Altigen Communications, Inc.

Jerry Fleming - President & CEO Phil McDermott - CFO

Harris Berenholz - Carpe Diem Advisors Mark Fitzer - Private Investor

Okay, thank you. Well, good afternoon, everyone, and thank you for joining us today for AltiGen Communications first quarter fiscal 2015 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 2015 first quarter ended December 31, 2014.

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 one 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 risks and uncertainties that pertain to our business.

We refer you to the documents the company filed periodically with the OTCQX over-the-counter market, specifically the company's audited annual report for the fiscal year ended September 30, 2014, 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. And with that said, I will now turn the call over to Jerry Fleming, President and CEO of AltiGen.

Jerry?

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

Earlier today, we reported our fiscal 2015 first quarter results. For today’s results and going forward we will be reporting results for the parent company only as continuing operations.

In the first quarter, we recorded $2.6 million in revenue from our continuing operation, a 7% increase compared to the $2.5 million recorded in the prior quarter. Our first quarter net income of $420,000 compares to the previous quarter net income of $146,000.

The quarter-over-quarter increases in both revenue and margins, which we'll talk about, were primarily a result of increased sales of our MaxCS all software IP-PBX platform along with continued growth in the delivery of MaxCS on a software-as-a-service or SaaS model. The results also reflect a decreasing contribution from our hardware products, which we'll discuss later.

As discussed in prior calls, AltiGen has been working hard to transition to cloud business model. For our cloud business, we have two distinct delivery models.

The first is based on the AltiGen Cloud in which our MaxCS IP-PBX software is deployed in our datacenter and delivers a monthly SaaS subscription service. Second, we also license our MaxCS software in a SaaS basis to third party managed service providers who deploy MaxCS in their clouds and deliver a host of IP-PBX service to their customers.

Currently, we have more than 3,500 subscribers live on the AltiGen Cloud and third party-hosted service provider cloud platforms. AltiGen also recently announced the new SIP trunk internet based VoIP service.

This service which routes calls over the Internet is much more cost effective versus routing calls over traditional fixed telephone lines. Our SIP service is now available to be filled with AltiGen Cloud solution and premise-based MaxCS IP-PBX systems.

As previously discussed, AltiGen has been migrating away from dependencies on proprietary hardware technologies which includes servers, telephony boards and telephone. The new all software version of our MaxCS IP-PBX platform now runs on standard Intel servers including full support for virtualization technologies such as VMware and Microsoft Hyper-V.

Telephony boards, which have historically been used to connect MaxCS to fixed telephone line companies, are no longer required. Finally, we now have full support for polycoms, desktop IP telephones allowing our customers to choose these devices instead of AltiGen's proprietary IP phones.

During the transition phase from hardware to software, we will experience an impact on top line revenue as AltiGen proprietary hardware is replaced by industry standard hardware products. However, this model will also allow us to improve our margins by shifting revenue from our hardware to software licenses which are required to enable the functionality of AltiGen Solutions with third party hardware products.

Working together with our AltiGen business partners we'll continue to target new and existing customers in order to migrate them to our MaxCS private cloud offering. We further plan to recruit new MaxCS hosted service providers in order to further expand our market reach.

Finally, we'll also continue to expand sales of our new SIP communication service to both premise and cloud customers. As we continue to execute on these business initiatives, we do expect to see growth in both revenue and profitability.

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

Thanks, Jerry. Revenue for fiscal 2015 first quarter was $2.6 million compared to $2.5 million in the preceding quarter.

We recorded revenue of approximately $1 million per quarter, the same as the previous quarter for our software support program. Our differed revenue for this recurring revenue stream as of December 31, 2014 was $2 million, down from $2.1 million in the previous quarter but up from $1.9 million in the same quarter last year.

Gross margin for the fourth quarter at 79.8% was up from 61.6% for the preceding quarter. The main reason is we experienced an increase in software transactions in the current quarter while last quarter the gross margin was suppressed by our reserve of $285,000 for excess iFusion smartphone inventory.

Operating expenses at $1.7 million for this quarter was the same as the previous quarter. Net income for the first quarter was $420,000 or $0.02 per fully diluted share compared to a net income of $146,000 or $0.01 per fully diluted share in the preceding quarter.

These results reflect the effects FASB 123R expensing of share based compensation in the amount of $15,000 and $28,000 respectively. In looking at the balance sheet, our cash position including short-term investments at $4.1 million at December 31, 2014 compares to $3.8 million last quarter.

Inventories at $0.4 million were down from $0.5 million for the preceding quarter, while net accounts receivable of $0.5 million was the same as the preceding quarter, while DSO remained constant at 17 days for both quarters. And with, that I'll now turn the call back to Jerry.

Okay. Thanks, Phil.

And now I apologize on my behalf and it’s a little bit too, I think we are stumbling over some big numbers reporting profitability; we're not used to that. So we're certainly pleased to see these numbers.

And this first quarter was an important milestone for us as we were able to generate revenue growth and more importantly do so on a profitable basis. So we believe we are gaining traction in the sales of our new all software solution both on the on premise version and in the cloud, and certainly our plan is to continue to focus on the areas of success that we've experienced, to continue to work close with our business partners to increase their contributions both premise and cloud, and finally to continue driving software and recurring revenue.

So in order to address any questions regarding the business I'll now turn the call back over to the operator. Operator?

Hi there. Great quarter, good to see the progress that you're making; keep up the good work.

Thank you.

Let me understand this now. You talk about $1 million of software support.

Does that mean the remainder of the $2.6 million is hardware or is there other software business in there as well?

Well the $1 million is for our recurring software support program. The difference between that and the $2.6 million contains hardware and sales amongst other things.

So the $1.6 million is a combination of all the products we sell.

The new products, new cloud software all that, can you give us a sense of how much that amounted to in the quarter?

Yes. Hi Harris, it's Jerry.

So we are not currently looking at that as we're ramping that piece of the business up, but it's certainly a growing piece, it's probably not a material significant number at the moment, but I think it will be in a quarter or two.

Yes, good quarter guys, very impressed with that. I just wanted to know if there is a target for revenue growth that we should focus on going forward in the year for the next couple of quarters?

We’ve traditionally not provided any guidance of any kind going forward. One of the reason is we’ve got a short operating history here and the last we've had profit for the last two quarters.

So we’re cautiously optimistic that the future is going to continue to do well but again it's kind of premature for us to get used to reporting profits back-to-back, so hopefully we’ll be able to continue with this trend.

Okay, I'll go ahead and take back over, operator, thank you. So looks like there are no further questions, so thank you again everyone for participating and we certainly look forward to updating you on our next quarterly call.