Altigen Communications, Inc.

Jerry Fleming - President and Chief Executive Officer Phil McDermott - Chief Financial Officer

Good afternoon, everyone, and thank you for joining us today for AltiGen Communications’ second 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 second quarter ended March 31, 2015. 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 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 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 statements 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.

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 second quarter results for today's results and going forward we will be reporting results for the parent company only as continuing operations. In the second quarter, we recorded $2.5 million in revenue from our continuing operations, a 5% increase compared to $2.4 million recorded in the same quarter last fiscal year.

Our second quarter net income of $107,000 compared to a net loss of $84,000 in the same period a year ago. The increases in both revenue and net income were attributable to sales of our MaxCS all software, IP-PBX platform along with continued growth in our software-as-a-service or SaaS model.

As we discussed on prior calls, AltiGen has been transitioning from a premise based or a cloud based business model. We have two distinct delivery models based on Saas.

First is the AltiGen Cloud with the MaxCS IP-PBX software deployed in the AltiGen Cloud and delivered as the monthly Saas subscription service. The second is that we licensed the MaxCS IP-PBX Software on the SaaS basis to third party Managed Service Providers or MSPs who deploy MaxCS in their clouds and deliver that as a hosted web service to their customers.

We are now closing in on 5,000 combined subscribers on the AltiGen Cloud and third party hosted service provider clouds. As we previously discussed, AltiGen has been migrating away from dependencies and proprietary hardware technologies, which includes servers, telephony boards, and telephones.

During the transition phase from hardware to software, we will continue to experience an impact on top line revenue as AltiGen proprietary hardware is replaced by industry standard software products. As result of the shifting of revenue from AltiGen hardware products to AltiGen software licenses required to enable that functionality of the third party hardware products, our margins will remain higher than we've historically experienced.

For example, in the second fiscal quarter, we actually sold 21% fewer AltiGen telephones compared to the same quarter a year ago due to our transition to industry standard Polycom phones. This obviously impacts top line revenue, but also results in much higher gross margins.

Our AltiGen business partners are also making the shift from upfront hardware and software to recurring revenue model driven by AltiGen Cloud Solutions. As our partners continue to make this transition, we do expect to see continued contribution from AltiGen Cloud and SaaS Solutions.

In addition, we are continuing to recruit new managed service provider organizations with the objective of this MSPs delivering AltiGen Solutions to their customers based on our monthly SaaS licensing model. We also plan to continue to expand the sales of our new sub communication service to both premise and cloud customers.

So with that, I'll now turn the call over to Phil. Phil?

Thanks, Jerry. As a reminder, we are reporting as a standalone US company.

Revenues for fiscal 2015 second quarter was $2.5 million compared to $2.6 million the preceding quarter. We recorded revenue of approximately $1 million for the quarter, the same as the previous quarter for our software support program.

Our deferred revenue for this recurring revenue stream as of March 31, 2015, was $1.8 million down from $2 million from the previous quarter and down from $1.9 million the same quarter last year. Gross margin for the second quarter of 80.1% were up slightly from 79.8% for the preceding quarter.

Operating expenses at $1.9 million for this quarter are up from last quarter of $1.7 million. Net income for the second quarter was $107,000 or $0.00 per share compared to a net income of $420,000 or $0.02 per share, per fully diluted share.

In the preceding quarter, these results reflected the effects of FASB 123R expensing of share based compensation in the amount of $255,000 and $15,000 respectively. The increase in FASB 123R is due to new option issued to employees and Directors of the company.

This is a GAAP requirement, and it has no impact on the company's cash. Looking at the balance sheet, our cash position including short-term investments at $4.4 million as of March 31, 2015 compared to $4.1 million last quarter.

Inventories at $0.4 million were the same as the preceding quarter. Net accounts receivable at $0.4 million was down slightly from the preceding quarter of $0.5 million, while DSO at 12 days was lower than the previous quarter of 17 days.

And with, that I'll now turn the call back to Jerry.

Thanks, again. Phil.

Our second fiscal quarter was the third consecutive quarter in which AltiGen recorded a profit, which I believe is a first in the history of the company. Our plan is to continue to focus building a recurring revenue working closely with our business partners to migrate our existing customers to the AltiGen Cloud which securing new cloud and SaaS customers.

In order to address any questions, I'm now going to turn the call back over to the operator. Operator?

Yes, thank you, operator and so since there are no questions, I'll go ahead and officially conclude the call. Thank you for your participation everyone and we look forward to updating you on our next quarterly call.