamentally different from the company we were several years ago. We have moved beyond our legacy identity as a communications technology provider. We are building an integrated AI-powered customer engagement company that helps organizations serve customers more effectively, automate complex transactions, unlock customer intelligence and operate more efficiently. We've also remained consistently profitable while investing in that future, which we see as very bright. With that, I'll turn the call over to Joe for his business and operational update. Joe?

All right. Thank you, Jerry, and good afternoon, everyone. I'd like to provide an update on the progress we're making across the business. from our Consulting Services organization and the investments we've made and strengthen our operational foundation, to the traction that we're seeing across the cloud platform and existing customer base, along with our strategic partnerships. Taken together, I believe these areas demonstrate how the investments we've made over the last 2 years are beginning to position Altigen for our next phase of growth. Let me begin with our consulting business. Altigen Consulting Services continues to be an important part and stable part of our business. During the quarter, we completed our annual consulting planning process with the Connecticut Department of Transportation, establishing our scope of work for the upcoming year. This continues a long-standing relationship and reflects the confidence CT places in our team to deliver and support the mission-critical solutions we have. We also successfully completed our first major development project for one of our newest regulated industry customers. The solution was delivered on time, on budget and has now transitioned into an ongoing support relationship. These engagements demonstrate the strength of our consulting model, maintaining and expanding long-term strategic relationships while applying our development expertise to win new customers. More importantly, they demonstrate our ability to design, build, deploy and support enterprise-grade solutions that solve real business problems. Our focus now is to replicate that success with additional enterprise and public sector customers. Over the last 2 years, we've invested heavily in strengthening our Altigen's operational foundation. Many of these investments are immediately visible in our financial results, but they are essential to building a company that can scale efficiently as we grow. During the quarter, we completed and launched CoreManage, our next-generation customer management portal, replacing our legacy portal. The customer migrations are now underway. Our SOC2 certification continues through the audit monitoring process. Once complete, we'll remove an important barrier we encounter with customers operating in highly regulated industries, particularly financial services and health care. We're also developing CoreInteract AI studio, which will allow us to integrate solutions from multiple AI providers through a common architecture. Rather than tying Altigen to a single AI technology or provider, we're building an environment that gives us the flexibility to adopt new AI capabilities as the market continues to evolve. On the infrastructure side, we're deploying a new geo-redundant SBC environment that will allow us to leverage multiple Tier 1 and Tier 2 carriers, beyond improving resiliency and give us greater carrier flexibility, we expect this initiative to reduce our operating costs by approximately $10,000 a month once we're fully implemented. None of these projects generate headlines individually. Collectively, however, they create an operational and technology foundation we need to scale the business while continuing to deliver the level of customer experience our clients expect. We're beginning to see the benefit of these investments in our cloud business, where CoreEngage continues to gain momentum. We are adding new customers on a consistent basis. But what is particularly encouraging is the size and the complexity of the opportunities we're now winning. During the quarter, we signed the largest cloud customer in Altigen's history. This is an important milestone for us, not simply because of the size of the engagement, but because it demonstrates our ability to compete and win large enterprise opportunities. The profile of the new customers is changing. We are increasingly engaging with larger organizations that have more complex requirements, deeper Microsoft team environments and the need to integrate communications, customer engagement and AI capabilities. Simply put, the platform is gaining traction. We also continue to see meaningful opportunity with our existing customer base. Our MAX Cloud, MaxCS customers represent a well-established installed base with a long-standing Altigen relationships. As we continue to transition customers from our legacy premise solutions to our cloud platform, we have the opportunity to expand recurring revenue while strengthening those relationships. Importantly, the opportunity extends beyond cloud migrations. Our existing customer base also provides a natural path to introduce CoreInteract and our AI studio capabilities, creating additional opportunities to expand the value we deliver to those customers over time. We believe our installed base represents an important and efficient source of organic growth as we continue to expand our cloud and AI portfolio. I'd like to also spend a moment discussing Fiserv. We continue to believe this represents 1 of the most strategic opportunities for Altigen. During the quarter, Fiserv approved our AI, IVR enhancements for general availability. We also received approval to begin QA testing for our new analytics platform, CoreInsights. Both solutions provide opportunities to drive incremental revenue across our existing Fiserv customer relationships. These approvals are significant because of the rigorous certification process required within the Fiserv ecosystem. We also now participate in regular sales engagement sessions with the Fiserv team, reflecting a much closer go-to-market relationship than we've had historically. Next week, we're participating in the Fiserv Customer Forum, expected to reach approximately 4,000 banking executives. Again, another example of how we are strengthening our go-to-market partnership -- go-to-market partnerships. This represents 1 of the largest targeted marketing opportunities we've had within the financial services market, and our sales organization is working closely with Fiserv to capitalize on that opportunity. As we move into the fourth quarter, our priorities remain straightforward, continue growing recurring revenue, expand customer adoption of CoreEngage and CoreInteract, leverage our Fiserv relationship and continue investing in AI-powered solutions that solve meaningful customer problems. For the past 2 years, we've been focused on building the company we want Altigen to become. We've modernized our infrastructure, strengthened our operational discipline, improved our delivery capabilities and positioned ourselves to compete for larger enterprise opportunities. While we still have a great deal of work ahead, the progress we're seeing provides encouraging evidence that these investments are beginning to translate into increased customer adoption, a growing recurring revenue opportunity and a stronger competitive position. We're encouraged by the progress we're making and excited about the opportunities ahead. With that, I'll turn the call over to Gary to discuss the financial results and outlook. Gary?

Yes. Thank you, Joe. For our 2026 fiscal third quarter, which is April to June, we reported total revenue of $3 million with GAAP net income of $15,000 or $0.00 per share and non-GAAP net income of $190,000 or $0.01 per share. That compares to the prior year's quarter revenue of $3.5 million with GAAP net income of $110,000 and also $0.00 per share, and non-GAAP net income of $350,000 or $0.01 per share. Total Cloud Services for the third quarter was approximately $1.4 million, down 18% from the $1.7 million last year. Our services and other revenue was approximately $1.5 million, down 8% from the $1.7 million last year. Gross margin was 58%, down from 63% last year, impacted by lower revenue and increased professional service costs associated with new project work requiring additional upfront resources. GAAP operating expenses for the quarter totaled $1.7 million, reflecting an 18% decrease from the $2.1 million in the same period last year and the main reason why we've been able to remain profitable. Looking at our liquidity, we closed out the quarter with $3.4 million in cash and cash equivalents, up from $2.75 million last September 30, 2025. Working capital was $3.2 million compared to $2.9 million reported at the end of September. Our EBITDA adjusted for legal, severance and other onetime costs was $423,000 compared to $645,000 in the prior year. Now I'll turn the call back over to Jerry for our concluding remarks. Jerry?